Q3 2023 Rexford Industrial Realty Inc Earnings Call
Greetings and welcome to Rexford Industrial Realty, Inc. Third quarter 2023 earnings call.
Speaker 1: Greetings and welcome to Rexford Industrial Realty Inc. Third Quarter 2023 Earnings Call. At this time all participants are in a listen only mode.
At this time all participants are in a listen only mode.
And answer session will follow the formal presentation if.
Speaker 1: If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Mind you. This conference is being recorded it is now my pleasure to introduce David Lanzer General Counsel. Thank you you may begin.
Speaker 1: Thank you. You may begin. We thank you for joining Rexford Industrial's third quarter 2023 Earnings Conference call.
Thank you for joining our Rexford Industrials third quarter 2023 earnings conference call.
Speaker 1: 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 RexfordIndustrial.com.
In addition to the press release distributed yesterday after market close we posted a supplemental package and investor presentation, and the Investor Relations section on our website at Rexford industrial Dot com.
Speaker 1: On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined by federal securities laws. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to...
On today's call management's remarks, and answers to your questions may contain forward looking statements as defined by federal Securities laws forward looking statements address matters that are subject to risks and uncertainties.
They cause actual results to differ for more information about these risk factors. Please review, our 10-K and other SEC filings Rexford industrial assumes no obligation to update any forward looking statements in the future.
Speaker 1: For more information about these risk factors, please review our 10-K and other SEC filings. Rexford Industrial assumes no obligation to update any forward-looking statements in the future.
Speaker 1: Additionally, certain financial information presented on this call represents non-GAAP financial measures. Our earnings release and supplemental package present GAAP reconciliations and explanations of why such non-GAAP financial measures are useful to invest in.
Additionally, certain financial information presented on this call represents non-GAAP financial measures our earnings release, and supplemental package present, GAAP reconciliations and explanations of why such non-GAAP financial measures are useful to investors.
Speaker 1: Today's conference call is hosted by Rexford Industrial's Co-Chief Executive Officer, Michael Frankel and Howard Schlemmer, together with Chief Financial Officer, Laura Clark. They will make some prepared remarks and then we will open the call for your questions. Now I turn the call over to Michael.
Today's conference call.
Hosted by Rexford Industrials co Chief Executive Officer, 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'll turn the call over to Michael.
Thank you David and welcome everyone to Rexford Industrial's third quarter earnings call I'll begin with a few remarks, followed by Howard who will provide some additional market and operational color then Laura will provide more detail related to our performance and financial results.
Speaker 2: Thank you, David, and welcome everyone to Rexford Industrial's third quarter earnings call. I'll begin with a few remarks, followed by Howard, who will provide some additional market and operational color. Then Laura will provide more detail related to our performance and financial results.
Speaker 2: To begin with, I'd like to thank our Rexford team for delivering a strong quarter across all of our value creation initiatives.
To begin with I'd like to thank our rexford team for delivering a strong quarter across all of our value creation initiatives.
Compared to the prior year quarter, our team grew at that though by 33% and grew out of a vote per share by 12% driven by strong same property pool average occupancy of 97, 8%.
Speaker 2: Compared to the prior year quarter, our team grew FFO by 33% and grew FFO per share by 12%, driven by strong same property pool average occupancy of 97.8%, exceptional leasing spreads of 65% on a GAAP basis and 51% on a cash basis, as well as the substantial cash flow per share growth generated from our investments completed over the prior year.
Exceptional leasing spreads up 65% on a GAAP basis, and 51% on a cash basis as well as the substantial cash flow per share growth generated from our investments completed over the prior year.
Speaker 2: Tenant demand within our infill Southern California industrial markets continues to demonstrate resilience, with market occupancy hovering around 98%, roughly equating to the 2019 market occupancy levels immediately preceding the pandemic.
Tenant demand within our infill southern California industrial markets continues to demonstrate resilience with market occupancy hovering around 98%.
Roughly equating to the 2019 market occupancy levels immediately preceding the pandemic.
Speaker 2: As expected, we continue to see market rent growth normalizing from the unprecedented growth we experienced during the pandemic.
As expected, we continue to see market rent growth normalizing from the unprecedented growth we experienced during the pandemic.
Speaker 2: With regard to our Rexford portfolio, providing high quality and prime locations within our sub-markets, we continue to experience healthy, diverse tenant demand as reflected in our strong operating metrics.
With regard to our rexford portfolio, providing high quality in prime locations within our Submarkets, we continued to experience healthy diverse tenant demand as reflected in our strong operating metrics.
Speaker 2: Although general economic conditions remain uncertain, Rexford remains well positioned.
Although general economic conditions remain uncertain rexford remains well positioned the.
Speaker 2: The company is currently situated with an estimated 33% embedded cash NOI growth within our existing portfolio, realizable over the next two years, assuming today's rent.
The company is currently situated with an estimated 33% embedded cash NOI growth within our existing portfolio realizable over the next two years, assuming today's rents are.
Speaker 2: Our largest driver of NOI growth derives from our repositioning and redevelopment work, which we continue to grow as we mine our in-place portfolio for incremental value creation opportunities and as we layer in new investments that are delivering strong levels of FFO per share at Creass Mueller Field.
Our largest driver of NOI growth derives from our repositioning and redevelopment work, which we continue to grow as we mine our in place portfolio for incremental value creation opportunities and as we layer in new investments that are delivering strong levels of episodes per share accretion.
Speaker 2: Looking forward, as markets nationwide normalize towards their post-pandemic levels of equilibrium and supply, we believe Rexford's entrepreneurial asset management, repositioning and value-add investing programs will enable the company to further differentiate our performance and FFO for shared growth.
Looking forward as markets nationwide normalized towards their post pandemic levels that equilibrium in supply, we believe <unk> entrepreneurial asset management repositioning and value add investing programs will enable the company to further differentiate our performance in <unk> per share growth.
Speaker 2: We also believe over the near term that the favorable supply-demand dynamics associated with our infill Southern California industrial markets will continue to drive the strongest tenant demand fundamentals of any major market in the nation.
We also believe over the near term that the favorable supply demand dynamics associated with our infill Southern California industrial markets will continue to drive the strongest tenant demand fundamentals of any major market in the nation.
Speaker 2: Further supporting Rexford's favorable outlook, we remain focused on maintaining our investment-grade, low-leverage balance sheet, ending the quarter at 16.7% net debt to total enterprise value, which provides the ability to both protect the company during uncertain times, while also positioning Rexford to capitalize upon accretive investment opportunities as they may arise.
Further supporting Rex was favorable outlook, we remain focused on maintaining our investment grade low leverage balance sheet ending the quarter at $16, 7% net debt to total enterprise value, which provides the ability to both protect the company during uncertain times, while also positioning rexburg to capitalize upon accretive.
<unk> opportunities as they may arise.
Speaker 2: With that, I'd like to acknowledge our Rexford team once again for your market-leading efforts that continue to differentiate Rexford's performance. And now it's my pleasure to have you.
With that I'd like to acknowledge our rexford team once again for your market leading efforts they continue to differentiate rexroad performance.
And now it is my pleasure to hand, the call over to Howard.
Thank you Michael and thank you everyone for joining us today.
Speaker 1: Thank you, Michael, and thank you everyone for joining us today. Rexford concluded the third quarter with strong results driven by a high quality portfolio and execution of value creation initiative.
Rick sort of concluded the third quarter with strong results driven by our high quality portfolio and execution and value creation initiatives.
Speaker 1: With regard to market conditions, infill Southern California continues to demonstrate superior long-term demand fundamentals with a virtually incurable supply-demand imbalance.
With regard to market conditions infill Southern California continues to demonstrate superior long term demand fundamentals with a virtually incurable supply demand imbalance. According to CBRE in the third quarter infill Southern California markets experienced $2 6 million square feet of positive net absorption.
Speaker 1: According to CBRE, in the third quarter, infill Southern California markets experienced 2.6 million square feet of positive net absorption.
The infill southern California market continues to outperform with vacancy at two 2% lowest vacancy in the nation.
Speaker 3: The infill Southern California market continues to outperform with vacancy at 2.2% the lowest vacancy in the nation.
Speaker 3: A sequential 30 basis point vacancy increase compares favorably to an average increase of 70 basis points for the other major U.S. markets.
The sequential 30 basis point vacancy increase compares favorably to an average increase of 70 basis points for the other major U S markets.
Speaker 3: Also, supply risk continues to be substantially lower for infill southern California compared to the nation's other major markets.
Also supply risk continues to be substantially lower for infill southern California compared to the nation's other major markets.
Speaker 3: Port traffic may also be on track toward normalization following the resolution of the dock workers contract. With the most recent LA Long Beach Port activity reflecting a 20% increase month over month and the second highest volumes in the past 12 months.
Port traffic May also be on track toward normalization. Following the resolution of the dockworkers contract with the most recent L. A long beach port activity, reflecting a 20% increase month over month and the second highest volumes in the past 12 months.
Speaker 3: while in contrast, the East and Gulf Coast ports experience a decrease in activity.
While in contrast, the east and Gulf Coast ports experienced a decrease in activity.
Turning to the Rexford portfolio third quarter performance continues to demonstrate our favorable position within the infill Southern California market.
Speaker 3: Turning to the Rexford portfolio, third quarter performance continues to demonstrate our favorable position within the infill Southern California market.
Speaker 3: Our team executed 1.5 million square feet of lease activity, driving 100 basis points with positive net absorption, and highlighting the sustained demand for a highly functional portfolio.
Our team executed one 5 million square feet of lease activity driving 100 basis points of positive net absorption and highlighting the sustained demand for our highly functional portfolio.
Speaker 3: annual embedded rent steps in our executed leases increased to 4.3 percent, demonstrating our tenants ability to pay increasing rent for the mission critical location.
And you know embedded rent steps in our executed leases increased to four 3% demonstrating our tenant's ability to pay increasing rent for their mission critical locations.
Speaker 3: In regard to market rents, we observed 3% year-over-year market right growth for highly functional product comparable in quality to the Rexford portfolio impacted by 1% sequential decline quarter over quarter.
In regard to the market rents, we observed 3% year over year market for highly functional product comparable in quality to the rexford portfolio impacted by a 1% sequential decline quarter over quarter.
Speaker 3: Interestingly, the 1% decline was principally driven by larger buildings.
Interestingly, the 1% decline was principally driven by larger buildings.
Turning to our investment activity in the quarter, we closed six transactions for a total of $315 million, bringing our year to date investment activity to approximately $1 $2 billion.
Speaker 3: Turning to our investment activity in the quarter, we closed six transactions for a total of $315 million, bringing year-to-date investment activity to approximately $1.2 billion.
Speaker 3: A third quarter investment collectively generate an initial yield of 5.2% and a projected unleveraged stabilized yield of 6% on total cost.
Third quarter investment collectively generate an initial yield of five 2% and a projected unlevered stabilized yield at 6% on total costs.
Speaker 3: In addition, we currently have a pipeline of approximately $400 million of highly accretive investments under contract or accepted.
In addition, we currently have a pipeline of approximately $400 million of highly accretive investments under contract or accepted offers this.
Speaker 3: This includes the imminent closing of $245 million of investments in the San Gabriel Valley submarket that has an aggregate 6.8% initial yield. This pipeline, including these imminent transactions, is subject to customary closing conditions.
This includes the imminent closing of $245 million of investments in the San Gabriel Valley Submarket that has an aggregate six 8% initial yield.
This pipeline, including an imminent transaction is subject to customary closing conditions.
With regard to our robust internal growth initiatives.
Speaker 3: With regard to our robust internal growth initiatives, we have approximately 4 million square feet of value add repositioning and redevelopment in process or projected to start within the next 24 months. These projects are expected to deliver an aggregate unlevered yield on total cost of 6.4%, representing an estimated $500 million of value creation.
We have approximately 4 million square feet of value add repositioning and redevelopments in process or projected to start within the next 24 months.
These projects are expected to deliver an aggregate unlevered yield on total cost of six 4%, representing an estimated $500 million of value creation.
Speaker 3: Lastly, I'd like to thank our entrepreneurial Rexford team for their dedication and for delivering on another strong quarter I will now turn the call over to Laura to discuss our financial results
Lastly, I'd like to thank our entrepreneurial rexford team for their dedication and for delivering on another strong quarter I will now turn the call over to Laura to discuss our financial results.
Speaker 4: Thank you, Howard, and thank you to our incredible Rexford team. Your exceptional performance and value creation focus continues to differentiate Rexford.
Thank you Howard and thank you to our incredible Rexford team exceptional performance and value creation continues to differentiate right.
Speaker 4: In the third quarter, Core FFO per share grew 12% over the prior year quarter, driven by same property NOI growth of 9.5% on a cash basis and 8.9% on a GAAP basis.
And the third quarter core <unk> per share grew 12% over the prior year quarter, driven by same property NOI growth of nine 5% on a cascade.
And eight 9% on a GAAP basis.
Speaker 4: 3rd quarter leasing spreads outperform projections, and year-to-date leasing spreads are 62% and 82% on a cash and gas basis respectively.
Third quarter leasing strategy outperformed protection and year to date leasing spread of.
62, and 82% on a cash and GAAP basis, respectively.
Speaker 4: The portfolio is positioned for significant internal cash and ally growth into the foreseeable future.
The portfolio is positioned for significant internal cash NOI right into the foreseeable future.
