Q4 2021 Rexford Industrial Realty Inc Earnings Call
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Greetings and welcome to the Rexford Industrial Realty, Inc, fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen only mode.
Speaker 1: Greetings. Welcome to the Rexford Industrial Realty Inc. fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen-only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Please note this conference is being recorded.
Speaker 1: I'll now turn the conference over to your host, David Lanzer. You may begin.
I'll now turn the conference over to your host David Lanzer you may begin.
Speaker 2: We thank you for joining us for Rexford Industrial's fourth quarter and fiscal year 2021 earnings conference call.
We thank you for joining us for Rexford industrials fourth quarter and fiscal year 2021 earnings conference call.
Speaker 2: In addition to the press release distributed yesterday after market close, we posted a supplemental package and investor presentation in the investor relations section on our website at www.RexfordInvestor.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation and Reform Act of 1995.
And in addition to the press release distributed yesterday after market close we posted a supplemental package and investor presentation in the Investor Relations section on our website at Www Dot, Russia and industrial Dot com.
Today's call management's remarks, and answers to your questions may contain forward looking statements.
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.
Speaker 2: Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
Speaker 2: For more information about these risk factors, we encourage you to review our 10-K and other SEC filings. Reichsfuhrt Industrial assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call represents non-GAAP financial measures.
More information about these risk factors, we encourage you to review our 10-K and other SEC filings Rexford industrial assumes no obligation to update any forward looking statements in the future.
In addition, certain financial information presented on this call represents non-GAAP financial measures are.
Speaker 2: Our earnings release and supplemental package present gap reconciliation and an explanation of why such non- GAAP financial measures are useful to investors.
Our earnings release, and supplemental package present, GAAP reconciliation and an explanation of why such non-GAAP financial measures are useful to investors.
Speaker 2: Today's conference call is hosted by Rexford Industrial's 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 will turn the call over to Laura.
Today's conference calls hosted by Rexford Industrials 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 will turn the call over to Michael.
Thank you David and thank you everyone for joining our Rexford Industrial's fourth quarter 2021 earnings call.
Speaker 1: Thank you, David, and thank you, everyone, for joining our Rexford Industrial fourth quarter 2021 earnings call. We hope you and your families are well.
Hope you and your families are well.
Speaker 3: I'll provide some brief remarks followed by Howard who will discuss our transaction activity and then Laura will provide an update on our financial metrics and guidance.
I'll provide some brief remarks, followed by Howard who will discuss our transaction activity and then Laura will provide an update on our financial metrics and guidance.
Speaker 3: As we look back on 2021, we are struck by the unique strength of our Rexford platform as we increased consolidated NOI by 38%, which drove a 24% increase in FFO per share for the full year.
As we look back on 2021, we are struck by the unique strength of our Rexford platform as we increased consolidated NOI by 38%, which drove a 24% increase in <unk> per share for the full year.
Rexford continues to differentiate itself as the nations fastest growing and strongest performing industrial REIT.
Speaker 3: Rexford continues to differentiate itself as the nation's fastest-growing and strongest-performing industrial REIT, with five-year average annual FFO per share growth of 14 percent, average consolidated NOI growth of 31 percent, and five-year average dividend growth of 18 percent, all of which continue to lead the industrial sector.
With five year average annual <unk> per share growth of 14%.
Average consolidated NOI growth at 31% and five year average dividend growth of 18% all of which continue to lead the industrial sector.
Speaker 3: We thank every Rexford teammate for your industry-leading work and dedication.
We think every rexford teammate for your industry, leading work and dedication.
Speaker 3: To put this performance into perspective, our acquisitions team closed $1.9 billion of investment that are positioned to drive substantial cash flow growth and value creation.
But this performance into perspective our.
Our acquisitions team closed $1.9 billion of investments that are positioned to drive substantial cash flow growth and value creation.
Speaker 3: On the leasing front, we completed nearly 7 million square feet of leasing volume and our leasing team drove average leasing spreads of 43% on a gap basis and 29% on a cash basis for the year.
On the leasing front, we completed nearly 7 million square feet of leasing volume and our leasing team drove average leasing spreads of 43% on a GAAP basis, and 29% on a cash basis for the year.
Speaker 3: Our construction and development team completed over 1,000,000 square feet of value add projects. Generating an aggregate stabilized unlevered yield of 6.6%. And creating over 165Million dollars of incremental value creation.
Our construction and development team completed over 1 million square feet of value add projects generating an aggregate stabilized unlevered yield of six 6% and creating over $165 million of incremental value creation.
Speaker 3: Rexford's operations and property management teams continued to drive superior customer satisfaction metrics with historically low downtime and ended the year with our same property portfolio at over 99% occupancy.
<unk> operations and property management teams continue to drive superior customer satisfaction metrics with historically low downtime and ended the year with our same property portfolio at over 99% occupancy.
Our infill southern California market fundamentals are as exceptional as our operating platform.
Speaker 3: Our Intel Southern California Market Fundamentals are as exceptional as our operating platform.
Speaker 3: Tenant demand continues at an unprecedented level of intensity, driven by an exceptionally broad and diverse range of sectors.
Tenant demand continues at an unprecedented level of intensity driven by an exceptionally broad and diverse range of sectors.
Speaker 3: With the highest demand and lowest vacancy in the nation, our Southern California infill market is currently operating at over 99% occupancy.
But the highest demand and lowest vacancy in the nation, our southern California infill market is currently operating at over 99% occupancy.
Speaker 3: We continue to experience an incurable supply-demand imbalance due to an extremely limited ability to increase net supply.
We continue to experience an incurable supply demand imbalance due to an extremely limited ability to increase net supply.
Speaker 3: Consequently, market rent and property values are growing at a substantially higher pace within infill Southern California as compared to all other major markets across the nation.
Consequently market rent and property values are growing at a substantially higher pace within infill Southern California.
As compared to all other major markets across the nation.
Speaker 3: It is also important to note that our Intel Southern California Industrial Market represents the world's fourth largest market, behind only the entire countries of the United States, China, and Germany.
It is also important to note that our infill southern California industrial market represents the world's fourth largest market.
And the only the entire countries of the United States, China and Germany.
Speaker 3: Infill, Southern California is not only the largest and most fragmented industrial market in the nation, but the value of our market is about the same as the next five largest U.S. markets combined.
Infill Southern California is not only the largest and most fragmented industrial market in the nation, but the value of our market is about the same as the next five largest U S markets combined.
Consequently, as our proprietary research driven originations methods.
Speaker 3: Consequently, as our proprietary research-driven originations methods enable our unique access to this vast market, we are capitalizing upon a substantial opportunity to grow well beyond our current 2% market share.
Our unique access to this vast market.
We are capitalizing upon a substantial opportunity to grow well beyond our current 2% market share.
Speaker 3: As we look forward, we've never been better positioned to grow our cash flow and value.
As we look forward, we've never been better positioned to grow our cash flow and value.
Speaker 3: From an internal growth perspective, we currently project over $120 million of annualized NOI growth, representing a 30% increase embedded within our in-place portfolio over the next 24 months, which includes approximately $28 million of incremental NOI as our redevelopment and repositioning projects stabilize.
From an internal growth perspective, we currently project over $120 million of annualized NOI growth, representing a 30% increase embedded within our in place portfolio over the next 24 months, which includes approximately $28 million of incremental NOI as our redevelopment and repositioning projects.
Stabilize.
Speaker 3: approximately $38 million incremental NOI from recent acquisitions.
Approximately $38 million of incremental NOI from recent acquisitions.
Speaker 3: and approximately $55 million of incremental NOI contributed as we roll below market rents to higher market rates.
And approximately $55 million of incremental NOI contributed as we roll below market rents to higher market rates.
Speaker 3: In fact, the mark-to-market on rental rates for our entire portfolio is now estimated at 41% on a cash basis and 51% on a net effective basis.
Fact, the mark to market on rental rates for our entire portfolio is now estimated at 41% on a cash basis and 51% on a net effective basis.
Speaker 3: In addition, we have a substantial pipeline of new accretive investment.
In addition, we have a substantial pipeline of new accretive investments with over $450 million of acquisitions under contract or accepted offer.
Speaker 3: with over $450 million of acquisitions under contract or accepted offer, plus an extensive originations pipeline beyond this volume.
Plus an extensive originations pipeline beyond this volume.
Speaker 3: To fuel our growth, we are favorably positioned with a low-leverage, best-in-class balance sheet, closing the year at 9.1% debt-to-enterprise value.
To fuel our growth we are favorably positioned with a low leverage best in class balance sheet closing the year at nine 1% debt to enterprise value.
Speaker 3: Finally, as a reflection of the company's strong performance, we are pleased to announce that we're increasing our dividend by over 31%.
Finally, as a reflection of the company's strong performance. We are pleased to announce that we're increasing our dividend by over 31%.
Speaker 3: And with that, I'm very pleased to turn the call over to Howard.
And with that I'm very pleased to turn the call over to Howard.
Yeah.
Speaker 3: Thank you, Michael, and thank you, everyone, for joining us today.
Thank you Michael Thank you everyone for joining us today.
Speaker 3: Southern California rental rate growth continues to substantially exceed all other major markets.
Southern California rental rate growth continues to substantially exceed all other major markets based on Richards internal portfolio metrics are market rents increased by 38% over the prior year.
Speaker 2: Based on Rexford's internal portfolio metrics, our market rents increased by 38% over the prior year.
Speaker 2: This significant acceleration from recent quarters underscores the strength of our Southern California market.
The significant acceleration from recent quarters underscores the strength of our southern California markets.
Speaker 3: Market-wide, according to CBRE, our target infill market
Market wide according to CBRE, our target infill markets, which exclude the inland Empire East ended the quarter at 8% vacancy.
Speaker 2: exclude the Inland Empire East, ended the quarter at 0.8% vacancy.
The lack of availability within our supply constrained infill markets is expected to continue and positions us well to capture strong rent spreads into the foreseeable future.
Speaker 3: The lack of availability within our supply constraints in fill markets is expected to continue and positions us well to capture strong rent spreads into the foreseeable future.
Speaker 3: The consolidated portfolio weighted average mark to market for our 4.9 million square feet of 2022 lease expirations is now estimated at 48% on a cash basis and 58% on an ineffective basis.
The consolidated portfolio weighted average mark to market for our $4 9 million square feet of 2022 lease expirations is now estimated at 48% on a cash basis and 58% on a net effective basis.
