rexr-10q_20150930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-36008

 

Rexford Industrial Realty, Inc.

(Exact name of registrant as specified in its charter)

 

 

MARYLAND

46-2024407

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

11620 Wilshire Boulevard, Suite 1000,

Los Angeles, California

90025

(Address of principal executive offices)

(Zip Code)

(310) 966-1680

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨

 

Accelerated filer þ

 

Non-accelerated filer ¨

 

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

The number of shares of common stock outstanding at November 4, 2015 was 55,586,607.

 

 

 

 

 

 

 


 

REXFORD INDUSTRIAL REALTY, INC.

QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

 

Item 1

Financial Statements

 

 

 

Consolidated Balance Sheets as of September 30, 2015 (unaudited)  and December 31, 2014

3

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

4

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

5

 

 

Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2015 and 2014 (unaudited)

6

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)

7

 

 

Notes to the Consolidated Financial Statements

8

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

55

 

Item 4

Controls and Procedures

56

PART II.

OTHER INFORMATION

 

 

Item 1

Legal Proceedings

57

 

Item 1A

Risk Factors

57

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

57

 

Item 3

Defaults Upon Senior Securities

57

 

Item 4

Mine Safety Disclosures

57

 

Item 5

Other Information

57

 

Item 6

Exhibits

58

 

Signatures

59

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

REXFORD INDUSTRIAL REALTY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands – except share and per share data)

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Land

 

$

445,454

 

 

$

368,033

 

Buildings and improvements

 

 

634,606

 

 

 

540,837

 

Tenant improvements

 

 

26,539

 

 

 

21,404

 

Furniture, fixtures, and equipment

 

 

188

 

 

 

188

 

  Total real estate held for investment

 

 

1,106,787

 

 

 

930,462

 

Accumulated depreciation

 

 

(96,403

)

 

 

(76,884

)

  Investments in real estate, net

 

 

1,010,384

 

 

 

853,578

 

Cash and cash equivalents

 

 

5,083

 

 

 

8,606

 

Note receivable

 

 

-

 

 

 

13,137

 

Rents and other receivables, net

 

 

2,221

 

 

 

1,812

 

Deferred rent receivable, net

 

 

7,009

 

 

 

5,165

 

Deferred leasing costs, net

 

 

5,044

 

 

 

3,608

 

Deferred loan costs, net

 

 

1,595

 

 

 

2,045

 

Acquired lease intangible assets, net

 

 

27,838

 

 

 

28,136

 

Acquired indefinite-lived intangible

 

 

5,271

 

 

 

5,271

 

Other assets

 

 

5,491

 

 

 

4,699

 

Acquisition related deposits

 

 

1,250

 

 

 

2,110

 

Investment in unconsolidated real estate entities

 

 

4,056

 

 

 

4,018

 

Total Assets

 

$

1,075,242

 

 

$

932,185

 

LIABILITIES & EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Notes payable

 

$

335,058

 

 

$

356,362

 

Interest rate swap liability

 

 

4,716

 

 

 

1,402

 

Accounts payable, accrued expenses and other liabilities

 

 

13,886

 

 

 

10,053

 

Dividends payable

 

 

7,504

 

 

 

5,244

 

Acquired lease intangible liabilities, net

 

 

2,700

 

 

 

3,016

 

Tenant security deposits

 

 

10,523

 

 

 

8,768

 

Prepaid rents

 

 

1,935

 

 

 

1,463

 

Total Liabilities

 

 

376,322

 

 

 

386,308

 

Equity

 

 

 

 

 

 

 

 

Rexford Industrial Realty, Inc. stockholders' equity

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value 490,000,000 authorized and

   55,587,903 and 43,702,442 outstanding as of September 30, 2015

   and December 31, 2014, respectively

 

 

552

 

 

 

434

 

Additional paid in capital

 

 

722,102

 

 

 

542,318

 

Cumulative distributions in excess of earnings

 

 

(41,613

)

 

 

(21,673

)

Accumulated other comprehensive loss

 

 

(4,546

)

 

 

(1,331

)

Total stockholders' equity

 

 

676,495

 

 

 

519,748

 

Noncontrolling interests

 

 

22,425

 

 

 

26,129

 

Total Equity

 

 

698,920

 

 

 

545,877

 

Total Liabilities and Equity

 

$

1,075,242

 

