Q4 2023 Rexford Industrial Realty Inc Earnings Call
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Operator: www.TheBusinessProfessor.com The Bulletproof Executive 2013, BF-WATCH TV 2021 BF-WATCH TV 2021 The Ultimate Parody Site! The Bulletproof Executive 2013, Greetings, welcome to the Rexford Industrial Realty Inc. fourth quarter 2023. At this time, all participants are on a listen-only basis. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone key.
Speaker Change: Greetings and welcome to the Rexford Industrial Realty, Inc. Fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
David Lander: I will now turn the conference over to David Lander, General Counsel. You may begin. We thank you for joining Rexford Industrial's fourth quarter 2023 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and investor presentation in the investor relations section of our website at rexfordindustrial.com. 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 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 Change: I will now turn the conference over to your host David Lazarus General Counsel you may begin.
David Lazarus: We thank you for joining Rexford Industrials fourth quarter 2023 earnings Conference call. In addition to the press release distributed yesterday after market close.
David Lazarus: A supplemental package and investor presentation in the Investor Relations section on our website, a rexford industrial dot com.
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 differ for more information about these risk factors. Please review.
David Lazarus: Our 10-K and other SEC filings Rexford industrial assumes no obligation to update any forward looking statements in the future.
David Lander: 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. Today's conference call is hosted by Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer Laura Clark. They will make some prepared remarks, and then we will open the call to your questions. Now, I turn the call over to Michael.
David Lazarus: 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.
Why such non-GAAP financial measures are useful to investors.
Speaker Change: Today's conference call is hosted by Rexford Industrials co Chief Executive officers, Michael Frankel, and Howard Schwimmer, together with Chief Financial Officer, Laura Clark.
Speaker Change: I will make some prepared remarks, and then we will open the call for your questions now I'll turn the call over to Michael.
Michael S. Frankel: Thank you, David, and welcome, everyone, to Rexford Industrial's fourth quarter earnings call. I'll begin with a few remarks, followed by Howard, who will provide some additional market and operational detail. Then Laura will provide our financial results and outlook. To begin with, I'd like to thank our Rexford team for your strong results across all of our value creation initiatives.
Michael S. Frankel: Thank you, David and welcome everyone to Rexford Industrial's fourth quarter earnings call.
Michael S. Frankel: I'll begin with a few remarks, followed by a Howard who'll provide some additional market and operational detail then Laura will provide our financial results and outlook.
Michael S. Frankel: To begin with I'd like to thank our rexford team for their strong results across all of our value creation initiatives.
Michael S. Frankel: As 2023 marked our 10th year as a public company and our 22nd year as a business focused exclusively on creating value within infill Southern California, it's a great time to reflect upon our growth and our current position as we look forward to our next decade. Since our public offering 10 years ago, we've generated average FFO, or earnings per share growth, of about 15% per year, which has fueled a total shareholder return of 40% on average per year over the prior 10 years, demonstrating the strength of our team, our highly differentiated business model, and our substantial market opportunity. 2023 was a strong year for the company. We maintained our same property portfolio at essentially full occupancy, averaging almost 98%. Our team increased consolidated NOI by over 26%, principally driven by the absorption of 4.3 million square feet of highly accretive new investments, 7.4 million square feet of leasing activity with 78% average net effective rent spreads and embedded rent bumps averaging over 4%, and the lease-up of half a million square feet of value-add repositioned projects. Our infill Southern California industrial markets also demonstrated a high degree of resilience over the prior year. We endured prolonged labor contract negotiations at the ports and a post-pandemic normalization of tenant demand exacerbated by increasing interest rates.
As 2023 marked our 10th year as a public company and our 20 seconds here as a business focused exclusively on creating value within infill southern California, It's a great time to reflect upon our growth and our current position as we look forward to our next decade.
Since our public offering 10 years ago, we've generated average SSO or earnings per share growth of about 15% per year, which has fueled a total shareholder return of 40% on average per year over the prior 10 years, demonstrating the strength of our team our highly differentiated business model and our substantial mark.
Michael S. Frankel: Opportunity.
Michael S. Frankel: 2023 was a strong year for the company.
Michael S. Frankel: We maintained our same property portfolio at essentially full occupancy averaging almost 98%.
Michael S. Frankel: Our team increased consolidated NOI by over 26%, principally driven by the absorption of $4 3 million square feet of highly accretive new investments seven 4 million square feet of leasing activity with 78% average net effective rent spreads and embedded rent bumps, averaging over 4% and the lease up.
Michael S. Frankel: Half a million square feet of value add repositioning projects.
Michael S. Frankel: Our infill southern California industrial markets also demonstrated a high degree of resilience over the prior year.
Michael S. Frankel: We endure it prolonged labor contract negotiations at the ports and a post pandemic normalizing of tenant demand exacerbated by increasing interest rates.
Michael S. Frankel: Despite last year's headwinds, rents for quality products similar to our portfolio within infill Southern California demonstrated stability with nominally positive rent growth of about 1.2 percent. Stability and growth in rents, after having increased by well over 80% through the pandemic, are testaments to the favorable supply-demand fundamentals associated with our infill Southern California industrial market. As we look forward, although we may see some near-term choppiness in demand for certain-size products in select submarkets, our extended market backdrop looks favorable. Port volumes are trending with accelerated growth driven by a resolution to last year's port labor negotiations, instability in the Middle East impacting the Suez Canal, a decline in capacity through the Panama Canal due to a long-term drought, and lower cost and shorter time frames associated with importing from Asia via the ports of LA and Long Beach compared to the East and Gulf Coast ports.
Michael S. Frankel: Despite last year's headwinds rents for quality products similar to our portfolio within infill southern California demonstrated stability with nominally positive rent growth of about one 2%.
Michael S. Frankel: Stability and growth in rents after having increased by well over 80% through the pandemic are a testament to the favorable supply demand fundamentals associated with our infill southern California industrial markets.
Michael S. Frankel: As we look forward, although we may see some near term choppiness in demand for certain size product in select submarkets are extended market backdrop looks favorable.