Our same store portfolio achieved historical high average occupancy of 99% for the fourth quarter.
Speaker 3: Our same store portfolio achieved historical high average occupancy of 99% for the fourth quarter. And while we did not have much available space to lease, our strong leasing performance continued during the quarter with approximately 1 million square feet of leases signed, realizing blended gap and cash spreads of about 34% and 22% respectively.
And while we did not have much available space to lease our strong leasing performance continued during the quarter with approximately 1 million square feet of leases signed realizing blended GAAP and cash spreads of about 34% and 22% respectively.
Speaker 3: Turning to external growth, in the fourth quarter, we COVID-19 acquisitions totaling $551 million, which included 2 million square feet of buildings on 104 acres of land, including 12.8 acres of land for near-term redevelopment, with approximately 80% of the acquisitions value-add.
Turning to external growth in the fourth quarter, we COVID-19 acquisitions totaling $551 million, which included 2 million square feet of buildings on 104 acres of land, including 12.8 acres of land for near term redevelopment with approximately 80%.
Net of the acquisitions value add these.
Speaker 3: These acquisitions generate an aggregate initial yield of 2.6% and an estimated 5.2% unlevered stabilized yield.
These acquisitions generate an aggregate initial yields of two 6% and an estimated 5.2% unlevered stabilized yield.
Speaker 3: For the full year, we completed 51 acquisitions for an aggregate purchase price of $1.9 billion, adding 5.7 million square feet of buildings on 426 acres of land. This includes 123 acres of low-coverage industrial outdoor storage sites and 53 acres of land for near-term redevelopment.
For the full year, we completed 51 acquisitions for an aggregate purchase price of $1 $9 billion, adding five 7 million square feet of buildings on 426 acres of land.
This includes 123 acres of low coverage industrial outdoor storage sites and 53 acres of land for near term redevelopment.
Speaker 3: In aggregate, these acquisitions generate an initial yield of 3.6% and an estimated 6.1% unlevered stabilized yield.
In aggregate these acquisitions generate an initial yield of three 6% and an estimated six 1% unlevered stabilized yield.
Speaker 3: For the full year 2021, 86% of our acquisitions were acquired through off-market or lightly marketed transactions.
For the full year 'twenty 'twenty, 186% of our acquisitions were acquired through off market or lightly marketed transactions sourced through our proprietary research driven processes and deep market relationships.
Speaker 3: sourced through our proprietary research-driven processes and deep market relationships.
Speaker 3: On the disposition front for the year, we sold five properties totaling $59.3 million.
On the disposition front for the year, we sold five properties totaling $59 $3 million, which generated an aggregate, 26.5% unlevered IRR on investment.
Speaker 3: generated an aggregate 26.5% unlevered IRR on investment.
As in the past, we expect to continue to sell assets opportunistically to unlock value and recycle capital.
Speaker 3: As in the past, we expect to continue to sell assets opportunistically to unlock value and recycle capital.
Speaker 3: Subsequent to the year-end, we completed $170 million of acquisitions, which were predominantly value-add opportunities, with an aggregate 3.1% initial yield that are projected to generate an aggregate 4.9% stabilized unlevered yield on total investment.
Subsequent to year end, we completed the $178 million of acquisitions, which were predominantly value add opportunities with an aggregate three 1% initial yield that are projected to generate an aggregate, 4.9% stabilized unlevered yield on total investment.
Speaker 3: Looking ahead, we currently have $450 million of new investments under LOI or contract. These transactions are subject to customary due diligence with no guarantee of closing. We will keep you apprised as transactions are consummated. Turning
Looking ahead, we currently have $450 million of new investments under LOI or contract. These.
These transactions are subject to customary due diligence with no guarantee at closing.
We will keep you apprised as transactions are consummated.
Turning to repositioning and redevelopment activities.
Speaker 3: For the full year, we stabilized six properties representing over $200 million of total investment at an aggregate unleveraged stabilized yield on total investment of 6.6%.
For the full year, we stabilized six properties representing over $200 million of total investment at an aggregate unlevered stabilized yield on total investment of six 6% substantially exceeding current market cap rates that are in the mid 3% range.
Speaker 3: Substantially exceeding current market cap rates that are in the mid 3% range
We currently have over 3 million square feet of current and planned value add and redevelopment projects across our portfolio.
Speaker 3: We currently have over 3 million square feet of current and planned value-add and redevelopment projects across our portfolio, with a projected total incremental investment of approximately $380 million and are estimated to deliver an aggregate return on total investment of about 6.6%.
With a projected total incremental investment of approximately $380 million.
And our estimated to deliver an aggregate return on total investment of about 6.6%.
Speaker 3: representing more than $1 billion in estimated value creation. And with that, I'm pleased to now
Representing more than $1 billion in estimated value creation.
And with that I'm pleased to now turn the call over to Laura.
Speaker 4: Thank you, Howard. Fourth quarter results came in ahead of projections with same property NOI growth on a gap basis at 10% and 6.8% on a cash basis.
Thank you Howard.
Fourth quarter results came in ahead of protection with same property NOI growth on a GAAP basis at 10% and it's explained 8% on a cash basis no.
Speaker 4: Note that cash-same property NOI growth was 13% when normalized for 2020 COVID-related impact.
Note that cash same property NOI growth was 13% when normalized for 2020 COVID-19 related impacts.
Speaker 4: Continued occupancy gains and exceptional leasing spreads contributed to our strong growth.
Continued occupancy gains and exceptional leasing spreads contributed to our strong growth.
Speaker 4: Average same property occupancy in the quarter was 99%, up 40 basis points sequentially and 80 basis points over the prior year.
Average same property occupancy in the quarter was 99% up 40 basis points sequentially and 80 basis points over the prior year.
Leasing spreads for the full year were 43% and 29% on a GAAP and cash basis, respectively.
Speaker 4: Leasing spreads for the full year were 43% and 29% on a gap and cash basis respectively.
Speaker 4: Additionally, annual embedded rent steps on our new and renewal leases continue to increase with average steps at 3.9% on fourth quarter executed leases.
Additionally, annual embedded rent steps on our new and renewal leases continue to increase with average stops at 3.9% fourth quarter executed leases.
For the full year same property NOI growth exceeded expectations at nine 1% on a GAAP basis, and 12.3% on a cash basis cash NOI growth for the full year. It was an impressive 10, 9%, even when normalized for COVID-19 related impacts.
Speaker 4: For the full year, same property NOI growth exceeded expectations at 9.1% on a gap basis and 12.3% on a cash basis.
Speaker 4: Cash NOI growth for the full year was an impressive 10.9%, even when normalized for COVID-related.
Speaker 4: occupancy growth, robust leasing spreads, and our remarkably stable tenants.
Occupancy growth robust leasing spreads and a remarkably stable tenant base.
Speaker 4: as measured by the fact that we have zero bad debt expense for the full year.
As measured by the fact that we had zero bad debt expense for the full year.
Speaker 4: collectively enabled us to grow fourth quarter core FFO per share by 32% to $0.45 per share and full year core FFO per share by 24% to $1.64 per share.
Actively enabled us to grow fourth quarter core <unk> per share by 32% to 45 cents per share and full year core <unk> per share by 24% to $1 64 per share.
Driven by the strong performance the board declared a dividend of 31 and a half cents per share representing an increase of over 31% demonstrating rectrix commitment to delivering superior total shareholder returns.
Speaker 4: Driven by this strong performance, the board declared a dividend of 31.5 cents per share, representing an increase of over 31 percent, demonstrating Rexford's commitment to delivering superior total shareholder return.
Speaker 4: Turning now to balance sheet and capital markets activities, we continue to execute on our strategy to maintain a low leverage investment grade balance sheet that is proven through all phases of the capital cycle. And at year end, net debt to EBITDA was 3.6 times.
Turning now to the balance sheet and capital markets activity.
Continue to execute on our strategy to maintain a low leverage investment grade balance sheet that is proven through all phases of the capital cycle and at year end net debt to EBITDA was three six times.
Speaker 4: In the fourth quarter, S&P and Fitch recognized our favorable position, revising their rating outlook for Rexford to positive from stable.
In the fourth quarter, S&P, and Fitch recognized our favorable position revising their rating outlook for rexford to positive from stable.
Capital markets transactions executed in the quarter included.
Speaker 4: Capital markets transactions executed in the quarter include the sale of 4.2 million shares of common stock through the ATM on a forward basis at an average price of $70.17 per share.
The sale of 4.2 million shares of common stock through the ATM.
On a forward basis at an average price of $70.17 per share.
Speaker 4: In December , we settled forward equity agreements associated with our September public offering and fourth quarter ATM activity, issuing approximately 8.8 million shares for net proceeds of 534 million.
In December we settled forward equity agreements associated with our September public offering and fourth quarter ATM activity issuing approximately eight 8 million shares for net proceeds of 534 million.
Speaker 4: and subsequent to quarter end, we renewed our ATM program, which includes $750 million of capacity.
And subsequent to quarter end, we renewed our ATM program, which includes $750 million of capacity.
Speaker 4: At quarter end, our liquidity was approximately $880 million, including $44 million of cash.
At quarter end, our liquidity was approximately $880 million, including $44 million of cash.
Speaker 4: $134 million of forward equity proceeds remaining for settlement from our fourth quarter ATM sale, and full availability on our $700 million credit facility.
134 million of forward equity proceeds remaining for settlements.
From our fourth quarter ATM sale and.
And full availability on our 700 million dollar credit facility.
Before I turn the call over for your questions I'll provide an overview of our 2022 outlet.
Speaker 4: Before we turn the call over for your questions, I'll provide an overview of our 2022 outlook.
Speaker 4: Our 2022 projected core FFO guidance range is $1.77 to $1.81 per share, representing 9% earnings growth at the midpoint.
Our 2022 projected core <unk> guidance range is $1 77 to $1 81 per share representing 9% earnings growth at the midpoint.
Speaker 4: As a reminder, this guidance range does not include acquisitions, dispositions, or related balance sheet activities that have not yet closed.
As a reminder, this guidance range does not include the acquisition dispositions are related balance sheet activities that have not yet closed.
We have provided a roll forward detailing the drivers of our guidance and our supplemental package a few highlights include.
Speaker 4: We have provided a roll forward detailing the drivers of our guidance and our supplemental package. A few highlights include same property NOI growth on a cash basis.
