Q4 2020 Rexford Industrial Realty Inc Earnings Call
Greetings and welcome to Rexford industrial Realty fourth quarter, and full year 'twenty and 'twenty earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero and your telephone.
Pat. Please note. This conference is being recorded and will now turn the conference over to David Lambert and General Counsel. Thank you you may begin.
We thank you for joining us for Rexford Industrial's fourth quarter, 'twenty and 'twenty earnings Conference call. In addition to the press release distributed yesterday after market close we posted a supplemental package and the Investor Relations section on our website at Www Dot Rexford industrial dotcom.
On today's call management's remarks, and answers to your questions contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
For more information about these risk factors, we encourage you to review our 10-K and our other SEC filings Rexford industrial assumes no obligation to update any forward looking statements and the feature.
And in addition, certain financial information presented on this call represents non-GAAP financial measures our earnings release and supplemental package present, GAAP reconciliation and an explanation of why such non-GAAP financial measures are useful for investors.
Today's conference call is hosted by Rexford Industrials co Chief Executive officers, Michael Frankel, and Hearts, Schlemmer, together, which chief Financial Officer, Laura Clark and myself, Dave and lands or our general counsel.
We will make some prepared remarks, and then we will open the call for your questions.
Now I will turn the call over to Michael.
Thank you and welcome to Rexford Industrials fourth quarter, 2000, and 'twenty earnings call and most importantly, we hope you and your families are well and healthy.
Today I'll begin with a brief introduction.
It will then cover our transaction activity and Laura will discuss our financial results and outlook for 2021.
We will then open the call for your questions.
Although last year brought significant hardship within our communities and across the globe are keen that rexford industrial completed one of our most outstanding years on record despite the pandemic our.
Ah Rexroad experienced demonstrates the strength of our infill southern California tenant base and of our entrepreneurial team.
<unk> 'twenty and 'twenty performance speaks for itself.
We achieved record leasing volume of over $6 3 million square feet with exceptional releasing spreads averaging about 20% cash and 30% on a GAAP basis.
Our investment volume of over $1 $2 billion of acquisitions also set a new high watermark for the company and combined with our strong internal growth drove a 22.1 per cent increase from core F. F O, which grew seven 3% on a per share basis.
A range of growth sectors drove incremental tenant demand through 'twenty and 'twenty from health care and consumer staples to aerospace and electric vehicles, among others, while the dramatic acceleration and E commerce adoption pushed our infill tenant demand and to unprecedented levels.
When we consider these incremental demand drivers combined with the fact that our infill southern California industrial market serves the nation's largest zone of consumption and benefits from non curable supply demand imbalance. It is easy to understand why our infill market is positioned to outperform.
These factors combined with our entrepreneurial business model have enabled for expert to generate sector, leading total shareholder return of about 330% since our 2013 initial public offering substantially exceeding the total shareholder return of any other publicly traded logistics REIT and America.
Looking forward, we see continued strength there.
I wave indication C. B are you recently projected greater Los Angeles County rental rate growth of 41% over the next five years, which equates to seven 1% average annual compounded rent growth for the next five years and greater L. A.
Meanwhile, by way of comparison, the same CBRE study predicts 2.9% compounded annual rent growth for the nation's other major markets outside of southern California over the same period.
Restaurants future is bright and we believe the company has never been better positioned with respect for the volume and quality of our internal and external growth opportunities.
Although we've grown rats for it to become the third largest logistics REIT and the United States by market capitalization, we see substantial opportunity to accretively expand well beyond our current 1.7% market share within the fragmented infill southern California industrial market.
We intend to continue to maintain our low leverage investment grade balance sheet to fuel our growth as we capitalize upon our deep proprietary acquisition pipeline.
Company is also well positioned to further enhance our financial performance as we scale, our business leveraging technology data and process improvement to drive increasing operating leverage and operating margins as we grow our portfolio into future years.
Above all else our extraordinary performance reflects our extraordinary team we'd.
We'd like to express our deep thanks, and gratitude to the entire Rexford team for your resilience determination and great spirit and the face of unprecedented pandemic related challenges and with that I'm very pleased to turn the call over to Howard.
Thanks, Michael and thank you everyone for joining us today.
Steps and on market fundamentals persisted throughout our infill southern California industrial markets.
But 19 and its associated shutdowns continued through the fourth quarter.
