The following table sets forth information relating to tenant diversification by industry in our portfolio based on total annualized base rent as of December 31, 2017.2022.
Our portfolio of properties has a stable and diversified tenant base. As of December 31, 2017,2022, our consolidated properties were 95.8%94.7% leased to tenants in a variety of industries, with no single tenant accounting for more than 1.6%2.2% of our total annualized in-place base rent. Our average lease size is approximately 13,00025,000 square feet, and approximately 52%37% of our total leased square feet consists
of leases that are less than 50,000 square feet each. Our 10 largest tenants combined accountaccounted for 11.9%12.6% of our annualized base rent as of December 31, 2017.2022. We intend to continue to maintain a diversified mix of tenants in order to limit our exposure to any single tenant or industry.
The following table sets forth information about the 10 largest tenants in our portfolio based on total annualized base rent as of December 31, 2017.2022.
The following table provides information regarding our lease segmentation by size as of December 31, 2017:2022:
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Square Feet | | Number of Leases | | Occupied Square Feet | | Percentage of Total Occupied Square Feet | | Annualized Base Rent(1) | | Percentage of Total Annualized Base Rent(2) | | Annualized Base Rent per Square Foot(3) |
<4,999 | | 807 |
| | 1,699,965 |
| | 9.6 | % | | $ | 20,102 |
| | 12.8 | % | | $ | 11.83 |
|
5,000 - 9,999 | | 184 |
| | 1,279,239 |
| | 7.2 | % | | 13,666 |
| | 8.7 | % | | $ | 10.68 |
|
10,000 - 24,999 | | 226 |
| | 3,619,667 |
| | 20.5 | % | | 34,639 |
| | 22.1 | % | | $ | 9.57 |
|
25,000 - 49,999 | | 71 |
| | 2,532,956 |
| | 14.4 | % | | 22,924 |
| | 14.6 | % | | $ | 9.05 |
|
>50,000 | | 79 |
| | 8,519,010 |
| | 48.3 | % | | 65,456 |
| | 41.8 | % | | $ | 7.68 |
|
Total / Weighted Average | | 1,367 |
| | 17,650,837 |
| | 100.0 | % | | $ | 156,787 |
| | 100.0 | % | | $ | 8.88 |
|
| |
(1) | Calculated for each lease as the monthly contracted base rent (before rent abatements) per the terms of such lease, as of December 31, 2017, multiplied by 12, and then aggregated by square feet. Excludes billboard and antenna revenue and rent abatements. Amounts in thousands.
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(2) | Calculated as annualized base rent for such leases divided by annualized base rent for the total consolidated portfolio as of December 31, 2017. |
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(3) | Calculated as annualized base rent for such leases divided by occupied square feet for such leases as of December 31, 2017. |
Lease Expirations
As of December 31, 2017,2022, our weighted average in-place remaining lease term was approximately 3.64.0 years. The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2017,2022, plus available space, for each of the 10 full calendar years commencing December 31, 20172022 and thereafter in our portfolio. The information set forth in the table assumes that tenants exercise no renewal options and no early termination rights.
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Year of Lease Expiration | | Number of Leases Expiring | | Total Rentable Square Feet(1) | | Percentage of Total Owned Square Feet | | Annualized Base Rent(2) | | Percentage of Total Annualized Base Rent(3) | | Annualized Base Rent per Square Foot(4) |
Vacant(5) | | — | | | 867,406 | | | 2.1 | % | | $ | — | | | — | % | | $ | — | |
Repositioning(6) | | — | | | 1,406,061 | | | 3.3 | % | | — | | | — | % | | $ | — | |
MTM Tenants | | 12 | | | 60,444 | | | 0.1 | % | | 1,026 | | | 0.2 | % | | $ | 16.98 | |
2022 | | 26 | | | 665,533 | | | 1.6 | % | | 8,026 | | | 1.5 | % | | $ | 12.06 | |
2023 | | 398 | | | 5,834,280 | | | 13.7 | % | | 81,278 | | | 14.9 | % | | $ | 13.93 | |
2024 | | 420 | | | 6,898,600 | | | 16.3 | % | | 81,917 | | | 15.0 | % | | $ | 11.87 | |
2025 | | 352 | | | 5,830,107 | | | 13.7 | % | | 75,598 | | | 13.8 | % | | $ | 12.97 | |
2026 | | 201 | | | 6,478,837 | | | 15.3 | % | | 77,562 | | | 14.2 | % | | $ | 11.97 | |
2027 | | 128 | | | 4,774,192 | | | 11.3 | % | | 73,317 | | | 13.4 | % | | $ | 15.36 | |
2028 | | 41 | | | 1,522,731 | | | 3.6 | % | | 19,448 | | | 3.6 | % | | $ | 12.77 | |
2029 | | 22 | | | 1,982,238 | | | 4.7 | % | | 29,989 | | | 5.5 | % | | $ | 15.13 | |
2030 | | 18 | | | 1,541,018 | | | 3.6 | % | | 19,092 | | | 3.5 | % | | $ | 12.39 | |
2031 | | 18 | | | 1,906,263 | | | 4.5 | % | | 31,404 | | | 5.7 | % | | $ | 16.47 | |
Thereafter | | 41 | | | 2,636,025 | | | 6.2 | % | | 47,692 | | | 8.7 | % | | $ | 18.09 | |
Total Consolidated Portfolio | | 1,677 | | | 42,403,735 | | | 100.0 | % | | $ | 546,349 | | | 100.0 | % | | $ | 13.61 | |
(1)Represents the contracted square footage upon expiration.
(2)Calculated as monthly contracted base rent (before rent abatements) per the terms of such lease, as of December 31, 2022, multiplied by 12, and then aggregated by year of lease expiration. Excludes tenant reimbursements. Amounts in thousands.
(3)Calculated as annualized base rent set forth in this table divided by annualized base rent for the total portfolio as of December 31, 2022.
(4)Calculated as annualized base rent for such leases divided by occupied square feet for such leases as of December 31, 2022.
(5)Represents vacant space (not under repositioning) as of December 31, 2022. Includes leases aggregating 25,728 rentable square feet that had been signed but had not yet commenced as of December 31, 2022. Adjusting for such leases, we had 841,678 of available vacant space representing 2.0% of our total owned square feet as of December 31, 2022.
(6)Represents vacant space at properties that were classified as repositioning (including “other repositioning projects”) or redevelopment as of December 31, 2022. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Influence Future Results of Operations – Acquisitions and Value-Add Repositioning and Redevelopment of Properties,” of this Annual Report on Form 10-K for additional details related to these properties.
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Year of Lease Expiration | | Number of Leases Expiring | | Total Rentable Square Feet(1) | | Percentage of Total Owned Square Feet | | Annualized Base Rent(2) | | Percentage of Total Annualized Base Rent(3) | | Annualized Base Rent per Square Foot(4) |
Vacant(5) | | — |
| | 317,286 |
| | 1.7 | % | | $ | — |
| | — | % | | $ | — |
|
Current Repositioning(6) | | — |
| | 508,686 |
| | 2.8 | % | | — |
| | — | % | | $ | — |
|
MTM Tenants(7) | | 95 |
| | 190,454 |
| | 1.0 | % | | 1,875 |
| | 1.2 | % | | $ | 9.84 |
|
2017 | | 21 |
| | 166,768 |
| | 0.9 | % | | 1,563 |
| | 1.0 | % | | $ | 9.37 |
|
2018 | | 340 |
| | 2,391,341 |
| | 12.9 | % | | 22,359 |
| | 14.3 | % | | $ | 9.35 |
|
2019 | | 324 |
| | 2,740,232 |
| | 14.8 | % | | 24,746 |
| | 15.8 | % | | $ | 9.03 |
|
2020 | | 281 |
| | 3,671,172 |
| | 19.9 | % | | 30,945 |
| | 19.7 | % | | $ | 8.43 |
|
2021 | | 143 |
| | 3,465,777 |
| | 18.8 | % | | 29,113 |
| | 18.6 | % | | $ | 8.40 |
|
2022 | | 98 |
| | 1,824,734 |
| | 9.9 | % | | 15,192 |
| | 9.7 | % | | $ | 8.33 |
|
2023 | | 27 |
| | 748,942 |
| | 4.0 | % | | 7,433 |
| | 4.7 | % | | $ | 9.92 |
|
2024 | | 14 |
| | 757,894 |
| | 4.1 | % | | 7,159 |
| | 4.6 | % | | $ | 9.45 |
|
2025 | | 4 |
| | 148,215 |
| | 0.8 | % | | 1,712 |
| | 1.1 | % | | $ | 11.55 |
|
2026 | | 6 |
| | 273,904 |
| | 1.5 | % | | 3,211 |
| | 2.0 | % | | $ | 11.72 |
|
Thereafter | | 14 |
| | 1,271,404 |
| | 6.9 | % | | 11,479 |
| | 7.3 | % | | $ | 9.03 |
|
Total Consolidated Portfolio | | 1,367 |
| | 18,476,809 |
| | 100.0 | % | | $ | 156,787 |
| | 100.0 | % | | $ | 8.88 |
|
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(1) | Represents the contracted square footage upon expiration. |
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(2) | Calculated as monthly contracted base rent (before rent abatements) per the terms of such lease, as of December 31, 2017, multiplied by 12. Excludes billboard and antenna revenue and rent abatements. Amounts in thousands.
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(3) | Calculated as annualized base rent set forth in this table divided by annualized base rent for the total portfolio as of December 31, 2017. |
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(4) | Calculated as annualized base rent for such leases divided by occupied square feet for such leases as of December 31, 2017. |
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(5) | Represents vacant space (not under repositioning) as of December 31, 2017. Includes leases aggregating 10,509 rentable square feet that have been signed but had not yet commenced as of December 31, 2017. |
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(6) | Represents space at five of our properties that were classified as current repositioning or lease-up as of December 31, 2017. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Influence Future Results of Operations – Acquisitions and Development of Properties,” of this Annual Report on Form 10-K for additional details related to these five properties. Includes 43,927 rentable square feet of repositioning space for which a lease has been signed but had not commenced as of December 31, 2017. |
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(7) | Represents tenants under month-to-month (“MTM”) leases or having holdover tenancy. Includes 62 MTM leases totaling 65,390 rentable square feet at our property located at 14723-14825 Oxnard Street, where due to the number and the small size of spaces, we typically only enter into MTM leases. |
Historical Tenant Improvements and Leasing Commissions
The following table sets forth certain historical information regarding leasing related (revenue generating) tenant improvement and leasing commission costs for tenants at the properties in our portfolio as follows:
| | | | The Year Ended December 31, | | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | | 2022 | | 2021 | | 2020 |
| | Cost (1) | | Square Feet | | PSF(2) | | Cost (1) | | Square Feet | | PSF(2) | | Cost (1) | | Square Feet | | PSF(2) | | Cost (1) | | Square Feet | | PSF(2) | | Cost (1) | | Square Feet | | PSF(2) | | Cost (1) | | Square Feet | | PSF(2) |
Tenant Improvements | | | | | | | | | | | | | | | | | | | Tenant Improvements | | | | | | | | | | | | | | | | | | |
New Leases - First Generation(3)(4) | | $ | 1,069 |
| | 531,101 |
| | $ | 2.01 |
| | $ | 1,474 |
| | 493,978 |
| | $ | 2.98 |
| | $ | 736 |
| | 516,605 |
| | $ | 1.42 |
| |
New Leases - Second Generation(3)(5) | | 800 |
| | 591,230 |
| | $ | 1.35 |
| | 2,295 |
| | 1,182,569 |
| | $ | 1.94 |
| | 1,509 |
| | 893,499 |
| | $ | 1.69 |
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New Leases – First Generation(3)(4) | | New Leases – First Generation(3)(4) | | $ | 1,528 | | | 834,106 | | | $ | 1.83 | | | $ | 2,103 | | | 1,039,707 | | | $ | 2.02 | | | $ | 889 | | | 851,851 | | | $ | 1.04 | |
New Leases – Second Generation(3)(5) | | New Leases – Second Generation(3)(5) | | 494 | | | 491,933 | | | $ | 1.00 | | | 328 | | | 150,214 | | | $ | 2.18 | | | 686 | | | 284,387 | | | $ | 2.41 | |
Renewal Leases | | 596 |
| | 504,261 |
| | $ | 1.18 |
| | 288 |
| | 377,053 |
| | $ | 0.76 |
| | 190 |
| | 209,910 |
| | $ | 0.91 |
| Renewal Leases | | 855 | | | 933,596 | | | $ | 0.92 | | | 289 | | | 431,997 | | | $ | 0.67 | | | 118 | | | 450,871 | | | $ | 0.26 | |
Total Tenant Improvements | | $ | 2,465 |
| | 1,626,592 |
| | $ | 1.52 |
| | $ | 4,057 |
| | 2,053,600 |
| | $ | 1.97 |
| | $ | 2,435 |
| | 1,620,014 |
| | $ | 1.50 |
| Total Tenant Improvements | | $ | 2,877 | | | 2,259,635 | | | $ | 1.27 | | | $ | 2,720 | | | 1,621,918 | | | $ | 1.68 | | | $ | 1,693 | | | 1,587,109 | | | $ | 1.07 | |
Leasing Commissions | | | | | | | | |
| | | | |
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| | | | | Leasing Commissions | | | | | | | | | | | | | | | | | | |
New Leases - First Generation(3)(4) | | $ | 1,821 |
| | 522,969 |
| | $ | 3.48 |
| | $ | 2,622 |
| | 1,586,659 |
| | $ | 1.65 |
| | $ | 1,538 |
| | 868,335 |
| | $ | 1.77 |
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New Leases - Second Generation(3)(5) | | 2,772 |
| | 1,244,739 |
| | $ | 2.23 |
| | 1,516 |
| | 915,069 |
| | $ | 1.66 |
| | 1,108 |
| | 890,044 |
| | $ | 1.24 |
| |
New Leases – First Generation(3)(4) | | New Leases – First Generation(3)(4) | | $ | 7,357 | | | 876,485 | | | $ | 8.39 | | | $ | 5,502 | | | 1,758,720 | | | $ | 3.13 | | | $ | 3,562 | | | 1,223,553 | | | $ | 2.91 | |
New Leases – Second Generation(3)(5) | | New Leases – Second Generation(3)(5) | | 9,190 | | | 1,359,424 | | | $ | 6.76 | | | 7,508 | | | 2,044,593 | | | $ | 3.67 | | | 3,838 | | | 1,682,072 | | | $ | 2.28 | |
Renewal Leases | | 1,071 |
| | 820,290 |
| | $ | 1.31 |
| | 1,144 |
| | 1,801,991 |
| | $ | 0.63 |
| | 255 |
| | 579,677 |
| | $ | 0.44 |
| Renewal Leases | | 5,025 | | | 1,852,256 | | | $ | 2.71 | | | 4,321 | | | 3,127,986 | | | $ | 1.38 | | | 3,069 | | | 2,500,831 | | | $ | 1.23 | |
Total Leasing Commissions | | $ | 5,664 |
| | 2,587,998 |
| | $ | 2.19 |
| | $ | 5,282 |
| | 4,303,719 |
| | $ | 1.23 |
| | $ | 2,901 |
| | 2,338,056 |
| | $ | 1.24 |
| Total Leasing Commissions | | $ | 21,572 | | | 4,088,165 | | | $ | 5.28 | | | $ | 17,331 | | | 6,931,299 | | | $ | 2.50 | | | $ | 10,469 | | | 5,406,456 | | | $ | 1.94 | |
Total Tenant Improvements & Leasing Commissions | | $ | 8,129 |
| |
|
| | | | $ | 9,339 |
| |
|
| |
|
| | $ | 5,336 |
| |
|
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| Total Tenant Improvements & Leasing Commissions | | $ | 24,449 | | | | | | | $ | 20,051 | | | | | | | $ | 12,162 | | | | | |
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(1) | Cost is reported in thousands. Costs of tenant improvements include contractual tenant allowances and costs necessary to prepare a space for occupancy by a new tenant. |
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(2) | Per square foot (“PSF”) amounts calculated by dividing the aggregate tenant improvement and/or leasing commission cost by the aggregate square footage of the leases in which we incurred such costs, excluding new/renewal leases in which there were no tenant improvements and/or leasing commissions. |
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(3) | New leases represent all leases other than renewal leases. |
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(4) | Tenant improvements and leasing commissions related to our initial leasing of vacant space in acquired properties or leasing of a space that has been vacant for more than 12 months, are considered first generation costs. |
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(5) | Tenant improvements and leasing commissions related to leasing of a space that has been previously occupied by a tenant during the prior 12 months, are considered second generation costs. |
(1)Cost is reported in thousands. Costs of tenant improvements include contractual tenant allowances.
(2)Per square foot (“PSF”) amounts calculated by dividing the aggregate tenant improvement and/or leasing commission cost by the aggregate square footage of the leases in which we incurred such costs, excluding new/renewal leases in which there were no tenant improvements and/or leasing commissions. (3)New leases represent all leases other than renewal leases.
(4)Tenant improvements and leasing commissions related to our initial leasing of vacant space in acquired properties or leasing of a space that has been vacant for more than 12 months, are considered first generation costs.
(5)Tenant improvements and leasing commissions related to leasing of a space that has been previously occupied by a tenant during the prior 12 months, are considered second generation costs.
Historical Capital Expenditures
The following table sets forth certain information regarding historical maintenance (non-revenue generating) capital expenditures at the properties in our portfolio as follows:
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| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| Cost(1) | | Square Feet(2) | | PSF(3) | | Cost(1) | | Square Feet(2) | | PSF(3) | | Cost(1) | | Square Feet(2) | | PSF(3) |
Non-Recurring Capital Expenditures(4) | $ | 35,221 |
| | 12,889,591 |
| | $ | 2.73 |
| | $ | 21,192 |
| | 9,061,612 |
| | $ | 2.34 |
| | $ | 14,472 |
| | 6,118,145 |
| | $ | 2.37 |
|
Recurring Capital Expenditures(5) | 2,525 |
| | 16,590,584 |
| | $ | 0.15 |
| | 2,792 |
| | 13,611,194 |
| | $ | 0.21 |
| | 3,530 |
| | 10,710,780 |
| | $ | 0.33 |
|
Total Capital Expenditures | $ | 37,746 |
| | | | | | $ | 23,984 |
| | | | | | $ | 18,002 |
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(1) | Cost is reported in thousands. |
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(2) | For non-recurring capital expenditures, reflects the aggregate square footage of the properties in which we incurred such capital expenditures. For recurring capital expenditures, reflects the weighted average square footage of our consolidated portfolio for the period. |
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(3) | PSF amounts calculated by dividing the aggregate capital expenditure costs by the square footage as defined in (1) and (2) above. |
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(4) | Non-recurring capital expenditures are expenditures made in respect of a property for improvement to the appearance of such property or any other major upgrade or renovation of such property, and further includes capital expenditures for seismic upgrades, or capital expenditures for deferred maintenance existing at the time such property was acquired. |
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| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cost(1) | | Square Feet(2) | | PSF(3) | | Cost(1) | | Square Feet(2) | | PSF(3) | | Cost(1) | | Square Feet(2) | | PSF(3) |
Non-Recurring Capital Expenditures(4) | $ | 111,112 | | | 26,002,606 | | | $ | 4.27 | | | $ | 80,545 | | | 22,951,051 | | | $ | 3.51 | | | $ | 66,588 | | | 20,463,668 | | | $ | 3.25 | |
Recurring Capital Expenditures(5) | 8,675 | | | 39,561,722 | | | $ | 0.22 | | | 10,466 | | | 33,239,851 | | | $ | 0.31 | | | 6,949 | | | 27,929,513 | | | $ | 0.25 | |
Total Capital Expenditures | $ | 119,787 | | | | | | | $ | 91,011 | | | | | | | $ | 73,537 | | | | | |
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(5) | Recurring capital expenditures are expenditures made in respect of a property for maintenance of such property and replacement of items due to ordinary wear and tear including, but not limited to, expenditures made for maintenance or replacement of parking lot, roofing materials, mechanical systems, HVAC systems and other structural systems. |
(1)Cost is reported in thousands.
(2)For non-recurring capital expenditures, reflects the aggregate square footage of the properties in which we incurred such capital expenditures. For recurring capital expenditures, reflects the weighted average square footage of our consolidated portfolio for the period.
(3)PSF amounts calculated by dividing the aggregate capital expenditure costs by the square footage as defined in (1) and (2) above.
(4)Non-recurring capital expenditures are expenditures made in respect of a property for repositioning, redevelopment, or other major upgrade or renovation of such property, and further includes capital expenditures for seismic upgrades, roof or parking lot replacements or capital expenditures for deferred maintenance existing at the time such property was acquired.
(5)Recurring capital expenditures are expenditures made in respect of a property for maintenance of such property and replacement of items due to ordinary wear and tear including, but not limited to, expenditures made for maintenance of parking lot, roofing materials, mechanical systems, HVAC systems and other structural systems.
Item 3. Legal Proceedings
From time to time, we are party to various lawsuits, claims and legal proceedings that arise in the ordinary course of our business. We are not currently a party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the NYSE under the symbol “REXR”. OnAs of February 14, 2018, the reported closing sale price per share8, 2023, there were 251 holders of record of our common stock was $27.69, and there were approximately 162 holders of record.stock. Certain shares of our Company are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing numbers.
The following table sets forth the high and low closing sales prices for our common stock as reported by the NYSE and the per share dividends declared on our common stock, for the periods indicated:
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| | | | | | | | | | | | |
| | Range | | |
Period | | High | | Low | | Cash Dividend per Common Share |
2017 | | | | | | |
First Quarter | | $ | 24.15 |
| | $ | 21.54 |
| | $ | 0.145 |
|
Second Quarter | | $ | 28.08 |
| | $ | 22.60 |
| | $ | 0.145 |
|
Third Quarter | | $ | 30.41 |
| | $ | 26.93 |
| | $ | 0.145 |
|
Fourth Quarter | | $ | 31.52 |
| | $ | 29.10 |
| | $ | 0.145 |
|
2016 | | | | | | |
First Quarter | | $ | 18.36 |
| | $ | 15.43 |
| | $ | 0.135 |
|
Second Quarter | | $ | 21.10 |
| | $ | 17.85 |
| | $ | 0.135 |
|
Third Quarter | | $ | 23.17 |
| | $ | 20.91 |
| | $ | 0.135 |
|
Fourth Quarter | | $ | 23.27 |
| | $ | 20.27 |
| | $ | 0.135 |
|
We intend to continue to pay regular quarterly distributions on our common stock, however, the actual amount and timing of distributions will be at the discretion of our board of directors and will depend upon a variety of factors including our actual financial condition, in addition to the requirements of the Code, and no assurance can be given as to the amounts or timing of future distributions. In addition, our unsecured revolving credit facility and term loan facilities contain limitations on our ability to pay distributions on our common stock. Specifically, our cash dividends may not exceed the greater of (1) 95% of our FFO (as defined in the loan agreements) and (2) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make distributions sufficient to qualify and maintain our REIT status.
Sales of Unregistered Securities
None.
Repurchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs |
October 1, 2022 to October 31, 2022 | | 226 | | | $ | 51.80 | | | N/A | | N/A |
November 1, 2022 to November 30, 2022 | | 82 | | | $ | 55.80 | | | N/A | | N/A |
December 1, 2022 to December 31, 2022 | | 38 | | | $ | 54.12 | | | N/A | | N/A |
| | 346 | | | $ | 53.00 | | | N/A | | N/A |
|
| | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs |
October 1, 2017 to October 31, 2017 (1) | | 25,483 |
| | $ | 29.59 |
| | N/A | | N/A |
November 1, 2017 to November 30, 2017(1) | | 558 |
| | $ | 29.95 |
| | N/A | | N/A |
December 1, 2017 to December 31, 2017 | | — |
| | $ | — |
| | N/A | | N/A |
| | 26,041 |
| | $ | 29.60 |
| | N/A | | N/A |
(1)Reflects shares of common stock that were tendered by certain of our employees to satisfy tax withholding obligations related to the vesting of restricted shares of common stock. | |
(1) | In October 2017 and November 2017, these shares were tendered by certain of our employees to satisfy minimum statutory tax withholding obligations related to the vesting of restricted shares. |
Equity Compensation Plan Information
Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock from July 18, 2013 to December 31, 2017 through December 31, 2022, with the cumulative total return of the Standard & Poor’s 500 Index and a selection of appropriate “peer group” indexes (assuming the investment of $100 in our common stock and in each of the indexes on July 18, 2013,December 31, 2017, and that all dividends were reinvested into additional shares of common stock at the frequency with which dividends are paid on the common stock during the applicable fiscal year). The total return performance shown in this graph is not necessarily indicative of, and is not intended to suggest, future total return performance.
| | | | | | | | | | | | | | | | | | | | |
| Period Ending |
Index | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 |
Rexford Industrial Realty, Inc. | $100.00 | $103.24 | $162.92 | $178.70 | $299.91 | $206.42 |
S&P 500 Index | $100.00 | $95.62 | $125.72 | $148.85 | $191.58 | $156.88 |
Dow Jones Equity All REIT Index | $100.00 | $95.90 | $123.46 | $117.54 | $165.97 | $124.47 |
Dow Jones U.S. Real Estate Industrial Index | $100.00 | $96.36 | $137.49 | $157.52 | $241.82 | $163.89 |
|
| | | | | | | | | | | | |
| Period Ending |
Index | 7/18/2013 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 |
Rexford Industrial Realty, Inc. | 100.00 |
| 95.80 |
| 117.83 |
| 126.93 |
| 184.60 |
| 237.23 |
|
S&P 500 | 100.00 |
| 110.47 |
| 125.60 |
| 127.34 |
| 142.56 |
| 173.69 |
|
MSCI U.S. REIT | 100.00 |
| 91.51 |
| 119.31 |
| 122.31 |
| 132.83 |
| 139.57 |
|
SNL U.S. REIT Industrial | 100.00 |
| 93.91 |
| 113.62 |
| 117.07 |
| 147.43 |
| 178.10 |
|
Item 6. Selected Financial Data.[Reserved]
The following table sets forth selected financial and operating data on a historical basis for “Rexford Industrial Realty, Inc. Predecessor” prior to our IPO and Rexford Industrial Realty, Inc. subsequent to our IPO. Rexford Industrial Realty, Inc. Predecessor consists of Rexford Industrial, LLC, Rexford Sponsor V LLC, Rexford Industrial Fund V REIT, LLC and their consolidated subsidiaries which consists of Rexford Industrial Fund I, LLC, Rexford Industrial Fund II, LLC, Rexford Industrial Fund III, LLC, Rexford Industrial Fund IV, LLC, Rexford Industrial Fund V, LP and their subsidiaries. Each of the entities comprising Rexford Industrial Realty, Inc. Predecessor were owned, managed, and controlled, individually or jointly, by our predecessor principals. As such, we have combined these entities on the basis of common ownership and common management.
You should read the following summary financial and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited financial statements and related notes, elsewhere in this Annual Report on Form 10-K.
The summary historical consolidated and combined financial and operating data as of December 31, 2017, 2016, 2015, 2014, and 2013 and for the years ended December 31, 2017, 2016, 2015 and 2014, the period from July 24, 2013 to December 31, 2013, and the period from January 1, 2013 to July 23, 2013, have been derived from our audited historical consolidated financial statements subsequent to our IPO and our audited historical combined financial statements of Rexford Industrial Realty, Inc. Predecessor prior to our IPO. All consolidated financial data has been restated, as appropriate, to reflect the impact of activity classified as discontinued operations for all periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Rexford Industrial Realty, Inc. | | Rexford Industrial Realty, Inc. Predecessor |
| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | | Year Ended December 31, 2014 | | Year Ended Period from July 24, 2013 to December 31, 2013 | | Year Ended Period from January 1, 2013 to July 23, 2013 |
| (in thousands, except for share and per share data) |
Statement of Operations Data: | | | |
| | |
| | |
| | | | |
Total revenues from continuing operations | $ | 161,355 |
| | $ | 126,192 |
| | $ | 93,900 |
| | $ | 66,581 |
| | $ | 21,618 |
| | $ | 22,747 |
|
Net income (loss) from continuing operations | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
| | $ | (1,170 | ) | | $ | (1,002 | ) | | $ | (8,194 | ) |
Net income (loss) | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
| | $ | 976 |
| | $ | (711 | ) | | $ | (4,281 | ) |
Per Share Data: | | | | | |
| | |
| | |
| | |
Weighted average common shares outstanding - basic | 71,198,862 |
| | 62,723,021 |
| | 54,024,923 |
| | 31,953,506 |
| | 24,925,226 |
| | |
Weighted average common shares outstanding - diluted | 71,598,654 |
| | 62,965,554 |
| | 54,024,923 |
| | 31,953,506 |
| | $ | 24,925,226 |
| | |
Net income (loss) from continuing operations available to common stockholders - basic and diluted | $ | 0.48 |
| | $ | 0.36 |
| | $ | 0.03 |
| | $ | (0.04 | ) | | $ | (0.04 | ) | | |
Net income (loss) available to common stockholders - basic and diluted | $ | 0.48 |
| | $ | 0.36 |
| | $ | 0.03 |
| | $ | 0.02 |
| | $ | (0.03 | ) | | |
Dividends declared per common share | $ | 0.58 |
| | $ | 0.54 |
| | $ | 0.51 |
| | $ | 0.48 |
| | $ | 0.21 |
| | |
Balance Sheet Data (End of Period): | | | | | |
| | |
| | |
| | |
Total real estate held for investment, before accumulated depreciation | $ | 2,161,965 |
| | $ | 1,552,129 |
| | $ | 1,188,766 |
| | $ | 930,462 |
| | $ | 540,623 |
| | |
Total real estate held for investment, after accumulated depreciation | $ | 1,988,424 |
| | $ | 1,416,989 |
| | $ | 1,085,143 |
| | $ | 853,578 |
| | $ | 481,673 |
| | |
Total assets | $ | 2,111,373 |
| | $ | 1,515,008 |
| | $ | 1,153,251 |
| | $ | 932,185 |
| | $ | 554,236 |
| | |
Notes payable | $ | 668,941 |
| | $ | 500,184 |
| | $ | 418,154 |
| | $ | 356,362 |
| | $ | 192,008 |
| | |
Total liabilities | $ | 746,119 |
| | $ | 552,868 |
| | $ | 459,507 |
| | $ | 386,308 |
| | $ | 212,467 |
| | |
Preferred stock | $ | 159,713 |
| | $ | 86,651 |
| | $ | — |
| | $ | — |
| | $ | — |
| | |
Total equity | $ | 1,365,254 |
| | $ | 962,140 |
| | $ | 693,744 |
| | $ | 545,877 |
| | $ | 341,769 |
| | |
Other Data: | | | | | |
| | |
| | |
| | |
Funds from operations(1) | $ | 76,968 |
| | $ | 58,584 |
| | $ | 43,844 |
| | $ | 27,970 |
| | $ | 8,316 |
| | $ | 4,307 |
|
Cash flow provided by operating activities | $ | 76,650 |
| | $ | 56,432 |
| | $ | 40,508 |
| | $ | 24,504 |
| | $ | 8,912 |
| | $ | 4,593 |
|
Cash flow used in investing activities | $ | (606,900 | ) | | $ | (361,214 | ) | | $ | (236,774 | ) | | $ | (380,581 | ) | | $ | (81,719 | ) | | $ | (46,616 | ) |
Cash flow provided by (used in) financing activities | $ | 521,595 |
| | $ | 315,106 |
| | $ | 192,861 |
| | $ | 355,686 |
| | $ | 81,804 |
| | $ | (1,476 | ) |
Total number of in-service properties | 151 |
| | 136 |
| | 119 |
| | 98 |
| | 68 |
| | 61 |
|
| |
(1) | See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Supplemental Measure: Funds From Operations,” in this Annual Report on Form 10-K for a reconciliation to net income and a discussion of why we believe FFO is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing our financial performance, and FFO’s limitations as a measurement tool. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the sections of this Annual Report on Form 10-K entitled “Risk Factors,” “Forward-Looking Statements,” “Business” and our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Company Overview
Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service 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 acquire, own, manage,improve, redevelop, lease acquire and developmanage industrial real estate primarilyprincipally located in Southern California infill markets, and from time to time, acquire or provide mortgage debt secured by industrial property. We are organized and conduct our operations to qualify as a REIT under the Code, and generally are not subject to federal taxes on our income to the extent we distribute our income to our shareholders and maintain our qualification as a REIT.
As of December 31, 2017,2022, our consolidated portfolio consisted of 151356 properties with approximately 18.5 million rentable square feet. In addition, we currently manage an additional 19 properties with approximately 1.242.4 million rentable square feet.
Our goal is to generate attractive risk-adjusted returns for our stockholders by providing superior access to industrial property investments and mortgage debt investments secured by industrial property in high barrier Southern California infill markets. Our target markets provide us with opportunities to acquire both stabilized properties generating favorable cash flow, as well as properties or land parcels where we can enhance returns over time through value-add renovationsrepositioning and redevelopment.redevelopments. Scarcity of available space and high barriers limiting new construction of for-lease product all contribute to create superior long-term supply/demand fundamentals within our target infill Southern California industrial property markets. With our vertically integrated operating platform and extensive value-add investment and management capabilities, we believe we are in a positionpositioned to capitalize upon the opportunities in our markets to achieve our objectives.
Highlights
AcquisitionsFull Year Financial and Operational Highlights
During 2017, we acquired 21 properties, aggregating 4.2•Net income attributable to common stockholders increased by 40.9% to $157.5 million square feet,in 2022 compared to 2021.
•Core funds from operations (Core FFO)(1) attributable to common stockholders increased by 45.3% to $334.7 million in 2022 compared to 2021.
•Net operating income (NOI)(1) increased by 39.6% to $480.1 million in 2022 compared to 2021.
•Total portfolio occupancy at year-end was 94.6%.
•Same Property Portfolio(2) average occupancy for an aggregate cost of $666.7 million.the year ended December 31, 2022 was 98.7% and ending occupancy at year-end was 98.1%.
Repositioning
During 2017, we completed the lease-up of five of our value-add repositioning properties located at 679-691 South Anderson Street, 18118 South Broadway Street, 3880 Valley Boulevard, 12131 Western Avenue•Executed a total 442 new and 228th Street,renewal leases with a combined 0.55.1 million rentable square feet. We also pre-leased 43,927 square feet, with leasing spreads of repositioning space at 3233 Mission Oaks Boulevard with the lease commencing80.9% on January 31, 2018.a GAAP basis and 58.8% on a cash basis.
Dispositions•Received credit rating upgrades to BBB+ from S&P and Fitch and Baa2 from Moody’s.
Acquisitions
•During 2017,2022, we completed the sale of six of our52 acquisitions representing 61 properties with a combined 0.85.9 million rentable square feet of buildings on 319.6 acres of land, including 31.5 acres of land for near term redevelopment, for an aggregate purchase price of $2.4 billion.
•Subsequent to December 31, 2022, we completed the acquisition of two properties with a combined 1.2 million rentable square feet buildings on 52.3 acres of land, for a purchase price of $405.0 million.
Dispositions
•During 2022, we sold one property with 79,247 rentable square feet, for a total gross sales price of $98.7$16.5 million and totalrecognized $8.5 million in gains on sale of real estate.
____________________
(1) For a reconciliation to net cash proceedsincome and a discussion of $96.0 million,why we believe Core FFO and NOI are useful supplemental measures of operating performance, see “Non-GAAP Supplemental Measures: Funds From Operations” and “Non-GAAP Supplemental Measures: NOI and Cash NOI” included under Item 7 of this Annual Report on Form 10-K.
(2) For a definition of “Same Property Portfolio,” see “Results of Operations” included under Item 7 of this Annual Report on Form 10-K.
Repositioning & Redevelopment
•During 2022, we stabilized seven of our repositioning/redevelopment properties located at 29025-29055 Avenue Paine, 900 East Ball Road, 11600 Los Nietos Road, 3441 MacArthur Boulevard, 415-435 Motor Avenue, 15650-15700 Avalon Boulevard and 19475 Gramercy Place, which $77.8 million was reinvested as parthave a combined 644,512 rentable square feet.
•During 2022, we pre-leased our repositioning properties located at 12133 Greenstone Avenue and 19431 Santa Fe Avenue. The leases are expected to commence in 2023 subject to completion of four separate 1031 Exchange transactions.repositioning work.
Equity
•During 2017,2022, we soldissued 28,343,395 shares of common stock for total net proceeds of $1.8 billion through a totalrange of 11,968,927equity transactions, as follows:
◦We entered into forward equity sales agreements under our ATM programs with respect to 23,519,219 shares of our common stock under our various at-the-marketat a weighted average initial forward sale price of $64.29 per share. We partially settled these forward equity offering programs, for gross proceeds of $336.6 million, or approximately $28.13 per share,sales agreements and net proceeds of approximately $331.6 million after deducting the sales agents’ fee.
In November 2017, we completed a public offering of 3,000,000outstanding forward sale agreement from 2021 by issuing 24,788,691 shares of our 5.875% Series B Cumulative Redeemable Preferred Stock at a price of $25.00 per share,common stock in exchange for net proceeds of approximately $72.5 million after deducting$1.6 billion.
◦In the underwriters’ discount and offering costs.
Financing
In February 2017,fourth quarter of 2022, we entered into forward equity sale agreements in connection with an agreementunderwritten public offering of 11,846,425 shares of our common stock, including 346,425 shares related to the partial exercise of underwriters’ option to purchase additional shares, at a public offering price of $56.00 per share for an offering value of $663.4 million. In December 2022, we partially settled the forward equity sale agreements by issuing 3,554,704 shares of common stock in exchange for net proceeds of $198.7 million.
•Subsequent to December 31, 2022, in January 2023, we partially settled the outstanding forward equity sale agreements related to the public offering by issuing 7,617,013 shares of common stock in exchange for net proceeds of $425.0 million.
•As of the date of this filing we had 1,311,592 shares of common stock, or approximately $72.9 million of net forward proceeds remaining for settlement prior to May 2024, based on a $450 millionweighted average forward sale price of $55.55 per share.
Financing
•In May 2022, we amended our senior unsecured credit facility, comprisedagreement to, among other changes, increase the borrowing capacity of a $350 millionour unsecured revolving credit facility that will mature in February 2021, with two six-month extensions available,to $1.0 billion from $700.0 million and to add a $100$300.0 million unsecured term loan. The proceeds from the $300.0 million unsecured term loan were used to repay our $150.0 million unsecured term loan facility that will maturedue in February 2022. Borrowings2025, terminate the associated swap, partially repay outstanding borrowings under the $350 million unsecured revolving credit facility bearand for general corporate purposes.
•In July 2022, we amended our senior unsecured credit agreement to add a $400.0 million unsecured term loan with a maturity date of July 19, 2024 (with two extension options of one year each). Proceeds were used to fund acquisitions, reduce outstanding borrowings under the unsecured revolving credit facility and for general corporate purposes.
•In July 2022, we executed five interest rate swap transactions with an aggregate notional value of $300.0 million to manage our exposure to changes in 1-month term SOFR (Term SOFR) related to a portion of our variable-rate debt. These swaps, which are effective July 27, 2022, and mature on May 26, 2027, currently fix Term SOFR at LIBOR plus an applicable margin that will range from 1.10% to 1.50% per annum depending ona weighted average rate of 2.81725%.
•In October 2022, we refinanced our leverage ratio, and the $100amortizing $60.0 million unsecuredterm loan expiring in August 2023. The new $60.0 million term loan facility bears interest at LIBORTerm SOFR, increased by a 0.10% SOFR adjustment, plus an applicable margin that will range from 1.20% to 1.70%of 1.25% per annum, dependingand matures on October 27, 2024, with three one-year extension options available.
•Subsequent to December 31, 2022, on February 6, 2023, our leverage ratio.board of directors declared a quarterly dividend of $0.380 per share, an increase of 20.6% from the prior quarterly rate of $0.315 per share.
In March 2017,•Subsequent to December 31, 2022, we repaidcertified that the $9.7 million outstanding balance on one ofsustainability performance target associated with our secured mortgage loanssenior unsecured credit agreement was met for 2022, resulting in advancethe reduction of the February 1, 2019 maturity date.applicable margin and applicable credit facility by 0.04% and 0.01%, respectively.
In July 2017, we completed a private placement of $125 million of 10-year senior notes at a fixed annual interest rate of 3.93%.In December 2017, we repaid the $5.1 million outstanding balance on one of our secured mortgage loans in advance of the April 1, 2018 maturity date.
Factors That May Influence Future Results of Operations
Market and Portfolio Fundamentals
Our operating results depend upon the infill Southern California industrial real estate market.
The infill Southern California industrial real estate sector has continued to exhibit strong fundamentals. These high-barrier infill markets are characterized by a relative scarcity of available product, generally operating at near fullor above approximately 98% occupancy, coupled with the limited ability to introduce new supply due to high land and developmentredevelopment costs and a dearth of developable land in markets experiencing a net reduction in supply as over time more industrial property is converted to non-industrial uses than can be delivered. Consequently, available industrial supply continueshas continued to decrease in many of our target infill submarkets landlord concessions remain at cyclically low levels and construction deliveries are fallinghave fallen short of demand. Meanwhile, underlying tenant demand within our infill target markets continues to demonstrate growth, illustrated or driven by strong re-leasing spreads and renewal activity, an expanding regional population,economy, substantial growth in e-commerceecommerce transaction and delivery volumes, as well as further compression of delivery time-frames to consumers and to businesses, increasing the significance of last-mile facilities for timely fulfillment. We expect thatThat said, economic uncertainties as a result of rising inflation and increasing interest rates could impact future demand, rental rates and vacancy within our infill Southern California market.
Tenant demand remains strong within our portfolio, which is strategically located within prime infill Southern California industrial markets. The quality and intensity of tenant demand coupled within 2022 is demonstrated through the continued low availability of industrial product, exacerbatedCompany’s strong leasing spreads and volume, achieving rental rates and related terms from new and renewing tenants that have generally exceeded those from historical years (see “—Leasing Activity and Rental Rates” below). This tenant demand has been driven by a reductionwide range of sectors, from consumer products, healthcare and medical products to aerospace, food, construction, and logistics, as well as by an emerging electric vehicle industry, among other sectors. In recent years, we have observed a notable increase in supply primarily due to re-zoningecommerce-oriented tenants securing space within our portfolio, in part driven by the impacts of available land to residential or mixed-use, may cause leasing ratesthe COVID-19 pandemic, which has accelerated the growth in the range and volume of goods and customers transacting through ecommerce. In addition, ecommerce-related delivery demand associated with last-mile distribution is driving discernible shifts in inventory-handling strategies among retailers and distributors, which we believe is driving incremental demand for our infill property locations. Our portfolio, which we believe represents prime locations with superior functionality within the largest last-mile logistics distribution market in the nation, is well-positioned to continue to grow through 2018. Despite potential concerns related to global growth, tax reformserve our existing diverse tenant based and possible changes to tradeattract incremental ecommerce-oriented and tariff policies andtraditional distribution demand.
We believe our portfolio’s leasing performance in 2022 has generally outpaced that of the impact of rising interest rates,infill markets within which we continue to observe a number of positive trends withinoperate, although, as discussed in more detail below, our target infill markets continue to operate at or near historically high levels of occupancy. We believe this performance has been driven by our highly entrepreneurial business model focused on acquiring and improving industrial property in superior locations so that our portfolio reflects a higher level of quality and functionality, on average, as compared to typical available product within the markets within which we operate. We also believe the quality and entrepreneurial approach demonstrated by our team of real estate professionals actively managing our properties and our tenants enables the potential to outcompete within our markets that we expect will continue intobelieve are generally otherwise owned by more passive, less-focused real estate owners.
General Market Conditions
The following are general market conditions and do not necessarily reflect the upcoming year.results of our portfolio. For our portfolio specific results see “—Rental Revenues” and “—Results of Operations” below.
In Los Angeles County, positive market trends continued through 2017, as record high occupancy levels persisted year-over-year andfundamentals were strong during 2022. Average asking lease rates increased at a stable pace during 2017.year-over-year, reaching an all-time high due to high levels of demand and near-record low vacancy levels, with several submarkets retaining sub 1% vacancy rates throughout the year. Current market conditions indicate rents may continue their upward trend with potential increasesare likely to increase, but a more modest pace, through 2018,2023, as demand has been steady, occupancy still remains at near capacity levels and new development is limited by a lack of land availability and an increase in land and development costs.
In Orange County, market fundamentals remained favorable throughout 2017. Rents continued their upward trendwere very strong during 2017 and although vacancy nominally2022. Average asking lease rates increased year-over-year demand remained steady. Regionalreaching a record high and vacancy decreased year-over-year to a new historic low at sub 1% vacancy. While lease rate growth has slowed over recent quarters, current market conditions indicate rents are likely to increase through 2023 due to continued demand and the potential for continued rental growth through 2018.low availability of industrial product in this region.
In San Diego, during 2017 net absorption was strong, overallvacancy increased year-over-year while still remaining at historically low levels and average asking lease rates increased to a record high and overall vacancy in the market decreased to an all-time low, which may position the market strongly for 2018.year-over-year.
In Ventura County, vacancy declinedincreased slightly year-over-year and average asking lease rates increased slightly year-over year.year-over-year.
Lastly, in the Inland Empire, new industrial product continues to be absorbed well in the market. In the Inland Empire West, which contains infill markets in which we operate, vacancy remained at historically low levels and asking lease rates
increased year-over-year. We expect the outlookyear-over-year rising above 1% for the Inland Empire Westfirst time since mid-2021, and average taking lease rates increased significantly year-over-year. Current
market conditions indicate rents are likely to remain positive over the upcoming year.continue to increase through 2023, though at a moderated pace when compared to 2022 growth. We generally do not focus on properties located within the non-infill Inland Empire East sub-market where available land and the development and construction pipeline for new supply is substantial.
Acquisitions and Value-Add Repositioning and Redevelopment of Properties
The Company’s external growth strategy comprises acquiring leased, stabilized properties as well as properties with value-add opportunities to improve functionality and to deploy our value-driven repositioning and asset management programs in order to increase cash flow and value. Additionally, from time to time, we may acquire industrial outdoor storage sites, land parcels or properties with excess land for ground-up redevelopment projects. Acquisitions may comprise single property investments as well as the purchase of portfolios of properties, with transaction values ranging from approximately $10 million single property investments to portfolios potentially valued in the billions of dollars. The Company’s geographic focus remains infill Southern California. However, from time-to-time, portfolios could be acquired comprising a critical mass of infill Southern California industrial property that could include some assets located in markets outside of infill Southern California. In general, to the extent non-infill-Southern California assets were to be acquired as part of a larger portfolio, the Company may underwrite such investments with the potential to dispose such assets over a certain period of time in order to maximize its core focus on infill Southern California, while endeavoring to take appropriate steps to satisfy REIT safe harbor requirements to avoid prohibited transactions under REIT tax laws.
A key component of our growth strategy is to acquire properties through off-market and lightly marketed transactions that are often operating at below-market occupancy or below-market rent at the time of acquisition or that have near-term lease roll-over or that provide opportunities to add-valueadd value through functional or physical repositioning and improvements. Through various repositioning, redevelopment, repositioning, and professional leasing and marketing strategies, we seek to increase the properties’ functionality and attractiveness to prospective tenants and, over time, to stabilize the properties at occupancy and lease rates that meet or exceed market rates.
A repositioning can consist ofprovide a range of improvements to a property.property improvements. This may include a complete structural renovation of a property whereby we convert large underutilized spaces into a series of smaller and more functional spaces, or it may include the creation of additional square footage, the modernization of the property site, the elimination of functional obsolescence, the addition or enhancement of loading areas and truck access, the enhancement of fire-life-safety systems or other accretive improvements.improvements, in each case designed to improve the cash flow and value of the property.
We have a number of significant repositioning properties, which are individually presented in the tables below. A repositioning property that is considered significant is typically defined as a property where a significant amount of space is held vacant in order to implement capital improvements, the cost to complete repositioning work and lease-up is estimated to be greater than $1 million and the repositioning and lease-up time frame is estimated to be greater than six months. We also have a range of other spaces in repositioning, that due to their smaller size, relative scope, projected repositioning costs or relatively nominal amount of down-time, are not presented below, however, in the aggregate, may be substantial (and which we refer to as “other repositioning projects”).
A repositioning is generally considered complete once the investment is fully or nearly fully deployed and the property is available for occupancy. Because each repositioning effort is unique and determined based on the property, targeted tenants and overall trends in the general market and specific submarket, the timing and effect of the repositioning on our rental revenue and occupancy levels will vary, and, as a result, will affect the comparison of our results of operations from period to period with limited predictability.
A redevelopment property is defined as a property where we plan to fully or partially demolish an existing building(s) due to building obsolescence and/or a property with excess or vacant land where we plan to construct a ground-up building.
As of December 31, 2017, four2022, 16 of our properties were in various stages ofunder current repositioning or redevelopment and one of our properties waswere in the lease-up stage. In addition, we have a pipeline of 12 additional properties for which we anticipate beginning repositioningrepositioning/redevelopment construction work on three additional properties during 2018.between the first quarter of 2023 and the first quarter of 2024. The tabletables below setsset forth a summary of these properties, as well as the five repositioning properties that were most recently stabilized during 2017. In additionin 2022 and 2021, as the timing of these stabilizations have a direct impact on our current and comparative results of operations. We consider a repositioning/redevelopment property to be stabilized upon the propertiesearlier of (i) reaching 90% occupancy or (ii) one year from the date construction work is completed.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Estimated Construction Period(1) | | |
Property (Submarket) | | Market | | Total Property Rentable Square Feet(2) | | Repositioning/ Lease-up Rentable Square Feet(2) | | Start | | Completion | | Total Property Leased % at 12/31/22 |
Current Repositioning: | | | | | | | | | | | | |
12821 Knott Street (West OC)(3) | | OC | | 165,171 | | | 165,171 | | | 1Q-2019 | | 1Q-2023 | | —% |
12133 Greenstone Avenue (Mid-Counties)(4) | | LA | | LAND | | LAND | | 1Q-2021 | | 1Q-2023 | | 100% |
8210-8240 Haskell Avenue (SF Valley) | | LA | | 52,934 | | | 52,934 | | | 1Q-2022 | | 1Q-2023 | | —% |
19431 Santa Fe Avenue (South Bay) | | LA | | LAND | | LAND | | 1Q-2022 | | 2Q-2023 | | 100%(5) |
Total Current Repositioning | | 218,105 | | | 218,105 | | | | | | | |
| | | | | | | | | | | | |
Lease-Up - Repositioning | | | | | | | | | | | | |
14100 Vine Place (Mid-Counties) | | LA | | 122,514 | | | 122,514 | | | 2Q-2022 | | 4Q-2022 | | —% |
| | | | | | | | | | | | |
Future Repositioning: | | | | | | | | | | | | |
20851 Currier Road (SG Valley) | | LA | | 59,412 | | | 59,412 | | | 1Q-2023 | | 2Q-2023 | | —% |
2800 Casitas Avenue (SF Valley) | | LA | | 117,234 | | | 117,234 | | | 1Q-2023 | | 3Q-2023 | | 100% |
500 Dupont Avenue (IE - West) | | SB | | 276,000 | | | 276,000 | | | 1Q-2023 | | 1Q-2024 | | —% |
11308-11350 Penrose Street (SF Valley) | | LA | | 151,604 | | | 71,824 | | | 1Q-2023 | | 2Q-2024 | | 100% |
29120 Commerce Center Drive (SF Valley) | | LA | | 135,258 | | | 135,258 | | | 3Q-2023 | | 1Q-2024 | | 100% |
1010 Belmont Street (IE - West) | | SB | | 61,824 | | | 61,824 | | | 3Q-2023 | | 3Q-2024 | | 100% |
Total Future Repositioning | | 801,332 | | | 721,552 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Estimated Construction Period(1) | | |
Property (Submarket) | | Market | | Estimated Redevelopment Rentable Square Feet(6) | | Start | | Completion | | Total Property Leased % at 12/31/22 |
Current Redevelopment: | | | | | | | | | | |
15601 Avalon Boulevard (South Bay) | | LA | | 86,830 | | | 3Q-2021 | | 1Q-2023 | | —% |
1055 Sandhill Avenue (South Bay) | | LA | | 127,857 | | | 3Q-2021 | | 1Q-2024 | | —% |
9615 Norwalk Boulevard (Mid-Counties) | | LA | | 201,571 | | | 3Q-2021 | | 2Q-2024 | | —% |
9920-10020 Pioneer Boulevard (Mid-Counties) | | LA | | 162,231 | | | 4Q-2021 | | 1Q-2024 | | —% |
12752-12822 Monarch Street (West OC)(7) | | OC | | 161,711 | | | 1Q-2022 | | 2Q-2023 | | See note (7) |
1901 Via Burton (North OC) | | OC | | 139,449 | | | 1Q-2022 | | 1Q-2024 | | —% |
3233 Mission Oaks Boulevard (Ventura)(8) | | VC | | 117,358 | | | 2Q-2022 | | 2Q-2024 | | —% |
6027 Eastern Avenue (Central LA) | | LA | | 93,498 | | | 3Q-2022 | | 1Q-2024 | | —% |
8888-8892 Balboa Avenue (Central SD) | | SD | | 123,488 | | | 3Q-2022 | | 1Q-2024 | | —% |
12118 Bloomfield Avenue (Mid-Counties) | | LA | | 109,570 | | | 4Q-2022 | | 1Q-2024 | | —% |
2390-2444 American Way (North OC) | | OC | | 100,483 | | | 4Q-2022 | | 1Q-2024 | | —% |
4416 Azusa Canyon Road (San Gabriel Valley) | | LA | | 130,063 | | | 4Q-2022 | | 2Q-2024 | | —% |
Total Current Redevelopment | | 1,554,109 | | | | | | | |
| | | | | | | | | | |
Future Redevelopment: | | | | | | | | | | |
3071 Coronado Street (North OC) | | OC | | 105,173 | | | 1Q-2023 | | 1Q-2024 | | 100% |
15010 Don Julian Road (San Gabriel Valley) | | LA | | 219,242 | | | 1Q-2023 | | 2Q-2024 | | —% |
12772 San Fernando Road (San Fernando Valley) | | LA | | 143,421 | | | 3Q-2023 | | 3Q-2024 | | 52% |
17907-18001 Figueroa Street (South Bay) | | LA | | 75,392 | | | 4Q-2023 | | 4Q-2024 | | 100% |
21515 Western Avenue (South Bay) | | LA | | 84,100 | | | 4Q-2023 | | 4Q-2024 | | —% |
13711 Freeway Drive (Mid-Counties) | | LA | | 104,500 | | | 1Q-2024 | | 2Q-2025 | | 100% |
Total Future Redevelopment | | 731,828 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stabilized:(9) | | Market | | Stabilized Rentable Square Feet | | Stabilized Period | | Total Property Leased % at 12/31/22 |
29025-29055 Avenue Paine (San Fernando Valley) | | LA | | 111,260 | | | 1Q-2022 | | 100% |
900 East Ball Road (North OC) | | OC | | 62,607 | | | 2Q-2022 | | 100% |
11600 Los Nietos Road (Mid-Counties) | | LA | | 106,251 | | | 3Q-2022 | | 100% |
3441 MacArthur Blvd. (OC Airport) | | OC | | 124,102 | | | 3Q-2022 | | 100% |
415-435 Motor Avenue (SG Valley) | | LA | | 94,321 | | | 4Q-2022 | | 100% |
15650-15700 Avalon Blvd. (South Bay) | | LA | | 98,259 | | | 4Q-2022 | | 100% |
19475 Gramercy Place (South Bay) | | LA | | 47,712 | | | 4Q-2022 | | 100% |
Total 2022 Stabilized | | 644,512 | | | | | | | |
| | | | | | | | | | |
The Merge (Inland Empire West) | | SB | | 333,544 | | | 2Q-2021 | | 100% |
16221 Arthur Street (Mid-Counties) | | LA | | 61,372 | | | 2Q-2021 | | 100% |
Rancho Pacifica Buildings 1 & 6 (South Bay)(10) | | LA | | 488,114 | | | 3Q-2021 | | 100% |
8745-8775 Production Avenue (Central SD) | | SD | | 26,200 | | | 3Q-2021 | | 100% |
19007 Reyes Avenue (South Bay)(11) | | LA | | — | | | 3Q-2021 | | 100% |
851 Lawrence Drive (Ventura) | | VC | | 90,773 | | | 3Q-2021 | | 100% |
Total 2021 Stabilized | | 1,000,003 | | | | | | | |
(1)The estimated construction start period is the period we anticipate starting physical construction on a project. Prior to physical construction, we engage in pre-construction activities, which include design work, securing permits or entitlements, site work, and other necessary activities preceding construction. The estimated completion period is our current estimate of the period in which we will have substantially completed a project and the project is made available for occupancy. We expect to update our timing estimates on a quarterly basis. The estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements, delays in construction (including delays related to supply chain backlogs), changes in scope, and other unforeseen circumstances.
(2)“Total Property Rentable Square Feet” is the total rentable square footage of the entire property or particular building(s) (footnoted if applicable) under repositioning/lease-up. “Repositioning/Lease-up Rentable Square Feet” is the actual rentable square footage that is subject to repositioning at the property/building, and may be less than Total Property Rentable Square Feet.
(3)At 12821 Knott Street, we are repositioning the existing 120,800 rentable square foot building and constructing approximately 45,000 rentable square feet of new warehouse space.
(4)At 12133 Greenstone Avenue, a 4.8 acre industrial site, we demolished the existing 12,586 rentable square foot truck terminal building to provide greater functionality as a single tenant container storage facility. As of December 31, 2022, the property has been pre-leased with the lease expected to commence in the table below, wesecond quarter of 2023, subject to completion of repositioning work.
(5)As of December 31, 2022, 19431 Santa Fe Avenue has been leased and the tenant is occupying a portion of the property. The tenant is expected to take full occupancy in the second quarter of 2023, subject to completion of repositioning work.
(6)Represents the estimated rentable square footage of the project upon completion of redevelopment.
(7)As of December 31, 2022, 12752-12822 Monarch Street comprises 271,268 rentable square feet. The project includes 111,325 rentable square feet with tenants in-place that are not being redeveloped. We are repositioning 63,815 rentable square feet, and have demolished 99,925 rentable square feet and are constructing a new 97,896 rentable square feet building in its place. At completion, the total project will contain 273,036 rentable square feet.
(8)As of December 31, 2022, 3233 Mission Oaks Boulevard comprises 409,217 rentable square feet that are currently occupied and not being redeveloped. We plan to construct one new building comprising 117,358 rentable square feet. We are also performing site work across the entire project. At completion, the total project will contain 526,575 rentable square feet.
(9)We consider a repositioning property to be stabilized upon the earlier of (i) reaching 90% occupancy or (ii) one year from the date construction work is completed.
(10)Rancho Pacifica Buildings 1 & 6 are located at 2301-2329 Pacifica Place and 2332-2366 Pacifica Place, and represent two buildings totaling 488,114 rentable square feet, out of six buildings at our Rancho Pacifica Park property, which have a range of smaller spaces in value-add repositioning or renovation, that due to their smaller size, are not presented below, however, intotal 1,152,883 rentable square feet. Property leased percentage reflects the aggregate, may be substantial.two buildings.
(11)At 19007 Reyes Avenue, a 4.5 acre industrial site, we removed the dysfunctional improvements and converted the site into a single tenant industrial outdoor storage facility for container storage.
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| | | | | | | | | | | | | | | |
| | | | | | | | | | Estimated Construction Period(1) | | | |
Property (Submarket) | | Market | | Total Property Rentable Square Feet | | Vacant Rentable Square Feet Under Repositioning/Lease-up | | Estimated Development Rentable Square Feet | | Start | | Completion | | Total Property Leased % at 12/31/17 | |
Current Repositioning: | | | | | | | | | | | | | | | |
14750 Nelson - Repositioning | | | | 147,360 | | 147,360 | | — | | 3Q-2016 | | 1Q-2018 | | —% | |
14750 Nelson - Development | | | | — | | — | | 53,897 | | 3Q-2016 | | 2Q-2018 | | —% | |
14750 Nelson (San Gabriel Valley) | | LA | | 147,360 | | 147,360 | | 53,897 | | 3Q-2016 | | 2Q-2018 | | —% | |
301-445 Figueroa Street (South Bay)(2) | | LA | | 133,650 | | 78,760 | | — | | 4Q-2016 | | 3Q-2018 | | 42% | |
28903 Avenue Paine - Repositioning | | | | 111,346 | | 111,346 | | — | | 1Q-2017 | | 1Q-2018 | | —% | |
28903 Avenue Paine - Development | | | | — | | — | | 112,654 | | 1Q-2017 | | 4Q-2018 | | —% | |
28903 Avenue Paine (SF Valley) | | LA | | 111,346 | | 111,346 | | 112,654 | | 1Q-2017 | | 4Q-2018 | | —% | |
3233 Mission Oaks Blvd (Ventura): | | | | | | | | — | | | | | | | |
Unit 3233-H(3) | | VC | | 461,210 | | 43,927 | | — | | 1Q-2017 | | 4Q-2017 | | 64% | |
Unit 3233 | | VC | | 461,210 | | 111,419 | | — | | 2Q-2017 | | 4Q-2018 | | 64% | |
Total | | | | | | 492,812 | | 166,551 | | | | | | | |
| | | | | | | | | | | | | | | |
Lease-up Stage: | | | | | | | | | | | | | | | |
1601 Alton Parkway (OC Airport) | | OC | | 124,988 | | 15,874 | | — | | 4Q-2014 | | 4Q-2017 | | 87% | |
Total | | | | | | 15,874 | | — | | | | | | | |
| | | | | | | | | | | | | | | |
Future Repositioning: | | | | | | | | | | | | | | | |
9615 Norwalk Boulevard (Mid-Counties) | | LA | | 38,362 | | — | | 201,808 | | 2Q-2018 | | 2Q-2019 | | 100% | |
2722 Fairview Street (OC Airport)(4) | | OC | | 116,575 | | — | | — | | 1Q-2018 | | 2Q-2018 | | 100% | |
15401 Figueroa Street (South Bay) | | LA | | 38,584 | | — | | — | | 2Q-2018 | | 3Q-2018 | | 100% | |
Total | | | |
| | — | | 201,808 | | | | | | | |
| | | | | | | | | | | | | | | |
Total Current Repositioning, Lease-up Stage and Future Repositioning: | | | | | | 508,686 | | 368,359 | | | | | | | |
| | | | | | | | | | | | | | | |
Stabilized:(5) | | | | | | | | | | | | | | | |
679-691 S. Anderson Street (Central LA) | | LA | | 47,490 | | — | | — | | N/A | | N/A | | 100% | |
18118 S. Broadway Street (South Bay) | | LA | | 78,183 | | — | | — | | N/A | | N/A | | 100% | |
3880 Valley Boulevard (San Gabriel Valley) | | LA | | 108,550 | | — | | — | | N/A | | N/A | | 100% | |
12131 Western Avenue (West OC) | | OC | | 207,953 | | — | | — | | N/A | | N/A | | 100% | |
228th Street (South Bay) | | LA | | 88,971 | | — | | — | | N/A | | N/A | | 98% | |
| |
(1) | The estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements, delays in construction, changes in scope, and other unforeseen circumstances. |
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(2) | The property located at 301-445 Figueroa Street has 14 units, all of which will be repositioned in various phases. As of December 31, 2017, the property consists of: two units (23,700 rentable square feet) that have been completed and leased; five units (54,290 RSF) that have been completed and are vacant; three units (24,470 rentable square feet) that are currently undergoing repositioning; and four units (31,190 rentable square feet) in which repositioning has not yet started. We estimate that the latter seven units (55,650 rentable square feet) will be completed between 1Q-2018 and 3Q-2018. |
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(3) | As of December 31, 2017, Unit H has been pre-leased to a tenant with a commencement date of January 31, 2018. |
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(4) | The property located at 2722 Fairview is a two-unit building which is 100% occupied by two tenants as of December 31, 2017. We plan to reposition one of the units (58,802 rentable square feet) when the current tenant’s lease terminates in February 2018. |
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(5) | We consider a repositioning property to be stabilized at the earlier of the following: (i) upon reaching 90% occupancy or (ii) one year from the date of completion of repositioning construction work. |
Capitalized Costs
Properties that are nonoperational as a result of repositioning or redevelopment activity may qualify for varying levels of interest, insurance and real estate tax capitalization during the developmentredevelopment and construction period. An increase in our repositioning and developmentredevelopment activities resulting from value-add acquisitions could cause an increase in the asset balances qualifying for interest, insurance and tax capitalization in future periods. We capitalized $1.7$12.2 million of interest expense and $1.2$5.2 million of insurance and real estate tax expense during the year ended December 31, 2017,2022, related to our repositioning and redevelopment projects.
Construction Costs and Timing
Recent inflationary and supply chain pressures have led to increased construction materials and labor costs, which when combined with longer lead times for governmental approvals and entitlements, have led to an overall increase in budgeted and actual construction costs as well as delays in starting and completing certain of our redevelopment projects. While low vacancy in our markets and continued rent growth (see “—Leasing Activity and Rental Rates” below) has helped to mitigate some of the impact of rising construction costs and project delays, additional increases in costs and further delays could result in a lower expected yield on our redevelopment projects, which could negatively impact our future earnings.
Rental RevenueRevenues
Our operating results depend primarily upon generating rental revenue from the properties in our consolidated portfolio. The amount of rental revenue generated by these properties is affected by our ability to maintain or increase occupancy levels and rental rates at our properties, which will depend upon our ability to lease vacant space and re-lease expiring space at favorable rates.
Occupancy Rates
As of December 31, 2017,2022, our consolidated portfolio, inclusive of space in repositioning as described in the subsequent paragraph, was 95.5%approximately 94.6% occupied, while our stabilized consolidated portfolio exclusive of such space was approximately 97.9% occupied. We believe the opportunity to increase occupancy at our properties will be an important driver of future revenue growth. An opportunity to drive this growth will derive from the lease-up of recently completed repositioning projects and the completion and lease-up of repositioning and redevelopment projects that are currently under construction and planned for near-term construction.
As summarized in the tabletables under “Acquisitions and Value-Add Repositioning and Redevelopment of Properties” above, as of December 31, 2017, five2022, 16 of our properties with a combined 0.51.8 million vacantof estimated rentable square feet were in various stages of redevelopment,at completion are under current repositioning or lease-up. These fiveredevelopment, one property is in lease-up, and we have a near-term pipeline of 12 repositioning and redevelopment projects with a combined 1.5 million of estimated rentable square feet at completion. Additionally, as of December 31, 2022, we had 0.4 million rentable square feet of other repositioning projects. Vacant space at these properties areis concentrated in our Los Angeles, Orange County and VenturaSan Bernardino markets and represent 2.8%represents 3.3% of our total consolidated portfolio square footage as of December 31, 2017.2022. Including vacant repositioning and lease-up space at these five properties, our weighted average occupancy rate as of December 31, 2017,2022, in our Los Angeles, Orange County and VenturaSan Bernardino markets was 95.3%95.6%, 97.1%92.7% and 86.0%89.7%, respectively. Excluding vacant repositioning and lease-up space at these five properties, our weighted average occupancy rate as of December 31, 2017,2022, in these markets was 99.1%98.5%, 97.7%99.3% and 94.4%94.3%, respectively, and our overall portfolio occupancy excluding these properties was 98.2%.respectively. We believe that a significantan important portion of our long-term future growth will come from the completion of these projects currently under or scheduled for repositioning,repositioning/redevelopment, as well as through the identification or acquisition of new opportunities for redevelopmentrepositioning and repositioning,redevelopment, whether in our existing portfolio or through new investments, which may vary from period to period subject to market conditions.
