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, largely driven by near-term repositioning and development starts [15] Business Line Data and Key Metrics Changes - The company executed 3 million sq ft of leasing in the fourth quarter, meeting guidance expectations [6] - 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 no longer meet investment hurdles, 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, reflecting broader market softness [9] - Vacancy increased 30 basis points during the quarter, with net absorption being negative, indicating a more measured pace of demand [10] - The company noted that supply under construction in the market is near historic lows, supporting future rent growth potential [11] Company Strategy and Development Direction - The company outlined immediate strategic priorities to enhance cash flow quality, drive per share FFO and NAV growth, and optimize shareholder returns [6] - A programmatic disposition plan is a key component of the broader capital allocation strategy, targeting between $400 million and $500 million of dispositions in 2026 [8] - The company is committed to driving operating efficiencies, targeting a reduction in G&A as a percentage of revenue below the peer average, with a goal of 6% for 2026 [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term fundamentals of infill Southern California, despite near-term pressures impacting 2026 growth expectations [6] - The company is maintaining rigorous capital discipline and prioritizing occupancy to drive cash flow, with a focus on maximizing risk-adjusted returns [12] - Management acknowledged the challenges in the current market but emphasized the unique upside potential of the company and its assets [11] Other Important Information - The company opportunistically sold seven properties in 2025, totaling $218 million, and plans to continue recycling capital into accretive opportunities [8] - The company recalibrated executive compensation metrics to align with shareholder priorities, underscoring its commitment to operating in direct alignment with shareholder interests [9] Q&A Session Summary Question: Insights on the Tireco lease re-signing - Management prioritized occupancy and de-risked future cash flow growth by negotiating an early renewal with Tireco, allowing for a strategic three-year lease to reset at market rent sooner [24][25] Question: Expectations for market rent trends - Management noted signs of stabilization in leasing activity but indicated challenges remain, making it difficult to call an inflection point in the market [30][34] Question: Factors driving occupancy decline - The decline in occupancy was attributed to longer downtime for leasing and repositioning, with specific properties expected to move out for redevelopment [37][39] Question: Bad debt and watchlist tenants - Management indicated that the watchlist size remained stable year-over-year, with a concentration in logistics, and emphasized a judicious approach to bad debt reserves [40][43] Question: 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 or future projects [79]