They can see decreased and demand remains strong driven by a variety of sectors within our highly diversified economy and a dramatic increase in E commerce activity.
As a result, we continue to see strong rental rate growth and healthy net absorption our target markets, which exclude the inland Empire east and the 'twenty 'twenty and historically low vacancy of two 2% and <unk>.
40 basis point reduction from the prior quarter.
By way of indication of the strength of our southern California markets. Our same property pool ended the year and E. B R. A $10.48 per square foot, representing an increase of 8% year over here.
During the fourth quarter, and we completed over one 8 million square feet of new and renewal leasing spreads of about 30% on a GAAP basis and 18% on a cash basis about half of these leases were early renewals for 'twenty and 'twenty, one and lease expirations at year end, we had approximately $4 8 million square feet of.
And as remaining in 'twenty and 'twenty, one and Mark to market on these leases is approximately 17%, putting us and our strong position to grow NOI as we continue to address these explorations throughout the year.
Turning to external growth during the fourth quarter, we completed 10 acquisitions totaling approximately $875 million, adding 17 properties and $3 4 million square feet to our portfolio for.
For full year, we acquired $1 $2 billion of properties, adding 5 million square feet to the portfolio seven of these acquisitions included and low coverage outdoor storage sites and land for redevelopment totaling $36 seven acres with a proven improvements equating to 14 per cent site coverage.
Our investment activity truly demonstrates the unique strength of our operating platform and <unk>.
Again with about 75 per cent of our 'twenty and 'twenty investments were acquired through off market or lightly marketed transactions originated through our proprietary research driven sourcing methods and deep market relationships, Additionally, where capital capitalizing upon and historical generational shift and ownership as a longtime owners Inc.
Recently age out of active management.
Consequently, we have seen an increase and upbeat transactions, which represented almost 30 per cent of 'twenty and 'twenty acquisitions and these transactions owners contribute their property to the company and exchange for ownership and rexford, allowing a seller and to achieve tremendous tax efficiency.
Further our value add repositioning and asset management expertise continues to deliver substantially better than institutional yields.
Recent repositioning stabilization and demonstrate the strength of our value creation capability for the full year 'twenty and 'twenty, we stabilized 600000 square feet of repositioning projects and a weighted average unlevered yield on total cost of five 6%, which represents an approximately 150 basis point or greater premium.
Two comparative cap rates on marketed transactions as.
As we look ahead in 'twenty and 'twenty, one we have approximately 700000 square feet currently under repositioning or redevelopment and another approximately 2 million square feet to start over the next 18 months given the strength of demand for highly functional industrial space and strong rent growth potential in our markets. We are offered to me.
Stick for superior value creation through timely lease up of projects delivering this year.
Turning to dispositions and 'twenty and 'twenty, we sold $45 $5 million of properties and we expect to continue to sell assets on an opportunistic basis to unlock value and recycle capital.
Finally, we are well positioned with respect to 'twenty and 'twenty one acquisition opportunities.
Subsequent to year, and we've closed on $95 million and other investments and we have approximately $280 million and new acquisitions under LOI or contract.
This includes the recently announced $217 million transaction that we're targeting to close and the latter half of the year.
Of course, this and all the other acquisitions are subject to completion of due diligence and satisfaction of customary closing conditions, which are not guarantee.
We will provide more details as transactions are completed and.
I'm pleased to now turn the call over to Laura.
Thank you Howard I'll begin today with details around our strong operating and financial results.
For the full year same property NOI growth came and head protection at three 7% driven by strong stabilized same property occupancy which ended the year at 98, 2% cash.
Validate and NOI grew by over 24 per cent, leading to core <unk> per.
Sure, Greg a 7.3 per cent or one dollar and 32 cents per share exceeding our guidance range.
Continued strength of our tenant base also contributed to our outperformance and bad debt reserves came in better than expectations at 150 basis points of revenue for the full year.
And the fourth quarter and stabilized same property NOI was up 2.5% on a GAAP basis and up seven 1% on a cash basis, primarily driven by strong collections of Covid related deferrals.
Overall collections continue to be near pre Covid levels as we collected 97 seven per cent of contractual billings and the quarter, which includes 96 per cent collection and a deferral balance.
As a reminder, during the year, we executed $4.7 million of total deferrals or 1.4 per cent of revenue.
Averaging one and a half months right.