 

$

932,185

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

REXFORD INDUSTRIAL REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands – except share and per share data)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

RENTAL REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

20,617

 

 

$

15,516

 

 

$

58,449

 

 

$

39,917

 

Tenant reimbursements

 

 

2,377

 

 

 

2,052

 

 

 

7,405

 

 

 

5,244

 

Other income

 

 

341

 

 

 

16

 

 

 

693

 

 

 

73

 

TOTAL RENTAL REVENUES

 

 

23,335

 

 

 

17,584

 

 

 

66,547

 

 

 

45,234

 

Management, leasing and development services

 

 

186

 

 

 

171

 

 

 

479

 

 

 

654

 

Interest income

 

 

153

 

 

 

281

 

 

 

710

 

 

 

835

 

TOTAL REVENUES

 

 

23,674

 

 

 

18,036

 

 

 

67,736

 

 

 

46,723

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property expenses

 

 

6,237

 

 

 

4,879

 

 

 

17,882

 

 

 

12,905

 

General and administrative

 

 

3,778

 

 

 

3,273

 

 

 

11,064

 

 

 

8,658

 

Depreciation and amortization

 

 

10,642

 

 

 

8,032

 

 

 

31,016

 

 

 

20,165

 

TOTAL OPERATING EXPENSES

 

 

20,657

 

 

 

16,184

 

 

 

59,962

 

 

 

41,728

 

OTHER EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition expenses

 

 

528

 

 

 

426

 

 

 

1,608

 

 

 

1,411

 

Interest expense

 

 

2,245

 

 

 

1,957

 

 

 

5,729

 

 

 

4,745

 

TOTAL OTHER EXPENSE

 

 

2,773

 

 

 

2,383

 

 

 

7,337

 

 

 

6,156

 

TOTAL EXPENSES

 

 

23,430

 

 

 

18,567

 

 

 

67,299

 

 

 

47,884

 

Equity in income (loss) from unconsolidated real estate entities

 

 

45

 

 

 

2

 

 

 

58

 

 

 

(4

)

Gain from early repayment of note receivable

 

 

581

 

 

 

-

 

 

 

581

 

 

 

-

 

Loss on extinguishment of debt

 

 

(253

)

 

 

-

 

 

 

(182

)

 

 

-

 

Loss on sale of real estate

 

 

-

 

 

 

(150

)

 

 

-

 

 

 

(150

)

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

 

 

617

 

 

 

(679

)

 

 

894

 

 

 

(1,315

)

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations before gain on sale of real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21

 

Gain on sale of real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,125

 

INCOME FROM DISCONTINUED OPERATIONS

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,146

 

NET INCOME (LOSS)

 

$

617

 

 

$

(679

)

 

$

894

 

 

$

831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rexford Industrial Realty, Inc. common stockholders

 

$

540

 

 

$

(623

)

 

$

706

 

 

$

687

 

Noncontrolling interests

 

 

24

 

 

 

(80

)

 

 

36

 

 

 

80

 

Participating securities

 

 

53

 

 

 

24

 

 

 

152

 

 

 

64

 

NET INCOME (LOSS)

 

$

617

 

 

$

(679

)

 

$

894

 

 

$

831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations available to common stockholders per share - basic and diluted

 

$

0.01

 

 

$

(0.02

)

 

$

0.01

 

 

$

(0.04

)

Net income (loss) available to common stockholders per share - basic and diluted

 

$

0.01

 

 

$

(0.02

)

 

$

0.01

 

 

$

0.02

 

Weighted average shares of common stock outstanding - basic and diluted

 

 

55,145,963

 

 

 

33,527,183

 

 

 

53,613,874

 

 

 

28,151,818

 

Dividends declared per common share

 

$

0.135

 

 

$

0.12

 

 

$

0.375

 

 

$

0.36

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


 

REXFORD INDUSTRIAL REALTY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income (loss)

 

$

617

 

 

$

(679

)

 

$

894

 

 

$

831

 

Other comprehensive income (loss): cash flow

   hedge adjustment

 

 

(1,756

)

 

 

626

 

 

 

(3,314

)

 

 

167

 

Comprehensive income (loss)

 

 

(1,139

)

 

 

(53

)

 

 

(2,420

)

 

 

998

 

Less: comprehensive (income) loss attributable

   to noncontrolling interests

 

