10/20/22 06:45 AM EDT

REITS DAILY BRIEF | 3Q22 EARNINGS NOTES | 10.20.22 (REXR, CCI)

Rob Simone, CFA

@HedgeyeREITs

Takeaway: Not so fast, CCI!

Hedgeye Cartoon of the Day: Fill Up the Punch Bowl

It is 10.20.22, and Active Short MPW is overvalued by approximately ~$11/share.

Ticker: REXR

Company Name: Rexford Industrial Realty

Subsector: Industrial / Logistics

Headline: Reports in-line 3Q; time to slow down those acquisitions?

Reported 3Q22 Core FFO of $0.50/share, in-line w/ Hedgeye and +$0.02/share vs. FactSet. Variances to our model were +$0.01/share from G&A and -$0.01/share from higher interest expense. So a very in-line quarter in our view.
FY22 Guidance:

Core FFO up +0.05/share (+3%) at the midpoint to a revised range of $1.93 to $1.95/share. This compares to Hedgeye at ~$1.97/share coming into the 3Q22 print.
SS GAAP and Cash NOI both up +110bps at the midpoint, with SS Cash now +9.75% to 10%. Suggestion for REXR - we think it would make sense to publish the trailing 5 quarters for the same store pool in the quarter (separate sector, but see CUBE/LSI/PSA as an example). Given how acquisitive REXR is, it would make it easier to model/evaluate SSRev and SSNOI growth comparable to REXR's ranges.
Reminder: REXR does not include prospective acquisitions or capital market activities in guidance, hence why we are serially above REXR's published ranges.

We think that, despite REXR's low leverage, one of the challenges in the here and now is that REXR's repositioning/redevelopment efforts (which have been massively successful, to be clear) require constant capital raising, specifically tapping forward equity/ATM at a now much less attractive cost of capital. At the same time REXR's variable rate debt is now pushing ~4% with SOFR >3%, or +250-300bps on the credit line versus just 2 quarters ago. While ~5.5% stabilized unlevered yields may very well be above average market yields, that math worked a lot better under a different capital markets regime as REXR was issuing equity to fund its investment activities. It may be time to slow/stop additional acquisition activity for a time, so as to reduce near-term dilution and allow internal growth to take over. Let those 60%+ cash leasing spreads run!

Figure 1: REXR 3Q22 Earnings Variances

Source: Company Reports, FactSet, Hedgeye

Ticker: CCI

Company Name: Crown Castle, Inc.

Subsector: Towers

Headline: A few notes from 3Q22: Not So Fast!

Note: CCI is technically covered by our Communications Team, but we wanted to highlight a few items given our Active Short SBAC.
3Q22 AFFO of $1.85/share was +$0.02/share vs. FactSet, which was fine.
CCI also introduced its FY23 outlook for AFFO in the range of $7.58 to $7.68, or ~$7.63/share at the midpoint and +3.7% y/y. However, this number includes cash payments of ~$165 million, or ~$0.38/share, to satisfy the remaining rental obligations related to T-Mobile/Sprint small cell/fiber cancellations upon consolidation. These amounts are akin to lease termination payments in the real estate world, in our view, and should be treated as one-time in nature flowing to the balance sheet and not be included in recurring AFFO or receive consideration under an applied AFFO multiple. We are not sure how the TMT world would treat these payments, but that is our view. Meanwhile annual run-rate cash site rental revenues will be down by ~$30 million on these cancellations. Making no other adjustments implies a -1.5% decline in "recurring" AFFO y/y in FY23. Additionally, removing these payments from organic site rental billings contribution, where we do not think they belong, lowers this number by -310bps to +3.7% for FY23 vs. the headline +6.8% number included in the outlook table on page 10 of the 3Q22 supplement.
Churn at ~3.3% was down -30bps y/y but up +20bps q/q. FY22 guidance includes assumed churn of ~3.7% at the midpoint, moving up +10bps to ~3.8% for FY23.