The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto that appear in Part I, Item 1
“Financial Statements” of this Quarterly Report on Form 10-Q. The terms
“Company,” “we,” “us,” and “our” refer to Rexford Industrial Realty, Inc. and
its consolidated subsidiaries except where the context otherwise requires.
Forward-Looking Statements
We make statements in this quarterly report that are forward-looking
statements, which are usually identified by the use of words such as
“anticipates,” “believes,” “expects,” “intends,” “may,” “might,” “plans,”
“estimates,” “projects,” “seeks,” “should,” “will,” “result” and variations of
such words or similar expressions. Our forward-looking statements reflect our
current views about our plans, intentions, expectations, strategies and
prospects, which are based on the information currently available to us and on
assumptions we have made. Although we believe that our plans, intentions,
expectations, strategies and prospects as reflected in or suggested by our
forward-looking statements are reasonable, we can give no assurance that our
plans, intentions, expectations, strategies or prospects will be attained or
achieved and you should not place undue reliance on these forward-looking
statements. Furthermore, actual results may differ materially from those
described in the forward-looking statements and may be affected by a variety of
risks and factors including, without limitation:
•the competitive environment in which we operate;
•real estate risks, including fluctuations in real estate values and the general
economic climate in local markets and competition for tenants in such markets;
•decreased rental rates or increasing vacancy rates;
•potential defaults on or non-renewal of leases by tenants;
•potential bankruptcy or insolvency of tenants;
•acquisition risks, including failure of such acquisitions to perform in
accordance with expectations;
•the timing of acquisitions and dispositions;
•potential natural disasters such as earthquakes, wildfires or floods;
•the consequence of any future security alerts and/or terrorist attacks;
•national, international, regional and local economic conditions, including
impacts and uncertainty from trade disputes and tariffs on goods imported to the
United States and goods exported to other countries;
•the general level of interest rates;
•potential impacts of inflation;
•potential changes in the law or governmental regulations that affect us and
interpretations of those laws and regulations, including changes in real estate
and zoning or real estate investment trust (“REIT”) tax laws, and potential
increases in real property tax rates;
•financing risks, including the risks that our cash flows from operations may be
insufficient to meet required payments of principal and interest and we may be
unable to refinance our existing debt upon maturity or obtain new financing on
attractive terms or at all;
•lack of or insufficient amounts of insurance;
•our failure to complete acquisitions;
•our failure to successfully integrate acquired properties;
•our ability to qualify and maintain our qualification as a REIT;
•our ability to maintain our current investment grade rating by Fitch Ratings
(“Fitch”), Moody’s Investors Services (“Moody’s) or from Standard and Poor’s
Ratings Services (“S&P”);
•litigation, including costs associated with prosecuting or defending pending or
threatened claims and any adverse outcomes;
•possible environmental liabilities, including costs, fines or penalties that
may be incurred due to necessary remediation of contamination of properties
presently owned or previously owned by us;
•an epidemic or pandemic (such as the outbreak and worldwide spread of
coronavirus (“COVID-19”), as well as new variants of the virus, and the measures
that international, federal, state and local governments, agencies, law
enforcement and/or health authorities may implement to address it, which may (as
with COVID-19) precipitate or
39
——————————————————————————–
exacerbate one or more of the above-mentioned factors and/or other risks, and
significantly disrupt or prevent us from operating our business in the ordinary
course for an extended period; and
•other events outside of our control.
Accordingly, there is no assurance that our expectations will be
realized. Except as otherwise required by the federal securities laws, we
disclaim any obligations or undertaking to publicly release any updates or
revisions to any forward-looking statement contained herein (or elsewhere) to
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. The
reader should carefully review our financial statements and the notes thereto,
as well as the section entitled “Risk Factors” in our Annual Report on Form 10-K
for the year ended December 31, 2021.
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,
improve, redevelop, lease and manage industrial real estate principally 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 Internal Revenue Code of
1986 (the “Code”), as amended, 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 June 30, 2022, our consolidated portfolio consisted of 330 properties
with approximately 39.4 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 through value-add
repositioning and 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 positioned to capitalize upon the opportunities in our markets to
achieve our objectives.
2022 Year to Date Highlights
Financial and Operational Highlights
•Net income attributable to common stockholders increased by 76.0% to $80.0
million for the six months ended June 30, 2022, compared to the prior year.
•Core funds from operations (Core FFO)(1) attributable to common stockholders
increased by 56.5% to $158.3 million for the six months ended June 30, 2022,
compared to the prior year.
•Net operating income (NOI)(1) increased by 41.7% to $220.7 million for the six
months ended June 30, 2022, compared to the prior year.
•Total portfolio occupancy at June 30, 2022 was 95.2%.
•Same Property Portfolio(2) average occupancy for the six months ended June 30,
2022 was 99.1% and ending occupancy at June 30, 2022 was 98.9%.
•Executed a total of 195 new and renewal leases with a combined 2.3 million
rentable square feet, with leasing spreads of 77.7% on a GAAP basis and 59.5% on
a cash basis.
__________________________
(1) See “Non-GAAP Supplemental Measures: Funds From Operations” and “Non-GAAP
Supplemental Measures: NOI and Cash NOI” included under Item 2 of this Form 10-Q
for a definition and reconciliation of Core FFO and NOI from net income and a
discussion of why we believe Core FFO and NOI are useful supplemental measures
of operating performance.
(2) For a definition of “Same Property Portfolio,” see “Results of Operations”
included under Item 2 of this Form 10-Q.
40
——————————————————————————–
Acquisitions
•During the first quarter of 2022, we completed 14 acquisitions representing 17
properties with 1.5 million rentable square feet of buildings on 82 acres of
land, including 13 acres of land for near term redevelopment, for an aggregate
purchase price of $457.7 million.
•During the second quarter of 2022, we completed the acquisition of 18
properties with 1.4 million rentable square feet of buildings on 85.5 acres of
land, including 15 acres of land for near term redevelopment, for an aggregate
purchase price of $598.9 million.
•Subsequent to June 30, 2022, we completed six acquisitions with 1.6 million
square feet of buildings on 75.3 acres of land, for an aggregate purchase price
of $678.9 million.
Dispositions
•During the first quarter of 2022, we sold one property with 79,247 rentable
square feet for a gross sales price of $16.5 million, and recognized $8.5
million in gains on sale of real estate.
Repositioning & Redevelopment
•During the first quarter of 2022, we stabilized our 111,260 rentable square
foot redevelopment property located at 29025-29055 Avenue Paine.
•During the second quarter of 2022, we stabilized our 62,607 rentable square
foot repositioning property located at 900 East Ball Road.
Equity
•During the first quarter of 2022, we entered into forward equity sales
agreements under our at-the-market equity offering program with respect to
5,752,268 shares of common stock at a weighted average initial forward sale
price of $70.32 per share. In March 2022, we partially settled these forward
equity sale agreements and the outstanding forward equity sale agreement from
2021 by issuing 4,402,110 shares of common stock in exchange for net proceeds of
$305.9 million.
•During the second quarter of 2022, we entered into forward equity sales
agreements under our at-the-market equity offering program with respect to
12,002,480 shares of common stock at a weighted average initial forward sale
price of $61.73 per share. In June 2022, we partially settled these forward
equity sale agreements and part of the outstanding forward equity sale agreement
from the first quarter of 2022 by issuing 5,967,783 shares of common stock in
exchange for net proceeds of $419.4 million.
•As of June 30, 2022, we had 9,291,211 shares of common stock, or approximately
$552.1 million of forward net proceeds remaining for settlement to occur before
the third quarter of 2023.
Financing
•In May 2022, we amended our senior unsecured credit agreement to, among other
changes, increase the borrowing capacity of our unsecured revolving credit
facility to $1.0 billion from $700 million and to add a $300 million unsecured
term loan facility. The proceeds from the $300 million term loan facility were
used to repay our $150 million unsecured term loan facility due in 2025,
terminate the associated swap, partially repay outstanding borrowings under the
unsecured revolving credit facility and for general corporate purposes.
