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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36008
Rexford Industrial Realty, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Maryland | | | 46-2024407 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | |
11620 Wilshire Boulevard, Suite 1000 | Los Angeles | California | 90025 |
(Address of principal executive offices) | | | (Zip Code) |
(310) 966-1680
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading symbols | | Name of each exchange on which registered |
Common Stock, $0.01 par value | | REXR | | New York Stock Exchange |
5.875% Series B Cumulative Redeemable Preferred Stock | | REXR-PB | | New York Stock Exchange |
5.625% Series C Cumulative Redeemable Preferred Stock | | REXR-PC | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☑ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |
| Emerging growth company | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares of common stock outstanding at October 18, 2024 was 222,391,725.
REXFORD INDUSTRIAL REALTY, INC.
QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands – except share and per share data)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
ASSETS | | | |
Land | $ | 7,703,232 | | | $ | 6,815,622 | |
Buildings and improvements | 4,416,032 | | | 3,933,379 | |
Tenant improvements | 181,785 | | | 167,251 | |
Furniture, fixtures and equipment | 132 | | | 132 | |
Construction in progress | 370,431 | | | 240,010 | |
Total real estate held for investment | 12,671,612 | | | 11,156,394 | |
Accumulated depreciation | (925,373) | | | (782,461) | |
Investments in real estate, net | 11,746,239 | | | 10,373,933 | |
Cash and cash equivalents | 61,836 | | | 33,444 | |
| | | |
Loan receivable, net | 123,129 | | | 122,784 | |
Rents and other receivables, net | 17,315 | | | 17,494 | |
Deferred rent receivable, net | 151,637 | | | 123,325 | |
Deferred leasing costs, net | 69,152 | | | 59,351 | |
Deferred loan costs, net | 2,356 | | | 3,426 | |
Acquired lease intangible assets, net | 205,510 | | | 153,670 | |
Acquired indefinite-lived intangible asset | 5,156 | | | 5,156 | |
Interest rate swap assets | 3,880 | | | 9,896 | |
Other assets | 34,092 | | | 25,225 | |
Acquisition related deposits | — | | | 2,125 | |
| | | |
| | | |
Total Assets | $ | 12,420,302 | | | $ | 10,929,829 | |
LIABILITIES & EQUITY | | | |
Liabilities | | | |
Notes payable | $ | 3,350,190 | | | $ | 2,225,914 | |
Interest rate swap liability | 295 | | | — | |
Accounts payable, accrued expenses and other liabilities | 169,084 | | | 128,842 | |
Dividends and distributions payable | 95,288 | | | 83,733 | |
Acquired lease intangible liabilities, net | 155,328 | | | 147,561 | |
Tenant security deposits | 91,983 | | | 84,872 | |
Tenant prepaid rents | 93,218 | | | 115,002 | |
| | | |
Total Liabilities | 3,955,386 | | | 2,785,924 | |
Equity | | | |
Rexford Industrial Realty, Inc. stockholders’ equity | | | |
Preferred stock, $0.01 par value per share, 10,050,000 shares authorized: | | | |
| | | |
5.875% series B cumulative redeemable preferred stock, 3,000,000 shares outstanding at September 30, 2024 and December 31, 2023 ($75,000 liquidation preference) | 72,443 | | | 72,443 | |
5.625% series C cumulative redeemable preferred stock, 3,450,000 shares outstanding at September 30, 2024 and December 31, 2023 ($86,250 liquidation preference) | 83,233 | | | 83,233 | |
Common Stock, $0.01 par value per share, 489,950,000 authorized and 219,507,345 and 212,346,450 shares outstanding at September 30, 2024 and December 31, 2023, respectively | 2,195 | | | 2,123 | |
Additional paid-in capital | 8,318,979 | | | 7,940,781 | |
Cumulative distributions in excess of earnings | (407,695) | | | (338,835) | |
Accumulated other comprehensive income | 1,474 | | | 7,172 | |
Total stockholders’ equity | 8,070,629 | | | 7,766,917 | |
Noncontrolling interests | 394,287 | | | 376,988 | |
Total Equity | 8,464,916 | | | 8,143,905 | |
Total Liabilities and Equity | $ | 12,420,302 | | | $ | 10,929,829 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands – except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
REVENUES | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Rental income | | $ | 238,396 | | | $ | 204,212 | | | $ | 682,359 | | | $ | 583,474 | |
Management and leasing services | | 156 | | | 158 | | | 444 | | | 519 | |
Interest income | | 3,291 | | | 1,029 | | | 10,709 | | | 3,408 | |
TOTAL REVENUES | | 241,843 | | | 205,399 | | | 693,512 | | | 587,401 | |
OPERATING EXPENSES | | | | | | | | |
Property expenses | | 54,867 | | | 48,085 | | | 154,254 | | | 135,220 | |
General and administrative | | 20,926 | | | 18,575 | | | 60,213 | | | 55,039 | |
Depreciation and amortization | | 69,241 | | | 60,449 | | | 203,415 | | | 178,671 | |
TOTAL OPERATING EXPENSES | | 145,034 | | | 127,109 | | | 417,882 | | | 368,930 | |
OTHER EXPENSES | | | | | | | | |
Other expenses | | 492 | | | 551 | | | 2,204 | | | 1,504 | |
Interest expense | | 27,340 | | | 15,949 | | | 70,423 | | | 46,830 | |
| | | | | | | | |
TOTAL EXPENSES | | 172,866 | | | 143,609 | | | 490,509 | | | 417,264 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Gains on sale of real estate | | 1,745 | | | — | | | 18,013 | | | 12,133 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
NET INCOME | | 70,722 | | | 61,790 | | | 221,016 | | | 182,270 | |
Less: net income attributable to noncontrolling interests | | (2,952) | | | (2,824) | | | (9,399) | | | (8,605) | |
NET INCOME ATTRIBUTABLE TO REXFORD INDUSTRIAL REALTY, INC. | | 67,770 | | | 58,966 | | | 211,617 | | | 173,665 | |
Less: preferred stock dividends | | (2,314) | | | (2,314) | | | (6,943) | | | (6,943) | |
| | | | | | | | |
Less: earnings allocated to participating securities | | (395) | | | (314) | | | (1,222) | | | (952) | |
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 65,061 | | | $ | 56,338 | | | $ | 203,452 | | | $ | 165,770 | |
Net income attributable to common stockholders per share - basic | | $ | 0.30 | | | $ | 0.27 | | | $ | 0.94 | | | $ | 0.83 | |
Net income attributable to common stockholders per share - diluted | | $ | 0.30 | | | $ | 0.27 | | | $ | 0.94 | | | $ | 0.83 | |
Weighted average shares of common stock outstanding - basic | | 218,759,979 | | | 205,279,681 | | | 216,857,153 | | | 200,455,490 | |
Weighted average shares of common stock outstanding - diluted | | 219,133,037 | | | 205,447,532 | | | 216,993,590 | | | 200,667,573 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income | $ | 70,722 | | | $ | 61,790 | | | $ | 221,016 | | | $ | 182,270 | |