Michael S. Frankel: Port volumes are trending with accelerated growth driven by a resolution to last year's port labor negotiations instability in the middle East impacting the Suez canal or declining capacity through the Panama Canal due to a long term drought and lower cost and shorter time frames associated with importing from Asia via the ports of L. A and long beach.
Michael S. Frankel: Each compared to the east and Gulf Coast ports. In addition, a more stable interest rate environment may also enable tenants to more proactively commit to their growth in inventory needs.
Michael S. Frankel: In addition, a more stable interest rate environment may also enable tenants to more proactively commit to their growth and inventory needs. Overall, our team is exceptionally well positioned to monetize our substantial embedded internal growth, which includes our value-add repositioning pipeline comprising over 9 million square feet of space in process scheduled for repositioning over the next four years, and our estimated 51% portfolio-wide net effective mark-to-market for in-place rents, providing an opportunity to roll expiring deeply below market leases to substantially higher market rents. Further supporting Rexford's favorable outlook, we remain focused on maintaining our investment-grade, low-leverage balance sheet, ending the year at 15% net debt to total enterprise value, which provides the ability to protect the company during uncertain times, while also positioning Rexford to capitalize upon accretive growth opportunities as they may arise.
Michael S. Frankel: Overall, our team is exceptionally well positioned to monetize our substantial embedded internal growth which includes R.
Michael S. Frankel: Our value add repositioning pipeline comprising over 9 million square feet of space in process or scheduled for repositioning over the next four years and our estimated 51% portfolio wide net effective mark to market for in place rents, providing an opportunity to roll expiring deeply below market leases to substantially higher market.
Michael S. Frankel: Rents.
Michael S. Frankel: Further supporting records favorable outlook, we remain focused on maintaining our investment grade low leverage balance sheet ending the year at 15% net debt to total enterprise value, which provides the ability to protect the company during uncertain times, while also positioning rexroad to capitalize upon accretive growth opportunities as they may arise.
Michael S. Frankel: We are also pleased to announce that we were increasing our dividend by 10%, bringing our average annual dividend growth to 23% since our public offering about 10 years ago.
Michael S. Frankel: We are also pleased to announce that we are increasing our dividend by 10%, bringing our average annual dividend growth to 23% since our public offering about 10 years ago. And with that, I'd like to acknowledge our Rexford team once again for your market-leading efforts that continue to drive substantial value creation for our shareholders. And now, it's my great pleasure to hand the call over to Howard. Thank you, Michael, and thank you, everyone, for joining us today.
Michael S. Frankel: And with that I'd like to acknowledge our rexford team once again for your market, leading efforts that continue to drive substantial value creation for our shareholders.
Michael S. Frankel: And now it's my great pleasure to hand, the call over to Howard.
Howard Schwimmer: Thank you Michael and thank you everyone for joining us today.
Howard Schwimmer: The restaurant teams delivered strong fourth quarter and full year results driven by our dynamic team's performance and our irreplaceable portfolio.
Howard Schwimmer: The Rexford team delivered strong fourth quarter and full year results, driven by our dynamic team's performance and our irreplaceable portfolio. Rexford's fourth quarter and full year operating performance demonstrates our advantageous position within the infill Southern California market. In the fourth quarter, our team executed 1.9 million square feet of lease activity, driving 204,000 square feet of positive net absorption, highlighting the sustained demand for our highly functional portfolio. Leasing spreads were 63% and 46% on a net effective and cash basis, respectively, and both fourth-quarter and full-year average embedded rent steps were 4.1%.
Howard Schwimmer: <unk> fourth quarter and full year operating performance demonstrates our advantageous position within the infill Southern California market.
Howard Schwimmer: In the fourth quarter, our team executed one 9 million square feet of lease activity driving 204000 square feet of positive net absorption.
Howard Schwimmer: Letting the sustained demand for our highly functional portfolio.
Howard Schwimmer: Leasing spreads were 63% and 46% on a net effective and cash basis, respectively, and both fourth quarter and full year average embedded rent steps were four 1%.
Howard Schwimmer: We have observed an incremental increase in tenant activity as we ended the year and into the first quarter, with activity on over 85% of our vacant space. We have also seen strong renewal activity, indicative of the health of our tenants, their ability to pay increased rents, and the lack of available functional supply in the market. In the quarter, market rents were flat sequentially for product comparable in quality to the Rexford portfolio. However, the overall infill market vacancy remains exceptionally low, ending the fourth quarter at 2.75% with nominal positive net absorption, according to CBRE.
We have observed an incremental increase in tenant activity as we ended the year and into the first quarter with activity on over 85% of our vacant space.
Howard Schwimmer: We are also seeing strong renewal activity indicative of the health of our tenants their ability to pay increased rent and the lack of available functional supply in the market.
Howard Schwimmer: In the quarter market rents were flat sequentially for product comparable in quality to the rest of our portfolio.
Howard Schwimmer: Overall infill market vacancy remains exceptionally low ending the fourth quarter at 275% with nominal positive net absorption according to CBRE.
Howard Schwimmer: Additionally, port volumes at LA and Long Beach are rebounding, with a 22% increase in activity over the prior year quarter, while East and Gulf Coast ports saw a decrease over the same period. Turning to our investment activity in the fourth quarter, we closed $315 million of investments, which are projected to generate an unleveraged stabilized yield of 6.8% on total cost. For the full year, we completed $1.5 billion of investments, which in aggregate are generating an initial yield of 5.4% and are projected to generate a 6.1% unleveraged stabilized yield on total cost. Additionally, over 70% of these investments were sourced through off-market or lightly marketed transactions.
Additionally, port volumes at L. A and long beach are rebounding with a 22% increase in activity over the prior year quarter, while eastern Gulf Coast ports saw a decrease over the same period.
Howard Schwimmer: Turning to our investment activity in the fourth quarter, we closed $315 million of investments, which are projected to generate an unlevered stabilized yield of six 8% on total cost.
