Rexford Industrial Realty Inc.
07/21/2025 | Press release | Distributed by Public on 07/21/2025 04:01
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto that appear in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q. The terms "Company," "we," "us," and "our" refer to Rexford Industrial Realty, Inc. and its consolidated subsidiaries except where the context otherwise requires.
Forward-Looking Statements
We make statements in this quarterly report that are forward-looking statements, which are usually identified by the use of words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "might," "plans," "potential," "possible," "predicts," "projects," "results," "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:
•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 or our borrower;
•acquisition risks, including failure of such acquisitions to perform in accordance with expectations;
•the timing of acquisitions and dispositions;
•risks associated with redevelopment and repositioning activities, including the possibility that costs may exceed original estimates, the time to complete a project or to lease up the completed project may be greater than originally anticipated or changes in entitlements or laws may impact or prevent execution of intended projects, including without limitation, California Assembly Bill 98;
•potential natural disasters such as earthquakes, wildfires or floods;
•the consequence of any future security alerts and/or terrorist attacks;
•national, international, regional and local economic conditions, including impacts and uncertainty from trade disputes and tariffs on goods imported to the United States and goods exported to other countries;
•the general level of interest rates;
•potential impacts of inflation;
•potential changes in or interpretation and enforcement of the law, governmental regulations or executive orders that affect us and interpretations of those laws, regulations and executive orders, including changes in real estate and zoning or REIT tax laws, potential increases in real property tax rates and other matters related to operating our business;
•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 ratings by Fitch Ratings ("Fitch"), Moody's Investors Services ("Moody's") or from Standard and Poor's Ratings Services ("S&P");
•litigation, including costs associated with prosecuting or defending pending or threatened claims and any adverse outcomes;
•possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us;
•impacts to the regional labor markets and inflationary pressures from smaller labor pools, costs of goods and construction, lower consumer demand and impacts to the overall economy related to U.S. Immigration and Customs Enforcement (ICE) arrests and detentions of immigrants within Southern California;
•an epidemic or pandemic, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities may implement to address it, which may precipitate or exacerbate one or more of the above-mentioned factors and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period; and
•other events outside of our control.
Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the 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 carefully review our financial statements and the notes thereto, as well as the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024.
Company Overview
Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service REIT focused on owning and operating industrial properties in Southern California infill markets. We were formed as a Maryland corporation on January 18, 2013, and Rexford Industrial Realty, L.P. (the "Operating Partnership"), of which we are the sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling interest in our Operating Partnership and its subsidiaries, we acquire, own, improve, reposition, redevelop, lease and manage industrial real estate principally located in Southern California infill markets, and, from time to time, acquire or provide mortgage debt secured by industrial zoned property or property suitable for industrial development. From time to time we also sell assets as part of our capital allocation strategy. 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 June 30, 2025, our consolidated portfolio consisted of 422 properties with approximately 51.0 million rentable square feet.
Our goal is to generate attractive risk-adjusted returns for our stockholders by providing superior access to industrial property investments and mortgage debt investments secured by industrial property in high-barrier Southern California infill markets. Our target markets provide us with opportunities to acquire both stabilized properties generating favorable cash flow, as well as properties or land parcels where we can enhance returns through value-add repositioning and redevelopments. Scarcity of available space and high barriers limiting new construction of for-lease product all contribute to create superior long-term supply/demand fundamentals within our target infill Southern California industrial property markets. With our vertically integrated operating platform and extensive value-add investment and management capabilities, we believe we are positioned to capitalize upon the opportunities in our markets to achieve our objectives.
2025 Year to Date Highlights
Financial and Operational Highlights
•Net income attributable to common stockholders increased by 31.3% to $181.8 million for the six months ended June 30, 2025, compared to the prior year.
•Core funds from operations (Core FFO)(1)attributable to common stockholders increased by 10.9% to $280.7 million for the six months ended June 30, 2025, compared to the prior year.
•Net operating income (NOI)(1)increased by 10.2% to $379.8 million for the six months ended June 30, 2025, compared to the prior year.
•Total portfolio occupancy at June 30, 2025 was 89.2%.
•Same Property Portfolio(2)average occupancy for the six months ended June 30, 2025 was 95.9% and ending occupancy at June 30, 2025 was 96.1%.
•Executed a total of 237 new and renewal leases with a combined 4.1 million rentable square feet, with leasing spreads of 22.6% on a GAAP basis and 11.9% on a cash basis.
__________________________
(1)See "Non-GAAP Supplemental Measures: Funds From Operations" and "Non-GAAP Supplemental Measures: NOI and Cash NOI" included under Item 2 of this Form 10-Q for a definition and reconciliation of Core FFO and NOI from net income and a discussion of why we believe Core FFO and NOI are useful supplemental measures of operating performance.
(2)For a definition of "Same Property Portfolio," see "Results of Operations" included under Item 2 of this Form 10-Q.
Dispositions
•During the first quarter of 2025, we sold one property with 127,775 rentable square feet for a gross sale price of $52.5 million and recognized $13.2 million in gains on sale of real estate.
•During the second quarter of 2025, we sold two properties with a combined 208,610 rentable square feet for a total gross sale price of $81.6 million and recognized $44.4 million in gains on sale of real estate.
•Subsequent to the second quarter of 2025, we sold one property with 51,081 rentable square feet for a gross sale price of $14.7 million.
Repositioning & Redevelopment
•During the first quarter of 2025, we stabilized five of our repositioning projects located at 4039 Calle Platino, 29120 Commerce Center Drive, East 27th Street, 122-125 North Vinedo Avenue and 29125 Avenue Paine, which have a combined 560,255 rentable square feet.
•During the second quarter of 2025, we stabilized our repositioning project located at 218 Turnbull Canyon and our redevelopment project located at 1901 Via Burton, which have a combined 330,602 rentable square feet. We also leased our 57,600 square foot repositioning property located at 1020 Bixby Drive which stabilized subsequent to the second quarter on July 1, 2025.
•Subsequent to the second quarter of 2025, we leased our redevelopment projects located at 8888 Balboa Avenue and 3071 Coronado Street which have a combined 228,665 rentable square feet. The leases are expected to commence in the third and fourth quarter of 2025, respectively, at which time the properties will be stabilized.
•During the first quarter of 2025, we completed construction at nine of our repositioning/redevelopment properties with a combined 907,966 square feet. During the second quarter of 2025, we completed construction at two additional redevelopment properties with a combined 206,298 square feet. As of June 30, 2025 these 11 properties were in the lease-up stage.
Equity
•During the first quarter of 2025, we settled the remaining portion of the forward equity sale agreement related to our March 2024 underwritten public offering by issuing 9,776,768 shares of common stock for net proceeds of $478.0 million, based on a weighted average forward price of $48.89 per share at settlement.
Financing
•On May 30, 2025, we amended our senior unsecured credit agreement to, among other changes, increase the borrowing capacity under our unsecured revolving credit facility from $1.0 billion to $1.25 billion, extend the maturity date of the unsecured revolving credit facility from May 26, 2026 to May 30, 2029 (with two extension options of six months each), extend the maturity date of the $400.0 million unsecured term loan facility from July 18, 2025 to May 30, 2030, and lower the interest rate by eliminating the 0.10% SOFR adjustment that previously applied to both the unsecured revolving credit facility and $400.0 million unsecured term loan facility.
•On June 30, 2025, we executed three interest rate swaps with an aggregate notional value of $400.0 million to fix daily SOFR related to our $400.0 unsecured term loan facility at a rate of 3.41375%, commencing on July 1, 2025 through May 30, 2030. These swaps take the place of the swaps that were previously in place from April 3, 2023 through June 30, 2025, which fixed daily SOFR at 3.97231%.
Factors That May Influence Future Results of Operations
Market and Portfolio Fundamentals
Our operating results depend upon the infill Southern California industrial real estate market.
The infill Southern California industrial real estate sector continues to exhibit favorable long-term supply-demand fundamentals. These high-barrier infill markets are characterized by a relative scarcity of highly functional product, coupled with the limited ability to introduce new supply over the long-term due to high land and redevelopment costs, regulatory hurdles with restrictive development constraints and a dearth of developable land in markets experiencing a net reduction in supply as, over time, more industrial property is converted to non-industrial uses than can be delivered. While we believe that our infill Southern California industrial property markets have demonstrated resiliency related to occupancy and rental rates in the context of key market drivers over the last several years, we expect some ongoing volatility within our markets through the
near term, principally driven by general macroeconomic and political uncertainty including recent changes in trade and tariff policy, an uncertain interest rate environment, persistent inflation and global geopolitical unrest. According to third-party market data, market rent growth within our infill Southern California markets has decreased approximately 20.0% since market rents peaked in mid-2023, after an increase of approximately 80%, on average, through the pandemic years of 2020 through 2022. In comparison, market rent growth for the Company's portfolio has decreased approximately 17.5% since market rents peaked in mid-2023.
Renewal leasing activity remained healthy and overall absorption was positive, reflecting the continued stability and demand across our tenant base. While activity levels remained healthy through the first half of 2025 relative to the second half of 2024, we recognize that heightened macroeconomic and tariff uncertainty continues to weigh on tenant decision-making and may influence tenant demand going forward.
Tenant demand has been driven by a wide range of sectors, from consumer products, healthcare and medical products to aerospace and defense, food and beverage, construction and logistics, e-commerce, among other sectors. Our portfolio, which we believe represents prime locations with superior functionality within the largest last-mile logistics distribution market in the nation, is well-positioned to continue to serve our diverse tenant base and attract incremental ecommerce-oriented and traditional distribution demand over the long-term.
General Market Conditions
We believe our portfolio's leasing performance during the second quarter of 2025 has generally outpaced that of the infill markets within which we operate. We believe this performance has been driven by our highly entrepreneurial business model focused on acquiring and improving industrial property in superior locations so that our portfolio reflects a higher level of quality and functionality, on average, as compared to typical available product within the markets within which we operate. We believe that our portfolio, comprised of smaller space sizes averaging 26,000 square feet located entirely within last-mile, infill Southern California locations is well positioned to serve regional consumption and may be less susceptible to changes in global trade flows as compared to large warehouses located within non-infill submarkets. We also believe the quality and entrepreneurial approach demonstrated by our vertically-integrated team of real estate professionals actively managing our properties and our tenants enables the potential to outcompete within our markets where we believe competing properties are generally otherwise owned by more passive, less-focused real estate owners.
The following general market conditions have been sourced from third-party market data and do not necessarily reflect the results of our portfolio. For our portfolio specific results see "-Rental Revenues" and "-Results of Operations" below.
In Los Angeles County, vacancy increased quarter-over-quarter to 4.7% and average asking lease rates declined quarter-over-quarter. New development is limited by a lack of land availability and an increase in land and development costs.
In Orange County, average asking lease rates decreased quarter-over-quarter and vacancy increased quarter-over-quarter to 4.1%. Market conditions are expected to be favorable over the long-term due to steady demand and the continued low availability of industrial product in this region.
In the Inland Empire West, which contains infill markets in which we operate, vacancy increased quarter-over-quarter to 4.8% and average taking lease rates in the market decreased quarter-over-quarter. We generally do not focus on properties located within the non-infill Inland Empire East sub-market where available land and the development and construction pipeline for new supply is substantial.
In San Diego, vacancy decreased quarter-over-quarter and average asking lease rates increased quarter-over-quarter.
In Ventura County, vacancy was flat quarter-over-quarter and average asking lease rates declined quarter-over-quarter.
Acquisitions and Value-Add Repositioning and Redevelopment of Properties
The Company's growth strategy comprises acquiring leased, stabilized properties as well as properties with value-add opportunities to improve functionality and to deploy our value-driven asset management programs in order to increase cash flow and value. Additionally, from time to time, we may acquire industrial outdoor storage sites, land parcels or properties with excess land for ground-up redevelopment projects. Acquisitions may comprise single property investments as well as the purchase of portfolios of properties, with transaction values ranging from approximately $10 million single property investments to portfolios potentially valued in the billions of dollars. The Company's geographic focus remains infill Southern California. However, from time-to-time, portfolios could be acquired comprising a critical mass of infill Southern California industrial property that could include some assets located in markets outside of infill Southern California. In general, to the extent non-infill-Southern California assets were to be acquired as part of a larger portfolio, the Company may underwrite such investments with the potential to dispose such assets over a certain period of time in order to maximize its core focus on infill Southern California, while endeavoring to take appropriate steps to satisfy REIT safe harbor requirements to avoid prohibited transactions under REIT tax laws. Similarly, while our focus is owning and operating industrial properties in Southern California infill markets, occasionally an acquisition may include non-industrial properties, such as office and other uses, with the intent to reposition or redevelop the properties into industrial use or to dispose of the non-industrial assets in a manner intended to satisfy REIT safe harbor requirements to avoid prohibited transactions under REIT tax laws.