•Subsequent to June 30, 2022, we amended our senior unsecured credit agreement
to add a $400 million unsecured term loan facility with a maturity date of July
19, 2024 (with two extensions options of one year each). Proceeds were used to
fund acquisitions closed subsequent to quarter end, reduce outstanding
borrowings under the unsecured revolving credit facility and for general
corporate purposes.
•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
1-month term SOFR related to a portion of our variable-rate debt. These swaps,
which are effective commencing on July 27, 2022, and mature on May 26, 2027,
will effectively fix 1-month term SOFR at a weighted average rate of 2.81725%.
Factors That May Influence Future Results of Operations
41
——————————————————————————–
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 or above
approximately 98% occupancy, coupled with the limited ability to introduce new
supply due to high land and redevelopment 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 has continued to decrease in many of
our target infill submarkets and construction deliveries have 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 economy, substantial growth
in ecommerce 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.
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 through the second quarter of 2022 is
demonstrated through the Company’s strong leasing spreads and volume, achieving
rental rates and related terms from new and renewing tenants that have generally
exceeded those from pre-COVID-19 periods (see “-Leasing Activity and Rental
Rates” below). This tenant demand has been driven by a wide 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 the last several quarters, we have observed a
notable increase in ecommerce-oriented tenants securing space within our
portfolio, in part driven by the impacts of the 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 serve our existing diverse tenant base and
attract incremental ecommerce-oriented and traditional distribution demand.
We believe our portfolio’s leasing performance during the second quarter of 2022
has generally outpaced that of the infill markets within which we operate,
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
believe 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
results of our portfolio. For our portfolio specific results see “-Rental
Revenues” and “-Results of Operations” below.
In Los Angeles County, market fundamentals were very strong during the second
quarter of 2022. Average asking lease rates increased slightly
quarter-over-quarter reaching an all-time high due to high levels of sustained
demand and record low vacancy levels, with nearly all submarkets retaining sub
1% vacancy rates. Current market conditions indicate rents are likely to
increase through the remainder of 2022 as demand has been consistently strong ,
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 were very strong during the second quarter
of 2022. Average asking lease rates increased quarter-over-quarter reaching a
record high, although rising at a decreasing rate compared to prior quarters,
and vacancy decreased slightly quarter-over-quarter, remaining at record low
levels. Current market conditions indicate rents are likely to increase through
the remainder of 2022 due to high demand and the continued low availability of
industrial product in this region.
In San Diego, vacancy decreased quarter-over-quarter to a record low and average
asking lease rates increased slightly quarter-over-quarter.
In Ventura County, vacancy decreased slightly quarter-over-quarter and average
asking lease rates increased slightly quarter-over-quarter.
42
——————————————————————————–
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 was mostly unchanged and remained at nearly 0%, which
is the lowest vacancy rate on record amongst all of our submarkets, and average
asking lease rates increased significantly quarter-over-quarter. Current market
conditions indicate rents are likely to continue to increase through the
remainder of 2022 due to limited availability and persistent high levels of
demand. 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 growth strategy comprises acquiring leased, stabilized properties
as well as properties with value-add opportunities to improve functionality and
to deploy our value-driven 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 value
through functional or physical repositioning and improvements. Through various
repositioning, redevelopment, 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
rates that meet or exceed market rates.
A repositioning can provide a range of 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, in each case designed
to improve the cash flow and value of the property. We have a number of
significant repositioning properties, which are presented in the tables below,
as well as range of smaller 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.
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. 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 June 30, 2022, 16 of our properties were under current repositioning or
redevelopment and none of our properties were in the lease-up stage. In
addition, we have a pipeline of 11 additional properties for which we anticipate
beginning repositioning/redevelopment construction work between the third
quarter of 2022 and the fourth quarter of 2023. The tables below set forth a
summary of these properties, as well the properties that were most recently
stabilized in 2021 and 2022, 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 earlier of (i)
reaching 90% occupancy or (ii) one year from the date construction work is
completed.
43
——————————————————————————–
Estimated Construction Period(1)
Total Property Repositioning/ Total Property
Rentable Square Lease-up Rentable Leased % at
Property (Submarket) Market Feet(2) Square Feet(2) Start Completion 6/30/2022
Current Repositioning:
12821 Knott Street (West OC)(3) OC 165,171 165,171 1Q-2019 4Q-2022 -%
12133 Greenstone Avenue
(Mid-Counties)(4) LA LAND LAND 1Q-2021 3Q-2022 100%(4)
11600 Los Nietos Road (Mid-Counties) LA 106,251 106,251 2Q-2021 3Q-2022 -%
15650-15700 Avalon Boulevard (South
Bay) LA 98,259 98,259 3Q-2021 3Q-2022 100%(5)
8210-8240 Haskell Avenue (SF Valley) LA 53,886 53,886 1Q-2022 3Q-2022 -%
19431 Santa Fe Avenue (South Bay) LA LAND LAND 1Q-2022 4Q-2022 100%(6)
14100 Vine Place (Mid-Counties) LA 123,148 123,148 2Q-2022 3Q-2022 -%
3441 MacArthur Boulevard (OC Airport) OC 124,102 124,102 2Q-2022 3Q-2022 100%(7)
Total Current Repositioning 670,817 670,817
Future Repositioning:
19475 Gramercy Place (South Bay) LA 47,712 47,712 3Q-2022 4Q-2022 -%
Total Future Repositioning 47,712 47,712
– See footnotes starting on the following page –
44
——————————————————————————–
Estimated Construction Period(1)
Estimated
Redevelopment Total Property
Rentable Square Leased % at
Property (Submarket) Market Feet(8) Start Completion 6/30/2022
Current Redevelopment:
415-435 Motor Avenue (San Gabriel
Valley) LA 94,321 2Q-2021 3Q-2022
-%
15601 Avalon Boulevard (South Bay) LA 86,879 3Q-2021 4Q-2022
-%
1055 Sandhill Avenue (South Bay) LA 127,853 3Q-2021 3Q-2023
-%
9615 Norwalk Boulevard (Mid-Counties) LA 201,571 3Q-2021 4Q-2023 -%
9920-10020 Pioneer Boulevard
(Mid-Counties) LA 162,231 4Q-2021 3Q-2023 -%
12752-12822 Monarch Street (West
OC)(9) OC 160,547 1Q-2022 2Q-2023 See footnote (9)
1901 Via Burton (North OC) OC 139,449 1Q-2022 4Q-2023 -%
3233 Mission Oaks Boulevard
(Ventura)(10) VC 173,124 2Q-2022 3Q-2023 See footnote (10)
Total Current Redevelopment 1,145,975
Future Redevelopment:
4416 Azusa Canyon Road (San Gabriel
Valley) LA 130,063 3Q-2022 1Q-2024
-%
8888-8892 Balboa Avenue (Central SD) SD 124,125 3Q-2022 4Q-2023
-%
2390-2444 American Way (North OC) OC 97,170 3Q-2022 4Q-2023 -%
12118 Bloomfield Avenue
(Mid-Counties) LA 109,570 3Q-2022 1Q-2024 100%
6027 Eastern Avenue (Central LA) LA 92,781 4Q-2022 4Q-2023
-%
15010 Don Julian Road (San Gabriel
Valley) LA 219,242 4Q-2022 4Q-2023
-%
3071 Coronado Street (North OC) OC 107,000 1Q-2023 1Q-2024
100%
13711 Freeway Drive (Mid-Counties) LA 108,000 1Q-2023 2Q-2024
100%
12772 San Fernando Road (San Fernando
Valley) LA 143,421 3Q-2023 3Q-2024
52%
21515 Western Avenue (South Bay) LA 84,100 4Q-2023 4Q-2024 -%
Total Future Redevelopment 1,215,472
Total Property
Stabilized Rentable Leased % at
Stabilized(11) Market Square Feet Period Stabilized 6/30/2022
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%
Total 2022 Stabilized 173,867
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)(12) LA 488,114 3Q-2021 100%
8745-8775 Production Avenue (Central
SD) SD 26,200 3Q-2021 100%
19007 Reyes Avenue (South Bay)(13) LA LAND 3Q-2021 100%
851 Lawrence Drive (Ventura) VC 90,773 3Q-2021 100%
Total 2021 Stabilized 1,000,003
(1)The estimated 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
45
——————————————————————————–
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 June 30,
2022, the property has been pre-leased with the lease expected to commence in
September 2022, subject to completion of repositioning work.