Same property NOI growth on a cash basis is projected to be 6% to 7%.
Speaker 4: excluding the year-over-year impact of COVID-related repayments. Cash same property NOI is projected to be 6.5% to 7.5%.
Excluding the year over year impact of Covid related repayment cash same property NOI is projected to be six 5% to 7.5%.
Speaker 4: same property gap NLI growth is projected to be 3.25% to 4.25%.
Same property GAAP NOI growth is protected to be 3.25% to four point to 5%.
Speaker 4: Assumptions for advancing property growth include average occupancy of 98 to 98.5 percent, leasing spreads of approximately
Assumptions driving same property growth include avid.
Average occupancy of 98% to 98.5%.
Leasing spreads of approximately 40%.
Higher expenses net of recoveries are projected to offset same property growth by approximately 110 basis points.
Speaker 4: Higher expenses, net of recoveries, are projected to offset same property growth by approximately 110%.
And bad debt as a percent of revenue of 35 basis points compared to zero in 2021.
Speaker 4: and that debt as a percent of revenue of 35 basis points compared to zero in 2021.
Our 2021 acquisitions are projected to contribute incremental NOI in the range of $48 million to $51 million in 2022, when compared to their contribution in 2020 one.
Speaker 4: Our 2021 acquisitions are projected to contribute incremental NOI in the range of $48 to $51 million in 2022 when compared to their contribution in 2021.
Speaker 4: DNA expenses are projected to be $58 to $59 million and includes $23 million of non-cash performance-based equity compensation, which is only realized to the extent the company achieves exceptional performance and superior shareholder return.
G&A expenses are projected to be $58 million to $59 million and includes $23 million of noncash performance based equity compensation, which is only realized to the extent the company achieved exceptional performance and superior shareholder returns and finally net interest expense is projected to be in the range of 30.
Speaker 4: And finally, net interest expenses projected to be in the range of $38 to $39 million.
The $39 million.
Speaker 1: This completes our prepared remarks, and we now welcome your questions. Operator? And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your.
This completes our prepared remarks, and we now welcome your questions operator.
And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker 1: participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.
One moment, please while we poll for questions.
Our first question.
Speaker 1: comes from the line of Jamie Feldman with Bank of America. Please proceed.
Come from the line of Jamie Feldman with Bank of America. Please proceed with your question.
Great. Thank you.
Speaker 5: Great. Thank you. So, I guess just to start out, I appreciate all the...
So I guess just to start out I appreciate all that.
Speaker 5: you gave on guidance. You had a really strong same-store year in 2021. It's moderating in 2022. Can you just help us understand kind of the biggest moving pieces of why it's going to be slower next year given you have the 41% cash mark-to-market, 51% gap?
Moving pieces you gave on guidance you had a really strong same store year in 'twenty. One it is moderating in 'twenty two could you just help us understand.
Kind of the biggest moving pieces of why it's gonna be slower next year, given you have that 41% cash mark to market, 51% GAAP.
Hi, Jamie I'll I'll take that one.
Speaker 4: Hi Jamie, I'll take that one. Thanks for your question. I think it'd be helpful to walk through the, walk you through the components of same property and happy to dive into any of these a little bit further once I walk through the components. So our cash same property NOI growth is projected to be six to 7%. And the components of that include about 810 basis points of growth related to base risk.
Thanks for your question.
I think it would be helpful to walk through the walk walk you through the components of the same property and happy to dive into any of them any of these a little bit further once I walk through the components. So our cash same property NOI growth is projected to be 6% to 7% and that component to that include about 810.
10 basis points of growth related to base rent.
Speaker 4: Assumptions driving that include 2022 leasing spreads of 40%, and then our occupancy guidance of 98 to 98.5%. It does imply a decline in occupancy. We're currently sitting year-end occupancy in the same property pool at 99.1%, and average occupancy in the full year was at 98.6% in 2021.
Assumptions driving that include 2022 leasing spreads of 40% and then our occupancy guidance of 90 890, 998.5%.
Does imply a decline in occupancy we're currently sitting a year end occupancy.
Same property pool at 99, 1% and average occupancy in the full year was at 98, 6% in 2020 one.
Speaker 4: That debt as a percent of revenue is projected to be 35 basis points, and that's offsetting the same property growth by about 50 basis points.
Bad debt as a percent or percent of revenue is projected to be 35 basis points and that's offsetting the same property growth by about 50 basis points.
Speaker 4: I'll note that our tenants are certainly performing really well, but we are assuming a more normalized level of FAD debt. FAD debt pre-COVID was in the 40 to 50 basis point area.
I'll note that our tenants are certainly performing really well and but we are assuming a more normalized level of bad debt, our bad debt pre COVID-19 , whereas in that 40 to 50 basis point area.
Speaker 4: And then finally, the last component of same property guidance is around expense growth, and we're estimating expense growth is about 12 percent, and that offsets net expense, net of recoveries offsets same property NOI by about 110 days.
And then finally the debt the last component of same property guidance is around expense growth and we're estimating an expense growth of about 12% and that offsets net net expense net of recoveries offsets our same property NOI by about 110.
So as clients, so I'm, a little bit of color there.
Speaker 4: So, a little bit of color there. Insurance taxes and overhead allocation are the most significant components of that expense growth. And while the increases in insurance and taxes are passed through to our tenants and are recoverable, our increases in overhead allocation are non-recoverable. So, those are the significant components that get you to the six and a half percent at the midpoint of our cash lien property guidance.
Current taxes and overhead allocation or the most significant component of that expense growth and while the increases in insurance and taxes are passed through to our tenants and our recoverable or increases in overhead allocation or our non recoverable and so those are those are your the significant components that get you to that six five.
At the midpoint of our cash same property guidance.
Speaker 5: Okay. Thank you. That's very helpful. And then sticking with the expense.
Okay. Thank you that's very helpful and then just.
Sticking with the expense.
Increase that you mentioned.
Speaker 5: that you mentioned. I mean is that projected or you pretty much feel like that's in the bag based on how much expenses it moves?
Is that projected or are you pretty much feel like that's in the bag based on how much expenses have moved.
Speaker 5: even into, you know, as recently as the fourth quarter.
Even into in the fourth.
As recently as the fourth quarter.
Speaker 4: Yeah, so what let's dive in a little bit to.
Yeah, so what let's dive down a little bit too to the the net <unk> expenses net of recoveries right and so the the the largest driver of that is around overhead allocation. So when you think about overhead allocation.
Speaker 4: to the expenses net of recoveries, right? And so the largest driver of that is around overhead allocation. So when you think about overhead allocation and the drivers there, so our portfolio growth, certainly in the past two years has been substantial. Our square footage of our portfolio has increased 40%. Our consolidated NOI growth over the last two years has been 70%.
And the drivers there so our portfolio growth certainly in the past two years has been substantial and our square footage of our portfolio has increased 40% our consolidated NOI growth over the last few years has been 70%. So and we're also certainly thinking about the future growth prospects right.
Speaker 4: So, and we're also certainly thinking about the future growth prospects, right? We've acquired $170 million to date and have another $450 million in the pipeline that's under contract or accepted offer. So, yeah, this is certainly contributing to the growth in our headcount. And I think one thing to think about, Jamie, is the timing of hiring.
They acquired a 170 million to date and have another $450 million in the pipeline that's under contract or accepted offers so yeah. This is certainly contributing to the growth in our head count and I think one one thing to think about Jamie is the timing of hiring can ebb and flow.
Speaker 4: can ebb and flow. So there can be points in time from a hiring perspective where there's a catch-up. There can also be times in hiring where we are looking ahead and thinking about the growth and the future growth of the portfolio.
So there can be a point in time from a hiring perspective, where there's a catch up there can also be times in hiring where we are looking ahead and thinking about the growth in the future growth of the portfolio. So when you think about what's what's fully baked in.
Speaker 4: So, when you think about what's fully baked in, part of that growth is a component of hires that occurred in 2021, and more so in the back half of 2021, and we're realizing the full impact of that. The other component that I think is important to mention is that our team is certainly performing at exceptional levels.
So that that growth is is part of that growth as a component of hires that leak that occurred in 2021 and more so in the back half of 2020 one.
And we're realizing the full impact of that you know the other component that I think it's important to mention is that our team is certainly performing not exceptional levels that led to some promotions are at the end of the year and congrats all those team members and some increases in overall compensation and then like many others we are experiencing.
Speaker 4: that led to some promotions at the end of the year, and congrats to all those team members, and some increases in overall compensation. And then, like many others, we are experiencing the impact of increased labor costs as well.
The impact of increased labor cost as well. So that's the that that's those are the key components of that growth in overhead allocation.
Speaker 4: So, those are the key components of that growth in overhead allocation.
Okay. Thank you for that and then just to confirm so you said six five to seven and a half is the cash growth number excluding COVID-19 . So that's kind of a clean number of just how the portfolio is tracking.
Speaker 5: Okay. Thank you for that. And then just to confirm, so you said six and a half to seven and a half is the cash growth number, excluding COVID. So that's kind of a clean number of just how the portfolio is acting? That's correct.
Speaker 4: Yeah, that's correct. Yeah, just as a general reminder, COVID deferrals were granted in the second quarter. Most of our COVID deferrals were granted in the second quarter of 2020 and represented less than one and a half percent of our ADR.
Okay. Yeah. That's correct Yeah, just just as a general reminder, COVID-19 deferrals were granted in the second quarter. Most of our Covid. Your firms are going through the second quarter of 2020 and represented less than one 5% of our ADR ADR. So although the bulk of those COVID-19 deferrals were granted and 2020.
Speaker 4: Although the bulk of those COVID deferrals were granted in 2020 and collected about 80% in 2020, we did collect the remainder of those deferrals in 2021, which was about a million dollars. Our 2022 collections of COVID impact is pretty insignificant. When you look at the year-over-year cash and property growth,
And collected about 80% in 2020, we did collect the remainder of those deferrals in 2021 which was about $1 million and so our 2022 collections.
Of Covid impact is pretty insignificant. So when you look at the year over year cash same property growth is positively impacted by the decline in the COVID-19 adjustments. So that's that additional 50 basis points at the midpoint and our our six five to seven and a half guidance on cash same property NOI.
Speaker 4: it's positively impacted by the decline in the COVID adjustment. So that's.
Speaker 4: that additional 50 basis points at the midpoint and our six-and-a-half to seven-and-a-half guidance on cashed-in property NOI.