The occupancy rate of properties not undergoing repositioning is affected by regional and local economic conditions in our Southern California infill markets. Throughout 2017,In the last several years, the Los Angeles, Orange County, San Bernardino and San Diego county markets have continued to show historically low vacancy and positive absorption, resulting from high tenant demand combined with low product availability. Accordingly, our properties in these markets have generally exhibited a similar trend. We expectbelieve that general market conditions towill remain positive in 2018,2023, and we believe the opportunity to increase occupancy and rental rates at our properties will be an important driver of future revenue growth.
growth; however, there can be no assurance that recent positive market trends will continue.
Leasing Activity and Rental Rates
The following tables set forth our leasing activity for new and renewal leases on a quarterly basis for the year ended December 31, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Leases |
Quarter | | Number of Leases | | Rentable Square Feet | | Weighted Average Lease Term (in years) | | Effective Rent Per Square Foot(1) | | GAAP Leasing Spreads(2)(4) | | Cash Leasing Spreads(3)(4) |
Q1-2022 | | 35 | | | 314,567 | | | 4.4 | | | $ | 23.19 | | | 66.3 | % | | 49.1 | % |
Q2-2022 | | 36 | | | 649,099 | | | 5.8 | | | $ | 22.98 | | | 107.6 | % | | 76.6 | % |
Q3-2022 | | 53 | | | 702,882 | | | 4.6 | | | $ | 25.29 | | | 70.5 | % | | 53.6 | % |
Q4-2022 | | 40 | | | 411,428 | | | 8.5 | | | $ | 24.61 | | | 109.2 | % | | 64.9 | % |
Total/Weighted Average | | 164 | | | 2,077,976 | | | 5.7 | | | $ | 24.12 | | | 88.9 | % | | 61.6 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | New Leases |
Quarter | | Number of Leases | | Rentable Square Feet | | Weighted Average Lease Term (in years) | | Effective Rent Per Square Foot(1) | | GAAP Leasing Spreads(2)(4) | | Cash Leasing Spreads(3)(4) |
Q1-2017 | | 65 |
| | 423,766 |
| | 4.7 |
| | $ | 10.44 |
| | 32.2 | % | | 20.4 | % |
Q2-2017 | | 52 |
| | 310,950 |
| | 4.0 |
| | $ | 9.94 |
| | 31.3 | % | | 24.2 | % |
Q3-2017 | | 61 |
| | 678,882 |
| | 4.4 |
| | $ | 10.31 |
| | 33.6 | % | | 21.4 | % |
Q4-2017 | | 50 |
| | 506,581 |
| | 6.9 |
| | $ | 10.46 |
| | 40.1 | % | | 30.1 | % |
Total/Weighted Average | | 228 |
| | 1,920,179 |
| | 5.0 |
| | $ | 10.32 |
| | 33.8 | % | | 23.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Renewal Leases | | Expiring Leases | | Retention %(7) |
Quarter | | Number of Leases | | Rentable Square Feet | | Weighted Average Lease Term (in years) | | Effective Rent Per Square Foot(1) | | GAAP Leasing Spreads(2)(5) | | Cash Leasing Spreads(3)(5) | | Number of Leases | | Rentable Square Feet(6) | | Rentable Square Feet |
Q1-2022 | | 54 | | | 552,828 | | | 3.4 | | | $ | 21.13 | | | 72.8 | % | | 59.9 | % | | 94 | | | 1,153,547 | | | 83.9 | % |
Q2-2022 | | 70 | | | 745,840 | | | 3.9 | | | $ | 19.48 | | | 73.0 | % | | 55.3 | % | | 130 | | | 1,625,064 | | | 66.0 | % |
Q3-2022 | | 77 | | | 994,945 | | | 4.6 | | | $ | 21.50 | | | 95.3 | % | | 66.3 | % | | 125 | | | 1,736,079 | | | 72.3 | % |
Q4-2022 | | 77 | | | 736,124 | | | 4.0 | | | $ | 19.71 | | | 65.0 | % | | 47.8 | % | | 136 | | | 1,457,914 | | | 69.6 | % |
Total/Weighted Average | | 278 | | | 3,029,737 | | | 4.1 | | | $ | 20.50 | | | 77.9 | % | | 57.7 | % | | 485 | | | 5,972,604 | | | 71.8 | % |
(1)Effective rent per square foot is the average base rent calculated in accordance with GAAP, over the term of the lease, expressed in dollars per square foot per year. Includes all new and renewal leases that were executed during each respective quarter. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Renewal Leases | | Expiring Leases | | Retention % |
Quarter | | Number of Leases | | Rentable Square Feet | | Weighted Average Lease Term (in years) | | Effective Rent Per Square Foot(1) | | GAAP Leasing Spreads(2)(5) | | Cash Leasing Spreads(3)(5) | | Number of Leases | | Rentable Square Feet | | Rentable Square Feet |
Q1-2017 | | 74 |
| | 439,602 |
| | 3.3 |
| | $ | 10.41 |
| | 17.9 | % | | 9.6 | % | | 136 |
| | 1,248,787 |
| | 56.6 | % |
Q2-2017 | | 87 |
| | 469,766 |
| | 3.5 |
| | $ | 10.57 |
| | 16.5 | % | | 5.9 | % | | 127 |
| | 771,093 |
| | 70.8 | % |
Q3-2017 | | 66 |
| | 614,175 |
| | 3.6 |
| | $ | 8.64 |
| | 21.2 | % | | 13.4 | % | | 118 |
| | 971,551 |
| | 66.2 | % |
Q4-2017 | | 69 |
| | 574,522 |
| | 3.4 |
| | $ | 11.02 |
| | 23.9 | % | | 15.5 | % | | 121 |
| | 1,059,505 |
| | 64.4 | % |
Total/Weighted Average | | 296 |
| | 2,098,065 |
| | 3.5 |
| | $ | 10.29 |
| | 20.0 | % | | 11.2 | % | | 502 |
| | 4,050,936 |
| | 64.0 | % |
(2)Calculated as the change between GAAP rents, which straightlines rental rate increases and abatements, for new or renewal leases and the expiring GAAP rents on the expiring leases for the same space.
(3)Calculated as the change between starting cash rents, excluding any abatements, for new or renewal leases and the expiring cash rents on the expiring leases for the same space.
(4)The GAAP and cash re-leasing spreads for new leases executed during the year ended December 31, 2022, exclude 33 leases aggregating 908,524 rentable square feet for which there was no comparable lease data. Of these 33 excluded leases, eight leases aggregating 500,643 rentable square feet were recently repositioned/redeveloped space. Comparable leases generally exclude: (i) space that has never been occupied under our ownership, (ii) recently repositioned/redeveloped space, (iii) space that has been vacant for over one year or (iv) space with lease terms shorter than six months.
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(1) | Effective rent per square foot is the average base rent calculated in accordance with GAAP, over the term of the lease, expressed in dollars per square foot per year. Includes all new and renewal leases executed during each respective quarter. |
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(2) | Calculated as the change between GAAP rents for new or renewal leases and the expiring GAAP rents on the expiring leases for the same space. |
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(3) | Calculated as the change between cash rents for new or renewal leases and the expiring cash rents on the expiring leases for the same space. |
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(4) | The GAAP and cash re-leasing spreads for new leases executed during the year ended December 31, 2017, exclude 71 leases aggregating 865,200 rentable square feet for which space was vacant when the property was acquired or there was no comparable lease data. Comparable leases generally exclude: (i) space that has never been occupied under our ownership, (ii) recently repositioned/redeveloped space, (iii) space that has been vacant for over one year, (iv) space with different lease structures (for example a change from a gross lease to a modified gross lease or an increase or decrease in the leased square footage) or (v) space with lease terms shorter than six months. |
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(5) | The GAAP and cash re-leasing rent spreads for renewal leases executed during the year ended December 31, 2017, exclude eight leases aggregating 88,174 rentable square feet for which there was no comparable lease data due to either (i) space with different lease structures or (ii) space with lease terms shorter than six months. |
(5)The GAAP and cash re-leasing rent spreads for renewal leases executed during the year ended December 31, 2022, exclude eight renewal leases with 30,693 rentable square feet that either had lease terms shorter than six months or were antenna/parking lot leases.
(6)Includes leases totaling 1,257,196 rentable square feet that expired during the year ended December 31, 2022, for which the space has been or will be placed into repositioning (including “other repositioning project”) or redevelopment.
(7)Retention is calculated as renewal lease square footage plus relocation/expansion square footage, divided by the square footage of leases expiring during the period. Retention excludes square footage related to the following: (i) expiring leases associated with space that is placed into repositioning (including “other repositioning project”) after the tenant vacates, (ii) early terminations with pre-negotiated replacement leases and (iii) move outs where space is directly leased by subtenants. Retention for the first quarter of 2022 has been adjusted to conform to the current definition.
Our leasing activity is impacted both by our redevelopmentrepositioning and repositioningredevelopment efforts, as well as by market conditions. While we reposition a property, its space may become unavailable for leasing until completion of our repositioning efforts. During the year endedAs of December 31, 2017, we completed the repositioning and lease-up of five of our value-add repositioning properties located at 679-691 Anderson Street, 18118 Broadway Street, 3880 Valley Boulevard, 12131 Western Avenue and 228th
Street and we pre-leased 43,927 rentable square feet at 3233 Mission Oaks Boulevard. As of the date of this filing,2022, we have four repositioning16 current repositioning/redevelopment projects with estimated construction completion periods ranging from the first quarter of 2018 to2023 through the fourthsecond quarter of 20182025, and one propertyan additional 12 repositioning and redevelopment projects in our pipeline with estimated completion dates through the lease-up stage.second quarter of 2025. We expect these properties to have positive impacts on our leasing activity and revenue generation as we complete our value-add repositioning planplans and place these properties in service.
Scheduled Lease Expirations
Our ability to re-lease space subject to expiring leases is affected by economic and competitive conditions in our markets and by the relative desirability of our individual properties, which may impact our results of operations.
As of December 31, 2017, 0.32022, 0.9 million rentable square feet of our portfolio was available for lease, 0.51.4 million rentable square feet of vacant space was under repositioningrepositioning/redevelopment and leases representing 0.20.7 million rentable square feet of our portfolio expired on December 31, 2017.2022. Additionally, leases representing 12.9%13.7% and 14.8%16.3% of the aggregate rentable square footage of our portfolio are scheduled to expire during the years ending December 31, 20182023 and 2019,2024, respectively. During the year ended December 31, 2017,2022, we renewed 296278 leases for 2.13.0 million rentable square feet, resulting in a 64.0%71.8% retention rate.
Our retention rate during the yearperiod was impacted by the combination of low vacancy and high demand in many of our strategy to roll certain tenants at below-market rents and to replace them with higher quality tenants paying higher rents.key markets. New and renewal leases signed during the current year had a weighted average term of 5.05.7 and 3.54.1 years, respectively, and we expect future new and renewal leases to have similar terms.
The leases scheduled to expire during the years ending December 31, 20182023 and 2019,2024, represent 14.3%14.9% and 15.8%15.0%, respectively, of the total annualized base rent for our portfolio as of December 31, 2017.2022. We estimate that, on a weighted average basis, in-place rents of leases scheduled to expire in 20182023 and 20192024 are currently below current market asking rents,rates, although individual units or properties within any particular submarket presently may currently be leased either above, below, or at the current market asking rates within that submarket.
As described under “Market and Portfolio Fundamentals” above, while market indicators, including changes in the above Market Fundamentals section,vacancy rates and average asking lease rates, varied by market, overall there was continued low market vacancy and pervasive supply and demand imbalance across our submarkets, which continues to support strong market fundamentals including positive rental growth. Therefore, we expect market dynamics to remain strong heading into 20182023 and that these positive trends will provide a favorable environment for additional increases in lease renewal rates. Accordingly, we expect 20182023 will show positive renewal rates and leasing spreads. We also currently do not see any reason not to expect that 2019 lease expirations will show positive growth upon renewal; however, it is difficult to predict market conditions that far into the future.
Conditions in Our Markets
The properties in our portfolio are located primarily in Southern California infill markets. Positive or negative changes in economic or other conditions, including the impact of the ongoing and persisting local government emergency declarations related to the COVID-19 pandemic, high persistent inflation and adverse weather conditions and natural disasters in this market may affect our overall performance.
Property Expenses
Our rentalproperty expenses generally consist of utilities, real estate taxes, insurance, site repair and maintenance costs, and the allocation of overhead costs. For the majority of our properties, our property expenses are recovered, in part, by either the triple net provisions or modified gross expense reimbursements in tenant leases. The majority of our leases also comprise contractual three percent or greater annual rental rate increases meant, in part, to help mitigate potential increases in property expenses over time. However, the terms of our leases vary and, in some instances, we may absorb property expenses. Our overall financial results will be impacted by the extent to which we are able to pass-through property expenses to our tenants.
Taxable REIT Subsidiary
As of December 31, 2017,2022, our Operating Partnership indirectly and wholly owns Rexford Industrial Realty and Management, Inc., which we refer to as theour services company. We have elected, together with our services company, to treat our services company as a taxable REIT subsidiary for federal income tax purposes. A taxable REIT subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we or our subsidiaries (other than a taxable REIT subsidiary) may not engage in directly without adversely affecting our qualification as a REIT, provided a taxable REIT subsidiary may not operate or manage a lodging facility or health care facility or provide rights to any brand name under which any lodging facility or health care facility is operated. We may form additional taxable REIT subsidiaries in the future, and our Operating Partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company. Any income earned by our taxable REIT subsidiaries will not be included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a taxable REIT subsidiary is subject to federal income tax and state and local income tax (where applicable) as a regular corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries. Our taxable REIT subsidiary is a C-corporation subject to federal and state income tax, howevertax. However, it has a cumulative unrecognized net operation loss carryforward and therefore there is no income tax provision for the years ended December 31, 20172022 and 2016.
2021.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for the reporting periods. Actual amounts may differ from these estimates and assumptions. We have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on financial condition and results of operations. Management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions that it believes are reasonable as of the date hereof. In addition, other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those of other companies.
A critical accounting policy is one that is both important to the portrayal of an entity’s financial condition and results of operations and requires judgment on the part of management. Generally, the judgment requires management to make estimates and assumptions about the effect of matters that are inherently uncertain. Estimates are prepared using management’s best judgment, after considering past and current economic conditions and expectations for the future. Changes in estimates could affect our financial position and specific items in our results of operations that are used by the users of our financial statements in their evaluation of our performance.
The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, and judgments used in the preparation of our consolidated financial statements. For further discussion of our significant accounting policies and discussion of new accounting pronouncements (if applicable), see Note“Note 2 “Summary– Summary of Significant Accounting Policies” to our consolidated financial statements under Item 15 of this report on Form 10-K.
Investment in Real Estate
Acquisitions
Effective January 1, 2017, We evaluated the acquisitions that we early adopted ASUcompleted during the years ended December 31, 2022 and 2021, and determined that these transactions should be accounted for as asset acquisitions. Our acquisitions of properties generally no longer meet the revised definition of a business under Accounting Standards Update 2017-01, Business Combinations - Clarifying the Definition of a Business, and accordingly are accounted for as asset acquisitions.
For asset acquisitions, we allocate the cost of the acquisition, which includes the purchase price 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 debt.
Our estimates for the fair value of the individual assets acquired and liabilities assumed are subject to uncertainty given the significant assumptions used to determine their fair value. The use of different assumptions in the determination of fair value could significantly affect the reported amounts of the allocation of our acquisition related assets and liabilities and the related depreciation and amortization expense recorded for such assets and liabilities. In addition, because the value of above- and below-market leases are amortized as either a reduction or increase to rental income, respectively, our judgments for these intangibles could have a significant impact on our reported rental revenues and results of operations. Our estimation process and the valuation model we use to determine the fair value of the individual assets acquired and liabilities assumed are discussed in more detail in “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
Impairment of Long-Lived Assets
In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC Topic 360: Property, Plant, and Equipment, we assess the carrying values of our respective long-lived assets, including right-of use assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.
Impairment of the carrying value of long-lived assets are subject to uncertainty associated with forecasting future cash flows for measuring recoverability. 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. 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. See “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements included in Item 15 of this Report on Form 10-K for further details regarding our estimation process for impairment of long-lived assets.
Valuation of Operating Lease Receivables
We may be subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. 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. Accordingly, assumptions used to estimate collectability of operating lease receivables can change from period to period based on the tenants’ payment history, financial condition and other tenant specific factors. An increase or decrease in our assessment of the uncollectible amount for an operating lease receivable by $1,000 will have an opposite impact of an equivalent amount on our rental income in the consolidated statements of operations. See “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements included in Item 15 of this Report on Form 10-K for further details regarding valuation of operating lease receivables.
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 on the grant date. The grant date fair value for equity awards that contain market-based vesting conditions (such as the Company’s total shareholder return (“TSR”) or the Company’s TSR relative to the TSR of a selected peer group of companies) are performed using complex pricing valuation models, specifically a Monte Carlo simulation pricing model, that require the input of assumptions, including judgments to estimate expected stock price volatility and expected dividend yield. For equity awards that contain performance-based vesting conditions (such as the Company’s FFO per share growth) we recognize compensation cost based on the number of awards that are expected to vest based on the probable outcome of the performance condition over the performance period. If factors change causing different assumptions to be made on the number of awards expected to vest, estimated compensation expense may differ significantly from that recorded in the current period but ultimately, the compensation cost for these awards will be adjusted in future periods to reflect the actual number of awards that vest. See “Note 2 – Summary of Significant Accounting Policies” and “Note 13 – Incentive Award Plan” to our consolidated financial statements included in Item 15 of this Report on Form 10-K for further details regarding our estimation process for equity-based compensation.
Results of Operations
Our consolidated results of operations are often not comparable from period to period due to the effect of (i) property acquisitions, (ii) property dispositions and (iii) properties that are taken out of service for repositioning or redevelopment during the comparative reporting periods. Our “Total Portfolio” represents all of the properties owned during the reported periods. To eliminate the effect of changes in our Total Portfolio due to acquisitions, dispositions and repositioning/redevelopment and to highlight the operating results of our on-going business, we have separately presented the results of our “Same Property Portfolio.”
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
For the comparison of the years ended December 31, 2022 and 2021, our Same Property Portfolio includes all properties in our industrial portfolio that were wholly-owned by us for the period from January 1, 2021 through December 31, 2022, and that were stabilized prior to January 1, 2021, which consisted of 224 properties aggregating approximately 28.6 million rentable square feet. Results for our Same Property Portfolio exclude any properties that were acquired or sold during the period from January 1, 2021 through December 31, 2022, properties classified as current or future repositioning, redevelopment or lease-up during 2021 or 2022, interest income, interest expense and corporate general and administrative expenses.
For the comparison of the years ended December 31, 2022 and 2021, our Total Portfolio includes the properties in our Same Property Portfolio, the 114 properties aggregating approximately 11.6 million rentable square feet that were acquired during 2022 and 2021, and the six properties aggregating approximately 0.3 million rentable square feet that were sold during 2022 and 2021.
As of December 31, 2022 and 2021, our Same Property Portfolio occupancy was approximately 98.1% and 99.1%, respectively. For the years ended December 31, 2022 and 2021, our Same Property Portfolio weighted average occupancy was approximately 98.7% and 98.3%, respectively.
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| | Same Property Portfolio | | Total Portfolio |
| | Year Ended December 31, | | Increase/ (Decrease) | | % Change | | Year Ended December 31, | | Increase/ (Decrease) | | % Change |
| | 2022 | | 2021 | | | | 2022 | | 2021 | | |
| | ($ in thousands) |
REVENUES | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Rental income | | $ | 409,737 | | | $ | 381,297 | | | $ | 28,440 | | | 7.5 | % | | $ | 630,578 | | | $ | 451,733 | | | $ | 178,845 | | | 39.6 | % |
Management and leasing services | | — | | | — | | | — | | | — | % | | 616 | | | 468 | | | 148 | | | 31.6 | % |
Interest income | | — | | | — | | | — | | | — | % | | 10 | | | 37 | | | (27) | | | (73.0) | % |
TOTAL REVENUES | | 409,737 | | | 381,297 | | | 28,440 | | | 7.5 | % | | 631,204 | | | 452,238 | | | 178,966 | | | 39.6 | % |
OPERATING EXPENSES | | | | | | | | | | | | | | | | |
Property expenses | | 96,646 | | | 89,776 | | | 6,870 | | | 7.7 | % | | 150,503 | | | 107,721 | | | 42,782 | | | 39.7 | % |
General and administrative | | — | | | — | | | — | | | — | % | | 64,264 | | | 48,990 | | | 15,274 | | | 31.2 | % |
Depreciation and amortization | | 118,721 | | | 123,871 | | | (5,150) | | | (4.2) | % | | 196,794 | | | 151,269 | | | 45,525 | | | 30.1 | % |
TOTAL OPERATING EXPENSES | | 215,367 | | | 213,647 | | | 1,720 | | | 0.8 | % | | 411,561 | | | 307,980 | | | 103,581 | | | 33.6 | % |
OTHER EXPENSE | | | | | | | | | | | | | | | | |
Other expenses | | — | | | — | | | — | | | — | % | | 1,561 | | | 1,297 | | | 264 | | | 20.4 | % |
Interest expense | | — | | | — | | | — | | | — | % | | 48,496 | | | 40,139 | | | 8,357 | | | 20.8 | % |
| | | | | | | | | | | | | | | | |
TOTAL EXPENSES | | 215,367 | | | 213,647 | | | 1,720 | | | 0.8 | % | | 461,618 | | | 349,416 | | | 112,202 | | | 32.1 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Loss on extinguishment of debt | | — | | | — | | | — | | | — | % | | (915) | | | (505) | | | (410) | | | 81.2 | % |
Gains on sale of real estate | | — | | | — | | | — | | | — | % | | 8,486 | | | 33,929 | | | (25,443) | | | (75.0) | % |
NET INCOME | | $ | 194,370 | | | $ | 167,650 | | | $ | 26,720 | | | 15.9 | % | | $ | 177,157 | | | $ | 136,246 | | | $ | 40,911 | | | 30.0 | % |
Rental IncomeThe following table reports the breakdown of 2022 and 2021 rental income, as reported prior to the adoption of Accounting Standards Codification Topic 842, Leases (“ASC 842”) (dollars in thousands). We believe that the below presentation of rental income is not, and is not intended to be, a presentation in accordance with GAAP. We are presenting this information because we believe it is frequently used by management, investors, securities analysts and other interested parties to evaluate the Company’s performance.
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| | Same Property Portfolio | | Total Portfolio |
| | Year Ended December 31, | | Increase/(Decrease) | | % | | Year Ended December 31, | | Increase/(Decrease) | | % |
Category | | 2022 | | 2021 | | | Change | | 2022 | | 2021 | | | Change |
Rental revenue(1) | | $ | 338,494 | | | $ | 316,126 | | | $ | 22,368 | | | 7.1 | % | | $ | 522,419 | | | $ | 375,684 | | | $ | 146,735 | | | 39.1 | % |
Tenant reimbursements (2) | | 70,150 | | | 64,371 | | | 5,779 | | | 9.0 | % | | 106,227 | | | 74,979 | | | 31,248 | | | 41.7 | % |
Other income(3) | | 1,093 | | | 800 | | | 293 | | | 36.6 | % | | 1,932 | | | 1,070 | | | 862 | | | 80.6 | % |
Rental income | | $ | 409,737 | | | $ | 381,297 | | | $ | 28,440 | | | 7.5 | % | | $ | 630,578 | | | $ | 451,733 | | | $ | 178,845 | | | 39.6 | % |
Our Same Property Portfolio and Total Portfolio rental income increased by $28.4 million, or 7.5%, and $178.8 million, or 39.6%, respectively, during the year ended December 31, 2022, compared to the year ended December 31, 2021, for the reasons described below:
(1) Rental Revenue
Our Same Property Portfolio and Total Portfolio rental revenue increased by $22.4 million, or 7.1%, and $146.7 million, or 39.1%, respectively, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase in our Same Property Portfolio rental revenue is primarily due to an increase in average rental rates on new and renewal leases and an increase in the weighted average occupancy of the portfolio, partially offset by a decrease of $2.7 million in amortization of net below-market lease intangibles. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 114 properties we acquired during 2021 and 2022, partially offset by the decrease in revenues from the six properties that were sold during 2021 and 2022.
(2) Tenant Reimbursements
Our Same Property Portfolio and Total Portfolio tenant reimbursements revenue increased by $5.8 million, or 9.0%, and $31.2 million or 41.7%, respectively, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase in our Same Property Portfolio tenant reimbursements revenue is primarily due to an increase in recoverable property expenses, including higher reimbursable insurance expenses as a result of higher overall premiums and additional earthquake insurance coverage and higher reimbursable property tax expenses relating to California Proposition 13 annual increases, and an increase in the weighted average occupancy of the portfolio. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental reimbursements from the 114 properties we acquired during 2021 and 2022, partially offset by the decrease in reimbursements from the six properties that were sold during 2021 and 2022.
(3) Other Income
Our Same Property Portfolio and Total Portfolio other income increased by $0.3 million, or 36.6%, and $0.9 million, or 80.6%, respectively, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the recommencement in 2022 of charging fees for late rental payments, which until recently was prohibited due to COVID-19 related governmental measures. Our Total Portfolio other income was also impacted by an increase in miscellaneous income.
Management and Leasing Services
Our Total Portfolio management and leasing services revenue increased by $0.1 million, or 31.6%, for the year ended December 31, 2022, compared to the year ended December 31, 2021.
Interest Income
Our Total Portfolio interest income decreased by $27 thousand, or 73.0%, during the year ended December 31, 2022, compared to the year ended December 31, 2021.
Property Expenses
Our Same Property Portfolio and Total Portfolio property expenses increased by $6.9 million, or 7.7%, and $42.8 million, or 39.7%, respectively, during the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase in our Same Property Portfolio property expenses is primarily due to increases in insurance expense resulting from higher overall premiums and additional earthquake insurance coverage, allocated overhead costs reflecting a higher employee headcount and labor costs and repairs and maintenance cost. Our Total Portfolio property expenses were also impacted by incremental expenses from the 114 properties we acquired during 2021 and 2022, partially offset by the decrease in property expenses from the six properties that were sold during 2021 and 2022.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $15.3 million, or 31.2% for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase is primarily due to increases in non-cash equity compensation expense, primarily related to performance unit equity grants made in 2021, payroll related costs and accrued bonus expense due to a higher employee headcount and rising labor costs.
Depreciation and Amortization
Our Same Property Portfolio depreciation and amortization expense decreased by $5.2 million, or 4.2%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to acquisition-related in-place lease intangibles and tenant improvements becoming fully depreciated at certain properties during 2021 and 2022, partially offset by an increase in depreciation expense related to capital improvements placed into service during 2021 and 2022 and an increase in amortization of deferred leasing costs. Our Total Portfolio depreciation and amortization expense increased by $45.5 million, or 30.1%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to incremental expense from the 114 properties we acquired during 2021 and 2022, partially offset by the decrease in our Same Property Portfolio depreciation and amortization expense noted above.
Other Expenses
Our Total Portfolio other expenses increased by $0.3 million, or 20.4%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to $0.7 million of construction demolition costs incurred in 2022 and an increase in acquisition expenses of $0.5 million, partially offset by a $1.0 million impairment charge in 2021 to reduce the carrying value of the right-of-use asset related to one of our leased office spaces that we decided to sublease as a result of the implementation of a work from home flexibility program in 2021.
Interest Expense
Our Total Portfolio interest expense increased by $8.4 million, or 20.8%, during the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase in interest expense is primarily comprised of the following: (i) a $7.6 million increase related to the $400.0 million term loan facility borrowing we completed in July 2022, (ii) a $6.2 million increase related to the $300.0 million term loan facility borrowing we completed in May 2022 and the related interest rate swaps, (iii) a $5.8 million increase due to the issuance of $400.0 million of 2.15% senior notes in August 2021, (iv) a $4.8 million increase due to higher average outstanding borrowings under our unsecured revolving credit facility and an increase in LIBOR/SOFR rates, and (v) a $1.1 million increase related to the current and prior $60.0 million term loans primarily due to an increase in SOFR/LIBOR rates. These increases were partially offset by the following decreases: (i) a $7.7 million increase in capitalized interest related to repositioning and redevelopment activity, (ii) a $4.7 million decrease related to the repayment of the $225.0 million term loan facility and termination of the related interest rate swaps in August 2021, (iii) a $3.8 million decrease related to the repayment of the $150.0 million term loan facility and termination of the related interest rate swap in May 2022, and (iv) a $1.0 million decrease related to the interest rate swap that was terminated in November 2020 which had a loss balance in accumulated other comprehensive income/(loss) that was amortized into interest expense through August 2021.
Loss on Extinguishment of Debt
The loss on extinguishment of debt of $0.9 million for the year ended December 31, 2022, is primarily comprised of the write-off of $0.7 million of unamortized debt issuance costs related to the $150.0 million unsecured term loan facility we repaid in May 2022 in advance of the May 2025 maturity date and the write-off of $0.2 million of unamortized debt issuance costs attributable to one of the creditors departing the unsecured revolving credit facility when we amended our senior unsecured credit agreement in May 2022. The loss on extinguishment of debt of $0.5 million for the year ended December 31, 2021 represents the write-off of unamortized debt issuance costs related to the $225.0 million unsecured term loan facility that we repaid in September 2021 in advance of the January 2023 maturity date.
Gains on Sale of Real Estate
During the year ended December 31, 2022, we recognized gains on sale of real estate of $8.5 million from the disposition of one property that was sold for a gross sales price of $16.5 million. During the year ended December 31, 2021, we recognized gains on sale of real estate of $33.9 million from the disposition of five properties that were sold for an aggregate gross sales price of $59.3 million.
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” in our Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, for a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020.
Non-GAAP Supplemental Measures: Funds From Operations and Core Funds From Operations
We calculate funds from operations (“FFO”) attributable to common stockholders in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated joint ventures.
Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization, gains and losses from property dispositions, and asset impairments, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of performance used by other REITs, FFO may be used by investors as a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate or interpret FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to pay dividends.
We calculate “Core FFO” by adjusting FFO for non-comparable items outlined in the reconciliation below. We believe that Core FFO is a useful supplemental measure and that by adjusting for items that are not considered by us to be part of our on-going operating performance, provides a more meaningful and consistent comparison of our operating and financial performance period-over-period. Because these adjustments have a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited. Other REITs may not calculate Core FFO in a consistent manner. Accordingly, our Core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance. “Company share of Core FFO” in the table below reflects Core FFO attributable to common stockholders, which excludes amounts allocable to noncontrolling interests, participating securities and preferred stockholders (which consists of preferred stock dividends, but excludes non-recurring preferred stock redemption charges related to the write-off of original issuance costs which we do not consider reflective of our on-going performance).
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO and Core FFO (unaudited and in thousands):
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| Year Ended December 31, | | |
| 2022 | | 2021 | | 2020 | | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | | | |
Adjustments: | | | | | | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | | | |
| | | | | | | |
Gains on sale of real estate(1) | (8,486) | | | (33,929) | | | (13,617) | | | |
| | | | | | | |
Funds from operations (FFO) | $ | 365,465 | | | $ | 253,586 | | | $ | 182,547 | | | |
Adjustments: | | | | | | | |
Acquisition expenses | 613 | | | 94 | | | 124 | | | |
Impairment of right-of-use asset | — | | | 992 | | | — | | | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | | | |
Amortization of loss on termination of interest rate swaps | 253 | | | 2,169 | | | 218 | | | |
Non-capitalizable demolition costs | 663 | | | — | | | — | | | |
Write-offs of below-market lease intangibles related to terminations(2) | (5,792) | | | — | | | — | | | |
Core FFO | $ | 362,117 | | | $ | 257,346 | | | $ | 182,993 | | | |
Less: preferred stock dividends | (9,258) | | | (12,563) | | | (14,545) | | | |
Less: Core FFO attributable to noncontrolling interests(3) | (16,838) | | | (13,504) | | | (7,667) | | | |
Less: Core FFO attributable to participating securities(4) | (1,282) | | | (943) | | | (774) | | | |
Company share of Core FFO | $ | 334,739 | | | $ | 230,336 | | | $ | 160,007 | | | |
| | | | | | | |
| | | | | | | |
(1)Gains on sale of real estate for the years ended December 31, 2022 and 2021 reflect gains from the sale of depreciable operating properties. Gains on sale of real estate for the year ended December 31, 2020, include total gains of $14.5 million from the sale of depreciable operating properties and a loss of $0.9 million from the sale of assets incidental to our business. For additional details, see “Note 3 – Investments in Real Estate” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
(2)Reflects the write-off of the portion of a below-market lease intangible attributable to below-market fixed rate renewal options that were not exercised due to the termination of the lease at the end of the initial lease term.
(3)Noncontrolling interests represent (i) holders of outstanding common units of the Company's Operating Partnership that are owned by unit holders other than the Company and (ii) holders of Series 1 CPOP Units, Series 2 CPOP Units and Series 3 CPOP Units.
(4)Participating securities include unvested shares of restricted stock, unvested LTIP units of partnership interest in our Operating Partnership and unvested performance units in our Operating Partnership.
Non-GAAP Supplemental Measures: NOI and Cash NOI
Net operating income (“NOI”) is a non-GAAP measure which includes the revenue and expense directly attributable to our real estate properties. NOI is calculated as rental income less property expenses (before interest expense, depreciation and amortization).
We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs’ NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.
NOI on a cash-basis (“Cash NOI”) is a non-GAAP measure, which we calculate by adding or subtracting the following items from NOI: (i) fair value lease revenue and (ii) straight-line rental revenue adjustments. We use Cash NOI, together with NOI, as a supplemental performance measure. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities computed in accordance with GAAP.
The following table sets forth the revenue and expense items comprising NOI and the adjustments to calculate Cash NOI (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
| | | | | |
Rental income | $ | 630,578 | | | $ | 451,733 | | | $ | 329,377 | |
Less: Property expenses | 150,503 | | | 107,721 | | | 79,716 | |
Net Operating Income | $ | 480,075 | | | $ | 344,012 | | | $ | 249,661 | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | |
Straight line rental revenue adjustment | (31,220) | | | (20,903) | | | (11,406) | |
Cash Net Operating Income | $ | 417,646 | | | $ | 307,666 | | | $ | 227,722 | |
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI and Cash NOI (in thousands): | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | | |
General and administrative | 64,264 | | | 48,990 | | | 36,795 | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | | |
Other expenses | 1,561 | | | 1,297 | | | 124 | | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | | |
Management and leasing services | (616) | | | (468) | | | (420) | | |
Interest income | (10) | | | (37) | | | (338) | | |
| | | | | | |
| | | | | | |
| | | | | | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | | |
Net Operating Income | $ | 480,075 | | | $ | 344,012 | | | $ | 249,661 | | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | | |
Straight line rental revenue adjustment | (31,220) | | | (20,903) | | | (11,406) | | |
Cash Net Operating Income | $ | 417,646 | | | $ | 307,666 | | | $ | 227,722 | | |
Non-GAAP Supplemental Measure: EBITDAre
We calculate earnings before interest expense, income taxes, depreciation and amortization for real estate (“EBITDAre”) in accordance with the standards established by NAREIT. EBITDAre is calculated as net income (loss) (computed in accordance with GAAP), before interest expense, income tax expense, depreciation and amortization, gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business and adjustments for unconsolidated joint ventures.
We believe that EBITDAre is helpful to investors as a supplemental measure of our operating performance as a real estate company because it is a direct measure of the actual operating results of our properties. We also use this measure in ratios to compare our performance to that of our industry peers. In addition, we believe EBITDAre is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, our industry peers may not calculate EBITDAre in accordance with the NAREIT definition as we do and, accordingly, our EBITDAre may not be comparable to our peers’ EBITDAre. Accordingly, EBITDAre should be considered only as a supplement to net income (loss) as a measure of our performance.
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to EBITDAre (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | |
EBITDAre | $ | 413,961 | | | $ | 293,725 | | | $ | 213,396 | |
Supplemental Guarantor Information
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule became effective January 4, 2021. The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. At December 31, 2022, the Operating Partnership had issued and outstanding $400.0 million of 2.125% Senior Notes due 2030 (the “$400 Million Notes due 2030”) and the $400 Million Notes due 2031. The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the $400 Million Notes due 2030 and $400 Million Notes due 2031 are guaranteed on a senior basis by the Company. The guarantee is full and unconditional, and the Operating Partnership is a consolidated subsidiary of the Company.
As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
Financial Condition, Liquidity and Capital Resources
Overview
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses, interest expense, general and administrative expenses, capital expenditures, tenant improvements and leasing commissions, and distributions to our common and preferred stockholders and holders of common units of partnership interests in our Operating Partnership (“OP Units”). We expect to meet our short-term liquidity requirements through available cash on hand, cash flow from operations, by drawing on our unsecured revolving credit facility and by issuing shares of common stock pursuant to the ATM program or issuing other securities as described below.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through net cash flow from operations, proceeds from long-term secured and unsecured financings, borrowings available under our unsecured revolving credit facility, the issuance of equity securities, including preferred stock, and proceeds from selective real estate dispositions as we identify capital recycling opportunities.
As of December 31, 2022, we had:
•Outstanding fixed-rate and variable-rate debt with varying maturities for an aggregate principal amount of $2.0 billion, with $7.5 million due within 12 months.
•Total scheduled interest payments on our fixed rate debt and projected net interest payments on our variable rate debt and interest rate swaps of $322.4 million, of which $68.4 million is due within 12 months.
•Commitments of $114.2 million for tenant improvements under certain tenant leases and construction work related to obligations under contractual agreements with our construction vendors; and
•Operating lease commitments with aggregate lease payments of $27.2 million, of which $2.3 million is due within 12 months.
See “Note 5 – Notes Payable” to the consolidated financial statements included in Item 15 of this Report on Form 10-K for further details regarding the scheduled principal payments. Also see “Note 6 – Leases” to the consolidated financial statements for further details regarding the scheduled operating lease payments.
As of December 31, 2022, our cash and cash equivalents were $36.8 million, and we did not have any borrowings outstanding under our unsecured revolving credit facility, leaving $1.0 billion available for future borrowings.
Sources of Liquidity
Cash Flow from Operations
Cash flow from operations is one of our key sources of liquidity and is primarily dependent upon: (i) the occupancy levels and lease rates at our properties, (ii) our ability to collect rent, (iii) the level of operating costs we incur and (iv) our ability to pass through operating expenses to our tenants. We are subject to a number of risks related to general economic and other unpredictable conditions, which have the potential to affect our overall performance and resulting cash flows from operations. However, based on our current portfolio mix and business strategy, we anticipate that we will be able to generate positive cash flows from operations.
ATM Program
On May 27, 2022, we established an ATM program pursuant to which we are able to sell from time to time shares of our common stock having an aggregate sales price of up to $1.0 billion (the “Current 2022 ATM Program”). The Current 2022 ATM Program replaces our previous $750.0 million ATM program, which was established on January 13, 2022, under which we had sold shares of our common stock having an aggregate gross sales price of $697.5 million through May 27, 2022. In addition, we previously established a $750.0 million ATM program on November 9, 2020, under which we had sold shares of our common stock having an aggregate gross sales price of $743.9 million through January 13, 2022.
In connection with our ATM programs, we may sell shares of our common stock directly through sales agents or we may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under ATM programs. The use of a forward equity sale agreement allows us to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. Additionally, the forward price that we expect to receive upon physical settlement of an agreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends during the term of the agreement.
During the year ended December 31, 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers under our various ATM programs with respect to 23,519,219 shares of common stock at a weighted average initial forward price of $64.29 per share. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time we entered into forward equity sale agreements.
During the year ended December 31, 2022, we physically settled a portion of the aforementioned forward equity sale agreements and the outstanding forward equity sale agreement from 2021 by issuing 24,788,691 shares of our common stock for net proceeds of $1.6 billion, based on a weighted average forward price of $65.02 per share at settlement.
As of February 10, 2023, the date of this Annual Report on Form 10-K, we had 636,884 shares of common stock, or approximately $35.2 million of forward net proceeds remaining for settlement to occur before November 2023, based on a forward price of $55.22 per share.
As of February 10, 2023, approximately $165.4 million of common stock remains available to be sold under the Current 2022 ATM Program. Future sales, if any, will depend on a variety of factors, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us. We intend to use the net proceeds from the offering of shares under the Current 2022 ATM Program, if any, to fund potential acquisition opportunities, repay amounts outstanding from time to time under our unsecured revolving credit facility or other debt financing obligations, to fund our repositioning or redevelopment activities and/or for general corporate purposes.
Securities Offerings
We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and as circumstances warrant, we may issue additional securities, from time to time, to fund acquisitions, for the repayment of long-term debt upon maturity and for other general corporate purposes. Such securities may include common equity, preferred equity and/or debt of us or our subsidiaries. Any future issuance, however, is dependent upon market conditions, available pricing and capital needs and there can be no assurance that we will be able to complete any such offerings of securities.
2022 Forward Equity Offering — During the fourth quarter of 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 11,846,425 shares of common stock, including 346,425 shares related to the partial exercise of the underwriters’ option to purchase additional shares, at an initial forward price of $55.74 per share (the “2022 Forward Offering Sale Agreements”), pursuant to which, the forward purchasers borrowed and sold an aggregate of 11,846,425 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering.
In December 2022, we partially settled the 2022 Forward Offering Sale Agreements by issuing 3,554,704 shares of common stock for net proceeds of $198.7 million, based on a weighted average forward price of $55.90 per share at settlement.
In January 2023, we partially settled the outstanding 2022 Forward Offering Sale Agreements by issuing 7,617,013 shares of common stock in exchange for net proceeds of $425.0 million, based on a weighted average forward price of $55.80 per share at settlement.
As of February 10, 2023, the date of this Annual Report on Form 10-K, we had 674,708 shares of common stock, or approximately $37.7 million of forward net proceeds remaining for settlement to occur before May 2024, based on a forward sale price of $55.87 per share.
Capital Recycling
We continuously evaluate opportunities for the potential disposition of properties in our portfolio when we believe such disposition is appropriate in view of our business objectives. In evaluating these opportunities, we consider a variety of criteria including, but not limited to, local market conditions and lease rates, asset type and location, as well as potential uses of proceeds and tax considerations. Tax considerations include entering into a 1031 Exchange, when possible, to defer some or all of the taxable gains, if any, on dispositions.
During the year ended December 31, 2022, we completed the disposition of one property for a gross sales price of $16.5 million and net cash proceeds of $15.3 million. The net cash proceeds were used to partially fund the acquisition of one property during the year ended December 31, 2022, through a 1031 Exchange transaction.
We anticipate continuing to selectively and opportunistically dispose of properties, however, the timing of any potential future dispositions will depend on market conditions, asset-specific circumstances or opportunities, and our capital needs. Our ability to dispose of selective properties on advantageous terms, or at all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable.
Investment Grade Rating
During the year ended December 31, 2022, our credit ratings were raised to Baa2 (Stable outlook) from Baa3 (Stable outlook) by Moody’s and to BBB+ (Stable outlook) from BBB (Positive outlook) by both S&P and Fitch with respect to our Credit Agreement (described below), $100.0 million unsecured guaranteed senior notes (the “$100 Million Notes”), $25.0 million unsecured guaranteed senior notes and $75.0 million unsecured guaranteed senior notes (together the “Series 2019A and 2019B Notes”), $400 Million Notes due 2030 and $400 Million Notes due 2031. During the year ended December 31, 2022, our credit ratings were raised to BBB- from BB+ by both S&P and Fitch with respect to our 5.875% Series B Cumulative Redeemable Preferred Stock and our 5.625% Series C Cumulative Redeemable Preferred Stock. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us, and, although it is our intent to maintain our investment grade credit rating, there can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings are downgraded, it may become difficult or more expensive to obtain additional financing or refinance existing indebtedness as maturities become due.
Credit Agreement
On May 26, 2022, we amended our credit agreement, which was comprised of a $700.0 million unsecured revolving credit facility that was scheduled to mature on February 13, 2024, by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement initially provided for (i) a senior unsecured term loan facility that permits aggregate borrowings of up to $300.0 million (the “$300 Million Term Loan”), all of which was borrowed at closing on May 26, 2022, and (ii) a senior unsecured revolving credit facility (the “Revolver”) in the aggregate principal amount of $1.0
billion. On July 19, 2022, we exercised the accordion option under the Credit Agreement to add a $400.0 million unsecured term loan (the “$400 Million Term Loan” and together with the $300 Million Term Loan, the “Term Facility”). Subject to certain terms and conditions set forth in the Credit Agreement, we may request additional lender commitments and increase the size of the Credit Agreement by an additional $800.0 million, which may be comprised of additional revolving commitments under the Revolver, an increase to the Term Facility, additional term loan tranches or any combination of the foregoing.
The Revolver is scheduled to mature on May 26, 2026 and has two six-month extension options available. The $400 Million Term Loan is scheduled to mature on July 19, 2024 and has two one-year extension options available. The $300 Million Term Loan matures on May 26, 2027.
Interest on the Credit Agreement is generally to be paid based upon, at our option, either (i) Term SOFR plus the applicable margin; (ii) Daily Simple SOFR plus the applicable margin or (iii) the applicable base rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, (c) Term SOFR plus 1.00%, and (d) one percent (1.00%)) plus the applicable margin. Additionally, Term SOFR and Daily Simple SOFR will be increased by a 0.10% SOFR adjustment. The applicable margin for the Term Facility ranges from 0.80% to 1.60% per annum for SOFR-based loans and 0.00% to 0.60% per annum for base rate loans, depending on our investment grade ratings. The applicable margin for the Revolver ranges from 0.725% to 1.400% per annum for SOFR-based loans and 0.00% to 0.40% per annum for base rate loans, depending on our investment grade ratings. In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable credit facility fee, on each lender's commitment amount under the Revolver, regardless of usage. The applicable credit facility fee ranges from 0.125% to 0.300% per annum, depending on our investment grade ratings. The interest rate under the Credit Agreement is also subject to a favorable leverage-based adjustment if our ratio of total indebtedness to total asset value is less than 35.0%.
In addition, the Credit Agreement also features a sustainability-linked pricing component whereby the applicable margin and applicable credit facility fee can decrease by 0.04% and 0.01%, respectively, or increase by 0.04% and 0.01%, respectively, if we meet, or do not meet, certain sustainability performance targets, as applicable.
The Revolver and the Term Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Term Facility and repaid or prepaid may not be reborrowed.
The Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Credit Agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Credit Agreement, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
As of the filing date of this Annual Report on Form 10-K, we did not have any borrowings outstanding under the Revolver, leaving $1.0 billion available for future borrowings.
Uses of Liquidity
Acquisitions
One of our most significant liquidity needs has historically been for the acquisition of real estate properties. During the year ended December 31, 2022, we completed 52 acquisitions representing 61 properties with a combined 5.9 million rentable square feet of buildings on 319.6 acres of land for an aggregate purchase price of $2.4 billion. Subsequent to December 31, 2022, through the filing date of this Form 10-K, we have acquired two properties with a combined 1.2 million rentable square feet of buildings for an aggregate purchase price of $405.0 million, and we are actively monitoring a volume of properties in our markets that we believe represent attractive potential investment opportunities to continue to grow our business. As of the filing date of this Annual Report on Form 10-K, we have over $125.0 million of acquisitions under contract or accepted offer. There can be no assurance we will complete any such acquisitions. While the actual number of acquisitions that we complete will be dependent upon a number of factors, in the short term, we expect to fund our acquisitions through available cash on hand and proceeds from forward equity settlements, cash flows from operations, borrowings available under the Revolver, recycling capital through property dispositions and, in the long term, through the issuance of equity securities or proceeds from long-term secured and unsecured financings. See “Note 3 – Investments in Real Estate” to the consolidated financial statements for a summary of the properties we acquired during the year ended December 31, 2022.
Recurring and Nonrecurring Capital Expenditures
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. During the year ended December 31, 2022, we incurred $8.7 million of recurring capital expenditures, which was a decrease of $1.8 million from the prior year. During the year ended December 31, 2022, we incurred $111.1 million of non-recurring capital expenditures, which was an increase of $30.6 million over the prior year. The increase was primarily due to the increase in non-recurring capital expenditures related to repositioning and redevelopment activity during 2022 compared to 2021. As discussed above under “—Factors that May Influence Future Results —Acquisitions and Value-Add Repositioning and Redevelopment of Properties”, as of December 31, 2022, 17 of our properties were under current repositioning, redevelopment, or lease-up, and we have a pipeline of 12 additional properties for which we anticipate beginning construction work over the next five quarters. We currently estimate that approximately $385.2 million of capital will be required over the next three years (1Q-2023 through Q2-2025) to complete the repositioning/redevelopment of these properties. However, this estimate is based on our current construction plans and budgets, both of which are subject to change as a result of a number of factors, including increased costs of building materials or construction services and construction delays related to supply chain backlogs and increased lead time on building materials. If we are unable to complete construction on schedule or within budget, we could incur increased construction costs and experience potential delays in leasing the properties. We expect to fund these projects through a combination of available cash on hand, proceeds from forward equity settlements, the issuance of common stock under the Current 2022 ATM Program, cash flow from operations and borrowings available under the Revolver.
Dividends and Distributions
In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to distribute a percentage of our cash flow on a quarterly basis to holders of our common stock. In addition, we intend to make distribution payments to holders of OP Units and preferred units, and dividend payments to holders of our preferred stock.
On February 6, 2023, our board of directors declared the following quarterly cash dividends/distributions:
| | | | | | | | | | | | | | | | | | | | |
Security | | Amount per Share/Unit | | Record Date | | Payment Date |
Common stock | | $ | 0.380 | | | March 31, 2023 | | April 17, 2023 |
OP Units | | $ | 0.380 | | | March 31, 2023 | | April 17, 2023 |
5.875% Series B Cumulative Redeemable Preferred Stock | | $ | 0.367188 | | | March 15, 2023 | | March 31, 2023 |
5.625% Series C Cumulative Redeemable Preferred Stock | | $ | 0.351563 | | | March 15, 2023 | | March 31, 2023 |
4.43937% Cumulative Redeemable Convertible Preferred Units | | $ | 0.505085 | | | March 15, 2023 | | March 31, 2023 |
4.00% Cumulative Redeemable Convertible Preferred Units | | $ | 0.450000 | | | March 15, 2023 | | March 31, 2023 |
3.00% Cumulative Redeemable Convertible Preferred Units | | $ | 0.545462 | | | March 15, 2023 | | March 31, 2023 |
Indebtedness Outstanding
The following table sets forth certain information with respect to our indebtedness outstanding as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual Maturity Date | | | | Margin Above SOFR | | Effective Interest Rate(1) | | Principal Balance (in thousands)(2) | | |
Unsecured and Secured Debt: | | | | | | | | | | | |
Unsecured Debt: | | | | | | | | | | | |
Revolving Credit Facility(3) | 5/26/2026 | (4) | | | S+0.725 | % | (5) | 5.125 | % | | $ | — | | | |
$400M Term Loan | 7/19/2024 | (4) | | | S+0.800 | % | (5) | 5.258 | % | | 400,000 | | | |
$100M Senior Notes | 8/6/2025 | | | | n/a | | 4.290 | % | | 100,000 | | | |
$300M Term Loan | 5/26/2027 | | | | S+0.800 | % | (5) | 3.717 | % | (6) | 300,000 | | | |
$125M Senior Notes | 7/13/2027 | | | | n/a | | 3.930 | % | | 125,000 | | | |
$25M Series 2019A Senior Notes | 7/16/2029 | | | | n/a | | 3.880 | % | | 25,000 | | | |
$400M Senior Notes due 2030 | 12/1/2030 | | | | n/a | | 2.125 | % | | 400,000 | | | |
$400M Senior Notes due 2031 (green bond) | 9/1/2031 | | | | n/a | | 2.150 | % | | 400,000 | | | |
$75M Series 2019B Senior Notes | 7/16/2034 | | | | n/a | | 4.030 | % | | 75,000 | | | |
Total Unsecured Debt | | | | | | | | | $ | 1,825,000 | | | |
| | | | | | | | | | | |
Secured Debt: | | | | | | | | | | | |
2601-2641 Manhattan Beach Boulevard | 4/5/2023 | | | | n/a | | 4.080 | % | | $ | 3,832 | | | |
960-970 Knox Street | 11/1/2023 | | | | n/a | | 5.000 | % | | 2,307 | | | |
7612-7642 Woodwind Drive | 1/5/2024 | | | | n/a | | 5.240 | % | | 3,712 | | | |
11600 Los Nietos Road | 5/1/2024 | | | | n/a | | 4.190 | % | | 2,462 | | | |
$60M Term Loan Facility(7) | 10/27/2024 | (7) | | | S+1.250 | % | (7) | 5.708 | % | | 60,000 | | | |
5160 Richton Street | 11/15/2024 | | | | n/a | | 3.790 | % | | 4,153 | | | |
22895 Eastpark Drive | 11/15/2024 | | | | n/a | | 4.330 | % | | 2,612 | | | |
701-751 Kingshill Place | 1/5/2026 | | | | n/a | | 3.900 | % | | 7,100 | | | |
13943-13955 Balboa Boulevard | 7/1/2027 | | | | n/a | | 3.930 | % | | 14,965 | | | |
2205 126th Street | 12/1/2027 | | | | n/a | | 3.910 | % | | 5,200 | | | |
2410-2420 Santa Fe Avenue | 1/1/2028 | | | | n/a | | 3.700 | % | | 10,300 | | | |
11832-11954 La Cienega Boulevard | 7/1/2028 | | | | n/a | | 4.260 | % | | 3,928 | | | |
Gilbert/La Palma | 3/1/2031 | | | | n/a | | 5.125 | % | | 1,935 | | | |
7817 Woodley Avenue | 8/1/2039 | | | | n/a | | 4.140 | % | | 3,009 | | | |
Total Secured Debt | | | | | | | | | $ | 125,515 | | | |
Total Debt | | | | | | | | | $ | 1,950,515 | | | |
(1)Reflects the contractual interest rate under the terms of each loan as of December 31, 2022 and includes the effect of interest rate swaps that were effective as of December 31, 2022. See footnote (6) below. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver.
(2)Excludes unamortized debt issuance costs and premiums/discounts totaling $14.1 million, which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of December 31, 2022.
(3)The Revolver is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. The applicable facility fee ranges from 0.125% to 0.30% per annum depending upon our investment grade rating, leverage ratio and sustainability performance metrics, which may change from time to time.
(4)The Revolver has two six-month extensions and the $400 Million Term Loan has two one-year extensions available at the borrower’s option, subject to certain terms and conditions.
(5)The interest rates on these loans are comprised of daily SOFR for the Revolver and Term SOFR for the Term Facility (in each case increased by a 0.10% SOFR adjustment) plus an applicable margin ranging from 0.725% to 1.400% per annum for the Revolver and 0.80% to 1.60% per annum for the Term Facility, depending on our investment grade ratings, leverage ratio and sustainability performance metrics, which may change from time to time. During the year ended December 31, 2022, our credit ratings were upgraded and as a result, the applicable margin on the Revolver was lowered to 0.725% from 0.775% and the applicable margin on the Term Facility was lowered to 0.80% from 0.85%.
(6)As of December 31, 2022, Term SOFR related to $300.0 million of our variable rate debt has been effectively fixed at 2.81725% through the use of interest rate swaps. For details, see “Note 7 – Interest Rate Derivatives” to our consolidated financial statements. Including the impact of these interest rate swaps, the hedged effective interest rate on the $300 Million Term Loan is 3.717%.
(7)On October 27, 2022, we refinanced an amortizing $60.0 million term loan expiring in August 2023. The new $60.0 million term loan has interest-only payment terms bearing interest at Term SOFR increased by a 0.10% SOFR adjustment plus an applicable margin of 1.25% per annum (the $60 Million Term Loan Facility”). The loan is secured by six properties and has three one-year extensions available at the borrower’s option, subject to certain terms and conditions.
The following table summarizes the composition of our outstanding debt between fixed-rate and variable-rate and secured and unsecured debt as of December 31, 2022:
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| | Weighted Average Term Remaining (in years)(1) | | Stated Interest Rate | | Effective Interest Rate(2) | | Principal Balance (in thousands)(3) | | % of Total |
Fixed vs. Variable: | | | | | | | | | | |
Fixed(4) | | 6.8 | | 2.96% | | 2.96% | | $ | 1,490,515 | | | 76% |
Variable | | 1.6 | | SOFR + Margin (See Above) | | 5.32% | | $ | 460,000 | | | 24% |
Secured vs. Unsecured: | | | | | | | | | | |
Secured | | 3.1 | | | | 4.86% | | $ | 125,515 | | | 6% |
Unsecured | | 5.7 | | | | 3.42% | | $ | 1,825,000 | | | 94% |
(1)The weighted average remaining term to maturity of our debt is 5.6 years.
(2)Includes the effect of interest rate swaps that were effective as of December 31, 2022. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver. Assumes Daily Simple SOFR of 4.300% and Term SOFR of 4.358% as of December 31, 2022, as applicable.
(3)Excludes unamortized debt issuance costs and debt premiums/discounts totaling $14.1 million which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of December 31, 2022.
(4)Fixed-rate debt includes our variable rate $300 Million Term Loan that has been effectively fixed through the use of interest rate swaps through maturity.
At December 31, 2022, we had total indebtedness of $2.0 billion, excluding unamortized debt issuance costs and debt discounts, with a weighted average interest rate of approximately 3.52%. As of December 31, 2022, $1.5 billion, or 76%, of our outstanding indebtedness had an interest rate that was effectively fixed under either the terms of the loan ($1.2 billion) or interest rate swaps ($300.0 million).
At December 31, 2022, we had total indebtedness of $2.0 billion, reflecting a net debt to total combined market capitalization of approximately 14.9%. Our total market capitalization is defined as the sum of the liquidation preference of our outstanding preferred stock and preferred units plus the market value of our common stock excluding shares of nonvested restricted stock, plus the aggregate value of common units not owned by us, plus the value of our net debt. Our net debt is defined as our consolidated indebtedness less cash and cash equivalents.
Debt Covenants
The Credit Agreement, $60 Million Term Loan Facility, $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes all include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•For the Credit Agreement and $60 Million Term Loan Facility, maintaining a ratio of secured debt to total asset value of not more than 45%;
•For the $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes (together the “Senior Notes”), maintaining a ratio of secured debt to total asset value of not more than 40%;
•For the Senior Notes, maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
•For the Senior Notes, maintaining a minimum tangible net worth of at least the sum of (i) $760,740,750, and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company after September 30, 2016;
•Maintaining a ratio of adjusted EBITDA (as defined in each of the loan agreements) to fixed charges of at least 1.5 to 1.0;
•For the Credit Agreement and Senior Notes, maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and
•For the Credit Agreement and Senior Notes, maintaining a ratio of unencumbered NOI (as defined in each of the loan agreements) to unsecured interest expense of at least 1.75 to 1.00.
The $400 Million Notes due 2030 and $400 Million Notes due 2031 contain the following covenants (as defined in the indentures) that we must comply with:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•Maintaining a ratio of secured debt to total asset value of not more than 40%;
•Maintaining a Debt Service Coverage Ratio of at least 1.5 to 1.0; and
•Maintaining a ratio of unencumbered assets to unsecured debt of at least 1.5 to 1.0.
The Credit Agreement, and Senior Notes also contain limitations on our ability to pay distributions on our common stock. Specifically, our cash dividends may not exceed the greater of (i) 95% of our FFO (as defined in the credit agreement) and (ii) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make distributions sufficient to qualify and maintain our REIT status.
Additionally, subject to the terms of the Credit Agreement, $60 Million Term Loan Facility and Senior Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal or interest, (ii) a default in the payment of certain of our other indebtedness, (iii) a default in compliance with the covenants set forth in the debt agreement and (iv) bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest on the outstanding debt will become immediately due and payable. In addition, we are required to maintain at all times a credit rating on the Senior Notes from either S&P, Moody’s or Fitch.
Cash Flows
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
The following table summarizes the changes in net cash flows associated with our operating, investing, and financing activities for the years ended December 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | Change |
Cash provided by operating activities | $ | 327,695 | | | $ | 231,463 | | | $ | 96,232 | |
Cash used in investing activities | $ | (2,449,210) | | | $ | (1,912,767) | | | $ | (536,443) | |
Cash provided by financing activities | $ | 2,114,303 | | | $ | 1,547,779 | | | $ | 566,524 | |
Net cash provided by operating activities. Net cash provided by operating activities increased by $96.2 million to $327.7 million for the year ended December 31, 2022, compared to $231.5 million for the year ended December 31, 2021. The increase was primarily attributable to the incremental cash flows from property acquisitions completed subsequent to January 1, 2021, and the increase in Cash NOI from our Same Property Portfolio, partially offset by higher cash interest paid as compared to the prior year.
Net cash used in investing activities. Net cash used in investing activities increased by $536.4 million to $2.4 billion for the year ended December 31, 2022, compared to $1.9 billion for the year ended December 31, 2021. The increase was primarily attributable to a $462.6 million increase in cash paid for property acquisitions and acquisition related deposits, a $41.3 million decrease in net proceeds from the sale of real estate as compared to the prior year and a $32.6 million increase in cash paid for construction and repositioning/redevelopment projects.
Net cash provided by financing activities. Net cash provided by financing activities increased by $566.5 million to $2.1 billion for the year ended December 31, 2022, compared to $1.5 billion for the year ended December 31, 2021. The increase was primarily attributable to the following: (i) an increase of $1.1 billion in cash proceeds from borrowings under the Revolver, (ii) an increase of $400.0 million in cash proceeds from borrowings under the $400 Million Term Loan in July 2022, (iii) an increase of $300.0 million in cash proceeds from borrowings under the $300 Million Term Loan in May 2022, (iv) an increase of $225.0 million from the repayment of the $225.0 million term loan facility in August 2021, (v) an increase of $183.1 million in net cash proceeds from the issuance of shares of our common stock and (vi) an increase of $90.0 million from the redemption of the Series A Preferred Stock in August 2021. These increases were partially offset by the following: (i) a decrease of $1.1 billion from the repayment of the borrowings under the Revolver, (ii) a decrease of $392.4 million in net cash proceeds from the issuance of the $400 Million Notes due 2031 in August 2021, (iii) a decrease of $150.0 million from the repayment of the $150 Million Term Loan Facility in May 2022 and (iv) an increase of $74.3 million in dividends paid to common stockholders and common unitholders primarily due to the increase in the number of common shares outstanding and the increase in our quarterly per share/unit cash dividend.
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cash Flows” in our Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, for a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020.
Inflation
In the last several years, we do not believe that inflation has had a material impact on the Company. However, recently inflation has significantly increased and a prolonged period of high and persistent inflation could cause an increase in our operating expenses, capital expenditures and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations. The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provide for fixed rent increases. We believe that inflationary increases to real estate taxes, utility expenses and other operating expenses may be partially offset by the contractual rent increases and tenant payment of taxes and expenses described above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. A key market risk we face is interest rate risk. We are exposed to interest rate changes primarily as a result of using variable-rate debt to satisfy various short-term and long-term liquidity needs, which have interest rates based upon SOFR. We use interest rate swaps to manage, or hedge, interest rate risks related to our borrowings. Because actual interest rate movements over time are uncertain, our swaps pose potential interest rate risks, notably if interest rates fall. We also expose ourselves to credit risk, which we attempt to minimize by contracting with highly-rated banking financial counterparties. For a summary of our outstanding variable-rate debt, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources. For a summary of our interest rate swaps and recent transactions, see “Note 7 – Interest Rate Derivatives” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
As of December 31, 2022, the $300 Million Term Loan has been effectively fixed through the use of interest rate swaps. The interest rate swaps have a combined notional value of $300.0 million, an effective date of July 27, 2022, a maturity date of May 26, 2027, and currently fix Term SOFR at a weighted average rate of 2.81725%.
At December 31, 2022, we had total consolidated indebtedness, excluding unamortized debt issuance costs and premium/discounts, of $1.95 billion. Of this total amount, $1.49 billion, or 76%, comprise our fixed-rate debt under the terms of the loan or an interest rate swap. The remaining $460.0 million, or 24%, comprises our variable-rate debt. Based upon the amount of variable-rate debt outstanding as of December 31, 2022, if SOFR were to increase by 50 basis points, the increase in interest expense on our variable-rate debt would decrease our future earnings and cash flows by approximately $2.3 million annually. If SOFR were to decrease by 50 basis points, assuming an interest rate floor of 0%, the decrease in interest expense on our variable-rate debt would increase our future earnings and cash flows by approximately $2.3 million annually.
Interest risk amounts are our management’s estimates and were determined by considering the effect of hypothetical interest rates on our financial instruments. We calculate interest sensitivity by multiplying the amount of variable rate debt outstanding by the respective change in rate. The sensitivity analysis does not take into consideration possible changes in the balances or fair value of our floating rate debt or the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial structure.
Item 8. Financial Statements and Supplementary Data
All information required by this item is listed in the Index to Financial Statements in Part IV, Item 15(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including the Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, 2022, the end of the period covered by this report. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2022 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no significant changes that occurred during the fourth quarter of the most recent year covered by this report in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of, our Co-Chief Executive Officers and Chief Financial Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company has used the criteria set forth in the Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein within Item 15. See “Report of Independent Registered Public Accounting Firm”.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 11. Executive Compensation
The information required by Item 11 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2) Financial Statements and Schedules
The following financial information is included in Part IV of this Report on the pages indicated:
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Audited Consolidated Financial Statements of Rexford Industrial Realty, Inc.: | |
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All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.
