UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
____________________ __________________________________________________________________________
. . ____________________ __________________________________________________________________________
(Mark One)
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¨
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File Number: 001-36008
____________________ __________________________________________________________________________
Rexford Industrial Realty, Inc.
(Exact name of registrant as specified in its charter)
. ____________________ __________________________________________________________________________ .
MARYLAND
46-2024407
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11620 Wilshire Boulevard, Suite 1000,
Los Angeles, California
(Address of principal executive offices)
(310) 966-1680
(Registrant’s telephone number, including area code)
. ____________________ __________________________________________________________________________ .
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
5.875% Series A Cumulative Redeemable Preferred Stock
5.875% Series B Cumulative Redeemable Preferred Stock
90025
(Zip Code)
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ
No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨
No þ
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ
No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Non-accelerated filer ¨
Emerging growth company ¨
Accelerated filer ¨
Smaller reporting company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant based upon the closing sale price of the registrant’s common stock on June 29, 2018 , as reported on the
New York Stock Exchange (“NYSE”) was approximately $2,844 million . The registrant had no non-voting common equity outstanding on such date. This amount excludes 456,721 shares of
the registrant’s common stock held by the executive officers and directors. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.
The number of shares of common stock outstanding at February 11, 2019 was 96,815,364 .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement with respect to its 2019 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the registrant’s fiscal
year are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PAGE NO.
PART I
Item 1 .
Business
Item 1A .
Risk Factors
Item 1B .
Unresolved Staff Comments
Item 2 .
Properties
Item 3 .
Legal Proceedings
Item 4 .
Mine Safety Disclosures
PART II
Item 5 .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6 .
Selected Financial Data
Item 7 .
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A .
Quantitative and Qualitative Disclosures About Market Risk
Item 8 .
Financial Statements and Supplementary Data
Item 9 .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A .
Controls and Procedures
Item 9B .
Other information
PART III
Item 10 .
Directors, Executive Officers and Corporate Governance
Item 11 .
Executive Compensation
Item 12 .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 .
Certain Relationships and Related Transactions, and Director Independence
Item 14 .
Principal Accounting Fees and Services
PART IV
Item 15 .
Exhibits, Financial Statement Schedules
SIGNATURES
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PART I
Forward-Looking Statements
We make statements in this Annual Report on Form 10-K that are forward-looking statements, which are usually identified by the use of words such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “possible,” “predicts,” “projects,” “result,” “seeks,”
“should,” “will,” 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:
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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;
the general level of interest rates;
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;
litigation, including costs associated with prosecuting or defending pending or threatened claims and any adverse outcomes; and
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.
Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the U.S. 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 review carefully
our financial statements and the notes thereto, as well as Item 1A. entitled “Risk Factors” in this report.
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Item 1. Business
Company Overview
References to “we,” “our,” “us,” “our company,” or “the Company” refer to Rexford Industrial Realty, Inc., a Maryland corporation, together with our
consolidated subsidiaries, including Rexford Industrial Realty, L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to
in this report as our Operating Partnership.
We are a self-administered and self-managed full-service REIT focused on owning, operating and acquiring industrial properties in Southern California
infill markets. Our goal is to generate attractive risk-adjusted returns for our stockholders by providing superior access to industrial property investments in
Southern California infill markets.
We were formed as a Maryland corporation on January 18, 2013 and Rexford Industrial Realty, L.P. (the “Operating Partnership”), of which we are the
sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling interest in our Operating Partnership and its
subsidiaries, we own, manage, lease, acquire and develop industrial real estate primarily located in Southern California infill markets, and from time to time,
acquire or provide mortgage debt secured by industrial property. As of December 31, 2018 , our consolidated portfolio consisted of 176 properties with
approximately 21.3 million rentable square feet. In addition, we currently manage an additional 20 properties with approximately 1.2 million rentable square feet.
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with our taxable year ending
December 31, 2013. We are generally 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.
Business Objectives and Growth Strategies
Our primary business objective is to generate attractive risk-adjusted returns for our stockholders through dividends and capital appreciation. We believe
that pursuing the following strategies will enable us to achieve this objective:
Internal Growth through Intensive, Value-Add Asset Management.
We employ an intensive asset management strategy that is designed to increase cash flow and occupancy from our properties. Our strategy includes
proactive renewal of existing tenants, re-tenanting to achieve higher rents, and repositioning industrial property by renovating, modernizing or increasing
functionality to increase cash flow and value. For example, we sometimes convert formerly single-tenant properties to multi-tenant occupancy to capitalize upon
the higher per square foot rents generated by smaller spaces in our target markets in addition to adding or improving loading and increasing fire, life-safety and
building operating systems, among other value-add initiatives. We believe that by undertaking such conversions or other functional enhancements, we can position
our properties to attract a larger universe of potential tenants, increase occupancy, tenant quality and rental rates. We also believe that multi-tenant properties, as
well as single mid-size buildings, help to limit our exposure to tenant default risk and to diversify our sources of cash flow. Additionally, our proactive approach to
leasing and asset management is driven by our in-house leasing department and team of portfolio and property managers who maintain direct, day-to-day
relationships and dialogue with our tenants, which we believe enhances recurring cash flow and reduces periods of vacancy.
External Growth through Acquisitions.
We continue to grow our portfolio through disciplined acquisitions in prime Southern California infill markets. We believe that our relationship-, data-
and event-driven research allows us to identify and exploit asset mispricing and market inefficiencies. We seek to acquire assets with value-add opportunities to
increase their cash flow and asset values, often targeting off-market or lightly marketed transactions where our execution abilities and market credibility encourage
owners to sell assets to us at what we consider pricing that is more favorable than heavily marketed transactions. We also seek to source transactions from owners
with generational ownership shift, fund divestment, sale-leaseback/corporate surplus, maturing loans, some facing liquidity needs or financial stress, including
loans that lack economical refinancing options. We also believe our deep market presence and relationships may enable us to selectively acquire assets in marketed
transactions that may be difficult to access for less focused buyers.
Competitive Strengths
We believe that our investment strategy and operating model distinguishes us from other owners, operators and acquirers of industrial real estate in
several important ways, including the following:
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Focus on Industrial Assets in Southern California’s Infill Market : We intend to continue our core strategy of owning and operating industrial
properties within Southern California’s infill regions. Infill markets are considered high-barrier-to entry markets with scarcity of vacant or developable land and
high concentrations of people, jobs, housing, income, wages and consumption. We believe Southern California’s infill industrial property market is the largest,
most fragmented industrial market in the nation, demonstrating favorable long-term tenant demand fundamentals in the face of an ongoing scarcity and
diminishment of supply. We have a portfolio of interests in 176 properties totaling approximately 21.3 million square feet, which are all located in Southern
California infill markets.
Diversified Tenant Mix: Our portfolio is leased to a broad tenant base, drawn from diverse industry sectors. We believe that this diversification reduces
our exposure to tenant default risk and earnings volatility. As of December 31, 2018 , we had 1,375 leases, with no single tenant accounting for more than 2.8% of
our total annualized base rent. Our portfolio is also geographically diversified within the Southern California market across the following submarkets: Los Angeles
( 51% ); San Bernardino ( 17% ); Orange County ( 13% ); San Diego ( 11% ); Ventura ( 8% ).
Superior Access to Deal Flow: We believe that we enjoy superior access to value-add, off-market, lightly marketed and marketed acquisition
opportunities, many of which are difficult for competing investors to access. Off-market and lightly marketed transactions are characterized by a lack of a formal
marketing process and a lack of widely disseminated marketing materials. Marketed transactions are often characterized by extensive buyer competition, making
such transactions difficult to close on for less-focused investors. As we are principally focused on the Southern California market, our executive management and
acquisition teams have developed and maintain a deep, broad network of relationships among key market participants, including property brokers, lenders, owners
and tenants. We employ an extensive broker marketing, incentives and loyalty program. We also utilize data-driven and event-driven analytics and primary
research to identify and pursue events and circumstances, including below-market leased properties, properties experiencing functional obsolescence, generational
ownership changes, and financial stress related to properties, owners, lenders, and tenants, that tend to generate early access to emerging investment opportunities.
Vertically Integrated Platform : We are a full-service real estate operating company, with substantial in-house capabilities in all aspects of our business.
Our platform includes experienced in-house teams focused on acquisitions, analytics and underwriting, asset management and repositioning, property management,
sales and leasing, design, construction management, as well as finance, accounting, legal and human relations departments.
Value-Add Repositioning and Redevelopment Expertise : Our in-house redevelopment and construction management team employs an entrepreneurial
approach to redevelopment and repositioning activities that are designed to increase the functionality, cash flow and value of our properties. These activities
include converting large underutilized spaces into a series of smaller and more functional spaces, building generic industrial space that appeals to a wide range of
tenants, adding additional square footage and modernizing properties by, among other things, upgrading fire, life-safety and building operating systems, resolving
functional obsolescence, adding or enhancing loading areas and truck access and making certain other accretive improvements.
Growth-Oriented, Flexible and Conservative Capital Structure : Our capital structure provides us with the resources, financial flexibility and the
capacity to support the future growth of our business. Since our initial public offering, we have raised capital through three public offerings of our common stock,
two public offerings of preferred stock and through sales of common stock under our at-the-market equity offering programs. We currently have an at-the-market
equity offering program pursuant to which we may sell from time to time up to an aggregate of $400.0 million of our common stock through sales agents. As of the
filing date of this Annual Report on Form 10-K, we have sold $336.6 million of our common stock under this at-the-market equity offering program, leaving us
with the capacity to issue up to $63.4 million of additional shares. We have a $450 million senior unsecured credit facility consisting of a $100 million unsecured
term loan facility and a $350 million unsecured revolving credit facility. As of the filing date of this Annual Report on Form 10-K, we did not have any borrowings
outstanding under the unsecured revolving credit facility, leaving $350.0 million available. The credit facility has an accordion feature that permits us to request
additional lender commitments up to an additional aggregate $550.0 million , which may be comprised of additional revolving commitments, term loan
commitments or any combination thereof, subject to certain conditions. As of December 31, 2018 , our ratio of net debt to total market capitalization was 15.8% .
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Competition
In acquiring our target properties, we compete with other public industrial property sector REITs, income oriented non-traded REITs, private real estate
fund managers and local real estate investors and developers, some of which have greater financial resources or other competitive advantages than we do. Such
competition may result in an increase in the amount we must pay to acquire a property or may require us to forgo an investment in properties which would
otherwise meet our investment criteria. We also face significant competition in leasing available properties to prospective tenants and in re-leasing space to
existing tenants. As a result, we may have to provide rent concessions, incur expenses for tenant improvements or offer other inducements to enable us to timely
lease vacant space, all of which may have an adverse impact on our results of operations.
Insurance
We carry commercial property, liability, environmental and terrorism coverage on all the properties in our portfolio under blanket insurance policies. In
addition, we hold other environmental policies for certain properties with known environmental conditions that provides for additional coverage for potential
environmental liabilities, subject to the policy’s coverage conditions and limitations. Generally, we do not carry insurance for certain types of extraordinary losses,
including, but not limited to, losses caused by floods (unless the property is located in a flood plan), riots, war and wildfires. Substantially all of our properties are
located in areas that are subject to earthquakes, and while we maintain earthquake insurance coverage, the events are subject to material deductibles and
exclusions. Additionally, seismic risks are evaluated for properties during acquisition by a qualified structural engineer and to the extent that the engineer identifies
a property with weaknesses that contribute to a high statistical risk, the property will generally be structurally retrofitted to reduce the statistical risk to an
acceptable level.
Segment and Geographic Financial Information
We manage our operations on an aggregated, single segment basis for purposes of assessing performance and making operating decisions and,
accordingly, we have only one reporting and operating segment.
All of our business is conducted in Southern California. For information about our revenues, long-lived assets and other financial information, see our
consolidated financial statements included in this report and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Results of Operations.”
Employees
As of December 31, 2018 , we employed 108 full-time employees. We believe that relations with our employees are good. None of our employees are
represented by a labor union.
Principal Executive Offices
Our principal executive offices are located 11620 Wilshire Boulevard, Suite 1000, Los Angeles, California 90025 (telephone 310-966-1680). We believe
that our current facilities are adequate for our present and future operations.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, Information Statements and
amendments to those reports are available free of charge through our investor relations website at http://www.rexfordindustrial.com, as soon as reasonably
practicable after such materials are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (the “SEC”). All reports we file with
the SEC are also available free of charge via EDGAR through the SEC website at http://www.sec.gov .
Our board of directors maintains charters for each of its committees and has adopted a written set of corporate governance guidelines and a code of
business conduct and ethics applicable to independent directors, executive officers, employees and agents, each of which is available for viewing on our website at
http://www.rexfordindustrial.com under the heading “Investor Relations—Company Information—Governance—Governance Documents.”
Website addresses referred to in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained on our
website is not incorporated into, and does not form a part of this Annual Report on Form 10-K or any other report or documents we file with or furnish to the SEC.
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Regulation
General
Our properties are subject to various laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements.
We believe that we have the necessary permits and approvals to operate each of our properties.
Americans with Disabilities Act
Our properties must comply with Title III of the Americans with Disabilities Act of 1990, as amended (the “ADA”) to the extent that such properties are
“public accommodations” as defined under the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by
disabled persons. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such
removal is readily achievable. Although we believe that the properties in our portfolio in the aggregate substantially comply with present requirements of the ADA,
and we have not received any notice for correction from any regulatory agency, we have not conducted a comprehensive audit or investigation of all of our
properties to determine whether we are in compliance and therefore we may own properties that are not in compliance with current ADA standards.
ADA compliance is dependent upon the tenant’s specific use of the property, and as the use of a property changes or improvements to existing spaces are
made, we will take steps to ensure compliance. Noncompliance with the ADA could result in additional costs to attain compliance, imposition of fines by the U.S.
government or an award of damages plus attorney’s fees to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we
will continue to assess our properties and make alterations to achieve compliance as deemed commercially reasonable.
Environmental Matters
The properties that we acquire are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have
the authority to require us, to the extent we own a contaminated property, to clean up the property, even if we did not know of or were not responsible for the
contamination. These laws also apply to persons who owned a property at the time it became contaminated and, therefore, it is possible we could incur these costs
even after we sell some of the properties we acquire. In addition to the costs of cleanup, environmental contamination can affect the value of a property and,
therefore, an owner’s ability to borrow using the property as collateral or to sell the property. Under applicable environmental laws, courts and government
agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that
facility if it becomes contaminated and threatens human health or the environment.
Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a
person exposed to asbestos at a property may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these environmental laws
restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals to manage them carefully
and to notify local officials that the chemicals are being used.
We could be responsible for any of the costs discussed above, which have the potential to be very significant. The costs to clean up a contaminated
property, to defend against a claim or to comply with environmental laws could be material and could adversely affect the funds available for distribution to our
stockholders. To mitigate some of the environmental risk, our properties are covered by a blanket environmental insurance policy. In addition, we hold other
environmental policies for certain properties with known environmental conditions that provides for additional coverage for potential environmental liabilities.
These policies, however, are subject to certain limits, deductibles and exclusions, and insurance may not fully compensate us for any environmental liability. We
require Phase I or similar environmental assessments by independent environmental consultants at the time of acquisition of a property. Phase I environmental
investigations are a common form of real estate due diligence that are governed by nationally recognized American Society for Testing and Materials (ASTM)
standards and typically conducted by licensed environmental scientists. Phase I investigations commonly include a physical walk-through of the property in
addition to a file review of the site. The file review includes creating a known operating history of the site. This includes but is not limited to inquiries with local
governmental agencies as well as reviewing historical aerial reviews. If the consultant identifies any unexplained Recognized Environmental Concerns (“REC”)
then the consultant typically recommends further investigation, usually through specific invasive property tests. This additional round of investigation is commonly
referred to as a “Phase II”. Invasive testing may or may not include air, soil, soil vapor or ground water sampling. Additionally, it may or may not include an
asbestos and/or lead based paint survey. Depending on the results of the initial Phase II investigation, the consultant may recommend further Phase II
investigations, or if satisfied with the results, the consultant may decide the initial REC identified is no longer a concern. We generally expect to continue to obtain
a Phase I or similar environmental site assessments by independent environmental consultants on each property prior to acquiring it. However, these environmental
assessments may not
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reveal all environmental costs that might have a material adverse effect on our business, assets and results of operations or liquidity and may not identify all
potential environmental liabilities, and our portfolio environmental and any site-specific insurance policies may be insufficient to cover any such environmental
costs and liabilities.
We can make no assurances that (1) future laws, ordinances or regulations will not impose material environmental liabilities on us, or (2) the current
environmental condition of our properties will not be affected by tenants, the condition of land or operations in the vicinity of our properties (such as releases from
underground storage tanks), or by third parties unrelated to us.
Item 1A. Risk Factors
Set forth below are some (but not all) of the factors that could adversely affect our performance and financial condition. Moreover, we operate in a highly
competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can it
assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
We believe the following risks are material to our stockholders. You should carefully consider the following factors in evaluating our company, our
properties and our business. The occurrence of any of the following risks could adversely affect our results of operations, cash flows and our ability to pay
distributions on, and the per share trading price of, our common stock and might cause our stockholders to lose all or part of their investment. For purposes of this
section, the term “stockholders” means the holders of shares of our common stock and preferred stock.
Risks Related to Our Business and Operations
Our portfolio of properties is concentrated in the industrial real estate sector, and our business would be adversely affected by an economic downturn in that
sector.
Our properties are concentrated in the industrial real estate sector. This concentration exposes us to the risk of economic downturns in this sector to a
greater extent than if our business activities included a more significant portion of other sectors of the real estate industry.
Our portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in Southern California infill markets,
which causes us to be especially susceptible to adverse developments in those markets.
All of our properties are located in Southern California, which may expose us to greater or lesser economic risks than if we owned a more geographically
diverse portfolio. We are particularly susceptible to adverse economic or other conditions in Southern California (such as periods of economic slowdown or
recession, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes and the cost of complying with
governmental regulations or increased regulation), as well as to natural disasters that occur in this market (such as earthquakes, wild fires, mudslides, and other
events). Most of our properties are located in areas known to be seismically active. While we carry insurance for losses resulting from earthquakes, the amount of
our coverage may not be sufficient to fully cover losses from earthquakes and associated disasters and the policies are subject to material deductibles and self-
insured retention . The Southern California market has experienced downturns in past years. Any future downturns in the Southern California economy could
impact our tenants’ ability to continue to meet their rental obligations or otherwise adversely affect the size of our tenant base, which could materially adversely
affect our operations and our revenue and cash available for distribution, including cash available to pay distributions to our stockholders. We cannot assure you
that the Southern California market will grow or that underlying real estate fundamentals will be favorable to owners and operators of industrial properties. Our
operations may also be affected if competing properties are built in the Southern California market. In addition, the State of California is regarded as more litigious
and more highly regulated and taxed than many other states, all of which may reduce demand for industrial space in California and may make it costlier to operate
our business. Any adverse economic or real estate developments in the Southern California market, or any decrease in demand for industrial space resulting from
the regulatory environment, business climate or energy or fiscal problems, could adversely impact us and our stockholders.
Our properties are concentrated in certain industries that make us susceptible to adverse events with respect to those industries.
Our properties are concentrated in certain industries, which, as of December 31, 2018 , included the following (and accounted for the percentage of our
total annualized base rent indicated): Wholesale Trade ( 23.1% ); Warehousing ( 20.9% );
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Manufacturing ( 14.3% ); Retail Trade ( 10.5% ); and Transportation Services ( 6.1% ). Any downturn in one or more of these industries, or in any other industry in
which we may have a significant concentration now or in the future, could adversely affect our tenants who are involved in such industries. If any of these tenants
is unable to withstand such downturn or is otherwise unable to compete effectively in its business, it may be forced to declare bankruptcy, fail to meet its rental
obligations, seek rental concessions or be unable to enter into new leases, which could materially and adversely affect us.
Our debt level reduces cash available for distribution and may expose us to the risk of default under our debt obligations.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the dividends necessary
to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences,
including the following:
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our cash flow may be insufficient to meet our required principal and interest payments;
we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet
operational needs;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original
indebtedness;
we may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of certain covenants to which we may be
subject;
we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations and, in some cases
commence foreclosure proceedings on one or more of our properties; and
our default under any loan with cross default provisions could result in a default on other indebtedness.
Any loan defaults or property foreclosures may impact our ability to access capital in the future on favorable terms or at all, as well as our relationships
with and/or perception among lenders, investors, tenants, brokers, analysts, vendors, employees and other parties. Furthermore, foreclosures could create taxable
income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Influence Future Results of Operations.”
We may be unable to identify and complete acquisitions of properties that meet our criteria, which may impede our growth.
Our business strategy involves the acquisition of industrial properties meeting certain investment criteria in our target markets. These activities require us to
identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategies. We may be unable to
acquire properties identified as potential acquisition opportunities. Our ability to acquire properties on favorable terms, or at all, may expose us to the following
significant risks:
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we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones
that we are subsequently unable to complete;
even if we enter into agreements for the acquisition of properties, these agreements are subject to conditions to closing, which we may be unable to
satisfy; and
we may be unable to finance any given acquisition on favorable terms or at all.
If we are unable to finance property acquisitions or acquire properties on favorable terms, or at all, our financial condition, results of operations, cash
flows and our ability to pay distributions on, and the per share trading price of, our common stock could be adversely affected. In addition, failure to identify or
complete acquisitions of suitable properties could slow our growth.
Our acquisition activities may pose risks that could harm our business.
As a result of our acquisitions, we may be required to incur debt and expenditures and issue additional common stock or common units to pay for the
acquired properties. These acquisitions may dilute our stockholders’ ownership interest, delay or prevent our profitability and may also expose us to risks such as:
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the possibility that we may not be able to successfully integrate acquired properties into our existing portfolio or achieve the level of quality with
respect to such properties to which tenants of our existing properties are accustomed;
the possibility that senior management may be required to spend considerable time negotiating agreements and integrating acquired properties,
diverting their attention from our other objectives;
the possibility that we may overpay for a property;
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the possible loss or reduction in value of acquired properties; and
the possibility of pre-existing undisclosed liabilities regarding acquired properties, including environmental or asbestos liability, for which our
insurance may be insufficient or for which we may be unable to secure insurance coverage.
We cannot assure you that the price for any future acquisitions will be similar to prior acquisitions. If our revenue does not keep pace with these potential
acquisition and expansion costs, we may incur net losses. There is no assurance that we will successfully overcome these risks or other problems encountered with
acquisitions.
We may obtain limited or no warranties when we purchase a property, which increases the risk that we may lose invested capital in or rental income from such
property.
Many properties that we have acquired and expect to acquire in the future are sold in “as is” condition, on a “where is” basis and “with all faults,” without
any warranties of merchantability or fitness for a particular use or purpose. In other acquisitions, the purchase agreements may contain only limited warranties,
representations and indemnifications that will only survive for a limited period after the closing. Also, many sellers of real estate are single-purpose entities without
any other significant assets. The purchase of properties with limited warranties or from undercapitalized sellers increases the risk that we may lose some or all of
our invested capital in the property (and in some cases, have liabilities greater than our investment) as well as the loss of rental income from such property.
We face significant competition for acquisitions of real properties, which may reduce the number of acquisition opportunities available to us and increase the
costs of these acquisitions.
The current market for acquisitions of industrial properties in Southern California continues to be extremely competitive. This competition may increase
the demand for our target properties and, therefore, reduce the number of suitable acquisition opportunities available to us and increase the prices paid for such
acquisition properties. We also face significant competition for attractive acquisition opportunities from an indeterminate number of investors, including publicly
traded and privately held REITs, private equity investors and institutional investment funds, some of which have greater financial resources than we do, a greater
ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage, including risks with respect to the geographic
proximity of investments and the payment of higher acquisition prices. This competition will increase if investments in real estate become more attractive relative
to other forms of investment. Competition for investments may reduce the number of suitable investment opportunities available to us and may have the effect of
increasing prices paid for such acquisition properties and/or reducing the rents we can charge and, as a result, adversely affecting our operating results. The impact
of the legalization of certain types of marijuana production, distribution and use in California could increase competition to acquire industrial properties within
infill Southern California markets, which could reduce the supply of suitable investment opportunities available to us and may have the effect of increasing prices
paid for such acquisition properties and, as a result, adversely affecting our operating results.
We may be unable to source off-market or lightly marketed deal flow in the future.
As of December 31, 2018 , approximately 68% of the acquisitions by deal count completed by us since our initial public offering (“IPO”) were acquired
in off-market or lightly marketed transactions, which are transactions that are characterized by a lack of a formal marketing process and lack of widely
disseminated marketing materials. Properties that are acquired by off-market or lightly marketed transactions are typically more attractive to us as a purchaser and
are a core part of our strategic plan, because the absence of a formal or extended marketing/bidding period typically results in more favorable pricing, more
favorable non-economic terms and often an ability to close transactions more rapidly. If we cannot obtain off-market or lightly marketed deal flow in the future,
our ability to locate and acquire additional properties in the manner in which we have historically may be adversely affected and may cause us to revisit our core
strategies.
Our future acquisitions may not yield the returns we expect.
Our future acquisitions and our ability to successfully operate the properties we acquire in such acquisitions may be exposed to the following significant
risks:
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even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;
we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully manage and lease those properties to
meet our expectations;
we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
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we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing
operations, and as a result our results of operations and financial condition could be adversely affected;
• market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
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we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown or greater than
expected liabilities such as liabilities for clean-up of environmental contamination, claims by tenants, vendors or other persons dealing with the
former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors,
officers and others indemnified by the former owners of the properties.
We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenues do not increase, causing our results
of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other operating costs, including real
estate taxes, which could increase over time, the need to periodically repair, renovate and re-lease space, the cost of compliance with governmental regulation,
including zoning and tax laws, the potential for liability under applicable laws, interest rate levels and the availability of financing. If our operating costs increase
as a result of any of the foregoing factors, our results of operations may be adversely affected.
The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction
in income from the property. As a result, if revenues decline, we may not be able to reduce our expenses accordingly. Costs associated with real estate investments,
such as real estate taxes, insurance, loan payments and maintenance, generally will not be reduced even if a property is not fully occupied or other circumstances
cause our revenues to decrease.
High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties, which could reduce the number of
properties we can acquire, our net income and the amount of cash distributions we can make.
If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we
may be unable to refinance the properties when the loans become due, or to refinance on favorable terms. If interest rates are higher when we refinance our
properties, our income could be reduced. If any of these events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to
our stockholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money. In addition, to the extent we are unable to
refinance the properties when the loans become due, we will have fewer debt guarantee opportunities available to offer under our Tax Matters Agreement,
previously filed with the SEC.
Mortgage and other secured debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group
of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by properties may
result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on a
mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties. For tax purposes, a foreclosure on any of our
properties that is subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt
secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income
on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
Some of our financing arrangements involve balloon payment obligations, which may adversely affect our financial condition and our ability to make
distributions.
Some of our financing arrangements require us to make a lump-sum or “balloon” payment at maturity. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources.” Our ability to satisfy a balloon payment at maturity is uncertain and may
depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to
refinance the existing financing on terms as favorable as the original loan or sell the property at a price sufficient to satisfy the balloon payment. The effect of a
refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In
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addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to
maintain our qualification as a REIT.
Failure to hedge effectively against interest rate changes may adversely affect us.
Subject to the rules related to maintaining our qualification as a REIT, we may enter into hedging transactions to protect us from the effects of interest rate
fluctuations on floating rate debt. As of December 31, 2018 , we have six interest rate swaps in place for the purpose of mitigating our exposure to fluctuations in
short-term interest rates. For a summary of our interest rate swaps, see Note 7 to our consolidated financial statements included in Item 15 of this Report on Form
10-K.
Our future hedging transactions may include entering into additional interest rate cap agreements or interest rate swap agreements. These agreements
involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an
agreement is not legally enforceable. In addition, interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates. Hedging
could reduce the overall returns on our investments. In addition, while such agreements would be intended to lessen the impact of rising interest rates on us, they
could also expose us to the risk that the other parties to the agreements would not perform, we could incur significant costs associated with the settlement of the
agreements or that the underlying transactions could fail to qualify as highly effective cash flow hedges under Financial Accounting Standards Board, or FASB,
Accounting Standards Codification (“ASC”), Topic 815, Derivatives and Hedging . In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act
(“Dodd-Frank”) went into effect in 2010. Dodd-Frank created a new regulatory framework for oversight of derivatives transactions by the Commodity Futures
Trading Commission (the “CFTC”) and the SEC. Among other things, Dodd-Frank subjects certain swap participants to new capital, margin and business conduct
standards. In addition, Dodd-Frank contemplates that where appropriate in light of outstanding exposures, trading liquidity and other factors, swaps (broadly
defined to include most hedging instruments other than futures) will be required to be cleared through a registered clearing facility and traded on a designated
exchange or swap execution facility. There are some exceptions to these requirements for entities that use swaps to hedge or mitigate commercial risk. While we
believe we qualify for one or more of such exceptions (including with respect to our existing interest rate swaps), the scope of these exceptions is still considered
uncertain and will be further defined over time. Further, although we may qualify for exceptions, our derivatives counterparties may be subject to new capital,
margin and business conduct requirements imposed as a result of the legislation, which may increase our transaction costs or make it more difficult for us to enter
into additional hedging transactions on favorable terms. Our inability to enter into future hedging transactions on favorable terms, or at all, could increase our
operating expenses and put us at increased exposure to interest rate risks.
Our unsecured credit facility, unsecured notes and certain of our other secured loans contain, and any other future indebtedness we incur may contain,
various covenants, and the failure to comply with those covenants could materially adversely affect us.
Our unsecured credit facility, unsecured notes and certain of our other secured loans contain, and any other future indebtedness we incur may contain,
certain covenants, which, among other things, restrict our activities, including, as applicable, our ability to sell the underlying property without the consent of the
holder of such indebtedness, to repay or defease such indebtedness or to engage in mergers or consolidations that result in a change in control of our company. We
are also subject to financial and operating covenants. Failure to comply with any of these covenants would likely result in a default under the applicable
indebtedness that would permit the acceleration of amounts due thereunder and under other indebtedness and foreclosure of properties, if any, serving as collateral
therefor.
Our unsecured credit facility, unsecured notes and certain of our other secured loans will restrict our ability to engage in some business activities.
Our unsecured credit facility and unsecured notes contains customary negative covenants and other financial and operating covenants that, among other
things:
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restrict our ability to incur additional indebtedness;
restrict our ability to make certain investments;
limit our ability to make capital expenditures;
restrict our ability to merge with another company;
restrict our ability to make distributions to stockholders; and
require us to maintain financial coverage ratios.
These limitations will restrict our ability to engage in some business activities that may otherwise be in our best interests. In addition, our unsecured
credit facility, unsecured notes and secured term loan contain specific cross-default
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provisions with respect to specified other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some
circumstances.
Adverse changes in our credit rating could impair our ability to obtain future debt and equity financing on favorable terms, if at all.
Our credit rating is 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. Our credit rating can affect the amount and type of capital we can access, as well as the terms of any financings we
may obtain. There can be no assurance that we will be able to maintain our current credit rating. In the event our current credit rating is downgraded, it may
become difficult or expensive to obtain additional financing or refinance existing obligations and commitments. At December 31, 2018 , the credit rating for our
unsecured debt was BBB (investment grade) from Fitch, with a stable outlook, and the credit rating for our preferred stock was BB+ from Fitch, with a stable
outlook. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.
We may be subject to litigation or threatened litigation, which may divert management time and attention, require us to pay damages and expenses or restrict
the operation of our business.
We may be subject to litigation or threatened litigation. In particular, we are subject to the risk of complaints by our tenants involving premises liability
claims and alleged violations of landlord-tenant laws, which may give rise to litigation or governmental investigations, as well as claims and litigation relating to
real estate rights, access, legal compliance or uses of our properties, stockholder claims or claims by limited partners in our Operating Partnership, vendor
contractual claims and asset purchase and sale related claims. Some of these claims may result in significant defense costs and potentially significant judgments
against us, some of which are not, or cannot be, insured against. Additionally, whether or not any dispute actually proceeds to litigation, we may be required to
devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our
management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant, or involve
our agreement with terms that restrict the operation of our business. We generally intend to vigorously defend ourselves; however, we cannot be certain of the
ultimate outcomes of currently asserted claims or of those that may arise in the future. Resolution of these types of matters against us may result in our having to
pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our
earnings and cash flows, thereby having an adverse effect on us and our stockholders. Certain litigation or the resolution of certain litigation may affect the
availability or cost of some of our insurance coverage and could expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract
directors, officers and other key employees.
The potential impacts of future climate change and governmental initiatives remain uncertain at this time but could result in increased operating costs.
Our assets and tenants may be exposed to potential risks from possible future climate change that could result in physical and regulatory impacts,
increasing our operating costs and impairing our tenants’ ability to lease property and pay rent. Laws and regulations targeting climate change could result in
increased operating costs that we may not be able to effectively pass on to our tenants. Any such regulation could impose substantial costs on our tenants, thereby
impacting the financial condition of our tenants and their ability to meet their lease obligations and to lease or re-lease our properties.
Adverse U.S. and global market, economic and political conditions and other events or circumstances beyond our control could have a material adverse effect
on us.
Another economic or financial crisis or rapid decline of the consumer economy, significant concerns over energy costs, geopolitical issues, the availability
and cost of credit, the U.S. mortgage market, or a declining real estate market in the U.S. can contribute to increased volatility, diminished expectations for the
economy and the markets, and high levels of structural unemployment by historical standards. As was the case from 2008 through 2010, these factors, combined
with volatile oil prices and fluctuating business and consumer confidence, can precipitate a steep economic decline.
Additionally, political uncertainty from matters such as the implementation of the governing agenda of President Donald J. Trump, may contribute to
potential risks beyond our control, such as:
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changes in governmental policy on a variety of matters such as trade and manufacturing policies;
trade disputes and tariffs on goods from China and other countries;
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possible restructuring of trade agreements, including the North American Free Trade Agreement / United States-Mexico-Canada Agreement;
geopolitical matters such as the exit of the United Kingdom from the European Union;
shutdowns of the U.S. federal government; and
uncertainties associated with political gridlock and the results of investigations, including, without limitation, the special counsel investigation
headed by Robert Mueller.
It is not possible to predict whether these economic and political occurrences might negatively impact the economies around the world, including the U.S.
and Southern California. If these macro-economic and political issues are not managed appropriately, they could lead to currency, sovereign debt or banking crises,
other financial and trade turmoil and uncertainty, and lower occupancy, rents and values for individual real estate in our markets.
Recurring U.S. debt ceiling and budget deficit concerns, together with sovereign debt conditions in Europe, also increase the possibility of additional
downgrades of sovereign credit ratings and economic slowdowns. The impact of any downgrades to the U.S. government’s sovereign credit rating and that of other
nations, or their perceived creditworthiness, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions.
These developments have the potential to cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on
favorable terms. In addition, lowered credit ratings of the U.S. and other governments could create financial turmoil and uncertainty, which may exert downward
pressure on the market price of our common stock.
Our business may be adversely affected by global market, political and economic challenges, including dislocations and volatility in the credit markets
and general global economic uncertainty, including the effect of any slowing of the Chinese economy and restrictions on capital outflows from China. These
conditions may adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of,
our common stock as a result of the following potential consequences, among others:
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decreased demand for industrial space, which would cause market rental rates and property values to be negatively impacted;
reduced values of our properties may limit our ability to dispose of assets at attractive prices, or at all, or to obtain debt financing secured by our
properties and may reduce the availability of unsecured loans; and
our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue
acquisition and redevelopment opportunities and refinance existing debt, reduce our returns from our acquisition and redevelopment activities and
increase our future interest expense.
In addition, global market, political and economic conditions could adversely affect the businesses of many of our tenants. As a result, we may see
increases in bankruptcies of our tenants and increased defaults by tenants, and we may experience higher vacancy rates and delays in re-leasing vacant space,
which could negatively impact our business and results of operations.
Failure of the U.S. federal government to manage its fiscal matters may negatively impact the economic environment and adversely impact our results of
operations.
An inability of the U.S. federal government to manage its fiscal matters, or manage its debt may result in the loss of economic confidence domestically
and globally, reduce investment spending, increase borrowing costs, impact availability and cost of capital, and significantly reduce economic activity.
Furthermore, a failure by the U.S. federal government to enact appropriate fiscal legislation may significantly impact the national and global economic and
financial environment and affect our business and the businesses of our tenants. If economic conditions severely deteriorate as a result of government fiscal
gridlock, our ability to lease space to our tenants may be significantly impacted.
An increase in interest rates could adversely impact our financial condition results of operations and cash flows.
Our financial condition, results of operations and cash flows could be significantly affected by changes in interest rates and actions taken by the Federal
Reserve or changes in the London Interbank Offered Rate (“LIBOR”) or its replacement. Future increases in market interest rates would increase our interest
expense under our unhedged variable rate borrowings and would increase the costs of refinancing existing indebtedness or obtaining new debt. In addition,
increases in market interest rates may result in a decrease in the value of our real estate and a decrease in the market price of our common stock. Increases in
market interest rates may also adversely affect the securities markets generally, which could reduce the market price of our common stock without regard to our
operating performance. Accordingly, unfavorable changes to our borrowing costs and stock price could significantly impact our ability to access new debt and
equity capital going forward.
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Changes in laws, regulations, and financial accounting standards may adversely affect our reported results of operations.
Legislative, regulatory, and accounting standard-setting bodies in the U.S., California and globally may promulgate new and modified laws, regulations,
and accounting standards focused on financial, banking and real estate sectors. Much rule-making and administrative efforts have focused principally on the areas
perceived as having contributed to previous financial crisis. The administration of President Donald J. Trump has indicated a desire to modify or reverse some of
these efforts. This has created a significant degree of uncertainty regarding the basic rules governing the real estate industry and many other businesses.
A high degree of regulatory uncertainty, coupled with considerable additional uncertainty regarding the underlying condition and prospects of global,
domestic, and local economies, has created a business environment that makes business planning and projections even more uncertain than is ordinarily the case
for businesses in the financial and real estate sectors. Proposals have been made at the federal level and state laws enacted in California to interject certain
governmental controls over board composition and actions, which may have unintended and uncertain consequences for companies.
In the commercial real estate sector in which we operate, the uncertainties posed by various initiatives of accounting standard-setting authorities to
fundamentally rewrite major bodies of accounting literature constitute a significant source of uncertainty as to the basic rules of business engagement. Changes in
accounting standards and requirements, including the potential requirement that U.S. public companies prepare financial statements in accordance with
international standards and the adoption of accounting standards likely to require the increased use of “fair value” measures, may have a significant effect on our
financial results and on the results of our client tenants, which would have a secondary impact on us. New accounting pronouncements and interpretations of
existing pronouncements are likely to continue to occur at an accelerated pace as a result of recent Congressional and regulatory actions and continuing efforts by
the accounting profession itself to reform and modernize its principles and procedures.
We may be adversely affected by new or amended laws or regulations, including legislation commonly known as the Tax Cuts and Jobs Act of 2017 (the
“2017 Tax Reform Act”) and other by changes in federal, state, or foreign tax laws and regulations, and by changes in the interpretation or enforcement of existing
laws and regulations. It is possible that the 2017 Tax Reform Act’s reduced federal deductions for state and local taxes and mortgage interest for individual
taxpayers, which may result in higher taxes for the principals and employees of our California based tenants, will impact our tenants in a manner that limits their
ability to pay rent or higher rent, retain employees or maintain operations in California. Any economic slowdowns may prompt a variety of legislative, regulatory,
and accounting profession responses.
Regulation of the banking and investment banking industries, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-
Frank”), has and may continue to result in, substantial changes and dislocations in the banking industry and the financial services sector in ways that could have
significant effects on, for example, the availability and pricing of unsecured credit, commercial mortgage credit, and derivatives, such as interest rate swaps, which
are important aspects of our business. Further, actions by President Donald J. Trump’s administration may alter Dodd-Frank implementation, interpretation and/or
enforcement. Accordingly, new laws, regulations, and accounting standards, as well as changes to, or new interpretations of, currently accepted accounting
practices in the real estate industry may adversely affect our results of operations.
Changes in the system for establishing U.S. accounting standards may result in adverse fluctuations in our reported asset and liability values and earnings,
and may materially and adversely affect our reported results of operations.
Accounting for public companies in the U.S. has historically been conducted in accordance with U.S. Generally Accepted Accounting Principles
(“GAAP”) as established by the Financial Accounting Standards Board (“FASB”), an independent body whose standards are recognized by the SEC as
authoritative for publicly held companies. The International Accounting Standards Board (“IASB”) is a London-based independent board established in 2001 and
charged with the development of International Financial Reporting Standards (“IFRS”). IFRS generally reflects accounting practices that prevail in Europe and in
developed nations in other parts of the world.
IFRS differs in material respects from GAAP. Among other things, IFRS has historically relied more on “fair value” models of accounting for assets and
liabilities than GAAP. “Fair value” models are based on periodic revaluation of assets and liabilities, often resulting in fluctuations in such values as compared to
GAAP, which relies more frequently on historical cost as the basis for asset and liability valuation.
The SEC is still analyzing and considering whether IFRS should be incorporated into the U.S. financial reporting system. It is unclear at this time how
and when the SEC will propose that GAAP and IFRS be harmonized if the decision to incorporate is adopted. In addition, incorporating a new method of
accounting and adopting IFRS will be a complex undertaking. We may need to develop new systems and controls based on the principles of IFRS. Since these are
new endeavors, and the precise requirements of the pronouncements ultimately adopted are not now known, the magnitude of costs associated with this conversion
is uncertain.
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We are subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not
be adequately prepared and we may not be able to accurately report our financial results.
We are subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent
registered public accounting firm addressing these assessments. These reporting and other obligations place significant demands on our management,
administrative, operational, internal audit and accounting resources and cause us to incur significant expenses, and changes to our business will necessitate ongoing
changes to our internal control systems and processes. We may need to upgrade our systems or create new systems; implement additional financial and
management controls, reporting systems and procedures; expand our internal audit function; and hire additional accounting, internal audit and finance staff. If we
are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that
apply to reporting companies could be impaired. Any failure to maintain effective internal controls could have a material adverse effect on our business, operating
results and price of our common stock.
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal controls over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors,
misstatements or misrepresentations. While management continually reviews the effectiveness of our disclosure controls and procedures and internal control over
financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the
time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements or
restatements of our financial statements or a decline in the price of our securities.
We may be unable to renew leases, lease vacant space or re-lease space as leases expire.
As of December 31, 2018 , 3.3% of the rentable square footage of our portfolio was available for lease and leases representing 0.9% of the rentable square
footage of our portfolio expired on December 31, 2018 . In addition, leases representing 12.9% and 19.6% of the rentable square footage of the properties in our
portfolio will expire in 2019 and 2020 . We cannot assure you that our leases will be renewed or that our properties will be re-leased at rental rates equal to or
above the current average rental rates or that we will not offer substantial rent abatements, tenant improvements, early termination rights or below-market renewal
options to attract new tenants or retain existing tenants. If the rental rates for our properties decrease, or if our existing tenants do not renew their leases or we do
not re-lease a significant portion of our available space and space for which leases will expire, our financial condition, results of operations, cash flows and our
ability to pay distributions on, and the per share trading price of, our common stock could be adversely affected.
We face significant competition in the leasing market, which may decrease or prevent increases of the occupancy and rental rates of our properties.
We compete with numerous developers, owners and operators of real estate, many of which own properties similar to ours in the same submarkets in
which our properties are located. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants,
we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial tenant
concessions or tenant rights (including rent abatements, tenant improvements, early termination rights or below-market renewal options) in order to retain tenants
when our tenants’ leases expire or to attract new tenants.
We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants.
Occupancy and rental rates are the primary drivers of our revenue and significantly impact us and our stockholders. In order to attract and retain tenants,
we may be required to make rent or other concessions to tenants, accommodate requests for renovations, build-to-suit remodeling and other improvements or
provide additional services to our tenants. Additionally, when a tenant at one of our properties does not renew its lease or otherwise vacates its space, it is likely
that, in order to attract one or more new tenants, we will be required to expend funds for improvements in the vacated space. As a result, we may have to make
significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants in sufficient numbers. Additionally, we may need
to raise capital to make such expenditures. If we are unable to do so or if capital is otherwise unavailable, we may be unable to make the required expenditures.
This could result in non-renewals by tenants upon expiration of their leases and/or an inability to attract new tenants.
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A substantial majority of the leases at our properties are with tenants who have non-investment grade credit ratings, which may result in our leasing to tenants
that are more likely to default in their obligations to us than a tenant with an investment grade credit rating.
A substantial majority of the leases at our properties are with tenants who have non-investment grade credit ratings. The ability of a non-investment grade
tenant to meet its obligations to us cannot be considered as well assured as that of an investment grade tenant. All of our tenants may face exposure to adverse
business or economic conditions which could lead to an inability to meet their obligations to us. However, non-investment grade tenants may not have the financial
capacity or liquidity to adapt to these conditions or may have less diversified businesses, which may exacerbate the effects of adverse conditions on their
businesses. Moreover, the fact that a substantial majority of our tenants are not investment grade may cause investors or lenders to view our cash flows as less
stable, which may increase our cost of capital, limit our financing options or adversely affect the trading price of our common stock.
Historically, some of our tenants have filed for bankruptcy protection or become insolvent. This may occur with tenants in the future, and we are
particularly at risk because of the credit rating of much of our tenant base. The bankruptcy or insolvency of a major tenant also may adversely affect the income
produced by our properties. If any tenant becomes a debtor in a case under the U.S. Bankruptcy Code, we cannot evict the tenant solely because of the bankruptcy.
In addition, the bankruptcy court might authorize the tenant to reject and terminate their lease with us. Our claim against the tenant for unpaid future rent would be
subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. Also, our claim for unpaid rent would likely not be
paid in full. Failed banks or banks involved in government-facilitated sales are subject to the Federal Deposit Insurance Corporation’s (the “FDIC”) statutory
authority and receivership process. The FDIC has receivership powers that are substantially broader than those of a bankruptcy trustee. In dealing with the FDIC in
any repudiation of a lease, we as landlord are likely to be in a less favorable position than with a debtor in a bankruptcy proceeding. Many of the creditor
protections that exist in a bankruptcy proceeding do not exist in a FDIC receivership.
The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience lease roll down from time to time.
As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the Southern California real estate market, a
general economic downturn and a decline in the desirability of our properties compared to other properties in our submarkets, we may be unable to realize the
asking rents for properties in our portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both
from property to property and among different leased spaces within a single property. In addition, depending on fluctuations in asking rental rates at any given
time, from time to time rental rates for expiring leases in our portfolio may be higher than starting rental rates for new leases. We cannot assure you that leases
will be renewed or that our properties will be re-let at rental rates equal to or above our current average rental rates or that substantial rent abatements, tenant
improvements, early termination rights or below-market renewal options will not be offered to attract new tenants or retain existing tenants. If we are unable to
obtain rental rates comparable to our asking rents for properties in our portfolio, our ability to generate cash flow growth will be negatively impacted. Significant
rent reductions could result in a write-down of one or more of our consolidated properties and/or adversely affect the market price of our common stock, our
financial condition and our results of operations, including our ability to satisfy our debt service obligations and to pay dividends to our stockholders. Moreover,
the resale value of a property could be diminished because the market value of a particular property depends principally upon the value of the leases of such
property.
We may acquire properties or portfolios of properties through tax-deferred contribution transactions, which could result in stockholder dilution and limit our
ability to sell such assets.
In the future, we may acquire properties or portfolios of properties through tax-deferred contribution transactions in exchange for partnership interests in
our Operating Partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of
tax depreciation we are able to deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer
recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to
maintain their tax bases. These restrictions limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.
Our real estate development, redevelopment and repositioning activities are subject to risks particular to development, redevelopment and repositioning.
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We may engage in development, redevelopment or repositioning activities with respect to certain of our properties. To the extent that we do so, we will be
subject to the following risks associated with such development, redevelopment and repositioning activities:
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unsuccessful development, redevelopment or repositioning opportunities could result in direct expenses to us;
construction, redevelopment or repositioning costs of a project may exceed original estimates, possibly making the project less profitable than
originally estimated, or unprofitable;
time required to complete the construction, redevelopment or repositioning of a project or to lease up the completed project may be greater than
originally anticipated, thereby adversely affecting our cash flow and liquidity;
contractor and subcontractor disputes, strikes, labor disputes or supply disruptions, which may cause delays or increase costs;
failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all;
delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, land use and other governmental permits, and changes in
zoning and land use laws;
occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
our ability to dispose of properties developed, redeveloped or repositioned with the intent to sell could be impacted by the ability of prospective
buyers to obtain financing given the current state of the credit markets; and
the availability and pricing of financing to fund our development activities on favorable terms or at all.
These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development,
redevelopment or repositioning activities once undertaken.
Our success depends on key personnel whose continued service is not guaranteed, and the loss of one or more of our key personnel could adversely affect our
ability to manage our business and to implement our growth strategies, or could create a negative perception in the capital markets.
Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key personnel, who have extensive
market knowledge and relationships and exercise substantial influence over our operational, financing, acquisition and disposition activity.
We have not obtained and do not expect to obtain key man life insurance on any of our key personnel. The loss of services of one or more members of our
senior management team and key personnel, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our
investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry participants. Further, the loss
of a member of our senior management team could be negatively perceived in the capital markets.
Potential losses, including from adverse weather conditions and natural disasters, may not be covered by insurance.
