Q2 2021 Rexford Industrial Realty Inc Earnings Call
Okay.
[music].
Greetings and welcome to the Rexford Industrial Realty second quarter, 'twenty, 'twenty, 1 and earnings call.
This time, all participants are in a listen only mode and <unk>.
And and answer session will follow the formal presentation.
And when should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
At this time I'd like to turn the conference over to David Lanzer General Counsel and Mr. Atlanta, You may now begin.
We thank you for joining us for Rexford industrial second quarter, 2021 earnings conference call and.
In addition to the press release distributed yesterday after market close.
Most of our supplemental package and the Investor Relations section on our website at Www Dot Rexford industrial dotcom and <unk>.
Today's call management's remarks, and answers to your questions contain forward looking statements as defined in the private Securities Litigation Reform Act and <unk>.
1995 forward looking statements address matters that are subject to risks and uncertainties.
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 other SEC filings pressured and industrial assumes no obligation to update any forward looking statements and the future.
In addition, certain financial information presented on this call represents non-GAAP financial measures our earnings release, and supplemental package present, GAAP reconciliations and and explanation of why such non-GAAP financial measures are useful to investors today.
Today's conference call is hosted by our co Chief Executive officers, Michael Frankel, and Howard Schwimmer, together with Chief Financial Officer, Laura Clark They will make some prepared remarks, and then we will open the call for your questions now I turn the call over to Michael.
Thank you and welcome to Rexford Industrials second quarter 2021 earnings call.
Today I'll begin with a brief overview Howard will then cover our markets and transaction activity and Laura will discuss our financial results. We will then open the call for your questions.
Our team continued to deliver exceptional results through the second quarter.
We closed $257 million and new acquisition.
And from an operational perspective, a robust $2.2 million square feet of leasing produced 98, 2% occupancy and our stabilized portfolio.
Re leasing spreads continued at extraordinary levels, averaging 21% on a cash basis and 34% on a GAAP basis as a result, our strong internal and external growth produced year over year core <unk> growth of 36 per cent and 22% on a per share basis.
As we enter the second half of the year, the California economy shows robust growth and continued reopening industrial.
Industrial tenant demand remains at historically high levels, driven by strong secular growth across a wide range of industry sectors.
In addition, acceleration and e-commerce is driving shifts and supply chain and last mile distribution strategies.
Further he emerging e-commerce and technology enabled new businesses are intensifying the growing need for infill locations.
From our vantage point, we believe that there that we are still in the early stages of these long term market shifts which are expected to drive ongoing growth.
Portfolio is particularly well positioned as our properties generally represent mission critical locations for our tenants and as rent typically represents a very small share of our customers' economics. We continue to see a favorable degree of price elasticity in terms of our ability to drive rent growth.
On top of historic rent spreads and rental rate acceleration, we are increasingly obtaining contractual annual rental rate increases above the historical 3% norm for.
For example, more than half of the second quarter's leasing activity achieved contractual annual rental rate increases above 3% and as high as 4%.
As we scale, our retro operating platform and deepen our market penetration, we are harvesting the benefits of more strategic relationships with our customers and expanding our proprietary access to high quality investment opportunities within infill Southern California.
We also expect to see the companies operating margins continue to increase as we leverage our sector, leading NOI and cash flow growth.
Looking forward from an internal growth perspective, we project approximately 20% embedded NOI growth equal to $64 million within our in place portfolio over the next 18 to 24 months not including additional acquisitions.
We're also pleased with our near term external growth prospects with over $650 million of new investments under contract or accepted offers.
The magnitude and quality of our growth opportunity is substantial.
As we grow beyond our current 1.8% market share.
To put this into perspective, our target infill southern California industrial market is exceptionally large and would rank as the fourth largest market and the world behind only the entire United States, China, and Japan and size. Our market is also highly fragmented with about 50% of our 2 billion square foot market built.
Fire to 1980, which translates to an expansive opportunity to create value by enhancing the functionality and cash flow of the nation's highest demand industrial locations.