Speaker 5: Okay, thank you for that. And then last for me, so you did $1.9 billion of acquisitions in 2021. What do you think is realistic in terms of the acquisition volume you could do this year? You've got $450 million under contract now.
Okay. Thank you for that and then last for me. So you did $1 9 billion of acquisitions in 'twenty, one Oh I'm sorry, yeah in in 'twenty, one, but what do you think is realistic in terms of the acquisition volume you could do this year.
You've got $450 million under contract now.
Speaker 3: Hi, Jamie, it's Howard, hope you're well. Well, I think you've asked this question before and every time we've told you, we just don't offer guidance on the acquisitions.
Hi, Jamie it's Howard.
Hope you're well.
Well thank.
You've asked this question before and every time, we told you we just don't offer guidance on the acquisitions.
Speaker 3: But, you know, that said, you know, we are starting out the year with a robust pipeline. I would say that, you know, January , February seem to be our slower months, and we've already closed $170 million. So we're excited for the year. You know, we see a strong pipeline of opportunities and
But that said we are starting out the year with a robust pipeline of I would say that are you know.
January February it seemed to be our <unk>.
Slower months and we've already closed $170 million. So we're we're excited for the year, we see a strong pipeline of opportunities and.
Speaker 3: It's hard to predict, obviously, what closes and what else we put under contract, but we're starting out with a lot of momentum, and we hope to have another ban in years.
Hard to predict obviously, what closes and what else are we put under contract, but we're starting out with a lot of momentum and we hope we hope to have another banner year.
Speaker 5: Thanks for that. I guess maybe a better way to ask it is, has anything changed in your desirability or desire to put out capital this year versus maybe this time last year, whether it's pricing or what's on the market or potential sellers?
Thanks for that I guess, maybe a better way to ask it is you know has anything changed in your <unk>.
The desirability of our desire to put out capital this year versus maybe this time last year, whether it's pricing or what's on the market.
Or project, you know potential sellers.
Yeah, Jamie it's Michael Thanks, So much for the question I would say that our focus remains the same and that we're focused on acquiring transactions and and and and buying opportunities that provide us with the level of cash flow growth.
Speaker 5: You know, Jamie, it's Michael. Thanks so much for the question. I would say that our focus remains the same in that we're focused on acquiring transactions and buying opportunities that provide us with the level of cash flow growth.
Speaker 5: that can, would greatly exceed even, you know, the, the, uh,
That can would greatly exceed even you know the the.
Speaker 5: the impacts associated with an inflationary environment or even increasing interest rates. And I think you see the team doing that. And so what we've done at Rexford, we've really doubled down on our ability to originate and execute on value-add opportunities.
You know the impacts associated with an inflationary environment or even increasing interest rates and I think you've seen the team doing that and so what we've done at Rexford, we really doubled down on our ability to originate and execute on value add opportunities. So the vast majority of what we bought last year. As you know, we're you know through off market and lightly marketed transactions that gave rise.
Speaker 5: So the vast majority of what we bought last year, as you know, were through off-market and lightly marketed transactions that gave rise to mostly value-add opportunities. If you look at the value-add projects that we're solving to, 6.6% last year, over a million square feet. The near-term value-add projects also solved to just under 7%, 6.6%. I mean, that's about double the market yields that are achieved by our competitors here in Philadelphia and California. And that's about double the market yield that are achieved by our competitors here
Two mostly value add opportunities. If you look at the value add projects that we're solving to six 6% last year over a million square feet. The near term value add projects also solved to just under 7% six 6% I mean, that's about double the market yields that are achieved by our competitors here in infill Southern California.
Speaker 5: and you look at the in-place mark-to-market on what we're buying. That's because we're originating opportunities, by the way, that are not generally available to our competitors on the acquisition front, oftentimes with deeply embedded below-market rents.
And you look at the in place a mark to market on what we're buying that's because we're originating opportunities by the way that are not generally available to our competitors on the acquisition front oftentimes are deeply embedded.
Low market rents and.
Speaker 5: And so that's really the focus. And I think as we double down in that value creation capability, we're digging deeper in the markets. Our team is better than ever, stronger than ever. And that's why I think you see the quality of investments. So I think that's really how we hedge against things that I think you're referring to in terms of increasing costs and inflation and the environment in general.
And so that that's really the focus and I think as we double down in that value creation capability. You know, we're digging deeper in the markets our team is better than ever stronger than ever and that's why you see these yeah. That's why I think you see the quality of investments. So I think that that's really how we hedge against you know things that you're I think you're referring to in terms of.
<unk> costs, and such and inflation and the environment in general.
Okay. Thanks, Michael.
Our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.
Speaker 1: Our next question comes from the line of Manny Gorshman with Citi. Please proceed with your question.
Speaker 3: Hey everyone, Howard, just going back to your comments on how quickly rental rates are growing in the market.
Hey, everyone.
Howard.
Just going back to your comments on how quickly our rental rates are growing in the market.
Speaker 3: Do you think at some point there's going to be a bigger impact on retention than we've seen thus far?
Do you think at some point theres going be a bigger impact on retention than we've seen thus far.
Yeah.
Speaker 3: Well, we're occupied, we're operating at less than 1% vacancy and as far as retention, there's nowhere for tenants to go.
Well.
Occupancy at our operated at less than 1% they can see.
Far as retention, there's no there's nowhere for tennis to go.
Speaker 3: So, the market's going to have to change dramatically in terms of the vacancy rate for there to be options for people. We've mentioned in the past, a lot of times we have repositioning projects that we're planning to do, where we have a tenant that we want to exit, maybe it's a property that's got some dysfunctionality to it, and they're just begging us to renew because there's nowhere to go in the marketplace.
So the market is going to have to change dramatically.
Terms of the vacancy rate for the.
There will be options for people.
We've mentioned in the past you know a lot of times, we have repositioning projects that were planning to do well.
Where we have a tenant that oh, we want to exit maybe it's a property that Oh, it's got some dysfunctionality to do it.
And they're just begging us to renew because there's nowhere to go in the marketplace.
Speaker 3: And those are, you know, some of those are even unexpected, as I mentioned, in terms of the detention side.
And those are you know some of those or even unexpected as I mentioned in terms of the retention side. So.
Speaker 3: uh you know for the foreseeable future I think we'll we're going to expect to be operating in a similar manner and retain
You know for the foreseeable future I think we're going to expect to be operating in a similar manner and retain.
Speaker 3: retention. But, you know, keep in mind a lot of the retention.
Tension, but keep in mind as I'm, saying a lot of the retention.
Speaker 3: in terms of what tenants move out are really at our option.
In terms of you know, what what tenants move out or really well at our option. So that we can get to these assets you know as Michael was describing and go in and create value above and beyond what we might even be able to get from a tenant.
Speaker 3: so that we can get to these assets as Michael was describing and go in and create value above and beyond what we might even be able to get from a tenant even if they do want to review.
Even if they do want to review right now, but you know in some instances tenants are so desperate for space, they're paying us a rents that far exceed what we ever thought.
Speaker 3: But in some instances, tenants are so desperate for space.
Speaker 3: they're paying us rents that far exceed what we ever thought an existing building might be worth, and we are retaining them, and we'll just move forward on that value creation plan a little further down the road.
<unk> building might be worth and we are retaining them and we'll just move.
Move forward on the value creation plan, a little further down the road.
Yeah.
And you know in the past, we've always discussed the off market nature of your acquisitions and maybe less professionally managed assets that you've been buying are they having the same successes.
Speaker 3: And, you know, in the past, we've always discussed the off-market nature of your acquisitions and maybe less professionally managed assets that you've been buying. Are they having the same successes?
Speaker 3: you know with those tenants paying those higher rents are they happy to even the market rates are where they are are they happy to to keep the continuity of tenant and actually we're doing lower and so when you're buying the assets even though leases might have just turned cash flows aren't could potentially be
You know what those tenants paying those higher rents or are they happy too even though market rates are where they are are they happy to keep the continuity of tenant and there actually were doing lower and so when you're buying the assets.
Even though leases might've, just turn cash flows arent, where they could potentially be.
Right.
Speaker 3: Most of the assets we buy are not recently leased and adjusted to market rents. You know, we tend to typically target assets that have, you know, below market rents in place because they've been leased for a while. In fact, you know, looking at our data from our fourth quarter acquisitions, in aggregate, in-place rents were about 38% below market on those assets we bought. And, you know, the typical owner in our market that, you know, the individuals or the smaller partnership.
Most of the assets, we buy are done recently leased an adjusted to market rents.
Tend to typically target.
So it's that have below market rents in place because they've been at least for a while in fact.
Looking at our data from our fourth quarter acquisitions in aggregate in place rents were about 38% below market on those assets were bought.
And you know the typical owner in our in our market that you know the individuals are they smaller partnerships.
Speaker 3: You know, they're shocked when somebody tells them what their property is worth, and they're also surprised when they do a renewal and they get a bit more rent than they were thinking about. But a lot of times, getting more rent also requires them to modernize and make larger capital investments in their buildings.
They're they're shocked when somebody tells them what their properties worth and they're also surprised when.
They do a renewal and they get a bit more with or they were thinking about but a lot of times getting more rent also requires them to modernize and make larger capital investments in their buildings, which most of the time that they're not willing to do especially since the market. So tight and they don't have to spend a penny they still retain occupancy and even get rent growth.
Speaker 3: which most of the time they're not willing to do, especially since the market's so tight, and they don't have to spend a penny to still retain occupancy and even get rent growth. And again, that rent growth they're getting is still well below what that could be if somebody like Rexford came in and invested a little bit of capital and really just unlocked the value in those assets.
And you know and again that rent growth, we're getting is still well below what that could be if somebody like rexford came in and invested a little bit of capital and are really just unlock the value in those assets.
Thank you.
And our next question comes from the line of Conor So risky with Baird. Please proceed with your question.
Speaker 6: everybody and thanks for having me on the call. I appreciate the detail as always.
Hi, everybody and thanks for having me on the call I appreciate the detail as always.
Speaker 6: A question on leasing spreads that we saw during 4Q.
On the question on leasing spreads that we saw during <unk>. So.
Speaker 6: I think you had mentioned that the mark-to-market on the portfolio is about 41%.
You had mentioned that the mark to market on the portfolio was about 41% and that is the number baked into guidance. So I'm wondering what could explain the delta between that 41% number and the 21, 5% cash spread posted four four to 'twenty one so just.