$900000 remains to be collected in 'twenty and 'twenty, one and based on our experience to date, we feel good about the probability of collection.
With this strong performance we are very pleased to announce that the board declared a dividend of 24 cents per share representing an increase of 12 per cent demonstrating <unk> continued commitment to delivering superior total shareholder returns.
Turning now to our balance sheet and financing activity and maintaining our best in class low leveraged balance sheet, while driving superior growth remains a fundamental focus at rexford.
During the quarter, we demonstrated access to a diverse array of capital sources funding, our robust investment activity, while maintaining our sector, leading low leverage and.
At year end net debt to EBITDA with for time coming down at the low end of our target leverage range of four to four and a half time.
And the quarter, we were pleased to secure additional investment grade ratings from both Moody's and S&P, adding to our existing Fitch and investment grade rating and November we successfully completed our inaugural public bond offering raising $400 million of 10 year senior debt with a coupon of 2125 per cent.
Proceeds were used to fight and our investment activity and the repayment of 100 million dollar term loan due in early 'twenty and 'twenty two.
Also in November we renewed our ATM program upsizing, our total capacity to $750 million and included the ability to issue shares on a forward basis.
During the quarter, we raised $35.6 million of equity through the ATM program at an average price of $50.13 per share.
And December we completed a secondary offering of six 9 million shares of common stock, including the exercise and the underwriters option and a net price of $47.15 per share representing proceeds of $325 $3 million.
As of December 31st we had approximately $176 million of cash on hand.
And we remain and are very strong liquidity position with no debt maturities until 2023 full availability on our $500 million revolver and approximately $721 million available under our ATM program.
Before we turn the call over for your questions I'll provide an overview of our 'twenty 'twenty one full year guidance.
Company share of core <unk> is expected to be and the range of $1 40 to $1 43 per share.
This represents earnings growth on a per share basis up six to eight per cent.
It is important to note that consistent with our prior practice our guidance does not include acquisition disposition, our balance sheet activities that have not yet closed to date.
Our core <unk> guidance range is supported by several key factors.
First stabilized same property NOI growth of three 4% on a GAAP basis, and 6% to 7% on a cash basis.
Next average full year stabilized same property occupancy is expected to be and the range of 97 per cent for 97 five per cent.
We expect G&A expense to be and the range of 44.5 to $45 $5 million.
Proximately 17 million is related to noncash equity compensation, which includes time based and performance based units that are tied to the company's overall performance.
Finally, net interest expense guidance is 36 to $36 $5 million.
And please details of our 'twenty 'twenty one guidance can be found in our supplemental financial package, where we have also included a roll forward other components of earnings per share growth.
We hope you will find this additional detail helpful.
This completes our prepared remarks, and we now welcome your questions operator.
Thank you if he would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment and it may be necessary to pick up your handset before pressing the star keys.
Our first question and from Jamie Feldman with Bank of America. Please proceed.
Thank you.
I guess, just starting out going back to the guidance you outlined could you talk about your bad debt assumption in the 'twenty, one same store outlook and and SSO.
And then well first I'll, let you answer that and then I'll ask for next question.
Yeah, Hey, Jamie and good afternoon, it's great to hear from me today, So our 'twenty 'twenty, one guidance implies a bad debt expense and a 125 to 150 basis point range for the full year roughly in line to slightly better than our 'twenty and 'twenty, which is 150 basis points for the full year.
And as you know there's much uncertainty remains and this environment and particularly around the timing of the California, moratoriums and loved it.
Moratoriums as a reminder, given our tenancy unilateral right to for Iraq.
And this well the timing of those moratoriums being lifted we'll have nice significant and passed on that trajectory of bad debt levels in 'twenty and 'twenty, one as about half of our of our watch list and the bad debt and related to tenants that are following the moratorium.
Okay. Thanks, So you mean half tied to tenants you think are healthy, but not paying because they don't have to.
Yeah, absolutely, so I mean and important and important to note that we are collecting the vast majority of our rents from our tenants. Our collections. This quarter, we're near 98 per cent and that's it's really that's really close to pre COVID-19 levels, but so big picture, but the number of tenants are not paying rent and there's really minimal, but as we talked about.
Last quarter, we did anticipate this pick up and bad debt and about half of our half of our bad debt reserve as it related to tenants that are following moratorium.
You know, we don't we don't have certainty, but we have a pretty high level of confidence that these tenants are in good financial health, they're open they're operating and will begin paying rent and their outstanding a or when that mortgage ones left.