Finally, as our teams performance speaks for itself, we'd like to acknowledge and thank the entire rexford Kim as you continue to prove yourselves as the most dedicated and high performing team and our sector and with that I'm very pleased to turn the call over to Howard.
Thank you Michael and thank you everyone for joining us today.
For the second quarter Rexford leasing performance without was outstanding reflecting the high quality of our portfolio and the strength of our infill markets.
Across the nearly $2.2 million square feet of leases signed and a quarter, we achieved cash and GAAP spreads on new leases of 25 per cent and 39% respectively and.
19% and 31% respectively on renewal leases.
We continue to see rental rates accelerating at unprecedented levels.
Based on our internal portfolio metrics market rents within our portfolio increased by 16, 8% over the prior year.
And looking forward the company is well positioned from an internal growth perspective, our consolidated portfolio weighted average mark to market per cash rents is estimated at 19% Mark to market for the 1.8 million square feet of leases expiring through the end of the year is estimated at 24 per cent.
With essentially no land availability and within our southern California infill markets supply constrained and have driven vacancy rates to all time historical lows.
According to CBRE, our target markets, which exclude the inland Empire East ended the quarter at 1.5% vacancy.
Remarkably over half of the infill market ended the quarter with vacancy below 1% and as lowest 0.4% and some.
Some of our larger submarkets.
Turning to external growth year to date, including transactions closed since quarter and we've completed 21 acquisitions for an aggregate purchase price of $470 million, 86% of these investments were acquired through off market or lightly marketed transactions enabled through our proprietary.
The research driven sourcing methods for.
For the second quarter, we completed 10 acquisitions, which included 800000 square feet of buildings, plus 15 acres of low coverage outdoor storage sites and land for future redevelopment.
Half of the investments came in with meaningful cash flow and an initial inbound estimated weighted average yield of $4.6 per cent.
The remaining 50% of our acquisitions are value add with little to no initial cash flow.
Our second quarter investments are projected to generate and aggregate stabilized yield on total investment overtime, a 5.2% with anticipated growth thereafter.
After quarter, and we completed 2 acquisitions for $49.2 million, comprising 15 acres of income producing covered land and a pre leased vacant industrial outs outdoor storage site with a combined near term aggregate stabilized yield on total investment projected at 5.1% with <unk>.
Thereafter.
Looking forward over $650 million and new investments are under contract or accepted offer which are projected to close during the second half of the year Easter.
These transactions are subject to customary due diligence with no guarantee of closing we will provide updates as transactions are completed.
Turning to redevelopment activities, we stabilized 2 properties totaling 395000 square feet during the quarter, achieving an aggregate stabilized yield on investment of 7.1%.
These included the renovation and lease up of Arthur Street, a 61000 square foot building and the mid counties Submarket, where we achieved and initial unlevered stabilized yield of 7.9% on total costs.
And the construction and lease up of the merch and 334000 square foot 10 unit industrial complex in the inland Empire, West, where we achieved and initial unlevered yield on total cost of 7%.
The merger is representative of Rexford innovative business model and the incredible strength of our markets. Our vision was to create product positioned to satisfy substantial unmet tenant demand and the market by delivering modern 20000 to 45000 square foot warehouse spaces.
Rental rate growth has been so dynamic that we marketed the spaces without asking rents and experienced significant competition from tenants driving rental rates up 47% over 6 months of lease up.
At this time, we have approximately 3 million square feet of current and planned value add and redevelopment projects across our portfolio.
Of these current projects encompass 1.2 million square feet of buildings and 9.5 acres of outdoor storage sites.
Her detailed in our supplemental.
And our estimated to deliver and aggregate return on total investment of over 6% reps.
Representing substantial value creation compared to the below 4% cap rates and today's market.
And with that 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.
Second quarter stabilized same property NOI growth.
Our expectation at 10, 1% on a GAAP basis, and 22% on a cash basis.
And by strong portfolio performance.
Turning to prior year average occupancy is up 100 basis points to 98.5% leasing spreads are up 35 per cent under GAAP.
Over the trailing 12 months and bad debt as a percentage of revenue. The same property pool was a positive 40 basis points compared to a negative 130 basis points and the second quarter of last year.