A key component of our growth strategy is to acquire properties through off-market and lightly marketed transactions that are often operating at below-market occupancy or below-market rent at the time of acquisition or that have near-term lease roll-over or that provide opportunities to add value through functional or physical repositioning and improvements. Through various repositioning, redevelopment, and professional leasing and marketing strategies, we seek to increase the properties' functionality and attractiveness to prospective tenants and, over time, to stabilize the properties at occupancy rates that meet or exceed market rates.
A repositioning can provide a range of property improvements. This may include a complete structural renovation of a property whereby we convert large underutilized spaces into a series of smaller and more functional spaces, or it may include the creation of additional square footage, the modernization of the property improvements, the elimination of functional obsolescence, the addition or enhancement of loading areas and truck access, the enhancement of fire-life-safety systems or other accretive improvements, in each case designed to improve the cash flow and value of the property.
We have a number of significant repositioning properties, which are individually presented in the tables below. A repositioning property that is considered significant is typically defined as a property where a significant amount of space is held vacant in order to implement capital improvements, the cost to complete repositioning work and lease-up is estimated to be greater than $2 million and the repositioning and lease-up time frame is estimated to be greater than six months. We also have a range of other spaces in repositioning, that due to their smaller size, relative scope, projected repositioning costs or relatively nominal amount of down-time, are not presented below, however, in the aggregate, may be substantial (and which we refer to as "other repositioning projects").
A repositioning is generally considered complete once the investment is fully or nearly fully deployed and the property is available for occupancy. Because each repositioning effort is unique and determined based on the property, targeted tenants and overall trends in the general market and specific submarket, the timing and effect of the repositioning on our rental revenue and occupancy levels will vary, and, as a result, will affect the comparison of our results of operations from period to period with limited predictability.
A redevelopment property is defined as a property where we plan to fully or partially demolish an existing building(s) due to building obsolescence and/or a property with excess or vacant land where we plan to construct a ground-up building.
As of June 30, 2025, 14 of our properties were under current repositioning or redevelopment and 18 of our properties were in the lease-up stage. In addition, we have a pipeline of 15 additional properties for which we anticipate beginning repositioning/redevelopment construction work over the near term. The tables below set forth a summary of these properties, as well as the properties that were most recently stabilized in 2025 and 2024, as the timing of these stabilizations have a direct impact on our current and comparative results of operations. We consider a repositioning/redevelopment property to be stabilized upon the earlier of (i) reaching 90% occupancy or (ii) one year from the date construction work is completed.
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Estimated Construction Period(1)
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| Property (Submarket) | Market |
Repositioning/ Lease-up Rentable Square Feet(2)
|
Start | Completion | Total Property Leased % at 6/30/2025 | |||||||||||||||||||||||||||
| Current Repositioning: | ||||||||||||||||||||||||||||||||
| 19301 Santa Fe Avenue (South Bay) | LA | LAND | 2Q-2024 | 3Q-2025 | -% | |||||||||||||||||||||||||||
| Harcourt & Susana (South Bay) | LA | 34,000 |
(3)
|
2Q-2024 | 3Q-2025 | -% | ||||||||||||||||||||||||||
| 8985 Crestmar Point (Central SD) | SD | 53,395 | 4Q-2024 | 3Q-2025 | -% | |||||||||||||||||||||||||||
| 14955 Salt Lake Avenue (SG Valley) | LA | 45,930 | 4Q-2024 | 3Q-2025 | -% | |||||||||||||||||||||||||||
| 9455 Cabot Drive (Central SD) | SD | 83,563 | 2Q-2025 | 4Q-2025 | -% | |||||||||||||||||||||||||||
| 14400 Figueroa Street (Figueroa & Rosecrans) (South Bay) | LA | 56,700 | 2Q-2025 | 3Q-2026 | -% | |||||||||||||||||||||||||||
| Total Current Repositioning | 273,588 | |||||||||||||||||||||||||||||||
| Lease-up (Repositioning): | ||||||||||||||||||||||||||||||||
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11308-11350 Penrose Street (SF Valley)(4)
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LA | 71,547 | 1Q-2023 | 1Q-2024 | -% | |||||||||||||||||||||||||||
| 14434-14527 San Pedro Street (South Bay) | LA | 58,225 |
(5)
|
3Q-2023 | 1Q-2025 | -% | ||||||||||||||||||||||||||
| 1020 Bixby Drive (SG Valley) | LA | 57,600 | 1Q-2024 | 3Q-2024 |
100%(6)
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| 17000 Kingsview Avenue (South Bay) | LA | 95,865 | 1Q-2024 | 1Q-2025 | -% | |||||||||||||||||||||||||||
| 1315 Storm Parkway (South Bay) | LA | 37,844 | 2Q-2024 | 4Q-2024 | -% | |||||||||||||||||||||||||||
| Total Lease-up (Repositioning) | 321,081 | |||||||||||||||||||||||||||||||
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- See footnotes starting on page 46 -
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Estimated Construction Period(1)
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| Property (Submarket) | Market |
Estimated Redevelopment Rentable Square Feet(7)
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Start | Completion | Total Property Leased % at 6/30/2025 | |||||||||||||||||||||||||||
| Current Redevelopment: | ||||||||||||||||||||||||||||||||
| 9615 Norwalk Boulevard (Mid-Counties) | LA | 201,571 | 3Q-2021 | 3Q-2025 | -% | |||||||||||||||||||||||||||
| 15010 Don Julian Road (SG Valley) | LA | 219,242 | 1Q-2023 | 4Q-2025 | -% | |||||||||||||||||||||||||||
| 21515 Western Avenue (South Bay) | LA | 83,740 | 2Q-2023 | 3Q-2025 | -% | |||||||||||||||||||||||||||
| 14940 Proctor Road (SG Valley) | LA | 160,045 | 4Q-2024 | 2Q-2026 | -% | |||||||||||||||||||||||||||
| 11234 Rush Street (SG Valley) | LA | 103,108 | 4Q-2024 | 4Q-2026 | -% | |||||||||||||||||||||||||||
| 5235 Hunter Avenue (North OC) | OC | 117,772 | 1Q-2025 | 3Q-2026 | -% | |||||||||||||||||||||||||||
| 3547-3555 Voyager Street (South Bay) | LA | 67,371 | 1Q-2025 | 3Q-2026 | -% | |||||||||||||||||||||||||||
| 7815 Van Nuys Blvd (SF Valley) | LA | 78,990 | 2Q-2025 | 2Q-2027 | -% | |||||||||||||||||||||||||||
| Total Current Redevelopment | 1,031,839 | |||||||||||||||||||||||||||||||
| Lease-up (Redevelopment): | ||||||||||||||||||||||||||||||||
| 9920-10020 Pioneer Blvd (Mid-Counties) | LA | 163,435 | 4Q-2021 | 3Q-2024 | 14% | |||||||||||||||||||||||||||
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3233 Mission Oaks Blvd. (Ventura)(8)
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VC | 116,852 | 2Q-2022 | 1Q-2025 | 16% | |||||||||||||||||||||||||||
| 8888 Balboa Avenue (Central SD) | SD | 123,492 | 3Q-2022 | 4Q-2024 |
100%(9)
|
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| 6027 Eastern Avenue (Central LA) | LA | 94,140 | 3Q-2022 | 1Q-2025 | -% | |||||||||||||||||||||||||||
| 2390-2444 American Way (North OC) | OC | 100,483 | 4Q-2022 | 2Q-2024 | 48% | |||||||||||||||||||||||||||
| 12118 Bloomfield Avenue (Mid-Counties) | LA | 107,045 | 4Q-2022 | 1Q-2025 | -% | |||||||||||||||||||||||||||
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3071 Coronado Street (North OC)(10)
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OC | 105,173 | 1Q-2023 | 1Q-2024 |
100%(10)
|
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| 19900 Plummer Street (SF Valley) | LA | 79,539 | 3Q-2023 | 1Q-2025 | -% | |||||||||||||||||||||||||||
| 12772 San Fernando Road (SF Valley) | LA | 143,529 | 3Q-2023 | 1Q-2025 | -% | |||||||||||||||||||||||||||
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Rancho Pacifica - Bldg 5 (South Bay)(11)
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LA | 76,553 | 4Q-2023 | 1Q-2025 | -% | |||||||||||||||||||||||||||
| 1500 Raymond Avenue (North OC) | OC | 136,218 |
(12)
|
4Q-2023 | 1Q-2025 | -% | ||||||||||||||||||||||||||
| 4416 Azusa Canyon Road (SG Valley) | LA | 129,830 | 4Q-2022 | 2Q-2025 | -% | |||||||||||||||||||||||||||
| 17907-18001 Figueroa Street (South Bay) | LA | 76,468 | 4Q-2023 | 2Q-2025 | -% | |||||||||||||||||||||||||||
| Total Lease-up (Redevelopment) | 1,452,757 | |||||||||||||||||||||||||||||||
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- See footnotes starting on page 46 -
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| Property (Submarket) | Market |
Projected Rentable Square Feet
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Estimated Construction Start Period | |||||||||||||||||
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Near-Term Potential Future Repositioning:
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3935-3949 Heritage Oak Court (Ventura)
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VC | 186,726 | 2025 | |||||||||||||||||
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1175 Aviation Place (SF Valley)
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LA | 93,219 | 2025 | |||||||||||||||||
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24935 Avenue Kearny (SF Valley)
|
LA | 69,761 | 2025 | |||||||||||||||||
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1601 Mission Boulevard (SG Valley)
|
LA | 504,016 | 2026 | |||||||||||||||||
| Total Near-Term Potential Future Repositioning | 853,722 | |||||||||||||||||||
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Near-Term Potential Future Redevelopment:
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||||||||||||||||||||
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950 West 190th Street (South Bay)
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LA | 197,000 | 2025 | |||||||||||||||||
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9323 Balboa Avenue (Central SD)
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SD | 163,400 | 2025 | |||||||||||||||||
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14005 Live Oak Avenue (SG Valley)
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LA | 100,380 | 2025 | |||||||||||||||||
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3100 Fujita Street (South Bay)
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LA | 82,080 | 2025 | |||||||||||||||||
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9000 Airport Road (South Bay)
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LA | 418,000 | 2026 | |||||||||||||||||
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16425 Gale Avenue (SG Valley)
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LA | 325,800 | 2026 | |||||||||||||||||
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2401-2421 Glassell Street (North OC)
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OC | 277,000 | 2026 | |||||||||||||||||
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600-708 Vermont Avenue (North OC)
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OC | 263,800 | 2026 | |||||||||||||||||
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18455 Figueroa Street (South Bay)
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LA | 179,284 | 2026 | |||||||||||||||||
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15715 Arrow Highway (SG Valley)
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LA | 106,278 | 2026 | |||||||||||||||||
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3901 Via Oro Avenue (South Bay)
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LA | 74,260 | 2026 | |||||||||||||||||
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Total Near-Term Potential Future Redevelopment
|
2,187,282 | |||||||||||||||||||
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Total Future Repositioning and Redevelopment
|
3,041,004 | |||||||||||||||||||
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Property Stabilized:(13)
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Market | Stabilized Rentable Square Feet | Period Stabilized | |||||||||||||||||
| 4039 Calle Platino (North County SD) | SD | 73,807 | 1Q-2025 | |||||||||||||||||
| 29120 Commerce Center Drive (SF Valley) | LA | 135,258 | 1Q-2025 | |||||||||||||||||
| East 27th Street (Central LA) | LA | 126,563 | 1Q-2025 | |||||||||||||||||
| 122-125 N. Vinedo Avenue (SF Valley) | LA | 48,520 | 1Q-2025 | |||||||||||||||||
| 29125 Avenue Paine (SF Valley) | LA | 176,107 | 1Q-2025 | |||||||||||||||||
| 218 Turnbull Canyon Road (SG Valley) | LA | 191,153 |
2Q-2025
|
|||||||||||||||||
| 1901 Via Burton (North OC) | OC | 139,449 |
2Q-2025
|
|||||||||||||||||
| Total 2025 Stabilized | 890,857 | |||||||||||||||||||
| 9755 Distribution Avenue (Central SD) | SD | 24,071 | 1Q-2024 | |||||||||||||||||
| 8902-8940 Activity Road (Central SD) | SD | 13,950 | 1Q-2024 | |||||||||||||||||
| 444 Quay Avenue (South Bay) | LA | 29,760 | 2Q-2024 | |||||||||||||||||
| 263-321 Gardena Blvd (South Bay) | LA | 55,238 | 2Q-2024 | |||||||||||||||||
|
20851 Currier Road (SG Valley)
|
LA | 59,412 | 3Q-2024 | |||||||||||||||||
| 17311 Nichols Lane (West OC) | OC | 104,182 | 3Q-2024 | |||||||||||||||||
|
12752-12822 Monarch St. (West OC)
|
OC | 163,864 | 3Q-2024 | |||||||||||||||||
| 500 Dupont Avenue (IE - West) | SB | 274,885 | 4Q-2024 | |||||||||||||||||
| 2880 Ana Street (South Bay) | LA | LAND | 4Q-2024 | |||||||||||||||||
| 12907 Imperial Highway (Mid-Counties) | LA | 101,080 | 4Q-2024 | |||||||||||||||||
| Total 2024 Stabilized | 826,442 | |||||||||||||||||||
|
- See footnotes starting on page 46 -
|
||||||||||||||||||||
(1)The estimated construction start period is the period we anticipate starting physical construction on a project. Prior to physical construction, we engage in pre-construction activities, which include design work, securing permits or entitlements, site work, and other necessary activities preceding construction. The estimated completion period is our current estimate of the period in which we will have substantially completed a project and the project is made available for occupancy. We expect to update our timing estimates on a quarterly basis. The estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements, delays in construction (including delays related to supply chain backlogs), changes in scope, and other unforeseen circumstances.
