Q2 2020 Rexford Industrial Realty Inc Earnings Call
Greetings and welcome Rexford Industrial Realty.
Order 2020 earnings call.
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It's now my pleasure to introduce your host Kara Smith of Investor Relations. Thank you you maybe get.
Thank you for joining us for Rexford industrial second quarter 2020 earnings Conference call.
In addition to the press release distributed yesterday after market close.
The supplemental package in the Investor Relations section on our website at Www Dot Rexford industrial dotcom.
On today's call best guess remark that answers to your question contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements the dry matters that are subject to risks and uncertainties that may cause actual results to differ from those discuss today.
More information about these factors, we encourage you to review our 10-K and other AFDC filing.
Well the industrial assumes no obligation to update any forward looking statement the future.
In addition, certain financial information presented on this call represent non-GAAP financial measure.
Our earnings release, a supplemental package prevent GAAP reconciliations.
While non-GAAP financial measures are useful to investors.
Today's conference call is posted by Rexford Industrial co Chief Executive Officer, Michael Franco and Howard Schwimmer.
<unk>, Chief Financial Officer ideal calm and our general Counsel, Dave Atlanta.
Ill make some prepared remarks.
Open the call for your question.
Now I will turn the call over to Michael.
Thank you and welcome to Rexford industrial second quarter 2020 earnings call.
We hope that everyone joining us today as well as your colleagues families and friends remain well during its very challenging times.
Today I'll begin with a brief summary, our second quarter operating results Howard will then cover our transaction activity.
The deal will follow with more details on our financial results balance sheet outlook.
Well then open the call for your questions.
With regard to the second quarter.
By the exceptional work from our team that is driving rexford strong performance. Despite unprecedented challenges presented by the cobot 19 pandemic.
We must also remark.
Right and resilience to be infill southern California industrial property markets.
The supply demand imbalance continues to differentiate this market.
Hi, it's the math well its supply industrial markets in the nation.
Extreme scarcity of developable land, because there was no path to resolve our markets supply demand imbalance through new construction.
The many results we choose to remain focused on creating value within infill southern California.
Our teams quarterly performance speaks for itself.
The following.
We incurred increased company share of core FFO by 21% $38.8 billion and generated 6.7% increased core FFO per share.
32 cents.
Our stabilized same property NOI grew by 3.1% on a GAAP basis, our stabilized same property cash NOI decreased by two quite 3%, which was driven by short term rent deferrals, averaging one to two months.
We achieved 97.6% occupancy in our stabilized same property portfolio.
We signed 223 leases for 1.4 million square feet during the second quarter.
Leasing spreads were 32.3% on a GAAP basis, an 18.2% on a cash basis.
Leasing performance reflects the fundamental strike the right infill markets and our teams intense entrepreneurial focus.
During the quarter pent up demand re entered our southern California infill markets as many government mandated shutdown restrictions were lifted.
<unk> ecommerce continues its dramatic growth.
We experienced a notable acceleration of tenant demand through the second half of the corridor.
During the quarter, we also acquired seven properties for approximately $76 million.
Subsequent to quarter end completed three acquisitions to bring our year to date investment volume to more than $350 million.
With regard to recollections report actively worked with tenants some of them were impacted by cobot and some of them simply took advantage of their government mandated ability unilaterally differ rest in California.
Overall for the quarter, just over 98% attendant billings were accounted for through cash collections and relief agreements.
Cash collections represented about 87% billings for the quarter.
We're pleased to see the quarter and on a positive trend with June cash collections at 91%.
Oh, the tenants not covered under deferment or release agreements cash collections equaled 98.5% for the quarter.
Further July is off to a very strong start tracking very close to a typical non coal that month at this point in the monthly collection cycle with 92% of tenant billings collected in cash so far.
July's cash collection numbers are particularly impressive given that most of our depressed the firm.
Which on average was about one to two months, that's already burned off leaving only 1.6% of tenant billings covered under relief agreements during July.
In addition for July.
That's not covered under deferment relief agreements cash collections are already at about 96%.
With regard to balance sheet activity, we completed a total of approximately $295 million of equity issuance during the quarter.
We continue to maintain a low leverage fortress like balance sheet, completing the quarter with leverage of 2.9 times net debt to EBITDA.
Which equaled about 10.5% debt to total enterprise values.
We also ended the quarter in a very favorable liquidity position with access to upwards of $1 billion of liquidity as we move forward.
We believe we are very well positioned so defensively to weather cobot related uncertainty as wells offensively to capitalize upon emerging internal and external growth opportunities to drive shareholder value.
Finally, I'd like to take a moment to fully acknowledge and thank each rexford team member each of them has worked so diligently to drive our performance to distinguish our company despite working remotely and despite a range of cobot related personal and professional challenges.
Tremendous thanks to all of our retro teammates you continue to prove yourself.
The best team and the business.
There's one special person he deserves additional matches.
As you know ideal com, our CFO had expressed a desire to pursue a new chapter in his professional career.
On behalf of our entire team I'd like to thank a deal for his exceptional service and contributions to the company and personally for his partnership and dedication.
It's been a true privilege to work with the deal.
Although deal is a very hard axe Apollo we are exceptionally pleased to have more Clark starting as our new CFO on September one.