As a reminder, the bulk of our short term deferral agreement, although not at all for granted and the second quarter of last year positively impacting this quarters cash same property NOI year over year comparison.
And so these impact cash same property NOI growth was a robust 11, 3% and the quarter and $9.4 per cent year to date.
Our tenant base continues to perform extraordinarily well ranked collections continue at pre pandemic levels with second quarter and year to date collections of contractual billing at $98.6 per cent and 98, 7% respectively.
Bad debt reserve as a percentage of revenue for the quarter, where and nominal 10 basis points of revenue and 30 basis points year to date.
These strong results collectively enabled us to growth core <unk> per share by 22 per cent to 39 cents per share.
Turning now to our balance sheet and financing activity. We continue to maintain our best in class low leverage balance sheet, which supports our opportunistic and internal and external interest and activity.
As of June 30th net debt to EBITDA was 3.8 times below our target leverage of 4 to 4 and a half times with net debt to enterprise value at 12%.
During the quarter and we executed a number of accretive capital markets transaction.
And may we completed afford equity offering for expected growth pricing a $500.4 million.
We also have issued $15.6 million of equity on a forward basis through the ATM program.
And Jan we repriced, our $150 million unsecured term loan b and reducing the spread by 50 basis points over LIBOR equating to annual interest savings of approximately $900000.
Finally, we increased the borrowing capacity on our unsecured revolving credit facility by $200 million to a total of $700 million.
Further bolstering our strong liquidity position.
Subsequent to quarter, and we announced and redemption of our $90 million every day cumulative redeemable preferred stock carrying a coupon of 5.875 per cent.
At quarter, and we had approximately $1.2 billion of liquidity and cash.
And $64 million of cash on hand, approximately $395 million and afford equity proceeds remaining for settlement and full availability on our 700 million dollar and credit facility.
We also have approximately $508 million available under our ATM program and no debt maturities until 2023.
Now turning to guidance.
We are increasing our full year projected core SSO range to $1.48 to $8.51 per share from a previous range of $1.41, and $2.44 per share.
The revised mid point of our guidance range represents 13% year over year aircraft.
Consistent with our practice guidance does not include acquisition disposition or balance sheet activity and have not yet closed to date.
Note that the afore mentioned preferred redemption is included in guidance given that notice has already occurred.
A roll forward of detailing the increase and our guidance is included in the supplemental package highlights include the following.
Same property NOI growth has been increased by 200 basis points at the midpoint to $5.75 per cent to 6 and 7.5 per cent on a GAAP basis, and up 225 basis points at the midpoint on a cash.
To 9 to 10 per cent.
And by our strong performance to date and expectations for the remainder of the year.
Average occupancy and a stabilized same property pool is up 50 basis points at the net point and is now expected to be and $97.75 per cent to 98.25 per song.
Consolidated bad debt expense as a percentage of revenue is projected to be 70 basis points for the full year near historical averages and improved from our prior projection of 110 basis points of revenue.
Other notable drivers included a contribution of 4 cents per share from the acquisitions closed during the quarter and subsequent to quarter and 1 cent per share from incremental NOI related to redevelopment and repositioning projects coming in ahead of expectations plus 1 cent per share related to the preferred redemption occurring at August.
Before we welcome your questions I would like to highlight another significant second quarter accomplishment for our rexford team and.
In April we issued our annual environmental social and governance report demonstrating our continued commitment to leading ESG practices and disclosure.
Yes. She is at the core of Rexford purpose, either differentiated business model and reinventing industrial property within Southern California is dynamic and so market uniquely positions rexford to deliver value and environmental economic and social benefits.
This completes our prepared remarks, and we now welcome your questions operator.
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1 moment, please while we poll for questions.
Thank you. Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.
Great. Thanks, Good morning, 1 probably for Lora to start out you guys were pretty conservative in the way you accounted for deferred cash rents and their effect on same store cash NOI in 2020, but as we look at this year's results, obviously that headwind of mist cow cash collections.