(5)As of June 30, 2022, 15650-15700 Avalon Boulevard has been pre-leased with
the lease expected to commence in September 2022, subject to completion of
redevelopment work.
(6)As of June 30, 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 December 2022, subject to completion of repositioning work.
(7)As of June 30, 2022, 3441 MacArthur Blvd has been pre-leased with the lease
expected to commence in November 2022, subject to completion of repositioning
work.
(8)Represents the estimated rentable square footage of the project upon
completion of redevelopment.
(9)As of June 30, 2022, 12752-12822 Monarch Street comprises 276,585 rentable
square feet and is 41% occupied. The project includes 111,325 rentable square
feet with tenants in-place that are not being redeveloped. We are repositioning
65,335 rentable square feet, and plan to demolish 99,925 rentable square feet
and construct a new 95,212 rentable square feet building in its place. At
completion, the total project will contain 271,872 rentable square feet.
(10)As of June 30, 2022, 3233 Mission Oaks Boulevard comprises 461,717 rentable
square feet. The project includes 409,217 rentable square feet that are
currently occupied and not being redeveloped. We plan to demolish the remaining
52,500 rentable square feet and construct two new buildings comprising 173,288
rentable square feet. We are also performing site work across the entire
project. At completion, the total project will contain 582,505 rentable square
feet.
(11)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.
(12)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 total 1,152,883 rentable square feet. Property leased percentage reflects
the two buildings.
(13)At 19007 Reyes Avenue, a 4.5 acre industrial site, we removed the
dysfunctional improvements and converted the site into a single tenant paved
container storage facility.
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 redevelopment and construction period. An increase
in our repositioning and redevelopment 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
$2.4 million and $4.4 million of interest expense and $1.3 million and $2.3
million of insurance and real estate tax expenses during the three and six
months ended June 30, 2022, respectively, 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 Revenues
Our operating results depend primarily upon generating rental revenue from the
properties in our portfolio. The amount of rental revenue generated by these
properties is affected by our ability to maintain or increase occupancy levels
and
46
——————————————————————————–
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 June 30, 2022, our consolidated portfolio, inclusive of space in
repositioning as described in the subsequent paragraph, was approximately 95.2%
occupied, while our stabilized consolidated portfolio exclusive of such space
was approximately 98.2% 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 completion and
lease-up of repositioning and redevelopment projects that are currently under
construction.
As summarized in the tables under “-Acquisitions and Value-Add Repositioning and
Redevelopment of Properties” above, as of June 30, 2022, 16 of our properties
with a combined 1.8 million of estimated rentable square feet at completion are
under current repositioning or redevelopment. Additionally, we have a near-term
pipeline of 11 repositioning and redevelopment projects with a combined
1.3 million of estimated rentable square feet at completion. Vacant space at
these properties is concentrated in our Los Angeles and Orange County markets
and represents 3.0% of our total consolidated portfolio square footage as of
June 30, 2022. Including vacant space at these properties, our weighted average
occupancy rate as of June 30, 2022 in our Los Angeles and Orange County markets
was 94.7% and 88.9%, respectively. Excluding vacant space at these properties,
our weighted average occupancy rate as of June 30, 2022, in these markets was
98.2% and 98.2%, respectively. We believe that an important portion of our
long-term future growth will come from the completion of these projects
currently under or scheduled for repositioning/redevelopment, as well as through
the identification or acquisition of new opportunities for repositioning and
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. In the last several years, the Los Angeles, Orange County and San
Bernardino markets have continued to show historically low vacancy and positive
absorption, resulting from the combination of sustained high tenant demand and
low product availability. Accordingly, our properties in these markets have
generally exhibited a similar trend. We believe that general market conditions
will remain positive in 2022, and the opportunity to increase occupancy and
rental rates at our properties will be an important driver of future revenue
growth; however, there can be no assurance that recent positive market trends
will continue.
47
——————————————————————————–
Leasing Activity and Rental Rates
The following tables set forth our leasing activity for new and renewal leases
for the three and six months ended June 30, 2022:
New Leases
Weighted Average Effective Rent
Number Lease Term Per Square GAAP Leasing Cash Leasing
Quarter of Leases Rentable Square Feet (in years) Foot(1) Spreads(2)(4) 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 %
Total/Weighted Average 71 963,666 5.4 $ 23.05 90.0 % 65.0 %
Renewal Leases Expired Leases Retention %(7)
Weighted Average Effective Rent
Number Lease Term Per Square GAAP Leasing Cash Leasing Number Rentable Square Rentable Square
Quarter of Leases Rentable Square Feet (in years) Foot(1) Spreads(2)(5) Spreads(3)(5) of Leases Feet(6) Feet
Q1-2022 54 552,828 3.4 $ 21.13 72.8 % 59.9 % 94 1,153,547 79.1 %
Q2-2022 70 745,840 3.9 $ 19.48 73.0 % 55.3 % 130 1,625,064 66.0 %
Total/Weighted Average 124 1,298,668 3.7 $ 20.18 72.9 % 57.3 % 224 2,778,611 71.0 %
(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 the quarter.
(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.
(3)Calculated as the change between starting cash rents 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 six
months ended June 30, 2022, exclude 10 leases aggregating 378,783 rentable
square feet for which there was no comparable lease data. Of these 10 excluded
leases, three leases for 224,216 rentable square feet was a 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.
(5)The GAAP and cash re-leasing rent spreads exclude two renewal leases
(antenna/parking lot) executed during the six months ended June 30, 2022.
(6)Includes leases totaling 680,419 rentable square feet that expired during the
six months ended June 30, 2022, for which the space has been or will be placed
into repositioning 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 after the tenant vacates, (ii) early terminations with
pre-negotiated replacement leases and (iii) move outs where space is directly
leased by subtenants.
Our leasing activity is impacted both by our repositioning and redevelopment
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. As of June 30, 2022, we have 16 current repositioning/redevelopment
projects with estimated construction completion periods ranging from the third
quarter of 2022 through the fourth quarter of 2023, and an additional 11
repositioning and redevelopment projects in our pipeline with estimated
construction completion dates through the fourth quarter of 2024. We expect
these properties to have positive impacts on our leasing activity and revenue
generation as we complete our value-add plans and place these properties in
service.
48
——————————————————————————–
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. The
following table sets forth a summary schedule of lease expirations for leases in
place as of June 30, 2022, for each of the 10 full and partial calendar years
beginning with 2022 and thereafter, plus space that is available and under
current repositioning.
Percentage of Total Annualized Base
Number of Leases Total
Rentable Square Percentage of Total Annualized Annualized Base Rent per Square
Year of Lease Expiration
Expiring Feet(1) Owned Square Feet Base Rent(2) Rent(3) Foot(4)
Vacant(5) – 688,625 1.8 % $ – – % $ –
Current Repositioning(6) – 1,199,025 3.1 % – – % $ –
MTM Tenants 19 116,825 0.3 % 1,888 0.4 % $ 16.17
Remainder of 2022 205 2,603,766 6.6 % 29,245 6.3 % $ 11.23
2023 405 5,766,458 14.6 % 69,710 15.0 % $ 12.09
2024 383 6,464,677 16.4 % 74,381 16.1 % $ 11.51
2025 269 5,214,431 13.2 % 60,075 13.0 % $ 11.52
2026 170 6,159,457 15.6 % 71,029 15.3 % $ 11.53
2027 89 3,603,888 9.1 % 41,781 9.0 % $ 11.59
2028 17 1,063,657 2.7 % 13,328 2.9 % $ 12.53
2029 18 1,161,399 3.0 % 14,999 3.2 % $ 12.92
2030 14 1,388,961 3.5 % 16,606 3.6 % $ 11.96
2031 18 1,906,263 4.8 % 30,945 6.7 % $ 16.23
Thereafter 31 2,103,623 5.3 % 39,221 8.5 % $ 18.64
Total Consolidated Portfolio 1,638 39,441,055 100.0 % $ 463,208
100.0 % $ 12.33
(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 June 30, 2022, multiplied by 12. Excludes billboard
and antenna revenue and 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 June 30, 2022.