(2)"Repositioning/Lease-up Rentable Square Feet" is the actual rentable square footage that is subject to repositioning at the property/buildings, and may be less than the total rentable square footage of the entire property or particular building(s) under repositioning.
(3)Harcourt & Susana is a low coverage site with 34,000 rentable square feet of buildings on 239,364 square feet, or 5.5 acres, of land.
(4)As of June 30, 2025, 11308-11350 Penrose Street is considered stabilized, as it reached one year from the date of completion of construction work, but remains in Lease-Up (Repositioning) for presentation purposes, as the property has not yet achieved 90% occupancy.
(5)14434-14527 San Pedro Street is a low coverage site with 58,225 rentable square feet of buildings on 335,905 square feet, or 7.7 acres, of land.
(6)During the second quarter of 2025 we leased 1020 Bixby Drive to a single tenant. The leased commenced and the property stabilized on July 1, 2025.
(7)Represents the estimated rentable square footage of the project upon completion of redevelopment.
(8)As of June 30, 2025, 3233 Mission Oaks Boulevard comprised 409,217 rentable square feet which were not redeveloped. We constructed one new building comprising 116,852 rentable square feet. We also performed site work across the entire project. The total project now contains 526,069 rentable square feet.
(9)Subsequent to June 30, 2025, we leased 8888 Balboa Avenue to a single tenant with the lease expected to commence in the third quarter of 2025.
(10)As of June 30, 2025, 3071 Coronado Street is considered stabilized, as it reached one year from the date of completion of construction work, but remains in Lease-Up (Redevelopment) for presentation purposes, as the property has not yet achieved 90% occupancy. Subsequent to June 30, 2025, we leased the property to a single tenant with the lease expected to commence in the fourth quarter of 2025.
(11)Rancho Pacifica Building 5 is located at 2370-2398 Pacifica Place and comprises one building totaling 51,594 rentable square feet, out of six buildings at our Rancho Pacifica Park property, which has a total of 1,111,885 rentable square feet. We demolished the existing building and constructed a new building comprising approximately 76,553 rentable square feet in its place.
(12)1500 Raymond Avenue contains one acre of excess paved land.
(13)We consider a repositioning property to be stabilized upon the earlier of (i) reaching 90% occupancy or (ii) one year from the date construction work is completed.
Capitalized Costs
Properties that are nonoperational as a result of repositioning or redevelopment activity may qualify for varying levels of interest, insurance and real estate tax capitalization during the redevelopment and construction period. An increase in our repositioning and redevelopment activities resulting from value-add acquisitions could cause an increase in the asset balances qualifying for interest, insurance and tax capitalization in future periods. We capitalized $17.3 million of interest expense and $4.0 million of insurance and real estate tax expenses during the sixmonths ended June 30, 2025, respectively, related to our repositioning and redevelopment projects.
Construction Costs and Timing
Currently proposed trade and other political policies may lead to increased construction materials and labor costs, which when combined with longer lead times for governmental approvals and entitlements, has the potential to increase budgeted and actual construction costs and may cause delays in starting and completing certain redevelopment projects. Additional increases in costs, further delays or declining market rents could result in a lower expected yield on our redevelopment projects, which could negatively impact our future earnings.
Rental Revenues
Our operating results depend primarily upon generating rental revenue from the properties in our portfolio. The amount of rental revenue generated by these properties is affected by our ability to maintain or increase occupancy levels and rental rates at our properties, which will depend upon our ability to lease vacant space and re-lease expiring space at favorable rates.
Occupancy Rates
As of June 30, 2025, our consolidated portfolio, inclusive of space in repositioning as described in the subsequent paragraph, was approximately 89.2% occupied, while our stabilized consolidated portfolio exclusive of such space was approximately 95.0% occupied. Additionally, our improved land and industrial outdoor storage (IOS) sites, totaling approximately 8.5 million land square feet or 196.2 acres, were 97.9% leased at June 30, 2025. We believe the opportunity to increase occupancy at our properties will be an important driver of future revenue growth. An opportunity to drive this growth will derive from the completion and lease-up of repositioning and redevelopment projects that are currently under construction.
As summarized in the tables under "-Acquisitions and Value-Add Repositioning and Redevelopment of Properties" above, as of June 30, 2025, 14 of our properties with a combined 1.3 million of estimated rentable square feet at completion are under current repositioning or redevelopment, 18 properties with a combined 1.8 million of rentable square feet are in lease-up, and we have a near-term pipeline of 15 repositioning and redevelopment projects with a combined 3.0 million of estimated rentable square feet at completion. Additionally, we have 1.2 million rentable square feet of other repositioning projects. Vacant space at these properties is concentrated in our Los Angeles, Orange County and San Bernardino markets and represents 6.1% of our total consolidated portfolio square footage as of June 30, 2025. Including vacant space at these properties, our weighted average occupancy rate as of June 30, 2025 in our Los Angeles, Orange County and San Bernardino markets was 87.9%, 90.7% and 93.9%, respectively. Excluding vacant space at these properties, our weighted average occupancy rate as of June 30, 2025, in these markets was 95.2%, 96.1% and 96.0%, respectively. We believe that an important portion of our long-term future growth will come from the completion of these projects currently under or scheduled for repositioning/redevelopment, as well as through the identification or acquisition of new opportunities for repositioning and redevelopment, whether in our existing portfolio or through new investments, which may vary from period to period subject to market conditions.
The occupancy rate of properties not undergoing repositioning is affected by regional and local economic conditions in our Southern California infill markets. Although there has been a post-COVID normalization of market rates and vacancy over the past two years, the Los Angeles, Orange County, San Bernardino, San Diego and Ventura markets are well-positioned for the long-term due to fundamental demand drivers and barriers for new supply. Although we cannot predict how our markets may perform in future periods, we believe that general market conditions will continue to offer the long-term opportunity to increase occupancy and rental rates at our properties which will be an important driver of future revenue growth.
Leasing Activity and Rental Rates
The following tables set forth our leasing activity for new and renewal leases for the three and six months ended June 30, 2025:
| New Leases | ||||||||||||||||||||||||||||||||||||||
| Quarter |
Number of Leases |
Building Rentable Square Feet
|
Weighted Average Lease Term (in years) |
Net Effective Rent Per Square Foot(1)
|
Net Effective Leasing Spreads(2)(4)
|
Cash Leasing Spreads(3)(4)
|
||||||||||||||||||||||||||||||||
| Q1-2025 | 54 | 882,403 | 4.6 | $ | 20.05 | 3.2 | % | (5.4) | % | |||||||||||||||||||||||||||||
|
Q2-2025(5)
|
41 | 678,727 | 4.8 | $ | 15.80 | (17.6) | % | (22.9) | % | |||||||||||||||||||||||||||||
| Total/Weighted Average | 95 | 1,561,130 | 4.7 | $ | 18.20 | (5.5) | % | (12.8) | % | |||||||||||||||||||||||||||||
| Renewal Leases | Expired Leases |
Retention %(7)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter |
Number of Leases |
Building Rentable Square Feet
|
Weighted Average Lease Term (in years) |
Net Effective Rent Per Square Foot(1)
|
Net Effective Leasing Spreads(2)(5)
|
Cash Leasing Spreads(3)(5)
|
Number of Leases |
Rentable Square Feet(6)
|
Rentable Square Feet | |||||||||||||||||||||||||||||||||||||||||||||||
| Q1-2025 | 84 | 1,511,946 | 4.1 | $ | 16.31 | 29.4 | % | 20.2 | % | 165 | 3,102,514 | 67.8 | % | |||||||||||||||||||||||||||||||||||||||||||
| Q2-2025 | 58 | 1,020,266 | 4.2 | $ | 19.53 | 31.2 | % | 16.3 | % | 102 | 1,786,814 | 69.4 | % | |||||||||||||||||||||||||||||||||||||||||||
| Total/Weighted Average | 142 | 2,532,212 | 4.1 | $ | 17.60 | 30.2 | % | 18.5 | % | 267 | 4,889,328 | 68.4 | % | |||||||||||||||||||||||||||||||||||||||||||
(1)Effective rent per square foot is the average base rent calculated in accordance with GAAP, over the term of the lease, expressed in dollars per square foot per year. Includes all new and renewal leases that were executed during the quarter.
(2)Calculated as the change between net effective rents for new or renewal leases and the expiring net effective rents (excluding the impact of amortization of intangible assets or liabilities) on the expiring leases for the same space.
(3)Calculated as the change between starting cash rents, excluding any abatements, for new or renewal leases and the expiring cash rents on the expiring leases for the same space.
(4)The net effective and cash re-leasing spreads for new leases executed during the six months ended June 30, 2025, exclude 43 leases aggregating 1,085,259 rentable square feet for which there was no comparable lease data. Of these 43 excluded leases, 17 leases aggregating 856,040 rentable square feet were recently repositioned/redeveloped space. Comparable leases generally exclude: (i) space that has never been occupied under our ownership, (ii) repositioned/redeveloped space, including space in pre-development/entitlement process, (iii) space that has been vacant for over one year or (iv) space with lease terms shorter than six months. Because leasing spreads are based on building square footage, land lease activity is not captured in these calculations. However, during the second quarter of 2025 we executed the following land lease transactions: (i) one new lease with 14,370 land square feet and (ii) three renewal leases totaling 292,870 land square feet. For the renewal land lease transactions, the net effective and cash leasing spreads were 110.3% and 25.6%, respectively. The new land lease transaction did not have any prior comparable lease data, and therefore no spread calculation is applicable.
(5)The net effective and cash releasing spreads for new leases were disproportionately impacted by a 106,251-square-foot lease with a net effective and cash releasing spread of (31.6%) and (36.9%), respectively. This lease represented approximately 54% of the 196,430 square feet of comparable new leases signed during the second quarter. Excluding this lease, net effective and cash releasing spreads for new leases signed in the second quarter would have been 4.2% and (0.5%), respectively.
(6)The net effective and cash re-leasing rent spreads for renewal leases executed during the six months ended June 30, 2025, exclude four leases for which there was no comparable lease data. Comparable leases generally exclude space with lease terms shorter than six months or space in pre-development/entitlement process.
(7)Includes leases totaling 1,137,994 rentable square feet that expired during the six months ended June 30, 2025, for which the space has been or will be placed into repositioning (including "other repositioning projects") or redevelopment.