And it's turned into a tailwind as you recover those deferred rents are we appreciate the added disclosure around this quarters results and the benefit from from those repayments, but can you also quantify how much those repayments might be contributing to full year 2021 cash same store NOI guidance.
Yeah Blayne. Thanks, so much for joining us today. So in terms of our cash same property NOI and and the year to date and the quarter to date as far as the year to date.
And our guidance and so on a unlike in 2 Q COVID-19 related deferrals impacted and as you as you mentioned did impact our R..22 per cent reported number. So if we exclude those COVID-19 related deferrals cash flow property NOI would have been a strong 11.3 per.
That compared to about 22% re recorded and $9.4 per cent year to day and that compares to the $14.8 per cent that we reported.
For the full year Covid related deferrals represent about 150 basis points.
Of the 325 basis point spread between our cash and same property NOI growth guidance.
Excluding the Covid related deferrals, our same property NOI cash guidance isn't the 7 and a half to 8 and a half per cent range.
Great that is very helpful. And then second question from me and maybe a little bit more of a big picture question for either Howard or Michael can.
Can you guys talk about the regulatory environment, especially in light of the newly proposed emissions rules and the inland Empire.
Require operators to offset their trucking pollution.
1 do you see those types of rules and added operator expenses hampering any of the future rent growth you guys are expecting and your markets and number 2 do you think this is just a 1 off type of regulation or kind of a foreshadowing of of what's to come and markets across the country.
Hey, Blaine, it's Michael and a great great too.
Here you today, thanks for joining.
So numerous embedded questions in there, but number 1 the emissions.
It's an indirect tax basically targeting trucking use and trying to minimize emissions from trucking NUCYNTA warehouses and its indirect and the sense that they're taxing operators inside the warehouses by the way not landlords, it's actually the tenants and Furthermore to qualify for the tax you have to be operating and at least 50000 square feet within a building.
And that is at least 100000 square feet incidentally for Rexford, our tenants we have about 90 tenants out of our 500 plus tenant base that would be potentially impacted so for the record there's really no no no impact of rexford that hasn't been said, we think the maximum attached to those tenants could be about $1 square foot. However, there are many.
[noise] ways with tenants can mitigate the costs for instance by instituting various.
Energy efficiency programs within the property and within the operations and so we expect the tenants themselves will be able to substantially mitigate the potential the dollar per square foot per year tax.
So we don't see the absolute cost and tenants as being material and we don't really see and impact to our forward rental rate growth within our markets certainly given the extreme scarcity of product.
Great. Thanks, Michael.
Our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.
Hey, good morning.
And just looking at the redevelopment schedule you have and the stop.
There are a bunch of projects where yields jumped up significantly I assume that's driven by rental rate growth.
Was just hoping that you could confirm that that's the reason they've gone up and also just give us an idea of how you think about rental rates. When you put out those pro forma yields is that in place now or are those based on where the yields or what are the rents could be once those projects deliver or stabilize.
Hi, Manny it's Howard good morning.
Yeah. So on those yields are we do adjust from quarter to quarter and that's based on where we see rents and the market. Today are we don't we don't just those you know as far as being forward looking once they're on the repo page.
And and essentially when you when you look at our repositioning page, there's about 3 million square feet and there in terms of the current and are some of the future planned projects and about 3 quarters of a million square feet of that $3 million is already either pre leased.
Or at least and and.
There will be some of them are quite a few of those will be stabilized and reported next quarter that apart from drawing.
Even the third quarter.
I think I got all your questions and I missed anything there.
No I think I think that was that and.
And then just looking at the pipeline of deals you have coming.
You guys have been buying a lot of.
I guess covered land plays or maybe they're better than cover given the once youre getting on them, but how much of the pipeline is made up of those types of deals versus.
More of your traditional.
Warehouse, our logistics assets.
Yeah without getting into too much detail because you know some of these transactions and that may or may not close.
We do probably see a little bit of an uptick and and some of the covered land plays Oh, we've identified some some opportunities that are providing substantial cash flow.
The 1 thing I might also point out is.
And our markets Theres been a lot of development and previous years or some of these low rise office structures on industrial zone land and we're starting to put a little bit focus and into buying a few of those oh and 1 deal we closed after quarter end and <unk>.