Howard Schwimmer: For the full year, we completed $1 5 billion of investments, which in aggregate are generating an initial yield of five 4% and are projected to generate a six 1% unlevered stabilized yield on total cost.
Howard Schwimmer: Over 70% of these investments were sourced through off market or lightly marketed transactions.
Howard Schwimmer: Additionally, we sold two properties for an aggregate sales price of $28 million, which generated a 21% weighted average unlevered IRR. Subsequent to Quarter End, we acquired a two-building, state-of-the-art distribution facility in the San Gabriel Valley sub-market for $84 million that is generating a 5.4% unlevered initial yield. Looking forward, we currently have an acquisition pipeline of approximately $150 million of investments under contract or accepted offer, which are subject to customary closing conditions. With regard to our repositioning and redevelopment activity in the fourth quarter, We stabilized two projects, one of which was pre-leased in the quarter, and we also pre-leased our Quay project, achieving an aggregate 7.7% unlevered stabilized yield on the three projects. Notably, the pre-leased activity in the quarter exceeded our most recent rate projection. For the full year, we stabilized six projects comprising $197 million in total investment and achieved an aggregate 6.9% unleveraged stabilized yield.
Howard Schwimmer: Additionally, we sold two properties for an aggregate sales price of $28 million, which generated a 21% weighted average unlevered IRR.
Howard Schwimmer: Subsequent to quarter end, we acquired a two building state of the art distribution facility in the San Gabriel Valley Submarket for $84 million.
Howard Schwimmer: That is generating a five 4% unlevered initial yield.
Howard Schwimmer: Looking forward. We currently have an acquisition pipeline of approximately $150 million of investments under contract or accepted offer which are subject to customary closing conditions.
Howard Schwimmer: With regard to our repositioning and redevelopment activity in the fourth quarter.
We stabilized two projects, which was released in order and we also pre leased or Quay project, achieving an aggregate seven 7% unlevered stabilized yield on the three projects.
Howard Schwimmer: Notably in the pre leased activity in the quarter exceeded our most recent rate projections.
Howard Schwimmer: For the full year, we stabilized six projects comprising $197 million in total investment and achieved an aggregate six 9% unlevered stabilized yield.
Howard Schwimmer: In addition, we have 4.7 million square feet of repositioning and redevelopment projects in process or expected to start within the next 18 months. These investments have an aggregate remaining incremental spend of approximately $455 million with a projected stabilized yield of 6.2% on total investment. Finally, I'd like to acknowledge our entrepreneurial Rexford team for their tremendous achievements in 2023. And with that, I'm pleased to turn the call over to Laura to discuss our financial results. Thank you, Howard.
Howard Schwimmer: In addition, we have $4 7 million square feet of repositioning and redevelopment projects in process or expected to start within the next 18 months.
Howard Schwimmer: These investments have an aggregate remaining incremental spend of approximately $455 million with a projected stabilized yield of six 2% on total investment.
Howard Schwimmer: Finally, I'd like to acknowledge our entrepreneurial rexford team for their tremendous effort our achievements in 2023 and with that I'm pleased to turn the call over to Laura discuss our financial results.
Laura Clark: Thank you Howard and the fourth quarter core <unk> per share grew 14% over the prior year quarter, driven by same property NOI growth of nine 5% on a cash basis and eight 4% on a net effective basis full year core <unk> was $2 19 per share.
Laura Clark: In the fourth quarter, core FFO per share grew 14% over the prior year quarter, driven by same property NOI growth of 9.5% on a cash basis and 8.4% on a net effective basis. Full year core FFO at $2.19 per share was ahead of our guidance projection, representing 12% earnings growth. Full year same property NOI growth came in at the high end of our guidance, at 10% and 8.2% on a cash and net effective basis, respectively. Leasing spreads also topped expectations, with full-year cash leasing spreads of 59% and net effective spreads of 78%. As a result of our strong full-year performance and Rexford's continued commitment to delivering superior total shareholder returns, our board declared a first quarter dividend of $41.75 per share, representing a 10% annualized increase over the prior year.
Laura Clark: Ahead of our guidance projections, representing 12% earnings scrap.
Laura Clark: Full year same property NOI growth came in at the high end of our guidance range at 10% and eight 2% on a cash and net effective basis, respectively.
Laura Clark: Leasing spreads also topped expectations with full year cash leasing spreads of 59% and net effective spreads at 78%.
Laura Clark: As a result of our strong full year performance and Rexford continued commitment to delivering superior total shareholder return our board declared a first quarter dividend of 41.75 cents per share representing a 10% annualized increase over the prior year.
Laura Clark: Turning to capital allocation and the balance sheet, we are committed to a disciplined capital allocation strategy focused on driving shareholder value, as demonstrated by our earnings per share growth, which has averaged 16% annually over the past five years, outperforming the peer group by nearly 50%. Our fortress balance sheet positions us to execute on our value creation strategy. At quarter end, net debt to EBITDA was 3.6 times, and net debt to enterprise value was 15%.
Turning to capital allocation and the balance sheet, we are committed to a disciplined capital allocation strategy focused on driving shareholder value.
Laura Clark: As demonstrated by our earnings per share growth, which has averaged 16% annually over the past five years outperforming the peer group by nearly 50%.
Laura Clark: Our fortress balance sheet positions us to execute on our value creation strategy.
Laura Clark: At quarter end net debt to EBITDA was three six times and net debt to enterprise value was 15%.
Laura Clark: We maintain substantial liquidity of $1.2 billion, comprised of $138 million of net forward equity currently remaining for settlement, $33 million of cash on hand, and full availability on our $1 billion revolver. We have no material debt maturities until 2026, inclusive of extension options. As we look forward, Rexford's internal cash flow and earnings growth opportunity is significant. Over just the next three years, we project 42% internal cash NOI growth, equal to $240 million of incremental NOI embedded within our in-place portfolio. This is expected to grow total cash in Hawaii to over $800 million over the next three years, assuming today's rents and no future acquisitions. This includes $95 million of incremental NOI from repositioning and redevelopment over the next three years. $95 million of incremental NOI related to the conversion of in-place rents to market rent, $40 million from the average 3.6% annual embedded rent step in the total portfolio, and $10 million from acquisitions completed in the fourth quarter and year-to-date.