(8)Retention is calculated as renewal lease square footage plus relocation/expansion square footage, divided by the square footage of leases expiring during the period. Retention excludes square footage related to the following: (i) expiring leases associated with space that is placed into repositioning (including "other repositioning projects") after the tenant vacates, (ii) early terminations with pre-negotiated replacement leases and (iii) move outs where space is directly leased by subtenants.
Our leasing activity is impacted both by our repositioning and redevelopment efforts, as well as by market conditions. While we reposition a property, its space may become unavailable for leasing until completion of our repositioning efforts. As of June 30, 2025, we have 14 current repositioning/redevelopment projects with estimated construction completion periods ranging from the third quarter of 2025 through the second quarter of 2027. We expect these properties to have positive impacts on our leasing activity and revenue generation as we complete our value-add plans and place these properties in service.
Scheduled Lease Expirations
Our ability to re-lease space subject to expiring leases is affected by economic and competitive conditions in our markets and by the relative desirability of our individual properties, which may impact our results of operations. The following table sets forth a summary schedule of lease expirations for leases in place as of June 30, 2025, for each of the 10 full and partial calendar years beginning with 2025 and thereafter, plus space that is available and under current repositioning.
| Year of Lease Expiration | 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)
|
||||||||||||||||||||||||||||||||
|
Vacant(5)
|
- | 2,409,523 | 4.7 | % | $ | - | - | % | $ | - | ||||||||||||||||||||||||||||
|
Repositioning/Redevelopment(6)
|
- | 3,094,182 | 6.1 | % | - | - | % | $ | - | |||||||||||||||||||||||||||||
| MTM Tenants | 4 | 131,415 | 0.2 | % | 2,172 | 0.3 | % | $ | 16.53 | |||||||||||||||||||||||||||||
| Remainder of 2025 | 194 | 4,122,156 | 8.1 | % | 62,565 | 8.0 | % | $ | 15.18 | |||||||||||||||||||||||||||||
| 2026 | 420 | 8,657,602 | 17.0 | % | 134,291 | 17.2 | % | $ | 15.51 | |||||||||||||||||||||||||||||
| 2027 | 341 | 7,437,484 | 14.6 | % | 129,261 | 16.6 | % | $ | 17.38 | |||||||||||||||||||||||||||||
| 2028 | 250 | 6,680,185 | 13.1 | % | 125,751 | 16.2 | % | $ | 18.82 | |||||||||||||||||||||||||||||
| 2029 | 168 | 4,958,782 | 9.7 | % | 94,082 | 12.1 | % | $ | 18.97 | |||||||||||||||||||||||||||||
| 2030 | 118 | 5,066,823 | 9.9 | % | 81,319 | 10.4 | % | $ | 16.05 | |||||||||||||||||||||||||||||
| 2031 | 37 | 4,391,432 | 8.6 | % | 64,142 | 8.2 | % | $ | 14.61 | |||||||||||||||||||||||||||||
| 2032 | 21 | 1,258,123 | 2.5 | % | 26,308 | 3.4 | % | $ | 20.91 | |||||||||||||||||||||||||||||
| 2033 | 9 | 296,735 | 0.6 | % | 5,832 | 0.8 | % | $ | 19.66 | |||||||||||||||||||||||||||||
| 2034 | 6 | 299,139 | 0.6 | % | 6,169 | 0.8 | % | $ | 20.62 | |||||||||||||||||||||||||||||
| Thereafter | 36 | 2,218,316 | 4.3 | % | 46,937 | 6.0 | % | $ | 21.16 | |||||||||||||||||||||||||||||
| Total Consolidated Portfolio | 1,604 | 51,021,897 | 100.0 | % | $ | 778,829 | 100.0 | % | $ | 17.11 | ||||||||||||||||||||||||||||
(1)Represents the contracted building square footage upon expiration.
(2)Annualized base rent ("ABR") is calculated as monthly contracted base rent (before rent abatements) per the terms of such lease, as of June 30, 2025, multiplied by 12, and then aggregated by year of lease expiration. Excludes tenant reimbursements. Amounts in thousands.
(3)Calculated as ABR set forth in this table divided by ABR for the total portfolio as of June 30, 2025.
(4)Calculated as ABR for such leases divided by the occupied building square feet for such leases as of June 30, 2025. Excluding ABR of $45.35 million associated with improved land and industrial outdoor storage (IOS) leases and $2.7 million associated with cellular tower, solar and parking lot leases, ABR per building square foot is $16.14.
(5)Represents vacant space (not under repositioning/redevelopment) as of June 30, 2025. Includes leases aggregating 74,059 rentable square feet that had been signed but had not yet commenced as of June 30, 2025.
(6)Represents vacant space at properties that were classified as repositioning (including "other repositioning projects"), redevelopment or lease-up as of June 30, 2025. Includes leases aggregating 222,221 rentable square feet that had been signed but had not yet commenced as of June 30, 2025.
As of June 30, 2025, in addition to 2.4 million rentable square feet of currently available space in our portfolio and approximately 3.1 million rentable square feet of vacant space under current repositioning/redevelopment, leases representing 8.1% and 17.0% of the aggregate rentable square footage of our portfolio are scheduled to expire during the remainder of 2025 and 2026, respectively. During the six months ended June 30, 2025, we renewed 142 leases for 2.5 million rentable square feet, resulting in a retention rate of 68.4%. During the six months ended June 30, 2025, new and renewal leases had a weighted average term of 4.7 and 4.1, and we expect future new and renewal leases to have similar terms.
The leases scheduled to expire during the remainder of 2025 and 2026 represent approximately 8.0% and 17.2%, respectively, of the total annualized base rent for our portfolio as of June 30, 2025. We estimate that, on a weighted average basis, in-place rents of leases scheduled to expire during the remainder of 2025 and 2026 are currently below current market asking rates, although individual units or properties within any particular submarket may currently be leased either above, below, or at the current market asking rates within that submarket.
As described under "-Market and Portfolio Fundamentals" above, while market indicators, including changes in vacancy rates and average asking lease rates, varied by market and showed signs of a post-pandemic normalizing of tenant demand, overall there was continued relative low market vacancy and supply and demand imbalance across our submarkets, which continues to support favorable long-term market fundamentals.
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, trade policy, high or persistent inflation and adverse weather conditions and natural disasters in this market may affect our overall performance.
Property Expenses
Our property expenses generally consist of utilities, real estate taxes, insurance, site repair and maintenance costs, and the allocation of overhead costs. For the majority of our properties, our property expenses are recovered, in part, by either the triple net provisions or modified gross expense reimbursements in tenant leases. The majority of our leases also comprise contractual three percent or greater annual rental rate increases meant, in part, to help mitigate potential increases in property expenses over time. However, the terms of our leases vary, and, in some instances, we may absorb property expenses. Our overall financial results will be impacted by the extent to which we are able to pass-through property expenses to our tenants.
Taxable REIT Subsidiary
As of June 30, 2025, our Operating Partnership indirectly and wholly owns Rexford Industrial Realty and Management, Inc., which we refer to as our services company. We have elected, together with our services company, to treat our services company as a taxable REIT subsidiary for federal income tax purposes. Our taxable REIT subsidiary is a C-corporation subject to federal and state income tax. A taxable REIT subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we or our subsidiaries (other than a taxable REIT subsidiary) may not engage in directly without adversely affecting our qualification as a REIT, provided a taxable REIT subsidiary may not operate or manage a lodging facility or health care facility or provide rights to any brand name under which any lodging facility or health care facility is operated. We may form additional taxable REIT subsidiaries in the future, and our Operating Partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company. Any income earned by our taxable REIT subsidiaries will not be included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a taxable REIT subsidiary is subject to federal income tax, and state and local income tax (where applicable) as a regular corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries. Our taxable REIT subsidiary is a C-corporation subject to federal and state income tax. However, it has a cumulative unrecognized net operation loss carryforward and therefore there is no income tax provision for the six months ended June 30, 2025 and 2024. Additionally, the taxable REIT subsidiary had minimal activity during these periods.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for the reporting periods. Actual amounts may differ from these estimates and assumptions. Management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions that it believes are reasonable as of the date hereof. In addition, other companies in similar businesses may use different estimation policies and methodologies, which may affect the comparability of our results of operations and financial condition to those of other companies.
In our Annual Report on Form 10-K for the year ended December 31, 2024, we identified certain critical accounting policies that affect certain of our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not made any material changes to our critical accounting policies and estimates during the period covered by this report.
Results of Operations
Our consolidated results of operations are often not comparable from period to period due to the effect of (i) property acquisitions, (ii) property dispositions and (iii) properties that are taken out of service for repositioning or redevelopment during the comparative reporting periods. Our "Total Portfolio" represents all of the properties owned during the reported periods. To eliminate the effect of changes in our Total Portfolio due to acquisitions, dispositions, and repositioning/redevelopment and to highlight the operating results of our on-going business, we have separately presented the results of our "Same Property Portfolio."
For the three and six months ended June 30, 2025 and 2024, our Same Property Portfolio includes all properties in our industrial portfolio that were wholly-owned by us for the period from January 1, 2024 through June 30, 2025, and that were stabilized prior to January 1, 2024, which consisted of buildings aggregating approximately 38.0 million rentable square feet at 289 of our properties. Results for our Same Property Portfolio exclude properties that were acquired or sold during the period from January 1, 2024 through June 30, 2025, properties or buildings classified as current or future repositioning (including select buildings in "other repositioning"), redevelopment or lease-up during 2024 or 2025, management and leasing services revenue, interest income, interest expense and corporate general and administrative expenses.
In addition to the properties included in our Same Property Portfolio, our Total Portfolio includes the 56 properties aggregating approximately 4.6 million rentable square feet that were purchased between January 1, 2024 and June 30, 2025, and the eight properties aggregating approximately 0.5 million rentable square feet that were sold between January 1, 2024 and June 30, 2025.
As of June 30, 2025 and June 30, 2024, our Same Property Portfolio occupancy was approximately 96.1% and 97.4%, respectively. For both the three and six months ended June 30, 2025, our Same Property Portfolio weighted average occupancy was approximately 95.9%. Comparatively, for both the three and six months ended June 30, 2024, our Same Property Portfolio weighted average occupancy was approximately 97.0%.
Comparison of the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024
The following table summarizes the historical results of operations for our Same Property Portfolio and Total Portfolio for the three months ended June 30, 2025 and 2024 (dollars in thousands):
| Same Property Portfolio | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Increase/(Decrease) | % | Three Months Ended June 30, | Increase/(Decrease) | % | |||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||||||
| REVENUES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 191,653 | $ | 188,183 | $ | 3,470 | 1.8 | % | $ | 241,568 | $ | 232,973 | $ | 8,595 | 3.7 | % | ||||||||||||||||||||||||||||||||||
| Management and leasing services | - | - | - | - | % | 132 | 156 | (24) | (15.4) | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | - | - | - | - | % | 7,807 | 4,444 | 3,363 | 75.7 | % | ||||||||||||||||||||||||||||||||||||||||
| TOTAL REVENUES | 191,653 | 188,183 | 3,470 | 1.8 | % | 249,507 | 237,573 | 11,934 | 5.0 | % | ||||||||||||||||||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Property expenses | 42,060 | 40,242 | 1,818 | 4.5 | % | 55,298 | 51,905 | 3,393 | 6.5 | % | ||||||||||||||||||||||||||||||||||||||||
| General and administrative | - | - | - | - | % | 19,752 | 19,307 | 445 | 2.3 | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 51,576 | 51,458 | 118 | 0.2 | % | 71,188 | 67,896 | 3,292 | 4.8 | % | ||||||||||||||||||||||||||||||||||||||||
| TOTAL OPERATING EXPENSES | 93,636 | 91,700 | 1,936 | 2.1 | % | 146,238 | 139,108 | 7,130 | 5.1 | % | ||||||||||||||||||||||||||||||||||||||||
| OTHER EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expenses | - | - | - | - | % | 244 | 304 | (60) | (19.7) | % | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | - | - | - | - | % | 26,701 | 28,412 | (1,711) | (6.0) | % | ||||||||||||||||||||||||||||||||||||||||
| TOTAL EXPENSES | 93,636 | 91,700 | 1,936 | 2.1 | % | 173,183 | 167,824 | 5,359 | 3.2 | % | ||||||||||||||||||||||||||||||||||||||||
|
Debt extinguishment and modification expenses
|
- | - | - | - | % | (291) | - | (291) | - | % | ||||||||||||||||||||||||||||||||||||||||
| Gains on sale of real estate | - | - | - | - | % | 44,361 | 16,268 | 28,093 | 172.7 | % | ||||||||||||||||||||||||||||||||||||||||
| NET INCOME | $ | 98,017 | $ | 96,483 | $ | 1,534 | 1.6 | % | $ | 120,394 | $ | 86,017 | $ | 34,377 | 40.0 | % | ||||||||||||||||||||||||||||||||||
Rental Income
In the following table, we present the components of rental income for the three months ended June 30, 2025 and June 30, 2024, which includes rental revenue, tenant reimbursements and other income related to leases. The below presentation of rental income is not, and is not intended to be, a presentation in accordance with GAAP. We are presenting this information because we believe it is frequently used by management, investors, securities analysts and other interested parties to understand and evaluate the Company's performance.