(3). Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
3.1 | | | | S-11/A | | 333-188806 | | 3.1 | | 7/15/2013 |
3.2 | | | | 8-K | | 001-36008 | | 3.1 | | 2/14/2020 |
3.3 | | | | 8-A | | 001-36008 | | 3.3 | | 11/9/2017 |
3.4 | | | | 8-A | | 001-36008 | | 3.3 | | 9/19/2019 |
4.1 | | | | S-11/A | | 333-188806 | | 4.1 | | 7/15/2013 |
4.2 | | | | 8-A | | 001-36008 | | 4.1 | | 11/9/2017 |
4.3 | | | | 8-A | | 001-36008 | | 4.1 | | 9/19/2019 |
4.4 | | | | 10-K | | 001-36008 | | 4.5 | | 2/19/2020 |
4.5 | | Indenture, dated as of November 16, 2020, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee. | | 8-K | | 001-36008 | | 4.1 | | 11/16/2020 |
4.6 | | First Supplemental Indenture, dated as of November 16, 2020, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | | 8-K | | 001-36008 | | 4.2 | | 11/16/2020 |
4.7 | | Second Supplemental Indenture, dated as of August 9, 2021, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | | 8-K | | 001-36008 | | 4.2 | | 8/9/2021 |
10.1 | | | | 8-K | | 001-36008 | | 10.1 | | 3/21/2022 |
10.2 | | | | 10-Q | | 001-36008 | | 10.2 | | 9/3/2013 |
10.3† | | | | 10-Q | | 001-36008 | | 10.5 | | 7/27/2021 |
10.4† | | | | S-11/A | | 333-188806 | | 10.4 | | 7/15/2013 |
10.5 | | | | S-11/A | | 333-188806 | | 10.5 | | 7/9/2013 |
10.6 | | | | 10-Q | | 001-36008 | | 10.6 | | 9/3/2013 |
10.7† | | | | 10-Q | | 001-36008 | | 10.8 | | 9/3/2013 |
10.8† | | | | 8-K | | 001-36008 | | 10.2 | | 6/29/2017 |
10.9† | | | | 8-K | | 001-36008 | | 10.1 | | 5/20/2020 |
10.10† | | | | 10-Q | | 001-36008 | | 10.9 | | 9/3/2013 |
10.11† | | | | 8-K | | 001-36008 | | 10.3 | | 6/29/2017 |
10.12† | | | | 8-K | | 001-36008 | | 10.2 | | 5/20/2020 |
10.13† | | | | 8-K | | 001-36008 | | 10.1 | | 6/29/2017 |
10.14† | | | | 8-K | | 001-36008 | | 10.4 | | 5/20/2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
10.15† | | | | 8-K | | 001-36008 | | 10.2 | | 11/10/2022 |
10.16† | | | | 8-K | | 001-36008 | | 10.1 | | 7/9/2020 |
10.17† | | | | 8-K | | 001-36008 | | 10.1 | | 11/10/2022 |
10.18† | | | | 10-K | | 001-36008 | | 10.11 | | 3/9/2015 |
10.19† | | | | 10-K | | 001-36008 | | 10.18 | | 2/19/2021 |
10.20† | | | | 10-K | | 001-36008 | | 10.19 | | 2/19/2021 |
10.21 | | | | 10-K | | 001-36008 | | 10.20 | | 3/20/2014 |
10.22 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2015 |
10.23 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2017 |
10.24 | | | | 10-Q | | 001-36008 | | 10.3 | | 8/4/2017 |
10.25 | | | | 10-K | | 001-36008 | | 10.40 | | 2/21/2018 |
10.26 | | | | 10-Q | | 001-36008 | | 10.2 | | 5/7/2018 |
10.27 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2019 |
10.28 | | | | 8-K | | 001-36008 | | 10.1 | | 5/27/2022 |
10.29 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2022 |
10.30* | | | | 10-K | | 001-36008 | | 10.30 | | 2/10/2022 |
10.31 | | | | 8-K | | 001-36008 | | 1.1 | | 5/27/2022 |
10.32 | | | | 8-K | | 001-36008 | | 1.2 | | 5/27/2022 |
10.33 | | | | 8-K | | 001-36008 | | 1.3 | | 5/27/2022 |
10.34 | | | | 8-K | | 001-36008 | | 1.4 | | 5/27/2022 |
10.35 | | | | 8-K | | 001-36008 | | 1.5 | | 5/27/2022 |
10.36 | | | | 8-K | | 001-36008 | | 1.6 | | 5/27/2022 |
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Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
10.37 | | | | 8-K | | 001-36008 | | 1.7 | | 5/27/2022 |
10.38 | | | | 8-K | | 001-36008 | | 1.8 | | 5/27/2022 |
10.39 | | | | 8-K | | 001-36008 | | 1.9 | | 5/27/2022 |
10.40 | | | | 8-K | | 001-36008 | | 1.10 | | 5/27/2022 |
10.41 | | | | 8-K | | 001-36008 | | 1.11 | | 5/27/2022 |
10.42 | | | | 8-K | | 001-36008 | | 1.12 | | 5/27/2022 |
10.43 | | | | 8-K | | 001-36008 | | 1.13 | | 5/27/2022 |
21.1* | | | | | | | | | | |
22.1* | | | | | | | | | | |
23.1* | | | | | | | | | | |
24.1* | | | | | | | | | | |
31.1* | | | | | | | | | | |
31.2* | | | | | | | | | | |
31.3* | | | | | | | | | | |
32.1* | | | | | | | | | | |
32.2* | | | | | | | | | | |
32.3* | | | | | | | | | | |
101.1* | | The following financial information from Rexford Industrial Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements | | | | | | | | |
104.1* | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | | | | | | |
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† | Compensatory plan or arrangement |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | Rexford Industrial Realty, Inc. |
February 10, 2023 | | /s/ Michael S. Frankel |
| | Michael S. Frankel |
| | Co-Chief Executive Officer (Principal Executive Officer) |
| | |
February 10, 2023 | | /s/ Howard Schwimmer |
| | Howard Schwimmer |
| | Co-Chief Executive Officer (Principal Executive Officer) |
| | |
February 10, 2023 | | /s/ Laura E. Clark |
| | Laura E. Clark |
| | Chief Financial Officer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Rexford Industrial Realty, Inc., hereby severally constitute Michael S. Frankel, Howard Schwimmer and Laura E. Clark, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Rexford Industrial Realty, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
| | | | | | | | | | | | | | |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Michael S. Frankel | | Co- Chief Executive Officer and Director (Principal Executive Officer) | | February 10, 2023 |
Michael S. Frankel | | | | |
| | | | |
/s/ Howard Schwimmer | | Co- Chief Executive Officer and Director (Principal Executive Officer) | | February 10, 2023 |
Howard Schwimmer | | | | |
| | | | |
/s/ Laura E. Clark | | Chief Financial Officer (Principal Financial and Accounting Officer) | | February 10, 2023 |
Laura E. Clark | | | | |
| | | | |
/s/ Richard Ziman | | Chairman of the Board | | February 10, 2023 |
Richard Ziman | | | | |
| | | | |
/s/ Robert L. Antin | | Director | | February 10, 2023 |
Robert L. Antin | | | | |
| | | | |
/s/ Diana J. Ingram | | Director | | February 10, 2023 |
Diana J. Ingram | | | | |
| | | | |
/s/ Angela L. Kleiman | | Director | | February 10, 2023 |
Angela L. Kleiman | | | | |
| | | | |
/s/ Debra L. Morris | | Director | | February 10, 2023 |
Debra L. Morris | | | | |
| | | | |
/s/ Tyler H. Rose | | Director | | February 10, 2023 |
Tyler H. Rose | | | | |
| | | | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rexford Industrial Realty, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
| | Recognition of acquired real estate - Purchase price accounting |
| | |
Description of the Matter | | As discussed in Notes 2, 3, and 4 to the consolidated financial statements, the Company completed the acquisition of 61 properties for a total purchase price of $2.4 billion during the year ended December 31, 2022. The transactions were accounted for as asset acquisitions, and the purchase prices were allocated to components based on the relative fair values of the assets acquired and liabilities assumed. These components include land, buildings and improvements, tenant improvements, intangible assets and liabilities related to above and below market leases, and intangible assets related to in-place leases. The fair value of tangible and intangible assets and liabilities is based on available comparable market information, and estimated cash flow projections that utilize rental rates, discount rates, and capitalization rates. 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.
Auditing the fair value of acquired tangible and intangible assets and liabilities involves significant estimation uncertainty due to the judgment used by management in selecting key assumptions based on recent comparable transactions or market information, and the sensitivity of the fair values to changes in assumptions. In particular, the fair value estimates were sensitive to assumptions such as market rental rates, rental growth rates, price of land per square foot, discount rates, and capitalization rates. The allocation of value to the components of properties acquired could have a material effect on the Company’s net income due to the differing depreciable and amortizable lives of each component and the classification of the related depreciation or amortization in the Company’s consolidated statements of operations.
|
| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for determining and reviewing the key inputs and assumptions used in estimating the fair value of acquired assets and liabilities and allocating fair value to the various components. To test the allocation of the acquisition-date fair values, we evaluated the appropriateness of the valuation methods used to allocate the purchase price. We performed procedures to assess the key data inputs and assumptions used by management described above, including the completeness and accuracy of the underlying information. We also used our specialists to assist us in evaluating the valuation methods used by management and whether the assumptions utilized were supported by observable market data. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
Los Angeles, California
February 10, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Rexford Industrial Realty, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rexford Industrial Realty, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Rexford Industrial Realty, Inc. as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated February 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
February 10, 2023
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands - except share and per share data)
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
ASSETS | | | |
Land | $ | 5,841,195 | | | $ | 4,143,021 | |
Buildings and improvements | 3,370,494 | | | 2,588,836 | |
Tenant improvements | 147,632 | | | 127,708 | |
Furniture, fixtures, and equipment | 132 | | | 132 | |
Construction in progress | 110,934 | | | 71,375 | |
Total real estate held for investment | 9,470,387 | | | 6,931,072 | |
Accumulated depreciation | (614,332) | | | (473,382) | |
Investments in real estate, net | 8,856,055 | | | 6,457,690 | |
Cash and cash equivalents | 36,786 | | | 43,987 | |
Restricted cash | — | | | 11 | |
| | | |
Rents and other receivables, net | 15,227 | | | 11,027 | |
Deferred rent receivable, net | 88,144 | | | 61,511 | |
Deferred leasing costs, net | 45,080 | | | 32,940 | |
Deferred loan costs, net | 4,829 | | | 1,961 | |
Acquired lease intangible assets, net | 169,986 | | | 132,158 | |
Acquired indefinite-lived intangible | 5,156 | | | 5,156 | |
Interest rate swap asset | 11,422 | | | — | |
Other assets | 24,973 | | | 19,066 | |
Acquisition related deposits | 1,625 | | | 8,445 | |
| | | |
Assets associated with real estate held for sale, net | — | | | 7,213 | |
Total Assets | $ | 9,259,283 | | | $ | 6,781,165 | |
LIABILITIES & EQUITY | | | |
Liabilities | | | |
Notes payable | $ | 1,936,381 | | | $ | 1,399,565 | |
Interest rate swap liability | — | | | 7,482 | |
Accounts payable, accrued expenses and other liabilities | 97,496 | | | 65,833 | |
Dividends and distributions payable | 62,033 | | | 40,143 | |
Acquired lease intangible liabilities, net | 147,384 | | | 127,017 | |
Tenant security deposits | 71,935 | | | 57,370 | |
Prepaid rents | 20,712 | | | 15,829 | |
Liabilities associated with real estate held for sale | — | | | 231 | |
Total Liabilities | 2,335,941 | | | 1,713,470 | |
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 December 31, 2022 and December 31, 2021 ($75,000 liquidation preference) | 72,443 | | | 72,443 | |
5.625% series C cumulative redeemable preferred stock, 3,450,000 shares outstanding at December 31, 2022 and December 31, 2021 ($86,250 liquidation preference) | 83,233 | | | 83,233 | |
Common Stock, $0.01 par value per share, 489,950,000 authorized and 189,114,129 and 160,511,482 shares outstanding at December 31, 2022 and December 31, 2021, respectively | 1,891 | | | 1,605 | |
Additional paid-in capital | 6,646,867 | | | 4,828,292 | |
Cumulative distributions in excess of earnings | (255,743) | | | (191,120) | |
Accumulated other comprehensive income (loss) | 8,247 | | | (9,874) | |
Total stockholders’ equity | 6,556,938 | | | 4,784,579 | |
Noncontrolling interests | 366,404 | | | 283,116 | |
Total Equity | 6,923,342 | | | 5,067,695 | |
Total Liabilities and Equity | $ | 9,259,283 | | | $ | 6,781,165 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands - except share and per share data)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
REVENUES | | | | | |
| | | | | |
| | | | | |
| | | | | |
Rental income | $ | 630,578 | | | $ | 451,733 | | | $ | 329,377 | |
Management and leasing services | 616 | | | 468 | | | 420 | |
Interest income | 10 | | | 37 | | | 338 | |
TOTAL REVENUES | 631,204 | | | 452,238 | | | 330,135 | |
OPERATING EXPENSES | | | | | |
Property expenses | 150,503 | | | 107,721 | | | 79,716 | |
General and administrative | 64,264 | | | 48,990 | | | 36,795 | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
TOTAL OPERATING EXPENSES | 411,561 | | | 307,980 | | | 231,780 | |
OTHER EXPENSES | | | | | |
Other expenses | 1,561 | | | 1,297 | | | 124 | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | |
| | | | | |
TOTAL EXPENSES | 461,618 | | | 349,416 | | | 262,753 | |
| | | | | |
| | | | | |
Loss on extinguishment of debt | (915) | | | (505) | | | (104) | |
Gains on sale of real estate | 8,486 | | | 33,929 | | | 13,617 | |
NET INCOME | 177,157 | | | 136,246 | | | 80,895 | |
Less: net income attributable to noncontrolling interests | (9,573) | | | (8,005) | | | (4,492) | |
NET INCOME ATTRIBUTABLE TO REXFORD INDUSTRIAL REALTY, INC. | 167,584 | | | 128,241 | | | 76,403 | |
Less: preferred stock dividends | (9,258) | | | (12,563) | | | (14,545) | |
Less: original issuance costs of redeemed preferred stock | — | | | (3,349) | | | — | |
Less: earnings allocated to participating securities | (845) | | | (568) | | | (509) | |
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | 157,481 | | | $ | 111,761 | | | $ | 61,349 | |
Net income attributable to common stockholders per share - basic | $ | 0.92 | | | $ | 0.80 | | | $ | 0.51 | |
Net income attributable to common stockholders per share - diluted | $ | 0.92 | | | $ | 0.80 | | | $ | 0.51 | |
Weighted average shares of common stock outstanding - basic | 170,467,365 | | | 139,294,882 | | | 120,873,624 | |
Weighted average shares of common stock outstanding - diluted | 170,978,272 | | | 140,075,689 | | | 121,178,310 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Other comprehensive income (loss): cash flow hedge adjustments | 18,846 | | | 8,333 | | | (10,880) | |
Comprehensive income | 196,003 | | | 144,579 | | | 70,015 | |
Less: comprehensive income attributable to noncontrolling interests | (10,298) | | | (8,503) | | | (3,779) | |
Comprehensive income attributable to Rexford Industrial Realty, Inc. | $ | 185,705 | | | $ | 136,076 | | | $ | 66,236 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands - except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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, 2019 | $ | 242,327 | | | 113,793,300 | | | $ | 1,136 | | | $ | 2,439,007 | | | $ | (118,751) | | | $ | (7,542) | | | $ | 2,556,177 | | | $ | 66,272 | | | $ | 2,622,449 | |
| | | | | | | | | | | | | | | | | |
Issuance of common stock | — | | | 17,253,161 | | | 173 | | | 739,810 | | | — | | | — | | | 739,983 | | | — | | | 739,983 | |
Offering costs | — | | | — | | | — | | | (5,887) | | | — | | | — | | | (5,887) | | | — | | | (5,887) | |
Issuance of OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 179,262 | | | 179,262 | |
Issuance of 4.00% cumulative redeemable convertible preferred units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 40,787 | | | 40,787 | |
Share-based compensation | — | | | 110,737 | | | 1 | | | 3,290 | | | — | | | — | | | 3,291 | | | 9,803 | | | 13,094 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (27,473) | | | — | | | (1,278) | | | — | | | — | | | (1,278) | | | — | | | (1,278) | |
Conversion of OP Units to common stock | — | | | 296,313 | | | 3 | | | 7,657 | | | — | | | — | | | 7,660 | | | (7,660) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 14,545 | | | — | | | — | | | — | | | 61,858 | | | — | | | 76,403 | | | 4,492 | | | 80,895 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (10,167) | | | (10,167) | | | (713) | | | (10,880) | |
Preferred stock dividends ($1.468752 per series A preferred and series B preferred share and $1.406252 per series C preferred share) | (14,545) | | | — | | | — | | | — | | | — | | | — | | | (14,545) | | | — | | | (14,545) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,546) | | | (2,546) | |
Common stock dividends ($0.86 per share) | — | | | — | | | — | | | — | | | (106,496) | | | — | | | (106,496) | | | — | | | (106,496) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,246) | | | (4,246) | |
Balance at December 31, 2020 | $ | 242,327 | | | 131,426,038 | | | $ | 1,313 | | | $ | 3,182,599 | | | $ | (163,389) | | | $ | (17,709) | | | $ | 3,245,141 | | | $ | 285,451 | | | $ | 3,530,592 | |
Issuance of common stock | — | | | 28,484,776 | | | 286 | | | 1,644,411 | | | — | | | — | | | 1,644,697 | | | — | | | 1,644,697 | |
Offering costs | — | | | — | | | — | | | (18,606) | | | — | | | — | | | (18,606) | | | — | | | (18,606) | |
Redemption of 5.875% series A preferred stock | (86,651) | | | — | | | — | | | — | | | (3,349) | | | — | | | (90,000) | | | — | | | (90,000) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 108,774 | | | 1 | | | 3,855 | | | — | | | — | | | 3,856 | | | 16,007 | | | 19,863 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (29,305) | | | — | | | (1,428) | | | — | | | — | | | (1,428) | | | — | | | (1,428) | |
Conversion of OP Units to common stock | — | | | 521,199 | | | 5 | | | 17,461 | | | — | | | — | | | 17,466 | | | (17,466) | | | — | |
Net income | 12,563 | | | — | | | — | | | — | | | 115,678 | | | — | | | 128,241 | | | 8,005 | | | 136,246 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 7,835 | | | 7,835 | | | 498 | | | 8,333 | |
Preferred stock dividends ($0.917970 per series A preferred share, $1.468752 per series B preferred share and $1.406252 per series C preferred share) | (12,563) | | | — | | | — | | | — | | | — | | | — | | | (12,563) | | | — | | | (12,563) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,832) | | | (2,832) | |
Common stock dividends ($0.96 per share) | — | | | — | | | — | | | — | | | (140,060) | | | — | | | (140,060) | | | — | | | (140,060) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,547) | | | (6,547) | |
Balance at December 31, 2021 | $ | 155,676 | | | 160,511,482 | | | $ | 1,605 | | | $ | 4,828,292 | | | $ | (191,120) | | | $ | (9,874) | | | $ | 4,784,579 | | | $ | 283,116 | | | $ | 5,067,695 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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 |
Issuance of common stock | — | | | 28,343,395 | | | 283 | | | 1,831,490 | | | — | | | — | | | 1,831,773 | | | — | | | 1,831,773 | |
Offering costs | — | | | — | | | — | | | (22,542) | | | — | | | — | | | (22,542) | | | — | | | (22,542) | |
Issuance of OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 56,167 | | | 56,167 | |
Issuance of 3.00% cumulative redeemable convertible preferred units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,000 | | | 12,000 | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 123,542 | | | 1 | | | 5,547 | | | — | | | — | | | 5,548 | | | 23,488 | | | 29,036 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (31,576) | | | — | | | (2,156) | | | — | | | — | | | (2,156) | | | — | | | (2,156) | |
Conversion of OP Units to common stock | — | | | 167,286 | | | 2 | | | 6,236 | | | — | | | — | | | 6,238 | | | (6,238) | | | — | |
Acquisition of private REIT - preferred units | — | | | — | | | — | | | — | | | ��� | | | — | | | — | | | 122 | | | 122 | |
Net income | 9,258 | | | — | | | — | | | — | | | 158,326 | | | — | | | 167,584 | | | 9,573 | | | 177,157 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 18,121 | | | 18,121 | | | 725 | | | 18,846 | |
Preferred stock dividends ( $1.468752 per series B preferred share and $1.406252 per series C preferred share) | (9,258) | | | — | | | — | | | — | | | — | | | — | | | (9,258) | | | — | | | (9,258) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,124) | | | (3,124) | |
Common stock dividends ($1.26 per share) | — | | | — | | | — | | | — | | | (222,949) | | | — | | | (222,949) | | | — | | | (222,949) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,425) | | | (9,425) | |
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 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| | | | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | |
Impairment of right-of-use asset | — | | | 992 | | | — | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | |
Amortization of debt issuance costs | 2,689 | | | 1,919 | | | 1,505 | |
Amortization of discount (premium) on notes payable, net | 250 | | | 26 | | | (188) | |
Equity based compensation expense | 28,426 | | | 19,506 | | | 12,871 | |
Straight-line rent | (31,220) | | | (20,903) | | | (11,406) | |
Payments for termination/settlement of interest rate derivatives | (589) | | | (4,045) | | | (1,239) | |
Amortization related to termination/settlement of interest rate derivatives | 531 | | | 2,280 | | | 218 | |
Change in working capital components: | | | | | |
Rents and other receivables | (2,858) | | | (745) | | | (4,030) | |
Deferred leasing costs | (17,762) | | | (17,473) | | | (10,447) | |
Other assets | (594) | | | (6,357) | | | (2,352) | |
Sales-type lease receivable | — | | | — | | | 20,302 | |
Accounts payable, accrued expenses and other liabilities | 9,304 | | | 11,895 | | | 4,825 | |
Tenant security deposits | 6,294 | | | 6,776 | | | (415) | |
Prepaid rents | (1,947) | | | (1,056) | | | 1,232 | |
Net cash provided by operating activities | 327,695 | | | 231,463 | | | 182,994 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Acquisition of investments in real estate | (2,328,430) | | | (1,858,413) | | | (928,687) | |
Capital expenditures | (135,095) | | | (102,475) | | | (78,765) | |
Payment for deposits on real estate acquisitions | (1,000) | | | (8,445) | | | (4,067) | |
| | | | | |
| | | | | |
| | | | | |
Proceeds from sale of real estate | 15,315 | | | 56,566 | | | 23,996 | |
Net cash used in investing activities | (2,449,210) | | | (1,912,767) | | | (987,523) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| | | | | |
Redemption of preferred stock | — | | | (90,000) | | | — | |
Issuance of common stock, net | 1,809,231 | | | 1,626,091 | | | 734,096 | |
Proceeds from borrowings | 2,714,000 | | | 1,264,557 | | | 471,844 | |
Repayment of borrowings | (2,176,606) | | | (1,095,280) | | | (175,671) | |
Debt issuance costs | (7,300) | | | (4,555) | | | (6,085) | |
| | | | | |
Dividends paid to preferred stockholders | (9,258) | | | (12,563) | | | (14,545) | |
Dividends paid to common stockholders | (201,902) | | | (129,793) | | | (99,292) | |
Distributions paid to common unitholders | (8,582) | | | (6,418) | | | (3,328) | |
Distributions paid to preferred unitholders | (3,124) | | | (2,832) | | | (2,546) | |
Repurchase of common shares to satisfy employee tax withholding requirements | (2,156) | | | (1,428) | | | (1,278) | |
Net cash provided by financing activities | 2,114,303 | | | 1,547,779 | | | 903,195 | |
Increase (decrease) in cash, cash equivalents and restricted cash | (7,212) | | | (133,525) | | | 98,666 | |
Cash, cash equivalents and restricted cash, beginning of period | 43,998 | | | 177,523 | | | 78,857 | |
Cash, cash equivalents and restricted cash, end of period | $ | 36,786 | | | $ | 43,998 | | | $ | 177,523 | |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid for interest (net of capitalized interest of $12,236, $4,550 and $3,925 for the years December 31, 2022, 2021 and 2020, respectively) | $ | 44,811 | | | $ | 32,979 | | | $ | 27,924 | |
Supplemental disclosure of noncash transactions: | | | | | |
Operating lease right-of-use assets obtained in exchange for lease liabilities | $ | 6,363 | | | $ | — | | | $ | 3,204 | |
Issuance of operating partnership units in connection with acquisition of real estate | $ | 56,167 | | | $ | — | | | $ | 179,262 | |
Issuance of 4.0% cumulative redeemable convertible preferred units in connection with acquisition of real estate | $ | — | | | $ | — | | | $ | 40,787 | |
Issuance of 3.0% cumulative redeemable convertible preferred units in connection with acquisition of real estate | $ | 12,000 | | | $ | — | | | $ | — | |
Acquisition of private REIT - preferred units | $ | 122 | | | $ | — | | | $ | — | |
Assumption of debt in connection with acquisition of real estate including loan premium | $ | — | | | $ | 16,512 | | | $ | 65,264 | |
Accrual for capital expenditures | $ | 29,074 | | | $ | 15,700 | | | $ | 11,811 | |
Accrual of dividends and distributions | $ | 62,033 | | | $ | 40,143 | | | $ | 29,747 | |
Lease reclassification from operating lease to sales-type lease: | | | | | |
Sales-type lease receivable | $ | — | | | $ | — | | | $ | 20,302 | |
Investments in real estate, net | — | | | — | | | (16,117) | |
Deferred rent receivable, net | — | | | — | | | (63) | |
Deferred leasing costs, net | — | | | — | | | (164) | |
Acquired lease intangible assets, net | — | | | — | | | (136) | |
Gain on sale recognized due to lease classification | $ | — | | | $ | — | | | $ | 3,822 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 property. As of December 31, 2022, our consolidated portfolio consisted of 356 properties with approximately 42.4 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
The accompanying financial statements are the consolidated financial statements of Rexford Industrial Realty, Inc. and its subsidiaries, including our Operating Partnership. All significant 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 December 31, 2022 and 2021, 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 consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) as established by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification (“ASC”) including modifications issued under Accounting Standards Updates (“ASUs”). Any reference to the number of properties, buildings and square footage are unaudited and outside the scope of our independent auditor’s audit of our financial statements in accordance with the standards of the 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 comprised of escrow reserves that we are required to set aside for future costs as required by certain agreements with our lenders, and from time to time, includes 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”).
Restricted cash balances are included with cash and cash equivalent balances as of the beginning and ending of each period presented in the consolidated statements of cash flows. The following table provides a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the years ended December 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
Cash and cash equivalents | $ | 43,987 | | | $ | 176,293 | |
Restricted cash | 11 | | | 1,230 | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 43,998 | | | $ | 177,523 | |
| | | |
Cash and cash equivalents | $ | 36,786 | | | $ | 43,987 | |
Restricted cash | — | | | 11 | |
Cash, cash equivalents and restricted cash, end of period | $ | 36,786 | | | $ | 43,998 | |
Investments in Real Estate
Acquisitions
We account for acquisitions of properties under ASU 2017-01’)2017-01, Business Combinations–Clarifying the Definition of a Business, which provides a new framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 clarifies that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar assets, the set of assetsbusinesses and activities is not a business. ASU 2017-01 alsofurther revises the definition of a business to include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output.
We evaluate eachbusiness. Our acquisitions of our property acquisitions to determine whether the acquired set of assets and activities (collectively referred to as a “set”) meets the definition of a business and will need to be accounted for as a business combination. A set would fail to qualify as a business if either (i) substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii) the set is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. An acquired process is considered substantive if (i) the process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and experienced in performing the process, (ii) the process cannot be replaced without significant cost, effort, or delay or (iii) the process is considered unique or scarce.
As a result of the adoption of ASU 2017-01, all of our acquisition transactions completed during the year ended December 31, 2017, were accounted for as asset acquisitions. Going forward, we expect that most of our property acquisitions willproperties generally notno longer meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiableand accordingly are accounted for as asset or group of similar identifiable assets or because the acquisition does not include a substantive process.acquisitions.
When we acquire a property that meets the business combination accounting criteria, For asset acquisitions, we allocate the purchase price to the various componentscost of the acquisition, based uponwhich 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 of each component on the acquisition date. The componentsbasis. These individual assets and liabilities typically include land, building and improvements, tenant improvements, intangible assets and liabilities related to aboveabove- and below marketbelow-market leases, intangible assets related to in-place leases, debt and otherfrom time to time, assumed assets and liabilities. Acquisition related costs are expensed as incurred. Because of the timing or complexity of completing certain fair value adjustments, the initial purchase price allocation may be incomplete at the end of a reporting period, in which case we may record provisional purchase price allocation amounts based on information available at the acquisition date. Subsequent adjustments to provisional amounts are recognized during the measurement period, which cannot exceed one year from the date of acquisition.
For acquisitions that do not meet the business combination accounting criteria, we allocate the cost of the acquisition, which includes any associated acquisition costs, to the individual assets and liabilities assumed on a relative fair value basis.mortgage debt. As there is no measurement period concept for an asset acquisition, the allocated cost of the acquired assets should beis finalized in the period in which the acquisition occurred.occurs.
We determine the fair value of the tangible assets of an acquired property by valuing the property as if it were 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 aboutwith respect to the assumptions a market participant would use. These Level 3 inputs include discount rates, capitalization rates, market rentsrental 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 calculatingdetermining the “as-if-vacant” value for acquisitions completedthe properties we acquired during the year ended December 31, 2017,2022, we used discount rates ranging from 5.50%4.75% to 7.50% and 9.50% andexit capitalization rates ranging from 4.25%3.75% to 7.50%6.25%.
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, 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. Such estimates includeWe 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 property that would be incurred to lease thea property to its occupancy level at the time of its acquisition. In determining the fair value of acquisitions completed during the year ended December 31, 2017,2022, we used an estimated average lease-up period ranging from six months to eighteentwelve months.
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 isare based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.
CapitalizationLoss on Extinguishment 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 development, 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 development 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 $1.7 million, $1.7 million and $0.8 million during the years ended December 31, 2017, 2016 and 2015, respectively. We capitalized real estate taxes and insurance aggregating $1.2 million, $0.8 million and $0.8 million during the years ended December 31, 2017, 2016 and 2015, respectively. We capitalized compensation costs for employees who provide construction services of $1.9 million, $1.0 million and $0.9 million during the years ended December 31, 2017, 2016 and 2015, respectively.
Impairment of Long-Lived Assets
In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC Topic 360: Property, Plant, and Equipment, we assess the carrying values of our respective long-lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.
Recoverability of real estate 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 regard to the underlying assets might change as market conditions and other factors change. 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 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.
Revenue Recognition
We recognize revenue from rent, tenant reimbursements and other revenue sources once all of the following criteria are met: persuasive evidence that an arrangement exists, the delivery has occurred or services rendered, the fee is fixed and determinable and collectability is reasonably assured. Minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the term of the related lease. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space.
Estimated reimbursements from tenants for real estate taxes, common area maintenance and other recoverable operating expenses are recognized as revenues in the period that the recoverable 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. Lease termination fees, which are included in rental revenues in the accompanying consolidated statements of operations, are recognized when the related lease is canceled and we have no continuing obligation to provide services to such former tenant.
Revenues from management, leasing and development services are recognized when the related services have been provided and earned.Debt
The recognitionloss on extinguishment of gains on salesdebt of real estate requires us to measure the timing of a sale against various criteria related to the terms of the transaction, as well as any continuing involvement in the form of management or financial assistance associated with the property. If the sales criteria are not met, we defer gain recognition and account for the continued operations of the property by applying the finance, profit-sharing or leasing method. If the sales criteria have been met, we further analyze whether profit recognition is appropriate using the full accrual method. If the criteria to recognize profit using the full accrual method have not been met, we defer the gain and recognize it when the criteria are met or use the installment or cost recovery method as appropriate under the circumstances.
Valuation of Receivables
We are subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. 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. We specifically analyze aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. As a result of our periodic analysis, we maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. This estimate requires significant judgment related to the lessees’ ability to fulfill their obligations under the leases. We believe our allowance for doubtful accounts is adequate for our outstanding receivables for the periods presented. If a tenant is insolvent or files for bankruptcy protection and fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances, which include amounts recognized as straight-line revenue not realizable until future periods.
Results of Operations
Our consolidated results of operations are often not comparable from period to period due to the effect of property acquisitions and dispositions completed during the comparative reporting periods. Our “Total Portfolio” represents all of the properties owned during the reported periods. To eliminate the effect of changes in our Total Portfolio due to acquisitions and dispositions and to highlight the operating results of our on-going business, we have separately presented the results of our “Same Properties Portfolio.”
Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016
For the comparison of the years ended December 31, 2017 and 2016, our Same Properties Portfolio includes all properties in our industrial portfolio that were wholly-owned by us as of January 1, 2016, and still owned by us as of December 31, 2017, which consisted of 111 properties aggregating approximately 11.0 million rentable square feet. Results for our Same Properties Portfolio exclude our joint venture property, any properties that were acquired or sold during 2017 and 2016, interest expense and corporate general and administrative expenses. For the comparison of the years ended December 31, 2017 and 2016, our Total Portfolio includes the properties in our Same Properties Portfolio, the 41 properties aggregating approximately 7.6 million rentable square feet that were acquired during 2017 and 2016, and the 11 properties aggregating approximately 1.1 million rentable square feet that were sold during 2017 and 2016.
As of December 31, 2017 and 2016, our Same Properties Portfolio occupancy was approximately 98.0% and 96.2%, respectively. For the years ended December 31, 2017 and 2016, our Same Properties Portfolio weighted average occupancy was approximately 96.0% and 93.7%, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Same Properties Portfolio | | Total Portfolio |
| | Year Ended December 31, | | Increase/ (Decrease) | | % Change | | Year Ended December 31, | | Increase/ (Decrease) | | % Change |
| | 2017 | | 2016 | | | | 2017 | | 2016 | | |
| | ($ in thousands) |
RENTAL REVENUES | | | | | | | | | | | | | | | | |
Rental revenues | | $ | 99,031 |
| | $ | 91,971 |
| | $ | 7,060 |
| | 7.7 | % | | $ | 136,185 |
| | $ | 107,594 |
| | $ | 28,591 |
| | 26.6 | % |
Tenant reimbursements | | 15,257 |
| | 13,691 |
| | 1,566 |
| | 11.4 | % | | 23,363 |
| | 16,723 |
| | 6,640 |
| | 39.7 | % |
Other income | | 712 |
| | 751 |
| | (39 | ) | | (5.2 | )% | | 869 |
| | 943 |
| | (74 | ) | | (7.8 | )% |
TOTAL RENTAL REVENUES | | 115,000 |
| | 106,413 |
| | 8,587 |
| | 8.1 | % | | 160,417 |
| | 125,260 |
| | 35,157 |
| | 28.1 | % |
Management, leasing and development services | | — |
| | — |
| | — |
| | — | % | | 493 |
| | 473 |
| | 20 |
| | 4.2 | % |
Interest income | | — |
| | — |
| | — |
| | — | % | | 445 |
| | 459 |
| | (14 | ) | | (3.1 | )% |
TOTAL REVENUES | | 115,000 |
| | 106,413 |
| | 8,587 |
| | 8.1 | % | | 161,355 |
| | 126,192 |
| | 35,163 |
| | 27.9 | % |
OPERATING EXPENSES | | | | | | | |
| | | | | |
| |
|
Property expenses | | 30,214 |
| | 28,338 |
| | 1,876 |
| | 6.6 | % | | 42,139 |
| | 33,619 |
| | 8,520 |
| | 25.3 | % |
General and administrative | | — |
| | — |
| | — |
| | — | % | | 21,610 |
| | 17,415 |
| | 4,195 |
| | 24.1 | % |
Depreciation and amortization | | 39,120 |
| | 41,535 |
| | (2,415 | ) | | (5.8 | )% | | 64,852 |
| | 51,407 |
| | 13,445 |
| | 26.2 | % |
TOTAL OPERATING EXPENSES | | 69,334 |
| | 69,873 |
| | (539 | ) | | (0.8 | )% | | 128,601 |
| | 102,441 |
| | 26,160 |
| | 25.5 | % |
OTHER EXPENSE | | | | | | | |
| | | | | |
| |
|
Acquisition expenses | | — |
| | — |
| | — |
| | — | % | | 454 |
| | 1,855 |
| | (1,401 | ) | | (75.5 | )% |
Interest expense | | — |
| | — |
| | — |
| | — | % | | 20,209 |
| | 14,848 |
| | 5,361 |
| | 36.1 | % |
TOTAL OTHER EXPENSE | | — |
| | — |
| | — |
| | — | % | | 20,663 |
| | 16,703 |
| | 3,960 |
| | 23.7 | % |
TOTAL EXPENSES | | 69,334 |
| | 69,873 |
| | (539 | ) | | (0.8 | )% | | 149,264 |
| | 119,144 |
| | 30,120 |
| | 25.3 | % |
Equity in income from unconsolidated real estate entities | | — |
| |
|
| | — |
| | | | 11 |
| | 1,451 |
| | (1,440 | ) | | |
Gain on extinguishment of debt | | — |
| | — |
| | — |
| | | | 25 |
| | — |
| | 25 |
| | |
Gain on sale of real estate | | — |
| | — |
| | — |
| | | | 29,573 |
| | 17,377 |
| | 12,196 |
| | |
NET INCOME | | $ | 45,666 |
| | $ | 36,540 |
| | $ | 9,126 |
| | | | $ | 41,700 |
| | $ | 25,876 |
| | $ | 15,824 |
| | |
Rental Revenue
Our Same Properties Portfolio and Total Portfolio rental revenue increased by $7.1 million, or 7.7%, and $28.6 million, or 26.6%, respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase in our Same Properties Portfolio rental income is primarily due to the increase in the weighted average occupancy of the portfolio for comparable periods, which was driven by the completion of repositioning work and subsequent lease-up of space at nine of our properties during 2016 and 2017, as well as the increase in average rental rates on new and renewal leases. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 41 properties we acquired during 2016 and 2017, partially offset by the decrease in revenues from the 11 properties that were sold during 2016 and 2017.
Tenant Reimbursements
Our Same Properties Portfolio and Total Portfolio tenant reimbursements revenue increased $1.6 million, or 11.4%, and increased $6.6 million or 39.7%, respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase in our Same Properties Portfolio tenant reimbursements is primarily due to an increase in recoverable operating expenses for comparable periods, an increase in the weighted average occupancy of the portfolio for comparable periods, which was driven by the completion of repositioning work and subsequent lease-up of space at nine of our properties during 2016 and 2017, as well as the completion of supplemental assessments of certain of our properties resulting in lower reimbursable real estate taxes during 2016. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental reimbursements from the 41 properties we acquired during 2016 and 2017, partially offset by the decrease in reimbursements from the 11 properties that were sold during 2016 and 2017.
Other Income
Our Same Properties Portfolio and Total Portfolio other income decreased by $39 thousand, or 5.2%, and $74 thousand, or 7.8%, respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016. The decrease in our Same Properties Portfolio other income is primarily due to a decrease in late fee income, partially offset by an increase in other miscellaneous income. The decrease in our Total Portfolio income is primarily due to a decrease in late fee income and other miscellaneous income.
Management, Leasing and Development Services
Our Total Portfolio management, leasing and development services revenue increased by $20 thousand, or 4.2%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to our acquisition of the property located at 3233 Mission Oaks Boulevard from our unconsolidated joint venture (the “JV”) in July 2016. Prior to this acquisition, we earned fees and commissions for providing property and construction management services for the property.
Interest Income
Interest income relates to the $6.0 million mortgage loan that we made on July 1, 2016, which was subsequently repaid on June 23, 2017 (the “Rancho Loan”). The Rancho Loan was secured by an industrial property located in Rancho Cucamonga, California and bore interest at 10.0% per annum. Our Total Portfolio interest income decreased by $14 thousand, or 3.1%, during the year ended December 31, 2017, compared to the year ended December 31, 2016.
Property Expenses
Our Same Properties Portfolio property expenses increased by $1.9 million or 6.6%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to an increase in overhead costs, an increase in recoverable repairs and maintenance expense, an increase in insurance expense, an increase in real estate tax expense and the receipt of non-comparable insurance reimbursements during 2016, partially offset by a decrease in third-party property management fee expense. The increase in insurance expense was due to the new earthquake policy we obtained in June 2017 and the new environmental policy we obtained in December 2016. The increase in real estate tax expense was due to a decrease in capitalized real estate taxes resulting from the completion of construction at certain of our repositioning properties. Our Total Portfolio property expenses increased by $8.5 million, or 25.3%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily as a result of the incremental expenses from the 41 properties we acquired during 2016 and 2017, partially offset by the decrease in property expenses from the 11 properties that were sold during 2016 and 2017.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $4.2 million, or 24.1% for the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase is primarily due to the following: (i) a $1.5 million increase in non-cash equity compensation expense primarily related to equity grants awards granted in December 2016, (ii) a non-comparable $1.0 million insurance reimbursement of legal fees related to prior litigation received during 2016, (iii) a $1.0 million increase in bonus expense due to Company performance, (iv) a $0.6 million increase in payroll and employment related costs and (v) a $0.4 million increase in other various corporate expenses. These increases were partially offset by a $0.2 million decrease in non-employee director compensation expense.
Depreciation and Amortization
Our Same Properties Portfolio depreciation and amortization expense decreased by $2.4 million, or 5.8%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to acquired lease related intangible and tangible assets for several of our properties becoming fully depreciated during 2016 and 2017, partially offset by an increase in depreciation expense related to capital improvements. Our Total Portfolio depreciation and amortization expense increased $13.4 million, or 26.2%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to incremental expense from the 41 properties we acquired during 2016 and 2017, and an increase in depreciation expense related to capital improvements, partially offset by the decrease in our Same Properties Portfolio depreciation and amortization expense noted above.
Acquisition Expenses
Our Total Portfolio acquisition expenses decreased by $1.4 million, or 75.5%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to the adoption of ASU 2017-01, effective January 1, 2017. Under ASU 2017-01, the 21 properties that we acquired during 2017 were accounted for as asset acquisitions, and the related acquisition costs were capitalized as part of the purchase price of the acquisition on a relative fair value basis. In comparison, 18 of the 20 properties that we acquired during 2016 were accounted for as business combinations, and the related acquisition costs were expensed as incurred. The decrease in acquisition expenses due to the adoption of ASU 2017-01 was partially offset by an increase resulting from the write-off of previously incurred transaction costs related to the termination of a ground lease in March 2017. For additional details, see Note 10 to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
Interest Expense
Our Total Portfolio interest expense increased by $5.4 million, or 36.1%, for the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase in interest expense is primarily comprised of the following: (i) a $2.3 million increase related to the issuance of $125 million of 3.93% fixed rate senior notes in July 2017, (ii) a $1.9 million increase related to the $125 million and $100 million term loan facility borrowings we made in January 2016 and April 2016, respectively, and (iii) and a $1.4 million increase related to the increase in borrowings on our unsecured revolving credit facility. The increase was partially offset by a $0.3 million decrease in interest expense from the 1065 Walnut Street mortgage loan, which we repaid in advance of maturity on March 20, 2017.
Equity in Income from Unconsolidated Real Estate Entities
Our Total Portfolio equity in income from unconsolidated real estate entities decreased by $1.4$0.9 million for the year ended December 31, 2017, compared2022, is primarily comprised of the write-off of $0.7 million of unamortized debt issuance costs related to the year ended December 31, 2016, due to the acquisition$150.0 million unsecured term loan facility we repaid in May 2022 in advance of the remaining 85% ownership interest in the property located at 3233 Mission Oaks Boulevard from the JV on July 6, 2016. For additional information, see Note 11 to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
Gain on Extinguishment of Debt
During the year ended December 31, 2017, we repaid the 1065 Walnut Street mortgage loanMay 2025 maturity date and the 12907 Imperial Highway mortgage loan. The gain on extinguishment of debt of $25 thousand represents the write-off of $0.2 million of unamortized debt issuance costs attributable to one of the creditors departing the unsecured revolving credit facility when we amended our senior unsecured credit agreement in May 2022. The loss on extinguishment of debt of $0.5 million for the year ended December 31, 2021 represents the write-off of unamortized debt issuance costs related to the $225.0 million unsecured term loan premiums, partially offset by the $0.2 million penalty incurred for repaying the 1065 Walnut Street mortgage loanfacility that we repaid in September 2021 in advance of the January 2023 maturity date.
GainGains on Sale of Real Estate
During the year ended December 31, 2017,2022, we recognized a total gaingains on sale of $29.6real estate of $8.5 million from the disposition of six propertiesone property that werewas sold for an aggregatea gross sales price of $98.7$16.5 million. During the year ended December 31, 2016,2021, we recognized a total gaingains on sale of $17.4real estate of $33.9 million from the disposition of five properties that were sold for an aggregate gross sales price of $40.7$59.3 million.
Comparison of the Year Ended December 31, 20162021 to the Year Ended December 31, 20152020
For the comparison Refer to “Item 7. Management’s Discussion and Analysis of the years ended December 31, 2016Financial Condition and 2015, our Same Properties Portfolio includes all propertiesResults of Operations – Results of Operations” in our industrial portfolio that were wholly-owned by us as of January 1, 2015, and still owned by us as of December 31, 2016, which consisted of 95 properties aggregating approximately 9.5 million rentable square feet. Results for our Same Properties Portfolio exclude our joint venture property, any properties that were acquired or sold during 2016 or 2015, interest income from our note receivable, interest expense and corporate general and administrative expenses. For the comparison of the years ended December 31, 2016 and 2015, our Total Portfolio includes the properties in our Same Properties Portfolio, the 41 properties aggregating approximately 5.5 million rentable square feet that were acquired during 2016 and 2015, and the five properties aggregating approximately 0.3 million rentable square feet that were sold during 2016.
As of December 31, 2016 and 2015, our Same Properties Portfolio occupancy was approximately 96.1% and 93.0%, respectively. For the years ended December 31, 2016 and 2015, our Same Properties Portfolio weighted average occupancy was approximately 93.4% and 90.7%, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Same Properties Portfolio | | Total Portfolio |
| | Year Ended December 31, | | Increase/ (Decrease) | | % Change | | Year Ended December 31, | | Increase/ (Decrease) | | % Change |
| | 2016 | | 2015 | | | | 2016 | | 2015 | | |
| | ($ in thousands) |
RENTAL REVENUES | | | | | | | | | | | | | | | | |
Rental revenues | | $ | 77,450 |
| | $ | 71,802 |
| | $ | 5,648 |
| | 7.9 | % | | $ | 107,594 |
| | $ | 81,114 |
| | $ | 26,480 |
| | 32.6 | % |
Tenant reimbursements | | 10,352 |
| | 9,668 |
| | 684 |
| | 7.1 | % | | 16,723 |
| | 10,479 |
| | 6,244 |
| | 59.6 | % |
Other income | | 626 |
| | 929 |
| | (303 | ) | | (32.6 | )% | | 943 |
| | 1,013 |
| | (70 | ) | | (6.9 | )% |
TOTAL RENTAL REVENUES | | 88,428 |
| | 82,399 |
| | 6,029 |
| | 7.3 | % | | 125,260 |
| | 92,606 |
| | 32,654 |
| | 35.3 | % |
Management, leasing and development services | | — |
| | — |
| | — |
| | — | % | | 473 |
| | 584 |
| | (111 | ) | | (19.0 | )% |
Interest income | | — |
| | — |
| | — |
| | — | % | | 459 |
| | 710 |
| | (251 | ) | | (35.4 | )% |
TOTAL REVENUES | | 88,428 |
| | 82,399 |
| | 6,029 |
| | 7.3 | % | | 126,192 |
| | 93,900 |
| | 32,292 |
| | 34.4 | % |
EXPENSES | | | | | | | |
| | | | | | | |
|
Property expenses | | 23,734 |
| | 22,488 |
| | 1,246 |
| | 5.5 | % | | 33,619 |
| | 25,000 |
| | 8,619 |
| | 34.5 | % |
General and administrative | | — |
| | — |
| | — |
| | — | % | | 17,415 |
| | 15,016 |
| | 2,399 |
| | 16.0 | % |
Depreciation and amortization | | 33,611 |
| | 36,570 |
| | (2,959 | ) | | (8.1 | )% | | 51,407 |
| | 41,837 |
| | 9,570 |
| | 22.9 | % |
TOTAL OPERATING EXPENSES | | 57,345 |
| | 59,058 |
| | (1,713 | ) | | (2.9 | )% | | 102,441 |
| | 81,853 |
| | 20,588 |
| | 25.2 | % |
OTHER EXPENSE | | | | | | | |
| | | | | | | |
|
Acquisition expenses | | — |
| | — |
| | — |
| | — | % | | 1,855 |
| | 2,136 |
| | (281 | ) | | (13.2 | )% |
Interest expense | | — |
| | — |
| | — |
| | — | % | | 14,848 |
| | 8,453 |
| | 6,395 |
| | 75.7 | % |
TOTAL OTHER EXPENSE | | — |
| | — |
| | — |
| | — | % | | 16,703 |
| | 10,589 |
| | 6,114 |
| | 57.7 | % |
TOTAL EXPENSES | | 57,345 |
| | 59,058 |
| | (1,713 | ) | | (2.9 | )% | | 119,144 |
| | 92,442 |
| | 26,702 |
| | 28.9 | % |
Equity in income from unconsolidated real estate entities | | — |
| | — |
| | — |
| | | | 1,451 |
| | 93 |
| | 1,358 |
| | |
Gain from early repayment of note receivable | | — |
| | — |
| | — |
| | | | — |
| | 581 |
| | (581 | ) | | |
Loss on extinguishment of debt | | — |
| | — |
| | — |
| | | | — |
| | (182 | ) | | 182 |
| | |
Gain on sale of real estate | | — |
| | — |
| | — |
| | | | 17,377 |
| | — |
| | 17,377 |
| | |
NET INCOME | | $ | 31,083 |
| | $ | 23,341 |
| | $ | 7,742 |
| | | | $ | 25,876 |
| | $ | 1,950 |
| | $ | 23,926 |
| | |
Rental Revenue
Our Same Properties Portfolio and Total Portfolio rental revenue increased by $5.6 million, or 7.9%, and $26.5 million, or 32.6%, respectively,Form 10-K for the year ended December 31, 2016,2021, filed with the SEC on February 17, 2022, for a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2015.2020.
Non-GAAP Supplemental Measures: Funds From Operations and Core Funds From Operations
We calculate funds from operations (“FFO”) attributable to common stockholders in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated joint ventures.
Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization, gains and losses from property dispositions, and asset impairments, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of performance used by other REITs, FFO may be used by investors as a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate or interpret FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to pay dividends.
We calculate “Core FFO” by adjusting FFO for non-comparable items outlined in the reconciliation below. We believe that Core FFO is a useful supplemental measure and that by adjusting for items that are not considered by us to be part of our on-going operating performance, provides a more meaningful and consistent comparison of our operating and financial performance period-over-period. Because these adjustments have a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited. Other REITs may not calculate Core FFO in a consistent manner. Accordingly, our Core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance. “Company share of Core FFO” in the table below reflects Core FFO attributable to common stockholders, which excludes amounts allocable to noncontrolling interests, participating securities and preferred stockholders (which consists of preferred stock dividends, but excludes non-recurring preferred stock redemption charges related to the write-off of original issuance costs which we do not consider reflective of our on-going performance).
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO and Core FFO (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | 2020 | | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | | | |
Adjustments: | | | | | | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | | | |
| | | | | | | |
Gains on sale of real estate(1) | (8,486) | | | (33,929) | | | (13,617) | | | |
| | | | | | | |
Funds from operations (FFO) | $ | 365,465 | | | $ | 253,586 | | | $ | 182,547 | | | |
Adjustments: | | | | | | | |
Acquisition expenses | 613 | | | 94 | | | 124 | | | |
Impairment of right-of-use asset | — | | | 992 | | | — | | | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | | | |
Amortization of loss on termination of interest rate swaps | 253 | | | 2,169 | | | 218 | | | |
Non-capitalizable demolition costs | 663 | | | — | | | — | | | |
Write-offs of below-market lease intangibles related to terminations(2) | (5,792) | | | — | | | — | | | |
Core FFO | $ | 362,117 | | | $ | 257,346 | | | $ | 182,993 | | | |
Less: preferred stock dividends | (9,258) | | | (12,563) | | | (14,545) | | | |
Less: Core FFO attributable to noncontrolling interests(3) | (16,838) | | | (13,504) | | | (7,667) | | | |
Less: Core FFO attributable to participating securities(4) | (1,282) | | | (943) | | | (774) | | | |
Company share of Core FFO | $ | 334,739 | | | $ | 230,336 | | | $ | 160,007 | | | |
| | | | | | | |
| | | | | | | |
(1)Gains on sale of real estate for the years ended December 31, 2022 and 2021 reflect gains from the sale of depreciable operating properties. Gains on sale of real estate for the year ended December 31, 2020, include total gains of $14.5 million from the sale of depreciable operating properties and a loss of $0.9 million from the sale of assets incidental to our business. For additional details, see “Note 3 – Investments in Real Estate” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
(2)Reflects the write-off of the portion of a below-market lease intangible attributable to below-market fixed rate renewal options that were not exercised due to the termination of the lease at the end of the initial lease term.
(3)Noncontrolling interests represent (i) holders of outstanding common units of the Company's Operating Partnership that are owned by unit holders other than the Company and (ii) holders of Series 1 CPOP Units, Series 2 CPOP Units and Series 3 CPOP Units.
(4)Participating securities include unvested shares of restricted stock, unvested LTIP units of partnership interest in our Operating Partnership and unvested performance units in our Operating Partnership.
Non-GAAP Supplemental Measures: NOI and Cash NOI
Net operating income (“NOI”) is a non-GAAP measure which includes the revenue and expense directly attributable to our real estate properties. NOI is calculated as rental income less property expenses (before interest expense, depreciation and amortization).
We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs’ NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.
NOI on a cash-basis (“Cash NOI”) is a non-GAAP measure, which we calculate by adding or subtracting the following items from NOI: (i) fair value lease revenue and (ii) straight-line rental revenue adjustments. We use Cash NOI, together with NOI, as a supplemental performance measure. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities computed in accordance with GAAP.
The following table sets forth the revenue and expense items comprising NOI and the adjustments to calculate Cash NOI (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
| | | | | |
Rental income | $ | 630,578 | | | $ | 451,733 | | | $ | 329,377 | |
Less: Property expenses | 150,503 | | | 107,721 | | | 79,716 | |
Net Operating Income | $ | 480,075 | | | $ | 344,012 | | | $ | 249,661 | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | |
Straight line rental revenue adjustment | (31,220) | | | (20,903) | | | (11,406) | |
Cash Net Operating Income | $ | 417,646 | | | $ | 307,666 | | | $ | 227,722 | |
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI and Cash NOI (in thousands): | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | | |
General and administrative | 64,264 | | | 48,990 | | | 36,795 | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | | |
Other expenses | 1,561 | | | 1,297 | | | 124 | | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | | |
Management and leasing services | (616) | | | (468) | | | (420) | | |
Interest income | (10) | | | (37) | | | (338) | | |
| | | | | | |
| | | | | | |
| | | | | | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | | |
Net Operating Income | $ | 480,075 | | | $ | 344,012 | | | $ | 249,661 | | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | | |
Straight line rental revenue adjustment | (31,220) | | | (20,903) | | | (11,406) | | |
Cash Net Operating Income | $ | 417,646 | | | $ | 307,666 | | | $ | 227,722 | | |
Non-GAAP Supplemental Measure: EBITDAre
We calculate earnings before interest expense, income taxes, depreciation and amortization for real estate (“EBITDAre”) in accordance with the standards established by NAREIT. EBITDAre is calculated as net income (loss) (computed in accordance with GAAP), before interest expense, income tax expense, depreciation and amortization, gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business and adjustments for unconsolidated joint ventures.
We believe that EBITDAre is helpful to investors as a supplemental measure of our operating performance as a real estate company because it is a direct measure of the actual operating results of our properties. We also use this measure in ratios to compare our performance to that of our industry peers. In addition, we believe EBITDAre is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, our industry peers may not calculate EBITDAre in accordance with the NAREIT definition as we do and, accordingly, our EBITDAre may not be comparable to our peers’ EBITDAre. Accordingly, EBITDAre should be considered only as a supplement to net income (loss) as a measure of our performance.
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to EBITDAre (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | |
EBITDAre | $ | 413,961 | | | $ | 293,725 | | | $ | 213,396 | |
Supplemental Guarantor Information
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule became effective January 4, 2021. The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. At December 31, 2022, the Operating Partnership had issued and outstanding $400.0 million of 2.125% Senior Notes due 2030 (the “$400 Million Notes due 2030”) and the $400 Million Notes due 2031. The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the $400 Million Notes due 2030 and $400 Million Notes due 2031 are guaranteed on a senior basis by the Company. The guarantee is full and unconditional, and the Operating Partnership is a consolidated subsidiary of the Company.
As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
Financial Condition, Liquidity and Capital Resources
Overview
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses, interest expense, general and administrative expenses, capital expenditures, tenant improvements and leasing commissions, and distributions to our common and preferred stockholders and holders of common units of partnership interests in our Operating Partnership (“OP Units”). We expect to meet our short-term liquidity requirements through available cash on hand, cash flow from operations, by drawing on our unsecured revolving credit facility and by issuing shares of common stock pursuant to the ATM program or issuing other securities as described below.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through net cash flow from operations, proceeds from long-term secured and unsecured financings, borrowings available under our unsecured revolving credit facility, the issuance of equity securities, including preferred stock, and proceeds from selective real estate dispositions as we identify capital recycling opportunities.
As of December 31, 2022, we had:
•Outstanding fixed-rate and variable-rate debt with varying maturities for an aggregate principal amount of $2.0 billion, with $7.5 million due within 12 months.
•Total scheduled interest payments on our fixed rate debt and projected net interest payments on our variable rate debt and interest rate swaps of $322.4 million, of which $68.4 million is due within 12 months.
•Commitments of $114.2 million for tenant improvements under certain tenant leases and construction work related to obligations under contractual agreements with our construction vendors; and
•Operating lease commitments with aggregate lease payments of $27.2 million, of which $2.3 million is due within 12 months.
See “Note 5 – Notes Payable” to the consolidated financial statements included in Item 15 of this Report on Form 10-K for further details regarding the scheduled principal payments. Also see “Note 6 – Leases” to the consolidated financial statements for further details regarding the scheduled operating lease payments.
As of December 31, 2022, our cash and cash equivalents were $36.8 million, and we did not have any borrowings outstanding under our unsecured revolving credit facility, leaving $1.0 billion available for future borrowings.
Sources of Liquidity
Cash Flow from Operations
Cash flow from operations is one of our key sources of liquidity and is primarily dependent upon: (i) the occupancy levels and lease rates at our properties, (ii) our ability to collect rent, (iii) the level of operating costs we incur and (iv) our ability to pass through operating expenses to our tenants. We are subject to a number of risks related to general economic and other unpredictable conditions, which have the potential to affect our overall performance and resulting cash flows from operations. However, based on our current portfolio mix and business strategy, we anticipate that we will be able to generate positive cash flows from operations.
ATM Program
On May 27, 2022, we established an ATM program pursuant to which we are able to sell from time to time shares of our common stock having an aggregate sales price of up to $1.0 billion (the “Current 2022 ATM Program”). The Current 2022 ATM Program replaces our previous $750.0 million ATM program, which was established on January 13, 2022, under which we had sold shares of our common stock having an aggregate gross sales price of $697.5 million through May 27, 2022. In addition, we previously established a $750.0 million ATM program on November 9, 2020, under which we had sold shares of our common stock having an aggregate gross sales price of $743.9 million through January 13, 2022.
In connection with our ATM programs, we may sell shares of our common stock directly through sales agents or we may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under ATM programs. The use of a forward equity sale agreement allows us to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. Additionally, the forward price that we expect to receive upon physical settlement of an agreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends during the term of the agreement.
During the year ended December 31, 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers under our various ATM programs with respect to 23,519,219 shares of common stock at a weighted average initial forward price of $64.29 per share. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time we entered into forward equity sale agreements.
During the year ended December 31, 2022, we physically settled a portion of the aforementioned forward equity sale agreements and the outstanding forward equity sale agreement from 2021 by issuing 24,788,691 shares of our common stock for net proceeds of $1.6 billion, based on a weighted average forward price of $65.02 per share at settlement.
As of February 10, 2023, the date of this Annual Report on Form 10-K, we had 636,884 shares of common stock, or approximately $35.2 million of forward net proceeds remaining for settlement to occur before November 2023, based on a forward price of $55.22 per share.
As of February 10, 2023, approximately $165.4 million of common stock remains available to be sold under the Current 2022 ATM Program. Future sales, if any, will depend on a variety of factors, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us. We intend to use the net proceeds from the offering of shares under the Current 2022 ATM Program, if any, to fund potential acquisition opportunities, repay amounts outstanding from time to time under our unsecured revolving credit facility or other debt financing obligations, to fund our repositioning or redevelopment activities and/or for general corporate purposes.
Securities Offerings
We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and as circumstances warrant, we may issue additional securities, from time to time, to fund acquisitions, for the repayment of long-term debt upon maturity and for other general corporate purposes. Such securities may include common equity, preferred equity and/or debt of us or our subsidiaries. Any future issuance, however, is dependent upon market conditions, available pricing and capital needs and there can be no assurance that we will be able to complete any such offerings of securities.
2022 Forward Equity Offering — During the fourth quarter of 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 11,846,425 shares of common stock, including 346,425 shares related to the partial exercise of the underwriters’ option to purchase additional shares, at an initial forward price of $55.74 per share (the “2022 Forward Offering Sale Agreements”), pursuant to which, the forward purchasers borrowed and sold an aggregate of 11,846,425 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering.
In December 2022, we partially settled the 2022 Forward Offering Sale Agreements by issuing 3,554,704 shares of common stock for net proceeds of $198.7 million, based on a weighted average forward price of $55.90 per share at settlement.
In January 2023, we partially settled the outstanding 2022 Forward Offering Sale Agreements by issuing 7,617,013 shares of common stock in exchange for net proceeds of $425.0 million, based on a weighted average forward price of $55.80 per share at settlement.
As of February 10, 2023, the date of this Annual Report on Form 10-K, we had 674,708 shares of common stock, or approximately $37.7 million of forward net proceeds remaining for settlement to occur before May 2024, based on a forward sale price of $55.87 per share.
Capital Recycling
We continuously evaluate opportunities for the potential disposition of properties in our portfolio when we believe such disposition is appropriate in view of our business objectives. In evaluating these opportunities, we consider a variety of criteria including, but not limited to, local market conditions and lease rates, asset type and location, as well as potential uses of proceeds and tax considerations. Tax considerations include entering into a 1031 Exchange, when possible, to defer some or all of the taxable gains, if any, on dispositions.
During the year ended December 31, 2022, we completed the disposition of one property for a gross sales price of $16.5 million and net cash proceeds of $15.3 million. The net cash proceeds were used to partially fund the acquisition of one property during the year ended December 31, 2022, through a 1031 Exchange transaction.
We anticipate continuing to selectively and opportunistically dispose of properties, however, the timing of any potential future dispositions will depend on market conditions, asset-specific circumstances or opportunities, and our capital needs. Our ability to dispose of selective properties on advantageous terms, or at all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable.
Investment Grade Rating
During the year ended December 31, 2022, our credit ratings were raised to Baa2 (Stable outlook) from Baa3 (Stable outlook) by Moody’s and to BBB+ (Stable outlook) from BBB (Positive outlook) by both S&P and Fitch with respect to our Credit Agreement (described below), $100.0 million unsecured guaranteed senior notes (the “$100 Million Notes”), $25.0 million unsecured guaranteed senior notes and $75.0 million unsecured guaranteed senior notes (together the “Series 2019A and 2019B Notes”), $400 Million Notes due 2030 and $400 Million Notes due 2031. During the year ended December 31, 2022, our credit ratings were raised to BBB- from BB+ by both S&P and Fitch with respect to our 5.875% Series B Cumulative Redeemable Preferred Stock and our 5.625% Series C Cumulative Redeemable Preferred Stock. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us, and, although it is our intent to maintain our investment grade credit rating, there can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings are downgraded, it may become difficult or more expensive to obtain additional financing or refinance existing indebtedness as maturities become due.
Credit Agreement
On May 26, 2022, we amended our credit agreement, which was comprised of a $700.0 million unsecured revolving credit facility that was scheduled to mature on February 13, 2024, by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement initially provided for (i) a senior unsecured term loan facility that permits aggregate borrowings of up to $300.0 million (the “$300 Million Term Loan”), all of which was borrowed at closing on May 26, 2022, and (ii) a senior unsecured revolving credit facility (the “Revolver”) in the aggregate principal amount of $1.0
billion. On July 19, 2022, we exercised the accordion option under the Credit Agreement to add a $400.0 million unsecured term loan (the “$400 Million Term Loan” and together with the $300 Million Term Loan, the “Term Facility”). Subject to certain terms and conditions set forth in the Credit Agreement, we may request additional lender commitments and increase the size of the Credit Agreement by an additional $800.0 million, which may be comprised of additional revolving commitments under the Revolver, an increase to the Term Facility, additional term loan tranches or any combination of the foregoing.
The Revolver is scheduled to mature on May 26, 2026 and has two six-month extension options available. The $400 Million Term Loan is scheduled to mature on July 19, 2024 and has two one-year extension options available. The $300 Million Term Loan matures on May 26, 2027.
Interest on the Credit Agreement is generally to be paid based upon, at our option, either (i) Term SOFR plus the applicable margin; (ii) Daily Simple SOFR plus the applicable margin or (iii) the applicable base rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, (c) Term SOFR plus 1.00%, and (d) one percent (1.00%)) plus the applicable margin. Additionally, Term SOFR and Daily Simple SOFR will be increased by a 0.10% SOFR adjustment. The applicable margin for the Term Facility ranges from 0.80% to 1.60% per annum for SOFR-based loans and 0.00% to 0.60% per annum for base rate loans, depending on our investment grade ratings. The applicable margin for the Revolver ranges from 0.725% to 1.400% per annum for SOFR-based loans and 0.00% to 0.40% per annum for base rate loans, depending on our investment grade ratings. In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable credit facility fee, on each lender's commitment amount under the Revolver, regardless of usage. The applicable credit facility fee ranges from 0.125% to 0.300% per annum, depending on our investment grade ratings. The interest rate under the Credit Agreement is also subject to a favorable leverage-based adjustment if our ratio of total indebtedness to total asset value is less than 35.0%.
In addition, the Credit Agreement also features a sustainability-linked pricing component whereby the applicable margin and applicable credit facility fee can decrease by 0.04% and 0.01%, respectively, or increase by 0.04% and 0.01%, respectively, if we meet, or do not meet, certain sustainability performance targets, as applicable.
The Revolver and the Term Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Term Facility and repaid or prepaid may not be reborrowed.
The Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Credit Agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Credit Agreement, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
As of the filing date of this Annual Report on Form 10-K, we did not have any borrowings outstanding under the Revolver, leaving $1.0 billion available for future borrowings.