Other comprehensive (loss) income: cash flow hedge adjustments | (12,789) | | | 4,760 | | | (5,901) | | | 13,313 | |
Comprehensive income | 57,933 | | | 66,550 | | | 215,115 | | | 195,583 | |
Comprehensive income attributable to noncontrolling interests | (2,523) | | | (2,967) | | | (9,196) | | | (9,023) | |
Comprehensive income attributable to Rexford Industrial Realty, Inc. | $ | 55,410 | | | $ | 63,583 | | | $ | 205,919 | | | $ | 186,560 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited and in thousands – except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of Common Shares | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at June 30, 2024 | $ | 155,676 | | | 217,840,073 | | | $ | 2,178 | | | $ | 8,235,484 | | | $ | (381,507) | | | $ | 13,834 | | | $ | 8,025,665 | | | $ | 389,511 | | | $ | 8,415,176 | |
Issuance of common stock | — | | | 1,650,916 | | | 17 | | | 80,796 | | | — | | | — | | | 80,813 | | | — | | | 80,813 | |
Offering costs | — | | | — | | | — | | | (1,008) | | | — | | | — | | | (1,008) | | | — | | | (1,008) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | (25,183) | | | — | | | 1,981 | | | — | | | — | | | 1,981 | | | 8,208 | | | 10,189 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (1,764) | | | — | | | (88) | | | — | | | — | | | (88) | | | — | | | (88) | |
Conversion of OP Units to common stock | — | | | 43,303 | | | — | | | 1,814 | | | — | | | — | | | 1,814 | | | (1,814) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 2,314 | | | — | | | — | | | — | | | 65,456 | | | — | | | 67,770 | | | 2,952 | | | 70,722 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (12,360) | | | (12,360) | | | (429) | | | (12,789) | |
| | | | | | | | | | | | | | | | | |
Preferred stock dividends ($0.367188 per series B preferred share and $0.351563 per series C preferred share) | (2,314) | | | — | | | — | | | — | | | — | | | — | | | (2,314) | | | — | | | (2,314) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (501) | | | (501) | |
Common stock dividends ($0.4175 per common share) | — | | | — | | | — | | | — | | | (91,644) | | | — | | | (91,644) | | | — | | | (91,644) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,640) | | | (3,640) | |
Balance at September 30, 2024 | $ | 155,676 | | | 219,507,345 | | | $ | 2,195 | | | $ | 8,318,979 | | | $ | (407,695) | | | $ | 1,474 | | | $ | 8,070,629 | | | $ | 394,287 | | | $ | 8,464,916 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(Unaudited and in thousands – except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of Common Shares | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Earnings | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at June 30, 2023 | $ | 155,676 | | | 201,041,741 | | | $ | 2,010 | | | $ | 7,311,458 | | | $ | (298,367) | | | $ | 16,525 | | | $ | 7,187,302 | | | $ | 367,512 | | | $ | 7,554,814 | |
| | | | | | | | | | | | | | | | | |
Issuance of common stock | — | | | 5,400,000 | | | 54 | | | 300,186 | | | — | | | — | | | 300,240 | | | — | | | 300,240 | |
Offering costs | — | | | — | | | — | | | (2,103) | | | — | | | — | | | (2,103) | | | — | | | (2,103) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | (5,946) | | | — | | | 1,887 | | | — | | | — | | | 1,887 | | | 6,554 | | | 8,441 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (2,016) | | | — | | | (103) | | | — | | | — | | | (103) | | | — | | | (103) | |
Conversion of OP Units to common stock | — | | | 50,508 | | | 1 | | | 2,029 | | | — | | | — | | | 2,030 | | | (2,030) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 2,314 | | | — | | | — | | | — | | | 56,652 | | | — | | | 58,966 | | | 2,824 | | | 61,790 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 4,617 | | | 4,617 | | | 143 | | | 4,760 | |
| | | | | | | | | | | | | | | | | |
Preferred stock dividends ($0.367188 per series B preferred share and $0.351563 per series C preferred share) | (2,314) | | | — | | | — | | | — | | | — | | | — | | | (2,314) | | | — | | | (2,314) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (802) | | | (802) | |
Common stock dividends ($0.38 per common share) | — | | | — | | | — | | | — | | | (78,465) | | | — | | | (78,465) | | | — | | | (78,465) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,954) | | | (2,954) | |
Balance at September 30, 2023 | $ | 155,676 | | | 206,484,287 | | | $ | 2,065 | | | $ | 7,613,354 | | | $ | (320,180) | | | $ | 21,142 | | | $ | 7,472,057 | | | $ | 371,247 | | | $ | 7,843,304 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(Unaudited and in thousands – except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of Common Shares | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2023 | $ | 155,676 | | | 212,346,450 | | | $ | 2,123 | | | $ | 7,940,781 | | | $ | (338,835) | | | $ | 7,172 | | | $ | 7,766,917 | | | $ | 376,988 | | | $ | 8,143,905 | |
Issuance of common stock | — | | | 6,914,518 | | | 69 | | | 371,832 | | | — | | | — | | | 371,901 | | | — | | | 371,901 | |
Offering costs | — | | | — | | | — | | | (1,980) | | | — | | | — | | | (1,980) | | | — | | | (1,980) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 187,222 | | | 2 | | | 6,395 | | | — | | | — | | | 6,397 | | | 24,702 | | | 31,099 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (41,118) | | | — | | | (2,130) | | | — | | | — | | | (2,130) | | | — | | | (2,130) | |
Conversion of OP Units to common stock | — | | | 100,273 | | | 1 | | | 4,081 | | | — | | | — | | | 4,082 | | | (4,082) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 6,943 | | | — | | | — | | | — | | | 204,674 | | | — | | | 211,617 | | | 9,399 | | | 221,016 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (5,698) | | | (5,698) | | | (203) | | | (5,901) | |
| | | | | | | | | | | | | | | | | |
Preferred stock dividends ($1.101564 per series B preferred share and $1.054689 per series C preferred share) | (6,943) | | | — | | | — | | | — | | | — | | | — | | | (6,943) | | | — | | | (6,943) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,833) | | | (1,833) | |
Common stock dividends ($1.2525 per common share) | — | | | — | | | — | | | — | | | (273,534) | | | — | | | (273,534) | | | — | | | (273,534) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,684) | | | (10,684) | |