San Diego.
Alright.
And we presented some data on that and are reporting on rough and road.
You know that that deal has some some improvements on it that we're gonna be basically waiting for the burn off but you know we bought it at a 5.5% yield.
And so you know those are those are pretty attractive opportunities, we're buying and basically a land value.
And so you'll see you'll see us starting to report a few of those as well.
But thank you Howard.
Yeah.
Our next question is coming from the line of Dave Rodgers with Baird. Please proceed with your questions.
And Mr. Rogers, you alive and your line is live for question.
Can you hear me now.
Yes.
Right, Thanks, sorry about that guidance maybe.
And maybe start with Howard on the lease diversity front in the past you've given some color on kind of where the leasing is coming from curious more on the changes that you're seeing into the second quarter if any.
And where you were and the first quarter and how you finished 2020.
Well I'd say.
And if anything we're seeing even more diversity of uses that are that are coming into the properties.
You know, obviously e-commerce type uses.
Or are abundant and that but.
Just in the last quarter.
Looking at sort of our leasing and if it did some food and beverage type transactions restaurant supply and there was and it wasn't entertainment lease and home improvement construction materials.
Furniture and medical biotech repeals.
You you name it it's showing up in and our and our product.
And you know, where we're just lucky to be and 1 of the most diversified markets and in the countries and not reliant on any 1 industry, that's supporting a lot of the leasing activity.
Yeah.
Thanks for that Howard I think Michael you made the comment in your prepared remarks regarding tenants and doing more with existing customers and existing tenants I guess I was curious on 1 front is that doing more leasing with existing customers and I guess, what's the percentage of return visits with your customers or was that with regard to maybe do.
And more sale leaseback or purchase transactions with some of the customers you have and I was curious around that front as well.
Hi, David Yeah, No I appreciate the question and we are we are seeing an uptick in an existing tenant expansions within the portfolio. So that's very encouraging and but I think it's also a function of our scale and the market. So that's why as we increase our scale and the market and our market share we should expect that to increase but I think fundamentally what I was also referring to was you know rexford is staying.
And a much more proactive approach given our scale leveraging our scale and the market and an example of that would be the establishment of our customer solutions capability and we create a new division last year during the pandemic and the mandate there is to through our own research and.
To identify emerging tenant demand in the market and and some of that is existing tenants and a lot of that is our tenants and companies who are not yet.
Rexford tenants and and that.
And so we're becoming much more proactive within the market and and that's an exciting development for the company and frankly.
We're already seeing tremendous results.
There were no longer just talking to a tenant whether they are an existing tenant or a new tenant about 1 space or arent on expansion and a single lease were.
We're and strategic discussions with a range of tenants now whose needs are 20 or 30 spaces within infill Southern California and.
And so it's a really terribly exciting time for us from from that perspective, and and to Howard's comments in terms of where that demand is coming I mean, it is truly a <unk>.
I mean, Howard mentioned that the building industry and I think just take the building industry is 1 day when 1 example, and.
And California, the local municipalities currently have a mandate to increase the housing stock.
By 20%.
And that's not something that gets done and a year that that's not something that gets done and 5 years, that's going to be a long term project literally on a municipality by municipality basis day, Theyre, putting incentives out there to drive development and and whereas historically and we might have thought of that as more of a cyclical or seasonal business almost a we're looking at some very long term demand growth in that sector.
Alone.
Think about the electric vehicle market and there are a range of the emerging businesses and technologies that are enabling legacy retailers compete more effectively with Amazon. They're also enabling the emergence of new businesses that didn't exist they werent even in our demand.
Pipeline, 2 or 3 years ago and then.
And we're looking for a substantial amount of space within our market. So I would say that the infill distribution market and last mile and it's an incredibly dynamic environment right now and and I think from you know as I mentioned and we really are seeing ourselves right now the early very early stages of these shifts and.
Exciting for the company, because it's really just driving enhanced value for.
For our spaces and for our portfolio.
Yeah, and and Dave I'll add just a little bit more to that.