Speaker 4: Just considering the next two years, value add repositioning and redevelopment representing our largest driver of growth, are projected to contribute $71 million of incremental NOI.
Just consider in the next 10 years value add repositioning and redevelopment representing our largest strike ferrous scrap are projected to contribute $71 million of incremental NOI.
Speaker 4: Annual embedded rent steps of 3.5% for the total portfolio are projected to contribute another $26 million. And acquisitions closed in the third quarter and fourth quarter today contribute an incremental $28 million.
Annual embedded rent steps of 3.5% of the total portfolio I projected to contribute another $26 million and acquisitions closed in the third quarter and fourth quarter to date contribute an incremental $28 million.
Speaker 4: In addition, the net effective portfolio mark-to-market is estimated at 56%, representing $77 million of incremental NOI over the next two years.
In addition, the net effect of that portfolio Mark to market is estimated at 56% representing $77 million in incremental NOI over the next 10 years.
Speaker 4: As we look further out, the conversion of the total portfolio net effective mark-to-market equates to $350 million of incremental NOI growth equal to $1.70 per share of FFO contribution or 79% FFO per share growth. Now
As we look further out the conversion of the <unk>.
Total portfolio net effective mark to market equates to $350 million of <unk>.
Incremental NOI correct.
The $1 70 per share <unk> contribution.
79% <unk> per share.
Now to our funding strategy and balance sheet.
Speaker 4: Our focus remains on internal and external investments that drive near and long-term accretion and MEV growth.
Our focus remains on internal and external investments that drive near and long term accretion and then maybe Greg.
Speaker 4: We continue to demonstrate a highly selective, rigorous approach to capital allocation, as reflected in our investments to date that are driving substantially higher accretion than our prior year investments, inclusive of today's higher cost of capital.
We continue to demonstrate highly used Alaska rigorous approach to capital allocation as reflected in our investments to date that are driving substantially higher accretion that our prior year investments inclusive of today's higher cost of capital.
Speaker 4: We will continue to assess accretive capital sources to fund internal and external growth opportunities, including disposition.
We'll continue to assess our accretive capital sources.
Internal and external growth opportunities, including disposition.
Speaker 4: Our sustained focus on maintaining a fortress balance sheet positions us to capitalize on our value driven business strategy and the current environment.
Our sustained focus on maintaining a fortress balance sheet positions us to capitalize on our value driven does that strategy in the current environment.
Speaker 4: At quarter end, net debt to EBITDA is 3.7 times, and we have liquidity of $1.5 billion.
At quarter end, NASDAQ to EBITDA at three seven times, and we have liquidity of $1 $5 billion.
Speaker 4: This includes $83 million of cash on hand, full availability on our $1 billion revolver, and approximately $450 million of forward equity remaining for settlement.
This includes $83 million of cash on hand, full availability on our $1 billion revolver and approximately $450 million of forward equity remaining first out on that.
Turning to guidance.
Speaker 4: Turning to guidance, we are increasing our 2023 core FFO per share guidance range to $2.16 to $2.18 per share up from our previous guidance range of $2.13 to $2.16 per share.
We are increasing our 2023 core <unk> per share guidance range to $2 16 to $2 18 per share up.
From our previous guidance range of $2 13 to $2.16 per share.
Speaker 4: A revised guidance range represents 11% year-over-year earnings growth at the mid-
Revised guidance range represents 11% year over year earnings growth at the midpoint.
Speaker 4: Please note that our guidance range includes the imminent closing of the San Gabriel Valley transaction powered by the San Gabriel Valley transaction.
Please note that our guidance range on credit and the net clothing at the San Gabriel Valley transaction Howard mentioned.
Speaker 4: No additional acquisitions, dispositions, or related balance sheet activities that have not yet closed are included in our updated guidance range.
No additional acquisitions dispositions or related balance sheet activities that have not yet closed are included in our updated guidance range.
Speaker 4: Our projected 2023 cash and gas paying property in NOI growth remains unchanged at the midpoint compared to our prior gains.
Our projected 2023 cash and GAAP same property NOI growth remains unchanged at the midpoint compared to our prior guidance and we have tightened our range at <unk>, 75% to 10% on a cash basis and 8% to $8 two 5% on a GAAP basis.
Speaker 4: And we have tightened our ranges to 9.75 to 10% on a cash basis, and 8 to 8.25% on a gap basis.
Speaker 4: Average same property occupancy for the full year is projected to be approximately 97.75 percent unchanged at the midpoint compared to our prior guidance. Other assumptions in our same property...
Average same property occupancy for the full year is projected to be approximately 90, 775% unchanged at the midpoint compared to our prior guidance.
Other assumptions in our same property guidance include.
Speaker 4: Full year cash and GAAP leasing spreads are now projected to be 60-65% and 75-80% respectively, an increase of 500 basis points at the midpoint, driven by higher than expected 3rd quarter executed leasing spreads. And lastly, bad GAAP as a percent of revenue is expected to be approximately 35 basis points.
Full year cash and GAAP leasing spreads are now projected to be 60% to 65%.
75% to 80%, respectively, an increase of 500 basis points at the midpoint driven by higher than expected third quarter execute everything that.
And lastly, bad debt as a percentage of revenue is expected to be approximately 35 basis points.
Speaker 4: in line with our prior guidance and below the historical average of 50 basis points, reflecting the container
In line with our prior guidance and below the historical average of 50 basis points.
The continued health of our economy.
Further guidance updates, including a roll forward of our revised <unk> per share guidance range can be found in our supplemental package.
Speaker 4: Further guidance updates, including a roll forward of our revised FFO per share guidance range can be found in our supplemental package.
Speaker 4: Finally, as part of Recford's continued commitment to creating value through a comprehensive ESGI approach, we are excited to announce our target to reach net zero greenhouse gas emissions by 2045, as well as near-term reduction targets.
Finally, as part of Brexit continued commitment to creating value through a comprehensive ESG I approach.
We're excited to announce our target to reach net zero greenhouse gas emissions by 2045 as well as near term reduction targets.
Speaker 4: Our mission targets were validated by SBTI and are a testament to our focus on driving substantial environmental value through our differentiated business model.
Our emission targets were validated by Sbe Ti and are a testament to our focus on driving substantial environmental value differentiated business model.
Unknown Executive: Greetings and welcome to Rexford Industrial Realty Inc.
Speaker 4: Thank you all for joining us today, and we now welcome your questions. Operator.
Thank you all for joining us today, and we now welcome your questions operator.
Unknown Executive: 3rd quarter, 2023 earnings call. At this time, all participants are in a listen only mode. A question and an intercession will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
Speaker 3: Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you would like to ask a question, you may press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the...
If you'd like to ask a question you May press star one on your telephone keypad the.
A confirmation tone will indicate your line is in the question queue.
David Lanzer: It is now my pleasure to introduce David Lanzer, General Counsel. Thank you. You may begin.
You May press Star two if you would like to remove your question from the Q4.
Speaker 5: or participants using speaker equipment, it may be necessary to pick up your handset before pressing it.
David Lanzer: We thank you for joining Rexford Industrial's 3rd quarter, 2023 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package and investor presentation and the investor relations section on our website at Rexfordindustrial.com. On today's call, management remarks and answers to your questions may contain forward looking statements as defined by federal security laws. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ.
For participants using speaker equipment it may.
Be necessary to pick up your handset before pressing that starkey.
Our first question comes from the line of <unk> with Bank of America. Please proceed with your question.
Speaker 5: Our first question comes from the line of Camille Bonnell with Bank of America.
Speaker 6: Hi everyone. Can you talk to the change in market net absorption which turned positive this quarter? Was this driven by any particular submarket and given today's economic outlook feels very different than it was three months ago. Do you expect this trend to continue?
Hi, everyone can you talk to the change in market net absorption, which turned positive. This quarter was this driven by any particular sub market and given today's economic outlook feels very different than it was three months ago do you expect this trend to continue.
David Lanzer: For more information about these risk factors, please review our 10K and other SEC violence. Rexford Industrial assumes no obligation to update any forward looking statements in the future. Additionally, certain financial information presented on this call represents non-gap financial measures. Our earnings release and supplemental package present gap reconciliation and explanations of why such non-gap financial measures are useful to investors.
Speaker 3: Hi, Camille. It's Howard. Nice to hear your voice.
Hi, Camille.
It's Howard nice to hear your voice.
Speaker 3: There was an uptick in absorption in the Inland Empire West submarket that was, I think, mainly responsible for the large amount of absorption.
There was an uptick in absorption in the inland.
Part of West Submarket fish was mainly responsible for the large amount of absorption.
Speaker 4: Hey Camille, it's Laura. I'll talk a little bit about our portfolio as well. Howard mentioned the market change, but our portfolio did experience an increase in absorption of about 434,000 square feet. That represents about 100 basis points.
Okay.
Laura I'll talk a little bit about our portfolio as well as Howard mentioned the market changed but our portfolio did experience an increase in absorption of about 434000 square feet that represents about 100 basis points.
Speaker 4: Importantly, we've experienced positive absorption within our portfolio every quarter this year, certainly outpacing the market and really...
Currently we've experienced positive absorption within our portfolio every quarter. This year, certainly outpacing the market and really demonstrating the differentiation differentiation of our portfolio in the market, which we've been discussing.
Michael Franco: Today's conference call is hosted by Rexford Industrial's Co-Chief Executive Officer Michael Franco and Howard Swimmer together with Chief Financial Officer Laura Clark. They will make some prepared remarks and then we will open the call for your questions.
Speaker 4: demonstrating the differentiation of our portfolio in the market, which we've been discussing.
Speaker 4: In terms of select markets, we actually, if you dive into the absorption, we saw positive absorption in every one of our markets from greater LA, i.e. US, Orange County, and San Diego.
Michael Franco: Now I turn the call over to Michael. Thank you David and welcome everyone to Rexford Industrial's third quarter earnings call. I'll begin with a few remarks followed by Howard who will provide some additional market and operational color. Then Laura will provide more detail related to our performance and financial results. To begin with, I'd like to thank our Rexford team for delivering a strong quarter across all of our value creation initiatives. Compared to the prior year quarter, our team grew FFO by 33% and grew FFO per share by 12% driven by strong same property pool average occupancy of 97.8%.
Of select market, we actually if you dive into the absorption we saw positive absorption that every one of our markets from greater Ali I E West Orange County, and San Diego.
Thank you and it looks like some of the stabilization dates in your redevelopment program or pushed out what were the factors influencing this and how would your leasing pipeline tracking.
Speaker 6: Thank you. And it looks like some of the stabilization dates in your redevelopment program were pushed out. What were the factors influencing this and how is your leasing pipeline tracking?
Thanks, Mike.
Well.
I'll take that.
Speaker 4: In terms of timing, repositioning and redevelopment.
So in terms of timing pushes in terms of our repositioning and redevelopment.
Speaker 4: There's a couple of drivers there. One is around the permitting and approval process, which has continued to impact construction timing. The other is around timing of our lease up. It's certainly returning to more normalized levels. If you look back historically pre-COVID, lease up timing upon completion of redevelopment was about six months.
There's a couple of a couple of drivers there one is around the permitting and approval process, which has continued to.
Michael Franco: Exceptional leasing spreads of 65% on a gap basis and 51% on a cash basis, as well as the substantial cash flow per share growth generated from our investments completed over the prior year. Canon demand within our infill Southern California industrial markets continues to demonstrate resilience with market occupancy hovering around 98%. Roughly equating to the 2019 market occupancy levels immediately preceding the pandemic. As expected, we continue to see market rent growth normalizing from the unprecedented growth we experienced during the pandemic.
To impact construction timing.
The other is around timing of our lease up.
Certainly returning to more normalized levels, if you look back historically pre COVID-19.
Lease up timing upon completion of redevelopment was about six months.
Speaker 4: During the last few years, we saw that timing compressed pretty significantly given the frenzy levels of demand. But as we look forward, currently, some timing, we believe, will be more consistent with pre-COVID levels, which is around that six-month area.
<unk>. The last few years, we saw that timing compressed pretty significantly given the friendly levels of demand, but as we look toward current lease up timing, we believe will be more consistent with pre COVID-19 levels, which is around that six month area.
Michael Franco: With regard to our Rexford portfolio, providing high quality and prime locations within our submarkets, we continue to experience healthy diverse tenant demand as reflected in our strong operating metrics. Although general economic conditions remain uncertain, Rexford remains well positioned.
And finally can you please walk through the drivers behind the Mark to market changes in your lease expiration schedule as well as the changes in cumulative total contribution.
Speaker 6: And finally, can you please walk through the drivers behind the market changes in your lease expiration schedule as well as the changes in cumulative FSO contribution if driven by changes in the overall portfolio composition?
Driven by changes in the overall portfolio composition.
Michael Franco: Inc. The company is currently situated with an estimated 33% embedded cash NOI growth within our existing portfolio, realizable over the next two years, assuming today's rents. Our largest driver of NOI growth derives from our repositioning and redevelopment work, which we continue to grow as we mine our in-place portfolio for incremental value creation opportunities and as we layer in new investments that are delivering strong levels of FFO for share accretion. Looking forward, as markets nationwide normalize towards their post-pandemic levels of equilibrium and supply, we believe Rexford's entrepreneurial asset management, repositioning and value add investing programs will enable the company to further differentiate our performance and FFO for share growth.