Uses of Liquidity
Acquisitions
One of our most significant liquidity needs has historically been for the acquisition of real estate properties. During the year ended December 31, 2022, we completed 52 acquisitions representing 61 properties with a combined 5.9 million rentable square feet of buildings on 319.6 acres of land for an aggregate purchase price of $2.4 billion. Subsequent to December 31, 2022, through the filing date of this Form 10-K, we have acquired two properties with a combined 1.2 million rentable square feet of buildings for an aggregate purchase price of $405.0 million, and we are actively monitoring a volume of properties in our markets that we believe represent attractive potential investment opportunities to continue to grow our business. As of the filing date of this Annual Report on Form 10-K, we have over $125.0 million of acquisitions under contract or accepted offer. There can be no assurance we will complete any such acquisitions. While the actual number of acquisitions that we complete will be dependent upon a number of factors, in the short term, we expect to fund our acquisitions through available cash on hand and proceeds from forward equity settlements, cash flows from operations, borrowings available under the Revolver, recycling capital through property dispositions and, in the long term, through the issuance of equity securities or proceeds from long-term secured and unsecured financings. See “Note 3 – Investments in Real Estate” to the consolidated financial statements for a summary of the properties we acquired during the year ended December 31, 2022.
Recurring and Nonrecurring Capital Expenditures
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. During the year ended December 31, 2022, we incurred $8.7 million of recurring capital expenditures, which was a decrease of $1.8 million from the prior year. During the year ended December 31, 2022, we incurred $111.1 million of non-recurring capital expenditures, which was an increase of $30.6 million over the prior year. The increase in our Same Properties Portfolio iswas primarily due to the increase in non-recurring capital expenditures related to repositioning and redevelopment activity during 2022 compared to 2021. As discussed above under “—Factors that May Influence Future Results —Acquisitions and Value-Add Repositioning and Redevelopment of Properties”, as of December 31, 2022, 17 of our average occupancyproperties were under current repositioning, redevelopment, or lease-up, and we have a pipeline of 12 additional properties for comparable periodswhich we anticipate beginning construction work over the next five quarters. We currently estimate that approximately $385.2 million of capital will be required over the next three years (1Q-2023 through Q2-2025) to complete the repositioning/redevelopment of these properties. However, this estimate is based on our current construction plans and budgets, both of which are subject to change as a result of a number of factors, including increased costs of building materials or construction services and construction delays related to supply chain backlogs and increased lead time on building materials. If we are unable to complete construction on schedule or within budget, we could incur increased construction costs and experience potential delays in leasing the properties. We expect to fund these projects through a combination of available cash on hand, proceeds from forward equity settlements, the issuance of common stock under the Current 2022 ATM Program, cash flow from operations and borrowings available under the Revolver.
Dividends and Distributions
In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to distribute a percentage of our cash flow on a quarterly basis to holders of our common stock. In addition, we intend to make distribution payments to holders of OP Units and preferred units, and dividend payments to holders of our preferred stock.
On February 6, 2023, our board of directors declared the following quarterly cash dividends/distributions:
| | | | | | | | | | | | | | | | | | | | |
Security | | Amount per Share/Unit | | Record Date | | Payment Date |
Common stock | | $ | 0.380 | | | March 31, 2023 | | April 17, 2023 |
OP Units | | $ | 0.380 | | | March 31, 2023 | | April 17, 2023 |
5.875% Series B Cumulative Redeemable Preferred Stock | | $ | 0.367188 | | | March 15, 2023 | | March 31, 2023 |
5.625% Series C Cumulative Redeemable Preferred Stock | | $ | 0.351563 | | | March 15, 2023 | | March 31, 2023 |
4.43937% Cumulative Redeemable Convertible Preferred Units | | $ | 0.505085 | | | March 15, 2023 | | March 31, 2023 |
4.00% Cumulative Redeemable Convertible Preferred Units | | $ | 0.450000 | | | March 15, 2023 | | March 31, 2023 |
3.00% Cumulative Redeemable Convertible Preferred Units | | $ | 0.545462 | | | March 15, 2023 | | March 31, 2023 |
Indebtedness Outstanding
The following table sets forth certain information with respect to our indebtedness outstanding as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual Maturity Date | | | | Margin Above SOFR | | Effective Interest Rate(1) | | Principal Balance (in thousands)(2) | | |
Unsecured and Secured Debt: | | | | | | | | | | | |
Unsecured Debt: | | | | | | | | | | | |
Revolving Credit Facility(3) | 5/26/2026 | (4) | | | S+0.725 | % | (5) | 5.125 | % | | $ | — | | | |
$400M Term Loan | 7/19/2024 | (4) | | | S+0.800 | % | (5) | 5.258 | % | | 400,000 | | | |
$100M Senior Notes | 8/6/2025 | | | | n/a | | 4.290 | % | | 100,000 | | | |
$300M Term Loan | 5/26/2027 | | | | S+0.800 | % | (5) | 3.717 | % | (6) | 300,000 | | | |
$125M Senior Notes | 7/13/2027 | | | | n/a | | 3.930 | % | | 125,000 | | | |
$25M Series 2019A Senior Notes | 7/16/2029 | | | | n/a | | 3.880 | % | | 25,000 | | | |
$400M Senior Notes due 2030 | 12/1/2030 | | | | n/a | | 2.125 | % | | 400,000 | | | |
$400M Senior Notes due 2031 (green bond) | 9/1/2031 | | | | n/a | | 2.150 | % | | 400,000 | | | |
$75M Series 2019B Senior Notes | 7/16/2034 | | | | n/a | | 4.030 | % | | 75,000 | | | |
Total Unsecured Debt | | | | | | | | | $ | 1,825,000 | | | |
| | | | | | | | | | | |
Secured Debt: | | | | | | | | | | | |
2601-2641 Manhattan Beach Boulevard | 4/5/2023 | | | | n/a | | 4.080 | % | | $ | 3,832 | | | |
960-970 Knox Street | 11/1/2023 | | | | n/a | | 5.000 | % | | 2,307 | | | |
7612-7642 Woodwind Drive | 1/5/2024 | | | | n/a | | 5.240 | % | | 3,712 | | | |
11600 Los Nietos Road | 5/1/2024 | | | | n/a | | 4.190 | % | | 2,462 | | | |
$60M Term Loan Facility(7) | 10/27/2024 | (7) | | | S+1.250 | % | (7) | 5.708 | % | | 60,000 | | | |
5160 Richton Street | 11/15/2024 | | | | n/a | | 3.790 | % | | 4,153 | | | |
22895 Eastpark Drive | 11/15/2024 | | | | n/a | | 4.330 | % | | 2,612 | | | |
701-751 Kingshill Place | 1/5/2026 | | | | n/a | | 3.900 | % | | 7,100 | | | |
13943-13955 Balboa Boulevard | 7/1/2027 | | | | n/a | | 3.930 | % | | 14,965 | | | |
2205 126th Street | 12/1/2027 | | | | n/a | | 3.910 | % | | 5,200 | | | |
2410-2420 Santa Fe Avenue | 1/1/2028 | | | | n/a | | 3.700 | % | | 10,300 | | | |
11832-11954 La Cienega Boulevard | 7/1/2028 | | | | n/a | | 4.260 | % | | 3,928 | | | |
Gilbert/La Palma | 3/1/2031 | | | | n/a | | 5.125 | % | | 1,935 | | | |
7817 Woodley Avenue | 8/1/2039 | | | | n/a | | 4.140 | % | | 3,009 | | | |
Total Secured Debt | | | | | | | | | $ | 125,515 | | | |
Total Debt | | | | | | | | | $ | 1,950,515 | | | |
(1)Reflects the contractual interest rate under the terms of each loan as of December 31, 2022 and includes the effect of interest rate swaps that were effective as of December 31, 2022. See footnote (6) below. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the increasefacility fee on the Revolver.
(2)Excludes unamortized debt issuance costs and premiums/discounts totaling $14.1 million, which are presented as a reduction of the carrying value of our debt in average rentalour consolidated balance sheet as of December 31, 2022.
(3)The Revolver is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. The applicable facility fee ranges from 0.125% to 0.30% per annum depending upon our investment grade rating, leverage ratio and sustainability performance metrics, which may change from time to time.
(4)The Revolver has two six-month extensions and the $400 Million Term Loan has two one-year extensions available at the borrower’s option, subject to certain terms and conditions.
(5)The interest rates on these loans are comprised of daily SOFR for the Revolver and Term SOFR for the Term Facility (in each case increased by a 0.10% SOFR adjustment) plus an applicable margin ranging from 0.725% to 1.400% per annum for the Revolver and 0.80% to 1.60% per annum for the Term Facility, depending on our investment grade ratings, leverage ratio and sustainability performance metrics, which may change from time to time. During the year ended December 31, 2022, our credit ratings were upgraded and as a result, the applicable margin on the Revolver was lowered to 0.725% from 0.775% and the applicable margin on the Term Facility was lowered to 0.80% from 0.85%.
(6)As of December 31, 2022, Term SOFR related to $300.0 million of our variable rate debt has been effectively fixed at 2.81725% through the use of interest rate swaps. For details, see “Note 7 – Interest Rate Derivatives” to our consolidated financial statements. Including the impact of these interest rate swaps, the hedged effective interest rate on the $300 Million Term Loan is 3.717%.
(7)On October 27, 2022, we refinanced an amortizing $60.0 million term loan expiring in August 2023. The new $60.0 million term loan has interest-only payment terms bearing interest at Term SOFR increased by a 0.10% SOFR adjustment plus an applicable margin of 1.25% per annum (the $60 Million Term Loan Facility”). The loan is secured by six properties and renewal leases.has three one-year extensions available at the borrower’s option, subject to certain terms and conditions.
The following table summarizes the composition of our outstanding debt between fixed-rate and variable-rate and secured and unsecured debt as of December 31, 2022:
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| | Weighted Average Term Remaining (in years)(1) | | Stated Interest Rate | | Effective Interest Rate(2) | | Principal Balance (in thousands)(3) | | % of Total |
Fixed vs. Variable: | | | | | | | | | | |
Fixed(4) | | 6.8 | | 2.96% | | 2.96% | | $ | 1,490,515 | | | 76% |
Variable | | 1.6 | | SOFR + Margin (See Above) | | 5.32% | | $ | 460,000 | | | 24% |
Secured vs. Unsecured: | | | | | | | | | | |
Secured | | 3.1 | | | | 4.86% | | $ | 125,515 | | | 6% |
Unsecured | | 5.7 | | | | 3.42% | | $ | 1,825,000 | | | 94% |
(1)The weighted average remaining term to maturity of our debt is 5.6 years.
(2)Includes the effect of interest rate swaps that were effective as of December 31, 2022. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver. Assumes Daily Simple SOFR of 4.300% and Term SOFR of 4.358% as of December 31, 2022, as applicable.
(3)Excludes unamortized debt issuance costs and debt premiums/discounts totaling $14.1 million which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of December 31, 2022.
(4)Fixed-rate debt includes our variable rate $300 Million Term Loan that has been effectively fixed through the use of interest rate swaps through maturity.
At December 31, 2022, we had total indebtedness of $2.0 billion, excluding unamortized debt issuance costs and debt discounts, with a weighted average interest rate of approximately 3.52%. As of December 31, 2022, $1.5 billion, or 76%, of our outstanding indebtedness had an interest rate that was effectively fixed under either the terms of the loan ($1.2 billion) or interest rate swaps ($300.0 million).
At December 31, 2022, we had total indebtedness of $2.0 billion, reflecting a net debt to total combined market capitalization of approximately 14.9%. Our Total Portfolio rental revenue was also positively impactedtotal market capitalization is defined as the sum of the liquidation preference of our outstanding preferred stock and preferred units plus the market value of our common stock excluding shares of nonvested restricted stock, plus the aggregate value of common units not owned by us, plus the value of our net debt. Our net debt is defined as our consolidated indebtedness less cash and cash equivalents.
Debt Covenants
The Credit Agreement, $60 Million Term Loan Facility, $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes all include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•For the Credit Agreement and $60 Million Term Loan Facility, maintaining a ratio of secured debt to total asset value of not more than 45%;
•For the $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes (together the “Senior Notes”), maintaining a ratio of secured debt to total asset value of not more than 40%;
•For the Senior Notes, maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
•For the Senior Notes, maintaining a minimum tangible net worth of at least the sum of (i) $760,740,750, and (ii) an amount equal to at least 75% of the net equity proceeds received by the revenuesCompany after September 30, 2016;
•Maintaining a ratio of adjusted EBITDA (as defined in each of the loan agreements) to fixed charges of at least 1.5 to 1.0;
•For the Credit Agreement and Senior Notes, maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and
•For the Credit Agreement and Senior Notes, maintaining a ratio of unencumbered NOI (as defined in each of the loan agreements) to unsecured interest expense of at least 1.75 to 1.00.
The $400 Million Notes due 2030 and $400 Million Notes due 2031 contain the following covenants (as defined in the indentures) that we must comply with:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•Maintaining a ratio of secured debt to total asset value of not more than 40%;
•Maintaining a Debt Service Coverage Ratio of at least 1.5 to 1.0; and
•Maintaining a ratio of unencumbered assets to unsecured debt of at least 1.5 to 1.0.
The Credit Agreement, and Senior Notes also contain limitations on our ability to pay distributions on our common stock. Specifically, our cash dividends may not exceed the greater of (i) 95% of our FFO (as defined in the credit agreement) and (ii) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make distributions sufficient to qualify and maintain our REIT status.
Additionally, subject to the terms of the Credit Agreement, $60 Million Term Loan Facility and Senior Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal or interest, (ii) a default in the payment of certain of our other indebtedness, (iii) a default in compliance with the covenants set forth in the debt agreement and (iv) bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest on the outstanding debt will become immediately due and payable. In addition, we are required to maintain at all times a credit rating on the Senior Notes from either S&P, Moody’s or Fitch.
Cash Flows
Comparison of the 41 properties we acquired during 2015Year Ended December 31, 2022 to the Year Ended December 31, 2021
The following table summarizes the changes in net cash flows associated with our operating, investing, and 2016.financing activities for the years ended December 31, 2022 and 2021 (in thousands):
Tenant Reimbursements | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | Change |
Cash provided by operating activities | $ | 327,695 | | | $ | 231,463 | | | $ | 96,232 | |
Cash used in investing activities | $ | (2,449,210) | | | $ | (1,912,767) | | | $ | (536,443) | |
Cash provided by financing activities | $ | 2,114,303 | | | $ | 1,547,779 | | | $ | 566,524 | |
Our Same Properties Portfolio and Total Portfolio tenant reimbursements revenue
Net cash provided by operating activities. Net cash provided by operating activities increased $0.7by $96.2 million or 7.1%, and increased $6.2to $327.7 million or 59.6%, respectively, for the year ended December 31, 2016,2022, compared to the year ended December 31, 2015. The increase in our Same Properties Portfolio tenant reimbursements is primarily due to the lease-up of completed triple net repositioning properties during 2015 and supplemental assessments of certain of our properties resulting in lower reimbursable real estate taxes during the year ended December 31, 2015. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental reimbursements from the 41 properties we acquired during 2015 and 2016.
Other Income
Our Same Properties Portfolio and Total Portfolio other income decreased by $0.3$231.5 million or 32.6%, and $0.1 million, or 6.9%, respectively, for the year ended December 31, 2016,2021. The increase was primarily attributable to the incremental cash flows from property acquisitions completed subsequent to January 1, 2021, and the increase in Cash NOI from our Same Property Portfolio, partially offset by higher cash interest paid as compared to the year ended December 31, 2015. The decreaseprior year.
Net cash used in our Same Properties Portfolio other income is primarily dueinvesting activities. Net cash used in investing activities increased by $536.4 million to a decrease in filming income at one of our properties and a decrease in late fee income and other miscellaneous tenant income. The decrease in our Total Portfolio income is primarily due to a decrease in miscellaneous tenant income.
Management, Leasing and Development Services
Our Total Portfolio management, leasing and development services revenue decreased by $0.1 million, or 19.0%,$2.4 billion for the year ended December 31, 2016,2022, compared to the year ended December 31, 2015, primarily due to our acquisition of the property located at 3233 Mission Oaks Boulevard from the JV in July 2016. Prior to this acquisition, we earned fees and commissions for providing property and construction management services for the property.
Interest Income
Our Total Portfolio interest income decreased by $0.3 million, or 35.4%, during the year ended December 31, 2016, compared to the year ended December 31, 2015. Interest income$1.9 billion for the year ended December 31, 2016, relates2021. The increase was primarily attributable to a $462.6 million increase in cash paid for property acquisitions and acquisition related deposits, a $41.3 million decrease in net proceeds from the sale of real estate as compared to the $6.0prior year and a $32.6 million Rancho Loan that bore interest at 10.0% per annum. Interest incomeincrease in cash paid for construction and repositioning/redevelopment projects.
Net cash provided by financing activities. Net cash provided by financing activities increased by $566.5 million to $2.1 billion for the year ended December 31, 2015, relates2022, compared to a mortgage note receivable that was repaid on August 21, 2015, ahead of its scheduled maturity. The mortgage note receivable was secured by an industrial property located at 32401-32803 Calle Perfecto and bore interest at 6.001% per annum (the “Calle Perfecto Note”).
Property Expenses
Our Same Properties Portfolio property expenses increased by $1.2 million or 5.5%,$1.5 billion for the year ended December 31, 2016, compared to the year ended December 31, 2015, primarily due to an increase in real estate tax expense and repairs and maintenance.2021. The increase in real estate tax expense was due to supplemental assessments of certain of our properties resulting in lower real estate taxes during the year ended December 31, 2015, and a decrease in capitalized real estate taxes for properties under repositioning for comparable periods. Our Total Portfolio property expenses increased by $8.6 million, or 34.5%, for the year ended December 31, 2016, compared to the year ended December 31, 2015, primarily as a result of the incremental expenses from the 41 properties we acquired during 2015 and 2016.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $2.4 million, or 16.0% for the year ended December 31, 2016, compared to the year ended December 31, 2015. The increase is primarily dueattributable to the following: (i) a $2.0 million increase in non-cash equity compensation expense primarily due to equity grants made in December 2015, (ii) a $0.9 million increase in bonus expense due to Company performance, (iii) a $0.7 million increase in payroll and employment related costs primarily due to an increase of $1.1 billion in headcount,cash proceeds from borrowings under the Revolver, (ii) an increase of $400.0 million in cash proceeds from borrowings under the $400 Million Term Loan in July 2022, (iii) an increase of $300.0 million in cash proceeds from borrowings under the $300 Million Term Loan in May 2022, (iv) a $0.4an increase of $225.0 million from the repayment of the $225.0 million term loan facility in August 2021, (v) an increase of $183.1 million in other various corporate expensesnet cash proceeds from the issuance of shares of our common stock and (v) a $0.4(vi) an increase of $90.0 million increasefrom the redemption of the Series A Preferred Stock in professional service and consulting fees.August 2021. These increases were partially offset by the following: (i) a $1.6decrease of $1.1 billion from the repayment of the borrowings under the Revolver, (ii) a decrease of $392.4 million in net cash proceeds from the issuance of the $400 Million Notes due 2031 in August 2021, (iii) a decrease of $150.0 million from the repayment of the $150 Million Term Loan Facility in legal fees, which includes a $1.0May 2022 and (iv) an increase of $74.3 million insurance reimbursementin dividends paid to common stockholders and common unitholders primarily due to the increase in the number of legal fees related to prior litigation received duringcommon shares outstanding and the year endedincrease in our quarterly per share/unit cash dividend.
Comparison of the Year Ended December 31, 2016,2021 to the Year Ended December 31, 2020
Refer to “Item 7. Management’s Discussion and (ii) a $0.5 million decreaseAnalysis of Financial Condition and Results of Operations – Cash Flows” in professional audit, Sarbanes-Oxley Act compliance and tax fees.
Depreciation and Amortization
Our Same Properties Portfolio depreciation and amortization expense decreased by $3.0 million, or 8.1%,our Form 10-K for the year ended December 31, 2016,2021, filed with the SEC on February 17, 2022, for a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2015, primarily due to acquired lease related intangible2020.
Inflation
In the last several years, we do not believe that inflation has had a material impact on the Company. However, recently inflation has significantly increased and tangible assets for severala prolonged period of our properties becoming fully depreciated during 2015high and 2016, partially offset bypersistent inflation could cause an increase in depreciation expenseour operating expenses, capital expenditures and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations. The majority of our leases are either triple net or provide for tenant reimbursement for costs related to capital improvements. Our Total Portfolio depreciationreal estate taxes and amortization expense increased $9.6 million, or 22.9%,operating expenses. In addition, most of the leases provide for the year ended December 31, 2016, comparedfixed rent increases. We believe that inflationary increases to the year ended December 31, 2015, primarily due to incremental expense from the 41 properties we acquired during 2015real estate taxes, utility expenses and 2016, and an increase in depreciation expense related to capital improvements,other operating expenses may be partially offset by the decrease in our Same Properties Portfolio depreciationcontractual rent increases and amortization expense notedtenant payment of taxes and expenses described above.
Acquisition Expenses
Our Total Portfolio acquisition expenses decreased by $0.3 million, or 13.2%, for the year ended December 31, 2016, compared
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the year ended December 31, 2015, primarily due to lower brokerage fees related to acquisitions completed during the current year.
Interest Expense
Our Total Portfoliorisk of loss from adverse changes in market prices and interest expense increased by $6.4 million, or 75.7%, for the year ended December 31, 2016, compared to the year ended December 31, 2015. The increaserates. A key market risk we face is primarily due to the following: (i) an increase in interest expense from the $225 million term loan facility which was fully drawn upon in April 2016, (ii) the issuance of $100 million of 4.29% fixed rate senior notes in August 2015 and subsequent repayment of two secured loans aggregating $91.3 million with a weighted average interest rate risk. We are exposed to interest rate changes primarily as a result of LIBOR plus 1.76%using variable-rate debt to satisfy various short-term and (iii) the effect of fourlong-term liquidity needs, which have interest rates based upon SOFR. We use interest rate swaps with an aggregate notional value of $160 million, that became effective between January 2015 and February 2016. These increases were partially offset by the following: (i) higher capitalizedto manage, or hedge, interest resulting from an increase in construction activityrate risks related to our repositioning properties and (ii)borrowings. Because actual interest rate movements over time are uncertain, our swaps pose potential interest rate risks, notably if interest rates fall. We also expose ourselves to credit risk, which we attempt to minimize by contracting with highly-rated banking financial counterparties. For a decrease in interest expense from the reduced usagesummary of our unsecured revolving credit facility during 2016.
Equity in Income from Unconsolidated Real Estate Entities
Our Total Portfolio equity in income from unconsolidated real estate entities increased by $1.4 million for the year ended December 31, 2016, compared to the year ended December 31, 2015, primarily due to the acquisitionoutstanding variable-rate debt, see Item 7. Management’s Discussion and Analysis of the remaining 85% ownershipFinancial Condition and Results of Operations—Liquidity and Capital Resources. For a summary of our interest in the property located at 3233 Mission Oaks Boulevard from the JV on July 6, 2016. For additional information,rate swaps and recent transactions, see Note 11“Note 7 – Interest Rate Derivatives” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
Gain from Early Repayment As of Note ReceivableDecember 31, 2022, the $300 Million Term Loan has been effectively fixed through the use of interest rate swaps. The interest rate swaps have a combined notional value of $300.0 million, an effective date of July 27, 2022, a maturity date of May 26, 2027, and currently fix Term SOFR at a weighted average rate of 2.81725%.
At December 31, 2022, we had total consolidated indebtedness, excluding unamortized debt issuance costs and premium/discounts, of $1.95 billion. Of this total amount, $1.49 billion, or 76%, comprise our fixed-rate debt under the terms of the loan or an interest rate swap. The remaining $460.0 million, or 24%, comprises our variable-rate debt. Based upon the amount of variable-rate debt outstanding as of December 31, 2022, if SOFR were to increase by 50 basis points, the increase in interest expense on our variable-rate debt would decrease our future earnings and cash flows by approximately $2.3 million annually. If SOFR were to decrease by 50 basis points, assuming an interest rate floor of 0%, the decrease in interest expense on our variable-rate debt would increase our future earnings and cash flows by approximately $2.3 million annually.
Interest risk amounts are our management’s estimates and were determined by considering the effect of hypothetical interest rates on our financial instruments. We calculate interest sensitivity by multiplying the amount of variable rate debt outstanding by the respective change in rate. The sensitivity analysis does not take into consideration possible changes in the balances or fair value of our floating rate debt or the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial structure.
Item 8. Financial Statements and Supplementary Data
All information required by this item is listed in the Index to Financial Statements in Part IV, Item 15(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including the Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, 2022, the end of the period covered by this report. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2022 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no significant changes that occurred during the fourth quarter of the most recent year covered by this report in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of, our Co-Chief Executive Officers and Chief Financial Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company has used the criteria set forth in the Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein within Item 15. See “Report of Independent Registered Public Accounting Firm”.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The gaininformation required by Item 10 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 11. Executive Compensation
The information required by Item 11 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2) Financial Statements and Schedules
The following financial information is included in Part IV of this Report on the pages indicated:
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Audited Consolidated Financial Statements of Rexford Industrial Realty, Inc.: | |
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All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.
(3). Exhibits
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Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
3.1 | | | | S-11/A | | 333-188806 | | 3.1 | | 7/15/2013 |
3.2 | | | | 8-K | | 001-36008 | | 3.1 | | 2/14/2020 |
3.3 | | | | 8-A | | 001-36008 | | 3.3 | | 11/9/2017 |
3.4 | | | | 8-A | | 001-36008 | | 3.3 | | 9/19/2019 |
4.1 | | | | S-11/A | | 333-188806 | | 4.1 | | 7/15/2013 |
4.2 | | | | 8-A | | 001-36008 | | 4.1 | | 11/9/2017 |
4.3 | | | | 8-A | | 001-36008 | | 4.1 | | 9/19/2019 |
4.4 | | | | 10-K | | 001-36008 | | 4.5 | | 2/19/2020 |
4.5 | | Indenture, dated as of November 16, 2020, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee. | | 8-K | | 001-36008 | | 4.1 | | 11/16/2020 |
4.6 | | First Supplemental Indenture, dated as of November 16, 2020, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | | 8-K | | 001-36008 | | 4.2 | | 11/16/2020 |
4.7 | | Second Supplemental Indenture, dated as of August 9, 2021, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | | 8-K | | 001-36008 | | 4.2 | | 8/9/2021 |
10.1 | | | | 8-K | | 001-36008 | | 10.1 | | 3/21/2022 |
10.2 | | | | 10-Q | | 001-36008 | | 10.2 | | 9/3/2013 |
10.3† | | | | 10-Q | | 001-36008 | | 10.5 | | 7/27/2021 |
10.4† | | | | S-11/A | | 333-188806 | | 10.4 | | 7/15/2013 |
10.5 | | | | S-11/A | | 333-188806 | | 10.5 | | 7/9/2013 |
10.6 | | | | 10-Q | | 001-36008 | | 10.6 | | 9/3/2013 |
10.7† | | | | 10-Q | | 001-36008 | | 10.8 | | 9/3/2013 |
10.8† | | | | 8-K | | 001-36008 | | 10.2 | | 6/29/2017 |
10.9† | | | | 8-K | | 001-36008 | | 10.1 | | 5/20/2020 |
10.10† | | | | 10-Q | | 001-36008 | | 10.9 | | 9/3/2013 |
10.11† | | | | 8-K | | 001-36008 | | 10.3 | | 6/29/2017 |
10.12† | | | | 8-K | | 001-36008 | | 10.2 | | 5/20/2020 |
10.13† | | | | 8-K | | 001-36008 | | 10.1 | | 6/29/2017 |
10.14† | | | | 8-K | | 001-36008 | | 10.4 | | 5/20/2020 |
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Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
10.15† | | | | 8-K | | 001-36008 | | 10.2 | | 11/10/2022 |
10.16† | | | | 8-K | | 001-36008 | | 10.1 | | 7/9/2020 |
10.17† | | | | 8-K | | 001-36008 | | 10.1 | | 11/10/2022 |
10.18† | | | | 10-K | | 001-36008 | | 10.11 | | 3/9/2015 |
10.19† | | | | 10-K | | 001-36008 | | 10.18 | | 2/19/2021 |
10.20† | | | | 10-K | | 001-36008 | | 10.19 | | 2/19/2021 |
10.21 | | | | 10-K | | 001-36008 | | 10.20 | | 3/20/2014 |
10.22 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2015 |
10.23 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2017 |
10.24 | | | | 10-Q | | 001-36008 | | 10.3 | | 8/4/2017 |
10.25 | | | | 10-K | | 001-36008 | | 10.40 | | 2/21/2018 |
10.26 | | | | 10-Q | | 001-36008 | | 10.2 | | 5/7/2018 |
10.27 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2019 |
10.28 | | | | 8-K | | 001-36008 | | 10.1 | | 5/27/2022 |
10.29 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2022 |
10.30* | | | | 10-K | | 001-36008 | | 10.30 | | 2/10/2022 |
10.31 | | | | 8-K | | 001-36008 | | 1.1 | | 5/27/2022 |
10.32 | | | | 8-K | | 001-36008 | | 1.2 | | 5/27/2022 |
10.33 | | | | 8-K | | 001-36008 | | 1.3 | | 5/27/2022 |
10.34 | | | | 8-K | | 001-36008 | | 1.4 | | 5/27/2022 |
10.35 | | | | 8-K | | 001-36008 | | 1.5 | | 5/27/2022 |
10.36 | | | | 8-K | | 001-36008 | | 1.6 | | 5/27/2022 |
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Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
10.37 | | | | 8-K | | 001-36008 | | 1.7 | | 5/27/2022 |
10.38 | | | | 8-K | | 001-36008 | | 1.8 | | 5/27/2022 |
10.39 | | | | 8-K | | 001-36008 | | 1.9 | | 5/27/2022 |
10.40 | | | | 8-K | | 001-36008 | | 1.10 | | 5/27/2022 |
10.41 | | | | 8-K | | 001-36008 | | 1.11 | | 5/27/2022 |
10.42 | | | | 8-K | | 001-36008 | | 1.12 | | 5/27/2022 |
10.43 | | | | 8-K | | 001-36008 | | 1.13 | | 5/27/2022 |
21.1* | | | | | | | | | | |
22.1* | | | | | | | | | | |
23.1* | | | | | | | | | | |
24.1* | | | | | | | | | | |
31.1* | | | | | | | | | | |
31.2* | | | | | | | | | | |
31.3* | | | | | | | | | | |
32.1* | | | | | | | | | | |
32.2* | | | | | | | | | | |
32.3* | | | | | | | | | | |
101.1* | | The following financial information from Rexford Industrial Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements | | | | | | | | |
104.1* | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | | | | | | |
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† | Compensatory plan or arrangement |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | Rexford Industrial Realty, Inc. |
February 10, 2023 | | /s/ Michael S. Frankel |
| | Michael S. Frankel |
| | Co-Chief Executive Officer (Principal Executive Officer) |
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February 10, 2023 | | /s/ Howard Schwimmer |
| | Howard Schwimmer |
| | Co-Chief Executive Officer (Principal Executive Officer) |
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February 10, 2023 | | /s/ Laura E. Clark |
| | Laura E. Clark |
| | Chief Financial Officer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Rexford Industrial Realty, Inc., hereby severally constitute Michael S. Frankel, Howard Schwimmer and Laura E. Clark, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Rexford Industrial Realty, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
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Signature | | Title | | Date |
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/s/ Michael S. Frankel | | Co- Chief Executive Officer and Director (Principal Executive Officer) | | February 10, 2023 |
Michael S. Frankel | | | | |
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/s/ Howard Schwimmer | | Co- Chief Executive Officer and Director (Principal Executive Officer) | | February 10, 2023 |
Howard Schwimmer | | | | |
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/s/ Laura E. Clark | | Chief Financial Officer (Principal Financial and Accounting Officer) | | February 10, 2023 |
Laura E. Clark | | | | |
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/s/ Richard Ziman | | Chairman of the Board | | February 10, 2023 |
Richard Ziman | | | | |
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/s/ Robert L. Antin | | Director | | February 10, 2023 |
Robert L. Antin | | | | |
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/s/ Diana J. Ingram | | Director | | February 10, 2023 |
Diana J. Ingram | | | | |
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/s/ Angela L. Kleiman | | Director | | February 10, 2023 |
Angela L. Kleiman | | | | |
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/s/ Debra L. Morris | | Director | | February 10, 2023 |
Debra L. Morris | | | | |
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/s/ Tyler H. Rose | | Director | | February 10, 2023 |
Tyler H. Rose | | | | |
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rexford Industrial Realty, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from early repaymentthe current period audit of note receivablethe financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of $0.6the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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| | Recognition of acquired real estate - Purchase price accounting |
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Description of the Matter | | As discussed in Notes 2, 3, and 4 to the consolidated financial statements, the Company completed the acquisition of 61 properties for a total purchase price of $2.4 billion during the year ended December 31, 2022. The transactions were accounted for as asset acquisitions, and the purchase prices were allocated to components based on the relative fair values of the assets acquired and liabilities assumed. These components include land, buildings and improvements, tenant improvements, intangible assets and liabilities related to above and below market leases, and intangible assets related to in-place leases. The fair value of tangible and intangible assets and liabilities is based on available comparable market information, and estimated cash flow projections that utilize rental rates, discount rates, and capitalization rates. 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.
Auditing the fair value of acquired tangible and intangible assets and liabilities involves significant estimation uncertainty due to the judgment used by management in selecting key assumptions based on recent comparable transactions or market information, and the sensitivity of the fair values to changes in assumptions. In particular, the fair value estimates were sensitive to assumptions such as market rental rates, rental growth rates, price of land per square foot, discount rates, and capitalization rates. The allocation of value to the components of properties acquired could have a material effect on the Company’s net income due to the differing depreciable and amortizable lives of each component and the classification of the related depreciation or amortization in the Company’s consolidated statements of operations.
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for determining and reviewing the key inputs and assumptions used in estimating the fair value of acquired assets and liabilities and allocating fair value to the various components. To test the allocation of the acquisition-date fair values, we evaluated the appropriateness of the valuation methods used to allocate the purchase price. We performed procedures to assess the key data inputs and assumptions used by management described above, including the completeness and accuracy of the underlying information. We also used our specialists to assist us in evaluating the valuation methods used by management and whether the assumptions utilized were supported by observable market data. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
Los Angeles, California
February 10, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Rexford Industrial Realty, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rexford Industrial Realty, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Rexford Industrial Realty, Inc. as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated February 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
February 10, 2023
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands - except share and per share data)
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
ASSETS | | | |
Land | $ | 5,841,195 | | | $ | 4,143,021 | |
Buildings and improvements | 3,370,494 | | | 2,588,836 | |
Tenant improvements | 147,632 | | | 127,708 | |
Furniture, fixtures, and equipment | 132 | | | 132 | |
Construction in progress | 110,934 | | | 71,375 | |
Total real estate held for investment | 9,470,387 | | | 6,931,072 | |
Accumulated depreciation | (614,332) | | | (473,382) | |
Investments in real estate, net | 8,856,055 | | | 6,457,690 | |
Cash and cash equivalents | 36,786 | | | 43,987 | |
Restricted cash | — | | | 11 | |
| | | |
Rents and other receivables, net | 15,227 | | | 11,027 | |
Deferred rent receivable, net | 88,144 | | | 61,511 | |
Deferred leasing costs, net | 45,080 | | | 32,940 | |
Deferred loan costs, net | 4,829 | | | 1,961 | |
Acquired lease intangible assets, net | 169,986 | | | 132,158 | |
Acquired indefinite-lived intangible | 5,156 | | | 5,156 | |
Interest rate swap asset | 11,422 | | | — | |
Other assets | 24,973 | | | 19,066 | |
Acquisition related deposits | 1,625 | | | 8,445 | |
| | | |
Assets associated with real estate held for sale, net | — | | | 7,213 | |
Total Assets | $ | 9,259,283 | | | $ | 6,781,165 | |
LIABILITIES & EQUITY | | | |
Liabilities | | | |
Notes payable | $ | 1,936,381 | | | $ | 1,399,565 | |
Interest rate swap liability | — | | | 7,482 | |
Accounts payable, accrued expenses and other liabilities | 97,496 | | | 65,833 | |
Dividends and distributions payable | 62,033 | | | 40,143 | |
Acquired lease intangible liabilities, net | 147,384 | | | 127,017 | |
Tenant security deposits | 71,935 | | | 57,370 | |
Prepaid rents | 20,712 | | | 15,829 | |
Liabilities associated with real estate held for sale | — | | | 231 | |
Total Liabilities | 2,335,941 | | | 1,713,470 | |
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 December 31, 2022 and December 31, 2021 ($75,000 liquidation preference) | 72,443 | | | 72,443 | |
5.625% series C cumulative redeemable preferred stock, 3,450,000 shares outstanding at December 31, 2022 and December 31, 2021 ($86,250 liquidation preference) | 83,233 | | | 83,233 | |
Common Stock, $0.01 par value per share, 489,950,000 authorized and 189,114,129 and 160,511,482 shares outstanding at December 31, 2022 and December 31, 2021, respectively | 1,891 | | | 1,605 | |
Additional paid-in capital | 6,646,867 | | | 4,828,292 | |
Cumulative distributions in excess of earnings | (255,743) | | | (191,120) | |
Accumulated other comprehensive income (loss) | 8,247 | | | (9,874) | |
Total stockholders’ equity | 6,556,938 | | | 4,784,579 | |
Noncontrolling interests | 366,404 | | | 283,116 | |
Total Equity | 6,923,342 | | | 5,067,695 | |
Total Liabilities and Equity | $ | 9,259,283 | | | $ | 6,781,165 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands - except share and per share data)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
REVENUES | | | | | |
| | | | | |
| | | | | |
| | | | | |
Rental income | $ | 630,578 | | | $ | 451,733 | | | $ | 329,377 | |
Management and leasing services | 616 | | | 468 | | | 420 | |
Interest income | 10 | | | 37 | | | 338 | |
TOTAL REVENUES | 631,204 | | | 452,238 | | | 330,135 | |
OPERATING EXPENSES | | | | | |
Property expenses | 150,503 | | | 107,721 | | | 79,716 | |
General and administrative | 64,264 | | | 48,990 | | | 36,795 | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
TOTAL OPERATING EXPENSES | 411,561 | | | 307,980 | | | 231,780 | |
OTHER EXPENSES | | | | | |
Other expenses | 1,561 | | | 1,297 | | | 124 | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | |
| | | | | |
TOTAL EXPENSES | 461,618 | | | 349,416 | | | 262,753 | |
| | | | | |
| | | | | |
Loss on extinguishment of debt | (915) | | | (505) | | | (104) | |
Gains on sale of real estate | 8,486 | | | 33,929 | | | 13,617 | |
NET INCOME | 177,157 | | | 136,246 | | | 80,895 | |
Less: net income attributable to noncontrolling interests | (9,573) | | | (8,005) | | | (4,492) | |
NET INCOME ATTRIBUTABLE TO REXFORD INDUSTRIAL REALTY, INC. | 167,584 | | | 128,241 | | | 76,403 | |
Less: preferred stock dividends | (9,258) | | | (12,563) | | | (14,545) | |
Less: original issuance costs of redeemed preferred stock | — | | | (3,349) | | | — | |
Less: earnings allocated to participating securities | (845) | | | (568) | | | (509) | |
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | 157,481 | | | $ | 111,761 | | | $ | 61,349 | |
Net income attributable to common stockholders per share - basic | $ | 0.92 | | | $ | 0.80 | | | $ | 0.51 | |
Net income attributable to common stockholders per share - diluted | $ | 0.92 | | | $ | 0.80 | | | $ | 0.51 | |
Weighted average shares of common stock outstanding - basic | 170,467,365 | | | 139,294,882 | | | 120,873,624 | |
Weighted average shares of common stock outstanding - diluted | 170,978,272 | | | 140,075,689 | | | 121,178,310 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Other comprehensive income (loss): cash flow hedge adjustments | 18,846 | | | 8,333 | | | (10,880) | |
Comprehensive income | 196,003 | | | 144,579 | | | 70,015 | |
Less: comprehensive income attributable to noncontrolling interests | (10,298) | | | (8,503) | | | (3,779) | |
Comprehensive income attributable to Rexford Industrial Realty, Inc. | $ | 185,705 | | | $ | 136,076 | | | $ | 66,236 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands - except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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, 2019 | $ | 242,327 | | | 113,793,300 | | | $ | 1,136 | | | $ | 2,439,007 | | | $ | (118,751) | | | $ | (7,542) | | | $ | 2,556,177 | | | $ | 66,272 | | | $ | 2,622,449 | |
| | | | | | | | | | | | | | | | | |
Issuance of common stock | — | | | 17,253,161 | | | 173 | | | 739,810 | | | — | | | — | | | 739,983 | | | — | | | 739,983 | |
Offering costs | — | | | — | | | — | | | (5,887) | | | — | | | — | | | (5,887) | | | — | | | (5,887) | |
Issuance of OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 179,262 | | | 179,262 | |
Issuance of 4.00% cumulative redeemable convertible preferred units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 40,787 | | | 40,787 | |
Share-based compensation | — | | | 110,737 | | | 1 | | | 3,290 | | | — | | | — | | | 3,291 | | | 9,803 | | | 13,094 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (27,473) | | | — | | | (1,278) | | | — | | | — | | | (1,278) | | | — | | | (1,278) | |
Conversion of OP Units to common stock | — | | | 296,313 | | | 3 | | | 7,657 | | | — | | | — | | | 7,660 | | | (7,660) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 14,545 | | | — | | | — | | | — | | | 61,858 | | | — | | | 76,403 | | | 4,492 | | | 80,895 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (10,167) | | | (10,167) | | | (713) | | | (10,880) | |
Preferred stock dividends ($1.468752 per series A preferred and series B preferred share and $1.406252 per series C preferred share) | (14,545) | | | — | | | — | | | — | | | — | | | — | | | (14,545) | | | — | | | (14,545) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,546) | | | (2,546) | |
Common stock dividends ($0.86 per share) | — | | | — | | | — | | | — | | | (106,496) | | | — | | | (106,496) | | | — | | | (106,496) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,246) | | | (4,246) | |
Balance at December 31, 2020 | $ | 242,327 | | | 131,426,038 | | | $ | 1,313 | | | $ | 3,182,599 | | | $ | (163,389) | | | $ | (17,709) | | | $ | 3,245,141 | | | $ | 285,451 | | | $ | 3,530,592 | |
Issuance of common stock | — | | | 28,484,776 | | | 286 | | | 1,644,411 | | | — | | | — | | | 1,644,697 | | | — | | | 1,644,697 | |
Offering costs | — | | | — | | | — | | | (18,606) | | | — | | | — | | | (18,606) | | | — | | | (18,606) | |
Redemption of 5.875% series A preferred stock | (86,651) | | | — | | | — | | | — | | | (3,349) | | | — | | | (90,000) | | | — | | | (90,000) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 108,774 | | | 1 | | | 3,855 | | | — | | | — | | | 3,856 | | | 16,007 | | | 19,863 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (29,305) | | | — | | | (1,428) | | | — | | | — | | | (1,428) | | | — | | | (1,428) | |
Conversion of OP Units to common stock | — | | | 521,199 | | | 5 | | | 17,461 | | | — | | | — | | | 17,466 | | | (17,466) | | | — | |
Net income | 12,563 | | | — | | | — | | | — | | | 115,678 | | | — | | | 128,241 | | | 8,005 | | | 136,246 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 7,835 | | | 7,835 | | | 498 | | | 8,333 | |
Preferred stock dividends ($0.917970 per series A preferred share, $1.468752 per series B preferred share and $1.406252 per series C preferred share) | (12,563) | | | — | | | — | | | — | | | — | | | — | | | (12,563) | | | — | | | (12,563) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,832) | | | (2,832) | |
Common stock dividends ($0.96 per share) | — | | | — | | | — | | | — | | | (140,060) | | | — | | | (140,060) | | | — | | | (140,060) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,547) | | | (6,547) | |
Balance at December 31, 2021 | $ | 155,676 | | | 160,511,482 | | | $ | 1,605 | | | $ | 4,828,292 | | | $ | (191,120) | | | $ | (9,874) | | | $ | 4,784,579 | | | $ | 283,116 | | | $ | 5,067,695 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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 |
Issuance of common stock | — | | | 28,343,395 | | | 283 | | | 1,831,490 | | | — | | | — | | | 1,831,773 | | | — | | | 1,831,773 | |
Offering costs | — | | | — | | | — | | | (22,542) | | | — | | | — | | | (22,542) | | | — | | | (22,542) | |
Issuance of OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 56,167 | | | 56,167 | |
Issuance of 3.00% cumulative redeemable convertible preferred units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,000 | | | 12,000 | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 123,542 | | | 1 | | | 5,547 | | | — | | | — | | | 5,548 | | | 23,488 | | | 29,036 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (31,576) | | | — | | | (2,156) | | | — | | | — | | | (2,156) | | | — | | | (2,156) | |
Conversion of OP Units to common stock | — | | | 167,286 | | | 2 | | | 6,236 | | | — | | | — | | | 6,238 | | | (6,238) | | | — | |
Acquisition of private REIT - preferred units | — | | | — | | | — | | | — | | | ��� | | | — | | | — | | | 122 | | | 122 | |
Net income | 9,258 | | | — | | | — | | | — | | | 158,326 | | | — | | | 167,584 | | | 9,573 | | | 177,157 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 18,121 | | | 18,121 | | | 725 | | | 18,846 | |
Preferred stock dividends ( $1.468752 per series B preferred share and $1.406252 per series C preferred share) | (9,258) | | | — | | | — | | | — | | | — | | | — | | | (9,258) | | | — | | | (9,258) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,124) | | | (3,124) | |
Common stock dividends ($1.26 per share) | — | | | — | | | — | | | — | | | (222,949) | | | — | | | (222,949) | | | — | | | (222,949) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,425) | | | (9,425) | |
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 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| | | | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | |
Impairment of right-of-use asset | — | | | 992 | | | — | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | |
Amortization of debt issuance costs | 2,689 | | | 1,919 | | | 1,505 | |
Amortization of discount (premium) on notes payable, net | 250 | | | 26 | | | (188) | |
Equity based compensation expense | 28,426 | | | 19,506 | | | 12,871 | |
Straight-line rent | (31,220) | | | (20,903) | | | (11,406) | |
Payments for termination/settlement of interest rate derivatives | (589) | | | (4,045) | | | (1,239) | |
Amortization related to termination/settlement of interest rate derivatives | 531 | | | 2,280 | | | 218 | |
Change in working capital components: | | | | | |
Rents and other receivables | (2,858) | | | (745) | | | (4,030) | |
Deferred leasing costs | (17,762) | | | (17,473) | | | (10,447) | |
Other assets | (594) | | | (6,357) | | | (2,352) | |
Sales-type lease receivable | — | | | — | | | 20,302 | |
Accounts payable, accrued expenses and other liabilities | 9,304 | | | 11,895 | | | 4,825 | |
Tenant security deposits | 6,294 | | | 6,776 | | | (415) | |
Prepaid rents | (1,947) | | | (1,056) | | | 1,232 | |
Net cash provided by operating activities | 327,695 | | | 231,463 | | | 182,994 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Acquisition of investments in real estate | (2,328,430) | | | (1,858,413) | | | (928,687) | |
Capital expenditures | (135,095) | | | (102,475) | | | (78,765) | |
Payment for deposits on real estate acquisitions | (1,000) | | | (8,445) | | | (4,067) | |
| | | | | |
| | | | | |
| | | | | |
Proceeds from sale of real estate | 15,315 | | | 56,566 | | | 23,996 | |
Net cash used in investing activities | (2,449,210) | | | (1,912,767) | | | (987,523) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| | | | | |
Redemption of preferred stock | — | | | (90,000) | | | — | |
Issuance of common stock, net | 1,809,231 | | | 1,626,091 | | | 734,096 | |
Proceeds from borrowings | 2,714,000 | | | 1,264,557 | | | 471,844 | |
Repayment of borrowings | (2,176,606) | | | (1,095,280) | | | (175,671) | |
Debt issuance costs | (7,300) | | | (4,555) | | | (6,085) | |
| | | | | |
Dividends paid to preferred stockholders | (9,258) | | | (12,563) | | | (14,545) | |
Dividends paid to common stockholders | (201,902) | | | (129,793) | | | (99,292) | |
Distributions paid to common unitholders | (8,582) | | | (6,418) | | | (3,328) | |
Distributions paid to preferred unitholders | (3,124) | | | (2,832) | | | (2,546) | |
Repurchase of common shares to satisfy employee tax withholding requirements | (2,156) | | | (1,428) | | | (1,278) | |
Net cash provided by financing activities | 2,114,303 | | | 1,547,779 | | | 903,195 | |
Increase (decrease) in cash, cash equivalents and restricted cash | (7,212) | | | (133,525) | | | 98,666 | |
Cash, cash equivalents and restricted cash, beginning of period | 43,998 | | | 177,523 | | | 78,857 | |
Cash, cash equivalents and restricted cash, end of period | $ | 36,786 | | | $ | 43,998 | | | $ | 177,523 | |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid for interest (net of capitalized interest of $12,236, $4,550 and $3,925 for the years December 31, 2022, 2021 and 2020, respectively) | $ | 44,811 | | | $ | 32,979 | | | $ | 27,924 | |
Supplemental disclosure of noncash transactions: | | | | | |
Operating lease right-of-use assets obtained in exchange for lease liabilities | $ | 6,363 | | | $ | — | | | $ | 3,204 | |
Issuance of operating partnership units in connection with acquisition of real estate | $ | 56,167 | | | $ | — | | | $ | 179,262 | |
Issuance of 4.0% cumulative redeemable convertible preferred units in connection with acquisition of real estate | $ | — | | | $ | — | | | $ | 40,787 | |
Issuance of 3.0% cumulative redeemable convertible preferred units in connection with acquisition of real estate | $ | 12,000 | | | $ | — | | | $ | — | |
Acquisition of private REIT - preferred units | $ | 122 | | | $ | — | | | $ | — | |
Assumption of debt in connection with acquisition of real estate including loan premium | $ | — | | | $ | 16,512 | | | $ | 65,264 | |
Accrual for capital expenditures | $ | 29,074 | | | $ | 15,700 | | | $ | 11,811 | |
Accrual of dividends and distributions | $ | 62,033 | | | $ | 40,143 | | | $ | 29,747 | |
Lease reclassification from operating lease to sales-type lease: | | | | | |
Sales-type lease receivable | $ | — | | | $ | — | | | $ | 20,302 | |
Investments in real estate, net | — | | | — | | | (16,117) | |
Deferred rent receivable, net | — | | | — | | | (63) | |
Deferred leasing costs, net | — | | | — | | | (164) | |
Acquired lease intangible assets, net | — | | | — | | | (136) | |
Gain on sale recognized due to lease classification | $ | — | | | $ | — | | | $ | 3,822 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 property. As of December 31, 2022, our consolidated portfolio consisted of 356 properties with approximately 42.4 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
The accompanying financial statements are the consolidated financial statements of Rexford Industrial Realty, Inc. and its subsidiaries, including our Operating Partnership. All significant 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 December 31, 2022 and 2021, 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 consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) as established by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification (“ASC”) including modifications issued under Accounting Standards Updates (“ASUs”). Any reference to the number of properties, buildings and square footage are unaudited and outside the scope of our independent auditor’s audit of our financial statements in accordance with the standards of the 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 comprised of escrow reserves that we are required to set aside for future costs as required by certain agreements with our lenders, and from time to time, includes 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”).
Restricted cash balances are included with cash and cash equivalent balances as of the beginning and ending of each period presented in the consolidated statements of cash flows. The following table provides a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the years ended December 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
Cash and cash equivalents | $ | 43,987 | | | $ | 176,293 | |
Restricted cash | 11 | | | 1,230 | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 43,998 | | | $ | 177,523 | |
| | | |
Cash and cash equivalents | $ | 36,786 | | | $ | 43,987 | |
Restricted cash | — | | | 11 | |
Cash, cash equivalents and restricted cash, end of period | $ | 36,786 | | | $ | 43,998 | |
Investments in Real Estate
Acquisitions
We account for acquisitions of properties under 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 no longer 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 were 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, 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 year ended December 31, 2015, represents2022, we used discount rates ranging from 4.75% to 7.50% and exit capitalization rates ranging from 3.75% to 6.25%.
In determining the recognitionfair 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 unamortized accretable yield relateddifference between prevailing market rental rates and the in-place rental rates measured over a period equal to the collectionremaining term of the Calle Perfecto Note.lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases, 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 year ended December 31, 2022, we used an estimated average lease-up period ranging from six months to twelve months.
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 are based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.
Loss on Extinguishment of Debt
During the year ended December 31, 2015, we repaid the $48.5 million term loan secured by eight of our properties and the mortgage loan encumbering the property located at 2980-2990 San Fernando Road. The loss on extinguishment of debt of $0.9 million for the year ended December 31, 2022, is primarily comprised of the write-off of $0.7 million of unamortized debt issuance costs related to the $150.0 million unsecured term loan facility we repaid in May 2022 in advance of the May 2025 maturity date and the write-off of $0.2 million of unamortized debt issuance costs attributable to one of the creditors departing the unsecured revolving credit facility when we amended our senior unsecured credit agreement in May 2022. The loss on extinguishment of debt of $0.5 million for the year ended December 31, 2021 represents the write-off of $0.3 million of unamortized deferred loandebt issuance costs related to the $225.0 million unsecured term loan partially offset by the write-off of the $0.1 million unamortized loan premium related to the mortgage loan. Wefacility that we repaid both loansin September 2021 in advance of the January 2023 maturity date without incurring prepayment fees.date.
GainGains on Sale of Real Estate
During the year ended December 31, 2016,2022, we recognized gains on sale of real estate of $8.5 million from the disposition of one property that was sold for a total gaingross sales price of $17.4$16.5 million. During the year ended December 31, 2021, we recognized gains on sale of real estate of $33.9 million from the disposition of five properties that were sold for an aggregate gross sales price of $40.7$59.3 million.
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” in our Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, for a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020.
Non-GAAP Supplemental Measure:Measures: Funds From Operations and Core Funds From Operations
We calculate funds from operations (“FFO”) attributable to common stockholders in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP,GAAP), excluding gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business, real estate related depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated joint ventures.
Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization, gains and losses from property dispositions, and asset impairments, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of performance used by other REITs, FFO may be used by investors as a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate or interpret FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to pay dividends.
We calculate “Core FFO” by adjusting FFO for non-comparable items outlined in the reconciliation below. We believe that Core FFO is a useful supplemental measure and that by adjusting for items that are not considered by us to be part of our on-going operating performance, provides a more meaningful and consistent comparison of our operating and financial performance period-over-period. Because these adjustments have a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited. Other REITs may not calculate Core FFO in a consistent manner. Accordingly, our Core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance. “Company share of Core FFO” in the table below reflects Core FFO attributable to common stockholders, which excludes amounts allocable to noncontrolling interests, participating securities and preferred stockholders (which consists of preferred stock dividends, but excludes non-recurring preferred stock redemption charges related to the write-off of original issuance costs which we do not consider reflective of our on-going performance).
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO (inand Core FFO (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | 2020 | | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | | | |
Adjustments: | | | | | | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | | | |
| | | | | | | |
Gains on sale of real estate(1) | (8,486) | | | (33,929) | | | (13,617) | | | |
| | | | | | | |
Funds from operations (FFO) | $ | 365,465 | | | $ | 253,586 | | | $ | 182,547 | | | |
Adjustments: | | | | | | | |
Acquisition expenses | 613 | | | 94 | | | 124 | | | |
Impairment of right-of-use asset | — | | | 992 | | | — | | | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | | | |
Amortization of loss on termination of interest rate swaps | 253 | | | 2,169 | | | 218 | | | |
Non-capitalizable demolition costs | 663 | | | — | | | — | | | |
Write-offs of below-market lease intangibles related to terminations(2) | (5,792) | | | — | | | — | | | |
Core FFO | $ | 362,117 | | | $ | 257,346 | | | $ | 182,993 | | | |
Less: preferred stock dividends | (9,258) | | | (12,563) | | | (14,545) | | | |
Less: Core FFO attributable to noncontrolling interests(3) | (16,838) | | | (13,504) | | | (7,667) | | | |
Less: Core FFO attributable to participating securities(4) | (1,282) | | | (943) | | | (774) | | | |
Company share of Core FFO | $ | 334,739 | | | $ | 230,336 | | | $ | 160,007 | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
|
Add: | |
| | |
| | |
Depreciation and amortization | 64,852 |
| | 51,407 |
| | 41,837 |
|
Depreciation and amortization from unconsolidated joint ventures (1) | — |
| | 10 |
| | 57 |
|
Deduct: | |
| | |
| | |
Gain on sale of real estate | (29,573 | ) | | (17,377 | ) | | — |
|
Gain on acquisition of unconsolidated joint venture property (2) | (11 | ) | | (1,332 | ) | | — |
|
Funds from operations (FFO) | $ | 76,968 |
|
| $ | 58,584 |
|
| $ | 43,844 |
|
Less: preferred stock dividends | (5,875 | ) | | (1,983 | ) | | — |
|
Less: FFO attributable to noncontrolling interest (3) | (1,914 | ) | | (1,751 | ) | | (1,644 | ) |
Less: FFO attributable to participating securities (4) | (546 | ) | | (473 | ) | | (322 | ) |
FFO attributable to common stockholders | $ | 68,633 |
| | $ | 54,377 |
| | $ | 41,878 |
|
| |
(1) | Amount reflects our 15% ownership interest in the JV that owned the property located at 3233 Mission Oaks Boulevard for all periods prior to July 6, 2016, when we acquired the remaining 85% ownership interest. |
| |
(2) | Amounts relate to the Company’s acquisition of the remaining 85% ownership interest in the property located at 3233 Mission Oaks Boulevard from the JV. See Note 11 to our consolidated financial statements included in Item 15 of this Report on Form 10-K. |
| |
(3) | Noncontrolling interest represent holders of outstanding common units of our Operating Partnership that are owned by unit holders other than Rexford Industrial Realty, Inc. |
(1)Gains on sale of real estate for the years ended December 31, 2022 and 2021 reflect gains from the sale of depreciable operating properties. Gains on sale of real estate for the year ended December 31, 2020, include total gains of $14.5 million from the sale of depreciable operating properties and a loss of $0.9 million from the sale of assets incidental to our business. For additional details, see “Note 3 – Investments in Real Estate” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
| |
(4) | Participating securities include unvested shares of restricted stock, unvested LTIP units of partnership interest in our Operating Partnership and unvested performance units in our Operating Partnership. |
(2)Reflects the write-off of the portion of a below-market lease intangible attributable to below-market fixed rate renewal options that were not exercised due to the termination of the lease at the end of the initial lease term.
(3)Noncontrolling interests represent (i) holders of outstanding common units of the Company's Operating Partnership that are owned by unit holders other than the Company and (ii) holders of Series 1 CPOP Units, Series 2 CPOP Units and Series 3 CPOP Units. (4)Participating securities include unvested shares of restricted stock, unvested LTIP units of partnership interest in our Operating Partnership and unvested performance units in our Operating Partnership.
Non-GAAP Supplemental Measure:Measures: NOI and Cash NOI
Net operating income (NOI)(“NOI”) is a non-GAAP measure which includes the revenue and expense directly attributable to our real estate properties calculated in accordance with GAAP.properties. NOI is calculated as total rental revenues from real estate operations including i) rental income, ii) tenant reimbursements, and iii) other income less property expenses (before interest expense, depreciation and amortization).
We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs’ NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.
NOI on a cash-basis (Cash NOI)(“Cash NOI”) is a non-GAAP measure, which we calculate by adding or subtracting the following items from NOINOI: (i) fair value lease revenue and (ii) straight-line rentrental revenue adjustments. We use Cash NOI, together with NOI, as a supplemental performance measure. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities computed in accordance with GAAP.
The following table sets forth the revenue and expense items comprising NOI and the adjustments to calculate Cash NOI (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
| | | | | |
Rental income | $ | 630,578 | | | $ | 451,733 | | | $ | 329,377 | |
Less: Property expenses | 150,503 | | | 107,721 | | | 79,716 | |
Net Operating Income | $ | 480,075 | | | $ | 344,012 | | | $ | 249,661 | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | |
Straight line rental revenue adjustment | (31,220) | | | (20,903) | | | (11,406) | |
Cash Net Operating Income | $ | 417,646 | | | $ | 307,666 | | | $ | 227,722 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Rental income | $ | 136,185 |
| | $ | 107,594 |
| | $ | 81,114 |
|
Tenant reimbursements | 23,363 |
| | 16,723 |
| | 10,479 |
|
Other income | 869 |
| | 943 |
| | 1,013 |
|
Total operating revenues | 160,417 |
|
| 125,260 |
|
| 92,606 |
|
Property expenses | 42,139 |
| | 33,619 |
| | 25,000 |
|
Net Operating Income | $ | 118,278 |
|
| $ | 91,641 |
|
| $ | 67,606 |
|
Amortization of (below) above market lease intangibles, net | (2,270 | ) | | (78 | ) | | 202 |
|
Straight line rental revenue adjustment | (4,737 | ) | | (4,507 | ) | | (3,425 | ) |
Cash Net Operating Income | $ | 111,271 |
|
| $ | 87,056 |
|
| $ | 64,383 |
|
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI and Cash NOI (in thousands): | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | | |
General and administrative | 64,264 | | | 48,990 | | | 36,795 | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | | |
Other expenses | 1,561 | | | 1,297 | | | 124 | | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | | |
Management and leasing services | (616) | | | (468) | | | (420) | | |
Interest income | (10) | | | (37) | | | (338) | | |
| | | | | | |
| | | | | | |
| | | | | | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | | |
Net Operating Income | $ | 480,075 | | | $ | 344,012 | | | $ | 249,661 | | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | | |
Straight line rental revenue adjustment | (31,220) | | | (20,903) | | | (11,406) | | |
Cash Net Operating Income | $ | 417,646 | | | $ | 307,666 | | | $ | 227,722 | | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
|
Add: | |
| | |
| | |
General and administrative | 21,610 |
| | 17,415 |
| | 15,016 |
|
Depreciation and amortization | 64,852 |
| | 51,407 |
| | 41,837 |
|
Acquisitions expense | 454 |
| | 1,855 |
| | 2,136 |
|
Interest expense | 20,209 |
| | 14,848 |
| | 8,453 |
|
Loss on extinguishment of debt | — |
| | — |
| | 182 |
|
Deduct: | |
| | |
| | |
Management, leasing and development services | 493 |
| | 473 |
| | 584 |
|
Interest income | 445 |
| | 459 |
| | 710 |
|
Equity in income from unconsolidated real estate entities | 11 |
| | 1,451 |
| | 93 |
|
Gain from early repayment of note receivable | — |
| | — |
| | 581 |
|
Gain on extinguishment of debt | 25 |
| | — |
| | — |
|
Gain on sale of real estate | 29,573 |
| | 17,377 |
| | — |
|
Net Operating Income | $ | 118,278 |
|
| $ | 91,641 |
| | $ | 67,606 |
|
Amortization of (below) above market lease intangibles, net | (2,270 | ) | | (78 | ) | | 202 |
|
Straight line rental revenue adjustment | (4,737 | ) | | (4,507 | ) | | (3,425 | ) |
Cash Net Operating Income | $ | 111,271 |
|
| $ | 87,056 |
|
| $ | 64,383 |
|
Non-GAAP Supplemental Measure: EBITDAre
We believe thatcalculate earnings before interest expense, income taxes, depreciation and amortization for real estate (“EBITDA”EBITDAre”) in accordance with the standards established by NAREIT. EBITDAre is calculated as net income (loss) (computed in accordance with GAAP), before interest expense, income tax expense, depreciation and amortization, gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business and adjustments for unconsolidated joint ventures.
We believe that EBITDAre is helpful to investors as a supplemental measure of our operating performance as a real estate company because it is a direct measure of the actual operating results of our industrial properties. We also use this measure in ratios to compare our performance to that of our industry peers. In addition, we believe EBITDAre is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, our industry peers may not calculate EBITDAre in accordance with the same mannerNAREIT definition as we do and, accordingly, our EBITDAre may not be comparable to our peers’ EBITDA.EBITDAre. Accordingly, EBITDAre should be considered only as a supplement to net income (loss) as a measure of our performance.
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to EBITDAre (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Interest expense | 48,496 | | | 40,139 | | | 30,849 | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | |
EBITDAre | $ | 413,961 | | | $ | 293,725 | | | $ | 213,396 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
|
Interest expense | 20,209 |
| | 14,848 |
| | 8,453 |
|
Depreciation and amortization | 64,852 |
| | 51,407 |
| | 41,837 |
|
Proportionate share of real estate related depreciation and amortization from unconsolidated joint venture (1) | — |
| | 10 |
| | 57 |
|
EBITDA | $ | 126,761 |
| | $ | 92,141 |
| | $ | 52,297 |
|
| |
(1) | Amount reflects our 15% ownership interest in the JV that owned the property located at 3233 Mission Oaks Boulevard for all periods prior to July 6, 2016, when we acquired the remaining 85% ownership interest. |
Supplemental Guarantor Information
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule became effective January 4, 2021. The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. At December 31, 2022, the Operating Partnership had issued and outstanding $400.0 million of 2.125% Senior Notes due 2030 (the “$400 Million Notes due 2030”) and the $400 Million Notes due 2031. The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the $400 Million Notes due 2030 and $400 Million Notes due 2031 are guaranteed on a senior basis by the Company. The guarantee is full and unconditional, and the Operating Partnership is a consolidated subsidiary of the Company. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
Financial Condition, Liquidity and Capital Resources
Overview
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses, interest expense, general and administrative expenses, capital expenditures, tenant improvements and leasing commissions, and distributions to our
common and preferred stockholders and holders of common units of partnership interests in our Operating Partnership (“OP Units”). We expect to meet our short-term liquidity requirements through available cash on hand, cash flow from operations, by drawing on our unsecured revolving credit facility and by issuing shares of common stock pursuant to the ATM Programprogram or issuing other securities as described below.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through net cash flow from operations, proceeds from long-term secured and unsecured financings, borrowings available under our unsecured revolving credit facility, the issuance of equity securities, including preferred stock, and proceeds from selective real estate dispositions as we identify capital recycling opportunities.
As of December 31, 2017,2022, we had:
•Outstanding fixed-rate and variable-rate debt with varying maturities for an aggregate principal amount of $2.0 billion, with $7.5 million due within 12 months.
•Total scheduled interest payments on our fixed rate debt and projected net interest payments on our variable rate debt and interest rate swaps of $322.4 million, of which $68.4 million is due within 12 months.
•Commitments of $114.2 million for tenant improvements under certain tenant leases and construction work related to obligations under contractual agreements with our construction vendors; and
•Operating lease commitments with aggregate lease payments of $27.2 million, of which $2.3 million is due within 12 months.
See “Note 5 – Notes Payable” to the consolidated financial statements included in Item 15 of this Report on Form 10-K for further details regarding the scheduled principal payments. Also see “Note 6 – Leases” to the consolidated financial statements for further details regarding the scheduled operating lease payments.
As of December 31, 2022, our cash and cash equivalents were approximately $6.6$36.8 million, and we had $60.0 milliondid not have any borrowings outstanding under our unsecured revolving credit facility, leaving $290.0 million$1.0 billion available for additionalfuture borrowings.