We carry commercial property, liability, environmental, earthquake and terrorism coverage on all the properties in our consolidated portfolio under a
blanket insurance policy, in addition to other coverages that are appropriate for certain of our properties. We will select policy specifications and insured limits that
we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. Some of our policies are insured subject to
limitations involving significant deductibles or co-payments and policy limits that may not be sufficient to cover losses. In addition, we may discontinue terrorism
or other insurance on some or all of our properties in the future if the cost of premiums for any such policies exceeds, in our judgment, the value of the coverage
discounted for the risk of loss. Currently, we do not carry insurance for certain types of extraordinary losses, such as loss from riots, war and wildfires because we
believe such coverage is cost prohibitive or available at a disproportionately high cost. As a result, we may incur significant costs in the event of loss from
wildfires, riots, war and other uninsured losses. If we do obtain insurance for any of those risks in the future, such insurance cost may impact the operating costs
and net cash flow of our properties.
If we or one or more of our tenants experiences a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged
properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would
continue to be liable for the indebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance
coverage at reasonable costs in the future as the costs associated with property and casualty renewals may be higher than anticipated.
All of the properties in our portfolio are located in areas that are prone to earthquake activity.
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All of the properties in our portfolio are located in Southern California, an area that is particularly prone to seismic activity. According to the U.S.
Geological Service, in places where fault systems do not experience frequent tiny shocks and a few moderate earth tremors, strain can build up, producing
earthquakes when the strain on tectonic plates releases. In Southern California, the largest most recent quake occurred in 1994 in Northridge, over 20 years ago. A
severe earthquake in the Southern California region could result in uninsured damage to a subset or even a substantial portion of our portfolio and could
significantly impact our cash flow.
While we carry insurance for losses resulting from earthquakes, such policies are subject to material deductibles and self-insured retention. Additionally,
natural disasters, including earthquakes, may cause future earthquake insurance costs to increase significantly, which may impact the operating costs and net cash
flow of our properties.
We may not be able to rebuild our existing properties to their existing specifications if we experience a substantial or comprehensive loss of such properties.
In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing
specifications. Further, reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements.
Environmental and legal restrictions could also restrict the rebuilding of our properties.
Existing conditions at some of our properties may expose us to liability related to environmental matters.
Phase I or similar environmental site assessments, which are limited in scope, conducted by independent environmental consultants on most of our
properties at the time of their acquisition or in connection with subsequent financings may not include or identify all potential environmental liabilities or risks
associated with the relevant properties and are not updated in the ordinary course of business absent a specific need. This may expose us to liability related to
unknown or unanticipated environmental matters. Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the
liabilities disclosed in the existing Phase Is or similar environmental site assessments and this failure may expose us to liability in the future. While we maintain
portfolio environmental and some site-specific insurance policies, they may be insufficient to cover any such environmental costs and liabilities.
We may be unable to sell a property if or when we decide to do so.
We expect to hold the various real properties until such time as we decide that a sale or other disposition is appropriate. Our ability to dispose of
properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for
potential buyers of our properties. We cannot predict the various market conditions affecting the industrial real estate market which will exist at any particular time
in the future. Due to the uncertainty of market conditions which may affect the future disposition of our properties, we cannot assure you that we will be able to sell
any properties identified for sale at favorable pricing and may not receive net income from the transaction.
Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that
we will have funds available to correct such defects or to make such improvements.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and
disputes between us and our co-venturers.
We have co-invested in the past, and may co-invest again in the future, with third parties through partnerships, joint ventures or other entities, acquiring
non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. In such event, we would not
be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint
ventures or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-
venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business
interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives, and they
may have competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential risk of impasses on
decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. In addition, prior consent
of our joint venture partners may be required for a sale or transfer to a third party of our interests in the joint venture, which would restrict our ability to dispose of
our interest in the joint venture. If we become a limited partner or non-managing member in any partnership or limited liability company and such entity takes or
expects to take actions that could jeopardize our company’s status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity.
Disputes between
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us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their
time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the partnership
or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. Our joint
ventures may be subject to debt and, in volatile credit markets, the refinancing of such debt may require equity capital calls.
Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.
In order to qualify and maintain our qualification as a REIT, we are required under the Code, among other things, to distribute annually at least 90% of
our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income
tax at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid
deduction, including any net capital gains. Because of these distribution requirements, we are highly dependent on third-party sources to fund capital needs,
including any necessary acquisition financing. We may not be able to obtain such financing on favorable terms or at all and any additional debt we incur will
increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:
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general market conditions;
the market’s perception of our growth potential;
our current debt levels;
our current and expected future earnings;
our cash flow and cash distributions; and
the trading price of our common stock.
In prior years, the capital markets have been subject to periodic significant disruptions. Our inability to obtain capital when needed could have a material
adverse effect on our ability to expand our business, implement our growth plan and fund other cash requirements. If we cannot obtain capital from third-party
sources on favorable terms or at all when desired, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and
operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to maintain our
qualification as a REIT. To the extent that capital is not available to acquire properties, profits may not be realized or their realization may be delayed, which could
result in an earnings stream that is less predictable than some of our competitors and result in us not meeting our projected earnings and distributable cash flow
levels in a particular reporting period. Failure to meet our projected earnings and distributable cash flow levels in a particular reporting period could have an
adverse effect on our financial condition and on the market price of our stock.
We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information
technology (“IT”) networks and related systems.
We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses,
attachments to e‑mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT
networks and related systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers,
foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the
world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day‑to‑day operations and, in
some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain the security and integrity of these types of IT networks
and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, including the engagement of independent
third party consultants to analyze any vulnerabilities, implementation of software and systems intended to reduce the risk of IT security breaches, and ongoing
training modules of employees throughout the year, there can be no assurance that our security efforts and measures will be effective or that attempted security
breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially
vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some
cases, are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate
security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk. A security breach or other significant disruption
involving our IT networks and related systems could:
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Disrupt the proper functioning of our networks and systems;
Result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines;
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Result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise
valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and
outcomes;
Require significant management attention and resources to remedy any damages that result;
Subject us to claims for breach of contract or failure to safeguard personal information, damages, credits, penalties or termination of leases or other
agreements; or
Damage our reputation among our tenants and investors generally.
Risks Related to the Real Estate Industry
Our performance and value are subject to risks associated with real estate assets and the real estate industry.
Our ability to pay expected dividends to our stockholders depends on our ability to generate revenues in excess of expenses, scheduled principal payments
on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may
decrease cash available for distribution and the value of our properties. These events include many of the risks set forth above under “—Risks Related to Our
Business and Operations,” as well as the following:
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local oversupply or reduction in demand for industrial space;
adverse changes in financial conditions of buyers, sellers and tenants of properties;
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant
improvements, early termination rights or below-market renewal options, and the need to periodically repair, renovate and re-lease space;
increased operating costs, including insurance premiums, utilities, real estate taxes and state and local taxes;
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, floods and wildfires, which may result in uninsured or
underinsured losses;
decreases in the market value of our properties;
changing submarket demographics; and
changing traffic patterns.
In addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the public perception that any of these
events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our
financial condition.
The real estate investments made, and to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more
properties in our portfolio in response to changing economic, financial and investment conditions is limited. Return of capital and realization of gains, if any, from
an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to realize our investment objectives by sale, other
disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, our ability to
dispose of one or more properties within a specific time period is subject to certain limitations imposed by our Tax Matters Agreement, as well as weakness in or
even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international
economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.
In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In
particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of
business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio
in response to economic or other conditions promptly or on favorable terms.
Declining real estate valuations and impairment charges could materially adversely affect us.
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We intend to review the carrying value of our properties when circumstances, such as adverse market conditions, indicate a potential impairment may
exist. We intend to base our review on an estimate of the future cash flows (excluding interest charges) expected to result from the property’s use and eventual
disposition on an undiscounted basis. We intend to consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand,
competition and other factors. If our evaluation indicates that we may be unable to recover the carrying value of a real estate investment, an impairment loss will be
recorded to the extent that the carrying value exceeds the estimated fair value of the property.
Impairment losses have a direct impact on our operating results, because recording an impairment loss results in a negative adjustment to our publicly
reported operating results. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates
and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause us to reevaluate the
assumptions used in our impairment analysis.
Adverse economic conditions and the dislocation in the credit markets could materially adversely affect us.
Economic conditions can be unpredictable and vary greatly, creating uncertainty and in some cases severely impacted the lending and capital markets,
particularly for real estate. When occurring, these conditions may limit the amount of indebtedness we are able to obtain and our ability to refinance our
indebtedness, and may impede our ability to develop new properties and to replace construction financing with permanent financing, which could result in our
having to sell properties at inopportune times and on unfavorable terms.
Any lack of availability of debt financing may require us to rely more heavily on additional equity issuances, which may be dilutive to our current
stockholders, or on less efficient forms of debt financing.
Acquired properties may be located in new markets where we may face risks associated with investing in an unfamiliar market.
We have acquired properties in markets that are new to us. For example, our predecessor business acquired properties in Arizona and Illinois as part of an
acquisition of a portfolio of properties that included four other properties located in our target markets. When we acquire properties located in new markets, we
may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity
with local government and permitting procedures.
We may choose not to distribute the proceeds of any sales of real estate to our stockholders, which may reduce the amount of our cash distributions to
stockholders.
We may choose not to distribute any proceeds from the sale of real estate investments to our stockholders. Instead, we may elect to use such proceeds to:
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acquire additional real estate investments;
repay debt;
create working capital reserves; or
Any decision to retain or invest the proceeds of any sales, rather than distribute such proceeds to our stockholders may reduce the amount of cash
distributions to equity holders.
If any of our insurance carriers becomes insolvent, we could be adversely affected.
We carry several different lines of insurance, placed with several large insurance carriers. If any one of these large insurance carriers were to become
insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at significant risk for
collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance
coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency would likely adversely affect us.
Our property taxes could increase due to property tax rate changes or reassessment, which could adversely impact our cash flows.
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Even if we qualify as a REIT for federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property
taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. All our properties located in
California may be reassessed as a result of various factors including, without limitation, changes in California laws that contain certain limitations on annual
increases of assessed value of real property, commonly referred to as Proposition 13 Protections. A measure proposing to remove certain Proposition 13
Protections for commercial real estate owners qualified as a November 2020 California ballot measure. Therefore, the amount of property taxes we pay in the
future may increase substantially from what we have paid in the past. If the property taxes we pay increase, our cash flow would be adversely impacted to the
extent that we are not reimbursed by tenants for those taxes.
We could incur significant costs related to government regulation and litigation over environmental matters.
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may
be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or
migrating to or from such property, including costs to investigate, clean up such contamination and liability for harm to natural resources. Such laws often impose
liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and
several. These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs could exceed the value of the property and in
some cases our aggregate net asset value. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to
third-party liability for costs of remediation and/or personal, property, or natural resources damage or materially adversely affect our ability to sell, lease or
develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the
government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may
impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Some of our properties have been or may be impacted by contamination arising from current or prior uses of the property, or adjacent properties, for
commercial or industrial purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such
material known or suspected to exist at a number of our properties which may result in further investigation, remediation, or deed restrictions. Further, certain of
our properties are adjacent to or near other properties that have contained or currently contain petroleum or other hazardous substances, or at which others have
engaged or may engage in activities that may release such hazardous substances. Adjacent property uses are identified in standard ASTM procedures in Phase I
environmental studies. In addition to a blanket environmental insurance policy, as needed, we may obtain environmental insurance policies on commercially
reasonable terms that provide coverage for potential environmental liabilities, subject to the policy’s coverage conditions and limitations. However, these policies
are subject to certain limits, deductibles and exclusions, and insurance may not fully compensate us for any environmental liability. From time to time, we may
acquire properties with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are
quantifiable and that the acquisition will yield a superior risk-adjusted return. We usually perform a Phase I environmental site assessment at any property we are
considering acquiring. Phase I environmental site assessments are limited in scope and do not involve sampling of soil, soil vapor, or groundwater, and these
assessments may not include or identify all potential environmental liabilities or risks associated with the property. Even where subsurface investigation is
performed, it can be very difficult to ascertain the full extent of environmental contamination or the costs that are likely to flow from such contamination. We
cannot assure you that the Phase I environmental site assessment or other environmental studies identified all potential environmental liabilities, or that we will not
face significant remediation costs or other environmental contamination that makes it difficult to sell any affected properties. Also, we have not always
implemented actions recommended by these assessments, and recommended investigation and remediation of known or suspected contamination has not always
been performed. Contamination may exist at many of our properties, and governmental regulators or third parties could seek to force us to contribute to
investigation or remediation or known or suspected contamination. As a result, we could potentially incur material liability for these issues.
Environmental laws also govern the presence, maintenance and removal of asbestos-containing building materials, or ACBM, and may impose fines and
penalties for failure to comply with these requirements. Such laws require that owners or operators of buildings containing ACBM (and employers in such
buildings) properly manage and maintain the asbestos, adequately notify or train those who may come into contact with asbestos, and undertake special
precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. In addition, the presence of
ACBM in our properties may expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos).
In addition, the properties in our portfolio also are subject to various federal, state and local environmental and health and safety requirements, such as
state and local fire requirements. Moreover, some of our tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations
at our properties, which are subject to regulation. Such
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environmental and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental liabilities could
affect a tenant’s ability to make rental payments to us. In addition, changes in laws could increase the potential liability for noncompliance. This may result in
significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have an adverse
effect on us. Further, these environmental, health, and safety laws could become more stringent in the future, and this could subject us or our tenants to new or
greater liability.
We cannot assure you that remedial measures and other costs or liabilities incurred as a result of environmental issues will be immaterial to our overall
financial position. If we do incur material environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any
affected properties.
Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of
remediation.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains
undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from
inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor
exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other
reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation
program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of
significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal
injury is alleged to have occurred.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are applicable to our properties.
The properties in our portfolio are subject to various covenants and federal, state and local laws and regulatory requirements, including permitting and
licensing requirements. Local regulations, including municipal or local ordinances and zoning restrictions may restrict our use of our properties and may require us
to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from local officials of community standards
organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties.
Among other things, these restrictions may relate to fire and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing
laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be
adopted that increase such delays or result in additional costs. Our growth strategy may be affected by our ability to obtain permits, licenses and zoning relief.
In addition, federal and state laws and regulations, including laws such as the Americans with Disabilities Act and parallel California Statutes, or ADA,
and the Fair Housing Amendment Act of 1988, or FHAA, impose further restrictions on our properties and operations. Under the ADA and the FHAA, all public
accommodations must meet federal requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with
the ADA or the FHAA. If one or more of the properties in our portfolio is not in compliance with the ADA, the FHAA or any other regulatory requirements, we
may be required to incur additional costs to bring the property into compliance, including the removal of access barriers, and we might incur governmental fines or
the award of damages to private litigants. In addition, we do not know whether existing requirements will change or whether future requirements will require us to
make significant unanticipated expenditures.
Furthermore, while leases with our tenants generally include provisions to obligate the tenants to comply with all laws and operate within a defined use,
there is no guaranty that the tenants will comply with the terms of their leases. We may incur costs to bring a property into legal compliance even though the tenant
may have been contractually required to comply and pay for the cost of compliance. Our tenants may disregard the use restrictions contained in the leases and
conduct operations not contemplated by the lease, such as prohibited uses related to cannabis or highly hazardous uses, for example, despite our efforts to prohibit
certain uses.
Under California energy efficiency standards, enacted and periodically amended, including, without limitation, Title 24 or The Energy Efficiency
Standards for Residential and Nonresidential Buildings, building owners may incur increased costs to renovate properties in order to meet changing energy
efficiency standards and make energy usage disclosures. If we are required to make unanticipated expenditures or substantial modifications to our properties, our
financial condition, cash flows, results of operations, the market price of our shares of common stock and preferred stock and our ability to make distributions to
our stockholders could be adversely affected. We may incur additional costs collecting and reporting energy usage data from our tenants and properties in order to
comply with such energy efficiency standards.
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Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related
to outstanding debt.
We hold certain debt instruments on which interest rates move in direct relation to LIBOR, depending on our selection of borrowing options. Governance
and oversight bodies have instituted rules and reforms directed at minimizing the risk of LIBOR manipulation, which may have occurred in the past and could have
an adverse impact on the level of the index.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the
calculation of LIBOR after 2021. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the
rate that represents best practice as the alternative to U.S. dollar LIBOR (“USD LIBOR”) for use in derivatives and other financial contracts that are currently
indexed to USD LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD LIBOR and organizations are currently working on industry wide
and company specific transition plans as it relates to derivatives and cash markets exposed to USD LIBOR. Whether or not SOFR will attain market traction as a
USD LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain. If LIBOR ceases to exist, the interest rates on our debt
which is indexed to LIBOR will be determined using a different successor rate, which may adversely affect interest expense and may result in interest obligations
which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if USD LIBOR was available in its current
form. We are currently monitoring this activity and evaluating the related risks.
Risks Related to Our Organizational Structure
Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of common units, which may
impede business decisions that could benefit our stockholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating
partnership or any partner thereof, on the other. Our directors and officers have duties to our company under Maryland law in connection with their management of
our company. At the same time, we, as the general partner of our operating partnership, have fiduciary duties and obligations to our operating partnership and its
limited partners under Maryland law and the partnership agreement of our operating partnership in connection with the management of our operating partnership.
Our fiduciary duties and obligations as the general partner of our operating partnership may come into conflict with the duties of our directors and officers to our
company.
Under Maryland law, a general partner of a Maryland limited partnership has fiduciary duties of loyalty and care to the partnership and its partners and
must discharge its duties and exercise its rights as general partner under the partnership agreement or Maryland law consistent with the obligation of good faith and
fair dealing. The partnership agreement provides that, in the event of a conflict between the interests of our operating partnership or any partner, on the one hand,
and the separate interests of our company or our stockholders, on the other hand, we, in our capacity as the general partner of our operating partnership, may give
priority to the separate interests of our company or our stockholders (including with respect to tax consequences to limited partners, assignees or our stockholders),
and, in the event of such a conflict, any action or failure to act on our part or on the part of our directors that gives priority to the separate interests of our company
or our stockholders that does not result in a violation of the contract rights of the limited partners of our operating partnership under its partnership agreement does
not violate the duty of loyalty or any other duty that we, in our capacity as the general partner of our operating partnership, owe to our operating partnership and its
partners or violate the obligation of good faith and fair dealing.
Additionally, the partnership agreement provides that we generally will not be liable to our operating partnership or any partner for any action or omission
taken in our capacity as general partner, for the debts or liabilities of our operating partnership or for the obligations of the operating partnership under the
partnership agreement, except for liability for our fraud, willful misconduct or gross negligence, pursuant to any express indemnity we may give to our operating
partnership or in connection with a redemption. Our operating partnership must indemnify us, our directors and officers, officers of our operating partnership and
our designees from and against any and all claims that relate to the operations of our operating partnership, unless (1) an act or omission of the person was material
to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) the person actually received an
improper personal benefit in violation or breach of the partnership agreement or (3) in the case of a criminal proceeding, the indemnified person had reasonable
cause to believe that the act or omission was unlawful. Our operating partnership must also pay or reimburse the reasonable expenses of any such person in
advance of a final disposition of the proceeding upon its receipt of a written affirmation of the person’s good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the
standard of conduct for indemnification. Our operating partnership is not required to indemnify or advance funds to any person with respect to any action initiated
by the person seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to indemnification under the
partnership agreement) or if the person is found to be liable to our operating partnership on any portion of any claim in the action. No reported decision of a
Maryland appellate court has interpreted provisions similar to the provisions of the partnership
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agreement of our operating partnership that modify and reduce our fiduciary duties or obligations as the general partner or reduce or eliminate our liability to our
operating partnership and its partners, and we have not obtained an opinion of counsel as to the enforceability of the provisions set forth in the partnership
agreement that purport to modify or reduce the fiduciary duties and obligations that would be in effect were it not for the partnership agreement.
Some of our directors and executive officers have outside business interests, including interests in real estate-related businesses, and, therefore, may have
conflicts of interest with us.
Certain of our executive officers and directors have outside business interests, including interests in real estate-related businesses, and may own equity
securities of public and private real estate companies. Our executive officers’ and directors’ interests in these entities could create a conflict of interest, especially
when making determinations regarding our renewal of leases with tenants subject to these leases. Our executive officers’ involvement in other businesses and real
estate-related activities could divert their attention from our day-to-day operations, and state law may limit our ability to enforce any non-compete agreements.
We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.
Our board of directors, without stockholder approval, has the power under our charter to amend our charter to increase the aggregate number of shares of
stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common
stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and set
the terms of such newly classified or reclassified shares. As a result, we may issue classes or series of common stock or preferred stock with preferences, powers
and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our common stock. Although our board of directors has no
such intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a
transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest.
Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other
change of control transactions that could involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest.
Certain provisions of the Maryland General Corporation Law (“MGCL”), may have the effect of inhibiting a third party from making a proposal to
acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to
realize a premium over the then-prevailing market price of such shares, including:
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“Business combination” provisions that, subject to certain exceptions, prohibit certain business combinations between us and an “interested
stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of
ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within
the two-year period immediately prior to the date in question) or an affiliate thereof for five years after the most recent date on which the stockholder
becomes an interested stockholder, and thereafter impose fair price or supermajority stockholder voting requirements on these combinations; and
“Control share” provisions that provide that holders of “control shares” of our company (defined as shares that, when aggregated with other shares
controlled by the stockholder, entitle the stockholder to exercise voting power in the election of directors within one of three increasing ranges)
acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of the voting power of issued and
outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by
our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
As permitted by the MGCL, our bylaws provide that we will not be subject to the control share provisions of the MGCL and our board of directors has, by
resolution, exempted us from the business combination between us and any other person. However, we cannot assure you that our board of directors will not revise
the bylaws or such resolution in order to be subject to such business combination and control share provisions in the future. Notwithstanding the foregoing, an
alteration or repeal of the board resolution exempting such business combinations will not have any effect on any business combinations that have been
consummated or upon any agreements existing at the time of such modification or repeal.
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Certain provisions of the MGCL permit the board of directors of a Maryland corporation with at least three independent directors and a class of stock
registered under the Exchange Act without stockholder approval and regardless of what is currently provided in its charter or bylaws, to implement certain
corporate governance provisions, some of which (for example, a classified board) are not currently applicable to us. These provisions may have the effect of
limiting or precluding a third party from making an unsolicited acquisition proposal for our company or of delaying, deferring or preventing a change in control
under circumstances that otherwise could provide the holders of shares of our stock with the opportunity to realize a premium over the then current market price.
Our charter contains a provision whereby it elects to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on the board
of directors.
Certain provisions in the partnership agreement of our operating partnership may delay or prevent unsolicited acquisition of us.
Provisions of the partnership agreement of our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes of our
control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some
stockholders or limited partners might consider such proposals, if made, desirable. These provisions include, among others:
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redemption rights of qualifying parties;
a requirement that we may not be removed as the general partner of our operating partnership without our consent;
transfer restrictions on common units;
our ability, as general partner, in some cases, to amend the partnership agreement and to cause our operating partnership to issue additional
partnership interests with terms that could delay, defer or prevent a merger or other change of control of us or our operating partnership without the
consent of our stockholders or the limited partners; and
the right of the limited partners to consent to certain transfers of our general partnership interest (whether by sale, disposition, statutory merger or
consolidation, liquidation or otherwise).
Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law also contain other provisions that may delay, defer or
prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best
interest.
The Tax Matters Agreement limits our ability to sell or otherwise dispose of certain properties, even though a sale or disposition may otherwise be in our
stockholders’ best interest.
In connection with the formation transactions, we entered into a Tax Matters Agreement with certain limited partners of our operating partnership,
including Messrs. Ziman, Schwimmer and Frankel, that provides that if we dispose of any interest with respect to certain properties in our initial portfolio in a
taxable transaction during the period from the completion of the IPO (July 24, 2013) through the seventh anniversary of such completion (July 24, 2020), our
operating partnership will indemnify such limited partners for their tax liabilities attributable to their share of the built-in gain that exists with respect to such
property interest as of the time of the IPO and tax liabilities incurred as a result of the indemnification payment; provided that, subject to certain exceptions and
limitations, such indemnification rights will terminate for any such protected partner that sells, exchanges or otherwise disposes of more than 50% of his or her
common units. We have no present intention to sell or otherwise dispose of these properties or interest therein in taxable transactions during the restriction period.
If we were to trigger the tax protection provisions under this agreement, our operating partnership would be required to pay damages in the amount of the taxes
owed by these limited partners (plus additional damages in the amount of the taxes incurred as a result of such payment). As a result, although it may otherwise be
in our stockholders’ best interest that we sell one of these properties, it may be economically prohibitive for us to do so because of these obligations.
The Tax Matters Agreement may require our operating partnership to maintain certain debt levels that otherwise would not be required to operate our
business.
The Tax Matters Agreement provides that, during the period beginning from the date of the completion of our IPO (July 24, 2013) through the period
ending on the twelfth anniversary of our IPO (July 24, 2025), our operating partnership will offer certain limited partners the opportunity to guarantee its debt, and
following such period, our operating partnership will use commercially reasonable efforts to provide such limited partners who continue to own at least 50% of the
common units they originally received in the formation transactions with debt guarantee opportunities. Our operating partnership will be required to indemnify
such limited partners for their tax liabilities resulting from our failure to make such opportunities available to them (plus an additional amount equal to the taxes
incurred as a result of such indemnity payment). Among other things, this opportunity to guarantee debt is intended to allow the participating limited partners to
defer the recognition of gain in connection
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with the formation transactions. These obligations may require us to maintain more or different indebtedness than we would otherwise require for our business.
Our board of directors may change our investment and financing policies without stockholder approval and we may become more highly leveraged, which may
increase our risk of default under our debt obligations.
Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our stockholders do not control these policies.
Further, our charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or
eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged which could
result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies,
including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest
rate risk, real estate market fluctuations and liquidity risk.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages, except for
liability resulting from:
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actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment and was material to the cause of action
adjudicated.
In addition, our charter authorizes us to obligate our company, and our bylaws require us, to indemnify our directors and officers for actions taken by
them in those and certain other capacities to the maximum extent permitted by Maryland law in effect from time to time. Generally, Maryland law permits a
Maryland corporation to indemnify its present and former directors and officers except in instances where the person seeking indemnification acted in bad faith or
with active and deliberate dishonesty, actually received an improper personal benefit in money, property or services or, in the case of a criminal proceeding, had
reasonable cause to believe that his or her actions were unlawful. Under Maryland law, a Maryland corporation also may not indemnify a director or officer in a
suit by or on behalf of the corporation in which the director or officer was adjudged liable to the corporation or for a judgment of liability on the basis that a
personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to
indemnification, even though the director or officer did not meet the prescribed standard of conduct; however, indemnification for an adverse judgment in a suit by
us or on our behalf, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. As a result, we and our
stockholders may have more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken in good faith
by any of our directors or officers impede the performance of our company, our stockholders’ ability to recover damages from such director or officer will be
limited.
We are a holding company with no direct operations and, as such, we will rely on funds received from our operating partnership to pay liabilities, and the
interests of our stockholders will be structurally subordinated to all liabilities and obligations of our operating partnership and its subsidiaries.
We are a holding company and conduct substantially all of our operations through our operating partnership. We do not have, apart from an interest in our
operating partnership, any independent operations. As a result, we rely on distributions from our operating partnership to continue to pay any dividends we might
declare on shares of our common stock. We also rely on distributions from our operating partnership to meet any of our obligations, including any tax liability on
taxable income allocated to us from our operating partnership. In addition, because we are a holding company, stockholder claims will be structurally subordinated
to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of
our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be available to satisfy the claims of our
stockholders only after all of our and our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
Our operating partnership may issue additional common units to third parties without the consent of our stockholders, which would reduce our ownership
percentage in our operating partnership and would have a dilutive effect on the amount of distributions made to us by our operating partnership and,
therefore, the amount of distributions we can make to our stockholders.
As of December 31, 2018 , we own 97.6% of the outstanding common units in our Operating Partnership and we may, in connection with future
acquisitions of properties or otherwise, cause our operating partnership to issue additional common units
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to third parties. Such issuances would reduce our ownership percentage in our operating partnership and affect the amount of distributions made to us by our
operating partnership and, therefore, the amount of distributions we can make to our stockholders.
Risks Related to Our Status as a REIT
Failure to maintain our qualification as a REIT would have significant adverse consequences to us and the per share trading price of our common stock.
We have elected to be taxed as a REIT for federal income tax purposes commencing with our initial taxable year ended December 31, 2013. We intend to
continue to meet the requirements for taxation as a REIT. We have not requested and do not plan to request a ruling from the Internal Revenue Service (“IRS”)
that we qualify as a REIT, and the statements in this Form 10-K are not binding on the IRS or any court. Therefore, we cannot guarantee that we will qualify as a
REIT, or that we will remain qualified as such in the future. If we were to fail to qualify as a REIT in any taxable year, we will face serious tax consequences that
would substantially reduce the funds available for distribution to you for each of the years involved because:
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we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at
regular corporate rates;
we also could be subject to the federal alternative minimum tax for tax years prior to 2018 and possibly increased state and local taxes; and
unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the
year during which we were disqualified.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to
stockholders. In addition, if we fail to qualify as a REIT, we will not be required to make distributions to our stockholders. As a result of all these factors, our
failure to qualify as a REIT also could impair our ability to expand our business and raise capital.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and
administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code, or the
Treasury Regulations, is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and
circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements,
including requirements regarding the ownership of our stock, requirements regarding the composition of our assets and a requirement that at least 95% of our gross
income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to stockholders aggregating
annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. In addition,
legislation, new regulations, administrative interpretations or court decisions may materially adversely affect our investors, our ability to qualify as a REIT for
federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our
income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, our taxable REIT subsidiary will be subject to
tax as a regular corporation in the jurisdictions it operates.
If our operating partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse
consequences.
We believe that our operating partnership will be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership will
not be subject to federal income tax on its income. Instead, each of its partners, including us, will be allocated, and may be required to pay tax with respect to, its
share of our operating partnership’s income. We cannot assure you, however, that the IRS will not challenge the status of our operating partnership or any other
subsidiary partnership in which we own an interest as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS
were successful in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal income tax purposes,
we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also,
the failure of our operating partnership or any subsidiary partnerships to qualify as a partnership could cause it to become subject to federal and state corporate
income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
Our taxable REIT subsidiaries will be subject to federal income tax, and we will be required to pay a 100% penalty tax on certain income or deductions if our
transactions with our taxable REIT subsidiaries are not conducted on arm’s length terms.
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We own an interest in one or more taxable REIT subsidiaries, and may acquire securities in additional taxable REIT subsidiaries in the future. A taxable
REIT subsidiary is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be
treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of the outstanding securities of another
corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities, a
taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A
taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between
a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis.
For taxable years beginning after December 31, 2017, not more than 20% of the value of our total assets may be represented by securities of taxable REIT
subsidiaries. We anticipate that the aggregate value of the stock and other securities of any taxable REIT subsidiaries that we own will be less than 20% of the
value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable asset test limitations.
To maintain our REIT qualification, we may be forced to borrow funds during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year, determined without regard to
the dividends paid deduction and excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than
100% of our REIT taxable income (determined without regard to the deduction for dividends paid) each year. In addition, we will be subject to a 4% nondeductible
excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital
gain net income and 100% of our undistributed income from prior years. Accordingly, we may not be able to retain sufficient cash flow from operations to meet
our debt service requirements and repay our debt. Therefore, we may need to raise additional capital for these purposes, and we cannot assure you that a sufficient
amount of capital will be available to us on favorable terms, or at all, when needed. Further, in order to maintain our REIT qualification and avoid the payment of
income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable
for these borrowings. These borrowing needs could result from, among other things, differences in timing between the actual receipt of cash and inclusion of
income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments.
These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including
the market’s perception of our growth potential, our current debt levels, the per share trading price of our common stock, and our current and potential future
earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our
investment activities and/or to dispose of assets at inopportune times.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends
payable by REITs, however, generally are not eligible for these reduced rates. Under the 2017 Tax Reform Act, however, U.S. stockholders that are individuals,
trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income)
received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Although this deduction reduces the effective tax rate
applicable to certain dividends paid by REITs (generally to 29.6% assuming the shareholder is subject to the 37% maximum rate), such tax rate is still higher than
the tax rate applicable to corporate dividends that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive
investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the
value of the shares of REITs.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal
income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of
property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties
that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe
harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that
we will always be able to make use of the available safe harbors.
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Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our
income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset
and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to stockholders at disadvantageous times or
when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in
adverse market conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures
or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our business results, profitability and ability to execute our
business plan. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our
lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales
constitute prohibited transactions.
Legislative or other actions affecting REITs could have a negative effect on us.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.
Department of the Treasury. Changes to the tax laws, with or without retroactive application, could adversely affect our investors or us. We cannot predict how
changes in the tax laws might affect our investors or us. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly
and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification, or the federal income tax consequences of an
investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other
entities more attractive relative to an investment in a REIT.
The 2017 Tax Reform Act has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their
stockholders. Changes made by the 2017 Tax Reform Act that could affect the Company and its stockholders include:
temporarily reducing individual U.S. federal income tax rates on ordinary income; the highest individual U.S. federal income tax rate has been reduced
•
from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026;
• permanently eliminating the progressive corporate tax rate structure, which previously imposed a maximum corporate tax rate of 35%, and replacing it
with a flat corporate tax rate of 21%;
• permitting a deduction for certain pass-through business income, including dividends received by our stockholders from us that are not designated by us
as capital gain dividends or qualified dividend income, which will allow individuals, trusts, and estates to deduct up to 20% of such amounts for taxable
years beginning after December 31, 2017 and before January 1, 2026;
reducing the highest rate of withholding with respect to our distributions to non-U.S. stockholders that are treated as attributable to gains from the sale or
•
exchange of U.S. real property interests from 35% to 21%;
limiting our deduction for net operating losses arising in taxable years beginning after December 31, 2017 to 80% of our REIT taxable income
•
(determined without regard to the dividends paid deduction);
• generally limiting the deduction for net business interest expense in excess of 30% of a business’s “adjusted taxable income,” except for taxpayers that
engage in certain real estate businesses (including most equity REITs) and elect out of this rule (provided that such electing taxpayers must use an
alternative depreciation system with longer depreciation periods); and
•
eliminating the corporate alternative minimum tax.
Many of these changes that are applicable to us or our stockholders took effect beginning with our 2018 taxable year, without any transition periods or
grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well
as interpretations and implementing regulations by the Treasury and IRS, any of which could lessen or increase the impact of the legislation. In addition, it is
unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing
state and local tax liabilities.
While some of the changes made by the 2017 Tax Reform Act may adversely affect the Company in one or more reporting periods and prospectively,
other changes may be beneficial on a going forward basis. The Company continues to
29
work with its tax advisors and auditors to determine the full impact that the 2017 Tax Reform Act as a whole will have on the Company.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2018 , our consolidated portfolio consists of 176 wholly-owned properties located in Southern California infill markets totaling
approximately 21.3 million rentable square feet.
The table below sets forth relevant information with respect to the operating properties in our consolidated portfolio as of December 31, 2018 .
Property Address
City
Number of
Buildings
Asset Type
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Los Angeles - Greater San Fernando Valley
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
10635 Vanowen St.
Burbank
2980 & 2990 N San
Fernando Road
Burbank
901 W. Alameda
Ave.
Burbank
9120 Mason Ave.
Chatsworth
21040 Nordoff
Street; 9035
Independence
Avenue; 21019 -
21045 Osborne
Street
9171 Oso Avenue
9200 Mason
Avenue
9230 Mason
Avenue
9250 Mason
Avenue
3550 Tyburn St.,
3332, 3334, 3360,
3368, 3370, 3378,
3380, 3410, 3424 N.
San Fernando Rd.
Chatsworth
Chatsworth
Chatsworth
Chatsworth
Chatsworth
Los Angeles
3116 W. Avenue 32 Los Angeles
7900 Nelson Rd.
12154 Montague
Street
Los Angeles
Pacoima
121-125 N. Vinedo
Ave.
Pasadena
89-91 N. San
Gabriel Blvd.,
2670-2674 Walnut
Ave., 2675 Nina St.
Pasadena
1050 Arroyo Ave.
San Fernando
605 8th Street
San Fernando
1
2
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
1 Creative Office
Warehouse /
Distribution
1
1977
31,037
1950 / 2004
130,800
1969 / 2009
44,924
1967 / 1999
319,348
7
1
1
1
1
8
1
1
1
1
5
1
1
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse / Light
Manufacturing
1979 / 1980
153,236
1980
1968
1974
1977
65,560
80,410
54,000
56,292
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1966, 1992,
1993, 1994
474,431
1974
100,500
1998 / 2015
202,905
1974
122,868
Warehouse / Light
Manufacturing
1953 / 1993
48,381
Light
Manufacturing /
Flex
Warehouse / Light
Manufacturing
Warehouse /
Distribution
1947, 1985 /
2009
1969 / 2012
1991 / 2015
31,619
76,993
55,715
30
0.1%
0.6%
0.2%
1.5%
0.7%
0.3%
0.4%
0.3%
0.3%
2.2%
0.5%
1.0%
0.6%
0.2%
0.1%
0.4%
0.3%
4
1
3
1
10
1
1
1
1
28
1
2
1
1
4
1
1
100.0% $
447,353
100.0% $
1,268,130
100.0% $
1,537,843
100.0% $
2,004,695
100.0% $
1,519,206
100.0% $
100.0% $
100.0% $
100.0% $
458,945
530,706
259,200
410,600
100.0% $
5,455,241
100.0% $
993,744
100.0% $
1,849,794
100.0% $
100.0% $
750,000
605,067
100.0% $
100.0% $
100.0% $
701,942
627,317
482,322
0.2%
0.7%
0.8%
1.1%
0.8%
0.2%
0.3%
0.1%
0.2%
2.9%
0.5%
1.0%
0.4%
0.3%
0.4%
0.3%
0.3%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
14.41
9.70
34.23
6.28
9.91
7.00
6.60
4.80
7.29
11.50
9.89
9.12
6.10
12.51
22.20
8.15
8.66
Property Address
City
24935 & 24955
Avenue Kearny
15140 & 15148
Bledsoe St., 13065
- 13081 Bradley
Ave.
18310-18330
Oxnard St.
28340 - 28400
Avenue Crocker
28159 Avenue
Stanford
28901-28903
Avenue Paine (6)
29003 Avenue
Sherman (6)
15041 Calvert St.
14723-14825
Oxnard St.
8101-8117 Orion
Ave.
6701 & 6711
Odessa Ave.
Santa Clarita
Sylmar
Tarzana
Valencia
Valencia
Valencia
Valencia
Van Nuys
Van Nuys
Van Nuys
Van Nuys
28454 Livingston
Avenue
Valencia
525 Park Avenue
San Fernando
Los Angeles - Greater San Fernando
Valley Total
Los Angeles - San Gabriel Valley
425 S. Hacienda
Blvd.
14955-14971 E.
Salt Lake Ave
15241 - 15277,
15317 - 15339 Don
Julian Rd.
14421-14441
Bonelli Street
City of Industry
City of Industry
City of Industry
City of Industry
15715 Arrow
Highway
15705, 15709
Arrow Highway &
5220 Fourth St.
16321 Arrow Hwy.
4832-4850 Azusa
Canyon Road
Irwindale
Irwindale
Irwindale
Irwindale
4416 Azusa Canyon
Road
Irwindale
14250-14278
Valley Blvd.
13914-13932
Valley Blvd.
1400 South
Shamrock
La Puente
La Puente
Monrovia
Number of
Buildings
Asset Type
2
Warehouse /
Distribution
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
1988
138,980
0.7%
100.0% $
1,055,403
0.6%
$
7.59
2
2
1
1
1
1
1
6
1
2
1
1
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Light Industrial /
Office
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
57
1
1
2
2
1
3
3
1
1
8
2
1
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Light
Manufacturing /
Flex
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Light
Manufacturing /
Flex
1969, 2008 /
2016
1973
1987 / 2006
1987 / 2008
134,030
75,689
90,722
79,247
1999 / 2018
111,935
2000
1971
1964 / 1968
1978
1970-1972 /
2012
2007
2003
1997
1979
1965, 2005 /
2003
1971
1989
1987
1955 / 2001
2016
1956
1974 / 2007
1978, 1988 /
2012
68,123
81,282
77,790
48,394
29,544
134,287
63,403
3,182,445
51,823
126,036
241,248
148,740
76,000
69,592
64,296
87,421
70,510
100,346
58,084
1957, 1962 /
2004
67,838
31
2
9
21
2
12
1
100.0% $
1,316,702
100.0% $
1,145,745
100.0% $
701,331
98.6% $
1,316,961
100.0% $
967,118
—
—% $
—
1
63
25
2
1
2
100.0% $
538,749
100.0% $
1,144,849
100.0% $
100.0% $
726,719
325,523
100.0% $
1,027,830
100.0% $
510,972
0.6%
0.4%
0.4%
0.4%
0.5%
0.3%
0.4%
0.4%
0.2%
0.1%
0.6%
0.3%
0.7%
0.6%
0.4%
0.7%
0.5%
—%
0.3%
0.6%
0.4%
0.2%
0.5%
0.3%
15.0%
203
97.8% $
30,680,007
16.3%
0.2%
0.6%
1.1%
0.7%
0.4%
0.3%
0.3%
0.4%
0.3%
0.5%
0.3%
0.3%
1
5
13
1
1
40
1
2
1
24
25
1
100.0% $
424,236
100.0% $
1,080,446
95.0% $
2,536,759
100.0% $
983,469
100.0% $
1,078,716
100.0% $
100.0% $
100.0% $
100.0% $
88.0% $
90.6% $
858,606
622,078
718,380
600,876
977,928
575,550
100.0% $
993,003
0.2%
0.6%
1.4%
0.5%
0.6%
0.5%
0.3%
0.4%
0.3%
0.5%
0.3%
0.5%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9.82
15.14
7.73
16.85
8.64
—
6.63
14.72
15.02
11.02
7.65
8.06
9.85
8.19
8.57
11.06
6.61
14.19
12.34
9.68
8.22
8.52
11.08
10.93
14.64
Property Address
City
280 West Bonita
Avenue
2743 Thompson
Creek Road
3880 West Valley
Blvd.
Pomona
Pomona
Pomona
16425 Gale Avenue City of Industry
10750-10826
Lower Azusa Road El Monte
14748-14750
Nelson Avenue (6)
City of Industry
Los Angeles - San Gabriel Valley
Total
Los Angeles - Central
6020 Sheila Street
5300 Sheila Street
6100 Sheila Street
6700 S Alameda
Street
679-691 S
Anderson Street
Commerce
Commerce
Commerce
Huntington Park
Los Angeles
1825-1845 S Soto
Street
Los Angeles
8542 Slauson
Avenue
8315 Hanan Way
Pico Rivera
Pico Rivera
1938-1946 E. 46th
Street
Vernon
Los Angeles - Central Total
Los Angeles - Mid-Counties
16221 Arthur Street Cerritos
16010 Shoemaker
Avenue
Cerritos
16121 Carmenita
Road
Cerritos
9220-9268 Hall Rd. Downey
14820-14830
Carmenita Road (6)
Norwalk
Santa Fe
Springs
9615 Norwalk
Blvd. (6)
9641 - 9657 Santa
Fe Springs Rd.
10701-10719
Norwalk Blvd.
10950 Norwalk
Blvd & 12241
Lakeland Rd.
12247 Lakeland
Road
12907 Imperial
Highway
14944, 14946,
14948 Shoemaker
Ave.
Santa Fe
Springs
Santa Fe
Springs
Santa Fe
Springs
Santa Fe
Springs
Santa Fe
Springs
Santa Fe
Springs
Number of
Buildings
Asset Type
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
119,898
245,961
108,550
325,800
79,050
201,990
0.6%
1.2%
0.5%
1.5%
0.4%
0.9%
2,243,183
10.5%
100.0% $
820,102
100.0% $
1,520,039
100.0% $
939,175
100.0% $
1,692,675
100.0% $
828,455
85.6% $
2,382,095
0.4%
0.8%
0.5%
0.9%
0.4%
1.3%
97.4% $
19,632,588
10.4%
1
1
1
1
4
2
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
36
1
1
1
1
1
2
1
1
Cold Storage /
Distribution
Warehouse /
Distribution
Cold Storage /
Distribution
Cold Storage /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Excess Land
Warehouse /
Distribution
Warehouse / Light
Manufacturing
3
12
1
1
1
1
3
2
4
2
1
1
1
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Excess Land
Warehouse /
Excess Land
Warehouse /
Distribution
1983
1983
1980 / 2017
1976
1975
1969
2000
1975
1960
1990 / 2008
1992 / 2017
1993
1964
1976
1961, 1983 /
2008-2010
1979
1985
1969/1983
2008
1970, 2000
1975
70,877
695,120
74,527
78,280
47,490
25,040
24,679
100,692
190,663
1,307,368
61,372
115,600
108,500
176,405
198,062
38,362
1982 / 2009
106,995
2004
1982
1971 / 2016
58,056
18,995
24,875
1997
101,080
1
1
1
2
13
11
144
1
1
7
1
3
1
1
1
3
19
1
1
1
38
4
1
4
5
1
1
1
0.3%
3.3%
0.3%
0.4%
0.2%
0.1%
0.1%
0.5%
0.9%
6.1%
0.3%
0.5%
0.5%
0.8%
0.9%
0.2%
0.5%
0.3%
0.1%
0.1%
0.5%
100.0% $
1,068,799
100.0% $
5,213,400
100.0% $
1,171,035
100.0% $
1,180,434
100.0% $
100.0% $
100.0% $
100.0% $
100.0% $
100.0% $
581,104
216,424
244,155
749,148
1,605,701
12,030,200
100.0% $
100.0% $
89.1% $
374,455
812,522
753,870
100.0% $
1,791,367
100.0% $
1,800,919
68.7% $
1,021,070
100.0% $
1,009,182
100.0% $
576,575
100.0% $
100.0% $
100.0% $
334,374
338,846
728,988
3
Warehouse / Light
Manufacturing
1978 / 2012
85,950
0.4%
24
100.0% $
820,900
32
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6.84
6.18
8.65
5.20
10.48
13.78
8.99
15.08
7.50
15.71
15.08
12.24
8.64
9.89
7.44
8.42
9.20
6.10
7.03
7.80
10.15
9.09
38.73
9.43
9.93
17.60
13.62
7.21
9.55
0.6%
2.8%
0.6%
0.6%
0.3%
0.1%
0.1%
0.4%
0.9%
6.4%
0.2%
0.4%
0.4%
1.0%
1.0%
0.5%
0.5%
0.3%
0.2%
0.2%
0.4%
0.4%
Property Address
City
10747 Norwalk
Blvd.
Santa Fe
Springs
Los Angeles - Mid-Counties Total
Los Angeles - South Bay
1065 E. Walnut
Ave.
18118-18120 S.
Broadway
17000 Kingsview
Ave/800 Sandhill
Ave
263-321 Gardena
Blvd
1420 Mckinley
Avenue
Carson
Carson
Carson
Carson
Compton
13225 S. Western
Avenue
Gardena
240 W Ivy Avenue
687 N Eucalyptus
Avenue
Inglewood
Inglewood
1661 240th St.
11120, 11160,
11200 Hindry Ave
15401 S. Figueroa
Street (6)
4175 E Conant
Street
Los Angeles
Los Angeles
Los Angeles
Long Beach
1580 Carson Street
(6)
Long Beach
2588 & 2605
Industry Way
Lynwood
6423-6431 & 6407-
6119 Alondra Blvd. Paramount
7110 Rosecrans
Ave. (6)
Paramount
2301-2329, 2331-
2359, 2361-2399,
2370-2398 & 2332-
2366 E Pacifica
Place; 20001-20021
Rancho Way
19402 S. Susana
Road
20920-20950
Normandie Ave.
24105 Frampton
Avenue
1500-1510 W.
228th St.
3100 Fujita Street
301-445 Figueroa
Street
Rancho
Dominguez
Rancho
Dominguez
Torrance
Torrance
Torrance
Torrance
Wilmington
Los Angeles - South Bay Total
Orange County - North
Number of
Buildings
Asset Type
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Warehouse /
Distribution
1
22
1999
52,691
1,146,943
0.3%
5.4%
3
85
100.0% $
97.9% $
487,647
10,850,715
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
1
3
1
2
1
1
1
1
1
3
1
1
1
2
2
1
6
1
2
1
8
1
Cold Storage /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Excess Land
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Excess Land
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
1
43
1974
172,420
1957 / 1989,
2017
78,183
1984
100,121
1977 - 1982
2017
1955
1981
2017
1975 / 1995
1992 / 1994
1964
2015
1982
55,238
136,685
21,010
45,685
143,436
96,616
63,654
38,584
142,593
43,787
1969 / 1971
164,662
1986
1972 / 2015
30,224
73,439
1989
1957
1989
1974 / 2016
1963 / 1968,
2017
1970
1972 / 2018
1,149,794
15,433
49,519
49,841
88,971
91,516
133,650
2,985,061
33
0.8%
0.4%
0.5%
0.3%
0.6%
0.1%
0.2%
0.7%
0.5%
0.3%
0.2%
0.7%
0.2%
0.8%
0.1%
0.3%
5.4%
0.1%
0.2%
0.2%
0.4%
0.4%
0.6%
14.0%
2
5
2
2
1
1
2
1
1
14
—
1
—
1
10
2
20
1
29
1
11
1
12
120
100.0% $
2,070,684
100.0% $
740,637
100.0% $
100.0% $
864,788
846,240
100.0% $
1,377,785
100.0% $
39.4% $
179,005
238,380
100.0% $
2,251,747
100.0% $
691,536
100.0% $
1,027,387
—% $
—
100.0% $
1,951,874
—% $
—
100.0% $
1,435,487
100.0% $
100.0% $
313,683
590,084
86.0% $
6,937,601
100.0% $
100.0% $
100.0% $
100.0% $
100.0% $
100.0% $
90.9% $
243,600
657,259
431,471
886,604
721,773
1,554,860
26,012,485
13.8%
0.3%
5.8%
1.1%
0.4%
0.5%
0.5%
0.7%
0.1%
0.1%
1.2%
0.4%
0.5%
—%
1.0%
—%
0.8%
0.2%
0.3%
3.7%
0.1%
0.3%
0.2%
0.5%
0.4%
0.8%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9.25
9.66
12.01
9.47
8.64
15.32
10.08
8.52
13.24
15.70
7.16
16.14
—
13.69
—
8.72
10.38
8.04
7.02
15.78
13.27
8.66
9.97
7.89
11.63
9.59
Property Address
City
1100-1170 Gilbert
St. & 2353-2373 La
Palma Ave.