 

33

 

 

 

22

 

 

 

63

 

 

 

(89

)

Comprehensive income (loss) attributable to

   common stockholders

 

$

(1,106

)

 

$

(31

)

 

$

(2,357

)

 

$

909

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


 

REXFORD INDUSTRIAL REALTY, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited and in thousands – except share data)

 

 

 

 

Number of

Shares

 

 

Common

Stock

 

 

Additional

Paid-in Capital

 

 

Cumulative Distributions in Excess of Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

 

Noncontrolling

Interests

 

 

Total Equity

 

Balance at January 1, 2015

 

 

43,702,442

 

 

$

434

 

 

$

542,318

 

 

$

(21,673

)

 

$

(1,331

)

 

$

519,748

 

 

$

26,129

 

 

$

545,877

 

Issuance of common stock

 

 

11,500,500

 

 

 

115

 

 

 

183,892

 

 

 

-

 

 

 

-

 

 

 

184,007

 

 

 

-

 

 

 

184,007

 

Offering costs

 

 

-

 

 

 

-

 

 

 

(8,114

)

 

 

-

 

 

 

-

 

 

 

(8,114

)

 

 

-

 

 

 

(8,114

)

Share-based compensation

 

 

138,207

 

 

 

-

 

 

 

1,332

 

 

 

-

 

 

 

-

 

 

 

1,332

 

 

 

-

 

 

 

1,332

 

Repurchase of common shares

 

 

(9,886

)

 

 

-

 

 

 

(148

)

 

 

-

 

 

 

-

 

 

 

(148

)

 

 

-

 

 

 

(148

)

Conversion of units to common

   stock

 

 

256,640

 

 

 

3

 

 

 

2,822

 

 

 

-

 

 

 

-

 

 

 

2,825

 

 

 

(2,825

)

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

858

 

 

 

-

 

 

 

858

 

 

 

36

 

 

 

894

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,215

)

 

 

(3,215

)

 

 

(99

)

 

 

(3,314

)

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,798

)

 

 

-

 

 

 

(20,798

)

 

 

-

 

 

 

(20,798

)

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(816

)

 

 

(816

)

Balance at September 30, 2015

 

 

55,587,903

 

 

$

552

 

 

$

722,102

 

 

$

(41,613

)

 

$

(4,546

)

 

$

676,495

 

 

$

22,425

 

 

$

698,920

 

 

 

 

 

Number of

Shares

 

 

Common

Stock

 

 

Additional

Paid-in Capital

 

 

Cumulative Distributions in Excess of Earnings

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Stockholders'

Equity

 

 

Noncontrolling

Interests

 

 

Total Equity

 

Balance at January 1, 2014

 

 

25,559,886

 

 

$

255

 

 

$

311,936

 

 

$

(5,993

)

 

$

-

 

 

$

306,198

 

 

$

35,571

 

 

$

341,769

 

Issuance of common stock

 

 

17,250,000

 

 

 

172

 

 

 

232,703

 

 

 

-

 

 

 

-

 

 

 

232,875

 

 

 

-

 

 

 

232,875

 

Offering costs

 

 

-

 

 

 

-

 

 

 

(11,326

)

 

 

-

 

 

 

-

 

 

 

(11,326

)

 

 

-

 

 

 

(11,326

)

Share-based compensation

 

 

91,693

 

 

 

-

 

 

 

897

 

 

 

-

 

 

 

-

 

 

 

897

 

 

 

-

 

 

 

897

 

Repurchase of common shares

 

 

(6,928

)

 

 

-

 

 

 

(98

)

 

 

-

 

 

 

-

 

 

 

(98

)

 

 

-

 

 

 

(98

)

Conversion of common units to common stock

 

 

363,232

 

 

 

4

 

 

 

4,136

 

 

 

-

 

 

 

-

 

 

 

4,140

 

 

 

(4,140

)

 

 

-

 

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,332

)

 

 

-

 

 

 

(11,332

)

 

 

-

 

 

 

(11,332

)

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,354

)

 

 

(1,354

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

751

 

 

 

-

 

 

 

751

 

 

 

80

 

 

 

831

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

158

 

 

 

158

 

 

 

9

 

 

 

167

 

Balance at September 30, 2014

 

 

43,257,883

 

 

$

431

 

 

$

538,248

 

 