Sources of Liquidity
Cash Flow from Operations
Cash flow from operations is one of our key sources of liquidity and is primarily dependent upon: (i) the occupancy levels and lease rates at our properties, (ii) our ability to collect rent, (iii) the level of operating costs we incur and (iv) our ability to pass through operating expenses to our tenants. We are subject to a number of risks related to general economic and other unpredictable conditions, which have the potential to affect our overall performance and resulting cash flows from operations. However, based on our current portfolio mix and business strategy, we anticipate that we will be able to generate positive cash flows from operations.
ATM Program
On September 21, 2017,May 27, 2022, we established a new at-the-market equity offeringan ATM program (the “$300 Million ATM Program”) pursuant to which we mayare able to sell from time to time up to an aggregate of $300.0 millionshares of our common stock throughhaving an aggregate sales agents.price of up to $1.0 billion (the “Current 2022 ATM Program”). The $300 MillionCurrent 2022 ATM Program replaces our previous $150.0$750.0 million at-the-market equity offeringATM program, which was established on June 12, 2017 (the “$150 MillionJanuary 13, 2022, under which we had sold shares of our common stock having an aggregate gross sales price of $697.5 million through May 27, 2022. In addition, we previously established a $750.0 million ATM Program”). Asprogram on November 9, 2020, under which we had sold shares of December 31, 2017, all $150.0our common stock having an aggregate gross sales price of $743.9 million through January 13, 2022.
In connection with our ATM programs, we may sell shares of our common stock directly through sales agents or we may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under ATM programs. The use of a forward equity sale agreement allows us to lock in a share price on the sale of shares of our common stock underat the $150 Million ATM Program had been sold. In addition, we previously had a $125.0 million at-the-market program that was established on April 17, 2015, of which all $125.0 milliontime the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. Additionally, the forward price that we expect to receive upon physical settlement of our commonan agreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock have been sold asborrowing costs and (iii) scheduled dividends during the term of December 31, 2017.the agreement.
During the year ended December 31, 2017,2022, we sold 11,968,927entered into forward equity sale agreements with certain financial institutions acting as forward purchasers under our various ATM programs with respect to 23,519,219 shares of common stock at a weighted average initial forward price of $64.29 per share. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time we entered into forward equity sale agreements.
During the year ended December 31, 2022, we physically settled a portion of the aforementioned forward equity sale agreements and the outstanding forward equity sale agreement from 2021 by issuing 24,788,691 shares of our common stock under our various at-the-market equity offering programs, atfor net proceeds of $1.6 billion, based on a weighted average forward price of $28.13$65.02 per share for gross proceedsat settlement.
As of $336.6February 10, 2023, the date of this Annual Report on Form 10-K, we had 636,884 shares of common stock, or approximately $35.2 million andof forward net proceeds remaining for settlement to occur before November 2023, based on a forward price of $331.6 million, after deducting the sales agents’ fee. $55.22 per share.
As of December 31, 2017, we had the capacity to issue up to an additional $229.0February 10, 2023, approximately $165.4 million of common stock remains available to be sold under the $300 MillionCurrent 2022 ATM Program.
Future sales, if any, will depend on a variety of factors, to be determined by us from time to time, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and capital needs.potential uses of funding available to us. We intend to use the net proceeds from the offering of shares under the $300 MillionCurrent 2022 ATM Program, if any, to fund potential acquisition opportunities, repay amounts outstanding from time to time under our unsecured revolving credit facility or other debt financing obligations, to fund our developmentrepositioning or redevelopment activities and/or for general corporate purposes.
Securities Offerings
On November 13, 2017, we completed an underwritten public offering of 3,000,000 shares of our 5.875% Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock") at a price of $25.00 per share. The net proceeds from the offering were approximately $72.5 million after deducting the underwriters’ discount and offering costs totaling $2.5 million. We used the net proceeds from the offering to fund various acquisitions and for general corporate purposes.
We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and as circumstances warrant, we may issue additional securities, from time to time, to fund acquisitions, or repositioning costs, for the repayment of long-term debt upon maturity and for other general corporate purposes. Such securities may include common equity, preferred equity and/or debt of us or our subsidiaries. Any future issuance, however, is dependent upon market conditions, available pricing and capital needs and there can be no assurance that we will be able to complete any such offerings of securities.
2022 Forward Equity Offering — During the fourth quarter of 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 11,846,425 shares of common stock, including 346,425 shares related to the partial exercise of the underwriters’ option to purchase additional shares, at an initial forward price of $55.74 per share (the “2022 Forward Offering Sale Agreements”), pursuant to which, the forward purchasers borrowed and sold an aggregate of 11,846,425 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering.
In December 2022, we partially settled the 2022 Forward Offering Sale Agreements by issuing 3,554,704 shares of common stock for net proceeds of $198.7 million, based on a weighted average forward price of $55.90 per share at settlement.
In January 2023, we partially settled the outstanding 2022 Forward Offering Sale Agreements by issuing 7,617,013 shares of common stock in exchange for net proceeds of $425.0 million, based on a weighted average forward price of $55.80 per share at settlement.
As of February 10, 2023, the date of this Annual Report on Form 10-K, we had 674,708 shares of common stock, or approximately $37.7 million of forward net proceeds remaining for settlement to occur before May 2024, based on a forward sale price of $55.87 per share.
Capital Recycling
We continuously evaluate opportunities for the potential disposition of properties in our portfolio when we believe such disposition is appropriate in view of our business objectives. In evaluating these opportunities, we consider a variety of criteria including, but not limited to, local market conditions and lease rates, asset type and location, as well as potential uses of proceeds and tax considerations. Tax considerations include entering into tax-deferred like-kind exchanges under Sectiona 1031 of the Code (“1031 Exchange”),Exchange, when possible, to defer some or all of the taxable gains, if any, on dispositions.
During the year ended December 31, 2017,2022, we completed the saledisposition of six of our propertiesone property for a total gross sales price of $98.7$16.5 million and total net cash proceeds of $96.0$15.3 million. TotalThe net cash proceeds of $77.8 million from five of the dispositions were used to partially fund the acquisition of four properties through 1031 Exchange transactions.
Subsequent toone property during the year ended December 31, 2017, we completed the sale of our property located at 8900-8980 Benson Avenue and 5637 Arrow Highway for2022, through a gross sales price of $11.4 million and net cash proceeds of $10.7 million. Through a 1031 Exchange transaction, the cash proceeds were used to purchase the property located at 13971 Norton Avenue in Valencia, California for a contract price of approximately $11.4 million.
Subsequent to December 31, 2017, we also completed the sale of our property located at 700 Allen Avenue and 1830 Flower Street for a gross sales price of $10.9 million and net cash proceeds of $10.3 million. These net cash proceeds are being held at a qualified intermediary to facilitate a future 1031 Exchange transaction.
We anticipate continuing to selectively and opportunistically dispose of properties, however, the timing of any potential future dispositions will depend on market conditions, asset-specific circumstances or opportunities, and our capital needs. Our ability to dispose of selective properties on advantageous terms, or at all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable.
Amended Credit Agreement
On February 14, 2017, we amended our $300 million unsecured credit facility by entering into a Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”), which provides for a $450 million senior unsecured credit facility, comprised of a $350 million unsecured revolving credit facility (the “Amended Revolver”) and a $100 million unsecured term loan facility (the "Amended $100 Million Term Loan"). The Amended Revolver is scheduled to mature on February 12, 2021 and has two six-month extension options available for a maximum maturity date of February 14, 2022, subject to certain conditions and the payment of an additional fee. The Amended $100 Million Term Loan is scheduled to mature on February 14, 2022. Under the terms of the Amended Credit Agreement, we may request additional lender commitments up to an additional aggregate $550.0 million, which may be comprised of additional revolving commitments under the Amended Revolver, an increase to the Amended $100 Million Term Loan, additional term loan tranches or any combination of the foregoing.
Interest on the Amended Credit Agreement, is generally to be paid based upon, at our option, either (i) LIBOR plus an applicable margin that is based upon our leverage ratio or (ii) the Base Rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate or (c) the Eurodollar Rate plus 1.00%) plus an applicable margin that is based on our leverage ratio. The margins for the Amended Revolver range in amount from 1.10% to 1.50% for LIBOR-based loans and 0.10% to 0.50% for Base Rate-based loans, depending on our leverage ratio. The margins for the Amended $100 Million Term Loan range in amount from 1.20% to 1.70% for LIBOR-based loans and 0.20% to 0.70% for Base Rate-based loans, depending on our leverage ratio.
If we attain one additional investment grade rating by one or more of Standard & Poor’s or Moody’s Investor Services to complement our current investment grade Fitch rating, we may elect to convert the pricing structure under the Amended Credit Agreement to be based on such rating. In that event, the margins for the Amended Revolver will range in amount from 0.825% to 1.550% for LIBOR-based loans and 0.00% to 0.55% for Base Rate-based loans, depending on such rating. The margins for the Amended $100 Million Term Loan will range in amount from 0.90% to 1.75% for LIBOR-based loans and 0.00% to 0.75% for Base Rate-based loans, depending on such ratings.
In addition to the interest payable on amounts outstanding under the Amended Revolver, we are required to pay an applicable facility fee, based upon our leverage ratio, on the aggregate amount of each lender's Revolving Credit Commitment (whether or not such Revolving Credit Commitment is drawn), as defined in the Amended Credit Agreement. The applicable facility fee will range in amount from 0.15% to 0.30%, depending on our leverage ratio. In the event that we convert the pricing
structure to be based on an investment-grade rating, the applicable facility fee will range in amount from 0.125% to 0.30%, depending on such rating.
The Amended Credit Agreement is guaranteed by the Company and by substantially all of the current and to-be-formed subsidiaries of the Operating Partnership that own an unencumbered property. The Amended Credit Agreement is not secured by the Company’s properties or by equity interests in the subsidiaries that hold such properties.
The Amended Revolver and the Amended $100 Million Term Loan may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Amended Term Loan and repaid or prepaid may not be reborrowed.
The Amended Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Amended Credit Facility and other loan documentation, cross-defaults to certain other indebtedness,and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Amended Credit Facility, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
As of the filing date of this Annual Report on Form 10-K, we had borrowings of $91.0 million outstanding under the Amended Revolver, leaving $259.0 million available for future borrowings.
Note Purchase and Guarantee Agreement
On July 13, 2017, we entered into a Note Purchase and Guarantee Agreement (the “NPGA”) for the private placement of $125.0 million of senior unsecured guaranteed notes, maturing on July 13, 2027, with a fixed annual interest rate of 3.93% (the “$125 Million Notes”), and interest payable quarterly, commencing on October 13, 2017. On July 13, 2017, we completed the issuance of the $125 Million Notes. The net proceeds from the issuance of the $125 Million Notes were used to partially fund the acquisition of a 1.2 million rentable square foot industrial business park with a contract price of $210.5 million.
Investment Grade Rating
In September 2017,During the year ended December 31, 2022, our credit ratings were raised to Baa2 (Stable outlook) from Baa3 (Stable outlook) by Moody’s and to BBB+ (Stable outlook) from BBB (Positive outlook) by both S&P and Fitch Ratings affirmedwith respect to our investment grade credit rating of BBB- with a stable outlook on the Amended Revolver, the Amended $100 Million Term Loan, our $100Credit Agreement (described below), $100.0 million unsecured guaranteed senior notes (the “$100 Million Notes”), $25.0 million unsecured guaranteed senior notes and $75.0 million unsecured guaranteed senior notes (together the $125“Series 2019A and 2019B Notes”), $400 Million Notes. They also affirmedNotes due 2030 and $400 Million Notes due 2031. During the year ended December 31, 2022, our investment grade credit rating of BB onratings were raised to BBB- from BB+ by both S&P and Fitch with respect to our 5.875% series ASeries B Cumulative Redeemable Preferred Stock (the “Series Aand our 5.625% Series C Cumulative Redeemable Preferred Stock”).Stock. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us, and, although it is our intent to maintain our investment grade credit rating, there can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings are downgraded, it may become difficult or more expensive to obtain additional financing or refinance existing indebtedness as maturities become due.
Credit Agreement
On May 26, 2022, we amended our credit agreement, which was comprised of a $700.0 million unsecured revolving credit facility that was scheduled to mature on February 13, 2024, by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement initially provided for (i) a senior unsecured term loan facility that permits aggregate borrowings of up to $300.0 million (the “$300 Million Term Loan”), all of which was borrowed at closing on May 26, 2022, and (ii) a senior unsecured revolving credit facility (the “Revolver”) in the aggregate principal amount of $1.0
billion. On July 19, 2022, we exercised the accordion option under the Credit Agreement to add a $400.0 million unsecured term loan (the “$400 Million Term Loan” and together with the $300 Million Term Loan, the “Term Facility”). Subject to certain terms and conditions set forth in the Credit Agreement, we may request additional lender commitments and increase the size of the Credit Agreement by an additional $800.0 million, which may be comprised of additional revolving commitments under the Revolver, an increase to the Term Facility, additional term loan tranches or any combination of the foregoing.
The Revolver is scheduled to mature on May 26, 2026 and has two six-month extension options available. The $400 Million Term Loan is scheduled to mature on July 19, 2024 and has two one-year extension options available. The $300 Million Term Loan matures on May 26, 2027.
Interest on the Credit Agreement is generally to be paid based upon, at our option, either (i) Term SOFR plus the applicable margin; (ii) Daily Simple SOFR plus the applicable margin or (iii) the applicable base rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, (c) Term SOFR plus 1.00%, and (d) one percent (1.00%)) plus the applicable margin. Additionally, Term SOFR and Daily Simple SOFR will be increased by a 0.10% SOFR adjustment. The applicable margin for the Term Facility ranges from 0.80% to 1.60% per annum for SOFR-based loans and 0.00% to 0.60% per annum for base rate loans, depending on our investment grade ratings. The applicable margin for the Revolver ranges from 0.725% to 1.400% per annum for SOFR-based loans and 0.00% to 0.40% per annum for base rate loans, depending on our investment grade ratings. In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable credit facility fee, on each lender's commitment amount under the Revolver, regardless of usage. The applicable credit facility fee ranges from 0.125% to 0.300% per annum, depending on our investment grade ratings. The interest rate under the Credit Agreement is also subject to a favorable leverage-based adjustment if our ratio of total indebtedness to total asset value is less than 35.0%.
In addition, the Credit Agreement also features a sustainability-linked pricing component whereby the applicable margin and applicable credit facility fee can decrease by 0.04% and 0.01%, respectively, or increase by 0.04% and 0.01%, respectively, if we meet, or do not meet, certain sustainability performance targets, as applicable.
The Revolver and the Term Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Term Facility and repaid or prepaid may not be reborrowed.
The Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Credit Agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Credit Agreement, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
As of the filing date of this Annual Report on Form 10-K, we did not have any borrowings outstanding under the Revolver, leaving $1.0 billion available for future borrowings.
Uses of Liquidity
Acquisitions
One of our most significant liquidity needs has historically been for the acquisition of real estate properties. During the year ended December 31, 2017,2022, we acquired 21completed 52 acquisitions representing 61 properties aggregating 4.2with a combined 5.9 million rentable square feet of buildings on 319.6 acres of land for an aggregate costpurchase price of $666.7$2.4 billion. Subsequent to December 31, 2022, through the filing date of this Form 10-K, we have acquired two properties with a combined 1.2 million and as partrentable square feet of our growth strategy,buildings for an aggregate purchase price of $405.0 million, and we are actively monitoring a volume of properties in our markets that we believe represent attractive potential investment opportunities.opportunities to continue to grow our business. As of the filing date of this Annual Report on Form 10-K, we have $184.5over $125.0 million of acquisitions under contract or letter of intent.accepted offer. There can be no assurance we will complete any such acquisitions. While the actual number of acquisitions that we complete will be dependent upon a number of factors, in the short term, we expect to fund our acquisitions through available cash on hand and proceeds from forward equity settlements, cash flows from operations, borrowings available under the Amended Revolver, recycling capital through property dispositions and, in the long term, through the issuance of equity securities or proceeds from long-term secured and unsecured financings. See “Note 3 – Investments in Real Estate” to the consolidated financial statements for a summary of the properties we acquired during the year ended December 31, 2022.
Recurring and Nonrecurring Capital Expenditures
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. During the year ended December 31, 2017,2022, we incurred $2.5$8.7 million of recurring capital expenditures, which was a decrease of $0.3$1.8 million overfrom the prior year. During the year ended December 31, 2017,2022, we incurred $35.2$111.1 million of non-recurring capital expenditures, which
was an increase of $14.0$30.6 million over the prior year. The increase was primarily due to the increase in non-recurring capital expenditures is primarily duerelated to an increase in ourrepositioning and redevelopment and repositioning activity and the growth of our overall portfolio.during 2022 compared to 2021. As discussed above under —Factors“—Factors that May Influence Future Results —Acquisitions and DevelopmentValue-Add Repositioning and Redevelopment of Properties,Properties”, as of December 31, 2017, five2022, 17 of our properties were in various stages ofunder current repositioning, redevelopment, and repositioning or lease-up, and we have a pipeline of 12 additional properties for which we anticipate beginning repositioningconstruction work on three additional properties during 2018.over the next five quarters. We currently estimate that approximately $43.0$385.2 million of capital will be required over the next six quarters (1Q-2018three years (1Q-2023 through 2Q-2019)Q2-2025) to complete the repositioning/redevelopment and repositioning of these properties. However, this estimate is based on our current construction planplans and budgets, both of which are subject to change as a result of a number of factors.factors, including increased costs of building materials or construction services and construction delays related to supply chain backlogs and increased lead time on building materials. If we are unable to complete construction on schedule or within budget, we could incur increased construction costs and experience potential delays in leasing the properties. We expect to fund these projects through a combination of available cash flowon hand, proceeds from operations,forward equity settlements, the issuance of common stock under the $300 MillionCurrent 2022 ATM Program, cash flow from operations and borrowings available under the Amended Revolver.
Commitments and Contractual Obligations
The following table sets forth our principal obligations and commitments as of December 31, 2017, including (i) scheduled principal payments and debt maturities, (ii) periodic interest payments related to our outstanding indebtedness and interest rate swaps, (iii) office and ground lease payments and (iv) other contractual obligations (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments by Period |
| Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
Principal payments and debt maturities | $ | 671,658 |
| | $ | 933 |
| | $ | 58,266 |
| | $ | 166 |
| | $ | 60,175 |
| | $ | 100,184 |
| | $ | 451,934 |
|
Interest payments - fixed rate debt(1) | 83,268 |
| | 9,341 |
| | 9,333 |
| | 9,325 |
| | 9,316 |
| | 4,394 |
| | 41,559 |
|
Interest payments - variable rate debt(2) | 53,814 |
| | 13,521 |
| | 12,226 |
| | 11,030 |
| | 9,545 |
| | 7,224 |
| | 268 |
|
Office lease payments | 1,636 |
| | 783 |
| | 569 |
| | 164 |
| | 120 |
| | — |
| | — |
|
Ground lease payments | 6,396 |
| | 144 |
| | 144 |
| | 144 |
| | 144 |
| | 144 |
| | 5,676 |
|
Contractual obligations(3) | 18,993 |
| | 18,993 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 835,765 |
| | $ | 43,715 |
| | $ | 80,538 |
| | $ | 20,829 |
| | $ | 79,300 |
| | $ | 111,946 |
| | $ | 499,437 |
|
| |
(1) | Reflects scheduled interest payments on our fixed rate debt, including the $100 Million Notes, the $125 Million Notes and the Gilbert/La Palma mortgage loan. |
| |
(2) | Reflects an estimate of interest payments due on variable rate debt, including the impact of interest rate swaps. For variable rate debt where interest is paid based on LIBOR plus an applicable LIBOR margin, we used the applicable LIBOR margin in effect as of December 31, 2017, and the one-month LIBOR rate of 1.5643%, as of December 31, 2017. Furthermore, assumes that any maturity extension options available to us are not exercised. |
| |
(3) | Includes total commitments for tenant improvement and construction work related to obligations under certain tenant leases and vendor contracts. We anticipate these obligations to be paid as incurred in 2018 and 2019, however, as the timing of these obligations is subject to a number of factors, for purposes of this table, we have included the full amount under “2018.” |
Dividends and Distributions
In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to distribute a percentage of our cash flow on a quarterly basis to holders of our common stock. In addition, we intend to make distribution payments to holders of OP Units and preferred units, and dividend payments to holders of our preferred stock.
On February 12, 2018,6, 2023, our board of directors declared athe following quarterly cash dividend in the amount of $0.16 per share of common stock and a quarterly cash distribution in the amount of $0.16 per OP Unit, to be paid on April 16, 2018, to holders of record as of March 30, 2018.dividends/distributions:
On February 12, 2018, our board of directors declared a quarterly cash dividend in the amount of $0.367188 per share of the Series A Preferred Stock, to be paid on March 30, 2018, to holders of record as of March 15, 2018. On February 12, 2018, our board of directors also declared a pro-rata cash dividend, for the period beginning on November 13, 2017, the original issuance | | | | | | | | | | | | | | | | | | | | |
Security | | Amount per Share/Unit | | Record Date | | Payment Date |
Common stock | | $ | 0.380 | | | March 31, 2023 | | April 17, 2023 |
OP Units | | $ | 0.380 | | | March 31, 2023 | | April 17, 2023 |
5.875% Series B Cumulative Redeemable Preferred Stock | | $ | 0.367188 | | | March 15, 2023 | | March 31, 2023 |
5.625% Series C Cumulative Redeemable Preferred Stock | | $ | 0.351563 | | | March 15, 2023 | | March 31, 2023 |
4.43937% Cumulative Redeemable Convertible Preferred Units | | $ | 0.505085 | | | March 15, 2023 | | March 31, 2023 |
4.00% Cumulative Redeemable Convertible Preferred Units | | $ | 0.450000 | | | March 15, 2023 | | March 31, 2023 |
3.00% Cumulative Redeemable Convertible Preferred Units | | $ | 0.545462 | | | March 15, 2023 | | March 31, 2023 |
date of the Series B Preferred Stock, to March 31, 2018, in the amount of $0.563021 per share of the Series B Preferred Stock, to be paid on March 30, 2018, to holders of record as of March 15, 2018.
Consolidated Indebtedness Outstanding
The following table sets forth certain information with respect to our consolidated indebtedness outstanding as of December 31, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual Maturity Date | | | | Margin Above SOFR | | Effective Interest Rate(1) | | Principal Balance (in thousands)(2) | | |
Unsecured and Secured Debt: | | | | | | | | | | | |
Unsecured Debt: | | | | | | | | | | | |
Revolving Credit Facility(3) | 5/26/2026 | (4) | | | S+0.725 | % | (5) | 5.125 | % | | $ | — | | | |
$400M Term Loan | 7/19/2024 | (4) | | | S+0.800 | % | (5) | 5.258 | % | | 400,000 | | | |
$100M Senior Notes | 8/6/2025 | | | | n/a | | 4.290 | % | | 100,000 | | | |
$300M Term Loan | 5/26/2027 | | | | S+0.800 | % | (5) | 3.717 | % | (6) | 300,000 | | | |
$125M Senior Notes | 7/13/2027 | | | | n/a | | 3.930 | % | | 125,000 | | | |
$25M Series 2019A Senior Notes | 7/16/2029 | | | | n/a | | 3.880 | % | | 25,000 | | | |
$400M Senior Notes due 2030 | 12/1/2030 | | | | n/a | | 2.125 | % | | 400,000 | | | |
$400M Senior Notes due 2031 (green bond) | 9/1/2031 | | | | n/a | | 2.150 | % | | 400,000 | | | |
$75M Series 2019B Senior Notes | 7/16/2034 | | | | n/a | | 4.030 | % | | 75,000 | | | |
Total Unsecured Debt | | | | | | | | | $ | 1,825,000 | | | |
| | | | | | | | | | | |
Secured Debt: | | | | | | | | | | | |
2601-2641 Manhattan Beach Boulevard | 4/5/2023 | | | | n/a | | 4.080 | % | | $ | 3,832 | | | |
960-970 Knox Street | 11/1/2023 | | | | n/a | | 5.000 | % | | 2,307 | | | |
7612-7642 Woodwind Drive | 1/5/2024 | | | | n/a | | 5.240 | % | | 3,712 | | | |
11600 Los Nietos Road | 5/1/2024 | | | | n/a | | 4.190 | % | | 2,462 | | | |
$60M Term Loan Facility(7) | 10/27/2024 | (7) | | | S+1.250 | % | (7) | 5.708 | % | | 60,000 | | | |
5160 Richton Street | 11/15/2024 | | | | n/a | | 3.790 | % | | 4,153 | | | |
22895 Eastpark Drive | 11/15/2024 | | | | n/a | | 4.330 | % | | 2,612 | | | |
701-751 Kingshill Place | 1/5/2026 | | | | n/a | | 3.900 | % | | 7,100 | | | |
13943-13955 Balboa Boulevard | 7/1/2027 | | | | n/a | | 3.930 | % | | 14,965 | | | |
2205 126th Street | 12/1/2027 | | | | n/a | | 3.910 | % | | 5,200 | | | |
2410-2420 Santa Fe Avenue | 1/1/2028 | | | | n/a | | 3.700 | % | | 10,300 | | | |
11832-11954 La Cienega Boulevard | 7/1/2028 | | | | n/a | | 4.260 | % | | 3,928 | | | |
Gilbert/La Palma | 3/1/2031 | | | | n/a | | 5.125 | % | | 1,935 | | | |
7817 Woodley Avenue | 8/1/2039 | | | | n/a | | 4.140 | % | | 3,009 | | | |
Total Secured Debt | | | | | | | | | $ | 125,515 | | | |
Total Debt | | | | | | | | | $ | 1,950,515 | | | |
(1)Reflects the contractual interest rate under the terms of each loan as of December 31, 2022 and includes the effect of interest rate swaps that were effective as of December 31, 2022. See footnote (6) below. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver.
(2)Excludes unamortized debt issuance costs and premiums/discounts totaling $14.1 million, which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of December 31, 2022.
(3)The Revolver is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. The applicable facility fee ranges from 0.125% to 0.30% per annum depending upon our investment grade rating, leverage ratio and sustainability performance metrics, which may change from time to time.
(4)The Revolver has two six-month extensions and the $400 Million Term Loan has two one-year extensions available at the borrower’s option, subject to certain terms and conditions.
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| | | | | | | | | | | | | |
| | Maturity Date | | Stated Interest Rate | | Effective Interest Rate(1) | | Principal Balance (in thousands)(2) | | Maturity Date of Effective Swaps |
Secured Debt: | | | | | | | | | | |
$60M Term Loan(3) | | 8/1/2019(3) | | LIBOR + 1.90% | | 3.816 | % | (4) | $ | 58,891 |
| | 2/15/2019 |
Gilbert/La Palma | | 3/1/2031 | | 5.125% | | 5.125 | % | | 2,767 |
| | — |
Unsecured Debt: | | | | | | | | | | |
Amended $100 Million Term Loan | | 2/11/2022 | | LIBOR +1.20%(5) | | 3.098 | % | (6) | 100,000 |
| | 12/14/2018 |
Amended Revolver(7) | | 2/12/2021(8) | | LIBOR +1.10%(5) | | 2.664 | % | | 60,000 |
| | — |
$225 Million Term Loan Facility | | 1/14/2023 | | LIBOR +1.50%(5) | | 3.064 | % | (9) | 225,000 |
| | — |
$100 Million Senior Notes | | 8/6/2025 | | 4.290% | | 4.290 | % | | 100,000 |
| | — |
$125 Million Senior Notes | | 7/13/2027 | | 3.930% | | 3.930 | % | | 125,000 |
| | |
Total Debt: | | | | | | 3.452 | % | | $ | 671,658 |
| | |
| |
(1) | Includes the effect of interest rate swaps that were effective as of December 31, 2017. Assumes a one-month LIBOR rate of 1.56425% as of December 31, 2017, as applicable. Excludes the effect of amortization of debt issuance costs, discounts and the facility fee on the Amended Revolver. |
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(2) | Excludes unamortized debt issuance costs and debt discounts totaling $2.7 million as of December 31, 2017. |
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(3) | One additional one-year extension is available, if certain conditions are satisfied. |
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(4) | As of December 31, 2017, this term loan has been effectively fixed at 3.816% through the use of two interest rate swaps as follows: (i) $30 million at 3.726% with an effective date of January 15, 2015, and (ii) $28.9 million at 3.91% with an effective date of July 15, 2015. |
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(5) | The LIBOR margin will range from 1.20% to 1.70% for the Amended $100 Million Term Loan, 1.10% to 1.50% for the Amended Revolver and 1.50% to 2.25% for our $225 million term loan facility depending on our leverage ratio, which is the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. This leverage ratio is measured on a quarterly basis, and as a result, the effective interest rate will fluctuate from period to period. |
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(6) | As of December 31, 2017, the Amended $100 Million Term Loan has been effectively fixed at 1.8975%, plus the applicable LIBOR margin, through the use of two interest rate swaps as follows: (i) $50 million with a strike rate of 1.79% with an effective date of August 14, 2015, and (ii) $50 million with a strike rate of 2.005% with an effective date of February 16, 2016. |
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(7) | The Amended Revolver is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. The applicable facility fee will range from 0.15% to 0.30% depending upon our leverage ratio. |
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(8) | Two additional six-month extension available at the borrower’s option. |
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(9) | As of December 31, 2017, we have executed two interest rate swaps that will effectively fix the interest on the $225 million term loan facility as follows: (i) $125 million at 1.349% plus the applicable LIBOR margin from February 14, 2018, to January 14, 2022, and (ii) $100 million at 1.406% plus the applicable LIBOR margin from August 14, 2018, to January 14, 2022. |
(5)The interest rates on these loans are comprised of daily SOFR for the Revolver and Term SOFR for the Term Facility (in each case increased by a 0.10% SOFR adjustment) plus an applicable margin ranging from 0.725% to 1.400% per annum for the Revolver and 0.80% to 1.60% per annum for the Term Facility, depending on our investment grade ratings, leverage ratio and sustainability performance metrics, which may change from time to time. During the year ended December 31, 2022, our credit ratings were upgraded and as a result, the applicable margin on the Revolver was lowered to 0.725% from 0.775% and the applicable margin on the Term Facility was lowered to 0.80% from 0.85%.
(6)As of December 31, 2022, Term SOFR related to $300.0 million of our variable rate debt has been effectively fixed at 2.81725% through the use of interest rate swaps. For details, see “Note 7 – Interest Rate Derivatives” to our consolidated financial statements. Including the impact of these interest rate swaps, the hedged effective interest rate on the $300 Million Term Loan is 3.717%.
(7)On October 27, 2022, we refinanced an amortizing $60.0 million term loan expiring in August 2023. The new $60.0 million term loan has interest-only payment terms bearing interest at Term SOFR increased by a 0.10% SOFR adjustment plus an applicable margin of 1.25% per annum (the $60 Million Term Loan Facility”). The loan is secured by six properties and has three one-year extensions available at the borrower’s option, subject to certain terms and conditions.
The following table summarizes the composition of our consolidatedoutstanding debt between fixed-rate and variable-rate and secured and unsecured debt as of December 31, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average Term Remaining (in years)(1) | | Stated Interest Rate | | Effective Interest Rate(2) | | Principal Balance (in thousands)(3) | | % of Total |
Fixed vs. Variable: | | | | | | | | | | |
Fixed(4) | | 6.8 | | 2.96% | | 2.96% | | $ | 1,490,515 | | | 76% |
Variable | | 1.6 | | SOFR + Margin (See Above) | | 5.32% | | $ | 460,000 | | | 24% |
Secured vs. Unsecured: | | | | | | | | | | |
Secured | | 3.1 | | | | 4.86% | | $ | 125,515 | | | 6% |
Unsecured | | 5.7 | | | | 3.42% | | $ | 1,825,000 | | | 94% |
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| | | | | | | | | | | | |
| | Average Term Remaining (in years) | | Stated Interest Rate | | Effective Interest Rate(1) | | Principal Balance (in thousands)(2) | | % of Total |
Fixed vs. Variable: | | | | | | | | | | |
Fixed | | 6.5 | | 3.799% | | 3.799% | | $ | 386,658 |
| | 58% |
Variable | | 4.6 | | LIBOR + 1.416% | | 2.980% | | $ | 285,000 |
| | 42% |
Secured vs. Unsecured: | | | | | | | | | | |
Secured | | 2.1 | | -- | | 3.875% | | $ | 61,658 |
| | 9% |
Unsecured | | 6.0 | | -- | | 3.409% | | $ | 610,000 |
| | 91% |
(1)The weighted average remaining term to maturity of our debt is 5.6 years. | |
(1) | Includes the effect of interest rate swaps that were effective as of December 31, 2017. Excludes the effect of amortization of debt issuance costs, discounts and the facility fee on the Amended Revolver. Assumes a one-month LIBOR rate of 1.56425% as of December 31, 2017, as applicable. |
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(2) | Excludes unamortized debt issuance costs and net debt premiums aggregating $2.7 million as of December 31, 2017. |
(2)Includes the effect of interest rate swaps that were effective as of December 31, 2022. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver. Assumes Daily Simple SOFR of 4.300% and Term SOFR of 4.358% as of December 31, 2022, as applicable.
(3)Excludes unamortized debt issuance costs and debt premiums/discounts totaling $14.1 million which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of December 31, 2022.
(4)Fixed-rate debt includes our variable rate $300 Million Term Loan that has been effectively fixed through the use of interest rate swaps through maturity.
At December 31, 2017,2022, we had total indebtedness of $671.7 million,$2.0 billion, excluding unamortized debt issuance costs and debt discounts, with a weighted average interest rate of approximately 3.45% and an average term-to-maturity of 5.7 years.3.52%. As of December 31, 2017, $386.7 million,2022, $1.5 billion, or 58%76%, of our outstanding indebtedness had an interest rate that was effectively fixed under either the terms of the loan ($227.8 million)1.2 billion) or an interest rate swap ($158.9 million). We have two interest rate swaps that will effectively fix the interest on our $225 million unsecured term loan facility (the “$225 Million Term Loan Facility”) as follows: (i) $125 million at 1.349% plus the applicable LIBOR margin from February 14, 2018, to January 14, 2022, and (ii) $100 million at 1.406% plus the applicable LIBOR margin from August 14, 2018, to January 14, 2022. If these two interest rate swaps were effective as of December 31, 2017, our consolidated debt would be 91% fixed-rate and 9% variable-rate.($300.0 million).
At December 31, 2017,2022, we had total indebtedness of approximately $671.7 million,$2.0 billion, reflecting a net debt to total combined market capitalization of approximately 21.0%14.9%. Our total combined market capitalization is defined as the sum of the liquidation valuepreference of our outstanding preferred stock and preferred units plus the market value of our common stock excluding shares of nonvested restricted stock, plus the aggregate value of common units not owned by us, plus the value of our net debt. Our net debt is defined as our consolidated indebtedness less cash and cash equivalents.
Debt Covenants
The Amended Credit Agreement, the $225$60 Million Term Loan Facility, the $100 Million Notes, and the $125 Million Notes and Series 2019A and 2019B Notes all include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•For the Amended Credit Agreement and the $225$60 Million Term Loan Facility, maintaining a ratio of secured debt to total asset value of not more than 45%;
•For the $100 Million Notes, and the $125 Million Notes and Series 2019A and 2019B Notes (together the “Senior Notes”), maintaining a ratio of secured debt to total asset value of not more than 40%;
Maintaining•For the Senior Notes, maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
Maintaining•For the Senior Notes, maintaining a minimum tangible net worth of at least the sum of (i) $760,740,750, and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company after September 30, 2016;
•Maintaining a ratio of adjusted EBITDA (as defined in each of the loan agreements) to fixed charges of at least 1.501.5 to 1.0;
Maintaining•For the Credit Agreement and Senior Notes, maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and
Maintaining•For the Credit Agreement and Senior Notes, maintaining a ratio of unencumbered NOI (as defined in each of the loan agreements) to unsecured interest expense of at least 1.75 to 1.0.
1.00.
The Amended$400 Million Notes due 2030 and $400 Million Notes due 2031 contain the following covenants (as defined in the indentures) that we must comply with:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•Maintaining a ratio of secured debt to total asset value of not more than 40%;
•Maintaining a Debt Service Coverage Ratio of at least 1.5 to 1.0; and
•Maintaining a ratio of unencumbered assets to unsecured debt of at least 1.5 to 1.0.
The Credit Agreement, the $225 Million Term Loan Facility, the $100 Million Notes and the $125 MillionSenior Notes also contain limitations on our ability to pay distributions on our common stock. Specifically, our cash dividends may not exceed the greater of (1)(i) 95% of our FFO (as defined in each of the loan agreements)credit agreement) and (2)(ii) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make distributions sufficient to qualify and maintain our REIT status.
Additionally, subject to the terms of the $100Credit Agreement, $60 Million NotesTerm Loan Facility and the $125 MillionSenior Notes, (together the “Notes”), upon certain events of default, including, but not limited to, (i) a default in the payment of any principal make-whole payment amount, or interest, under the Notes, (ii) a default in the payment of certain of our other indebtedness, (iii) a default in compliance with the covenants set forth in the Notesdebt agreement and (iv) bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest and the make-whole payment amount on the outstanding Notesdebt will become immediately due and payablepayable. In addition, we are required to maintain at all times a credit rating on the option of the purchasers.Senior Notes from either S&P, Moody’s or Fitch.
Our $60 million term loan contains the following financial covenants:Maintaining a Debt Service Coverage Ratio (as defined in the term loan agreement) of at least 1.10 to 1.00, to be tested quarterly;
Maintaining Unencumbered Liquid Assets (as defined in the term loan agreement) of not less than (i) $5 million, or (ii) $8 million if we elect to have Line of Credit Availability (as defined in the term loan agreement) included in the calculation, of which $2 million must be cash or cash equivalents, to be tested annually as of December 31 of each year;
Maintaining a minimum Fair Market Net Worth (as defined in the term loan agreement) of at least $75 million, to be tested annually as of December 31 of each year.
We were in compliance with all of our quarterly and annual debt covenants as of December 31, 2017.
Off Balance Sheet Arrangements
As of December 31, 2017, we did not have any off-balance sheet arrangements.
Cash Flows
Comparison of the Year Ended December 31, 20172022 to the Year Ended December 31, 20162021
The following table summarizes the changes in net cash flows associated with our operating, investing, and financing activities for the years ended December 31, 20172022 and 20162021 (in thousands):
| | | Year Ended December 31, | | | | Year Ended December 31, | | |
| 2017 | | 2016 | | Change | | 2022 | | 2021 | | Change |
Cash provided by operating activities | $ | 76,650 |
| | $ | 56,432 |
| | $ | 20,218 |
| Cash provided by operating activities | $ | 327,695 | | | $ | 231,463 | | | $ | 96,232 | |
Cash used in investing activities | $ | (606,900 | ) | | $ | (361,214 | ) | | $ | (245,686 | ) | Cash used in investing activities | $ | (2,449,210) | | | $ | (1,912,767) | | | $ | (536,443) | |
Cash provided by financing activities | $ | 521,595 |
| | $ | 315,106 |
| | $ | 206,489 |
| Cash provided by financing activities | $ | 2,114,303 | | | $ | 1,547,779 | | | $ | 566,524 | |
Net cash provided by operating activities. Net cash provided by operating activities increased by $20.2$96.2 million to $76.7$327.7 million for the year ended December 31, 2017,2022, compared to $56.4$231.5 million for the year ended December 31, 2016.2021. The increase was primarily attributable to the incremental cash flows from property acquisitions completed subsequent to January 1, 2016,2021, and the increase in Cash NOI from our Same PropertiesProperty Portfolio, and changes in working capital, partially offset by higher cash interest paid for comparable periods.as compared to the prior year.
Net cash used in investing activities. Net cash used in investing activities increased by $245.7$536.4 million to $606.9 million$2.4 billion for the year ended December 31, 2017,2022, compared to $361.2 million$1.9 billion for the year ended December 31, 2016.2021. The increase was primarily attributable to a $299.2$462.6 million increase in cash paid for property acquisitions includingand acquisition related deposits, partially offset by a $57.5$41.3 million increasedecrease in net proceeds received from the sale of propertiesreal estate as compared to the prior year and a $32.6 million increase in cash paid for comparable periods.construction and repositioning/redevelopment projects.
Net cash provided by financing activities. Net cash provided by financing activities increased by $206.5$566.5 million to $521.6 million$2.1 billion for the year ended December 31, 2017,2022, compared to $315.1 million$1.5 billion for the year ended December 31, 2016.2021. The increase was primarily attributable to the following: (i) an increase of $349.0 million$1.1 billion in draws on our unsecured revolving credit facility,cash proceeds from borrowings under the Revolver, (ii) an increase of $147.5 million in net cash proceeds from the sale of common shares for comparable periods and (iii) an increase of $125.0$400.0 million in cash proceeds from borrowings under the issuance of the $125$400 Million NotesTerm Loan in July 2017. These increases were partially offset by (i) a decrease2022, (iii) an increase of $300.0 million in cash proceeds from borrowings under the $300 Million Term Loan in May 2022, (iv) an increase of $225.0 million from the repayment of the $225.0 million term loan facility in borrowings on the $225 Million Term Loan Facility which was fully drawn upon in April 2016, (ii)August 2021, (v) an increase of $148.5 million in paydowns on our unsecured revolving credit facility for comparable periods, (iii) the repayment of two secured mortgage loans totaling $14.9 million in 2017, (iv) a decrease of $14.2$183.1 million in net cash proceeds from the issuance of preferredshares of our common stock for comparable periods and (v)(vi) an increase of $10.8$90.0 million from the redemption of the Series A Preferred Stock in August 2021. These increases were partially offset by the following: (i) a decrease of $1.1 billion from the repayment of the borrowings under the Revolver, (ii) a decrease of $392.4 million in net cash proceeds from the issuance of the $400 Million Notes due 2031 in August 2021, (iii) a decrease of $150.0 million from the repayment of the $150 Million Term Loan Facility in May 2022 and (iv) an increase of $74.3 million in dividends paid to common stockholders and distributions paid for comparable periods,common unitholders primarily resulting from andue to the increase in the number of common shares outstanding and the issuance of the Series A Preferred Stockincrease in August 2016.our quarterly per share/unit cash dividend.
Comparison of the Year Ended December 31, 20162021 to the Year Ended December 31, 20152020
The following table summarizes the cash flows of Rexford Industrial Realty, Inc. for the years ended December 31, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| Year Ended December 31, | | |
| 2016 | | 2015 | | Change |
Cash provided by operating activities | $ | 56,432 |
| | $ | 40,508 |
| | $ | 15,924 |
|
Cash used in investing activities | $ | (361,214 | ) | | $ | (236,774 | ) | | $ | (124,440 | ) |
Cash provided by financing activities | $ | 315,106 |
| | $ | 192,861 |
| | $ | 122,245 |
|
Net cash provided by operating activities. Net cash provided by operating activities increased by $15.9 millionRefer to $56.4 million“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cash Flows” in our Form 10-K for the year ended December 31, 2016, compared to $40.5 million2021, filed with the SEC on February 17, 2022, for a discussion of the year ended December 31, 2015. The increase was primarily attributable2021 compared to incremental cash flows from property acquisitions completed after January 1, 2015, and the increase in Cash NOI from our Same Properties Portfolio, partially offset by higher cash interest paid for comparable periods.
Net cash used in investing activities. Net cash used in investing activities increased by $124.4 million to $361.2 million for the year ended December 31, 2016, compared to $236.8 million for2020.
Inflation
In the year ended December 31, 2015. The increase was primarily attributable tolast several years, we do not believe that inflation has had a material impact on the $139.1 millionCompany. However, recently inflation has significantly increased and a prolonged period of high and persistent inflation could cause an increase in cash paid for property acquisitionsour operating expenses, capital expenditures and the $9.7 million increase in cash paid for construction and repositioning projects for comparable periods, partially offset by aggregate net proceedscost of $38.5 million received from five real estate dispositions completed during 2016.
Net cash provided by financing activities. Net cash provided by financing activities was $315.1 million for the year ended December 31, 2016, and consisted primarily of $174.4 million in net cash proceeds raised from the issuance of 10.35 million shares of common stock, $86.7 million in net cash proceeds raised from the issuance of 3.6 million shares of Series A Preferred Stock and gross proceeds of $225.0 million fromour variable-rate borrowings made under the $225 Million Term Loan Facility, partially offset by the repayment of $140.5 million of net borrowings outstanding under our unsecured revolving credit facility andthe payment of $36.0million in dividends and distributions.Net cash provided by financing activities was $192.9 million for the year endedDecember 31, 2015, and consisted primarily of $176.2 million in net proceeds raised from the issuance of 11.5 million shares of common stock, proceeds of $100.0 million received from the issuance of the $100 Million Notes and net borrowings of $48.0 millionwhich could have a material impact on our unsecured revolving credit facility, partially offset by the repaymentfinancial position or results of three secured loans aggregating $101.4 million, the payment of $27.1 million in dividends and distributions, and the payment of $0.8 million of debt issuance costs related to new borrowings.
Inflation
operations. The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provide for fixed rent increases. We believe that inflationary increases to real estate taxes, utility expenses and other operating expenses may be partially offset by the contractual rent increases and tenant payment of taxes and expenses described above. We do not believe that inflation has had a material impact on our historical financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. A key market risk we face is interest rate risk. We are exposed to interest rate changes primarily as a result of using variable-rate debt to satisfy various short-term and long-term liquidity needs, which have interest rates based upon LIBOR.SOFR. We use interest rate swaps to manage, or hedge, interest rate risks related to our borrowings. Because actual interest rate movements over time are uncertain, our swaps pose potential interest rate risks, notably if interest rates fall. We also expose ourselves to credit risk, which we attempt to minimize by contracting with highly-rated banking financial counterparties. For a summary of our outstanding variable-rate debt, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources. For a summary of our interest rate swaps and recent transactions, see Note“Note 7 – Interest Rate Derivatives” to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
As of December 31, 2017, interest on our $60.0 million amortizing term loan2022, the $300 Million Term Loan has been effectively fixed through the use of twointerest rate swaps. The interest rate swaps with notional values of $30.0 million and $28.9 million, respectively. The first interest rate swap, which is effective for the period from January 15, 2015 to February 15, 2019, currently fixes the annual interest rate payable at 3.726%. The second interest rate swap, which is an amortizing swap, is effective for the period from July 15, 2015 to February 15, 2019, and currently fixes the annual interest rate payable at 3.91%.
As of December 31, 2017, interest on the $100 Million Amended Term Loan Facility has been effectively fixed through the use of two interest rate swaps, each withhave a combined notional value of $50.0 million. The first interest rate swap has an effective date of August 14, 2015, and a maturity date of December 14, 2018, and the second interest rate swap has an effective date of February 16, 2016, and a maturity date of December 14, 2018. The two interest rate swaps currently fix the annual interest rate payable on the $100 million term loan facility as follows: 1.79% for the first $50.0 million and 2.005% for the second $50.0 million, plus an applicable margin under the terms of the Amended Credit Agreement.
On August 11, 2017, we entered into an interest rate swap transaction to manage our exposure to fluctuations in the variable interest rate associated with the Amended $100 Million Term Loan. The interest rate swap, which has a notional value of $100.0 million, has an effective date of December 14, 2018, which coincides with the termination date of the two in-place interest rate swaps noted above, and a maturity date of August 14, 2021. Upon termination of the two in-place swaps, the new swap will effectively fix the annual interest rate payable on the Amended $100 Million Term Loan at 1.764% plus an applicable margin under the terms of the Amended Credit Agreement.
During 2016, we entered into two interest rate swap transactions to manage our exposure to fluctuations in the variable interest rate associated with the $225 Million Term Loan Facility. The first interest rate swap has a notional value of $125.0 million with an effective date of February 14, 2018, and a maturity date of January 14, 2022. The second interest rate swap has a notional value of $100.0$300.0 million, an effective date of August 14, 2018, andJuly 27, 2022, a maturity date of January 14, 2022. When these interestMay 26, 2027, and currently fix Term SOFR at a weighted average rate swaps become effective, they will fix the annual interest rate payable on the $225 Million Term Loan Facility as follows: 1.349% for $125.0 million of the principal outstanding and 1.406% for the remaining $100.0 million of principal outstanding, plus an applicable margin under the terms of the $225 Million Term Loan Facility.2.81725%.
As of At December 31, 2017,2022, we had total consolidated indebtedness, excluding unamortized debt issuance costs and premium/discounts, of $671.7 million.$1.95 billion. Of this total $386.7 million,amount, $1.49 billion, or 58%76%, had an interest rate that was effectively fixedcomprise our fixed-rate debt under the terms of the loan or an interest rate swap. The remaining $285.0$460.0 million, or 42%24%, comprises our variable-rate debt. Based upon the amount of variable-rate debt outstanding as of December 31, 2017,2022, if LIBORSOFR were to increase by 50 basis points, the increase in interest expense on our variable-rate debt would decrease our future earnings and cash flows by approximately $1.4$2.3 million annually. If LIBORSOFR were to decrease by 50 basis points, assuming an interest rate floor of 0%, the decrease in interest expense on our variable-rate debt would increase our future earnings and cash flows by approximately $1.4$2.3 million annually.
Interest risk amounts are our management’s estimates and were determined by considering the effect of hypothetical interest rates on our financial instruments. We calculate interest sensitivity by multiplying the amount of variable rate debt outstanding by the respective change in rate. The sensitivity analysis does not take into consideration possible changes in the balances or fair value of our floating rate debt or the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumeassumes no changes in our financial structure.
Item 8. Financial Statements and Supplementary Data
All information required by this item is listed in the Index to Financial Statements in Part IV, Item 15(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including the Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, 2017,2022, the end of the period covered by this report. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 20172022 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no significant changes that occurred during the fourth quarter of the most recent year covered by this report in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of, our Co-Chief Executive Officers and Chief Financial Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company has used the criteria set forth in the Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as of December 31, 2017.2022.
The effectiveness of our internal control over financial reporting as of December 31, 2017,2022, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein within Item 15. See Report“Report of Independent Registered Public Accounting Firm.Firm”.
Item 9B. Other Information.
Our discussion of federal income tax considerations in Exhibit 99.1 attached hereto, which is incorporated herein by reference, supersedes and replaces, in its entirety, (i) the discussion under the heading “U.S. Federal Income Tax Considerations”None.
in Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on February 28, 2017, (ii) the discussion under the heading “U.S. Federal Income Tax Considerations” in Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2016, (iii) the discussion under the heading “U.S. Federal Income Tax Considerations” in the prospectus dated April 11, 2016, which is (a) a part of our Registration Statement on Form S-3 (File No. 333-210691) filed with the SEC on April 11, 2016 and (b) attached to the prospectus supplement dated September 21, 2017 filed by the Company with the SEC on September 21, 2017; (iv) the discussion under the heading “U.S. Federal Income Tax Considerations” in Exhibit 99.5 to the Company’s Current Report on Form 8-K filed with the SEC on April 11, 2016; and (v) the disclosure under the heading “U.S. Federal Income Tax Considerations” in the prospectus dated August 5, 2014, which is a part of our Registration Statement on Form S-3 (File No. 333-197849) filed with the SEC on August 5, 2014 and declared effective on August 12, 2014.Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172022 and is incorporated by reference.
Item 11. Executive Compensation
The information required by Item 11 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172022 and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172022 and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172022 and is incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172022 and is incorporated by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2) Financial Statements and Schedules
The following financial information is included in Part IV of this Report on the pages indicated:
|
| | | | |
| F-1 |
Audited Consolidated Financial Statements of Rexford Industrial Realty, Inc.: | |
| F-3 |
| F-4 |
| F-5 |
| F-6 |
| F-8 |
| F-9 |
| F-45 |
All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.
(3). Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
3.1 | | | | S-11/A | | 333-188806 | | 3.1 | | 7/15/2013 |
3.2 | | | | 8-K | | 001-36008 | | 3.1 | | 2/14/2020 |
3.3 | | | | 8-A | | 001-36008 | | 3.3 | | 11/9/2017 |
3.4 | | | | 8-A | | 001-36008 | | 3.3 | | 9/19/2019 |
4.1 | | | | S-11/A | | 333-188806 | | 4.1 | | 7/15/2013 |
4.2 | | | | 8-A | | 001-36008 | | 4.1 | | 11/9/2017 |
4.3 | | | | 8-A | | 001-36008 | | 4.1 | | 9/19/2019 |
4.4 | | | | 10-K | | 001-36008 | | 4.5 | | 2/19/2020 |
4.5 | | Indenture, dated as of November 16, 2020, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee. | | 8-K | | 001-36008 | | 4.1 | | 11/16/2020 |
4.6 | | First Supplemental Indenture, dated as of November 16, 2020, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | | 8-K | | 001-36008 | | 4.2 | | 11/16/2020 |
4.7 | | Second Supplemental Indenture, dated as of August 9, 2021, among Rexford Industrial Realty, L.P., as issuer, Rexford Industrial Realty, Inc., as guarantor, and U.S. Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | | 8-K | | 001-36008 | | 4.2 | | 8/9/2021 |
10.1 | | | | 8-K | | 001-36008 | | 10.1 | | 3/21/2022 |
10.2 | | | | 10-Q | | 001-36008 | | 10.2 | | 9/3/2013 |
10.3† | | | | 10-Q | | 001-36008 | | 10.5 | | 7/27/2021 |
10.4† | | | | S-11/A | | 333-188806 | | 10.4 | | 7/15/2013 |
10.5 | | | | S-11/A | | 333-188806 | | 10.5 | | 7/9/2013 |
10.6 | | | | 10-Q | | 001-36008 | | 10.6 | | 9/3/2013 |
10.7† | | | | 10-Q | | 001-36008 | | 10.8 | | 9/3/2013 |
10.8† | | | | 8-K | | 001-36008 | | 10.2 | | 6/29/2017 |
10.9† | | | | 8-K | | 001-36008 | | 10.1 | | 5/20/2020 |
10.10† | | | | 10-Q | | 001-36008 | | 10.9 | | 9/3/2013 |
10.11† | | | | 8-K | | 001-36008 | | 10.3 | | 6/29/2017 |
10.12† | | | | 8-K | | 001-36008 | | 10.2 | | 5/20/2020 |
10.13† | | | | 8-K | | 001-36008 | | 10.1 | | 6/29/2017 |
10.14† | | | | 8-K | | 001-36008 | | 10.4 | | 5/20/2020 |
|
| | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
2.1 | | | | 10-Q | | 001-36008 | | 2.1 | | 9/3/2013 |
2.2 | | | | 10-Q | | 001-36008 | | 2.2 | | 9/3/2013 |
2.3 | | | | 10-Q | | 001-36008 | | 2.3 | | 9/3/2013 |
2.4 | | | | 10-Q | | 001-36008 | | 2.4 | | 9/3/2013 |
2.5 | | | | 10-Q | | 001-36008 | | 2.5 | | 9/3/2013 |
2.6 | | | | 10-Q | | 001-36008 | | 2.6 | | 9/3/2013 |
2.7 | | | | 10-Q | | 001-36008 | | 2.7 | | 9/3/2013 |
2.8 | | | | 10-Q | | 001-36008 | | 2.8 | | 9/3/2013 |
2.9 | | | | 10-Q | | 001-36008 | | 2.9 | | 9/3/2013 |
2.10 | | | | 10-Q | | 001-36008 | | 2.10 | | 9/3/2013 |
2.11 | | | | 10-Q | | 001-36008 | | 2.11 | | 9/3/2013 |
2.12 | | | | 10-Q | | 001-36008 | | 2.12 | | 9/3/2013 |
2.13 | | | | 10-Q | | 001-36008 | | 2.13 | | 9/3/2013 |
2.14 | | | | 10-Q | | 001-36008 | | 2.14 | | 9/3/2013 |
2.15 | | Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of May 19, 2014, among Westcore Cabot, L.P., a Delaware limited partnership, and Westcore Distribution, LLC, Westcore Distribution II, LLC, Westcore Hunter, LLC, Westcore Salt Lake Avenue, LLC, Westcore Valley, LLC, and Westcore Alton, LLC (all Delaware limited liability companies) and Rexford Industrial Realty, L.P., as amended on May 27, 2014, May 30, 2014, June 4, 2014, June 13, 2014 and June 24, 2014 | | 8-K/A | | 001-36008 | | 2.1 | | 7/2/2014 |
2.16 | | | | 8-K | | 001-36008 | | 2.1 | | 9/15/2014 |
2.17 | | Agreement of Purchase and Sale and Joint Escrow Instructions By and Between Laro Properties, L.P., as Seller, and Rexford Industrial Realty, L.P., a Maryland limited partnership, as Purchaser, for 12907 Imperial Hwy, Santa Fe Springs, California, 10509 Business Drive, Fontana, California, 13231 Slover Avenue, Fontana, California, Dated as of November 4, 2014, and as amended on November 26, 2014 | | 8-K | | 001-36008 | | 2.1 | | 12/8/2014 |
2.18 | | | | 8-K | | 001-36008 | | 2.1 | | 4/11/2016 |
2.19 | | | | 10-Q | | 001-36008 | | 10.1 | | 8/4/2017 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
10.15† | | | | 8-K | | 001-36008 | | 10.2 | | 11/10/2022 |
10.16† | | | | 8-K | | 001-36008 | | 10.1 | | 7/9/2020 |
10.17† | | | | 8-K | | 001-36008 | | 10.1 | | 11/10/2022 |
10.18† | | | | 10-K | | 001-36008 | | 10.11 | | 3/9/2015 |
10.19† | | | | 10-K | | 001-36008 | | 10.18 | | 2/19/2021 |
10.20† | | | | 10-K | | 001-36008 | | 10.19 | | 2/19/2021 |
10.21 | | | | 10-K | | 001-36008 | | 10.20 | | 3/20/2014 |
10.22 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2015 |
10.23 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2017 |
10.24 | | | | 10-Q | | 001-36008 | | 10.3 | | 8/4/2017 |
10.25 | | | | 10-K | | 001-36008 | | 10.40 | | 2/21/2018 |
10.26 | | | | 10-Q | | 001-36008 | | 10.2 | | 5/7/2018 |
10.27 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2019 |
10.28 | | | | 8-K | | 001-36008 | | 10.1 | | 5/27/2022 |
10.29 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2022 |
10.30* | | | | 10-K | | 001-36008 | | 10.30 | | 2/10/2022 |
10.31 | | | | 8-K | | 001-36008 | | 1.1 | | 5/27/2022 |
10.32 | | | | 8-K | | 001-36008 | | 1.2 | | 5/27/2022 |
10.33 | | | | 8-K | | 001-36008 | | 1.3 | | 5/27/2022 |
10.34 | | | | 8-K | | 001-36008 | | 1.4 | | 5/27/2022 |
10.35 | | | | 8-K | | 001-36008 | | 1.5 | | 5/27/2022 |
10.36 | | | | 8-K | | 001-36008 | | 1.6 | | 5/27/2022 |
|
| | | | | | | | | | |
2.20 | | | | 10-Q | | 001-36008 | | 10.2 | | 8/4/2017 |
2.21 | | | | 10-Q | | 001-36008 | | 10.3 | | 11/3/2017 |
3.1 | | | | S-11/A | | 333-188806 | | 3.1 | | 7/15/2013 |
3.2 | | | | 8-K | | 001-36008 | | 3.1 | | 5/26/2017 |
3.3 | | | | 8-A | | 001-36008 | | 3.3 | | 8/15/2016 |
3.4 | | | | 8-A12B | | 001-36008 | | 3.3 | | 11/9/2017 |
4.1 | | | | S-11/A | | 333-188806 | | 4.1 | | 7/15/2013 |
4.2 | | | | 8-A | | 001-36008 | | 4.1 | | 8/15/2016 |
4.3 | | | | 8-A12B | | 001-36008 | | 4.1 | | 11/9/2017 |
10.1 | | | | 8-K | | 001-36008 | | 3.2 | | 11/13/2017 |
10.2 | | | | 10-Q | | 001-36008 | | 10.2 | | 9/3/2013 |
10.3† | | | | 10-Q | | 001-36008 | | 10.3 | | 9/3/2013 |
10.4† | | | | S-11/A | | 333-188806 | | 10.4 | | 7/15/2013 |
10.5 | | | | S-11/A | | 333-188806 | | 10.5 | | 7/9/2013 |
10.6 | | | | 10-Q | | 001-36008 | | 10.6 | | 9/3/2013 |
10.7† | | | | 10-Q | | 001-36008 | | 10.8 | | 9/3/2013 |
10.8† | | | | 8-K | | 001-36008 | | 10.2 | | 6/29/2017 |
10.9† | | | | 10-Q | | 001-36008 | | 10.9 | | 9/3/2013 |
10.10† | | | | 8-K | | 001-36008 | | 10.3 | | 6/29/2017 |
10.11† | | | | 8-K | | 001-36008 | | 10.1 | | 12/2/2014 |
10.12† | | | | 8-K | | 001-36008 | | 10.4 | | 6/29/2017 |
10.13† | | | | 8-K | | 001-36008 | | 10.1 | | 6/29/2017 |
10.14† | | | | 10-K | | 001-36008 | | 10.11 | | 3/9/2015 |
10.15† | | | | 8-K | | 001-36008 | | 10.2 | | 12/21/2015 |
10.16† | | | | 8-K | | 001-36008 | | 10.3 | | 12/21/2015 |
|
| | | | | | | | | | |
10.17 | | Term Loan Agreement among RIF I—Don Julian, LLC, RIF I—Lewis Road, LLC, RIF I—Walnut, LLC, RIF I—Oxnard, LLC, RIF II—Kaiser, LLC, RIF III—Irwindale, LLC and Rexford Business Center—Fullerton, LLC, collectively as Borrower, and Bank of America, N.A., as Lender | | 10-Q | | 001-36008 | | 10.12 | | 9/3/2013 |
10.18 | | | | 10-K | | 001-36008 | | 10.20 | | 3/20/2014 |
10.19 | | Modification and Loan Assumption Agreement, dated January 24, 2014, by and among RIF I—Don Julian, LLC, RIF I—Lewis Road, LLC, RIF I—Oxnard, LLC, RIF I—Walnut, LLC, REXFORD BUSINESS CENTER—FULLERTON, LLC, RIF II—Kaiser, LLC, RIF III—Irwindale, LLC and REXFORD INDUSTRIAL—MADERA INDUSTRIAL, LLC collectively as Borrower, and Bank of America, N.A., as Lender. | | 8-K | | 001-36008 | | 10.1 | | 8/12/2014 |
10.20 | | | | 8-K | | 001-36008 | | 10.2 | | 8/12/2014 |
10.21 | | | | 8-K | | 001-36008 | | 10.1 | | 7/20/2015 |
10.22 | | | | 10-Q | | 001-36008 | | 10.1 | | 5/11/2015 |
10.23 | | Assumption Agreement dated as of December 11, 2015 between Walnut Venture, LLC, as Borrower, Rexford Industrial-1065 Walnut LLC, as Purchaser, the individual Guarantors named therein, Rexford Industrial Realty, Inc., as New Guarantor and The Bank of New York Mellon Trust Company, N.A., in its capacity as directed trustee for Washington Capital Joint Master Trust Mortgage Income Fund, as Lender. | | 10-K | | 001-36008 | | 10.24 | | 2/25/2016 |
10.24 | | | | 10-K | | 001-36008 | | 10.25 | | 2/25/2016 |
10.25 | | | | 10-K | | 001-36008 | | 10.26 | | 2/25/2016 |
10.26 | | | | 8-K | | 001-36008 | | 1.1 | | 9/21/2017 |
10.27 | | | | 8-K | | 001-36008 | | 1.2 | | 9/21/2017 |
10.28 | | | | 8-K | | 001-36008 | | 1.3 | | 9/21/2017 |
10.29 | | | | 8-K | | 001-36008 | | 1.4 | | 9/21/2017 |
10.30 | | | | 8-K | | 001-36008 | | 1.5 | | 9/21/2017 |
10.31 | | | | 8-K | | 001-36008 | | 1.6 | | 9/21/2017 |
10.32 | | | | 8-K | | 001-36008 | | 1.7 | | 9/21/2017 |
10.33 | | Credit Agreement, dated as of January 14, 2016, among Rexford Industrial Realty, L.P., Rexford Industrial Realty Inc., PNC Bank, National Association, as administrative agent, U.S. Bank, National Association, as syndication agent, PNC Capital Markets LLC and U.S. Bank National Association, as joint lead arrangers and joint bookrunners, and the other lenders named therein. | | 8-K | | 001-36008 | | 10.1 | | 1/20/2016 |
10.34 | | | | 8-K | | 001-36008 | | 10.1 | | 4/15/2016 |
|
| | | | | | | | | | |
10.35 | | Second Amended and Restated Credit Agreement, dated as of February 14, 2017, among Rexford Industrial Realty, Inc., Rexford Industrial Realty, L.P., Citibank, N.A. as administrative agent, swing line lender and letter of credit issuer, and the other lenders named therein. | | 8-K | | 001-36008 | | 10.1 | | 2/15/2017 |
10.36 | | Third Amendment to Credit Agreement, dated February 14, 2017, among Rexford Industrial Realty, L.P., Rexford Industrial Realty Inc., PNC Bank, National Association, as administrative agent, U.S. Bank, National Association, as syndication agent, PNC Capital Markets LLC and U.S. Bank National Association, as joint lead arrangers and joint bookrunners, and the other lenders named therein. | | 10-K | | 001-36008 | | 10.33 | | 2/23/2017 |
10.37 | | | | 8-K | | 001-36008 | | 10.1 | | 7/19/2017 |
10.38 | | | | 10-Q | | 001-36008 | | 10.3 | | 8/4/2017 |
10.39 | | | | 8-K | | 001-36008 | | 10.1 | | 1/22/2018 |
10.40 * | | | | | | | | | | |
12.1* | | | | | | | | | | |
21.1* | | | | | | | | | | |
23.1* | | | | | | | | | | |
24.1* | | | | | | | | | | |
31.1* | | | | | | | | | | |
31.2* | | | | | | | | | | |
31.3* | | | | | | | | | | |
32.1* | | | | | | | | | | |
32.2* | | | | | | | | | | |
32.3* | | | | | | | | | | |
99.1* | | | | | | | | | | |
101.1* | | The following financial information from Rexford Industrial Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
10.37 | | | | 8-K | | 001-36008 | | 1.7 | | 5/27/2022 |
10.38 | | | | 8-K | | 001-36008 | | 1.8 | | 5/27/2022 |
10.39 | | | | 8-K | | 001-36008 | | 1.9 | | 5/27/2022 |
10.40 | | | | 8-K | | 001-36008 | | 1.10 | | 5/27/2022 |
10.41 | | | | 8-K | | 001-36008 | | 1.11 | | 5/27/2022 |
10.42 | | | | 8-K | | 001-36008 | | 1.12 | | 5/27/2022 |
10.43 | | | | 8-K | | 001-36008 | | 1.13 | | 5/27/2022 |
21.1* | | | | | | | | | | |
22.1* | | | | | | | | | | |
23.1* | | | | | | | | | | |
24.1* | | | | | | | | | | |
31.1* | | | | | | | | | | |
31.2* | | | | | | | | | | |
31.3* | | | | | | | | | | |
32.1* | | | | | | | | | | |
32.2* | | | | | | | | | | |
32.3* | | | | | | | | | | |
101.1* | | The following financial information from Rexford Industrial Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements | | | | | | | | |
104.1* | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | | | | | | |
|
| |
† | Compensatory plan or arrangement |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | Rexford Industrial Realty, Inc. |
February 10, 2023 | | /s/ Michael S. Frankel |
| | Michael S. Frankel |
| | Co-Chief Executive Officer (Principal Executive Officer) |
| | |
February 10, 2023 | | Rexford Industrial Realty, Inc. /s/ Howard Schwimmer |
February 21, 2018 | | /s/ Michael S. Frankel Howard Schwimmer |
| | Michael S. Frankel |
| | Co-Chief Executive Officer (Principal Executive Officer) |
| | |
February 21, 201810, 2023 | | /s/ Howard Schwimmer Laura E. Clark |
| | Howard SchwimmerLaura E. Clark |
| | Co-Chief Executive Officer (Principal Executive Officer) |
| | |
February 21, 2018 | | /s/ Adeel Khan
|
| | Adeel Khan |
| | Chief Financial Officer (Principal Financial and Accounting Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Rexford Industrial Realty, Inc., hereby severally constitute Michael S. Frankel, Howard Schwimmer and Adeel Khan,Laura E. Clark, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Rexford Industrial Realty, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
| | | | | | | | | | | | | | |
| | | | |
Signature | | Title | | Date |
Signature | | Title | | Date |
| | | | |
/s/ Michael S. Frankel | | Co- Chief Executive Officer and Director (Principal Executive Officer)
| | February 21, 201810, 2023 |
Michael S. Frankel | | | | |
| | | | |
/s/ Howard Schwimmer | | Co- Chief Executive Officer and Director (Principal Executive Officer)
| | February 21, 201810, 2023 |
Howard Schwimmer | | | | |
| | | | |
/s/ Adeel KhanLaura E. Clark | | Chief Financial Officer (Principal Financial and Accounting Officer)
| | February 21, 201810, 2023 |
Adeel KhanLaura E. Clark | | | | |
| | | | |
/s/ Richard Ziman | | Chairman of the Board | | February 21, 201810, 2023 |
Richard Ziman | | | | |
| | | | |
/s/ Robert L. Antin | | Director | | February 21, 201810, 2023 |
Robert L. Antin | | | | |
| | | | |
/s/ Steven C. GoodDiana J. Ingram | | Director | | February 21, 201810, 2023 |
Steven C. GoodDiana J. Ingram | | | | |
| | | | |
/s/ Peter SchwabAngela L. Kleiman | | Director | | February 21, 201810, 2023 |
Peter SchwabAngela L. Kleiman | | | | |
| | | | |
/s/ Debra L. Morris | | Director | | February 10, 2023 |
Debra L. Morris | | | | |
| | | | |
/s/ Tyler H. Rose | | Director | | February 21, 201810, 2023 |
Tyler H. Rose | | | | |
| | | | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rexford Industrial Realty, Inc. (the Company) as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172022 and 2016,2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 201810, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
| | Recognition of acquired real estate - Purchase price accounting |
| | |
Description of the Matter | | As discussed in Notes 2, 3, and 4 to the consolidated financial statements, the Company completed the acquisition of 61 properties for a total purchase price of $2.4 billion during the year ended December 31, 2022. The transactions were accounted for as asset acquisitions, and the purchase prices were allocated to components based on the relative fair values of the assets acquired and liabilities assumed. These components include land, buildings and improvements, tenant improvements, intangible assets and liabilities related to above and below market leases, and intangible assets related to in-place leases. The fair value of tangible and intangible assets and liabilities is based on available comparable market information, and estimated cash flow projections that utilize rental rates, discount rates, and capitalization rates. 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.