Laura Clark: We maintained substantial liquidity of $1 $2 billion comprised of 138 million of net forward equity currently remaining for settlement $33 million of cash on hand, and full availability on our $1 billion revolver.
Laura Clark: We have no material debt maturities until 'twenty 'twenty six inclusive of extension options.
Laura Clark: As we look forward <unk> internal cash flow and earnings growth opportunity is significant.
Laura Clark: Over just the next three years, we project, 42% internal cash NOI growth.
Laura Clark: $240 million of incremental NOI embedded within our in place portfolio.
Laura Clark: This is expected to grow total cash NOI to over $800 million for the next three years.
Laura Clark: Assuming todays rents and no future acquisition.
Laura Clark: This includes 95 million of incremental NOI from repositioning and Redevelopments stabilizing over the next three years.
Laura Clark: $95 million of incremental NOI related to the conversion of in place rents to market rack.
40 million from the averaged three 6% annual embedded rent steps and the total portfolio.
Laura Clark: And 10 million from acquisitions completed in the fourth quarter and year to date.
Laura Clark: This significant internal NOI growth within our existing portfolio is projected to generate average annual core FFO per share growth over the next three years in the 11 to 13 percent range. In addition, we expect to continue to capitalize upon our substantial external growth opportunity as we expand our current two and a half percent market share within the 1.8 billion square foot infill Southern California market. With regard to 2024 guidance, we are projecting core FFO per share in the range of $2.27 to $2.37.
Laura Clark: This significant internal NOI growth within our existing portfolio is projected to generate average annual core <unk> per share growth.
Laura Clark: Over the next three years and the 11% to 13% range.
Laura Clark: In addition, we expect to continue to capitalize upon our substantial external growth opportunity as we expand our current 2.5% market share within the one 8 million square foot infill Southern California market.
Laura Clark: Yes.
Laura Clark: With regard to 2024 guidance, we are projecting core <unk> per share in the range of $2 27 to $2 30.
Laura Clark: As a reminder, our 2024 guidance range does not include acquisitions, dispositions, or related balance sheet activities that have not yet closed. 2024 cash and net effective same property NOI growth is projected to be in the range of 7% to 8% and 4% to 5%, respectively, and full year average same property occupancy is projected to be 96.5% to 97%. Cash leasing spreads are estimated to be approximately 40% and net effective spreads of approximately 50%. Note that excluding the impact of an assumed fixed rate early renewal from a non-same property tenant in the Inland Empire West, cash and net effective leasing spread guidance is approximately 50 and 60%, respectively. To provide further detail around the components of our same property net effective growth, the mark-to-market on the in-place leases within the same property pool at 60% leasing spreads contributes approximately 750 basis points of growth. This growth is offset by a 200 basis point impact from lower non-cash revenue related to the burn off of straight line and below market rent.
Laura Clark: As a reminder, our 'twenty 'twenty four guidance range does not include acquisition dispositions are related balance sheet activities that have not yet closed.
Laura Clark: 2024, cash and net effective same property NOI growth is projected to be in the range of 7% to 8% and 4% to 5%, respectively and full year average same property occupancy is projected to be 96, 5% to 97%.
Laura Clark: Cash leasing spreads are estimated to be approximately 40% and net effective spreads of approximately 50%.
Laura Clark: Note that excluding the impact of an assumed tax rate early renewal from a non same property tenant in the inland Empire West cash and net effective leasing spread guidance is approximately 50 and 60% respectively.
Laura Clark: To provide further detail around the components of our same property net effective rents.
Laura Clark: The mark to market on the in place leases within the same property pool at 60% leasing spreads contributes approximately 750 basis points of growth.
Laura Clark: This growth is offset by a 200 basis point impact from lower noncash revenue related to the burn off of straight line and below market rents.
Laura Clark: Last year, we benefited from an outsized amount of early renewals, allowing us to increase rents to higher market rates. As is our practice, our guidance does not assume the same elevated pace of early renewals in 2024. Our net effective same property guidance is also impacted by 100 basis points related to lower average occupancy, bad debt as a percentage of revenue that is expected to be in the range of 40 to 50 basis points, and Higher Expenses Net of Recovery. In aggregate, these components impact same property net effective NOI growth by approximately 300 basis points, which would have otherwise brought our Guided Same Property Net Effective Growth to 7.5%. Other components of our FFO per share guidance include, 2023 and year-to-date investments are expected to contribute approximately $40 million of incremental NOI, and repositioning and redevelopment stabilizations in 2024 are projected to contribute incremental NOI of approximately $13 million, equal to 6 cents per share, offset by a decline of approximately $13 million from NOI coming offline related to projects being placed into repositioning and redevelopment, resulting I want to thank our incredible Rexford team for an outstanding year and your continued commitment to excellence.
Laura Clark: Last year, we benefited from an outsized amount of early renewals, allowing us to increase rents to higher market rates as is our practice our guidance does not assume the same elevated pace of early renewals in 2024.
Laura Clark: Our net effective same property guidance is also impacted by 100 basis points related to lower average occupancy.
Laura Clark: Bad debt as a percent.
Laura Clark: How much of revenue that is expected to be in a range of 40 to 50 basis points.
Laura Clark: Higher expenses net of recovery.
Laura Clark: In aggregate these components impact same property net effective NOI growth by approximately 300 basis points, which would have otherwise brought our guidance same property net effective price to seven 5%.
Laura Clark: Other components of our <unk> per share guidance include.
Laura Clark: 2023 and year to date investments are expected to contribute approximately $40 million of incremental NOI and repositioning and redevelopment stabilization in 2024 are projected to contribute incremental NOI of approximately $13 million equal to six cents per share.
Laura Clark: Set by a decline of approximately $13 million from NOI coming offline related to projects being placed into repositioning and redeveloped.