Anaheim
1631 N. Placentia
Ave., 2350 - 2384
E. Orangethorpe
Ave.
5235 East Hunter
Ave.
Anaheim
Anaheim
1210 N Red Gum St Anaheim
1190 Stanford Court Anaheim
2300-2386 East
Walnut Ave.
Fullerton
1600 Orangethorpe
& 1335-1375
Acacia
5593-5595 Fresca
Drive
1581 Main Street
Fullerton
La Palma
Orange
Orange County - North Total
Orange County - West
1700 Saturn Way
17311 Nichols Lane
5421 Argosy
Avenue
Seal Beach
Huntington
Beach
Huntington
Beach
12131 Western
Avenue
12622-12632
Monarch Street
Garden Grove
Garden Grove
Orange County - West Total
Orange County - South
20531 Crescent Bay
Dr.
Lake Forest
20 Icon
9 Holland
Lake Forest
Irvine
Orange County - South Total
Orange County - Airport
1601 Alton Pkwy.
3441 West
MacArthur Blvd.
600-650 South
Grand Ave.
3720-3750 W.
Warner Ave.
2610 & 2701 S.
Birch Street
2700‐2722 South
Fairview Street (6)
Irvine
Santa Ana
Santa Ana
Santa Ana
Santa Ana
Santa Ana
Number of
Buildings
Asset Type
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
6
Warehouse / Light
Manufacturing
1972 / 1990 /
2013
121,362
0.6%
2
1
1
1
3
5
1
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
1
21
1973 / 2007
62,395
1987
1985
1979
1985-1986 /
2005
119,692
64,570
34,494
161,286
1968 / 1985
345,756
1973
1994
115,200
39,661
1,064,416
1
1
1
1
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
2
6
2006
170,865
1993 / 2014
114,912
1976
35,321
1987 / 2007,
2017
1967
207,953
121,225
650,276
1
1
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1
3
1998
46,178
1999 / 2015
102,299
1980 / 2013
180,981
329,458
1
1
6
1
1
1
Light Industrial /
Office
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse / Light
Manufacturing
1974 / 2018
124,988
1973
1988
1973 / 2008
1965 / 2016
122,060
101,210
38,570
98,379
1964 / 1984
116,575
34
0.3%
0.6%
0.3%
0.2%
0.7%
1.6%
0.5%
0.2%
5.0%
0.8%
0.5%
0.2%
1.0%
0.6%
3.1%
0.2%
0.5%
0.8%
1.5%
0.6%
0.6%
0.5%
0.2%
0.4%
0.5%
20
30
2
1
1
15
9
2
1
81
1
1
1
1
3
7
1
1
2
4
4
1
57
14
3
2
92.7% $
1,464,564
94.6% $
90.2% $
100.0% $
100.0% $
778,155
896,418
466,572
289,231
92.1% $
1,477,719
95.7% $
2,627,838
100.0% $
100.0% $
95.1% $
854,388
353,376
9,208,261
100.0% $
1,516,293
100.0% $
100.0% $
920,488
318,270
100.0% $
1,871,577
100.0% $
100.0% $
950,377
5,577,005
100.0% $
473,731
100.0% $
1,211,184
100.0% $
100.0% $
1,379,988
3,064,903
87.3% $
1,195,159
100.0% $
901,274
93.7% $
1,196,798
100.0% $
470,228
100.0% $
1,141,934
49.6% $
614,415
0.8%
0.4%
0.5%
0.2%
0.1%
0.8%
1.4%
0.5%
0.2%
4.9%
0.8%
0.5%
0.2%
1.0%
0.5%
3.0%
0.3%
0.6%
0.7%
1.6%
0.6%
0.5%
0.6%
0.3%
0.6%
0.3%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.02
13.18
8.30
7.23
8.38
9.95
7.95
7.42
8.91
9.09
8.87
8.01
9.01
9.00
7.84
8.58
10.26
11.84
7.63
9.30
10.95
7.38
12.63
12.19
11.61
10.63
Property Address
City
15777 Gateway
Circle
Tustin
Orange County - Airport Total
San Bernardino - Inland Empire West
13971 Norton
Avenue
13231 Slover
Avenue
10509 Business
Drive
1400 S. Campus
Ave.
Chino
Fontana
Fontana
Ontario
601-605 S. Milliken
Ave.
Ontario
845, 855, 865 S
Milliken Ave &
4317, 4319 Santa
Ana St.
710 South Dupont
Avenue & 4051
Santa Ana Street
Safari Business
Park (7)
3002-3008, 3022-
3030, 3042-3050 &
3062-3072 Inland
Empire Boulevard
302 Rockefeller
Avenue
Ontario
Ontario
Ontario
Ontario
Ontario
4355 Brickell Street Ontario
1900 Proforma
Avenue
Ontario
9160 - 9220
Cleveland Ave.,
10860 6th St.
9805 6th St.
10700 Jersey Blvd.
15996 Jurupa
Avenue
11127 Catawba
Avenue
11190 White Birch
Drive
12320 4th Street
Rancho
Cucamonga
Rancho
Cucamonga
Rancho
Cucamonga
Fontana
Fontana
Rancho
Cucamonga
Rancho
Cucamonga
Number of
Buildings
Asset Type
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
Warehouse / Light
Manufacturing
1
12
2005
37,592
639,374
0.2%
3.0%
1
1
1
2
3
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1990
1990
1989
Warehouse / Light
Manufacturing
Light Industrial /
Office
1964-1966,
1973, 1987
1987 / 1988
103,208
109,463
130,788
107,861
128,313
5
Light Industrial /
Office
1985
113,612
2
Warehouse /
Distribution
16
Warehouse /
Distribution
2001
111,890
1988-1996
1,136,156
4
1
1
1
3
2
7
1
1
1
2
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Light
Manufacturing /
Flex
Warehouse /
Distribution
Light Industrial /
Office
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1981
2000
2004
1989
1988-1989 /
2006
1986
1988-1989
2015
2015
1986
1997/2003
218,407
99,282
95,644
135,360
129,309
81,377
107,568
212,660
145,750
201,035
284,676
0.5%
0.5%
0.6%
0.5%
0.6%
0.5%
0.5%
5.3%
1.0%
0.5%
0.5%
0.6%
0.6%
0.4%
0.5%
1.0%
0.7%
1.0%
1.4%
1
82
1
2
2
1
25
19
5
81
9
1
1
11
4
4
58
1
1
1
1
100.0% $
87.3% $
405,994
5,925,802
100.0% $
100.0% $
100.0% $
100.0% $
495,398
675,179
910,759
504,789
95.8% $
1,178,760
86.6% $
776,928
100.0% $
967,650
96.3% $
9,424,655
88.0% $
1,344,455
100.0% $
100.0% $
687,190
700,114
100.0% $
1,201,962
79.5% $
1,667,430
100.0% $
713,667
100.0% $
1,235,539
100.0% $
1,162,883
100.0% $
797,871
100.0% $
1,061,460
100.0% $
1,273,358
0.2%
3.1%
0.3%
0.3%
0.5%
0.3%
0.6%
0.4%
0.5%
5.0%
0.7%
0.4%
0.4%
0.6%
0.9%
0.4%
0.6%
0.6%
0.4%
0.6%
0.7%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10.80
10.61
4.80
6.17
6.96
4.68
9.58
7.90
8.65
8.62
7.00
6.92
7.32
8.88
16.22
8.77
11.49
5.47
5.47
5.28
4.47
7.57
San Bernardino - Inland Empire
West Total
55
3,652,359
17.2%
228
96.8% $
26,780,047
14.2%
San Bernardino - Inland Empire East
6750 Unit C - 6780
Central Ave.
Riverside
3
Warehouse / Light
Manufacturing
1978
51,867
0.2%
Ventura County
300 South Lewis
Rd.
Camarillo
3233 Mission Oaks
Blvd (6)
Camarillo
1
2
Warehouse /
Distribution
Warehouse /
Distribution
1960-1963 /
2006
1980-1982 /
2014, 2018
215,128
461,210
1.0%
2.2%
35
5
8
7
100.0% $
344,942
0.2%
$
6.65
91.5% $
1,720,007
72.9% $
2,875,657
0.9%
1.5%
$
$
8.74
8.56
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
Property Address
City
201 Rice Ave. &
2400-2420 Celsius
Oxnard
610-760 W
Hueneme Rd &
5651-5721 Perkins
Rd
Oxnard
1800 Eastman Ave Oxnard
2220-2260 Camino
del Sol
Oxnard
2350-2380
Eastman Ave
2360-2364 E.
Sturgis Road
3000 Paseo
Mercado, 3120-
3150 Paseo
Mercado
701 Del Norte
Blvd.
Oxnard
Oxnard
Oxnard
Oxnard
2950 Madera Rd.
21-29 West Easy
St.
Simi Valley
Simi Valley
2390 Ward Avenue Simi Valley
1998 Surveyor
Avenue (6)
Simi Valley
Number of
Buildings
Asset Type
3
Warehouse / Light
Manufacturing
2
1
1
4
3
5
1
1
5
1
1
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Warehouse /
Distribution
Warehouse /
Distribution
851 Lawrence
Drive (6)
Thousand Oaks
Ventura County Total
Warehouse /
Distribution
1
32
2008
137,785
0.6%
1985
2009
2005
2003
1989
1988
2000
87,181
33,332
69,891
55,321
49,641
132,187
125,514
1988 / 2005
136,065
1991 / 2006
102,530
1989
2018
1968
138,700
—
49,976
1,794,461
0.4%
0.2%
0.3%
0.3%
0.2%
0.6%
0.6%
0.6%
0.5%
0.7%
—%
0.2%
8.4%
21
23
1
2
26
16
24
15
1
18
2
98.5% $
1,308,214
100.0% $
100.0% $
100.0% $
96.4% $
95.4% $
956,170
247,200
518,675
587,999
459,179
100.0% $
1,212,797
95.8% $
1,132,740
100.0% $
866,013
100.0% $
1,178,498
100.0% $
1,015,836
—
—
164
—% $
—% $
88.6% $
—
—
14,078,985
San Diego - North County
6200 & 6300
Yarrow Dr.
Carlsbad
2431-2465 Impala
Dr.
Carlsbad
6231 & 6241
Yarrow Dr.
Carlsbad
5803 Newton Dr.
6131-6133
Innovation Way
3927 Oceanic
Drive
Carlsbad
Carlsbad
Oceanside
1332-1340 Rocky
Point Drive (6)
Oceanside
4039 Calle Platino Oceanside
660-664 Twin Oaks
Valley Road
San Marcos
929, 935, 939 &
951 Poinsettia Ave. Vista
2575 Pioneer Ave.
Vista
San Diego - North County Total
San Diego -
Central
2
Warehouse / Light
Manufacturing
1977-1988 /
2006
151,433
0.7%
Light
Manufacturing /
Flex
Warehouse / Light
Manufacturing
Light
Manufacturing /
Flex
1983 / 2006
1977 / 2006
1997-1999 /
2009
89,955
80,441
71,602
114,572
54,740
73,747
143,274
2017
2004
2009
2004
7
2
1
2
1
3
1
2
4
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1978 - 1988
96,993
Warehouse / Light
Manufacturing
1989 / 2007
121,892
Warehouse / Light
Manufacturing
1
26
1988 / 2006
68,935
1,067,584
36
4
9
7
4
3
1
1
4
2
9
7
51
100.0% $
1,580,268
93.3% $
1,251,889
100.0% $
845,910
100.0% $
71.9% $
100.0% $
30.7% $
802,267
947,910
575,098
196,106
100.0% $
1,276,133
100.0% $
883,327
100.0% $
1,117,812
92.8% $
91.2% $
624,169
10,100,889
0.4%
0.4%
0.3%
0.5%
0.3%
0.3%
0.7%
0.5%
0.6%
0.3%
5.0%
0.7%
0.5%
0.1%
0.3%
0.3%
0.3%
0.7%
0.6%
0.5%
0.6%
0.5%
—%
—%
7.5%
0.8%
0.7%
0.4%
0.4%
0.5%
0.3%
0.1%
0.7%
0.5%
0.6%
0.3%
5.3%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9.64
10.97
7.42
7.42
11.03
9.69
9.17
9.42
6.36
11.49
7.32
—
—
8.86
10.44
14.91
10.52
11.20
11.51
10.51
8.65
8.91
9.11
9.17
9.76
10.38
Property Address
City
12720-12860
Danielson Ct.
Poway
8902-8940 Activity
Rd
San Diego
6970-7170 & 7310-
7374 Convoy Ct.
San Diego
9340 Cabot Drive
9404 Cabot Drive
9455 Cabot Drive
9755 Distribution
Ave.
9855 Distribution
Ave
10439-10477
Roselle St.
San Diego
San Diego
San Diego
San Diego
San Diego
San Diego
8525 Camino Santa
Fe
San Diego
13550 Stowe Drive
San Diego
9190 Activity Road San Diego
San Diego - Central Total
San Diego - South County
131 W. 33rd St.
National City
Consolidated
Portfolio - Total /
Weighted Average 176 Properties
Year Built /
Renovated (1)
Rentable
Square Feet
Percentage of
Rentable
Square Feet (2)
Number
of Leases Occupancy
Annualized
Base Rent (3)
Percentage of
Total
Annualized Base
Rent (4)
Total
Annualized
Base Rent per
Square Foot
(5)
Number of
Buildings
Asset Type
6
5
Warehouse / Light
Manufacturing
Light Industrial /
Office
13
Warehouse /
Distribution
1
1
1
1
1
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1999
1987 / 1997
1971
1975 / 1976
1975 / 1976
1975 / 1976
1974
1983
10
Warehouse / Light
Manufacturing
1970 / 2007
1
1
Warehouse /
Distribution
Warehouse /
Distribution
Warehouse /
Distribution
1
42
1986
1991
1986
112,062
112,501
187,763
86,564
46,846
96,840
47,666
60,819
97,967
59,399
112,000
83,520
1,103,947
0.5%
0.5%
0.9%
0.4%
0.2%
0.5%
0.2%
0.3%
0.5%
0.3%
0.5%
0.4%
5.2%
16
38
52
4
1
2
2
2
47
4
1
1
170
93.0% $
1,161,798
100.0% $
1,753,330
99.3% $
2,956,230
100.0% $
100.0% $
100.0% $
100.0% $
100.0% $
893,192
497,133
877,792
436,737
618,715
100.0% $
1,512,036
100.0% $
600,860
100.0% $
1,174,896
100.0% $
99.2% $
839,988
13,322,707
0.6%
0.9%
1.6%
0.5%
0.3%
0.5%
0.2%
0.3%
0.8%
0.3%
0.6%
0.5%
7.1%
$
$
$
$
$
$
$
$
$
$
$
$
$
11.15
15.59
15.85
10.32
10.61
9.06
9.16
10.17
15.43
10.12
10.49
10.06
12.17
2
Warehouse / Light
Manufacturing
1969 / 2008
76,701
0.4%
12
93.3% $
689,746
0.4%
$
9.64
372
21,295,443
100.0%
1,375
95.4% $ 188,299,282
100.0%
$
9.27
(1) Year renovated reflects the most recent year in which a material upgrade, alteration or addition to building systems was completed, resulting in increased
marketability of the property.
(2) Calculated as rentable square feet for such property divided rentable square feet for the total consolidated portfolio as of December 31, 2018 .
(3) Calculated as monthly contracted base rent (before rent abatements) per the terms of the lease(s) at such property, as of December 31, 2018 , multiplied by 12.
Excludes billboard and antenna revenue and tenant reimbursements.
(4) Calculated as annualized base rent for such property divided by annualized base rent for the total consolidated portfolio as of December 31, 2018 .
(5) Calculated as annualized base rent for such property divided by occupied square feet for such property as of December 31, 2018 .
(6) This property is undergoing repositioning, redevelopment, or lease-up as of December 31, 2018 , or is expected to be placed under repositioning in 2019.
(7) Safari Business Park consists of 16 buildings with the following addresses: 1845, 1885, 1901-1957 and 2037-2077 Vineyard Avenue; 1906-1946 and 2048-
2058 Cedar Street; 1900-1956, 1901-1907, 1911-1951, 2010-2020 and 2030-2071 Lynx Place; 1810, 1840-1898, 1910-1960 and 2030-2050 Carlos Avenue;
2010-2057 and 2060-2084 Francis Street.
37
Property Diversification
The following table sets forth information relating to diversification by property type in our portfolio based on total annualized rent as of December 31,
2018 .
Property Type
Warehouse /
Distribution
Warehouse / Light
Manufacturing
Light Industrial / Office
(5)
Light Manufacturing /
Flex
Cold Storage /
Distribution
Warehouse / Excess
Land
Total / Weighted
Average
Number of
Properties
Occupancy (1)
Rentable
Square Feet
Percentage of
Total Rentable
Square Feet
Annualized
Base
Rent (2)
Percentage of
Total
Annualized
Base Rent (3)
Annualized
Base Rent per
Square Foot (4)
96
58
7
6
4
5
95.0%
14,757,480
69.3% $
119,174
63.3% $
96.4%
4,825,163
22.7%
46,138
24.5% $
8.50
9.92
94.7%
711,153
3.3%
8,995
4.8% $
13.35
93.0%
466,323
2.2%
6,495
3.4% $
14.97
100.0%
396,104
1.9% $
5,491
2.9% $
13.86
100.0%
139,220
0.6% $
2,007
1.1% $
14.42
176
95.4%
21,295,443
100.0% $
188,299
100.0% $
9.27
(1) Calculated as the average occupancy at such properties as of December 31, 2018 .
(2) Calculated for each property as the monthly contracted base rent (before rent abatements) per the terms of the lease(s) at such property, as of December 31,
2018 , multiplied by 12, and then aggregated by property type. Excludes billboard and antenna revenue and tenant reimbursements. Amounts in thousands.
(3) Calculated for each property type as annualized base rent for such property type divided by annualized base rent for the total consolidated portfolio as of
December 31, 2018 .
(4) Calculated for each property type as annualized base rent for such property type divided by occupied square feet for such property type as of December 31,
2018 .
Includes West Alameda Avenue with 44,924 rentable square feet that is classified as Creative Office.
(5)
Uncommenced Leases
Uncommenced leases as of December 31, 2018 , reflect signed new and renewal leases that have not yet commenced as of December 31, 2018
. Differences between our occupancy rates and leased rates as disclosed throughout this Annual Report on Form 10-K, are attributed to our uncommenced
leases. The following table sets forth information relating to our uncommenced leases as of December 31, 2018 .
Uncommenced
Renewal Leases:
Leased Square
Feet (1)
Uncommenced
New Leases:
Leased Square
Feet (2)
Percent Leased
(3)
Annualized
Base Rent (4)
Annualized Base
Rent:
Uncommenced
Leases (5)
Annualized Base
Rent
(Commenced and
Uncommenced
Leases) (6)
Annualized Base
Rent
(Commenced and
Uncommenced
Leases)
per Leased Square
Foot (7)
492,937
17,516
102,189
147,199
77,093
—
—
96.1% $
99,206 $
95.1%
23,776
26,506
—
5,266
97.6%
95.2%
88.9%
27,125
24,113
14,079
634 $
19
563
101
161
99,840 $
23,795 $
27,688 $
24,214 $
14,240 $
836,934
31,772
95.5% $
188,299 $
1,478 $
189,777 $
9.56
9.33
7.66
11.32
8.93
9.33
Market
Los Angeles
County
Orange County
San Bernardino
County
San Diego County
Ventura County
Total/Weighted
Average
(1) Represents the square footage of renewal leases that have been signed but have not yet commenced as of December 31, 2018 .
(2) Represents the square footage of new leases that have been signed but have not yet commenced as of December 31, 2018 .
(3) Calculated as square footage under commenced and uncommenced leases (net of renewal space) as of December 31, 2018 , divided by total rentable square
feet.
38
(4) Represents annualized base rent for leases that have commenced as of December 31, 2018 , at each property (calculated as monthly contracted base rent
(before rent abatements) per the terms of the lease(s) at such property, as of December 31, 2018 , multiplied by 12), aggregated by market. Excludes billboard
and antenna revenue and tenant reimbursements. Amounts in thousands.
(5) Annualized base rent from uncommenced leases includes: (i) $333,000 of annualized base rent under uncommenced new leases (calculated by multiplying the
first full month of contractual base rents (before rent abatements) to be received under uncommenced new leases, by 12) and (ii) $1,145,000 of incremental
annualized base rent under uncommenced renewal leases (calculated as the difference between (a) the first full month of contractual base rents (before rent
abatements) to be received under uncommenced renewal leases and (b) the monthly contracted base rents under commenced leases (for the same space) as of
December 31, 2018 , multiplied by 12.). Amounts in thousands.
(6) Calculated by adding annualized base rent for commenced leases (as described in note (4) above) and annualized base rent from uncommenced leases (as
described in note (5) above). Amounts in thousands.
(7) Calculated by dividing annualized base rent from commenced leases and uncommenced leases (as described in note (6) above), by leased square footage under
commenced and uncommenced leases (net of renewal space) as of December 31, 2018 .
39
Geographic Diversification
The following table sets forth information relating to geographic diversification by county and submarket in our portfolio based on total annualized base
rent as of December 31, 2018 .
Market
Los Angeles County
Central LA
Greater San Fernando
Valley
Mid-Counties
San Gabriel Valley
South Bay
Subtotal / Weighted
Average
Orange County
North Orange County
OC Airport
South Orange County
West Orange County
Subtotal / Weighted
Average
San Bernardino County
Inland Empire East
Inland Empire West
Subtotal / Weighted
Average
Ventura County
Ventura
Subtotal / Weighted
Average
San Diego County
Central San Diego
North County San Diego
South County San Diego
Subtotal / Weighted
Average
Consolidated Portfolio -
Total / Weighted Average
Number of
Properties
Occupancy (1)
Rentable
Square Feet
Percentage of
Total Rentable
Square Feet
Annualized
Base
Rent (2)
Percentage of
Total Annualized
Base Rent (3)
Annualized
Base Rent per
Square Foot (4)
9
30
13
18
23
93
9
7
3
5
24
1
19
20
15
15
12
11
1
24
100.0%
1,307,368
6.1% $
12,030
6.4% $
97.8%
3,182,445
97.9%
1,146,943
97.4%
2,243,183
90.9%
2,985,061
15.0%
5.4%
10.5%
14.0%
30,680
10,851
19,633
26,012
16.3% $
5.8% $
10.4% $
13.8% $
96.1%
10,865,000
51.0% $
99,206
52.7% $
95.1%
1,064,416
5.0% $
87.3%
100.0%
100.0%
639,374
329,458
650,276
3.0%
1.5%
3.1%
9,208
5,926
3,065
5,577
4.9% $
3.1% $
1.6% $
3.0% $
95.1%
2,683,524
12.6% $
23,776
12.6% $
100.0%
51,867
96.8%
3,652,359
0.2% $
17.2%
345
26,780
0.2% $
14.2% $
96.9%
3,704,226
17.4% $
27,125
14.4% $
88.6%
1,794,461
8.4% $
14,079
7.5% $
88.6%
1,794,461
8.4% $
14,079
7.5% $
99.2%
1,103,947
91.2%
1,067,584
93.3%
76,701
5.2% $
5.0%
0.4%
13,322
10,101
690
7.1% $
5.3% $
0.4% $
9.20
9.85
9.66
8.99
9.59
9.50
9.09
10.61
9.30
8.58
9.32
6.65
7.57
7.56
8.86
8.86
12.17
10.38
9.64
95.2%
2,248,232
10.6% $
24,113
12.8% $
11.27
176
95.4%
21,295,443
100.0% $
188,299
100.0% $
9.27
(1) Calculated as the average occupancy at such properties as of December 31, 2018 .
(2) Represents annualized base rent for each property (calculated as monthly contracted base rent (before rent abatements) per the terms of the lease(s) at such
property, as of December 31, 2018 , multiplied by 12), aggregated by market. Excludes billboard and antenna revenue and tenant reimbursements. Amounts in
thousands.
(3) Calculated as annualized base rent for such market divided by annualized base rent for the total consolidated portfolio as of December 31, 2018 .
(4) Calculated as annualized base rent for such market divided by occupied square feet for such market as of December 31, 2018 .
40
Industry Diversification
The following table sets forth information relating to tenant diversification by industry in our portfolio based on total annualized base rent as of
December 31, 2018 .
Industry
Wholesale Trade
Warehousing
Manufacturing
Retail Trade
Transportation Services
Professional, Scientific, and Technical
Services
Construction
Other
Administrative and Support and Waste
Management and Remediation Services
Information
Public Administration
Repair and Maintenance
Paper/Printing
Health Care and Social Assistance
Arts, Entertainment, and Recreation
Real Estate
Number
of Leases (1)
Occupied
Square Feet
Percentage of
Total Occupied
Square Feet
Annualized
Base
Rent (2)
Percentage of
Total Annualized
Base Rent (3)
Annualized
Base Rent per
Square
Foot (4)
310
309
139
120
37
100
108
70
50
35
8
33
11
20
20
5
4,921,196
4,499,868
3,162,554
2,346,714
1,088,891
880,690
581,581
550,584
593,595
345,140
236,283
315,475
319,168
239,537
131,198
97,771
24.2% $
22.2%
15.6%
11.5%
5.4%
4.3%
2.9%
2.7%
2.9%
1.7%
1.2%
1.5%
1.6%
1.2%
0.6%
0.5%
43,575
39,284
26,934
19,819
11,520
10,496
6,279
5,705
5,597
4,669
3,439
3,325
2,755
2,386
1,647
869
23.1% $
20.9% $
14.3% $
10.5% $
6.1% $
5.6% $
3.3% $
3.0% $
3.0% $
2.5% $
1.8% $
1.8% $
1.5% $
1.3% $
0.9% $
0.4% $
8.85
8.73
8.52
8.45
10.58
11.92
10.80
10.36
9.43
13.53
14.55
10.54
8.63
9.96
12.55
8.89
9.27
Total / Weighted Average
1,375
20,310,245
100.0% $
188,299
100.0% $
(1) A single lease may cover space in more than one building.
(2) Calculated for each lease as the monthly contracted base rent (before rent abatements) per the terms of such lease, as of December 31, 2018 , multiplied by 12,
and then aggregated by industry. Excludes billboard and antenna revenue. Amounts in thousands.
(3) Calculated as annualized base rent for tenants in such industry divided by annualized base rent for the total consolidated portfolio as of December 31, 2018 .
(4) Calculated as annualized base rent for tenants in such industry divided by occupied square feet for tenants in such industry as of December 31, 2018 .
Tenants
Our portfolio of properties has a stable and diversified tenant base. As of December 31, 2018 , our consolidated properties were 95.5% leased to tenants in
a variety of industries, with no single tenant accounting for more than 2.8% of our total annualized base rent. Our average lease size is approximately 15,000
square feet, and approximately 49% of our total leased square feet consists of leases that are less than 50,000 square feet each. Our 10 largest tenants combined
account for 11.9% of our annualized base rent as of December 31, 2018 . We intend to continue to maintain a diversified mix of tenants in order to limit our
exposure to any single tenant or industry.
41
The following table sets forth information about the 10 largest tenants in our portfolio based on total annualized base rent as of December 31, 2018 .
Tenant
Submarket
Occupied
Square Feet
Percentage of
Total Occupied
Square Feet
Annualized
Base Rent (1)
Percentage of
Total
Annualized
Base
Rent (2)
Annualized
Base Rent per
Square
Foot (3)
Lease
Expirations
Unified Natural Foods,
Inc.
Federal Express
Corporation
32 Cold, LLC
Central LA
695,120
3.4% $
5,213
2.8% $
7.50
5/8/2038
South Bay
Central LA
173,596
149,157
0.9%
0.7%
2,476
2,249
1.3% $
1.2% $
14.26
15.08
11/30/2032 (4)
3/31/2026 (5)
Cosmetic Laboratories of
America, LLC
Greater San Fernando
Valley
319,348
1.6%
2,005
1.1% $
6.28
6/30/2020
Triscenic Production
Services, Inc.
Universal Technical
Institute of Southern
California, LLC
Southland Industries,
Inc.
Greater San Fernando
Valley
255,303
1.3%
1,984
1.1% $
7.77
3/31/2022 (6)
South Bay
142,593
0.7%
1,952
1.0% $
13.69
8/31/2030
West Orange County
207,953
1.0%
1,872
1.0% $
9.00
5/31/2028
Tesla, Inc.
Warehouse Specialists,
Inc.
Greater San Fernando
Valley
San Gabriel Valley
Dendreon Corporation
West Orange County
Top 10 Tenants
All Other Tenants
Total Consolidated Portfolio
167,425
0.8%
1,526
0.8% $
9.12
8/31/2022 (7)
245,961
170,865
2,527,321
17,782,923
20,310,244
1.2%
0.8%
1,520
1,516
12.4% $
22,313
87.6%
165,986
0.8% $
0.8% $
11.9% $
88.1% $
100.0% $
188,299
100.0% $
6.18
8.87
8.83
9.33
9.27
2/28/2021
12/31/2019
(1) Calculated for each tenant as the monthly contracted base rent (before rent abatements) per the terms of such tenant’s lease as of December 31, 2018 ,
multiplied by 12. Excludes billboard and antenna revenue and tenant reimbursements. Amounts in thousands.
(2) Calculated as annualized base rent for such tenant divided by annualized base rent for the total consolidated portfolio as of December 31, 2018 .
(3) Calculated as annualized base rent for such tenant divided by occupied square feet for such tenant as of December 31, 2018 .
(4)
(5)
(6)
Includes (i) 30,160 rentable square feet expiring September 30, 2027 , and (ii) 143,436 rentable square feet expiring November 30, 2032 .
Includes (i) 78,280 rentable square feet expiring September 30, 2025 , and (ii) 70,877 rentable square feet expiring March 31, 2026 .
Includes (i) 38,766 rentable square feet expiring November 30, 2019 , (ii) 147,318 rentable square feet expiring September 30, 2021 , and (iii) 69,219 rentable
square feet expiring March 31, 2022 .
Includes (i) 21,697 rentable square feet expiring November 30, 2019 , (ii) 16,868 rentable square feet expiring April 30, 2020 , (iii) 20,310 rentable square feet
expiring May 31, 2020 , and (iv) 108,550 rentable square feet expiring August 31, 2022 .
(7)
Leases
Overview
Triple net lease. In our triple net leases, the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term.
The landlord may have responsibility under the lease to perform or pay for certain capital repairs or replacements to the roof, structure or certain building systems,
such as heating and air conditioning and fire suppression. The tenant may have the right to terminate the lease or abate rent due to a major casualty or
condemnation affecting a significant portion of the property or due to the landlord’s failure to perform its obligations under the lease. As of December 31, 2018 ,
there were 258 triple net leases in our consolidated portfolio, representing approximately 57.4% of our total annualized base rent.
42
Modified gross lease. In our modified gross leases, the landlord is responsible for some property-related expenses during the lease term, but a significant
amount of the expenses is passed through to the tenant for reimbursement to the landlord. The tenant may have the right to terminate the lease or abate rent due to a
major casualty or condemnation affecting a significant portion of the property or due to the landlord’s failure to perform its obligations under the lease. As of
December 31, 2018 , there were 934 modified gross leases in our consolidated portfolio, representing approximately 36.0% of our total annualized base rent.
Gross lease. In our gross leases, the landlord is responsible for all aspects of and costs related to the property and its operation during the lease term. The
tenant may have the right to terminate the lease or abate rent due to a major casualty or condemnation affecting a significant portion of the property or due to the
landlord’s failure to perform its obligations under the lease. As of December 31, 2018 , there were 183 gross leases in our consolidated portfolio, representing
approximately 6.6% of our total annualized base rent.
The following table provides information regarding our lease segmentation by size as of December 31, 2018 :
Square Feet
Number of
Leases
Occupied
Square Feet
Percentage of
Total Occupied
Square Feet
Annualized Base
Rent (1)
Percentage of
Total Annualized
Base Rent (2)
Annualized Base
Rent per Square
Foot (3)
<4,999
5,000 - 9,999
10,000 - 24,999
25,000 - 49,999
>50,000
760
197
239
85
94
1,620,113
1,390,173
3,812,433
3,044,084
10,443,441
8.0% $
6.8%
18.8%
15.0%
51.4%
20,567
16,055
40,279
29,070
82,328
10.9% $
8.5% $
21.4% $
15.5% $
43.7% $
Total / Weighted Average
1,375
20,310,244
100.0% $
188,299
100.0% $
12.69
11.55
10.57
9.55
7.88
9.27
(1) Calculated for each lease as the monthly contracted base rent (before rent abatements) per the terms of such lease, as of December 31, 2018 , multiplied by 12,
and then aggregated by square feet. Excludes billboard and antenna revenue and rent abatements. Amounts in thousands.
(2) Calculated as annualized base rent for such leases divided by annualized base rent for the total consolidated portfolio as of December 31, 2018 .
(3) Calculated as annualized base rent for such leases divided by occupied square feet for such leases as of December 31, 2018 .
43
Lease Expirations
As of December 31, 2018 , our weighted average in-place remaining lease term was approximately 3.8 years. The following table sets forth a summary
schedule of lease expirations for leases in place as of December 31, 2018 , plus available space, for each of the 10 full calendar years commencing December 31,
2018 and thereafter in our portfolio. The information set forth in the table assumes that tenants exercise no renewal options and no early termination rights.
Year of Lease Expiration
Vacant (5)
Current Repositioning (6)
MTM Tenants (7)
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Thereafter
Number of
Leases Expiring
Total Rentable
Square
Feet (1)
Percentage of
Total Owned
Square Feet
Annualized Base
Rent (2)
Percentage of
Total Annualized
Base Rent (3)
Annualized Base
Rent per Square
Foot (4)
—
—
68
22
306
350
292
145
121
33
11
8
7
12
694,890
290,309
78,064
201,741
2,751,675
4,179,390
4,855,514
2,322,507
2,162,941
1,047,789
269,578
409,574
252,538
1,778,933
3.3% $
1.4%
0.4%
0.9%
12.9%
19.6%
22.8%
10.9%
10.2%
4.9%
1.3%
1.9%
1.2%
8.3%
—
—
1,113
2,104
25,770
36,914
42,597
21,276
23,143
10,064
3,012
4,542
2,499
15,265
188,299
—% $
—% $
0.6% $
1.1% $
13.7% $
19.6% $
22.6% $
11.3% $
12.3% $
5.4% $
1.6% $
2.4% $
1.3% $
8.1% $
100.0% $
—
—
14.26
10.43
9.37
8.83
8.77
9.16
10.70
9.60
11.17
11.09
9.90
8.58
9.27
Total Consolidated Portfolio
1,375
21,295,443
100.0% $
(1) Represents the contracted square footage upon expiration.
(2) Calculated as monthly contracted base rent (before rent abatements) per the terms of such lease, as of December 31, 2018 , multiplied by 12. Excludes
billboard and antenna revenue and rent abatements. Amounts in thousands.
(3) Calculated as annualized base rent set forth in this table divided by annualized base rent for the total portfolio as of December 31, 2018 .
(4) Calculated as annualized base rent for such leases divided by occupied square feet for such leases as of December 31, 2018 .
(5) Represents vacant space (not under repositioning or lease-up) as of December 31, 2018 . Includes leases aggregating 31,772 rentable square feet that have
been signed but had not yet commenced as of December 31, 2018 .
(6) Represents space at seven of our properties that were classified as current repositioning as of December 31, 2018 . Excludes completed repositioning
properties and properties in lease-up. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors
That May Influence Future Results of Operations – Acquisitions and Development of Properties,” of this Annual Report on Form 10-K for additional details
related to these seven properties.
(7) Represents tenants under month-to-month (“MTM”) leases or having holdover tenancy. Includes 59 MTM leases totaling 63,290 rentable square feet at our
property located at 14723-14825 Oxnard Street, where due to the number and the small size of spaces, we typically only enter into MTM leases.
Historical Tenant Improvements and Leasing Commissions
The following table sets forth certain historical information regarding leasing related (revenue generating) tenant improvement and leasing commission
costs for tenants at the properties in our portfolio as follows:
44
2018
2017
2016
Cost (1)
Square Feet
PSF (2)
Cost (1)
Square Feet
PSF (2)
Cost (1)
Square Feet
PSF (2)
The Year Ended December 31,
Tenant Improvements
New Leases - First Generation (3)(4)
$
New Leases - Second Generation (3)(5)
Renewal Leases
730
844
309
406,400 $
1.80 $
1,069
531,101 $
2.01 $
1,474
493,978 $
450,229 $
1.87
439,921 $
0.70
800
596
591,230 $
1.35
2,295
1,182,569 $
504,261 $
1.18
288
377,053 $
Total Tenant Improvements
$
1,883
1,296,550 $
1.45 $
2,465
1,626,592 $
1.52 $
4,057
2,053,600 $
Leasing Commissions
New Leases - First Generation (3)(4)
$
1,976
662,197 $
2.98 $
1,821
522,969 $
3.48 $
2,622
1,586,659 $
New Leases - Second Generation (3)(5)
1,964
765,414 $
2.57
Renewal Leases
879
1,032,207 $
0.85
2,772
1,071
1,244,739 $
2.23
820,290 $
1.31
1,516
1,144
915,069 $
1,801,991 $
Total Leasing Commissions
$
4,819
2,459,818 $
1.96 $
5,664
2,587,998 $
2.19 $
5,282
4,303,719 $
Total Tenant Improvements & Leasing
Commissions
$
6,702
$
8,129
$
9,339
2.98
1.94
0.76
1.97
1.65
1.66
0.63
1.23
(1) Cost is reported in thousands. Costs of tenant improvements include contractual tenant allowances and costs necessary to prepare a space for occupancy by a
new tenant.
(2) Per square foot (“PSF”) amounts calculated by dividing the aggregate tenant improvement and/or leasing commission cost by the aggregate square footage of
the leases in which we incurred such costs, excluding new/renewal leases in which there were no tenant improvements and/or leasing commissions.
(3) New leases represent all leases other than renewal leases.
(4) Tenant improvements and leasing commissions related to our initial leasing of vacant space in acquired properties or leasing of a space that has been vacant
for more than 12 months, are considered first generation costs.
(5) Tenant improvements and leasing commissions related to leasing of a space that has been previously occupied by a tenant during the prior 12 months, are
considered second generation costs.
Historical Capital Expenditures
The following table sets forth certain information regarding historical maintenance (non-revenue generating) capital expenditures at the properties in our
portfolio as follows:
2018
Square
Feet (2)
Cost (1)
PSF (3)
Cost (1)
2017
Square
Feet (2)
PSF (3)
Cost (1)
2016
Square
Feet (2)
PSF (3)
Year Ended December 31,
Non-Recurring Capital
Expenditures (4)
Recurring Capital Expenditures
(5)
$
45,452
14,142,110 $
3.21 $
35,221
12,889,591 $ 2.73 $
21,192
9,061,612 $ 2.34
5,621
19,842,157 $
0.28
2,525
16,590,584 $ 0.15
2,792
13,611,194 $ 0.21
Total Capital Expenditures
$
51,073
$
37,746
$
23,984
(1) Cost is reported in thousands.
(2) For non-recurring capital expenditures, reflects the aggregate square footage of the properties in which we incurred such capital expenditures. For recurring
capital expenditures, reflects the weighted average square footage of our consolidated portfolio for the period.
(3) PSF amounts calculated by dividing the aggregate capital expenditure costs by the square footage as defined in (1) and (2) above.
(4) Non-recurring capital expenditures are expenditures made in respect of a property for improvement to the appearance of such property, or any development
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.
45
(5) Recurring capital expenditures are expenditures made in respect of a property for maintenance of such property and replacement of items due to ordinary
wear and tear including, but not limited to, expenditures made for maintenance or replacement of parking lot, roofing materials, mechanical systems, HVAC
systems and other structural systems.
Item 3. Legal Proceedings
From time to time, we are party to various lawsuits, claims and legal proceedings that arise in the ordinary course of our business. We are not currently a
party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of
operations.
Item 4. Mine Safety Disclosures
Not applicable.
46
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information
Our common stock is traded on the NYSE under the symbol “REXR”. As of February 11, 2019, there were 163 holders of record of our common stock.
Certain shares of our Company are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing
numbers.
Sales of Unregistered Securities
None.
Repurchases of Equity Securities
Period
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018 (1)
December 1, 2018 to December 31, 2018 (1)
Total Number of
Shares Purchased
Average Price Paid per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or
approximate dollar
value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
— $
520 $
141 $
661 $
—
32.22
31.42
32.05
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(1)
In November 2018 and December 2018, these shares were tendered by certain of our employees to satisfy minimum statutory tax withholding obligations
related to the vesting of restricted shares.
Equity Compensation Plan Information
Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report
on Form 10-K.
47
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock from December 31, 2013 through December 31, 2018 , with
the cumulative total return of the Standard & Poor’s 500 Index and a selection of appropriate “peer group” indexes (assuming the investment of $100 in our
common stock and in each of the indexes on December 31, 2013, and that all dividends were reinvested into additional shares of common stock at the frequency
with which dividends are paid on the common stock during the applicable fiscal year). The total return performance shown in this graph is not necessarily
indicative of, and is not intended to suggest, future total return performance.
Index
Rexford Industrial Realty, Inc.
S&P 500 Index
MSCI U.S. REIT Index
SNL U.S. REIT Industrial Index
Item 6. Selected Financial Data.
Period Ending
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
$
$
$
$
100.00 $
100.00 $
100.00 $
100.00 $
122.99 $
113.69 $
130.38 $
120.99 $
132.49 $
115.26 $
133.67 $
124.67 $
192.69 $
129.05 $
145.16 $
156.99 $
247.64 $
157.22 $
152.52 $
189.66 $
255.61
150.33
145.55
184.28
The following table sets forth selected financial and operating data and should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and our audited financial statements and related notes, elsewhere in this Annual Report on Form 10-K. All
consolidated financial data has been restated, as appropriate, to reflect the impact of activity classified as discontinued operations for all periods presented.
48
Statement of Operations Data:
Total revenues from continuing operations
Net income (loss) from continuing operations
Net income
Per Share Data:
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
Net income (loss) from continuing operations available to
common stockholders - basic
Net income (loss) from continuing operations available to
common stockholders - diluted
Net income available to common stockholders - basic
Net income available to common stockholders - diluted
Dividends declared per common share
Balance Sheet Data (End of Period):
Total real estate held for investment, before accumulated
depreciation
Total real estate held for investment, after accumulated
depreciation
Total assets
Notes payable
Total liabilities
Preferred stock
Total equity
Other Data:
Funds from operations (1)
Cash flow provided by operating activities
Cash flow used in investing activities
Cash flow provided by financing activities
Total number of in-service properties
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year Ended Year Ended December 31,
2018
2017
2016
2015
2014
(in thousands except for share and per share data)
212,494 $
161,355 $
126,192 $
47,075 $
47,075 $
41,700 $
41,700 $
25,876 $
25,876 $
93,900 $
1,950 $
1,950 $
66,581
(1,170)
976
86,824,235
71,198,862
62,723,021
54,024,923
31,953,506
87,335,749
71,598,654
62,965,554
54,024,923 $
31,953,506
0.42 $
0.48 $
0.36 $
0.03 $
0.41 $
0.42 $
0.41 $
0.64 $
0.48 $
0.48 $
0.48 $
0.58 $
0.36 $
0.36 $
0.36 $
0.54 $
0.03 $
0.03 $
0.03 $
0.51 $
(0.04)
(0.04)
0.02
0.02
0.48
2,716,083 $
2,161,965 $
1,552,129 $
1,188,766 $
930,462
2,487,341 $
1,988,424 $
1,416,989 $
1,085,143 $
2,787,685 $
2,111,373 $
1,515,008 $
1,153,251 $
757,371 $
879,262 $
159,094 $
668,941 $
746,119 $
159,713 $
1,908,423 $
1,365,254 $
500,184 $
552,868 $
86,651 $
962,140 $
418,154 $
459,507 $
— $
853,578
932,185
356,362
386,308
—
693,744 $
545,877
109,895 $
102,775 $
76,968 $
76,650 $
58,584 $
56,432 $
43,844 $
40,508 $
(507,213) $
(606,900) $
(361,214) $
(236,774) $
578,169 $
521,595 $
315,106 $
192,861 $
176
151
136
119
27,970
24,504
(380,581)
355,686
98
(1) See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Supplemental Measure: Funds
From Operations,” in this Annual Report on Form 10-K for a reconciliation to net income and a discussion of why we believe FFO is a useful supplemental
measure of operating performance, ways in which investors might use FFO when assessing our financial performance, and FFO’s limitations as a
measurement tool.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the sections of this Annual Report on Form 10-K entitled “Risk Factors,” “Forward-Looking
Statements,” “Business” and our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.
This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events
may differ materially
49
from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere
in this Annual Report on Form 10-K.
Company Overview
Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service REIT focused on owning and operating industrial properties in
Southern California infill markets. We were formed as a Maryland corporation on January 18, 2013 and Rexford Industrial Realty, L.P. (the “Operating
Partnership”), of which we are the sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling interest in our
Operating Partnership and its subsidiaries, we own, manage, lease, acquire and develop industrial real estate primarily located in Southern California infill markets,
and from time to time, acquire or provide mortgage debt secured by industrial property. We are organized and conduct our operations to qualify as a REIT under
the Code, and generally are not subject to federal taxes on our income to the extent we distribute our income to our shareholders and maintain our qualification as a
REIT.
As of December 31, 2018 , our consolidated portfolio consisted of 176 properties with approximately 21.3 million rentable square feet. In addition, we
currently manage an additional 20 properties with approximately 1.2 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 secured by industrial property in Southern California infill markets. Our target markets provide us with opportunities to acquire both stabilized properties
generating favorable cash flow, as well as properties where we can enhance returns through value-add renovations and redevelopment. 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 platform and extensive value-add investment and management capabilities, we
believe we are in a position to capitalize upon the opportunities in our markets to achieve our objectives.
Highlights
Acquisitions
•
During 2018 , we acquired 30 properties, with a combined 3.1 million rentable square feet, for an aggregate cost of $492.9 million .
Repositioning
•
•
During 2018, we completed the repositioning of six of our properties located at 301-445 Figueroa Street, 28903 Avenue Paine, 14748-14750 Nelson
Avenue, 15401 Figueroa Street, 2722 Fairview Street and 1580 Carson Street with a combined 0.6 million rentable square feet. As of December 31, 2018,
301-445 Figueroa Street and 28903 Avenue Paine are stabilized at 100% occupancy, and 14748-14750 Nelson Avenue is 86% leased. During 2018, we
also completed the repositioning and lease-up of 43,927 rentable square feet of space at 3233 Mission Oaks Boulevard.
During 2018, we pre-leased our 56,306 square foot single-tenant development property located at 1998 Surveyor Avenue and in January 2019 the tenant
took possession of the property.
Dispositions
•
During 2018 , we completed the sale of six of our properties with a combined 0.3 million rentable square feet, for a total gross sales price of $48.0 million
, and total net cash proceeds of $45.2 million .
Equity
•
During 2018 , we sold a total of 18,177,242 shares of our common stock under our various at-the-market equity offering programs, for gross proceeds of
$565.6 million , or approximately $31.12 per share, and net proceeds of $557.1 million after deducting the sales agents’ fee.
Financing
•
•
In January 2018, we amended our $225.0 million unsecured term loan facility, which reduced the applicable margin for LIBOR-based borrowings from a
range of 1.50% to 2.25% per annum to a range of 1.20% to 1.70% per annum.
In May 2018, we closed on a seven-year $150.0 million senior unsecured term loan facility that matures May 22, 2025 . The term loan facility bears
interest at LIBOR plus an applicable Eurodollar rate margin that will range from 1.50% to 2.20% per annum depending on our leverage ratio.
50
•
In June 2018, we amended our $60 million term loan, which extended the maturity date from August 1, 2019 to August 1, 2023 , and decreased the
interest rate from LIBOR plus 1.90% per annum to LIBOR plus 1.70% per annum.
Factors That May Influence Future Results of Operations
Market 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, operating at near full occupancy, coupled with limited ability to introduce new supply due to high land and development
costs and a dearth of developable land in markets experiencing a net reduction in supply as more industrial property is converted to non-industrial uses than can be
delivered. Consequently, available industrial supply continues to decrease in many of our target infill submarkets, landlord concessions are at cyclically low levels
and construction deliveries are falling short of demand. Meanwhile, underlying tenant demand within our infill target markets continues to demonstrate growth,
illustrated or driven by strong re-leasing spreads, an expanding regional economy, substantial growth in e-commerce 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. Despite
potential concerns related to global growth, tax reform and changes to trade and tariff policies and the impact of rising interest rates, we continue to observe a
number of positive trends within our target infill markets. Based on current observations within the infill Southern California industrial property market and within
our property portfolio, we expect these positive trends may continue into the upcoming year.