And 1.2 million square feet of new leasing and a third of them were expansions of existing tenants about 400000 square feet.
And so we're really doing I think a really superb superb job of working with our existing tenants and identify their needs.
And it and it really it really smoothed the transaction process, where we already know what tenant and we're not trying to bring somebody new and the portfolio as well. So it's really a benefit to both sides of these lease transactions.
And and you know related to that I think what we're seeing a part of it 1 of the drivers.
And you know kind of outsized NOI growth if you will has been.
Literally the lack of downtime.
And when they need to renew a tenant or a rather and we need to re tenanted space and also we have a range of spaces that were slated to go into a redevelopment or repositioning, but the existing tenant.
Was able to pay such a high rent just just so they can stay and the market and stay in our space that the yields on those.
Yeah.
Extensions of the leases.
And compelled us to keep the tenant and not go into repositioning because that just gives you a sense for just how dramatic the demand is both from in place tenants and new tenants.
All very helpful. Thank you both.
Sure.
Our next question comes from the line of Jamie Feldman with Bank of America. Please proceed with your questions.
Great. Thank you I guess the first question is just maybe if you could provide a little bit more color on just how things have changed with you know.
With the reopening so far and I know, we may see mass coming back just as we think about kind of the fluctuations and the return.
How is your business change how has demand changed and how do you think we should be thinking about what's ahead.
Yeah.
Well I think Barry go ahead and Howard.
So I'll I'll start just talking about the demand and then turn it back over to Michael.
You know hopefully what what came through in our earnings and some of the commentary is just the fact that we were just in unchartered territory in terms of demand.
Demand is outstanding.
And there's there's tenants competing on every space, we put out there. So you know COVID-19 has not.
And anything but improve the amount of demand and the marketplace.
And that and that continues so.
Talk about.
And what's happening now with some of the new mask requirements and we're not.
We're not really seeing that going to have an impact at all on demand.
You know even today. It was all I was talking to 1 of our leasing people and and Orange County that we decided to put it.
Based on the market a bit early with a tenant who's going to vacate and we already have 3 offers on it and people are competing and it's gonna lease well above.
The projected rents that we had in mind so.
You know, there's there's just no space and there's and there's incremental demand and the market.
And that's why on that project and.
And.
And 1 of her west that I described on our lease up that we're starting and does not even price assets in terms of on the leasing side.
Because you know rent growth is just so dynamic.
And the demand is so strong that each deal literally is setting new market highs and and rents.
And hey, Jamie its Laura 1.1 thing that I'll add and you certainly as reflected in our financial results and our and and whereabouts are lower than that or lower about that is you know it was really driven by a couple of factors and 1 of those and you know the decline and watch list tenants and reserves and that's true.
It really speaks to the health of our tenant base.
And they're performing well as evidenced by our strong collections and our collections are now sitting at.
Nearly 99% from pre COVID-19 levels, and and certainly setting up extremely high occupancy levels as well. So this all resulted in lower reserves lower number of watchlist tenants. The other thing that we're seeing come out of it out.
Out of the tenant base and I think.
And it certainly speaks to the health and close to the demand and the market is that now we've had tenants that were and industries that were maybe more impacted by COVID-19.
And there is now with those tenants now with the reopening and are performing there, they're doing well and theyre paying back you know announced that where do you really even before required under the moratoriums that still remain in place.
Yeah.
I think I'll just add to that just briefly Jamie I mean, I think also overseeing as employers.
<unk> been experimenting with the return to office scenarios.
And I, you know I safe to say that a significant percentage of employers are opting for some some version of a flexible strategy with respect of letting people work from home at least some of the time, it's not all the time and frankly, we're seeing a tremendous pressure as we recruit new people that 1 of them sometimes they are their most important issue.
Is there flexibility and ability to work from home and that's what you've heard even more important than com.
And so I think.
I think the market is really acknowledging or maybe the market will further acknowledge as things open up post COVID-19.
And you know structurally things are going to be a little bit different and they need to distribute goods.
Homes as opposed to just the offices and everything that comes with that.
And maybe here to stay at least at some substantial levels.