Laura Clark: Resulting in a net neutral contribution to 'twenty 'twenty four core <unk> per share guidance.
Speaker Change: Before turning the call over for your questions I want to thank our incredible Rexford team for an outstanding year and your continued commitment to excellence Rockford success is a direct result of your great work.
Michael S. Frankel: Rexford's success is a direct result of your great work. Thank you all for joining us today, and we now welcome your questions. Operator.
Speaker Change: You all for joining us today, and we now welcome your questions operator.
Speaker Change: Yes.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in. You may press star 2 if you would like to remove your question from the line.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You 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 keys.
Operator: If you are using speaker equipment, it may be necessary to pick up your handset before pressing the button. Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. All right, great. Thanks. Good morning.
Speaker Change: Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Blaine Heck: Alright, great. Thanks, Good morning, Michael you mentioned, some choppiness in demand in certain tenant sizes and submarkets.
Michael S. Frankel: Michael, you mentioned some choppiness and demand and certain tenant sizes and submarkets. Can you talk a little bit more about that segment of the market and how long you think that could be a headwind? And then, on the flip side, where are you seeing, you know, strength or improving demand conditions in your market? Hi Blaine.
Blaine Heck: Can you talk a little bit more about that segment of the market and how long do you think that could be a headwind and then on the flip side, where you're seeing strength or improving demand conditions in your market.
Michael S. Frankel: Thanks so much for joining us today. I appreciate it. No, it's a great question. And, as I mentioned, our markets are generally performing well. And where we saw a little bit of excess supply would be in the Inland Empire West, for instance, where during the pandemic, we saw a little bit of exuberant development start. And that's really impacting the larger space sizes above 100,000 square feet. And so it's very, very much isolated in the IE West, where we also see a little bit of softness in the central Los Angeles market, really just impacted by the shift of, you know, utilization of office space and the demand for housing and multifamily in downtown Los Angeles adjusting in the post-pandemic period. The bigger driver really is out in the IE West.
Speaker Change: Hi, Blaine thanks, so much for joining us today I appreciate it.
Blaine Heck: That's a great question and as I mentioned that our markets are generally performing well and where we saw a little bit of excess supply would be in the inland Empire West for instance, where during the pandemic and we saw a little bit of exuberant development starts and and that's really impacting a larger space sizes above 100000 square feet.
Blaine Heck: And so it's very very much isolated the I used to where we ought to see a little bit of softness is in the central Los Angeles market really just impacted by the shift.
Blaine Heck: The utilization of office space, and and and the demand for housing and multifamily in downtown Los Angeles are adjusting in the post pandemic period.
Blaine Heck: The bigger the bigger driver really is out in the west and we see that normalizing, we see absorption even if the larger space occurring over the near to two fairly medium term probably over the next 12 months or so.
Michael S. Frankel: And we see that normalizing; we see absorption even of the larger space occurring over the near to fairly medium term, probably over the next 12 months or so. And the good news for Rexford, frankly, is we only have two spaces in that entire submarket that even begin to compete in that larger size range. Our average-sized space is closer to 25,000 square feet.
And the good news for Rexford frankly, it's we only have two spaces and that entire submarket.
Blaine Heck: That even begin to compete in that larger size range of our average sized space is closer to 25000 square feet.
Michael S. Frankel: So not really a material threat to Rexford, but it is impacting market dynamics out there for larger space in particular. And in terms of where we see strength, quite frankly, throughout the rest of the infill markets, meaning greater LA and Orange County and pockets of Ventura and San Diego where we own product, we actually saw about 4% market rent growth last year. That's excluding the IE West.
Blaine Heck: So not not really a material threat directly but it is impacting market dynamics out there for larger space in particular and in terms of where we see strength quite frankly throughout the rest of the infill markets, meaning greater L, a and Orange County, and pockets of Ventura in San Diego, where we owned product, we actually saw about 4% market rent.
Blaine Heck: Both last year, and that's excluding the ie west and that's a pretty favorable growth rate, particularly considering the fact that those markets grew by over 80% during the pandemic. So we're seeing a great signs in the market. They were holding these rent levels and by the way I'll just touch back on the Ie West the Ie West is very interesting market also because during the pandemic.
Michael S. Frankel: And that's a pretty favorable growth rate, particularly considering the fact that those markets grew by over 80% during the pandemic. So we're seeing great signs in the market that we're holding these rent levels. And by the way, I'll just touch on the IE West.
Michael S. Frankel: The IE West is a very interesting market also because during the pandemic, we saw rents in the IE West increase by over 160%. So the IE West was an outlier in positive and accelerated rent growth during the pandemic, which may also help explain why we're seeing normalization in the IE West a little bit different than the rest of the infill markets. But again, we see near-term stabilization in the IE West as well.
Blaine Heck: We saw rents in the U S increased by over 160%. So the Ie West was an outlier in positive and accelerated rent growth through the pandemic, which may also help explain why we why we're sealing seeing normalization in the eye a US you know a little bit different than the rest of the infill markets, but again, we see a near term stabilization in.
Blaine Heck: The <unk> as well.
Michael S. Frankel: And with regard to 2024 guidance, I mean, it's true that we're seeing strength in the markets. As I mentioned in my remarks, we believe that the markets are favorably positioned. But there are storm clouds out there with regard to geopolitical issues and, therefore, continued economic stability.
And.
Blaine Heck: And with regard to 2024 guidance I mean, it's true that we're seeing strength in the market. So we as I mentioned in my remarks, we believe that the markets are favorably positioned.
Blaine Heck: But you know there there there are storm clouds out there with regard to geopolitical issues and therefore continued economic stability.
Michael S. Frankel: We're encouraged by a more stable interest rate environment, but we feel it's prudent at this point in time to be thoughtful and conservative about how we're setting near-term expectations. And that having been the case, and I'll just extend this a little bit, timing has a huge impact on near-term performance. So what I mean by that, I'll just give you one significant example.
Blaine Heck: We're encouraged by a more stable interest rate environment, but we feel its prudent at this point in time, you know to be thoughtful and conservative about how we're setting near term expectations.