Balance at September 30, 2024 | $ | 155,676 | | | 219,507,345 | | | $ | 2,195 | | | $ | 8,318,979 | | | $ | (407,695) | | | $ | 1,474 | | | $ | 8,070,629 | | | $ | 394,287 | | | $ | 8,464,916 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(Unaudited and in thousands – except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of Common Shares | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Earnings | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2022 | $ | 155,676 | | | 189,114,129 | | | $ | 1,891 | | | $ | 6,646,867 | | | $ | (255,743) | | | $ | 8,247 | | | $ | 6,556,938 | | | $ | 366,404 | | | $ | 6,923,342 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Issuance of common stock | — | | | 16,904,656 | | | 169 | | | 956,730 | | | — | | | — | | | 956,899 | | | — | | | 956,899 | |
Offering costs | — | | | — | | | — | | | (6,165) | | | — | | | — | | | (6,165) | | | — | | | (6,165) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 183,739 | | | 2 | | | 5,420 | | | — | | | — | | | 5,422 | | | 19,618 | | | 25,040 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (32,028) | | | — | | | (1,891) | | | — | | | — | | | (1,891) | | | — | | | (1,891) | |
Conversion of OP Units to common stock | — | | | 313,791 | | | 3 | | | 12,393 | | | — | | | — | | | 12,396 | | | (12,396) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 6,943 | | | — | | | — | | | — | | | 166,722 | | | — | | | 173,665 | | | 8,605 | | | 182,270 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 12,895 | | | 12,895 | | | 418 | | | 13,313 | |
| | | | | | | | | | | | | | | | | |
Preferred stock dividends ($1.101564 per series B preferred share and $1.054689 per series C preferred share) | (6,943) | | | — | | | — | | | — | | | — | | | — | | | (6,943) | | | — | | | (6,943) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,406) | | | (2,406) | |
Common stock dividends ($1.14 per common share) | — | | | — | | | — | | | — | | | (231,159) | | | — | | | (231,159) | | | — | | | (231,159) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,996) | | | (8,996) | |
Balance at September 30, 2023 | $ | 155,676 | | | 206,484,287 | | | $ | 2,065 | | | $ | 7,613,354 | | | $ | (320,180) | | | $ | 21,142 | | | $ | 7,472,057 | | | $ | 371,247 | | | $ | 7,843,304 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands) | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 221,016 | | | $ | 182,270 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | | |
Depreciation and amortization | 203,415 | | | 178,671 | |
Amortization of net (below) above market lease intangibles and other deferred rent on certain other below-market leases | (21,494) | | | (21,763) | |
Amortization of debt issuance costs | 3,529 | | | 2,856 | |
Amortization of discount (premium) on notes payable, net | 3,295 | | | 474 | |
Impairment of right-of-use asset | — | | | 188 | |
Accretion of net loan origination fees and costs | (345) | | | — | |
Gains on sale of real estate | (18,013) | | | (12,133) | |
Equity based compensation expense | 30,063 | | | 24,300 | |
Straight-line rent | (28,376) | | | (28,073) | |
Payments for termination/settlement of interest rate derivatives | — | | | (161) | |
Amortization related to termination/settlement of interest rate derivatives | 410 | | | 402 | |
Change in working capital components: | | | |
Rents and other receivables | 714 | | | (3,735) | |
Deferred leasing costs | (22,244) | | | (18,579) | |
Other assets | (6,082) | | | (7,308) | |
| | | |
Accounts payable, accrued expenses and other liabilities | 25,342 | | | 32,263 | |
Tenant security deposits | (1,144) | | | 2,122 | |
Tenant prepaid rents | (27,425) | | | (20,233) | |
Net cash provided by operating activities | 362,661 | | | 311,561 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Acquisition of investments in real estate | (1,297,539) | | | (1,121,774) | |
Capital expenditures | (285,015) | | | (167,245) | |
Return of (payments for) deposits on real estate acquisitions, net | 2,125 | | | — | |
| | | |
| | | |
| | | |
Proceeds from sale of real estate | 41,286 | | | 16,239 | |
| | | |
Net cash used in investing activities | (1,539,143) | | | (1,272,780) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| | | |
| | | |
Issuance of common stock, net | 369,921 | | | 950,734 | |
Proceeds from borrowings | 1,129,875 | | | 646,925 | |
Repayment of borrowings | (6,751) | | | (354,911) | |
Payment of debt issuance costs | (4,602) | | | (3,042) | |
| | | |
Dividends paid to preferred stockholders | (6,943) | | | (6,943) | |
Dividends paid to common stockholders | (262,582) | | | (212,265) | |
Distributions paid to common unitholders | (10,085) | | | (8,504) | |
Distributions paid to preferred unitholders | (1,829) | | | (2,402) | |
Repurchase of common shares to satisfy employee tax withholding requirements | (2,130) | | | (1,891) | |
Net cash provided by financing activities | 1,204,874 | | | 1,007,701 | |
Increase in cash, cash equivalents and restricted cash | 28,392 | | | 46,482 | |
Cash and cash equivalents, beginning of period | 33,444 | | | 36,786 | |
Cash and cash equivalents, end of period | $ | 61,836 | | | $ | 83,268 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest (net of capitalized interest of $23,853 and $16,060 for the nine months ended September 30, 2024 and 2023, respectively) | $ | 59,321 | | | $ | 39,826 | |
Supplemental disclosure of noncash transactions: | | | |
| | | |
Operating lease right-of-use assets obtained in exchange for lease liabilities | $ | 2,084 | | | $ | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
Accrual for capital expenditures | $ | 68,907 | | | $ | 53,249 | |
Accrual of dividends and distributions | $ | 95,288 | | | $ | 81,423 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service real estate investment trust (“REIT”) focused on owning and operating industrial properties in Southern California infill markets. We were formed as a Maryland corporation on January 18, 2013, and Rexford Industrial Realty, L.P. (the “Operating Partnership”), of which we are the sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling interest in our Operating Partnership and its subsidiaries, we own, manage, lease, acquire, reposition and redevelop industrial real estate principally located in Southern California infill markets, and, from time to time, acquire or provide mortgage debt secured by industrial zoned property or property suitable for industrial development. As of September 30, 2024, our consolidated portfolio consisted of 423 properties with approximately 50.1 million rentable square feet.