The lease expiration schedule.
Relatively stable.
Hey, great.
Speaker 4: Hey Camille, great question and I think it's important to walk through the various components that contribute to mark to market. First, we're certainly excited to be able to capture the mark to market and convert that into FSO and cash flow. But as we've communicated in the past, the mark to market is going to decline and that's going to be driven by a number of factors.
Great question.
And I think its important to walk through the various components that contribute to mark to market.
First we're certainly excited to be able to capture the mark to market and convert that into episodes on cash flow.
As we've communicated in the past the mark to market.
Is going to decline and that's going to be driven by a number of factors. The first one and really most significant isn't that's substantial embedded mark to market that were able to recognize today is was driven by the incredible market rent growth that we saw.
Speaker 4: The first and really most significant is that the substantial embedded mark-to-market that we're able to recognize today Is was driven by the incredible market rank growth that we saw Since 2019 if you look back to the fourth quarter market rents have grown 80 percent so as we've can as we convert market
2019, if you look back to the fourth quarter market rents have grown 80%.
Michael Franco: We also believe over the near term that the favorable supply demand dynamics associated with our infill 7 California industrial markets will continue to drive the strongest tenant demand fundamentals of any major market in the nation. Further supporting Rexford's favorable outlook, the remain focused on maintaining our investment grade, low leverage balance sheet, ending the quarter at 16.7% net debt to total enterprise value, which provides the ability to both protect the company during uncertain times, while also positioning Rexford to capitalize upon a creative investment opportunities as they may arise.
As we can as we convert market the convert the mark to market and the cash flow and SFO and less market rent growth continued at the same level the mark to market is going to decline.
Speaker 4: the mark, convert the mark to market and the cashflow and FFO.
Speaker 4: Unless market rent growth continued at those same levels, the mark to market is going to decline.
Speaker 4: Second, you know, mark-to-market is impacted by the leases that we're signing and that conversion of the mark-to-market into FFO. And so if you look year-to-date, we've executed on an impressive...
Second mark to markets impacted by the leases that we're signing and that conversion of the mark to market and set SSL and so if you look year to date, we've we've executed on an impressive.
Speaker 4: impressive leasing spreads, 5.4 million square feet of leasing, 82% gap spreads, 62% cash spreads.
Oppressive leasing spreads five 4 million square feet of leasing, 82% GAAP spread 62% cash spreads.
Speaker 4: The conversion of mark-to-market represents an incremental $50 million of annualized NOI just this year alone.
The conversion of Mark to market represents an incremental $50 million of annualized NOI just this year alone.
Howard Schwimmer: With that, I'd like to acknowledge our Rexford team once again for your market leading efforts that continue to differentiate Rexford's performance, and now is my pleasure to hand the call over to Howard. Thank you Michael, and thank you everyone for joining us today. Rexford concluded the third quarter with strong results driven by a high-quality portfolio and execution of value creation initiatives. With regard to market conditions, infill 7 California continues to demonstrate superior long-term demand fundamentals with virtually incurable supply demand imbalance.
Three quarters.
Speaker 4: The last real component that moves around
Real component that moves around.
The Mark to market has been impacted it's certainly the properties that move in and out of the pool.
Speaker 4: the mark-to-market has an impact is certainly the properties that move in and out of the pool. For example, when we move a property into repositioning or redevelopment, that property gets removed from the mark-to-market pool and that value creation is now represented in a creative, stabilized field.
For example, when we move a property into repositioning or redevelopment of that property and it gets removed from the mark to market pool.
And that value creation is now represented it represented an accretive stabilized yields today are repositioning and redevelopments are generating six 4% stabilized yields.
Speaker 4: Today, our repositions and redevelopments are generating 6.4% stabilized yield.
Speaker 4: In this quarter, the impact was about 200 basis points for a mark to market as we move seven properties into repositioning and redevelopment. Acquisitions can also, are also part of that move in and out of the pool for mark to market and can certainly have an impact.
This quarter the impact was about 200 basis points.
Howard Schwimmer: According to CBRE, in the third quarter, infill 7 California markets experience 2.6 million square feet of positive net absorption. The infill 7 California market continues to outperform with vacancy at 2.2% and lowest vacancy in the nation. A sequential 30 basis point vacancy increase compares favorably to an average increase of 70 basis points for the other major US markets. Also, supply risk continues to be substantially lower for infill 7 California compared to the nation's other major markets.
Mark to market as Windows, seven properties and to repositioning and redevelopment.
Acquisitions can also are also part of that move in and out of that.
And then out of the pool for Mark to market and can certainly have an impact.
Yeah.
Thank you for taking my question.
Yeah.
Speaker 5: our question comes from a lot of John kim with bm o just
Our next question comes from the line of John Kim with BMO. Please proceed with your question.
Speaker 7: Thank you. On the net absorption, your stats are positive, but it does sound a bit I think from some of your space that you put into redevelopment.
Thank you.
On the net absorption.
Your stats are positive, but it does.
The benefit I think from some of your space that you put into redevelopment.
Howard Schwimmer: Court traffic may also be on track toward normalization following the resolution of the 20% increase month over month and the second highest volumes in the past 12 months. While in contrast, the East and Gulf Coast ports experience the decrease in activity.
Speaker 7: I was wondering if you could comment on overall net absorption in the market or demand that you're seeing in your portfolio or in the market overall over the last few weeks, just given the rising interest rate environment and uncertainty in the financial markets.
I was wondering if you could comment on overall net absorption in the market for demand that youre seeing.
In your portfolio in the market overall over the last few weeks just given.
The rising interest rate environment and uncertainties in the financial markets.
Okay.
Howard Schwimmer: Turning to the Rexford portfolio, third quarter performance continues to demonstrate our favorable position within the infill 7 California market. Our team executed 1.5 million square feet of lease activity driving 100 basis points for positive net absorption and highlighting the sustained demand for a highly functional portfolio, annual embedded rent steps in our executed leases increased to 4.3% demonstrating our tenant's ability to pay increasing rent for the mission critical locations. In regard to market rent, we observed 3% year over year market rent for highly functional product comparable in quality to the Rexford portfolio impacted by a 1% sequential decline quarter over quarter. Interestingly, the 1% decline was principally driven by larger buildings.
Hi, Thanks, so much for.
Speaker 2: Hi, thanks so much for joining us today. This is Michael and I'm pleased to answer the call. I think with regard to the last few weeks, we really haven't seen too much change relative to what we're reporting for the quarter. So really, really no trend line there that's incrementally different.
Joining us today I know this is Michael and I'm, please to answer the call.
With regard to the last few weeks you really haven't seen much change relative to what we're reporting for the quarter.
So really really no no no trend line there that's incrementally different.
Speaker 4: And then I'll add to that just around net absorption and the overall market. We've actually taken a pretty deep dive and analyzed every building in the market that's contributed to negative net absorption. Throughout the year we've been communicating those metrics.
And then I'll I'll add to that just around that absorption and the overall market.
We've actually taken a pretty deep dive and analyzed every building in the market that's contributed to negative net absorption.
Throughout the year, which we've been communicating is theres metric and it's been really consistent only about 20% of the buildings that contributed to negative absorption.
Speaker 4: And it's been really consistent. Only about 20% of the buildings that contribute to negative absorption in the overall market is what we would deem to be kind of higher quality, higher functional type building.
And the overall market is what we would deem to be kind of higher quality higher functional type building.
Speaker 4: To set another way, 80% of the product that's hitting the market in terms of the negative net absorption throughout the year doesn't directly compete with Rexford. And so this, like I mentioned, this trend is really held throughout each quarter of the year and certainly speaks to the negative net absorption throughout the year.
Howard Schwimmer: Turning to our investment activity in the quarter, we closed six transactions for a total of $315 million for a new year-to-date investment activity to approximately $1.2 billion. A third quarter investment collectively generate an initial yield of 5.2% and a projected unloved stabilized yield of 6% on total cost. In addition, we currently have a pipeline of approximately $400 million of highly accretive investments under contract or accepted offer. This includes the imminent closing of $245 million of investments in the San Gabriel Valley sub market that has an aggregate 6.8% initial yield. This pipeline, including the imminent transaction, is subject to customary closing conditions.
Put another way, 80% of the product that's hitting the market.
In terms of the negative net absorption throughout the year.
Doesn't directly compete with rexford.
And so just like in <unk> like I mentioned this trend is really helps throughout throughout each quarter as the ear.
And certainly speaks to.
Speaker 4: you know, to the metrics that and to the results of our portfolio and that differentiation is certainly driving our results.
To the metrics that end to the results of our portfolio.
That differentiation is it is certainly driving our results.
Speaker 7: Okay, I know that's the least term that you signed this quarter. First of all, are you leasing stats signed or commence as part of your executive association?
Okay.
I noticed the lease term.
That you signed this quarter first of all are you leasing stats signed or commenced.
Pardon me, but it's on the leasing side.
Speaker 7: sign. Okay. The lease terms were 3.4 years and on renewals 2.1, which seems low compared to what has been historically. Just wanted to get.
Okay.
The the lease terms were three four years and on renewals to one which seems low compared to where it has been historically.
Howard Schwimmer: With regard to our robust internal growth initiatives, we have approximately 4 million square feet of value ad repositioning and redevelopment in-profess or projected to start within the next 24 months. These projects are expected to deliver an aggregate unloved yield on total cost of 6.4% representing an estimated $500 million of value creation.
I just wanted to get some commentary on that.
Okay.
Speaker 4: Yeah, John , I think that our rated hours lease term this year was was a little bit shorter. It was driven by several shorter term deals that were 12 months or less in term. And those were signed in advance of repositions and redevelopments, giving us the ability to capture revenue while we're positioning those for construction starts.
Yes, John I can take that.
Our weighted average lease term this year was a little bit shorter it was driven by several shorter term deals that we're 12 months or less in term.
And those were signed in advance of repositioning and redevelopment.
Giving us the ability to capture revenue lower positioning us for construction start.
Howard Schwimmer: Lastly, I'd like to thank our entrepreneurial wrecks routine for their dedication and for delivering on another strong quarter.
Speaker 7: So you characterize that as an aberration or going forward or at least terms going to be shorter nature.
So would you characterize that as an aberration or <unk>.
Laura Clark: I will now turn the call over to Laura to discuss our financial results. Thank you, Howard, and thank you to our incredible wrecks for a team. Your exceptional performance and value creation focus continues to differentiate wrecks first. In the third quarter, core SSO per share grew 12% over the prior year quarter, driven by same property and OI growth of 9.5% on a cash basis and 8.9% on a gap basis. Both quarter leasing spreads out-perform projections and year-to-date leasing spreads are 62.82% on a cash and gap basis, respectively.
Going forward, our lease term is going to be shorter in nature.
Yeah, I think it's it was it was really driven by there were about three to four deals, but that had a larger impact on the on the weighted average lease term this quarter.
Okay.
Just one final one on the Mark to market disclosure on page 15.
The 7% reduction from 63% to 56%, which which you clarified.
Going forward the outer years, the projections that you have are down 6%.
From last quarter, and I'm wondering why it's not the full 7%, including the market rental change.
Laura Clark: The portfolio is positioned for significant internal cash and OI growth into the foreseeable future. Just considering the next two years, value at repositioning and redevelopment, representing our largest driver of growth, are projected to contribute $71 million of incremental and OI. Annual embedded rent steps of 3.5% for the total portfolio are projected to contribute another $26 million. In acquisitions close to the third quarter and fourth quarter to date contribute an incremental $28 million.
It is important is as you think about the.
First of all the calculation there and you can certainly have various rounding impact, but I think it's important to look at the disclosure a few comments there on the disclosure that we provide by ear from a mark to market perspective, because you'll see.
Speaker 4: the calculation there and you can certainly have various rounding impacts. But I think it's important to look at the disclosure or a few comments there on the disclosure that we provide by year from a market to market perspective. Because you'll see that the change in market to market has varied across years.
The change in Mark to market has varied across years.
That's really driven by the pool of leases Thats included in any given area that's constantly changing.
Speaker 4: That's driven by the leasing activity that we're doing in the acquisition.
That's driven by the leasing activity that we're doing acquisitions.
Laura Clark: In addition, the net effective portfolio of market market is estimated at 56%, representing $77 million of incremental and OI over the next two years. As we look further out, the conversion of the total portfolio of net effective market to market equates to $350 million of incremental NOI growth, equal to $1.70 per share of FFO contribution, or 79% FFO per share growth Now to our funding strategy and balance sheet our focus remains on internal and external investments that thrive near and long term accretion and NEV growth.
Speaker 4: the properties for moving to reposition redevelopment. So just by way of example, if you have a lease that expired and a third quarter of 23 and we executed a new lease.
The properties remaining to repositioning redevelopment there just by way of example, if you have a lease that expired.
In the third quarter of 'twenty, three and we executed a new lease.
Speaker 4: Let's say we executed a new lease at 100% leasing spreads. We captured that mark to market and that NOI is now reflected in our cash flow. Let's say that that lease had a three year lease.
Let's say, we executed a new lease at 100% leasing spreads we captured that mark to market and that NOI is now reflected in our cash flow, let's say that that lease had a three year lease term.
Speaker 4: That expiration is now reflected in our 2026 Marked to Market at the Market Run and that resets the market to zero.
