Rexford’s Income Shoots Up More Than 30 Percent in First Quarter

Industrial giant’s portfolio 98 percent occupied, REIT says in earnings call

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Rexford Industrial Realty is out of available warehouse space and out of superlatives to describe its performance in dominating the Southern California industrial market, which has sustained its crown for hottest in the nation well into 2023 now.

The Los Angeles-based real estate investment trust announced a spike in income and operating levels during the first quarter, while its portfolio remains nearly airtight with a 98 percent occupancy rate. 

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Rexford said its net operating income jumped almost 33 percent from the previous quarter to $142.3 million. Its core funds from operations were $102.7 million, or 34 percent higher than the previous period, thanks in part because the landlord raised rents by 80 percent on about 1.8 million square feet via new and renewed leases.

“Tenant demand and market occupancy remain at historically high levels within infill Southern California, the strongest industrial market in the nation with a virtually incurable supply/demand imbalance continuing into the foreseeable future.” CEO Michael Frankel said during the earnings call Thursday. “Our mandate is to own the best locations and the most functional product within our submarkets. Our proactive value-add repositioning work positions our portfolio to outperform through economic cycles due to our superior quality and functionality.

“We continue to see substantial new tenant demand from a range of sectors that may not be as prevalent in other national markets, from the electric vehicle sector to food and aerospace to name a few,” Frankel added

Rexford bought seven properties for a combined $804.3 million after adding two more acquisitions after the end of the quarter for a combined $42.1 million. The firm also reported approximately $120 million of investments under contract or accepted offer.

Frankel and co-CEO Howard Schwimmer said the landlord has 11.5 million square feet of leases expiring through 2024, plus 3.6 million square feet of repositioning and redevelopment projects expected to start over the next 24 months.

“We completed a robust 1.8 million square feet of lease activity during the quarter, achieving leasing spreads of 80 percent on a GAAP basis and 60 percent on a cash basis,” Frankel said. The firm estimates its internal net operating income to grow by 35 percent, equal to an incremental $175 million, over the next 24 months.

Rexford ended the first quarter with $253.6 million in cash on hand and $1 billion available under its unsecured revolving credit facility. It also reported $2.3 billion of outstanding debt, with an average interest rate of 3.6 percent and an average term to maturity of 5.3 years, with no significant debt maturities until 2024.

Among the two most recent acquisitions, Rexford paid $27.5 million for the property at 13925 Benson Avenue in Chino, located within the 336 million-square-foot Inland Empire market — which had a 1.8 percent vacancy rate at the end of the first quarter 2023, per CBRE (CBRE). The 6.6-acre, industrial-zoned property is subject to a two-year sale leaseback with 4 percent annual rent increases. Upon lease expiration, Rexford intends to redevelop the site into a Class A logistics warehouse.

The second property is in L.A. County’s South Bay market. Rexford paid $14.6 million for 19301 South Santa Fe Avenue in Rancho Dominguez. According to CBRE, the vacancy rate in the South Bay submarket was 1.1 percent.

Rexford manages 364 properties with approximately 44 million rentable square feet.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.