Auditing the fair value of acquired tangible and intangible assets and liabilities involves significant estimation uncertainty due to the judgment used by management in selecting key assumptions based on recent comparable transactions or market information, and the sensitivity of the fair values to changes in assumptions. In particular, the fair value estimates were sensitive to assumptions such as market rental rates, rental growth rates, price of land per square foot, discount rates, and capitalization rates. The allocation of value to the components of properties acquired could have a material effect on the Company’s net income due to the differing depreciable and amortizable lives of each component and the classification of the related depreciation or amortization in the Company’s consolidated statements of operations.
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| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for determining and reviewing the key inputs and assumptions used in estimating the fair value of acquired assets and liabilities and allocating fair value to the various components. To test the allocation of the acquisition-date fair values, we evaluated the appropriateness of the valuation methods used to allocate the purchase price. We performed procedures to assess the key data inputs and assumptions used by management described above, including the completeness and accuracy of the underlying information. We also used our specialists to assist us in evaluating the valuation methods used by management and whether the assumptions utilized were supported by observable market data. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
Los Angeles, California
February 21, 201810, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Rexford Industrial Realty, Inc.’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rexford Industrial Realty, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Rexford Industrial Realty, Inc. as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 20172022 and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated February 21, 201810, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s annual reportManagement’s Report on internal control over financial reporting.Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
February 21, 201810, 2023
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands - except share and per share data) | | | December 31, 2017 | | December 31, 2016 | | December 31, 2022 | | December 31, 2021 |
ASSETS | | | | ASSETS | | | |
Land | $ | 997,588 |
| | $ | 683,919 |
| Land | $ | 5,841,195 | | | $ | 4,143,021 | |
Buildings and improvements | 1,079,746 |
| | 811,614 |
| Buildings and improvements | 3,370,494 | | | 2,588,836 | |
Tenant improvements | 49,692 |
| | 38,644 |
| Tenant improvements | 147,632 | | | 127,708 | |
Furniture, fixtures, and equipment | 167 |
| | 174 |
| Furniture, fixtures, and equipment | 132 | | | 132 | |
Construction in progress | 34,772 |
| | 17,778 |
| Construction in progress | 110,934 | | | 71,375 | |
Total real estate held for investment | 2,161,965 |
| | 1,552,129 |
| Total real estate held for investment | 9,470,387 | | | 6,931,072 | |
Accumulated depreciation | (173,541 | ) | | (135,140 | ) | Accumulated depreciation | (614,332) | | | (473,382) | |
Investments in real estate, net | 1,988,424 |
| | 1,416,989 |
| Investments in real estate, net | 8,856,055 | | | 6,457,690 | |
Cash and cash equivalents | 6,620 |
| | 15,525 |
| Cash and cash equivalents | 36,786 | | | 43,987 | |
Restricted cash | 250 |
| | — |
| Restricted cash | — | | | 11 | |
Notes receivable | — |
| | 5,934 |
| |
| Rents and other receivables, net | 3,664 |
| | 2,749 |
| Rents and other receivables, net | 15,227 | | | 11,027 | |
Deferred rent receivable, net | 15,826 |
| | 11,873 |
| Deferred rent receivable, net | 88,144 | | | 61,511 | |
Deferred leasing costs, net | 12,014 |
| | 8,672 |
| Deferred leasing costs, net | 45,080 | | | 32,940 | |
Deferred loan costs, net | 1,930 |
| | 847 |
| Deferred loan costs, net | 4,829 | | | 1,961 | |
Acquired lease intangible assets, net | 49,239 |
| | 36,365 |
| Acquired lease intangible assets, net | 169,986 | | | 132,158 | |
Acquired indefinite-lived intangible | 5,156 |
| | 5,170 |
| Acquired indefinite-lived intangible | 5,156 | | | 5,156 | |
Interest rate swap asset | 7,193 |
| | 5,594 |
| Interest rate swap asset | 11,422 | | | — | |
Other assets | 6,146 |
| | 5,290 |
| Other assets | 24,973 | | | 19,066 | |
Acquisition related deposits | 2,475 |
| | — |
| Acquisition related deposits | 1,625 | | | 8,445 | |
| Assets associated with real estate held for sale, net | 12,436 |
| | — |
| Assets associated with real estate held for sale, net | — | | | 7,213 | |
Total Assets | $ | 2,111,373 |
| | $ | 1,515,008 |
| Total Assets | $ | 9,259,283 | | | $ | 6,781,165 | |
LIABILITIES & EQUITY | | | | LIABILITIES & EQUITY | | | |
Liabilities | | | | Liabilities | | | |
Notes payable | $ | 668,941 |
| | $ | 500,184 |
| Notes payable | $ | 1,936,381 | | | $ | 1,399,565 | |
Interest rate swap liability | 219 |
| | 2,045 |
| Interest rate swap liability | — | | | 7,482 | |
Accounts payable, accrued expenses and other liabilities | 21,134 |
| | 13,585 |
| Accounts payable, accrued expenses and other liabilities | 97,496 | | | 65,833 | |
Dividends payable | 11,727 |
| | 9,282 |
| |
Dividends and distributions payable | | Dividends and distributions payable | 62,033 | | | 40,143 | |
Acquired lease intangible liabilities, net | 18,067 |
| | 9,130 |
| Acquired lease intangible liabilities, net | 147,384 | | | 127,017 | |
Tenant security deposits | 19,521 |
| | 15,187 |
| Tenant security deposits | 71,935 | | | 57,370 | |
Prepaid rents | 6,267 |
| | 3,455 |
| Prepaid rents | 20,712 | | | 15,829 | |
Liabilities associated with real estate held for sale | 243 |
| | — |
| Liabilities associated with real estate held for sale | — | | | 231 | |
Total Liabilities | 746,119 |
| | 552,868 |
| Total Liabilities | 2,335,941 | | | 1,713,470 | |
Equity | | | | Equity | | | |
Rexford Industrial Realty, Inc. stockholders’ equity | | | | Rexford Industrial Realty, Inc. stockholders’ equity | | | |
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, | | | | |
5.875% series A cumulative redeemable preferred stock, 3,600,000 shares outstanding as of December 31, 2017 and December 31, 2016 ($90,000 liquidation preference) | 86,651 |
| | 86,651 |
| |
5.875% series B cumulative redeemable preferred stock, 3,000,000 and zero shares outstanding as of December 31, 2017 and December 31, 2016, respectively ($75,000 liquidation preference) | 73,062 |
| | — |
| |
Common Stock, $0.01 par value per share, 490,000,000 authorized and 78,495,882 and 66,454,375 outstanding as of December 31, 2017 and December 31, 2016, respectively | 782 |
| | 662 |
| |
Additional paid in capital | 1,239,810 |
| | 907,834 |
| |
Preferred stock, $0.01 par value per share, 10,050,000 shares authorized: | | 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 December 31, 2022 and December 31, 2021 ($75,000 liquidation preference) | | 5.875% series B cumulative redeemable preferred stock, 3,000,000 shares outstanding at December 31, 2022 and December 31, 2021 ($75,000 liquidation preference) | 72,443 | | | 72,443 | |
5.625% series C cumulative redeemable preferred stock, 3,450,000 shares outstanding at December 31, 2022 and December 31, 2021 ($86,250 liquidation preference) | | 5.625% series C cumulative redeemable preferred stock, 3,450,000 shares outstanding at December 31, 2022 and December 31, 2021 ($86,250 liquidation preference) | 83,233 | | | 83,233 | |
Common Stock, $0.01 par value per share, 489,950,000 authorized and 189,114,129 and 160,511,482 shares outstanding at December 31, 2022 and December 31, 2021, respectively | | Common Stock, $0.01 par value per share, 489,950,000 authorized and 189,114,129 and 160,511,482 shares outstanding at December 31, 2022 and December 31, 2021, respectively | 1,891 | | | 1,605 | |
Additional paid-in capital | | Additional paid-in capital | 6,646,867 | | | 4,828,292 | |
Cumulative distributions in excess of earnings | (67,058 | ) | | (59,277 | ) | Cumulative distributions in excess of earnings | (255,743) | | | (191,120) | |
Accumulated other comprehensive income | 6,799 |
| | 3,445 |
| |
Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | 8,247 | | | (9,874) | |
Total stockholders’ equity | 1,340,046 |
| | 939,315 |
| Total stockholders’ equity | 6,556,938 | | | 4,784,579 | |
Noncontrolling interests | 25,208 |
| | 22,825 |
| Noncontrolling interests | 366,404 | | | 283,116 | |
Total Equity | 1,365,254 |
| | 962,140 |
| Total Equity | 6,923,342 | | | 5,067,695 | |
Total Liabilities and Equity | $ | 2,111,373 |
| | $ | 1,515,008 |
| Total Liabilities and Equity | $ | 9,259,283 | | | $ | 6,781,165 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands - except share and per share data) | | | | | | | | | | Year Ended December 31, |
| Year Ended December 31, | | 2022 | | 2021 | | 2020 |
REVENUES | | REVENUES | | | | | |
| 2017 | | 2016 | | 2015 | |
RENTAL REVENUES | | | | | | |
| Rental income | $ | 136,185 |
| | $ | 107,594 |
| | $ | 81,114 |
| Rental income | $ | 630,578 | | | $ | 451,733 | | | $ | 329,377 | |
Tenant reimbursements | 23,363 |
| | 16,723 |
| | 10,479 |
| |
Other income | 869 |
| | 943 |
| | 1,013 |
| |
TOTAL RENTAL REVENUES | 160,417 |
| | 125,260 |
| | 92,606 |
| |
Management, leasing and development services | 493 |
| | 473 |
| | 584 |
| |
Management and leasing services | | Management and leasing services | 616 | | | 468 | | | 420 | |
Interest income | 445 |
| | 459 |
| | 710 |
| Interest income | 10 | | | 37 | | | 338 | |
TOTAL REVENUES | 161,355 |
| | 126,192 |
| | 93,900 |
| TOTAL REVENUES | 631,204 | | | 452,238 | | | 330,135 | |
OPERATING EXPENSES | | | | | | OPERATING EXPENSES | | | | | |
Property expenses | 42,139 |
| | 33,619 |
| | 25,000 |
| Property expenses | 150,503 | | | 107,721 | | | 79,716 | |
General and administrative | 21,610 |
| | 17,415 |
| | 15,016 |
| General and administrative | 64,264 | | | 48,990 | | | 36,795 | |
Depreciation and amortization | 64,852 |
| | 51,407 |
| | 41,837 |
| Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
TOTAL OPERATING EXPENSES | 128,601 |
| | 102,441 |
| | 81,853 |
| TOTAL OPERATING EXPENSES | 411,561 | | | 307,980 | | | 231,780 | |
OTHER EXPENSE | | | | | | |
Acquisition expenses | 454 |
| | 1,855 |
| | 2,136 |
| |
OTHER EXPENSES | | OTHER EXPENSES | | | | |
Other expenses | | Other expenses | 1,561 | | | 1,297 | | | 124 | |
Interest expense | 20,209 |
| | 14,848 |
| | 8,453 |
| Interest expense | 48,496 | | | 40,139 | | | 30,849 | |
TOTAL OTHER EXPENSES | 20,663 |
| | 16,703 |
| | 10,589 |
| |
| TOTAL EXPENSES | 149,264 |
| | 119,144 |
| | 92,442 |
| TOTAL EXPENSES | 461,618 | | | 349,416 | | | 262,753 | |
Equity in income from unconsolidated real estate entities | 11 |
| | 1,451 |
| | 93 |
| |
Gain from early repayment of note receivable | — |
| | — |
| | 581 |
| |
Gain (loss) on extinguishment of debt | 25 |
| | — |
| | (182 | ) | |
Gain on sale of real estate | 29,573 |
| | 17,377 |
| | — |
| |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | (915) | | | (505) | | | (104) | |
Gains on sale of real estate | | Gains on sale of real estate | 8,486 | | | 33,929 | | | 13,617 | |
NET INCOME | 41,700 |
| | 25,876 |
| | 1,950 |
| NET INCOME | 177,157 | | | 136,246 | | | 80,895 | |
Less: net income attributable to noncontrolling interest | (988 | ) | | (750 | ) | | (76 | ) | |
Less: net income attributable to noncontrolling interests | | Less: net income attributable to noncontrolling interests | (9,573) | | | (8,005) | | | (4,492) | |
NET INCOME ATTRIBUTABLE TO REXFORD INDUSTRIAL REALTY, INC. | 40,712 |
| | 25,126 |
| | 1,874 |
| NET INCOME ATTRIBUTABLE TO REXFORD INDUSTRIAL REALTY, INC. | 167,584 | | | 128,241 | | | 76,403 | |
Less: preferred stock dividends | (5,875 | ) | | (1,983 | ) | | — |
| Less: preferred stock dividends | (9,258) | | | (12,563) | | | (14,545) | |
Less: original issuance costs of redeemed preferred stock | | Less: original issuance costs of redeemed preferred stock | — | | | (3,349) | | | — | |
Less: earnings allocated to participating securities | (410 | ) | | (302 | ) | | (223 | ) | Less: earnings allocated to participating securities | (845) | | | (568) | | | (509) | |
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | 34,427 |
| | $ | 22,841 |
| | $ | 1,651 |
| NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | 157,481 | | | $ | 111,761 | | | $ | 61,349 | |
Net income attributable to common stockholders per share - basic and diluted | $ | 0.48 |
| | $ | 0.36 |
| | $ | 0.03 |
| |
Net income attributable to common stockholders per share - basic | | Net income attributable to common stockholders per share - basic | $ | 0.92 | | | $ | 0.80 | | | $ | 0.51 | |
Net income attributable to common stockholders per share - diluted | | Net income attributable to common stockholders per share - diluted | $ | 0.92 | | | $ | 0.80 | | | $ | 0.51 | |
Weighted average shares of common stock outstanding - basic | 71,198,862 |
| | 62,723,021 |
| | 54,024,923 |
| Weighted average shares of common stock outstanding - basic | 170,467,365 | | | 139,294,882 | | | 120,873,624 | |
Weighted average shares of common stock outstanding - diluted | 71,598,654 |
| | 62,965,554 |
| | 54,024,923 |
| Weighted average shares of common stock outstanding - diluted | 170,978,272 | | | 140,075,689 | | | 121,178,310 | |
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Other comprehensive income (loss): cash flow hedge adjustments | 18,846 | | | 8,333 | | | (10,880) | |
Comprehensive income | 196,003 | | | 144,579 | | | 70,015 | |
Less: comprehensive income attributable to noncontrolling interests | (10,298) | | | (8,503) | | | (3,779) | |
Comprehensive income attributable to Rexford Industrial Realty, Inc. | $ | 185,705 | | | $ | 136,076 | | | $ | 66,236 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
|
Other comprehensive income (loss): cash flow hedge adjustment | 3,425 |
| | 6,693 |
| | (1,742 | ) |
Comprehensive income | 45,125 |
| | 32,569 |
| | 208 |
|
Less: comprehensive income attributable to noncontrolling interests | (1,059 | ) | | (965 | ) | | (36 | ) |
Comprehensive income attributable to common stockholders | $ | 44,066 |
| | $ | 31,604 |
| | $ | 172 |
|
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands - except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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, 2019 | $ | 242,327 | | | 113,793,300 | | | $ | 1,136 | | | $ | 2,439,007 | | | $ | (118,751) | | | $ | (7,542) | | | $ | 2,556,177 | | | $ | 66,272 | | | $ | 2,622,449 | |
| | | | | | | | | | | | | | | | | |
Issuance of common stock | — | | | 17,253,161 | | | 173 | | | 739,810 | | | — | | | — | | | 739,983 | | | — | | | 739,983 | |
Offering costs | — | | | — | | | — | | | (5,887) | | | — | | | — | | | (5,887) | | | — | | | (5,887) | |
Issuance of OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 179,262 | | | 179,262 | |
Issuance of 4.00% cumulative redeemable convertible preferred units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 40,787 | | | 40,787 | |
Share-based compensation | — | | | 110,737 | | | 1 | | | 3,290 | | | — | | | — | | | 3,291 | | | 9,803 | | | 13,094 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (27,473) | | | — | | | (1,278) | | | — | | | — | | | (1,278) | | | — | | | (1,278) | |
Conversion of OP Units to common stock | — | | | 296,313 | | | 3 | | | 7,657 | | | — | | | — | | | 7,660 | | | (7,660) | | | — | |
| | | | | | | | | | | | | | | | | |
Net income | 14,545 | | | — | | | — | | | — | | | 61,858 | | | — | | | 76,403 | | | 4,492 | | | 80,895 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (10,167) | | | (10,167) | | | (713) | | | (10,880) | |
Preferred stock dividends ($1.468752 per series A preferred and series B preferred share and $1.406252 per series C preferred share) | (14,545) | | | — | | | — | | | — | | | — | | | — | | | (14,545) | | | — | | | (14,545) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,546) | | | (2,546) | |
Common stock dividends ($0.86 per share) | — | | | — | | | — | | | — | | | (106,496) | | | — | | | (106,496) | | | — | | | (106,496) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,246) | | | (4,246) | |
Balance at December 31, 2020 | $ | 242,327 | | | 131,426,038 | | | $ | 1,313 | | | $ | 3,182,599 | | | $ | (163,389) | | | $ | (17,709) | | | $ | 3,245,141 | | | $ | 285,451 | | | $ | 3,530,592 | |
Issuance of common stock | — | | | 28,484,776 | | | 286 | | | 1,644,411 | | | — | | | — | | | 1,644,697 | | | — | | | 1,644,697 | |
Offering costs | — | | | — | | | — | | | (18,606) | | | — | | | — | | | (18,606) | | | — | | | (18,606) | |
Redemption of 5.875% series A preferred stock | (86,651) | | | — | | | — | | | — | | | (3,349) | | | — | | | (90,000) | | | — | | | (90,000) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 108,774 | | | 1 | | | 3,855 | | | — | | | — | | | 3,856 | | | 16,007 | | | 19,863 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (29,305) | | | — | | | (1,428) | | | — | | | — | | | (1,428) | | | — | | | (1,428) | |
Conversion of OP Units to common stock | — | | | 521,199 | | | 5 | | | 17,461 | | | — | | | — | | | 17,466 | | | (17,466) | | | — | |
Net income | 12,563 | | | — | | | — | | | — | | | 115,678 | | | — | | | 128,241 | | | 8,005 | | | 136,246 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 7,835 | | | 7,835 | | | 498 | | | 8,333 | |
Preferred stock dividends ($0.917970 per series A preferred share, $1.468752 per series B preferred share and $1.406252 per series C preferred share) | (12,563) | | | — | | | — | | | — | | | — | | | — | | | (12,563) | | | — | | | (12,563) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,832) | | | (2,832) | |
Common stock dividends ($0.96 per share) | — | | | — | | | — | | | — | | | (140,060) | | | — | | | (140,060) | | | — | | | (140,060) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,547) | | | (6,547) | |
Balance at December 31, 2021 | $ | 155,676 | | | 160,511,482 | | | $ | 1,605 | | | $ | 4,828,292 | | | $ | (191,120) | | | $ | (9,874) | | | $ | 4,784,579 | | | $ | 283,116 | | | $ | 5,067,695 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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, 2014 | $ | — |
| | 43,702,442 |
| | $ | 434 |
| | $ | 542,318 |
| | $ | (21,673 | ) | | $ | (1,331 | ) | | $ | 519,748 |
| | $ | 26,129 |
| | $ | 545,877 |
|
Issuance of common stock | — |
| | 11,500,500 |
| | 115 |
| | 183,892 |
| | — |
| | — |
| | 184,007 |
| | — |
| | 184,007 |
|
Offering costs | — |
| | — |
| | — |
| | (8,174 | ) | | — |
| | — |
| | (8,174 | ) | | — |
| | (8,174 | ) |
Share-based compensation | — |
| | 120,178 |
| | 1 |
| | 1,764 |
| | — |
| | — |
| | 1,765 |
| | 87 |
| | 1,852 |
|
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — |
| | (12,670 | ) | | — |
| | (191 | ) | | — |
| | — |
| | (191 | ) | | — |
| | (191 | ) |
Conversion of units to common stock | — |
| | 288,234 |
| | 3 |
| | 3,159 |
| | — |
| | — |
| | 3,162 |
| | (3,162 | ) | | — |
|
Repurchase of operating partnership units | — |
| | — |
| | — |
| | (46 | ) | | — |
| | — |
| | (46 | ) | | (90 | ) | | (136 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 1,874 |
| | — |
| | 1,874 |
| | 76 |
| | 1,950 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (1,702 | ) | | (1,702 | ) | | (40 | ) | | (1,742 | ) |
Common stock dividends | — |
| | — |
| | — |
| | — |
| | (28,304 | ) | | — |
| | (28,304 | ) | | — |
| | (28,304 | ) |
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,395 | ) | | (1,395 | ) |
Balance at December 31, 2015 | — |
| | 55,598,684 |
| | 553 |
| | 722,722 |
| | (48,103 | ) | | (3,033 | ) | | 672,139 |
| | 21,605 |
| | 693,744 |
|
Issuance of preferred stock | 90,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 90,000 |
| | — |
| | 90,000 |
|
Issuance of common stock | — |
| | 10,752,683 |
| | 108 |
| | 191,882 |
| | — |
| | — |
| | 191,990 |
| | — |
| | 191,990 |
|
Offering costs | (3,349 | ) | | — |
| | — |
| | (8,662 | ) | | — |
| | — |
| | (12,011 | ) | | — |
| | (12,011 | ) |
Share-based compensation | — |
| | 79,736 |
| | 1 |
| | 2,009 |
| | — |
| | — |
| | 2,010 |
| | 1,972 |
| | 3,982 |
|
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — |
| | (36,374 | ) | | — |
| | (747 | ) | | — |
| | — |
| | (747 | ) | | — |
| | (747 | ) |
Conversion of units to common stock | — |
| | 59,646 |
| | — |
| | 630 |
| | — |
| | — |
| | 630 |
| | (630 | ) | | — |
|
Acquisition of real estate portfolio | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 125 |
| | 125 |
|
Net income | 1,983 |
| | — |
| | — |
| | — |
| | 23,143 |
| | — |
| | 25,126 |
| | 750 |
| | 25,876 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 6,478 |
| | 6,478 |
| | 215 |
| | 6,693 |
|
Preferred stock dividends | (1,983 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,983 | ) | | — |
| | (1,983 | ) |
Common stock dividends | — |
| | — |
| | — |
| | — |
| | (34,317 | ) | | — |
| | (34,317 | ) | | — |
| | (34,317 | ) |
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,212 | ) | | (1,212 | ) |
Balance at December 31, 2016 | 86,651 |
| | 66,454,375 |
| | $ | 662 |
| | $ | 907,834 |
| | $ | (59,277 | ) | | $ | 3,445 |
| | $ | 939,315 |
| | $ | 22,825 |
| | $ | 962,140 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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 |
Issuance of common stock | — | | | 28,343,395 | | | 283 | | | 1,831,490 | | | — | | | — | | | 1,831,773 | | | — | | | 1,831,773 | |
Offering costs | — | | | — | | | — | | | (22,542) | | | — | | | — | | | (22,542) | | | — | | | (22,542) | |
Issuance of OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 56,167 | | | 56,167 | |
Issuance of 3.00% cumulative redeemable convertible preferred units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,000 | | | 12,000 | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | 123,542 | | | 1 | | | 5,547 | | | — | | | — | | | 5,548 | | | 23,488 | | | 29,036 | |
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — | | | (31,576) | | | — | | | (2,156) | | | — | | | — | | | (2,156) | | | — | | | (2,156) | |
Conversion of OP Units to common stock | — | | | 167,286 | | | 2 | | | 6,236 | | | — | | | — | | | 6,238 | | | (6,238) | | | — | |
Acquisition of private REIT - preferred units | — | | | — | | | — | | | — | | | ��� | | | — | | | — | | | 122 | | | 122 | |
Net income | 9,258 | | | — | | | — | | | — | | | 158,326 | | | — | | | 167,584 | | | 9,573 | | | 177,157 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 18,121 | | | 18,121 | | | 725 | | | 18,846 | |
Preferred stock dividends ( $1.468752 per series B preferred share and $1.406252 per series C preferred share) | (9,258) | | | — | | | — | | | — | | | — | | | — | | | (9,258) | | | — | | | (9,258) | |
Preferred unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,124) | | | (3,124) | |
Common stock dividends ($1.26 per share) | — | | | — | | | — | | | — | | | (222,949) | | | — | | | (222,949) | | | — | | | (222,949) | |
Common unit distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,425) | | | (9,425) | |
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 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Number of 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 |
Issuance of preferred stock | 75,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 75,000 |
| | — |
| | 75,000 |
|
Issuance of common stock | — |
| | 11,968,927 |
| | 119 |
| | 336,515 |
| | — |
| | — |
| | 336,634 |
| | — |
| | 336,634 |
|
Offering costs | (2,525 | ) | | — |
| | — |
| | (5,734 | ) | | — |
| | — |
| | (8,259 | ) | | — |
| | (8,259 | ) |
Share-based compensation | — |
| | 68,768 |
| | 1 |
| | 2,145 |
| | — |
| | — |
| | 2,146 |
| | 3,414 |
| | 5,560 |
|
Shares acquired to satisfy employee tax withholding requirements on vesting restricted stock | — |
| | (57,444 | ) | | — |
| | (1,568 | ) | | — |
| | — |
| | (1,568 | ) | | — |
| | (1,568 | ) |
Conversion of units to common stock | — |
| | 61,256 |
| | — |
| | 618 |
| | — |
| | — |
| | 618 |
| | (618 | ) | | — |
|
Redemption of preferred stock in connection with liquidation of private REIT | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (125 | ) | | (125 | ) |
Net income | 5,875 |
| | — |
| | — |
| | — |
| | 34,837 |
| | — |
| | 40,712 |
| | 988 |
| | 41,700 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 3,354 |
| | 3,354 |
| | 71 |
| | 3,425 |
|
Preferred stock dividends | (5,288 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (5,288 | ) | | — |
| | (5,288 | ) |
Common stock dividends | — |
| | — |
| | — |
| | — |
| | (42,618 | ) | | — |
| | (42,618 | ) | | — |
| | (42,618 | ) |
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,347 | ) | | (1,347 | ) |
Balance at December 31, 2017 | $ | 159,713 |
| | 78,495,882 |
| | $ | 782 |
| | $ | 1,239,810 |
| | $ | (67,058 | ) | | $ | 6,799 |
| | $ | 1,340,046 |
| | $ | 25,208 |
| | $ | 1,365,254 |
|
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 177,157 | | | $ | 136,246 | | | $ | 80,895 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| | | | | |
Depreciation and amortization | 196,794 | | | 151,269 | | | 115,269 | |
Amortization of (below) above market lease intangibles, net | (31,209) | | | (15,443) | | | (10,533) | |
Impairment of right-of-use asset | — | | | 992 | | | — | |
Loss on extinguishment of debt | 915 | | | 505 | | | 104 | |
Gains on sale of real estate | (8,486) | | | (33,929) | | | (13,617) | |
Amortization of debt issuance costs | 2,689 | | | 1,919 | | | 1,505 | |
Amortization of discount (premium) on notes payable, net | 250 | | | 26 | | | (188) | |
Equity based compensation expense | 28,426 | | | 19,506 | | | 12,871 | |
Straight-line rent | (31,220) | | | (20,903) | | | (11,406) | |
Payments for termination/settlement of interest rate derivatives | (589) | | | (4,045) | | | (1,239) | |
Amortization related to termination/settlement of interest rate derivatives | 531 | | | 2,280 | | | 218 | |
Change in working capital components: | | | | | |
Rents and other receivables | (2,858) | | | (745) | | | (4,030) | |
Deferred leasing costs | (17,762) | | | (17,473) | | | (10,447) | |
Other assets | (594) | | | (6,357) | | | (2,352) | |
Sales-type lease receivable | — | | | — | | | 20,302 | |
Accounts payable, accrued expenses and other liabilities | 9,304 | | | 11,895 | | | 4,825 | |
Tenant security deposits | 6,294 | | | 6,776 | | | (415) | |
Prepaid rents | (1,947) | | | (1,056) | | | 1,232 | |
Net cash provided by operating activities | 327,695 | | | 231,463 | | | 182,994 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Acquisition of investments in real estate | (2,328,430) | | | (1,858,413) | | | (928,687) | |
Capital expenditures | (135,095) | | | (102,475) | | | (78,765) | |
Payment for deposits on real estate acquisitions | (1,000) | | | (8,445) | | | (4,067) | |
| | | | | |
| | | | | |
| | | | | |
Proceeds from sale of real estate | 15,315 | | | 56,566 | | | 23,996 | |
Net cash used in investing activities | (2,449,210) | | | (1,912,767) | | | (987,523) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| | | | | |
Redemption of preferred stock | — | | | (90,000) | | | — | |
Issuance of common stock, net | 1,809,231 | | | 1,626,091 | | | 734,096 | |
Proceeds from borrowings | 2,714,000 | | | 1,264,557 | | | 471,844 | |
Repayment of borrowings | (2,176,606) | | | (1,095,280) | | | (175,671) | |
Debt issuance costs | (7,300) | | | (4,555) | | | (6,085) | |
| | | | | |
Dividends paid to preferred stockholders | (9,258) | | | (12,563) | | | (14,545) | |
Dividends paid to common stockholders | (201,902) | | | (129,793) | | | (99,292) | |
Distributions paid to common unitholders | (8,582) | | | (6,418) | | | (3,328) | |
Distributions paid to preferred unitholders | (3,124) | | | (2,832) | | | (2,546) | |
Repurchase of common shares to satisfy employee tax withholding requirements | (2,156) | | | (1,428) | | | (1,278) | |
Net cash provided by financing activities | 2,114,303 | | | 1,547,779 | | | 903,195 | |
Increase (decrease) in cash, cash equivalents and restricted cash | (7,212) | | | (133,525) | | | 98,666 | |
Cash, cash equivalents and restricted cash, beginning of period | 43,998 | | | 177,523 | | | 78,857 | |
Cash, cash equivalents and restricted cash, end of period | $ | 36,786 | | | $ | 43,998 | | | $ | 177,523 | |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid for interest (net of capitalized interest of $12,236, $4,550 and $3,925 for the years December 31, 2022, 2021 and 2020, respectively) | $ | 44,811 | | | $ | 32,979 | | | $ | 27,924 | |
Supplemental disclosure of noncash transactions: | | | | | |
Operating lease right-of-use assets obtained in exchange for lease liabilities | $ | 6,363 | | | $ | — | | | $ | 3,204 | |
Issuance of operating partnership units in connection with acquisition of real estate | $ | 56,167 | | | $ | — | | | $ | 179,262 | |
Issuance of 4.0% cumulative redeemable convertible preferred units in connection with acquisition of real estate | $ | — | | | $ | — | | | $ | 40,787 | |
Issuance of 3.0% cumulative redeemable convertible preferred units in connection with acquisition of real estate | $ | 12,000 | | | $ | — | | | $ | — | |
Acquisition of private REIT - preferred units | $ | 122 | | | $ | — | | | $ | — | |
Assumption of debt in connection with acquisition of real estate including loan premium | $ | — | | | $ | 16,512 | | | $ | 65,264 | |
Accrual for capital expenditures | $ | 29,074 | | | $ | 15,700 | | | $ | 11,811 | |
Accrual of dividends and distributions | $ | 62,033 | | | $ | 40,143 | | | $ | 29,747 | |
Lease reclassification from operating lease to sales-type lease: | | | | | |
Sales-type lease receivable | $ | — | | | $ | — | | | $ | 20,302 | |
Investments in real estate, net | — | | | — | | | (16,117) | |
Deferred rent receivable, net | — | | | — | | | (63) | |
Deferred leasing costs, net | — | | | — | | | (164) | |
Acquired lease intangible assets, net | — | | | — | | | (136) | |
Gain on sale recognized due to lease classification | $ | — | | | $ | — | | | $ | 3,822 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 41,700 |
| | $ | 25,876 |
| | $ | 1,950 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Equity in income from unconsolidated real estate entities | (11 | ) | | (1,451 | ) | | (93 | ) |
Provision for doubtful accounts | 1,061 |
| | 1,287 |
| | 1,448 |
|
Depreciation and amortization | 64,852 |
| | 51,407 |
| | 41,837 |
|
Amortization of (below) above market lease intangibles, net | (2,270 | ) | | (78 | ) | | 202 |
|
Amortization of loan origination fees | (150 | ) | | (150 | ) | | — |
|
Accretion of discount on notes receivable | — |
| | — |
| | (178 | ) |
Deferred interest income on notes receivable | 84 |
| | (84 | ) | | — |
|
Gain from early repayment of notes receivable | — |
| | — |
| | (581 | ) |
(Gain) loss on extinguishment of debt | (25 | ) | | — |
| | 182 |
|
Gain on sale of real estate | (29,573 | ) | | (17,377 | ) | | — |
|
Amortization of loan costs | 1,147 |
| | 1,014 |
| | 812 |
|
Accretion of premium on notes payable | (169 | ) | | (238 | ) | | (191 | ) |
Equity based compensation expense | 5,398 |
| | 3,835 |
| | 1,752 |
|
Straight-line rent | (4,737 | ) | | (4,507 | ) | | (3,425 | ) |
Change in working capital components: | |
| | |
| | |
Rents and other receivables | (2,007 | ) | | (988 | ) | | (2,676 | ) |
Deferred leasing costs | (5,693 | ) | | (5,596 | ) | | (3,421 | ) |
Other assets | (1,491 | ) | | 71 |
| | (1,286 | ) |
Accounts payable, accrued expenses and other liabilities | 4,203 |
| | 1,667 |
| | 1,806 |
|
Tenant security deposits | 2,580 |
| | 2,155 |
| | 1,608 |
|
Prepaid rents | 1,751 |
| | (411 | ) | | 762 |
|
Net cash provided by operating activities | 76,650 |
| | 56,432 |
| | 40,508 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Acquisition of investments in real estate | (664,361 | ) | | (367,621 | ) | | (230,599 | ) |
Capital expenditures | (42,313 | ) | | (31,928 | ) | | (22,181 | ) |
Acquisition related deposits | (2,475 | ) | | — |
| | 2,110 |
|
Distributions from unconsolidated real estate entities | 11 |
| | 5,530 |
| | — |
|
Issuance of notes receivable | — |
| | (5,700 | ) | | — |
|
Principal repayments of notes receivable | 6,000 |
| | — |
| | 13,896 |
|
Disposition related deposits | 250 |
| | — |
| | — |
|
Proceeds from sale of real estate | 95,988 |
| | 38,505 |
| | — |
|
Net cash used in investing activities | (606,900 | ) | | (361,214 | ) | | (236,774 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
Issuance of preferred stock, net | 72,475 |
| | 86,651 |
| | — |
|
Issuance of common stock, net | 330,900 |
| | 183,386 |
| | 175,833 |
|
Proceeds from notes payable | 612,000 |
| | 263,000 |
| | 272,000 |
|
Repayment of notes payable | (442,818 | ) | | (179,223 | ) | | (226,710 | ) |
Debt issuance costs | (2,268 | ) | | (1,925 | ) | | (796 | ) |
Debt extinguishment costs | (193 | ) | | — |
| | (2 | ) |
Redemption of preferred stock in connection with liquidation of private REIT | (125 | ) | | — |
| | — |
|
Dividends paid to preferred stockholders | (5,288 | ) | | (1,983 | ) | | — |
|
Dividends paid to common stockholders | (40,207 | ) | | (32,852 | ) | | (26,042 | ) |
Distributions paid to common unitholders | (1,313 | ) | | (1,201 | ) | | (1,095 | ) |
Repurchase of common shares to satisfy employee tax withholding requirements | (1,568 | ) | | (747 | ) | | (191 | ) |
Repurchase of operating partnership units | — |
| | — |
| | (136 | ) |
Net cash provided by financing activities | 521,595 |
| | 315,106 |
| | 192,861 |
|
(Decrease) increase in cash and cash equivalents | (8,655 | ) | | 10,324 |
| | (3,405 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 15,525 |
| | 5,201 |
| | 8,606 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 6,870 |
| | $ | 15,525 |
| | $ | 5,201 |
|
Supplemental disclosure of cash flow information: | | | | | |
Cash paid during the period for interest (net of capitalized interest of $1,694, $1,653 and $754 for 2017, 2016 and 2015, respectively) | $ | 18,423 |
| | $ | 13,943 |
| | $ | 6,147 |
|
Supplemental disclosure of noncash investing and financing transactions: | | | | | |
Assumption of loan in connection with acquisition of real estate including loan premium | $ | — |
| | $ | — |
| | $ | 17,097 |
|
Capital expenditure accruals | $ | 2,216 |
| | $ | 1,284 |
| | $ | 610 |
|
Accrual of dividends | $ | 11,727 |
| | $ | 9,282 |
| | $ | 7,806 |
|
The accompanying notes are an integral part of these consolidated financial statements.
REXFORD INDUSTRIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and developredevelop industrial real estate principally located in Southern California infill markets, and from time to time, acquire or provide mortgage debt secured by industrial property. As of December 31, 2017,2022, our consolidated portfolio consisted of 151356 properties with approximately 18.542.4 million rentable square feet. In addition, we currently manage an additional 19 properties with approximately 1.2 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
| |
2. | Summary of Significant Accounting Policies |
Basis of Presentation and Principles of Consolidation
The accompanying financial statements are the consolidated financial statements of Rexford Industrial Realty, Inc. and its subsidiaries, including our Operating Partnership. All significant 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 December 31, 20172022 and 2016,2021, 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 consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) as established by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification (“ASC”) including modifications issued under Accounting Standards Updates (“ASUs”). Any reference to the number of properties, buildings and square footage are unaudited and outside the scope of our independent auditor’s audit of our financial statements in accordance with the standards of the 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 escrow reserves that we are required to set aside for future costs as required by certain agreements with our lenders, and from time to time, includes cash proceeds related tofrom property dispositionssales that are being held by qualified intermediaries for purposes of facilitating tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code (“1031 Exchange”of 1986, as amended (the “Code”). As
Restricted cash balances are included with cash and cash equivalent balances as of the beginning and ending of each period presented in the consolidated statements of cash flows. The following table provides a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the years ended December 31, 2017, we were under contract to sell our property located at 700 Allen. In connection with execution of the contract, the buyer made a non-refundable deposit of $250,000, that was placed into an account held at a qualified intermediary to facilitate a future 1031 Exchange transaction. As of December 31, 2017, this deposit is included in restricted cash on our consolidated balance sheets.2022 and 2021 (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
Cash and cash equivalents | $ | 43,987 | | | $ | 176,293 | |
Restricted cash | 11 | | | 1,230 | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 43,998 | | | $ | 177,523 | |
| | | |
Cash and cash equivalents | $ | 36,786 | | | $ | 43,987 | |
Restricted cash | — | | | 11 | |
Cash, cash equivalents and restricted cash, end of period | $ | 36,786 | | | $ | 43,998 | |
Notes Receivable
We record notes receivable at the unpaid principal balance, net of any deferred origination fees, purchase discounts or premiums and valuation allowances, as applicable. We amortize net deferred origination fees, which are comprised of loan fees collected from the borrower, and purchase discounts or premiums over the contractual life of the loan using the effective interest method and immediately recognize in income any unamortized balances if the loan is repaid before its contractual maturity.
On July 1, 2016, we made a $6.0 million mortgage loan secured by a 64,965 rentable square foot industrial property located in Rancho Cucamonga, California, that was subsequently repaid by the borrower on June 23, 2017. In connection with this origination, we collected a $0.3 million loan fee from the borrower. The loan bore interest at 10% per annum and had a stated maturity date of June 30, 2017. Additionally, the borrower had the option to defer up to $14 thousand of interest, otherwise payable per month, to be added to the principal to be paid in full on the maturity date. At the time of repayment, the outstanding principal balance on the loan was $6.2 million.
InvestmentInvestments in Real Estate
Acquisitions
On January 5, 2017, the FASB issued We account for acquisitions of properties under ASU 2017-01, Business Combinations - Combinations–Clarifying the Definition of a Business (“ASU 2017-01’), which provides a new framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 clarifies that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar assets, the set of assetsbusinesses and activities is not a business. ASU 2017-01 alsofurther revises the definition of a business to include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, and early adoption is permitted.
Effective January 1, 2017, we early adopted ASU 2017-01. We evaluated thebusiness. Our acquisitions that we completed during the year ended December 31, 2017 and determined that under the new framework these transactions should be accounted for as asset acquisitions. See Note 3.
We evaluate each of our property acquisitions to determine whether the acquired set of assets and activities (collectively referred to as a “set”) meets the definition of a business and will need to be accounted for as a business combination. A set would fail to qualify as a business if either (i) substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii) the set is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. An acquired process is considered substantive if (i) the process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and experienced in performing the process, (ii) the process cannot be replaced without significant cost, effort, or delay or (iii) the process is considered unique or scarce.
We expect that most of our property acquisitions willproperties generally notno longer meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiableand accordingly are accounted for as asset or group of similar identifiable assets or because the acquisition does not include a substantive process.acquisitions.
When we acquire a property that meets the business combination accounting criteria, For asset acquisitions, we allocate the purchase price to the various componentscost of the acquisition, based uponwhich 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 of each component on the acquisition date. The componentsbasis. These individual assets and liabilities typically include land, building and improvements, tenant improvements, intangible assets and liabilities related to aboveabove- and below marketbelow-market leases, intangible assets related to in-place leases, debt and otherfrom time to time, assumed assets and liabilities. Acquisition related costs are expensed as incurred. Because of the timing or complexity of completing certain fair value adjustments, the initial purchase price allocation may be incomplete at the end of a reporting period, in which case we may record provisional purchase price allocation amounts based on information available at the acquisition date. Subsequent adjustments to provisional amounts are recognized during the measurement period, which cannot exceed one year from the date of acquisition.
For acquisitions that do not meet the business combination accounting criteria, we allocate the cost of the acquisition, which includes any associated acquisition costs, to the individual assets and liabilities assumed on a relative fair value basis.mortgage debt. As there is no measurement period concept for an asset acquisition, the allocated cost of the acquired assets should beis finalized in the period in which the acquisition occurred.occurs.
We determine the fair value of the tangible assets of an acquired property by valuing the property as if it were 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 aboutwith respect to the assumptions a market participant would use. These Level 3 inputs include discount rates, capitalization rates, market rentsrental 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 calculatingdetermining the “as-if-vacant” value for acquisitions completedthe properties we acquired during the year ended December 31, 2017,2022, we used discount rates ranging from 5.50%4.75% to 7.50% and 9.50% andexit capitalization rates ranging from 4.25%3.75% to 7.50%6.25%.
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, 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. Such estimates includeWe 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 property that would be incurred to lease thea property to its occupancy level at the time of its acquisition. In determining the fair value of acquisitions completed during the year ended December 31, 2017,2022, we used an estimated average lease-up period ranging from six months to 18twelve months.
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 isare based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.
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 noncashnon-cash equity compensation of the personnel performing development,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 developmentredevelopment 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 $1.7$12.2 million, $1.7$4.5 million and $0.8$3.9 million during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. We capitalized real estate taxes and insurance aggregating $5.2 million, $2.2 million, and $1.2 million $0.8 million and $0.8 million during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. We capitalized compensation costs for employees who provide construction services of $1.9$8.7 million, $1.0$6.1 million and $0.9$4.1 million during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, 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 remaininguseful life ofthat typically ranges from 10-30 years for buildings, 5-205-25 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—in —Investments Inin 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 revenues”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 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. See Note 12.
Deferred Leasing Costs
We capitalize costs directly related to the successful originationAs of a lease. These costs include leasing commissions paid to third parties for new leases or lease renewals, as well as an allocation of compensation costs, including payroll, bonus and non-cash equity compensation, of employees who spend time on lease origination activities. In determining the amount of compensation costs to be capitalized for these employees, allocations are made based on estimates of the actual amount of time spent working on successful leases in comparison to time spent on unsuccessful origination efforts. We capitalized compensation costs for these employees of $1.0 million, $0.6 million and $0.5 million during the years ended December 31, 2017, 2016 and 2015, respectively.2022, we did not have any properties classified as held for sale. As of December 31, 2021, our property located at 28159 Avenue Stanford in Valencia, California was classified as held for sale. See “Note 3 – Investments in Real Estate” for details.
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 goodwill,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 regardregards 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 partythird-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.
Investment in Unconsolidated Real Estate Entities
Investments in unconsolidated During the years ended December 31, 2022, 2021 or 2020, there were no impairment charges recorded to the carrying value of our real estate entitiesproperties. During the year ended December 31, 2021, in whichconnection with the execution of a sublease for one of our office space leases, we have the abilityrecorded a $1.0 million impairment charge to exercise significant influence (but not control) are accounted for under the equity method of investment. Under the equity method, we initially record our investment at cost, and subsequently adjust for equity in earnings or losses and cash contributions and distributions. Any difference betweenreduce the carrying amount of these investments on the balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in income (loss) from unconsolidated real estate over the lifevalue of the related ROU asset. Under the equity method of accounting, our net equity investmentThe impairment charge is reflected within the consolidated balance sheets, and our share of net income or loss from the joint ventures is included withinpresented in “Other expenses” in the consolidated statements of operations. Furthermore, distributions received from equity method investments are classified as either operating cash inflows or investing cash inflows in the consolidated statements of cash flows using the “nature of the distribution approach,” in which each distribution is evaluated on the basis of the source of the payment. See Note 11.
also “Note 6 – Leases” for details.
Income Taxes
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (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 REIT qualifying 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, at regular corporate rates, including any applicable alternative minimum tax.tax for taxable years prior to 2018.
In addition,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 federal 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. OurOther than our Subsidiary REIT (a private REIT acquired on July 18, 2022), our non-taxable REIT 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 years ended December 31, 2017, 20162022, 2021 and 2015.2020.
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 December 31, 20172022 and 2016,2021, 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 (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, 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 7.“Note 7 – Interest Rate Derivatives” for details.
Revenue Recognition
Our primary sources of income are rental income, management and leasing services and gains on sale of real estate.
Rental Income
We recognize revenue from rent, tenant reimbursements and other revenue sources once all of the following criteria are met: persuasive evidence of an arrangement exists, the delivery has occurred or services rendered, the fee is fixed and determinable and collectability is reasonably assured. Minimumlease 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 rental revenueslease payments are recognized in rental revenuesincome on a straight-line basis over the term of the related lease.lease, regardless of when payments are contractually due, when collectability is probable. Rental revenue recognition commences when the tenant takes possession 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. Lease terminationAs 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 included in rental revenues inbased on a fixed percentage of each managed property’s monthly tenant cash receipts. We have determined that control over the accompanying consolidated statements of operations, are recognized whenservices is passed to the related leasecustomer simultaneously as performance occurs. Accordingly, management fee revenue is canceled and we have no continuing obligation to provide services to such former tenant.
Revenues from management, leasing and developmentearned as the services are recognizedprovided 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 related services have been providedis 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 earned.there is no variable income component.
Gain or Loss on Sale of Real Estate
The recognition of gains on salesWe account for dispositions of real estate requires usproperties, which are considered nonfinancial assets, in accordance with ASC 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 the timingany noncontrolling interest received or retained at fair value, and recognize a full gain or loss. If we receive consideration before transferring control of a sale against various criteria related to the termsnonfinancial asset, we recognize a contract liability. If we transfer control of the transaction, as well as any continuing involvement inasset before consideration is received, we recognize a contract asset.
When leases contain purchase options, we assess the formprobability 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 management or financial assistance associated with the property. If the sales criteria are not met,purchase option is reasonably certain, we defer gain recognition andwill account for the continued operationslease 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 the property by applying the finance, profit-sharing or leasing method. If the sales criteria have been met, we further analyze whether profit recognition is appropriate using the full accrual method. If the criteria to recognize profit using the full accrual method have not been met, we defer the gain and recognize it when the criteria are met or use the installment or cost recovery method as appropriate under the circumstances. See Note 12 for discussion of dispositions.real estate.
Valuation of Operating Lease Receivables
We may be subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables.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. We specifically analyze aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacyOn a quarterly basis, we perform an assessment of the allowancecollectability 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 doubtful accounts.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 periodic analysis,quarterly collectability assessments, we maintain an allowance for estimated losses that may result from the inability of our tenantsrecognized $0.4 million as a net increase adjustment to make required payments. This estimate requires significant judgment related to the lessees’ ability to fulfill their obligations under the leases. We believe our allowance for doubtful accounts is adequate for our outstanding receivables for the periods presented. Ifrental income and $0.5 million and $5.0 million as a tenant is insolvent or files for bankruptcy protection and fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances, which include amounts recognized as straight-line revenue not realizable until future periods.
Rents and other receivables, net and deferred rent receivables, net consisted of the following as of December 31, 2017 and 2016 (in thousands):
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Rents and other receivables | $ | 5,369 |
| | $ | 5,565 |
|
Allowance for doubtful accounts | (1,705 | ) | | (2,816 | ) |
Rents and other receivables, net | $ | 3,664 |
| | $ | 2,749 |
|
| | | |
Deferred rent receivable | $ | 15,912 |
| | $ | 11,903 |
|
Allowance for doubtful accounts | (86 | ) | | (30 | ) |
Deferred rent receivable, net | $ | 15,826 |
| | $ | 11,873 |
|
We recorded the following provision for doubtful accounts, including amounts related to deferred rents, as a reduction to rental revenuesincome in ourthe consolidated statements of operations for the years ended December 31, 2017, 20162022, 2021, and 2015, (in thousands):2020 respectively. |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Provision for doubtful accounts | $ | 1,118 |
| | $ | 1,233 |
| | $ | 1,462 |
|
Deferred Leasing CostsWe 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 line of credit arrangements, we present debt issuance costs as an asset and amortize the cost over the term of the line of credit arrangement. See Note 5.“Note 5 – Notes Payable” for details.
Equity Based Compensation
We account for equity basedequity-based compensation in accordance with ASC Topic 718 718: 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 or performance
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 14.“Note 13 – Incentive Award Plan” for details.
Equity Offering CostsOfferings
Underwriting commissions and offering costs related to ourincurred in connection with common stock issuancesofferings 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 11 – Stockholders’ 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 260 – 260: Earnings Per Share (“ASC 260”). Under ASC 260, nonvestedunvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in computingthe 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.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. Any anti-dilutive securities are excluded from the diluted EPS calculation. See Note 15.“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.
Recently Issued Accounting PronouncementsLeases as a Lessee
Changes to GAAPWe determine if an arrangement is a lease at inception. Operating lease ROU assets are established by the FASBincluded in the form of ASUs to the FASB’s Accounting Standards Codification. We consider the applicability“Other assets” and impact of all ASUs.
Stock Compensation
On May 10, 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies the scope of modification accounting for share-based compensation arrangements by providing guidance on the types of changes to the termslease liabilities are included in “Accounts payable, accrued expenses and conditions of share-based compensation awards to which an entity would be required to apply modification accounting under ASC 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. We are currently assessing the impact of the guidance onother liabilities” in our consolidated financial statements and notes tobalance sheets. ROU assets represent our consolidated financial statements.
Leases
On February 25, 2016, the FASB issued ASU 2016-02, Leases (“ASC 842”), which sets out the principals for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.
ASC 842 requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASC 842 also requires lesseesterm and lease liabilities represent our obligation to classify leases as either finance or operating leasesmake lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on whether or notthe present value of lease payments over the lease is effectively a financed purchaseterm. 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 the leasedlease payments. The operating lease ROU asset by the lessee. This classification is usedalso includes any lease payments made and excludes lease incentives. Our lease terms may include options to evaluate whetherextend the lease when it is reasonably certain that we will exercise that option. Lease expense should befor lease payments is generally recognized based on an effective interest method or on a straight-line basis over the term of the lease. ASC 842 will impactlease through the accountingamortization of the ROU assets and disclosure requirementslease liabilities. Additionally, for our ground lease and other operating leases, where we are the lessee. See Note 10 for a summary of rent expense and remaining contractual payments under our ground lease and corporate offices leases.
ASC 842 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. ASC 842 specifies that payments for certain lease-related services (for example, maintenance services, includingdo not separate non-lease components, such as common area maintenance), which are often included inmaintenance, from associated lease agreements, represent "non-lease" components that will become subject to the guidance in ASC 2014-09, Revenue from Contracts with Customers, when ASC 842 becomes effective. In January 2018, the FASB proposed adding an optional practical expedient that would allow lessors to elect to not separatecomponents. See “Note 6 – Leases” for additional lessee disclosures required under lease and non-lease components if both of the following criteria are met: (1) the timing and pattern of recognition are the same for the non-lease component(s) and the related lease component, and (2) the combined single lease component would be classified as an operating lease.accounting standards.
Additionally, ASC 842 requires lessors to capitalize, as initial direct costs, only these costs that are incurred due to the execution of a lease. As a result, compensation costs related to employees who spend time on lease origination activities, regardless of whether their time leads to a successful lease, will no longer be capitalized as initial direct costs and instead will be expensed as incurred. See “Deferred Leasing Costs” above for a summary of employee related compensation costs capitalized during the years ended December 31, 2017, 2016 and 2015.
ASC 842 is effective for annual periods beginning after December 15, 2018, and early adoption is permitted. ASC 842 requires the use of a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest period presented in the consolidated financial statements, with certain practical expedients available. We are currently assessing the impact of the guidance on our consolidated financial statements and notes to our consolidated financial statements.Reference Rate Reform
Revenue Recognition
On May 28, 2014,March 12, 2020, the FASB issued ASU 2014-09, Revenue from Contracts with Customers2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASC 606”ASU 2020-04”). ASC 606 establishes principlesASU 2020-04 contains practical expedients for reportingreference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the nature, amount, timingfirst quarter of 2020, we elected to apply the hedge accounting expedients related to probability and uncertaintythe assessments of revenues andeffectiveness for future London Interbank Offered Rate (“LIBOR”) indexed cash flows arising from an entity’s contracts with customers. The core principleto assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. As of the new standard is that an entity recognizes revenue to represent the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB subsequently issued additional ASUs which provide practical expedients, technical corrections and clarification of the new standard. ASC 606 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. Early application is permitted for annual periods beginning after December 15, 2016. ASC 606 permits the use of either the full retrospective transition method or a modified retrospective transition method. We will adopt ASC 606 on January 1, 2018, using the modified retrospective method.
As part of31, 2022, all our assessment and implementation of ASC 606, we evaluated each of our revenue streams to determine the sources of revenue that arederivatives impacted by ASC 606 and concluded that management services and leasing services are under the scope of ASC 606. We evaluated the impact of ASC 606 on the timing and pattern of revenue recognition for our management and leasing services contracts and determined there was no change in the timing or pattern of revenue recognition for these contracts as compared to current accounting practice. Accordingly, we do not expect the adoption of ASC 606 tothis guidance have a material impact on our consolidated financial statements.
Derivatives
On August 28, 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 simplifies hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, ASU 2017-12 requires all changes in the fair value of the hedging instrument to be deferred in other comprehensive income and recognized in earnings at the same time that the hedged item affects earnings. ASU 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the impact of the guidance on our consolidated financial statements and notes to our consolidated financial statements.
been terminated.
Adoption of New Accounting Pronouncements
On November 17, 2016,In August 2020, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2016-18”2020-06”), which requires an entity’s reconciliation. ASU 2020-06 eliminates two of the three accounting models that require separate accounting for embedded conversion features in convertible instruments, simplifies the contract assessment for equity classification, requires the use of the if-converted method for all convertible instruments in diluted EPS calculations and expands disclosure requirements. ASU 2020-06 is effective for fiscal periods beginning after December 15, 2021, including interim periods within those fiscal years. On January 1, 2022, we adopted ASU 2020-06. The adoption of periodASU 2020-06 did not have any impact on our consolidated financial statements or overall EPS calculation. We continue to account for each of our various convertible instruments as a single equity instrument measured at historical cost as they do not have embedded features requiring bifurcation and endseparate accounting. See “Note 12 – Noncontrolling Interests” for additional information related to convertible instruments.
Recent Accounting Pronouncements (Issued and Not Yet Adopted)
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of period amounts shownEquity 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 statementbalance sheet, (2) the nature and remaining duration of cash flows to include with cashthe corresponding restrictions, and cash equivalents, amounts generally described(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 restricted cash and restricted cash equivalents.a separate unit of account. ASU 2016-182022-03 is effective for fiscal years beginning after December 15, 2017,2023, including interim periods within those fiscal years, with early adoption permitted. We early adoptedare currently evaluating the potential impact of adopting ASU 2016-18, effective January 1, 2017, with retrospective application to our consolidated statements of cash flows. Accordingly, we have included restricted cash with cash and cash equivalents2022-03.
3. Investments in our reconciliation of beginning of period and end of period amounts shown in our consolidated statements of cash flows for all periods presented. As a result of the adoption of ASU 2016-18, changes in restricted cash are no longer presented as a separate line item within cash flows from investing activities in our consolidated statements of cash flows since we have included restricted cash with cash and cash equivalents in our reconciliation of beginning and end of period amounts shown in our consolidated statements of cash flows. The adoption of ASU 2016-18 did not affect our statement of cash flows presentation for the years ended December 31, 2016 and 2015, as we did not have any restricted cash.Real Estate
Acquisition Summary
The following table providessummarizes the wholly-owned properties we acquired during the year ended December 31, 2022:
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Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price(1) (in thousands) | |
444 Quay Avenue(2) | | Los Angeles - South Bay | | 1/14/2022 | | 29,760 | | | 1 | | | $ | 10,760 | | |
18455 Figueroa Street | | Los Angeles - South Bay | | 1/31/2022 | | 146,765 | | | 2 | | | 64,250 | | |
24903 Avenue Kearny | | Los Angeles - San Fernando Valley | | 2/1/2022 | | 214,436 | | | 1 | | | 58,463 | | |
19475 Gramercy Place | | Los Angeles - South Bay | | 2/2/2022 | | 47,712 | | | 1 | | | 11,300 | | |
14005 Live Oak Avenue | | Los Angeles - San Gabriel Valley | | 2/8/2022 | | 56,510 | | | 1 | | | 25,000 | | |
13700-13738 Slover Ave(2) | | San Bernardino - Inland Empire West | | 2/10/2022 | | 17,862 | | | 1 | | | 13,209 | | |
Meggitt Simi Valley | | Ventura | | 2/24/2022 | | 285,750 | | | 3 | | | 57,000 | | |
21415-21605 Plummer Street | | Los Angeles - San Fernando Valley | | 2/25/2022 | | 231,769 | | | 2 | | | 42,000 | | |
1501-1545 Rio Vista Avenue | | Los Angeles - Central | | 3/1/2022 | | 54,777 | | | 2 | | | 28,000 | | |
17011-17027 Central Avenue | | Los Angeles - South Bay | | 3/9/2022 | | 52,561 | | | 3 | | | 27,363 | | |
2843 Benet Road | | San Diego - North County | | 3/9/2022 | | 35,000 | | | 1 | | | 12,968 | | |
14243 Bessemer Street | | Los Angeles - San Fernando Valley | | 3/9/2022 | | 14,299 | | | 1 | | | 6,594 | | |
2970 East 50th Street | | Los Angeles - Central | | 3/9/2022 | | 48,876 | | | 1 | | | 18,074 | | |
19900 Plummer Street | | Los Angeles - San Fernando Valley | | 3/11/2022 | | 43,472 | | | 1 | | | 15,000 | | |
Long Beach Business Park(3) | | Los Angeles - South Bay | | 3/17/2022 | | 123,532 | | | 4 | | | 24,000 | | |
13711 Freeway Drive(4) | | Los Angeles - Mid-Counties | | 3/18/2022 | | 82,092 | | | 1 | | | 34,000 | | |
6245 Providence Way | | San Bernardino - Inland Empire West | | 3/22/2022 | | 27,636 | | | 1 | | | 9,672 | | |
7815 Van Nuys Blvd | | Los Angeles - San Fernando Valley | | 4/19/2022 | | 43,101 | | | 1 | | | 25,000 | | |
13535 Larwin Circle | | Los Angeles - Mid-Counties | | 4/21/2022 | | 56,011 | | | 1 | | | 15,500 | | |
1154 Holt Blvd | | San Bernardino - Inland Empire West | | 4/29/2022 | | 35,033 | | | 1 | | | 14,158 | | |
900-920 Allen Avenue | | Los Angeles - San Fernando Valley | | 5/3/2022 | | 68,630 | | | 2 | | | 25,000 | | |
1550-1600 Champagne Avenue | | San Bernardino - Inland Empire West | | 5/6/2022 | | 124,243 | | | 2 | | | 46,850 | | |
10131 Banana Avenue(2) | | San Bernardino - Inland Empire West | | 5/6/2022 | | — | | | — | | | 26,166 | | |
2020 Central Avenue | | Los Angeles - South Bay | | 5/20/2022 | | 30,233 | | | 1 | | | 10,800 | | |
14200-14220 Arminta Street(5) | | Los Angeles - San Fernando Valley | | 5/25/2022 | | 200,003 | | | 1 | | | 80,653 | | |
1172 Holt Blvd | | San Bernardino - Inland Empire West | | 5/25/2022 | | 44,004 | | | 1 | | | 17,783 | | |
1500 Raymond Avenue(4) | | Orange County - North | | 6/1/2022 | | — | | | — | | | 45,000 | | |
2400 Marine Avenue | | Los Angeles - South Bay | | 6/2/2022 | | 50,000 | | | 2 | | | 30,000 | | |
14434-14527 San Pedro Street(4) | | Los Angeles - South Bay | | 6/3/2022 | | 118,923 | | | 1 | | | 49,105 | | |
20900 Normandie Avenue | | Los Angeles - South Bay | | 6/3/2022 | | 74,038 | | | 1 | | | 39,980 | | |
15771 Red Hill Avenue | | Orange County - Airport | | 6/9/2022 | | 100,653 | | | 1 | | | 46,000 | | |
14350 Arminta Street | | Los Angeles - San Fernando Valley | | 6/10/2022 | | 18,147 | | | 1 | | | 8,400 | | |
29125 Avenue Paine | | Los Angeles - San Fernando Valley | | 6/14/2022 | | 175,897 | | | 1 | | | 45,000 | | |
3935-3949 Heritage Oak Court | | Ventura | | 6/22/2022 | | 186,726 | | | 1 | | | 56,400 | | |
620 Anaheim Street | | Los Angeles - South Bay | | 6/23/2022 | | 34,555 | | | 1 | | | 17,100 | | |
400 Rosecrans Avenue(4) | | Los Angeles - South Bay | | 7/6/2022 | | 28,006 | | | 1 | | | 8,500 | | |
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Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price(1) (in thousands) | |
3547-3555 Voyager Street | | Los Angeles - South Bay | | 7/12/2022 | | 60,248 | | | 3 | | | 20,900 | | |
6996-7044 Bandini Blvd | | Los Angeles - Central | | 7/13/2022 | | 111,515 | | | 2 | | | 40,500 | | |
4325 Etiwanda Avenue | | Riverside / San Bernardino - Inland Empire West | | 7/15/2022 | | 124,258 | | | 1 | | | 47,500 | | |
Merge-West | | Riverside / San Bernardino - Inland Empire West | | 7/18/2022 | | 1,057,419 | | | 6 | | | 470,000 | | |
6000-6052 & 6027-6029 Bandini Blvd | | Los Angeles - Central | | 7/22/2022 | | 182,782 | | | 2 | | | 91,500 | | |
3901 Via Oro Avenue | | Los Angeles - South Bay | | 8/12/2022 | | 53,817 | | | 1 | | | 20,000 | | |
15650 Don Julian Road | | Los Angeles - San Gabriel Valley | | 8/12/2022 | | 43,392 | | | 1 | | | 16,226 | | |
15700 Don Julian Road | | Los Angeles - San Gabriel Valley | | 8/12/2022 | | 40,453 | | | 1 | | | 15,127 | | |
17000 Gale Avenue | | Los Angeles - San Gabriel Valley | | 8/12/2022 | | 29,888 | | | 1 | | | 11,176 | | |
17909 & 17929 Susana Road | | Los Angeles - South Bay | | 8/17/2022 | | 57,376 | | | 2 | | | 26,100 | | |
2880 Ana Street | | Los Angeles - South Bay | | 8/25/2022 | | 80,850 | | | 1 | | | 34,600 | | |
920 Pacific Coast Highway | | Los Angeles - South Bay | | 9/1/2022 | | 148,186 | | | 1 | | | 100,000 | | |
21022 & 21034 Figueroa Street | | Los Angeles - South Bay | | 9/7/2022 | | 51,185 | | | 1 | | | 24,200 | | |
13301 Main Street | | Los Angeles - South Bay | | 9/14/2022 | | 106,969 | | | 1 | | | 51,150 | | |
20851 Currier Road(4) | | Los Angeles - San Gabriel Valley | | 10/5/2022 | | 59,412 | | | 1 | | | 21,800 | | |
3131 Harcourt Street & 18031 Susana Road | | Los Angeles - South Bay | | 11/15/2022 | | 73,000 | | | 2 | | | 27,500 | | |
14400 Figueroa Street | | Los Angeles - South Bay | | 11/22/2022 | | 121,062 | | | 4 | | | 49,000 | | |
2130-2140 Del Amo Blvd | | Los Angeles - South Bay | | 12/16/2022 | | 99,064 | | | 2 | | | 41,900 | | |
19145 Gramercy Place | | Los Angeles - South Bay | | 12/16/2022 | | 102,143 | | | 1 | | | 37,000 | | |
20455 Reeves Avenue | | Los Angeles - South Bay | | 12/16/2022 | | 110,075 | | | 1 | | | 48,950 | | |
14874 Jurupa Avenue | | San Bernardino - Inland Empire West | | 12/16/2022 | | 158,119 | | | 1 | | | 59,250 | | |
10660 Mulberry Avenue | | San Bernardino - Inland Empire West | | 12/16/2022 | | 49,530 | | | 1 | | | 10,950 | | |
755 Trademark Circle | | San Bernardino - Inland Empire West | | 12/23/2022 | | 34,427 | | | 1 | | | 10,500 | | |
4500 Azusa Canyon Road | | Los Angeles - San Gabriel Valley | | 12/29/2022 | | 77,266 | | | 1 | | | 40,000 | | |
7817 Haskell Avenue | | Los Angeles - San Fernando Valley | | 12/29/2022 | | 7,327 | | | 1 | | | 11,050 | | |
Total 2022 Property Acquisitions | | 5,940,775 | | | 87 | | | $ | 2,391,927 | | |
(1)Represents the gross contractual purchase price before credits, prorations, closing costs and other acquisition related costs. Including $27.7 million of capitalized closing costs and acquisition related costs, the total aggregate initial investment was $2.42 billion. Each acquisition was funded with available cash on hand unless otherwise noted.