That exploration is now reflected in our 2026 mark to market after market rent and that resets the market mark to market to the euro so because of this constant changes within the within the pool across various yours that are driven by a number of factors you will see different impact.
Speaker 4: So because of those constant changes within the pool across various years that are driven by a number of factors, you will see different impacts from a market market.
Laura Clark: We continue to demonstrate a highly selective, rigorous approach to capital allocation, as reflected in our investments today that are driving substantially higher accretion than our prior year investments, inclusive of today's higher cost of capital. We will continue to assess accretive capital sources to fund internal and external growth opportunities, including decisions. Our sustained focus on maintaining a fortress balance sheet positions us to capitalize on our value driven business strategy and the current environment.
<unk>.
From a mark to market perspective.
Got it okay. So this quarter it just happened to be 6% change.
Speaker 7: Got it. Okay. So this quarter, it just happened to be 6%.
Speaker 7: change per year but going forward that could change here by this.
Changed per year, but going forward that could change here by you.
Yeah, I mean, if you look at this quarter the mark to market change for 'twenty, four and 'twenty six were actually closer to 200 basis points.
Speaker 4: Yeah, I mean, if you look at this quarter, the market to market change for 24 and 26 or actually closer to 1200.
Speaker 4: and the factors that I just mentioned drove those changes.
And the factors that I just mentioned drove those changes.
Thank you very much.
Laura Clark: As Quirran met us to EBITDA at 3.7 times and we have liquidity of $1.5 billion. This includes 83 million as cash on hand, full availability on our $1 billion revolver, and approximately $450 million of forward equity remaining for settlement.
Okay.
Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Speaker 5: Our next question comes from the line of Blaine Heck with Wells Fargo.
Great. Thanks, Good morning out there. So you touched on this a little bit in prepared remarks, but you all continue to be active on the acquisition market with 400 million under contract, but youre getting a little lower on forward equity of $450 million you'd have capacity on the line, but the rate is much higher than it has been Andrew cost.
Speaker 8: Great thanks. Good morning out there. So you touched on this a little bit and prepared remarks, but you all continue to be active on the acquisition market with 400 million under contract.
Speaker 8: But you're getting a little lower on forward equity at 450 million. You have capacity on the line, but the rate is much higher than it has been. And your cost of equity has increased. So can you just talk a little bit more about how you're thinking about the pace of additional acquisitions and how much of that funding for future acquisitions could be driven by disposition process?
Laura Clark: Turning to guidance. We are increasing our 2023 core FFO per share guidance range to $2.16 to $2.18 per share, out from our previous guidance range of $2.13 to $2.16 per share. Our revised guidance range represents 11% year-over-year earnings growth at the midpoint. Please note that our guidance range includes the imminent closing of the same Gabriel Valley transaction powered mention. No additional acquisitions, dispositions, or related balance sheet activities that have not yet closed are included in our updated guidance range.
The equity has increased so can you just talk a little bit more about how youre thinking about the pace of additional acquisitions and how much of that funding for future acquisitions could be driven by disposition proceeds.
Handling and thanks for joining us today I'll jump in here as well.
Speaker 4: Hey, William, thanks for joining us today. I'll jump in here as well.
Speaker 4: As we've mentioned, and it continues to be a significant focus, it's going to be on driving accretion and any progress through how we deploy capital. So when you think about capital deployment for REX, for that includes our internal investments, so our repositioning and redevelopments, that today are yielding a very accretive yield at 6.4% are external investments. Today, if you include the pipeline that you mentioned the 400 million, stabilize yields at 6.4%.
We as we've mentioned and it continues to be a.
Significant focus is going to be on driving accretion and.
How we deploy capital.
So when you think about capital deployment for Rexford that includes our internal investments of our repositioning and redevelopments, but today are yielding a very accretive yields at six 4% our external investments today. If you include the pipeline that you mentioned, the $400 million stabilized deals or six 4%.
Laura Clark: Our projected 2023 cash and gas chain property in a live row remains unchanged for the midpoint compared to our prior guidance and we have tightened our ranges to 9.75 to 10% on a cash basis and 8 to 8.25% on a gap basis. Average chain property occupancy for the full year is projected to be approximately 97.75%, unchanged at the midpoint compared to our prior guidance. Other assumptions in our chain property guidance include full year cash and gap leasing spreads are now projected to be 60 to 65% and 75 to 80% respectively and increase the 500 basis points at the midpoint.
Speaker 4: So our investments today are our creatives are driving more accretion today than they did last year, even at even at our higher cost of capital and that's driven by our higher initial and stabilized yields.
So our investments today are are accretive they're driving more accretion today than they did last year, even at even at our higher cost of capital and that's driven by a higher initial stabilized yields.
Speaker 4: As we think about sources of capital going forward, we're going to continue to assess that and equity and this positions and sources of capital in relation to the hurdle rates in which we're solving to today, as well as the embedded growth of those investments are going to contribute over the long term, correct?
As we think about sources of capital.
Going forward, we're going to continue to assess that and equity and dispositions and sources of capital in relation to the hurdle rates and which we're solving to today as well as the embedded growth that those investments are going to contribute over the long term to rexford in terms of dispositions specifically.
Laura Clark: Driven by higher than expected third quarter exit to the leasing spreads and lastly, bad luck as a person of revenue is expected to be approximately 35 basis points in line with our prior guidance and below the historical average of sticky basis points, reflecting the continued health of our kind of things. Further guidance updates, including a role forward of a revised effort for sure guidance range can be found in our supplemental package.
Speaker 4: In terms of disposition specifically, they will be another potential source of capital. We believe that there's a great opportunity to realize the value creation efforts that we've executed on and we can redeploy that and the higher yielding assets and grow our overall net asset value. So today we're currently actively pursuing a number of decisions in the market and we'll provide updates on those properties as they close.
Will be another potential source of capital are.
We believe that Theres, a great opportunity to realize the value creation efforts that that we've that we've executed on and we can redeploy that into higher yielding assets and grow our overall net asset value.
Today, we are currently actively pursuing a number of dispositions in the market and we will provide updates on those properties I'll stay close.
Laura Clark: Finally, as part of Rexford's continued commitment to creating values for a comprehensive ESGI approach, we are excited to announce our target to reach net zero greenhouse gas emissions by 2045, as well as near term reduction targets. Our mission targets are validated by SBTI and are a testament to our focus on driving substantial environmental values that were differentiated business models.
Okay great.
Speaker 9: Okay, great. Just to follow up on that, can you talk about kind of the spread between, you know, the stabilized cap rates at which you think you can dispose of assets and the stabilized cap rates? You think you can use those funds to invest that? Okay.
Just to follow up on that can you talk about kind of the spread between the stabilized cap rates at which you think you can dispose of assets in the stabilized cap rates. You think you can use those funds to invest it.
[noise].
Hi, Blaine it's Michael.
Oh go ahead Michael.
Speaker 2: No, I was just going to say that, you know, suffice to say that the reason we're disposing of such assets is because we believe they'd be highly accretive in our recycling capital. And so, we'll disclose those spreads when we close those disposition transactions. Otherwise, it's kind of tough just to speculate.
No I was just going to say that.
Unknown Executive: Thank you all for joining us today and we now welcome your questions. Operator? Thank you.
Suffice to say that the reasonably disposing of such assets, because we believe they would be highly accretive and a recycling capital and so I yeah, well we'll.
Unknown Executive: Ladies and gentlemen at this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. The confirmation tunnel indicate your line is in the question queue. You may press star two if you would 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 key.
We'll disclose those spreads when we close those disposition transactions.
Otherwise, it's kind of tough to speculate.
Speaker 8: Okay, fair enough. And then lastly, I was hoping you could talk a little bit about the types of tenants that are creating the most band across your portfolio today. And maybe you can touch on tenant size and industry.
Okay Fair enough and then lastly, I was hoping you could talk a little bit about the types of tenants that are creating the most of the band across your portfolio today, and maybe you can touch on tenant size and industry.
Camille Bonnel: Our first question comes from the line of Camino Bonnell with Bank of America. Please proceed with your question. Hi, everyone.
Yeah.
Speaker 2: Sure, it's pretty interesting in terms of what we're seeing in the market. It demand is pretty broad-based, and despite economic concerns generally in overall economy, we see demand from consumers.
Sure.
It's pretty interesting in terms of what we're seeing in the market.
Man is pretty broad based and despite economic concerns generally in the overall economy.
Howard Schwimmer: Can you talk to the change in market net absorption, which turned positive this quarter? Was this driven by any particular sub market and given today's economic outlook feels very different than it was three months ago? Do you expect this trend to continue? Hi Camino, it's Howard. Nice to hear your voice. There was an uptick in absorption in the Inland part of West sub market that was, I think, nearly responsible for the large amount of absorption.
We see demand from consumer products.
Speaker 2: food industry, the beverage industry, a lot of incremental demand reflected in leasing activity during the quarter from those sectors. We continue to see the electric vehicle market as a very strong contributor towards demand. We continue to see distribution companies, whether they're e-commerce driven or 3PLs, obviously a lot of change in shifting in the 3PL market, given the incredible growth in demand they saw during the pandemic.
Food industry the beverage industry.
You know a lot of incremental demand reflected in our leasing activity during the quarter from those sectors. We continue to see the electric vehicle market is a very strong contributed towards demand we continue to see.
Distribution companies, whether they're e-commerce, driven or three pls, obviously, a lot of change in shifting in the three TL market given.
Given the incredible growth in demand and they saw during the pandemic, but nonetheless, we continue to see very healthy demand from the <unk> market and E Commerce players in general.
Speaker 2: But nonetheless, we continue to see very healthy demand from the 3PL market and e-commerce players in general. And on the channel distribution for your traditional retailers is here to set. It's a path to survival for retailers. And so we continue to see demand from traditional old time retailers who are building out, continue to build out their on the channel distribution capability, requiring warehouses closer to their endpoints.
Howard Schwimmer: Thank you, Camino. I'll talk a little bit about our portfolio as well on how it mentioned the market change. But our portfolio did experience an increase in absorption of about 400 and 34,000 square feet that's represented on 100 basis points. And importantly, we've experienced positive absorption within our portfolio on every quarter this year, certainly outpacing the market and really demonstrating the differentiation of our portfolio in the market, which we've been discussing. In terms of select markets, we actually, if you dive into the absorption, we saw positive absorption in every one of our markets from Greater LA, IE West, Orange County, and San Diego.
And omni channel distribution for your traditional retailers is here to stay.
The path to survival for retailers and so we continue to see demand from traditional old time retailers, who are building out continue to build out their omnichannel distribution capability, requiring warehouses closer to their end points of distribution.
Speaker 2: So pretty broad-based demand drivers, actually, which is great to see.
So pretty pretty broad based demand drivers actually which is good.
Great to see.
Great very helpful. Thank you all.
Speaker 5: Our next question comes from a line of Craig Mellman from Sviti Group. Please proceed with your question.
Our next question comes from the line of Craig Mailman from Citigroup. Please proceed with your question.
Speaker 7: Thanks, it's actually, I'd like to just appear with Craig. You're just following up on the disposition comments. There's something you could quantify, maybe how much you have out to market and where they stand in terms of the process.
Thanks, It's actually Nick Joseph here with Craig just following up on the disposition comments I was hoping you could quantify maybe how much you have out to market and where they stand in terms of the process.
Howard Schwimmer: Thank you. And it looks like some of the stabilization dates in your redevelopment program were pushed out. What were the factors influencing us and how is your leasing pipeline tracking?
Speaker 2: Hey Nick, thanks so much for joining us today. And it's similar to our acquisition activity. There's so many factors that contribute to whether or not we close a certain volume of transactions on the acquisition side and then we get them quarter or a year that we don't give acquisition guidance. Similarly, on the disposition front, although we have, as Laura mentioned, a range of properties as potential disposition candidates that are actively in process,
Hey, Nik thanks, so much for joining us today, and it's similar to our acquisition activity. There's so many factors that contribute to whether or not we close a certain volume of transactions on the acquisition side in any given quarter or year.
Howard Schwimmer: I'll take that Camino. So in terms of timing pushes in terms of repositioning the redevelopment, there's a couple of drivers there. One is around the permitting and approval process, which has continued to impact construction timing. The other is around timing of our lease up. It's certainly returning to more normalized levels. If you look back historically pre-COVID, lease up timing upon completion of redevelopment was about six months. During the last few years, we saw that timing can press significantly given the friendly levels of demand. But as we look forward, currently sub timing, we believe will be more consistent with pre-COVID levels, which is around that six month area.
We don't give acquisition guidance similarly on the disposition front, although we have as Laura mentioned a range of properties with.
As the potential disposition candidates that are actively in process.
Speaker 2: you know there's so many factors that play into win and whether they close and what time frame so you know we just are resident you know
So many factors that play into when and whether they close and what timeframe. So we just are raises it.
Speaker 2: Redisant to get that kind of guidance, but we hope that you'll be pleased when we actually announce closing.
Reticent to give that kind of guidance, but we hope that youll be pleased when we actually announced closings.
Speaker 7: I appreciate that. I guess, you know, not necessarily looking for guidance, but I think you obviously talk on the acquisition pipelines, so I think kind of a similar comment on at least.
No I appreciate that I guess.
Not necessarily looking for guidance, but I think you obviously talk on the acquisition pipeline, so hoping kind of a similar comment on at least.
Speaker 7: A broad range of where the disposition could be, are we talking 100 million, are we talking 500 million, just recognize things can fall in or out of that.
