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 [14] - 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 [14] - Total portfolio occupancy ended the quarter at 90.2%, down 160 basis points sequentially [15] 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 [15] - The company recognized $89 million of real estate impairments related to development sites that are being sold, allowing for the redirection of $285 million of capital into higher-yielding uses [15] Market Data and Key Metrics Changes - Market rents declined 10 basis points in the quarter and 9% year-over-year, with total market rent down 1% in the fourth quarter [9][16] - Vacancy increased 30 basis points during the quarter, and net absorption was negative, reflecting broader market softness [10] Company Strategy and Development Direction - The company is focused on enhancing cash flow quality, driving per share FFO and NAV growth, and optimizing returns for shareholders [6] - A programmatic disposition plan is a key component of the capital allocation strategy, targeting between $400 million and $500 million of dispositions in 2026 [8] - The company aims to reduce G&A as a percentage of revenue below the peer average, with a target of 6% for 2026 [8] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the long-term fundamentals of infill Southern California despite near-term pressures impacting 2026 growth expectations [6] - The company is prioritizing occupancy to drive cash flow and is maintaining rigorous capital discipline in light of current market dynamics [10] - Management believes Rexford is well-positioned to capture recovering demand to drive occupancy and NOI growth [12] Other Important Information - The company executed a strategic early renewal of its largest tenant, Tireco, allowing for significant de-risking of cash flow [10] - The company is committed to aligning executive compensation with shareholder priorities, having recalibrated compensation metrics [9] Q&A Session Summary Question: Can you provide more understanding on the Tireco lease re-signing? - The decision to prioritize occupancy and de-risk future cash flow led to an early renewal of the Tireco lease, which was above market [23][24] Question: How much further do you expect rents to decline? - Management noted signs of stabilization but indicated challenges remain, making it difficult to call an inflection point [28][30] Question: What is driving the occupancy decline? - The occupancy decline is attributed to longer downtime for leasing and repositioning, with specific properties expected to move out [36][39] Question: What industries are on the watch list for bad debt? - The watch list remains similar year-over-year, with a higher concentration in logistics due to specific business issues [43] Question: What are the expected sources and uses of cash for 2026? - The company expects to have $413 million available for deployment after accounting for development spend, which can include share repurchases [78]