In Los Angeles County, positive market trends continued through 2018, as historically high occupancy levels persisted year-over-year and asking lease
rates increased significantly during 2018. Current market conditions indicate rents are likely to continue their upward trend with potential increases through 2019,
as occupancy still remains at near capacity levels and new development is limited by a lack of land availability and an increase in land and development costs.
In Orange County, market fundamentals remained favorable throughout 2018. With steady tenant demand and a continued low availability of industrial
product in this region, average asking lease rents continued their upward trend during 2018 and vacancy remained at historically low levels. Current regional
market conditions indicate the potential for continued rental growth through 2019.
In San Diego, although there was a slight increase in vacancy year-over-year, net absorption was positive during 2018 and overall asking lease rates
increased year-over-year.
In Ventura County, vacancy increased year-over-year and asking lease rates increased year-over year.
Lastly, in the Inland Empire, new industrial product continues to be absorbed well in the market. In the Inland Empire West, which contains infill
markets in which we operate, vacancy remained at historically low levels and asking lease rates were unchanged year-over-year. We expect the outlook for the
Inland Empire West to remain positive over the upcoming year. We generally do not focus on properties located within the non-infill Inland Empire East sub-
market where the development and construction pipeline for new supply is substantial.
Acquisitions and Value-Add Repositioning 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
land parcels or properties with excess land where we may construct new buildings, although we do not anticipate this to be a substantial part of our operations.
Acquisitions may comprise single property investments as well as the purchase of portfolios of properties, with transaction values ranging from sub-$10 million
dollar 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
51
various redevelopment, repositioning, and professional leasing and marketing strategies, we seek to increase the properties’ functionality and attractiveness to
prospective tenants and, over time, to stabilize the properties at occupancy rates that meet or exceed market rates.
A repositioning may consist of a range of improvements to a property. These 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. 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.
As of December 31, 2018 , seven of our properties were in various stages of repositioning or development and four of our properties were in the lease-up
stage. In addition, we anticipate beginning repositioning work on two additional properties in early 2019 . The table below sets forth a summary of these properties,
as well as the four projects that were stabilized during 2018 . In addition to the properties in the table below, we also have a range of smaller spaces in value-add
repositioning or renovation, that due to their smaller size, are not presented below, however, in the aggregate, may be substantial.
52
Total
Property
Rentable
Square Feet
Vacant Rentable
Square Feet Under
Repositioning/Lease-
up
Estimated
Development
Rentable Square
Feet
Market
Estimated Construction
Period (1)
Start
Completion
—
49,976
—
12,000
68,123
51,081
109,129
290,309
29,100
38,584
58,802
43,787
170,273
—
—
—
Property (Submarket)
Current Repositioning:
28903 Avenue Paine - Development (SF
Valley)
851 Lawrence Drive (Ventura) (2)
1998 Surveyor Avenue (Ventura) (3)
9615 Norwalk Boulevard (Mid-Counties)
(4)
29003 Avenue Sherman (SF Valley)
1332-1340 Rocky Point Drive (North San
Diego)
3233 Mission Oaks Boulevard - Unit 3233
(Ventura) (5)
Total
Lease-up Stage:
14748-14750 Nelson Avenue (San Gabriel
Valley)
15401 Figueroa Street (South Bay)
2722 Fairview Street (OC Airport)
1580 Carson Street (South Bay)
Total
Future Repositioning:
16121 Carmenita Road (Mid-Counties)
7110 E. Rosecrans Avenue - Unit B (South
Bay) (6)
Total
Total Current Repositioning, Lease-up
Stage and Future Repositioning:
2018 Stabilized: (7)
3233 Mission Oaks Boulevard - Unit H
(Ventura) (5)
1601 Alton Parkway (OC Airport)
301-445 Figueroa Street (South Bay)
28903 Avenue Paine - Repositioning (SF
Valley)
LA
VC
VC
LA
LA
SD
VC
LA
LA
OC
LA
LA
LA
VC
OC
LA
LA
—
49,976
—
38,362
68,123
73,747
461,210
201,990
38,584
116,575
43,787
108,500
73,439
461,210
124,988
133,650
111,935
Total
Property
Leased % at
12/31/18
—%
—%
100%
(3)
69%
—%
31%
73%
86%
—%
50%
—%
115,817 2Q-2019
39,294 2Q-2018
56,306 2Q-2018
189,808 3Q-2018
— 3Q-2018
1Q-2020
1Q-2020
1Q-2019
2Q-2021
2Q-2019
— 4Q-2018
2Q-2019
— 2Q-2017
2Q-2019
401,225
— 3Q-2016
— 2Q-2018
— 1Q-2018
— 2Q-2018
—
3Q-2018
3Q-2018
4Q-2018
4Q-2018
— 1Q-2019
3Q-2019
89%
— 1Q-2019
2Q-2019
100%
—
460,582
401,225
—
—
—
—
—
—
—
N/A
N/A
N/A
—
N/A
N/A
N/A
N/A
N/A
73%
87%
100%
100%
(1) The estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements, delays in
construction, changes in scope, and other unforeseen circumstances.
(2) We expect to demolish the existing 49,976 rentable square feet building and construct a new 89,270 rentable square foot multi-unit building.
(3) We acquired 1998 Surveyor Avenue as an under-construction building for $5.8 million and the assumed the seller’s fixed-price construction contracts with
$4.4 million of remaining costs at acquisition. At completion, the property will be one single-tenant building containing 56,306 rentable square feet. During
2018, we pre-leased the property and in January 2019 the tenant took possession of the property.
9615 Norwalk is a 10.26 acre storage-yard with three buildings totaling 38,362 rentable square feet. In January 2019, we converted the tenant’s month to
month land lease to a term lease with an expiration date of June 30, 2020. We will
(4)
53
demolish the existing buildings and construct a new 201,808 rentable square foot building upon termination of the land lease.
(5) As of December 31, 2018, we are repositioning space aggregating 109,129 rentable square feet at 3233 Mission Oaks. During the first quarter of 2018, we
completed the repositioning of a 43,927 rentable square foot unit at 3233 Mission Oaks.
(6) We plan to reposition a 36,000 rentable square foot unit at 7110 Rosecrans Avenue when the current lease expires in the first quarter of 2019.
(7) We consider a repositioning property to be stabilized at the earlier of the following: (i) upon reaching 90% occupancy or (ii) one year from the date of
completion of repositioning construction work.
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 development and construction period. An increase in our repositioning and development 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 $2.1 million of
interest expense and $0.9 million of insurance and real estate tax expense during the year ended December 31, 2018 , related to our repositioning and
redevelopment projects.
Rental Revenue
Our operating results depend primarily upon generating rental revenue from the properties in our consolidated portfolio. The amount of rental revenue
generated by these properties is affected by our ability to maintain or increase occupancy levels and rental rates at our properties, which will depend upon our
ability to lease vacant space and re-lease expiring space at favorable rates.
Occupancy Rates
As of December 31, 2018 , our consolidated portfolio was 95.4% occupied. We believe the opportunity to increase occupancy at our properties will be an
important driver of future revenue growth. An opportunity to drive this growth will derive from the lease-up of recently completed repositioning projects and the
completion and lease-up of repositioning projects that are currently under construction and planned for near-term construction.
As summarized in the table above, as of December 31, 2018 , 11 of our properties with a combined 0.5 million vacant rentable square feet, were in
various stages of repositioning or lease-up. These 11 properties are concentrated in our Los Angeles, Orange County, San Diego and Ventura markets, and
represent 2.2% of our total consolidated portfolio square footage as of December 31, 2018 . Including vacant repositioning and lease-up space at these 11
properties, our weighted average occupancy rate as of December 31, 2018 , in Los Angeles, Orange County, San Diego and Ventura was 96.1% , 95.1% , 95.2%
and 88.6% , respectively. Excluding vacant repositioning and lease-up space at these 11 properties, our weighted average occupancy rate as of December 31, 2018 ,
in these markets was 97.8% , 97.2% , 97.4% and 97.2% , respectively, and our overall portfolio occupancy excluding these properties was 97.5% . We believe that
a significant portion of our long-term future growth will come from the completion of these projects currently under or scheduled for repositioning, as well as
through the identification or acquisition of new opportunities for redevelopment and repositioning, whether in our existing portfolio or through new investments,
which may vary from period to period subject to market conditions.
The occupancy rate of properties not undergoing repositioning is affected by regional and local economic conditions in our Southern California infill
markets. Throughout 2018, the Los Angeles, Orange and San Diego county markets have continued to show historically low vacancy and positive absorption,
resulting from high tenant demand combined with low product availability. Accordingly, our properties in these markets have exhibited a similar trend. We expect
general market conditions to remain positive in 2019, and we believe the opportunity to increase occupancy and rental rates at our properties will be an important
driver of future revenue growth.
54
Leasing Activity and Rental Rates
The following tables set forth our leasing activity for new and renewal leases on a quarterly basis for the year ended December 31, 2018 :
Number of Leases
Rentable Square
Feet
Weighted Average
Lease Term
(in years)
Effective Rent Per
Square Foot (1)
GAAP Leasing
Spreads (2)(4)
Cash Leasing
Spreads (3)(4)
New Leases
47
61
48
39
281,844
300,591
583,257
168,758
195
1,334,450
4.8 $
4.5 $
5.2 $
4.1 $
4.8 $
11.29
12.22
11.49
13.28
11.84
32.0%
28.3%
46.9%
25.8%
33.8%
18.1%
19.2%
34.1%
16.0%
22.2%
Renewal Leases
Weighted
Average
Lease Term
(in years)
Effective
Rent Per
Square Foot
(1)
Expiring Leases (6)
Retention %
(7)
GAAP Leasing
Spreads (2)(5)
Cash Leasing
Spreads (3)(5)
Number
of Leases
Rentable
Square Feet
Rentable
Square Feet
2.8 $
4.0 $
3.2 $
3.8 $
10.66
10.69
14.80
11.87
23.1%
37.5%
25.2%
24.9%
13.8%
25.2%
14.8%
14.4%
119
108
105
84
913,468
833,946
782,403
725,650
68.4%
70.7%
55.0%
66.6%
Number
of Leases
Rentable
Square Feet
70
67
58
51
566,551
542,902
360,430
463,065
246
1,932,948
3.5 $
11.73
27.5%
16.9%
416
3,255,467
65.4%
Quarter
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Total/Weighted
Average
Quarter
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Total/Weighted
Average
(1) Effective rent per square foot is the average base rent calculated in accordance with GAAP, over the term of the lease, expressed in dollars per square foot per
year. Includes all new and renewal leases executed during each respective quarter.
(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 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 year ended December 31, 2018 , exclude 63 leases aggregating 719,616 rentable
square feet for which there was no comparable lease data. Of these 63 excluded leases, 24 leases aggregating 444,613 rentable square feet are leases of
recently repositioned 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 for renewal leases executed during the year ended December 31, 2018 , exclude 11 leases aggregating 100,567
rentable square feet for which there was no comparable lease data due to either (i) space with different lease structures or (ii) space with lease terms
shorter than six months.
(6)
Includes eight leases totaling 200,469 rentable square feet that expired during the year ended December 31, 2018 , for which the space was placed into
repositioning after each tenant vacated.
(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 expiring leases associated with space that is placed into repositioning after the tenant vacates.
Our leasing activity is impacted both by our redevelopment and repositioning efforts, as well as by market conditions. While we reposition a property, its
space may become unavailable for leasing until completion of our repositioning efforts. During the year ended December 31, 2018 , we stabilized 3233 Mission
Oaks Boulevard - Unit H, 301-445 Figueroa Street and
55
28903 Avenue Paine with a combined 289,512 rentable square feet and leased an additional 172,890 rentable square feet at 14748-14750 Nelson Avenue.
Additionally, in January 2019 we completed and stabilized our development property located at 1998 Surveyor Avenue. As of the date of this filing, we have six
incomplete repositioning and development projects with estimated construction completion periods ranging from the second quarter of 2019 to the second quarter
of 2021 and four properties in the lease-up stage. We expect these properties to have positive impacts on our leasing activity and revenue generation as we
complete our value-add repositioning plan and place these properties in service.
Scheduled Lease Expirations
Our ability to re-lease space subject to expiring leases is affected by economic and competitive conditions in our markets and by the desirability of our
individual properties, which may impact our results of operations.
As of December 31, 2018 , 0.7 million rentable square feet of our portfolio was available for lease, 0.3 million rentable square feet of vacant space was
under repositioning and leases representing 0.2 million rentable square feet of our portfolio expired on December 31, 2018 . Additionally, leases representing
12.9% and 19.6% of the aggregate rentable square footage of our portfolio are scheduled to expire during the years ending December 31, 2019 and 2020 ,
respectively. During the year ended December 31, 2018 , we renewed 246 leases for 1.9 million rentable square feet, resulting in a 65.4% retention rate. Our
retention rate during the year was impacted by our strategy to roll certain tenants at below-market rents and to replace them with higher quality tenants paying
higher rents with minimal down time. New and renewal leases signed during the current year had a weighted average term of 4.8 and 3.5 years, respectively, and
we expect future new and renewal leases to have similar terms.
The leases scheduled to expire during the years ending December 31, 2019 and 2020 , represent 13.7% and 19.6% , respectively, of the total annualized
base rent for our portfolio as of December 31, 2018 . We estimate that, on a weighted average basis, in-place rents of leases scheduled to expire in 2019 and 2020
are currently below current market asking rents, although individual units or properties within any particular submarket presently may be leased either above,
below, or at the current market asking rates within that submarket. As described in the above Market Fundamentals section, we expect market dynamics to remain
strong heading into 2019 and that these positive trends will provide a favorable environment for additional increases in lease renewal rates. Accordingly, we expect
2019 will show positive renewal rates and leasing spreads. We also currently do not see any reason not to expect that 2020 lease expirations will show positive
growth upon renewal; however, it is difficult to predict market conditions that far into the future.
Conditions in Our Markets
The properties in our portfolio are located primarily in Southern California infill markets. Positive or negative changes in economic or other conditions,
adverse weather conditions and natural disasters in this market may affect our overall performance.
Property Expenses
Our rental 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 annual rental rate increases meant, in part, to help mitigate potential increases in property
expenses over time. However, the terms of our leases vary and, in some instances, we may absorb property expenses. Our overall financial results will be impacted
by the extent to which we are able to pass-through property expenses to our tenants.
Taxable REIT Subsidiary
As of December 31, 2018 , our Operating Partnership indirectly and wholly owns Rexford Industrial Realty and Management, Inc., which we refer to as
the 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 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
56
state income tax, however it has a cumulative unrecognized net operation loss carryforward and therefore there is no income tax provision for the years ended
December 31, 2018 and 2017 .
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for the reporting
periods. Actual amounts may differ from these estimates and assumptions. We have summarized below those accounting policies that require material subjective or
complex judgments and that have the most significant impact on financial condition and results of operations. Management evaluates these estimates on an
ongoing basis, based upon information currently available and on various assumptions that it believes are reasonable as of the date hereof. In addition, other
companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and
financial condition to those of other companies.
A critical accounting policy is one that is both important to the portrayal of an entity’s financial condition and results of operations and requires judgment
on the part of management. Generally, the judgment requires management to make estimates and assumptions about the effect of matters that are inherently
uncertain. Estimates are prepared using management’s best judgment, after considering past and current economic conditions and expectations for the future.
Changes in estimates could affect our financial position and specific items in our results of operations that are used by the users of our financial statements in their
evaluation of our performance.
The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, and judgments used in the
preparation of our consolidated financial statements. For further discussion of our significant accounting policies and discussion of new accounting
pronouncements, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements under Item 15 of this report on Form 10-K.
Investment in Real Estate
Acquisitions
Effective January 1, 2017, we adopted ASU 2017-01, Business Combinations - Clarifying the Definition of a Business (“ASU 2017-01’), which provides
a framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. Under ASU 2017-01, when substantially all of
the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar assets, the set of assets and activities is
not a business. ASU 2017-01 also revises the definition of a business to include, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create an output.
We evaluate each of our property acquisitions to determine whether the acquired set of assets and activities (collectively referred to as a “set”) meets the
definition of a business and will need to be accounted for as a business combination. A set would fail to qualify as a business if either (i) substantially all of the fair
value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii) the set is lacking, at a minimum,
an input and a substantive process that together significantly contribute to the ability to create outputs. An acquired process is considered substantive if (i) the
process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and
experienced in performing the process, (ii) the process cannot be replaced without significant cost, effort, or delay or (iii) the process is considered unique or
scarce.
We evaluated the acquisitions that we completed during the years ended December 31, 2018 and 2017 , and determined that under this framework these
transactions should be accounted for as asset acquisitions. We expect that most of our property acquisitions will generally not meet the revised definition of a
business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or because the acquisition does
not include a substantive process.
For acquisitions that are accounted for as asset acquisitions, because they do not meet the business combination accounting criteria, we allocate the cost of
the acquisition, which includes the purchase price and associated acquisition transaction costs, to the individual assets acquired and liabilities assumed on a relative
fair value basis. These individual assets and liabilities typically include land, building and improvements, tenant improvements, intangible assets and liabilities
related to above and below market leases, intangible assets related to in-place leases, and from time to time, assumed debt. As there is no measurement period
concept for an asset acquisition, the allocated cost of the acquired assets is finalized in the period in which the acquisition occurs.
57
We determine the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. This “as-if vacant” value is
estimated using an income, or discounted cash flow, approach that relies upon Level 3 inputs, which are unobservable inputs based on the Company’s assumptions
about the assumptions a market participant would use. These Level 3 inputs include discount rates, capitalization rates, market rents and comparable sales data for
similar properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market
and economic conditions. In calculating the “as-if-vacant” value for acquisitions completed during the year ended December 31, 2018 , we used discount rates
ranging from 5.50% and 7.50% and capitalization rates ranging from 4.25% to 6.25% .
In determining the fair value of intangible lease assets or liabilities, we also consider Level 3 inputs. Acquired above- and below-market leases are valued
based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease
for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases, if applicable. The estimated fair
value of acquired in-place at-market tenant leases are the costs that would have been incurred to lease the property to the occupancy level of the property at the date
of acquisition. Such estimates include the value associated with leasing commissions, legal and other costs, as well as the estimated period necessary to lease such
property to its occupancy level at the time of its acquisition. In determining the fair value of acquisitions completed during the year ended December 31, 2018 , we
used an estimated average lease-up period ranging from six to twelve months.
The difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and
amortized to “interest expense” over the life of the debt assumed. The valuation of assumed liabilities is based on our estimate of the current market rates for
similar liabilities in effect at the acquisition date.
Capitalization of Costs
We capitalize direct costs incurred in developing, renovating, rehabilitating and improving real estate assets as part of the investment basis. This includes
certain general and administrative costs, including payroll, bonus, and non-cash equity compensation of the personnel performing development, renovations and
rehabilitation if such costs are identifiable to a specific activity to get the real estate asset ready for its intended use. During the development and construction
periods of a project, we also capitalize interest, real estate taxes and insurance costs. We cease capitalization of costs upon substantial completion of the project,
but no later than one year from cessation of major construction activity. If some portions of a project are substantially complete and ready for use and other
portions have not yet reached that stage, we cease capitalizing costs on the completed portion of the project but continue to capitalize for the incomplete portion of
the project. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred.
We capitalized interest costs of $2.1 million , $1.7 million and $1.7 million during the years ended December 31, 2018 , 2017 and 2016 , respectively. We
capitalized real estate taxes and insurance aggregating $0.9 million , $1.2 million and $0.8 million during the years ended December 31, 2018 , 2017 and 2016 ,
respectively. We capitalized compensation costs for employees who provide construction services of $2.2 million , $1.9 million and $1.0 million during the years
ended December 31, 2018 , 2017 and 2016 , respectively.
Impairment of Long-Lived Assets
In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC Topic 360: Property, Plant, and Equipment ,
we assess the carrying values of our respective long-lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying
amounts of these assets may not be fully recoverable.
Recoverability of real estate assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. To
review real estate assets for recoverability, we consider current market conditions as well as our intent with respect to holding or disposing of the asset. The intent
with regard to the underlying assets might change as market conditions and other factors change. Fair value is determined through various valuation techniques,
including discounted cash flow models, applying a capitalization rate to estimated net operating income of a property, quoted market values and third party
appraisals, where considered necessary. The use of projected future cash flows is based on assumptions that are consistent with estimates of future expectations and
the strategic plan used to manage our underlying business. If our analysis indicates that the carrying value of the real estate asset is not recoverable on an
undiscounted cash flow basis, we will recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the
real estate property.
Assumptions and estimates used in the recoverability analyses for future cash flows, discount rates and capitalization rates are complex and subjective.
Changes in economic and operating conditions or our intent with respect to our investment that occur subsequent to our impairment analyses could impact these
assumptions and result in future impairment of our real estate properties.
58
Revenue Recognition
Rental Income
Minimum annual rental revenues are recognized in rental income on a straight-line basis over the term of the related lease, regardless of when payments
are contractually due. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. Lease termination
fees, which are included in rental income, are amortized over the remaining term of the lease until we have no continuing obligation to provide services to such
former tenant.
Tenant Reimbursements
Our lease agreements with tenants generally contain provisions that require tenants to reimburse us for certain property expenses. Estimated
reimbursements from tenants for real estate taxes, common area maintenance and other recoverable operating expenses are recognized as revenues in the period
that the recoverable expenses are incurred. Subsequent to year-end, we perform final reconciliations on a lease-by-lease basis and bill or credit each tenant for any
cumulative annual adjustments.
Other Income
Other income primarily consists of late payment fees and other miscellaneous tenant related revenues.
Management, leasing and development services
We provide property management services and leasing services to related party and third-party property owners, the customer, in exchange for fees and
commissions. Property management services include performing property inspections, monitoring repairs and maintenance, negotiating vendor contracts,
maintaining tenant relations and providing financial and accounting oversight. For these services, we earn monthly management fees, which are based on a fixed
percentage of each managed property’s monthly tenant cash receipts. We have determined that control over the services is passed to the customer simultaneously
as performance occurs. Accordingly, management fee revenue is earned as the services are provided to our customers.
Leasing commissions are earned when we provide leasing services that result in an executed lease with a tenant. We have determined that control over the
services is transferred to the customer upon execution of each lease agreement. We earn leasing commissions based on a fixed percentage of rental income
generated for each executed lease agreement and there is no variable income component.
Gain or Loss on Sale of Real Estate
We account for dispositions of real estate properties, which are considered nonfinancial assets, in accordance with ASC 610-20: Other Income—Gains
and Losses from the Derecognition of Nonfinancial Assets and recognize a gain or loss on sale of real estate upon transferring control of the nonfinancial asset to
the purchaser, which is generally satisfied at the time of sale. If we were to conduct a partial sale of real estate by transferring a controlling interest in a
nonfinancial asset, while retaining a noncontrolling ownership interest, we would measure any noncontrolling interest received or retained at fair value, and
recognize a full gain or loss. If we receive consideration before transferring control of a nonfinancial asset, we recognize a contract liability. If we transfer control
of the asset before consideration is received, we recognize a contract asset.
Valuation of Receivables
We may be subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. In order to mitigate these risks, we
perform credit reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired. We
specifically analyze aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance
for doubtful accounts. As a result of our periodic analysis, we maintain an allowance for estimated losses that may result from the inability of our tenants to make
required payments. This estimate requires significant judgment related to the lessees’ ability to fulfill their obligations under the leases. We believe our allowance
for doubtful accounts is adequate for our outstanding receivables for the periods presented. If a tenant is insolvent or files for bankruptcy protection and fails to
make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances, which
include amounts recognized as straight-line revenue not realizable until future periods.
59
Results of Operations
Our consolidated results of operations are often not comparable from period to period due to the effect of property acquisitions and dispositions
completed during the comparative reporting periods. Our “Total Portfolio” represents all of the properties owned during the reported periods. To eliminate the
effect of changes in our Total Portfolio due to acquisitions and dispositions and to highlight the operating results of our on-going business, we have separately
presented the results of our “Same Properties Portfolio.”
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
For the comparison of the years ended December 31, 2018 and 2017 , our Same Properties Portfolio includes all properties in our industrial portfolio that
were wholly-owned by us as of January 1, 2017 , and still owned by us as of December 31, 2018 , which consisted of 126 properties aggregating approximately
14.1 million rentable square feet. Results for our Same Properties Portfolio exclude our joint venture property, any properties that were acquired or sold during
2018 and 2017 , interest expense and corporate general and administrative expenses. For the comparison of the years ended December 31, 2018 and 2017 , our
Total Portfolio includes the properties in our Same Properties Portfolio, the 51 properties aggregating approximately 7.3 million rentable square feet that were
acquired during 2018 and 2017 , and the 12 properties aggregating approximately 1.1 million rentable square feet that were sold during 2018 and 2017 .
As of December 31, 2018 and 2017 , our Same Properties Portfolio occupancy was approximately 96.7% and 95.3% , respectively. For the years ended
December 31, 2018 and 2017 , our Same Properties Portfolio weighted average occupancy was approximately 96.1% and 93.7% , respectively.
Same Properties Portfolio
Total Portfolio
Year Ended December 31,
2018
2017
Increase/
(Decrease)
%
Change
Year Ended December 31,
2018
2017
Increase/
(Decrease)
%
Change
($ in thousands)
TOTAL RENTAL REVENUES
149,643
137,372
12,271
RENTAL REVENUES
Rental revenues
Tenant reimbursements
Other income
Management, leasing and development
services
Interest income
TOTAL REVENUES
OPERATING EXPENSES
Property expenses
General and administrative
Depreciation and amortization
TOTAL OPERATING EXPENSES
OTHER EXPENSE
Acquisition expenses
Interest expense
TOTAL OTHER EXPENSE
TOTAL EXPENSES
Equity in income from unconsolidated
real estate entities
Gain on extinguishment of debt
Gain on sale of real estate
$ 127,628 $ 117,110 $
10,518
9.0 % $
177,568 $
136,185 $
41,383
21,260
19,509
755
753
1,751
2
—
—
—
—
—
—
9.0 %
0.3 %
8.9 %
— %
— %
32,195
23,363
880
869
8,832
11
210,643
160,417
50,226
473
1,378
493
445
(20)
933
149,643
137,372
12,271
8.9 %
212,494
161,355
51,139
36,645
35,238
—
48,902
85,547
—
50,233
85,471
1,407
—
(1,331)
76
4.0 %
— %
(2.6)%
51,671
25,194
80,042
42,139
21,610
64,852
0.1 %
156,907
128,601
—
—
—
—
—
—
85,547
85,471
—
—
—
—
—
—
—
—
76
—
—
—
— %
— %
— %
318
25,416
25,734
454
20,209
20,663
0.1 %
182,641
149,264
33,377
—
—
11
25
(11)
(25)
17,222
29,573
(12,351)
30.4 %
37.8 %
1.3 %
31.3 %
(4.1)%
209.7 %
31.7 %
22.6 %
16.6 %
23.4 %
22.0 %
(30.0)%
25.8 %
24.5 %
22.4 %
9,532
3,584
15,190
28,306
(136)
5,207
5,071
NET INCOME
$
64,096 $
51,901 $
12,195
$
47,075 $
41,700 $
5,375
60
Rental Revenue
Our Same Properties Portfolio and Total Portfolio rental revenue increased by $10.5 million , or 9.0% , and $41.4 million , or 30.4% , respectively, for the
year ended December 31, 2018 , compared to the year ended December 31, 2017 . The increase in our Same Properties Portfolio rental income is primarily due to
the increase in the weighted average occupancy of the portfolio for comparable periods, which was driven by the completion of repositioning and development
work and subsequent lease-up of space at nine of these properties during 2017 and 2018 , as well as the increase in average rental rates on new and renewal leases.
Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 51 properties we acquired during 2017 and 2018 , partially
offset by the decrease in revenues from the 12 properties that were sold during 2017 and 2018 .
Tenant Reimbursements
Our Same Properties Portfolio and Total Portfolio tenant reimbursements revenue increased by $1.8 million , or 9.0% , and $8.8 million or 37.8% ,
respectively, for the year ended December 31, 2018 , compared to the year ended December 31, 2017 . The increase in our Same Properties Portfolio tenant
reimbursements is primarily due to an increase in recoverable operating expenses for comparable periods, an increase in the weighted average occupancy of the
portfolio for comparable periods, which was driven by the completion of repositioning and development work and subsequent lease-up of space at nine of these
properties during 2017 and 2018 . Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental reimbursements from the 51 properties
we acquired during 2017 and 2018 , partially offset by the decrease in reimbursements from the 12 properties that were sold during 2017 and 2018 .
Other Income
Our Same Properties Portfolio and Total Portfolio other income increased by $2 thousand , or 0.3% , and $11 thousand , or 1.3% , respectively, for the
year ended December 31, 2018 , compared to the year ended December 31, 2017 . The increase in our Same Properties Portfolio other income is primarily due to
an increase in tenant legal fee reimbursement income and late fee income, partially offset by a decrease in other miscellaneous income.
Management, Leasing and Development Services
Our Total Portfolio management, leasing and development services revenue decreased by $20 thousand , or 4.1% , for the year ended December 31, 2018
, compared to the year ended December 31, 2017 .
Interest Income
Our Total Portfolio interest income increased by $0.9 million , or 209.7% , during the year ended December 31, 2018 , compared to the year ended
December 31, 2017 . Interest income of $1.4 million for the year ended December 31, 2018 , was earned from the investment of excess cash in money market
accounts. Interest income of $0.4 million for the year ended December 31, 2017 , relates to a $6.0 million mortgage loan that we made on July 1, 2016, which
was subsequently repaid on June 23, 2017. The loan was secured by an industrial property located in Rancho Cucamonga, California and bore interest at 10.0% per
annum.
Property Expenses
Our Same Properties Portfolio property expenses increased by $1.4 million or 4.0% , for the year ended December 31, 2018 , compared to the year ended
December 31, 2017 . The increase in our Same Properties Portfolio property expenses is primarily due to an increase in real estate tax expense, which is partially
due to a decrease in capitalized real estate taxes resulting from the completion of construction at certain of our repositioning properties. Our Total Portfolio
property expenses increased by $9.5 million , or 22.6% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily as a
result of the incremental expenses from the 51 properties we acquired during 2017 and 2018 , partially offset by the decrease in property expenses from the 12
properties that were sold during 2017 and 2018 .
General and Administrative
Our Total Portfolio general and administrative expenses increased by $3.6 million , or 16.6% for the year ended December 31, 2018 , compared to the
year ended December 31, 2017 . The increase is primarily due to an increase in non-cash equity compensation expense and accrued bonus expense for our named
executive officers, an increase in other various corporate expenses, an increase in legal expense and an increase in professional audit and tax services expense.
61
Depreciation and Amortization
Our Same Properties Portfolio depreciation and amortization expense decreased by $1.3 million , or 2.6% , for the year ended December 31, 2018 ,
compared to the year ended December 31, 2017 , primarily due to acquisition-related tenant improvements and in-place lease intangibles becoming fully
depreciated during 2017 and 2018 , partially offset by an increase in depreciation expense related to capital improvements placed into service during 2017 and
2018 . Our Total Portfolio depreciation and amortization expense increased by $15.2 million , or 23.4% , for the year ended December 31, 2018 , compared to the
year ended December 31, 2017 , primarily due to incremental expense from the 51 properties we acquired during 2017 and 2018 , and an increase in depreciation
expense related to capital improvements, partially offset by the decrease in our Same Properties Portfolio depreciation and amortization expense noted above.
Acquisition Expenses
Our Total Portfolio acquisition expenses decreased by $0.1 million , or 30.0% , for the year ended December 31, 2018 , compared to the year ended
December 31, 2017 , primarily due to the write-off of $0.3 million of transaction costs in connection with the termination of a ground lease in March 2017,
partially offset by an increase in acquisition related costs incurred that did not result in completed transactions.
Interest Expense
Our Total Portfolio interest expense increased by $5.2 million , or 25.8% , for the year ended December 31, 2018 , compared to the year ended
December 31, 2017 . The increase in interest expense is primarily comprised of the following: (i) $3.4 million increase related to the $150.0 million term loan
facility borrowing we made in May 2018 and (ii) a $2.6 million increase related to the issuance of $125.0 million of 3.93% fixed rate senior notes in July 2017.
These increases were partially offset by the following: (i) a $0.4 million increase in capitalized interest related to our repositioning and redevelopment properties
and (ii) a $0.4 million decrease in interest related to a reduction of outstanding borrowings on our unsecured revolving credit facility.
Equity in Income from Unconsolidated Real Estate Entities
Equity in income from unconsolidated real estate entities of $11 thousand for the year ended December 31, 2017 , represents the final liquidating
distribution we received in connection with the winding down of our joint venture.
Gain on Extinguishment of Debt
During the year ended December 31, 2017, we repaid the 1065 Walnut Street mortgage loan and the 12907 Imperial Highway mortgage loan. The gain on
extinguishment of debt of $25 thousand represents the write-off of $0.2 million of unamortized loan premiums, partially offset by the $0.2 million penalty incurred
for repaying the 1065 Walnut Street mortgage loan in advance of the maturity date.
Gain on Sale of Real Estate
During the year ended December 31, 2018 , we recognized a total gain of $17.2 million from the disposition of six properties that were sold for an
aggregate gross sales price of $48.0 million . During the year ended December 31, 2017 , we recognized a total gain of $29.6 million from the disposition of six
properties that were sold for an aggregate gross sales price of $98.7 million .
Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016
For the comparison of the years ended December 31, 2017 and 2016, our Same Properties Portfolio includes all properties in our industrial portfolio that
were wholly-owned by us as of January 1, 2016, and still owned by us as of December 31, 2017, which consisted of 111 properties aggregating approximately 11.0
million rentable square feet. Results for our Same Properties Portfolio exclude our joint venture property, any properties that were acquired or sold during 2017 and
2016, interest expense and corporate general and administrative expenses. For the comparison of the years ended December 31, 2017 and 2016, our Total Portfolio
includes the properties in our Same Properties Portfolio, the 41 properties aggregating approximately 7.6 million rentable square feet that were acquired during
2017 and 2016, and the 11 properties aggregating approximately 1.1 million rentable square feet that were sold during 2017 and 2016.
62
As of December 31, 2017 and 2016, our Same Properties Portfolio occupancy was approximately 98.0% and 96.2%, respectively. For the years ended
December 31, 2017 and 2016, our Same Properties Portfolio weighted average occupancy was approximately 96.0% and 93.7%, respectively.
Same Properties Portfolio
Total Portfolio
Year Ended December 31,
2017
2016
Increase/
(Decrease)
Year Ended December 31,
% Change
2017
2016
($ in thousands)
Increase/
(Decrease)
% Change
$
99,031 $
91,971 $
15,257
13,691
712
751
115,000
106,413
—
—
—
—
7,060
1,566
(39)
8,587
—
—
7.7 % $
136,185 $
107,594 $
28,591
11.4 %
(5.2)%
23,363
16,723
869
943
6,640
(74)
8.1 %
160,417
125,260
35,157
— %
— %
493
445
473
459
20
(14)
115,000
106,413
8,587
8.1 %
161,355
126,192
35,163
30,214
28,338
—
39,120
69,334
—
41,535
69,873
—
—
—
—
—
—
1,876
—
(2,415)
(539)
—
—
—
6.6 %
— %
(5.8)%
42,139
21,610
64,852
33,619
17,415
51,407
(0.8)%
128,601
102,441
— %
— %
— %
454
20,209
20,663
1,855
14,848
16,703
69,334
69,873
(539)
(0.8)%
149,264
119,144
8,520
4,195
13,445
26,160
(1,401)
5,361
3,960
30,120
—
—
—
—
—
—
—
—
—
11
25
1,451
—
(1,440)
25
29,573
17,377
12,196
26.6 %
39.7 %
(7.8)%
28.1 %
4.2 %
(3.1)%
27.9 %
25.3 %
24.1 %
26.2 %
25.5 %
(75.5)%
36.1 %
23.7 %
25.3 %
RENTAL REVENUES
Rental revenues
Tenant reimbursements
Other income
TOTAL RENTAL REVENUES
Management, leasing and development
services
Interest income
TOTAL REVENUES
OPERATING EXPENSES
Property expenses
General and administrative
Depreciation and amortization
TOTAL OPERATING EXPENSES
OTHER EXPENSE
Acquisition expenses
Interest expense
TOTAL OTHER EXPENSE
TOTAL EXPENSES
Equity in income from unconsolidated
real estate entities
Gain on extinguishment of debt
Gain on sale of real estate
NET INCOME
$
45,666 $
36,540 $
9,126
$
41,700 $
25,876 $
15,824
Rental Revenue
Our Same Properties Portfolio and Total Portfolio rental revenue increased by $7.1 million, or 7.7%, and $28.6 million, or 26.6%, respectively, for the
year ended December 31, 2017, compared to the year ended December 31, 2016. The increase in our Same Properties Portfolio rental income is primarily due to
the increase in the weighted average occupancy of the portfolio for comparable periods, which was driven by the completion of repositioning work and subsequent
lease-up of space at nine of our properties during 2016 and 2017, as well as the increase in average rental rates on new and renewal leases. Our Total Portfolio
rental revenue was also positively impacted by the incremental revenues from the 41 properties we acquired during 2016 and 2017, partially offset by the decrease
in revenues from the 11 properties that were sold during 2016 and 2017.
Tenant Reimbursements
Our Same Properties Portfolio and Total Portfolio tenant reimbursements revenue increased $1.6 million, or 11.4%, and increased $6.6 million or 39.7%,
respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase in our Same Properties Portfolio tenant
reimbursements is primarily due to an increase in recoverable operating expenses for comparable periods, an increase in the weighted average occupancy of the
portfolio for comparable periods, which was driven by the completion of repositioning work and subsequent lease-up of space at nine of our properties during 2016
and 2017, as well as the completion of supplemental assessments of certain of our properties resulting in lower reimbursable real estate taxes during 2016. Our
Total Portfolio tenant reimbursements revenue was also impacted by the incremental reimbursements from the 41 properties we acquired during 2016 and 2017,
partially offset by the decrease in reimbursements from the 11 properties that were sold during 2016 and 2017.
63
Other Income
Our Same Properties Portfolio and Total Portfolio other income decreased by $39 thousand, or 5.2%, and $74 thousand, or 7.8%, respectively, for the
year ended December 31, 2017, compared to the year ended December 31, 2016. The decrease in our Same Properties Portfolio other income is primarily due to a
decrease in late fee income, partially offset by an increase in other miscellaneous income. The decrease in our Total Portfolio income is primarily due to a decrease
in late fee income and other miscellaneous income.
Management, Leasing and Development Services
Our Total Portfolio management, leasing and development services revenue increased by $20 thousand, or 4.2%, for the year ended December 31, 2017,
compared to the year ended December 31, 2016, primarily due to our acquisition of the property located at 3233 Mission Oaks Boulevard from our unconsolidated
joint venture (the “JV”) in July 2016. Prior to this acquisition, we earned fees and commissions for providing property and construction management services for
the property.
Interest Income
Interest income relates to the $6.0 million mortgage loan that we made on July 1, 2016, which was subsequently repaid on June 23, 2017. The loan was
secured by an industrial property located in Rancho Cucamonga, California and bore interest at 10.0% per annum. Our Total Portfolio interest income decreased by
$14 thousand, or 3.1%, during the year ended December 31, 2017, compared to the year ended December 31, 2016.
Property Expenses
Our Same Properties Portfolio property expenses increased by $1.9 million or 6.6%, for the year ended December 31, 2017, compared to the year ended
December 31, 2016, primarily due to an increase in overhead costs, an increase in recoverable repairs and maintenance expense, an increase in insurance expense,
an increase in real estate tax expense and the receipt of non-comparable insurance reimbursements during 2016, partially offset by a decrease in third-party
property management fee expense. The increase in insurance expense was due to the new earthquake policy we obtained in June 2017 and the new environmental
policy we obtained in December 2016. The increase in real estate tax expense was due to a decrease in capitalized real estate taxes resulting from the completion of
construction at certain of our repositioning properties. Our Total Portfolio property expenses increased by $8.5 million, or 25.3%, for the year ended December 31,
2017, compared to the year ended December 31, 2016, primarily as a result of the incremental expenses from the 41 properties we acquired during 2016 and 2017,
partially offset by the decrease in property expenses from the 11 properties that were sold during 2016 and 2017.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $4.2 million, or 24.1% for the year ended December 31, 2017, compared to the year
ended December 31, 2016. The increase is primarily due to the following: (i) a $1.5 million increase in non-cash equity compensation expense primarily related to
equity grants awards granted in December 2016, (ii) a non-comparable $1.0 million insurance reimbursement of legal fees related to prior litigation received during
2016, (iii) a $1.0 million increase in bonus expense due to Company performance, (iv) a $0.6 million increase in payroll and employment related costs and (v) a
$0.4 million increase in other various corporate expenses. These increases were partially offset by a $0.2 million decrease in non-employee director compensation
expense.
Depreciation and Amortization
Our Same Properties Portfolio depreciation and amortization expense decreased by $2.4 million, or 5.8%, for the year ended December 31, 2017,
compared to the year ended December 31, 2016, primarily due to acquired lease related intangible and tangible assets for several of our properties becoming fully
depreciated during 2016 and 2017, partially offset by an increase in depreciation expense related to capital improvements. Our Total Portfolio depreciation and
amortization expense increased $13.4 million, or 26.2%, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to
incremental expense from the 41 properties we acquired during 2016 and 2017, and an increase in depreciation expense related to capital improvements, partially
offset by the decrease in our Same Properties Portfolio depreciation and amortization expense noted above.
Acquisition Expenses
64
Our Total Portfolio acquisition expenses decreased by $1.4 million, or 75.5%, for the year ended December 31, 2017, compared to the year ended
December 31, 2016, primarily due to the adoption of ASU 2017-01, effective January 1, 2017. Under ASU 2017-01, the 21 properties that we acquired during 2017
were accounted for as asset acquisitions, and the related acquisition costs were capitalized as part of the purchase price of the acquisition on a relative fair value
basis. In comparison, 18 of the 20 properties that we acquired during 2016 were accounted for as business combinations, and the related acquisition costs were
expensed as incurred. The decrease in acquisition expenses due to the adoption of ASU 2017-01 was partially offset by an increase resulting from the write-off of
previously incurred transaction costs related to the termination of a ground lease in March 2017.
Interest Expense
Our Total Portfolio interest expense increased by $5.4 million, or 36.1%, for the year ended December 31, 2017, compared to the year ended
December 31, 2016. The increase in interest expense is primarily comprised of the following: (i) a $2.3 million increase related to the issuance of $125 million of
3.93% fixed rate senior notes in July 2017, (ii) a $1.9 million increase related to the $125 million and $100 million term loan facility borrowings we made in
January 2016 and April 2016, respectively, and (iii) and a $1.4 million increase related to the increase in borrowings on our unsecured revolving credit facility. The
increase was partially offset by a $0.3 million decrease in interest expense from the 1065 Walnut Street mortgage loan, which we repaid in advance of maturity on
March 20, 2017.
Equity in Income from Unconsolidated Real Estate Entities
Our Total Portfolio equity in income from unconsolidated real estate entities decreased by $1.4 million for the year ended December 31, 2017, compared
to the year ended December 31, 2016, due to the acquisition of the remaining 85% ownership interest in the property located at 3233 Mission Oaks Boulevard from
the JV on July 6, 2016. For additional information, see Note 11 to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
Gain on Extinguishment of Debt
During the year ended December 31, 2017, we repaid the 1065 Walnut Street mortgage loan and the 12907 Imperial Highway mortgage loan. The gain on
extinguishment of debt of $25 thousand represents the write-off of $0.2 million of unamortized loan premiums, partially offset by the $0.2 million penalty incurred
for repaying the 1065 Walnut Street mortgage loan in advance of the maturity date.
Gain on Sale of Real Estate
During the year ended December 31, 2017, we recognized a total gain of $29.6 million from the disposition of six properties that were sold for an
aggregate gross sales price of $98.7 million. During the year ended December 31, 2016, we recognized a total gain of $17.4 million from the disposition of five
properties that were sold for an aggregate gross sales price of $40.7 million.
Non-GAAP Supplemental Measure: Funds From Operations
We calculate funds from operations (“FFO”) attributable to common stockholders in accordance with the standards established by the National
Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP, excluding gains (or losses)
from sales of depreciable operating property, impairment losses, 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
65
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.
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 (in thousands):
Net income
Add:
Depreciation and amortization
Depreciation and amortization from unconsolidated joint ventures (1)
Deduct:
Gain on sale of real estate
Gain on acquisition of unconsolidated joint venture property (2)
Funds from operations (FFO)
Less: preferred stock dividends
Less: FFO attributable to noncontrolling interest (3)
Less: FFO attributable to participating securities (4)
FFO attributable to common stockholders
Year Ended December 31,
2018
2017
2016
$
47,075 $
41,700 $
25,876
80,042
—
(17,222)
—
64,852
—
(29,573)
(11)
$
$
109,895
$
76,968
$
(9,694)
(2,295)
(642)
(5,875)
(1,914)
(546)
97,264 $
68,633 $
51,407
10
(17,377)
(1,332)
58,584
(1,983)
(1,751)
(473)
54,377
(1) Amount reflects our 15% ownership interest in the JV that owned the property located at 3233 Mission Oaks Boulevard for all periods prior to July 6, 2016,
when we acquired the remaining 85% ownership interest.
(2) Amounts relate to the Company’s acquisition of the remaining 85% ownership interest in the property located at 3233 Mission Oaks Boulevard from the JV.
See Note 11 to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
(3) Noncontrolling interest represent holders of outstanding common units of our Operating Partnership that are owned by unit holders other than Rexford
Industrial Realty, Inc.
(4) Participating securities include unvested shares of restricted stock, unvested LTIP units of partnership interest in our Operating Partnership and unvested
performance units in our Operating Partnership.
Non-GAAP Supplemental Measure: 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 total revenue from real estate operations including i) rental income ii) tenant reimbursements, and iii) other income less property expenses (before
interest expense, depreciation and amortization).
We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative
expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over
year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating
performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our
properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance
of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our
performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs’
NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our
liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance
with GAAP.
NOI on a cash-basis (“Cash NOI”) 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.
66
The following table sets forth the revenue and expense items comprising NOI and the adjustments to calculate Cash NOI (in thousands):
Rental income
Tenant reimbursements
Other income
Total operating revenues
Property expenses
Net Operating Income
Amortization of (below) above market lease intangibles, net
Straight line rental revenue adjustment
Cash Net Operating Income
Year Ended December 31,
2018
2017
2016
$
177,568 $
136,185 $
32,195
880
210,643
51,671
23,363
869
160,417
42,139
$
$
158,972
$
118,278
$
(5,981)
(6,477)
(2,270)
(4,737)
146,514
$
111,271
$
107,594
16,723
943
125,260
33,619
91,641
(78)
(4,507)
87,056
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):
Net income
Add:
General and administrative
Depreciation and amortization
Acquisitions expense
Interest expense
Deduct:
Management, leasing and development services
Interest income
Equity in income from unconsolidated real estate entities
Gain on extinguishment of debt
Gain on sale of real estate
Net Operating Income
Amortization of (below) above market lease intangibles, net
Straight line rental revenue adjustment
Cash Net Operating Income
Non-GAAP Supplemental Measure: EBITDA re
Year Ended December 31,
2018
2017
2016
$
47,075 $
41,700 $
25,876
25,194
80,042
318
25,416
473
1,378
—
—
21,610
64,852
454
20,209
493
445
11
25
17,222
29,573
158,972
$
118,278 $
(5,981)
(6,477)
(2,270)
(4,737)
146,514
$
111,271
$
$
$
17,415
51,407
1,855
14,848
473
459
1,451
—
17,377
91,641
(78)
(4,507)
87,056
We calculate earnings before interest expense, income taxes, depreciation and amortization for real estate (“EBITDA re ”) in accordance with the
standards established by NAREIT. EBITDA re 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, impairment losses and adjustments to reflect our
proportionate share of EBITDA re from our unconsolidated joint venture.
We believe that EBITDA re 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 EBITDA re is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, our industry
peers may not calculate EBITDA re in accordance with the NAREIT definition as we do and, accordingly, our EBITDA re may not be
67
comparable to our peers’ EBITDA re . Accordingly, EBITDA re 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 EBITDA re (in thousands):
Year Ended December 31,
2018
2017
2016
Net income
Interest expense
Depreciation and amortization
Depreciation and amortization from unconsolidated joint ventures (1)
Gain on sale of real estate
Gain on acquisition of unconsolidated joint venture property (2)
$
47,075 $
41,700 $
25,416
80,042
—
(17,222)
—
20,209
64,852
—
(29,573)
(11)
EBITDAre
$
135,311 $
97,177 $
25,876
14,848
51,407
10
(17,377)
(1,332)
73,432
(1) Amount reflects our 15% ownership interest in the JV that owned the property located at 3233 Mission Oaks Boulevard for all periods prior to July 6, 2016,
when we acquired the remaining 85% ownership interest.
(2) Amounts relate to the Company’s acquisition of the remaining 85% ownership interest in the property located at 3233 Mission Oaks Boulevard from the JV.
See Note 11 to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
Financial Condition, Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses, interest expense, general and administrative expenses,
capital expenditures, tenant improvements and leasing commissions, and distributions to our common and preferred stockholders and holders of common units of
partnership interests in our Operating Partnership (“OP Units”). We expect to meet our short-term liquidity requirements through available cash on hand, cash flow
from operations, by drawing on our unsecured revolving credit facility and by issuing shares of common stock pursuant to the at-the-market equity offering
program described below.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled
debt maturities. We intend to satisfy our long-term liquidity needs through net cash flow from operations, proceeds from long-term secured and unsecured
financings, borrowings available under our unsecured revolving credit facility, the issuance of equity securities, including preferred stock, and proceeds from
selective real estate dispositions as we identify capital recycling opportunities.