The terms “us,” “we,” “our,” and the “Company” as used in these financial statements refer to Rexford Industrial Realty, Inc. and, unless the context requires otherwise, its subsidiaries (including our Operating Partnership).
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
As of September 30, 2024 and December 31, 2023, and for the three and nine months ended September 30, 2024 and 2023, the financial statements presented are the consolidated financial statements of Rexford Industrial Realty, Inc. and its subsidiaries, including our Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.
Under consolidation guidance, we have determined that our Operating Partnership is a variable interest entity because the holders of limited partnership interests do not have substantive kick-out rights or participating rights. Furthermore, we are the primary beneficiary of the Operating Partnership because we have the obligation to absorb losses and the right to receive benefits from the Operating Partnership and the exclusive power to direct the activities of the Operating Partnership. As of September 30, 2024 and December 31, 2023, the assets and liabilities of the Company and the Operating Partnership are substantially the same, as the Company does not have any significant assets other than its investment in the Operating Partnership.
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) may have been condensed or omitted pursuant to SEC rules and regulations, although we believe that the disclosures are adequate to make their presentation not misleading. The accompanying unaudited financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth therein. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The interim financial statements should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 and the notes thereto.
Any references to the number of properties, buildings and square footage are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short-term maturity of these investments.
Restricted Cash
Restricted cash is generally comprised of cash proceeds from property sales that are being held by qualified intermediaries for purposes of facilitating tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”). We include restricted cash with cash and cash equivalents in the consolidated statements of cash flows and provide a reconciliation between the balance sheet and the statement of cash flows provided that we have outstanding restricted cash balances. At September 30, 2024 and December 31, 2023, we did not have restricted cash balances.
Investments in Real Estate
Acquisitions
We account for acquisitions of properties under Accounting Standards Update (“ASU”) 2017-01, Business Combinations - Clarifying the Definition of a Business, which provides a framework for determining whether transactions should be accounted for as acquisitions of assets or businesses and further revises the definition of a business. Our acquisitions of properties generally do not meet the revised definition of a business and accordingly are accounted for as asset acquisitions.
For asset acquisitions, we allocate the cost of the acquisition, which includes cash and non-cash consideration paid to the seller and associated acquisition transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis. These individual assets and liabilities typically include land, building and improvements, tenant improvements, intangible assets and liabilities related to above- and below-market leases, intangible assets related to in-place leases, and from time to time, assumed mortgage debt. As there is no measurement period concept for an asset acquisition, the allocated cost of the acquired assets is finalized in the period in which the acquisition occurs.
We determine the fair value of the tangible assets of an acquired property by valuing the property as if it was vacant. This “as-if vacant” value is estimated using an income, or discounted cash flow, approach that relies upon Level 3 inputs, which are unobservable inputs based on the Company’s assumptions with respect to the assumptions a market participant would use. These Level 3 inputs include discount rates, exit capitalization rates, market rental rates, rental growth rates and comparable sales data, including land sales, for similar properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. In determining the “as-if-vacant” value for the properties we acquired during the nine months ended September 30, 2024, we used discount rates ranging from 5.50% to 8.25% and exit capitalization rates ranging from 4.50% to 6.50%.
In determining the fair value of intangible lease assets or liabilities, we also consider Level 3 inputs. Acquired above- and below-market leases are valued based on the present value of the difference between prevailing market rental rates and the in-place rental rates measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases determined to be reasonably certain of exercise, if applicable. The estimated fair value of acquired in-place at-market tenant leases are the estimated costs that would have been incurred to lease the property to the occupancy level of the property at the date of acquisition. We consider estimated costs such as the value associated with leasing commissions, legal and other costs, as well as the estimated period of time necessary to lease such a property to its occupancy level at the time of its acquisition. In determining the fair value of acquisitions completed during the nine months ended September 30, 2024, we used an estimated average lease-up period ranging from 6 months to 15 months.
From time to time, we may engage in a sale-leaseback transaction whereby we execute a lease with the seller/tenant simultaneously with the acquisition of a property. Sale-leaseback transactions entered into at off-market terms are adjusted so that the transaction is recorded at fair value. If the purchase price is less than the fair value of the acquired property, or the present value of contractual leaseback payments is less than the present value of market rental payments, the difference is recognized as “Tenant prepaid rent” in the consolidated balance sheets and is recognized as rental income on a straight-line basis over the term of the lease.
The difference between the fair value and the face value of debt assumed, if any, in connection with an acquisition is recorded as a premium or discount and amortized to “interest expense” over the life of the debt assumed. The valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.
Demolition costs incurred in conjunction with the acquisition of real estate are capitalized as part of the cost of the acquisition if the demolition (i) is contemplated as part of the acquisition and (ii) occurs within a reasonable period of time after the acquisition. If demolition was not contemplated as part of the acquisition or the demolition does not occur within a reasonable period of time after the acquisition, the costs of the demolition are expensed as incurred.
Capitalization of Costs
We capitalize direct costs incurred in developing, renovating, rehabilitating and improving real estate assets as part of the investment basis. This includes certain general and administrative costs, including payroll, bonus and non-cash equity compensation of the personnel performing redevelopment, renovations and rehabilitation if such costs are identifiable to a specific activity to get the real estate asset ready for its intended use. During the redevelopment and construction periods of a project, we also capitalize interest, real estate taxes and insurance costs. We cease capitalization of costs upon substantial completion of the project, but no later than one year from cessation of major construction activity. If some portions of a project are substantially complete and ready for use and other portions have not yet reached that stage, we cease capitalizing costs on the completed portion of the project but continue to capitalize for the incomplete portion of the project. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred.