For those of you know Laura so prior experience I'm sure you can appreciate how fortunate we are to help or join our team.
And with that I'm very pleased to turn call over to Howard.
Thank you Michael Thank you everyone for joining us today.
Well they can see rates for the infill southern California industrial market increased during the second quarter Rexfords portfolio demonstrated resiliency.
They've lost same property portfolio ended the second quarter, 2.4% vacancy, which is lower than the infill markets overall, a testament to the quality of the rexford portfolio and our management teams focus.
Market vacancy kind of pervasive supply demand imbalance continued to support strong market fundamentals. Despite the impact to covert 19 and associated shutdowns are markets achieved positive rental rate growth was asking rents up 2.2% on a weighted average basis over the past 12 months according to CPR.
Sorry.
Rhetoric saw steady increase in leasing activity as we move through the second quarter, completing our largest volume of new leasing over the past four quarters.
Due to covert 19, social dispensing requirements market. The math is most focused on vacant space and Rexford continues to deliver the most functional quality space each of our sub markets.
As a result of our team's hard work, we believe we outperformed the market meeting or exceeding our pre covert budgeted rental rates, which resulted in strong blended leasing spreads achieving GAAP and cash spreads, 32.3% and 18.2% respectively.
We're now more than halfway through the year and have made strong progress on 2020 at lease expirations, even with many tenants, taking a wait and see approach.
The total 2020 expiring square footage started the year not including three buildings moved to repositioning we have renewed or at least 57%.
Well, our top 20 explorations bite size, we've renewed or at least 58% with an additional 15% currently an active negotiations.
Let me now turned acquisitions, we acquired seven properties during the second quarter for an aggregate purchase price up $76.5 million.
Adding approximately 334000 rentable square feet of buildings and 6.8 acres of development land to our portfolio.
At quarter end.
Okay to three additional acquisitions totaling $68.7 million.
In April we acquired burning up and they Elynx and get real Valley Submarket.
$10.5 million that land values, which consists of six acres 72000 square feet a buildings.
Fully occupied sale leasebacks has an initial yield to 5.5%.
<unk>, which will grow through scheduled annual rent increases.
As a note the yields I reference here and for subsequent transactions run off on an unlevered basis.
Also in April we acquired one acre land parcel at Brady way, expanding our not street repositioning project in the Orange County, West Submarket for $870000.
In May we acquired flow tell the street.
The L.A. Central Submarket, which consists of a single tenant industrial building attending 120000 square feet on 5.1 acres of land.
$21 million.
Property as well, we lease rent estimated to be approximately 40% below market, what the near term lease expiration.
Property features high image office extensive dockside loading and a large cured yard after my improvements, we intend to renew or released the property that market rents.
Projected stabilized yield of 4.7%.
Also in a rexford acquired Central Avenue, and the L. itself, they submarkets, which consist of 158000 square feet vacant manufacturing buildings from 5.8 acres of land $14.5 million, we intend to demolish the existing structures and constructing a new 126000 square foot.
Single tenant logistics don't like 20, dockside loading positions and 32 foot clarified.
The projected stabilized steel is 5.4%.
In June we acquired East Park drive the final building up our Q1 portfolio purchase located in the North Orange County, Submarket for $6.8 million single tenant building contains 35000 square feet on 2.4 acres of land and it's fully leased on the long term basis that initial yield of 5%.
Also engine Rexford acquired production Avenue in the Central San Diego Submarket.
<unk>, which consist of two industrial buildings totaling 47000 square feet on 2.9 acres of land for $70.9 million.
A copy of 65% leased at rents that are estimated to be 15% below market.
After repositioning and lease up stabilized yield is projected to be 6.3%.
Finally for the quarter, we acquired Slover out now and then go that far West Submarkets, a newly constructed student the Arts 60000 square foot something on 2.8 acres for $10 million projected stabilized yield is 4.7%.
After quarter end in July Rexford acquired self Avalon Boulevard.
Two building industrial property located in the in the L.A. selfish Submarket.
$28.1 million.
Turning to 166000 square feet on 7.2 acres of land.
After a short term leaseback the company intends to reposition the property projects the stabilized yield of 5%.
Also in July we acquired a portfolio.
Three industrial buildings and rose Fleetwood Tuxford streets, located and they have like San Fernando Valley Submarket of $35.1 million oil.
Really occupied buildings contain a total of 270000 square feet on 8.4 acres of land and our leased up with estimated to be over 33% below market.
After repositioning we expect to bring the initial yield of 3.1 person.
<unk>, 0.3% upon stabilization.
Finally in July we acquired greenstone out now when the L. in Midtown Submarket for five and a half million dollars. The near term value add property consists of a single tenant trucking container facility.
Turning 12600 square feet on 4.8 acres projected stabilized yield of 6.3%.
With respect to our repositioning program, we continue to progress through a pipeline some relatively nominal cobot nineteena related delays and permitting and inspections.
Currently have 19 or 22000 square feet of projects under ground up development. Another 330000 square feet expected to start to start in 2021, and 368000 square feet under repositioning.
During Q3 acquisitions.
Consistent with our mission. We believe these projects represent the best locations will be the most modern functional product, but then there's submarkets due to very limited availability that continued strong demand with little to no competition from equally function vacant space. We believe these projects are well positioned for strongly sub.