| Same Property Portfolio | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Increase/(Decrease) | % | Three Months Ended June 30, | Increase/(Decrease) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Category | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||||||||||||||
|
Rental revenue(1)
|
$ | 159,572 | $ | 156,668 | $ | 2,904 | 1.9 | % | $ | 199,698 | $ | 192,693 | $ | 7,005 | 3.6 | % | ||||||||||||||||||||||||||||||||||
|
Tenant reimbursements(2)
|
31,678 | 31,009 | 669 | 2.2 | % | 41,403 | 39,682 | 1,721 | 4.3 | % | ||||||||||||||||||||||||||||||||||||||||
|
Other income(3)
|
403 | 506 | (103) | (20.4) | % | 467 | 598 | (131) | (21.9) | % | ||||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 191,653 | $ | 188,183 | $ | 3,470 | 1.8 | % | $ | 241,568 | $ | 232,973 | $ | 8,595 | 3.7 | % | ||||||||||||||||||||||||||||||||||
Our Same Property Portfolio and Total Portfolio rental income increased by $3.5 million, or 1.8%, and $8.6 million, or 3.7%, respectively, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, for the reasons described below:
(1) Rental Revenue
Our Same Property Portfolio and Total Portfolio rental revenue increased by $2.9 million, or 1.9%, and $7.0 million, or 3.6%, respectively, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase in our Same Property Portfolio rental revenue is primarily due to an increase in average rental rates on new and renewal leases and a decrease of $0.5 million in bad debt reserves/write-offs for tenant receivables not deemed probable of collection, partially offset by a decrease of $0.9 million in amortization of net below-market lease intangibles and a decrease in average occupancy rates. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
(2) Tenant Reimbursements
Our Same Property Portfolio tenant reimbursements revenue increased by $0.7 million, or 2.2%, and our Total Portfolio tenant reimbursements revenue increased by $1.7 million, or 4.3%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase in our Same Property Portfolio tenant reimbursements revenue is primarily due to higher reimbursable property tax expenses, an increase in tenant reimbursements due to timing differences in completing prior year recoverable expense reconciliations for comparable periods and higher billings for utilities and other reimbursable expenses. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental tenant reimbursements from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
(3) Other Income
Our Same Property Portfolio and Total Portfolio other income decreased by $0.1 million, or 20.4%, and $0.1 million, or 21.9%, respectively, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a decrease in miscellaneous income.
Management and Leasing Services
Our Total Portfolio management and leasing services revenue remained relatively unchanged, decreasing by only $24 thousand during the three months ended June 30, 2025, compared to the three months ended June 30, 2024.
Interest Income
Interest income increased by $3.4 million, or 75.7%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an increase in the average cash balance invested in money market accounts.
Property Expenses
Our Same Property Portfolio and Total Portfolio property expenses increased by $1.8 million, or 4.5%, and $3.4 million, or 6.5%, respectively, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase in our Same Property Portfolio property expenses is primarily due to increases in property tax expenses, repairs and maintenance expenses and allocated overhead costs. Our Total Portfolio property expenses were also impacted by incremental expenses from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $0.4 million, or 2.3%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to increases in marketing and other various general and administrative expenses.
Depreciation and Amortization
Our Same Property Portfolio depreciation and amortization expense increased by $0.1 million, or 0.2%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an increase in depreciation expense related to capital improvements placed into service subsequent to January 1, 2024 and an increase in amortization of deferred leasing costs, partially offset by a decrease in depreciation expense due to acquisition-related in-place lease intangibles becoming fully depreciated at certain of our properties subsequent to January 1, 2024. Our Total Portfolio depreciation and amortization expense increased by $3.3 million, or 4.8%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the incremental expense from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
Other Expenses
Our Total Portfolio other expenses decreased by $0.1 million from $0.3 million for the three months ended June 30, 2024 to $0.2 million for three months ended June 30, 2025, primarily due to a $0.1 million decrease in construction demolition costs and a $0.1 million decrease in write-offs of construction related costs related to cancelled projects, partially offset by $0.2 million of severance costs associated with a workforce reduction.
Interest Expense
Our Total Portfolio interest expense decreased by $1.7 million, or 6.0%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an increase in capitalized interest related to repositioning and redevelopment activity.
Debt Extinguishment and Modification Expenses
Debt extinguishment and modification expenses of $0.3 million for the three months ended June 30, 2025, is comprised of a $0.2 million loss on extinguishment of debt from the write-off of unamortized debt issuance costs attributable to creditors in the unsecured revolving credit facility that were not included in the May 2025 amended senior unsecured credit agreement and $0.1 million of third-party fees associated with the modification of the $400.0 million unsecured term loan facility.
Gains on Sale of Real Estate
During the three months ended June 30, 2025, we recognized gains on sale of real estate of $44.4 million from the disposition of two properties that were sold for an aggregate gross sales price of $81.6 million. During the three months ended June 30, 2024, we recognized gains on sale of real estate of $16.3 million from the disposition of four properties that were sold for an aggregate gross sales price of $37.0 million.
Comparison of the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024
The following table summarizes the historical results of operations for our Same Property Portfolio and Total Portfolio for the six months ended June 30, 2025 and 2024 (dollars in thousands):
| Same Property Portfolio | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Six Months Ended June 30, |
Increase/(Decrease) | % |
Six Months Ended June 30, |
Increase/(Decrease) | % | |||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||||||
| REVENUES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 380,012 | $ | 374,370 | $ | 5,642 | 1.5 | % | $ | 490,389 | $ | 443,963 | $ | 46,426 | 10.5 | % | ||||||||||||||||||||||||||||||||||
| Management and leasing services | - | - | - | - | % | 274 | 288 | (14) | (4.9) | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | - | - | - | - | % | 11,131 | 7,418 | 3,713 | 50.1 | % | ||||||||||||||||||||||||||||||||||||||||
| TOTAL REVENUES | 380,012 | 374,370 | 5,642 | 1.5 | % | 501,794 | 451,669 | 50,125 | 11.1 | % | ||||||||||||||||||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Property expenses | 83,534 | 80,500 | 3,034 | 3.8 | % | 110,559 | 99,387 | 11,172 | 11.2 | % | ||||||||||||||||||||||||||||||||||||||||
| General and administrative | - | - | - | - | % | 39,620 | 39,287 | 333 | 0.8 | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 107,569 | 102,438 | 5,131 | 5.0 | % | 157,928 | 134,174 | 23,754 | 17.7 | % | ||||||||||||||||||||||||||||||||||||||||
| TOTAL OPERATING EXPENSES | 191,103 | 182,938 | 8,165 | 4.5 | % | 308,107 | 272,848 | 35,259 | 12.9 | % | ||||||||||||||||||||||||||||||||||||||||
| OTHER EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expenses | - | - | - | - | % | 2,483 | 1,712 | 771 | 45.0 | % | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | - | - | - | - | % | 53,989 | 43,083 | 10,906 | 25.3 | % | ||||||||||||||||||||||||||||||||||||||||
| TOTAL EXPENSES | 191,103 | 182,938 | 8,165 | 4.5 | % | 364,579 | 317,643 | 46,936 | 14.8 | % | ||||||||||||||||||||||||||||||||||||||||
| Debt extinguishment and modification expenses | - | - | - | - | % | (291) | - | (291) | - | % | ||||||||||||||||||||||||||||||||||||||||
| Gains on sale of real estate | - | - | - | - | % | 57,518 | 16,268 | 41,250 | 253.6 | % | ||||||||||||||||||||||||||||||||||||||||
| NET INCOME | $ | 188,909 | $ | 191,432 | $ | (2,523) | (1.3) | % | $ | 194,442 | $ | 150,294 | $ | 44,148 | 29.4 | % | ||||||||||||||||||||||||||||||||||
Rental Income
In the following table, we present the components of rental income for the six months ended June 30, 2025 and June 30, 2024, which includes rental revenue, tenant reimbursements and other income related to leases. The below presentation of rental income is not, and is not intended to be, a presentation in accordance with GAAP. We are presenting this information because we believe it is frequently used by management, investors, securities analysts and other interested parties to understand and evaluate the Company's performance.
| Same Property Portfolio | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Six Months Ended June 30, |
Increase/(Decrease) | % |
Six Months Ended June 30, |
Increase/(Decrease) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Category | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||||||||||||||
|
Rental revenue(1)
|
$ | 315,335 | $ | 310,893 | $ | 4,442 | 1.4 | % | $ | 405,789 | $ | 367,187 | $ | 38,602 | 10.5 | % | ||||||||||||||||||||||||||||||||||
|
Tenant reimbursements (2)
|
63,525 | 62,284 | 1,241 | 2.0 | % | 83,259 | 75,332 | 7,927 | 10.5 | % | ||||||||||||||||||||||||||||||||||||||||
|
Other income(3)
|
1,152 | 1,193 | (41) | (3.4) | % | 1,341 | 1,444 | (103) | (7.1) | % | ||||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 380,012 | $ | 374,370 | $ | 5,642 | 1.5 | % | $ | 490,389 | $ | 443,963 | $ | 46,426 | 10.5 | % | ||||||||||||||||||||||||||||||||||
Our Same Property Portfolio and Total Portfolio rental income increased by $5.6 million, or 1.5%, and $46.4 million, or 10.5%, respectively, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, for the reasons described below:
(1) Rental Revenue
Our Same Property Portfolio and Total Portfolio rental revenue increased by $4.4 million, or 1.4%, and $38.6 million, or 10.5%, respectively, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase in our Same Property Portfolio rental revenue is primarily due to an increase in average rental rates on new and renewal leases, partially offset by a decrease of $2.5 million in amortization of net below-market lease intangibles, an increase of $0.4 million in bad debt reserves/write-offs for tenant receivables not deemed probable of collection and a decrease in average occupancy rates. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 56 properties we acquired between January 1, 2024 and June 30, 2025, and net lease termination income of $8.9 million in the first quarter of 2025, which includes lump-sum lease termination fees and write-offs of deferred rent receivables and below-market lease intangibles associated with the lease terminations.
(2) Tenant Reimbursements
Our Same Property Portfolio tenant reimbursements revenue increased by $1.2 million, or 2.0%, and our Total Portfolio tenant reimbursements revenue increased by $7.9 million, or 10.5% during the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase in our Same Property Portfolio tenant reimbursements revenue is primarily due to higher reimbursable property tax expenses, increase in tenant reimbursements due to timing differences in completing prior year recoverable expense reconciliations for comparable periods and higher billings for utilities and other reimbursable expenses. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental tenant reimbursements from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
(3) Other Income
Our Same Property Portfolio and Total Portfolio other income decreased by $41.0 thousand, or 3.4%, and $0.1 million, or 7.1%, respectively, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to decreases in miscellaneous income and fees charged for late rental payments, partially offset by an increase in fees charged for legal fee reimbursement.
Management and Leasing Services
Our Total Portfolio management and leasing services revenue remained relatively unchanged, decreasing by only $14.0 thousand during the six months ended June 30, 2025, compared to the six months ended June 30, 2024.
Interest Income
Interest income increased by $3.7 million, or 50.1%, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to an increase in the average cash balance invested in money market accounts.
Property Expenses
Our Same Property Portfolio and Total Portfolio property expenses increased by $3.0 million, or 3.8%, and $11.2 million, or 11.2%, respectively, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase in our Same Property Portfolio property expenses is primarily due to increases in property tax expenses, repairs and maintenance expenses, utility expenses and allocated overhead costs. Our Total Portfolio property expenses were also impacted by incremental expenses from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
General and Administrative
Our Total Portfolio general and administrative expenses increased by $0.3 million, or 0.8%, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to increases in marketing and other various general and administrative expenses.