We capitalized interest costs of $8.6 million and $6.2 million during the three months ended September 30, 2024 and 2023, respectively, and $23.9 million and $16.1 million during the nine months ended September 30, 2024 and 2023, respectively. We capitalized real estate taxes and insurance costs aggregating $2.1 million and $1.9 million during the three months ended September 30, 2024 and 2023, respectively, and $6.5 million and $5.0 million during the nine months ended September 30, 2024 and 2023, respectively. We capitalized compensation costs for employees who provide construction services of $3.5 million and $2.8 million during the three months ended September 30, 2024 and 2023, respectively, and $10.0 million and $8.0 million during the nine months ended September 30, 2024 and 2023, respectively.
Depreciation and Amortization
Real estate, including land, building and land improvements, tenant improvements, furniture, fixtures and equipment and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization, unless circumstances indicate that the cost cannot be recovered, in which case, the carrying value of the property is reduced to estimated fair value as discussed below in our policy with regard to impairment of long-lived assets. We estimate the depreciable portion of our real estate assets and related useful lives in order to record depreciation expense.
The values allocated to buildings, site improvements, in-place lease intangibles and tenant improvements are depreciated on a straight-line basis using an estimated useful life that typically ranges from 10-30 years for buildings, 5-25 years for site improvements, and the shorter of the estimated useful life or respective lease term for in-place lease intangibles and tenant improvements.
As discussed above in—Investments in Real Estate—Acquisitions, in connection with property acquisitions, we may acquire leases with rental rates above or below the market rental rates. Such differences are recorded as an acquired lease intangible asset or liability and amortized to “rental income” over the remaining term of the related leases.
Our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate that a change in the useful life has occurred, which requires significant judgment regarding the economic obsolescence of tangible and intangible assets.
Assets Held for Sale
We classify a property as held for sale when all of the criteria set forth in the Accounting Standards Codification (“ASC”) Topic 360: Property, Plant and Equipment (“ASC 360”) have been met. The criteria are as follows: (i) management, having the authority to approve the action, commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale of the property is probable and is expected to be completed within one year; (v) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. At the time we classify a property as held for sale, we cease recording depreciation and amortization. A property classified as held for sale is measured and reported at the lower of its carrying amount or its estimated fair value less cost to sell. As of September 30, 2024 and December 31, 2023, we did not have any properties classified as held for sale.
Impairment of Long-Lived Assets
In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC 360, we assess the carrying values of our respective long-lived assets, including operating lease right-of-use assets (“ROU assets”), whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Recoverability of real estate assets and other long-lived assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows.
To review real estate assets for recoverability, we consider current market conditions as well as our intent with respect to holding or disposing of the asset. The intent with regards to the underlying assets might change as market conditions and other factors change. For office space ROU assets, the execution of a sublease where the remaining lease payments of the original office space lease exceed the sublease receipts reflects an indication of impairment which suggests the carrying value of the ROU asset may not be recoverable. Fair value is determined through various valuation techniques, including discounted cash flow models, applying a capitalization rate to estimated net operating income of a property, quoted market values and third-party appraisals, where considered necessary. The use of projected future cash flows is based on assumptions that are consistent with estimates of future expectations and the strategic plan used to manage our underlying business.
If our analysis indicates that the carrying value of the real estate asset and other long-lived assets is not recoverable on an undiscounted cash flow basis, we will recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property.
Assumptions and estimates used in the recoverability analyses for future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions or our intent with respect to our investment that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment of our real estate properties. During the three and nine months ended September 30, 2024 and 2023, there were no impairment charges recorded to the carrying value of our properties.
In connection with the early termination of a sublease for one of our office space leases in February 2023, we recorded a $0.2 million impairment charge during the first quarter of 2023 to reduce the carrying value of the related ROU asset. No such impairment charge was recorded during the three and nine months ended September 30, 2024. The impairment charge is presented in “Other expenses” in the consolidated statements of operations.
Accounting for Leases
Leases as Lessor
We evaluate new leases originated or leases assumed as part of an acquisition transaction under ASC Topic 842: Leases to determine lease classification. Generally, all of our leases have historically been classified as operating leases. A lease is classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant. This situation is met if, among other things, there is an automatic transfer of title during the lease, there is a purchase option that the tenant is reasonably certain to exercise, the lease term, including extension options that the tenant is reasonably certain to exercise, is for more than a major part of the remaining economic useful life of the asset (e.g., equal to or greater than 75%), if the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or if the asset is so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term. Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor, if applicable. As of September 30, 2024 and December 31, 2023, we did not have any leases that were classified as sales-type or financing leases under sale-leaseback rules.
Leases as a Lessee
We determine if an arrangement is a lease at inception. Operating lease ROU assets are included in “Other assets” and lease liabilities are included in “Accounts payable, accrued expenses and other liabilities” in our consolidated balance sheets. ROU assets represent our right to use, or control the use of, a specified asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is generally recognized on a straight-line basis over the term of the lease through the amortization of the ROU assets and lease liabilities. Additionally, for our operating leases, we do not separate non-lease
components, such as common area maintenance, from associated lease components. See “Note 7 – Leases” for additional lessee disclosures required under lease accounting standards.
Income Taxes
We have elected to be taxed as a REIT under the Code commencing with our initial taxable year ended December 31, 2013. To qualify as a REIT, we are required (among other things) to distribute at least 90% of our REIT taxable income to our stockholders and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we qualify for taxation as a REIT, we are generally not subject to corporate-level income tax on the earnings distributed currently to our stockholders that we derive from our activities. If we fail to qualify as a REIT in any taxable year and were unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to regular federal corporate income tax, including any applicable alternative minimum tax on our taxable income.
We own and may acquire direct or indirect interests in one or more entities that have elected or will elect to be taxed as REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to regular federal corporate income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.
We are subject to taxation by various state and local jurisdictions, including those in which we transact business or reside. Other than our Subsidiary REIT (a private REIT acquired on July 18, 2022), our non-taxable subsidiaries, including our Operating Partnership, are either partnerships or disregarded entities for federal income tax purposes. Under applicable federal and state income tax rules, the allocated share of net income or loss from disregarded entities and flow-through entities such as partnerships is reportable in the income tax returns of the respective equity holders. Our taxable REIT subsidiary is a C-corporation subject to federal and state income tax. However, it has a cumulative unrecognized net operating loss carryforward. Accordingly, no income tax provision is included in the accompanying consolidated financial statements for the three and nine months ended September 30, 2024 and 2023.
