Rexford Industrial Realty Q2 Earnings Call Highlights

Rexford Industrial Realty (NYSE:REXR) said it is pursuing a broad portfolio realignment, planning to sell approximately $2 billion of non-core industrial assets while using a substantial portion of the proceeds to reduce debt, repurchase shares and selectively fund higher-return investments. Chief Executive Officer Laura Clark said the planned dispositions encompass roughly 8 million square feet of properties identified through a first-half asset-by-asset review. The assets generally have more limited value-creation potential, elevated competitive supply, shorter remaining lease terms and in-place rents substantially above current market levels, according to the company. Rexford expects the vast majority of the sales to close this year and said it is already in advanced discussions involving a substantial portion of the planned dispositions. Clark said the company’s retained core portfolio will comprise approximately 43 million square feet of assets that it believes have stronger long-term growth, cash-flow durability and embedded value-creation potential.

Debt Reduction and Repurchase Capacity Chief Financial Officer Michael Fitzmaurice said Rexford updated its full-year disposition outlook to $1.5 billion to $2 billion. The company expects to use about $1 billion of projected proceeds to repay debt maturing in 2027 rather than refinancing it at higher interest rates. Rexford expects the debt repayment to reduce net debt to adjusted EBITDA to approximately 3.5 times from 4.5 times at the end of the second quarter. Fitzmaurice said the company intends to pay off all but $575 million of its 2027 maturities during 2026, with the remaining amount repaid when it matures in March 2027. The company reduced its 2026 interest-expense guidance to $105 million. The board also authorized a new $1 billion share-repurchase program. During the second quarter, Rexford spent $100 million to repurchase approximately 3 million shares at a weighted average price of $36 per share. Over the past year, the company has bought back about 15 million shares for $550 million, representing approximately 6% of shares outstanding, Fitzmaurice said. Management did not disclose expected cap rates or pricing for the asset sales while negotiations remain underway. Clark said the company expects proceeds to be redeployed in a manner that is neutral to accretive to 2027 funds from operations per share. Fitzmaurice said the company sees debt savings, share repurchases and the removal of future rent roll-down risk as contributors to that outcome.

Second-Quarter Results and Updated Outlook Second-quarter Core FFO was $0.63 per share, up $0.02 from the first quarter. Fitzmaurice attributed the increase to accretive share repurchases, settlement income and lower general and administrative expense. Cash same-property net operating income growth was 1.5%. Net effective same-property NOI growth was negative 0.5%. Same-property ending occupancy was 95.1%, up 30 basis points from a year earlier. Total liquidity at quarter-end was approximately $1.3 billion. Rexford raised the midpoint of its full-year Core FFO-per-share outlook by $0.01, citing better-than-expected same-property NOI growth, lower G&A expense and second-quarter settlement proceeds. The company said the increase is partly offset by projected dilution from the timing of capital recycling activity. It also increased its same-property NOI growth outlook by 75 basis points at the midpoint on both a cash and net effective basis. Average same-property occupancy guidance was raised to a range of 95.3% to 95.7%, a 15-basis-point increase at the midpoint. Cash re-leasing spreads are now expected to range from negative 15% to negative 10% for the year. Rexford lowered G&A guidance to $57 million from its original $60 million target.