Rexford Industrial Realty, Inc. ((REXR)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Rexford Industrial Realty’s recent earnings call painted a picture of robust leasing activity and financial health, despite facing challenges such as declining market rents and macroeconomic uncertainties. The company remains optimistic due to its significant growth potential and successful repositioning projects.
Strong Leasing Activity
Rexford Industrial Realty reported executing leases for 1.7 million square feet in the quarter, including the successful lease-up of four repositioning and redevelopment projects. The company achieved net effective and cash leasing spreads of 21% and 8%, respectively, for comparable leases, highlighting its strong leasing performance.
Positive Occupancy Trends
The company experienced an increase in same-property occupancy to 96.1%, marking a 40 basis point sequential rise. This was accompanied by a positive net absorption of 220,000 square feet, indicating healthy demand for Rexford’s properties.
Low Levels of Bad Debt
Rexford’s tenant base demonstrated strong financial health, with bad debt levels remaining minimal at only 6 basis points of revenue. This reflects the company’s effective tenant selection and management strategies.
Repositioning and Redevelopment Success
The company executed 520,000 square feet of leases from repositioning and redevelopment projects, contributing to a year-to-date total of over 900,000 square feet. This activity generated over $16 million in annualized NOI and a 7.4% unlevered stabilized yield on total investment.
Strong Financial Position
Rexford’s financial position remains robust, with a core FFO of $0.59 per share, representing a $0.01 increase over the prior quarter. The balance sheet ended with over $1.8 billion of liquidity and a net debt to EBITDA ratio of 4x, underscoring the company’s financial stability.
Decline in Market Rents
Market rents across Rexford’s portfolio declined approximately 3.5% sequentially and 12.8% year-over-year. This decline reflects broader market trends and presents a challenge for the company moving forward.
Macroeconomic and Tariff Uncertainty
Macroeconomic and tariff uncertainties have impacted tenant decision-making, exerting pressure on demand, rent levels, and lease-up time frames. This uncertainty poses a risk to Rexford’s future leasing activity.
Delay in Rent Commencements
The company noted some delays in rent commencements, which have affected its financial outlook. Despite these delays, Rexford benefits from lower interest expenses and higher capitalized interest.
Challenges in Specific Submarkets
Rexford faces challenges in specific submarkets, particularly in Mid-Counties, Central L.A., and North Orange County, due to elevated supply levels, especially for larger spaces. These challenges require strategic management to overcome.
Forward-Looking Guidance
Looking ahead, Rexford Industrial Realty reaffirmed its full-year 2025 core FFO outlook of $2.37 to $2.41 per share. The company emphasized the substantial embedded growth opportunities within its Southern California portfolio, despite the challenges posed by declining market rents and macroeconomic uncertainties.
In conclusion, Rexford Industrial Realty’s earnings call highlighted a mix of strong leasing activity and financial health, set against the backdrop of market rent declines and macroeconomic uncertainty. The company’s successful repositioning projects and substantial growth potential provide a positive outlook, despite the challenges it faces in specific submarkets.