As we look ahead to the second half of 2020, <unk> and beyond we have a deep pipeline of opportunities. They currently we have $52 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.
Finally to Echo Michael's comments that you would deal all your tireless work talk rexford growth, it's been a pleasure working with you over the past years and I wish you only the best on your future endeavors.
I'll now turn the call over to a deal.
Thank you Howard beginning with our operating result.
For the second quarter 2020, net income attributable to common stockholders was approximately $11.4 million or 10 cents per fully diluted share.
This compares to $12.8 million or 12 cents per fully diluted share for the second quarter of 2019.
For the three months ended June 32020.
Michelle Correctable was $38.8 million as compared to $32.1 billion for the three month ended June 32019.
On a per share basis publisher pool was 32 cents per fully diluted share representing a 6.7% increase year over year.
Stabilized same property NOI was $44.2 million gonna second quarter.
Which compared with $43 million for the same quarter in 2019, an increase of 3.1%.
Our stabilized same property NOI was driven by 3% increase in same property rental revenue, while same property operating expenses increased by 2.6%.
On a cash collected stabilized same property NOI decreased by 2.8% year over year, mainly due to rank deferrals related to corporate banking.
Turning now to our balance sheet and financing activities.
We continue to believe they maintaining a low leveraged balance sheet ample available liquidity and to divert her way of capital sources is a competitive advantage for reference.
In May we competed in underwriting secondary offering on 7.2 million shares of common stock at $39, 80% for sure were raised net proceeds of $285.1 million. After deducting the underwriting discounts. These proceeds will be used for future acquisitions to fund our development and.
Redevelopment program and general corporate purposes.
Also during the second quarter, we should approximately 249000 shares of common stock for ATM at a weighted average price of $40 59 Thats for sure.
Which resulted in net proceeds of about sort of approximately $9.9 million.
We ended the second quarter, we had approximately $254 million of cash full availability on our 500 million or credit facility and approximately $260 million available under the 550 million all 18 poker.
We have no debt maturities until 2022.
And we remain very strong liquidity position with a net debt to EBITDA ratio of 2.9 times.
With regard toward they've been on July 22020, our board of directors declared a cash dividend of 21 of the happens for sure. The third quarter of 2020 people on October 15, 2022 common stock on unitholders of record on September 32020.
Finally, I'll turn to guide.
Given the impact of cold in 19, our time and its impact a general market condition.
Well as local regulations, along I tend to defer right, we're maintaining our guidance as fault.
Please note. This guidance is based on my knowledge of the today.
We expect to achieve company show Correctable within range of dollar 26 to dollar 29 for sure.
Our guidance is supported by several factors, we expect year on stabilized same property occupancy within a range of 95% to 96%.
We expect to achieve stabilized same property NOI growth for the year, a 1.8% to 1.8%.
Please note that our 2020 stable I'd say, probably pool, comprising 61 property with an aggregate of 19.8 million square feet, representing approximately 72% for our consolidated portfolio square footage as of June 32020.
For January we anticipate a four year range from $36.5 million to $37 million, including about $14 million a noncash equity compensation.
That's in the past our guidance does not include any assumptions for other acquisitions dispositions or capital transactions, which have not checking in house also our guidance for KLA before does not include acquisition costs or other cost. So typically school in calculating just mark.
Before we start unit I'd, just like to thank the entire expert team for the past eight years.
And that kind of portfolio has grown by over 400%, which is truly exceptional.
We are grateful to Mike in Howard for their support as I take these next steps.
Finally to our investors and analysts.
He has been a pleasure getting to know all of you as well.
Well open the line to take any questions operator.
Thank you at this time, we will now be conducting a question and answer session.
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One moment, please while we all for your question.
First question is coming from a line of Jamie Feldman of Bank of America Merrill Lynch. Please proceed with your question.
Great. Thank you.
Deal, it's been a pleasure working with you also we wish you the best.
So I guess it seems like there's a lot of confusion already on same store in Hawaii.
How companies are going to report it on a cash basis. So you guys reported minus.
2.3%, but can you talk about and I think for a lot yesterday reported a much higher number but they did not.
You know they did not treat their deferred.
Rent they kind of included in that same quarter. So if you have done that same [laughter] that same analysis can you tell us what your same store NOI would have been if you had pushed it out.
And also maybe talk about why use this methodology.
Jamie Thanks for the the question and you had has been a pleasure working with you guys and.
That's been years, but that's an ecosystem absolutely fantastic on the question in terms of the same store and the their cash NOI, which was reported a negative 2.3, a if you looked at our table that was done in the earnings release favor the acceleration of concessions in 25000, plus a 2.6 million deferrals.
The same store component of that it's about $2.7 million roughly 61% or so.
Which would equate to 4.4% positive cash NOI growth year over year. After the second part of your question, but chose the reporting.
These are arrangements and agreements and a short term amendments the leases and I think that was the most prudent thing to do they supposed to.
Document either such but then the concept of the lease amendment and the deferrals are reported that just exactly that's that's just like a concession Berkeley report it in a normal contract and and so that's what you're seeing in the reporting.