That's an interesting point are you are there.
And their new Submarkets that you're considering that maybe you wouldn't and the path.
Well you know our market is the largest regional population and the country. It's the largest zone of consumption and the country. It's by far the largest industrial market and the country. So you know, we don't really and you know where we focus here you know greater L. A orange County is probably 70% of our activity on average.
And then the Ontario market. So you're I think you're just going to continue to see the same focus as we as we did dig deeper and just become better at what we do within our markets.
Okay, and then Michael you had commented.
And the rents are very small share of customer economics, which provides good price elasticity and elasticity can you talk a little bit more about from a percentage basis, what does that really look like the small share.
Yeah, and and the reason we don't give specific percentages is because it really does vary substantially depending on the type of business and for example, if you will.
Just a pure distribution business and all you're doing is moving cargo and boxes and in and out then you rent may be a slightly higher percentage of your overall expense or economics. However, typically even in that scenario the transportation cost of the goods are substantially higher.
And then if you go to the other and a spectrum you talked about a branded company that has got their own.
Product being distributed and the market there their distribution costs. Their warehousing costs are very small exceedingly small percentage of their overall economics, probably and it's been estimated well under I think on the in the aggregate people estimate well under 5% of the expense expense structure for most companies on average, but it varies widely so that's why we're care.
And without putting a yeah.
And the percentages out there.
More specifically and and and I think you know.
Empirically.
The level of <unk>.
Rental rate acceleration and ours.
It's nothing short of.
Standard and I think if you think about the industrial market and in a longer context for instance historical context.
Going back for the last 40 years and our markets has an average rental rate had rental rate growth of around 3%. Some years, a little below some years slightly ahead.
And I.
I think to a great degree, we're playing catch up and and and catch up is being driven by the you know the.
Extreme lack of supply.
And you just cannot cure and you cannot add any material level supply and our markets and we have a critical mass of motivated and institutional sort of proactive owners and the market like rexford, who are pushing on price and and and the tenants are not showing really any indication of fatigue and at this.
Point, so I think between the empirical experience and data that we're having and seeing.
And and the knowledge that we have on our tenants and expense structures and whatnot.
And there seems to be a pretty pretty pretty robust runway ahead.
Okay. Thank you and then just following up to the prior conversation Youre having.
And you talked about electric vehicles as an avenue of growth as you think about your portfolio and what your tenants might be doing on that front do you think there'll be material capex to prepare for that.
Or how should we be thinking about that or maybe that's a strategic advantage that you can have within your portfolio.
Do you think about that transition and what it means.
Well you know <unk> business model is to focus on low finish a generic industrial space and and so typically we're not investing and are developing to or solving to through T is heavy and then.
And factoring heavy Capex type use you know when we when and you look at our Capex numbers. They are very low on a per square foot basis through the years and so that's not a real material part of our business model and the electric vehicle business is everything from the.
The storage and distribution of vehicles themselves. It's the components. It's the assembly of components, it's the battery.
Simply its all and the entire ecosystem. If you will that comes with the electric vehicle industry. I mean, we're looking at an entire industry that is growing and from a very early stage and and so no I think the short answer is we don't see you know that being driven by sort of heavy capex or what you would consider sort of auto manufacturing type uses.
And I think I think also in terms of how we prepare our buildings Jamie for market.
And and back to the original question, a while back about the ATM day rules and how tenants can mitigate some of those incremental costs. There are being subjected to part of that is electrifying their fleets.
And so today, when we renovate existing buildings or hoops construction, if some new buildings.
We're adding a heavier power components. So those buildings, we are providing conduits that bring that electricity to the exterior of the buildings.
And 2.2 points in those yard areas that there are further away from the building just allowing for.
For the future functionality that people are going to need as they need more electric and different places on the exterior of the building to supply and power for charging those vehicles.
And that's a great point and how it makes because remember we're the largest distribution market and the country and we have more truck miles per year than any other market and the country by far. So you would expect that this market to benefit like no other market in terms of the emerging demand for space.
For the electric vehicle industry.
Okay, that's great color. Thank you.
Okay.
