Q1 2020 Earnings Call
[music].
Greetings and welcome to the Rexford industrial real T. Inc. first quarter 2020 earnings call.
This time, all participants are in listen only mode.
A question answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Steve Swett with high CR.
Thank you you may begin we thank you for joining us for Rexford Industrial's first quarter 2020 earnings conference call.
In addition to the press release distributed yesterday after market close we posted a supplemental package the Investor Relations section on our website at Www Dot Rexford industrial dotcom.
On today's call management's remarks that answers to your questions contain forward looking statements as defined in the private Securities Litigation Reform Act of not do not thought.
Forward looking statements addressed matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
More information about these risk factors, we encourage you to review our 10-K and other FCC filings.
Rexford industrial assumes no obligation to update any forward looking statements in the future.
In addition, certain financial information presented on this call represents non-GAAP financial measures.
Our earnings release, some supplemental package present, GAAP reconciliations and an explanation of why such non-GAAP financial measures are useful to investors.
This conference call is hosted by Rexford Industrials co Chief Executive Officer, Michael cycle, and Howard Schwimmer, together with Chief Financial Officer ideal Con and our general Counsel David what.
It will make some prepared remarks, and then we'll open the call for your questions now I'll turn the call looking like.
Thank you and welcome to Rexford Industrial's first quarter 2020 earnings call.
To begin with.
On behalf of our entire Rexford team.
Hope that everyone on this call your colleagues friends and families are healthy and coping well during these challenging times.
I'll begin with a brief summary of our first quarter operating results followed by some perspective on the impacts from covert 19, Howard will then cover a transaction and repositioning activity and the deal will follow with more details on our financial results balance sheet and outlook. We we'll then open the call for your questions.
Our first quarter performance continue the exceptional trends we saw in 2019.
Creased company share of core Epo by 28% to $37.5 million and generated a 10% increase in core Epo per share that 33 cents.
Our stabilized same property NOI grew by 3.7% on a GAAP basis and by 7.5% on a cash basis.
We also achieved 98% occupancy in our stabilized same property portfolio.
We signed 107 leases for 1.6 million square feet, our leasing spreads were 36.6% on a GAAP basis, and 24.4% on a cash basis.
We acquired a 10 property portfolio during the first quarter for $203 million and year to date investment volume as approximately $219 million.
Although first quarter results were not materially impacted by Cobot 19, I'll begin with a brief description of our market backdrop as we see it today.
In recent years, our target infill southern California industrial markets have been operating at historically high occupancy at about 98%.
With limited and diminishing supply.
Causing a persistent supply demand imbalance.
Market rent growth has also been accelerating at sustain high single digit growth in infill Southern California.
Well many businesses are facing challenges, we continue to see substantial incremental demand driven by E commerce and other distribution oriented tenants such as Amazon among others.
In addition businesses from other growing sectors of the economy continued to demand space at a market with the nation's lowest level of available supply.
These sectors include the electric vehicle industry space exploration Pharmaceuticals, medical and healthcare products food and consumer staples as well as a wide range of industries feeling pressure to increase their last mile presence as they face the need to reconfigure their supply chains and inventory management.
As we try to understand the impacts from the Cobot 19 crisis. It is essential to consider the underlying tenant demand fundamentals within infill Southern California.
Historical data clearly shows and our experience through prior downturns also confirms that the tenant base with an infill southern California is about a strong diverse and as resilience and stable as it gets.
Well on a global scale, one might expect larger tenants to be more resilient than smaller tenants. However, it has been demonstrated that our infill markets have outperformed the big box large tenant base located in non infill markets.
While this may seem counter intuitive, we believe the historical data paid sick clear picture.
It is very instructive to consider how our until tenant base in southern California performed during prior downturns as compared to large tenants located in non infill markets.
To begin with during the great recession by way of example, they can see within our infill markets increased by a mere hundred 250 basis points well vacancy in the large tenant market in the eastern inland Empire doubled tripled or worse.
We believe the greater resilience of our infill. So Cal tenants is due to two key factors first it is due to the extreme scarcity of available product exceptionally high barriers limiting supply and a persistent supply demand imbalance.
Additionally, the resilient nature of these entrepreneurial tenants is driven by the fact that our spaces generally represent mission critical locations required for their businesses and to support their livelihoods.
It is also helpful to consider how today's crisis, maybe similar or different from prior downturns, such as the great financial crisis, and how that may impact our recovery with an infill southern California.
To begin with an early 2009 at the onset of the great recession wouldn't business order flows essentially stopped no sector was spared we did not have the magnitude of growth in E commerce and other growth drivers that we still have today within infill southern California.
In addition, our markets were not as highly occupied in 2008 and 2009 as they are today.