Depreciation and Amortization
Our Same Property Portfolio depreciation and amortization expense increased by $5.1 million, or 5.0%, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to a $4.0 million write-off of acquisition-related in-place-lease costs resulting from an early lease termination, an increase in depreciation expense related to capital improvements placed into service subsequent to January 1, 2024 and an increase in amortization of deferred leasing costs, including a $0.6 million write-off of deferred leasing costs resulting from an early lease termination, partially offset by decrease in depreciation and amortization expense due to acquisition-related in-place lease intangibles becoming fully depreciated at certain of our properties subsequent to January 1, 2024. Our Total Portfolio depreciation and amortization expense increased by $23.8 million, or 17.7%, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the incremental expense from the 56 properties we acquired between January 1, 2024 and June 30, 2025.
Other Expenses
Our Total Portfolio other expenses increased by $0.8 million from $1.7 million for the six months ended June 30, 2024, to $2.5 million for the six months ended June 30, 2025, primarily due to $1.7 million of severance costs associated with a workforce reduction, partially offset by a $0.8 million decrease in construction demolition costs and a $0.1 million decrease in write-offs of construction related costs related to cancelled projects.
Interest Expense
Our Total Portfolio interest expense increased by $10.9 million, or 25.3%, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to a $13.3 million increase related to the aggregate $1.15 billion of exchangeable notes offering we completed in March 2024, partially offset by a $2.0 million decrease due to an increase in capitalized interest related to repositioning and redevelopment activity.
Debt Extinguishment and Modification Expenses
Debt extinguishment and modification expenses of $0.3 million for the six months ended June 30, 2025, is comprised of a $0.2 million loss on extinguishment of debt from the write-off of unamortized debt issuance costs attributable to creditors in the unsecured revolving credit facility that were not included in the May 2025 amended senior unsecured credit agreement and $0.1 million of third-party fees associated with the modification of the $400.0 million unsecured term loan facility.
Gains on Sale of Real Estate
During the six months ended June 30, 2025, we recognized gains on sale of real estate of $57.5 million from the disposition of three properties that were sold for an aggregate gross sales price of $134.0 million. During the six months ended June 30, 2024, we recognized gains on sale of real estate of $16.3 million from the disposition of four properties that were sold for an aggregate gross sales price of $37.0 million.
Non-GAAP Supplemental Measure: Funds From Operations and Core 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 accounting principles generally accepted in the United States ("GAAP")), excluding gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated joint ventures.
Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization, gains and losses from property dispositions, and asset impairments, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of performance used by other REITs, FFO may be used by investors as a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate or interpret FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs' FFO. FFO should not be used as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to pay dividends.
We calculate "Core FFO" by adjusting FFO for non-comparable items outlined in the reconciliation below. We believe that Core FFO is a useful supplemental measure and that by adjusting for items that are not considered by us to be part of our on-going operating performance, provides a more meaningful and consistent comparison of our operating and financial performance period-over-period. Because these adjustments have a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited. Other REITs may not calculate Core FFO in a consistent manner. Accordingly, our Core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance. "Company share of Core FFO" in the table below reflects Core FFO attributable to common stockholders, which excludes amounts allocable to noncontrolling interests, participating securities and preferred stockholders.
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO and Core FFO (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income | $ | 120,394 | $ | 86,017 | $ | 194,442 | $ | 150,294 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Depreciation and amortization | 71,188 | 67,896 | 157,928 | 134,174 | |||||||||||||||||||
| Gains on sale of real estate | (44,361) | (16,268) | (57,518) | (16,268) | |||||||||||||||||||
| Funds From Operations (FFO) | $ | 147,221 | $ | 137,645 | $ | 294,852 | $ | 268,200 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Acquisition expenses | 23 | 58 | 102 | 108 | |||||||||||||||||||
| Debt extinguishment and modification expenses | 291 | - | 291 | - | |||||||||||||||||||
| Amortization of loss on termination of interest rate swaps | - | 59 | - | 118 | |||||||||||||||||||
| Non-capitalizable demolition costs | - | 129 | 365 | 1,127 | |||||||||||||||||||
|
Severance costs associated with workforce reduction
|
199 | - | 1,682 | - | |||||||||||||||||||
| Core FFO | $ | 147,734 | $ | 137,891 | $ | 297,292 | $ | 269,553 | |||||||||||||||
| Less: preferred stock dividends | (2,315) | (2,315) | (4,629) | (4,629) | |||||||||||||||||||
|
Less: Core FFO attributable to noncontrolling interests(1)
|
(4,979) | (5,418) | (10,440) | (10,644) | |||||||||||||||||||
|
Less: Core FFO attributable to participating securities(2)
|
(731) | (583) | (1,491) | (1,158) | |||||||||||||||||||
| Company share of Core FFO | $ | 139,709 | $ | 129,575 | $ | 280,732 | $ | 253,122 | |||||||||||||||
(1)Noncontrolling interests represent (i) holders of outstanding common units of the Company's Operating Partnership that are owned by unit holders other than the Company and (ii) holders of Series 1 CPOP Units, Series 2 CPOP Units and
Series 3 CPOP Units. On April 10, 2024, we exercised our conversion right to convert all 593,960 Series 1 preferred units into OP Units. On March 6, 2025, we exercised our conversion right to convert all remaining 904,583 Series 2 preferred units into OP Units.
(2)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 Measures: NOI and Cash NOI
Net operating income ("NOI") is a non-GAAP measure which includes the revenue and expense directly attributable to our real estate properties. NOI is calculated as rental income less property expenses (before interest expense, depreciation and amortization).
We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs' NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.
NOI on a cash-basis ("Cash NOI") is a non-GAAP measure, which we calculate by adding or subtracting the following items from NOI: (i) amortization of above/(below) market lease intangibles and amortization of other deferred rent resulting from sale leaseback transactions with below market leaseback payments and (ii) straight-line rental revenue adjustments. We use Cash NOI, together with NOI, as a supplemental performance measure. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities computed in accordance with GAAP.
The following table sets forth the revenue and expense items comprising NOI and the adjustments to calculate Cash NOI (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Rental income | $ | 241,568 | $ | 232,973 | $ | 490,389 | $ | 443,963 | |||||||||||||||
| Less: Property expenses | 55,298 | 51,905 | 110,559 | 99,387 | |||||||||||||||||||
| Net Operating Income | $ | 186,270 | $ | 181,068 | $ | 379,830 | $ | 344,576 | |||||||||||||||
| Above/(below) market lease revenue adjustments | (5,788) | (7,268) | (14,974) | (14,859) | |||||||||||||||||||
| Straight line rental revenue adjustment | (6,918) | (9,567) | (12,435) | (16,935) | |||||||||||||||||||
| Cash Net Operating Income | $ | 173,564 | $ | 164,233 | $ | 352,421 | $ | 312,782 | |||||||||||||||
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI and Cash NOI (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income | $ | 120,394 | $ | 86,017 | $ | 194,442 | $ | 150,294 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| General and administrative | 19,752 | 19,307 | 39,620 | 39,287 | |||||||||||||||||||
| Depreciation and amortization | 71,188 | 67,896 | 157,928 | 134,174 | |||||||||||||||||||
| Other expenses | 244 | 304 | 2,483 | 1,712 | |||||||||||||||||||
| Interest expense | 26,701 | 28,412 | 53,989 | 43,083 | |||||||||||||||||||
| Debt extinguishment and modification expenses | 291 | - | 291 | - | |||||||||||||||||||
| Management and leasing services | (132) | (156) | (274) | (288) | |||||||||||||||||||
| Interest income | (7,807) | (4,444) | (11,131) | (7,418) | |||||||||||||||||||
| Gains on sale of real estate | (44,361) | (16,268) | (57,518) | (16,268) | |||||||||||||||||||
| Net Operating Income | $ | 186,270 | $ | 181,068 | $ | 379,830 | $ | 344,576 | |||||||||||||||
| Above/(below) market lease revenue adjustments | (5,788) | (7,268) | (14,974) | (14,859) | |||||||||||||||||||
| Straight line rental revenue adjustment | (6,918) | (9,567) | (12,435) | (16,935) | |||||||||||||||||||
| Cash Net Operating Income | $ | 173,564 | $ | 164,233 | $ | 352,421 | $ | 312,782 | |||||||||||||||
Non-GAAP Supplemental Measure: EBITDAre
We calculate earnings before interest expense, income taxes, depreciation and amortization for real estate ("EBITDAre") in accordance with the standards established by NAREIT. EBITDAreis calculated as net income (loss) (computed in accordance with GAAP), before interest expense, income tax expense, depreciation and amortization, gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business and adjustments for unconsolidated joint ventures.
We believe that EBITDAreis 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 EBITDAreis frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, our industry peers may not calculate EBITDAre in accordance with the NAREIT definition as we do and, accordingly, our EBITDAremay not be comparable to our peers' EBITDAre. Accordingly, EBITDAreshould be considered only as a supplement to net income (loss) as a measure of our performance.
The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to EBITDAre(in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income | $ | 120,394 | $ | 86,017 | $ | 194,442 | $ | 150,294 | |||||||||||||||
| Interest expense | 26,701 | 28,412 | 53,989 | 43,083 | |||||||||||||||||||
| Depreciation and amortization | 71,188 | 67,896 | 157,928 | 134,174 | |||||||||||||||||||
| Gains on sale of real estate | (44,361) | (16,268) | (57,518) | (16,268) | |||||||||||||||||||
|
EBITDAre
|
$ | 173,922 | $ | 166,057 | $ | 348,841 | $ | 311,283 | |||||||||||||||
Supplemental Guarantor Information
Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is "full and unconditional," the subsidiary obligor is consolidated into the parent company's consolidated financial statements and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. At June 30, 2025, the Operating Partnership had issued and outstanding $300.0 million of 5.000% Senior Notes due 2028 (the "$300 Million Notes due 2028"), $400.0 million of 2.125% Senior Notes due 2030 (the "$400 Million Notes due 2030"), $400 million of 2.150% Senior Notes due 2031 (the "$400 Million Notes due 2031"), $575.0 million of 4.375% Exchangeable Senior Notes due 2027 (the "2027 Exchangeable Notes") and $575.0 million of 4.125% Exchangeable Senior Notes due 2029 (the "2029 Exchangeable Notes" and together with the 2027 Exchangeable Notes, the "Exchangeable Notes"). The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the $300 Million Notes due 2028, $400 Million Notes due 2030, $400 Million Notes due 2031 and Exchangeable Notes are guaranteed on a senior basis by the Company. The guarantee is full and unconditional, and the Operating Partnership is a consolidated subsidiary of the Company. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented.
Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
Financial Condition, Liquidity and Capital Resources
Overview
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses, interest expense, general and administrative expenses, capital expenditures, tenant improvements and leasing commissions, and distributions to our common and preferred stockholders and holders of common units of partnership interests in our Operating Partnership ("OP Units"). We expect to meet our short-term liquidity requirements through available cash on hand, cash flow from operations, by drawing on our unsecured revolving credit facility and by issuing shares of common stock pursuant to our at-the-market equity offering program or issuing other securities as described below.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through net cash flow from operations, proceeds from long-term 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 June 30, 2025, we had:
•Outstanding fixed-rate and variable-rate debt with varying maturities for an aggregate principal amount of $3.4 billion, with $107.6 million due within 12 months (including the $100 million unsecured senior notes maturing on August 6, 2025);
•Total scheduled interest payments on our fixed rate debt and projected net interest payments on our variable rate debt and interest rate swaps of $457.7 million, of which $126.3 million is due within 12 months;
•Commitments of $95.0 million for tenant improvements under certain tenant leases and construction work related to obligations under contractual agreements with our construction vendors; and
•Operating lease commitments with aggregate lease payments of $24.8 million, of which $1.7 million is due within 12 months.
See "Note 6 - Notes Payable" to the consolidated financial statements included in Item 1 of this Report on Form 10-Q for further details regarding the scheduled principal payments. Also see "Note 7 - Leases" to the consolidated financial statements for further details regarding the scheduled operating lease payments.
As of June 30, 2025, our cash and cash equivalents were $431.1 million, and we did not have borrowings outstanding under our unsecured revolving credit facility, leaving $1.245 billion available for future borrowings after giving effect to the $5.0 million letter of credit that was issued under the unsecured revolving credit facility.
