Rexford Industrial Realty(REXR) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fourth quarter Core FFO per share was $0.59, in line with expectations, driven by higher Same Property NOI growth, lower G&A expense, and accretive share buybacks, partially offset by higher Bad Debt [15] - For the full year, after adjusting for co-CEO transition severance charges and other non-recurring costs, Core FFO per share was $2.40, placing the company at the high end of initial expectations [15] - Total portfolio occupancy ended the quarter at 90.2%, down 160 basis points sequentially [16] Business Line Data and Key Metrics Changes - In 2025, the company signed approximately 2 million sq ft of repositioning and development leases, generating nearly $40 million of annualized incremental NOI [16] - The company recognized $89 million of real estate impairments related to development sites elected for sale, allowing redirection of $285 million of capital into higher-yielding uses [16] Market Data and Key Metrics Changes - Market rents declined 1% in the fourth quarter and have fallen 20% since the peak in early 2023, contributing to pressure on expected re-leasing spreads for 2026 [17] - Vacancy increased by 30 basis points during the quarter, and net absorption was negative, reflecting broader market softness [11] Company Strategy and Development Direction - The company is focused on enhancing cash flow quality, driving per share FFO and NAV growth, and optimizing shareholder returns through a rigorous approach to capital allocation [6][8] - A programmatic disposition plan is in place, targeting between $400 million and $500 million of dispositions in 2026 to recycle capital into accretive opportunities [9] - The company aims to reduce G&A as a percentage of revenue below the peer average, with a target of 6% for 2026 [9] Management's Comments on Operating Environment and Future Outlook - Management noted that tenant demand is influenced by macroeconomic forces and elevated market availability, contributing to a more measured pace of demand [10] - The company remains confident in the long-term fundamentals of infill Southern California, despite near-term pressures impacting growth expectations for 2026 [6] - Management emphasized the importance of prioritizing occupancy to maintain cash flow and de-risk future growth [12] Other Important Information - The company executed a strategic early renewal of its largest tenant, Tireco, allowing for significant cash flow preservation [11] - The company is committed to aligning executive compensation with shareholder priorities, having recalibrated incentive compensation metrics [10] Q&A Session Summary Question: Clarification on Tireco lease re-signing - Management prioritized occupancy and de-risked future cash flow growth by negotiating a 3-year lease renewal with Tireco, which was above market [24][25] Question: Expectations for market rent declines - Management indicated that while there are signs of stabilization, they are not ready to call an inflection point in the market yet [30][34] Question: Specifics on occupancy decline - Management noted that the decline in occupancy was driven by longer downtime for repositioning and redevelopment projects [37] Question: Bad debt concerns - Management reported a watch list of tenants with some concentration in logistics, indicating ongoing monitoring of larger tenants [44] Question: Expected sources and uses of cash for 2026 - Management expects to have approximately $413 million available for deployment after accounting for development spend, which can include share repurchases [78]