$

(16,574

)

 

$

158

 

 

$

522,263

 

 

$

30,166

 

 

$

552,429

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


 

REXFORD INDUSTRIAL REALTY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

894

 

 

$

831

 

Adjustments to reconcile net income to net

   cash provided by operating activities:

 

 

 

 

 

 

 

 

Equity in (income) loss of unconsolidated real estate entities

 

 

(58

)

 

 

4

 

Depreciation and amortization

 

 

31,016

 

 

 

20,165

 

Depreciation and amortization included in discontinued operations

 

 

-

 

 

 

7

 

Amortization of above (below) market lease intangibles, net

 

 

154

 

 

 

305

 

Accretion of discount on notes receivable

 

 

(178

)

 

 

(195

)

Gain from early repayment of note receivable

 

 

(581

)

 

 

-

 

Loss on extinguishment of debt

 

 

182

 

 

 

-

 

Loss on sale of real estate

 

 

-

 

 

 

150

 

Gain on sale of real estate included in discontinued operations

 

 

-

 

 

 

(2,125

)

Amortization of loan costs

 

 

618

 

 

 

478

 

Accretion of premium on notes payable

 

 

(158

)

 

 

(127

)

Equity based compensation expense

 

 

1,258

 

 

 

791

 

Change in working capital components:

 

 

 

 

 

 

 

 

Rents and other receivables

 

 

(409

)

 

 

(809

)

Deferred rent receivable

 

 

(2,016

)

 

 

(806

)

Deferred leasing costs

 

 

(2,635

)

 

 

(1,873

)

Other assets

 

 

(1,141

)

 

 

(675

)

Accounts payable, accrued expenses and other liabilities

 

 

3,559

 

 

 

1,935

 

Tenant security deposits

 

 

937

 

 

 

841

 

Prepaid rents

 

 

118

 

 

 

(996

)

Net cash provided by operating activities

 

 

31,560

 

 

 

17,901

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of investments in real estate

 

 

(162,970

)

 

 

(248,472

)

Capital expenditures

 

 

(15,931

)

 

 

(8,776

)

Acquisition related deposits

 

 

860

 

 

 

1,510

 

Contributions to unconsolidated real estate entities

 

 

-

 

 

 

(105

)

Distributions from unconsolidated real estate entities

 

 

-

 

 

 

44

 

Change in restricted cash

 

 

-

 

 

 

18

 

Principal repayments of notes receivable

 

 

13,896

 

 

 

196

 

Disposition of investment in real estate

 

 

-

 

 

 

15,410

 

Net cash used in investing activities

 

 

(164,145

)

 

 

(240,175

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

184,007

 

 

 

221,773

 

Offering costs

 

 

(8,073

)

 

 

-

 

Proceeds from notes payable

 

 

199,000

 

 

 

209,000

 

Repayment of notes payable

 

 

(225,572

)

 

 

(142,118

)

Deferred loan costs

 

 

(796

)

 

 

(1,876

)

Debt extinguishment costs

 

 

(2

)

 

 

-

 

Dividends paid to common stockholders

 

 

(18,538

)

 

 

(11,509

)

Distributions paid to common unitholders

 

 

(816

)

 

 

(1,354

)

Repurchase of common shares

 

 

(148

)

 

 

(98

)

Net cash provided by financing activities

 

 

129,062

 

 

 

273,818

 

 

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

(3,523

)

 

 

51,544

 

Cash and cash equivalents, beginning of period

 

 

8,606

 

 

 

8,997

 

Cash and cash equivalents, end of period

 

$

5,083

 

 

$

60,541

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest (net of capitalized interest of $449 and $0 for the nine months ended September 30, 2015 and 2014, respectively)

 

$

4,681

 

 

$

4,316

 

Supplemental disclosure of noncash investing and financing transactions:

 

 

 

 

 

 

 

 

Assumption of loan in connection with acquisition of real estate including loan premium

 

$

5,874

 

 

$

10,257

 

Capital expenditure accruals

 

$

1,480

 

 

$

66

 

Accrual of dividends

 

$

7,504

 

 

$

5,191

 

Accrual of offering costs

 

$

41

 

 

$

-

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

7


REXFORD INDUSTRIAL REALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Organization

Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service real estate investment trust (“REIT”) focused on owning and operating industrial properties in Southern California infill markets. We were formed as a Maryland corporation on January 18, 2013 and Rexford Industrial Realty, L.P. (the “Operating Partnership”), of which we are the sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling interest in our Operating Partnership and its subsidiaries, we own, manage, lease, acquire and develop industrial real estate located in Southern California infill markets.  As of September 30, 2015, our consolidated portfolio consisted of 113 properties with approximately 11.1 million rentable square feet.  We also own a 15% interest in a joint venture that owns one property with approximately 0.5 million square feet, which we also manage.   In addition, we currently manage an additional 19 properties with approximately 1.2 million rentable square feet.  