(4)Calculated as annualized base rent for such leases divided by the occupied
square feet for such leases as of June 30, 2022.
(5)Represents vacant space (not under repositioning) as of June 30, 2022.
Includes leases aggregating 272,467 rentable square feet that had been signed
but had not yet commenced as of June 30, 2022.
(6)Represents vacant space at properties that were classified as repositioning
or redevelopment properties as of June 30, 2022. Excludes stabilized properties
and properties in lease-up. Refer to the table under “-Acquisitions and
Value-Add Repositioning and Redevelopment of Properties” for additional details
related to these properties
As of June 30, 2022, in addition to 0.7 million rentable square feet of
currently available space in our portfolio and approximately 1.2 million
rentable square feet of vacant space under current repositioning, leases
representing 6.6% and 14.6% of the aggregate rentable square footage of our
portfolio are scheduled to expire during the remainder of 2022 and 2023,
respectively. During the six months ended June 30, 2022, we renewed 124 leases
for 1.3 million rentable square feet, resulting in a 71.0% retention rate. Our
retention rate during the period was impacted by the combination of low vacancy
and high demand in many of our key markets. During the six months ended June 30,
2022, new and renewal leases had a weighted average term of 5.4 and 3.7 years,
and we expect future new and renewal leases to have similar terms.
The leases scheduled to expire during the remainder of 2022 and 2023 represent
approximately 6.3% and 15.0% respectively, of the total annualized base rent for
our portfolio as of June 30, 2022. We estimate that, on a weighted average
basis, in-place rents of leases scheduled to expire during the remainder of 2022
and 2023 are currently below current market asking rates, although individual
units or properties within any particular submarket 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 vacancy rates and average asking lease rates,
varied by market, overall there was continued low market vacancy and pervasive
49
——————————————————————————–
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 and that these positive trends will
continue to provide a favorable environment for additional increases in lease
renewal rates. Accordingly, we expect the remainder of 2022 will show positive
renewal rates and leasing spreads.
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 COVID-19 pandemic and related state and
local government reactions, high and persistent inflation and adverse weather
conditions and natural disasters in this market may affect our overall
performance.
Property Expenses
Our property 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 June 30, 2022, our Operating Partnership indirectly and wholly owns
Rexford Industrial Realty and Management, Inc., which we refer to as our
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. However, it has a cumulative unrecognized net operation
loss carryforward and therefore there is no income tax provision for the six
months ended June 30, 2022 and 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. 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
affect the comparability of our results of operations and financial condition to
those of other companies.
In our Annual Report on Form 10-K for the year ended December 31, 2021 and in
“Note 2 – Summary of Significant Accounting Policies” to the consolidated
financial statements under Item 1 of this report on Form 10-Q, we identified
certain critical accounting policies that affect certain of our more significant
estimates and assumptions used in preparing our consolidated financial
statements. We have not made any material changes to our critical accounting
policies and estimates during the period covered by this report.
50
——————————————————————————–
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.”
For the three and six months ended June 30, 2022 and 2021, our Same Property
Portfolio includes all properties in our portfolio that were wholly-owned by us
for the period from January 1, 2021 through June 30, 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 properties that were acquired or sold during the
period from January 1, 2021 through June 30, 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.
In addition to the properties included in our Same Property Portfolio, our Total
Portfolio includes the 88 properties aggregating approximately 8.5 million
rentable square feet that were purchased between January 1, 2021 and June 30,
2022, and the six properties aggregating approximately 0.3 million rentable
square feet that were sold between January 1, 2021 and June 30, 2022.
At June 30, 2022 and 2021, our Same Property Portfolio occupancy was
approximately 98.9% and 98.4%, respectively. For the three months ended June 30,
2022 and 2021, our Same Property Portfolio weighted average occupancy was
approximately 99.1% and 98.1%, respectively. Comparatively, for the six months
ended June 30, 2022 and 2021, our Same Property Portfolio weighted average
occupancy was approximately 99.1% and 97.9%.
Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended
June 30, 2021
The following table summarizes the historical results of operations for our Same
Property Portfolio and Total Portfolio for the three months ended June 30, 2022
and 2021 (dollars in thousands):
Same Property Portfolio Total Portfolio
Three Months Ended June 30, % Three Months Ended June 30, %
2022 2021 Increase/(Decrease) Change 2022 2021 Increase/(Decrease) Change
REVENUES
Rental income $ 102,205 $ 94,677 $ 7,528 8.0 % $ 148,987 $ 104,236 $ 44,751 42.9 %
Management and leasing services – – – – % 130 109 21 19.3 %
Interest income – – – – % 1 15 (14) (93.3) %
TOTAL REVENUES 102,205 94,677 7,528 8.0 % 149,118 104,360 44,758 42.9 %
OPERATING EXPENSES
Property expenses 24,135 21,745 2,390 11.0 % 35,405 24,555 10,850 44.2 %
General and administrative – – – – % 14,863 10,695 4,168 39.0 %
Depreciation and amortization 29,811 31,302 (1,491) (4.8) % 46,609 36,228 10,381 28.7 %
TOTAL OPERATING EXPENSES 53,946 53,047 899 1.7 % 96,877 71,478 25,399 35.5 %
OTHER EXPENSES
Other expenses – – – – % 295 2 293 14,650.0 %
Interest expense – – – – % 10,168 9,593 575 6.0 %
TOTAL EXPENSES 53,946 53,047 899 1.7 % 107,340 81,073 26,267 32.4 %
Loss on extinguishment of debt – – – – % (877) – (877) – %
Gains on sale of real estate – – – – % – 2,750 (2,750) (100.0) %
NET INCOME $ 48,259 $ 41,630 $ 6,629 15.9 % $ 40,901 $ 26,037 $ 14,864 57.1 %
51
——————————————————————————–
Rental Income
In the following table, we present the components of rental income for the three
months ended June 30, 2022 and June 30, 2021, which includes rental revenue,
tenant reimbursements and other income related to leases. 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 understand and evaluate the Company’s performance.
Same Property Portfolio Total Portfolio
Three Months Ended June 30, % Three Months Ended June 30, %
Category 2022 2021 Increase/(Decrease) Change 2022 2021 Increase/(Decrease) Change
Rental revenue(1) $ 84,074 $ 78,629 $ 5,445 6.9 % $ 123,095 $ 86,814 $ 36,281 41.8 %
Tenant reimbursements (2) 17,822 15,806 2,016 12.8 % 25,413 17,119 8,294 48.4 %
Other income(3) 309 242 67 27.7 % 479 303 176 58.1 %
Rental income $ 102,205 $ 94,677 $ 7,528 8.0 % $ 148,987 $ 104,236 $ 44,751 42.9 %
Our Same Property Portfolio and Total Portfolio rental income increased by $7.5
million, or 8.0%, and $44.8 million, or 42.9%, respectively, during the three
months ended June 30, 2022, compared to the three months ended June 30, 2021,
for the reasons described below:
(1) Rental Revenue
Our Same Property Portfolio and Total Portfolio rental revenue increased by $5.4
million, or 6.9%, and $36.3 million, or 41.8%, respectively, during the three
months ended June 30, 2022, compared to the three months ended June 30, 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 $0.9 million in amortization of net below-market lease intangibles.