Speaker 6: And that is the number baked into guidance. So I'm wondering what could explain the delta between that 41% number.
Speaker 6: and the 21.5% cash spread posted for 4Q21. So, just for a little context, I'm operating under the assumption that some of the leases that would have expired during the quarter were of an older tenor and may have been even lower on the mark-to-market, so any color there would be appreciated.
Just for a little context, I'm operating under the assumption that some of the leases that would have expired during the quarter were of an older tenor and may have been either me.
And he even lower on the mark to market. So any color there would be appreciated.
Speaker 3: Sure. This is Howard Connor. Nice to hear from you. So, our lower spreads were mostly impacted by a couple of larger renewal.
Sure.
Howard County.
I stood up here.
So are our lower spreads.
Were mostly impacted by a couple of larger renewals.
Speaker 3: And that really represented 30% of the square footage, that million square feet of leasing in the corridor. We had a 182,000 foot building in our Rancho Pacifica project in the South Bay where we're working on a longer term blend and extend with a couple of spaces a tenant occupies. So we renewed 182,000 feet on a short-term lease. It was seven months.
And that you know that really represented 30% of the square footage that million square feet of leasing in the quarter. We had a 182000 foot building in our Rancho Pacifica project in the South Bay, where we're working on a longer term blend and extend with a couple of spaces of tenant occupied so we renewed 182000 feet on a short.
Term leash seven months, but it met the parameters have been included in the calculations and that only had a three 5% cash spread and we had 112000 foot building in Hawaii in the San Diego market.
Speaker 3: But it met the parameters of being included in the calculations and that only had a three and a half percent cash spread. And we had 112,000 foot building in Poway in San Diego market and that had an
And that has in place below market option to extend at a fixed rate and that had a four 2% cash spread so.
Speaker 3: below market option to extend at a fixed rate, and that had a 4.2% cash spread. So those were a huge influence.
Those were a huge influence.
On those leasing spreads, but you know when you when you look at or newly saying and we didn't have much space to lease. So we didn't have as much new leasing in the quarter, but our new leasing spreads were still very strong we had 46%.
Speaker 3: Um, but yeah, when you when you look at, um, you know, our newly saying
Speaker 3: And we didn't have much space to lease. So we didn't have as much new leasing in the quarter, but our new leasing spreads, you know, were still very strong. We had 46%.
Speaker 3: gap spreads, and 31.5% cash spreads. So those are more typically what you hear us talking about, but at 99.1% occupancy, there just isn't a lot of space in our portfolio that we're able to lease in that past quarter.
GAAP spreads and 31, 5% cash spreads. So those are more typically what you hear us talking about.
But at 99, 1% occupancy.
There just isn't a lot of space in our portfolio that we're able at least in the past quarter.
Yeah.
Speaker 6: Okay, but just to clarify, the 41% number, that's sort of what's being baked into 2022 guidance?
Okay, but just to clarify so you think 41% number that's that's sort of what's being baked into 2022 guidance.
Yeah, do you want to take that Laura.
Speaker 4: Hey, Connor, it's Laura.
Hey, Conor it's Laura.
Speaker 4: Yeah, I'll add a little color there and then talk about 2022 as well. I think it's important when you think about 20.
Yeah, I'll I'll add a little color there and then talk about 2020 two as well I think it's important when you think about 2021 .
Speaker 4: 21, you know, to look at the full year, because certainly on a quarter-to-quarter basis, you know, the next issue can certainly impact, you know, the results in an individual quarter. But when you look forward to 2022, the mark-to-market on our 2022 expirations is 48% on a cash basis.
You got to look at the full year, because certainly on a quarter to quarter basis. You know the next issue can certainly impact you know the results in an individual quarter, but when you look when you look forward to 2022, the the mark to market on our 2022 exploration is 48% on a cash basis.
Speaker 4: So, you know, we're looking forward seeing some, you know, pretty significant mark to market. And our guidance assumes around a 40 percent, at the midpoint, 40 percent leasing spreads on our 2022 expirations.
So we're looking forward to seeing some you know pretty significant mark to market and our guidance assumes around a 40% at the midpoint.
40% leased.
Leasing spreads.
On our 2022 expirations.
Okay, that's probably all I hope, it's Michael it's Marc.
Speaker 5: Michael, I'll just add one thing, you know, the spreads are one component of growth for the quarter and for the year. And Q4 actually saw an acceleration in overall growth by key metrics. For instance, core FFO grew by 61.5% for the quarter.
Michael I'll just add one thing you know the spreads are one component of growth for the quarter and for the year and Q4 actually saw an acceleration in overall growth by key metrics for instance, core epithet grew by 61, 5% for the quarter, which was a much higher rate than the annual annualized growth of 44% on a per share basis.
Speaker 5: which was a much higher rate than the annual annualized growth of 44 percent. On a per share basis, we grow core epiphyll per share at 32 percent.
We grow core <unk> per share at 32% to two 5% for the quarter you know.
Speaker 5: 2.5% for the quarter, a much higher rate than the 24.2% for the year.
A much higher rate than the 24, 2% for the year.
Speaker 5: So I think overall, Q4 was actually an acceleration in terms of cash flow growth.
So I think overall Q4 was actually an acceleration in terms of cash flow growth for the company.
Speaker 6: Okay, and then could you just remind us then what in-place escalators look like?
Okay, and then could you just remind us then what what in place escalators looked like.
Oh I'm sorry.
Go ahead Mark.
Speaker 4: Okay, yeah, I'll take it so overall the the portfolio rent steps are now in place at three point one percent for the total portfolio But we've certainly seen
Okay, Yeah, I'll take it so overall the portfolio rent steps are now in place at three 1% for the total portfolio.
We've certainly seen.
Speaker 4: the ability to increase those across the leases that we've signed through 2021.
The ability to increase those across the leases that we've signed them through 2020 one and.
Speaker 4: and those rent escalations continue to actually accelerate. If you look at the average rent steps that we signed in the fourth quarter, they were at 3.9 percent, and that's up from 3.6 percent in the third quarter. So if you look at the full year.
And then as rent Escalations continue to actually accelerate if you look at the average rent steps that we signed in the fourth quarter. They were at three 9% and that's up from three 6% in the third quarter. So if you look at the full year. The average shrink steps that we sign on on Oliver leasing was three 4% so.
Speaker 4: The average rent steps that we signed on all of our leasing was 3.4%, so we're seeing that in-place portfolio number move up. It takes a little bit of time to move that number forward.
We're seeing that in place portfolio number move up it takes a little bit of time on to move that number forward, but you know we're seeing you know and some some markets in some cases, the ability to capture 4.5% to 5% rent bumps is becoming more common in the market.
Speaker 4: But, you know, we're seeing, you know, in some markets, in some cases, the ability to capture, you know, 4.5 to 5% rent bumps is becoming more common in the market.
Okay. Thanks for that and one more for me.
Speaker 6: Looking at construction activity, I mean, let's just focus on the Inland Empire specifically. So, I'm seeing about 30 million square feet under construction, about 28 million of that is spec. So, you know, I know you have some presence in the market, but I'm just thinking out loud, is it a possibility that some of the tenants in the LA basin could provide the same service to
Looking at construction activity I mean, let's just focus on the inland Empire, specifically, so I'm seeing about 30 million square feet under construction about $28 million of that is spec. So you know I know you have some presence in the market, but I'm just thinking out loud is it a possibility that some of the tenants in the La basin could provide the same service to two.
L. A proper from the England Empire I mean is there a is there a situation where we could see some kind of diffusion from your tenants out of L. A into the inland Empire, where is that does that seem unlikely.
Speaker 6: LA proper from the Inland Empire? I mean, is there a situation where we could see some kind of diffusion from your tenants out of LA into the Inland Empire, or does that seem...
Speaker 3: Yeah, we've always, we've always seen that Connor, the Inland Empire has been the relief, though, for the lack of supply in the infill market.
We've always we've always said that corner in the inland Empire has been the relief, though there was a lack of supply in the infill markets.
Speaker 3: That's changed though recently because there's very limited supply availability in the Empire.
That's changed though recently, because there's very limited supply availability in the inland Empire.
Speaker 3: And a lot or most of that product you see coming out of the ground lately either is pre-leased or winds up becoming leased right at completion. So it's just been an amazing amount of absorption that we've seen in that market and frankly in all of our markets. And what's also very interesting is the Inland Empire used to have substantially lower rents.
A lot or most of the product you see coming out of the ground lately.
Neither was pre leased or ones that becoming waste.
Right completion, so it's just been an amazing amount of absorption.
We've seen in that market and frankly in all of our markets.
What's also very interesting.
Is the inland Empire.
You used to have substantially lower rents.
Speaker 3: than some of the more closer in infill markets. And, you know, when we look at it today, that spread between the rents in the Inland Empire and some of the more Western markets is much more narrow. So it's really more of a
Then some of the more closer in infill markets and yeah. When we look at it today the spread between the rent and inland Empire and some of the more western markets is much more narrow.
So it's really more of a question of.
Speaker 3: you know, do you need a higher quality building or do you need a location? And then the other side of it also is that, you know, while the Inland Empire is, you know, only like 45 minutes or an hour plus away from some of these other markets.
Do you need a higher quality building or do you need a location and then the other side of it also is that you know while dealing with them for us.
You normally like 45 minutes or an hour plus away from some of these other markets.
Speaker 3: You know, tenants have to strategically be located in these infill markets to service their customers, and they actually can't do it a lot of times if they're in the Inland Empire. So, you know, you find people's needs a lot different that are able to locate in the Inland Empire than the tenants in the infill markets that really are there because their businesses have to be there.
The tenants have to strategically be located in these infill markets to service their customers and they actually can't do it a lot of times if they're in the inland Empire. So you find people's needs a lot different that are able to locate in the inland empire than the tenants in the infill markets.
Really are there because their businesses have to be there.
Got it that's very helpful. I'll leave it there and just to be clear just to be clear Connor that type of volume in terms of construction in the eastern inland Empire and deliveries as it has been pretty consistent.
Speaker 5: That's very helpful. I'll leave it there. And just to be clear, Conor, that type of volume in terms of construction in the Eastern Mediterranean Empire and deliveries has been pretty consistent now for, I don't know, five to seven years.
Now for I don't know five.
