Rexford Industrial Realty, Inc. (REXR) Earnings & Analysis

Latest quarter

Rexford reported third-quarter revenue of $239.1 million, above the $232.4 million consensus. Adjusted EPS was $0.60, matching the consensus. Revenue declined from $253.2 million a year earlier, while diluted EPS fell to $0.07 from $0.37.

The filing said total portfolio rental income fell $10.9 million, or 4.4%, from a year earlier. It attributed part of the decline in rental revenue to property dispositions, while same-property rental revenue decreased because of items including higher bad-debt reserves and lower weighted-average occupancy. Interest income also fell as the average cash balance invested in money market accounts decreased.

Rexford recorded $71.8 million in real estate impairment charges, primarily related to write-downs on properties disposed of and changed assumptions about holding periods for properties identified for disposition. The company reported an operating margin of 39.4%, compared with 37.2% a year earlier, and free cash flow of $95.7 million, compared with $60.5 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Laura Clark said leasing accelerated during the quarter, with more than 3.7 million square feet executed and same-property occupancy rising by 200 basis points sequentially. She said the Southern California industrial market recorded a second consecutive quarter of positive net absorption, while market rents increased marginally.

Asked about tenant demand, COO John Nahas said light and advanced manufacturing accounted for about a third of quarterly leasing, with logistics, distribution and warehouse uses making up another third. He said “demand and the decision-making kind of comes in waves,” but added that tenants had recently become more decisive. In the fourth quarter, Nahas said tenant activity had remained similar to the third-quarter level, including at repositioning and development projects.

On pricing, CFO Michael Fitzmaurice said leases signed at the market peak would affect future renewals. He said “we do expect cash re-leasing spreads to average in the negative low to mid teens area” over the next couple of years, assuming flat market rents. Fitzmaurice said property dispositions had improved that expectation by about 200 basis points.

Clark said Rexford completed a $1.2 billion portfolio sale during the quarter as part of its $2 billion realignment initiative. She said the company had completed $1.5 billion of dispositions year to date, with most of the remaining $500 million expected to be under contract or complete by year-end. Asked about pricing for the remaining assets, Clark said she expected it to be roughly in line with the portfolio transaction, while noting that higher Treasury rates were affecting some buyers’ financing costs.

Fitzmaurice said Rexford used proceeds to reduce debt and repurchase shares, and had repaid $425 million of its 2027 maturities. Clark said internal repositioning and development opportunities and share repurchases currently competed for capital with acquisitions.

Guidance

Fitzmaurice said Rexford raised its full-year core FFO per share guidance to $2.41 to $2.44, citing better-than-expected leasing and lower anticipated bad debt. He said the company also raised its average same-property occupancy outlook to 95.9% and increased its same-property NOI growth outlook at the midpoint on both a cash and net effective basis.

Rexford’s release projected cash NOI growth of 0.25% to 0.75% and net effective NOI growth of −0.25% to 0.25%. It also projected a net loss per diluted share of −$1.55 to −$1.52.