A broad range of where the dispositions.
Are we talking $100 million, we're talking $500 million, just recognize things can fall in or out of that pipeline.
Howard Schwimmer: And finally, can you please walk through the drivers behind the market changes in your lease exploration schedule as well as the changes in cumulative SSO contribution, if driven by changes in the overall portfolio composition, one hasn't the lease exploration schedule remained relatively stable. Hey Camille, great question. And I think it's important to walk through the various components that contribute to the market. First, we're certainly excited to be able to capture the market and convert that into SSO and cash flow.
Speaker 2: Again, with regard, the reason we give a disability on the pipeline for acquisitions is arguably there are more things in our control because we're the buyer. And on the disposition front, there are fewer things in our control because we just can't predict how a perspective buyer may behave or may close. So we just don't give that kind of guidance and apologize, but you know, just not, we just don't find a big benefit in giving that kind of guidance.
Again with regard the reason, we give a visibility on the pipeline for acquisitions is arguably there are more things in our control because we're the buyer and on the disposition front there are fewer things in our control because we just can't predict how a prospective buyer may behave or may close. So we just don't give that kind of guidance and I apologize, but just not we just don't don't.
Don't find a big benefit in giving that kind of guidance.
Speaker 10: All right. And then just one other question on the disposition you mentioned.
Alright.
Then just one other question on the dispositions you mentioned.
Speaker 10: you know, maybe harvesting some of that value, would it have an impact on the market for the existing portfolio or these assets that have maybe been leased more recently or should we not expect any impact on that number?
You know maybe harvesting some of that value would have an impact on the mark to market for the existing portfolio or are these assets that have maybe been leased more recently or should we not expect any impact on that number.
Howard Schwimmer: But as we've communicated in the past, the market market is going to decline and that's going to be driven by a number of factors. The first and really most significant is the substantial and better market market that we're able to recognize today was driven by the incredible market ring growth that we saw since 2019, if you look back to the fourth quarter, market rents has grown 80%. So as we can as we convert market the market, convert the market to market and the cash flow and FFO, in less market rent growth continued at those same level, the market market is going to decline.
Speaker 2: Well, consistent with the notion that we're harvesting our value creation, we wouldn't expect the impact to be terribly material.
Well consistent with the notion that we're harvesting our value creation.
We wouldn't expect the impact to be terribly material.
Speaker 11: Thanks. Hey guys, it's Craig here with Nick. I just want to follow up on the San Gabriel acquisition that the yield bear is almost close to a seven. Can you just talk about the nature of that asset and what the upside of that could be? It's just more of a sale lease fact and future redevelopment. It's just any kind of color would be helpful.
Thanks, Hey.
Hey, guys its Craig here with with Nick.
Just wanted to follow up on the San Gabriel acquisition that the yield there is.
Almost close to a seven could you just talk about the nature of that asset and you know what the upside would not could be it's just more of a sale leaseback and future redevelopment is just you.
Just any kind of color would be helpful.
Speaker 3: Hi, Craig. It's Howard. Well, I'd love to tell you all about it because it's really an amazing transaction that our team was able to negotiate off-market and without, frankly, much of any other competition. I think we're gonna wait until we close and then we'll be happy to provide full details.
Hi, Craig, It's Howard well I'd love to tell you all about it because it's really an amazing transaction that our team.
Howard Schwimmer: Second, you know, market market is impacted by the leases that we're signing and that conversion of the market market and so FFO. And so if you look here today, we've executed on an impressive, impressive leasing spreads 5.4 million square feet of leasing 82% gap spreads, 62% cash spreads. The conversion of market to market represents an incremental $50 million of annualized NOI just this year alone, through the recorders. The last component that moves around the market market has been impacted is certainly the properties that move in and out of the pool.
It was able to negotiate off market and without frankly much of any other competition.
We're going to wait until we close and then we'll be happy to provide full details.
Speaker 11: Okay, and just one last one. You guys bought the Tyreco building, did the sale lease back with them back in one queue, which your largest tent now with a 2025 expiration. Could you guys just talk about
Okay, and just one one last one you guys bought the tire co building did a sale leaseback with them back in <unk> and <unk>. What's your your largest tenant now with a 2025 exploration could you guys just talk about.
Speaker 11: the prospects of that tenant staying, are they definitely out? And we're the market to market expectation. This today I'm at versus, maybe when you bought it closer to the beginning of the year.
<unk> of that tenant staying are they definitely out.
Howard Schwimmer: For example, when we move a property into reposition or redevelopment, that property gets removed from the market market pool. And that value creation is now represented as represented in the creative stabilized yields. Today are repositions and redevelopments are generating 6.4% stabilized yields. In this quarter, the impact was about 200 basis points for a market market as we move seven properties into reposition and redevelopment. Asquisitions can also are also part of that move and then out of the pool for market and can certainly have an impact.
And you know where the mark to market expectation is today I'm at versus maybe when you bought it.
Unknown Executive: Thank you for taking my question.
Closer to the beginning of the year.
Speaker 11: Hey, Craig. In terms of tire care specifically, we are in constant communication with our tenants in tire care specifically. And at this time, and based on those conversations, they currently have no intentions of vacating in 2025. Okay, they have options to step.
Hey, Craig in terms of territory, specifically, we are in constant communication with with our tenants entire case, specifically and at this time and based on those those conversations. They currently have no intention of vacating and 2025.
Okay. They they have options to stay.
They have options.
Speaker 4: Okay, perfect. And those options are, and those options are, those that they have fixed options this day.
Okay.
And those options and those options are visit they have fixed options per se.
Speaker 11: I know they've had the 4% annually just in perpetuity. 3%
I know they've had the 4% annually just in perpetuity.
John Kim: Our next question comes in the line of John Kim with BMO. Please proceed with your questions. Thank you. On the net absorption, your stats are positive, but it does sound us that I think from some of your space that you put into redevelopment. I was wondering if you could comment on an overall net absorption in the market or the man that you're seeing in your portfolio or in the market overall over the last few weeks, just given the rising interest rate environment and not certainly in the financial markets.
3%.
3%, Okay, great. Thank you.
Our next question comes from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Speaker 5: Our next question comes from the line of Greg McGinnis with Sposivane. Please proceed with your question.
Speaker 12: Hey there. Laura, I have another question on clarifying that to mark to market disclosure. We're hoping to dig into that 2% quarter quarter impact from portfolio vacates or moving to repositioning slash redevelopment.
Hey, there.
Hmm.
I have another question on clarifying that mark to market.
Sure, we're hoping to dig into that 2% quarter on quarter impact from portfolio, vacates or moving to repositioning slash redevelopment.
Speaker 12: Is that just a lack of comparable rent on a now vacant asset? So you can't provide the upside. And if thinking about that potential market, it was pretty.
Is that just a lack of comparable rent on the now vacant assets you can't provide the upside.
John Kim: Hi, thanks so much for joining us today, and this is Michael, and I'm pleased to answer with call. I think with regard to the last few weeks, you really haven't seen much change relative to what we're reporting for the quarter. So really no trend line there that's incredibly different. And then I'll add to that just around that absorption in the overall market. We've actually taken a pretty deep dive and analyzed every building in the market that's contributed to negative net absorption throughout the year.
And then thinking about that potential mark to market was previously greater than 56%, which is why it came down before why would those properties needed to be repositioned redeveloped anyways.
Speaker 12: Why would those properties need to be repositioned or redeveloped?
Well it is that the the those can be two separate things.
Speaker 4: Well, those can be two separate things. So to your point, yes, on the vacate side, there's not a comparable rent. There's not obviously a comparable rent. But on the repositioning redevelopment, that's this can be a different set of properties. So as we are able to get properties back and execute on the repositioning redevelopment plan, then they move out of the marks mark.
Your point, yes on the vacate side, there's not a comparable.
There's there's not obviously a comparable rent, but on a repositioning redevelopments.
This can be a different set of properties.
So as we are able to get properties dos.
John Kim: We've been communicating those metrics. And it's been really consistent. Only about 20% of the buildings that contributed to negative absorption in the overall market is what we would need to be kind of higher quality higher functional type building. So that another way 80% of the products that's hitting the market in terms of the negative net absorption throughout the year doesn't directly compete with Rexford. And so this, like I mentioned, this trend has really helped throughout, throughout each quarter of the year.
Michael Franco: And certainly speaks to, you know, to the metrics that and to the results of our portfolio and that differentiation is certain is, is, is, is certainly driving our results.
And execute on our repositioning and redevelopment plan then they move out of the mark to market.
Speaker 12: Right, but I'm saying so is the rent growth, the market, assumed on those properties is that contingent on.
Right, but I'm, saying so is the rent growth the mark to market.
Assumed on those properties is that contingent on repositioning.
Speaker 12: For those properties that are moving into the repositioning pipeline, is that your question specifically? Yeah, I'm just trying to figure out like, basically, cap-axe requirement on achieving the 56% mark to market.
For those properties that are moving and to the repositioning pipeline.
The retail arm repositioning pipeline is that your question specifically, yeah, I'm, just trying to figure out like Vegas.
Capex requirement on achieving the 56% mark to market.
No that is not they are not.
Speaker 12: Okay, and then is there beyond like typical second generation PIs, is there any additional spend that we should be thinking about for achieving the mark?
Okay.
And then is there beyond like typical second generation T is is there any additional spend that we should be thinking about for achieving the mark to market.
Unknown Executive: Okay, I noticed the least term that you signed this quarter.
Speaker 4: No, if a property is in the market pool in that calculation and the 56% it's not in our reposition. If a property is in that pool it would just be your typical TI's leasing commission and reoccurring capital steps.
Now if if a property is in a if a property is and the mark to market pool in that calculation and the 56%.
Unknown Executive: Or first of all, are you leasing that sign or commence this party? But on the leasing sign. Okay, the least terms were 3.4 years and on renewals 2.1, which seems low compared to work has been historically disappointed to get some commentary on that. Yeah, John, I think that our rated numbers lease term this year was was a little bit shorter. It was driven by several shorter term deals that were 12 months or less in term.
It it's not in our repositioning.
The properties and that pool. It would just be your typical Ti leasing commission capital reoccurring capital stuff.
Speaker 12: Great. And then my apologies for what might be an ignorant question here, but we are new to the coverage. How does the 100 basis points of positive net absorption impact reported on?
Okay great.
And then my apologies for what might be an ignorant question here, but we are new to the coverage how.
How does the 100 basis points of positive net absorption impact reported occupancy.
Unknown Executive: And those were signed in advance of repositions and redevelopments, giving us the ability to capture revenue while we're position is for construction start. So would you correct that as an aberration or going forward or at least terms going to be shorter nature? Yeah, I think it was it was really really driven by there were about 3 to 4 deals that that had a larger impact on the on the weighted average lease terms quarter. Okay.
Yeah.
Yeah.
Speaker 12: In terms of the overall portfolio or the same property pool, but specifically overall portfolio. So if you have occupancy changing 10 basis points, quarter over quarter, but at the 100 basis points, the positive net absorption, just trying to figure out where the delta is there and how it's actually...
In terms of the overall portfolio are the same property pool, but what specifically yeah. Overall portfolio. So if you have occupancy changing 10 basis points quarter over quarter, but it is 100 basis points of positive net absorption just trying to figure out where the where the delta is there and.
How how its actually impacting occupancy to have the positive absorption.
Unknown Executive: And just one final one on the mark to market disclosure on page 15. You know, the 7% reduction from 62% to 56% which which you clarified. Going forward, the out of years, the projections that you have are down 6% from last quarter. And I'm wondering why it's not the full 7% including the market rental change. I think it's important as as you think about the first of all the calculation there and you can certainly have various rounding impacts, but I think it's important to look at the disclosure a few comments there on the disclosure that we provide by year from a market to market perspective, because you'll see that the change in market has varied across years.
Yeah, I can Greg maybe it'd be better offline I can take I can take that with you and walk you through the components of that.
Speaker 4: Yeah, I can, Greg, maybe it'd be better offline. I can take that with you and walk you through the component for that.
Okay, great. Thank you.
Thank you.
Speaker 5: Our next question comes from the line of Nick Dillman with Robert W. Baird. Please receive any questions.
Our next question comes from the line of Nick Thielman with Robert W. Baird. Please proceed with your question.
Hey, just wanted to touch a little bit odd economics.
Speaker 13: I just wanted to touch a little bit on economics. It does seem like shorter release duration. Just curious if you're seeing any more like free wrench being given or just more TI associated with your leasing.
It does seem like.
Shorter lease duration, just curious if youre seeing any more like free rent being given or just more ti associated with your leasing.
Yeah.
Speaker 4: Thanks so much for joining us. In terms of concessions, our free rent score, free rent was actually 0.7 months.
Hey, thanks, so much for joining us in terms of concessions or free rent this quarter.
Free rent was actually 0.7 months.
Speaker 4: So lower than what we've experienced in the prior quarter year to date, concessions are one month. That's in line with our guidance and in line with our prior four quarter average. So if we look back year to date, we haven't really seen a material or increase overall in terms of concessions. Looking back, you know, to prior years, concessions have averaged about 1.25 months so we continue to be inside of that.
So lower than what we've experienced in the prior quarter and year to date concessions are one month, that's in line with our guidance.