Okay do you have any latest thoughts and win more times might lift.
Crushers Submarkets.
Yeah, Hi, Jamie This is that's a really good David.
Oh, sorry, yeah.
This is David and.
So the moratorium was extended by the governor or through the end of March and this is basically the state wide.
And enabling action that allows each locality to have their own and orders in place and so we had 48, a dish and initially that we're tracking.
And of those about 22 up and rescinded. So you don't maybe have already been lifted how for the most impactful are the orders for the city and county of L. A which are both still in effect.
And so as long as the Governor's orders still allowing that there's the potential for the orders to remain in place and our expectation is that.
It's very likely that the governor who has already extended the order.
And as before.
And then again.
Okay.
And then how does.
Bad debt and deferred rent.
In fact, your same store growth rate.
Yes, and when you think about what you delivered in 'twenty and projected for 'twenty one.
Yeah, I mean in terms of projections for for 'twenty, and 'twenty I mean that it impacts are and it impacts the growth rate.
And certainly depends on where we come out and then in terms of the 125 for 150 basis My interest.
In terms of the impact for the same property for 'twenty and 'twenty are that number is for the full year was about 210 basis points of growth impact.
So it was a 200 basis point drag and 'twenty Yeah. It was a 200 basis point drag to our to our growth yes.
So just to be clear like the six to seven cash and 'twenty, one and like what do you think that is normalized.
Yeah. So in terms of and terms of Covid in terms of that cash versus the same property cash versus GAAP spreads. So October deferrals and repayment accounts for about and account for about half of the 300 basis point variance our cash same property NOI NOI guidance of six to seven per cent. So.
And our and our GAAP and three to four per cent for that 300 basis points. So you know I'd say ex COVID-19 ex COVID-19 and the deferral collections, it's about four and a half to five 5% from a cash basis.
Okay.
Alright, and then finally for me just as you think about the acquisition pipeline.
Can you talk about how big it looks overall today and.
And what percent might be O P unit deals.
Hi, Jamie it's Howard nice to hear from you.
Oh, well, we announced we have about $280 million under LOI or contract.
And we really we really don't talk much about what the mix up until we announced the transactions.
That said and we're really optimistic.
About more upbeat transactions and I can't comment on what might be and play but.
And that that audience and.
Or group, let's call it of owners.
You've heard us talk about them for many years now they continue to age and.
You know really there, they're really a hidden heading toward making their major life decisions and.
All of the up rebuilds, we did during the year for exactly that people that are well into their eighty's and doing a state planning, there's tremendous tax efficiency around around and go Pee transactions.
So yeah, we're optimistic that we'll be able to talk more about those but otherwise. The pipeline is very strong are you know I think today you know behind that.
And that $280 million in terms of sort of the top line of what we track you've seen US show you some of the for heat maps of those properties.
Between the one week one month six months in terms of the top of the list, there's probably 200 million square feet of a product that we're tracking.
And I'll give you an example of how deep the pipeline was lost last year, we made offers.
On $22 billion worth of product, that's 540 for L O I's.
The year before was both it was about half that amount in terms of the valuation of those otherwise so the pipelines growing and so you know you're in and you're out we're just getting better and what we do and the opportunity set for US is growing and obviously you know we focus on our catalogs.
Catalogs and these off market type transactions, which is really the differentiator and our marketplace.
And Jamie This is Michael I, just wanted to add some color to that if you put yourself and the shoes of one of these longtime owners.
And you know they they've owned and infill southern California in many cases for many decades and and they understand and appreciate this market. They know it is the strongest market and the country.
By far and and and when they look at Rex right. It's a truly unique opportunity there's no other industrial REIT and the country. That's solely focused on infill southern California, and what we hear repeatedly from these owners as they're very reticent to consider and upgrade with a and another.
Another REIT, that's diversified across the entire country, because any other market would represent a dilution and quality relative to what they already own in terms of their market presence and.
And long term tenant demand fundamentals and so rest and really is a unique solution for them and and the other factor that could play a role as we move forward as the potential for the 10 and 31 exchange tax treatment.
To be removed from the tax code and if that happens that's going to really we think drive incremental demand towards the upright so long as the up REIT structure survives and we haven't heard otherwise.