Our Total Portfolio rental revenue was also positively impacted by the
incremental revenues from the 88 properties we acquired between January 1, 2021,
and June 30, 2022.
(2) Tenant Reimbursements
Our Same Property Portfolio tenant reimbursements revenue increased by $2.0
million, or 12.8%, and our Total Portfolio tenant reimbursements revenue
increased by $8.3 million, or 48.4%, during the three months ended June 30,
2022, compared to the three months ended June 30, 2021. The increase in our Same
Property Portfolio tenant reimbursements revenue is primarily due to an increase
in the weighted average occupancy of the portfolio, higher reimbursable
insurance expenses as a result of higher overall premiums and additional
earthquake insurance coverage, and an increase in reimbursable property tax
expenses, partially offset by a decrease in tenant reimbursements due to timing
differences in completing prior year recoverable expense reconciliations for
comparable periods. Our Total Portfolio tenant reimbursements revenue was also
impacted by the incremental tenant reimbursements from the 88 properties we
acquired between January 1, 2021, and June 30, 2022.
(3) Other Income
Our Same Property Portfolio and Total Portfolio other income increased by $0.1
million, or 27.7%, and $0.2 million, or 58.1%, respectively, during the three
months ended June 30, 2022, compared to the three months ended June 30, 2021,
primarily due to the recommencement of charging fees for late rental payments,
which until recently was prohibited due COVID-19 related governmental measures.
Management and Leasing Services
Our Total Portfolio management and leasing services revenue increased by $21
thousand, or 19.3%, during the three months ended June 30, 2022, compared to the
three months ended June 30, 2021.
Interest Income
Interest income decreased by $14 thousand, or 93.3%, during the three months
ended June 30, 2022, compared to the three months ended June 30, 2021.
52
——————————————————————————–
Property Expenses
Our Same Property Portfolio and Total Portfolio property expenses increased by
$2.4 million, or 11.0%, and $10.9 million, or 44.2%, respectively, during the
three months ended June 30, 2022, compared to the three months ended June 30,
2021. The increase in our Same Property Portfolio property expenses is primarily
due to an increase in insurance expense as a result of higher overall premiums
and additional earthquake insurance coverage, an increase in real estate tax
expense and an increase in allocated overhead costs. Our Total Portfolio
property expenses were also impacted by incremental expenses from the 88
properties we acquired between January 1, 2021, and June 30, 2022.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $4.2
million, or 39.0%, during the three months ended June 30, 2022, compared to the
three months ended June 30, 2021, primarily due to increases in non-cash equity
compensation expense primarily related to performance unit equity grants made in
2020 and 2021, payroll related costs due to a higher employee headcount and
rising labor costs and higher accrued bonus expense.
Depreciation and Amortization
Our Same Property Portfolio depreciation and amortization expense decreased by
$1.5 million, or 4.8%, during the three months ended June 30, 2022, compared to
the three months ended June 30, 2021, primarily due to acquisition-related
in-place lease intangibles becoming fully depreciated at certain of our
properties subsequent to January 1, 2021, partially offset by an increase in
depreciation expense related to capital improvements placed into service
subsequent to January 1, 2021, and an increase in amortization of deferred
leasing costs. Our Total Portfolio depreciation and amortization expense
increased by $10.4 million, or 28.7%, during the three months ended June 30,
2022, compared to the three months ended June 30, 2021, primarily due to the
incremental expense from the 88 properties we acquired between January 1, 2021,
and June 30, 2022.
Other Expenses
Our Total Portfolio other expenses increased from $2 thousand for the three
months ended June 30, 2021 to $0.3 million for three months ended June 30, 2022,
mainly due to the write-off of construction costs related to cancelled projects.
Interest Expense
Our Total Portfolio interest expense increased by $0.6 million, or 6.0%, during
the three months ended June 30, 2022, compared to the three months ended
June 30, 2021. The increase in interest expense is primarily comprised of the
following: (i) a $2.4 million increase due to the issuance of $400.0 million of
2.15% senior notes in August 2021, (ii) a $1.5 million increase due to higher
average outstanding borrowings under our unsecured revolving credit facility,
(iii) a $0.6 million increase related to the $300 million term loan facility
borrowing we completed in May 2022, and (iv) a $0.2 million increase in interest
expense on our $60 million term loan due to an increase in LIBOR. These
increases were partially offset by the following decreases: (i) a $1.5 million
increase in capitalized interest related to repositioning and redevelopment
activity, (ii) a $1.5 million net decrease related to the repayment of the $225
million term loan facility and termination of the related interest rate swaps in
August 2021, (iii) a $0.8 million net decrease related to the repayment of the
$150 million term loan facility and termination of the related interest rate
swap in May 2022, and (iv) a $0.4 million net 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 three months ended
June 30, 2022, is comprised of the write-off of $0.7 million of unamortized debt
issuance costs related to the $150 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.
Gains on Sale of Real Estate
During the three months ended June 30, 2022, we did not complete any property
dispositions. During the three months ended June 30, 2021, we recognized gains
on sale of real estate of $2.8 million from the disposition of one property that
was sold for a gross sales price of $8.2 million.
53
——————————————————————————–
Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended
June 30, 2021
The following table summarizes the historical results of operations for our Same
Property Portfolio and Total Portfolio for the six months ended June 30, 2022
and 2021 (dollars in thousands):
Same Property Portfolio Total Portfolio
Six Months Ended Six Months Ended
June 30, % June 30, %
2022 2021 Increase/(Decrease) Change 2022
2021 Increase/(Decrease) Change
REVENUES
Rental income $ 202,420 $ 186,635 $ 15,785 8.5 % $ 289,575 $ 203,880 $ 85,695 42.0 %
Management and leasing services – – – – % 293 214 79 36.9 %
Interest income – – – – % 2 29 (27) (93.1) %
TOTAL REVENUES 202,420 186,635 15,785 8.5 % 289,870 204,123 85,747 42.0 %
OPERATING EXPENSES
Property expenses 47,992 43,001 4,991 11.6 % 68,834 48,130 20,704 43.0 %
General and administrative – – – – % 29,580 22,175 7,405 33.4 %
Depreciation and amortization 59,541 63,136 (3,595) (5.7) % 89,080 71,372 17,708 24.8 %
TOTAL OPERATING EXPENSES 107,533 106,137 1,396 1.3 % 187,494 141,677 45,817 32.3 %
OTHER EXPENSES
Other expenses – – – – % 333 31 302 974.2 %
Interest expense – – – – % 19,851 19,345 506 2.6 %
TOTAL EXPENSES 107,533 106,137 1,396 1.3 % 207,678 161,053 46,625 29.0 %
Loss on extinguishment of debt – – – – % (877) – (877) 100.0 %
Gains on sale of real estate – – – – % 8,486 13,610 (5,124) (37.6) %
NET INCOME $ 94,887 $ 80,498 $ 14,389 17.9 % $ 89,801 $ 56,680 $ 33,121 58.4 %
Rental Income
In the following table, we present the components of rental income for the six
months ended June 30, 2022 and June 30, 2021, which includes rental revenue,
tenant reimbursements and other income related to leases. 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 understand and evaluate the Company’s performance.
Same Property Portfolio Total Portfolio
Six Months Ended Six Months Ended
June 30, % June 30, %
Category 2022 2021 Increase/(Decrease) Change 2022 2021 Increase/(Decrease) Change
Rental revenue(1) $ 166,333 $ 155,009 $ 11,324 7.3 % $ 238,667 $ 169,667 $ 69,000 40.7 %
Tenant reimbursements (2) 35,536 31,283 4,253 13.6 % 49,966 33,763 16,203 48.0 %
Other income(3) 551 343 208 60.6 % 942 450 492 109.3 %
Rental income $ 202,420 $ 186,635 $ 15,785 8.5 % $ 289,575 $ 203,880 $ 85,695 42.0 %
54
——————————————————————————–
Our Same Property Portfolio and Total Portfolio rental income increased by $15.8
million, or 8.5%, and $85.7 million, or 42.0%, respectively, during the six
months ended June 30, 2022, compared to the six months ended June 30, 2021, for
the reasons described below:
(1) Rental Revenue
Our Same Property Portfolio and Total Portfolio rental revenue increased by
$11.3 million, or 7.3%, and $69.0 million, or 40.7%, respectively, during the
six months ended June 30, 2022, compared to the six months ended June 30, 2021.