Unknown Executive: And so that's really driven by the pool of leases that's included in any given year that's constantly changing. That's driven by the leasing activity that we're doing the acquisitions, the properties for moving to reposition redevelopment. So just by way of example, if you have a lease that expired and the third quarter of 23 and we executed a new lease, let's say we executed a new lease at 100% leasing spreads, we captured that mark to market.
And in line with our prior four quarter average so if we look back year to date we.
We haven't really seen a material or increase overall in terms of concessions.
Looking back to prior years concessions have averaged about 1.25 months that we continue to be inside of that.
Okay.
Speaker 4: And then more questions. Oh, sorry. Your question around TI's, yeah, your question around TI's, no, we haven't seen any material change in terms of TI.
And then more of them.
Unknown Executive: And that NOI is now reflected in our cash flow. Let's say that that lease had a three year lease term. That expiration is now reflected in our 2026 market at the market rent and that resets the market market market to zero. So because of those constant changes within the pool across various years that are driven by a number of factors, you will see different impacts from a market perspective.
Yes.
Oh I'm sorry go ahead on Ti Yeah. Your question around T. I know, we haven't seen any change material change in terms of tea ice.
That's helpful. And then maybe just another question related to just GAAP leasing spreads you guys have been pretty big acquirers over the last two to three years. So when we're looking at when you're quoting GAAP leasing spreads are you guys, including the adjustment made to GAAP fair value of those leases.
Speaker 13: a helpful one. And then maybe just another question related to just gap leasing spreads. You guys have been pretty big acquires over the last two to three years. So when we're looking at when you're quoting gap leasing spreads, that you guys including the adjustment made to gap fair value of those leases, when you're quoting the spread quarter by quarter.
Unknown Executive: Joseph. Got it. Okay. So this quarter, it just happened to be 6% change per year, but going forward that can change here by year. Yeah. I mean, this, if you look at this quarter, the mark to market change for 24 and 26, we're actually closer to 1200 basis points. And the factors that I just mentioned drove those changes. Thank you very much.
One of your quoting the spreads quarter by quarter.
Just kind of seeing which is going to actually be flowing through to <unk> going forward.
Speaker 4: Just kind of seeing which is going to actually be flowing through to SFO going forward. Yes, that would be included in the acquired businesses.
Yes that would be included in the acquired businesses.
Okay.
Our next question comes from the line of Vince <unk> with Green Street. Please proceed with your question.
Speaker 14: Hi, um, oxenasy guide in supplies about a 75 basis point drop in the fourth quarter compared to third quarter levels. Could you just discuss the drivers there whether it's a known move out or just some conservatism and forecasting?
Hi, occupancy guidance implies about a 75 basis point drop in the fourth quarter compared to third quarter levels could you just discuss the drivers there whether it's a known move out or just some conservatism in forecasting.
Blaine Heck: Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. Great. Thanks. Good morning out there. So you touched on this a little bit in prepare remarks, but you all continue to be active on the acquisition market with 400 million under contract, but you're getting a little lower on forward equity at 450 million. You have capacity on the line. But the rate is much higher than has been and your cost of equity has increased.
Speaker 4: Yeah, hi, Vince. Thanks for joining us today. In terms of our same property, occupancy guidance, yeah, as you mentioned, our guidance for the full year is 97.75%. So we did tighten our guidance range to the midpoint. That occupancy, the occupancy guidance implies that it client in the fourth quarter, about 60 basis points.
Yeah, Hey, Vince Thanks for joining us today.
In terms of our same property occupancy guidance, Yeah. As you mentioned our guidance for the full year is 97.75%.
We did tighten our guidance range to the midpoint of.
Michael Franco: So can you just talk a little bit more about how you're thinking about the pace of additional acquisition and how much of that funding for future acquisitions could be driven by disposition proceeds. Hey, William. Thanks for joining us today. I'll jump in here as well. We, as we've mentioned, and it continues to be a significant focus is going to be on driving accretion and any growth through how we deploy capital. So when you think about capital deployment for rexford, that includes our internal investments, so our reposition and redevelopments that today are yielding a very accretive yield at 6.4%.
That occupancy.
The occupancy guidance implies a decline in the fourth quarter about 60 basis points and just as a reminder, our prior guidance.
Speaker 4: Just as a reminder, our prior guidance also implied a decline of about 30 basis points in the second half of the year, largely driven by a bit more downtime and some spaces where we are performing some light and moderate repo and that factored into our prior guidance.
So implied a decline of about 30 basis points in the second half of the year largely driven by down the debt more downtime in some spaces, where we're performing some light moderate rito and not that factored into our prior guidance.
New as it into our updated guidance about us that we have a 30 basis point impact from a space that we got back from a tenant that was on our pre watchlist.
Speaker 4: new as it into our updated guidance about us that we have a 30 basis point impact from a space that we got back from a tenant that was on our pre watch list.
Speaker 4: and that moved the guidance range to our midpoint. That was a tenant, just a little color there, who went through an acquisition of their business earlier this year. We've had them on the pre-watch list for several quarters now. They had some challenges and the integration of that merger. And so we did get that space back at the end of the quarter.
Michael Franco: Our external investments today if you include the pipeline that you mentioned the 400 million stabilized yields are 6.4%. So our investments today are accretive. They're driving more accretion today than they did last year, even at, even at our higher cost of capital, and that's driven by our higher initial and stabilized yields. As we think about sources of capital going forward, we're going to continue to assess that and equity and decisions and sources of capital in relation to the hurdle rates in which we're solving to today, as well as the embedded growth of those investments are going to contribute over the long term to rexford.
And that moves the guidance range to a midpoint that was a tenant just a little color there who went through an acquisition of their business earlier. This year, we've had them on the what the pre watch lists for several quarters now they have some challenges in the integration of that merger and so we were so we did get that space back at the end.
For the quarter.
Great. Thank you and then since the Port Labor agreement has been finalized and some of the backups to Panama Canal I've gotten worse or have you seen any pickup in tenant interest or flooring activity or other side that you know the.
Speaker 14: Great, thank you. And then since the Port Labor Agreement has been finalized and some of the backups to Panama Canal have gotten worse, have you seen any pick up intended interest or pouring activity or other signs that, you know, so Cal industrial could benefit some of these factors?
So socal industrial could benefit from some of these factors.
Michael Franco: In terms of disposition specifically, they will be another potential source of capital. We believe that there's a great opportunity to realize the value creation efforts that we've executed on, and we can redeploy that and the higher yielding assets and grow our overall net asset value.
Hi, Vince it's Howard.
Speaker 3: Yeah, we're really pleased to see that increase in port activity. Keep in mind that our tenant base is really mainly serving the consumption occurring here in Southern California.
So we're really pleased to see the increase in productivity.
Keep in mind that our tenant base is really mainly serving the consumption occurring here in southern California. So through cycles, we haven't really seen impact from port slowdown shutdowns et cetera in terms of Ah that.
Speaker 3: Two cycles, we haven't really seen impact from port flow down, shut down, etc. in terms of...
Blaine Heck: So today, we're currently actively pursuing a number of decisions in the market, and we'll provide updates on those properties as they close. Okay, great.
Speaker 3: that kind of base that we focus on and is in the portfolio but
That tenant base that we focus on it is in the portfolio but.
Speaker 3: you know the ports are really more
<unk> are really more reliant.
Speaker 3: Reliant, you know, connected to super regional global trade. So some of those larger buildings that typically you'll see out in the eastern.
Connected to Super regional global trade. So some of those larger buildings that are typically youll see out in the eastern and the western inland Empire and absolutely certainly that's a benefit but there's a lot of revenue generated from.
Michael Franco: Just to follow up on that, can you talk about kind of the spread between, you know, the state of life cap rates at which you think you can dispose of assets and the state of life cap rates. You think you can use those funds to index it. Hey, Blaine, it's Michael. No, I was just going to say that, you know, suffice to say that the reason we do disposing of such assets is because we believe they'd be highly accretive in our recycling capital. And so, you know, we'll disclose those spreads when we close those disposition transactions, otherwise it's kind of tough just to speculate.
Speaker 3: and even the Western and the Illinois Empire. And absolutely, certainly that's the benefit. There's a lot of revenue generated.
Unknown Executive: Okay, fair enough.
Speaker 3: from ancillary services and so forth throughout Southern California through Port Volume.
From ancillary services and so forth throughout southern California through Port volume so.
Speaker 3: uh you know it's it's really uh nice to see those volumes
It's really nice to see those volumes.
Speaker 3: Increase and hopefully that it say go for trend in terms of some further recovery
Kris and hopefully that's a go forward trends in terms of some further recovery.
Speaker 14: Great thing. So if I could maybe squeeze in one more, I'd be curious to get your view on how the transaction and the cured debt market have changed over the past few months since the treasury rates moved up pretty substantially here.
Great. Thanks, and if I could maybe squeeze in one more I'd be curious to get your view on how the transaction and secured debt market havent changed over the past few months since the treasury rates moved up pretty substantially here.
Michael Franco: And then lastly, I was hoping you could talk a little bit about the types of tenants that are creating the most demand across your portfolio today. And maybe you can touch on tenant size and industry. Sure, and it's pretty interesting in terms of what we're seeing in the market. The demand is pretty broad-based, and despite economic concerns generally in the overall economy. We see demand from consumer products, food industry, the beverage industry, a lot of incremental demand reflected in the leasing activity during the quarter from those sectors.
Yeah.
Speaker 4: Hey, that's I'll take that around the transaction market. You know, we continue to see capital flowing into the Southern California market. And interestingly, you know, we're seeing new market entrance into industrial. And that has been, I'd say, an incremental change of the past and quarter or two. So although...
Hey, that's all I'll take that around the transaction market.
You know, we continue to see capital flowing into the southern California market and interestingly, we're seeing new market entrants.
To and <unk> industrial.
And that has been I'd say in an incremental change over the past quarter or two.
So, although yes, you've certainly seen an increase and and interest rates and certainly availability of that capital can be challenging. We can there continues to be transactions occurring in the market.
Speaker 4: certainly seen an increase in interest rates and certainly availability of that capital can be challenging. There continues to be transactions occurring in the market and cap rates really haven't moved that materially, maybe up about only about 25 basis points.
Michael Franco: We continue to see the electric vehicle market as a very strong contributor towards demand. We continue to see distribution companies, whether they're e-commerce driven or 3PLs, obviously a lot of change in shifting in the 3PL market, given the incredible growth in demand they saw during the pandemic. But nonetheless, we continue to see very healthy demand from the 3PL market and e-commerce players in general. And on any channel distribution for your traditional retailers is here to set.
And cap rates really havent moved that materially maybe up about only about 25 basis points.
Speaker 4: Buyers are still accepting lower cap rates for properties that have marked the market, and are even taking on waiting some time to get to stabilization. So there's a property that traded just recently in the North Orange County Mid Counties market, about $50 million transaction.
You know buyers are still accepting lower cap rates.
For you know for properties that have mark to market.
And are you know even you know taking on you know waiting some time to get to stabilization. So yeah. There's a property that traded just recently in the North Orange County, Mackay market about $50 million transaction and going to an initial cap rate of 3.4% stabilizing it.
Michael Franco: It's a path to survival for retailers. And so we continue to see demand from traditional old-time retailers who are building out, continue to build out their on the channel distribution capability, requiring warehouses closer to their endpoints of distribution. So pretty broad-based demand drivers, actually, which is great to see.
Unknown Executive: Great. Very helpful.
Speaker 4: going in initial calculated at 3.4% stabilizing about five years to now a little over 5% and that was
Five years from now.
All over 5% and that was you know and that was a new entrant into the market and from a buyer perspective.
Speaker 4: You know, and that was a new entrance into the market from a buyer perspective. So, you know, they're continues to be even with, you know, the increase in interest rates that it continues to be capital flowing into the market.
Unknown Executive: Thank you all.
Yeah, I mean, there continues to be even with the increase in and interest rates there continues to be capital flowing into the market.
Nick Joseph: Our next question comes from a line of Craig Mellman from City Group. Please proceed with your question. Thanks. It's actually Nick Joseph here with Craig. I'm just following up on the disposition comments. Something you could quantify, maybe how much you have out to market and where they stand in terms of the process. Hey Nick, thanks so much for joining us today. And you know, it's similar to our acquisition activity. There's so many factors that contribute to whether or not we close a certain volume of transactions on the acquisition side and then it get in quarter or a year that, you know, we don't give acquisition guidance.
Nick Joseph: Similarly on the disposition front, although we have, as Laura mentioned, a range of properties as potential disposition candidates that are actively in process, you know, there's so many factors that play into when and whether they close and what timeframe. So, you know, we just are resident, you know, resistant to get that kind of guidance, but we hope that you'll be pleased when we actually announce closings. Yeah, no, I appreciate that. I guess, you know, not necessarily looking for guidance, but I think you obviously talk on the acquisition pipelines, hoping kind of a similar comment on at least just a broad range of where the dispositions, you know, could be are we talking 100 million, are we talking 500 million, just recognize things can fall in or out of that pipeline.
Great. Thank you.
Speaker 5: Our next question comes from the line of Mike Mueller with JP Morgan. Please receive any questions.
Our next question comes from the line of Mike Mueller with Jpmorgan. Please proceed with your question.
Speaker 15: Yeah, hi, just a quick one. It was wondering, can you talk about the yields that you're expecting on new repositioning starts compared to the overall in-place yield on that pipeline and what you're achieving on acquisitions today?