Naturally as these deferred concessions or build back in the latter half of your September October and mostly which are gonna be do back in 2020 on you and we anticipate to see the cash in Hawaii go higher because they're going to be built back so from our perspective.
The accounting, okay, but straightforward and simple and that's what you're seeing on the numbers.
Okay. Thank you that's helpful and then as we think about deferrals and rent collection.
You know you guys gave some numbers in the release about 23.7% of your the tenants that you have or they.
That's interesting 23.7% of baby are having some relief agreements, but can you talk about what the actual agreements are in terms of your annual base rent.
Yeah Ginny good question and then we presented that data that was things moved again.
The investor community at the analyst community, just a b D. The number of requesting trumps magnitude that magnitude could've been compared with three different.
Variables, which in square feet.
You know the least count and of course KBR, that's what you're seeing there, but they did not that we presented again in the cable if you take a look to see what in terms. The total belief actions, but my point $1 million. That's only 3.5, a 3.4% of BPR as of June 32019, Richard close security deposit application. If you further change.
That back and only focus on the concessions and the default that's only 1.8% of DBRS and 630. So yes is the number it's very very small from that perspective, but that the number that was presented in the release, but just to get a cross section of the Burger Bleep request worker and just a comparison in terms of the total portfolio.
In terms of size.
Okay. That's helpful. And then just last from me I guess did you take a step back.
You know, California is actually seeing cases increase and maybe even more closures.
But you've actually seen rent.
Rents inc. or rent payments increased the percentage rent increase can you just talk us through your thought process or what you think is ahead in terms of.
Hey, why things are improving in terms of your rent collections.
Be maybe how do you think about you know when P.P.P. Burns off.
How do you think about the risk that maybe you do see a rich maybe pull back or the percentage of recollections pull back.
And when rent deferral period.
Well.
Hi, Jamie its Michael Thanks, again for your question and great great to connect with you today.
So I agree. It is it is a really truly a testament of the strength of the infill tenant base.
Given the two factors today, obviously, many companies are hurt by cobot and be the local municipalities have given so many of them the ability to unilaterally defer their rent.
And well, we're sitting on the ground and frankly, we've seen this through prior cycles, including the great financial crisis.
Is that you know these spaces are truly irreplaceable robin related to that in terms of the businesses that operate in them. They are truly mission critical locations for these businesses. These are not like big box tenants looking at a global logistics supply chain and rationalizing logistics by getting rid of a location.
These businesses on average can't afford to not have these locations and so although some of the maybe hurting a they they do believe they have a business post cobot. They do believe they cobot is not permanent and they also generally are reflecting the view that to the extent they get up their space. Today. There is a real likelihood they may not be able to reach.
Under the market, but anything comparable to the space. They currently have that's how tight the markets are in our markets and frankly those are some of the many reasons that we have chosen to focus exclusively on infill Southern California, and so these are similar patterns to from the tenant base perspective, as we've seen through prior cycles.
Might seem counterintuitive.
But it is it's consistent with our historical observations over decades, and with regard to the P. P. P component of it frankly, we if we've taken a pretty deep dive on that PPP Ah consumption in our tenant base. You know you can track tenants that have received a PPP loans by name who have received loans of greater.
Then $150000.
And I mean, we map that against our tenant base and it's pretty interesting and what we found was that 80%, it's about 80% of the P.P.P. money or that.
That went into our tenant base, what's the tenants who didn't even request rent relief.
And so it just by the the amount of PPP loans coming into our tenant base. It does not seem to be reflective of the difficulty that the tenants are having and paying rent the aggregate DPM out equals about 2% of their monthly base rent in terms of the tenants that took that those those PPP loans. So again not to not have not impactful number.
And so you know we think that look at the governments are offering free free loans that are you know companies are rational in are you taking advantage of that.
But it clearly has not been an indicator in our market of the tenants ability to pay or not pay rat.
And so as these expire and or as they are renewed a we expect to see similar trends with respect to those PPP loans impacts on our business isn't our tenants in that things have improved dramatically. A you know through the second half a quarter and certainly through July and they hadn't been said you know we can't really predicted extent there.
There are ongoing.
Full on commercial shutdowns.
To the extent Kobin hospitalization rates continue to increase naturally we can't predict the impacts to our our business over the medium and long term, but you know I think what we're saying here is a true true level resilience of the tenant base your an infill southern California.
Okay. Thank you Michael that's helpful.
Thank you My next question its complement a line of Emmanuel Korchman of Citi. Please proceed with your question.
Hey, everyone. Thanks for that maybe first a follow up on Jamie's PPP question, I think Michael unless I Misheard you you you Didnt analysis of.
Who receive loans and.
Did ask for relief I guess, if you think about the constructs of P. P. P.
You actually get to Oh, you know.
Got forgiveness on the part that used to pay rent. So if PBP goes away are you worried that there'll be more tenants that won't be able to pay rent because they were using some of that P. D. P money to me, it's kinda counterintuitive to say the guy that Afro leave got BPP, because the P.P. was meant to be use for salaries and right.
Yeah, I know, it's a good question, thanks, Matt and thanks for connection with US today, So number one or a business can receive X dollars and TPP money and they they're not required to spend any of that on wrapped in other words. They can have other you know a payroll and things that they can spend that money on and still get the full amount of their PPP low so they're not required to.