As of December 31, 2018 , our cash and cash equivalents were $180.6 million , and we did not have any borrowings outstanding under our unsecured
revolving credit facility, leaving $350.0 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 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 June 13, 2018, we established a new at-the-market equity offering program (the “$400 Million ATM Program”) pursuant to which we may sell from
time to time up to an aggregate of $400.0 million of our common stock through sales agents. The $400 Million ATM Program replaces our previous $300 million
at-the-market equity offering program which was established on September 21, 2017 (the “Prior ATM Program”). All $300.0 million of shares of our common
stock under the Prior ATM Program were sold prior to establishing the $400 Million ATM Program.
68
During the year ended December 31, 2018 , we sold 18,177,242 shares of our common stock under the $400 Million ATM Program and the Prior ATM
Program, at a weighted average price of $31.12 per share, for gross proceeds of $565.6 million , and net proceeds of $557.1 million , after deducting the sales
agents’ fee. As of December 31, 2018 , we had the capacity to issue up to an additional $63.4 million of common stock under the $400 Million ATM Program.
Future sales, if any, will depend on a variety of factors to be determined by us from time to time, including among others, market conditions, the trading
price of our common stock and capital needs. We intend to use the net proceeds from the offering of shares under the $400 Million 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 development or redevelopment activities and/or for general corporate purposes.
Equity 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 or repositioning costs, for the repayment of long-term debt upon maturity and for other general corporate purposes. 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 year ended December 31, 2018 , we completed the sale of six of our properties for a total gross sales price of $48.0 million and total net cash
proceeds of $45.2 million . Total net cash proceeds of $36.6 million from five of the dispositions were used to partially fund the acquisition of five properties the
year ended December 31, 2018 , through 1031 Exchange transactions.
We anticipate continuing to selectively and opportunistically dispose of properties, however, the timing of any potential future dispositions will depend on
market conditions, asset-specific circumstances or opportunities, and our capital needs. Our ability to dispose of selective properties on advantageous terms, or at
all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable.
Credit Facility
We have a $450.0 million senior unsecured credit facility (the “Credit Facility”), comprised of a $350.0 million unsecured revolving credit facility (the
"Revolver") and a $100.0 million unsecured term loan facility (the "$100 Million Term Loan Facility"). The Revolver is scheduled to mature on February 12, 2021
and has two six-month extension options available for a maximum maturity date of February 14, 2022 , subject to certain conditions and the payment of an
additional fee. The $100 Million Term Loan Facility is scheduled to mature on February 14, 2022 . Under the terms of the Credit Facility, we may request
additional lender commitments up to an additional aggregate $550.0 million , which may be comprised of additional revolving commitments under the Revolver,
an increase to the $100 Million Term Loan Facility, additional term loan tranches or any combination of the foregoing.
Interest on the Credit Facility is generally to be paid based upon, at our option, either (i) LIBOR plus an applicable margin that is based upon our leverage ratio
or (ii) the Base Rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate or (c) the Eurodollar Rate
plus 1.00%) plus an applicable margin that is based on our leverage ratio. The margins for the Revolver range in amount from 1.10% to 1.50% per annum for
LIBOR-based loans and 0.10% to 0.50% per annum for Base Rate-based loans, depending on our leverage ratio. The margins for the $100 Million Term Loan
Facility range in amount from 1.20% to 1.70% per annum for LIBOR-based loans and 0.20% to 0.70% per annum for Base Rate-based loans, depending on our
leverage ratio.
If we attain one additional investment grade rating by one or more of Standard & Poor’s (“S&P”) or Moody’s Investor Services (“Moody’s”) to
complement our current investment grade Fitch rating, we may elect to convert the pricing structure under the Credit Facility to be based on such rating. In that
event, the margins for the Revolver will range in amount from 0.825% to 1.550% per annum for LIBOR-based loans and 0.00% to 0.55% per annum for Base
Rate-based loans, depending on such rating, and the margins for the $100 Million Term Loan Facility will range in amount from 0.90% to 1.75% per annum for
LIBOR-based loans and 0.00% to 0.75% per annum for Base Rate-based loans, depending on such ratings.
69
In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable facility fee, based upon our leverage
ratio, on the aggregate amount of each lender's Revolving Credit Commitment (whether or not such Revolving Credit Commitment is drawn), as defined in the
Credit Facility. The applicable facility fee will range in amount from 0.15% to 0.30% per annum, depending on our leverage ratio. In the event that we convert the
pricing structure to be based on an investment-grade rating, the applicable facility fee will range in amount from 0.125% to 0.30% per annum, depending on such
rating.
The Credit Facility is guaranteed by the Company and by substantially all of the current and to-be-formed subsidiaries of the Operating Partnership that
own an unencumbered property. The Credit Facility is not secured by the Company’s properties or by equity interests in the subsidiaries that hold such properties.
The Revolver and the $100 Million Term Loan Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts
borrowed under the $100 Million Term Loan Facility and repaid or prepaid may not be reborrowed.
The Credit Facility contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance
with the covenants set forth in the Credit Facility and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency
defaults. If an event of default occurs and is continuing under the Credit Facility, the unpaid principal amount of all outstanding loans, together with all accrued
unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
As of the filing date of this Annual Report on Form 10-K, we did not have any borrowings outstanding under the Revolver, leaving $350.0 million
available for future borrowings.
$150 Million Term Loan Facility
On May 22, 2018, we entered into a credit agreement for a senior unsecured term loan facility (the “$150 Million Term Loan Facility”) that initially
permits aggregate borrowings of up to $150.0 million , the total of which we borrowed the same day at closing. Under the terms of the $150 Million Term Loan
Facility, we may request additional incremental term loans in an aggregate amount not to exceed $100.0 million . Any increase in borrowings is subject to the
satisfaction of specified conditions and the identification of lenders willing to make available such additional amounts. The maturity date of the $150 Million Term
Loan Facility is May 22, 2025.
Interest on the $150 Million Term Loan Facility is generally to be paid based upon, at our option, either (i) LIBOR plus an applicable Eurodollar rate
margin or (ii) the Base Rate (which is defined as the highest of (a) the federal funds rate plus 0.50% , (b) the administrative agent’s prime rate or (c) the Eurodollar
Rate plus 1.00% ), plus an applicable base rate margin. The applicable Eurodollar rate margin will range from 1.50% to 2.20% per annum for LIBOR-based
borrowings and the applicable base rate margin will range from 0.50% to 1.20% per annum for Base Rate-based loans, depending on our leverage ratio.
If we obtain one additional investment grade rating from one or more of S&P or Moody's to complement our current investment grade Fitch rating, we
may elect to convert the pricing structure under the $150 Million Term Loan Facility to be based on such rating. Under this pricing structure, the applicable
Eurodollar rate margin will range from 1.40% to 2.35% per annum and the applicable base rate margin will range from 0.40% to 1.35% per annum.
We have the option to voluntarily prepay any amounts borrowed under the $150 Million Term Loan Facility in whole or in part at any time, subject to certain
notice requirements. To the extent that we prepay all or any portion of a loan prior to May 22, 2020, we will pay a prepayment premium equal to (i) if such
prepayment occurs prior to May 22, 2019, 2.00% of the principal amount so prepaid, and (ii) if such prepayment occurs on or after May 22, 2019, but prior to May
22, 2020, 1.00% of the principal amount so prepaid. Amounts borrowed under the $150 Million Term Loan Facility and repaid or prepaid may not be reborrowed.
Investment Grade Rating
In October 2018, Fitch Ratings upgraded our investment grade credit rating to BBB from BBB- with a stable outlook on the Revolver, the $100 Million
Term Loan Facility, the $150 Million Term Loan Facility, our $225 million term loan facility, our $100 million unsecured guaranteed senior notes and our $125
million unsecured guaranteed senior notes. They also upgraded our investment grade credit rating to BB+ from BB on our 5.875% Series A Cumulative
Redeemable Preferred Stock and assigned a BB+ rating on our 5.875% Series B 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.
70
Uses of Liquidity
Acquisitions
One of our most significant liquidity needs has historically been for the acquisition of real estate properties. During the year ended December 31, 2018 ,
we acquired 30 properties with a combined 3.1 million square feet, for a total gross purchase price $492.9 million , and we are actively monitoring a volume of
properties in our markets that we believe represent attractive potential investment opportunities to continue to grow our business. Subsequent to December 31,
2018, we acquired three properties, with a combined 0.7 million square feet, for a total gross purchase price of $133.8 million . As of the filing date of this Annual
Report on Form 10-K, we have approximately $311.4 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, 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.
Recurring and Nonrecurring Capital Expenditures
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. During the year ended December 31, 2018 , we
incurred $5.6 million of recurring capital expenditures, which was an increase of $3.1 million over the prior year. During the year ended December 31, 2018 , we
incurred $45.5 million of non-recurring capital expenditures, which was an increase of $10.2 million over the prior year. The increase in non-recurring capital
expenditures is primarily due to an increase in our redevelopment and repositioning activity and the growth of our overall portfolio. As discussed above under —
Factors that May Influence Future Results —Acquisitions and Value-Add Repositioning of Properties, as of December 31, 2018 , 11 of our properties were in
various stages of redevelopment and repositioning or lease-up, and we anticipate beginning repositioning work on two additional properties during 2019 . We
currently estimate that approximately $43.2 million of capital will be required over the next ten quarters (1Q-2019 through 2Q-2021) to complete the
redevelopment and repositioning of these properties. However, this estimate is based on our current construction plan and budgets, both of which are subject to
change as a result of a number of factors. 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 cash flow from operations, the issuance of
common stock under the $400 Million ATM Program and borrowings available under the Revolver.
Commitments and Contractual Obligations
The following table sets forth our principal obligations and commitments as of December 31, 2018 , including (i) scheduled principal payments and debt
maturities, (ii) periodic interest payments related to our outstanding indebtedness and interest rate swaps, (iii) office and ground lease payments and (iv) other
contractual obligations (in thousands):
Principal payments and debt maturities
Interest payments - fixed rate debt (1)
Interest payments - variable rate debt (2)
Office lease payments
Ground lease payments
Contractual obligations (3)
Total
Payments Due by Period
Less than 1 Year
(2019)
1-3 Years (2020-
2021)
3-5 Years (2022-
2023)
More than
5 Years
(After 2023)
Total
$
158 $
732 $
383,485 $
376,741 $
761,116
9,333
17,603
668
144
22,816
50,722 $
18,641
35,491
424
288
—
18,605
25,733
—
288
—
27,347
8,726
—
5,532
—
55,576 $
428,111 $
418,346 $
73,926
87,553
1,092
6,252
22,816
952,755
$
71
(1) Reflects scheduled interest payments on our fixed rate debt, including the $100 million unsecured guaranteed senior notes, the $125 million unsecured
guaranteed senior notes and the Gilbert/La Palma mortgage loan.
(2) Reflects an estimate of interest payments due on variable rate debt, including the impact of interest rate swaps. For variable rate debt where interest is paid
based on LIBOR plus an applicable LIBOR margin, we used the applicable LIBOR margin in effect as of December 31, 2018 , and the one-month LIBOR
rate of 2.5027% , as of December 31, 2018 . Furthermore, it is assumed that any maturity extension options available are not exercised.
Includes total commitments for tenant improvement and construction work related to obligations under certain tenant leases and vendor contracts. We
anticipate these obligations to be paid as incurred in 2019 and 2020, however, as the timing of these obligations is subject to a number of factors, for
purposes of this table, we have included the full amount under “Less than 1 Year ( 2019 ).”
(3)
Dividends and Distribution s
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 dividend payments to holders of our preferred stock.
On February 11, 2019 , our board of directors declared a quarterly cash dividend in the amount of $0.185 per share of common stock and a quarterly cash
distribution in the amount of $0.185 per OP Unit, to be paid on April 15, 2019 , to holders of record as of March 29, 2019 .
On February 11, 2019 , our board of directors declared a quarterly cash dividend in the amount of $0.367188 per share of our 5.875% Series A
Cumulative Redeemable Preferred Stock and $0.367188 per share of our 5.875% Series B Cumulative Redeemable Preferred Stock, to be paid on March 29, 2019 ,
to holders of record as of March 15, 2019 .
Consolidated Indebtedness
The following table sets forth certain information with respect to our consolidated indebtedness outstanding as of December 31, 2018 :
Secured Debt:
$60M Term Loan (3)
Gilbert/La Palma
Unsecured Debt:
Revolver (5)
$100 Million Term Loan Facility
$225 Million Term Loan Facility
$150 Million Term Loan Facility
$100 Million Senior Notes
$125 Million Senior Notes
Total Debt:
Maturity Date
Stated
Interest Rate
Effective
Interest Rate (1)
Principal Balance
(in thousands) (2)
Maturity Date of
Effective Swaps
8/1/2023 (3)
3/1/2031
LIBOR+1.70%
5.125%
2/12/2021 (6)
LIBOR +1.10% (7)
2/14/2022
1/14/2023
5/22/2025
8/6/2025
7/13/2027
LIBOR +1.20% (7)
LIBOR +1.20% (7)
LIBOR +1.50% (7)
4.29%
3.930%
3.619% (4) $
5.125%
3.603%
2.964% (8)
2.574% (9)
4.003%
4.290%
3.930%
3.444%
$
58,499
2/15/2019
2,617
—
100,000
8/14/2021
225,000
1/14/2022
150,000
100,000
125,000
761,116
(1)
Includes the effect of interest rate swaps that were effective as of December 31, 2018 . Assumes a one-month LIBOR rate of 2.5027% as of December 31,
2018 , as applicable. Excludes the effect of amortization of debt issuance costs, discounts and the facility fee on the Revolver.
(2) Excludes unamortized debt issuance costs and debt discounts totaling $3.7 million as of December 31, 2018 .
(3) One two-year extension is available, if certain conditions are satisfied.
(4) As of December 31, 2018 , $58.1 million of this term loan has been effectively fixed at 3.615% through the use of two interest rate swaps as follows: (i) $30
million at 3.526% with an effective date of January 15, 2015 and (ii) $28.1 million at 3.710% with an effective date of July 15, 2015.
72
(5) 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 will range from 0.15% to 0.30% depending upon our leverage ratio.
(6) Two additional six-month extensions are available, provided that certain conditions are satisfied.
(7) The LIBOR margin will range from 1.10% to 1.50% per annum for the Revolver, 1.20% to 1.70% per annum for the $100 Million Term Loan Facility,
1.20% to 1.70% per annum for the $225 million term loan facility and 1.50% to 2.20% per annum for the $150 Million Term Loan Facility, depending on our
leverage ratio, which is the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. This leverage ratio is
measured on a quarterly basis, and as a result, the effective interest rate will fluctuate from period to period.
(8) As of December 31, 2018 , the $100 Million Term Loan has been effectively fixed at 1.764% plus an applicable LIBOR margin through the use of an interest
rate swap with a notional value of $100.0 million and an effective date of December 14, 2018 .
(9) As of December 31, 2018 , the $225 million term loan facility has been effectively fixed at 1.374% plus the applicable LIBOR margin through the use of two
interest rate swaps as follows: (i) $125 million with a strike rate of 1.349% and an effective date of February 14, 2018, and (ii) $100 million with a strike rate
of 1.406% and an effective date of August 14, 2018, plus the applicable LIBOR margin.
The following table summarizes the composition of our consolidated debt between fixed-rate and variable-rate and secured and unsecured debt as of
December 31, 2018 :
Fixed vs. Variable:
Fixed
Variable
Secured vs. Unsecured:
Secured
Unsecured
Average Term
Remaining
(in years)
Stated
Interest Rate
Effective
Interest Rate (1)
Principal Balance
(in thousands) (2)
% of Total
5.3
6.4
4.9
5.6
3.306%
LIBOR + 1.50%
--
--
3.306%
4.003%
3.683%
3.423%
$
$
$
$
610,725
150,391
61,116
700,000
80%
20%
8%
92%
(1)
Includes the effect of interest rate swaps that were effective as of December 31, 2018 . Excludes the effect of amortization of debt issuance costs, discounts
and the facility fee on the Revolver. Assumes a one-month LIBOR rate of 2.5027% as of December 31, 2018 , as applicable.
(2) Excludes unamortized debt issuance costs and debt discounts totaling $3.7 million as of December 31, 2018 .
At December 31, 2018 , we had total indebtedness of $761.1 million , excluding unamortized debt issuance costs and debt discounts, with a weighted
average interest rate of approximately 3.444% and an average term-to-maturity of 5.5 years. As of December 31, 2018 , $610.7 million , or 80% , of our
outstanding indebtedness had an interest rate that was effectively fixed under either the terms of the loan ( $227.6 million ) or an interest rate swap ( $383.1 million
).
At December 31, 2018 , we had total indebtedness of approximately $761.1 million , reflecting a net debt to total combined market capitalization of
approximately 15.8% . Our total combined market capitalization is defined as the sum of the liquidation value of our preferred stock 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.
Fourth Amendment to Credit Agreement
On January 16, 2018, we entered into the Fourth Amendment to Credit Agreement (the “Fourth Amendment”) to amend our Credit Agreement, dated as
of January 14, 2016 (as amended from time to time) for our $225.0 million unsecured term loan facility (the “$225 Million Term Loan Facility”).
Amounts outstanding under the $225 Million Term Loan Facility bear interest at a rate equal to, at our option, either (i) LIBOR plus an applicable margin
that is based upon our leverage ratio or (ii) the Base Rate, as defined in the $225 Million Term Loan Facility, plus an applicable margin that is based on our
leverage ratio. The Fourth Amendment decreases the applicable margin for LIBOR-based borrowings from a range of 1.50% to 2.25% per annum to a range of
1.20% to 1.70% per annum and decreases the applicable margin for Base Rate-based borrowings from a range of 0.50% to 1.25% per annum to a range of 0.20% to
0.70% per annum.
73
If we obtain one additional investment grade rating by one or more of S&P or Moody’s to complement our current investment grade Fitch rating, we may
elect to convert the pricing structure under the $225 Million Term Loan Facility to be based on such rating. Under this pricing structure, the Fourth Amendment
decreases the applicable margin for LIBOR-based borrowings from a range of 1.40% to 2.35% per annum to a range of 0.90% to 1.75% per annum and decreases
the applicable margin for Base Rate-based borrowings from a range of 0.40% to 1.35% per annum to a range of 0.00% to 0.75% per annum.
Modification of $60 Million Term Loan
On June 27, 2018, we entered into the Second Modification Agreement (the “Modification Agreement”) to amend our Term Loan Agreement, dated as of
July 24, 2013 (as amended from time to time) for our $60.0 million term loan (the “$60 Million Term Loan”)
The Modification Agreement, among other things, (i) extends the maturity date of the $60 Million Term Loan from August 1, 2019, to August 1, 2023,
(ii) decreases the interest rate from LIBOR plus 1.90% per annum to LIBOR plus 1.70% per annum, (iii) provides for one 24-month extension option, subject to
certain terms and conditions, and (iv) amends the repayment schedule of the $60 Million Term Loan by adding 36 months of interest only payments, followed by
equal monthly payments of principal ($65,250), plus accrued interest until maturity.
Debt Covenants
The Credit Facility, the $225 Million Term Loan Facility, the $150 Million Term Loan Facility, the $100 million unsecured guaranteed senior notes (the
“$100 Million Notes”) and the $125 Million unsecured guaranteed senior notes (the “$125 Million 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 Facility, the $225 Million Term Loan Facility, and $150 Million Term Loan Facility, maintaining a ratio of secured debt to total asset
value of not more than 45%;
For the $100 Million Notes and the $125 Million Notes, maintaining a ratio of secured debt to total asset value of not more than 40%;
•
• Maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
• 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 1.50 to 1.0;
• Maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%;
• Maintaining a ratio of unencumbered NOI (as defined in each of the loan agreements) to unsecured interest expense of at least 1.75 to 1.0.
The Credit Facility, the $225 Million Term Loan Facility, the $150 Million Term Loan Facility, $100 Million Notes and the $125 Million Notes also
contain limitations on our ability to pay distributions on our common stock. Specifically, our cash dividends may not exceed the greater of (1) 95% of our FFO (as
defined in the credit agreement) and (2) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make
distributions sufficient to qualify and maintain our REIT status.
Additionally, subject to the terms of the $100 Million Notes and the $125 Million Notes (together the “Notes”), upon certain events of default, including,
but not limited to, (i) a default in the payment of any principal, make-whole payment amount, or interest under the Notes, (ii) a default in the payment of certain of
our other indebtedness, (iii) a default in compliance with the covenants set forth in the 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 Notes will become due and payable at the option of the
purchasers.
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
74
calculation, of which $2 million must be cash or cash equivalents, to be tested annually as of December 31 of each year;
• Maintaining a minimum Fair Market Net Worth (as defined in the term loan agreement) of at least $75 million, to be tested annually as of December
31 of each year.
We were in compliance with all of our quarterly and annual debt covenants as of December 31, 2018 .
Off Balance Sheet Arrangements
As of December 31, 2018 , we did not have any off-balance sheet arrangements.
Cash Flows
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
The following table summarizes the changes in net cash flows associated with our operating, investing, and financing activities for the years ended
December 31, 2018 and 2017 (in thousands):
Cash provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Year Ended December 31,
2018
2017
Change
$
$
$
102,775 $
(507,213) $
578,169 $
76,650 $
(606,900) $
521,595 $
26,125
99,687
56,574
Net cash provided by operating activities . Net cash provided by operating activities increased by $26.1 million to $102.8 million for the year ended
December 31, 2018 , compared to $76.7 million for the year ended December 31, 2017 . The increase was primarily attributable to incremental cash flows from
property acquisitions completed subsequent to January 1, 2017, and the increase in Cash NOI from our Same Properties Portfolio, partially offset by changes in
working capital and higher cash interest paid during 2018 .
Net cash used in investing activities . Net cash used in investing activities decreased by $99.7 million to $507.2 million for the year ended December 31,
2018 , compared to $606.9 million for the year ended December 31, 2017 . The decrease was primarily attributable to a $172.6 million decrease in cash paid for
property acquisitions, including acquisition related deposits, partially offset by a $51.0 million decrease in net proceeds received from the sale of properties, a
$15.6 million increase in cash paid for construction and repositioning projects, and a $6.0 million decrease in proceeds from the repayment of a note receivable in
2017.
Net cash provided by financing activities . Net cash provided by financing activities increased by $56.6 million to $578.2 million for the year ended
December 31, 2018 , compared to $521.6 million for the year ended December 31, 2017 . The increase was primarily attributable to the following: (i) an increase
of $225.6 million in net cash proceeds from the sale of shares of our common stock, (ii) an increase of $150.0 million in cash proceeds from borrowings on the
$150 Million Term Loan Facility in May 2018, (iii) a decrease of $16.0 million in paydowns on the Revolver and (iv) the repayment of two secured mortgage
loans totaling $14.9 million in 2017. These increases were partially offset by the following: (i) a decrease of $136.0 million in draws on the Revolver, (ii) a
decrease of $125.0 million in cash proceeds from the issuance of the $125 Million Notes in July 2017, (iii) a decrease of $72.5 million in net cash proceeds from
the issuance of the 5.87% Series B Cumulative Redeemable Preferred Stock in November 2017 (the “Series B Preferred Stock”), (iv) an increase of $13.7 million
in dividends and distributions paid to common stockholders and unit holders, primarily resulting from the increase in the number of common shares outstanding
and the increase in our quarterly per share cash dividend and (v) an increase of $5.0 million in dividends paid to preferred stockholders due to the issuance of the
Series B Preferred Stock in November 2017.
75
Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016
The following table summarizes the cash flows of Rexford Industrial Realty, Inc. for the years ended December 31, 2017 and 2016 (in thousands):
Cash provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Year Ended December 31,
2017
2016
Change
$
$
$
76,650 $
(606,900) $
521,595 $
56,432 $
(361,214) $
315,106 $
20,218
(245,686)
206,489
Net cash provided by operating activities . Net cash provided by operating activities increased by $20.2 million to $76.7 million for the year ended
December 31, 2017 , compared to $56.4 million for the year ended December 31, 2016 . The increase was primarily attributable to incremental cash flows from
property acquisitions completed subsequent to January 1, 2016, and the increase in Cash NOI from our Same Properties Portfolio and changes in working capital,
partially offset by higher cash interest paid in 2017.
Net cash used in investing activities . Net cash used in investing activities increased by $245.7 million to $606.9 million for the year ended December 31,
2017 , compared to $361.2 million for the year ended December 31, 2016 . The increase was primarily attributable to a $299.2 million increase in cash paid for
property acquisitions, including related deposits, partially offset by a $57.5 million increase in net proceeds received from the sale of properties.
Net cash provided by financing activities. Net cash provided by financing activities increased by $206.5 million to $521.6 million for the year ended
December 31, 2017 , compared to $315.1 million for the year ended December 31, 2016 . The increase was primarily attributable to (i) an increase of $349.0
million in draws on the Revolver, (ii) an increase of $147.5 million in net cash proceeds from the sale of shares of our common stock and (iii) an increase of $125.0
million in cash proceeds from the issuance of the $125 Million Notes in July 2017. These increases were partially offset by (i) a decrease of $225.0 million in
borrowings on the $225 Million Term Loan Facility which was fully drawn upon in April 2016, (ii) an increase of $148.5 million in paydowns on the Revolver,
(iii) the repayment of two secured mortgage loans totaling $14.9 million in 2017, (iv) a decrease of $14.2 million in net cash proceeds from the issuance of
preferred stock and (v) an increase of $10.8 million in dividends and distributions paid, primarily resulting from an increase in the number of common shares
outstanding and the issuance of the Series A Preferred Stock in August 2016.
Inflation
The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In
addition, most of the leases provide for fixed rent increases. We believe that inflationary increases to real estate taxes, utility expenses and other operating expenses
may be partially offset by the contractual rent increases and tenant payment of taxes and expenses described above. We do not believe that inflation has had a
material impact on our historical financial position or results of operations.
Ite m 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. A key market risk we face is interest rate risk. We are
exposed to interest rate changes primarily as a result of using variable-rate debt to satisfy various short-term and long-term liquidity needs, which have interest
rates based upon LIBOR. We use interest rate swaps to manage, or hedge, interest rate risks related to our borrowings. Because actual interest rate movements over
time are uncertain, our swaps pose potential interest rate risks, notably if interest rates fall. We also expose ourselves to credit risk, which we attempt to minimize
by contracting with highly-rated banking financial counterparties. For a summary of our outstanding variable-rate debt, see Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources. For a summary of our interest rate swaps, see
Note 7 to our consolidated financial statements included in Item 15 of this Report on Form 10-K.
As of December 31, 2018 , $58.1 million of the $60.0 Million Term Loan’s principal has been effectively fixed at 3.615% through the use of two interest
rate swaps, with notional values of $30.0 million and $28.1 million , respectively. The first interest rate swap, which is effective for the period from January 15,
2015 to February 15, 2019 , currently fixes the annual interest rate
76
payable at 3.526%. The second interest rate swap, which is an amortizing swap, is effective for the period from July 15, 2015 to February 15, 2019 , and currently
fixes the annual interest rate payable at 3.71%.
As of December 31, 2018 , the $100 Million Term Loan Facility has been effectively fixed through the use of one interest rate swap. The interest rate
swap has a notional value of $100.0 million , an effective date of December 14, 2018 , a maturity date of August 14, 2021 , and currently fixes the annual interest
rate payable on the $100 Million Term Loan Facility at 1.764% plus an applicable LIBOR margin under the terms of the Credit Facility.
As of December 31, 2018 , the $225 Million Term Loan Facility has been effectively fixed through the use of two interest rate swaps. The first interest
rate swap has a notional value of $125.0 million , an effective date of February 14, 2018 , a maturity date of January 14, 2022 and currently fixes the annual
interest rate payable at 1.349% plus an applicable LIBOR margin under the terms of the $225 Million Term Loan Facility. The second interest rate swap has a
notional value of $100.0 million , an effective date of August 14, 2018 , a maturity date of January 14, 2022, and currently fixes the annual interest rate payable at
1.406% plus an applicable LIBOR margin under the terms of the $225 Million Term Loan Facility.
On December 6, 2018, we entered into an interest rate swap transaction to manage our exposure to fluctuations in variable interest rate associated with the
$150 Million Term Loan. The interest rate swap has a notional value of $150.0 million with an effective date of July 22, 2019, and a maturity date of November
22, 2024. The interest rate swap will effectively fix the annual interest rate payable on the $150 Million Term Loan Facility at 2.7625% plus an applicable margin
under the terms of the $150 Million Term Loan Facility.
As of December 31, 2018 , we had total consolidated indebtedness, excluding unamortized debt issuance costs and discounts, of $761.1 million . Of this
total, $610.7 million , or 80% , had an interest rate that was effectively fixed under the terms of the loan or an interest rate swap. The remaining $150.4 million , or
20% , comprises our variable-rate debt. Based upon the amount of variable-rate debt outstanding as of December 31, 2018 , if LIBOR were to increase by 50 basis
points, the increase in interest expense on our variable-rate debt would decrease our future earnings and cash flows by approximately $0.8 million annually. If
LIBOR were to decrease by 50 basis points, the decrease in interest expense on our variable-rate debt would increase our future earnings and cash flows by
approximately $0.8 million annually.
Interest risk amounts are our management’s estimates and were determined by considering the effect of hypothetical interest rates on our financial
instruments. We calculate interest sensitivity by multiplying the amount of variable rate debt outstanding by the respective change in rate. The sensitivity analysis
does not take into consideration possible changes in the balances or fair value of our floating rate debt or the effect of any change in overall economic activity that
could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However,
due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assume no changes in our financial structure.
Item 8. Financial Statements and Supplementary Data
All information required by this item is listed in the Index to Financial Statements in Part IV, Item 15(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in
the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Co-Chief Executive Officers and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
77
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including the Co-
Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31,
2018 , the end of the period covered by this report. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures
were effective as of December 31, 2018 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no significant changes that occurred during the fourth quarter of the most recent year covered by this report in the Company’s internal
control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of, our Co-Chief Executive Officers and Chief Financial
Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and
procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our
receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company has used the criteria set
forth in the Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our
internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as
of December 31, 2018 .
The effectiveness of our internal control over financial reporting as of December 31, 2018 , has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which appears herein within Item 15. See Report of Independent Registered Public Accounting Firm.
Item 9B. Other Information.
None.
78
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will
be filed no later than 120 days after the end of our fiscal year ended December 31, 2018 and is incorporated by reference.
Item 11. Executive Compensation
The information required by Item 11 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will
be filed no later than 120 days after the end of our fiscal year ended December 31, 2018 and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will
be filed no later than 120 days after the end of our fiscal year ended December 31, 2018 and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will
be filed no later than 120 days after the end of our fiscal year ended December 31, 2018 and is incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will
be filed no later than 120 days after the end of our fiscal year ended December 31, 2018 and is incorporated by reference.
79
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2) Financial Statements and Schedules
The following financial information is included in Part IV of this Report on the pages indicated:
PART IV
Reports of Independent Registered Public Accounting Firm
Audited Consolidated Financial Statements of Rexford Industrial Realty, Inc.:
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Equity for the Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Schedule III – Real Estate and Accumulated Depreciation
F-1
F-3
F-4
F-5
F-6
F-8
F-9
F-47
All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements and notes thereto.
80
(3). Exhibits
Exhibit
Number Exhibit Description
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and Rexford Industrial Fund I, LLC
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and Rexford Industrial Fund II, LLC
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and Rexford Industrial Fund III, LLC
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and Rexford Industrial Fund IV, LLC
Agreement and Plan of Merger by and among Rexford Industrial Realty, Inc. and Rexford
Industrial Fund V REIT, LLC
Agreement and Plan of Merger by and among Rexford Industrial Realty, Inc., Rexford
Industrial Realty, L.P., and Rexford Industrial Fund V, LP
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and Allan Ziman, as Special Trustee of the Declaration of Trust of Jeanette
Rubin trust, dated August 16, 1978, as amended
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and the Contributors named therein
Contribution Agreement by and among Rexford Industrial Realty, L.P., Rexford Industrial
Realty, Inc. and Christopher Baer
Agreement and Plan of Merger by and among Rexford Industrial Realty, Inc., Rexford
Industrial Realty, L.P., Rexford Industrial Merger Sub LLC, and Rexford Industrial, LLC
Agreement and Plan of Merger by and among Rexford Industrial Realty, Inc., Rexford
Industrial Realty, L.P., Rexford Fund V Manager Merger Sub LLC, and Rexford Fund V
Manager LLC
Agreement and Plan of Merger by and among Rexford Industrial Realty, Inc., Rexford
Industrial Realty, L.P., Rexford Sponsor V Merger Sub LLC, and Rexford Sponsor V LLC
Representation, Warranty and Indemnity Agreement by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., Richard Ziman, Howard Schwimmer and
Michael S. Frankel
Indemnity Escrow Agreement, by and among Rexford Industrial Realty, Inc., Rexford
Industrial Realty, L.P., Rexford Industrial Realty, Inc., acting in the capacity of escrow
agent, Richard Ziman, Howard Schwimmer and Michael S. Frankel
Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of May 19, 2014,
among Westcore Cabot, L.P., a Delaware limited partnership, and Westcore Distribution,
LLC, Westcore Distribution II, LLC, Westcore Hunter, LLC, Westcore Salt Lake Avenue,
LLC, Westcore Valley, LLC, and Westcore Alton, LLC (all Delaware limited liability
companies) and Rexford Industrial Realty, L.P., as amended on May 27, 2014, May 30,
2014, June 4, 2014, June 13, 2014 and June 24, 2014
Purchase and Sale Agreement by and between LBA/PPF Industrial – Mason, LLC., as Seller,
and Rexford Industrial Realty, L.P., as Buyer, for 9120 Mason Avenue and 20355 Corisco
Street, Chatsworth, California Dated as of August 18, 2014
Agreement of Purchase and Sale and Joint Escrow Instructions By and Between Laro
Properties, L.P., as Seller, and Rexford Industrial Realty, L.P., a Maryland limited
partnership, as Purchaser, for 12907 Imperial Hwy, Santa Fe Springs, California, 10509
Business Drive, Fontana, California, 13231 Slover Avenue, Fontana, California, Dated as of
November 4, 2014, and as amended on November 26, 2014
Stock Purchase Agreement by and among Atlantic CT Holdings, LLC, Atlantic CT REIT,
Inc. and Rexford Industrial Realty, L.P. dated April 11, 2016.
Agreement of Purchase and Sale by and between Safari Industrial Corporation, as Seller, and
Rexford Industrial Realty, L.P., as Purchaser, dated as of May 2, 2017, as amended on July
10, 2017.
81
Form
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
File No.
001-36008
001-36008
001-36008
001-36008
001-36008
001-36008
10-Q
001-36008
001-36008
001-36008
10-Q
10-Q
10-Q
Exhibit
No.
Filing Date
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
9/3/2013
9/3/2013
9/3/2013
9/3/2013
9/3/2013
9/3/2013
9/3/2013
9/3/2013
9/3/2013
001-36008
2.10
9/3/2013
10-Q
001-36008
2.11
9/3/2013
10-Q
001-36008
2.12
9/3/2013
10-Q
001-36008
2.13
9/3/2013
10-Q
001-36008
2.14
9/3/2013
8-K/A
001-36008
2.1
7/2/2014
8-K
001-36008
2.1
9/15/2014
8-K
001-36008
2.1
12/8/2014
8-K
001-36008
2.1
4/11/2016
10-Q
001-36008
10.1
8/4/2017
2.20
2.21
3.1
3.2
3.3
3.4
4.1
4.2
4.3
10.1
10.2
10.3†
Agreement of Purchase and Sale by and between SVF Safari, LLC, as Seller, and Rexford
Industrial Realty, L.P., as Purchaser, dated as of May 2, 2017, as amended on July 10, 2017.
Purchase and Sale Agreement and Joint Escrow Instructions by and between Rexford
Industrial Realty, L.P., as Buyer, and CSHV Rancho Pacifica, LLC, as Seller, dated as of
July 5, 2017, as amended July 10, 2017.
10-Q
001-36008
10.2
8/4/2017
10-Q
001-36008
10.3
11/3/2017
Articles of Amendment and Restatement of Rexford Industrial Realty, Inc.
S-11/A
333-188806
Third Amended and Restated Bylaws of Rexford Industrial Realty, Inc.
Articles Supplementary designating the Series A Preferred Stock of Rexford Industrial
Realty, Inc.
Articles Supplementary designating the Series B Preferred Stock of Rexford Industrial
Realty, Inc.
Form of Certificate of Common Stock of Rexford Industrial Realty, Inc.
Form of Specimen Certificate of Series A Preferred Stock of Rexford Industrial Realty, Inc.
Form of Specimen Certificate of Series B Preferred Stock of Rexford Industrial Realty, Inc.
Fourth Amended and Restated Agreement of Limited Partnership of Rexford Industrial
Realty, L.P.
Registration Rights Agreement among Rexford Industrial Realty, Inc. and the persons named
therein
Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P., 2013 Incentive Award
Plan
8-K
8-A
001-36008
001-36008
8-A12B
001-36008
S-11/A
8-A
8-A12B
8-K
10-Q
10-Q
333-188806
001-36008
001-36008
001-36008
001-36008
001-36008
10.4†
Form of Restricted Stock Award Agreement under 2013 Incentive Award Plan
S-11/A
333-188806
10.5
10.6
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
Form of Indemnification Agreement between Rexford Industrial Realty, Inc. and its directors
and officers
S-11/A
333-188806
Tax Matters Agreement by and among Rexford Industrial Realty, Inc., Rexford Industrial
Realty, L.P., and each partner set forth in Schedule I, Schedule II and Schedule III thereto
Employment Agreement, dated as of July 24, 2013, between Michael S. Frankel, Rexford
Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
First Amendment to Employment Agreement, effective June 26, 2017, between Michael S.
Frankel, Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
Employment Agreement, dated as of July 24, 2013, between Howard Schwimmer, Rexford
Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
First Amendment to Employment Agreement, effective June 26, 2017, between Howard
Schwimmer, Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
Employment Agreement, effective as of November 25, 2014, between Adeel Khan, Rexford
Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
First Amendment to Employment Agreement, effective June 26, 2017, between Adeel Khan,
Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
Employment Agreement, effective as of June 26, 2017, between David E. Lanzer, Rexford
Industrial Realty, Inc. and Rexford Industrial Realty, L.P.
10-Q
10-Q
8-K
001-36008
001-36008
001-36008
10-Q
001-36008
8-K
8-K
8-K
8-K
001-36008
001-36008
001-36008
001-36008
3.1
3.1
3.3
3.3
4.1
4.1
4.1
3.2
10.2
10.3
10.4
10.5
10.6
10.8
10.2
10.9
10.3
10.1
10.4
10.1
7/15/2013
5/4/2018
8/15/2016
11/9/2017
7/15/2013
8/15/2016
11/9/2017
11/13/2017
9/3/2013
9/3/2013
7/15/2013
7/9/2013
9/3/2013
9/3/2013
6/29/2017
9/3/2013
6/29/2017
12/2/2014
6/29/2017
6/29/2017
10.14†
Rexford Industrial Realty, Inc. Non-Employee Director Compensation Program
10-K
001-36008
10.11
3/9/2015
10.15†
10.16†
10.17
10.18
Form of Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. Time-Based
LTIP Unit Agreement
Form of Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. OPP
Performance Unit Agreement
Term Loan Agreement among RIF I—Don Julian, LLC, RIF I—Lewis Road, LLC, RIF I—
Walnut, LLC, RIF I—Oxnard, LLC, RIF II—Kaiser, LLC, RIF III—Irwindale, LLC and
Rexford Business Center—Fullerton, LLC, collectively as Borrower, and Bank of America,
N.A., as Lender
The Loan Assumption Agreement dated as of November 8, 2013 between Gilbert LaPalma
Properties, LLC, and Rexford Industrial-Gilbert LaPalma, LLC, and American Security
Insurance Company, as Lender
8-K
8-K
001-36008
001-36008
10.2
10.3
12/21/2015
12/21/2015
10-Q
001-36008
10.12
9/3/2013
10-K
001-36008
10.20
3/20/2014
82
10.19
Modification and Loan Assumption Agreement, dated January 24, 2014, by and among RIF I
—Don Julian, LLC, RIF I—Lewis Road, LLC, RIF I—Oxnard, LLC, RIF I—Walnut, LLC,
REXFORD BUSINESS CENTER—FULLERTON, LLC, RIF II—Kaiser, LLC, RIF III—
Irwindale, LLC and REXFORD INDUSTRIAL—MADERA INDUSTRIAL, LLC
collectively as Borrower, and Bank of America, N.A., as Lender.
10.20
Reaffirmation of Guaranty, dated January 24, 2014 by Rexford Industrial Realty, Inc.
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Note Purchase and Guarantee Agreement, dated as of July 16, 2015 among the Rexford
Industrial Realty L.P., Rexford Industrial Realty, Inc. and the purchasers named therein.
The Assumption Agreement dated as of January 21, 2015 between Laro Properties L.P., and
Rexford Industrial-Imperial Highway, LLC, and The Lincoln National Life Insurance
Company, as Lender
Assumption Agreement dated as of December 11, 2015 between Walnut Venture, LLC, as
Borrower, Rexford Industrial-1065 Walnut LLC, as Purchaser, the individual Guarantors
named therein, Rexford Industrial Realty, Inc., as New Guarantor and The Bank of New
York Mellon Trust Company, N.A., in its capacity as directed trustee for Washington Capital
Joint Master Trust Mortgage Income Fund, as Lender.
Promissory Note dated January 14, 2014 between Walnut Venture, LLC (predecessor in
interest to Rexford Industrial - 1065 Walnut LLC), as Borrower, and Washington Capital
Joint Master Trust Mortgage Income Fund, as Lender.
Deed of Trust, Assignment of Rents and Leases, Security Agreement and UCC Financing
Statement dated as of January 14, 2014 between Walnut Venture, LLC (predecessor in
interest to Rexford Industrial - 1065 Walnut LLC), as Borrower, for the benefit of
Washington Capital Joint Master Trust Mortgage Income Fund, as Lender.
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and BB&T Capital Markets, a division of
BB&T Securities, LLC
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and BTIG, LLC
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and Capital One Securities, Inc.
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and J.P. Morgan Securities LLC
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and J.P. Morgan Securities LLC
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and Jefferies LLC
Equity Distribution Agreement, dated June 13, 2018, by and among Rexford Industrial
Realty, Inc., Rexford Industrial Realty, L.P., and Stifel, Nicolaus & Company, Incorporated
Credit Agreement, dated as of January 14, 2016, among Rexford Industrial Realty, L.P.,
Rexford Industrial Realty Inc., PNC Bank, National Association, as administrative agent,
U.S. Bank, National Association, as syndication agent, PNC Capital Markets LLC and U.S.
Bank National Association, as joint lead arrangers and joint bookrunners, and the other
lenders named therein.
10.35
Increase Certificate dated April 15, 2016.
10.36
Second Amended and Restated Credit Agreement, dated as of February 14, 2017, among
Rexford Industrial Realty, Inc., Rexford Industrial Realty, L.P., Citibank, N.A. as
administrative agent, swing line lender and letter of credit issuer, and the other lenders
named therein.
83
8-K
001-36008
10.1
8/12/2014
8-K
8-K
001-36008
001-36008
10.2
10.1
8/12/2014
7/20/2015
10-Q
001-36008
10.1
5/11/2015
10-K
001-36008
10.24
2/25/2016
10-K
001-36008
10.25
2/25/2016
10-K
001-36008
10.26
2/25/2016
8-K
001-36008
8-K
8-K
8-K
8-K
8-K
8-K
8-K
001-36008
001-36008
001-36008
001-36008
001-36008
001-36008
001-36008
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
6/13/2018
6/13/2018
6/13/2018
6/13/2018
6/13/2018
6/13/2018
6/13/2018
6/13/2018
8-K
001-36008
10.1
1/20/2016
8-K
8-K
001-36008
10.1
4/15/2016
001-36008
10.1
2/15/2017
10-K
001-36008
10.33
2/23/2017
8-K
001-36008
10.1
7/19/2017
10-Q
001-36008
10.3
8/4/2017
8-K
001-36008
10.1
1/22/2018
10-K
10-Q
001-36008
10.40
2/21/2018
001-36008
10.2
5/7/2018
8-K
001-36008
10.1
5/25/2018
8-K
001-36008
10.1
7/3/2018
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
21.1*
23.1*
24.1*
31.1*
31.2*
31.3*
32.1*
32.2*
32.3*
101.1*
*
**
†
Third Amendment to Credit Agreement, dated February 14, 2017, among Rexford Industrial
Realty, L.P., Rexford Industrial Realty Inc., PNC Bank, National Association, as
administrative agent, U.S. Bank, National Association, as syndication agent, PNC Capital
Markets LLC and U.S. Bank National Association, as joint lead arrangers and joint
bookrunners, and the other lenders named therein.
Note Purchase and Guarantee Agreement, dated as of July 13, 2017, by and among Rexford
Industrial Realty L.P., Rexford Industrial Realty, Inc. and the purchasers named therein.
Second Amendment to Note Purchase and Guarantee Agreement, dated as of June 16, 2017,
among Rexford Industrial Realty, L.P., Rexford Industrial Realty, Inc. and the purchasers
named therein.
Fourth Amendment to Credit Agreement, dated as of January 16, 2018, among Rexford
Industrial Realty, L.P., Rexford Industrial Realty Inc., PNC Bank, National Association, as
administrative agent and a lender, and the other lenders named therein.
Agreement of Purchase and Sale, dated November 30, 2017, by and between RIF IV Grand,
LLC, as Seller, and 6110-6114 Cahuenga Avenue, LLC, as Buyer.
First Amendment to Agreement of Purchase and Sale, dated January 2, 2018, by and between
RIF IV Grand, LLC, as Seller, and 6110-6114 Cahuenga Avenue, LLC as Buyer.
Credit Agreement, dated as of May 22, 2018, among Rexford Industrial Realty, L.P.,
Rexford Industrial Realty, Inc., Capital One, National Association, as administrative agent,
sole lead arranger and bookrunner and BB&T Capital Markets, as syndication agent.
Second Modification Agreement, dated June 27, 2018, by and among RIF I-Don Julian,
LLC, RIF I-Lewis Road, LLC, RIF I-Oxnard, LLC, RIF I-Walnut, LLC, Rexford Business
Center-Fullerton, LLC, RIF III-Irwindale, LLC, and Rexford Industrial-Madera Industrial,
LLC, collectively as Borrower, Rexford Industrial Realty, Inc., as Guarantor, and Bank of
America, N.A., as Lender.
List of Subsidiaries of the Company
Consent of Ernst & Young LLP
Power of Attorney (included on the signature page of this Form 10-K)
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
The following financial information from Rexford Industrial Realty, Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2018, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of
Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated
Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows and (v) the
Notes to Consolidated Financial Statements
Filed herein
Furnished herein
Compensatory plan or arrangement
84
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 15, 2019
February 15, 2019
February 15, 2019
Rexford Industrial Realty, Inc.
/s/ Michael S. Frankel
Michael S. Frankel
Co-Chief Executive Officer (Principal Executive Officer)
/s/ Howard Schwimmer
Howard Schwimmer
Co-Chief Executive Officer (Principal Executive Officer)
/s/ Adeel Khan
Adeel Khan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
85
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Rexford Industrial Realty, Inc., hereby severally constitute
Michael S. Frankel, Howard Schwimmer and Adeel Khan, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do
all such things in our names and in our capacities as officers and directors to enable Rexford Industrial Realty, Inc. to comply with the provisions of the Securities
Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
Signature
Title
Date
/s/ Michael S. Frankel
Michael S. Frankel
/s/ Howard Schwimmer
Howard Schwimmer
/s/ Adeel Khan
Adeel Khan
/s/ Richard Ziman
Richard Ziman
/s/ Robert L. Antin
Robert L. Antin
/s/ Steven C. Good
Steven C. Good
/s/ Diana J. Ingram
Diana J. Ingram
/s/ Tyler H. Rose
Tyler H. Rose
/s/ Peter Schwab
Peter Schwab
Co- Chief Executive Officer and Director
(Principal Executive Officer)
February 15, 2019
Co- Chief Executive Officer and Director
(Principal Executive Officer)
February 15, 2019
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 15, 2019
Chairman of the Board
February 15, 2019
Director
Director
Director
Director
Director
86
February 15, 2019
February 15, 2019
February 15, 2019
February 15, 2019
February 15, 2019
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rexford Industrial Realty, Inc. (the Company) as of December 31, 2018 and 2017, and the
related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December
31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 15, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
Los Angeles, California
February 15, 2019
F- 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rexford Industrial Realty, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Rexford Industrial Realty, Inc.’s (“the Company”) internal control over financial reporting as of December 31, 2018, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). In our opinion, Rexford Industrial Realty, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31,
2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance
sheets of Rexford Industrial Realty, Inc. as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, changes
in equity and cash flows for each of the three years in the period ended December 31, 2018 and the related notes and schedule listed in the Index at Item 15(a), and
our report dated February 15, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying management’s annual report on internal control over financial reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
February 15, 2019
F- 2
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands - except share and per share data)
December 31, 2018 December 31, 2017
$
1,298,957 $
1,332,438
60,024
149
24,515
2,716,083
(228,742)
2,487,341
180,601
—
4,944
22,228
14,002
1,312
55,683
5,156
8,770
6,723
925
—
2,787,685 $
997,588
1,079,746
49,692
167
34,772
2,161,965
(173,541)
1,988,424
6,620
250
3,664
15,826
12,014
1,930
49,239
5,156
7,193
6,146
2,475
12,436
2,111,373
757,371 $
668,941
2,351
21,074
15,938
52,727
23,262
6,539
—
219
21,134
11,727
18,067
19,521
6,267
243
879,262
746,119
$
$
ASSETS
Land
Buildings and improvements
Tenant improvements
Furniture, fixtures, and equipment
Construction in progress
Total real estate held for investment
Accumulated depreciation
Investments in real estate, net
Cash and cash equivalents
Restricted cash
Rents and other receivables, net
Deferred rent receivable, net
Deferred leasing costs, net
Deferred loan costs, net
Acquired lease intangible assets, net
Acquired indefinite-lived intangible
Interest rate swap asset
Other assets
Acquisition related deposits
Assets associated with real estate held for sale, net
Total Assets
LIABILITIES & EQUITY
Liabilities
Notes payable
Interest rate swap liability
Accounts payable, accrued expenses and other liabilities
Dividends payable
Acquired lease intangible liabilities, net
Tenant security deposits
Prepaid rents
Liabilities associated with real estate held for sale
Total Liabilities
Equity
Rexford Industrial Realty, Inc. stockholders’ equity
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized,
5.875% series A cumulative redeemable preferred stock, 3,600,000 shares outstanding as of December 31,
2018 and December 31, 2017 ($90,000 liquidation preference)
5.875% series B cumulative redeemable preferred stock, 3,000,000 shares outstanding as of December 31,
2018 and December 31, 2017 ($75,000 liquidation preference)
Common Stock, $0.01 par value per share, 490,000,000 authorized and 96,810,504 and 78,495,882 outstanding
as of December 31, 2018 and December 31, 2017, respectively
Additional paid in capital
Cumulative distributions in excess of earnings
Accumulated other comprehensive income
Total stockholders’ equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
86,651
72,443
966
1,798,113
(88,341)
6,262
1,876,094
32,329
1,908,423
$
2,787,685 $
86,651
73,062
782
1,239,810
(67,058)
6,799
1,340,046
25,208
1,365,254
2,111,373
The accompanying notes are an integral part of these consolidated financial statements.