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 February 17, 2023, we established an at-the-market equity offering program ("ATM program") pursuant to which we are able to sell from time to time shares of our common stock having an aggregate sales price of up to $1.25 billion (the "2023 ATM Program").
In connection with our ATM program, we may sell shares of our common stock directly through sales agents or we may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under ATM program. The use of a forward equity sale agreement allows us to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. Additionally, the forward price that we expect to receive upon physical settlement of an agreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser's stock borrowing costs and (iii) scheduled dividends during the term of the agreement.
During the six months ended June 30, 2025, we did not sell any shares of common stock directly through sales agents or enter into any forward equity sale agreements under the 2023 ATM Program.
As of June 30, 2025, approximately $927.4 million of common stock remains available to be sold under the 2023 ATM Program. Future sales, if any, will depend on a variety of factors, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us.
Securities Offerings
We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and as circumstances warrant, we may issue additional securities, from time to time, to fund acquisitions, for the repayment of long-term debt upon maturity and for other general corporate purposes. Such securities may include common equity, preferred equity and/or debt of us or our subsidiaries. Any future issuance, however, is dependent upon market conditions, available pricing and capital needs and there can be no assurance that we will be able to complete any such offerings of securities.
March 2024 Forward Equity Offering - In March 2024, we entered into a forward equity sale agreement with a financial institution acting as forward purchaser in connection with an underwritten public offering of 17,179,318 shares of common stock (the "March 2024 Forward Sale Agreement"), pursuant to which, the forward purchaser borrowed and sold an aggregate of 17,179,318 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchaser at the time of the offering. During 2024, we partially settled the March 2024 Forward Sale Agreement by issuing 7,402,550 shares of common stock, leaving a remaining 9,776,768 shares of common stock for settlement as of December 31, 2024.
During the first quarter of 2025, we settled the remaining portion of the March 2024 Forward Sale Agreement by issuing the remaining 9,776,768 shares of common stock for net proceeds of $478.0 million, based on a weighted average forward price of $48.89 per share at settlement.
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. Under normal rules, 1031 Exchanges require identification of replacement property within 45 days and completion within 180 days of the sale
date. Following the January 2025 Los Angeles wildfires, the IRS extended these deadlines for affected areas to October 15, 2025.
During the six months ended June 30, 2025, we completed the sale of three properties for an aggregate gross sales price of $134.0 million and net cash proceeds of $129.0 million. Subsequent to the second quarter of 2025, we sold one property for a gross sale price of $14.7 million and net cash proceeds of $14.1 million. Cash proceeds from the sale of these properties are classified as restricted cash and are being held by qualified intermediaries for purposes of facilitating tax-deferred like-kind exchanges under 1031 Exchange. However, we may or may not find replacement properties that meet our investment criteria within the normal 180 day 1031 Exchange period or extended October 15, 2025 deadline, as applicable.
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.
Investment Grade Rating
Our credit ratings at June 30, 2025, were Baa2 (Stable outlook) from Moody's and BBB+ (Stable outlook) from both S&P and Fitch with respect to our Credit Agreement (described below), Exchangeable Notes, $100.0 million unsecured guaranteed senior notes (the "$100 Million Notes"), $25.0 million unsecured guaranteed senior notes and $75.0 million unsecured guaranteed senior notes (together the "Series 2019A and 2019B Notes"), $300 Million Notes, $400 Million Notes due 2030 and $400 Million Notes due 2031. Our credit ratings at June 30, 2025, were BBB- from both S&P and Fitch with respect to our 5.875% Series B Cumulative Redeemable Preferred Stock and our 5.625% Series C Cumulative Redeemable Preferred Stock. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us, and, although it is our intent to maintain our investment grade credit rating, there can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings are downgraded, it may become difficult or more expensive to obtain additional financing or refinance existing indebtedness as maturities become due.
Fifth Amended and Restated Credit Agreement
On May 30, 2025, we amended our senior unsecured credit agreement by entering into the Fifth Amended and Restated Credit Agreement (the "Credit Agreement"). Prior to the amendment, the credit agreement was comprised of (i) a senior unsecured revolving credit facility (the "Revolver") in the aggregate principal amount of $1.0 billion, which also allows us to issue letters of credit up to an aggregate amount not to exceed $100.0 million, (ii) a $300.0 million unsecured term loan facility (the "$300 Million Term Loan") and (iii) a $400.0 million unsecured term loan facility (the "$400 Million Term Loan" and together with the $300 Million Term Loan, the "Term Facility"). The Credit Agreement, among other changes, (i) increases the borrowing capacity under the Revolver from $1.00 billion to $1.25 billion, (ii) lowers the interest rate by eliminating the 0.10% SOFR adjustment that previously applied to both the Revolver and the $400 Million Term Loan, (iii) extends the maturity date of the Revolver from May 26, 2026 to May 30, 2029 (with two six-month extensions) and (iv) extends the maturity of the $400 Million Term Loan from July 18, 2025 to May 30, 2030, among other changes. The interest rate and maturity date (May 26, 2027) of the $300 Million Term Loan remain unchanged.
Subject to certain terms and conditions set forth in the Credit Agreement, we may request additional lender commitments and increase the size of the Credit Agreement by an additional $1.05 billion, which may be comprised of additional revolving commitments under the Revolver, an increase to the Term Facility, additional term loan tranches or any combination of the foregoing.
Interest on the Credit Agreement is generally to be paid based upon, at our option, either Term SOFR, daily SOFR or a base rate, plus an applicable margin based on our leverage ratio and debt ratings. Additionally, the SOFR rate will be increased by a 0.10% SOFR adjustment for the $300 Million Term Loan. The applicable margin for the Term Facility ranges from 0.80% to 1.60% per annum for SOFR-based loans and 0.00% to 0.60% per annum for base rate loans. The applicable margin for the Revolver ranges from 0.725% to 1.400% per annum for SOFR-based loans and letters of credit and 0.00% to 0.40% per annum for base rate loans. In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable credit facility fee, on each lender's commitment amount under the Revolver, regardless of usage. The applicable credit facility fee ranges from 0.125% to 0.300% per annum, depending on our leverage ratio and investment grade ratings.
In addition, the Credit Agreement also features a sustainability-linked pricing component that can periodically adjust the applicable margin by -0.04%, zero or 0.04% and adjust the applicable credit facility fee by -0.01%, zero or 0.01%, depending on our achievement of the annual sustainability performance metrics. As of June 30, 2025, the sustainability-linked pricing adjustment was zero for both the applicable margin and the credit facility fee.
The Revolver and the Term Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Term Facility and repaid or prepaid may not be reborrowed.
The Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Credit Agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Credit Agreement, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
As of the filing date of this Quarterly Report on Form 10-Q, we did not have any borrowings outstanding under the Revolver and had $5.0 million outstanding in letters of credit that reduced our borrowing capacity, leaving $1.245 billion available for future borrowings.
Uses of Liquidity
Acquisitions
One of our most significant liquidity needs has historically been for the acquisition of real estate properties. Year to date, as of the filing date of this Quarterly Report on Form 10-Q, we did not acquire any properties. However, we are actively monitoring a volume of properties in our markets that we believe represent attractive potential investment opportunities to continue to grow our business. As of the filing date of this Quarterly Report, we have no acquisitions under contract or accepted offer. 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 future acquisitions through restricted cash currently being held at qualified intermediaries, 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. As discussed above under - Factors that May Influence Future Results -Acquisitions and Value-Add Repositioning and Redevelopment of Properties, as of June 30, 2025, 32 of our properties were under current repositioning/redevelopment or lease-up. We currently estimate that approximately $152.4 million of capital will be required over the next few years to complete the repositioning/redevelopment of these properties. However, this estimate is based on our current construction plans and budgets, both of which are subject to change as a result of a number of factors, including increased costs of building materials or construction services (including as a result of trade disputes and tariffs) and construction delays related to supply chain backlogs and increased lead time on building materials. If we are unable to complete construction on schedule or within budget, we could incur increased construction costs and experience potential delays in leasing the properties. We expect to fund these projects through a combination of available cash on hand, the issuance of common stock under the 2023 ATM Program, cash flow from operations and borrowings available under the Revolver.
The following table sets forth certain information regarding non-recurring and recurring capital expenditures at the properties in our portfolio as follows:
| Six Months Ended June 30, 2025 | ||||||||||||||||||||
|
Total(1)
|
Square Feet(2)
|
Per Square Foot(3)
|
||||||||||||||||||
|
Non-Recurring Capital Expenditures(4)
|
$ | 108,737 | 35,559,133 | $ | 3.06 | |||||||||||||||
|
Recurring Capital Expenditures(5)
|
7,198 | 51,135,876 | $ | 0.14 | ||||||||||||||||
| Total Capital Expenditures | $ | 115,935 | ||||||||||||||||||
(1)Cost is reported in thousands. Excludes the following capitalized costs: (i) compensation costs of personnel directly responsible for and who spend their time on redevelopment, renovation and rehabilitation activity and (ii) interest, property taxes and insurance costs incurred during the pre-construction and construction periods of repositioning or redevelopment projects.
(2)For non-recurring capital expenditures, reflects the aggregate square footage of the properties in which we incurred such capital expenditures. For recurring capital expenditures, reflects the weighted average square footage of our consolidated portfolio during the period.
(3)Per square foot amounts are calculated by dividing the aggregate capital expenditure costs by the square footage as defined in (2) above.
(4)Non-recurring capital expenditures are expenditures made in respect of a property for repositioning, redevelopment, or other major upgrade or renovation of such property, and further includes capital expenditures for seismic upgrades, roof or parking lot replacements or capital expenditures for deferred maintenance existing at the time such property was acquired.
(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 of parking lot, roofing materials, mechanical systems, HVAC systems and other structural systems.
Dividends and Distributions
In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to distribute a percentage of our cash flow on a quarterly basis to holders of our common stock. In addition, we intend to make distribution payments to holders of OP Units and preferred units and dividend payments to holders of our preferred stock.
On July 14, 2025, our board of directors declared the following quarterly cash dividends/distributions record dates and payment dates.
| Security | Amount per Share/Unit | Record Date | Payment Date | |||||||||||||||||
| Common stock | $ | 0.43 | September 30, 2025 | October 15, 2025 | ||||||||||||||||
| OP Units | $ | 0.43 | September 30, 2025 | October 15, 2025 | ||||||||||||||||
|
5.875% Series B Cumulative Redeemable Preferred Stock
|
$ | 0.367188 | September 15, 2025 | September 30, 2025 | ||||||||||||||||
|
5.625% Series C Cumulative Redeemable Preferred Stock
|
$ | 0.351563 | September 15, 2025 | September 30, 2025 | ||||||||||||||||
|
3.00% Cumulative Redeemable Convertible Preferred Units
|
$ | 0.545462 | September 15, 2025 | September 30, 2025 | ||||||||||||||||
Stock Repurchase Program
On February 3, 2025, our board of directors authorized a stock repurchase program for up to $300.0 million of our outstanding common stock (the "Stock Repurchase Program"). Under the Stock Repurchase Program, we may purchase our shares from time to time in the open market, in privately negotiated transactions or in other transactions as permitted by federal securities laws. The amount and timing of the purchase will depend on a number of factors including the price and availability of our shares, trading volume and general market conditions. The Stock Repurchase Program expires on February 3, 2027. As of June 30, 2025, no shares had been purchased under the Stock Repurchase Program.