We periodically evaluate our tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of September 30, 2024, and December 31, 2023, we have not established a liability for uncertain tax positions.
Derivative Instruments and Hedging Activities
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources and duration of our debt funding and through the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing and duration of our known or expected cash payments principally related to our borrowings.
In accordance with ASC Topic 815: Derivatives and Hedging, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, and whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional value. From time to time, we also utilize cash flow hedges to lock U.S. Treasury rates in anticipation of future fixed-rate debt issuances (“treasury rate lock agreements”). The gains or losses resulting from changes in fair value of derivatives that qualify as cash flow hedges are recognized in accumulated other comprehensive income/(loss) (“AOCI”). Upon the termination of a derivative for which cash flow hedging was being applied, the balance, which was recorded in AOCI, is amortized to interest expense over the remaining contractual term of the derivative as long as the hedged forecasted transactions continue to be probable of occurring. Upon the settlement of treasury rate lock agreements, amounts remaining in AOCI are amortized through earnings over the underlying term of the hedged transaction. Cash payments made to terminate or settle interest rate derivatives are presented in cash flows provided by operating activities in the accompanying consolidated statements of cash flows, given the nature of the underlying cash flows that the derivative was hedging. See “Note 8 – Interest Rate Derivatives” for details.
Revenue Recognition
Our primary sources of income are rental income, management and leasing services, interest income and gains on sale of real estate.
Rental Income
We lease industrial space to tenants primarily under non-cancelable operating leases that generally contain provisions for minimum base rents plus reimbursement for certain operating expenses. Total minimum annual lease payments are recognized in rental income on a straight-line basis over the term of the related lease, regardless of when payments are contractually due, when collectability is probable. Rental revenue recognition commences when the tenant takes possession of or controls the physical use of the leased space. Lease termination fees, which are included in rental income, are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.
Our lease agreements with tenants generally contain provisions that require tenants to reimburse us for certain property expenses. Estimated reimbursements from tenants for these property expenses, which include real estate taxes, insurance, common area maintenance and other recoverable operating expenses, are recognized as revenues in the period that the expenses are incurred. Subsequent to year-end, we perform final reconciliations on a lease-by-lease basis and bill or credit each tenant for any cumulative annual adjustments. As the timing and pattern of revenue recognition is the same and as the lease component would be classified as an operating lease if it were accounted for separately, rents and tenant reimbursements are treated as a combined lease component and presented as a single line item “Rental income” in our consolidated statements of operations.
We record revenues and expenses on a gross basis for lessor costs (which include real estate taxes) when these costs are reimbursed to us by our tenants. Conversely, we record revenues and expenses on a net basis for lessor costs when they are paid by our tenants directly to the taxing authorities on our behalf.
Management and leasing services
We provide property management services and leasing services to related party and third-party property owners, the customer, in exchange for fees and commissions. Property management services include performing property inspections, monitoring repairs and maintenance, negotiating vendor contracts, maintaining tenant relations and providing financial and accounting oversight. For these services, we earn monthly management fees, which are based on a fixed percentage of each managed property’s monthly tenant cash receipts. We have determined that control over the services is passed to the customer simultaneously as performance occurs. Accordingly, management fee revenue is earned as the services are provided to our customers.
Leasing commissions are earned when we provide leasing services that result in an executed lease with a tenant. We have determined that control over the services is transferred to the customer upon execution of each lease agreement. We earn leasing commissions based on a fixed percentage of rental income generated for each executed lease agreement and there is no variable income component.
Gain or Loss on Sale of Real Estate
We account for dispositions of real estate properties, which are considered nonfinancial assets, in accordance with ASC Topic 610-20: Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets and recognize a gain or loss on sale of real estate upon transferring control of the nonfinancial asset to the purchaser, which is generally satisfied at the
time of sale. If we were to conduct a partial sale of real estate by transferring a controlling interest in a nonfinancial asset, while retaining a noncontrolling ownership interest, we would measure any noncontrolling interest received or retained at fair value, and recognize a full gain or loss. If we receive consideration before transferring control of a nonfinancial asset, we recognize a contract liability. If we transfer control of the asset before consideration is received, we recognize a contract asset.
When leases contain purchase options, we assess the probability that the tenant will execute the purchase option both at lease commencement and at the time the tenant communicates its intent to exercise the purchase option. If we determine the exercise of the purchase option is reasonably certain, we will account for the lease as a sales-type lease and derecognize the associated real estate assets on our balance sheet and record a gain or loss on sale of real estate.
Interest Income
Interest income on our loan receivable is recognized on an accrual basis over the life of the loan using the interest method. Loan origination fees, net of origination costs, are accreted or amortized over the term of the loan as an adjustment to interest income using the effective interest method. Generally, a loan is placed on nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Interest income recognition is suspended when loans are placed on nonaccrual status. Interest accrued, but not collected, at the date loans are placed on nonaccrual status is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, when there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Loans are restored to accrual status only when contractually current or the collection of future payments is reasonably assured.
Valuation of Operating Lease Receivables
We may be subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables, including deferred rent receivables arising from the straight-line recognition of rental income, related to our operating leases. In order to mitigate these risks, we perform credit reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired. On a quarterly basis, we perform an assessment of the collectability of operating lease receivables on a tenant-by-tenant basis, which includes reviewing the age and nature of our receivables, the payment history and financial condition of the tenant, our assessment of the tenant’s ability to meet its lease obligations and the status of negotiations of any disputes with the tenant. Any changes in the collectability assessment for an operating lease is recognized as an adjustment, which can be a reduction or increase, to rental income in the consolidated statements of operations. As a result of our quarterly collectability assessments, we recognized $0.8 million and $1.0 million as a net reduction adjustment to rental income for the three months ended September 30, 2024 and 2023, respectively, and $3.3 million and $2.6 million as a net reduction adjustment to rental income for the nine months ended September 30, 2024 and 2023, respectively, in the consolidated statements of operations.
Loan Receivable
Our loan receivable is reflected at amortized cost in the consolidated balance sheets. The amortized cost of our loan receivable is the outstanding unpaid principal balance, net of unamortized costs and fees directly associated with the origination of the loan.
Accrued interest receivable related to our loan receivable is recorded at the net amount expected to be collected within “Rents and other receivables, net” in the consolidated balance sheets.