F- 3
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands - except share and per share data)
Year Ended December 31,
2018
2017
2016
$
177,568 $
136,185 $
RENTAL REVENUES
Rental income
Tenant reimbursements
Other income
TOTAL RENTAL REVENUES
Management, leasing and development services
Interest income
TOTAL REVENUES
OPERATING EXPENSES
Property expenses
General and administrative
Depreciation and amortization
TOTAL OPERATING EXPENSES
OTHER EXPENSE
Acquisition expenses
Interest expense
TOTAL OTHER EXPENSES
TOTAL EXPENSES
Equity in income from unconsolidated real estate entities
Gain on extinguishment of debt
Gain on sale of real estate
NET INCOME
Less: net income attributable to noncontrolling interest
NET INCOME ATTRIBUTABLE TO REXFORD INDUSTRIAL REALTY, INC.
Less: preferred stock dividends
Less: earnings allocated to participating securities
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
Net income attributable to common stockholders per share - basic
Net income attributable to common stockholders per share - diluted
Weighted average shares of common stock outstanding - basic
Weighted average shares of common stock outstanding - diluted
161,355
126,192
32,195
880
210,643
473
1,378
212,494
51,671
25,194
80,042
156,907
318
25,416
25,734
182,641
—
—
17,222
47,075
(865)
46,210
(9,694)
(378)
23,363
869
160,417
493
445
42,139
21,610
64,852
128,601
454
20,209
20,663
149,264
11
25
29,573
41,700
(988)
40,712
(5,875)
(410)
107,594
16,723
943
125,260
473
459
33,619
17,415
51,407
102,441
1,855
14,848
16,703
119,144
1,451
—
17,377
25,876
(750)
25,126
(1,983)
(302)
22,841
0.36
0.36
$
$
$
36,138 $
34,427 $
0.42 $
0.41 $
0.48 $
0.48 $
86,824,235
87,335,749
71,198,862
71,598,654
62,723,021
62,965,554
The accompanying notes are an integral part of these consolidated financial statements.
F- 4
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income: cash flow hedge adjustment
Comprehensive income
Less: comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to common stockholders
Year Ended December 31,
2018
2017
2016
47,075 $
41,700 $
(555)
46,520
(847)
3,425
45,125
(1,059)
45,673 $
44,066 $
25,876
6,693
32,569
(965)
31,604
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F- 5
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands - except share data)
Common
Stock
Additional
Paid-in
Capital
Cumulative
Distributions
in Excess of
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2015
$
Issuance of preferred stock
Issuance of common stock
Offering costs
Share-based compensation
Shares acquired to satisfy employee
tax withholding requirements on
vesting restricted stock
Conversion of units to common stock
Acquisition of real estate portfolio
Net income
Other comprehensive income
Preferred stock dividends
Common stock dividends
Distributions
Balance at December 31, 2016
$
Issuance of preferred stock
Issuance of common stock
Offering costs
Share-based compensation
Shares acquired to satisfy employee
tax withholding requirements on
vesting restricted stock
Conversion of units to common stock
Redemption of preferred stock in
connection with liquidation of private
REIT
Net income
Other comprehensive income
Preferred stock dividends
Common stock dividends
Distributions
Preferred
Stock
Number of
Shares
— 55,598,684 $
90,000
—
— 10,752,683
—
79,736
(3,349)
—
—
—
—
1,983
—
(1,983)
—
—
(36,374)
59,646
—
—
—
—
—
—
86,651 66,454,375 $
75,000
—
— 11,968,927
—
68,768
(2,525)
—
—
5,875
—
(5,288)
—
—
—
—
—
—
—
—
(48,103)
$
(3,033)
$
—
—
—
—
—
—
—
23,143
—
—
(34,317)
—
—
—
—
—
—
—
—
—
6,478
—
—
—
(59,277)
$
3,445
$
—
—
—
—
—
—
—
34,837
—
—
(42,618)
—
—
—
—
—
—
—
—
—
3,354
—
—
—
Total
Stockholders’
Equity
672,139 $
90,000
191,990
(12,011)
2,010
(747)
630
—
25,126
6,478
(1,983)
(34,317)
—
939,315 $
75,000
336,634
(8,259)
2,146
(1,568)
618
—
40,712
3,354
(5,288)
(42,618)
—
Noncontrolling
Interests
21,605
Total Equity
$
693,744
—
—
—
1,972
—
(630)
125
750
215
—
—
(1,212)
22,825
$
—
—
—
3,414
—
(618)
(125)
988
71
—
—
(1,347)
90,000
191,990
(12,011)
3,982
(747)
—
125
25,876
6,693
(1,983)
(34,317)
(1,212)
962,140
75,000
336,634
(8,259)
5,560
(1,568)
—
(125)
41,700
3,425
(5,288)
(42,618)
(1,347)
553 $ 722,722 $
—
108
—
1
—
191,882
(8,662)
2,009
(747)
630
—
—
—
—
—
—
—
—
—
—
—
—
—
—
662 $ 907,834 $
—
119
—
1
—
336,515
(5,734)
2,145
—
—
—
—
—
—
782 $1,239,810 $
—
—
—
—
—
—
F- 6
Balance at December 31, 2017
$ 159,713 78,495,882 $
(67,058)
$
6,799
$ 1,340,046 $
25,208
$
1,365,254
—
—
(57,444)
61,256
—
—
(1,568)
618
Issuance of common stock
Offering costs
Share-based compensation
Shares acquired to satisfy employee
tax withholding requirements on
vesting restricted stock
Conversion of units to common stock
Net income
Other comprehensive loss
Preferred stock dividends
Common stock dividends
Distributions
Preferred
Stock
Number of
Shares
Common
Stock
— 18,177,242
(32)
—
91,529
—
182
—
1
Additional
Paid-in
Capital
565,447
(9,077)
1,904
—
—
9,694
—
(10,281)
—
—
(21,324)
67,175
—
—
—
—
—
—
1
—
—
—
—
—
966 $1,798,113 $
(594)
623
—
—
—
—
—
Cumulative
Distributions
in Excess of
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
—
—
—
—
—
36,516
—
—
(57,799)
—
—
—
—
—
—
—
(537)
—
—
—
Total
Stockholders’
Equity
565,629
(9,109)
1,905
(594)
624
46,210
(537)
(10,281)
(57,799)
—
Noncontrolling
Interests
Total Equity
—
—
8,497
—
(624)
865
(18)
—
—
(1,599)
565,629
(9,109)
10,402
(594)
—
47,075
(555)
(10,281)
(57,799)
(1,599)
Balance at December 31, 2018
$ 159,094 96,810,504 $
(88,341)
$
6,262
$ 1,876,094 $
32,329
$
1,908,423
The accompanying notes are an integral part of these consolidated financial statements.
F- 7
REXFORD INDUSTRIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in income from unconsolidated real estate entities
Provision for doubtful accounts
Depreciation and amortization
Amortization of (below) above market lease intangibles, net
Amortization of loan origination fees
Deferred interest income on notes receivable
Gain on extinguishment of debt
Gain on sale of real estate
Amortization of loan costs
Amortization of discount (premium) on notes payable, net
Equity based compensation expense
Straight-line rent
Change in working capital components:
Rents and other receivables
Deferred leasing costs
Other assets
Accounts payable, accrued expenses and other liabilities
Tenant security deposits
Prepaid rents
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investments in real estate
Capital expenditures
Payments for deposits on real estate acquisitions
Distributions from unconsolidated real estate entities
Issuance of notes receivable
Principal repayments of notes receivable
Proceeds from deposit on real estate sale
Proceeds from sale of real estate
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net
Issuance of common stock, net
Proceeds from notes payable
Repayment of notes payable
Debt issuance costs
Debt extinguishment costs
Redemption of preferred stock in connection with liquidation of private REIT
Dividends paid to preferred stockholders
Dividends paid to common stockholders
Distributions paid to common unitholders
Repurchase of common shares to satisfy employee tax withholding requirements
Net cash provided by financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Year Ended December 31,
2018
2017
2016
$
47,075 $
41,700 $
25,876
—
1,098
80,042
(5,981)
—
—
—
(17,222)
1,332
5
10,147
(6,477)
(2,347)
(6,212)
(1,271)
651
2,731
(796)
102,775
(494,202)
(57,951)
(25)
—
—
—
—
44,965
(507,213)
—
556,520
401,000
(311,541)
(1,748)
—
—
(10,281)
(53,691)
(1,496)
(594)
578,169
173,731
6,870
(11)
1,061
64,852
(2,270)
(150)
84
(25)
(29,573)
1,147
(169)
5,398
(4,737)
(2,007)
(5,693)
(1,491)
4,203
2,580
1,751
76,650
(664,361)
(42,313)
(2,475)
11
—
6,000
250
95,988
(606,900)
72,475
330,900
612,000
(442,818)
(2,268)
(193)
(125)
(5,288)
(40,207)
(1,313)
(1,568)
521,595
(8,655)
15,525
(1,451)
1,287
51,407
(78)
(150)
(84)
—
(17,377)
1,014
(238)
3,835
(4,507)
(988)
(5,596)
71
1,667
2,155
(411)
56,432
(367,621)
(31,928)
—
5,530
(5,700)
—
—
38,505
(361,214)
86,651
183,386
263,000
(179,223)
(1,925)
—
—
(1,983)
(32,852)
(1,201)
(747)
315,106
10,324
5,201
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $2,053, $1,694 and $1,653 for 2018, 2017 and
2016, respectively)
Supplemental disclosure of noncash investing and financing transactions:
Increase in capital expenditure accrual
Accrual of dividends
$
$
$
$
180,601 $
6,870 $
15,525
23,791 $
18,423 $
13,943
81 $
15,938 $
2,216 $
11,727 $
1,284
9,282
The accompanying notes are an integral part of these consolidated financial statements.
F- 8
REXFORD INDUSTRIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service real estate investment trust (“REIT”) focused on owning and operating
industrial properties in Southern California infill markets. We were formed as a Maryland corporation on January 18, 2013 and Rexford Industrial Realty, L.P. (the
“Operating Partnership”), of which we are the sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling
interest in our Operating Partnership and its subsidiaries, we own, manage, lease, acquire and develop industrial real estate located in Southern California infill
markets, and from time to time, acquire or provide mortgage debt secured by industrial property. As of December 31, 2018 , our consolidated portfolio consisted of
176 properties with approximately 21.3 million rentable square feet. In addition, we currently manage an additional 20 properties with approximately 1.2 million
rentable square feet.
The terms “us,” “we,” “our,” and the “Company” as used in these financial statements refer to Rexford Industrial Realty, Inc. and its subsidiaries
(including our Operating Partnership).
2.
Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying financial statements are the consolidated financial statements of Rexford Industrial Realty, Inc. and its subsidiaries, including our
Operating Partnership. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
Under consolidation guidance, we have determined that our Operating Partnership is a variable interest entity because the holders of limited partnership
interests do not have substantive kick-out rights or participating rights. Furthermore, we are the primary beneficiary of the Operating Partnership because we have
the obligation to absorb losses and the right to receive benefits from the Operating Partnership and the exclusive power to direct the activities of the Operating
Partnership. As of December 31, 2018 and 2017 , the assets and liabilities of the Company and the Operating Partnership are substantially the same, as the
Company does not have any significant assets other than its investment in the Operating Partnership.
The accompanying consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”)
as established by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification including modifications issued under Accounting
Standards Updates (“ASUs”). Any reference to the number of properties, buildings and square footage are unaudited and outside the scope of our independent
auditor’s audit of our financial statements in accordance with the standards of the Public Company Accounting Oversight Board.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported
amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair
value due to the short-term maturity of these investments.
Restricted Cash
Restricted cash is generally comprised of cash proceeds related to property dispositions that are being held by qualified intermediaries for purposes of
facilitating tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code (“1031 Exchange”).
As of December 31, 2018 , we did no t have a balance in restricted cash. As of December 31, 2017 , the $250,000 balance in restricted cash was related to a non-
refundable deposit we received in connection with the execution of a contract to sell our property located at 700 Allen Avenue.
F- 9
Restricted cash balances are included with cash and cash equivalents balances as of the beginning and ending of each period presented in the consolidated
statements of cash flows. The following table provides a reconciliation of our cash and cash equivalents and restricted cash as of December 31, 2018 and 2017 (in
thousands):
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash
Investment in Real Estate
Acquisitions
December 31, 2018
December 31, 2017
$
$
180,601 $
—
180,601 $
6,620
250
6,870
Effective January 1, 2017, we adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations - Clarifying the Definition of a Business
(“ASU 2017-01’), which provides a new framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. Under
ASU 2017-01, when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar
assets, the set of assets and activities is not a business. ASU 2017-01 also revises the definition of a business to include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create an output.
We evaluated the acquisitions that we completed during the years ended December 31, 2018 and 2017 , and determined that under this framework these
transactions should be accounted for as asset acquisitions. We expect that most of our property acquisitions will generally not meet the revised definition of a
business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or because the acquisition does
not include a substantive process.
For acquisitions that are accounted for as asset acquisitions, because they do not meet the business combination accounting criteria, we allocate the cost of
the acquisition, which includes the purchase price and associated acquisition transaction costs, to the individual assets acquired and liabilities assumed on a relative
fair value basis. These individual assets and liabilities typically include land, building and improvements, tenant improvements, intangible assets and liabilities
related to above and below market leases, intangible assets related to in-place leases, and from time to time, assumed debt. As there is no measurement period
concept for an asset acquisition, the allocated cost of the acquired assets is finalized in the period in which the acquisition occurs.
We determine the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. This “as-if vacant” value is
estimated using an income, or discounted cash flow, approach that relies upon Level 3 inputs, which are unobservable inputs based on the Company’s assumptions
about the assumptions a market participant would use. These Level 3 inputs include discount rates, capitalization rates, market rents and comparable sales data for
similar properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market
and economic conditions. In calculating the “as-if-vacant” value for acquisitions completed during the year ended December 31, 2018 , we used discount rates
ranging from 5.50% to 7.50% and capitalization rates ranging from 4.25% to 6.25% .
In determining the fair value of intangible lease assets or liabilities, we also consider Level 3 inputs. Acquired above- and below-market leases are valued
based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease
for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases, if applicable. The estimated fair
value of acquired in-place at-market tenant leases are the costs that would have been incurred to lease the property to the occupancy level of the property at the date
of acquisition. Such estimates include the value associated with leasing commissions, legal and other costs, as well as the estimated period necessary to lease such
property to its occupancy level at the time of its acquisition. In determining the fair value of acquisitions completed during the year ended December 31, 2018 , we
used an estimated average lease-up period ranging from six to twelve months.
The difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and
amortized to “interest expense” over the life of the debt assumed. The valuation of assumed liabilities is based on our estimate of the current market rates for
similar liabilities in effect at the acquisition date.
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Capitalization of Costs
We capitalize direct costs incurred in developing, renovating, rehabilitating and improving real estate assets as part of the investment basis. This includes
certain general and administrative costs, including payroll, bonus, and noncash equity compensation of the personnel performing development, renovations and
rehabilitation if such costs are identifiable to a specific activity to get the real estate asset ready for its intended use. During the development and construction
periods of a project, we also capitalize interest, real estate taxes and insurance costs. We cease capitalization of costs upon substantial completion of the project,
but no later than one year from cessation of major construction activity. If some portions of a project are substantially complete and ready for use and other
portions have not yet reached that stage, we cease capitalizing costs on the completed portion of the project but continue to capitalize for the incomplete portion of
the project. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred.
We capitalized interest costs of $2.1 million , $1.7 million and $1.7 million during the years ended December 31, 2018 , 2017 and 2016 , respectively. We
capitalized real estate taxes and insurance aggregating $0.9 million , $1.2 million , and $0.8 million and during the years ended December 31, 2018 , 2017 and
2016 , respectively. We capitalized compensation costs for employees who provide construction services of $2.2 million , $1.9 million and $1.0 million during the
years ended December 31, 2018 , 2017 and 2016 , respectively.
Depreciation and Amortization
Real estate, including land, building and land improvements, tenant improvements, furniture, fixtures and equipment and intangible lease assets and
liabilities are stated at historical cost less accumulated depreciation and amortization, unless circumstances indicate that the cost cannot be recovered, in which
case, the carrying value of the property is reduced to estimated fair value as discussed below in our policy with regard to impairment of long-lived assets. We
estimate the depreciable portion of our real estate assets and related useful lives in order to record depreciation expense.
The values allocated to buildings, site improvements, in-place lease intangibles and tenant improvements are depreciated on a straight-line basis using an
estimated remaining life of 10 - 30 years for buildings, 5 - 20 years for site improvements, and the shorter of the estimated useful life or respective lease term for
in-place lease intangibles and tenant improvements.
As discussed above in— Investments In Real Estate — Acquisitions , in connection with property acquisitions, we may acquire leases with rental rates
above or below the market rental rates. Such differences are recorded as an acquired lease intangible asset or liability and amortized to “rental revenues” over the
remaining term of the related leases.
Our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate a change in the useful life, which requires
significant judgment regarding the economic obsolescence of tangible and intangible assets.
Assets Held for Sale
We classify a property as held for sale when all of the criteria set forth in ASC Topic 360: Property, Plant and Equipment (“ASC 360”) have been met.
The criteria are as follows: (i) management, having the authority to approve the action, commits to a plan to sell the property; (ii) the property is available for
immediate sale in its present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to
complete the plan to sell have been initiated; (iv) the sale of the property is probable and is expected to be completed within one year; (v) the property is being
actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is
unlikely that significant changes to the plan will be made or that the plan will be withdrawn. At the time we classify a property as held for sale, we cease recording
depreciation and amortization. A property classified as held for sale is measured and reported at the lower of its carrying amount or its estimated fair value less cost
to sell. See Note 12.
Deferred Leasing Costs
We capitalize costs directly related to the successful origination of a lease. These costs include leasing commissions paid to third parties for new leases or
lease renewals, as well as an allocation of compensation costs, including payroll, bonus and non-cash equity compensation, of employees who spend time on lease
origination activities. In determining the amount of compensation costs to be capitalized for these employees, allocations are made based on estimates of the actual
amount of time spent working on successful leases in comparison to time spent on unsuccessful origination efforts. We capitalized compensation costs for these
employees of $1.0 million , $1.0 million and $0.6 million during the years ended December 31, 2018 , 2017 and 2016 , respectively.
Impairment of Long-Lived Assets
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In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC 360, we assess the carrying values of our
respective long-lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully
recoverable.
Recoverability of real estate assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. To
review real estate assets for recoverability, we consider current market conditions as well as our intent with respect to holding or disposing of the asset. The intent
with regard to the underlying assets might change as market conditions and other factors change. Fair value is determined through various valuation techniques,
including discounted cash flow models, applying a capitalization rate to estimated net operating income of a property, quoted market values and third party
appraisals, where considered necessary. The use of projected future cash flows is based on assumptions that are consistent with estimates of future expectations and
the strategic plan used to manage our underlying business. If our analysis indicates that the carrying value of the real estate asset is not recoverable on an
undiscounted cash flow basis, we will recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the
real estate property.
Assumptions and estimates used in the recoverability analyses for future cash flows, discount rates and capitalization rates are complex and subjective.
Changes in economic and operating conditions or our intent with respect to our investment that occur subsequent to our impairment analyses could impact these
assumptions and result in future impairment of our real estate properties.
Investment in Unconsolidated Real Estate Entities
Investments in unconsolidated real estate entities in which we have the ability to exercise significant influence (but not control) are accounted for under
the equity method of investment. Under the equity method, we initially record our investment at cost, and subsequently adjust for equity in earnings or losses and
cash contributions and distributions. Any difference between the carrying amount of these investments on the balance sheet and the underlying equity in net assets
is amortized as an adjustment to equity in income (loss) from unconsolidated real estate over the life of the related asset. Under the equity method of accounting,
our net equity investment is reflected within the consolidated balance sheets, and our share of net income or loss from the joint ventures is included within the
consolidated statements of operations. Furthermore, distributions received from equity method investments are classified as either operating cash inflows or
investing cash inflows in the consolidated statements of cash flows using the “nature of the distribution approach,” in which each distribution is evaluated on the
basis of the source of the payment. See Note 11.
Income Taxes
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with our initial taxable year
ended December 31, 2013. To qualify as a REIT, we are required (among other things) to distribute at least 90% of our REIT taxable income to our stockholders
and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock
ownership. Provided we qualify for taxation as a REIT, we are generally not subject to corporate-level income tax on the earnings distributed currently to our
stockholders that we derive from our REIT qualifying activities. If we fail to qualify as a REIT in any taxable year, and were unable to avail ourselves of certain
savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable
alternative minimum tax.
In addition, we are subject to taxation by various state and local jurisdictions, including those in which we transact business or reside. Our non-taxable
REIT subsidiaries, including our Operating Partnership, are either partnerships or disregarded entities for federal income tax purposes. Under applicable federal
and state income tax rules, the allocated share of net income or loss from disregarded entities and flow-through entities such as partnerships is reportable in the
income tax returns of the respective equity holders. Accordingly, no income tax provision is included in the accompanying consolidated financial statements for the
years ended December 31, 2018 , 2017 and 2016 .
We periodically evaluate our tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a
tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of December 31, 2018 and 2017 , we have not
established a liability for uncertain tax positions.
F- 12
Derivative Instruments and Hedging Activities
ASC Topic 815: Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to
provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for
derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial
performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as
quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in
derivative instruments.
As required by ASC 815, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends
on the intended use of the derivative, and whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the
hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in
the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives
designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow
hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the
changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted
transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting
does not apply or we elect not to apply hedge accounting. See Note 7.
Revenue Recognition
Our primary sources of revenue are rental income, tenant reimbursements, other income, management, leasing and development services and gains on
sale of real estate.
Rental Income
Minimum annual rental revenues are recognized in rental income on a straight-line basis over the term of the related lease, regardless of when payments
are contractually due. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. Lease termination
fees, which are included in rental income, are amortized over the remaining term of the lease until we have no continuing obligation to provide services to such
former tenant.
Tenant Reimbursements
Our lease agreements with tenants generally contain provisions that require tenants to reimburse us for certain property expenses. Estimated
reimbursements from tenants for real estate taxes, common area maintenance and other recoverable operating expenses are recognized as revenues in the period
that the expenses are incurred. Subsequent to year-end, we perform final reconciliations on a lease-by-lease basis and bill or credit each tenant for any cumulative
annual adjustments.
Other Income
Other income primarily consists of late payment fees and other miscellaneous tenant related revenues.
Management, leasing and development services
We provide property management services and leasing services to related party and third-party property owners, the customer, in exchange for fees and
commissions. Property management services include performing property inspections, monitoring repairs and maintenance, negotiating vendor contracts,
maintaining tenant relations and providing financial and accounting oversight. For these services, we earn monthly management fees, which are based on a fixed
percentage of each managed property’s monthly tenant cash receipts. We have determined that control over the services is passed to the customer simultaneously
as performance occurs. Accordingly, management fee revenue is earned as the services are provided to our customers.
Leasing commissions are earned when we provide leasing services that result in an executed lease with a tenant. We have determined that control over the
services is transferred to the customer upon execution of each lease agreement. We earn leasing commissions based on a fixed percentage of rental income
generated for each executed lease agreement and there is no variable income component.
F- 13
Gain or Loss on Sale of Real Estate
We account for dispositions of real estate properties, which are considered nonfinancial assets, in accordance with ASC 610-20: Other Income—Gains
and Losses from the Derecognition of Nonfinancial Assets and recognize a gain or loss on sale of real estate upon transferring control of the nonfinancial asset to
the purchaser, which is generally satisfied at the time of sale. If we were to conduct a partial sale of real estate by transferring a controlling interest in a
nonfinancial asset, while retaining a noncontrolling ownership interest, we would measure any noncontrolling interest received or retained at fair value, and
recognize a full gain or loss. If we receive consideration before transferring control of a nonfinancial asset, we recognize a contract liability. If we transfer control
of the asset before consideration is received, we recognize a contract asset.
Valuation of Receivables
We may be subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. In order to mitigate these risks, we
perform credit reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired. We
specifically analyze aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance
for doubtful accounts. As a result of our periodic analysis, we maintain an allowance for estimated losses that may result from the inability of our tenants to make
required payments. This estimate requires significant judgment related to the lessees’ ability to fulfill their obligations under the leases. We believe our allowance
for doubtful accounts is adequate for our outstanding receivables for the periods presented. If a tenant is insolvent or files for bankruptcy protection and fails to
make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances, which
include amounts recognized as straight-line revenue not realizable until future periods.
Rents and other receivables, net and deferred rent receivables, net consisted of the following as of December 31, 2018 and 2017 (in thousands):
Rents and other receivables
Allowance for doubtful accounts
Rents and other receivables, net
Deferred rent receivable
Allowance for doubtful accounts
Deferred rent receivable, net
December 31,
2018
2017
6,772 $
(1,828)
4,944 $
22,420 $
(192)
22,228 $
5,369
(1,705)
3,664
15,912
(86)
15,826
$
$
$
$
We recorded the following provision for doubtful accounts, including amounts related to deferred rents, as a reduction to rental revenues in our
consolidated statements of operations for the years ended December 31, 2018 , 2017 and 2016 , (in thousands):
Provision for doubtful accounts
$
1,203 $
1,118 $
1,233
Year Ended December 31,
2018
2017
2016
Debt Issuance Costs
Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a reduction from the carrying value of the debt liability. This
offset against the debt liability is treated similarly to a debt discount, which effectively reduces the proceeds of a borrowing. For line of credit arrangements, we
present debt issuance costs as an asset and amortize the cost over the term of the line of credit arrangement. See Note 5.
Equity Based Compensation
We account for equity based compensation in accordance with ASC Topic 718 Compensation – Stock Compensation . Total compensation cost for all
share-based awards is based on the estimated fair market value on the grant date. For share-based awards that vest based solely on a service condition, we
recognize compensation cost on a straight-line basis over the total requisite service period for the entire award. For share-based awards that vest based on a market
condition, we recognize
F- 14
compensation cost on a straight-line basis over the requisite service period of each separately vesting tranche. For share-based awards that vest based on a
performance condition, we recognize compensation cost based on the number of awards that are expected to vest based on the probable outcome of the
performance condition. Compensation cost for these awards will be adjusted to reflect the number of awards that ultimately vest. Forfeitures are recognized in the
period in which they occur. See Note 14.
Equity Offering Costs
Underwriting commissions and offering costs related to our common stock issuances have been reflected as a reduction of additional paid-in capital.
Underwriting commissions and offering costs related to our preferred stock issuances have been reflected as a direct reduction of the preferred stock balance.
Earnings Per Share
We calculate earnings per share (“EPS”) in accordance with ASC 260 – Earnings Per Share (“ASC 260”). Under ASC 260, nonvested share-based
payment awards that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in computing basic EPS pursuant to the two-
class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends declared (or accumulated)
and their respective participation rights in undistributed earnings.
Basic EPS is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common
stock outstanding for the period.
Diluted EPS is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common
stock outstanding determined for the basic EPS computation plus the effect of any dilutive securities. We include unvested shares of restricted stock and unvested
LTIP units in the computation of diluted EPS by using the more dilutive of the two-class method or treasury stock method. We include unvested performance units
as contingently issuable shares in the computation of diluted EPS once the market criteria are met, assuming that the end of the reporting period is the end of the
contingency period. Any anti-dilutive securities are excluded from the diluted EPS calculation. See Note 15.
Segment Reporting
Management views the Company as a single segment based on its method of internal reporting in addition to its allocation of capital and resources.
Adoption of New Accounting Pronouncements
Revenue Recognition (ASC 606)
On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequently issued additional ASUs which
provide practical expedients, technical corrections and clarification of the new standard (collectively “ASC 606”). ASC 606 establishes principles for reporting the
nature, amount, timing and uncertainty of revenues and cash flows arising from an entity’s contracts with customers. The core principle of the new standard is that
an entity recognizes revenue to represent the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services.
Effective January 1, 2018, we adopted ASC 606 using the modified retrospective approach. We evaluated each of our revenue streams to determine the
sources of revenue that are impacted by ASC 606 and concluded that management services and leasing services fall within the scope of ASC 606. We evaluated
the impact of ASC 606 on the timing and pattern of revenue recognition for our management and leasing services contracts and determined there was no change in
the timing or pattern of revenue recognition for these contracts as compared to prior accounting practice. Accordingly, the adoption of ASC 606 did not have an
impact on our consolidated financial statements. See “Revenue Recognition” above for further details.
Derecognition of Non-Financial Assets
On February 22, 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-
20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05). ASU 2017-05 clarifies the
scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers.
Effective January 1, 2018, we adopted ASU 2017-05 using the modified retrospective approach. There was no cumulative effect adjustment recorded to retained
earnings as of January 1, 2018 as a result of the adoption of ASU 2017-05.
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Derivatives
On August 28, 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging
Activities (“ASU 2017-12”). ASU 2017-12 simplifies hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness and
generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. For cash flow
hedges, ASU 2017-12 requires all changes in the fair value of the hedging instrument to be deferred in other comprehensive income and recognized in earnings at
the same time that the hedged item affects earnings. ASU 2017-12 also eases certain documentation and assessment requirements and modifies the accounting for
components excluded from the assessment of hedge effectiveness. ASU 2017-12 is effective for interim and annual reporting periods beginning after December 15,
2018, with early adoption permitted. Effective January 1, 2018, we early adopted ASU 2017-12 using the modified retrospective approach. We did not record a
cumulative effect adjustment to eliminate ineffectiveness amounts as we did not have any ineffectiveness in our historical consolidated financial statements. In
addition, certain provisions of ASU 2017-12 require modifications to existing presentation and disclosure requirements on a prospective basis. See Note 7 for
disclosures relating to our derivative instruments.
Stock Compensation
On May 10, 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-
09”), which clarifies the scope of modification accounting for share-based compensation arrangements by providing guidance on the types of changes to the terms
and conditions of share-based compensation awards to which an entity would be required to apply modification accounting under ASC 718. ASU 2017-09 is
effective for annual periods beginning after December 15, 2017, with early adoption permitted. Effective January 1, 2018, we adopted ASU 2017-09. There was no
change to our consolidated financial statements or notes to our consolidated financial statements as a result of the adoption of ASU 2017-09.
Recently Issued Accounting Pronouncements
Changes to GAAP are established by the FASB in the form of ASUs to the FASB’s Accounting Standards Codification. We consider the applicability and
impact of all ASUs.
Leases
On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principals for the recognition, measurement, presentation
and disclosure of leases for both lessees and lessors. ASU 2016-02 was subsequently amended by the following updates: (i) ASU 2018-10, Leases: Codification
Improvements to Topic 842, (ii) ASU 2018-11, Leases: Targeted Improvements and (iii) ASU 2018-20, Leases: Narrow-Scope Improvements for Lessors
(collectively referred to as “ASC 842”).
ASC 842 is effective for annual periods beginning after December 15, 2018, which for us is January 1, 2019, and early adoption is permitted. The
transition provisions of ASC 842 are required to be applied using a modified retrospective approach, however, an entity can choose to apply the provisions either at
the beginning of the earliest comparative period presented in the consolidated financial statements or at the beginning of the period of adoption (the “effective date
method”). Under the effective date method, an entity would continue to apply the legacy lease guidance in current GAAP (“ASC 840”), including its disclosure
requirements, in the comparative periods presented in the financial statements. Under either transition method, ASC 842 includes the following practical
expedients that can be elected by an entity to be applied to all leases that commence before the effective date: (i) the “package of practical expedients” which
allows an entity to not reassess (a) whether expired or existing contracts contain leases, (b) lease classification for expired or existing leases and (c) whether
previously capitalized initial direct costs would qualify for capitalization under ASC 842 and (ii) the “use of hindsight practical expedient”. On January 1, 2019, we
adopted ASC 842 using the effective date method and elected the package of practical expedients. We did not elect the use of hindsight practical expedient.
ASC 842 requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease
liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset
that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASC 842 also requires lessees to classify leases as either finance
or operating leases based on whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification is used to evaluate
whether the lease expense should be recognized based on an effective interest method or on a straight-line basis over the term of the lease. As of December 31,
2018 , we are the lessee on one ground lease and multiple office space leases, which are classified as operating leases under ASC 840. As we are electing the
package of practical expedients, these leases will continue to be classified as operating leases subsequent to the adoption of ASC 842. On January 1, 2019, we will
record a lease liability and a right-of-use asset for these leases on our consolidated balance sheets and on a go-forward basis, lease
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expense will be recognized on a straight-line basis over the remaining term of the lease. See Note 10 for a summary of rent expense and remaining contractual
payments under our ground lease and office space leases.
ASC 842 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct
financing leases, and operating leases. ASC 842 specifies that payments for certain lease-related services (for example, maintenance services, including common
area maintenance), which are often included in lease agreements, represent “non-lease” components that will become subject to the guidance in ASC 606 when
ASC 842 becomes effective. ASC 842 provides lessors with an optional practical expedient, to elect to not separate non-lease components from associated lease
components (the “non-separation practical expedient”) if both of the following criteria are met: (1) the timing and pattern of transfer of the lease and non-lease
component(s) are the same and (2) the lease component would be classified as an operating lease, if it were accounted for separately. If both criteria are met, the
combined component is accounted for under ASC 606 if the non-lease component is the predominant component of the combined component; otherwise, the
combined component is accounted for as an operating lease under ASC 842. On January 1, 2019, we elected the non-separation practical expedient as part of our
adoption of ASC 842. We anticipate that the majority of our leases will qualify for the non-separation practical expedient.
Additionally, ASC 842 requires lessors to capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As a result,
compensation costs related to employees who spend time on lease origination activities, regardless of whether their time leads to a successful lease, will no longer
be capitalized as initial direct costs and instead will be expensed as incurred. See “Deferred Leasing Costs” above for a summary of employee related
compensation costs capitalized during the years ended December 31, 2018 , 2017 and 2016 .
3.
Investments in Real Estate
REIT Portfolio Acquisition
On April 11, 2016, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) to acquire a private real estate investment trust (the
“private REIT”) that owned a portfolio of nine industrial properties totaling approximately 1.5 million rentable square feet (the “REIT Portfolio”) from a third-
party seller in exchange for approximately $191.0 million in cash, exclusive of closing costs and credits (the “REIT Portfolio Acquisition”).
On April 15, 2016, pursuant to the Stock Purchase Agreement, we consummated the transaction. As part of the REIT Portfolio Acquisition, we acquired
100% of the private REIT’s common stock and 575 of 700 issued and outstanding shares of the private REIT’s 12.5% cumulative non-voting preferred stock (the
“preferred stock”). The remaining 125 shares of preferred stock, which were held by unaffiliated third parties, were not immediately redeemed by us and remained
outstanding in order to help us comply with federal income tax regulations applicable to REITs.
On June 22, 2017, we adopted a plan of liquidation and dissolution of the private REIT, and on December 31, 2017 , we completed the liquidation of the
private REIT by distributing all assets to the Operating Partnership. As part of the liquidation process, we paid a liquidating distribution of $1,000 per share, or an
aggregate liquidating distribution of $125,000 , as payment in full for the redemption of the remaining 125 share of preferred stock not held by us.
F- 17
Acquisition Summary
The following table sets forth the wholly-owned industrial properties we acquired during the year ended December 31, 2018 :
Property
Submarket
13971 Norton Avenue (2)
Ontario Airport Commerce Center (3)
16010 Shoemaker Avenue (4)
4039 Calle Platino (5)
851 Lawrence Drive (6)
1581 North Main Street (6)
1580 West Carson Street (7)
Inland Empire West
Inland Empire West
Los Angeles - Mid-Counties
San Diego - North County
Ventura
Orange County - North
Los Angeles - South Bay
660 & 664 North Twin Oaks Valley
Road (6)
1190 Stanford Court (6)
5300 Sheila Street (6)
15777 Gateway Circle (4)
1998 Surveyor Avenue (4)(8)
3100 Fujita Street (4)
4416 Azusa Canyon Road (4)
1420 Mckinley Avenue (4)
12154 Montague Street (4)
10747 Norwalk Boulevard (4)
29003 Avenue Sherman (4)
16121 Carmenita Road (4)
1332-1340 Rocky Point Drive (4)
6131-6133 Innovation Way (4)
263-321 Gardena Boulevard (4)
9200 Mason Avenue (4)
9230 Mason Avenue (4)
9250 Mason Avenue (4)
9171 Oso Avenue (4)
5593-5595 Fresca Drive (4)
6100 Sheila Street (4)
14421-14441 Bonelli Street (9)
San Diego - North County
Orange County - North
Los Angeles - Central
Orange - OC Airport
Ventura
Los Angeles - South Bay
Los Angeles - San Gabriel Valley
Los Angeles - South Bay
Los Angeles - San Fernando Valley
Los Angeles - Mid-Counties
Los Angeles - San Fernando Valley
Los Angeles - Mid-Counties
San Diego - North County
San Diego - North County
Los Angeles - South Bay
Los Angeles - San Fernando Valley
Los Angeles - San Fernando Valley
Los Angeles - San Fernando Valley
Los Angeles - San Fernando Valley
Orange County - North
Los Angeles - Central
Los Angeles - San Gabriel Valley
Date of
Acquisition
Rentable
Square Feet
Number of
Buildings
Contractual
Purchase Price
(1)
(in thousands)
1/17/2018
2/23/2018
3/13/2018
4/4/2018
4/5/2018
4/6/2018
4/26/2018
4/26/2018
5/8/2018
5/9/2018
5/17/2018
5/18/2018
5/31/2018
6/8/2018
6/12/2018
6/29/2018
7/18/2018
7/19/2018
8/14/2018
10/17/2018
11/6/2018
11/8/2018
11/30/2018
11/30/2018
11/30/2018
11/30/2018
11/30/2018
12/7/2018
12/28/2018
103,208
213,603
115,600
143,274
49,976
39,661
43,787
96,993
34,494
695,120
37,592
— (8)
91,516
70,510
136,685
122,868
52,691
68,123
108,500
73,747
114,572
55,238
80,410
54,000
56,292
65,560
115,200
74,527
148,740
$
1
3
1
1
1
1
1
2
1
1
1
— (8)
1
1
1
1
1
1
1
3
2
2
1
1
1
1
1
1
1
11,364
24,122
17,218
20,000
6,600
7,150
7,500
14,000
6,080
121,000
8,050
5,821
14,037
12,000
30,000
22,525
10,835
9,500
13,300
10,170
24,200
16,101
9,041
5,300
6,626
8,565
14,000
18,245
19,500
Total 2018 Wholly-Owned Property Acquisitions
3,062,487
35
$
492,850
F- 18
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Represents the gross contractual purchase price before prorations, closing costs and other acquisition related costs.
This acquisition was partially funded through a 1031 Exchange using $10.7 million of net cash proceeds from the sale of our property located at 8900-8980
Benson Avenue and 5637 Arrow Highway and borrowings under our unsecured revolving credit facility.
The Ontario Airport Commerce Center is an industrial park which includes two properties located at 1900 Proforma Avenue and 1910-1920 Archibald
Avenue. This acquisition was partially funded through a 1031 Exchange using $10.3 million of net cash proceeds from the sale of our property located at
700 Allen Avenue and 1851 Flower Street, borrowings under our unsecured revolving credit facility and available cash on hand. On May 9, 2018, we sold
the property located at 1910-1920 Archibald Avenue (see Note 12).
This acquisition was funded with available cash on hand.
This acquisition was partially funded through a 1031 Exchange using $4.2 million of net cash proceeds from the sale of our property located at 200-220
South Grand Avenue and borrowings under our unsecured revolving credit facility.
This acquisition was funded with available cash on hand and borrowings under our unsecured revolving credit facility.
This acquisition was partially funded through a 1031 Exchange using $1.6 million of net cash proceeds from the sale of our property located at 6770 Central
Avenue—Building B and borrowings under our unsecured revolving credit facility.
(8) We acquired 1998 Surveyor Avenue as an under-construction building for a cost of $5.8 million and the assumption of the seller’s fixed-price construction
contracts with approximately $4.4 million of remaining costs. At completion, the property will be one single-tenant building containing 56,306 rentable
square feet.
This acquisition was partially funded through a 1031 Exchange using $9.8 million of net cash proceeds from the sale of three buildings located at 311 East
157th Street, 329 East 157th Street and 319 East 157th Street and available cash on hand.
(9)
F- 19
The following table sets forth the wholly-owned industrial properties we acquired during the year ended December 31, 2017 :
Property
Submarket
28901-28903 Avenue Paine (2)
2390 Ward Avenue (3)
Safari Business Center (4)
4175 Conant Street (5)
5421 Argosy Avenue (5)
14820-14830 Carmenita Road (2)
3002-3072 Inland Empire Blvd (2)
17000 Kingsview Avenue (2)
Rancho Pacifica Park (6)
11190 White Birch Drive (2)
4832-4850 Azusa Canyon Road (2)
1825 Soto Street (5)
19402 Susana Road (5)
13225 Western Avenue (5)
15401 Figueroa Street (5)
8542 Slauson Avenue (5)
687 Eucalyptus Avenue (7)
302 Rockefeller Avenue (2)
4355 Brickell Street (2)
12622-12632 Monarch Street (8)
8315 Hanan Way (2)
Los Angeles - San Fernando Valley
Ventura
Inland Empire - West
Los Angeles - South Bay
Orange County - West
Los Angeles - Mid-Counties
Inland Empire - West
Los Angeles - South Bay
Los Angeles - South Bay
Inland Empire - West
Los Angeles - San Gabriel Valley
Los Angeles - Central
Los Angeles - South Bay
Los Angeles - South Bay
Los Angeles - South Bay
Los Angeles - Central
Los Angeles - South Bay
Inland Empire - West
Inland Empire - West
Orange County - West
Los Angeles - Central
Date of
Acquisition
Rentable
Square Feet
Number of
Buildings
Contractual
Purchase Price (1)
(in thousands)
2/17/2017
4/28/2017
5/24/2017
6/14/2017
6/15/2017
6/30/2017
7/3/2017
7/11/2017
7/18/2017
7/20/2017
7/28/2017
9/8/2017
9/13/2017
10/31/2017
10/31/2017
11/28/2017
11/28/2017
12/28/2017
12/28/2017
12/28/2017
12/28/2017
111,346
138,700
1,138,090
142,593
35,321
198,062
218,407
100,121
1,170,806
201,035
87,421
25,040
15,433
21,010
38,584
24,679
143,436
99,282
95,644
121,225
100,692
$
1
1
16
1
1
3
4
1
6
1
1
2
1
1
1
1
1
1
1
2
1
17,060
16,499
141,200
30,600
5,300
30,650
26,900
13,986
210,500
19,810
14,550
3,475
3,942
2,255
4,435
9,015
53,875
14,520
13,110
20,545
14,500
Total 2017 Wholly-Owned Property Acquisitions
4,226,927
48
$
666,727
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Represents the gross contractual purchase price before prorations and closing costs.
This acquisition was funded with available cash on hand and borrowings under our unsecured revolving credit facility.
This acquisition was partially funded through a 1031 Exchange using $6.5 million of net cash proceeds from the sale of our property located at 9375
Archibald Avenue and borrowings under our unsecured revolving credit facility.
This acquisition was partially funded through a 1031 Exchange using $39.7 million of net cash proceeds from the sale of our property located at 2535
Midway Drive, borrowings under our unsecured revolving credit facility and available cash on hand.
This acquisition was funded with available cash on hand.
This acquisition was partially funded with net cash proceeds from the issuance of $125.0 million of senior unsecured guaranteed notes and borrowings
under our unsecured revolving credit facility.
This acquisition was partially funded through a 1031 Exchange using $29.3 million of net cash proceeds from the sale of our properties located at 12345
First American Way and 9401 De Soto Avenue and available cash on hand.
This acquisition was partially funded through a 1031 Exchange using $2.2 million of net cash proceeds from the sale of our property located at 77-700
Enfield Lane and available cash on hand.
F- 20
The following table summarizes the fair value of amounts recognized for each major class of asset and liability for the acquisitions noted in the table
above, as of the date of acquisition (in thousands):
Assets:
Land
Buildings and improvements
Tenant improvements
Acquired lease intangible assets (1)
Other acquired assets (2)
Total assets acquired
Liabilities:
Acquired lease intangible liabilities (3)
Other assumed liabilities (2)
Total liabilities assumed
Net assets acquired
2018
2017
Total Acquisitions
Rancho Pacifica
Park
Other Acquisitions Total Acquisitions
$
312,410 $
198,362
2,739
26,085
206
121,329 $
85,336
1,440
8,852
5
233,207 $
202,137
5,570
22,414
223
$
539,802 $
216,962 $
463,551 $
41,778
2,247
44,025 $
495,777 $
6,264
1,126
7,390 $
209,572 $
6,338
2,424
8,762 $
454,789 $
$
$
354,536
287,473
7,010
31,266
228
680,513
12,602
3,550
16,152
664,361
(1) For the 2018 acquisitions, acquired lease intangible assets are comprised of $25.5 million of in-place lease intangibles with a weighted average amortization
period of 14.8 years and $0.6 million of above-market lease intangibles with a weighted average amortization period of 7.1 years. For Rancho Pacifica Park,
acquired lease intangible assets is comprised of in-place lease intangibles with a weighted average amortization period of 3.2 years. For the other 2017
acquisitions, acquired lease intangible assets is comprised of $21.0 million of in-place lease intangibles with a weighted average amortization period of 5.6
years and $1.4 million of above-market lease intangibles with a weighted average amortization period of 10.6 years.
Includes other working capital assets acquired and liabilities assumed at the time of acquisition.
(2)
(3) Represents below-market lease intangibles with a weighted average amortization period of 26.3 years, 3.5 years and 3.4 years, for the 2018 acquisitions,
Rancho Pacifica Park and the other 2017 acquisitions, respectively.
F- 21
4. Acquired Lease Intangibles
The following table summarizes our acquisition-related intangible assets, including the value of in-place leases and above-market tenant leases, and our
acquisition-related intangible liabilities, including below-market tenant leases and above-market ground leases as follows (in thousands):
December 31,
2018
2017
Acquired Lease Intangible Assets:
In-place lease intangibles
Accumulated amortization
In-place lease intangibles, net
Above-market tenant leases
Accumulated amortization
Above-market tenant leases, net
Acquired lease intangible assets, net
Acquired Lease Intangible Liabilities:
Below-market tenant leases
Accumulated accretion
Below-market tenant leases, net
Above-market ground lease
Accumulated accretion
Above-market ground lease, net
Acquired lease intangible liabilities, net
$
$
$
$
$
$
$
$
$
$
119,517 $
(68,481)
51,036 $
11,125 $
(6,478)
4,647 $
55,683 $
(66,388) $
13,778
(52,610) $
(290) $
173
(117) $
(52,727) $
95,750
(51,735)
44,015
10,718
(5,494)
5,224
49,239
(24,843)
6,925
(17,918)
(290)
141
(149)
(18,067)
The following table summarizes the amortization related to our acquired lease intangible assets and liabilities for the reported periods noted below (in
thousands):
In-place lease intangibles (1)
Net below market tenant leases (2)
Above-market ground lease (3)
Year Ended December 31,
2018
2017
2016
$
$
$
18,135 $
(5,949) $
(32) $
15,598 $
(2,238) $
(32) $
13,560
(46)
(32)
(1) The amortization of in-place lease intangibles is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods
presented.
(2) The amortization of net below market tenant leases is recorded as an increase to rental revenues in the consolidated statements of operations for the periods
presented.
(3) The accretion of the above-market ground lease is recorded as a decrease to property expenses in the consolidated statements of operations for the periods
presented.