The increase in our Same Property Portfolio rental revenue is primarily due to
the 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 in amortization of net below-market lease intangibles. Our Total
Portfolio rental revenue was also positively impacted by the incremental
revenues from the 88 properties we acquired between January 1, 2021, and
June 30, 2022.
(2) Tenant Reimbursements
Our Same Property Portfolio tenant reimbursements revenue increased by $4.3
million, or 13.6%, and our Total Portfolio tenant reimbursements revenue
increased by $16.2 million, or 48.0% during the six months ended June 30, 2022,
compared to the six months ended June 30, 2021. The increase in our Same
Property Portfolio tenant reimbursements revenue is primarily due to an increase
in the weighted average occupancy of the portfolio, higher reimbursable
insurance expenses as a result of higher overall premiums and additional
earthquake insurance coverage, and an increase in reimbursable property tax
expenses, partially offset by a decrease in tenant reimbursements due to timing
differences in completing prior year recoverable expense reconciliations for
comparable periods. Our Total Portfolio tenant reimbursements revenue was also
impacted by the incremental tenant reimbursements from the 88 properties we
acquired between January 1, 2021 and June 30, 2022.
(3) Other Income
Our Same Property Portfolio and Total Portfolio other income increased by $0.2
million, or 60.6%, and $0.5 million, or 109.3%, respectively, during the six
months ended June 30, 2022, compared to the six months ended June 30, 2021,
primarily due to the recommencement of charging fees for late rental payments,
which until recently was prohibited due COVID-19 related governmental measures.
Management and Leasing Services
Our Total Portfolio management and leasing services revenue increased by $0.1
million, or 36.9%, during the six months ended June 30, 2022, compared to the
six months ended June 30, 2021.
Interest Income
Interest income decreased by $27 thousand, or 93.1%, during the six months ended
June 30, 2022, compared to the six months ended June 30, 2021.
Property Expenses
Our Same Property Portfolio and Total Portfolio property expenses increased by
$5.0 million, or 11.6%, and $20.7 million, or 43.0%, respectively, during the
six months ended June 30, 2022, compared to the six months ended June 30, 2021.
The increase in our Same Property Portfolio property expenses is primarily due
to increases in insurance expense as a result of higher overall premiums and
additional earthquake insurance coverage, an increase in allocated overhead
costs and an increase in real estate tax expense. Our Total Portfolio property
expenses were also impacted by incremental expenses from the 88 properties we
acquired between January 1, 2020, and June 30, 2022.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $7.4
million, or 33.4%, during the six months ended June 30, 2022, compared to the
six months ended June 30, 2021, primarily due to increases in non-cash equity
compensation expense primarily related to performance unit equity grants made in
2020 and 2021, accrued bonus expense and payroll related costs due to a higher
employee headcount and rising labor costs.
55
——————————————————————————–
Depreciation and Amortization
Our Same Property Portfolio depreciation and amortization expense decreased by
$3.6 million, or 5.7%, during the six months ended June 30, 2022, compared to
the six months ended June 30, 2021, primarily due to acquisition-related
in-place lease intangibles becoming fully depreciated at certain of our
properties subsequent to January 1, 2021, partially offset by an increase in
depreciation expense related to capital improvements placed into service
subsequent to January 1, 2021, and an increase in amortization of deferred
leasing costs. Our Total Portfolio depreciation and amortization expense
increased by $17.7 million, or 24.8%, during the six months ended June 30, 2022,
compared to the six months ended June 30, 2021, primarily due to the incremental
expense from the 88 properties we acquired between January 1, 2021, and June 30,
2022.
Other Expenses
Our Total Portfolio other expenses increased from $31 thousand for the six
months ended June 30, 2021, to $0.3 million for the six months ended June 30,
2022, mainly due to the write-off of construction costs related to cancelled
projects.
Interest Expense
Our Total Portfolio interest expense increased by $0.5 million, or 2.6%, during
the six months ended June 30, 2022, compared to the six months ended June 30,
2021. The increase in interest expense is primarily comprised of the following:
(i) a $4.8 million increase due to the issuance of $400.0 million of 2.15%
senior notes in August 2021, (ii) a $2.1 million increase due to higher average
outstanding borrowings under our unsecured revolving credit facility and higher
facility fees due to an increase in our borrowing capacity, (iii) a $0.6 million
increase related to the $300 million term loan facility borrowing we completed
in May 2022, (iv) a $0.2 million increase due to the assumption of $13.2 million
of debt as part of the consideration for the acquisition of one property in
October 2021 and (v) a $0.2 million increase in interest expense on our $60
million term loan due to an increase in LIBOR. These increases were partially
offset by the following decreases: (i) a $2.9 million net decrease related to
the repayment of the $225 million term loan facility and termination of the
related interest rate swaps in August 2021, (ii) a $2.8 million increase in
capitalized interest related to repositioning and redevelopment activity, (iii)
a $1.0 million net decrease related to the repayment of the $150 million term
loan facility and termination of the related interest rate swap in May 2022, and
(iv) a $0.8 million net 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 six months ended
June 30, 2022, is comprised of the write-off of $0.7 million of unamortized debt
issuance costs related to the $150 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.
Gains on Sale of Real Estate
During the six months ended June 30, 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 six months ended June 30, 2021,
we recognized gains on sale of real estate of $13.6 million from the disposition
of three properties that were sold for an aggregate gross sales price of $29.0
million.
56
——————————————————————————–
Non-GAAP Supplemental Measure: Funds From Operations and Core Funds From
Operations
We calculate funds from operations (“FFO”) attributable to common stockholder 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 accounting principles generally accepted in the United States
(“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 to exclude the impact of certain items
that we do not consider reflective of our on-going operating performance. Core
FFO adjustments consist of (i) acquisition expenses, (ii) loss on extinguishment
of debt, (iii) the amortization of the loss on termination of interest rate
swaps, (iv) impairments of right-of-use assets and (v) other amounts as they may
occur. We believe that Core FFO is a useful supplemental measure as it provides
a more meaningful and consistent comparison of operating performance and allows
investors to more easily compare the Company’s operating results. 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.
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 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income $ 40,901 $ 26,037 $ 89,801 $ 56,680
Add:
Depreciation and amortization 46,609 36,228 89,080 71,372
Deduct:
Gains on sale of real estate – 2,750 8,486 13,610
Funds From Operations (FFO) $ 87,510 $ 59,515 $ 170,395 $ 114,442
Add:
Acquisition expenses 56 2 92 31
Loss on extinguishment of debt 877 – 877 –
Amortization of loss on termination of interest
rate swaps 23 410 135 820
Core FFO 88,466 59,927 171,499 115,293
Less: preferred stock dividends (2,315) (3,637) (4,629) (7,273)
Less: Core FFO attributable to noncontrolling
interest(1) (4,169) (3,275) (7,962) (6,430)
Less: Core FFO attributable to participating
securities(2) (311) (226) (607) (437)
Core FFO attributable to common stockholders $ 81,671 $ 52,789 $ 158,301 $ 101,153
57
——————————————————————————–
(1)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.
(2)Participating securities include unvested shares of restricted stock,
unvested LTIP units and unvested performance units.
