Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rexford Industrial Realty Inc (REXR, Financial) achieved strong operating results with 2.3 million square feet of leasing activity, generating leasing spreads of 68% on a net effective basis and 49% on a cash basis.
- The company's same property portfolio occupancy increased by 70 basis points to 97.3%, demonstrating strong demand and effective property management.
- Consolidated net operating income was up 21%, and FFO per share increased by 11% compared to the prior year quarter, indicating robust financial performance.
- Rexford Industrial Realty Inc (REXR) completed $170 million of investments during the quarter, generating an aggregate initial yield of 5.8% and a projected unlevered stabilized yield of 6.1% on total cost.
- The company has a substantial forward internal growth opportunity, expecting cash NOI to increase by $229 million or 35% over the next three years, driven significantly by value-add property improvements, repositioning, and redevelopment.
Negative Points
- The infill industrial markets are normalizing from pandemic-era levels of frenzied demand, impacted by persistently high interest rates and an uncertain domestic political environment.
- Near-term outlook for market rents may continue to reflect a nominal level of volatility, which could affect revenue stability.
- The company expects a deceleration in occupancy in the second half of the year due to a few expected move-outs, which could impact overall occupancy rates.
- There are ongoing challenges with construction delays, mainly associated with municipal and utility approvals, which could push out the timing of rent commencements for some projects.
- The market is experiencing some bid-ask spread issues, indicating that transaction volumes are fairly light, which could affect the pace of acquisitions.
Q & A Highlights
Q: Can you touch on the appetite for acquisitions today and what type of opportunities you are seeing?
A: Our appetite for acquisitions remains focused on quality investments that deliver appropriate yield profiles and contribute to NAV growth. We do not set volume targets but prioritize quality. (Michael Frankel, Co-CEO)
Q: Can you provide an update on the search for a new CFO and the newly created COO position?
A: We are excited about elevating Laura to the COO role and are in the early stages of recruiting a new CFO. We are seeing fantastic candidates and are focused on finding the best fit. (Michael Frankel, Co-CEO)
Q: How should we model the expected 50 basis points decline in occupancy in the second half of the year?
A: We do not guide on quarterly occupancy rates, but the projected decline is expected later in the third quarter and into the fourth quarter. (Laura Clark, CFO & COO)
Q: What are your views on the potential impact of increased tariffs on demand in the Southern California market?
A: We have seen a slight uptick in interest from Asian importers looking for space in anticipation of higher tariffs. Historically, tariffs have not negatively impacted demand in our markets. (Michael Frankel, Co-CEO)
Q: Can you discuss the bid-ask spreads in the market for acquisitions and the mix of off-market opportunities in your pipeline?
A: Over 90% of our transactions this year have been off-market or lightly marketed. While there is still a bid-ask spread, we have had success in closing transactions. (Howard Schwimmer, Co-CEO)
Q: What are the dynamics you are seeing in the Inland Empire West submarket, and do you feel like we are turning the corner?
A: We are seeing strong lease-up activity in the Inland Empire West submarket. Despite recent volatility, it remains a strong performing market with high rent growth since the pandemic. (Michael Frankel, Co-CEO)
Q: Are you seeing any slippage in the timing of lease-up for your redevelopment pipeline?
A: There have been some nominal changes in timing due to permitting and utility delays, but overall, the lease-up timing remains largely in line with our expectations. (Howard Schwimmer, Co-CEO)
Q: What are the drivers behind the expected $0.01 headwind in core FFO per share guidance for the second half of the year?
A: The headwind is primarily due to higher interest income in the first half and higher G&A expenses expected in the second half, including potential CFO hiring costs. (Laura Clark, CFO & COO)
Q: Are you still signing leases at a premium to market rents, and has that gap narrowed?
A: We continue to sign leases at a premium to market rents, reflecting the higher quality and functionality of our portfolio. This premium is expected to continue. (Michael Frankel, Co-CEO)
Q: What is your comfort level with the percentage of total assets allocated to value-add redevelopment?
A: We balance our investments in value-add redevelopment with core opportunities to drive consistent FFO per share growth. Our strategy focuses on raising income through redevelopment while maintaining current cash flow. (Howard Schwimmer, Co-CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