You said on on rat and Furthermore, overseeing is rent generally speaking for these tenants is a small portion of their expense structure in their business and number two it's an exceedingly small portion of the PPV money that was received in aggregate from these tenants. So again, we don't really think that it's not materially impact.
Michael a avatar tests, so far based on the data that we've seen today, they getting that could change, but based on the data we've seen today.
[noise], Thanks for that and then a clarification on the deferral agreements earlier in the call I think you said those on average for one to two months.
But then in one of a deal to answer is he talks about getting most of that back I guess by the end to 20 or into 21.
Sure So what am I missing in terms of what Dick what do you mean, when you say one to two months of deferral agreement.
Manny Hi, this is David lands or.
With record and basically the what we're describing is those agreements we've worked out the deal or an arrangement essentially Elisa amendment, where this tends to bring one or two months' worth of rent on average and one way to look at all the deferral agreements in whole and then they also have to compete.
But lays out or payment period.
And so as as was noted before most of those repayment periods are gonna be.
Hey, repaid during the third and fourth quarter this calendar year.
That's great question. It does have its I guess, one where when we when we're on the phone with you guys in October and we're looking at the July August and September collections, those should naturally be higher because you're no longer.
I got on average basis talking those tenants about deferrals that was really just April may and June that were deferred because that's when the conversations are happening is that the right way to think about it.
Well based on what we have today in front of us and the deferral agreements that are in place that is what our expectation would be obviously different things can happen as far as order has been extended and other impacts related to cope with the based on what we have been part of US today, that's what it looks like.
Hey, Matt. This is the deal just to expand on David's question and answer I see also look at the table. It kind of shows you. The pattern bride Maids April and May weather had just in terms of just a relief that was granted June was almost have been July but it's very little if anything at all right. So this is exactly to the point that there was mentioning that is essentially being down.
<unk> M.D. said there. These are the deferral that David just talked about that gonna be rebuilt back in the latter half.
I tell my last question, maybe just from that point then.
If we're thinking about same store NOI growth.
I would assume that that would mean a benefit done for Threeq and Fourq you as you collect cash the should've been collecting they fall in may and in the latter month of the year <unk>, but your same store NOI guidance doesn't imply that.
Can you help those though.
Absolutely.
Non cash strikes so DAP as opposed to normalize all that stuff. So the guidance was on job. If you notice directs Q2 same store numbers right you didn't see the impact and that's why been Janey asked a question earlier right. Our cash is doing exactly what we're supposed to do it because gap as opposed to normalize that behavior. So the gap is consistent it's gonna say.
Consistent even in Q3 in Q4, because as opposed to normalize.
These deferrals, yes, Q2, a cash into why but certainly impacted because you saw this deferral soccer correct, but to your point as we go into Q3 in Q4, Benbilt deferrals or build back you expect to see a higher acute cash NOI number.
So yes, absolutely from that perspective, but I wanted to make sure that it was clear for gap and why versus cash anywhere in the guidance is based on.
Thanks, everyone.
Thank you. Our next question is coming from the line of Blaine Heck of Wells Fargo. Please proceed with your question.
Great. Thanks, Good morning up there. So just looking at the investment sales markets I'm can you talk about how your acquisition as pipeline has changed if at all since the first quarter call. A I mean, clearly you guys that I've seen an uptick in activity. Thus far in July you know is that an indication you're starting to see.
I think for selling and have you seen any movement on a in place cap rates are valuation.
Hi, Blaine its Howard.
Let me let me address the question. So yeah. The pipelines is very strong or weak obviously closed so quite a few transactions subsequent to quarter end you know we did a over 70 million during the quarter and a little under 70, well this quarter are ready.
We had we announced on the call earlier, we had 52 million square feet, rather $52 million what product under other wire contract a big but I think you know your point being that the I don't think that really reflects our bus or pipeline is certainly amount of conversations we're having the amount about lives were right.
You know, we've we've written more a life through half of the year than we did all of a last year I think we broke written little over 400, otherwise. This this year, where last year entirety with it.
327, so lot of what we're doing now is really planting seeds that we're going to be able to harvest either later this year into next year.
That focus has been on some sale leaseback type transactions. It's you know start closing some of those some of the pipeline contains those I'm not I don't I would say, there's really any force selling occurring right now the market still very strong what we didn't talk about really you know we talked about a lot of the P. P. P.
Impacts the well we didn't talk about is the strength of the market. A you know we and yeah. We had one of our strongest leasing quarters in terms of new space being ways.
And even just thinking about the Vacates, we had during the quarter. The five largest vacates, we had middle east core of during the quarter.
So you know the industrial market doing pretty darn well when you think about what's what's happening in the world.
And we've even seen or some of the Oh, you know I've called the class a or fully leased more modern type buildings that come to market are garnering more offers and than we've ever seen there's obviously some shifts between people that focused on other probably got a categories now that are looking towards industrial.
Oh, so there's more capital all coming over the industrial side.
And in fact, we're seeing a bid a cap rate compression now starting to occur on some of those core type transaction.
Oh, we're probably isn't going to be unusual to see a lot of them starting to transact a sub 4%.
You know look a bit more compression though.