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):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Rental income $ 148,987 $
104,236 $ 289,575 $ 203,880
Less: Property expenses
35,405 24,555 68,834 48,130
Net Operating Income $ 113,582 $ 79,681 $ 220,741 $ 155,750
Amortization of (below) above market lease
intangibles, net (6,126) (3,386) (11,217) (6,098)
Straight line rental revenue adjustment (8,441) (4,840) (15,342) (9,039)
Cash Net Operating Income $ 99,015 $ 71,455 $ 194,182 $ 140,613
58
——————————————————————————–
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):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income $ 40,901 $
26,037 $ 89,801 $ 56,680
Add:
General and administrative
14,863 10,695 29,580 22,175
Depreciation and amortization 46,609 36,228 89,080 71,372
Other expenses 295 2 333 31
Interest expense 10,168 9,593 19,851 19,345
Loss on extinguishment of debt 877 – 877 –
Deduct:
Management and leasing services 130 109 293 214
Interest income 1 15 2 29
Gains on sale of real estate – 2,750 8,486 13,610
Net Operating Income $ 113,582 $
79,681 $ 220,741 $ 155,750
Amortization of (below) above market lease
intangibles, net
(6,126) (3,386) (11,217) (6,098)
Straight line rental revenue adjustment (8,441) (4,840) (15,342) (9,039)
Cash Net Operating Income $ 99,015 $
71,455 $ 194,182 $ 140,613
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):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income $ 40,901 $ 26,037 $ 89,801 $ 56,680
Interest expense 10,168 9,593 19,851 19,345
Depreciation and amortization 46,609 36,228 89,080 71,372
Gains on sale of real estate – (2,750) (8,486) (13,610)
EBITDAre $ 97,678 $ 69,108 $ 190,246 $ 133,787
Supplemental Guarantor Information
In March 2020, the Securities and Exchange Commission (“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
59
——————————————————————————–
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 June 30, 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 $400 million of 2.15% Senior Notes
due 2031 (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.
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 our at-the-market
equity offering 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 unsecured and secured
financings, borrowings available under our unsecured revolving credit facility,
the issuance of debt and/or equity securities, including preferred stock, and
proceeds from selective real estate dispositions as we identify capital
recycling opportunities.
As of June 30, 2022, we had:
•Outstanding fixed-rate and variable-rate debt with varying maturities with an
aggregate principal amount of $1.7 billion, of which $6.0 million is due within
12 months;
•Total scheduled interest payments on our fixed rate debt and projected interest
payments on our variable rate debt of $303.7 million, of which $45.8 million is
due within 12 months;
•Commitments of $77.7 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 $28.3 million, of
which $2.3 million is due within 12 months.
See “Note 5 – Notes Payable” to the consolidated financial statements included
in Item 1 of this Report on Form 10-Q 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 June 30, 2022, our cash and cash equivalents were $34.3 million, and we
had borrowings of $125.0 million outstanding under our unsecured revolving
credit facility, leaving $875.0 million 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
60
——————————————————————————–
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 a new at-the-market equity offering 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
at-the-market equity offering program, which was established on January 13, 2022
(the “Prior 2022 ATM Program”), 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 at-the-market
equity offering program on November 9, 2020 (the “2020 ATM Program”), under
which we had sold shares of our common stock having an aggregate gross sales
price of $743.9 million through January 13, 2022. 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.
During the six months ended June 30, 2022, we entered into forward equity sale
agreements with certain financial institutions acting as forward purchasers
under the Current 2022 ATM Program and Prior 2022 ATM Program with respect to
17,754,748 shares of common stock at a weighted average initial forward sale
price of $64.49 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 six months ended June 30, 2022, we physically settled the forward
equity sale agreement that was outstanding as of December 31, 2021 under the
2020 ATM Program and a portion of the forward equity sale agreements under the
Current 2022 ATM Program and Prior 2022 ATM Program by issuing 10,369,893 shares
of our common stock for net proceeds of $725.4 million. The net proceeds for the
six months ended June 30, 2022 were calculated based on a weighted average net
forward sale price at the time of settlement of $69.95 per share. As of June 30,
2022, we had 9,291,211 shares of common stock, or approximately $552.1 million
of forward net proceeds remaining for settlement to occur before the third
quarter of 2023, based on net forward sales price of $59.42 per share.
As of June 30, 2022, approximately $536.5 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.
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 Section 1031 of the Code (“1031 Exchange”), when
possible, to defer some or all of the taxable gains, if any, on dispositions.
During the six months ended June 30, 2022, we completed the disposition of one
property for a sales price of $16.5 million and total net cash proceeds of $15.3
million. The net cash proceeds were used to partially fund the acquisition of
one property during the six months ended June 30, 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
61
——————————————————————————–
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, which may be impacted by the ongoing COVID-19 pandemic.
Investment Grade Rating
Our credit ratings at June 30, 2022, were Baa3 (Stable outlook) from Moody’s,
BBB (Positive outlook) from S&P and BBB (Positive outlook) from Fitch with
respect to our Credit Agreement (described below), $100 million unsecured
guaranteed senior notes (the “$100 Million Notes”), $25 million unsecured
guaranteed senior notes and $75 million unsecured guaranteed senior notes
(together the “Series 2019A and 2019B Notes”), $400 Million Notes due 2030 and
$400 Million Notes due 2031. Our credit rating at June 30, 2022, was BB+ from
both Fitch and S&P 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 provides for (i) a
senior unsecured term loan facility (the “Term Loan Facility”) that permits
aggregate borrowings of up to $300 million, 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. The maturity date
of the Term Loan Facility is May 26, 2027, and the maturity date of the Revolver
is May 26, 2026 (with two extensions options of six months each). The Credit
Agreement has an accordion option that permits us to request additional lender
commitments up to an additional $1.2 billion, which may be comprised of
additional revolving commitments under the Revolver, an increase to the Term
Loan Facility, additional term loan tranches or any combination of the
foregoing, subject to certain terms and conditions.
On July 19, 2022, we exercised the accordion option under the Credit Agreement
to add a $400 million unsecured term loan with a maturity date of July 19, 2024
(with two extensions options of one year each).
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 Loan
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 facility
fee, on each lender’s commitment amount under the Revolver, regardless of usage.
The applicable 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%.
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 Loan Facility may be voluntarily prepaid in whole or
in part at any time without premium or penalty. Amounts borrowed under the Term
Loan 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 Quarterly Report on Form 10-Q, we had $450.0
million outstanding under the Revolver, leaving $550.0 million available for
future borrowings.
62
——————————————————————————–
Uses of Liquidity
Acquisitions
One of our most significant liquidity needs has historically been for the
acquisition of real estate properties. Year to date including properties
acquired subsequent to quarter end, we have acquired 41 properties with 4.4
million rentable square feet of buildings on 243 acres of land, for an aggregate
purchase price of $1.7 billion, 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 Quarterly Report on Form 10-Q, we have over $500.0 million of
acquisitions under contract or letter of intent. 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 six months ended June 30, 2022.
Recurring and Nonrecurring Capital Expenditures
Capital expenditures are considered part of both our short-term and long-term
liquidity requirements. As discussed above under – Factors that May Influence
Future Results -Acquisitions and Value-Add Repositioning and Redevelopment of
Properties, as of June 30, 2022, 16 of our properties were under current
repositioning, redevelopment, or lease-up and we have a pipeline of 11
additional properties for which we anticipate beginning construction work over
the next four quarters. We currently estimate that approximately $384.7 million
of capital will be required over the next three years (3Q-2022 through 2Q-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 and proceeds from forward equity settlements, cash flow
from operations and borrowings available under the Revolver.
The following table sets forth certain information regarding non-recurring and
recurring capital expenditures at the properties in our portfolio as follows:
Six Months Ended June 30, 2022
Per Square
Total(1) Square Feet(2) Foot(3)
Non-Recurring Capital Expenditures(4) $ 41,459 19,790,395 $ 2.09
Recurring Capital Expenditures(5) 3,314 37,896,126 $ 0.09
Total Capital Expenditures $ 44,773
(1)Cost is reported in thousands. Excludes the following capitalized costs: (i)
compensation costs of personnel directly responsible for and who spend their
time on redevelopment, renovation and rehabilitation activity and (ii) interest,
property taxes and insurance costs incurred during the pre-construction and
construction periods of repositioning or redevelopment projects.
(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 during the period.