Blaine Heck: And that having been the case and I'll just extend this a little bit you know.
Blaine Heck: Timing has a huge impact on near term performance. So what I mean by that I'll just give you one significant example.
Michael S. Frankel: Laura mentioned that we have about six cents of FFO per share coming in during 2024 as we lease up our value add reposition project. And while that's substantial, on an annualized basis, on a fully leased up basis, that represents about $0.16 of FFO per share contribution. And although we don't get the full benefit of that this year, it sets us up for next year and the following year for great growth, and actually, we estimate 2025 and 2026 FFO per share growth to be in the 14 to 17% range each for each of those years. So, an interesting year for Rexford, but couldn't be more excited about how we're positioned. That is a very helpful color there, Michael.
Laura mentioned that we have about six of <unk> per share coming in during 2024, as we lease up our value add repositioning projects and that while that substantial but on an annualized basis on a fully leased up basis that represents about 16 cents of F O Pershare contribution and although we don't go.
Blaine Heck: The full benefit of that this year it sets us up to next year and the following year for great growth and actually.
Blaine Heck: We estimate 2000 and for 2025, and 26 epitope of share growth to be in the 14% to 17% range. Each for each of those years, so interesting year for rexford, but couldn't be more excited about how we're positioned.
Speaker Change: That's very helpful color there Michael Thanks for all that and then just switching gears real quick for my second question for Laura.
Laura Clark: Thanks for all that. And then just switching gears real quick for my second question for Laura. You know, thanks for the commentary on GAAP and cash NOI differences. It seems like one of the biggest drivers there is just the early renewals that you guys did in 2023 that had free rent that will be burning off this year. I guess, how do you feel about that same thing happening this year? Or what gives you a kind of hesitation that that type of activity is going to be maybe more subdued? Yeah, Blaine. A great question.
Speaker Change: Thanks for the commentary on GAAP and cash NOI differences. It seems like one of the biggest drivers. There is just the early renewals that you guys did in 2023 that had free rent that will be burning off this year I guess, how do you feel about that same thing happening. This year. What gives you kind of hesitation that that type of activity is going to be maybe more.
Speaker Change: Or subdued this year.
Speaker Change: Yeah, Brian Great question in terms of in terms of how we forecast and we certainly take a conservative approach to the timing of renewals. So you know last year. We did have outsized early renewals and that contributed as I mentioned to the higher straight line rent revenue and as we look forward.
Laura Clark: In terms of how we forecast, I mean, we certainly take a conservative approach to the timing of renewals. So, you know, last year, we did have outsized early renewals, and that contributed, as I mentioned, to the higher straight-line rent revenue. And as we look forward, you know, renewal activity, and Howard mentioned this in his remarks, has been very strong within our portfolio. It was like that throughout the year.
Speaker Change: Hum we knew a lot of it Ian had mentioned this in his remarks has been very strong within our portfolio was less like that throughout the year. So as we look forward and you know we're in discussions with tenants and have more visibility into the timing of renewals will certainly be updating our guidance accordingly.
Camille Bonnel: So as we look forward, and, you know, we're in discussions with tenants and have more visibility into the timing of renewals, we'll certainly be updating our guidance accordingly. Great, thank you. Thank you. Our next question comes from the line of Camille Bonnel with Bank of America. Hi there, I hear a bit of static, so I hope I'm coming through clearly.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Camille Bonnell with Bank of America. Please proceed with your question.
Camille Bonnel: Hi, there I hear a bit of static so hope I'm coming through clearly so it looks like you hit a new record with the 7 million square feet of leasing activity last year and even on the deal level, you're up slightly from 22. So can you talk about how the leasing pipeline is looking for the first few months of the year.
Howard Schwimmer: So it looks like you hit a new record with 7 million square feet of leasing activity last year. And even on a deal level, you're up slightly from 22. So can you talk about how the leasing pipeline is looking for the first few months of the year? And do you expect to continue signing leases at a similar pace? Hi Camille, it's Howard.
Camille Bonnel: And do you expect to continue signing leases at a similar pace.
Camille Bonnel: Yeah.
Speaker Change: Hi, Camille tower.
Howard Schwimmer: We're really pleased with the activity we've seen building. Looking back at October and November, things slowed down quite a bit, and then toward the end of the year, we saw a significant pickup, and that's all that continued through. Well, we have a lot of activity. Of course, right now, we have to turn that activity into signed leases. So, you know, Michael mentioned some concerns about the economy and so forth. So, it is sort of a wait and see.
Speaker Change: We're really pleased with the activity we've seen building.
Speaker Change: You know looking back in.
Camille Bonnel: October November things things have slowed down quite a bit and then towards the end of the year, we saw a significant pick up and that's all the time a continued threat.
Camille Bonnel: So we have a lot of activity.
Camille Bonnel: Of course, right now we have to turn that activity and to sign leases. So you.
Camille Bonnel: You know Michael mentioned, some concerns over the economy and so forth so sort of a wait and see and while we are real real excited.
Howard Schwimmer: And while we are real, real excited, we've got some work ahead of us to do in that respect. Are those concerns around the economy translating into you seeing any changes in the pace of the deals that are being signed? Or has it been more or less?
Camille Bonnel: We've got some work ahead of us to do in that respect.
Camille Bonnel: Yeah.
Camille Bonnel: Are those concerns around the economy.
Camille Bonnel: Translating into you seeing any changes in the pace of the deals that are being signed or has it been more or less.
Howard Schwimmer: consistent with 23 activity. I think, you know, I'll use the word normalization, just, you know, thinking back to 2019 pre-COVID levels, you know, typically, and, you know, a good example is just talking about some of our repositioned and redevelopment space. You know, we were seeing that space lease up, you know, in one month, two months, and now we're seeing, you know, that lengthening out, you know, looking, you know, more in the four-month range, maybe even a little longer. So, yeah, definitely stretching out, but nothing unusual compared to, you know, what you'd see in a typically, you know, normalized functioning market. And also, the activity we're seeing, you know, really picked up, I think, when you think about the first half of the year and then, you know, pushing really into the second, in terms of our expirations, also, even going forward, I think, you know, we have a lot more space expiring later than sooner.