Yeah, Hi, just a quick one I was wondering can you talk about the yields.
You're expecting a new repositioning starts compared to the overall in place yield on that pipeline. What you are achieving on acquisitions today.
Hi, Mike towers.
Speaker 3: I'm Mike, towered. Yeah, those yields vary. You know, some of them are legacy acquisitions that we might have bought at the peak of the market that might have a bit of a lower stabilized yield while there's others that have substantially higher yields at both that 6.4% stabilized yield that we're mentioning.
Those yields very.
Some of them are legacy acquisitions that we might have bought at the peak of the market that might have a bit of a lower a stabilized yield well theres, others that have substantially higher yields or both that six 4%.
All right stabilized yield that we're mentioning.
Speaker 3: So, you know, in terms of anything we'd look to buy, we've absolutely reset.
So.
In terms of anything we'd look to buy we've absolutely reset.
Speaker 3: the targets in terms of those stabilized yields we're seeking. But again, those also have to do with, you know, when we're actually going to get to the asset that we can stabilize. We've got quite a few examples of assets we've bought recently that had very strong in place rents.
The targets in terms of those stabilized yields were seeking but again those those also have to do with.
When when we're actually going to get to the assets that we can stabilize with quite a few examples of assets. We've bought recently they had very strong and in place rents.
Nick Joseph: Again, with regard, the reason we give a disability on the pipeline for acquisitions is arguably there are more things in our control because we're the buyer and on the disposition front, there are fewer things in our control because we just can't predict how how a perspective buyer may behave or may close. So, we just don't give that kind of guidance and apologize, but, you know, just not we just don't don't find a big benefit in giving that kind of guidance.
Speaker 3: in place where we're able to entitle properties and then start construction maybe two, three years down the road and get the even higher stabilized rates on top of that. So we're really selective and as far as bringing in some of these assets, that strategy definitely is different than it would have been looking back year two years ago.
In place, where we're able to entitled.
Entitled Properties.
And then start construction, maybe two three years down the road.
And just to even higher stabilized rates on top of that so.
We're really selective and as far as bringing in some of these assets, but that strategy definitely is different than it would have been looking back.
Nick Joseph: All right. And then just one other question on the dispositions you mentioned, and maybe harvesting some of that value. Would it have an impact on the market market for the existing portfolio or these assets that have maybe been leased more recently or should we not expect any impact on that number? Well, consistent with the notion that we're harvesting our value creation, we wouldn't expect the impact to be terribly material. Thanks. Hey guys, it's Craig here with Nick.
Two years ago.
Speaker 16: Hey Mike, and just, Michael, a little bit more color there. We added seven new projects to reposition redevelopment pipeline or current and process, representing about 600,000 square feet of properties. On those investments, the aggregate stabilized yield is 6.5%. So actually coming in a bit above the aggregate yield for everything and the reposition redevelopment pipeline. So totally redesigned and re these three new projects are present in this product.
Hey, Mike and just.
Michael a little bit more color there we added seven new projects are at your repositioning redevelopment pipeline.
Our current our current in process, representing about 600000 square feet of properties.
On those investments the yield the this the aggregate stabilized yield is six 5%, so actually coming in a bit above the aggregate yield for everything in the repositioning redevelopment pipeline.
Nick Joseph: I just want to follow up on the San Gabriel acquisition that the yield there is almost close to a seven. Can you just talk about the nature of that asset and, you know, what the upside of that could be is just more of a sale lease back and future redevelopment is just a, you know, just any kind of color would be helpful. Hi Craig, it's Howard. Well, I'd love to tell you all about it because it's really an amazing transaction that our team was able to negotiate off market and without, frankly, much of any other competition.
Got it okay. Thank you.
Speaker 5: Our next question comes from the line of <expletive> Rand, Malta with Mizzouho. Please receive a video.
Our next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.
Speaker 17: Hi, thanks for thinking the question. You just took one. So first of all, on the market, the changes.
Hi, Thanks for taking the question just two quick ones. So first of all on the Mark to market.
The changes.
Speaker 17: If I just run the math sort of forward, I would assume that your negative 1% rent growth had a lot of variability by market and by size.
Just run the math sort of forward I.
I would assume that your negative 1% rent growth had a lot of variability by market and by size for there to be like a six to 700 basis point impact. So given that you said it was larger boxes can you just also kind of give us a sense of what the ranges were to do in fact in just if I'm correct, if I roll that forward assuming current conditions.
Speaker 17: for there to be like a 600, 700 basis point in fact. So given that you said it was larger box, this, can you just also kind of give us a sense of what the ranges were?
Craig Mailman: I think we're going to wait until we close and then we'll be happy to provide full details. Okay, I just wasn't one last one. You guys bought the Tyreco building to the San Luis back with them back in one queue with your, your largest tenant now with a 2025 expiration. Could you guys just talk about the prospects of that tenant staying or they definitely out and, you know, we're the mark to market expectation is today on that versus, you know, maybe when you bought it.
Speaker 17: to impact and if I'm correct if I roll all that forward assuming current condition.
Speaker 17: I thought I'd get to a mock to mock it being 25, 30% by year and 24. Is that fair?
<unk>.
I sort of get to a mark to market would be 25, 30% by year end 'twenty four is that fair.
Speaker 4: In terms of the market over the next several years, we actually...
In terms of in terms of the mark to market.
Over the next several years, we actually provide we actually provided a disclosure around the projected portfolio net effective market by year.
Craig Mailman: You know, closer to the beginning of the year. Hey Craig, in terms of Tyreco specifically we are in constant communication with with our tenants and Tyreco specifically and at this time and based on those conversations, they currently have no intentions of vacating in 2025. Okay, they have options to stay. Thank you. They have options. Okay, perfect. And those options are, those that they have fixed options this day. I know they made the 4% annually just in perpetuity. 3%. 3%? Okay. Great.
Speaker 4: We actually provided disclosure around the projected portfolio and that effect of market by year.
Craig Mailman: Thank you.
Speaker 4: Assuming current rents and no further length row.
Assuming current rents and no further rent growth. So that you know and by the end of 2023 sort of into the next quarter.
Speaker 4: So that, you know, and by the end of 2023, so by the end of next quarter.
Speaker 4: It's 52% by the end of 2024. It's 42%. Now as a reminder, you know, there's, and as I talked about earlier, there's a lot of different components, right? They can impact that. The, the leases that were executed, repositioning and redevelopment opportunities.
It's 52% by the end of 'twenty 'twenty four is 42% now as a reminder, there's and I as I talked about earlier, there's a lot of different components right. They can impact that the leases that were executed in repositioning and redevelopment opportunities.
So act.
Speaker 4: acquisitions that we're acquiring, but based on the current portfolio and where it sits today, the end of 2024, we would be at a 42% projected portfolio and had effective market.
Acquisitions that were acquiring but based on the current portfolio and where it sits today.
At the end of 'twenty 'twenty, four we would be at a 42% projected portfolio not affect this market.
Laura Clark: Our next question comes on the line of Greg McGinnis with Scotia Bank. Please proceed with your question. Hey there. Laura, I have another question on clarifying that mark to market disclosure. I hope to dig into that 2% quarter quarter impact from portfolio vacates or moving to repositioning slash redevelopment. Is that just a lack of comparable rent on a now vacant asset so you can't provide the upside? And if thinking about that potential mark to market was previously greater than 56%, which is why it came down before. Why would those properties need to be repositioned or redeveloped anyways?
Speaker 17: Okay, but just to clarify that negative 1% market rent growth, if I just slow that through the forward projections that you have made, I'm just still it's still hard to get to such a like the 600 point change in say 25. So I'm wondering is there a lot of variability in that negative 1% market.
Okay, but just to clarify the negative 1% market rent growth if I just flowed that through the forward projections that you have made I'm just still it's still hard to get to such a like the 600 point change and say 25. So I'm wondering is there a lot of variability in that negative 1%.
Laura Clark: Well, those can be two separate things. So to your point, yes, on the vacate side there's not a comparable, there's not obviously a comparable rent. But on the repositioning redevelopment, this can be a different set of properties. So as we are able to get properties back and execute on the repositioning redevelopment plan, then they move out of the marks mark. Right, but I'm saying so is the rent growth, the market market, assumed on those properties is that contingent on repositioning.
With market rents or some.
Speaker 4: There's some variability and that's obviously driven by because the change in market rents is not straight line across the portfolio. So there's other ability in terms of sub-market, there's variability in terms of the size of the spaces. But as I mentioned before, there's many other factors that are driving the market to market besides the change in market rent.
There's some variability and that's that.
That's obviously driven by because of change in market rents has is not straight lined across the portfolio.
So theres variability in terms of Submarket. There is variability in terms of the size of the spaces, but as I mentioned before there are many other factors that are driving the mark to market. Besides the change in end market run.
Speaker 17: Okay, fair enough. And then just to follow up on the your largest tenant, the tire co acquisition or expiration, can you just clarify what I think you said, they're automatic renewals or is it just highly likely they're gonna renew? I only ask because it seems like in 25, there's a step down. And I'm wondering what you have, you know, sort of embedded on renewal for that, for that these. Thank you. Yeah.
Okay Fair enough and then just to follow up on that your largest getting into dire co acquisition or exploration can you just clarify I think you said the automatic renewals or or is it just highly likely they're going to renew I only asked because it seems like in 'twenty five there's a step down and I'm wondering what you.
Have you know sort of embedded on renewals for that for that Oh. These thank you yeah, yeah. They have an option.
Speaker 17: Yeah, they have an option to, they have an option to renew the lease, and that's a fixed option at 3%. So they, that is impacting our market in 2025, because we're capturing that option at 3%, and not what would be the fully embedded market to market if we were to get to get that space back. And I'm just sorry, just as it stands today, is that, is that a roll up or a roll down if nothing changes?
Two extra they have an option to renew the lease and that's a fixed option at 3%. So they that is impacting our mark to market in 2025, because we're capturing that option at 3% and not what would be the fully embedded mark to market. If we were to get to get that space back.
Laura Clark: For those properties that are moving into the repositioning, the repo and reposition pipeline, is that your question specifically? Yeah, I'm just trying to figure out, like, basically, cat-backs requirement on achieving the 56% market market. No, that is not, they're not. Okay, and then is there beyond, like, typical second generation PIs, is there any additional spend that we should be thinking about for achieving the market market? No, if a property is in, if a property is in the market market pool in that calculation, in the 56%, it's not in our reposition. If a property is in that pool, it would just be your typical PIs leasing commission, you know, capital reoccurring capital spend. Okay, great.
And just sorry, just as it stands today is that is that a roll up or roll down if nothing changes.
In terms of if we were to get the space back would it roll up or down if that's your question yes.
Speaker 4: In terms of if we were to get the space back, we would roll up or down. That's your question.
Speaker 16: Yeah, I guess you're saying you're not getting the full market because of the 3% part of it. That's correct. It would roll up. Okay. It would roll up. That's the low market today.
I guess, youre, saying youre not getting the full mark to market because of the 3% correct Rolling Russell.
Rollout okay.
Yeah, It would roll.
Cases below market today.
Okay. Thank you so much thank you.
As a reminder, its star one to ask a question. Our next question comes from the line of Nate <unk>.
Speaker 5: reminder to start one to ask a question. Our next question comes from the line of Nate Schroessat with BNP.
Sat with BNP. Please proceed with your question.
Speaker 18: Hey, good afternoon. Quick one on just recurring cap ex. It's up quite a bit to last couple quarters. Just wanted to know if you can maybe unpack that, is there anything we should know going forward for maybe recurring cap ex expenditures? And then also GNA, I think the guidance for the year implies the significant ramp into four Q. So maybe you can just kind of unpack to what that is.
Hey, good afternoon.
Greg Mcginniss: And then my apologies for what might be an ignorant question here, but we are new to the coverage. How does the 100 basis points of positive net absorption impact reported occupancy? In terms of the overall portfolio, or the same property pool, but what specifically? Yeah, overall portfolio. So if you have occupancy changing 10 basis points, quarter over quarter, but at the 100 basis points, the positive net absorption, just trying to figure out where the, where the delta is there and how it's actually impacting occupancy to have the positive absorption. Yeah, I can, Greg, maybe it'd be better offline. I can take, I can take that with you and walk you through the components of that.
Quick one on just recurring Capex, it's up quite a bit the last couple of quarters.
Greg Mcginniss: Okay, great. Thank you.
Wanted to know if you can maybe unpack that you know is there anything we should know going forward for maybe recurring Capex expenditures and then also G&A I think the guidance for the year implies significant ramp into for Q. So maybe you can just kind of unpack what that is.
Yeah.
Speaker 4: Hey Nate, thanks so much for your question today. So in terms of recurring cat-backs, it's really largely driven by seasonality, especially related to exterior work as within the third quarter and someone into the second quarter, we do take advantage of.
Hey, Nate thanks, so much for your questions today. So in terms of recurring Capex, it's really largely driven by seasonality.
Especially related to exterior work.
As you know within the third quarter and somewhat into the second quarter. We do take advantage of some of the hotter drier weather conditions for that exterior work such as roofing and exterior painting, so that really drove our third quarter capital expenditures higher as we look forward, we would expect fourth quarter to be.