The terms “us,” “we,” “our,” and the “Company” as used in these financial statements refer to Rexford Industrial Realty, Inc. and its subsidiaries (including our Operating Partnership).

Basis of Presentation

As of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014, the financial statements presented are the consolidated financial statements of Rexford Industrial Realty, Inc. and its subsidiaries, including our Operating Partnership. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) may have been condensed or omitted pursuant to SEC rules and regulations, although we believe that the disclosures are adequate to make their presentation not misleading. The accompanying unaudited financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth therein. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The interim financial statements should be read in conjunction with the combined and consolidated financial statements in our 2014 Annual Report on Form 10-K, as amended, and the notes thereto. Certain prior period amounts have been reclassified to conform to current period presentation. Any references to the number of properties and square footage are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.  

We consolidate all entities that are wholly owned and those in which we own less than 100% but control, as well as any variable interest entities in which we are the primary beneficiary. We evaluate our ability to control an entity and whether the entity is a variable interest entity and we are the primary beneficiary through consideration of the substantive terms of the arrangement to identify which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Investments in entities in which we do not control but over which we have the ability to exercise significant influence over operating and financial policies are presented under the equity method. Investments in entities that we do not control and over which we do not exercise significant influence are carried at the lower of cost or fair value, as appropriate. Our ability to correctly assess our influence and/or control over an entity affects the presentation of these investments in our consolidated financial statements.

 

 

2.

Summary of Significant Accounting Policies

 

Cash and Cash Equivalents

Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short term maturity of these investments.

8


REXFORD INDUSTRIAL REALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Discontinued Operations

On April 14, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”).  Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. ASU 2014-08 further expands the disclosure requirements for disposals that meet the definition of a discontinued operation, and requires entities to disclose information about disposals of individually significant components.  We elected to adopt ASU 2014-08 early, beginning in the fiscal quarter ended September 30, 2014.  The adoption of ASU 2014-08 has and will likely result in fewer property sales being classified as discontinued operations.

We did not have any dispositions of operating properties during the nine months ended September 30, 2015.  During the nine months ended September 30, 2014, we sold three of our operating properties, of which two of these properties were sold and classified as held for sale prior to the adoption of ASU 2014-08.  As such, the results of operations (prior to disposition) and the gain (loss) on sale of real estate of these properties have been reported under discontinued operations in the consolidated statements of operations for the three and nine months ended September 30, 2014.  See Note 13.  

 

Investment in Real Estate

Acquisitions

When we acquire operating properties with the intention to hold the investment for the long-term, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component. The components typically include land, building and improvements, tenant improvements, intangible assets related to above and below market leases, intangible assets related to in-place leases, debt and other assumed assets and liabilities.  Because of the timing or complexity of completing certain fair value adjustments, the initial purchase price allocation may be incomplete at the end of a reporting period, in which case we may record provisional purchase price allocation amounts based on information available at the acquisition date.  Subsequent adjustments to provisional amounts are recognized during the measurement period, which cannot exceed one year from the date of acquisition.

We allocate the purchase price to the fair value of the tangible assets of a property by valuing the property as if it were vacant.  This “as-if vacant” value is estimated using an income, or discounted cash flow, approach that relies upon Level 3 inputs, which are unobservable inputs based on the Company’s assumptions about the assumptions a market participant would use.  These Level 3 inputs include discount rates, capitalization rates, as well as available market information.  Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions.  In calculating the “as-if-vacant” value for acquisitions completed during the nine months ended September 30, 2015, we used discount rates ranging from 7.0% and 8.75%.

In determining the fair value of intangible lease assets or liabilities, we also consider Level 3 inputs.  Acquired above- and below-market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases, if applicable.  The estimated fair value of acquired in-place at-market tenant lease