Rexford takes a $507M writedown and puts $2B up for sale
The largest pure-play infill Southern California industrial owner just wrote down its own portfolio. Cash rents on renewals are down 11.3 percent.
Rexford Industrial reported a second-quarter net loss of $506.9 million, or $2.26 a diluted share, against net income of $113.4 million a year earlier. The swing is $624.8 million of non-cash impairments on properties designated for sale. The company guided to $1.5 billion to $2.0 billion of dispositions this year.
Why it matters
Rexford owns only infill Southern California industrial, which for a decade was treated as the most defensible real estate in the country. When that owner marks down its own portfolio by $624.8 million and lines up as much as $2 billion of exits, it is a data point about the asset class that no broker survey will give you.
The leasing detail is more instructive than the writedown. Comparable rental rates came in at negative 2.8 percent on a net effective basis and negative 11.3 percent on a cash basis. That means tenants renewing today are signing for materially less than they were paying, which is the definition of a market that overshot on the way up. Developers underwriting industrial anywhere on the West Coast should be stress-testing renewal assumptions against that number, not against 2022 comps.
Note what these figures are not. Leasing spreads are not net operating income, and the two get conflated constantly. Rexford actually improved its full-year same-property NOI outlook to a decline of 0.25 to 1.25 percent, from a previously forecast 1 to 2 percent drop.
The numbers
409 properties and roughly 49.9 million rentable square feet. Same-property ending occupancy of 95.1 percent and average occupancy of 95.7 percent, down from 96.3 percent in the first quarter. Seven properties sold in the quarter for $137.9 million. Core FFO of $141.4 million company share, up 1.2 percent, at $0.63 a diluted share, up 6.8 percent, with full-year Core FFO guidance raised to $2.38 to $2.43.
What’s next
Chief executive Laura Clark framed the program as disposing of approximately $2 billion of identified non-core assets to strengthen the portfolio. Whether that clears at the marks Rexford just took is the question, and the answer will reprice infill Southern California for everyone else. More Los Angeles coverage.