Five to seven years, and we really haven't seen that impact demand or rental rate growth in our infill markets. Just just to be clear and I think that's what Howard was referring to when he said we've seen this in the past it's been recurring but we but what we don't see is the new construction deliveries in the eastern part impacting <unk>.
Speaker 5: And we really haven't seen that impact, demand, or rental rate growth in our infill markets, just to be clear. And I think that's what Howard was referring to when he said, we've seen this in the past.
Speaker 5: been recurring, but what we don't see is the new construction and deliveries in the Eastern Empire impacting demand in our info markets, which is more, I think, more to your question.
And in our infill markets, which is more I think more to your question.
Speaker 6: Yeah, no, I was just really curious about whether or not that 28 million square feet of stack development would have been somewhat of a concern, but the color makes sense. Thanks.
Yeah, No I was just I was just really curious about whether or not that a 28 million square feet of spec development, what would have been somewhat of a concern but yeah. The color makes sense. Thanks.
And our next question comes from the line of Dave Rodgers with Baird. Please proceed with your question.
Yes, good morning out there just wanted to ask about the Redevelopments I think you had said $200 million completed in 'twenty, one 380 million either planned or current but does that is that the plan to start this year here in 2022, and then I guess, maybe can you talk a little bit about the scope and how that might be changing some of the projects are you generally trying to open space.
Speaker 7: Yeah, good morning out there. Just wanted to ask about the redevelopment. I think you had said 200 million completed in 21, 380 million, either planned or current. But is that is that the plan to start this year here in 2022. and then I guess maybe can you talk a little bit about the scope and how that might be changing as some of the projects? Are you generally trying to open spaces up because you see more warehouse storage? Are you cutting spaces up for more service orientation? I assume maybe the answer is a little bit everything, but just curious on your thoughts.
This is up because you see more warehouse storage are you cutting spaces up for more service orientation I assume maybe the answer is a little bit everything, but just curious on your thoughts.
Speaker 3: Sure, hi Dave, it's Howard. So in total we have over 3 million square feet of projects. That's probably 28 different buildings we'll be building over the next few years.
Hi, Dave.
Howard.
So in total we have over 3 million square feet of projects.
28 different our buildings will be building over the next couple.
Two years.
Speaker 3: And that has an incremental spend of about $350 million with about $1 billion of value creation and stabilizing its strong yields, about 6.5%. In terms of 2022, we'll have 15 projects start with an incremental spend of about $200 million.
And that has an incremental spend of about $350 million with about $1 billion of value creation.
And stabilizing its strong yields about six 5% in terms of 2022, we'll have 15 projects start.
With an incremental spend of about $200 million and those will stabilize are anywhere from you know second quarter 'twenty three the second quarter of 2024 also had similar stabilized return project at a 6.7% of total cost.
Speaker 3: and those will stabilize anywhere from, you know, second quarter of 23 to second quarter of 2024. Also, a similar stabilized return projected of 6.7% on total costs.
Speaker 3: And then, you know, in terms of any changes of the product, you know, I think what we've seen in the market today is that people want a bit more space on site to store containers. They want higher doc counts.
And then you know in terms of any changes to the product you know I think what we've seen in the market today is that our people people want a bit more space on site to store containers on hire.
Your Doc counts.
Speaker 3: and we're delivering that. So, in some instances, we can make that work with higher coverage on the site, meaning typically around a norm of 50%. And in some instances, we'll deliver sites that have excess land.
And we're delivering that so in some instances, we can make that work with a higher coverage on the site when they typically around the norm of 50%.
In some instances.
Deliver sites that have excess land.
Speaker 3: Some of our repositioning, in fact, you know, we're tearing down pieces of buildings and creating what we call low coverage.
Some of our repositioning is in fact, Oh, we're tearing down pieces of buildings and <unk>.
Creating what we call low coverage.
Speaker 3: sites that have an extensive amount of loading and, you know, very large excess land areas for container storage, and those are becoming in more demand, as well as, you know, even just yard space.
All sites.
Have a an extensive amount of loading and very large excess land areas for container storage and those are becoming even more demand.
As well as you know even just yard space.
Speaker 3: that we're running, these industrial outdoor storage sites that have little to no improvement on the site and are just used for storage of containers. You can only do that in selective areas. Most cities are very difficult in terms of allowing for those exterior yards, but we've had a lot of success of buying sites that had buy-right ability to do container storage, and we're achieving substantial returns on those sites as well.
But we're running you know these industrial outdoor storage such.
That have little to no improvement on the site and they're just used for storage containers.
You can only do that in selective areas. Most cities are very difficult in terms of allowing for those exterior yards.
We've heard a lot of success.
Sites that had buyer right ability to do container storage.
<unk> substantial.
Returns on those sites as well.
Great appreciate that color and then maybe Laura I, just one follow up for you and I realize it may be apples to oranges. Your interest expense guidance is I think down in 'twenty, two versus 21, and I know the acquisitions aren't in there, but maybe it imply for us anything with respect to the preferred I think maybe you have coming due as well as.
Speaker 7: Great. I appreciate that, Culler. And then maybe, Laura, just one follow-up for you. And I realize that maybe apples to oranges, your interest expense guidance is, I think, down in 22 versus 21, and I know the acquisitions aren't in there, but maybe imply for us anything with respect to the preferred, I think, maybe you have coming due, as well as thoughts on kind of equity versus using debt in that mix to kind of change that interest expense outlook as the year progresses.
Thoughts on kind of equity versus using debt and in that mix to kind of change that interest expense outlook as the year progresses.
Yeah. So the.
Speaker 4: Yeah, so the interest expense guidance is being driven, the decline is being driven by a couple of components.
The interest expense guidance is being driven the decline is being driven by a couple of components.
Speaker 4: Our guidance is $38 to $39 million. We ended the year 2021 with a little bit over $40 million. So, it's driven by really a couple of factors. One is higher capitalized interest.
Our guidance is 38 to 39 million and we ended the year at.
2021 with a little bit over 40 million. So it's driven by really a couple of factors. One is higher capitalized interests as Howard just mentioned you know, we we expect to start pretty significant amount of projects and when we looked at our projected spend in 'twenty, two it's about $180 million and that compares to about.
Speaker 4: As Howard just mentioned, we expect to start a pretty significant amount of projects. When we look at our projected spend in 2022, it's about $180 million, and that compares to about $65 million in 2021. So that's driving higher capitalized interest. And then the other, we had some one-time...
$65 million in 2020 , one so that's driving higher capitalized interest and then the other week, we had some one one time one time items in our 'twenty, one interest expense related to a termination of an interest rate swaps and so they said does it burned off and are not impacting 2000, twenty's and so there's a little bit.
Speaker 4: one-time items in our 21 interest expense related to termination of some interest rate swaps, and so those have burned off and are not impacting 2022. So it is a little bit of a comp issue.
Of a comp issue.
Speaker 4: And then, you know, to answer your question in terms of, you know, how to think about, you know, funding and the balance sheet going forward.
And then you know to answer your question in terms of you know how how to think about you know its funding and the balance sheet going forward.
Speaker 4: You know, we certainly feel very well positioned from a liquidity standpoint. We do have about $134 million of proceeds remaining from forward issuance.
We certainly feel very well positioned from a liquidity standpoint, do you have about $134 million of proceeds remaining from our Florida issuance.
Speaker 4: And then we just renewed our $750 million ATM program, so we have full availability there.
And then we've got we just renewed our $750 million ATM program. So we have full availability availability, there and know as at the end of the year no balance on our credit facility. So.
Speaker 4: and no, you know, as of the end of the year, no balance in our credit facility. So.
Speaker 4: certainly a number of sources of liquidity from that standpoint. As we look forward into 2022, I think our funding strategy is going to look really similar to 2021.
Certainly a number of sources of liquidity for liquidity from that standpoint, and you know as we look forward into 'twenty 'twenty. Two I think our you know our funding strategy is it's going to look fairly similar to 2021.
Speaker 4: We're going to take an opportunistic approach to our capital raises.
We're gonna taken off your opportunistic approach to our capital ratios, which raises.
Speaker 4: Our net debt to EBITDA is sitting at 3.6 times, our target level is in the 4 to 4.5 times.
Our net debt to EBITDA is sitting at three six times our target level is in the four to four and a half times. So I think that you know in 2022, it you'll see US you know what's happened to the debt and equity markets.
Speaker 4: So I think that, you know, in 2022, you'll see us, you know, tap into the debt and equity markets as you have in the past.
As you have in the past.
Speaker 4: you know, to fund, to fund future acquisition opportunities. Great. Thank you.
Yeah to fund to fund future acquisition opportunities.
Great. Thank you.
Welcome.
Our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your question.
Speaker 3: Yeah, hi. Laura, I was just wondering, what's the big difference between the cash and gap seems during the wide growth, the difference between those two metrics? Because when I think of the gap number, my mind goes to, you've got a mid-teens expiration. If you're assuming 40% cash spreads, your gap spreads based on the prior comments are probably 50%. So 50 to 15 kind of gets you in the high single digits. So there seems like there's an offset.
Yeah, Hi, Laurie I was just wondering.
What's the big difference between the cash and GAAP same store NOI growth.
Difference between those two metrics because when I think of the GAAP number in my mind goes to you've got a mid teens exploration.
If you're assuming 40% cash spreads your GAAP spreads based on the prior comments are probably 50%. So 50 to 15 kind of gets you in the high single digits.
It seems like you're all set.
Speaker 4: Yeah, it's a great question, Mike. So, the difference between our GAP and cash spread that's in our guidance is about 275 basis points.
Yeah, It's a great question, Mike So the difference between our GAAP and cash Fred I. That's in our guidance is about 275 basis points.
Speaker 4: Just to put that into some historical context.
Just to put that into some historical context over the past four years that gap between GAAP and cash has been about in the 175 to 200 basis point range. If we look back over the past four years and.
Speaker 4: Over the past four years, that gap between GAAP and cash has been about in the 175 to 200 basis point range, if we look back over the past four years.
Speaker 4: In 2021, that gap was about 320 basis points with COVID impact relating to about 140 basis points of that impact. So if you look forward to 2022 and the 275 basis point spread, you know, it's a
In 2021 that gap was about 320 basis points with about with Covid impact relating to about 140 basis points of that impact. So if you look forward to 2022, and the 275 basis point spread them you know it's it's.
Relative to historical it's about 100 basis points higher.
Speaker 4: relative to historical, it's about 100 basis points higher. So it's really related to lower projected non-cash income.