Camille Bonnel: <unk> with 23 activity.
Camille Bonnel: I think I'll use the word normalization just thinking back to 2019 pre COVID-19 levels tips.
Camille Bonnel: Typically and you know a good example was just talking about some of our repositioning and redevelopment space. We were seeing that space lease up you know in one month two months and now we're seeing you know that.
Camille Bonnel: Lengthening out.
Camille Bonnel: Looking more in the four month range, maybe even a little longer.
Camille Bonnel: So yeah definitely stretching out, but nothing unusual compared to what you'd see in a typical and normalized functioning market.
Camille Bonnel: And also the.
Camille Bonnel: Activity, we're seeing a really picked up I think you know when you think about the first half of the year.
Camille Bonnel: And then you know pushing and really into the second into the second.
Camille Bonnel: In terms of our explorations also even going forward I think we have a.
Camille Bonnel: A lot more space expiring later than sooner.
Michael S. Frankel: Right, so that actually leads me to my last follow-up on the repositioning program and the guidance you provided around six cents a contribution. Just given many of these are yet to be leased, how confident are you in reaching this target? And what are you tracking that needs to happen for there to be upside to this? Thank you. Hey, Camille, it's Michael.
Speaker Change: Alright, so that actually leads me to my just last follow up on the repositioning program and guidance you provided around six cents contribution just given many of these are yet to be leased how confident are you in reaching this.
Speaker Change: And what are you tracking that needs to happen before there could be upside to that thank you.
Speaker Change: Hey, Camille it's Michael Yeah.
Michael S. Frankel: Yeah, no, I think we're very confident, actually, in the expectations we're setting with respect to the repositionings. And the upside would be in the form of, you know, a reduced timeframe for lease up, and maybe we could beat our target rents. And we're going to work hard to do both of those things. But we'd like to set expectations in a way that we feel is, you know, appropriate, given the environment, and also maybe does leave the opportunity for some pleasant surprises.
Michael S. Frankel: No I think where we're very confident actually in our expectations, we're setting with respect to the repositioning.
Michael S. Frankel: And upside would be in the form of yeah reduce timeframe for lease up and maybe we beat our target rents and we're going to work hard to do both of those but we'd like to set expectations in a way that we feel as you.
Michael S. Frankel: You know appropriate given the environment and also maybe it does leave the opportunity for some pleasant surprises and Kevin I'll just add that these repositioning redevelopments.
Howard Schwimmer: Camille, I'll just add that these repositionings, redevelopments, especially the redevelopments. They're really all in very tight infill markets, and when you start looking at the competing space, there's not much product that even comes close to competing with the quality, as well as the size ranges.
Michael S. Frankel: Especially even the redevelopments there, they're really all very tight infill markets.
Michael S. Frankel: And when you start looking at the competing space.
Michael S. Frankel: Theres not much product that even.
Close to competing with.
Michael S. Frankel: The quality as well as the size ranges, so that that really lends optimism on our part in terms of our ability to lease the space up.
John P. Kim: So that really lends optimism on our part in terms of our ability to lease the space. Thank you for taking my question. Thank you. Our next question comes from the line of John Kim with BMO Capital. Thank you. Good morning.
Speaker Change: Thank you for taking my questions.
Speaker Change: Thank you. Our next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.
John P. Kim: Thank you good morning.
Laura Clark: I wanted to focus on page six of your presentation with the NOI bridge and the growth potential. Then certainly a lot of organic growth that's best forecasted. The mark-to-market seemed a little bit lighter than we were modeling or anticipated because if you look at that 95 million over the 568, which is NOI, so our, we should be using revenue, but that's 17% that you're expecting of growth from mark to market. Overall, you're expecting 51% mark to market growth over the entire portfolio, extending past three years. But just given the amount of leases expiring in the next three years, I thought that number would have been higher than $95 million. So I just wanted to ask.
John P. Kim: I wanted to focus on page six of your presentation, but the NOI bridge and that and the growth potential.
John P. Kim: Then certainly a lot of organic growth. That's that's forecasted the mark to market seemed a little bit lighter than we were modeling or anticipated because you'd be looking at $95 million over the $5 68.
John P. Kim: Which is NOI, so arguably we should be using revenue, but that's 17% that youre expecting of growth from mark to market overall, you're expecting 51% mark to market over the entire portfolio extending past three years.
John P. Kim: But just given the amount of leases expiring in the next three years I thought that number would've been higher than $95 million.
Speaker Change: Wanted to ask.
Laura Clark: Yeah, John, I think a couple of things that I would note. Remember, this is only a three-year period, so it doesn't capture us taking the entire portfolio to market. So I think that's probably the most significant piece of it. And then the other side of it is, you know, we continue to mark the portfolio to market every day. So the baseline annualized NOI growth that you see there from the fourth quarter includes leases that we've marked to market in the fourth quarter and obviously impacts the future mark to market. So, but I think the most important component here is that that's only a three-year look at the growth from mark to market. And obviously, as the portfolio continues to roll, we'll have additional mark to market to realize.
Speaker Change: About that figure.
Speaker Change: Yeah.
Speaker Change: Yeah, John I think there's a couple of things that I that I would note.
Speaker Change: Remember this is only a three year period, so it doesn't capture us marking the entire portfolio to market. So I think that's probably the most significant piece of it.
Speaker Change: And then the other the other side of it as we continue to everyday mark the portfolio to market. So the baseline on annualized NOI growth that you see there from four fourth quarter includes leases that we mark to market in the fourth quarter, and obviously impacts us the future mark to market, So, but I think the most important component here is that that's the only answer.
Speaker Change: Three year look at the growth from Mark to market and obviously as the portfolio continues to roll. We'll have we'll have additional mark to market to realize the other thing I want to note about the the branch that you mentioned is that this includes no future rent growth. So this assumes that over the next three years, our rents are or were.