Our next question coming from the line of Vince <unk> with Green Street Advisors. Please proceed with your question.
Hi, Good morning, I've, a follow up for Laura on the bad debt side, you mentioned bad debt was about 30 basis points of revenue year to date, but you're expecting it to be probably closer to 70 basis points full year or applying more than 100 basis point from the second half. He was hoping you can provide a little color on.
And you know the reason for the jump and the back half and maybe what's the best way to think about normalized bad debt from the portfolio. Once all the COVID-19 related noise passes.
Yeah.
Hey, that's a great question and thanks for joining US today, Yes. As you mentioned are our forecast for the full year bad debt and me and the total consol.
Consolidated portfolio is 70 basis points and revenue and that does imply a bad debt expense and the second half of the year at about 100 basis points. So are our second half assumption and bad debt assumes reserves that are to similar levels that what we experienced from the second quarter, but what we've excluded from that assumption.
Is any recoveries that could come through and the second half of the year.
Difficult to predict a recovery quarter to quarter.
Especially with the ongoing pandemic and and memorial trends that are in place. So that that 100 basis points is in line with the reserves and ex those recoveries.
<unk> talked about earlier.
Got it that's really helpful. And then like going forward just as we're starting to think about 'twenty 2 and beyond is a 100 basis points of revenue, probably a decent assumption for bad debt.
Yes.
Right.
Yeah pre Covid, we were bad debt expenses, and net and the 50 basis point area. So you know kind of getting through this year and assets mean, there's 3 COVID-19 would expect that means that we should tick back down to levels that are more in line with historical and historical averages.
Got it that's helpful and 1 more from me switching gears could you just discuss your thought process and rationale for doing forward equity offerings versus just issuing equity through the ATM when you need it.
Yeah. So we actually we're actually issuing equity on a forward basis through the ATM as well really it really done to it really depends on the timing of the capital needs that we have in front of us and the timing of those needs.
And I really like the ability to issue on a forward basis. It certainly gives us the ability to better match fund.
Our per seats those proceeds that they use of capital with with the youth and our acquisition pipeline. So you know, we we always look to take it and we think it really opportunistic approach to capital raises so taking advantage of attractive capital sources debt and equity to fund our near term pipeline, which is $650 million at this point yeah.
It's it it really and you really are.
Our focus on maintaining that low leverage and investment grade balance sheet and that's another tool and that's what kept that allows us to do that.
So it sounds like Youre, just trying to basically lock in and your cost of capital is that fair like you're under contract for 650, you have acquisitions and you just want to lock in that basically funding cost of capital now is that fair.
Yeah I mean, we're you know when we think about you know when we when we buy and asset we think about their pregnancy purchasing and asset and we're going to hold it forever right. So not necessarily focus that the pricing at a point in time, because we know we're going to create value over the long term, so and that those assets are going to give us growth and drive positive and accretion.
And you know over the years over the many many years and 99 assets so not as focused on the pricing, but more focused on you know funding and funding that activity that near term activity, that's and the pipeline.
Got it and then that's helpful. That's all I have.
Thanks, so much.
Next question is from the line of Michael Mueller with Jpmorgan. Please proceed with your question.
Yeah, Hi, I just have a quick question on the preferred taking up the series H Y what was the trigger for picking the series a and maybe not with you at the B or C or the.
Earmark for at some point further down the road.
Yeah, Hey, Mike It's Laura Thanks for joining us today and the series a is callable on August 16th that's the first available all day and.
That series, a has a pretty high coupon relative to other cost of capital for US today, the coupon its 5.8, 75% so.
We thought that it and it was beneficial.
To take out that theory, they at this point and given the classics and given our cost of capital in terms of our other preferred states are not callable at this point there they become callable over the next over the next couple of years.
Got it okay. Thank you.
Thanks, so much.
Thank you.
That completes our question and answer session and I will now turn the call back to management for closing remarks.
On behalf of the entire team and Rexford and we want to thank everybody for joining us today and for your support and interest and the company and we look forward to reconnecting next quarter. Thank you all and wish you and your families are well.
Yes.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.