The current expected credit losses approach under ASC Topic 326: Financial Instruments-Credit Losses requires an estimate of the credit losses expected over the life of a loan. We assess the need for an allowance for credit losses related to our loan receivable and the related interest receivable by evaluating the following: (i) asset-specific risks, which include the nature of the collateral, current loan-to-value ratio and the potential future changes in the collateral’s fair value, (ii) other relevant available information, from internal and external sources, relating to current conditions that may affect the borrower’s ability to repay the loan upon maturity, such as the borrower’s current financial condition and credit rating, and (iii) historical losses (adjusted for current conditions and reasonable and supportable forecasts) for financial assets secured with similar collateral (all taken together, the “credit loss evaluation criteria”). See “Note 5 – Loan Receivable” for details.
Deferred Leasing Costs
We capitalize the incremental direct costs of originating a lease that would not have been incurred had the lease not been executed. As a result, deferred leasing costs will generally only include third-party broker commissions.
Debt Issuance Costs
Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a reduction from the carrying value of the debt liability. This offset against the debt liability is treated similarly to a debt discount, which effectively reduces the proceeds of a borrowing. For revolving credit facility arrangements, we present debt issuance costs as an asset and amortize the cost over the term of the line of credit arrangement. See “Note 6 – Notes Payable” for details.
Equity Based Compensation
We account for equity-based compensation in accordance with ASC Topic 718: Compensation - Stock Compensation. Total compensation cost for all share-based awards is based on the estimated fair market value of the equity instrument issued on the grant date. For share-based awards that vest based solely on a service condition, we recognize compensation cost on a straight-line basis over the total requisite service period for the entire award. For share-based awards that vest based on a market condition, we recognize compensation cost on a straight-line basis over the requisite service period of each separately vesting tranche. For share-based awards that vest based on a performance condition, we recognize compensation cost based on the number of awards that are expected to vest based on the probable outcome of the performance condition. Compensation cost for these awards will be adjusted to reflect the number of awards that ultimately vest. Forfeitures are recognized in the period in which they occur. See “Note 13 – Incentive Award Plan” for details.
Equity Offerings
Underwriting commissions and offering costs incurred in connection with common stock offerings and our at-the-market equity offering programs have been reflected as a reduction of additional paid-in capital. Underwriting commissions and offering costs related to our preferred stock issuances have been reflected as a direct reduction of the preferred stock balance.
Under relevant accounting guidance, sales of our common stock under forward equity sale agreements (as discussed in “Note 12 – Equity”) are not deemed to be liabilities, and furthermore, meet the derivatives and hedging guidance scope exception to be accounted for as equity instruments based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to our own stock.
Earnings Per Share
We calculate earnings per share (“EPS”) in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Under ASC 260, unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the computation of basic EPS pursuant to the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends declared (or accumulated) and their respective participation rights in undistributed earnings.
Basic EPS is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.
Diluted EPS is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding determined for the basic EPS computation plus the potential effect of any dilutive securities including shares issuable under forward equity sale agreements and unvested share-based awards under the treasury stock method. We include unvested shares of restricted stock and unvested LTIP units in the computation of diluted EPS by using the more dilutive of the two-class method or treasury stock method. We include unvested performance units as contingently issuable shares in the computation of diluted EPS once the market criteria are met, assuming that the end of the reporting period is the end of the contingency period. In addition, we include the exchangeable notes in the computation of diluted earnings per share if the effect is dilutive. Any anti-dilutive securities are excluded from the diluted EPS calculation. See “Note 14 – Earnings Per Share” for details.
Segment Reporting
Management views the Company as a single reportable segment based on its method of internal reporting in addition to its allocation of capital and resources.
Adoption of New Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies that contractual sale
restrictions are not considered in measuring the fair value of equity securities, and requires specific disclosures for all entities with equity securities subject to a contractual sale restriction including (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. In addition, ASU 2022-03 prohibits an entity from recognizing a contractual sale as a separate unit of account. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2022-03 did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements (Issued and Not Yet Adopted)
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments in ASU 2023-07 improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses provided to the chief operating decision makers (“CODMs”), the titles and positions of the CODMs, and how the CODMs use the segment’s profit/loss measure to assess segment performance and allocate resources. In addition, entities with a single reportable segment must now provide all disclosures required by the amendments in ASU 2023-07, as well as existing segment disclosures required in Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We do not expect the adoption of ASU 2023-07 to have a material impact on our consolidated financial statements, as we anticipate the primary change will be the inclusion of additional disclosures related to our single reportable segment.
3. Investments in Real Estate
Acquisitions
The following table summarizes the wholly-owned properties we acquired during the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price(1) (in thousands) | |
5000 & 5010 Azusa Canyon Road | | Los Angeles - San Gabriel Valley | | 1/31/2024 | | 233,984 | | | 2 | | | $ | 84,000 | | |
Blackstone Industrial Assets(2) | | Various | | 3/28/2024 | | 3,008,578 | | | 48 | | | 996,800 | | |
4422 Airport Drive | | San Bernardino - Inland Empire West | | 4/5/2024 | | 88,283 | | | 1 | | | 26,725 | | |
1901 Rosslynn Avenue | | Orange County - North | | 5/10/2024 | | 278,572 | | | 1 | | | 94,250 | | |
16203-16233 Arrow Highway | | Los Angeles - San Gabriel Valley | | 5/23/2024 | | 134,542 | | | 4 | | | 48,500 | | |
950 West 190th Street | | Los Angeles - South Bay | | 7/22/2024 | | 188,545 | | | 1 | | | 41,290 | | |
12900 Alondra Boulevard | | Los Angeles - Mid-Counties | | 9/20/2024 | | 82,660 | | | 1 | | | 19,200 | | |
Total 2024 Property Acquisitions | | | | 4,015,164 | | | 58 | | | $ | 1,310,765 | | |
(1)Represents the gross contractual purchase price before certain credits, prorations, closing costs and other acquisition-related costs. Total capitalized closing costs and acquisition related costs, net of certain credits, not included in the gross contractual purchase price in the above table is approximately $1.7 million. Each acquisition was funded with available cash on hand unless otherwise noted.
(2)Represents the acquisition of 48 properties pursuant to three separate transactions with three Blackstone Real Estate entities.