Because it'll be virtually the only solution for folks to monetize the value of the property on a tax deferred basis and continue the growth in a manner that they could with Richard So you know for a range of reasons, where we're pretty excited about the overall opportunity going forward.
Yeah.
Okay. Thank you for your thoughts.
Yeah.
Our next question is from.
Emmanuel Korchman with Citigroup. Please proceed.
Hey, everyone just over time your average.
Lease size for I guess that can we try and switched to average tenant size. It has ticked up is that sort.
Sort of you know.
Bye.
By design or is that just happened based on the mix of assets you've been able to buy.
Well I think a lot has to do with the assets, we've been buying and Oh, we there was a time, where we could buy multi tenant industrial at a tremendous discount and two.
A day multi tenant is fairly attractive to people and selling at full value.
And you don't see us buying a lot of a lot of those type of a product and that type of product anymore.
And so because we're buying assets and have bigger tenants is obviously the average tenant size.
Growing and we've also sold off several of those multi tenant projects as well. So that's had an impact too.
Our average.
Size and the portfolio and that was about 20000 square feet.
And and that's moved up from for previous you know I think and even today. If you look at the leasing we did I think the last quarter and the average size of lease was about 17000 feet.
Right and then just looking at G&A and into next year, It's a pretty big ramp is that just.
Based on where the equity is and and just natural inflationary G&A growth or are there. Other investments for you guys are making as as youre growing as a company.
Yeah, Hey, Matt and Laura and.
And as you've seen as you've all seen we've experienced a really robust growth and our overall asset base.
Over the last few years and then you know over the prior two years alone we've added $2 billion about that sharp portfolio.
Last year, our market capitalization and grew nearly 30 per cent and and 2020 and the full year of 'twenty and 'twenty. So you know at the same time, our G&A as a percentage of revenue and which was about 11, 2% and 2020 and it certainly trending and the right direction and and we believe for we're closing the gap relative to the peer average.
I'll note that I think it's important to think about kind of where we are in terms of nearing the completion of building out our platform and it certainly makes the G&A comparisons are more difficult relative to our peers that you know may.
May not be growing up and St pay so we do expect that our G&A ratios, well will level out and and and we'll begin to see a decline and the near term as we've built out the bulk of our platform and one other note in terms of our G&A is that you know about one about $17 1 million of our G&A is noncash.
Compensation and it was related to non cash compensation.
A desk as well as some of the cash performance and compensation is tied to our overall company performance. So.
Our guidance assumes and Max level payout related to and I said sheathing and Max performance. So we believe this is the most conservative way to provide guidance, but all that being said if we don't perform and at these Max levels that we want to achieve these protect those levels of G&A that we've guided to a just as an example, if we achieve.
Our target performance versus NAV performance, and 2021 that equates to a reduction and and the cash G&A of nearly $2 million.
And Manny this is Michael I think the other part of your question around and we're making sort of inc. Interesting incremental investments that might be and part representative within that G&A and I think that's absolutely. The case not only are we still very much a growing company I think theres no and there's no industrial read that grows anything close to the way rexford.
Is growing.
But I think if you look at the and chroma investments, we do make it drives the return on G&A that I think is also unique in our sector and I'll just give you a couple of quick examples.
So you look at the investments that we make for instance, and our originations capability.
And and by that I mean, we have a dedicated research team a dedicated marketing team and and acquisitions team that in terms of sort of I would say just size and and.
And quality and depth of expertise.
It is substantial and.
And if you look at it and and looks very different than probably any other industrial REIT and you know in our sector.
And then if you look at the return on net investment well, we made about $1 $2 billion of investments last year and a full 75 per cent of the transactions for through off market and lightly marketed transactions, which are a direct result of that incremental investment and which in turn drive substantially better economics and return on investment return on equity.
As compared to just typical institutional type yields and and investments have they been marketed transactions and.
And then if you look at and and you all are I think and mostly on the phone and have met with us have CNR our acquisition pipeline workflow system, that's 100% digital and enables us to drive that tremendous volume of work flow and we haven't we've invested and create a similar system on the leasing side.
So leasing a restaurant as a 100% digital and we tried to squeeze all the latency out of the system and that's why you see us handling the growing volume of leasing activity is still driving sector, leading spreads and and and record volumes for rexford year over year, and we take a similar approach and how we service our customers and.