Speaker 4: some of the hotter dryer weather conditions for that exterior work such as
Speaker 4: roof and exterior painting. So that really drove our third quarter capital expenditures higher. As we look forward, we would expect fourth quarter to be more in line with prior quarters.
Nick Dealman: Our next question comes from the line of Nick dealman with Robert W. Baird. Please receive with your question. Hey, just wanted to touch a little bit on economics. It does seem like shorter lease duration, just curious if you're seeing any more like free wrench being given or just more TI associated with your leasing. Thanks so much for joining us in terms of concessions or free rent this quarter free rent was actually 0.7 months.
More in line with prior quarters.
Speaker 4: And to your question around GNA, I'll notice the first increase in GNA in 2023, we do continue to realize really significant operating synergies.
And to your question around G&A.
This is the first increase in G&A in 2023.
Yeah, we do continue to realize really significant operating synergies our G&A as a percentage of revenue for the full year is expected to be nine 6% and that compares to 10, 2% in the prior year.
Speaker 4: Our GNA as a percentage of revenue for the full year is expected to be 9.6%.
Speaker 4: and that compares to 10.2% in the prior year.
Speaker 4: In terms of the fourth quarter, the driver is that is really primarily related to non-cash equity through up and that's related to performance-based equity compensation.
In terms of the fourth quarter and the driver is that is really primarily related to noncash equity true up and.
Nick Dealman: So lower than what we've experienced in the prior quarter year to date concessions are one month that's in line with our guidance and in line with our prior four quarter average. So if we look back year to date, we haven't really seen a material or increase overall in terms of concessions. Looking back, you know, to prior years concessions have averaged about 1.25 months, so we continue to be inside of that. And then more questions.
And thats related to performance based equity compensation, so that that noncash equity compensation is not realized unless rockford is continuing to perform at the elevated levels. So thats the primary driver in the fourth quarter.
Speaker 4: So that non-cash equity conversation is not realized unless record is continuing to perform at elevated levels. So that's the primary driver in the fourth quarter.
Yes.
Okay. That's helpful and then.
Speaker 18: Okay, that's helpful. And then, sorry if I missed it, I can remember if you just go there or not, but at least escalation on new contracts.
Sorry, if I missed it I can't remember, if you disclosed it or not but lease escalation on new contracts.
Speaker 18: What was it this quarter versus the last quarter?
What was it this quarter versus say last quarter.
Yeah. This this quarter, our embedded rent steps on our executed leases was four 3%.
Speaker 4: Yeah, this quarter our embedded rent steps on our executor leases was 4.3%.
Unknown Executive: Sorry, your question around TI. Yeah, your question around TI. No, we haven't seen any material change in terms of ties. That's helpful. And then maybe just another question related to just gap leasing spreads, you guys have been pretty big acquires over the last two to three years. So when we're looking at when you're quoting gap leasing spreads that you guys, including the adjustment made to gap fair value of those leases, when you're quoting the spread quarter by quarter, just kind of seeing which is going to actually be flowing through to SFO going forward. Yes, that would be included in the acquired businesses.
Speaker 4: And then compared to the prior quarters, this is actually the highest rent steps that we've signed through the past three year to date. And the second quarter and veteran steps were 4.1%. And in the first quarter, they were 4%.
And then compared to the prior quarters. This is actually the.
The highest rent steps that we signed.
Three of the past three year to date in the second quarter embedded rent steps for four 1% in the first quarter they were up 4%.
Yeah.
Okay I'll leave it there thank you.
Thank you so much.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Speaker 5: I don't know if further questions in the queue would like to hand the call back to management for closing.
On behalf of the entire company, we'd like to thank everybody for joining us today, and we look forward to reconnecting next quarter. Thank you so much.
Speaker 5: On behalf of the entire company, we'd like to thank everybody for joining us today and we look forward to reconnecting next quarter. Thank you so much. So
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.
Vince Tibone: Our next question comes from the line of Vince Tibone with Green Street.
You may disconnect your lines at this time and have a wonderful day.
Vince Tibone: Please be here with your question. Hi, I can see guidance implies about a 75 basis point drop. In the fourth quarter, compared to third quarter levels. Could you just discuss the drivers there, whether it's a known move out or just some conservatism and forecasting? Hi, Vince. Thanks for joining us today. In terms of our same property, occupancy guidance. Yeah, as you mentioned, our guidance for the full year is 97.75%. So we did tighten our guidance range to the midpoint.
Vince Tibone: That occupancy, the occupancy guidance implies a decline in the fourth quarter, about 60 basis points. Just as a reminder, our prior guidance also implied a decline of about 30 basis points in the second half of the year, largely driven by down a bit more downtime and some spaces where we are performing some light and moderate repo and that factored into our prior guidance. New as it into our updated guidance about us that we have a 30 basis point impact from a space that we got back from a tenant that was on our pre watch list.
Vince Tibone: And that moved the guidance range to our midpoint. That was a tenant just a little color there who went through an acquisition of their business earlier this year. We've had them on the watch, the pre watch list for several quarters now. They had some challenges and the integration of that merger. And so we were so we did get that space back at the end of the quarter.
Howard Schwimmer: Great, thank you. And then since the port labor agreement has been finalized and some of the backups, the Panama Canal have gotten worse. Have you seen any pickup and tenant interest or pouring activity or other signs that, you know, so Cal industrial could benefit from some of these factors. Hi, Vince, it's Howard. Yeah, we're really pleased to see the increase in port activity. Keep in mind that our tenant base is really mainly serving the consumption occurring here in Southern California.
Howard Schwimmer: So two cycles, we haven't really seen impacts from port flow down shutdown, et cetera, in terms of that tenant base that we focus on and is in the portfolio. But, you know, the ports are really more reliant, you know, connected to super regional global trade. So some of those larger buildings that typically you'll see at the eastern and even the western and the one empire and absolutely certainly that the benefit. There's a lot of revenue generated from ancillary services and so forth throughout Southern California through port volume. So, you know, it's really nice to see those volumes. So, it's really nice to see the increase and hopefully that it's a go forward trend in terms of some further recovery.
Unknown Executive: Great. Thanks.
Michael Franco: And if I could maybe squeeze in one more, I'd be curious to get your view on how the transaction and secured debt markets have changed over the past few months since the treasury rates moved up pretty substantially here. Hey, Vince, I'll take that around the transaction market. You know, we continue to see capital flowing into the Southern California market and interestingly, you know, we're seeing new market entrance into industrial and that has been an incremental change of the past quarter or two.
Michael Franco: So although, yes, you've certainly seen an increase in interest rates and certainly availability of that capital can be challenging, there continues to be transactions occurring in the market and cap rates really haven't moved that materially, maybe up about only about 25 basis points. You know, buyers are still accepting lower cap rates for properties that have marked the market and are, you know, even, you know, taking on, you know, waiting some time to get to stabilization.
Michael Franco: So, you know, there's a property that traded just recently in the North Orange County mid-counties market, about $50 million transaction, going in initial cap rate of 3.4%, stabilizing about five years to now a little over 5%. And that was, you know, and that was a new entrance into the market from a buyer perspective. So, you know, there continues to be even with, you know, the increase in interest rates that continues to be capital flowing into the market.
Unknown Executive: Great. Thank you.
Mike Mueller: Our next question comes from the line of Mike Mueller with JP Morgan.
Mike Mueller: Please receive any questions. Yeah, hi. Just a quick one. It was wondering, can you talk about the yields that you're expecting on new repositioning starts compared to the overall in-place yield on that pipeline and what you're achieving on acquisitions today? Hi, Mike. It's Howard. Yeah, those yields vary. You know, some of them are legacy acquisitions that we might have bought at the peak of the market that might have a bit of a lower stabilized yield, while there's others that have substantially higher yields above that 6.4% rate stabilized yield that we're mentioning.
Mike Mueller: So, you know, in terms of anything we'd look to buy, we'd absolutely reset the targets in terms of those stabilized yields we're seeking. But again, those those also have to do with, you know, when when we're actually going to get to the asset that we can stabilize. We've got quite a few examples of assets we've bought recently that had very strong in-place rents in place where we're able to entitle properties and then start construction, you know, maybe two, three years down the road and get the even higher stabilized rates on top of that. So, we're really selective and, you know, as far as bringing in some of these assets, that strategy definitely is different than it would have been looking back year, two years ago.
Howard Schwimmer: Hey, Mike. And just, Mike, a little bit more color there. We added seven new projects to reposition redevelopment pipeline or current or current in process, representing about 600,000 square feet of properties. On those investments, the yield, the aggregate stabilized yield is 6.5%. So, actually coming in a bit above the aggregate yield for everything and the reposition redevelopment pipeline. Got it.
Unknown Executive: Okay, thank you.
Vikram Malhotra: Our next question comes from the line of Vikram Malhotra with Mizzouho. Please proceed with your question. Thank you. Hi, thanks for thinking the question. You just took one. So first of all, on the mark to market, the changes, you know, if I just run the maths sort of forward, I would assume that your negative 1% rent growth has a lot of variability by market and by size, for there to be like a six 700 basis point impact.
Vikram Malhotra: So given that you said it was larger boxes, can you just also kind of give us a sense of what the ranges were to impact. And just if I'm correct, if I roll all that forward, assuming current condition, I sort of get to your mark to market being 25, 30% by year and 24, is that fair? In terms of the mark to market over the next several years, we actually provide, we actually provided this closure around the projected portfolio and that effect of market by year, assuming current rents and no further bankrupt.
Vikram Malhotra: So that, you know, and by the end of 2023, so I think the next quarter is 52% by the end of 2024, it's 42%. Now as a reminder, you know, there's, and as I talked about earlier, there's a lot of different components, right? They can impact that. The releases that were executing, repositioning and redevelopment opportunities. So acquisitions that were acquiring, but based on the current portfolio and where it sits today, the end of 2024, we would be at a 42% projected portfolio and had effective market.
Vikram Malhotra: Okay, but just to clarify that negative 1% market rent growth, if I just slow that through the forward projections that you have made, I'm just still, it's still hard to get to such a, like the 600 point change in say 25. So I'm wondering, is there a lot of variability in that negative 1% market rental? There's some variability. And, you know, that's, that's obviously driven by because the change in market rents is not straight line across the portfolio.
Vikram Malhotra: So there's variability in terms of sub-market, there's variability in terms of the size of the spaces. But as I mentioned before, there's many other factors that are driving the market to market besides the change in and market rent.
Craig Mailman: Okay, fair enough. And then just to follow up on the your largest tenant, the tire co-acquisition or expiration, can you just clarify what I think you said, the automatic renewals or is it just highly likely they're going to renew? I only ask because it seems like in 25, there's a step down. And I'm wondering what you have, you know, sort of embedded on renewals for that for that these. Thank you. Yeah.
Craig Mailman: Yeah, they have an option to, they have an option to renew the lease. And that's a fixed option at 3%. So they, that is impacting our market market in 2025 because we're capturing that option at 3%, and not what would be the fully embedded market market if we were to get to get that space back. And I'm just sorry, just as it stands today, is that is that a roll up or a roll down if nothing changes?
Craig Mailman: In terms of if we were to get the space back, would it roll up or down? Is that your question? Yeah, I guess you're saying you're not getting the full market because of the three percent. It would roll up. Okay. Yeah, it would roll up. But this is below market today. Okay. Thank you so much. Thank you. As a reminder, it's star one to ask a question.
Nathan Crossett: Part X question comes from the line of Nate Crossett with BNP. Please proceed with your question. Hey, good afternoon. Quick one on just recurring cap X. It's up quite a bit. The last couple quarters. It's wanted to know if you can maybe unpack that. You know, is there anything we should know going forward for maybe recurring cap X expenditures. And then. Also, GNA, I think the guidance for the year implies the significant ramp into four Q. So maybe you can just kind of unpack to what that is.
Laura Clark: Hey Nate, thanks so much for your question today. So in terms of recurring cap X is really largely driven by seasonality, especially related to exterior work. As you know, within the third quarter and someone into the second quarter, we do take advantage of some of the hotter dryer weather conditions for that exterior work such as roof and an exterior painting. So that really drove our third quarter capital expenditures higher. As we look forward, we would expect fourth quarter to be more in line with prior quarters.
Laura Clark: And to your question around GNA, I'll notice the first increase in GNA in 2023. You know, we do continue to realize really significant operating synergies. Our GNA as a percentage of revenue for the full year is expected to be 9.6% and that compares to 10.2% in the prior year. In terms of the fourth quarter, the driver is that is really primarily related to non cash equity through up and that's related to performance based equity compensation.
Laura Clark: So that that non cash equity compensation is not realized unless record is continuing to perform at elevated levels. So that's the primary driver in the fourth quarter. Okay, that's helpful. And then sorry if I missed it, I can remember if you just close it or not, but at least escalation on new contracts. What was it this quarter versus stay last quarter? Yeah, this this quarter are embedded rent steps on our executor leases was 4.3%.
Laura Clark: And then compared to the prior quarters, this is actually the highest rent steps that we signed through the past three year to date. And the second quarter embedded rent steps were 4.1% and the first quarter they were to 4%.
Nathan Crossett: Okay, I'll leave it there. Thank you. Thank you so much.
Unknown Executive: There are no further questions in the queue would like to hand the call back to manage me for closing remarks. On behalf of the entire company, we'd like to thank everybody for joining us today and we look forward to reconnecting next quarter. Thank you so much. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may just connect your lines at this time and have a wonderful—