(3)Per square foot amounts are calculated by dividing the aggregate capital
expenditure costs by the square footage as defined in (2) above.
(4)Non-recurring capital expenditures are expenditures made with respect to
improvements to the appearance of such property or any redevelopment or 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.
(5)Recurring capital expenditures are expenditures made with respect to the
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
lots, roofing materials, mechanical systems, HVAC systems and other structural
systems.
63
——————————————————————————–
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 July 18, 2022, our board of directors declared the quarterly cash
dividends/distributions, record dates and payment dates, and on July 25, 2022,
adjusted the common stock dividend and OP Unit distribution payment dates as set
forth below.
Amount per
Security Share/Unit Record Date Payment Date
Common stock $ 0.315 September 30, 2022 October 14, 2022
OP Units $ 0.315 September 30, 2022 October 14, 2022
5.875% Series B Cumulative Redeemable
Preferred Stock $ 0.367188 September 15, 2022 September 30, 2022
5.625% Series C Cumulative Redeemable
Preferred Stock $ 0.351563 September 15, 2022 September 30, 2022
4.43937% Cumulative Redeemable Convertible
Preferred Units $ 0.505085 September 15, 2022 September 30, 2022
4.00% Cumulative Redeemable Convertible
Preferred Units $ 0.45 September 15, 2022 September 30, 2022
3.00% Cumulative Redeemable Convertible
Preferred Units $ 0.545462 September 15, 2022 September 30, 2022
64
——————————————————————————–
Consolidated Indebtedness
The following table sets forth certain information with respect to our
consolidated indebtedness outstanding as of June 30, 2022:
Margin Above Effective Principal Balance
Contractual Maturity Date SOFR/LIBOR Interest Rate(1) (in thousands)(2)
Unsecured and Secured Debt:
Unsecured Debt:
Revolving Credit Facility(3)
5/26/2026 (4) S+0.775 % (5) 2.375 % $ 125,000
$100M Senior Notes 8/6/2025 n/a 4.290 % 100,000
$300M Term Loan Facility 5/26/2027 S+0.850 % (5) 2.636 % 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 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 $ 1,550,000
Secured Debt:
2601-2641 Manhattan Beach Boulevard 4/5/2023 n/a 4.080 % $ 3,892
$60M Term Loan 8/1/2023 (6) L+1.700 % 3.487 % 57,716
960-970 Knox Street 11/1/2023 n/a 5.000 % 2,354
7612-7642 Woodwind Drive 1/5/2024 n/a 5.240 % 3,760
11600 Los Nietos Road 5/1/2024 n/a 4.190 % 2,545
5160 Richton Street 11/15/2024 n/a 3.790 % 4,213
22895 Eastpark Drive 11/15/2024 n/a 4.330 % 2,648
701-751 Kingshill Place 1/5/2026 n/a 3.900 % 7,100
13943-13955 Balboa Boulevard 7/1/2027 n/a 3.930 % 15,144
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 % 3,965
Gilbert/La Palma 3/1/2031 n/a 5.125 % 2,028
7817 Woodley Avenue 8/1/2039 n/a 4.140 % 3,071
Total Secured Debt $ 123,936
Total Consolidated Debt 2.742 % $ 1,673,936
(1)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
$13.4 million, which are presented as a reduction of the carrying value of our
debt in our consolidated balance sheet as of June 30, 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 0.300% per annum depending upon
our investment grade ratings, leverage ratio and sustainability performance
metrics, which may change from time to time.
(4)Two additional six-month extensions are 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 1-month SOFR for the Term Loan 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 Loan
Facility, depending on our investment grade ratings, leverage ratio and
sustainability performance metrics, which may change from time to time.
(6)The $60 million term loan is secured by six properties. One 24-month
extension is available at the borrower’s option, subject to certain terms and
conditions.
65
——————————————————————————–
The following table summarizes the composition of our consolidated debt between
fixed-rate and variable-rate and secured and unsecured debt as of June 30, 2022:
Average Term Remaining Stated Effective Principal Balance
(in years) Interest Rate Interest Rate(1) (in thousands)(2) % of Total
Fixed vs. Variable:
Fixed 7.9 2.77% 2.77% $ 1,191,220 71%
SOFR/LIBOR + Margin
Variable 4.2 (See Above) 2.67% $ 482,716 29%
Secured vs. Unsecured:
Secured 3.0 3.81% $ 123,936 7%
Unsecured 7.1 2.66% $ 1,550,000 93%
(1)Excludes the effect of amortization of debt issuance costs,
premiums/discounts and the facility fee on the Revolver. Assumes daily SOFR of
1.500%, 1-month SOFR of 1.686% and 1-month LIBOR of 1.787% as of June 30, 2022,
as applicable.
(2)Excludes unamortized debt issuance costs and premiums/discounts totaling
$13.4 million, which are presented as a reduction of the carrying value of our
debt in our consolidated balance sheet as of June 30, 2022.
At June 30, 2022, we had total consolidated indebtedness of $1.7 billion,
excluding unamortized debt issuance costs and premiums/discounts, with a
weighted average interest rate of 2.74% and an average term-to-maturity of 6.8
years.
At June 30, 2022, we had consolidated indebtedness of $1.7 billion, reflecting a
net debt to total combined market capitalization of approximately 13.5%. 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, $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, 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;
•Maintaining a ratio of total unsecured debt to total unencumbered asset value
of not more than 60%; and
•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%;
66
——————————————————————————–
•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 Senior 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 Senior 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 Senior Notes agreement and (iv)
bankruptcy and other insolvency defaults, the principal and accrued and unpaid
interest and the make-whole payment amount on the outstanding Senior Notes will
become due and payable at the option of the purchasers. 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.
The $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 debt covenants as of June 30,
2022.
Cash Flows
Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended
June 30, 2021
The following table summarizes the changes in net cash flows associated with our
operating, investing, and financing activities for the six months ended June 30,
2022 and 2021 (in thousands):
Six Months Ended June 30,
2022 2021 Change
Cash provided by operating activities $ 162,907 $ 101,677
$ 61,230
Cash used in investing activities $ (1,050,234) $ (449,158) $ (601,076)
Cash provided by financing activities $ 877,646 $ 234,203
$ 643,443
Net cash provided by operating activities. Net cash provided by operating
activities increased by $61.2 million to $162.9 million for the six months ended
June 30, 2022, compared to $101.7 million for the six months ended June 30,
2021. The increase was primarily attributable to the incremental cash flows from
property acquisitions completed subsequent to January 1, 2021, the increase in
Cash NOI from our Same Property Portfolio and changes in working capital.
Net cash used in investing activities. Net cash used in investing activities
increased by $601.1 million to $1.1 billion for the six months ended June 30,
2022, compared to $449.2 million for the six months ended June 30, 2021. The
increase was primarily attributable to a $583.0 million increase in cash paid
for property acquisitions and acquisition related deposits, a $12.4 million
decrease in proceeds from the sale of real estate for comparable periods and a
$5.7 million increase in cash paid for construction costs, including costs
related to repositioning/redevelopment projects.
67
——————————————————————————–
Net cash provided by financing activities. Net cash provided by financing
activities increased by $643.4 million to $877.6 million for the six months
ended June 30, 2022, compared to $234.2 million for the six months ended
June 30, 2021. The increase was primarily attributable to the following: (i) an
increase of $937.0 million in cash proceeds from borrowings under the Revolver,
(ii) an increase of $415.3 million in net cash proceeds from the issuance of
shares of our common stock, and (iii) an increase of $300.0 million in cash
proceeds from borrowings under the Term Loan Facility in May 2022. These
increases were partially offset by the following: (i) a decrease of $812.0
million from the repayment of the borrowings under the Revolver, (ii) a decrease
of $150.0 million from the repayment of the $150.0 Million Term Loan Facility in
May 2022, and (iii) an increase of $30.1 million in dividends paid to common
stockholders.
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.
68
——————————————————————————–
© Edgar Online, source Glimpses