F- 22
The following table summarizes the estimated amortization/(accretion) of our acquisition-related intangibles as of December 31, 2018 , for the next five
years and thereafter (in thousands):
Year Ending
2019
2020
2021
2022
2023
Thereafter
Total
In-place Leases (1)
Net Above/(Below)
Market Operating
Leases (2)
Above Market
Ground Lease (3)
$
$
15,560 $
10,852
5,943
2,631
1,734
14,316
51,036 $
(7,156)
$
(4,983)
(3,059)
(1,800)
(1,465)
(29,500)
(47,963)
$
(32)
(32)
(32)
(21)
—
—
(117)
(1) Estimated amounts of amortization will be recorded to depreciation and amortization expense in the consolidated statements of operation.
(2) Estimated amounts of amortization will be recorded as a net increase to rental revenues in the consolidated statements of operations.
(3) Estimated amounts of accretion will be recorded as a decrease to property expenses in the consolidated statements of operations.
5.
Notes Payable
The following table summarizes the balance of our indebtedness as of December 31, 2018 and 2017 (in thousands):
Principal amount
Less: unamortized discount and debt issuance costs (1)
Carrying value
December 31, 2018
December 31, 2017
$
$
761,116 $
(3,745)
757,371 $
671,658
(2,717)
668,941
(1) Excludes unamortized debt issuance costs related to our unsecured revolving credit facility, which are presented in the line item “Deferred loan costs, net” in
the consolidated balance sheets.
F- 23
The following table summarizes the components and significant terms of our indebtedness as of December 31, 2018 and 2017 (dollars in thousands):
December 31, 2018
December 31, 2017
Unamortized
Discount and
Debt Issuance
Costs
Principal
Amount
Principal
Amount
Unamortized
Discount and
Debt Issuance
Costs
Contractual
Maturity Date
Stated Interest
Rate (1)
Effective
Interest Rate
(2)
Secured Debt
$60M Term Loan (3) $
Gilbert/La Palma (5)
58,499 $
2,617
(230)
$
58,891 $
(129)
2,767
(125)
(138)
8/1/2023 (4) LIBOR+1.70%
3/1/2031
5.125%
3.70%
5.45%
Unsecured Debt
$100M Term Loan
Facility
Revolving Credit
Facility
$225M Term Loan
Facility
$150M Term Loan
Facility
$100M Notes
$125M Notes
Total
100,000
(260)
100,000
(343)
2/14/2022
LIBOR+1.20% (6)
3.05% (7)
—
—
60,000
—
2/12/2021 (8) LIBOR+1.10% (6)(9)
3.60%
225,000
(1,476)
225,000
(1,398)
1/14/2023
LIBOR+1.20% (6)
2.74% (10)
150,000
(1,028)
—
100,000
125,000
(500)
(122)
100,000
125,000
—
(576)
(137)
5/22/2025
LIBOR+1.50% (6)
8/6/2025
7/13/2027
4.290%
3.930%
4.11%
4.37%
3.94%
$
761,116 $
(3,745)
$
671,658 $
(2,717)
(1)
(2)
(3)
(7)
(8)
(9)
Reflects the contractual interest rate under the terms of the loan, as of December 31, 2018 .
Reflects the effective interest rate as of December 31, 2018 , which includes the effect of the amortization of discounts and debt issuance costs and the effect
of interest rate swaps that are effective as of December 31, 2018 .
This term loan was modified on June 27, 2018, as further described below under “Modification of $60 Million Term Loan”. This term loan is secured by six
properties. As of December 31, 2018 , the interest rate on this variable-rate term loan has been effectively fixed through the use of two interest rate swaps.
See Note 7 for details.
One 24-month extension available at the borrower’s option.
(4)
(5) Monthly payments of interest and principal are based on a 20 -year amortization table.
(6)
The LIBOR margin will range from 1.20% to 1.70% per annum for the $100.0 million term loan facility, 1.10% to 1.50% per annum for the unsecured
revolving credit facility, 1.20% to 1.70% per annum for the $225.0 million term loan facility and 1.50% to 2.20% per annum for the $150.0 million term
loan facility, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value, or leverage ratio, which
is measured on a quarterly basis.
As of December 31, 2018 , interest on the $100.0 million term loan facility has been effectively fixed through the use of one interest rate swap. See Note 7
for details.
Two additional six -month extensions are available at the borrower’s option.
The unsecured revolving credit facility is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount,
regardless of usage. The applicable facility fee will range from 0.15% to 0.30% per annum depending upon our leverage ratio.
(10) As of December 31, 2018 , interest on the $225.0 million term loan facility has been effectively fixed through the use of two interest rate swaps. See Note
7 for details.
F- 24
Contractual Debt Maturities
The following table summarizes the contractual debt maturities and scheduled amortization payments, excluding debt discounts and debt issuance costs,
as of December 31, 2018 , and does not consider extension options available to us as noted in the table above (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
$
158
166
566
100,967
282,518
376,741
761,116
Fourth Amendment to Credit Agreement
On January 16, 2018, we entered into the Fourth Amendment to Credit Agreement (the “Fourth Amendment”) to amend our Credit Agreement, dated as
of January 14, 2016 (as amended from time to time) for our $225.0 million unsecured term loan facility (the “$225 Million Term Loan Facility”).
Amounts outstanding under the $225 Million Term Loan Facility bear interest at a rate equal to, at our option, either (i) LIBOR plus an applicable margin
that is based upon our leverage ratio or (ii) the Base Rate, as defined in the $225 Million Term Loan Facility, plus an applicable margin that is based on our
leverage ratio. The Fourth Amendment decreases the applicable margin for LIBOR-based borrowings from a range of 1.50% to 2.25% per annum to a range of
1.20% to 1.70% per annum and decreases the applicable margin for Base Rate-based borrowings from a range of 0.50% to 1.25% per annum to a range of 0.20% to
0.70% per annum.
If we obtain one additional investment grade rating by one or more of Standard & Poor's Financial Services (“S&P”) or Moody's Investor Services
(“Moody’s”) to complement our current investment grade Fitch rating, we may elect to convert the pricing structure under the $225 Million Term Loan Facility to
be based on such rating. Under this pricing structure, the Fourth Amendment decreases the applicable margin for LIBOR-based borrowings from a range of 1.40%
to 2.35% per annum to a range of 0.90% to 1.75% per annum and decreases the applicable margin for Base Rate-based borrowings from a range of 0.40% to 1.35%
per annum to a range of 0.00% to 0.75% per annum.
$150 Million Term Loan Facility
On May 22, 2018, we entered into a credit agreement for a senior unsecured term loan facility (the “$150 Million Term Loan Facility”) that initially
permits aggregate borrowings of up to $150.0 million , the total of which we borrowed the same day at closing. Under the terms of the $150 Million Term Loan
Facility, we may request additional incremental term loans in an aggregate amount not to exceed $100.0 million . Any increase in borrowings is subject to the
satisfaction of specified conditions and the identification of lenders willing to make available such additional amounts. The maturity date of the $150 Million Term
Loan Facility is May 22, 2025.
Interest on the $150 Million Term Loan Facility is generally to be paid based upon, at our option, either (i) LIBOR plus an applicable Eurodollar rate
margin or (ii) the Base Rate (which is defined as the highest of (a) the federal funds rate plus 0.50% , (b) the administrative agent’s prime rate or (c) the Eurodollar
Rate plus 1.00% ), plus an applicable base rate margin. The applicable Eurodollar rate margin will range from 1.50% to 2.20% per annum for LIBOR-based
borrowings and the applicable base rate margin will range from 0.50% to 1.20% per annum for Base Rate-based loans, depending on our leverage ratio.
If we obtain one additional investment grade rating from one or more of S&P or Moody's to complement our current investment grade Fitch rating, we
may elect to convert the pricing structure under the $150 Million Term Loan Facility to be based on such rating. Under this pricing structure, the applicable
Eurodollar rate margin will range from 1.40% to 2.35% per annum and the applicable base rate margin will range from 0.40% to 1.35% per annum.
We have the option to voluntarily prepay any amounts borrowed under the $150 Million Term Loan Facility in whole or in part at any time, subject to certain
notice requirements. To the extent that we prepay all or any portion of a loan prior to May 22, 2020, we will pay a prepayment premium equal to (i) if such
prepayment occurs prior to May 22, 2019, 2.00% of the principal amount so prepaid, and (ii) if such prepayment occurs on or after May 22, 2019, but prior to May
22, 2020, 1.00% of the principal amount so prepaid. Amounts borrowed under the $150 Million Term Loan Facility and repaid or prepaid may not be reborrowed.
F- 25
The $150 Million Term Loan Facility contains usual and customary events of default including defaults in the payment of principal, interest or fees,
defaults in compliance with the covenants set forth in the credit agreement and other loan documentation, cross-defaults to certain other indebtedness, and
bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the $150 Million Term Loan Facility, all outstanding principal
amounts, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
Modification of $60 Million Term Loan
On June 27, 2018, we entered into the Second Modification Agreement (the “Modification Agreement”) to amend our Term Loan Agreement, dated as of
July 24, 2013 (as amended from time to time) for our $60.0 million term loan (the “$60 Million Term Loan”)
The Modification Agreement, among other things, (i) extends the maturity date of the $60 Million Term Loan from August 1, 2019, to August 1, 2023,
(ii) decreases the interest rate from LIBOR plus 1.90% per annum to LIBOR plus 1.70% per annum, (iii) provides for one 24-month extension option, subject to
certain terms and conditions, and (iv) amends the repayment schedule of the $60 Million Term Loan by adding 36 months of interest only payments, followed by
equal monthly payments of principal ($65,250 ), plus accrued interest until maturity.
Note Purchase and Guarantee Agreement
On July 13, 2017, we entered into a Note Purchase and Guarantee Agreement (the “NPGA”) for the private placement of $125.0 million of senior
unsecured guaranteed notes, maturing on July 13, 2027, with a fixed annual interest rate of 3.93% (the “$125 Million Notes”). On July 13, 2017, we completed the
issuance of the $125 Million Notes.
Interest on the $125 Million Notes will be payable quarterly on the thirteenth day of January, April, July and October in each year, commencing on
October 13, 2017. We may prepay at any time all or, from time to time, any part of the $125 Million Notes, in amounts not less than $2.5 million of the $125
Million Notes then outstanding at (i) 100% of the principal amount so prepaid and (ii) the Make-Whole Amount (as defined in the NPGA). Our obligations under
the $125 Million Notes are fully and unconditionally guaranteed by us and certain of our subsidiaries.
Loan Repayments
On March 20, 2017, we repaid the $9.7 million outstanding balance on the 1065 Walnut Street mortgage loan in advance of the February 1, 2019 maturity
date. In connection with the repayment, we incurred prepayment fees of $0.2 million which is included in loss on extinguishment of debt in the accompanying
consolidated statements of operations. The loss on extinguishment of debt also includes the write-off of the unamortized debt premium of $0.2 million .
On December 29, 2017, we repaid the $5.1 million outstanding balance on the 12907 Imperial Highway mortgage loan. We did not incur any prepayment
penalties for repaying in advance of the maturity date of April 1, 2018.
Credit Facility
We have a $450.0 million senior unsecured credit facility (the “Credit Facility”), comprised of a $350.0 million unsecured revolving credit facility (the
"Revolver") and a $100.0 million unsecured term loan facility (the "$100 Million Term Loan Facility"). The Revolver is scheduled to mature on February 12, 2021
, and has two six -month extension options available, and the $100 Million Term Loan Facility is scheduled to mature on February 14, 2022 . Under the terms of
the Credit Facility, we may request additional lender commitments up to an additional aggregate $550.0 million , which may be comprised of additional revolving
commitments under the Revolver, an increase to the $100 Million Term Loan Facility, additional term loan tranches or any combination of the foregoing.
Interest on the Credit Facility, is generally to be paid based upon, at our option, either (i) LIBOR plus an applicable margin that is based upon our
leverage ratio or (ii) the Base Rate (which is defined as the highest of (a) the federal funds rate plus 0.50% , (b) the administrative agent’s prime rate or (c) the
Eurodollar Rate plus 1.00% ) plus an applicable margin that is based on our leverage ratio. The margins for the Revolver range in amount from 1.10% to 1.50% per
annum for LIBOR-based loans and 0.10% to 0.50% per annum for Base Rate-based loans, depending on our leverage ratio. The margins for the $100 Million Term
Loan Facility range in amount from 1.20% to 1.70% per annum for LIBOR-based loans and 0.20% to 0.70% per annum for Base Rate-based loans, depending on
our leverage ratio.
If we attain one additional investment grade rating by one or more of S&P or Moody’s to complement our current investment grade Fitch rating, we may
elect to convert the pricing structure under the Credit Facility to be based on such rating. In that event, the margins for the Revolver will range in amount from
0.825% to 1.55% per annum for LIBOR-based loans and 0.00% to 0.55% per annum for Base Rate-based loans, depending on such rating, and the margins for the
$100 Million Term Loan Facility will range in amount from 0.90% to 1.75% per annum for LIBOR-based loans and 0.00% to 0.75% per annum for Base Rate-
based loans, depending on such rating.
F- 26
In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable facility fee, based upon our leverage
ratio, on each lender's commitment amount under the Revolver, regardless of usage. The applicable facility fee will range in amount from 0.15% to 0.30% per
annum, depending on our leverage ratio. In the event that we convert the pricing structure to be based on an investment-grade rating, the applicable facility fee will
range in amount from 0.125% to 0.30% per annum, depending on such rating.
The Credit Facility is guaranteed by the Company and by substantially all of the current and to-be-formed subsidiaries of the Operating Partnership that
own an unencumbered property. The Credit Facility is not secured by the Company’s properties or by equity interests in the subsidiaries that hold such properties.
The Revolver and the $100 Million Term Loan Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts
borrowed under the $100 Million Term Loan Facility and repaid or prepaid may not be reborrowed.
The Credit Facility contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance
with the covenants set forth in the Credit Facility and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency
defaults. If an event of default occurs and is continuing under the Credit Facility, the unpaid principal amount of all outstanding loans, together with all accrued
unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
On December 31, 2018 , we did not have any borrowings outstanding under the Revolver, leaving $350.0 million available for additional borrowings.
Debt Covenants
The Credit Facility, the $225 Million Term Loan Facility, the $150 Million Term Loan Facility, the $100 million unsecured guaranteed senior notes (the
“$100 Million Notes”), and the $125 Million 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 Facility, the $225 Million Term Loan Facility and the $150 Million Term Loan Facility, maintaining a ratio of secured debt to total asset
value of not more than 45% ;
• For the $100 Million Notes and the $125 Million Notes, maintaining a ratio of secured debt to total asset value of not more than 40% ;
• Maintaining a ratio of total secured recourse debt to total asset value of not more than 15% ;
• 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 Credit Facility, the $225 Million Term Loan Facility, the $150 Million Term Loan Facility, the $100 Million Notes and the $125 Million
Notes also provide that our distributions may not exceed the greater of (i) 95.0% of our funds from operations or (ii) the amount required for us to qualify
and maintain our status as a REIT and avoid the payment of federal or state income or excise tax in any 12-month period.
Subject to the terms of the $100 Million Notes and the $125 Million Notes (together the “Notes”), upon certain events of default, including, but not
limited to, (i) a default in the payment of any principal, make-whole payment amount, or interest under the Notes, (ii) a default in the payment of certain of our
other indebtedness, (iii) a default in compliance with the covenants set forth in the 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 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 Notes from either S&P, Moody’s or Fitch. In October 2018, Fitch upgraded
the investment grade rating of the Notes to BBB from BBB- with a stable outlook.
F- 27
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) $5,000,000 , or (ii) $8,000,000 if we elect to have
Line of Credit Availability (as defined in the term loan agreement) included in the calculation, of which $2,000,000 must be cash or cash equivalents, to
be tested 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 $75,000,000 , to be tested annually as of December 31
of each year.
We were in compliance with all of our quarterly and annual debt covenants as of December 31, 2018 .
6.
Operating Leases
We lease space to tenants primarily under non-cancelable operating leases that generally contain provisions for a base rent plus reimbursement for
certain operating expenses. Operating expense reimbursements are reflected in the consolidated statements of operations as tenant reimbursements.
Future minimum base rent under operating leases as of December 31, 2018 is summarized as follows (in thousands):
For the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
$
$
176,915
150,598
113,063
80,776
59,082
210,814
791,248
The future minimum base rent in the table above excludes tenant reimbursements, amortization of adjustments for deferred rent receivables and the
amortization of above/below-market lease intangibles.
7.
Interest Rate Swaps
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide
variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and
credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into
derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the
value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our
known or expected cash payments principally related to our borrowings.
Derivative Instruments
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish
this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts
from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. We do not
use derivatives for trading or speculative purposes.
F- 28
The effective portion of the change in fair value of derivatives designated and qualifying as cash flow hedges is initially recorded in accumulated other
comprehensive income/(loss) (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
On December 6, 2018, we entered into an interest rate swap transaction to manage our exposure to fluctuations in variable interest rate associated with the
$150 Million Term Loan. The interest rate swap has a notional value of $150.0 million with an effective date of July 22, 2019, and a maturity date of November
22, 2024. Under the terms of the interest rate swap, we are required to make certain monthly fixed rate payments calculated on a notional value of $150 million ,
while the counterparty is obligated to make certain monthly floating rate payments based on LIBOR to us referencing the same notional value. The interest rate
swap will effectively fix the annual interest rate payable on this notional value of the Company’s debt which may exist under the $150 Million Term Loan Facility
at 2.7625% plus an applicable margin under the terms of the $150 Million Term Loan Facility.
The following table sets forth a summary of our interest rate swaps at December 31, 2018 and December 31, 2017 (dollars in thousands):
Current Notional Amount (2)
Fair Value of Interest Rate Derivative
Assets/(Derivative Liabilities) (2)
Derivative
Instrument
Effective Date Maturity Date
LIBOR
Interest
Strike Rate
Interest Rate Swap
Interest Rate Swap
1/15/2015
7/15/2015
2/15/2019
1.8260% $
2/15/2019
2.0100% $
Interest Rate Swap
8/14/2015
12/14/2018
1.7900% $
Interest Rate Swap
2/16/2016
12/14/2018
2.0050% $
Interest Rate Swap
Interest Rate Swap
2/14/2018
8/14/2018
1/14/2022
1.3490% $
1/14/2022
1.4060% $
Interest Rate Swap
12/14/2018
8/14/2021
1.7640% $
Interest Rate Swap
7/22/2019
11/22/2024
2.7625% $
December 31,
2018
December 31,
2017
December 31,
2018
December 31, 2017
30,000 $
28,108 $
— $
— $
125,000 $
100,000 $
100,000 $
— $
30,000 $
28,891 $
50,000 $
50,000 $
— $
— $
— $
— $
25
17
$
$
— $
— $
3,974
3,023
1,731
(2,351)
$
$
$
$
(11)
(70)
(18)
(120)
3,582
2,521
1,090
—
(1) Represents the notional value of swaps that are effective as of the balance sheet date presented.
(2) The fair value of derivative assets are included in the line item “Interest rate swap asset” in the accompanying consolidated balance sheets and the fair value of
(derivative liabilities) are included in the line item “Interest rate swap liability” in the accompanying consolidated balance sheets.
The following table sets forth the impact of our interest rate swaps on our consolidated statements of operations for the periods presented (in thousands):
Interest Rate Swaps in Cash Flow Hedging Relationships:
Amount of gain recognized in AOCI on derivatives
Amount of gain (loss) reclassified from AOCI into earnings under “Interest
expense”
Total interest expense presented in the Consolidated Statement of Operations in
which the effects of cash flow hedges are recorded (line item “Interest expense”)
$
$
$
Year Ended December 31,
2018
2017
2016
649 $
2,084 $
1,204 $
(1,341) $
4,475
(2,218)
25,416 $
20,209 $
14,848
During the next twelve months, we estimate that an additional $3.3 million will be reclassified from AOCI as a decrease to interest expense.
Offsetting Derivatives
We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. Derivative
instruments that are subject to master netting arrangements and qualify for net presentation
F- 29
in the consolidated balance sheets are presented on a gross basis in the consolidated balance sheets as of December 31, 2018 and December 31, 2017 .
The following tables present information about the potential effects of netting if we were to offset our interest rate swap assets and interest rate swap
liabilities in the accompanying consolidated balance sheets as of December 31, 2018 and December 31, 2017 (in thousands).
Gross Amounts
of Recognized
Assets
Gross Amounts
Offset in the
Balance Sheet
Net Amounts of
Assets Presented
in the Balance
Sheet
Financial
Instruments
Cash Collateral
Received
Net Amount
Gross Amounts Not Offset in the
Balance Sheet
8,770
7,193
—
—
8,770
—
7,193
(219)
—
—
8,770
6,974
Gross Amounts of
Recognized
Liabilities
Gross Amounts
Offset in the
Balance Sheet
Net Amounts of
Assets Presented
in the Balance
Sheet
Financial
Instruments
Cash Collateral
Received
Net Amount
Gross Amounts Not Offset in the
Balance Sheet
(2,351)
219
—
—
(2,351)
—
219
(219)
—
—
(2,351)
—
Offsetting of Derivative Assets
December 31, 2018
Interest rate swaps
December 31, 2017
Interest rate swaps
Offsetting of Derivative
Liabilities
December 31, 2018
Interest rate swaps
December 31, 2017
Interest rate swaps
Credit-risk-related Contingent Features
Certain of our agreements with our derivative counterparties contain a provision where if we default on any of our indebtedness, including default where
repayment of the indebtedness has not been accelerated by the lender within a specified time period, then we could also be declared in default on its derivative
obligations.
Certain of our agreements with our derivative counterparties contain provisions where if a merger or acquisition occurs that materially changes our
creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument.
8.
Fair Value Measurements
We have adopted FASB Accounting Standards Codification Topic 820: Fair Value Measurements and Disclosure (“ASC 820”). ASC 820 defines fair
value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are
required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.
ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions
in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained
from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own
assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
F- 30
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2
inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as
interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically
based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based
on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Recurring Measurements – Interest Rate Swaps
Currently, we use interest rate swap agreements to manage our interest rate risk. The valuation of these instruments is determined using widely accepted
valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.
To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and
the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of
nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and
guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by
ourselves and our counterparties. However, as of December 31, 2018 , we have assessed the significance of the impact of the credit valuation adjustments on the
overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.
As a result, we have determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below sets forth the estimated fair value of our interest rate swaps as of December 31, 2018 and 2017 , which we measure on a recurring basis
by level within the fair value hierarchy (in thousands).
Fair Value Measurement Using
Quoted Price in Active
Markets for Identical
Assets and Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Fair Value
December 31, 2018
Interest Rate Swap Asset
Interest Rate Swap Liability
December 31, 2017
Interest Rate Swap Asset
Interest Rate Swap Liability
$
$
$
$
8,770 $
(2,351) $
7,193 $
(219) $
Financial Instruments Disclosed at Fair Value
— $
— $
— $
— $
8,770 $
(2,351) $
7,193 $
(219) $
—
—
—
—
The carrying amounts of cash and cash equivalents, rents and other receivables, other assets, accounts payable, accrued expenses and other liabilities, and
tenant security deposits approximate fair value because of their short-term nature.
The fair value of our notes payable was estimated by calculating the present value of principal and interest payments, using discount rates that best reflect
current market rates for financings with similar characteristics and credit quality, and assuming each loan is outstanding through its respective contractual maturity
date.
The table below sets forth the carrying value and the estimated fair value of our notes payable as of December 31, 2018 and 2017 (in thousands).
F- 31
Fair Value Measurement Using
Quoted Price in Active
Markets for Identical
Assets and Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying Value
Total Fair Value
$
$
759,491 $
673,377 $
— $
— $
— $
— $
759,491 $
673,377 $
757,371
668,941
Liabilities
Notes Payable at:
December 31, 2018
December 31, 2017
9.
Related Party Transactions
Howard Schwimmer
We engage in transactions with Howard Schwimmer, our Co-Chief Executive Officer, earning management fees and leasing commissions from entities
controlled individually by Mr. Schwimmer. Fees and commissions earned from these entities are included in “Management, leasing and development services” in
the consolidated statements of operations. We recorded $0.4 million , $0.4 million and $0.3 million during the years ended December 31, 2018 , 2017 and 2016 ,
respectively, in management, leasing and development services revenue.
Purchase and Sale Agreement
On November 30, 2017 , we entered into a purchase and sale agreement (the "Agreement") with 6110-6114 Cahuenga Avenue, LLC (the "Buyer"), which
was subsequently amended on January 2, 2018, for the sale of our property located at 200-220 South Grand Avenue for a contract price of approximately $4.5
million . Larry Schwimmer is the general partner of the Buyer and father of Howard Schwimmer, our Co-Chief Executive Officer. Prior to entering into the
Agreement, the relevant facts and circumstances relating to this transaction were presented to our audit committee, in accordance with our corporate governance
guidelines, and to our board of directors. This transaction was unanimously approved by our audit committee in accordance with our corporate governance
guidelines. On March 7, 2018, the sale of this property was completed.
On March 7, 2018, we also entered into management agreements with the Buyer and Howard Schwimmer to provide property management and leasing
services for the property. Fees and commissions earned from managing this property are included in “Management, leasing and development services” in the
consolidated statements of operations.
F- 32
10. Commitments and Contingencies
Legal
From time to time, we are party to various lawsuits, claims and legal proceedings that arise in the ordinary course of business. We are not currently a
party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of
operations.
Environmental
We generally will perform environmental site assessments at properties we are considering acquiring. After the acquisition of such properties, we
continue to monitor the properties for the presence of hazardous or toxic substances. From time to time, we acquire properties with known adverse environmental
conditions. If at the time of acquisition, losses associated with environmental remediation obligations are probable and can be reasonably estimated, we record a
liability.
On February 25, 2014, we acquired the property located at West 228th Street. Before purchasing the property, during the due diligence phase, we engaged
a third party environmental consultant to perform various environmental site assessments to determine the presence of any environmental contaminants that might
warrant remediation efforts. Based on their investigation, they determined that hazardous substances existed at the property and that additional assessment and
remediation work would likely be required to satisfy regulatory requirements. The total remediation costs were estimated to be $1.3 million , which includes
remediation, processing and oversight costs.
To address the estimated costs associated with the environmental issues at the West 228th Street property, we entered into an Environmental Holdback
Escrow Agreement (the “Holdback Agreement”) with the former owner, whereby $1.4 million was placed into an escrow account to be used to pay remediation
costs. To fund the $1.4 million , the escrow holder withheld $1.3 million of the purchase price, which would have otherwise been paid to the seller at closing, and
the Company funded an additional $0.1 million . According to the Holdback Agreement, the seller has no liability or responsibility to pay for remediation costs in
excess of $1.3 million .
As of December 31, 2018 and 2017 , we had a $1.0 million and $1.1 million contingent liability recorded in our consolidated balance sheets included in
the line item “Accounts payable and accrued expenses,” reflecting the estimated remaining cost to remediate environmental liabilities at West 228th Street that
existed prior to the acquisition date. As of December 31, 2018 and 2017 , we also had a $1.0 million and $1.1 million corresponding indemnification asset recorded
in in our consolidated balance sheets in the line item “Other assets,” reflecting the estimated costs we expect the former owner to cover pursuant to the Holdback
Agreement.
We expect that the resolution of the environmental matters relating to the above will not have a material impact on our consolidated financial condition,
results of operations or cash flows. However, we cannot be sure that we have identified all environmental liabilities at our properties, that all necessary remediation
actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that such environmental liabilities arise.
Furthermore, we cannot assure you that future changes to environmental laws or regulations and their application will not give rise to loss contingencies for future
environmental remediation.
Rent Expense
As of December 31, 2018 , we lease a parcel of land that is currently being sub-leased to a tenant for a parking lot. This ground lease is scheduled to
expire on June 1, 2062 . We recognized rental expense for our ground lease in the amount of $0.1 million , $0.1 million and $0.1 million for the years ended
December 31, 2018 , 2017 and 2016 , respectively. As part of conducting our day-to-day business, we also lease office space under operating leases. We
recognized rental expense for our office space leases in the amount of $0.7 million , $0.5 million and $0.5 million for the years ended December 31, 2018 , 2017
and 2016 , respectively.
F- 33
The future minimum commitment under our office space leases and ground lease as of December 31, 2018 , is as follows (in thousands):
For the year ending December 31:
Office Lease
Ground Lease
2019
2020
2021
2022
2023
Thereafter
Total
$
$
668 $
257
167
—
—
—
1,092 $
144
144
144
144
144
5,532
6,252
On September 14, 2016 (the “Effective Date”), we entered into a ground lease for approximately 1.58 million square feet of land located in Corona,
California, with the intention to develop buildings on the site. Under the terms of the ground lease, we had up to 420 days from the Effective Date, subject to
certain conditions, to satisfy and waive certain contingencies, or terminate the ground leases for any reason. On March 13, 2017, we terminated the ground lease.
As a result of the termination, we wrote-off $0.3 million of previously incurred transaction costs to the line item “Acquisition expenses” in the consolidated
statements of operations.
Tenant and Construction Related
As of December 31, 2018 , we had commitments of approximately $22.8 million for tenant improvement and construction work under the terms of leases
with certain of our tenants and contractual agreements with our construction vendors.
Concentrations of Credit Risk
We have deposited cash with financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution. Although
we have deposits at institutions in excess of federally insured limits as of December 31, 2018 , we do not believe we are exposed to significant credit risk due to the
financial position of the institutions in which those deposits are held.
As of December 31, 2018 , all of our properties are located in the Southern California infill markets. The ability of the tenants to honor the terms of their
respective leases is dependent upon the economic, regulatory and social factors affecting the markets in which the tenants operate.
During the year ended December 31, 2018 , no single tenant accounted for more than 5% of our total rental revenues.
11. Investments in Unconsolidated Real Estate Entities
On July 6, 2016, we acquired the property located at 3233 Mission Oaks Boulevard (the “final JV property”), which comprised substantially all of the
JV’s assets, from the JV for a contract price of $25.7 million . Prior to the acquisition, our ownership interest in the final JV property was 15% . Following the
acquisition, we own 100% of the final JV property and are accounting for it on a consolidated basis (See Note 3). In connection with the JV’s sale of the final JV
property, we wrote-off the related $0.6 million unamortized basis adjustment. Immediately after the sale of the final JV property, the carrying value of our
investment in unconsolidated real estate entities was $3.6 million .
Following the sale of the final JV property, the JV distributed all of its available cash, with the exception of a small amount of working capital which was
retained to cover any residual costs associated with the winding down of the JV. Our share of the JV distributions totaled $5.5 million , which exceeded the $3.6
million carrying value of our investment immediately after the sale of the final JV property. We recorded the $1.9 million of excess distributions as a realized gain
in the line item “Equity in income from unconsolidated real estate entities” in the consolidated statements of operations.
During the year ended December 31, 2017, the remaining assets were liquidated by the JV and we received a final distribution in the amount of $11
thousand which is reported in the line item “Equity in income from unconsolidated real estate entities” in the consolidated statements of operations.
The following table presents the combined summarized results of operations of our unconsolidated joint venture. These amounts include the results of
operations of the final JV property during the period prior to July 6, 2016, when we acquired the
F- 34
remaining 85% ownership interest in the final JV property. Amounts provided are attributable to the JV and do not represent our proportionate share (in
thousands).
Revenues
Expenses
Gain on sale of properties
Net income
Management Services
Year Ended December 31,
2018
2017
2016
$
$
— $
—
—
— $
— $
—
—
— $
1,281
(442)
3,458
4,297
Prior to July 6, 2016, when we acquired the remaining 85% ownership interest in the final JV property, we performed property and construction
management services for the final JV property. We earned fees and commissions for these services totaling $0.1 million during the year ended December 31, 2016
, which is included in the line item “Management, leasing and development services” in the consolidated statements of operations.
F- 35
12. Dispositions and Real Estate Held for Sale
Dispositions
The table below summarizes the properties we sold during the years ended December 31, 2018 , 2017 and 2016 (dollars in thousands).
Property
Submarket
2018 Dispositions:
8900-8980 Benson Avenue and 5637 Arrow
Highway
Inland Empire West
700 Allen Avenue and 1851 Flower Street
Los Angeles - San Fernando Valley
200-220 South Grand Avenue
Orange County - Airport
6770 Central Avenue—Building B
Inland Empire West
1910-1920 Archibald Avenue
Inland Empire West
311 East 157th Street
329 East 157th Street
319 East 157th Street
Total
2017 Dispositions:
9375 Archibald Avenue
2535 Midway Drive
2811 Harbor Boulevard
Los Angeles - South Bay
Los Angeles - South Bay
Los Angeles - South Bay
Inland Empire West
San Diego - Central
Orange County - Airport
12345 First American Way
San Diego - Central
9401 De Soto Avenue
77-700 Enfield Lane
Total
2016 Dispositions:
Los Angeles - San Fernando Valley
Inland Empire East
6010 N. Paramount Boulevard
Los Angeles - South Bay
1840 Dana Street
Los Angeles - San Fernando Valley
12910 East Mulberry Drive
Los Angeles - Mid-Counties
22343-22349 La Palma Avenue
Orange County - North
331 East 157th Street
Los Angeles - South Bay
Total
Date of
Disposition
Rentable
Square Feet
Contract Sales
Price (1) (In
thousands)
Gain
Recorded
1/2/2018
1/17/2018
3/7/2018
4/9/2018
5/9/2018
12/12/2018
12/20/2018
12/27/2018
3/31/2017
5/17/2017
6/28/2017
10/31/2017
11/2/2017
11/29/2017
5/2/2016
5/25/2016
6/7/2016
11/22/2016
11/28/2016
88,016 $
25,168 $
27,200 $
11,808 $
78,243 $
12,000 $
12,000 $
24,000 $
11,440 $
10,900 $
4,515 $
1,676 $
9,050 $
3,000 $
2,675 $
4,763 $
4,029
4,753
1,201
1,113
495
1,578
1,597
2,456
278,435 $
48,019 $
17,222
62,677 $
373,744 $
126,796 $
40,022 $
150,831 $
21,607 $
775,677 $
16,534 $
13,497 $
153,080 $
115,760 $
12,000 $
310,871 $
6,875 $
40,050 $
18,700 $
7,600 $
23,000 $
2,431 $
2,668
16,026
594
4,146
4,748
1,391
98,656 $
29,573
2,480 $
4,250 $
15,000 $
17,000 $
1,975 $
944
1,445
9,174
4,752
1,062
40,705 $
17,377
(1) Represents the gross contractual sales price before commissions, prorations and other closing costs.
F- 36
Real Estate Held for Sale
As of December 31, 2018, we did not have any properties classified as held for sale. As of December 31, 2017, our properties located at (i) 700 Allen
Avenue and 1830 Flower Street and (ii) 8900-8980 Benson Avenue and 5637 Arrow Highway were classified as held for sale.
The following table summarizes the major classes of assets and liabilities associated with real estate properties classified as held for sale as of December
31, 2017 (in thousands):
Land
Buildings and improvements
Tenant improvements
Construction in progress
Real estate held for sale
Accumulated depreciation
Real estate held for sale, net
Acquired lease intangible assets, net
Other assets associated with real estate held for sale
Total assets associated with real estate held for sale, net
Tenant security deposits
Other liabilities associated with real estate held for sale
Total liabilities associated with real estate held for sale
13.
Stockholders’ Equity
Preferred Stock
December 31, 2017
5,671
7,180
429
16
13,296
(1,609)
11,687
71
678
12,436
193
50
243
$
$
$
$
On November 13, 2017, we completed an underwritten public offering of 3,000,000 shares of our 5.875% Series B Cumulative Redeemable Preferred
Stock (the "Series B Preferred Stock") at a price of $25.00 per share. The net proceeds from the offering were approximately $72.5 million after deducting the
underwriters’ discount and offering costs totaling $2.5 million . The Series B Preferred Stock is presented in stockholders' equity on the consolidated balance sheet
net of issuance costs.
On August 16, 2016, we completed an underwritten public offering of 3,600,000 shares of our 5.875% Series A Cumulative Redeemable Preferred Stock
(the "Series A Preferred Stock") at a price of $25.00 per share. The net proceeds from the offering were approximately $86.7 million after deducting the
underwriters’ discount and offering costs totaling $3.3 million . The Series A Preferred Stock is presented in stockholders' equity on the consolidated balance sheet
net of issuance costs.
Dividends on our Series A Preferred Stock and Series B Preferred Stock (collectively the “Series A and B Preferred Stock”) are cumulative from the date
of original issuance and are payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning on December
31, 2016, for our Series A Preferred Stock and beginning on March 30, 2018, for our Series B Preferred Stock, at a rate of 5.875% per annum of its $25.00 per
share liquidation preference (equivalent to $1.46875 per share per annum). The Series A and B Preferred Stock have no stated maturity date and are not subject to
any mandatory redemption or sinking fund. The holders of our Series A and B Preferred Stock rank senior to the holders of our common stock with respect to
dividend rights and rights upon the Company’s liquidation, dissolution or winding up of its affairs. The holders of our Series A and B Preferred Stock generally
have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly dividend periods (whether or not consecutive). We may
not redeem the Series A Preferred Stock prior to August 16, 2021, and the Series B Preferred Stock prior to November 13, 2022, except in limited circumstances to
preserve our status as a REIT or pursuant to a specified change of control transaction. On or after August 16, 2021, we may redeem our Series A Preferred Stock,
and on or after November 13, 2022, we may redeem our Series B Preferred Stock, in whole or in part, at any time or from time to time, for cash at a
F- 37
redemption price of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a specified
change of control transaction, we may, at our option, redeem the Series A Preferred Stock and/or the Series B Preferred Stock in whole or in part within 120 days
after the change of control occurred, by paying $25.00 per share in cash, plus any accrued and unpaid distributions through the date of redemption. If we do not
exercise our right to redeem the Series A Preferred Stock and/or the Series B Preferred Stock, upon the occurrence of a specified change of control transaction, the
holders of the Series A and B Preferred Stock have the right to convert some or all of their shares into a number of the Company’s common shares equivalent to
$25.00 plus accrued and unpaid dividends, but not to exceed a cap of 2.2738 shares of common stock per share of Series A Preferred Stock or a cap of 1.6578
shares of common stock per share of Series B Preferred Stock, subject to certain adjustments.
Common Stock Issuances
On April 15, 2016, we completed a public follow-on offering of 10,350,000 shares of our common stock, including the underwriters’ exercise in full of its
option to purchase 1,350,000 shares of our common stock, at an offering price of $17.65 per share. The net proceeds of the follow-on offering were $174.4 million
, after deducting the underwriters’ discount and offering costs totaling $8.3 million . On April 15, 2016, we contributed the net proceeds of the offering to our
Operating Partnership in exchange for 10,350,000 common units of partnership interests in the Operating Partnership (“OP Units”).
ATM Program
On June 13, 2018, we established a new at-the-market equity offering program (the “$400 Million ATM Program”) pursuant to which we may sell from
time to time up to an aggregate of $400.0 million of our common stock through sales agents. The $400 Million ATM Program replaces our previous $300.0
million at-the-market equity offering program which was established on September 21, 2017. In addition, we previously established a $150 million at-the-market
program on June 12, 2017, and a $125 million at-the-market program on April 17, 2015. All available shares of common stock under each of the $300 million,
$150 million and $125 million at-the-market programs were sold prior to establishing new programs.
During the year ended December 31, 2018 , we sold 18,177,242 shares of our common stock under our various at-the-market equity offering programs, at
a weighted average price of $31.12 per share, for gross proceeds of $565.6 million , and net proceeds of 557.1 million , after deducting the sales agents’ fee.
During the year ended December 31, 2017, we sold 11,968,927 shares of our common stock under our various at-the-market equity offering programs, at a
weighted average price of $28.13 per share, for gross proceeds of $336.6 million , and net proceeds of $331.6 million , after deducting the sales agent’s fee. During
the year ended December 31, 2016 , we sold 402,683 shares of our common stock under the $125 million at-the-market equity offering program, at a weighted
average price of $23.13 per share, for gross proceeds of $9.3 million , and net proceeds of $9.2 million , after deducting the sales agents’ fee. As of December 31,
2018 , we had the capacity to issue up to an additional $63.4 million of common stock under the $400 Million ATM Program. Actual sales going forward, if any,
will depend on a variety of factors, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate
sources of funding for us and potential uses of funding available to us.
Noncontrolling Interests
Noncontrolling interests in our Operating Partnership relate to interests in the partnership that are not owned by us. As of December 31, 2018 ,
noncontrolling interests consisted of 1,838,565 OP Units and 577,246 fully-vested LTIP units and performance units which represented approximately 2.4% of our
Operating Partnership. OP Units and shares of our common stock have essentially the same economic characteristics, as they share equally in the total net income
or loss distributions of our Operating Partnership. Investors who own OP Units have the right to cause our Operating Partnership to redeem any or all of their units
in our Operating Partnership for an amount of cash per unit equal to the then current market value of one share of common stock, or, at our election, shares of our
common stock on a one-for-one basis. See Note 14 for a description of LTIP units and Performance Units.
During the years ended December 31, 2018 , 2017 and 2016 , we redeemed 67,175 , 61,256 and 59,646 OP Units, respectively, in exchange for issuing to
the holders of the OP Units an equal number of shares of our common stock, resulting in the reclassification of $0.6 million , $0.6 million , and $0.6 million ,
respectively, from noncontrolling interests to total stockholders’ equity.
As described in Note 3, on April 15, 2016, as part of the REIT Portfolio Acquisition, we acquired 100% of the private REIT’s common stock and 575 of
700 issued and outstanding shares of the private REIT’s 12.5% cumulative non-voting preferred stock. The remaining 125 shares of preferred stock that were not
immediately redeemed by us, were classified as noncontrolling interests in our consolidated balance sheets, with a balance equal to its liquidation preference of
$1,000 per share, or an aggregate liquidation preference of $125,000 .
F- 38
On June 22, 2017, we adopted a plan of liquidation and dissolution of the private REIT, and on December 31, 2017 , we completed the liquidation of the
private REIT, by distributing all assets to the Operating Partnership. As part of the liquidation process, we paid a liquidating distribution of $1,000 per share, or an
aggregate liquidating distribution of $125,000 , as payment in full for the redemption of the remaining 125 shares of preferred stock not held by us.
Changes in Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in our AOCI balance for the years ended December 31, 2018 and 2017 , which consists solely of adjustments
related to our cash flow hedges:
Years Ended December 31,
2018
2017
Accumulated other comprehensive income - beginning balance
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive income to interest expense
Net current period other comprehensive (loss) income
Less: other comprehensive loss (income) attributable to noncontrolling interests
Other comprehensive (loss) income attributable to common stockholders
Accumulated other comprehensive income - ending balance
$
$
6,799 $
649
(1,204)
(555)
18
(537)
6,262 $
3,445
2,084
1,341
3,425
(71)
3,354
6,799
Dividends
Earnings and profits, which determine the taxability of dividends to stockholders, may differ from income reported for financial reporting purposes due to
the differences for federal income tax purposes in the treatment of loss on extinguishment of debt, revenue recognition and compensation expense and in the basis
of depreciable assets and estimated useful lives used to compute depreciation expense.
The following tables summarize the tax treatment of common stock dividends and preferred stock dividends per share for federal income tax purposes for
the years ended December 31, 2018 , 2017 and 2016 :
Ordinary Income
Return of Capital
Capital Gain (1)
Total
$
$
Common Stock
Year Ended December 31,
2017
2016
2018
0.623496
0.001504
—
99.76% $
0.24%
—%
0.498827
0.022526
—
0.625000
100.00% $
0.521353
100.00% $
95.68% $
0.452085
4.32%
—%
—
0.001562
0.453647
99.66%
—%
0.34%
100.00%
(1) 100.0% of the capital gain reported for the year ended December 31, 2016, is comprised of an unrecaptured Section 1250 gain. There were no capital gains
reported for the years ended December 31, 2018 and 2017.
Series A Preferred Stock
Year Ended December 31,
2018
2017
2016
Ordinary Income
Return of Capital
Capital Gain (1)
Total
$
$
1.468752
100.00% $
0.146875
100.00% $
0.548884
—
—
—%
—%
—
—
—%
—%
1.468752
100.00% $
0.146875
100.00% $
—
0.001896
0.550780
99.66%
—%
0.34%
100.00%
(1) 100.0% of the capital gain reported for the year ended December 31, 2016, is comprised of an unrecaptured Section 1250 gain. There were no capital gains
reported for the years ended December 31, 2018 and 2017.
F- 39
Ordinary Income
Return of Capital
Capital Gain
Total
Series B Preferred Stock
Year Ended December 31,
2018
$
$
1.664585
100.00%
—
—
—%
—%
1.664585
100.00%
14.
Incentive Award Plan
Amended and Restated 2013 Incentive Award Plan
On June 11, 2018, our stockholders approved the Amended and Restated Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. 2013
Incentive Award Plan (the “Plan”), superseding and replacing the Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. 2013 Incentive Award Plan
(the “Prior Plan”). Pursuant to the Plan, we may continue to make grants of stock options, restricted stock, dividend equivalents, stock payments, restricted stock
units, performance shares, LTIP units of partnership interest in our Operating Partnership (“LTIP units”), performance units in our Operating Partnership
(“Performance Units”), and other stock based and cash awards to our non-employee directors, employees and consultants.
The Plan is administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to
other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (collectively the “plan administrator”),
subject to certain limitations. The plan administrator sets the terms and conditions of all awards under the Plan, including any vesting and vesting acceleration
conditions.
The aggregate number of shares of our common stock, LTIP units and Performance Units that may be issued or transferred pursuant to the Plan is 1,770,000
plus any shares that have not been issued under the Prior Plan, including shares subject to outstanding awards under the Prior Plan that are not issued or delivered
to a participant for any reason or that are forfeited by a participant prior to vesting. As of December 31, 2018 , a total of 1,832,380 shares of common stock, LTIP
units and Performance Units remain available for issuance. Shares and units granted under the Plan may be authorized but unissued shares or units, or, if authorized
by the board of directors, shares purchased in the open market. If an award under the Plan is forfeited, expires, or is settled for cash, any shares or units subject to
such award will generally be available for future awards.
LTIP Units and Performance Units
LTIP units and Performance Units are each a class of limited partnership units in the Operating Partnership. Initially, LTIP units and Performance Units
do not have full parity with OP Units with respect to liquidating distributions. However, upon the occurrence of certain events more fully described in the
Operating Partnership’s partnership agreement (“book-up events”), the LTIP units and Performance Units can over time achieve full parity with the common units
for all purposes. If such parity is reached, vested LTIP units and vested Performance Units may be converted into an equal number of OP Units, and, upon
conversion, enjoy all rights of OP Units. LTIP units, whether vested or not, receive the same quarterly per-unit distributions as OP Units, which equal the per-share
distributions on shares of our common stock. Performance Units that have not vested receive a quarterly per-unit distribution equal to 10% of the per-unit
distribution paid on OP Units.
On December 15, 2018 , the compensation committee awarded 132,875 LTIP units to Messrs. Howard Schwimmer, Michael S. Frankel, Adeel Khan and
David Lanzer (collectively, the “executives”) that are subject to time-based vesting conditions (the “2018 LTIP Award”) and 204,517 Performance Units that are
partially subject to market-based vesting conditions and partially subject to performance-based vesting conditions (the “2018 Performance Award”).
In February 2018, the compensation committee chose to provide Messrs. Schwimmer and Frankel’s 2017 annual bonuses partly in cash and partly in
LTIP units. Accordingly, on February 21, 2018, at the same time that annual bonuses were paid to the executives, Messrs. Schwimmer and Frankel were each
granted 22,517 LTIP Units that were fully vested on the grant date.
On December 15, 2017 , the compensation committee awarded 122,631 LTIP units to the executives that are subject to time-based vesting requirements
(the “2017 LTIP Award”) and 188,250 Performance Units that are subject to market-based vesting conditions (the “2017 Market Performance Award”).
F- 40
On December 29, 2016 , the compensation committee awarded 116,690 LTIP units to the executives (not including Mr. Lanzer) that are subject to time-
based vesting conditions (the “2016 LTIP Award”) and 199,000 Performance Units that are subject to market-based vesting conditions (the “2016 Market
Performance Award”).
2018, 2017 and 2016 LTIP Unit Awards
The 2018 LTIP Award and the 2017 LTIP Award are scheduled to vest one-third in equal installments on each of the first, second and third anniversaries
of the grant date, and the 2016 LTIP Award is scheduled to vest in equal installments of 25% on each of the first, second, third and fourth anniversaries of the grant
date. Each award is subject to each executive’s continued employment through the applicable vesting date, and subject to earlier vesting upon certain termination
of employment or a change in control event, as described in the award agreements. Compensation expense will be recognized using the accelerated expense
attribution method, with each vesting tranche valued as a separate award. The total grant date fair value of each annual LTIP award is based on the Company’s
most recent closing stock price preceding the grant and the application of a discount for post-vesting restrictions and uncertainty regarding the occurrence and
timing of book-up events. The following table summarizes these fair valuation assumptions and the grant date fair value of each annual LTIP award:
Valuation date
Closing share price of common stock
Discount for post-vesting restrictions and book-up events
Grant date fair value (in thousands)
2018 LTIP Award
2017 LTIP Award
2016 LTIP Award
December 15, 2018
December 15, 2017
December 29, 2016
$
$
31.42
$
7.7%
3,853
$
30.58
$
5.0%
3,563
$
22.71
5.0%
2,518
The following table sets forth our unvested LTIP Unit activity for the years ended December 31, 2018 , 2017 and 2016 :
Number of Unvested LTIP Units
Weighted-Average Grant Date
Fair Value per Unit
Balance at December 31, 2015
Granted
Vested
Balance at December 31, 2016
Granted
Vested
Balance at December 31, 2017
Granted
Vested
Balance at December 31, 2018
166,669 $
116,690 $
(41,668) $
241,691 $
122,631 $
(70,837) $
293,485 $
190,318 $
(156,755) $
327,048 $
15.11
21.57
13.91
18.43
29.05
17.48
23.10
28.43
23.29
26.12
2018, 2017 and 2016 Performance Unit Award s
Each of the 2018, 2017 and 2016 Performance Unit awards are comprised of a number of units designated as base units and a number of units designated
as distribution equivalents, which are further described below:
•
•
•
•
Absolute TSR Base Units - base units that will vest based on varying levels of the Company’s total shareholder return (“TSR”) over the three -year
performance period of an award. TSR is measured as the appreciation in the price per share of a company’s common stock plus dividends paid during the
three -year performance period, assuming the reinvestment in common stock of all dividends paid during the performance period.