Indebtedness Outstanding
The following table sets forth certain information with respect to our consolidated indebtedness outstanding as of June 30, 2025:
| Contractual Maturity Date | Margin Above SOFR |
Effective Interest Rate(1)
|
Principal Balance
(in thousands)(2)
|
||||||||||||||||||||
| Unsecured and Secured Debt: | |||||||||||||||||||||||
| Unsecured Debt: |
|
||||||||||||||||||||||
| Revolving Credit Facility | 5/30/2029 |
(3)
|
S+0.725 | % |
(4)
|
5.175 | % |
(5)
|
$ | - | |||||||||||||
| $100M Senior Notes | 8/6/2025 |
(6)
|
n/a | 4.290 | % |
|
100,000 | ||||||||||||||||
|
$575M Exchangeable Senior Notes due 2027(7)
|
3/15/2027 | n/a | 4.375 | % | 575,000 | ||||||||||||||||||
| $300M Term Loan | 5/26/2027 | S+0.800 | % |
(4)
|
3.717 | % |
(8)
|
300,000 | |||||||||||||||
| $125M Senior Notes | 7/13/2027 | n/a | 3.930 | % | 125,000 | ||||||||||||||||||
| $300M Senior Notes due 2028 | 6/15/2028 | n/a | 5.000 | % | 300,000 | ||||||||||||||||||
|
$575M Exchangeable Senior Notes due 2029(6)
|
3/15/2029 | n/a | 4.125 | % | 575,000 | ||||||||||||||||||
| $25M Series 2019A Senior Notes | 7/16/2029 | n/a | 3.880 | % | 25,000 | ||||||||||||||||||
| $400M Term Loan | 5/30/2030 | S+0.800 | % |
(4)
|
4.214 | % |
(9)
|
400,000 | |||||||||||||||
| $400M Senior Notes due 2030 | 12/1/2030 | n/a | 2.125 | % | 400,000 | ||||||||||||||||||
| $400M Senior Notes due 2031 | 9/1/2031 | n/a | 2.150 | % | 400,000 | ||||||||||||||||||
| $75M Series 2019B Senior Notes | 7/16/2034 | n/a | 4.030 | % | 75,000 | ||||||||||||||||||
| Total Unsecured Debt | $ | 3,275,000 | |||||||||||||||||||||
| Secured Debt: | |||||||||||||||||||||||
|
$60M Term Loan(10)
|
10/27/2026 |
(10)
|
S+1.250 | % |
(10)
|
5.060 | % | $ | 60,000 | ||||||||||||||
| 701-751 Kingshill Place | 1/5/2026 | n/a | 3.900 | % | 6,784 | ||||||||||||||||||
| 13943-13955 Balboa Boulevard | 7/1/2027 | n/a | 3.930 | % | 14,015 | ||||||||||||||||||
| 2205 126th Street | 12/1/2027 | n/a | 3.910 | % | 5,200 | ||||||||||||||||||
| 2410-2420 Santa Fe Avenue | 1/1/2028 | n/a | 3.700 | % | 10,300 | ||||||||||||||||||
| 11832-11954 La Cienega Boulevard | 7/1/2028 | n/a | 4.260 | % | 3,731 | ||||||||||||||||||
| Gilbert/La Palma | 3/1/2031 | n/a | 5.125 | % | 1,432 | ||||||||||||||||||
| 7817 Woodley Avenue | 8/1/2039 | n/a | 4.140 | % | 2,679 | ||||||||||||||||||
| Total Secured Debt | $ | 104,141 | |||||||||||||||||||||
| Total Consolidated Debt | 3.757 | % | $ | 3,379,141 | |||||||||||||||||||
(1)Reflects the contractual interest rate under the terms of each loan as of June 30, 2025, and includes the effect of interest rate swaps that were active as of June 30, 2025, including the interest rate swaps with a combined notional value of $400 million that were executed on June 30, 2025 with an effective date of July 1, 2025. The interest rate is not adjusted to include the amortization of debt issuance costs or unamortized fair market value premiums/discounts or the facility fee on the Revolver.
(2)Excludes unamortized debt issuance costs and premiums/discounts totaling $31.6 million, which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of June 30, 2025.
(3)The Revolver has two six-month extensions, subject to certain terms and conditions.
(4)As of June 30, 2025, the interest rates on these loans are comprised of daily SOFR for both the Revolver and the $400 Million Term Loan and Term SOFR for the $300 Million Term Loan (increased by a 0.10% SOFR adjustment for the $300 Million Term Loan), plus an applicable margin of 0.725% per annum for the Revolver and 0.80% per annum for the Term Facility, and a sustainability-related rate adjustment of zero. These loans are also subject to a 0% SOFR floor.
(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. As of June 30, 2025, the applicable facility fee is 0.125% per annum with a sustainability-related rate adjustment of zero. The effective rate assumes daily SOFR of 4.450% as of June 30, 2025.
(6)We plan to repay the $100 million unsecured senior notes at the maturity date.
(7)Noteholders have the right to exchange their notes upon the occurrence of certain events. Exchanges will be settled by delivering cash up to the principal amount of the Exchangeable Notes exchanged, and in respect of the remainder of the exchanged value, if any, in excess thereof, in cash or in a combination of cash and shares of our common stock, at our option.
(8)As of June 30, 2025, Term SOFR for the $300 Million Term Loan has been swapped to a fixed rate of 2.81725%, resulting in an all-in fixed rate of 3.71725% after adding the SOFR adjustment, applicable margin and sustainability-related rate adjustment.
(9)We effectively fixed daily SOFR related to our $400.0 million unsecured term loan at a weighted average rate of 3.41375%, commencing on July 1, 2025 through May 30, 2030, through the use of three new interest rate swaps that we executed on June 30, 2025. These swaps take the place of the swaps that were previously in place from April 3, 2023 through June 30, 2025, which fixed daily SOFR at 3.97231%. The all-in fixed rate of 4.21375% disclosed in the table reflects the impact of the new swaps (assuming they were effective as of June 30, 2025) plus the applicable margin and sustainability-related rate adjustment.
(10)The $60.0 million term loan facility (the "$60 Million Term Loan") has interest-only payment terms bearing interest at Term SOFR increased by a 0.10% SOFR adjustment plus an applicable margin of 1.25% per annum. As of June 30, 2025, Term SOFR for this loan has been swapped to a fixed rate of 3.710%, resulting in an all-in fixed rate of 5.060% after adding the SOFR adjustment and applicable margin. The loan is secured by six properties. On July 11, 2025, we exercised the second extension option, extending the maturity date of this loan by one year to October 27, 2026, leaving us with one remaining one-year extension at our option, subject to certain terms and condition.
The following table summarizes the composition of our consolidated debt between fixed-rate and variable-rate and secured and unsecured debt as of June 30, 2025:
|
Weighted Average Term Remaining (in years) |
Effective
Interest Rate(1)
|
Principal Balance
(in thousands)(2)
|
% of Total | |||||||||||||||||||||||
| Fixed vs. Variable: | ||||||||||||||||||||||||||
|
Fixed(3)
|
3.7 | 3.757% | $ | 3,379,141 | 100% | |||||||||||||||||||||
| Variable | 0.0 | -% | $ | - | -% | |||||||||||||||||||||
| Secured vs. Unsecured: | ||||||||||||||||||||||||||
| Secured | 2.5 | 4.589% | $ | 104,141 | 3% | |||||||||||||||||||||
| Unsecured | 3.7 | 3.731% | $ | 3,275,000 | 97% | |||||||||||||||||||||
(1)Includes the effect of interest rate swaps that were active as of June 30, 2025, including the interest rate swaps with a combined notional value of $400 million that were executed on June 30, 2025 with an effective date of July 1, 2025. Interest rates are not adjusted to include the amortization of debt issuance costs or unamortized fair market value premiums/discounts or the facility fee on the Revolver.
(2)Excludes unamortized debt issuance costs and premiums/discounts totaling $31.6 million, which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of June 30, 2025.
(3)Fixed-rate debt includes our variable-rate debt that has been effectively fixed through the use of interest rate swaps through maturity.
At June 30, 2025, we had consolidated indebtedness of $3.4 billion, reflecting a net debt to total combined market capitalization of approximately 25.0%. Our total market capitalization is defined as the sum of the liquidation preference of our outstanding preferred stock and preferred units plus the market value of our common stock excluding shares of nonvested restricted stock, plus the aggregate value of common units not owned by us, plus the value of our net debt. Our net debt is defined as our consolidated indebtedness less cash and cash equivalents.
Debt Covenants
The Credit Agreement, $60 Million Term Loan, $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes all include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•For the Credit Agreement and $60 Million Term Loan, maintaining a ratio of secured debt to total asset value of not more than 45%;
•For the $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes (together the "Senior Notes"), maintaining a ratio of secured debt to total asset value of not more than 40%;
•For the Senior Notes, maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
•For the Senior Notes, maintaining a minimum tangible net worth of at least the sum of (i) $760,740,750, and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company after September 30, 2016;
•Maintaining a ratio of adjusted EBITDA (as defined in each of the loan agreements) to fixed charges of at least 1.5 to 1.0;
•For the Credit Agreement and Senior Notes, maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and
•For the Credit Agreement and Senior Notes, 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 $300 Million Notes due 2028, $400 Million Notes due 2030 and $400 Million Notes due 2031 (together the "Registered Notes") contain the following covenants (as defined in the indentures) that we must comply with:
•Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
•Maintaining a ratio of secured debt to total asset value of not more than 40%;
•Maintaining a Debt Service Coverage Ratio of at least 1.5 to 1.0; and
•Maintaining a ratio of unencumbered assets to unsecured debt of at least 1.5 to 1.0.
Subject to the terms of the Credit Agreement, $60 Million Term Loan, Senior Notes and Registered Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal or interest, (ii) a default in the payment of certain of our other indebtedness and (iii) a default in compliance with the covenants set forth in the debt agreement, the principal and accrued and unpaid interest on the outstanding debt may be declared immediately due and payable at the option of the administrative agent, lenders, trustee and/or noteholders, as applicable, and in the event of bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest on the outstanding debt will become immediately due and payable. In addition, we are required to maintain at all times a credit rating on the Senior Notes from either S&P, Moody's or Fitch.
We were in compliance with all of our required quarterly financial debt covenants as of June 30, 2025.
Cash Flows
Comparison of the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024
The following table summarizes the changes in net cash flows associated with our operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 (in thousands):
| Six Months Ended June 30, | ||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||
| Cash provided by operating activities | $ | 280,708 | $ | 235,419 | $ | 45,289 | ||||||||||||||
| Cash used in investing activities | $ | (33,386) | $ | (1,366,616) | $ | 1,333,230 | ||||||||||||||
| Cash provided by financing activities | $ | 257,895 | $ | 1,223,463 | $ | (965,568) | ||||||||||||||
Net cash provided by operating activities. Net cash provided by operating activities increased by $45.3 million to $280.7 million for the six months ended June 30, 2025, compared to $235.4 million for the six months ended June 30, 2024. The increase was primarily attributable to the incremental cash flows from property acquisitions completed during 2024, changes in working capital and the increase in Cash NOI from our Same Property Portfolio, partially offset by higher cash interest paid as compared to the prior year period.
Net cash used in investing activities. Net cash used in investing activities decreased by $1.33 billion to $33.4 million for the six months ended June 30, 2025, compared to $1.37 billion for the six months ended June 30, 2024. The decrease was primarily attributable to a $1.24 billion decrease in cash paid for property acquisitions and a $94.5 million increase in proceeds from the sale of real estate for comparable periods.
Net cash provided by financing activities. Net cash provided by financing activities decreased by $965.6 million to $257.9 million for the six months ended June 30, 2025, compared to $1.2 billion for the six months ended June 30, 2024. The decrease was primarily attributable to a decrease of $1.1 billion in net cash proceeds from the issuance of the Exchangeable Notes in March 2024 and an increase of $25.0 million in cash dividends paid to common stockholders and common unitholders as a result of an increase in our quarterly per share/unit cash dividend and an increase in the number of common shares outstanding, partially offset by an increase of $187.5 million in net cash proceeds from the issuance of shares of our common stock.
Inflation
We do not believe that inflation has historically had a material impact on the Company. While currently moderating, significant inflation in recent years has resulted in increased operating expenses and capital expenditures which could have a material impact on our financial position or results of operations. The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provide for fixed rent increases. We believe that inflationary increases to real estate taxes, utility expenses and other operating expenses may be partially offset by the contractual rent increases and tenant payment of taxes and expenses described above.
Item 3. 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 SOFR. 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 debt, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. For a summary of our interest rate swaps and recent transactions, see "Note 8 - Interest Rate Derivatives" to our consolidated financial statements.
As of June 30, 2025, we had total consolidated indebtedness, excluding unamortized debt issuance costs and premiums/discounts, of $3.38 billion. As of June 30, 2025, 100% of this consolidated indebtedness is fixed-rate debt under the terms of the loan or through the use of interest rate swaps. As such, as of June 30, 2025, if SOFR were to increase or decrease, there would be no impact to interest expense or future earnings and cash flows.
Interest risk amounts are our management's estimates and are 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 the possibility of future 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 assumes no changes in our financial structure.
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