In contrast today, there's the potential risk for tenants that to the extent they give up space with an infill southern California. They may not be able to re enter the market with any comparable space, particularly as the post cobot economy recovers.
Further our tenant demand recovery through the great financial crisis was constrained by a lack of bank financing needed to fuel growth.
Today's crisis is health related and driven by government mandated shutdown.
The banking system remains intact and able to provide working capital as demand recovers.
Consequently, there may be reason to believe that recovery within our tenant base could be faster and more robust this cycle as compared to the prior cycle.
Another key take away from the Great financial crisis was that not only did our infill market outperform our neighboring large tenant non infill markets, but rexford also outperformed within our infill markets.
We believe the reasons are twofold number one our portfolio is higher quality on average than typical competing product within our sub markets, which helps us outcompete for tenants.
Number two we are an entrepreneurial real estate team executing at a level of intensity that enables us to outcompete within our market, whereas the vast majority of product is otherwise control, but passive owners.
Now I would like to provide an update on the current status of our portfolio and tenants.
Our in place portfolio is exceptionally diverse comprising over 27 million square feet with over 1400 tenants from just about every industry and type of business imaginable.
Our top 10 tenants comprise only 11.8% of our aggregate base rent or a b R.
Our portfolio was 100% located within prime infill markets in Southern California, The nations largest most highly valued and highest demand last mile logistics market.
Approximately 30% of our leasing activity over the prior several years has been with tenants, citing ecommerce as an integral part of their business.
Our abbey are also skews towards our larger tenants who tend to have extensive operating histories.
About 65%, a baby ours, driven by tenants occupying over 25000 square feet.
And with almost half of hbr, comprising tenants occupying greater than 50000 square feet.
With regard to current leasing activity within our portfolio, we continue to be very busy with renewals and new leases.
So far we generally continue to hit or exceed our budgeted numbers in terms of rental rate, which continue to represent very favorable leasing spreads.
In some cases, we're seeing a nominal increase and tenant concessions.
However, there is another facet of the crisis here in California that may be unique to our state and it's also different from the great recession.
Well many states have put moratoriums on commercially Vixens, our California municipalities have gone a significant step further by enabling tenants impacted they cobot 19 to unilaterally differ ret until the local order is lifted.
Therefore, currently in our markets tenants paying or not paying rent rent may not be a measure of their help or long term prospects.
Some tenants electing to not pay rent are merely exercising their new found government mandated ability to defer rep.
In light of these unique circumstances, we've taken a very proactive approach with our tenants.
Securing short term deferment and repayment agreements as necessary.
It also seems fair to say that the number of tenants. They continue to pay rent on a current basis. Despite these government mandates is a strong testament to the strength of our market.
So far tenants, representing 95.4% of baby our have either paid April rent or entered into a short term rent relief agreement.
On a cash basis, we have collected over 82% of April base rent.
The balance of this group, representing 13% of baby, our who did not pay April rent have executed short term relief agreements generally for one to two months a base threat to be repaid during 2020.
Tenants, representing about 4% of baby our have not paid April rat and have not entered into a repayment plan at this time.
Many of these tenants may be taking advantage of their newfound government mandated ability to unilaterally differ rats.
As we move forward, we will continue to take an exceptionally proactive approach working with our tenants to help them work through this challenging period, while mitigating the impacts of our local government mandates, enabling tenants to defer rep.
As a result, we may experience, a greater volume of short term rent deferral as compared to portfolios that are not solely located within southern California.
The good news is that we have reason to believe such deferrals will be repaid in the near term.
And historical data and our experience informs us that underlying tenant demand fundamentals within infill southern California remain the strongest at any industrial market in the nation and rent deferral is currently not a strong indicator of tenants sustainability.
Despite these challenges we feel very fortunate that rexford.
We believe we have the strategy team focus and low leveraged balance sheet to manage through this cycle to capitalize on emerging opportunities and to emerge stronger than ever through the recovery.
Our construction team remains very busy creating value through our value added repositioning and renovation work. Our investment team is also exceptionally busy as we benefit from our low leveraged balance sheet and proprietary originations platform to pursue accretive growth opportunities.
With regard to tenant demand. We also continue to see an acceleration in E commerce adoption by consumers of all ages as well as by businesses adjusting to new post covert dynamics.
This acceleration is also porcine expansion of the range and types of goods distributed through E Commerce, which is increasing the importance of our last mile distribution facilities.
Most importantly, we'd like to acknowledge our team for your exceptional level of execution and collaboration demonstrating the strength of the rexford platform.
In return, we strive to differentiate ourselves and the way we proactively support our team as they work remotely.
For example, as it quickly became apparent that families with children at home faced added challenges. We responded early on by providing cash subsidies to families with young children to help them cover childcare expenses.
We have also implemented a fully digital online learning environment, providing the opportunity for rapid onboarding of new employees and the training and advancement of current staff.