(2)Represents acquisition of an industrial outdoor storage site.
(3)The acquisition of the Long Beach Business Park was funded through a reconciliationcombination of cash cash equivalentson hand and restricted cash reported within the consolidated balance sheets that sum to the totalissuance of the same such amounts shown164,998 3.00% Cumulative Redeemable Convertible Preferred Units of partnership interest in the consolidated statementsOperating Partnership. See “Note 12 – Noncontrolling Interests – Preferred Units – Series 3 CPOP Units” for additional details.
(4)Represents acquisition of cash flows, asa current or near-term redevelopment site.
(5)On May 25, 2022, we acquired the property located at 14200-14220 Arminta Street for a purchase price of December 31, 2017 (in thousands):
|
| | | |
| December 31, 2017 |
Cash and cash equivalents | $ | 6,620 |
|
Restricted cash | 250 |
|
Cash, cash equivalents and restricted cash, end of period. | $ | 6,870 |
|
On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses certain classification issues related to the statement of cash flows, including: (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination and (iii) distributions received from equity method investees. ASU 2016-15 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We early adopted ASU 2016-15, effective July 1, 2016, and elected, as part of the adoption, to classify distributions received from equity method investees under the “nature of the distribution approach,” in which each distribution is evaluated on the basis of the source of the payment and classified as either operating cash inflows or investing cash inflows. The adoption of ASU 2016-15 did not affect have a material impact on our consolidated statements of cash flows.
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3. | Investments in Real Estate |
REIT Portfolio Acquisition
On April 11, 2016, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) to acquire a private real estate investment trust (the “private REIT”) that owns a portfolio of nine industrial properties totaling approximately 1.5$80.7 million, rentable square feet (the “REIT Portfolio”) from a third-party seller in exchange for approximately $191.0 million in cash, exclusive of closing costscosts. The acquisition was funded through a combination of cash on hand and credits (the “REIT Portfolio Acquisition”).
On April 15, 2016, pursuant to the Stock Purchase Agreement, we consummated the transaction. As partissuance of the REIT Portfolio Acquisition, we acquired 100%954,000 common units of the private REIT’s common stock and 575 of 700 issued and outstanding shares of the private REIT’S 12.5% cumulative non-voting preferred stock (the “preferred stock”). The remaining 125 shares of preferred stock, which were held by unaffiliated third parties, were not immediately redeemed by us and remained outstandinglimited partnership interests in order to help us comply with federal income tax regulations applicable to REITs.
On June 22, 2017, we adopted a plan of liquidation and dissolution of the private REIT, and on December 31, 2017, we completed the liquidation of the private REIT, by distributing all assets to the Operating Partnership. As part of the liquidation process, we paid a liquidating distribution of $1,000 per share, or an aggregate liquidating distribution of $125,000, as payment in full for the redemption of the remaining 125 share of preferred stock not held by us.Partnership valued at $56.2 million.
Acquisition Summary
The following table sets forthsummarizes the wholly-owned industrial properties we acquired during the year ended December 31, 2017:2021:
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Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price(1) (in thousands) | |
15010 Don Julian Road(2) | | Los Angeles - San Gabriel Valley | | 1/5/2021 | | 92,925 | | | 1 | | | $ | 22,200 | | |
5002-5018 Lindsay Court | | San Bernardino - Inland Empire West | | 1/11/2021 | | 64,960 | | | 1 | | | 12,650 | | |
514 East C Street(3) | | Los Angeles - South Bay | | 1/14/2021 | | 3,436 | | | 1 | | | 9,950 | | |
17907-18001 Figueroa Street | | Los Angeles - South Bay | | 1/26/2021 | | 74,810 | | | 6 | | | 20,200 | | |
7817 Woodley Avenue(4) | | Los Angeles - San Fernando Valley | | 1/27/2021 | | 36,900 | | | 1 | | | 9,963 | | |
8888-8892 Balboa Avenue(2) | | San Diego - Central | | 2/4/2021 | | 86,637 | | | 2 | | | 19,800 | | |
9920-10020 Pioneer Boulevard | | Los Angeles - Mid-Counties | | 2/19/2021 | | 157,669 | | | 7 | | | 23,500 | | |
2553 Garfield Avenue | | Los Angeles - Central | | 3/19/2021 | | 25,615 | | | 1 | | | 3,900 | | |
6655 East 26th Street | | Los Angeles - Central | | 3/19/2021 | | 47,500 | | | 1 | | | 6,500 | | |
560 Main Street | | Orange County - North | | 3/19/2021 | | 17,000 | | | 1 | | | 2,600 | | |
4225 Etiwanda Avenue | | San Bernardino - Inland Empire West | | 3/23/2021 | | 134,500 | | | 1 | | | 32,250 | | |
12118 Bloomfield Avenue(2) | | Los Angeles - Mid-Counties | | 4/14/2021 | | 63,000 | | | 4 | | | 16,650 | | |
256 Alondra Boulevard(3) | | Los Angeles - South Bay | | 4/15/2021 | | 2,456 | | | 1 | | | 11,250 | | |
19007 Reyes Avenue(2)(3) | | Los Angeles - South Bay | | 4/23/2021 | | — | | | — | | | 16,350 | | |
19431 Santa Fe Avenue(3) | | Los Angeles - South Bay | | 4/30/2021 | | 14,793 | | | 3 | | | 10,500 | | |
4621 Guasti Road | | San Bernardino - Inland Empire West | | 5/21/2021 | | 64,512 | | | 1 | | | 13,335 | | |
12838 Saticoy Street | | Los Angeles - San Fernando Valley | | 6/15/2021 | | 100,390 | | | 1 | | | 27,250 | | |
19951 Mariner Avenue | | Los Angeles - South Bay | | 6/15/2021 | | 89,272 | | | 1 | | | 27,400 | | |
East 12th Street | | Los Angeles - Central | | 6/17/2021 | | 257,976 | | | 4 | | | 93,600 | | |
29120 Commerce Center Drive | | Los Angeles - San Fernando Valley | | 6/22/2021 | | 135,258 | | | 1 | | | 27,052 | | |
20304 Alameda Street | | Los Angeles - South Bay | | 6/24/2021 | | 77,758 | | | 2 | | | 13,500 | | |
4181 Ruffin Road | | San Diego - Central | | 7/8/2021 | | 150,144 | | | 1 | | | 35,750 | | |
12017 Greenstone Avenue(3) | | Los Angeles - Mid-Counties | | 7/16/2021 | | — | | | 1 | | | 13,500 | | |
1901 Via Burton(2) | | Orange County - North | | 7/26/2021 | | — | | | 1 | | | 24,211 | | |
1555 Cucamonga Avenue | | San Bernardino - Inland Empire West | | 8/4/2021 | | 107,023 | | | 2 | | | 21,000 | | |
1800 Lomita Boulevard(3) | | Los Angeles - South Bay | | 8/6/2021 | | — | | | — | | | 70,000 | | |
8210-8240 Haskell Avenue | | Los Angeles - San Fernando Valley | | 8/17/2021 | | 53,248 | | | 3 | | | 12,425 | | |
3100 Lomita Boulevard | | Los Angeles - South Bay | | 8/20/2021 | | 575,976 | | | 5 | | | 202,469 | | (5) |
2401-2421 Glassell Street | | Orange County - North | | 8/25/2021 | | 191,127 | | | 4 | | | 70,025 | | |
2390-2444 American Way(2) | | Orange County - North | | 8/26/2021 | | — | | | — | | | 16,700 | | |
500 Dupont Avenue | | San Bernardino - Inland Empire West | | 8/26/2021 | | 276,000 | | | 1 | | | 58,500 | | |
1801 St. Andrew Place | | Orange County - Airport | | 9/10/2021 | | 370,374 | | | 1 | | | 105,300 | | |
5772 Jurupa Street | | San Bernardino - Inland Empire West | | 9/17/2021 | | 360,000 | | | 1 | | | 54,000 | | |
2500 Victoria Street(3) | | Los Angeles - South Bay | | 9/30/2021 | | — | | | — | | | 232,067 | | (6) |
1010 Belmont Street | | San Bernardino - Inland Empire West | | 10/1/2021 | | 61,824 | | | 1 | | | 14,500 | | |
21515 Western Avenue(2)(7) | | Los Angeles - South Bay | | 10/12/2021 | | 56,199 | | | 1 | | | 18,950 | | |
12027 Greenstone Avenue(3) | | Los Angeles - Mid-Counties | | 10/28/2021 | | 7,780 | | | 1 | | | 8,125 | | |
6027 Eastern Avenue(2) | | Los Angeles - Central | | 11/16/2021 | | 82,922 | | | 1 | | | 23,250 | | |
|
| | | | | | | | | | | | | |
Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price(1) (in thousands) |
28901-28903 Avenue Paine(2) | | Los Angeles - San Fernando Valley | | 2/17/2017 | | 111,346 |
| | 1 | | $ | 17,060 |
|
2390 Ward Avenue(3) | | Ventura | | 4/28/2017 | | 138,700 |
| | 1 | | 16,499 |
|
Safari Business Center(4) | | Inland Empire - West | | 5/24/2017 | | 1,138,090 |
| | 16 | | 141,200 |
|
4175 Conant Street(5) | | Los Angeles - South Bay | | 6/14/2017 | | 142,593 |
| | 1 | | 30,600 |
|
5421 Argosy Avenue(5) | | Orange County - West | | 6/15/2017 | | 35,321 |
| | 1 | | 5,300 |
|
14820-14830 Carmenita Road(2) | | Los Angeles - Mid-counties | | 6/30/2017 | | 198,062 |
| | 3 | | 30,650 |
|
3002-3072 Inland Empire Blvd(2) | | Inland Empire - West | | 7/3/2017 | | 218,407 |
| | 4 | | 26,900 |
|
17000 Kingsview Avenue(2) | | Los Angeles - South Bay | | 7/11/2017 | | 100,121 |
| | 1 | | 13,986 |
|
Rancho Pacifica Park(6) | | Los Angeles - South Bay | | 7/18/2017 | | 1,170,806 |
| | 6 | | 210,500 |
|
11190 White Birch Drive(2) | | Inland Empire - West | | 7/20/2017 | | 201,035 |
| | 1 | | 19,810 |
|
4832-4850 Azusa Canyon Road(2) | | Los Angeles - San Gabriel Valley | | 7/28/2017 | | 87,421 |
| | 1 | | 14,550 |
|
1825 Soto Street(5) | | Los Angeles - Central | | 9/8/2017 | | 25,040 |
| | 2 | | 3,475 |
|
19402 Susana Road(5) | | Los Angeles - South Bay | | 9/13/2017 | | 15,433 |
| | 1 | | 3,942 |
|
13225 Western Avenue(5) | | Los Angeles - South Bay | | 10/31/2017 | | 21,010 |
| | 1 | | 2,255 |
|
15401 Figueroa Street(5) | | Los Angeles - South Bay | | 10/31/2017 | | 38,584 |
| | 1 | | 4,435 |
|
8542 Slauson Avenue(5) | | Los Angeles - Central | | 11/28/2017 | | 24,679 |
| | 1 | | 9,015 |
|
687 Eucalyptus Avenue(7) | | Los Angeles - South Bay | | 11/28/2017 | | 143,436 |
| | 1 | | 53,875 |
|
302 Rockefeller Avenue(2) | | Inland Empire - West | | 12/28/2017 | | 99,282 |
| | 1 | | 14,520 |
|
4355 Brickell Street(2) | | Inland Empire - West | | 12/28/2017 | | 95,644 |
| | 1 | | 13,110 |
|
12622-12632 Monarch Street(8) | | Orange County - West | | 12/28/2017 | | 121,225 |
| | 2 | | 20,545 |
|
8315 Hanan Way(2) | | Los Angeles - Central | | 12/28/2017 | | 100,692 |
| | 1 | | 14,500 |
|
Total 2017 Wholly-Owned Property Acquisitions | | | | 4,226,927 |
| | 48 | | $ | 666,727 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price(1) (in thousands) | |
340-344 Bonnie Circle | | San Bernadino - Inland Empire West | | 11/16/2021 | | 98,000 | | | 1 | | | 27,000 | | |
14100 Vine Place | | Los Angeles - Mid Counties | | 11/18/2021 | | 119,145 | | | 1 | | | 48,501 | | |
2280 Ward Avenue | | Ventura - Ventura | | 11/30/2021 | | 242,101 | | | 1 | | | 46,411 | | |
20481 Crescent Bay Drive | | Orange County - South | | 11/30/2021 | | 88,355 | | | 1 | | | 19,500 | | |
334 El Encanto Road | | Los Angeles - San Gabriel Valley | | 12/02/2021 | | 64,368 | | | 1 | | | 10,675 | | |
17031-17037 Green Drive | | Los Angeles - San Gabriel Valley | | 12/10/2021 | | 51,000 | | | 1 | | | 13,770 | | |
13512 Marlay Avenue | | San Bernadino - Inland Empire West | | 12/16/2021 | | 199,363 | | | 1 | | | 51,000 | | |
14940 Proctor Road | | Los Angeles - San Gabriel Valley | | 12/17/2021 | | 111,927 | | | 1 | | | 28,596 | | |
2800 Casitas Avenue | | Los Angeles - San Fernando Valley | | 12/22/2021 | | 117,000 | | | 1 | | | 43,000 | | |
4240 190th Street | | Los Angeles - South Bay | | 12/23/2021 | | 307,487 | | | 1 | | | 75,300 | | |
2391-2393 Bateman Avenue | | Los Angeles - San Gabriel Valley | | 12/28/2021 | | 65,605 | | | 1 | | | 23,077 | | |
1168 Sherborn Street | | San Bernardino - Inland Empire West | | 12/29/2021 | | 79,515 | | | 1 | | | 23,445 | | |
3071 Coronado Street(2) | | Orange County - North | | 12/30/2021 | | 109,908 | | | 1 | | | 28,000 | | |
8911 Aviation Blvd | | Los Angeles - South Bay | | 12/30/2021 | | 100,000 | | | 1 | | | 32,000 | | |
1020 Bixby Drive | | Los Angeles - San Gabriel Valley | | 12/31/2021 | | 56,915 | | | 1 | | | 16,350 | | |
Total 2021 Property Acquisitions | | | | 5,650,673 | | | 80 | | | $ | 1,887,797 | | |
| |
(1) | Represents the gross contractual purchase price before prorations and closing costs. Does not include capitalized acquisition costs totaling $2.0 million. |
| |
(2) | This acquisition was funded with available cash on hand and borrowings under our unsecured revolving credit facility. |
| |
(3) | This acquisition was partially funded through a 1031 Exchange using $6.5 million of net cash proceeds from the sale of our property located at 9375 Archibald Avenue and borrowings under our unsecured revolving credit facility. |
| |
(4) | This acquisition was partially funded through a 1031 Exchange using $39.7 million of net cash proceeds from the sale of our property located at 2535 Midway Drive, borrowings under our unsecured revolving credit facility and available cash on hand. |
| |
(5) | This acquisition was funded with available cash on hand. |
| |
(6) | This acquisition was partially funded with net cash proceeds from the issuance of $125.0 million of senior unsecured guaranteed notes and borrowings under our unsecured revolving credit facility. |
(1)Represents the gross contractual purchase price before credits, prorations, closing costs and other acquisition related costs. Including $17.7 million of capitalized closing costs and acquisition related costs, the total aggregate initial investment was $1.9 billion. Each acquisition was funded with available cash on hand unless otherwise noted.
| |
(7) | This acquisition was partially funded through a 1031 Exchange using $29.3 million of net cash proceeds from the sale of our properties located at 12345 First American Way and 9401 De Soto Avenue and available cash on hand. |
| |
(8) | This acquisition was partially funded through a 1031 Exchange using $2.2 million of net cash proceeds from the sale of our property located at 77-700 Enfield Lane and available cash on hand. |
(2)Represents acquisition of a current or near-term redevelopment site.
(3)Represents acquisition of an industrial outdoor storage site.
(4)The following table sets forthacquisition of 7817 Woodley Avenue was funded through a combination of cash on hand and the wholly-owned industrial propertiesassumption of $3.2 million of debt. This property is the remaining asset in the Van Nuys Airport Industrial Center Portfolio that we acquired duringin December 2020.
(5)In connection with the year ended December 31, 2016:acquisition of 3100 Lomita Boulevard, we prepaid an existing loan on the property and incurred a $20.4 million prepayment fee at closing. The acquisition price in the table above reflects this prepayment fee in addition to the $182.0 million contractual purchase price.
(6)In connection with the acquisition of 2500 Victoria Street, we entered into a long-term sale lease-back agreement with the seller/tenant. At the end of the lease, the tenant will be required to restore the site by removing all above and below ground improvements to prepare the property for subsequent development by us. The acquisition price in the table above reflects the $217.1 million contractual purchase price plus additional consideration of $15.0 million, which is payable to the tenant at the end of the lease, subject to the tenant completing its restoration obligations under the lease. The $15.0 million has been recorded in security deposits in the consolidated balance sheets.
(7)The acquisition of 21515 Western Avenue was funded through a combination of cash on hand and the assumption of $13.2 million of debt.
|
| | | | | | | | | | | | | |
Property | | Submarket | | Date of Acquisition | | Rentable Square Feet | | Number of Buildings | | Contractual Purchase Price (in thousands) |
8525 Camino Santa Fe(1) | | San Diego - Central | | 3/15/2016 | | 59,399 |
| | 1 | | $ | 8,450 |
|
28454 Livingston Avenue(1) | | Los Angeles - San Fernando Valley | | 3/29/2016 | | 134,287 |
| | 1 | | 16,000 |
|
REIT Portfolio(2) | | Various(2) | | 4/15/2016 | | 1,530,814 |
| | 9 | | 191,000 |
|
10750-10826 Lower Azusa Road(3) | | Los Angeles - San Gabriel Valley | | 5/3/2016 | | 79,050 |
| | 4 | | 7,660 |
|
525 Park Avenue(4) | | Los Angeles - San Fernando Valley | | 6/30/2016 | | 63,403 |
| | 1 | | 7,550 |
|
3233 Mission Oaks Boulevard(5) | | Ventura | | 7/6/2016 | | 457,693 |
| | 1 | | 25,700 |
|
1600 E. Orangethorpe Avenue(4) | | Orange County - North | | 8/24/2016 | | 345,756 |
| | 6 | | 40,137 |
|
14742-14750 Nelson Avenue(4) | | Los Angeles - San Gabriel Valley | | 9/8/2016 | | 145,531 |
| | 2 | | 15,000 |
|
3927 Oceanic Drive(4) | | San Diego - North County | | 10/21/2016 | | 54,740 |
| | 1 | | 7,200 |
|
301-445 Figueroa Street(4) | | Los Angeles - South Bay | | 11/4/2016 | | 133,925 |
| | 1 | | 13,000 |
|
12320 4th Street(6) | | Inland Empire - West | | 12/7/2016 | | 284,676 |
| | 2 | | 24,435 |
|
9190 Activity Road(4) | | San Diego - Central | | 12/16/2016 | | 83,520 |
| | 1 | | 15,550 |
|
| | | | | | 3,372,794 |
| | 30 | | $ | 371,682 |
|
| |
(1) | This acquisition was funded with available cash on hand and borrowings under our unsecured revolving credit facility. |
| |
(2) | The REIT Portfolio Acquisition was funded with available cash on hand, proceeds from a $100.0 million term loan borrowing and proceeds from an equity offering of 10.35 million shares of our common stock. See Notes 5 and 13 for additional information. The REIT Portfolio consists of nine properties located in four of our core submarkets, including Orange County, Los Angeles - San Gabriel Valley, Inland Empire West and Central San Diego. |
| |
(3) | This acquisition was partially funded through a 1031 Exchange using $2.5 million of net cash proceeds from the sale of our property located at 6010 North Paramount Boulevard and available cash on hand. |
| |
(4) | This acquisition was funded with available cash on hand. |
| |
(5) | We acquired this property from our unconsolidated joint venture (see Note 11). Prior to the acquisition, our ownership interest in the property was 15.0%. This acquisition was partially funded through a 1031 Exchange using 18.0 million of net cash proceeds from the sale of our properties located at 1840 Dana Street and 12910 East Mulberry Drive and available cash on hand. |
| |
(6) | This acquisition was partially funded through a 1031 Exchange using $18.1 million of net cash proceeds from the sale of our properties located at 22343-22349 La Palma Avenue and 157th Street and available cash on hand. |
The following table summarizes the fair value of amounts recognized forallocated to each major class of asset and liability for the acquisitions noted in the table above, as of the date of each acquisition (in thousands):
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
Assets: | | | | |
Land | | $ | 1,698,173 | | | $ | 1,514,933 | |
Buildings and improvements | | 687,358 | | | 359,970 | |
Tenant improvements | | 9,987 | | | 37,173 | |
Acquired lease intangible assets(1) | | 82,539 | | | 71,919 | |
Right of use asset - ground lease(2) | | 4,787 | | | — | |
Other acquired assets(3) | | 558 | | | 519 | |
Total assets acquired | | $ | 2,483,402 | | | $ | 1,984,514 | |
Liabilities: | | | | |
Acquired lease intangible liabilities(4) | | $ | 54,085 | | | $ | 76,992 | |
Notes payable(5) | | — | | | 16,512 | |
Deferred rent liability(6) | | 4,339 | | | 1,554 | |
Lease liability - ground lease(2) | | 4,787 | | | — | |
Other assumed liabilities(3) | | 15,652 | | | 26,975 | |
Total liabilities assumed | | $ | 78,863 | | | $ | 122,033 | |
Net assets acquired | | $ | 2,404,539 | | | $ | 1,862,481 | |
(1)For the 2022 acquisitions, acquired lease intangible assets are comprised of $63.7 million of in-place lease intangibles with a weighted average amortization period of 5.8 years, $5.9 million of above-market lease intangibles with a weighted average amortization period of 6.9 years and a $13.0 million below-market ground lease intangible with an amortization period of 78.9 years. For the 2021 acquisitions, acquired lease intangible assets are comprised of $67.8 million of in-place lease intangibles with a weighted average amortization period of 7.2 years and $4.1 million of above-market lease intangibles with a weighted average amortization period of 9.0 years.
(2)The ROU asset and lease liability relate to a ground lease that we assumed in March 2022 in connection with the acquisition of 2970 East 50th Street.
(3)Includes other working capital assets acquired and liabilities assumed at the time of acquisition.
(4)Represents below-market lease intangibles with a weighted average amortization period of 8.9 years and 7.5 years, for the 2022 and 2021 acquisitions, respectively.
(5)In connection with the acquisition of properties, during the year ended December 31, 2021, we assumed two mortgage loans from the sellers. See “Note 5 – Notes Payable” for details.
(6)In connection with four acquisition transactions in 2022 and one acquisition transaction in 2021, we entered into short-term leaseback agreements with each seller/tenant where the seller/tenant does not pay any base rent for the lease term or pays below-market rent. The amounts allocated to “Deferred rent liabilities” in the table above represent the present value of lease payments using prevailing market rental rates, which will be amortized into rental income over the term of each respective lease.
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Rancho Pacifica Park | | Other Acquisitions | | Total Acquisitions | | REIT Portfolio Acquisition | | Other Acquisitions | | Total Acquisitions |
Assets: | | | | | | | | | | | | |
Land(1) | | $ | 121,329 |
| | $ | 233,207 |
| | $ | 354,536 |
| | $ | 101,530 |
| | $ | 102,296 |
| | $ | 203,826 |
|
Buildings and improvements | | 85,336 |
| | 202,137 |
| | 287,473 |
| | 74,586 |
| | 72,588 |
| | 147,174 |
|
Tenant improvements | | 1,440 |
| | 5,570 |
| | 7,010 |
| | 2,875 |
| | 2,461 |
| | 5,336 |
|
Acquired lease intangible assets(2)(3) | | 8,852 |
| | 22,414 |
| | 31,266 |
| | 12,103 |
| | 9,180 |
| | 21,283 |
|
Other acquired assets(4) | | 5 |
| | 223 |
| | 228 |
| | 222 |
| | 305 |
| | 527 |
|
Total assets acquired | | $ | 216,962 |
| | $ | 463,551 |
| | $ | 680,513 |
| | $ | 191,316 |
| | $ | 186,830 |
| | $ | 378,146 |
|
Liabilities: | | | | | | | | | | | | |
Acquired lease intangible liabilities(5) | | 6,264 |
| | 6,338 |
| | 12,602 |
| | 934 |
| | 6,583 |
| | 7,517 |
|
Other assumed liabilities(4) | | 1,126 |
| | 2,424 |
| | 3,550 |
| | 1,519 |
| | 1,364 |
| | 2,883 |
|
Total liabilities assumed | | $ | 7,390 |
| | $ | 8,762 |
| | $ | 16,152 |
| | $ | 2,453 |
| | $ | 7,947 |
| | $ | 10,400 |
|
Net assets acquired | | $ | 209,572 |
| | $ | 454,789 |
| | $ | 664,361 |
| | $ | 188,863 |
| | $ | 178,883 |
| | $ | 367,746 |
|
Dispositions
| |
(1) | The allocation to land in 2016 includes $0.2 million of capitalized acquisition costs related to the purchase of 14742-14750 Nelson Avenue and 3927 Oceanic Drive, which were accounted for as asset acquisitions. |
| |
(2) | For Rancho Pacifica Park, acquired lease intangible assets is comprised of in-place lease intangibles with weighted average amortization period of 3.2 years. For the other 2017 acquisitions, acquired lease intangible assets is comprised of $21.0 million of in-place lease intangibles with a weighted average amortization period of 5.6 years and $1.4 million of above-market lease intangibles with a weighted average amortization period of 10.6 years. |
| |
(3) | For the REIT Portfolio, acquired lease intangible assets is comprised of $11.1 million of in-place lease intangibles with a weighted average amortization period of 5.0 years and $1.0 million of above-market lease intangibles with a weighted average amortization period of 7.6 years. For the other 2016 acquisitions, acquired lease intangible assets is comprised of $8.9 million of in-place lease intangibles with a weighted average amortization period of 5.5 years and $0.3 million of above-market lease intangibles with a weighted average amortization period of 2.4 years. |
| |
(4) | Includes other working capital assets acquired and liabilities assumed at the time of acquisition. |
| |
(5) | Represents below-market lease intangibles with a weighted average amortization period of 3.5 years, 3.4 years, 4.8 years and 10.3 years for the Rancho Pacifica Park, other 2017 acquisitions, the REIT Portfolio and other 2016 acquisitions, respectively. |
The following table sets forthsummarizes information related to the resultsproperties that we sold during the years ended December 31, 2022, 2021, and 2020 (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Submarket | | Date of Disposition | | Rentable Square Feet | | Contractual Sales Price(1) (in thousands) | | Gain Recorded (in thousands) | |
2022 Dispositions: | | | | | | | | | | | |
28159 Avenue Stanford | | Los Angeles - San Fernando Valley | | 1/13/2022 | | 79,247 | | | $ | 16,500 | | | $ | 8,486 | | |
| | | | | | | | | | | |
2021 Dispositions: | | | | | | | | | | | |
14723-14825.25 Oxnard Street | | Los Angeles - San Fernando Valley | | 2/12/2021 | | 77,790 | | | $ | 19,250 | | | $ | 9,906 | | |
6760 Central Avenue, Unit B | | San Bernardino - Inland Empire East | | 3/15/2021 | | 9,943 | | | 1,530 | | | 954 | | |
11529-11547 Tuxford Street | | Los Angeles - San Fernando Valley | | 5/20/2021 | | 29,730 | | | 8,176 | | | 2,750 | | |
5803 Newton Drive | | San Diego - North | | 9/15/2021 | | 71,602 | | | 18,600 | | | 13,702 | | |
2670-2674 East Walnut Street and 89-91 San Gabriel Boulevard | | Los Angeles - San Fernando Valley | | 11/01/2021 | | 31,619 | | | 11,700 | | | 6,617 | | |
Total | | 220,684 | | | $ | 59,256 | | | $ | 33,929 | | |
| | | | | | | | | | | |
2020 Dispositions: | | | | | | | | | | | |
3927 Oceanic Drive | | San Diego - North County | | 8/13/2020 | | 54,740 | | | $ | 10,300 | | | $ | 2,926 | | |
121 West 33rd Street | | San Diego - South County | | 9/18/2020 | | 76,745 | | | 13,500 | | | 7,575 | | |
2700-2722 South Fairview Street(2) | | Orange County - Airport | | 9/30/2020 | | 116,575 | | | 20,400 | | | 3,268 | | |
6750 Central Avenue | | San Bernardino - Inland Empire East | | 12/31/2020 | | 8,666 | | | 1,300 | | | 758 | | |
Subtotal | | 256,726 | | | 45,500 | | | 14,527 | | |
1055 Sandhill Avenue Personal Property | | — | | | 1,854 | | | (910) | | (3) |
Total | | 256,726 | | | $ | 47,354 | | | $ | 13,617 | | |
| | | | | | | | | | | |
(1)Represents the gross contractual sales price before commissions, prorations, credits and other closing costs.
(2)Gain recorded reflects (i) a $3.8 million gain on sale recognized due to lease reclassification from operating lease to sales-type lease, less (ii) approximately $0.6 million of selling costs/other write-offs related to the disposition.
(3)Represents a $0.9 million loss on disposition of personal property that was originally acquired as part of the acquisition of 1055 Sandhill Avenue and valued at $2.8 million. The loss is included in the line item “Gains on sale of real estate” in our consolidated statements of operations for the year ended December 31, 2017,2020.
Real Estate Held for the properties acquired during the year endedSale
As of December 31, 2017, included2022, we did not have any properties classified as held for sale. As of December 31, 2021, our property located at 28159 Avenue Stanford in the consolidated statements of operations from the date of acquisition (in thousands):
|
| | | |
| Year Ended December 31, 2017 |
Revenues | $ | 19,177 |
|
Net Income | $ | 2,158 |
|
Valencia, California was classified as held for sale.
The following table sets forth unaudited pro-forma financial information (in thousands)summarizes the major classes of assets and liabilities associated with real estate property classified as if the closingheld for sale as of our acquisitions during the year ended December 31, 2017, had occurred on January 1, 2016. These unaudited pro-forma results have been prepared for comparative purposes only and include certain adjustments, such as (i) increased rental revenues for the amortization of the net amount of above- and -below-market rents acquired2021 (dollars in the acquisitions, (ii) increased depreciation and amortization expenses as a result of tangible and intangible assets acquired in the acquisitions and (iii) increased interest expense for borrowings associated with these acquisitions. These pro-forma results have not been adjusted for property sales completed during the year ended December 31, 2017. These unaudited pro-forma results do not purport to be indicative of what operating results would have been had the acquisitions actually occurred on January 1, 2016, and may not be indicative of future operating results.thousands).
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Revenues | $ | 180,232 |
| | $ | 160,556 |
|
Net income | $ | 33,057 |
| | $ | 16,125 |
|
Net income attributable to common stockholders per share - basic | $ | 0.46 |
| | $ | 0.26 |
|
Net income attributable to common stockholders per share - diluted | $ | 0.46 |
| | $ | 0.26 |
|
| | | | | | | | | | |
4. | Acquired Lease Intangibles | | | December 31, 2021 |
Land | | | | $ | 1,849 | |
Building and improvements | | | | 10,753 | |
Tenant improvements | | | | 1,059 | |
| | | | |
Real estate held for sale | | | | 13,661 | |
Accumulated depreciation | | | | (6,657) | |
Real estate held for sale, net | | | | 7,004 | |
Other assets associated with real estate held for sale | | | | 209 | |
Total assets associated with real estate held for sale, net | | | | $ | 7,213 | |
| | | | |
Tenant security deposits | | | | $ | 177 | |
Other liabilities associated with real estate held for sale | | | | 54 | |
Total liabilities associated with real estate held for sale | | | | $ | 231 | |
4. Acquired Lease Intangibles
The following table summarizes our acquisition-related intangible assets, including the value of in-place tenant leases, and above-market tenant leases and a below-market ground lease, and our acquisition-related intangible liabilities, including below-market tenant leases and above-market ground leases as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Acquired Lease Intangible Assets: | | | |
In-place lease intangibles | $ | 315,842 | | | $ | 256,902 | |
Accumulated amortization | (172,883) | | | (135,415) | |
In-place lease intangibles, net | $ | 142,959 | | | $ | 121,487 | |
| | | |
Above-market tenant leases | $ | 26,851 | | | $ | 21,065 | |
Accumulated amortization | (12,671) | | | (10,394) | |
Above-market tenant leases, net | $ | 14,180 | | | $ | 10,671 | |
| | | |
Below-market ground lease(1) | $ | 12,977 | | | $ | — | |
Accumulated amortization(1) | $ | (130) | | | $ | — | |
Below-market ground lease, net | $ | 12,847 | | | $ | — | |
Acquired lease intangible assets, net | $ | 169,986 | | | $ | 132,158 | |
| | | |
Acquired Lease Intangible Liabilities: | | | |
Below-market tenant leases | $ | (220,646) | | | $ | (174,686) | |
Accumulated accretion | 73,262 | | | 47,669 | |
Below-market tenant leases, net | $ | (147,384) | | | $ | (127,017) | |
| | | |
| | | |
| | | |
| | | |
Acquired lease intangible liabilities, net | $ | (147,384) | | | $ | (127,017) | |
(1)The below-market lease intangible relates to a ground lease that we assumed in March 2022 in connection with the acquisition of 2970 East 50th Street.
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Acquired Lease Intangible Assets: | | | |
In-place lease intangibles | $ | 95,750 |
| | $ | 68,234 |
|
Accumulated amortization | (51,735 | ) | | (37,648 | ) |
In-place lease intangibles, net | $ | 44,015 |
| | $ | 30,586 |
|
| | | |
Above-market tenant leases | $ | 10,718 |
| | $ | 10,191 |
|
Accumulated amortization | (5,494 | ) | | (4,412 | ) |
Above-market tenant leases, net | $ | 5,224 |
| | $ | 5,779 |
|
Acquired lease intangible assets, net | $ | 49,239 |
| | $ | 36,365 |
|
| | | |
Acquired Lease Intangible Liabilities: | |
| | |
|
Below-market tenant leases | $ | (24,843 | ) | | $ | (12,426 | ) |
Accumulated accretion | 6,925 |
| | 3,477 |
|
Below-market tenant leases, net | $ | (17,918 | ) | | $ | (8,949 | ) |
| | | |
Below-market ground lease | $ | (290 | ) | | $ | (290 | ) |
Accumulated accretion | 141 |
| | 109 |
|
Below-market ground lease, net | $ | (149 | ) | | $ | (181 | ) |
Acquired lease intangible liabilities, net | $ | (18,067 | ) | | $ | (9,130 | ) |
The following table summarizes the amortization related to our acquired lease intangible assets and liabilities for the reported periods noted below (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
In-place lease intangibles(1) | $ | 42,202 | | | $ | 30,136 | | | $ | 22,903 | |
Net below market tenant leases(2) | $ | (31,339) | | | $ | (15,443) | | | $ | (10,533) | |
Below-market ground leases(3) | $ | 130 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
In-place lease intangibles(1) | $ | 15,598 |
| | $ | 13,560 |
| | $ | 12,445 |
|
Net above (below) market tenant leases(2) | $ | (2,238 | ) | | $ | (46 | ) | | $ | 234 |
|
Above-market ground lease(3) | $ | (32 | ) | | $ | (32 | ) | | $ | (32 | ) |
(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. | |
(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 above (below) market tenant leases is recorded as a decrease (increase) to rental revenues in the consolidated statements of operations for the periods presented. |
| |
(3) | The accretion of the above-market ground lease is recorded as a decrease to property expenses 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 the below-market ground lease is recorded as an increase to property expenses in the consolidated statements of operations for the periods presented.
The following table summarizes the estimated amortization/(accretion) of our acquisition-related intangibles as of December 31, 2017,2022, for the next five years and thereafter (in thousands):
| | | | | | | | | | | | | | | | | |
Year Ending | In-place Leases(1) | | Net Above/(Below) Market Operating Leases(2) | | Below Market Ground Lease(3) |
2023 | $ | 38,044 | | | $ | (27,386) | | | $ | 164 | |
2024 | 25,988 | | | (21,398) | | | 164 | |
2025 | 19,430 | | | (15,519) | | | 164 | |
2026 | 15,041 | | | (12,568) | | | 164 | |
2027 | 10,629 | | | (8,104) | | | 164 | |
Thereafter | 33,827 | | | (48,229) | | | 12,027 | |
Total | $ | 142,959 | | | $ | (133,204) | | | $ | 12,847 | |
|
| | | | | | | | | | | |
Year Ending | In-place Leases(1) | | Net Above/(Below) Market Operating Leases(2) | | Above Market Ground Lease(3) |
2018 | $ | 8,638 |
| | $ | (2,088 | ) | | $ | (25 | ) |
2019 | 7,358 |
| | (2,034 | ) | | (25 | ) |
2020 | 6,599 |
| | (1,841 | ) | | (25 | ) |
2021 | 5,702 |
| | (1,766 | ) | | (25 | ) |
2022 | 4,260 |
| | (1,575 | ) | | (25 | ) |
Thereafter | 11,458 |
| | (3,390 | ) | | (24 | ) |
Total | $ | 44,015 |
| | $ | (12,694 | ) | | $ | (149 | ) |
| |
(1) | (1)Estimated amounts of amortization will be recorded to depreciation and amortization expense in the consolidated statements of operation. |
| |
(2) | Estimated amounts of amortization will be recorded as a net increase to rental revenues in the consolidated statements of operations. |
| |
(3) | Estimated amounts of accretion will be recorded as a decrease to property expenses in the consolidated statements of operations. |
The following table summarizes the balance of our indebtedness as of December 31, 2017 and 2016 (in thousands):
|
| | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
Principal amount | | $ | 671,658 |
| | $ | 502,476 |
|
Less: unamortized discount and debt issuance costs(1) | | (2,717 | ) | | (2,292 | ) |
Carrying value | | $ | 668,941 |
| | $ | 500,184 |
|
(1) Unamortized discount and debt issuance costs exclude net debt issuance costs related to establishing our unsecured credit facility. These costs are presented in the line item “Deferred loan costs, net” in the consolidated balance sheets.statements of operations.
(2)Estimated amounts of amortization will be recorded as a net increase to rental income in the consolidated statements of operations.
(3)Estimated amounts of amortization will be recorded as an increase to property expenses in the consolidated statements of operations for the periods presented.
5. Notes Payable
The following table summarizes the components and significant terms of our indebtedness as of December 31, 20172022 and 20162021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | Margin Above SOFR | | Interest Rate(1) | | Contractual Maturity Date | |
Unsecured and Secured Debt: | | | | | | | | | | |
Unsecured Debt: | | | | | | | | | | |
Revolving Credit Facility | $ | — | | | $ | — | | | S+0.725 | % | (2) | 5.125 | % | (3) | 5/26/2026 | (4) |
$400M Term Loan | 400,000 | | | — | | | S+0.800 | % | (2) | 5.258 | % | | 7/19/2024 | (4) |
$150M Term Loan Facility(5) | — | | | 150,000 | | | n/a | | n/a | | 5/22/2025 | |
$100M Notes | 100,000 | | | 100,000 | | | n/a | | 4.290 | % | | 8/6/2025 | |
$300M Term Loan | 300,000 | | | — | | | S+0.800 | % | (2) | 3.717 | % | (6) | 5/26/2027 | |
$125M Notes | 125,000 | | | 125,000 | | | n/a | | 3.930 | % | | 7/13/2027 | |
$25M Series 2019A Notes | 25,000 | | | 25,000 | | | n/a | | 3.880 | % | | 7/16/2029 | |
$400M Senior Notes due 2030 | 400,000 | | | 400,000 | | | n/a | | 2.125 | % | | 12/1/2030 | |
$400M Senior Notes due 2031 (green bond) | 400,000 | | | 400,000 | | | n/a | | 2.150 | % | | 9/1/2031 | |
$75M Series 2019B Notes | 75,000 | | | 75,000 | | | n/a | | 4.030 | % | | 7/16/2034 | |
Total Unsecured Debt | $ | 1,825,000 | | | $ | 1,275,000 | | | | | | | | |
| | | | | | | | | | |
Secured Debt: | | | | | | | | | | |
2601-2641 Manhattan Beach Boulevard(7) | $ | 3,832 | | | $ | 3,951 | | | n/a | | 4.080 | % | | 4/5/2023 | |
$60M Term Loan(8) | — | | | 58,108 | | | n/a | | n/a | | 8/1/2023 | |
960-970 Knox Street(7) | 2,307 | | | 2,399 | | | n/a | | 5.000 | % | | 11/1/2023 | |
7612-7642 Woodwind Drive(7) | 3,712 | | | 3,806 | | | n/a | | 5.240 | % | | 1/5/2024 | |
11600 Los Nietos Road(7) | 2,462 | | | 2,626 | | | n/a | | 4.190 | % | | 5/1/2024 | |
$60M Term Loan Facility(9) | 60,000 | | | — | | | S+1.250 | % | | 5.708 | % | | 10/27/2024 | |
5160 Richton Street(7) | 4,153 | | | 4,272 | | | n/a | | 3.790 | % | | 11/15/2024 | |
22895 Eastpark Drive(7) | 2,612 | | | 2,682 | | | n/a | | 4.330 | % | | 11/15/2024 | |
701-751 Kingshill Place(10) | 7,100 | | | 7,100 | | | n/a | | 3.900 | % | | 1/5/2026 | |
13943-13955 Balboa Boulevard(7) | 14,965 | | | 15,320 | | | n/a | | 3.930 | % | | 7/1/2027 | |
2205 126th Street(11) | 5,200 | | | 5,200 | | | n/a | | 3.910 | % | | 12/1/2027 | |
2410-2420 Santa Fe Avenue(11) | 10,300 | | | 10,300 | | | n/a | | 3.700 | % | | 1/1/2028 | |
11832-11954 La Cienega Boulevard(7) | 3,928 | | | 4,002 | | | n/a | | 4.260 | % | | 7/1/2028 | |
Gilbert/La Palma(7) | 1,935 | | | 2,119 | | | n/a | | 5.125 | % | | 3/1/2031 | |
7817 Woodley Avenue(7) | 3,009 | | | 3,132 | | | n/a | | 4.140 | % | | 8/1/2039 | |
2515 Western Avenue(12) | — | | | 13,104 | | | n/a | | 4.500 | % | | 9/1/2042 | |
Total Secured Debt | $ | 125,515 | | | $ | 138,121 | | | | | | | | |
Total Unsecured and Secured Debt | $ | 1,950,515 | | | $ | 1,413,121 | | | | | | | | |
Less: Unamortized premium/discount and debt issuance costs(13) | (14,134) | | | (13,556) | | | | | | | | |
Total | $ | 1,936,381 | | | $ | 1,399,565 | | | | | | | | |
(1)Reflects the contractual interest rate under the terms of each loan as of December 31, 2022 and includes the effect of interest rate swaps that were effective as of December 31, 2022. See footnote (6) below. Excludes the effect of unamortized debt issuance costs and unamortized fair market value premiums and discounts.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 | | | | | | | |
| Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Contractual Maturity Date | | Stated Interest Rate(1) | | Effective Interest Rate(2) | |
Secured Debt | | | | | | | | | | | |
| | | |
$60M Term Loan(3) | $ | 58,891 |
| | $ | (125 | ) | | $ | 59,674 |
| | $ | (204 | ) | | 8/1/2019 | (4) | LIBOR+1.90% |
| | 3.95 | % | |
Gilbert/La Palma(5) | 2,767 |
| | (138 | ) | | 2,909 |
| | (145 | ) | | 3/1/2031 | | 5.125 | % | | 5.42 | % | |
12907 Imperial Highway | — |
| | ��� |
| | 5,182 |
| | 180 |
| | 4/1/2018 | | N/A |
| | N/A |
| |
1065 Walnut Street | — |
| | — |
| | 9,711 |
| | 192 |
| | 2/1/2019 | | N/A |
| | N/A |
| |
Unsecured Debt | | | | | | | | | | | | | | |
$100M Term Loan Facility | 100,000 |
| | (343 | ) | | 100,000 |
| | — |
| | 2/14/2022 | | LIBOR+1.20% |
| (6) | 3.18 | % | (7) |
Revolving Credit Facility | 60,000 |
| | — |
| | — |
| | — |
| | 2/12/2021 | (8) | LIBOR+1.10% |
| (6)(9) | 2.66 | % | |
$225M Term Loan Facility | 225,000 |
| | (1,398 | ) | | 225,000 |
| | (1,680 | ) | | 1/14/2023 | | LIBOR+1.50% | (6) | 3.19 | % | |
$100M Notes | 100,000 |
| | (576 | ) | | 100,000 |
| | (635 | ) | | 8/6/2025 | | 4.290 | % | | 4.37 | % | |
$125M Notes | 125,000 |
| | (137 | ) | | — |
| | — |
| | 7/13/2027 | | 3.930 | % | | 3.94 | % | |
Total | $ | 671,658 |
| | $ | (2,717 | ) | | $ | 502,476 |
| | $ | (2,292 | ) | | | | |
| | | |
| |
(1) | Reflects the contractual interest rate under the terms of the loan as of December 31, 2017. |
| |
(2) | Reflects the effective interest rate at December 31, 2017, which includes the effect of the amortization of discounts and debt issuance costs and the effect of interest rate swaps that are effective as of December 31, 2017. |
| |
(3) | This term loan is secured by six properties. Beginning August 15, 2016, monthly payments of interest and principal are based on a 30 years amortization table. As of December 31, 2017, the interest rate on this variable-rate term loan has been effectively fixed through the use of two interest rate swaps, one of which is an amortizing swap. See Note 7 for details. |
| |
(4) | One additional one-year extensions available at the borrower’s option. |
| |
(5) | Monthly payments of interest and principal based on a 20-year amortization table. |
| |
(6) | The LIBOR margin will range from 1.20% to 1.70% for the $100.0 million term loan facility, 1.10% to 1.50% for the unsecured revolving credit facility and 1.50% to 2.25% for the $225.0 million term loan facility depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value, or leverage ratio, which is measured on a quarterly basis. |
| |
(7) | As of December 31, 2017, interest on the $100 million term loan has been effectively fixed through the use of two interest rate swaps. See Note 7 for details. |
| |
(8) | Two additional six-month extensions available at the borrower’s option. |
| |
(9) | The unsecured revolving credit facility is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. The applicable facility fee will range from 0.15% to 0.30% depending upon our leverage ratio. |
(2)The interest rates on these loans are comprised of daily Secured Overnight Financing Rate (“SOFR”) for the unsecured revolving credit facility and 1-month term SOFR (“Term SOFR”) for the $300.0 million and $400.0 million unsecured term loans (in each case increased by a 0.10% SOFR adjustment) plus an applicable margin ranging from 0.725% to 1.400% per annum for the unsecured revolving credit facility and 0.80% to 1.60% per annum for the $300.0 million and $400.0 million unsecured term loans, depending on our investment grade ratings, leverage ratio and sustainability performance metrics, which may change from time to time. These loans are also subject to a 0% SOFR floor. In August 2022, our credit ratings were upgraded by two credit rating agencies and as a result, the applicable margin on the unsecured revolving credit facility was lowered to 0.725% from 0.775% and the applicable margin on the $300.0 million and $400.0 million unsecured term loans was lowered to 0.80% from 0.85%.
(3)The unsecured revolving credit facility is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. The applicable facility fee ranges from 0.125% to 0.300% per annum depending upon our investment grade ratings, leverage ratio and sustainability performance metrics.
(4)The unsecured revolving credit facility has two six-month extensions and the $400.0 million unsecured term loan has two one-year extensions available at the borrower’s option, subject to certain terms and conditions.
(5)In May 2022, we repaid in full the outstanding principal balance on this unsecured debt.
(6)As of December 31, 2022, Term SOFR related to $300.0 million of our variable rate debt has been effectively fixed through the use of interest rate swaps. Including the impact of these interest rate swaps, the hedged effective interest rate on the $300.0 million unsecured term loan is 3.717%. See Note 7 for details related to our interest rate swaps.
(7)Fixed monthly payments of interest and principal until maturity as follows: 2601-2641 Manhattan Beach Boulevard ($23,138), 960-970 Knox Street ($17,538), 7612-7642 Woodwind Drive ($24,270), 11600 Los Nietos ($22,637), 5160 Richton Street ($23,270), 22895 Eastpark Drive ($15,396), 13943-13955 Balboa Boulevard ($79,198), 11832-11954 La Cienega Boulevard ($20,194), Gilbert/La Palma ($24,008) and 7817 Woodley Avenue ($20,855).
(8)In October 2022, we repaid in full the outstanding principal balance on this secured debt.
(9)Loan has interest-only payment terms bearing interest at Term SOFR increased by a 0.10% SOFR adjustment plus an applicable margin of 1.25% per annum. The loan is secured by six properties and has three one-year extensions available at the borrower’s option, subject to certain terms and conditions.
(10)For 701-751 Kingshill Place, fixed monthly payments of interest only through January 2023, followed by fixed monthly payments of interest and principal ($33,488) until maturity.
(11)Fixed monthly payments of interest only.
(12)In June 2022, we repaid in full the outstanding principal balance on this secured debt and incurred no penalty for the prepayment in advance of its maturity date of September 1, 2042.
(13)Excludes unamortized debt issuance costs related to our unsecured revolving credit facility, which are presented in the line item “Deferred loan costs, net” in the consolidated balance sheets.
Contractual Debt Maturities
The following table summarizes the contractual debt maturities and scheduled amortization payments, excluding debt discounts/premiumspremiums/discounts and debt issuance costs, as of December 31, 2017,2022, and does not consider extension options available to us as noted in the table above (in thousands):
| | | | | |
2023 | $ | 7,490 | |
2024 | 473,403 | |
2025 | 100,973 | |
2026 | 7,587 | |
2027 | 444,078 | |
Thereafter | 916,984 | |
Total | $ | 1,950,515 | |
|
| | | |
2018 | $ | 933 |
|
2019 | 58,266 |
|
2020 | 166 |
|
2021 | 60,175 |
|
2022 | 100,184 |
|
Thereafter | 451,934 |
|
Total | $ | 671,658 |
|
Recent Activity
New $60 Million Term Loan RepaymentsFacility
On March 20, 2017,October 27, 2022, we repaid the $9.7 million outstanding balance on the 1065 Walnut Street mortgage loan in advance of the February 1, 2019 maturity date. In connection with the repayment, we incurred prepayment fees of $0.2 million which is included in loss on extinguishment of debt in the accompanying consolidated statements of operations. The loss on extinguishment of debt also includes the write-off of the unamortized debt premium of $0.2 million.
On December 29, 2017, we repaid the $5.1 million outstanding balance on the 12907 Imperial Highway mortgage loan. We did not incur any prepayment penalties for repaying in advance of the maturity date of April 1, 2018.
Amended Credit Agreement
On February 14, 2017, we amended our $300 million senior unsecured credit facility by enteringentered into a second amended and restated credit agreement (the “Amended Credit Agreement”), which provides for a $450.0$60.0 million senior unsecured credit facility, comprised of a $350.0 million unsecured revolving credit facility (the "Amended Revolver") and a $100.0 million unsecured term loan facility (the "Amended $100 Million Term Loan"). The Amended Revolver is scheduled to mature on February 12, 2021, and has two six-month extension options available, and the Amended $100“$60 Million Term Loan is scheduled to mature on February 14, 2022. Under the termsFacility”) that permits aggregate borrowings of the Amended Credit Agreement, we may request additional lender commitments up to an additional aggregate $550.0$60.0 million, the total of which may be comprised of additional revolving commitments underwe borrowed the Amended Revolver, an increase to the Amended $100same day at closing. The $60 Million Term Loan additional term loan tranches or any combination of the foregoing.
Facility is secured by six properties, matures on October 27, 2024, and has three one-year extension options available. Interest on the Amended Credit Agreement,$60 Million Term Loan Facility is generally to be paid based upon, at our option, either (i) LIBORTerm SOFR increased by a 0.10% SOFR adjustment plus an applicablea margin that is based upon our leverage ratioof 1.25% per annum, or (ii) the Base Rateapplicable base rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, orand (c) the Eurodollar Ratesum of adjusted Term SOFR plus 1.00%) plus a margin of 0.25% per annum.
On October 27, 2022, we used the proceeds from the $60 Million Term Loan Facility to repay our amortizing $60.0 million term loan in full, which had a balance of $57.5 million at the time of repayment. We did not incur any prepayment penalties for repaying in advance of the maturity date of August 1, 2023. In connection with the repayment of the amortizing term loan we wrote off $38 thousand of unamortized debt issuance costs, which is included in “Loss on extinguishment of debt” in the accompanying consolidated statements of operations.
Credit Agreement
On May 26, 2022, we amended our credit agreement, which was comprised of a $700.0 million unsecured revolving credit facility that was scheduled to mature on February 13, 2024, by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement initially provided for (i) a senior unsecured term loan facility that permits aggregate borrowings of up to $300.0 million (the “$300 Million Term Loan”), all of which was borrowed at closing on May 26, 2022, and (ii) a senior unsecured revolving credit facility (the “Revolver”) in the aggregate principal amount of $1.0 billion. On July 19, 2022, we exercised the accordion option under the Credit Agreement to add a $400.0 million unsecured term loan (the “$400 Million Term Loan” and together with the $300 Million Term Loan, the “Term Facility”). Subject to certain terms and conditions set forth in the Credit Agreement, we may request additional lender commitments and increase the size of the Credit Agreement by an additional $800.0 million, which may be comprised of additional revolving commitments under the Revolver, an increase to the Term Facility, additional term loan tranches or any combination of the foregoing.
The Revolver is scheduled to mature on May 26, 2026 and has two six-month extension options available. The $400 Million Term Loan is scheduled to mature on July 19, 2024 and has two one-year extension options available. The $300 Million Term Loan matures on May 26, 2027.
Interest on the Credit Agreement is generally to be paid based upon, at our option, either (i) Term SOFR plus the applicable margin; (ii) daily SOFR (“Daily Simple SOFR”) plus the applicable margin thator (iii) the applicable base rate (which is based on our leverage ratio.defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, (c) Term SOFR plus 1.00%, and (d) one percent (1.00%)) plus the applicable margin. Additionally, Term SOFR and Daily Simple SOFR will be increased by a 0.10% SOFR adjustment. The marginsapplicable margin for the Amended Revolver range in amountTerm Facility ranges from 1.10%0.80% to 1.50%1.60% per annum for LIBOR-basedSOFR-based loans and 0.10%0.00% to 0.50%0.60% per annum for Base Rate-basedbase rate loans, depending on our leverage ratio.investment grade ratings. The marginsapplicable margin for the Amended $100 Million Term Loan range in amountRevolver ranges from 1.20%0.725% to 1.70%1.400% per annum for LIBOR-basedSOFR-based loans and 0.20%0.00% to 0.70%0.40% per annum for Base Rate-basedbase rate loans, depending on our leverage ratio.
If we attain one additional investment grade rating by one or more of Standard & Poor’s or Moody’s Investor Services to complement our current investment grade Fitch rating, we may elect to convert the pricing structure under the Amended Credit Agreement to be based on such rating. In that event, the margins for the Amended Revolver will range in amount from 0.825% to 1.55% for LIBOR-based loans and 0.00% to 0.55% for Base Rate-based loans, depending on such rating, and the margins for the Amended $100 Million Term Loan will range in amount from 0.90% to 1.75% for LIBOR-based loans and 0.00% to 0.75% for Base Rate-based loans, depending on such rating.
ratings. In addition to the interest payable on amounts outstanding under the Amended Revolver, we are required to pay an applicable credit facility fee based upon our leverage ratio, on each lender's commitment amount under the Amended Revolver, regardless of usage. The applicable credit facility fee will range in amountranges from 0.15%0.125% to 0.30%,0.300% per annum, depending on our leverage ratio. Ininvestment grade ratings. The interest rate under the event that we convert the pricing structure to be based on an investment-grade rating, the applicable facility fee will range in amount from 0.125% to 0.30%, depending on such rating.
The Amended Credit Agreement is guaranteed byalso subject to a favorable leverage-based adjustment if our ratio of total indebtedness to total asset value is less than 35.0%.
In addition, the Company and by substantially all of the current and to-be-formed subsidiaries of the Operating Partnership that own an unencumbered property. The Amended Credit Agreement isfeatures a sustainability-linked pricing component whereby the applicable margin and applicable credit facility fee can decrease by 0.04% and 0.01%, respectively, or increase by 0.04% and 0.01%, respectively, if we meet, or do not secured by the Company’s properties or by equity interests in the subsidiaries that hold such properties.meet, certain sustainability performance targets, as applicable.
The Amended Revolver and the Amended $100 Million Term LoanFacility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Amended $100 Million Term LoanFacility and repaid or prepaid may not be reborrowed.
The Amended Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Amended Credit Agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Amended Credit Agreement, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
In connection with the amendment of our credit agreement, we wrote off $0.2 million of unamortized debt issuance costs attributable to one of the creditors departing the unsecured revolving credit facility. This write-off is included in “Loss on extinguishment of debt” in the accompanying consolidated statements of operations.
On December 31, 2017,2022, we had $60.0 milliondid not have any borrowings outstanding under the Amended Revolver, leaving $290.0 million$1.0 billion available for additionalfuture borrowings.
Note Purchase and Guarantee AgreementRepayment of $150 Million Term Loan Facility
On July 13, 2017,May 26, 2022, we entered intoused a Note Purchase and Guarantee Agreementportion of the borrowing proceeds from the $300 Million Term Loan to repay our $150.0 million unsecured term loan facility (the “NPGA”“$150 Million Term Loan”) in full. We did not incur any prepayment penalties for repaying in advance of the private placementmaturity date of $125.0May 22, 2025. In connection with the repayment of the $150 Million Term Loan, we wrote off $0.7 million of senior unsecured guaranteed notes, maturingunamortized debt issuance costs, which is included in “Loss on July 13, 2027,extinguishment of debt” in the accompanying consolidated statements of operations.
Issuance of $400 Million Notes Due 2031
On August 4, 2021, we completed an underwritten public offering of $400.0 million of 2.150% green Senior Notes due 2031 (the “$400 Million Notes due 2031”). The $400 Million Notes due 2031 were issued to the public at 99.014% of the principal amount, with a fixed annual interestcoupon rate of 3.93% (the “$125 Million Notes”)2.150%. On July 13, 2017, we completed the issuance of the $125 Million Notes.
Interest on the $125$400 Million Notes will bedue 2031 is payable quarterlysemiannually on the thirteenthfirst day of January, April, JulyMarch and OctoberSeptember in each year, commencingbeginning on October 13, 2017. March 1, 2022, until maturity on September 1, 2031.
We may prepayredeem the $400 Million Notes due 2031 at our option and sole discretion, in whole at any time all or in part from time to time any partprior to June 1, 2031 (three months prior to the maturity date of the $125$400 Million Notes in amounts not less than $2.5 milliondue 2031), at a redemption price equal to the greater of the $125 Million Notes then outstanding at (i) 100% of the principal amount so prepaidof the $400 Million Notes due 2031 being redeemed; and (ii) a make-whole premium calculated in accordance with the Make-Whole Amount (as defined inindenture. Notwithstanding the NPGA). Our obligations underforegoing, on or after June 1, 2031 (three months prior to the $125maturity date of the $400 Million Notes are fully and unconditionally guaranteed by us and certaindue 2031), the redemption price will be equal to 100% of our subsidiaries.the principal amount of the $400 Million Notes due 2031 being redeemed.
$225Repayment of $225 Million Term Loan Facility
On January 14, 2016,August 9, 2021, we entered intoused a credit agreement for a seniorportion of the proceeds from the issuance of the $400 Million Notes due 2031 to repay our $225.0 million unsecured term loan facility (the “$225 Million Term Loan Facility”) that initially permits aggregate borrowings of up to $125.0 million, the total of which we borrowed the same day at closing. Under the termsin full. We did not incur any prepayment penalties for repaying in advance of the credit agreement,maturity date of January 14, 2023. In connection with the repayment of this term loan, we are permitted to add one or more incremental term loanswrote off $0.5 million of unamortized debt issuance costs, which is included in “Loss on extinguishment of debt” in the accompanying consolidated statements of operations.
Assumption of Mortgage Loans
On January 27, 2021, in connection with the acquisition of the property located at 7817 Woodley Avenue, we assumed a mortgage loan secured by this property. At the date of acquisition, the assumed loan had a principal balance of $3.2 million and a fair value of $3.3 million resulting in an aggregate amount not to exceed $100.0 million (the “Accordion”), subject toinitial net debt premium of $0.1 million. The mortgage loan bears interest at a fixed rate of 4.14% per annum.
On October 12, 2021, in connection with the satisfactionacquisition of specified conditions. On April 15, 2016,the property located at 2515 Western Avenue, we exercisedassumed a mortgage loan secured by this property. At the Accordiondate of acquisition, the assumed loan had a principal balance and fair value of $13.2 million. The mortgage loan bears interest at a fixed rate of 4.50% per annum. In June 2022, we repaid in full thereby increasing the aggregate amount outstanding under the $225principal balance on this mortgage loan.
Debt Covenants
The Credit Agreement, $60 Million Term Loan Facility, to $225.0 million. The maturity date of the $225 Million Term Loan Facility is January 14, 2023.
Interest on the $225 Million Term Loan Facility accrues based upon, at our option, either (i) LIBOR plus the applicable Eurodollar rate margin or (ii) the applicable base rate which is the greater of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate or (c) the thirty-day LIBOR plus 1.00%, plus the applicable base rate margin. If we attain one additional investment grade rating by one or more of Standard & Poor’s or Moody’s Investor Services to complement our current investment grade Fitch rating, we may elect to convert the pricing structure under the $225 Million Term Loan Facility to be based on such rating. In that event, the applicable Eurodollar rate margin will range from 1.50% to 2.25% per annum, and the applicable base rate margin will range from 0.50% to 1.25% per annum, depending on our Leverage Ratio (as defined in the credit agreement).
We have the option to voluntarily prepay any amounts borrowed under the $225 Million Term Loan Facility in whole or in part at any time, subject to certain notice requirements. To the extent that we prepay all or any portion of a loan on or prior to January 14, 2018, we will pay a prepayment premium equal to (i) if such prepayment occurs prior to January 14, 2017, 2.00% of the principal amount so prepaid and (ii) if such prepayment occurs on or after January 14, 2017, but prior to January 14, 2018, 1.00% of the principal amount so prepaid. Amounts borrowed under the $225 Million Term Loan Facility and repaid or prepaid may not be reborrowed.
The $225 Million Term Loan Facility contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the credit agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the $225 Million Term Loan Facility, all outstanding principal amounts, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
Debt Covenants
The Amended Credit Agreement, the $225 Million Term Loan Facility, the $100$100.0 million unsecured guaranteed senior notes (the “$100 Million Notes”), our $125.0 million unsecured guaranteed senior notes (the “$125 Million Notes”) and our $25 million unsecured guaranteed senior notes and $75 million unsecured guaranteed senior notes (together the $125 Million Notes“Series 2019A and 2019B Notes”) all include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•For the Amended Credit Agreement and the $225$60 Million Term Loan Facility, maintaining a ratio of secured debt to total asset value of not more than 45%;
•For the $100 Million Notes, and the $125 Million Notes and Series 2019A and 2019B Notes (together the “Senior Notes”), maintaining a ratio of secured debt to total asset value of not more than 40%;
Maintaining•For the Senior Notes, maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
•For the Senior Notes, maintaining a minimum tangible net worth of at least the sum of (i) $760,740,750, and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company after September 30,2016;30, 2016;
•Maintaining a ratio of adjusted EBITDA (as defined in each of the loan agreements) to fixed charges of at least 1.5 to 1.0;
Maintaining•For the Credit Agreement and Senior Notes, maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and
Maintaining•For the Credit Agreement and Senior Notes, maintaining a ratio of unencumbered NOI (as defined in each of the loan agreements) to unsecured interest expense of at least 1.75 to 1.00.