How we operate the company internally. So it's a company that's very focused on innovation and and that does drive some of the incremental G&A, but it has very substantial long term ramifications, including the ability to hire fewer people you know are proportionate to our growth going forward. So we really as I mentioned in my prepared remarks, we see substantial operating leverage building yeah.
Through the company as we grow.
Thanks for that Michael and just a final question for me on the occupancy guidance.
It looks like that sort of mid point decline is it similar to the one going into 2020 that was given with 19 results.
Is there anything specific that you think may expire or is that just using sort of that average.
Absorption and turnover number and and just applying it as if this was a more normal here.
And any.
First I want to note a change and our occupancy guidance. This year and previously we have we have guided on yearend occupancy and our guidance number now is our average occupancy for the full year.
I think this metric more directly as reflected in NOI and and so and that's hopefully helpful for you all.
So for 'twenty and 'twenty, one other comparable 'twenty and 'twenty one pool. The average occupancy was 97, 8% and 'twenty and 'twenty. So the midpoint of our 97 for 97 and a half guidance implies around a 50 basis point decline in occupancy.
We have about 425 million square feet of total leases are expiring and 'twenty and 'twenty, one and while we're seeing great activity and strong demand yeah. There, there's still a lot of black and blocking and tackling and that remains and and as you know the pandemic pans and it continues and I'm, sorry, and he does as well so yeah at this point, we feel that our.
Guidance is prudent.
Thanks, everyone.
Our next question is from Dave Rodgers with Baird. Please proceed.
Yeah, Hey, everyone.
Right.
Right.
Quarter.
And underlying market right.
Okay.
Yeah.
And what developers and.
Channel.
Uh huh.
Yeah.
And the market.
Hi, David I'm, sorry, I don't know if the other is good here, but if you wouldn't mind.
Repeating and maybe take yourself a little closer to your Mike. It was just really you were breaking up there and my.
Apologies this is better.
Much better debt.
Alright.
And I guess it really came back to your leasing spreads were strong you mentioned and that just a moment ago, but I wanted to get at more of the underlying market rent growth trends and and kind of the underlying economics of the markets. Now that you can kind of look back three four quarters from pre pandemic through the worst of it and and now what seems to be much more normalization and give us an update on kind of where the market.
Trends are.
Yeah.
Hi, Dave its Howard.
And so I think just you know.
Boots on the ground today I'll tell you is that it's there's nothing short of astounding and what we see in terms of rents.
You know, we typically for free forecast our earnings each quarter. The team seems to be doing it now weekly I mean, it's unbelievable, there's such demand for space.
And rents are growing so quickly and I'll give you a great example, we just finished construction on a 335000 square foot park and the inland Empire West.
These 10 buildings with 10 space or other 10 spaces and six buildings that was about 18% leased at the.
And of the year.
And I think we're just about now 48 per cent lease with some other leases signed and a couple about to be signed and.
And rents are up 20% above what our market rent assumptions were.
And you know you're talking about rents that are literally changed five or 10 cents within the past month.
So it's pretty hard to look back from prior quarters, right now and and garner.
And some trends just from that there's just there's just so many different.
Different industries coming and into the market in terms of existing users that are growing and businesses that are doing well you got the <unk>. The E Commerce and packs are you know, there's there's a tremendous amount of leasing.
But we're doing now for companies that are trying to separate a bit from selling through through Amazon or even just having amazon carry their products and their warehouses versus distributing themselves.
So it's just it's just a lot of blocking and tackling other ground right now its really exciting and Oh, it's going to be interesting to see where things go this share.
When you talk to a lot of the brokers and and look at projections are and it seems like high single digit rent growth.
And things are headed for 2021 and most of the markets.
Howard do you want it and also just I think relevant to that average.
You want and give a sense for where the annual bumps and one thing that's really unique car market is that our leases have for the most part predominantly have annual rental rate increases and and Howard you on Saturday, and where we see that going and the year to day activity in that respect.
Yeah, we we've really kicked up for the push in terms of growing rents and faster than the three per cent per annum and and leases and we're starting to have some real traction on a per.
And I just mentioned to you and we just delivered.
All the leases were setting there have 3.5% increases and.
There's a $1 1 million square foot Industrial Park, we have and in the inland Empire West server Premier.
Complex with mid day dock by type space, and we're now doing a 4% increases across the board on all the renewals and new leasing over there.
So, we're making a big effort and the rolling this out to all of our product and and I think really we implemented that Joe at the beginning of the year. This this other push so.