Lastly, we believe our investment work, which largely occurs in underserved and under Resourced urban infill communities deliver substantial social benefits by improving and repositioning industrial property into thriving centers of business in commerce that provide the longer term opportunity for jobs and increase so.
The welfare that are now more important than ever to those local communities.
And with that I'm very pleased to turn the call over to Howard.
Thanks, Michael and thank everyone for joining us today.
Beautiful Southern California, industrial market remains very strong first quarter low vacancy and a supply demand imbalance that so far continued to support rental growth during March and April.
Our target markets, which exclude the eastern though inland Empire ended the first quarter at 2.2% vacancy.
Asking rents up 6.3% on a weighted average basis over the past 12 months According to CB Ari.
There's made good progress addressing rexfords 2020 lease explorations.
You need to generate strong leasing spreads into the second quarter.
Only half of our expiring square footage is in our top 20 leases by size.
And of the 70% is available for renewal or releasing.
The 2% already renewed released or an active negotiations and for many 30% is scheduled for value add repositioning.
As we adapt to the current impose cobot environment, we are making adjustments to further enable leasing activity by deploying virtual touring and access to the electronic lock boxes.
Turning to acquisitions year to date through April we've acquired $219 million of properties, adding 935000 square feet to the portfolio.
In March we acquired a 10 building industrial portfolio.
Oh like 863000 square feet located within for the company's core infill southern California markets for approximately $203 million, including assumed debt.
The portfolio consists of three single tenant buildings and seven multi tenant industrial projects and is 88% leased the 56 tenants at rent estimated to be 16% below market in aggregate.
Approximately 75% portfolios value is in the regions lowest vacancy market L.A., South Bay, which ended Q1, 0.8% vacancy.
The remainder in prime infill locations within L. A lid counties, Orange County, and inland Empire West.
The acquisition was creatively structured through a combination of cash and operate units, we expect to grow the initial unlevered yield of 4.2% through a combination of completing value added enhancements leasing vacant space and increasing below market rents.
Projected unlevered stabilized yield on total cost is about 5%.
In April we acquired burning up now which consist of six acres of land was 72000 square feet the buildings.
And a half million dollars.
The low coverage property property was purchased as a long term sale leaseback land value. The triple net leased provides favorable cash flow, but the future opportunity to develop to develop a new distribution facility. The initial unlevered yield is 5.5% growing through annual rent increases.
With respect to our value add repositioning program construction is considered an essential business instead in California, we continue to progress on our current pipeline. We currently have 1.1 million square feet in repositioning or development with another 330000 square feet plan to start development in later 2020 and into two.
I was in 21.
However, there may be an impact on timing of project completion or commencement as many municipalities are utilizing online construction permitting and inspection sometimes experience delays.
Yes, as we deliver these projects the highly occupied infill markets heard market activity provides comfort to our ability to consummate attractive leasing for these low vacancy infill locations.
During the quarter, we stabilize two projects.
At our newly constructed 530000 square foot can they who spectrum business Park, we completed demising at least lease up the 98000 square foot building and leased to other 50000 square foot spaces, bringing the full project to 100% occupancy and achieving an aggregate unlevered return a 5.1% we.
Also completed Demising and leasing of a 72000 square foot building at our San Fernando Business Center, we executed two leases the tenants that are using the space for E Commerce, and Omnichannel replenishment and achieved an unlevered, 5% return on total cost.
With regard to acquisitions, we currently have $175 million of new investments under LOI or contract.
These acquisitions are subject to completion of due diligence and satisfaction customary closing conditions will provide more details as transactions are completed.
In the current environment, our proven ability to transact on new attractive investment opportunities differentiates us from many other buyers that are out of the market for a variety of reasons local sharpshooter focus then and tire team on the ground, including our trusted due diligence consultants.
Advantage, facilitating or ability to continue to execute our growth strategies.
We've maintained a very low leveraged balance sheet that puts us in a strong position to capitalize on opportunities has been mirataz, Richard <unk> Richards pipeline of acquisitions remain strong and the current market may provide a catalyst for certain sellers looking to unlock liquidity from their industrial real estate assets still giving <unk>.
Still given continued uncertainty we will remain prudent with our capital allocation, ensuring that we remained ready to navigate rapidly evolving environment.
I'll now turn the call over to a deal.
Thank you Howard beginning with our operating results.
The fourth quarter 2020, net income attributable to common stockholders was approximately $10.8 million or nine cents per fully diluted share.
This compares to $8 million or eight cents per fully diluted share for the first quarter of 2019.
When you take months ended March 30 by 2020 companies share of core up from $37.5 million as compared to $29.4 million. A three month ended March 31 2019.
On a per share basis.
Its share of comparable earnings per fully diluted share representing attendance has increased year over year.