Relative TSR Base Units - base units that will vest based on the Company’s TSR as compared to the TSR percentage of a selected peer group of
companies over the three -year performance period.
FFO Per-Share Base Units - base units that will vest based on the Company’s FFO per share growth over the three -year performance period.
Distribution Equivalent Units - Performance Units that have not vested will receive 10% of the distributions paid on OP units. The remaining 90% of the
distributions will accrue (assuming the reinvestment in common stock of these distributions) during the three -year performance period and a portion will
be paid out as distribution equivalent units based upon the number of base units that ultimately vest.
F- 41
For the 2018 Performance Award, one-third of the base units are designated as Absolute TSR Base Units and one-third of the base units are designated as
Relative TSR Base Units (combined, the “2018 Market Performance Award”). The remaining one-third of the base units are designated as FFO Per-Share Base
Units (the “2018 FFO Per-Share Award”). For each of the 2017 Market Performance Award and the 2016 Market Performance Award, 40% of the base units are
designated as Absolute TSR Base Units and the other 60% are designated as Relative TSR Base Units.
The following table summarizes the performance levels and vesting percentages for the Absolute TSR Base Units, Relative TSR Base Units and FFO Per-
Share Base Units, and the three-year performance period for each of the Performance Unit awards:
Absolute TSR Base Units
Relative TSR Base Units
FFO Per-Share Base Units
Performance Level
Company TSR
Percentage
2018
Award
“Threshold Level”
“Target Level”
“Maximum Level”
2017
Award
“Threshold Level”
“Target Level”
“Maximum Level”
2016
Award
“Threshold Level”
“Target Level”
“Maximum Level”
< 18%
18%
24%
≥ 30%
< 18%
18%
27%
≥ 36%
< 21%
21%
35.5%
≥ 50%
Absolute TSR
Vesting
Percentage
Peer Group Relative
Performance
—% < 35th Percentile
25% 35th Percentile
60% 55th Percentile
100% ≥ 75th Percentile
—% < 35th Percentile
25% 35th Percentile
60% 55th Percentile
100% ≥ 75th Percentile
—% < 50th Percentile
25% 50th Percentile
60% 62.5th Percentile
100% ≥ 75th Percentile
Relative TSR
Vesting
Percentage
FFO per Share
Growth
FFO Vesting
Percentage
—%
25%
60%
100%
—%
25%
60%
100%
—%
25%
60%
100%
< 12%
12%
16.5%
≥ 21%
—%
25%
60%
100%
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
Three-Year
Performance
Period
Jan 1, 2019
to
Dec 31, 2021
Dec 15, 2017
to
Dec 14, 2020
Dec 29, 2016
to
Dec 28, 2019
If the Company’s TSR percentage, peer group relative performance or FFO per share growth falls between the levels specified in the tables above, the
percentage of Absolute TSR Base Units, Relative TSR Base Units and FFO Per-Share Base Units that vest will be determined using straight-line interpolation
between such levels.
Fair Value of Awards With Market-Based Vesting Conditions
The grant date fair value of each of the 2018, 2017 and 2016 Market Performance Awards is based on the sum of the following: (1) the present value of
the expected payoff to the vested absolute and relative base units, (2) the present value of the 10% portion of the distribution expected to be paid during the three-
year performance period, and (3) the present value of the distribution equivalent units expected to be awarded at the end of the three-year performance period. The
grant date fair value of each of these awards was measured using a Monte Carlo simulation pricing model, which uses 100,000 trial simulations, to estimate the
probability that the market conditions, TSR on both an absolute and relative basis, will be achieved over the three-year performance period.
The following table summarizes the assumptions we used in the Monte Carlo simulations and the grant date fair value of the awards with market-based
vesting conditions.
Valuation date
Expected share price volatility for the Company
Expected share price volatility for peer group companies - low end of range
(1)
Expected share price volatility for peer group companies - high end of range
(1)
Expected dividend yield
Risk-free interest rate
Grant date fair value (in thousands)
2018 Market
Performance Award
2017 Market
Performance Award
2016 Market
Performance Award
December 15, 2018
December 15, 2017
December 29, 2016
20.0%
16.0%
100.0%
2.50%
2.80%
2,090
$
18.0%
15.0%
100.0%
2.40%
1.96%
2,714
$
20.0%
21.0%
50.0%
2.80%
1.49%
1,753
$
F- 42
(1) For the 2018 Market Performance Award, the median and average expected share price volatilities for the peer group companies are 23.0% and 27.1% ,
respectively. For the 2017 Market Performance Award, the median and average expected share price volatilities for the peer group companies are 21.0% and
25.3% , respectively.
The expected share price volatilities are based on a mix of the historical and implied volatilities of the Company and the peer group companies. The
expected dividend yield is based on our average historical dividend yield since our IPO and our dividend yield as of the valuation date for each award. The risk-
free interest rate is based on U.S. Treasury note yields matching the three-year time period of the performance period.
Compensation cost for the awards with market-based vesting conditions will be recognized ratably over the requisite service period, regardless of whether
the TSR performance levels are achieved and any awards ultimately vest. Compensation expense will only be reversed if the holder of an award with market-based
vesting conditions forfeits the award by leaving the employment of the Company prior to vesting.
Fair Value of Awards with Performance-Based Vesting Conditions
The grant date fair value of the 2018 FFO Per-Share Award is based on the Company’s most recent closing stock price preceding the grant date ( $31.42
on December 14, 2018). The grant date fair value and maximum potential expense if the maximum performance level were met for this award is $2.0 million .
Compensation cost for the 2018 FFO Per-Share Award will reflect the number of units that are expected to vest based on the probable outcome of the
performance condition and will be adjusted to reflect those units that ultimately vest at the end of the three-year performance period.
2015 Performance Award Vesting
On December 14, 2018, the three -year performance period for the 2015 performance award ended, and the following Performance Units vested: (i) 100%
of the 115,600 Absolute TSR Base Units based on the Company achieving a TSR greater than 50%, the maximum level, (ii) 100% of the 173,399 Relative TSR
Base Units based on the Company finishing in the 75th or greater percentile, the maximum level, of the peer group of companies included in the SNL U.S. Equity
REIT Index (with respect to entities with an implied market capitalization of $500 million to $1 billion), and (iii) 18,987 distribution equivalents, for a total of
307,986 vested Performance Units. On December 14, 2018, we canceled the remaining 8,012 distribution equivalents that did not vest.
Restricted Common Stock
Shares of our restricted common stock generally may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent
and distribution or, subject to the consent or the administrator of the Plan, a domestic relations order, unless and until all restrictions applicable to such shares have
lapsed. Such restrictions generally expire upon vesting. Shares of our restricted common stock are participating securities and have full voting rights and
nonforfeitable rights to dividends.
The compensation committee has periodically awarded grants of restricted common stock to various employees of the Company, other than executives,
for the purpose of attracting or retaining the services of these key individuals. These grants typically vest in four equal, annual installments on each of the first four
anniversaries of the date of grant, subject to the employee’s continued service. During the year ended December 31, 2018 , we granted 90,754 shares of restricted
common stock to non-executive employees. The grant date fair value of these awards was $2.5 million based on the closing share price of the Company’s common
stock on the date of grant, which ranged from $27.20 to $31.29 per share.
In accordance with the Rexford Industrial Realty, Inc. Non-Employee Director Compensation Program, each year on the date of the annual meeting of the
Company’s stockholders, we grant shares of restricted common stock to each of our non-employee directors who are re-elected for another year of service. These
awards vest on the earlier of (i) the date of the annual meeting of the Company’s stockholders next following the grant date and (ii) the first anniversary of the
grant date, subject to each non-employee director’s continued service. During the year ended December 31, 2018 , we granted 2,268 shares of restricted common
stock to each of our six non-employee directors. The grant date fair value of each award was $70,000 based on the $30.86 closing share price of the Company’s
common stock on the date of grant.
F- 43
The following table sets forth our unvested restricted stock activity for the years ended December 31, 2018 , 2017 and 2016 :
Number of Unvested Shares of
Restricted Common Stock
Weighted-Average Grant Date
Fair Value per Share
Balance at December 31, 2015
Granted
Forfeited
Vested (1)(2)
Balance at December 31, 2016
Granted
Forfeited
Vested (1)(2)
Balance at December 31, 2017
Granted
Forfeited
Vested (1)(2)
Balance at December 31, 2018
333,441 $
103,704 $
(23,968) $
(125,350) $
287,827 $
104,727 $
(35,959) $
(165,900) $
190,695 $
104,560 $
(13,031) $
(81,826) $
200,398 $
14.30
18.03
15.37
14.63
15.92
23.78
18.74
15.43
20.13
27.72
23.51
19.40
24.17
(1) The total fair value of vested shares, which is calculated as the number of shares vested multiplied by the closing share price of the Company’s common stock
on the vesting date, was $2.4 million , $4.5 million and $2.6 million for the years ended December 31, 2018 , 2017 and 2016 , respectively.
(2) Total shares vested include 21,324 , 57,444 and 36,374 shares of common stock that were tendered by employees during the years ended December 31, 2018 ,
2017 and 2016 , respectively, to satisfy minimum statutory tax withholding requirements associated with the vesting of restricted shares.
Compensation Expense
The following table sets forth the amounts expensed and capitalized for all share-based awards for the reported periods presented below (in thousands):
Expensed share-based compensation (1)
Capitalized share-based compensation (2)
Total share-based compensation
Year Ended December 31,
2018
2017
2016
$
$
10,147 $
255
10,402 $
5,398 $
162
5,560 $
3,835
147
3,982
(1)
(2)
Amounts expensed are included in “General and administrative” and “Property expenses” in the accompanying consolidated statements of operations.
Amounts capitalized, which relate to employees who provide construction and leasing services, are included in “Building and improvements” and “Deferred
leasing costs, net” in the accompanying consolidated balance sheets.
Compensation expense for the year ended December 31, 2018 , includes $1.2 million for the 45,034 immediately vested LTIP units that were granted on
February 21, 2018 to satisfy a portion of Messrs. Schwimmer and Frankel’s bonuses that were accrued during the year ended December 31, 2017.
In May 2018, the compensation committee designated to have payouts for Messrs. Schwimmer and Frankel’s 2018 annual bonuses paid partly in cash and
partly in LTIP units. Compensation expense for the year ended December 31, 2018 , includes $1.7 million for the portion of Messrs. Schwimmer and Frankel’s
2018 accrued bonus that will be paid in LTIP Units in early 2019, subject to the approval of the final payout amount by the compensation committee.
As of December 31, 2018 , total unrecognized compensation cost related to all unvested share-based awards was $15.0 million and is expected to be
recognized over a weighted average remaining period of 27 months .
F- 44
15.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
Numerator:
Net income
Less: Preferred stock dividends
Less: Net income attributable to noncontrolling interests
Less: Net income attributable to participating securities
Net income attributable to common stockholders
Denominator:
Weighted average shares of common stock outstanding - basic
Effect of dilutive securities - performance units
Weighted average shares of common stock outstanding - diluted
Earnings per share - Basic
Net income attributable to common stockholders
Earnings per share - Diluted:
Net income attributable to common stockholders
Year Ended December 31,
2018
2017
2016
47,075 $
(9,694)
(865)
(378)
41,700 $
(5,875)
(988)
(410)
36,138 $
34,427 $
25,876
(1,983)
(750)
(302)
22,841
86,824,235
71,198,862
511,514
399,792
87,335,749
71,598,654
62,723,021
242,533
62,965,554
0.42 $
0.48 $
0.41 $
0.48 $
0.36
0.36
$
$
$
$
Unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are accounted for as participating
securities. As such, unvested shares of restricted stock, unvested LTIP Units and unvested Performance Units are considered participating securities. Participating
securities are included in the computation of basic EPS pursuant to the two-class method. The two-class method determines EPS for each class of common stock
and each participating security according to dividends declared (or accumulated) and their respective participation rights in undistributed earnings. Participating
securities are also included in the computation of diluted EPS using the more dilutive of the two-class method or treasury stock method for unvested shares of
restricted stock and LTIP Units, and by determining if certain market conditions have been met at the reporting date for unvested Performance Units.
The effect of including unvested shares of restricted stock and unvested LTIP Units using the treasury stock method was excluded from our calculation of
weighted average shares of common stock outstanding – diluted, as their inclusion would have been anti-dilutive.
Performance Units, which are subject to vesting based on the Company achieving certain TSR levels over a three -year performance period, are included
as contingently issuable shares in the calculation of diluted EPS when TSR has been achieved at or above the threshold levels specified in the award agreements,
assuming the reporting period is the end of the performance period, and the effect is dilutive.
We also consider the effect of other potentially dilutive securities, including OP Units, which may be redeemed for shares of our common stock under
certain circumstances, and include them in our computation of diluted EPS when their inclusion is dilutive.
F- 45
16.
Quarterly Information (unaudited)
The following tables set forth selected quarterly information for the years ended December 31, 2018 and 2017 (in thousands except per share amounts):
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
Three Months Ended
57,008 $
15,207 $
12,413 $
0.13 $
0.13 $
55,194 $
8,965 $
6,307 $
0.07 $
0.07 $
Three Months Ended
51,756 $
7,819 $
5,172 $
0.06 $
0.06 $
48,536
15,084
12,246
0.16
0.15
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
45,880 $
14,115 $
11,819 $
0.15 $
0.15 $
43,339 $
2,009 $
586 $
0.01 $
0.01 $
36,782 $
19,855 $
17,846 $
0.26 $
0.26 $
35,354
5,721
4,176
0.06
0.06
Total revenues
Net income
Net income attributable to common stockholders
Net income attributable to common stockholders
per share - basic
Net income attributable to common stockholders
per share - diluted
Total revenues
Net income
Net income attributable to common stockholders
Net income attributable to common stockholders
per share - basic
Net income attributable to common stockholders
per share - diluted
17. Subsequent Events
Acquisitions
$
$
$
$
$
$
$
$
$
$
On January 15, 2019 , we acquired the property located at 12821 Knott Street in Garden Grove, California for a contract price of $19.8 million . The
property consists of one single-tenant building with 120,800 rentable square feet.
On January 17, 2019 , we acquired the property located at 28510 Industry Drive in Valencia, California for a contract price of $7.8 million . The property
consists of one single-tenant building with 46,778 rentable square feet.
On January 28, 2019 , we acquired the Conejo Spectrum Business Park in Thousand Oaks, California for a contract price of $106.3 million . The property
consists of nine buildings totaling 531,378 rentable square feet.
Dividends Declared
On February 11, 2019 , our board of directors declared a quarterly cash dividend in the amount of $0.185 per share of common stock and a quarterly cash
distribution in the amount of $0.185 per OP Unit, to be paid on April 15, 2019 , to holders of record as of March 29, 2019 . Also on February 11, 2019 , our board
of directors declared a quarterly cash dividend in the amount of $0.367188 per share of the Series A Preferred Stock and $0.367188 per share of the Series B
Preferred Stock, to be paid on March 29, 2019 , to holders of record as of March 15, 2019 .
F- 46
REXFORD INDUSTRIAL REALTY, INC.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION
(Dollars in thousands
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Property
Address
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements Land (2)
Building &
Improvements
(2)
Total
Accumulated
Depreciation
(3)
Year Build /
Year
Renovated
Year
Acquired
Fullerton,
CA
Sylmar, CA
La Puente,
CA
City of
Industry,
CA
Camarillo,
CA
Monrovia,
CA
Valencia,
CA
Simi Valley,
CA
San Diego,
CA
15241 - 15277,
15317 - 15339
Don Julian Rd.
300 South
Lewis Rd.
1400 South
Shamrock
2220-2260
Camino del Sol Oxnard, CA
14250-14278
Valley Blvd.
2300-2386
East Walnut
Ave.
15140 &
15148 Bledsoe
St., 13065 -
13081 Bradley
Ave.
28340 - 28400
Avenue
Crocker
21-29 West
Easy St.
10439-10477
Roselle St.
1631 N.
Placentia Ave.,
2350 - 2384 E.
Orangethorpe
Ave.
2575 Pioneer
Ave.
9641 - 9657
Santa Fe
Springs Rd.
28159 Avenue
Stanford
15715 Arrow
Highway
2431-2465
Impala Dr.
6200 & 6300
Yarrow Dr.
6231 & 6241
Yarrow Dr.
9160 - 9220
Cleveland
Ave., 10860
6th St.
Santa Fe
Springs, CA
Valencia,
CA
Irwindale,
CA
Carlsbad,
CA
Carlsbad,
CA
Carlsbad,
CA
Rancho
Cucamonga,
CA
Anaheim,
CA
Vista, CA
(4)
(4)
(4)
(4)
(4)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
1965, 2005 /
2003
1960-1963 /
2006
1957, 1962 /
2004
2002
2003
2003
2003
1985-1986 /
2005
2004
1969, 2008 /
2016
1987 / 2006
/ 2015
2004
2004
$ 3,875 $
2,407 $
9,682
$ 3,875 $
12,089 $ 15,964 $
(6,343)
4,150
2,317
868
2,539
3,050
2,534
—
2,020
8,104
828
4,172
2,977
4,150
2,317
868
2,539
11,154
15,304
3,362
5,679
(5,917)
(2,152)
4,172
5,040
(1,642)
2005
4,997
7,536
(2,535)
1974 / 2007
2003
6,817
6,089
1,048
6,817
7,137
13,954
(3,801)
2,525
3,380
6,426
2,525
9,806
12,331
(3,896)
2,666
2,346
4,711
4,893
1,784
3,740
1,849
3,604
5,470
5,001
3,473
3,343
4,522
3,199
1,386
2,974
260
6,776
5,056
7,308
7,658
5,119
3,715
2,322
2,740
1,463
1,940
6,939
4,653
(84)
3,892
3,544
1,133
2,666
2,346
4,711
4,893
1,784
3,740
1,849
3,604
5,470
5,001
3,473
7,058
9,724
(3,161)
6,844
9,190
(3,374)
1991 / 2006
2004
5,939
10,650
(1,027)
1970 / 2007
2013
2,849
7,742
(1,384)
1973 / 2007
2005
4,914
6,698
(2,424)
1988 / 2006
2004
7,199
10,939
11,429
13,278
(2,165)
(4,911)
1982 / 2009
1987 / 2008
/ 2015
4,972
8,576
(2,360)
1989
11,200
16,670
11,202
16,203
(5,225)
(5,859)
1983 / 2006
1977-1988 /
2006
2006
2006
2006
2006
2005
6,252
9,725
(3,160)
1977 / 2006
2006
3,647
11,867
2,220
3,647
14,087
17,734
(7,621)
1988-1989 /
2006
2006
F- 47
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Property
Address
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements
Land (2)
Building &
Improvements (2) Total
Accumulated
Depreciation (3)
3,013
2,161
867
3,013
3,028
6,041
(691)
Year Build
/ Year
Renovated
1957 / 1989,
2017
Burbank,
CA
Vernon, CA
18118-18120
S. Broadway Carson, CA
901 W.
Alameda
Ave.
1938-1946 E.
46th St.
89-91 N. San
Gabriel
Blvd., 2670-
2674 Walnut
Ave., 2675
Nina St.
9220-9268
Hall Rd.
131 W. 33rd
St.
5803 Newton
Dr.
929, 935,
939 & 951
Poinsettia
Ave.
3720-3750
W. Warner
Ave.
6750 Unit C
- 6780
Central Ave.
Pasadena,
CA
Downey,
CA
National
City, CA
Carlsbad,
CA
Santa Ana,
CA
Vista, CA
Riverside,
CA
San
Fernando,
CA
Santa Ana,
CA
Pasadena,
CA
Santa Ana,
CA
Van Nuys,
CA
La Puente,
CA
Rancho
Cucamonga,
CA
Irwindale,
CA
Torrance,
CA
Santa Fe
Springs, CA
Paramount,
CA
1050 Arroyo
Ave.
600-650
South Grand
Ave.
121-125 N.
Vinedo Ave.
3441 West
MacArthur
Blvd.
6701 & 6711
Odessa Ave.
13914-13932
Valley Blvd.
10700 Jersey
Blvd.
15705,
15709 Arrow
Highway &
5220 Fourth
St.
20920-20950
Normandie
Ave.
14944,
14946,
14948
Shoemaker
Ave.
6423-6431 &
6407-6119
Alondra
Blvd.
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
Year
Acquired
2013
2007
2007
2008
2009
2006
2007
6,304
7,015
1,759
6,974
2,390
3,152
2,996
7,078
2,834
2,902
5,029
7,155
5,291
6,304
8,287
14,591
1,702
7,015
8,780
15,795
(3,880)
(3,562)
1969 / 2009
1961, 1983 /
2008-2010
1,936
1,759
4,770
6,529
(1,744)
1947, 1985 /
2009
228
6,974
3,130
10,104
(1,389)
2008
486
2,390
5,515
7,905
1,707
1,692
5,742
7,434
(2,624)
(2,940)
1969 / 2008
1997-1999 /
2009
4,453
5,900
866
2,830
4,804
7,634
(2,149)
1989 / 2007
2008
3,028
1,058
917
3,028
1,975
5,003
(872)
1973 / 2008
2007
2,659
911
1,515
1,153
1,526
2,679
(774)
1978
2007
3,092
1,900
536
3,092
2,436
5,528
(571)
1969 / 2012
2010
4,298
3,481
4,179
1,582
2,372
5,075
3,530
5,358
1,856
2,431
1,231
4,298
6,306
10,604
(1,481)
1988
2010
15
3,481
3,545
7,026
(1,109)
1953 / 1993
2011
5
4,179
5,363
9,542
(1,159)
1973
116
1,582
1,972
3,554
519
2,372
2,950
5,322
(415)
(712)
1970-1972 /
2012
1978, 1988 /
2012
2011
2011
2011
3,158
4,860
498
3,158
5,358
8,516
(1,337)
1988-1989
2011
3,608
2,699
335
3,608
3,034
6,642
(742)
1987
3,253
1,605
466
3,253
2,071
5,324
(513)
1989
2011
2011
3,720
2,641
487
3,720
3,128
6,848
(768)
1978 / 2012
2011
1,396
925
17
1,396
942
2,338
(229)
1986
2011
F- 48
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements
Land (2)
Building &
Improvements
(2)
Total
Accumulated
Depreciation (3)
Year Build
/ Year
Renovated
Year
Acquired
Property
Address
1400 S.
Campus
Ave.
15041
Calvert St.
701 Del
Norte Blvd.
3350
Tyburn St.,
3332, 3334,
3360, 3368,
3370, 3378,
3380, 3410,
3424 N. San
Fernando
Rd.
1661 240th
St.
8101-8117
Orion Ave.
18310-
18330
Oxnard St.
1100-1170
Gilbert St.
& 2353-
2373 La
Palma Ave.
280 Bonita
Ave., 2743
Thompson
Creek Rd.
2950
Madera Rd.
10635
Vanowen
St.
7110
Rosecrans
Ave.
14723-
14825
Oxnard St.
845, 855,
865 S
Milliken
Ave &
4317, 4319
Santa Ana
St.
1500-1510
W. 228th St.
24105
Frampton
Ave.
1700 Saturn
Way
2980 &
2990 N San
Fernando
Road
20531
Crescent
Bay Dr.
2610 &
2701 S.
Birch Street
710 South
Dupont
Avenue &
4051 Santa
Ana Street
Ontario,
CA
Van Nuys,
CA
Oxnard,
CA
Los
Angeles,
CA
Los
Angeles,
CA
Van Nuys,
CA
Tarzana,
CA
Anaheim,
CA
Pomona,
CA
Simi
Valley, CA
Burbank,
CA
Paramount,
CA
Van Nuys,
CA
Ontario,
CA
Torrance,
CA
Torrance,
CA
Seal Beach,
CA
Burbank,
CA
Lake
Forest, CA
Santa Ana,
CA
Ontario,
CA
3,266
4,096
3,082
2,961
1,570
6,230
2
3,266
2,963
6,229
(1,470)
1964-1966,
1973, 1987
241
4,096
1,811
5,907
(359)
1971
497
3,082
6,727
9,809
(1,489)
2000
2012
2012
2012
17,978
39,471
2,892
17,978
42,363
60,341
(9,041)
1966, 1992,
1993, 1994
2013
3,043
1,389
2,550
3,872
3,636
3,043
6,186
9,229
(1,414)
1975 / 1995
2013
281
1,389
4,153
5,542
(956)
1978
2,497
5,494
904
2,497
6,398
8,895
(1,480)
1973
2013
2013
--
--
--
--
--
--
--
(5)
2,488
4,582
5,135
1,140
4,582
6,275
10,857
(1,449)
1972 / 1990
/ 2013
2013
--
--
--
--
--
--
--
--
--
--
--
--
--
(4)
8,001
3,601
17,734
8,033
36
8,001
17,770
25,771
(3,371)
1983
2013
2
3,601
8,035
11,636
(1,528)
1988 / 2005
2013
1,517
1,833
759
1,517
2,592
4,109
(529)
1977
2013
3,117
1,894
945
3,117
2,839
5,956
(528)
1972 / 2015
2014
4,458
3,948
1,520
4,458
5,468
9,926
(1,023)
1964 / 1968
2014
2,260
2,428
2,315
7,935
6,043
4,271
1,553
10,525
369
2,260
6,412
8,672
(1,516)
1985
3,359
2,428
7,630
10,058
(1,057)
1963 / 1968,
2017
2014
2014
2,071
2,315
3,624
5,939
(424)
1974 / 2016
2014
—
7,935
10,525
18,460
(1,965)
2006
2014
6,373
7,356
494
6,373
7,850
14,223
(1,752)
1950 / 2004
2014
2,181
4,012
415
2,181
4,427
6,608
(840)
1998
2014
9,305
2,115
4,327
9,305
6,442
15,747
(853)
1965 / 2016
2014
3,725
6,145
158
3,725
6,303
10,028
(1,247)
2001
2014
F- 49
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements
Land
(2)
Building &
Improvements
(2)
Total
Accumulated
Depreciation (3)
Year Build
/ Year
Renovated
Year
Acquired
Property
Address
9755
Distribution
Ave.
9855
Distribution
Ave
9340 Cabot
Drive
9404 Cabot
Drive
9455 Cabot
Drive
14955-14971
E Salt Lake
Ave
5235 East
Hunter Ave.
3880 West
Valley Blvd.
1601 Alton
Pkwy.
3116 W.
Avenue 32
21040 Nordoff
Street; 9035
Independence
Avenue;
21019 - 21045
Osborne Street
24935 &
24955 Avenue
Kearny
605 8th Street
9120 Mason
Ave.
7900 Nelson
Rd.
679-691 S
Anderson St.
10509
Business
Drive
13231 Slover
Avenue
240 W Ivy
Avenue
3000 Paseo
Mercado,
3120-3150
Paseo
Mercado
2350-2380
Eastman Ave
1800 Eastman
Ave
2360-2364 E.
Sturgis Road
San Diego,
CA
San Diego,
CA
San Diego,
CA
San Diego,
CA
San Diego,
CA
City of
Industry,
CA
Anaheim,
CA
Pomona,
CA
Irvine, CA
Los
Angeles,
CA
Chatsworth,
CA
Santa
Clarita, CA
San
Fernando,
CA
Chatsworth,
CA
Los
Angeles,
CA
Los
Angeles,
CA
Fontana,
CA
Fontana,
CA
Inglewood,
CA
Oxnard, CA
Oxnard, CA
Oxnard, CA
Oxnard, CA
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
1,863
3,211
(60)
1,863
3,151
5,014
(552)
1974
2,733
4,311
2,413
4,423
5,125
5,240
3,982
7,638
5,041
6,126
3,451
6,799
5,009
5,065
4,796
4,946
66
713
47
308
810
577
3,597
7,955
2,733
4,311
2,413
4,423
5,125
5,240
3,982
7,638
2014
2014
5,107
7,840
(971)
1983
6,839
11,150
(1,217)
1975 / 1976
2014
3,498
5,911
(654)
1975 / 1976
2014
7,107
11,530
(1,539)
1975 / 1976
2014
5,819
10,944
(1,181)
1979
5,642
10,882
(1,363)
1987
2014
2014
8,393
12,375
(1,393)
1980 / 2017
2014
12,901
20,539
(1,048)
1974 / 2018
2014
3,761
6,729
2,077
3,761
8,806
12,567
(1,266)
1974
2014
7,230
9,058
1,455
7,230
10,513
17,743
(2,077)
1979 / 1980
2014
4,773
5,970
749
4,773
6,719
11,492
(1,370)
1988
2014
2,393
9,224
2,742
19,346
1,744
1
2,393
9,224
4,486
6,879
(593)
1991 / 2015
2014
19,347
28,571
(3,240)
1967 / 1999
2014
8,495
15,948
2,068
8,495
18,016
26,511
(2,699)
1998 / 2015
2014
1,723
4,767
1,303
1,723
6,070
7,793
(737)
1992 / 2017
2014
3,505
2,812
2,064
2,616
1,805
842
1,128
5,237
4,739
3,675
8,311
3,856
2,209
2,726
3,505
2,812
2,064
2,616
1,805
842
1,128
544
574
2,017
520
560
67
442
F- 50
5,781
9,286
(1,007)
1989
5,313
8,125
(867)
1990
5,692
7,756
(716)
1981
8,831
11,447
(1,620)
1988
4,416
6,221
(970)
2003
2,276
3,118
(507)
2009
3,168
4,296
(663)
1989
2014
2014
2014
2014
2014
2014
2014
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Property
Address
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements
Land (2)
Building &
Improvements (2) Total
Accumulated
Depreciation (3)
Year Build
/ Year
Renovated
Year
Acquired
201 Rice
Ave. &
2400-2420
Celsius
11120,
11160,
11200
Hindry Ave
6970-7170
& 7310-
7374
Convoy Ct.
12907
Imperial
Highway
8902-8940
Activity Rd
1210 N Red
Gum St
9615
Norwalk
Blvd.
16221
Arthur St.
2588 &
2605
Industry
Way
425 S.
Hacienda
Blvd.
6700 S
Alameda St.
12720-
12860
Danielson
Ct.
10950
Norwalk
Blvd &
12241
Lakeland
Rd.
610-760 W
Hueneme
Rd & 5651-
5721
Perkins Rd
10701-
10719
Norwalk
Blvd.
6020 Sheila
St.
9805 6th St.
16321
Arrow Hwy.
601-605 S.
Milliken
Ave.
1065 E.
Walnut
Ave.
12247
Lakeland
Rd.
17311
Nichols Ln.
8525
Camino
Santa Fe
Oxnard, CA
Los
Angeles,
CA
San Diego,
CA
Santa Fe
Springs, CA
San Diego,
CA
Anaheim,
CA
Santa Fe
Springs, CA
Cerritos,
CA
Lynwood,
CA
City of
Industry,
CA
Huntington
Park, CA
Poway, CA
Santa Fe
Springs, CA
Commerce,
CA
Rancho
Cucamonga,
CA
Irwindale,
CA
Ontario, CA
Carson, CA
Santa Fe
Springs, CA
Huntington
Beach, CA
San Diego,
CA
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
3,487
9,589
271
3,487
9,860
13,347
(1,779)
2008
2014
3,478
7,834
209
3,478
8,043
11,521
(1,366)
1992 / 1994
2014
10,805
18,426
1,334
10,805
19,760
30,565
(3,564)
1971
5,462
9,427
3,326
8,508
2,979
6,678
8,103
4,020
1,134
3,204
—
5,462
6,678
12,140
(1,071)
1997
1,046
9,427
9,149
18,576
(1,609)
1987 / 1997
2015
150
3,326
4,170
7,496
(795)
1985
804
8,508
1,938
10,446
(308)
1975
190
2,979
3,394
6,373
(535)
1979
2015
2015
2015
8,738
9,415
—
8,738
9,415
18,153
(1,484)
1969 / 1971
2015
4,010
3,502
3,050
9,279
117
4,010
3,167
7,177
(498)
1997
2015
257
3,502
9,536
13,038
(1,740)
1990 / 2008
2015
6,902
8,949
316
6,902
9,265
16,167
(1,982)
1999
2015
Santa Fe
Springs, CA
--
3,446
1,241
84
3,446
1,325
4,771
(287)
1982
2015
Oxnard, CA
3,310
5,806
820
3,310
6,626
9,936
(1,240)
1985
3,357
4,590
3,503
3,087
3,527
7,772
3,204
4,081
115
3,357
3,642
6,999
(557)
2004
581
4,590
8,353
12,943
(1,096)
2000
787
3,503
3,991
7,494
(680)
1986
345
3,087
4,426
7,513
(587)
1955 / 2001
2015
5,479
7,036
798
5,479
7,834
13,313
(1,303)
1987 / 1988
2015
10,038
4,380
2,845
10,038
7,225
17,263
(1,282)
1974
2015
3,481
7,988
776
8,728
1,159
3,481
1,935
5,416
(200)
1971 / 2016
2015
—
7,988
8,728
16,716
(1,139)
1993 / 2014
2015
4,038
4,055
686
4,038
4,741
8,779
(556)
1986
2016
2014
2015
2015
2015
2015
2015
F- 51
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements Land (2)
Building &
Improvements
(2)
Total
Accumulated
Depreciation (3)
Year Build
/ Year
Renovated
Year
Acquired
Property
Address
28454
Livingston
Avenue
20 Icon
16425 Gale
Avenue
2700_2722
Fairview
Street
12131
Western
Avenue
9 Holland
15996 Jurupa
Avenue
11127
Catawba
Avenue
13550 Stowe
Drive
10750-10826
Lower Azusa
Road
525 Park
Avenue
3233 Mission
Oaks Blvd
1600
Orangethorpe
& 1335-1375
Acacia
14742-14750
Nelson
Avenue
3927 Oceanic
Drive
301-445
Figueroa
Street
12320 4th
Street
9190 Activity
Road
28903-28903
Avenue Paine
2390 Ward
Avenue
Safari
Business
Center (5)
4175 Conant
Street
5421 Argosy
Avenue
Valencia,
CA
Lake Forest,
CA
City of
Industry,
CA
Santa Ana,
CA
Garden
Grove, CA
Irvine, CA
Fontana,
CA
Fontana,
CA
Poway, CA
El Monte,
CA
San
Fernando,
CA
Camarillo,
CA
Fullerton,
CA
City of
Industry,
CA
Oceanside,
CA
Wilmington,
CA
Rancho
Cucamonga,
CA
San Diego,
CA
Valencia,
CA
Simi Valley,
CA
Ontario, CA
Long
Beach, CA
Huntington
Beach, CA
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
5,150
12,576
9,666
8,817
—
5,150
9,666
14,816
(1,172)
2007
2016
92 12,576
8,909
21,485
(1,473)
1999 / 2015
2016
18,803
6,029
248 18,803
6,277
25,080
(798)
1976
10,144
5,989
1,218 10,144
7,207
17,351
15,077
13,724
7,855
5,562
9,126
11,149
9,365
12,056
8,094
8,043
4,685 15,077
71 13,724
15,834
9,436
30,911
23,160
2
7,855
12,058
19,913
(1,359)
2015
2
5,562
8,096
13,658
(917)
2015
—
9,126
8,043
17,169
(1,150)
1991
(741)
1964 / 1984,
2018
(1,421)
1987 / 2007,
2017
(1,179)
1980 / 2013
4,433
2,961
988
4,433
3,949
8,382
(449)
1975
3,830
13,791
3,887
10,017
111
3,830
3,998
7,828
(467)
2003
8,166 13,791
18,183
31,974
(1,478)
1980-1982 /
2014, 2018
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
26,659
12,673
3,337 26,659
16,010
42,669
(1,864)
1968 / 1985
2016
13,463
2,667
1,680
4,581
16,822 13,463
18,502
31,965
(24)
1969 / 2018
2016
147
2,667
4,728
7,395
(421)
2004
2016
7,126
5,728
4,605
7,126
10,333
17,459
(596)
1972 / 2018
2016
12,642
8,497
10,620
5,624
50,807
13,785
3,577
14,179
5,622
6,510
10,045
86,065
13,440
1,490
2 12,642
14,181
26,823
(1,434)
1997 / 2003
2016
397
8,497
6,019
14,516
(671)
1986
2016
6,047 10,620
12,557
23,177
— 1999 / 2018
2017
364
5,624
10,409
16,033
(928)
1989
4,056 50,807
90,121 140,928
(6,434)
1989
— 13,785
13,440
27,225
(947)
2015
2
3,577
1,492
5,069
(190)
1976
2017
2017
2017
2017
F- 52
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Property
Address
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements Land (2)
Building &
Improvements
(2)
Total
Accumulated
Depreciation (3)
Year Build
/ Year
Renovated
Year
Acquired
Norwalk,
CA
14820-
14830
Carmenita
Road
3002-3072
Inland
Empire Blvd Ontario, CA
17000
Kingsview
Avenue &
800 Sandhill
Avenue
2301-2329,
2331-2359,
2361-2399,
2370-2398
& 2332-
2366 E.
Pacifica
Place;
20001-
20021
Rancho Way
Carson, CA
Rancho
Dominguez,
CA
Rancho
Cucamonga,
CA
11190 White
Birch Drive
4832-4850
Azusa
Canyon
Road
1825 Soto
Street
19402
Susana Road
13225
Western
Avenue
15401
Figueroa
Street
8542
Slauson
Avenue
687
Eucalyptus
Avenue
302
Rockefeller
Avenue
4355
Brickell
Street
12622-
12632
Monarch
Street
8315 Hanan
Way
13971
Norton
Avenue
1900
Proforma
Avenue
16010
Shoemaker
Avenue
4039 Calle
Platino
851
Lawrence
Drive
Irwindale,
CA
Los
Angeles,
CA
Rancho
Dominguez,
CA
Gardena,
CA
Los
Angeles,
CA
Pico Rivera,
CA
Inglewood,
CA
Ontario, CA
Ontario, CA
Garden
Grove, CA
Pico Rivera,
CA
Chino, CA
Ontario, CA
Cerritos,
CA
Oceanside,
CA
Thousand
Oaks, CA
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
22,938
6,738
180
22,938
6,918
29,856
(581)
1970, 2000
2017
12,031
14,439
1,777
12,031
16,216
28,247
(1,005)
1981
2017
7,988
5,472
125
7,988
5,597
13,585
(368)
1984
2017
121,329
86,776
1,992 121,329
88,768 210,097
(5,859)
1989
9,405
9,840
3
9,405
9,843
19,248
(692)
1986
5,330
8,856
7
5,330
8,863
14,193
(543)
2016
2,129
1,315
—
2,129
1,315
3,444
(90)
1993
3,524
1,918
357
355
7
3,524
364
3,888
(44)
1957
49
1,918
404
2,322
(32)
1955
2017
2017
2017
2017
2017
2017
3,255
1,248
698
3,255
1,946
5,201
(51)
1964 / 2018
2017
8,681
576
94
8,681
670
9,351
(75)
1964
37,035
15,120
—
37,035
15,120
52,155
(670)
2017
6,859
7,185
5
6,859
7,190
14,049
(350)
2000
7,295
5,616
29
7,295
5,645
12,940
(294)
2004
11,691
8,714
8,290
4,751
12
11,691
8,302
19,993
(441)
1967
159
8,714
4,910
13,624
(219)
1976
5,293
6,377
44
5,293
6,421
11,714
(294)
1990
10,214
5,127
252
10,214
5,379
15,593
(315)
1989
9,927
9,476
6,717
6,948
11,394
60
9,927
7,008
16,935
(266)
1985
153
9,476
11,547
21,023
(371)
1991
—
431
6,717
431
7,148
— 1968
2017
2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
1581 North
Main Street
Orange, CA
--
4,230
3,313
1
4,230
3,314
7,544
(108)
1994
2018
F- 53
Costs
Capitalized
Subsequent to
Acquisition (1)
Initial Cost
Gross Amounts at Which Carried at
Close of Period
Property
Address
Location Encumbrances
Land
Building and
Improvements
Building and
Improvements Land (2)
Building &
Improvements
(2)
Total
Accumulated
Depreciation
(3)
Year Build
/ Year
Renovated
Year
Acquired
Long
Beach, CA
San Marcos,
CA
Anaheim,
CA
Commerce,
CA
Tustin, CA
Simi
Valley, CA
Torrance,
CA
Irwindale,
CA
Compton,
CA
Pacoima,
CA
Santa Fe
Springs, CA
Valencia,
CA
Cerritos,
CA
Oceanside,
CA
Carlsbad,
CA
Carson, CA
Chatsworth,
CA
Chatsworth,
CA
Chatsworth,
CA
Chatsworth,
CA
La Palma,
CA
Commerce,
CA
1580 West
Carson
Street
660 & 664
North Twin
Oaks Valley
Road
1190
Stanford
Court
5300 Sheila
Street
15777
Gateway
Circle
1998
Surveyor
Avenue
3100 Fujita
Street
4416 Azusa
Canyon
Road
1420
Mckinley
Avenue
12154
Montague
Street
10747
Norwalk
Boulevard
29003
Avenue
Sherman
16121
Carmenita
Road
1332-1340
Rocky Point
Drive
6131-6133
Innovation
Way
263-321
Gardena
Boulevard
9200 Mason
Avenue
9230 Mason
Avenue
9250 Mason
Avenue
9171 Oso
Avenue
5593-5595
Fresca Drive
6100 Sheila
Street
14421-
14441
Bonelli
Street
Investments
in real
estate
--
5,252
2,496
1,346
5,252
3,842
9,094
(5) 1982 / 2018
2018
--
6,307
6,573
74
6,307
6,647
12,954
(227) 1978 - 1988
2018
--
--
3,583
90,568
2,430
54,086
3
2
3,583
90,568
2,433
6,016
(70) 1979
54,088
144,656
(1,546) 1975
--
3,815
4,292
20
3,815
4,312
8,127
(108) 2005
--
--
3,670
7,723
2,263
5,649
4,231
3,670
6,494
10,164
— --
32
7,723
5,681
13,404
(165) 1970
--
10,762
1,567
2
10,762
1,569
12,331
(48) 1956
--
17,053
13,605
124
17,053
13,729
30,782
(311) 2017
--
10,114
12,767
2
10,114
12,769
22,883
(262) 1974
--
5,646
4,966
—
5,646
4,966
10,612
(97) 1999
--
3,094
6,467
272
3,094
6,739
9,833
— 2000
--
10,013
3,279
69
10,013
3,348
13,361
(85) 1969
--
3,816
6,148
82
3,816
6,230
10,046
(21) 2009
--
10,545
11,859
98
10,545
11,957
22,502
(67) 2017
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
--
--
--
--
--
--
--
14,302
4,887
4,454
4,034
5,647
11,414
11,789
1,960
4,080
955
2,464
2,801
2,502
5,214
29
—
—
—
—
—
—
14,302
1,989
16,291
(22) 1977 - 1982
2018
4,887
4,454
4,034
5,647
11,414
11,789
4,080
8,967
(25) 1968
955
5,409
(10) 1974
2,464
6,498
(17) 1977
2,801
8,448
(19) 1980
2,502
13,916
(21) 1973
5,214
17,003
(18) 1960
2018
2018
2018
2018
2018
2018
City of
Industry,
CA
--
12,191
7,489
—
12,191
7,489
19,680
— 1971
2018
$
2,488
$1,303,546 $
1,206,732 $
216,376 $1,298,957 $
1,417,126 $2,716,083 $
(228,742)
F- 54
Note: As of December 31, 2018 , the aggregate cost for federal income tax purposes of investments in real estate was approximately $2.6 billion .
(1) Costs capitalized subsequent to acquisition are net of the write-off of fully depreciated assets and include construction in progress.
(2) During 2009, we recorded impairment charges totaling $19.6 million in continuing operations (of which $10.1 million relates to properties still owned by us)
to write down our investments in real estate to fair value. Of the $10.1 million , $4.6 million is included as a reduction of “Land” in the table above, with the
remaining $5.5 million included as a reduction of “Buildings and Improvements”.
(3) The depreciable life for buildings and improvements ranges from 10 - 30 years for buildings, 5 - 20 years for site improvements, and the shorter of the
estimated useful life or respective lease term for tenant improvements.
Includes unamortized discount of $0.1 million .
(4) These six properties secure a term loan that had a balance of $58.5 million as of December 31, 2018 .
(5)
(6) Safari Business Park consists of 16 buildings with the following addresses: 1845, 1885, 1901-1957 and 2037-2077 Vineyard Avenue; 1906-1946 and 2048-
2058 Cedar Street; 1900-1956, 1901-1907, 1911-1951, 2010-2020 and 2030-2071 Lynx Place; 1810, 1840-1898, 1910-1960 and 2030-2050 Carlos Avenue;
2010-2057 and 2060-2084 Francis Street.
F- 55
The following tables reconcile the historical cost of total real estate held for investment and accumulated depreciation from January 1, 2016 to
December 31, 2018 (in thousands):
Total Real Estate Held for Investment
Balance, beginning of year
Acquisition of investment in real estate
Construction costs and improvements
Disposition of investment in real estate (1)
Properties held for sale (1)
Write-off of fully depreciated assets
Balance, end of year
Accumulated Depreciation
Balance, beginning of year
Depreciation of investment in real estate
Disposition of investment in real estate (1)
Properties held for sale (1)
Write-off of fully depreciated assets
Balance, end of year
Year Ended December 31,
2018
2017
2016
$
2,161,965 $
1,552,129 $
1,188,766
513,511
58,207
(17,060)
—
(540)
649,019
44,451
(69,616)
(13,296)
(722)
356,336
31,565
(24,331)
—
(207)
$
2,716,083 $
2,161,965 $
1,552,129
Year Ended Year Ended December 31,
2018
2017
2016
$
(173,541) $
(135,140) $
(57,312)
1,571
—
540
(45,469)
4,737
1,609
722
(103,623)
(34,779)
3,055
—
207
$
(228,742) $
(173,541) $
(135,140)
(1) As of December 31, 2017, our properties located at (i) 700 Allen Avenue and 1830 Flower Street and (ii) 8900-8980 Benson Avenue and 5637 Highway were
classified as held for sale and the balances associated with these properties were reclassified from “Total real estate held for investment, net” to “Assets
associated with real estate held for sale, net” in the accompanying consolidated balance sheets as of December 31, 2017. These properties were sold during the
year ended December 31, 2018. In the above reconciliations, the balances associated with these properties were included in “Properties held for sale” for the
year ended December 31, 2017, and excluded from “Disposition of investment in real estate” for the year ended December 31, 2018. See Note 12 to our
consolidated financial statements included in Item 15 of this Report on Form 10-K.
F- 56
SUBSIDIARIES OF REXFORD INDUSTRIAL REALTY, INC.
Exhibit 21.1
Name
Rexford Industrial Realty, L.P.
REXFORD INDUSTRIAL REALTY AND MANAGEMENT, INC.
RIF V - SPE OWNER, LLC
RIF V - SPE MANAGER, LLC
Jurisdiction of Formation/Incorporation
Maryland
California
Delaware
California
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-190074) pertaining to the Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. 2013 Incentive
Award Plan,
(2) Registration Statement (Form S-3 No. 333-197849) of Rexford Industrial Realty, Inc.; and
(3) Registration Statement (Form S-3 No. 333-210691) of Rexford Industrial Realty, Inc.;
of our reports dated February 15, 2019 with respect to the consolidated financial statements and schedule of Rexford Industrial Realty, Inc. and the effectiveness of
internal control over financial reporting of Rexford Industrial Realty, Inc. included in this Annual Report (Form 10-K) of Rexford Industrial Realty, Inc. for the
year ended December 31, 2018.
/s/ Ernst & Young LLP
Los Angeles, California
February 15, 2019
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael S. Frankel, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rexford Industrial Realty, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
February 15, 2019
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
By:
/s/ Michael S. Frankel
Michael S. Frankel
Co-Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Howard Schwimmer, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rexford Industrial Realty, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
February 15, 2019
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
By:
/s/ Howard Schwimmer
Howard Schwimmer
Co-Chief Executive Officer
Exhibit 31.3
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Adeel Khan, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rexford Industrial Realty, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
February 15, 2019
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
By:
/s/ Adeel Khan
Adeel Khan
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Rexford Industrial Realty, Inc. (the “Company”) for the year ended December 31, 2018 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Michael S. Frankel, Co-Chief Executive Officer of the Company, hereby certify,
pursuant to 18 U.S.C §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael S. Frankel
Michael S. Frankel
Co-Chief Executive Officer
February 15, 2019
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Rexford Industrial Realty, Inc. (the “Company”) for the year ended December 31, 2018 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Howard Schwimmer, Co-Chief Executive Officer of the Company, hereby certify,
pursuant to 18 U.S.C §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Howard Schwimmer
Howard Schwimmer
Co-Chief Executive Officer
February 15, 2019
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.3
In connection with the Annual Report on Form 10-K of Rexford Industrial Realty, Inc. (the “Company”) for the year ended December 31, 2018 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Adeel Khan, Chief Financial Officer of the Company, hereby certify, pursuant to 18
U.S.C §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Adeel Khan
Adeel Khan
Chief Financial Officer
February 15, 2019