Stronger growth for her.
And that's great and then just one follow up on the acquisitions, obviously big increase and acquisition volume for the last two years.
And how much of 'twenty and 'twenty may have been driven just by by early fear that might attempt some people's hands and wanting to get out and and maybe that and at the same time. It took some of your competitors out of the business just for a couple of quarters and now maybe they are coming back and I guess the question is really geared to what is going to stop acquisitions from being at or above.
Last year's levels or is there anything really outside of economics that do that.
Well your ear to ear, we really you know we don't offer guidance on acquisition acquisitions, because we just cant predict whats going to happen.
And you know earlier in the year, yet, yes, you're right. We did have a slowdown and the pause a lot of people are on the sidelines, where we were still active a bit but you know certainly thinking differently initially from the pandemic.
But most of our acquisitions occurred and the fourth quarter.
Yeah, we had $875 million worth of back for the acquisition that Sir.
And again I mentioned earlier the pipelines deep we certainly have high hopes for where we might go up but you know we just can't predict it's hard it's hard to predict really what ultimately happens throughout the year.
Alright, thank you.
Our next question is from Sarah Pan with J P. Morgan. Please proceed.
Hi, This is Sarah on for Mike Mueller, just two questions from me. The first one is on the competitive landscape and.
He told me a bit about that popped up that's cheating and St.
And the checkpoint for and also prevailing cap rate that you're seeing and the second one day could you comment on getting increased quote activity and the impact on your tenant.
Well I'll take the first one and then Michael Michael and maybe you want to address the porch.
And as far as competition and the marketplace.
We're certainly seeing a lot of capital shifting out of some of the other sectors and we're studying and industrial is a great place to be.
But they have limited access to our market there, they're really going to be focusing on more marketed transactions that Michael described earlier the size.
Size and breadth of our acquisitions team and our.
Our business model is to focus on Oh, lightly marketed and and truly off market and transactions were.
And we really don't compete against anyone or very few people and.
And I gave some numbers earlier about the amount of L O I's.
Right and then a year I think our I think we're our own greatest competition and we could be buying a lot more product.
It really just gets down to some of the underwriting criteria that we apply.
And whether we inbound or or pass on different opportunities or whether they're just not right.
And to be able to buy so you know, there's there's always been a lot of capital and southern California, There's no secret there hasn't been one for years that we're really the best market and the country, though and industrial product.
And the difficulty that was just accessing the market and we've created a differentiated business that allows us unique access to the market.
And I'll just comment briefly on the ports, we have seen a tremendous amount.
And that record port volumes for the year up just under 3% for the year compared to 2019.
19.
Yeah, and we obviously, we saw a substantial surge and the second half for the year and part pent up demand being sort of re entering the market.
But also reflecting you know really strong under underlying consumer consumption.
Consumption and demand so yeah.
And we continue to see that there's a backlog at the ports of southern California, and number one and number two largest ports in the country L. A and long beach is a substantial backlog of ships anchored off shore.
Which is not uncommon, we've seen that and prior prior periods peak peak peak distribution periods.
And they're working through that you know partially caused by some pandemic related share.
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Loading and.
The containers at ports, and which as you know being resolved.
Net net we see extremely healthy volumes through the ports and our.
And as a reminder, by the way.
One of the important elements of the rexford position and portfolio and infill Southern California is that we are predominantly driven by consumption so and prior periods. When we've seen disruptions and the ports, we have not seen this disruption and our tenant demand.
Figure out how to get the goods that they can't get it through the ports.
Yeah and then.
And depending upon which research.
And would like to believe probably upwards of 50 per cent or more goods imported through those two ports are actually consumed locally and regionally and so that's it's a reasonable consumption and that's the key driver.
For our the bandwidth and our tenant base as opposed to some of the big box tenants and non infill locations and they're gonna be disproportionately driven by changes in and port volumes or a global logistics and shipping trends et cetera.
Thank you.
Yeah.
As a reminder, the star one and your telephone keypad, if he would like to ask a question. Our next question and.
And from then Shaban with Green Street Advisors. Please proceed.
Hi, good morning, given the success of your recent bond offering how are you thinking about potentially repaying some of your existing debt early ahead of maturity and order to lower borrowing costs and extend the overall maturity profile.
Hey, Ben it's Laura Thank you for joining us today, and and welcome to any other industrial sector coverage.