Stabilized same property NOI of at $44.6 billion into first quarter.
This compares to $23.1 million, but it's incorporated 2019.
An increase of 3.7%.
Our stated my same property NOI of is driven by 8.7% increase in same property rental revenue of <unk> property operating margin increased by 4%.
On a Kashmir.
Stabilized same property NOI increased by 7.5% year over year.
Turning onto our balance sheet on financing activity.
As a management team we haven't through many cycles are long anybody who's got a flexible low leveraged balance sheet advantage in all market conditions, especially now.
During the first quarter, we should probably be 2.1 million shares of common stock from 18 or whatever it is average price of $36 per share, which resulted in net proceeds direct for approximately $73.1 million.
We also recast our credit facility in February we were able to expand total capacity on $350 million to $500 million inadequate here.
Grenier maturity date of February 2024.
Finally, as part of over 40 acquisition, we should approximately 1.1 million units.
It should approximately 9004% cumulative redeemable convertible fertile units and assume $44.7 million secured mortgage loans.
At the end of the fourth quarter, we had approximately 12 and all the cash full availability on really expanded five him going dark ride utility.
Approximately $270 million available under the 550 million orientation program.
We have no debt maturities until 2022, and we remain in a very solid credit position you the net debt to even get a ratio of 3.6 times.
With regard to know Devon on May four 2021, broken declared a cash dividend or 21 of the how can you share for the second quarter of 2020 in July 15th 2022 promise stuff and unit holders of record on June 32020.
Finally, if you're doing right.
Given the important koby maintain our tenants.
By the general market condition as well so congratulations along our patents deferred right, we're updating our guidance Paul <unk>.
Please note this guidance based on all of which there.
We're not expecting Chiefs company show Costco within a range the all $26 29, who share our guidance going but several factors.
We expect your as Dave Mckay property occupancy within a range of 95% small business there.
Back to choose stabilized in property underlying growth for the year, 1.3% to 1.8%.
No sorry, 2020 deadline in public school bus and 61 property in an aggregate of 19.8 million square feet, representing approximately 72% or consolidated performance Clearbridge.
Well, Janet we anticipate a school year range from 36.5 to $30009.
I think about $14 million non cash equity compensation.
And the pack our guidance does not include any assumption other acquisition disposition of capital transaction, which had not yet no.
Oh, I got input club, where there's not a good acquisition costs or the cost that we couldn't get moved from talking that metric.
Okay, great month, but that will look like they're going to question right.
Thank you ladies and gentlemen at this time, we won't be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad.
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Our first question comes in line of Jamie Feldman with Bank of America. Please. Please proceed with your question.
Great. Thank you.
I guess just to start out can you talk more about the tenants you've asked for rent abatement, and maybe kind of tie that in with how you're thinking about.
Got it credit risk just so we can I kinda I understand what here seems to be.
Real real concern over whether you're going to get rent paid and what is more people being opportunistic.
Yeah, Hey, Jamie if the deal. Thanks for the question I think one thing that is very important for us to noted before we address the credit Greg.
It's to take a look at our March members, and if you compare marsh numbers and compared that to the historical quarters ever reported in terms of a AR collections, but they are balanced we typically carry I think that's a very important track points wants to focus on because we haven't really had any credit risk from these tenant base today, the tenants or beat cure rate it.
In our portfolio over the course with last few years right you have been performing very well. So there has really been no issue from that perspective. So.
Going into this pandemic right I think we'd do you really do need to take stock of what the company was doing prior to this and how that these tenants are performing so there really isn't it concern from my perspective. So income so on a go forward basis once the more substantial operating normally so I'm not sure that answer the question I in terms of degrading placed a habit expenses.
You know they did a good point, but so I guess in your mind you know there's no tenants who is outlook changes with Covance 19, and kind of won't be able to make it through is that the right way to think about it are you in your view everyones springs back to normal.
I think it's it all depends right I think we're dealing with the facts that are currently president and available to US right. Now I think we're certainly when we received the request that have been outlined in our 10-Q in our earnings release Drybulk focused and these tenants a in terms of what exactly do we need to quote and worked with them in terms of time rising.
Obviously, we're trying to really focus on what's ahead of us in terms of Q2 and hard to evaluating as a ramp up takes place over the course of latter part of that but here are the months rights of attacking all about him, but in my opinion right. Now you know there isn't really.
There really isn't any need for me to rethink their gold Colbert going concern issues in terms of how these tenants behaved now one thing that we have dog in the context of.
Looking at that analysis on the tenants that we just talked about and we did a bottoms up analysis in terms of the tenant said it was reduced reached out to us.
And look to see what our exposure could could be for Q2 and beyond and put a number of conservatism in terms of what we could potentially see from any of these tenants that could potentially go sideways in terms of better but it could come back. These are not tenant specific reserves and it just general dessert because no tenant has.
