Rexford Industrial Realty Delivers Strong Financial Performance in First Half of 2024

Rexford Industrial Realty, a leading real estate investment trust (REIT) focused on owning and operating industrial properties in Southern California, has reported impressive financial results for the first half of 2024. The company’s net income, core funds from operations (Core FFO), and net operating income (NOI) all saw significant increases compared to the same period in the prior year.

Robust Financial and Operational Highlights

Rexford Industrial’s net income attributable to common stockholders increased by 26.5% to $138.4 million for the six months ended June 30, 2024. The company’s Core FFO, a key metric used to evaluate REIT performance, grew by 19.9% to $253.1 million. Additionally, NOI, which measures the operating performance of the company’s properties, increased by 18.0% to $344.6 million.

The company’s strong operational performance is reflected in its high occupancy rates. As of June 30, 2024, the company’s total portfolio occupancy was 93.7%, and its Same Property Portfolio (properties owned for the full period) average occupancy was 97.0%. Rexford Industrial also executed a total of 243 new and renewal leases with a combined 5.5 million rentable square feet, achieving impressive leasing spreads of 35.3% on a GAAP basis and 26.3% on a cash basis.

Acquisitions and Value-Add Investments

Rexford Industrial’s growth strategy includes acquiring both stabilized properties and properties with value-add opportunities. During the first quarter of 2024, the company completed $1.1 billion in total investments, representing 49 properties with 3.2 million rentable square feet of buildings on 158 acres of land. In the second quarter, the company completed an additional $169.5 million in investments, representing three properties with 0.5 million rentable square feet of buildings on 23 acres of land.

The company also continues to focus on repositioning and redeveloping properties to enhance their functionality and value. During the first half of 2024, Rexford Industrial stabilized several repositioning projects, including properties located at 9755 Distribution Avenue, 8902-8940 Activity Road, 263-321 Gardena Boulevard, and 444 Quay Avenue. Additionally, the company’s repositioning projects at 17311 Nichols Lane, 12907 Imperial Highway, and 20851 Currier Road were 100% leased as of the end of the second quarter.

Equity Transactions and Financing

Rexford Industrial has been active in the capital markets, raising funds to support its growth initiatives. During the first quarter of 2024, the company issued 5,263,602 shares of common stock for total net proceeds of $290.2 million through various equity transactions, including the settlement of forward equity sale agreements.

In March 2024, the company also completed a public offering of 17,179,318 shares of common stock, subject to a forward equity sale agreement, for a gross offering value of $840.9 million. Subsequent to the end of the second quarter, the company partially settled this forward equity sale agreement, generating $80.0 million in net proceeds.

To further strengthen its balance sheet, Rexford Industrial issued $575.0 million in aggregate principal amount of 4.375% exchangeable senior unsecured notes due 2027 and $575.0 million in aggregate principal amount of 4.125% exchangeable senior unsecured notes due 2029. The net proceeds from these offerings, after deducting the initial purchasers’ discounts and commissions and offering expenses, were approximately $1.126 billion.

Market and Portfolio Fundamentals

Rexford Industrial’s operating results are closely tied to the performance of the Southern California industrial real estate market, which continues to exhibit strong long-term fundamentals. These high-barrier infill markets are characterized by a relative scarcity of highly functional product and limited ability to introduce new supply due to high land and redevelopment costs, as well as a dearth of developable land.

Despite some normalization of demand following the pandemic, underlying tenant demand within Rexford Industrial’s target markets remains healthy, as evidenced by strong renewal leasing activity, a dynamic regional economy, continued e-commerce activity, and further compression of delivery time-frames to consumers and businesses. The company’s portfolio, strategically located within prime infill Southern California industrial markets, has been able to outperform the broader market in terms of occupancy and rental rates.

While the company’s markets have demonstrated a high degree of resiliency, Rexford Industrial expects some ongoing volatility in the near term, primarily driven by continued inflation and heightened uncertainty in the interest rate environment, exacerbated by the current global geopolitical unrest. Market rent growth has normalized and decreased in the second quarter of 2024 in the company’s infill Southern California markets, after increasing by approximately 80% on average through the pandemic.

Factors Influencing Future Results

Rexford Industrial’s future performance will be influenced by several key factors, including its ability to continue acquiring and repositioning properties, as well as broader market conditions in its target Southern California infill markets.

The company’s growth strategy focuses on acquiring both stabilized properties and those with value-add opportunities, with a geographic focus on infill Southern California. Rexford Industrial also engages in mortgage debt investments secured by industrial-zoned property or property suitable for industrial development within these markets.

A key component of the company’s strategy is to acquire properties through off-market and lightly marketed transactions that are often operating at below-market occupancy or below-market rent at the time of acquisition, or that have near-term lease roll-over or provide opportunities to add value through functional or physical repositioning and improvements.

As of June 30, 2024, Rexford Industrial had 28 properties under current repositioning or redevelopment, six properties in the lease-up stage, and a pipeline of six additional properties for which the company anticipates beginning repositioning/redevelopment construction work between the third quarter of 2024 and the second quarter of 2025. The company estimates that it has up to approximately 5.0 million rentable square feet of additional repositioning/redevelopment projects embedded in its portfolio that are not currently listed.

The timing and effect of these repositioning and redevelopment efforts on the company’s rental revenue and occupancy levels will vary and may impact the comparison of its results of operations from period to period.

Conclusion

Rexford Industrial Realty has delivered impressive financial and operational results in the first half of 2024, driven by its strategic focus on acquiring and repositioning industrial properties in high-barrier Southern California infill markets. The company’s strong leasing activity, high occupancy rates, and value-add investments position it well for continued growth and success.

While the company expects some near-term volatility due to macroeconomic factors, Rexford Industrial’s long-term fundamentals remain robust, supported by the scarcity of industrial space and high barriers to new supply in its target markets. By leveraging its vertically integrated platform and value-add expertise, the company is well-positioned to capitalize on the opportunities in its markets and generate attractive risk-adjusted returns for its shareholders.