Great. That's helpful. And then second second question just following up on guidance, both occupancy and same store guidance seem to imply a pretty meaningful the deceleration in the second half a year as as managers pointed out I guess my question is how should we think about the level of conservatism built into.
Those forecasts or you know do they reflect actual known move outs or maybe tenant bankruptcies that you guys are aware of.
Oh, Hey, blame thanks for the question. So yeah, we did reiterate the guidance, which was consistent with what we reported last quarter and when we built our guidance last quarter right naturally we were looking at the data sets, which was fairly limited considerably. We're still early on into this pandemic in terms of what the world's experienced changed.
Oh It was based on really what we were able to track adapter. When times are released agreements that we had seen Vicksburg reportage and we knew that Q2 Q3, we're going to be dealt with in terms of these lease agreements in terms of security deposit applications I wanted to pull that you've seen and I think that quarter has played out exactly how implanted and I think in some key.
Hey says it's been a very I may not be optimisms in higher in terms of what you've seen in July rents and that's number one I guess hopefully higher in the next few days, but I think the the reserves that were put on the guidance rich.
Required us to reduce the guidance here in terms of the total electrical and obviously that has a relationship to the seems pool as well was reduced to deal with the back.
He had to deal with any district or disruption and dislocation that our tenants could potentially experience rights and we were seeing certainly some of that in terms as you know what the world has experienced in terms of the uptick in some of the case hats and that's what it was really designed to address you know in the in the back half a year and naturally this still being July right there's still.
Lot of period left so we felt like that or you know that level loss reserves still are accurate and just to maintain the guidance until we know a little bit more so yeah. I think that's what you're essentially saying in terms of the guidance I'd just say you day their reserves of our place on the bugs deal, but no specific tenant Oh.
You know discussions, but then that reserves they were more general in terms of looking at trends about collection patterns are able to just a general reserve to address with any potential issues that could come down the pike, especially in the latter half of your.
Okay, great and a deal. Thanks earlier help great working with you over the years and good luck with everything in the future.
Thanks I appreciate it.
Thank you. Our next question has come from the line of Mike Mueller of Jpmorgan. Please proceed with your question.
Yeah, Hi, and a deal same thing it's been great working with you.
In terms of the question does the backdrop make you think differently about stabilized versus value add acquisitions differently in anyway.
Oh, Hey, Hey, Mike, It's Howard I'll take that one.
No as I as I, just alluded to the market is exceptionally strong right now there's a there's a shortage actually it's a quality product out there. So you know well the vacancy rate went up in the markets over the past quarter. If you really drill drop down then I'll give you a great example.
In the infill a.
Greater allay market, which is about half the market. The vacancy rate went up Oh, I think there's 100 basis points increase but a good majority of that about 60 basis points was due to one tenant vacating a very poor quality I'm going to ask square foot building.
And another development site a that vacated in is temporarily on the market for lease just in case anybody wants to rent some very quickly poor quality buildings. So have you factored those two out the vacancy rates really only increased about 40 basis points in that market. So the markets you know exceptionally strong.
And so we you know we feel pretty comfortable.
About our activities in the market, Yeah, and really you know our ability to achieve a and exceed the the rents oh the that we've been that we've been able to forecast <unk> and you look at our leasing now we're hitting rents that are Oh, you know pre coated projected.
ER market rents you know where in fact, we're exceeding them in many cases right. Now so really has a lot of comfort to toss in terms of what's happening out there.
And Hey, Mike, It's Michael and Great to hear you. Your voice today I, just would will add to that as a reminder.
It's hard to predict than any one period quarter or year, what the what the mix will be a value add versus stabilized acquisitions, which I think it's getting your question and but what we are saying as you know.
In improving opportunity set for Rexford, a you know because of all the research we do the lead generation you know the opportunities that we're able to look at and approach today is a substantially substantially greater in volume and quality as compared to even a year or two or three years ago. I don't know powered mentioned number Bella wise already dramatically exceeds the you know this.
Year to date agreement never realized dramatically exceeds what we did all last year or the probably the prior year and I think what we really focus on as you know we've got over a billion square feet, an infill southern California alone that we've targeted it's owned by these passive passive nonprofessional real estate owners and by and large those assets are in deep dive.
Third maintenance you know, it's really it's really about what degree of dysfunction are they not what degree of function our that and so we have this tremendous pallet of opportunity that we're mining and and so you know we couldn't be more excited about the opportunity create value going forward and as to the degree to which the percentage of more value adverse to stabilize.
Comes into play this year or next year hard to predict.
Yeah, and my comment just had one one more comment to you know what we're doing on these acquisitions and so forth.
And this year, 91% of our transactions have been off market or lightly marketed which is actually substantially higher than last year, which I think we are what you know close to about 80%.
And if you look at all the acquisitions a with done the projected stabilized yields are very similar to what we've seen in prior prior years as well a and then and then finally those acquisitions so far this year, including a post quarter below market in place rents.
On average about 17, and a half or something so no there they're interesting there's great upside in them and you know, there's probably a little less on the value outside of than we've seen a quarter to quarter to quarter and year to year and to Michael's comments, yeah, We just can't predict when.
Or what are the quarter's provides in terms of the value add versus core plus or really just the core transactions.