Really stayed at anything otherwise in terms of very big to go forward in the business are you taking that approach and create an estimate that that you're seeing in our guidance right. So you saw us effectively change our EPS guidance and by what you would be I can tell guidance essentially guidance is off to change in the prior initial guidance at the beginning of the year, we had a bottom.
50 basis point generally this is not a tenant space in general dessert. That's been now increased to 170 basis points for the full year should this 120 basis point that Kate So we certainly thinking through this a little bit but again the calculus is where we have truly a dent the waterfall and analysis in terms the tenants at our paying.
Hi, good lead the tenants that have requested what deferral or belief agreements have been granted these tenants and what we have collateral elect and looking at them that exposure to build this analysis using GAAP reserves that we can you just talked about.
Jamie its Michael I'm trying to think of it. The question I just wanted to elaborate a little bit and I think as a deal said you know timing, obviously is going to have a lot to do it that's in the length of time. The businesses remain close is going to have a lot to do with us and there's a lot of uncertainty there. What's interesting is that the California Governor has already started opening up some of the economy that was previously restrict.
Good, including some retail businesses and others. So yeah. The maybe there's some cause for optimism there and I think what's really interesting as the you know and this might be contrary to some popular a assumptions out there.
With regard to smaller tenants you know we had well over 1400 tenants we've had zero bankruptcies.
Yet every week I'm reading about numerous bankruptcies in the country and almost all of those bankruptcies are national companies with a national or even global footprint.
There are biased towards retail, which is a trend that started years ago and so the data again is telling us that at least with regard to our portfolio, we're not saying that level of tenant distress.
And yet the tenant distress, it's coming from larger and larger companies actually.
Okay. That's helpful. And then I guess as you think about the 170 basis points is that kind of a grounds up tenant by tenant or is that more of a blanket assumption of what it could end up.
Yeah. So people, having said 70 basis points, Jamie ill say, a so as I kind of walk to the map here you know we took into consideration being par pool of tenants and the tenants that didnt quite clearly had a great pad and the behavior. Even in April in terms of payment say really Dave or all of the makes him. Then we took a look to the remaining human six.
I'll be quest every receipt and all the day tenants that have expected to be the Steve Some favorable lease agreement, we've talked about and because factoring bear the lease is important because not only the HR should be coming down in those apartments, but then you have a deferral period. This starts in the Q4. So we've talked to all about intelligence analysis to see what art.
Two exposure a lot, but what's really love from basically every meeting 10 to 114 times that effectively don't have an executed agreement as of yet so that's where you're coming up with the exposure and then we applied a percentage to dotes jangle pool cadence in terms of what reserved we should put and once that deserve a calculator.
That reserve bust look in conjunction beginning pipe totality of the the company that midstream come up with a blended rate, but the specific percentages are applied to that pool is steadily higher right. What you're seeing is 170 basis point across the entire company revenue stream for the year.
And and Jamie it kind of makes sense because when we did also did a bottoms up analysis of our tenants to try to figure out how much of our tenant base would be considered essential or would be allowed to stay in business about it. This is before the governor just made his latest loosening announcement and we found that just under 80% of our tenants plus or minus.
It's not it's not too precise, but you know just under 80% of our tenants would be would be able to still be in business based on the guidelines as they were before a yesterday now that the governor has loosened up a restrictions will have a greater percentage of our tenants that we'll be able to operate. So you know they these these numbers sort of course.
Or late and do make some sense.
Okay I appreciate all the.
The detail.
Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks, good morning up there.
Oh, I guess I want to change direction to maybe the transaction side of things have you got seen any notable change and the profile of Oh potential sellers looking to dispose of properties in your target markets. You know have you seen anymore.
For selling or even highly motivated selling it so that resulted the crisis a yet.
Hi, Blaine its Howard.
At this point, we haven't seen any dramatic increase in sellers. Although you know our team has been very busy in terms of running L. A wise, it's it's not too difficult for us in our research group to go ahead and look toward those businesses that we might expect have some amount of pain.
We put a lot of focus on making sale leaseback offers and were dialoging with with many companies in that respect.
Yeah, well, we really expect is up once people get back to business or they'll be able to better evaluate what their business looks like what the revenue streams are and at that point, we think things will pick up a little more in terms of a willingness to sell okay. Yeah. This this is the only thing going on for a short period of time, so many people still hubs.
Reserves in respect to hang onto their real estate.
But as we've seen in past recession, you know timing is such that it generally takes a you know months not years or so you know more you know probably three to six months down the road, we expect a that that aspect of selling to start picking up little bit.
And and Blaine its Michael you know the deal we closed in burn in a few weeks ago.