The Amended$400.0 million of 2.125% Senior Notes due 2030 and $400 Million Notes due 2031 contain the following covenants (as defined in the indentures) that we must comply with:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•Maintaining a ratio of secured debt to total asset value of not more than 40%;
•Maintaining a Debt Service Coverage Ratio of at least 1.5 to 1.0; and
•Maintaining a ratio of unencumbered assets to unsecured debt of at least 1.5 to 1.0.
The Credit Agreement the $225 Million Term Loan Facility, the $100 Million Notes and the $125 MillionSenior Notes also provide that our distributions may not exceed the greater of (i) 95.0% of our funds from operations or (ii) the amount required for us to qualify and maintain our status as a REIT and avoid the payment of federal or state income or excise tax in any 12-month period.
Subject to the terms of the $100Credit Agreement, $60 Million NotesTerm Loan Facility and the $125 MillionSenior Notes, (together the “Notes”), upon certain events of default, including, but not limited to, (i) a default in the payment of any principal make-whole payment amount, or interest, under the Notes, (ii) a default in the payment of certain of our other indebtedness, (iii) a default in compliance with the covenants set forth in the Notesdebt agreement, and (iv) bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest and the make-whole payment amount on the outstanding Notesdebt will become immediately due and payable at the option of the purchasers.payable. In addition, we are required to maintain at all times a credit rating on the Senior Notes from either S&P, Moody’s or Fitch. At issuance, each of the Notes were assigned an investment grade rating of BBB- by Fitch, which most recently affirmed in September 2017, with a stable outlook.
Our $60.0 million term loan contains the following financial covenants:
Maintaining a Debt Service Coverage Ratio (as defined in the term loan agreement) of at least 1.10 to 1.00, to be tested quarterly;
Maintaining Unencumbered Liquid Assets (as defined in the term loan agreement) of not less than (i) $5,000,000, or (ii) $8,000,000 if we elect to have Line of Credit Availability (as defined in the term loan agreement) included in the calculation, of which $2,000,000 must be cash or cash equivalents, to be tested annuallycredit ratings as of December 31, of each year;
Maintaining a minimum Fair Market Net Worth (as defined in the term loan agreement) of at least $75,000,000, to be tested annually as of December 31 of each year.2022, were BBB+ from S&P, BBB+ from Fitch and Baa2 from Moody’s.
We were in compliance with all of our quarterly and annual debt covenants as of December 31, 2017.2022.
6. Leases
Lessor - Operating Leases
We lease industrial space to tenants primarily under non-cancelable operating leases that generally contain provisions for aminimum base rentrents plus reimbursement for certain operating expenses. Operating expenseTotal minimum lease payments are recognized in rental income on a straight-line basis over the term of the related lease and estimated reimbursements from tenants for real estate taxes, insurance, common area maintenance and other recoverable operating expenses are reflectedrecognized in rental income in the consolidated statementsperiod that the expenses are incurred.
For the year ended December 31, 2022, we recognized $599.2 million of operations as tenant reimbursements.rental income related to operating lease payments of which $491.1 million was for fixed lease payments and $108.1 million was for variable lease payments. For the year ended December 31, 2021, we recognized $436.3 million of rental income related to operating lease payments of which $360.2 million was for fixed lease payments and $76.1 million was for variable lease payments. For the year ended December 31, 2020, we recognized $318.8 million of rental income related to operating lease payments of which $266.1 million was for fixed lease payments and $52.7 million was for variable lease payments.
Future The following table sets forth the undiscounted cash flows for future minimum base rentrents to be received under operating leases as of December 31, 2017 is summarized as follows2022 (in thousands):
| | | | | |
For the year ending December 31, | |
2023 | $ | 513,582 | |
2024 | 447,083 | |
2025 | 381,133 | |
2026 | 305,315 | |
2027 | 223,512 | |
Thereafter | 817,465 | |
Total | $ | 2,688,090 | |
|
| | | |
For the year ending December 31: | |
2018 | $ | 144,053 |
|
2019 | 126,373 |
|
2020 | 101,504 |
|
2021 | 69,662 |
|
2022 | 45,611 |
|
Thereafter | 143,415 |
|
Total | $ | 630,618 |
|
The future minimum base rentrents in the table above excludes tenant reimbursements of operating expenses, amortization of adjustments for deferred rent receivables and the amortization of above/below-market lease intangibles.
Lessor – Sales-Type Lease
In June 2020, we executed a five-year-year lease for a 58,802 rentable square foot unit at the property located at 2722 Fairview Street (“Fairview”). The lease contained an option whereby the tenant could purchase the entire 116,757 rentable square foot property at a purchase price of $20.4 million, by executing its purchase option on or before December 10, 2020.
On September 9, 2020, the tenant exercised its option to purchase Fairview, which resulted in a change in lease classification from an operating lease to a sales-type lease. As a result of this change in classification, on September 9, 2020, we derecognized the net book value of the property, recorded a sales-type lease receivable of $20.3 million (measured as the discounted present value of the fixed purchase option price), and recognized a $3.8 million gain on sale due to lease reclassification. On September 30, 2020, the sale of Fairview closed and we collected the lease receivable and recorded $0.6 million of selling costs/write-offs, for a total net gain on sale of $3.3 million. The net proceeds from the sale of Fairview are included in net cash provided by operating activities in the consolidated statements of cash flows.
| |
7. | Lessee We lease office space as part of conducting our day-to-day business. As of December 31, 2022, our office space leases have remaining lease terms ranging from approximately two years to five years with options to renew for an additional term of five years each. As of December 31, 2022, we also have two ground leases, one of which is a lease we assumed in the acquisition of 2970 East 50th Street in March 2022 which has a current remaining lease term of approximately 38 years and four additional ten-year options to renew. The second ground lease is for a parcel of land that is adjacent to one of our properties and is used as a parking lot. This ground lease has a current remaining term of approximately one year and two additional ten-year options to renew. In November 2021, we executed a sublease agreement for one of our leased office spaces as a result of the implementation of a work from home flexibility program in 2021 based on the success of our virtual working environment during the earlier part of the pandemic. The term of the sublease is for a period of three years and 9 months (expiring in September 2025) and has an annual lease payment of approximately $0.3 million per year. Upon executing the sublease agreement, we reviewed the ROU asset and other assets associated with the original office space lease for recoverability and determined that the total carrying amount of these assets exceeded the undiscounted cash flows generated by the sublease income over the lease term. Accordingly, the carrying value of these assets were written down to fair value and we recorded a $1.0 million impairment charge for the year ended December 31, 2021, which is included in “Other expenses” in the accompanying consolidated statements of operations, with a corresponding adjustment to “Other assets” in the consolidated balance sheets as of December 31, 2021. As of December 31, 2022, total ROU assets and lease liabilities were approximately $8.5 million and $10.9 million, respectively. As of December 31, 2021, total ROU assets and lease liabilities were approximately $3.5 million and $5.0 million, respectively.
The tables below present financial and supplemental information associated with our leases. | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | Lease Cost(1) (in thousands) | | | | | 2022 | | 2021 | | 2020 | Operating lease cost | | | | | $ | 1,845 | | | $ | 1,598 | | | $ | 1,354 | | Variable lease cost | | | | | 113 | | | 63 | | | 39 | | Sublease income | | | | | (268) | | | — | | | — | | Total lease cost | | | | | $ | 1,690 | | | $ | 1,661 | | | $ | 1,393 | |
(1)Amounts are included in “General and administrative” and “Property expenses” in the accompanying consolidated statement of operations. | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | Other Information (in thousands) | | | | | 2022 | | 2021 | | 2020 | Cash paid for amounts included in the measurement of operating lease liabilities | | | | | $ | 2,016 | | | $ | 1,471 | | | $ | 1,127 | | Right-of-use assets obtained in exchange for new operating lease liabilities | | | | | $ | 6,363 | | | $ | — | | | $ | 3,204 | |
| | | | | | | | | | | | Lease Term and Discount Rate | December 31, 2022 | | December 31, 2021 | Weighted-average remaining lease term(1) | 36.5 years | | 3.3 years | Weighted-average discount rate(2) | 3.77 | % | | 2.95 | % |
(1)Includes the impact of extension options that we are reasonably certain to exercise. The weighted average remaining lease term as of December 31, 2022 includes the ground lease we assumed in the acquisition of 2970 East 50th Street in March 2022, which has a remaining lease term of approximately 78 years (including the four additional ten-year renewal options). Excluding this ground lease, the weighted average remaining lease term as of December 31, 2022, is 3.3 years. (2)Because the rate implicit in each of our leases was not readily determinable, we used our incremental borrowing rate. In determining our incremental borrowing rate for each lease, we considered recent rates on secured borrowings, observable risk-free interest rates and credit spreads correlating to our creditworthiness, the impact of collateralization and the term of each of our lease agreements. The following table summarizes the maturity of operating lease liabilities under our corporate office leases and ground leases as of December 31, 2022 (in thousands): | | | | | | 2023 | $ | 2,308 | | 2024 | 2,297 | | 2025 | 1,122 | | 2026 | 681 | | 2027 | 696 | | Thereafter | 20,051 | | Total undiscounted lease payments | $ | 27,155 | | Less imputed interest | (16,266) | | Total lease liabilities | $ | 10,889 | |
7. Interest Rate Swaps |
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operationsThe following table sets forth a summary of the terms and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through managementfair value 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 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.
Derivative Instruments
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 December 31, 2022 and 2021 (dollars in thousands). We record all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Notional Value(2) | | Fair Value of Interest Rate Derivative Assets/ (Liabilities)(3) |
Derivative Instrument | | Effective Date | | Maturity Date | | Interest Strike Rate(1) | | December 31, 2022 | | December 31, 2021 | | December 31, 2022 | | December 31, 2021 |
Interest Rate Swap | | 7/27/2022 | | 5/26/2027 | | 2.8170 | % | | $ | 150,000 | | | $ | — | | | $ | 5,720 | | | $ | — | |
Interest Rate Swap | | 7/27/2022 | | 5/26/2027 | | 2.8175 | % | | $ | 150,000 | | | $ | — | | | $ | 5,702 | | | $ | — | |
Interest Rate Swap | | 7/22/2019 | | 11/22/2024 | | 2.7625 | % | | $ | — | | | $ | 150,000 | | | $ | — | | | $ | (7,482) | |
(1)As of December 31, 2022, our interest rate risk management strategy. Interestswaps were indexed to 1-month SOFR. As of December 31, 2021, our interest rate swap was indexed to 1-month LIBOR.
(2)Represents the notional value of swaps that are effective as of the balance sheet date presented.
(3)The fair value of derivative assets is included in the line item “Interest rate swap asset” in the accompanying consolidated balance sheets and the fair value of derivative (liabilities) are included in the line item “Interest rate swap liability” in the accompanying consolidated balance sheets.
Transactions
On July 21, 2022, we executed five interest rate swap transactions with an aggregate notional value of $300.0 million to manage our exposure to changes in Term SOFR related to a portion of our variable-rate debt. These swaps, which became effective commencing on July 27, 2022 and mature on May 26, 2027, currently fix Term SOFR at a weighted average rate of 2.81725%. We have designated these interest rate swaps involveas cash flow hedges.
On May 26, 2022, in conjunction with the receiptrepayment of variable amountsthe $150.0 million term loan facility, we paid $0.6 million to terminate the interest rate swap that was used to hedge the monthly cash flows associated with $150.0 million of LIBOR-based variable-rate debt, and which had an unrealized loss balance of $0.6 million in AOCI at the time of termination. We are amortizing the loss on this transaction from AOCI into interest expense on a counterparty in exchange for us making fixed-rate paymentsstraight-line basis over the lifeperiod beginning from the termination date of the agreements without exchangeinterest rate swap (May 26, 2022) through the original maturity date of the underlyinginterest rate swap (November 22, 2024).
On August 11, 2021, in conjunction with the repayment of the $225.0 million term loan facility, we paid $1.3 million to terminate two interest rate swaps with a combined notional amount.amount of $225.0 million and a maturity date of January 14, 2022 (the “$225 Million Swaps”), that were used to hedge the monthly cash flows associated $225.0 million of LIBOR-based variable-rate debt, and which had an unrealized loss balance of $1.3 million in AOCI at the time of termination. We have amortized the loss on this transaction from AOCI into interest expense on a straight-line basis over the period beginning from the termination date of the $225 Million Swaps (August 9, 2021) through the original maturity date of the $225 Million Swaps (January 14, 2022).
On July 13, 2021, we executed three 10-year treasury rate lock agreements with a combined notional amount of $150.0 million at a weighted average fixed interest rate of 1.38179% (the “T-Locks”), intended to designate as a cash flow hedge against changes in interest rates on anticipated future fixed-rate unsecured borrowings. On August 9, 2021, we settled the T-Locks in connection with the issuance of the $400 Million Notes due 2031 for a payment of $2.8 million, which is included in the balance of AOCI and is being amortized into interest expense on a straight-line basis over the 10-year term of the hedged transaction.
Our interest rate swaps are designated and qualify as cash flow hedges. We do not use derivatives for trading or speculative purposes.
The effective portion of the change in fair value of derivatives designated and qualifying as cash flow hedges is initially recorded in accumulated other comprehensive income/(loss) (“AOCI”)AOCI and is subsequently reclassified from AOCI into earnings in the period that the hedged forecasted transaction affectstransactions affect earnings. The ineffective portion of the change in fair value of the derivatives is immediately recognized in earnings.
On August 11, 2017, we entered into an interest rate swap transaction to manage our exposure to fluctuations in variable interest rate associated with the Amended $100 Million Term Loan. The interest rate swap has a notional value of $100.0 million with an effective date of December 14, 2018, and a maturity date of August 14, 2021 (the “New Swap”). The effective date coincides with the termination date of our two in-place interest rate swaps, each of which has a notional value of $50 million, that currently fix the annual interest rate payable on the Amended $100 Million Term Loan at 1.8975% plus an applicable margin under the terms of the Amended Credit Agreement. Under the terms of the New Swap, we are required to make certain monthly fixed rate payments calculated on a notional value of $100 million, while the counterparty is obligated to make certain monthly floating rate payments based on LIBOR to us referencing the same notional value. Upon termination of the two in-place swaps, the New Swap will effectively fix the annual interest rate payable on the Amended $100 Million Term Loan at 1.764% plus an applicable margin under the terms of the Amended Credit Agreement.
The following table sets forth a summary of our interest rate swaps as of December 31, 2017 and 2016 (dollars in thousands):
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| | | | | | | | Fair Value | | Current Notional Amount(1) |
Derivative Instrument | | Effective Date | | Maturity Date | | Interest Strike Rate | | December 31, 2017 | | December 31, 2016 | | December 31, 2017 | | December 31, 2016 |
Assets(2): | | | | | | | | | | | | | | |
Interest Rate Swap | | 2/14/2018 | | 1/14/2022 | | 1.349 | % | | $ | 3,582 |
| | $ | 3,245 |
| | $ | — |
| | $ | — |
|
Interest Rate Swap | | 8/14/2018 | | 1/14/2022 | | 1.406 | % | | $ | 2,521 |
| | $ | 2,349 |
| | $ | — |
| | $ | — |
|
Interest Rate Swap | | 12/14/2018 | | 8/14/2021 | | 1.764 | % | | $ | 1,090 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Liabilities(3): | | | | | | |
| | | | | | | | |
Interest Rate Swap | | 1/15/2015 | | 2/15/2019 | | 1.826 | % | | $ | 11 |
| | $ | 338 |
| | $ | 30,000 |
| | $ | 30,000 |
|
Interest Rate Swap | | 7/15/2015 | | 2/15/2019 | | 2.010 | % | | $ | 70 |
| | $ | 440 |
| | $ | 28,891 |
| | $ | 29,674 |
|
Interest Rate Swap | | 8/14/2015 | | 12/14/2018 | | 1.790 | % | | $ | 18 |
| | $ | 529 |
| | $ | 50,000 |
| | $ | 50,000 |
|
Interest Rate Swap | | 2/16/2016 | | 12/14/2018 | | 2.005 | % | | $ | 120 |
| | $ | 738 |
| | $ | 50,000 |
| | $ | 50,000 |
|
| |
(1) | Represents the notional value of swaps that are effective as of the balance sheet date presented.
|
| |
(2) | The fair value of these interest rate swaps are included in the line item “Interest rate swap asset” in the accompanying consolidated balance sheets. |
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(3) | The fair value of these interest rate swaps are included in the line item “Interest rate swap liability” in the accompanying consolidated balance sheets. |
Derivative instruments that are subject to master netting arrangements and qualify for net presentation in the consolidated balance sheets are presented on a gross basis in the consolidated balance sheets as of December 31, 2017 and 2016. As of December 31, 2017, if we had recognized these derivative instruments on a net basis, we would have reported an interest rate swap asset of $7.0 million and an interest rate swap liability of zero, which represent the net balances after the effect of offsetting with counterparties where we had both derivative assets and derivative liabilities.
The following table sets forth the impact of our interest rate swaps on our consolidatedfinancial statements of operations for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Interest Rate Swaps in Cash Flow Hedging Relationships: | | | | | |
Amount of gain (loss) recognized in AOCI on derivatives | $ | 17,227 | | | $ | 263 | | | $ | (17,212) | |
Amount of loss reclassified from AOCI into earnings as “Interest expense” (1) | $ | (1,619) | | | $ | (8,070) | | | $ | (6,332) | |
Total interest expense presented in the Consolidated Statement of Operations in which the effects of cash flow hedges are recorded (line item “Interest expense”) | $ | 48,496 | | | $ | 40,139 | | | $ | 30,849 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Interest Rate Swaps in Cash Flow Hedging Relationships: | | | | | |
Amount of gain (loss) recognized in AOCI on derivatives (effective portion) | $ | 2,084 |
| | $ | 4,475 |
| | $ | (2,781 | ) |
Amount of loss reclassified from AOCI into earnings under “Interest expense” (effective portion) | $ | (1,341 | ) | | $ | (2,218 | ) | | $ | (1,039 | ) |
Amount of gain (loss) recognized in earnings under “Interest expense” (ineffective portion and amount excluded from effectiveness testing) | $ | — |
| | $ | — |
| | $ | — |
|
(1)Includes amounts that are being amortized from AOCI into interest expense on a straight-line basis related to (i) the T-Locks that were settled in August 2021, (ii) the interest the interest rate swaps that were terminated in November 2020 and August 2021 and for which amounts have been fully reclassified into interest expense as of the original maturity date of each interest rate swap, which was in August 2021 and January 2022, respectively, and (iii) the interest rate swap that was terminated in May 2022, as discussed above.During the next twelve months,As of December 31, 2022, we estimate that an additional $0.5approximately $5.3 million of net unrealized gains will be reclassified from AOCI into earnings as a net decrease to interest expense.expense over the next twelve months.
Credit-risk-related Contingent Features
Certain of our agreements with our derivative counterparties contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender within a specified time period, then we could also be declared in default on its derivative obligations.
Certain of our agreements with our derivative counterparties contain provisions where if a merger or acquisition occurs that materially changes our creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument.
8. Fair Value Measurements
| |
8. | Fair Value Measurements |
We have adopted FASB Accounting Standards CodificationASC Topic 820: Fair Value Measurements and Disclosure (“ASC 820”). ASC 820 defines fair value and establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.
value. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Recurring Measurements – Interest Rate Swaps
Currently, weWe use interest rate swap agreements to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.
To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. However, as of December 31, 2017, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, we have determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below sets forth the estimated fair value of our interest rate swaps as of December 31, 20172022 and 2016,2021, which we measure on a recurring basis by level within the fair value hierarchy (in thousands).
| | | | | | | | | | | | | Fair Value Measurement Using |
| | Fair Value Measurement Using | | Total Fair Value | | Quoted Price in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
December 31, 2022 | | December 31, 2022 | | | | | | | | |
Interest Rate Swap Asset | | Interest Rate Swap Asset | | $ | 11,422 | | | $ | — | | | $ | 11,422 | | | $ | — | |
| | Total Fair Value | | Quoted Price in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
December 31, 2017 | | | | | | | | | |
Interest Rate Swap Asset | | $ | 7,193 |
| | $ | — |
| | $ | 7,193 |
| | $ | — |
| |
December 31, 2021 | | December 31, 2021 | |
| Interest Rate Swap Liability | | $ | (219 | ) | | $ | — |
| | $ | (219 | ) | | $ | — |
| Interest Rate Swap Liability | | $ | (7,482) | | | $ | — | | | $ | (7,482) | | | $ | — | |
December 31, 2016 | | | | | | | | | |
Interest Rate Swap Asset | | $ | 5,594 |
| | $ | — |
| | $ | 5,594 |
| | $ | — |
| |
Interest Rate Swap Liability | | $ | (2,045 | ) | | $ | — |
| | $ | (2,045 | ) | | $ | — |
| |
Financial Instruments Disclosed at Fair Value
The carrying amounts of cash and cash equivalents, rents and other receivables, other assets, accounts payable, accrued expenses and other liabilities, and tenant security deposits approximate fair value because of their short-term nature.
The fair value of our notes payable was estimated by calculating the present value of principal and interest payments, using currently availablediscount rates that best reflect current market rates adjustedfor financings with asimilar characteristics and credit spread,quality, and assuming the loans areeach loan is outstanding through theits respective contractual maturity date.
The table below sets forth the carrying value and the estimated fair value of our notes payable as of December 31, 20172022 and 20162021 (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurement Using | | |
Liabilities | | Total Fair Value | | Quoted Price in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value |
Notes Payable at: | | | | | | | | | | |
December 31, 2022 | | $ | 1,740,745 | | | $ | — | | | $ | — | | | $ | 1,740,745 | | | $ | 1,936,381 | |
December 31, 2021 | | $ | 1,404,680 | | | $ | — | | | $ | — | | | $ | 1,404,680 | | | $ | 1,399,565 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurement Using | | |
Liabilities | | Total Fair Value | | Quoted Price in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value |
Notes Payable at: | | | | | | | | | | |
December 31, 2017 | | $ | 673,377 |
| | $ | — |
| | $ | — |
| | $ | 673,377 |
| | $ | 668,941 |
|
December 31, 2016 | | $ | 507,733 |
| | $ | — |
| | $ | — |
| | $ | 507,733 |
| | $ | 500,184 |
|
9. Related Party Transactions
| |
9. | Related Party Transactions |
Howard Schwimmer
We engage in transactions with Howard Schwimmer, our Co-Chief Executive Officer, earning management fees and leasing commissions from entities controlled individually by Mr. Schwimmer. Fees and commissions earned from these entities are included in “Management leasing and developmentleasing services” in the consolidated statements of operations. We recorded $0.4$0.6 million, $0.3$0.5 million and $0.2$0.4 million during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively, in management leasing and developmentleasing services revenue.
Purchase and Sale Agreement
On November 30, 2017, we entered into a purchase and sale agreement (the "Agreement") with 6110-6114 Cahuenga Avenue, LLC (the "Buyer") for the sale of our property located at 200-220 South Grand Avenue for a contract price of approximately $4.4 million. Larry Schwimmer is the general partner of 6110-6114 Cahuenga Avenue, LLC, and father of Howard Schwimmer, our Co-Chief Executive Officer. Prior to entering into the Agreement, the relevant facts and circumstances relating to this transaction were presented to our audit committee, in accordance with our corporate governance guidelines, and to our board of directors. This transaction was unanimously approved by our audit committee in accordance with our corporate governance guidelines.
10. Commitments and Contingencies
Legal
From time to time, we are party to various lawsuits, claims and legal proceedings that arise in the ordinary course of business. We are not currently a party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
Environmental
We generally will perform environmental site assessments at properties we are considering acquiring. After the acquisition of such properties, we continue to monitor the properties for the presence of hazardous or toxic substances. From time to time, we acquire properties with known adverse environmental conditions. If at the time of acquisition, losses associated with environmental remediation obligations are probable and can be reasonably estimated, we record a liability.
On February 25, 2014, we acquired the property located at West 228th Street. Before purchasing the property, during the due diligence phase, we engaged a third party environmental consultant to perform various environmental site assessments to determine the presence of any environmental contaminants that might warrant remediation efforts. Based on their investigation, they determined that hazardous substances existed at the property and that additional assessment and remediation work would likely be required to satisfy regulatory requirements. The total remediation costs were estimated to be $1.3 million, which includes remediation, processing and oversight costs.
To address the estimated costs associated with the environmental issues at the West 228th Street property, we entered into an Environmental Holdback Escrow Agreement (the “Holdback Agreement”) with the former owner, whereby $1.4 million was placed into an escrow account to be used to pay remediation costs. To fund the $1.4 million, the escrow holder withheld $1.3 million of the purchase price, which would have otherwise been paid to the seller at closing, and the Company funded an additional $0.1 million. According to the Holdback Agreement, the seller has no liability or responsibility to pay for remediation costs in excess of $1.3 million.
As of December 31, 2017 and 2016,2022, we had a $1.1 million and $1.1 million contingent liability recorded in the line item “Accounts payable and accrued expenses” in our consolidated balance sheets, reflecting the estimated remaining cost to remediateare not aware of any environmental liabilities at West 228th Street that existed prior to the acquisition date. As of December 31, 2017 and 2016, we also had a $1.1 million and $1.1 million corresponding indemnification asset recorded in the line item “Other assets” in our consolidated balance sheets, reflecting the estimated costs we expect the former owner to cover pursuant to the Holdback Agreement.
We expect that the resolution of the environmental matters relating to the above will notwould have a material impact on our consolidated financial condition, results of operations or cash flows. However, we cannot be sure that we have identified all environmental liabilities at our properties, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that such environmental liabilities arise. Furthermore, we cannot assure you that future changes to environmental laws or regulations and their application will not give rise to loss contingencies for future environmental remediation.
Rent ExpenseTenant and Construction Related Commitments
As of December 31, 2017, we lease a parcel of land that is currently being sub-leased to a tenant for a parking lot. This ground lease is scheduled to expire on June 1, 2062. We recognized rental expense for our ground lease in the amount of $0.1 million, $0.1 million and $0.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. As part of conducting our day-to-day business, we also lease office space under operating leases. We recognized rental expense for our corporate and satellite office leases in the amount of $0.5 million, $0.5 million and $0.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The future minimum commitment under our corporate and satellite office leases and ground lease as of December 31, 2017, is as follows (in thousands):
|
| | | | | | | |
For the year ending December 31: | Office Lease | | Ground Lease |
2018 | $ | 783 |
| | $ | 144 |
|
2019 | 569 |
| | 144 |
|
2020 | 164 |
| | 144 |
|
2021 | 120 |
| | 144 |
|
2022 | — |
| | 144 |
|
Thereafter | — |
| | 5,676 |
|
Total | $ | 1,636 |
| | $ | 6,396 |
|
On September 14, 2016 (the “Effective Date”), we entered into a ground lease for approximately 1.58 million square feet of land located in Corona, California, with the intention to develop buildings on the site. Under the terms of the ground lease, we had up to 420 days from the Effective Date, subject to certain conditions, to satisfy and waive certain contingencies, or terminate the ground leases for any reason. On March 13, 2017, we terminated the ground lease. As a result of the termination, we wrote-off $0.3 million of previously incurred transaction costs to the line item “Acquisition expenses” in the consolidated statements of operations.
Tenant and Construction Related
As of December 31, 2017,2022, we had commitments of approximately $19.0$114.2 million for tenant improvement and construction work under the terms of leases with certain of our tenants and contractual agreements with our construction vendors.
Concentrations of Credit Risk
We have deposited cash with financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution. Although we have deposits at institutions in excess of federally insured limits as of December 31, 2017,2022, we do not believe we are exposed to significant credit risk due to the financial position of the institutions in which those deposits are held.
Concentration of Properties in Southern California
As of December 31, 2017,2022, all of our properties are located in the Southern California, infill markets. The ability of the tenantswhich may expose us to honor the terms of their respective leases is dependent uponrisks associated with the economic, regulatory and social factors affecting the markets in which the tenantswe operate.
Tenant Concentration
During the year ended December 31, 2017,2022, no single tenant accounted for more than 5% of our total consolidated rental revenues.income.
11. Investments in Unconsolidated Real Estate Entities
On July 6, 2016, we acquired the property located at 3233 Mission Oaks Boulevard (the “final JV property”), which comprised substantially all of the JV’s assets, from the JV for a contract price of $25.7 million. Prior to the acquisition, our ownership interest in the final JV property was 15%. Following the acquisition, we own 100% of the final JV property and are accounting for it on a consolidated basis (See Note 3). In connection with the JV’s sale of the final JV property, we wrote-off the related $0.6 million unamortized basis adjustment. Immediately after the sale of the final JV property, the carrying value of our investment in unconsolidated real estate entities was $3.6 million.
Following the sale of the final JV property, the JV distributed all of its available cash, with the exception of a small amount of working capital which was retained to cover any residual costs associated with the winding down of the JV. Our share of the JV distributions totaled $5.5 million, which exceeded the $3.6 million carrying value of our investment immediately after the sale of the final JV property. We recorded the $1.9 million of excess distributions as a realized gain in the line item “Equity in income from unconsolidated real estate entities” in the consolidated statements of operations.
During the year ended December 31, 2017, the remaining assets were liquidated by the JV and we received a final distribution in the amount of $11 thousand which is reported in the line item “Equity in income from unconsolidated real estate entities” in the consolidated statements of operations.
The following table presents the combined summarized results of operations of our unconsolidated joint venture. These amounts include the results of operations of the final JV property during the period prior to July 6, 2016, when we acquired the remaining 85% ownership interest in the final JV property. Amounts provided are attributable to the JV and do not represent our proportionate share (in thousands).
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues | $ | — |
| | $ | 1,281 |
| | $ | 2,673 |
|
Expenses | — |
| | (442 | ) | | (1,911 | ) |
Gain on sale of properties | — |
| | 3,458 |
| | — |
|
Net income | $ | — |
| | $ | 4,297 |
| | $ | 762 |
|
Stockholders’ Equity
Management Services
During the time that the JV owned the final JV Property, we performed property and construction management services for the JV property. We earned fees and commissions for these services totaling zero, $0.1 million and $0.2 million during the years ended December 31, 2017, 2016 and 2015, respectively, which are included in the line item “Management, leasing and development services” in the consolidated statements of operations.
| |
12. | Dispositions and Real Estate Held for Sale |
Dispositions
The table below summarizes the properties we sold during the years ended December 31, 2017 and December 31, 2016 (dollars in thousands). We did not complete any dispositions during the year ended December 31, 2015.
|
| | | | | | | | | | | | | | | |
Address | | Submarket | | Date of Disposition | | Rentable Square Feet | | Contract Sales Price | | Gain Recorded |
2017 Dispositions: | | | | | | | | | | |
9375 Archibald Avenue | | Inland Empire West | | 3/31/2017 | | 62,677 |
| | $ | 6,875 |
| | $ | 2,668 |
|
2535 Midway Drive | | San Diego - Central | | 5/17/2017 | | 373,744 |
| | $ | 40,050 |
| | $ | 16,026 |
|
2811 Harbor Boulevard | | Orange County - Airport | | 6/28/2017 | | 126,796 |
| | $ | 18,700 |
| | $ | 594 |
|
12345 First American Way | | San Diego - Central | | 10/31/2017 | | 40,022 |
| | $ | 7,600 |
| | $ | 4,146 |
|
9401 De Soto Avenue | | Los Angeles - San Fernando Valley | | 11/2/2017 | | 150,831 |
| | $ | 23,000 |
| | $ | 4,748 |
|
77-700 Enfield Lane | | Inland Empire East | | 11/29/2017 | | 21,607 |
| | $ | 2,431 |
| | $ | 1,391 |
|
Total | | | | | | 775,677 |
| | $ | 98,656 |
| | $ | 29,573 |
|
| | | | | | | | | | |
2016 Dispositions: | | | | | | | | | | |
6010 N. Paramount Boulevard | | Los Angeles - South Bay | | 5/2/2016 | | 16,534 |
| | $ | 2,480 |
| | $ | 944 |
|
1840 Dana Street | | Los Angeles - San Fernando Valley | | 5/25/2016 | | 13,497 |
| | $ | 4,250 |
| | $ | 1,445 |
|
12910 East Mulberry Drive | | Los Angeles - Mid-Counties | | 6/7/2016 | | 153,080 |
| | $ | 15,000 |
| | $ | 9,174 |
|
22343-22349 La Palma Avenue | | Orange County - North | | 11/22/2016 | | 115,760 |
| | $ | 17,000 |
| | $ | 4,752 |
|
331 East 157th Street | | Los Angeles - South Bay | | 11/28/2016 | | 12,000 |
| | $ | 1,975 |
| | $ | 1,062 |
|
Total | | | | | | 310,871 |
| | $ | 40,705 |
| | $ | 17,377 |
|
Preferred Stock
Real Estate Held for Sale
As of December 31, 2017, our properties located at (i) 700 Allen Avenue2022 and 1830 Flower Street and (ii) 8900-8980 Benson Avenue and 5637 Arrow Highway were classified as held for sale. As2021, we had the following series of December 31, 2016, we did not have any properties classified as held for sale.Cumulative Preferred Shares (“Preferred Stock”) outstanding (dollars in thousands):
The following table summarizes the major classes of assets and liabilities associated with real estate properties classified as held for sale as of December 31, 2017:
|
| | | | |
| | December 31, 2017 |
|
Land | | $ | 5,671 |
|
Buildings and improvements | | 7,180 |
|
Tenant improvements | | 429 |
|
Construction in progress | | 16 |
|
Real estate held for sale | | 13,296 |
|
Accumulated depreciation | | (1,609 | ) |
Real estate held for sale, net | | 11,687 |
|
Acquired lease intangible assets, net | | 71 |
|
Other assets associated with real estate held for sale | | 678 |
|
Total assets associated with real estate held for sale, net | | $ | 12,436 |
|
| | |
Tenant security deposits | | $ | 193 |
|
Other liabilities associated with real estate held for sale | | 50 |
|
Total liabilities associated with real estate held for sale | | $ | 243 |
|
Preferred Stock
On November 13, 2017, we completed an underwritten public offering of 3,000,000 shares of our 5.875% Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock") at a price of $25.00 per share. The net proceeds from the offering were approximately $72.5 million after deducting the underwriters’ discount and offering costs totaling $2.5 million. The Series B Preferred Stock is presented in stockholders' equity on the consolidated balance sheet net of issuance costs.
On August 16, 2016, we completed an underwritten public offering of 3,600,000 shares of our 5.875% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") at a price of $25.00 per share. The net proceeds from the offering were approximately $86.7 million after deducting the underwriters’ discount and offering costs totaling $3.3 million. The Series A Preferred Stock is presented in stockholders' equity on the consolidated balance sheet net of issuance costs. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2022 | | December 31, 2021 |
Series | | Earliest Redemption Date | | Dividend Rate | | Shares Outstanding | | Liquidation Preference | | Shares Outstanding | | Liquidation Preference |
| | | | | | | | | | | | |
Series B | | November 13, 2022 | | 5.875 | % | | 3,000,000 | | | $ | 75,000 | | | 3,000,000 | | | $ | 75,000 | |
Series C | | September 20, 2024 | | 5.625 | % | | 3,450,000 | | | 86,250 | | | 3,450,000 | | | 86,250 | |
Total Preferred Shares | | 6,450,000 | | | $ | 161,250 | | | 6,450,000 | | | $ | 161,250 | |
Dividends on our Series A Preferred Stock and Series B Preferred Stock (collectively the “Series A and B Preferred Stock”) are cumulative from the date of original issuance and are payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning on December 31, 2016, for our Series Ayear. Our Preferred Stock and beginning on March 30, 2018, for our Series B Preferred Stock, at a rate of 5.875% per annum of its $25.00 per share liquidation preference (equivalent to $1.46875 per share per annum). The Series A and B Preferred Stock havehas no stated maturity datedates and areis not subject to any mandatory redemption or any sinking fund.funds. The holders of our Series A and B Preferred Stock rank senior to the holders of our common stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up of its affairs. The holders of our Series A and B Preferred Stock generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly dividend periods (whether or not consecutive). We may not redeem the Series A Preferred Stock prior to August 16, 2021, and the Series B Preferred Stock prior to November 13, 2022, except in limited circumstances to preserve our status as a REIT or pursuant to a specified change of control transaction. On or after August 16, 2021, we may redeem our Series A Preferred Stock, and on or after November 13,
2022, we may redeem our Series B Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a specified change of control transaction, we may, at our option, redeem the Series A Preferred Stock and/or the Series Beach series of Preferred Stock in whole or in part within 120 days after the change of control occurred, by paying $25.00 per share in cash, plus any accrued and unpaid distributions through the date of redemption. If we do not exercise our right to redeem the Series A Preferred Stock and/or the Series B Preferred Stock, upon the occurrence of a specified change of control transaction, the holders of the Series A and Bour Preferred Stock have the right to convert some or all of their shares into a number of the Company’s common shares equivalent to $25.00 plus accrued and unpaid dividends, divided by the average closing price per share of the Company’s common stock for the 10 trading days preceding the date of the change of control, but not to exceed a capcertain capped number of 2.2738 shares of common stock per share of Series A Preferred Stock or a cap of 1.6578 shares of common stock per share of Series B Preferred Stock, subject to certain adjustments.
CommonRedemption of Series A Preferred Stock Issuances
On April 15, 2016,August 16, 2021 (the “Redemption Date”), we completedredeemed all 3,600,000 shares of our 5.875% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”). The redemption price for the Series A Preferred Stock was equal to $25.00 per share, plus all accrued and unpaid dividends on such shares up to but not including the Redemption Date, in an amount equal to $0.183594 per share, for a public follow-ontotal payment of $25.183594 per share, or $90.7 million. In connection with the redemption of the Series A Preferred Stock on August 16, 2021, we incurred an associated non-cash charge of $3.3 million as a reduction to net income available to common stockholders for the related original issuance costs.
Common Stock
ATM Programs
On May 27, 2022, we established an at-the-market equity offering of 10,350,000program (“ATM program”) pursuant to which we are able to sell from time to time shares of our common stock includinghaving an aggregate sales price of up to $1.0 billion (the “Current 2022 ATM Program”). The Current 2022 ATM Program replaces our previous $750.0 million ATM program, which was established on January 13, 2022, under which we had sold shares of our common stock having an aggregate gross sales price of $697.5 million through May 27, 2022. In addition, we previously established a $750.0 million ATM program on November 9, 2020, under which we had sold shares of our common stock having an aggregate gross sales price of $743.9 million through January 13, 2022, and a $550.0 million ATM program on June 13, 2019, under which we had sold shares of our common stock having an aggregate gross sales price of $296.5 million through November 9, 2020.
In connection with the underwriters’ exerciseATM programs established since 2020, we may sell shares of our common stock directly through sales agents or we may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our ATM programs. The use of a forward equity sale agreement allows us to lock in fulla share price on the sale of its option to purchase 1,350,000 shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. Additionally, the forward price that we expect to receive upon physical settlement of an offeringagreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends during the term of the agreement.
During the year ended December 31, 2022, we did not sell any shares of common stock directly through sales agents under our ATM programs. During the year ended December 31, 2021, we directly sold a total of 3,201,560 shares of our common stock under our ATM programs at a weighted average price of $17.65$52.27 per share. Theshare, for gross proceeds of $167.3 million, and net proceeds of the follow-on offering were $174.4$165.2 million, after deducting the underwriters’ discountsales agents’ fees. During the year ended December 31, 2020, we directly sold a total of 3,165,661 shares of our common stock under our ATM programs, at a weighted average price of $39.96 per share, for gross proceeds of $126.5 million, and offering costs totaling $8.3 million. On April 15, 2016, we contributed the net proceeds of $124.7 million, after deducting the offeringsales agents’ fee.
During the year ended December 31, 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers under our ATM programs with respect to 23,519,219 shares of common stock at a weighted average initial forward price of $64.29 per share. During the year ended December 31, 2021, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers under our Operating Partnership in exchange for 10,350,000 common units of partnership interests in the Operating Partnership (“OP Units”).
On February 3, 2015, we completed a public follow-on offering of 11,500,000ATM programs with respect to 8,589,572 shares of our common stock at an offeringa weighted average initial forward price of $16.00$62.87 per share. The netWe did not receive any proceeds offrom the follow-on offering were $176.2 million, after deducting the underwriters’ discount and offering costs totaling $7.8 million. On February 3, 2015, we contributed the net proceeds of the offering to our Operating Partnership in exchange for 11,500,000 OP Units.
ATM Program
On September 21, 2017, we established a new at-the-market equity offering program (the “$300 Million ATM Program”) pursuant to which we may sell from time to time up to an aggregate of $300.0 million of our common stock through sales agents. The $300 Million ATM Program replaces our previous $150 million at-the-market equity offering program, which was established on June 12, 2017. In addition, we previously established a $125 million at-the-market program on April 17, 2015. All available sharessale of common stockshares by the forward purchasers at the time we entered into forward equity sale agreements. During the year ended December 31, 2020, we did not enter into any forward equity sale agreements under the $150 million and $125 million at-the-market programs were sold prior to establishing newour ATM programs.
During the year ended December 31, 2017,2022, we sold 11,968,927physically settled a portion of the 2022 forward equity sale agreements and the outstanding forward equity sale agreement from 2021 by issuing 24,788,691 shares of our common stock under our various at-the-market equity offering programs, atfor net proceeds of $1.6 billion, based on a weighted average forward price of $28.13$65.02 per share for gross proceeds of $336.6 million. The net proceeds from these sales were $331.6 million, after deducting the sales agents’ fee.at settlement. During the year ended December 31, 2016,2021, we sold 402,683physically settled a portion of the 2021 forward equity sale agreements by issuing 6,683,216 shares of our common stock under the $125in exchange for net proceeds of $405.3 million, at-the-market program, atbased on a weighted average forward price of $23.13$60.65 per share for gross proceeds of $9.3 million. The net proceeds from these sales were $9.2 million, after deducting the sales agents’ fee. During the year ended December 31, 2015, we sold 500 shares of our common stock under the $125 million at-the-market program at a price of $14.30 per share, for gross proceeds of $7 thousand. settlement.
As of December 31, 2017,2022, we had 636,884 shares of common stock, or approximately $35.0 million of forward net proceeds remaining for settlement to occur before the capacity to issue up to an additional $229.0fourth quarter of 2023, based on forward sales of $55.00 per share.
As of December 31, 2022, approximately $165.4 million of common stock remains available to be sold under the $300 MillionCurrent 2022 ATM Program. ActualFuture sales, going forward, if any, will depend on a variety of factors, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us.
2022 Forward Equity Offering
During the fourth quarter of 2022, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 11,846,425 shares of common stock, including 346,425 shares related to the partial exercise of the underwriters’ option to purchase additional shares, at an initial forward price of $55.74 per share (the “2022 Forward Offering Sale Agreements”), pursuant to which, the forward purchasers borrowed and sold an aggregate of 11,846,425 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering.
In December 2022, we partially settled the 2022 Forward Offering Sale Agreements by issuing 3,554,704 shares of common stock for net proceeds of $198.7 million, based on a weighted average forward price of $55.90 per share at settlement.
As of December 31, 2022, we had 8,291,721 shares of common stock, or approximately $461.4 million of forward net proceeds remaining for settlement to occur by May 2024, based on a forward price of $55.65 per share.
May 2021 Forward Equity Offering
On May 24, 2021, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 9,000,000 shares of common stock at an initial forward price of $55.29 per share (the “May 2021 Forward Sale Agreements”), pursuant to which, the forward purchasers borrowed and sold an aggregate of 9,000,000 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering.
In June 2021, we partially settled the May 2021 Forward Sale Agreements by issuing 1,809,526 shares of common stock for net proceeds of $100.0 million, based on a weighted average forward price of $55.26 per share at settlement.
In September 2021, we settled the remaining shares under the May 2021 Forward Sale Agreements by issuing 7,190,474 shares of common stock for net proceeds of $395.0 million, based on a weighted average forward price of $54.93 per share at settlement.
September 2021 Offering
In September 2021, we completed an underwritten public offering of 9,600,000 shares of common stock in which we (i) issued an aggregate of 3,100,000 shares of common stock to the underwriters at a purchase price of $58.65 per share for proceeds of $181.8 million, and (ii) entered into forward equity sale agreements with certain financial institutions acting as forward purchasers for 6,500,000 shares of common stock at an initial forward price of $58.65 per share (the “September 2021 Forward Sale Agreements”), pursuant to which the forward purchasers borrowed and sold an aggregate of 6,500,000 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering.
In December 2021, we fully settled the September 2021 Forward Sale Agreements by issuing 6,500,000 shares of common stock for net proceeds of $379.1 million, based on a forward price of $58.32 per share at settlement.
2020 Offerings
During the second quarter of 2020, we completed an underwritten public offering of 7,187,500 shares of our common stock, including the underwriters’ exercise in full of their option to purchase 937,500 shares of our common stock, at a price to the underwriters of $39.67 per share, for net proceeds of approximately $285.0 million after deducting offering costs. We contributed the net proceeds of the offering to our Operating Partnership in exchange for 7,187,500 common units of partnership interests in the Operating Partnership.
In December 2020, we completed an underwritten public offering of 6,900,000 shares of our common stock, including the underwriters’ exercise in full of their option to purchase 900,000 shares of our common stock, at a price to the underwriters of $47.15 per share, for net proceeds of approximately $325.0 million, after deducting offering costs. We contributed the net proceeds of the offering to our Operating Partnership in exchange for 6,900,000 common units of partnership interests in the Operating Partnership.
Changes in Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in our AOCI balance for the years ended December 31, 2022 and 2021, which consists solely of adjustments related to our cash flow hedges:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
Accumulated other comprehensive loss - beginning balance | $ | (9,874) | | | $ | (17,709) | |
Other comprehensive income before reclassifications | 17,227 | | | 263 | |
Amounts reclassified from accumulated other comprehensive loss to interest expense(1) | 1,619 | | | 8,070 | |
Net current period other comprehensive income | 18,846 | | | 8,333 | |
Less: other comprehensive income attributable to noncontrolling interests | (725) | | | (498) | |
Other comprehensive income attributable to common stockholders | 18,121 | | | 7,835 | |
Accumulated other comprehensive income (loss) - ending balance | $ | 8,247 | | | $ | (9,874) | |
(1)Amounts include $0.3 million and $2.2 million reclassifications from AOCI into interest expense for the years ended December 31, 2022 and 2021, respectively, related to terminated swaps. See “Note 7 – Interest Rate Derivatives” for additional information.
Dividends
Earnings and profits, which determine the taxability of dividends to stockholders, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of loss on extinguishment of debt, revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation expense.
The following tables summarize the tax treatment of common stock dividends and preferred stock dividends per share for federal income tax purposes for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Ordinary Income | $ | 1.203386 | | | 100.00 | % | | $ | 1.049243 | | | 100.00 | % | | $ | 0.834238 | | | 100.00 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 1.203386 | | | 100.00 | % | | $ | 1.049243 | | | 100.00 | % | | $ | 0.834238 | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Ordinary Income | $ | — | | | — | % | | $ | 0.917970 | | | 100.00 | % | | $ | 1.468752 | | | 100.00 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | — | | | — | % | | $ | 0.917970 | | | 100.00 | % | | $ | 1.468752 | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series B Preferred Stock |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Ordinary Income | $ | 1.468752 | | | 100.00 | % | | $ | 1.468752 | | | 100.00 | % | | $ | 1.468752 | | | 100.00 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 1.468752 | | | 100.00 | % | | $ | 1.468752 | | | 100.00 | % | | $ | 1.468752 | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series C Preferred Stock | |
| Year Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
Ordinary Income | $ | 1.406252 | | | 100.00 | % | | $ | 1.406252 | | | 100.00 | % | | $ | 1.406252 | | | 100.00 | % | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | $ | 1.406252 | | | 100.00 | % | | $ | 1.406252 | | | 100.00 | % | | $ | 1.406252 | | | 100.00 | % | |
12. Noncontrolling Interests
Noncontrolling interests in our Operating Partnership relate to interests in the Operating Partnership, represented by common units of partnership interests in the Operating Partnership (“OP Units”), fully-vested LTIP units, fully-vested performance units, Series 1 CPOP Units, Series 2 CPOP Units and Series 3 CPOP Units, and the private REIT units, as described below, that are not owned by us.
Operating Partnership Units
As of December 31, 2017,2022, noncontrolling interests consisted of 1,905,740included 5,821,146 OP Units, and 112,505763,762 fully-vested LTIP units and 976,352 fully-vested performance units which represented approximately 2.5%3.8% of our Operating Partnership. OP Units and shares of our common stock have essentially the same economic characteristics, as they share equally in the total net income or loss distributions of our Operating Partnership. Investors who own OP Units have the right to cause our Operating Partnership to redeem any or all of their units in our Operating Partnership for an amount of cash per unit equal to the then current market value of one share of common stock, or, at our election, shares of our common stock on a one-for-one basis. See Note 14“Note 13 – Incentive Award Plan” for a description of LTIP units.units and Performance Units.
Activity
On May 25, 2022, we acquired the property located at 14200-14220 Arminta Street for a purchase price of $80.7 million. As partial consideration for the property, we issued the seller 954,000 OP Units valued at $56.2 million.
On March 5, 2020, we acquired ten industrial properties and on June 19, 2020, we acquired one additional property, from a group of sellers that were not affiliated with the Company for an aggregate purchase price of $214.2 million. As partial consideration for the acquisition of these properties, we issued the sellers 1,406,170 OP Units, valued at $67.5 million.
On November 17, 2020, we acquired the property located at 13943-13955 Balboa Boulevard for a purchase price of $45.3 million. As partial consideration for the property, we issued the seller 592,186 OP Units valued at $27.8 million.
On December 31, 2020, we acquired a portfolio of four properties for an aggregate purchase price of $84.0 million. As consideration for the portfolio, we issued the seller 1,800,000 OP Units.
During the years ended December 31, 2017, 20162022, 2021 and 2015,2020, we redeemed 61,256, 59,646167,286, 521,199 and 288,234296,313 OP Units, respectively, in exchange for issuing to the holders of the OP Units an equal number of shares of our common stock, resulting in the reclassification of $0.6$6.2 million, $0.6$17.5 million, and $3.2$7.7 million, respectively, from noncontrolling interests to total stockholders’ equity.
DuringPreferred Units
Series 3 CPOP Units
On March 17, 2022, we acquired an industrial business park located in Long Beach, California for a contractual purchase price of approximately $24.0 million. In consideration for the property, we (i) paid approximately $12.0 million in cash and (ii) issued the seller 164,998 newly issued 3.00% cumulative redeemable convertible preferred units of partnership interest in the Operating Partnership (“Series 3 CPOP Units”), valued at $12.0 million.
Holders of Series 3 CPOP Units, when and as authorized by the Company as general partner of the Operating Partnership, are entitled to cumulative cash distributions at the rate of 3.00% per annum of the $72.73 per unit liquidation preference, payable quarterly in arrears on or about the last day of March, June, September and December of each year, endedbeginning on March 31, 2022. The holders of Series 3 CPOP Units are entitled to receive the liquidation preference, which is $72.73 per unit or approximately $12.0 million in the aggregate for all of the Series 3 CPOP Units, before the holders of OP Units in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Operating Partnership.
Series 2 CPOP Units
On March 5, 2020, as partial consideration for the acquisition of the Properties, we issued the Sellers 906,374 newly issued 4.00% cumulative redeemable convertible preferred units of partnership interest in the Operating Partnership (the “Series 2 CPOP Units”), valued at $40.8 million.
Holders of Series 2 CPOP Units, when and as authorized by the Company as general partner of the Operating Partnership, are entitled to cumulative cash distributions at the rate of 4.00% per annum of the $45.00 per unit liquidation preference, payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning on March 31, 2020. The holders of Series 2 CPOP Units are entitled to receive the liquidation preference, which is $45.00 per unit or approximately $40.8 million in the aggregate for all of the Series 2 CPOP Units, before the holders of OP Units are entitled to receive distributions in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Operating Partnership.
Series 1 CPOP Units
As of December 31, 2015,2022, we redeemed 8,468also have 593,960 4.43937% cumulative redeemable convertible preferred units of partnership interest in the Operating Partnership (“Series 1 CPOP Units”) outstanding.
Holders of Series 1 CPOP Units, when and as authorized by the Company as general partner of the Operating Partnership, are entitled to cumulative cash distributions at the rate of 4.43937% per annum of the $45.50952 per unit liquidation preference, payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning on June 28, 2019. The holders of Series 1 CPOP Units are entitled to receive the liquidation preference, which is $45.50952 per unit or approximately $27.0 million in the aggregate for all of the Series 1 CPOP Units, before the holders of OP Units in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Operating Partnership.
Features of Series 1, Series 2 and Series 3 CPOP Units
The Series 1 CPOP Units, Series 2 CPOP Units and the Series 3 CPOP Units (together, the “CPOP Units”) are convertible (i) at the option of the holder anytime from time to time (the “Holder Conversion Right”), or (ii) at the option of the Operating Partnership, at any time on or after April 10, 2024 for approximately $0.1 millionthe Series 1 CPOP Unit, at any time on or after March 5, 2025 for the Series 2 CPOP Unit, and at any time on or after March 17, 2027 for the Series 3 CPOP Unit (the “Company Conversion Right”), in each case, into OP Units on a one-for-one basis per Series 1 CPOP Unit, into 0.7722 OP Unit per Series 2 CPOP Unit and into OP Units on a one-for-one basis per Series 3 CPOP Unit. As noted above, investors who own OP Units have the right to cause our Operating Partnership to redeem any or all of their units in our Operating Partnership for an amount of cash per unit equal to the then current market value of one share of common stock, or, at our election, shares of our common stock on a one-for-one basis (the “Subsequent Redemption Right”).
The CPOP Units rank senior to the Operating Partnership’s OP Units, on parity with the Operating Partnership’s 5.875% series B cumulative redeemable preferred units and 5.625% series C cumulative redeemable preferred units and with any future class or series of partnership interest of the Operating Partnership expressly designated as ranking on parity with the CPOP Units, and junior to any other class or series of partnership interest of the Operating Partnership expressly designated as ranking senior to the CPOP Units.
Pursuant to relevant accounting guidance, we analyzed the CPOP Units for any embedded derivatives that should be bifurcated and accounted for separately and also considered the conditions that would require classification of the CPOP Units in temporary equity versus permanent equity. In carrying out our analyses, we evaluated the key features of the CPOP Units including the right to discretionary distributions, the Holder Conversion Right, the Company Conversion Right and the Subsequent Redemption Right to determine whether we control the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the share settlement if the CPOP Units are converted into shares of our common stock (subsequent to conversion into OP Units). Based on the results of our analyses, we concluded that (i) none of the embedded features of the CPOP Units require bifurcation and separate accounting, and (ii) the CPOP Units met the criteria to be classified within equity, and accordingly are presented as noncontrolling interests within permanent equity in the consolidated balance sheets.
Private REIT Preferred Units
On July 18, 2022, we acquired the Merge-West properties through the purchase of a private REIT. The private REIT has 122 units of 12% cumulative redeemable non-voting preferred units (the “private REIT units”) outstanding that are held by unaffiliated third parties. Pursuant to the REIT purchase agreement and corresponding tax indemnification agreement, we have the obligation to maintain the REIT through February 3, 2023, which would prevent us from redeeming the private REIT units until that time. Upon redemption, the private REIT units have a redemption price equal to $1,000 per unit, or an aggregate price of $16.07$122,000, plus any distributions thereon that have accrued but have not been paid at the time of such redemption (the “liquidation preference”), plus a redemption premium of $100 per unit. We did not redeem any OP units for cash during the years endedunit if redeemed on or before December 31, 2017 and 2016.
As described in Note 3, on April 15, 2016, as part of the2024. The private REIT Portfolio Acquisition, we acquired 100% of the private REIT’s common stock and 575 of 700 issued and outstanding shares of the private REIT’s 12.5% cumulative non-voting preferred stock. The remaining 125 shares of preferred stock that were not immediately redeemed by us, wereunits have been classified as noncontrolling interests in our consolidated balance sheets withand have a balance equal to its liquidation preference of $1,000 per share, or an aggregate liquidation preference of $125,000.
On June 22, 2017, we adopted a plan of liquidation and dissolution of the private REIT, and on December 31, 2017, we completed the liquidation ofpreference.
13. Incentive Award Plan
Second Amended and Restated 2013 Incentive Award Plan
We maintain one share-based incentive plan, the private REIT, by distributing all assets to the Operating Partnership. As part of the liquidation process, we paid a liquidating distribution of $1,000 per share, or an aggregate liquidating distribution of $125,000, as payment in full for the redemption of the remaining 125 shares of preferred stock not held by us.
Changes in Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in our AOCI balance for the years ended December 31, 2017Second Amended and 2016, which consists solely of adjustments related to our cash flow hedges:
|
| | | | | | | |
| 2017 |
| 2016 |
Accumulated other comprehensive income (loss) - beginning balance | $ | 3,445 |
| | $ | (3,033 | ) |
Other comprehensive income before reclassifications | 2,084 |
| | 4,475 |
|
Amounts reclassified from accumulated other comprehensive income to interest expense | 1,341 |
| | 2,218 |
|
Net current period other comprehensive income | 3,425 |
| | 6,693 |
|
Less: other comprehensive income attributable to noncontrolling interests | (71 | ) | | (215 | ) |
Other comprehensive income attributable to common stockholders | 3,354 |
| | 6,478 |
|
Accumulated other comprehensive income - ending balance | $ | 6,799 |
| | $ | 3,445 |
|
Dividends
Earnings and profits, which determine the taxability of dividends to stockholders, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of loss on extinguishment of debt, revenue recognition and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation expense.
The following table summarizes the tax treatment of common stock dividends and preferred stock dividends per share for federal income tax purposes for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Preferred Stock |
| Year Ended December 31, | | Year Ended December 31, |
| 2017 | | 2016 | | 2015 | | 2017 | | 2016 |
Ordinary Income | $ | 0.498827 |
| | 95.68 | % | | $ | 0.452085 |
| | 99.66 | % | | $ | 0.478948 |
| | 93.91 | % | | $ | 0.146875 |
| | 100.00 | % | | $ | 0.548884 |
| | 99.66 | % |
Return of Capital | 0.022526 |
| | 4.32 | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
Capital Gain(1) | — |
| | — | % | | 0.001562 |
| | 0.34 | % | | 0.031052 |
| | 6.09 | % | | — |
| | — | % | | 0.001896 |
| | 0.34 | % |
Total | $ | 0.521353 |
| | 100.00 | % | | $ | 0.453647 |
| | 100.00 | % | | $ | 0.510000 |
| | 100.00 | % | | $ | 0.146875 |
| | 100.00 | % | | $ | 0.550780 |
| | 100.00 | % |
| |
(1) | 100.0% and 0.0% of the capital gains reported for the years ended December 31, 2016 and 2015, respectively, are comprised of an unrecaptured Section 1250 gain. There were no capital gains reported for the year ended December 31, 2017. |
In July 2013, our board of directors adopted theRestated Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. 2013 Incentive Award Plan (the “Plan”). The Plan provides for the grant, pursuant to which, we may make grants of stock options, including incentive stock options and nonqualified stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, LTIP units of partnership interest in our operating partnershipOperating Partnership (“LTIP Units”units”), performance units in our operating partnershipOperating Partnership (“Performance Units”), dividend equivalents and other stock based and cash awards.
Our employees, consultants andawards to our non-employee directors, are eligible to receive awards under the Plan. employees and consultants.
The Plan is administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (collectively the “plan administrator”), subject to certain limitations. The plan administrator sets the terms and conditions of all awards under the Plan, including any vesting and vesting acceleration conditions.
The aggregate numberAs of sharesDecember 31, 2022, a total of our common stock, LTIP units and Performance Units that may be issued or transferred pursuant to the Plan is 2,272,689 shares (of which 540,7321,661,609 shares of common stock, LTIP units, and Performance Units and other stock based awards remain available for issuance as of December 31, 2017).under the Plan. Shares and units granted under the Plan may be authorized but unissued shares or LTIP units, or, if authorized by the board of directors, shares purchased in the open market. If an award under the Plan is forfeited, expires, or is settled for cash, any shares or LTIP units subject to such award will generally be available for future awards.
LTIP Units and Performance Units
LTIP Unitsunits and Performance Units are each a class of limited partnership units in the Operating Partnership. Initially, LTIP Unitsunits and Performance Units do not have full parity with OP Units with respect to liquidating distributions. However, upon the occurrence of certain events more fully described in the Operating Partnership’s partnership agreement (“book-up events”), the LTIP Unitsunits and Performance Units can over time achieve full parity with the common unitsOP Units for all purposes. If such parity is reached, vested LTIP Unitsunits and vested Performance Units may be converted into an equal number of OP Units, and, upon conversion, enjoy all rights of OP Units. Performance Units that have not vested receive a quarterly per-unit distribution equal to 10% of the per-unit distribution paid on OP Units. Vested Performance Units and LTIP Units,units, whether vested or not, receive the same quarterly per-unit distributions as OP Units, which equal the per-share distributions on shares of our common stock.
The compensation committee grants awards to the Company’s named executive officers (the “NEOs”) on an annual basis in the form of LTIP units and Performance Units that have not vested receive a quarterly per-unit distribution equal to 10%units, typically towards the end of the per-unit distribution paid on OP Units.
On December 15, 2017,each year. In 2022, 2021 and 2020, the compensation committee approvedgranted the grant under the Plan to Messrs. Howard Schwimmer, Michael S. Frankel, Adeel KhanNEOs a combined 167,221, 93,030, and David Lanzer (collectively, the “executives”) of 122,631121,112 LTIP Units,units that are subject to time-based vesting requirements (the “2017 LTIPconditions (each an annual “LTIP Award”), and 188,250a combined 673,188, 366,004, and 476,915 Performance Units that are partially subject to market-based vesting requirements (the “2017 Performanceconditions and partially subject to performance-based vesting conditions (each an annual “Performance Award”).
On December 29, 2016, the compensation committee approved the grant under the Plan to the executives (not including Mr. Lanzer) of 116,690 LTIP Units, that are subject to time-based vesting requirements (the “2016 LTIP Award”),2022, 2021 and 199,000 Performance Units, that are subject to market-based vesting requirements (the “2016 Performance Award”).
On December 15, 2015, the compensation committee approved the grant under the Plan to the executives (not including Mr. Lanzer) of 166,669 LTIP Units, that are subject to time-based vesting requirements (the “2015 LTIP Award”), and 315,998 Performance Units, that are subject to market-based vesting requirements (the “2015 Performance Award”).
2020 LTIP Unit Awards
The 2017 Each of the 2022, 2021 and 2020 LTIP Award isAwards are scheduled to vest one-third in equal installments on each of the first, second and third anniversaries of the grant date, and both the 2016 LTIP Award and the 2015 LTIP Award are scheduled to vest in equal installments of 25% on each of the first, second, third and fourth anniversaries of the grant date. Each award is subject to each executive’s continued employment through the applicable vesting date, and subject to earlier vesting upon certain termination of employment or a change in control event, as described in the award agreements. Compensation expense will beis recognized using the accelerated expense attribution method, with each vesting tranche valued as a separate award. The total grant date fair value of each annual LTIP award is based on the Company’s most recent closing stock price preceding the grant and the application of a discount for post-vesting restrictions and uncertainty regarding the occurrence and timing of book-up events. The following table summarizes these fair valuation assumptions and the grant date fair value of each annual LTIP award:
| | | 2017 Performance Award | | 2016 Performance Award | | 2015 Performance Award | | 2022 LTIP Award | | 2021 LTIP Award | | 2020 LTIP Award | |
Valuation date | December 15, 2017 |
| | December 29, 2016 |
| | December 15, 2015 |
| Valuation date | November 8, 2022 | | December 23, 2021 | | December 22, 2020 | |
Closing share price of common stock | $ | 30.58 |
| | $ | 22.71 |
| | $ | 15.90 |
| Closing share price of common stock | $ | 53.94 | | | $ | 77.50 | | | $ | 48.58 | | |
Discount for post-vesting restrictions and book-up events | 5.0 | % | | 5.0 | % | | 5.0 | % | Discount for post-vesting restrictions and book-up events | 7.4 | % | | 7.8 | % | | 7.6 | % | |
Grant date fair value (in thousands) | $ | 3,563 |
| | $ | 2,518 |
| | $ | 2,518 |
| Grant date fair value (in thousands) | $ | 8,353 | | | $ | 6,648 | | | $ | 5,437 | | |
The following table sets forth our unvested LTIP Unit activity for the years ended December 31, 2017, 20162022, 2021 and 2015:2020:
between such levels.
The following table summarizes the assumptions we used in the Monte Carlo simulations and the grant date fair value of the awards with market-based vesting conditions.
The expected share price volatilities are based on a mix of the historical and implied volatilities of the Company and the peer group companies. The expected dividend yield is based on our average historical dividend yield since our IPO and our dividend yield as of the valuation date for each award. The risk-free interest rate is based on U.S. Treasury note yields matching the three-year time period of the performance period.
The compensation committee has periodically awarded grants of restricted common stock to various employees of the Company typically other than executives,NEOs, for the purpose of attracting or retaining the services of these key individuals. These grants typically vest in four equal, annual installments on each of the first four anniversaries of the date of grant, subject to the employee’s continued service. Shares of our restricted common stock are participating securities and have full voting rights and nonforfeitable rights to dividends. During the yearyears ended December 31, 2017,2022, 2021 and 2020, we granted 91,542120,662, 120,734 and 107,648 shares, respectively, of restricted common stock to non-executive employees. The grant date fair value of these awards was $2.1$8.3 million, $5.6 million and $5.0 million based on the closing share price of the Company’s common stock on the date of grant, which ranged from $23.04$52.97 and $76.55 per share, $48.14 to $30.58$62.19 per share.share and $39.71 to $50.18 per share, for the years ended December 31, 2022, 2021 and 2020, respectively.
In accordance with the Rexford Industrial Realty, Inc. Non-Employee Director Compensation Program, each year on the date of the annual meeting of the Company’s stockholders, we grant shares of restricted common stock to each of our non-employee directors who are re-elected for another year of service. These awards vest on the earlier of (i) the date of the annual meeting of the Company’s stockholders next following the grant date and (ii) the first anniversary of the grant date, subject to each non-employee director’s continued service. During the yearyears ended December 31, 2017, we granted 2,637 shares of restricted
The following table sets forth our unvested restricted stock activity for the years ended December 31, 2017, 20162022, 2021 and 2015:2020:
The following table sets forth the amounts expensed and capitalized for all share-based awards for the reported periods presented below (in thousands):
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):