You know we are we're constantly evaluating the evaluating and our debt maturity profile, and especially you know and especially that the the rates and the market today is certainly very attractive.
And then and they were really focused on maintaining our very strong investment grade profile and you know where that we ended the year with a low net debt to debt to EBITDA at four times at the low end of our of our current range. So.
It's and as I said anywhere, we're constantly evaluating that and and rates continue to be very attractive.
No. Thank you for that but just maybe to clarify or follow up like the term loan facilities that are now in the next two unsecured debt that's coming due and could you pay those without penalty or there something if you are going to prepay. The swaps there would be some kind of no real cash outflow there.
Yeah. There is a there is and where they are pre payable debt. There is a swap termination charge that we would incur.
Got it thanks.
One more for me I know you know and the past and describe some of your acquisitions and different deals and a core core plus value add I'm. Just curious how you think about the different return thresholds for each and just if you were going to categorize your 2020 acquisitions and total how would you what would be the rough mix maybe between those buckets.
Hi, Vince it's Howard.
Well first of all we we don't we can't really predict year to year, what what that bucket will look like in terms of the mix between value add or or core and even core plus when you look at 'twenty and 'twenty acquisitions are turned out to be a year that we were able to buy more core then and we've been able to.
And in many many years, which are which we're real pleased with frankly, so the value the value add was a it was a bit lower in terms of the component of acquisitions for 'twenty and 'twenty.
Interesting, though we you know we look we announced some transactions for 'twenty and 'twenty, one we've closed about $95 million.
And half of those transactions are value at and terms and in terms of yields.
Uh huh.
And I'd point, you really do our repositioning page, where if you if you look at the.
Both the repositioning and and some other redevelopment projects.
For the yield that we're projecting or or very similar achieving just just below 6% return on total cost for both types of a project. So you know.
Clearly, there's there's a huge value we're creating in the marketplace that you see today assets that are stabilized and marketed trading at sub four.
Yields or to get all the growing amount of investors clamoring to get their hands on the product here and all markets.
By the way just to add a little I'm really alert for that to just add a little more color to that.
Debt activity that we generated last year and and in recent years. If you look on a go forward basis in terms of the embedded NOI growth embedded in our current portfolio, assuming we didnt buy another asset and we're looking at it for 23, almost 23, 5% NOI growth potential embedded and the current portfolio over the next 18 to 24 months.
And roughly roughly you know, that's that's over $62 million and incremental NOI projected and and roughly a third of that is coming from Q4 acquisitions alone.
And even more interesting to me is a third of that well over $20 million is expected to be derived from repositioning assets as we stabilize them and lease them up and those are some of the more value add core plus type yields that you also were asking about so.
You know the company really is well positioned.
But it's driven by the balance of investment activity, you know that you're sort of asking about and but I think it's really interesting. If you look forward at the incredible impacts that that these investments are scheduled to have.
That's great color. Thank you maybe just one more quick follow up if I could just is.
Is there any caps in terms of you know how much future repositioning or value add and you want and your portfolio before it's stabilized or do you think it's a good deal and the market does this hot youll kind of take the deal that you think will deliver good returns.
You know, we don't really look at deals in terms of the heat of the market number one.
And let Howard address that but you know whether the market is hot or cold you know are investing discipline, whether the stock is trading and the perceived high or perceived low value. You know those are not the primary drivers of our investment criteria activity and I'll, let Howard address and otherwise.
Yeah, No I was just going to say and we've spent the past 18 months.
Rebuilding our team in terms of the design and construction growth that the company to.
And to grow our capacity so we have some very seasoned.
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Architect now that that came from and highly prolific and industrial.
Architectural firm.
So you know, where we're gearing up and Oh, we actually can handle quite a bit more in terms of the projects.
But we're doing right now.
So it's an exciting aspect of the business and and.
And that's already pointed out the the yields that we're able to achieve through the type of work so.
It's a it's an essential component of what we do it and we hope to be able to grow and do even more than you're seeing currently on our repositioning page.
Great things for the time.
Thank you. This does conclude our question and answer session I would like to turn the call back over to management for closing remarks.
Well on behalf of the entire Rexford industrial team want to thank everybody for tuning in today and want to thank you for your interest and support of Rexford, We wish you and your families well and healthy and we hope for vaccination soon for all and thank you again, and we look forward to connecting and about three months.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yeah.
Okay.