15.5 million dollar deal was kind of an example, where we provided the seller and ability to monetize value real estate through a sale leaseback I'm. An addition to the sale leasebacks you know the predominance of ownership in our markets is our private mom and pop type non real estate professionals.
And they're mantra is God forbid I should never have to write a check and you know just let the cash flow keep coming.
And with low rents and today, where you know some of their tenants might be having more issues and a lot of these properties that was over a billion square feet here Bill before 1980 to suffer you know levels at this function and require capital investment.
So we are seeing also an increase and potential decision points for law. These private owners.
And I would say that the volume of otherwise we're putting out today is a substantial and then and then greatly exceeds any period, we've ever seen before.
Yeah that makes sense. That's that's very helpful. And then you know just with respect to your redevelopment activity I know when a lot of instances in the past for you guys would pursue a strategy of not renewing certain tenants in order to gain access to the building for renovation purposes.
Has that strategy changed for you guys at all given the current circumstances are you guys looking to preserve occupancy maybe a little bit more.
Well, we make those decisions on a case by case basis.
Oh, you know in terms of the repositioning, which you know we're not no.
Waiting to put anything in the repositioning that had already been plan. A you know generally there's there's a pretty big increase a in place rent.
Versus market, when we decided to put something in the repositioning and if you look at the market today Oh, you know there there has not been any change in rental rates. So a if you. If you look to the market in terms of asking right. They they have not gone down that in fact, all the moved up a little more if you look at our leasing spreads and transit.
Actions that we're completing.
You know late March and all through April Oh, you know, we're still achieving very strong leasing spreads. So yeah. There's there's really at this point no indication that we should be holding back on some of those typical decisions that we talked about in terms of why we move something.
The repositioning, but know that being said Oh, you know we're not we're not really looking to throw people on the street and I think part of that decision. They is going to involve our thoughts on a go forward basis for that tenant. So if you know we say tenants that we think its severely impacted.
And if we have an inclination that their business may not be able to support their rent or even his background. If we've heard anything that's going to make the decision a lot easier why we push something in the repo versus a continuing to maintain occupancy and the revenue stream.
Got it thanks guys.
Our next question comes from the line of John Guinee with stifled with Stifel. Please proceed with your question.
Great. Thank you hey ideal I.
I think you said that you are Oh, you access the ATM for at about $36 a share.
You guys are trading I think right now around 39.
How did those numbers compare to the third and fourth quarter of last year.
And.
Is it safe Howard or Michael to assume that the model still works. If you can access an ATM, but actually sell sell shares at the high Thirtys.
Yeah. So John Thanks to the question I'll actually give you Oh, you know Q1 averages by quarter. Just since you asked the question Q1 19. For example, we should shares at 34 dogs and 75 cents. So if you were just because you end the year Q1, 20 with a $36 to there is you know there's a little.
Got a correlation there Q2, $19 billion.21 Q3 $44 in 24 cents in Q4 19. This 46007 seven cents, but I think even relevant point, which is I think very important to note here is that we don't get although they focused on the spot value will be the equity out there the stock at any given point in time.
Our stock was you were trading as high as 53, right we need to try to focus on what is that capital. When do you do in terms of utilization what would be buying they've been in how did that modeling for the short to medium I'm in terms of what kind of left us I get to any BNS. It's all right. That's hobby kind of focus and drive that decision right. So when we issued equity in.
Q1, 19 authority for 70, probably be clearly saw the deal parameters ever had a place that that's going to support that I have positioned right and that's no different than what we get into one so as long as the opportunities that are high enough has allowed us to.
Doable, we've been doing bridges to create this accretive nature on do you have to first I mean, there and maybe side to make decisions accordingly, and we tried not to get too focused on fixated on the spot cost a you know at any given point in time for good or bad I mean, if the stock is trading high we're not going to try to just take down a whole lot you know just for the sake.
Did that answer the question.
No guar and I'll add all add to that John you know going forward, we mentioned, we had $175 million.
Product under a little why we're contract and more than half those transactions are well have some form of value add and several of them well actually move immediately onto the repositioning page with some heavy value at component to them. So no. There are many opportunities in the market for us still to create value.
And then so thank you assessing question any thoughts on a split roll 13 and that process.
Between now and November and how that will shake out.
Well I didn't know I'll answer the first part of the question then maybe holiday microbiome upon if they feel like how it's going to shake out, but think Ah well, we did at the beginning of the year using the in place portfolio that we had at 12 31 19, we did a deep dive in terms of what that could look like at this thing but still.
Past right and from our analysis adopted her point of time Blitz about a penny impact if this thing but to passing the numbers followed its actually over the $9 million uptake and a expenses and enter a real estate taxes in between $8 million that wouldnt be recovered. The one thing that was important but we also disclose at that time, which was important.
No. There's about you know there would be to your.
