Fitch Ratings has assigned a 'BBB+' rating to
Rexford intends to use net proceeds for acquisition, redevelopment and repositioning funding.
Key Rating Drivers
Strong Credit Metrics: Fitch expects REXR to remain within its target leverage range of 4.0x-4.5x through the forecast period as the company positions its balance sheet to execute its growth strategy, while benefiting from strong same-store NOI (SSNOI) growth and incremental NOI from its non-stabilized portfolio. REXR's leverage was 4.3x for the year ended
Fitch expects the company's fixed-charge coverage (FCC) to sustain around the mid-5x level through 2024 (5.9x for year ending
Rexford has funded external growth largely through equity, particularly its
Improved Capital Access: The company has demonstrated access to the public bond market through its first two issuances in
However, Fitch still views Rexford as a less seasoned public bond issuer compared with higher rated REIT peers. As of
Concentrated Portfolio in Top Market: Fitch views REXR's exposure to vibrant, supply-constrained SoCal industrial markets as a net credit positive that offsets concentration risks, such as a regional economic downturn or the loss of a significant tenant. The SoCal industrial market is the largest in the country (about 2.2 billion sf) and has consistently outperformed most
Fitch expects the portfolio's asset and tenant granularity to improve as REXR executes its value-add, acquisition-led growth strategy. This should increase scale and diversification while reducing asset-concentration risk. Along these lines, REXR has increased its number of properties by 67% since YE 2019. REXR has been a net acquirer; acquisitions totaled
Fitch sees limited execution risk for acquisitions given the strength and fragmented nature of REXR's target market and the company's focused expertise in the region. Therefore, Fitch does not expect the company to expand beyond its current focus on the SoCal market. In addition, REXR's portfolio and target market are buoyed by the ongoing effect of e-commerce and its concomitant impact on demand for industrial real estate.
The company's portfolio has higher asset and geographic concentration than some of its industrial REIT peers, although is in markets with higher per-square-foot values compared with other industrial REIT peers. However, the multiple-building aspect of the portfolio, wherein many of its larger assets are leased to multiple tenants, as well as their infill locations, help offset asset concentration risk.
Transparent Operating Strategy: REXR's transparent, well-defined operating strategy is also a credit positive. The company targets 100% fee simple ownership of industrial assets in supply-constrained logistics markets in the SoCal region, which is the largest market in the
REXR does not pursue ground-up, greenfield development. However, the company periodically redevelops properties that currently comprises approximately 9.0% of gross assets, although unfunded commitments are approximately 3.6% of gross assets as of
Derivation Summary
REXR's ratings reflect the issuer's solid portfolio of industrial real estate in one of the strongest markets in the
Fitch rates the IDRs of the parent REIT (
Based on Fitch's 'Non-Financial Corporates Hybrids Treatment and Notching Criteria,' the two-notch differential between Rexford's IDR and preferred stock rating is consistent for corporate entities with an IDR of 'BBB+'; these preferred securities are deeply subordinated and have loss absorption elements that would likely result in poor recoveries in the event of a corporate default. Fitch applies 50% equity credit to the company's preferred securities given the cumulative nature of coupon deferral with settlement through a manner other than equity (cash). Certain metrics calculate leverage including preferred stock.
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer
Mid-single digit SSNOI growth in 2023-2024, given the cushion in the mark to market of leases despite an anticipated recessionary environment;
Approximately
No dispositions in the forecast period;
Redevelopment/repositioning of
Annual unsecured debt issuance of
Equity issuance of approximately
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive momentum in Rexford's ratings and/or Outlook is unlikely absent the company demonstrating superior capital markets access across the broader REIT universe, consistent with other 'A' category rated REITs. However, the following factors may collectively or individually result in upward rating momentum:
Demonstration of Rexford possessing superior capital access consistent with the 'A' category, which could include such things such as frequency of issuance, familiarity by credit investors, importance among credit investors and pricing;
Fitch's expectation of leverage (net debt/recurring operating EBITDA) sustaining below 3.5x over the rating horizon;
Fitch's expectation of FCC sustaining above 6.0x over the rating horizon.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch's expectation of leverage (net debt/recurring operating EBITDA) sustaining above 4.5x over the ratings horizon;
Fitch's expectation of FCC sustaining below 4.5x over the ratings horizon;
Fitch's expectation of worsening capital access.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Solid Liquidity: Fitch calculates Rexford's liquidity coverage is 2.7x for the
Issuer Profile
As of
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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