So it's really related to lower projected noncash income. That's that's really split evenly between a few factors first is COVID-19 impacts represent about a third of that of that spread that that 100 basis points of excess spread.
Speaker 4: that's really split evenly between a few factors. First is COVID impacts, represent about a third of that spread, that 100 basis points, that excess spread, and that's down from 140 basis points, as I mentioned, in 2021. The second impact is around lower, above the low market, non-cash expense, and that's really related to
And that's down from 140 basis points as I mentioned in 2020 one the second impact is around lower about below market on noncash noncash.
Noncash expense in that and that's really related to.
Speaker 4: a couple of things are happening above and below. One is we're certainly converting below-market rents to higher cash rents.
A couple of things are happening at and above below one is we're certainly converting and below market rents to higher cash rents.
Speaker 4: And then the second is that in 2021, we did have some one-time impacts around – we had some proactive move-outs where we were able to take some space back and convert those to higher market rents, but then that does generate some larger one-time impacts in 2021 that hit above below. So that's kind of another third of that outside spread. And then the last component is a decline in straight-line rent assumption.
And then the second is that in 2020 . One we did have some one time impacts them around or we had some proactive move outs, where we were able to take some space back and convert those to higher market rents, but then that just generates from some larger one time impact from 'twenty to 'twenty, one that hit about below so that's kind of another third of that outcome.
I spread and then the last component is a decline in straight line rent assumption.
Speaker 4: and there's a number of things that can impact your straight-line rent assumptions and projections. One of those is lower average occupancy, which I discussed. Timing of our lease expirations can be another driver, and just the overall amount of activity that we are projecting to lease as well.
There's a number of things that can kind of impact your straight line rent assumptions.
Projections and so one of those is lower a lower average occupancy, which I discuss timing.
Timing of our lease expirations can have it can be another driver.
And just the overall amount of activity that we are projecting them to lease as well so.
Speaker 4: that was about another third of that outside spread. So those are what's driving the lower non-cash in 2022. Got it. Okay. That's helpful.
That that was about another third of that outsized spreads. So those are you know that those are what's driving that lower noncash in 2022.
Got it Okay. That's helpful. That's all I had thank you.
Thank you Mike.
Speaker 1: Just as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad in order to join.
And just as a reminder, if anyone has any questions. You May press star one on your telephone keypad in order to join the question and execute.
Our next question comes from the line of Chris Lucas with capital One Securities. Please proceed with your question.
Hi, everyone. Thanks for taking my questions Howard maybe I'll just start with you on a bigger picture question, which relates to or at lease expiration schedule. If I look at.
Speaker 3: Hi, everyone. Thanks for taking my questions. Howard, maybe I'll just start with you on a bigger picture question, which relates to your lease expiration schedule. If I look at not just this coming year, but the next five years after that, the expirations are around the same rent levels. Is there anything in the 22 mix that you can tell me about that
Not just this coming year, but the next five years after that the expirations are around the same rent levels is there anything in the 'twenty two mix.
That.
Where where that.
Speaker 6: where that generates that 40 plus percent mark to market, or can I assume that if the environment stays the same over the next six years, that the 40, 50 percent kind of mark to market is really kind of embedded throughout the entire rest of the lease expiration.
Generates that 40 plus percent mark to market or is it or can I assume that if the environment stays the same over the next six years that the 40, 50% kind of Mark to market is really kind of embedded throughout the entire rest of the lease expiration schedule.
Speaker 3: Well, hi Chris. Maybe I'll talk just a little quickly about this year's expirations and I'll let Laura add a little color on the latter years. You know, in terms of this year,
Well hi.
Hi, Chris maybe I'll talk just a little quickly about this year's explorations and I'll, let Laura.
A little color on the later years.
You know in terms of this year.
Speaker 3: But our top 20 leases is about 1.65 million feet, so that's a third of what's expiring. And what's interesting of that is that today, no assets are moving to repositioning or they're expected to renew, so very little of it is going to be vacant.
Our top 20 leases is about.
About a 1.65 million cheap so.
So that's sort of what's expiring and what's what are what's interesting.
As of today, we either.
No.
That's a moving to repositioning or theyre expected to renew so very little of it is is going to be.
Be vacant.
Speaker 3: Um, and, and then in terms of those, those leaf spreads.
And then in terms of those those lease spreads you know the biggest driver is probably in the largest amount of explorations. This year, 26% is in our inland Empire West portfolio, where we have 67% mark to market.
Speaker 3: You know, the biggest driver is probably in the largest amount of expirations this year, 26% is in our Inland Empire West portfolio where we have 67% mark to market, you know, followed by mid-counties at 52%. And, you know, that's really the components of how we get to that 48% mark to market.
Followed by mid counties at 52% and that's that's really the components of how we get to that Oh about 48% mark to market.
Speaker 3: And, you know, in terms of, you know, a look forward, you know, none of us know obviously what happens in the marketplace.
And you know in terms of a look forward.
None of US know, obviously what happens in the marketplace just for now.
Speaker 3: years from now. But, you know, you've seen us adjust our mark-to-market pretty significantly, just literally from the third quarter of last year to now through the fourth quarter. I think we've had, was it 27% up to that, I think it was 48%, or I might be getting the wrong number.
But.
You've seen us adjust our mark to market pretty significantly just literally from the third quarter.
All of last year to now through the fourth quarter I think we've ever had was it a 27% up to the.
And it was 48, 48%.
Or it might be give me the right number.
Speaker 3: So the markets are moving incredibly fast, and it's not really dictating what happens in the future. So hard to predict. I don't know, Laura, do you have any other thoughts on the future spreads?
24 hour.
Tower 41, sorry, so the markets are moving incredibly fast.
Hum.
It's no it's not really dictating what happens in the future. So hard to predict I don't know Laura do you have never thoughts on the future of.
Spreads.
Speaker 5: But before we go to the future spreads, before we go to the future spreads.
But before we go down the interest spreads before we go to the future spreads.
Speaker 5: Chris, thanks again for joining us, Michael. But just a little more color on this year's contribution from the lease expiration.
Chris Thanks, again for joining us Michael but just little more color on this year's.
Contribution from the lease expirations, which is that it's a little bit back ended and this relates also to Jamie's earlier question because it also impacts the same property pool.
Speaker 5: which is that it's a little bit back-ended, and this relates also to Jamie's earlier question because it also impacts the same property pool, NOI growth, et cetera, for the year. So you have about 60% of the volume expires during the second half of the year, but also the rent spreads are not equal throughout the year.
NOI growth et cetera for the year.
And so you have about 60% of the volume expires during the second half of the year, but also the rent spreads are not equal throughout the year. So rent spreads are materially higher during the second half of the year for those explorations as compared to the first half of the year. So so it is I think also part of your question. Chris was is it an equal contribution sort of through the year and it's not.
Speaker 5: So rent spreads are materially higher during the second half of the year for those expirations as compared to the first half of the year. So I think also part of your question, Chris, is an equal contribution sort of through the year, and it's not. It's weighted towards the second half of the year.
It's weighted towards the second half of the year.
That's really helpful. I appreciate that.
Speaker 3: That's really helpful. I appreciate that. Laura, did you want to comment about this? I guess I'm just trying to understand whether or not it is mixed. It's sort of driving this extraordinary lease strong lease spread expectation or is it something that is sort of just embedded in the portfolio for across the board? That's really the point of the question.
Laura did you want to comment about the sort of the outlook I guess I'm, just trying to understand whether or not it is mixed destroyed or driving this extraordinary.
At least strong lease spread expectation or is it something that is sort of just embedded in the portfolio.
Across the board and that's really the point of the question.
Speaker 4: Yeah, I mean, and that's a good question. I mean, when you when you look at 2022, is that 48%? And then the overall portfolio, you know, average marked markets 41%. So, you know, that implies
Yeah, I mean, it's a and that's a good question I mean, when you when you look at 2022 is at 48% and then the overall portfolio you know average mark to market is 41%. So you know what that implies.
Speaker 4: a little bit lower potential mark-to-market in the upcoming years. If we look at 2023, it's a little bit under 40 percent. It's about 38 percent. 2024, at this point, is about 35 percent. That gives you a little bit more visibility into the cadence there from a mark-to-market perspective.
A little bit lower pension mark to market and you know in the upcoming years. If we look at 2023 mm. It's about you know a little bit under 40%. So about 38% and 2024 at this point is about 35%. So that gives you a little bit more visibility into the cadence there from a mark to market for a SEC.
Yes.
Great. Thank you that's very helpful. Lloyd as well not just a couple of detailed follow ups on on the noncash comp you mentioned.
Speaker 3: Thank you. That's very helpful. Lori, while I've got you, just a couple of detailed follow-ups. On the non-cash comp, you mentioned you've got the $23.1 million of guide. Is there any of that that is sort of locked in based on prior grants that are vesting or is this a floating number, just trying to understand how much is variable?
You got the $23 1 million of guide is there any of that that is sort of locked in based on prior grants that are investing or is this a floating number just trying to understand how much is variable.
Yeah, I mean, Chris that's a that 23 million is is based on you know is based on performance.
Speaker 4: Chris, that 23 million is based on performance.
Speaker 4: and is what is paid out over the next three years. So, and the metrics that detail exactly what, exactly how that's paid out is in our proxy in 10K, but big picture it's tied to absolute earnings growth as well as relative total shareholder return.
And as is what is paid out over the next three years, so and the the metrics that that detail exactly what you know exactly how that's paid out as is in our proxy in 10-K, but you know big picture, it's tied to absolutely earnings growth as well as relative total shareholder return. So those those are.
Speaker 4: So, those are not realized until we hit those measurement points in each year.
Are those are not realized until we hit the measurement points in each year.
Speaker 5: Okay, and then just while it's not a big issue currently, as you think about guide, how do you deal with, or you know, how do you.
Okay, and then just Oh, well, it's not a big issue currently.
Think about guide how do you deal with or how do you.
Speaker 3: What's your assumptions as it relates to the unexercised 8 forward ATM, how do you factor that into your...
What what's your assumptions as it relates to to the unexercised eight foreign ATM, how do you factor that into your guidance since you're not assuming acquisitions as part of the good times, just trying to understand where that filters through.
Speaker 3: Since you're not assuming acquisitions as part of it, I'm just trying to understand where that filter.