Got it stacks that I think it will you know what Mike what we are seeing in the market too is yeah. A lot of these passive owners, who really haven't had to address their real estate needs for decades, because the tenants just sort of state, but you know where today some of those tenants are having issues or want to defer their rents or you know this than that so you know in general the tour.
Well in the market works in our favor.
With regard to generating you know in attractive investment opportunities, particularly it sometimes on the value outside.
Got it thank you.
Thank you. Our next question was coming from the line of Jamie Feldman Bank of America Merrill Lynch. Please proceed with your question.
[noise] [noise] you don't I'm all set thank you.
Thank you. Our next question is come from the line of Chris Lucas Capital One Securities. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question two questions on both kinda follow ups Howard I guess.
Just kind of curious as to how if at all any of your conversations with sort of tax sensitive.
Property owners are moving given a increase probability that the future might include higher capital gains taxes and potentially negative change the temporary when times are pretty extreme strategy.
He talks there.
It's a little early I know I think some of the information in terms of potential loss of Ah Penthirty ones is a little little to pressure I think people to have digested it.
But they'll that that said Oh, you know a lot of the people that we converse work in the markets are long term real estate honors and they are extraordinarily focused on the tax consequences of cell line.
And so a lot of our up rate conversations are starting to escalate.
And so no unclear whether the ability to do it up rate could could you know be changed in the same manner as a 10 31.
But if not it certainly would create a more opportunities for us to grow the portfolio <unk> through the upgrade keep in mind. Yeah. We have we have oh really just a fragmented completely fragmented market of owners you know, there's there's there's quite a bit of institutional ownership of that.
The majority of the ownership in our markets or you know mom and Pops for smaller partnerships and so forth and a lot of them are our age and so one of our greatest sources of opportunity frankly is you know the transition through generations.
Of those properties.
Sometimes there is a step up and basis, but many times the patriarchs, you're trying to settle their states before they get into the hands of the next generation because Oh, there's just not understanding of how to operate industrial properties and so forth. So we're having an increasing amount of those conversations right now all of it so.
But to two that's too early to tell a on the tax side related to some of the announcements you've seen in the news past few days.
Okay. Thanks for that Howard and then a deal just maybe one question here to talk about Oh, we spend on long island, which again.
Some you know Theres 98 per second quarter, 90.2% <unk> billings were either collected where there was an end please really.
Agreement.
So for that 1.8% of uncollected mm.
No no relief agreement in place.
What about 1.4 million roughly.
How did you guys creep that revenue was that not collected and therefore not flowing through the quarters results or is that Dean you know collectible and therefore, but just a leak.
How are you guys yeah.
Yeah, absolutely. So that is deemed collectible, it's just sitting on the balance sheet as an A.R. and actually you bring up or bring up a good point from that perspective is that if you. If you heard my math or my calculus earlier in terms of overall reserves visit the data set that we are using to help us kind of work backwards into worked appetite.
Sure Reserve should look like right and as I talked about on the back half of the yet right. She actually it's very much but in our numbers and that reporting numbers and that's just the way accounting should work, but it's more on day, our side and our collectibility becomes more apparent reserve data. So what I talked about in terms of doubtful incomes are so yes. So the one so it's definitely dnbi reported.
Gap in Hawaii.
Yes.
Okay. Thanks for that.
Or color.
Thank you are not specialist not from a line of Eric Frankel of Green Street Advisors. Please proceed with your questions.
Thank you very much a deal a great work over the years and that's the <unk> I'd love to future Records and Lucky Peyton place thinks your your efforts Oh. My first question just related to obviously you ought to E commerce in local consumption, it's been really driving dr. demand in southern California or less.
A year, but the ports, obviously are I'd been more subdued in this year that struggled quite a bit with a reduction in trade have you seen any change in industrial demand related to port activity. Just they thought that that I think imports you're down to roughly 10% your year to date versus last year.
Michael with Cantor, yes, or no.
Oh, Hey, Eric its Michael sorry, and thanks for it so much for joining US today, you know, we don't really see a strong correlation frankly between the port traffic changes and our infill tenant demand I think where you're going to see a greater correlation is what the big box tenants that are more focused on trend shipment and global distribution Center.
It would be in markets like the eastern inland Empire, and other major transhipment markets and again in our in our marketing these infill markets and again one of them very many reasons, we stay focused on infill southern California.
The demand drivers are more as you mentioned consumption driven a and last mile driven today, and probably you know <unk> over 50, but certainly today over 50% of goods imported are actually consumed regionally and that's that regional consumption. That's the much stronger driver within our tenant base.
And so we're where we see a weakness it's more correlated to micro industries that are having a greater difficulty getting restarted for instance, me entertainment industry supply and props a related infrastructure for content, you know things like that might not so much to do with port traffic.
Okay understood and then just kinda based on the Cobot cases, rising in California over the past a month or month, or so and you know with the government that restricting business activity are there any word businesses that had that that right I had to close again in your portfolio or percentages I'm just kind of eight.
Hmm do you see help or the health guidelines.
Yeah. It's interesting we we are back in I think March or so when there was the complete shutdown you know we did a deep dive on our tenant base and estimated that upwards of a 80% of our tenants were still considered a central business. Even back then and that's the total shutdown and so we don't really see an impact today with these sort of a lighter restrictions being but.