The following table summarizes amounts allocated to each major class of asset and liability on a relative fair value basis for the acquisitions noted in the table above, as of the date of each acquisition (in thousands):
| | | | | | | | |
| | 2024 Acquisitions |
Assets: | | |
Land | | $ | 901,632 | |
Buildings and improvements | | 346,415 | |
Tenant improvements | | 4,215 | |
Acquired lease intangible assets(1) | | 92,349 | |
| | |
Other acquired assets(2) | | 1,884 | |
Total assets acquired | | $ | 1,346,495 | |
| | |
Liabilities: | | |
Acquired lease intangible liabilities(3) | | $ | 32,119 | |
| | |
| | |
| | |
Other assumed liabilities(2) | | 16,837 | |
Total liabilities assumed | | $ | 48,956 | |
Net assets acquired | | $ | 1,297,539 | |
(1)Acquired lease intangible assets is comprised of (i) $67.2 million of in-place lease intangibles with a weighted average amortization period of 4.3 years and (ii) $25.1 million of above-market lease intangibles with a weighted average amortization period of 4.1 years.
(2)Includes other working capital assets acquired and liabilities assumed at the time of acquisition, including prorations.
(3)Represents below-market lease intangibles with a weighted average amortization period of 11.7 years.
Dispositions
The following table summarizes information related to the properties that were sold during the nine months ended September 30, 2024: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Submarket | | Date of Disposition | | Rentable Square Feet | | Contractual Sales Price(1) (in thousands) | | Gain Recorded (in thousands) |
2360-2364 East Sturgis Road | | Ventura | | 4/16/2024 | | 49,641 | | | $ | 10,000 | | | $ | 6,261 | |
6423-6431 & 6407-6119 Alondra Boulevard | | Los Angeles - South Bay | | 5/03/2024 | | 30,224 | | | 7,600 | | | 5,077 | |
15401 Figueroa Street | | Los Angeles - South Bay | | 5/07/2024 | | 38,584 | | | 10,225 | | | 4,203 | |
8210 Haskell Avenue | | Los Angeles - San Fernando Valley | | 5/17/2024 | | 26,229 | | | 9,200 | | | 727 | |
2553 Garfield Avenue | | Los Angeles - Central | | 8/20/2024 | | 25,615 | | | 7,275 | | | 1,745 | |
Total | | | | | | 170,293 | | | $ | 44,300 | | | $ | 18,013 | |
(1)Represents the gross contractual sales price before commissions, prorations, credits and other closing costs.
4. Acquired Lease Intangibles
The following table summarizes our acquisition related intangible assets, including the value of in-place tenant leases, above-market tenant leases and a below-market ground lease, and our acquisition related intangible liabilities, including below-market tenant leases (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Acquired Lease Intangible Assets: | | | |
In-place lease intangibles | $ | 403,191 | | | $ | 338,001 | |
Accumulated amortization | (240,675) | | | (207,804) | |
In-place lease intangibles, net | $ | 162,516 | | | $ | 130,197 | |
| | | |
Above-market tenant leases | $ | 50,224 | | | $ | 25,598 | |
Accumulated amortization | (19,789) | | | (14,808) | |
Above-market tenant leases, net | $ | 30,435 | | | $ | 10,790 | |
| | | |
Below-market ground lease | $ | 12,977 | | | $ | 12,978 | |
Accumulated amortization | (418) | | | (295) | |
Below-market ground lease, net | $ | 12,559 | | | $ | 12,683 | |
Acquired lease intangible assets, net | $ | 205,510 | | | $ | 153,670 | |
| | | |
Acquired Lease Intangible Liabilities: | | | |
Below-market tenant leases | $ | (280,894) | | | $ | (249,853) | |
Accumulated amortization | 125,566 | | | 102,292 | |
Below-market tenant leases, net | $ | (155,328) | | | $ | (147,561) | |
| | | |
| | | |
| | | |
| | | |
Acquired lease intangible liabilities, net | $ | (155,328) | | | $ | (147,561) | |
The following table summarizes the amortization related to our acquired lease intangible assets and liabilities for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
In-place lease intangibles(1) | $ | 12,900 | | | $ | 10,024 | | | $ | 34,929 | | | $ | 32,757 | |
Net below-market tenant leases(2) | $ | (5,770) | | | $ | (7,282) | | | $ | (18,896) | | | $ | (21,886) | |
Below-market ground leases(3) | $ | 41 | | | $ | 41 | | | $ | 123 | | | $ | 123 | |
(1)The amortization of in-place lease intangibles is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.
(2)The amortization of net below-market tenant leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.
(3)The amortization of net below-market ground lease is recorded as an increase to property expenses in the consolidated statements of operations for the periods presented.
5. Loan Receivable
On October 26, 2023, in conjunction with the acquisition of the property located at 15801 West 1st Street, we issued a $125.0 million loan to the seller that is securitized by an adjacent 150-acre industrial development site as well as two escrow reserve accounts that were funded with loan proceeds at closing (the “loan collateral”). At issuance, the loan receivable had a loan to value ratio of less than 60% based on the estimated fair value of the loan collateral. The loan bears interest at 7.50% per annum, requires monthly interest-only payments with a balloon payment at maturity, and has an effective interest rate of 8.00% including loan origination costs and fees. The loan has a maturity date of October 26, 2028, with one 1-year extension available at the borrower’s option, subject to certain conditions plus the payment of a 0.25% extension fee. The loan allows for prepayment, in part or whole, with penalties ranging from 1.00% to 2.00% of the amount prepaid, depending on the timing of the prepayment. The loan also includes a right of first offer for us to acquire the underlying industrial development site in the future.
As of September 30, 2024, the carrying value of the loan receivable was $123.1 million, which reflects $1.9 million of unamortized origination fees/costs. As of December 31, 2023, the carrying value of the loan receivable was $122.8 million, which reflects $2.2 million of unamortized origination fees/costs. Based on our current assessment of the credit loss evaluation criteria, we determined that the allowance for potential credit losses on our loan receivable is immaterial as of September 30, 2024 and December 31, 2023.
6. Notes Payable
The following table summarizes the components and significant terms of our indebtedness as of September 30, 2024 and December 31, 2023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 | | Margin Above SOFR | | Interest Rate(1) | | Contractual Maturity Date | |
Unsecured and Secured Debt | | | | | | | | | | |
Unsecured Debt: | | | | | | | | | | |
Revolving Credit Facility | $ | — | | | $ | — | | | S+0.725 | % | (2) | 5.785 | % | (3) | 5/26/2026 | (4) |
$400M Term Loan | |