Speaker 4: Yeah, well, Chris, if you think about year-to-date, we've acquired $170 million, and I have $134 million outstanding on the forward. So, you know, I think from a forward perspective, you know, you could have, you know, there's an assumption baked in on funding, that $170 million, and certainly that forward, those forward proceeds could be, you know, contributed to funding that
Yeah, well, Chris if you think about year to date, we have acquired $170 million and I have $134 million outstanding on muscle memory.
So you know I think from a forward for perspective, you know you could've, yeah, there's an assumption baked in on funding that $170 million and certainly that forward. This word proceeds could be you know contributed to funding that.
That can be year to date.
Okay and last question for me just you mentioned some you mentioned earlier that there were a couple of fixed renewals or unique renewals that sort of impacted that.
Speaker 6: The last question for me, you mentioned, some mentioned earlier that there were a couple of fixed renewals or unique renewals that sort of impacted that number, just curious as to how much of the portfolio has fixed.
That number just curious as to how much of the portfolio has.
Fixed renewal options to it.
Speaker 3: very, very little. Occasionally we buy an asset and it may have an in-place lease.
Very very little occasionally we buy an asset and it may have an in place lease.
Speaker 3: that were saddled with that somebody else made a bad decision on, which was the case with that one I mentioned in the San Diego market.
Ah, we're saddled with somebody else made a bad decision on which was.
The case with the that one I mentioned in the San Diego market.
But you know overall.
Speaker 3: But, you know, overall, and I don't have an exact number in front of me, but, you know, overall, I would say it's very little. Rexford never gives anybody a fixed option. Everything's at market.
And I don't have the exact number in front of me, but you know overall I would say it's very little.
Rexford never gives anybody a fixed option everything's up market.
Okay. Thank you I appreciate it I was going to say in 20 years of doing this I can't remember ever providing that could at least.
Speaker 5: Thank you, Howard. I appreciate all this. I was going to say, in 20 years of doing this, I can't remember ever providing that good in a lease.
Yeah.
Thanks.
Thank you Chris.
And our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Speaker 7: Great, thanks. Laura, just following up on the same-store expense growth, how should we think about this non-recoverable overhead allocation affecting same-store growth going forward past this year? I mean, I think it's clear you guys are looking to keep growing, but after these new hires and raises, do you think you're at a point at which you think your scale can kind of minimize this as a headwind in future years, or are there any other ways to kind of mitigate it as you grow into the future?
Great. Thanks, Laura just following up on the same store expense growth how should we think about this non recoverable overhead allocation affecting same store growth going forward past this year.
I think it's clear you guys are looking to keep growing but after these new hires and raises do you think you're at a point at which you think your scale can kind of minimize this as a headwind in future years or are there any other ways to kind of mitigate it as you grow into the future.
Speaker 4: It's a good question. And while we're not going to provide 2023 guidance today, I'm happy to provide a little bit more color around how you think about the cadence. So I think, as I mentioned, as I mentioned, kind of the timing of hiring and
Hey, Blaine, it's a good question and and well, where we're not going to provide 2023 guidance today I'm happy to see you know I am happy.
To provide a little bit more color.
You know how you think about the cat so.
And as I mentioned.
Just kind of the timing of hiring and and certainly ebb and flow on a year to year basis and in some cases, there can be some catch up. So when you think about you know when you think about where we were at the end of 2020 and going into the beginning of 2020 , one I'm very much operating in a COVID-19 environment with a lot of uncertain.
Speaker 4: can certainly ebb and flow on a year-to-year basis.
Speaker 4: And in some cases, there can be some catch up. So when you think about.
Speaker 4: You know, when you think about where we were the end of 2020 and going into the beginning of 2021, very much operating in a code environment with a lot of uncertainty.
Speaker 4: You know, and we're still we were still growing pretty rapidly, but I would say that, you know, maybe hiring slowed to some extent. And so there could be years where there is a little bit of a catch up. So, in a way, you could look at 2021 and, you know, it could be, you know, that our overhead could have been understated in a way.
We're still we were still growing pretty rapidly, but I would say that you know maybe hiring slowed to some extent.
And so there could be years, where there is a little bit of a catch up so in a way you could look at 2021 and you know it could be you know that our overhead could've been understated in a way we we certainly.
Speaker 4: We've certainly, through the hiring that occurred.
Through the the hiring that that occurred.
Speaker 4: Uh, in 2021 was more back end weighted and this overhead allocation bucket. Um, so you're seeing the full impact of a little bit of that catch up into 2022.
In 2021 was more backend weighted and this overhead allocation bucket.
So you're seeing the full impact of a little bit of that catch up into 2022, and then and then obviously as we look forward we want to make sure that we're staying ahead to some extent right not too far ahead, but it certainly staying ahead that allows us and gives us the ability to grow so you know I think.
Speaker 4: And then, obviously, as we look forward, we want to make sure that we're staying ahead to some extent. Right? Not too far ahead, but certainly staying ahead that allows us and gives us the ability to grow. So, you know, I think from an overall GNA perspective,
And overall G&A perspective, you're you're seeing the benefits and where are we are seeing the benefits of our scale right and when you look at G&A as a percent of revenue for.
Speaker 4: We are seeing the benefits of our scale, and when you look at G&A as a percent of revenue,
Speaker 4: for 2021 was 10.8%. That was down from 11.2% in 2020. And we've seen that number continue to tick down every year for the past four or five years.
For 2021 was 10, 8% and that was down from 11, 2% in 2020, and we've seen that number continue to check down every year for the past four or five years, so and.
Speaker 4: And we expect to stay on that same trend in 2022. So we currently are recognizing the synergies within the platform.
And we expect to stay on that same trend in 2022. So we certainly are recognizing the synergies with them you know within the platform.
Speaker 4: And I think what we're seeing here from an overhead allocation perspective is a little bit of an impact of timing issues.
And I think what we're seeing here from an overhead allocation perspective is a little bit of an impact us that's a tiny issues.
Speaker 5: Great, that makes a lot of sense. And, Blaine, just to add to that briefly, we talk a lot about operating leverage in the business. We've talked a lot about it since our IPO roadshow in 2013, and it's very important to us. We think it's the hallmark of a great company, that we do have very strong embedded operating leverage built into the business, that we do believe we'll be accelerating into the next, you know, call it two to five years.
Great that makes a lot of sense.
Just to add to that briefly I I I know, we talked a lot about operating leverage in the business. We've talked a lot about it since our IPO Road show in 2013, and it's very important to US. We think it's the hallmark of a great company that we do have very strong embedded operating leverage built into the business that we do believe we will be accelerating into the next you know call. It two years.
To five years and I think if you look at the performance of the company, it's kind of all reflected in Europe of per share growth rate at the end of the day and an ortho growth.
Speaker 5: And I think if you look at the performance of the company, it's kind of all reflected in your FFO per share growth, right, at the end of the day, and our FFO growth. And, you know, the level of FFO and FFO per share growth and AFFO growth that we're driving, you know, is increasing pretty, hasn't, pretty dramatically. And another measure, in my view, of operating leverage is the amount.
The level of <unk> in a couple of per share growth and asset though.
Growth that we're driving is increasing pretty peasant pretty dramatically and.
And then the other measure in my view of operating leverage as the amount.
Speaker 5: of internally generated cash that we're generating that we can use towards driving our internal growth, which is very substantial and growing. And that's very accretive for shareholders. So I think we look at across a range of metrics and I think we're really well positioned for the company to be increasing that level of margin and NLI margin and operating leverage that is embedded in the business model as we grow here.
Of internally generated cash that we're generating that we can use towards driving our internal growth, which is very substantial and growing and that's very accretive for shareholders. So I think you know we look at across a range of metrics.
And I think we're really well positioned for the company to be increasing you know that that level of margin and NOI margin and operating leverage that is embedded in the business and the business model as we grow here.
Thanks, Michael that's that's helpful and sticking with you or maybe even harder given the ramp up we'd seen in investment into redevelopment and repositioning in and it seems like you guys are going to continue there I wanted to ask about the upward pressure that we've seen on construction costs and labor and how you guys are dealing with those increasing costs or maybe even more.
Speaker 7: Thanks, Michael. That's helpful. And sticking with you, or maybe even Howard, given the ramp up, we've seen an investment into redevelopment and repositioning and, and it seems like you guys are going to continue there. I wanted to ask about the upward pressure that we've seen on construction costs and labor and how you guys are dealing with those increasing costs, or maybe even mitigating that exposure somehow.
Litigation that exposure somehow.
Speaker 3: Sure. I'll take that one. Well, yeah, there's no mystery. Obviously, construction costs have been rising and doing so very rapidly. What we're doing is trying to buy out some of the commodity type materials early on. I'll give you an example. For instance, the roof systems, we're buying those literally 14 months.
Sure I'll take that one.
Well you know Theres no mystery, obviously construction costs have been rising and in doing so so very rapidly.
Yeah, what we're doing is trying to buy out some of the commodity type materials early on.
I'll give you an example for instance.
The roof systems, we're buying those literally 14 months prior.
Speaker 3: prior to when we need them and to lock in those prices and to avoid the further price increases that are happening in those. And then there's steel, fire sprinkler systems, roofing materials, those are all things that we can buy out early on in these projects and mitigate some of those costs.
Prior to when we need them to lock in those prices and to avoid a further price increases that are happening in the ocean.
And then Theres still fire sprinkler systems roofing materials.
Those are all things that we can buy out early on in these projects.
And mitigate some of those cost increases.
Speaker 3: So, you know, we have a very thoughtful approach to it, and I think it's going to show in terms of how you'll see the yields growing in our projected returns, and you saw that quarter over quarter in most all of our assets that are under redevelopment or repositioning where we had expanding yields.
So you know we have a very thoughtful approach to it.
And Oh, I think I think it it's going to show up in terms of how you see the yields growing in our in.
And our projected returns and you saw that quarter over quarter.
In most all of our our assets et cetera.
Redevelopment or repositioning, where we had expanding yields.
Great. Thanks, Howard Thanks, everyone.
And we have reached the end of the question and answer session I will now turn the call over to management for closing remarks.
Speaker 5: On behalf of the entire Rexford company and our board of directors, we want to thank everybody for joining us today. Stay well, stay healthy, and we look forward to reconnecting in a few months. Thank you, everyone. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Well on behalf of the entire Rexford company and our board of directors, we want to thank everybody for joining us today stay well stay healthy and we look forward to reconnecting in a few months. Thank you everyone.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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Yeah.
Speaker 8: You
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