Put back in place a in terms of creating the problems for tenants. It's really more about just the business realities right irrespective of the restrictions imposed by the government. It's really more about just the funnel fundamental demand for goods and services you know that for some companies have decline you know or have not recovered even though technically they're allowed to operate.
Okay that makes Oh, just final question Howard I guess you touched upon this you were talking about this day, the L.A. market, leading the causes the right right and to date and straight just geographically, obviously southern California, you know generally it's more correlated to what's happening within the market. There now and then with other markets, but is there any different leasing activity between the submarkets.
You guys classified.
No I would say no.
We look at what transpired during the quarter in terms of our leasing it was fairly a spread out throughout the different a submarket. So that we own in a and probably follow you know the percentages are in terms of the concentrations were no how how for portfolio follows the size of the market.
You know half of the greater Ela area. So we have obviously had more transactions in each of the sub markets within greater I lay them, we would've and.
Then turn accounting lets say, which is really you know the smallest other submarkets. So you know the market on the market's came roaring back I think what what's very interesting is if you look at our activity for the quarter a over 70% of our new leasing occurred in June yeah, So and so oh.
So two to two thirds through the quarter, we didn't really know how the world was going to end up and then all of sudden you know just demand.
Skyrocketed and our team was exceptionally busy and you know that activity is continued now into the third quarter as well so.
Yeah, we're quite pleased with the activity and it's it's really occurring in all of the markets in terms of these into markets that we're focused on.
Okay. Thanks, everyone.
That's a lucky healthy.
Our next question is coming from the line of Elvis Rodriguez of Bank of America. Please proceed with your questions.
Hey, guys just a couple of follow up questions I'm more macro on the municipality level, how are those conversations coming along and.
The municipality sort of ease a the way. They are you know there rhetoric with the tenants and allowing them to defer route versus what you saw back in March and April and you know what any expectation that you can share on when you think they'll start to push tenants actually start paying rent.
Hi, all this is David Thanks for the question I'm. The answer is that are really the we haven't seen them lightening up on the orders significantly there had been a you important changes and ER and Los Angeles County is wasn't city of Los Angeles, They didn't modify their award.
Sure.
To where they no longer allow publicly traded companies to not hear rent, they're no longer allow multinational companies and with respect to the county, you have more than 100 employees you can no longer doesn't ramp so those have been some positive steps into right direction.
And a lot of other cities and counties, then followed suit with those modifications however, as far as the timing of those orders going away.
In response to your question the Governor extended the state wide order until the end of September and then the city of L.A. accounting volleyball quickly followed suit so those order star in place.
But.
As we've noted some noted in the pass and as I think our rent collection reflect we've been very proactive in working out and using our leverage to work out a deferral agreements that are more beneficial to the company that otherwise might have been afforded honor the order and we've really use our leverage.
<unk> points in terms of Tenda incentives that would be lost I attended if they're not paying rent they lose certain renewal options almost all of our leases have provisions that allow us to claw back any previous incentives that were a nationally granted when the lease was signed but just.
Kinda allowances and upright rent abatement. So we've had use that leverage steroid come out better than what the workers would've otherwise a loud.
So we're continuing to monitor monitor the 45 orders that affect us in southern California, but.
We've been able to exceed what those otherwise would have a lot.
[noise], Great and then just one more maybe my final one for a deal and thank you a deal called help over the years.
So historically you sort of have always guided in saying that cash same store NOI is about 100, 240 250 basis points over the GAAP number.
Do the deferral of the collections or anything that's going on change that this year or how should we be thinking about where cash where the cash number will come in at the end of the year.
Yeah, I'm eldest appreciate that kind words, as well and I.
I think I'd beginning of the year, we had guided to about a 150 basis points are higher than the gap spreads on the cash.
As John said, it's about a 100 basis points. So once it's all said and done.
If our guidance days accurate right for the full year. If it comes on arch, what we're saying you should be about a 100 basis points higher and I think you're just yet I think that's it's worth mentioning is that even though Q2 showed but it showed and weaker yen or disclose the factor.
Factored into the program before 0.4, but later on in the urea, but normalize it sounds a little bit if not higher right. So that's it still about a 100 basis points higher for the full year.
Great is that because of some of the deferrals the payments will happen and call. It one Qs 21.
No I don't think so I think it's a it's a partial product with the reserves is also said we're putting on so obviously, if you're putting a research that as I talked about that are going to potentially impact hopefully not in the latter half of the year. So that's by not only are you seeing some decrease in guidance on the GAAP NOI.
For our same store, but you're also seeing some decrease on the on the cash size. They just as a byproduct about I think very little if any of the deferrals are gonna get paid back and post 20 or 2020, but majority coming back in 2020.
Great. Thank you so much a deal.
Oh.
We have reached the end of the question and answer session I will now turn the call back over to management for any closing remarks.
Well, we just like to thank everybody for joining us today and also a heartfelt. Thank you again to a deal for the many years of service and partnership and we're going to Miss you next quarter ideal and with regard to everybody on the call. We hope you stay safe and healthy and we look forward to reconnecting asked out three months.
A deal out.
Yeah. Thanks, everybody.
This does conclude todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a great day.