Loud before distinct fully deployed so we would have the ability to correct. Some of those loss of recoveries in terms of lease structure. So that penny could also be mitigated. So I think at this junction I don't think be the mob has it changed materially became we've only three to four months out, but more importantly, I think our.
Property base, you generally benefits from the fact that so much better in accumulated over the last two to three years. So I don't think the calculus gonna be any different.
I know I agree that I mean, our impact as a company is is relatively insulated and with respect to the political environment, we really can't speculate.
Okay. Thank you.
[noise] [noise] Oh next question comes with a line of Mike Mueller with JP Morgan. Please proceed with your question.
Yeah, Hi, I guess a deal if you're you're in occupancy targeting assumes you have about a two to 300 basis points occupancy declined.
From March 31, and I guess.
First like how much of that it's just a blind assumption or where you actually see habits and you think there's pretty can conviction that you're going to end up down to your 300 basis points.
Yeah, I think the the one thing about occupancy, but I always caution people is that it's a year ending occupancy rights or sometime but doesn't tell the whole story, we don't guide and an average occupancy beaches truly Brad you can have a disconnect in terms or if you're not the and Hawaii versus what the occupancy is telling me so they're not definitely translated.
<unk> back to forthright. So it wouldn't be guide, it's what we think potentially what can happen to a tenant that is expiring or 12, 31 or 2020, right. So I think that's where I I think there's some disconnect but that's why they sometimes a little bit of it it's making deanna why perspective, it's been a blind assumption I think that's what the most part I think we.
Do have a lot more granularity then do get how to maybe six months in I think you started getting there. So some of this analysis of put together you know and.
Early April so I think they're doing that granularity and transparency improves as course, either as time progresses and that's no different I think we've been operating a long term presumptions for quite some time, especially with our tenant base I think that just happens, but one thing that's important to note, which I think you've seen us do is that you've certainly seen a path.
I don't know behavior in terms of larger tenants in leases right. We did a lot of leases last year in June fabric 2020 expiring leases were taking care of those I think you're certainly seeing a certain pattern on dose leases can they do you have come up sooner and you have a lot more visibility as opposed to some small or medium size tenant. So I think that's where you have a little bit of.
And on track.
Got it Okay, and then I guess what are you hearing on the ground from the tenants about either the successor, having or the issues there having with accessing the stimulus funds.
Hey, Mike its Howard.
We we really don't know what what is happening in terms of their access as soon as funds interim turns of how we're handling discussions with tenants that have requested weren't really.
You know, we're really you know, suggesting obviously that they do pursue those with you know gone going the extra step in providing tenants with information on where.
Access the banking system to pay them, but its its difficult for us to Ah, it's really be able to track their success in a pending the funds and now we have had some requests or the can then people later withdrew them, stating that oh that they had applied and we're being approved so.
They were going to be able to pay the run.
But in terms of you know what else is happening I'm on the ground.
You know, we're you know we're seeing more activity a as it relates to vacant buildings.
We're renewing tenants that we thought we're gonna be moving out of buildings because anything they might have been looking at expecting another tenant to move out isn't really happening. So it's making a it's pushing some of our renewals up and so yeah. There's a lot more activity on vacant space you know we're seeing.
Reasonable amount of touring although when you when you talk to brokers in the market they'll tell you that touring is substantially down, but you know our and our approach as you know is whenever we do have vacant space, we proactively renovate modernize its so yeah. We generally have the best quality space available in each of the Submarkets.
And just typically in times like this there is a flight to quality.
And so we're seeing that in terms of our own portfolio in a lot of the negotiation that's going on now on vacant space and even some of the a the leasing we've had success it doing in the house weeks.
Hey, Michael good to hear good here for me and Thanks for question I, just wanted to add a little bit on this topic I'm as Howard mentioned no. We have anecdotally seen a range of tenants who have accessed the funds that are available through these government sponsored and loans that don't have to be repaid, but we havent. We do have a very unique situation hearing and in southern Cal in California.
And that these local municipalities local governments have given have given tenants the ability to unilaterally defer their rent. So I'll have to do is claim they'll have to prove it. They just have to indicate that they believe they have been impacted by cobot and they can unilaterally differential that became for many tenants the easiest first the solution and.
In fact, I don't know if that might be helpful, but maybe our general counsel, Dave and lands or if you wouldn't mind, maybe just give a little over you because it really is a differentiating factor here in California.
Sure I'm. Thanks, Mike for the question Yeah. The thing that makes it different here in California has we've done a survey as to what other states and city to cross country doing is California.
Place, where the governor basically had an order that said.
Each local municipality can come up with their own orders in terms of rent to for men and in terms of eviction moratoriums and so.
We dialed in as it very granular level of what.
Well a municipality is doing within our markets and we've been tracking what the deferment time periods look like what the repayment I'm curious it looked like and so that she Nick to.
Our business, but it's something that we've been very much on top of and we're trying very hard to.
I understand what leverage points.
Even though the tenants do have these unilateral right. So we are.
So I mean municipalities actually still allow for late fees or.
Security deposits or interest until we use those leverage points. We also get very granular as we analyze each individual lease to understand.
As for Levered, we have with that particular tenant in terms of might they lose some concessions they.
Have a future tenant or two is my they have a well option that if they haven't paid their rents are going to lose and so that's how you got done in terms of how is handled this and dealt with how each local order had connected our tenant base.
Got it thanks for the color. Thanks.
Our next question comes from the line of Chris Lucas with capital One Securities. Please proceed with your question.
Hey, good afternoon, everybody Howard I, just appreciate the color on the pipeline that you're working with I guess, so just curious as to whether or not any of your underwriting assumptions and then and you know changed given the environment. We're in.
Hi, Chris a we yeah. We certainly have just other underwriting so we were looking at or could be very conservative at this point. So we have assumed longer lease up time friends. We have assumed Oh no no no rent growth initially and some of our leasing assumptions.
And with no just at some of the exit cap rates, a little bit and of course, a the returns were looking for in terms of a stabilized yields have gone up somewhat as well [noise].
Okay, great. Thanks, and then just.
Just to sort of.
Operational question as it relates to sort of any parent move ins that you had scheduled either in March or April or what you're seeing sort of coming forward or are you seeing any impact from the current environment your ability to get kind of and then on correct.
In into their space, sometimes but they'll get into their <unk> moving to their think on time because the degree you had and that were schedule, yeah, well as I as I mentioned earlier most of the leasing is occurring on vacant space for the exact reason you're referring to tenants you are concerned that.
People occupying the space.
I have nowhere to go because there's there's just not a lot of movement Oh, Yeah. We just do a 40000 foot lease and they are building in Orange County.
And it's a vacant building and was something that you know we had a bit of Ah renovation work to do and that was exactly what the tenants concern was was that they wanted to make sure. We can get that work done as fast as possible. So they can get their business isn't there a in up and running and so we had to get a little creative on how we got them comfortable we literally.
I told them that will give them. Some other space we had in the market temporarily if they had to move out of a they're just think building prior to us being able to deliver the stays a because they didn't want to hold up around on the on the other space there and so a that is that is actually a great question and it is a concern or people who are looking at.
The market they generally have requirement that they need to fulfill right away and that's why we put so much emphasis on those vacant spaces. We have in terms of getting a move in ready.
And just while Harvard this talking obviously, given I know it could move 70000 square theater in April So clearly we're operating.
Great. Thank you appreciate or go ahead.
Our next question comes on line of many Korchman with Citi. Please proceed with your question.
Hi, everyone. Michael appreciate your remarks on sort of the resiliency of the southern California tenants.
I guess the question is if you think about tenants that are from outside the market that their space with you isn't there only space or is an old people have a couple spaces, but it is sort of a satellite location.
Are those types of spaces sort of more at risk or less at risk or do you see the resilience there are different in any way than that no single location small customer.
Hi, many thanks for your question. Thanks for joining us today, what I can tell you from past history and the data really tells us that they definitely that's not a differentiating factor those are not less sustainable or lesser those aren't lessors land tenants and in fact, I think what we've learned over the years is that they have a presence in our market because they have to a you know and I'll explain that in the SEC.
Our market is the most expensive operating environment by far by any measure rental rates are over 80% higher you know operating cost taxation, you name it or utilities everything is higher and more expensive than our markets. So frankly, if you didn't have to be in our market you probably left 25 years ago or you know decades ago.
And the reason they have to be here, it's because they need to distribute product and efficient manner in the largest regional population the largest zone of consumption in the country by far it'd be one of the largest countries in the world in fact on a standalone basis and so what we've learned overtime is that these are mission critical locations, whether the company's based here in its they're sold.
Occasion, or whether they're a company that has locations in other markets or could be even be based in another market. I think that's really what would our experience in what the data has told us.
Great and then just thinking about the brunt referrals for for a second <unk>. If they were to all sort of pay on the on the new timelines that you've you've agreed to one with the cash payments start coming in it's or when would you be all caught up.
Ah, Yes, Matty I would say, 95% all the cash to payroll payments to be caught up in 2020, we only have a handful of leases that extended into early 2021, but majority of them starting September and finish out there are paying back a bit in two to three months or effective in 20 Twond.
Thanks <unk>.
This does conclude our question and answers I shouldn't I will now turn it back to management for closing remarks.
Well on behalf of Rexford industrial again, we want to wish you all well and the best of health and we're looking forward to reconnecting in about three months and we hope that the operating environment and the health of our communities Hi is solid and I want to thank you for joining us today and again stay well stay healthy.
Ladies and gentlemen that does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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