Laura Clark: The other thing I want to note about the bridge that you mentioned is that this assumes no future rent growth. So, this assumes that over the next three years, rents will be where they are today. That marked a market share over the entire portfolio. The last quarter presentation had it at $350 million. And I know you took it out, but is that right around the ballpark of where you sit today? We're yeah, we haven't provided that number, you know, but we're going to continue to provide the essential components that that allow you to incorporate, you know, that allow you to be able to calculate and see that full mark to market within the portfolio. Okay.
Speaker Change: They are today.
Speaker Change: That mark to market over the entire portfolio last quarter presentation headed up $350 million.
Speaker Change: And I know you took it out but is that right or in the ballpark of where you sit today.
Speaker Change: Were yeah, we haven't provided that that number you know we're going to continue to provide you know that the essential components that that are allowing you to incorporate you know that allow you to be able to calculate and see that full mark to market within the portfolio.
Speaker Change: Okay.
Laura Clark: My last question is on your FFO growth guidance. At midpoint, it's 4.3%, your GAAP NOI guidance is at 4.5 midpoint, and the dividend growth that you announced was at 10%. So I'm just wondering how you came up with the 10% versus your ESSO guidance. I thought that would have correlated a little bit stronger.
Speaker Change: My last question is on your <unk> growth guidance.
Speaker Change: At midpoint, it's four 3% your GAAP NOI guidance was that four and a half mid point.
Speaker Change: The dividend growth that you announced with a 10%. So I'm just wondering how you came up with a 10.
Speaker Change: Since you asked about guidance I thought that would have correlated.
Speaker Change: A bit stronger.
Speaker Change: Yeah in terms of our dividend growth and we've communicated this in the past dividend growth is going to be.
Laura Clark: Yeah, in terms of our dividend growth, and we've communicated this in the past, dividend growth is going to be pretty similar to what we're seeing in terms of earnings growth. Our earnings growth this past year in 2023 was 12%. Our dividend growth, we announced dividend growth of 10%. So those are pretty much in line.
Speaker Change: Pretty similar to what we're seeing in terms of earnings growth or earnings for US This past year in 2023 with 12%.
Speaker Change: Our dividend growth, we announced different in growth of 10%. So those are pretty much in line as you know we're retaining the capital that we can so you should see those growth rates continue to marry each other as we track forward.
Laura Clark: As you know, we're retaining the capital that we can, so you should see those growth rates continue to mirror each other as we move forward. Great, thank you.
Speaker Change: Great. Thank you.
Nate Crossett: Thank you. Our next question comes from the line of Nate Crossett with BNP Paribas. Hey, good afternoon.
Speaker Change: Thank you. Our next question comes from the line of Nate Crossett with BNP Paribas. Please proceed with your question.
Nate Crossett: Hey, good afternoon I was wondering if you could just talk about the tighter co lease expiration in January of next year.
Laura Clark: I was wondering if you could just talk about the Tire Co. lease expiration in January of next year. You know, how should we be thinking about that in terms of probability of renewal and what spreads could be like. And then my second question is, how should we think about leverage levels for the balance of this year? I think you're well below your kind of guided range of four and four and a half. So what is your kind of tolerance for more leverage right now? Hi Nate.
Nate Crossett: Should we be thinking about that in terms of probability of renewal and what spreads could be like.
Nate Crossett: And then my second question is how should we think about leverage levels for the balance of this year I think you're well below your kind of guided range of four and four and a half.
Nate Crossett: So what is your kind of tolerance for more leverage right now.
Speaker Change: Hi, Nate thank so much for joining us today.
Laura Clark: Thanks so much for joining us today. In regards to the Tyroco lease, just to give everybody the background, Tyroco, the Tyroco lease expires in January of 2025. They have a fixed rate renewal option that's at 4%. The update that we can provide you with is that we are in constant discussions with Tyroco, and based on our most recent discussions, they have no intentions of vacating the space. So, as is our practice, we'll provide you with an update upon lease execution around the Tyroco lease. In terms of leverage, from a leverage perspective, we are very focused on maintaining a low leverage balance sheet.
In regards to the tire totally.
Speaker Change: Just to give everybody the background higher co. The tire co lease expires in January of 2025, they have a fixed rate renewal option that that 4%.
Nate Crossett: The update that we can provide you on is that we are in constant discussions with tyco and based on our that's very recent discussions.
Nate Crossett: They have no intention on vacating the space. So as is our practice, we'll provide you with an update upon lease execution around the tariffs at least in.
Nate Crossett: In terms of leverage from a leverage perspective, we are very focused on maintaining a low leverage balance sheet and when we have this target leverage levels out there at four to four and a half times.
Laura Clark: And when we have those target leverage levels out there at four to four and a half times, it doesn't mean that we may not be below them for periods of time because maintaining a low leverage balance sheet really allows us to be opportunistic no matter where we are in the capital cycle. And so we look to really leverage the balance sheet that allows us to be opportunistic and take advantage of opportunities to drive accretion and shareholder value. So when we think about leverage, we're really comfortable about where we sit today, and it really puts us in a great position for the year and moving forward. Okay, I'll leave it there.
Nate Crossett: It doesn't mean that we may not be below them for periods of times because of maintaining a low leverage balance sheet really allows us to be opportunistic no matter, where we're out in the capital cycle and so we look to really leverage the balance sheet that allows us to be opportunistic and take advantage of opportunities to drive accretion and shareholder value.
Nate Crossett: So when we think about leverage we're really comfortable about where we sit today and really puts us in a great position for the year and moving forward.
Speaker Change: Okay I'll leave it there thank you.
Craig Mailman: Thank you. Thank you. Thank you. Our next question comes from the line of Craig Mailman with Citi. Please proceed. Hey, everyone. Want to go back.
Thank you. Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question.
Craig Mailman: Hey, everyone.
Craig Mailman: Just wanted to go back I know you guys you got to disclosure around the mark to market quarterly, but I just had a question as it pertains.
Laura Clark: I know you guys took out the disclosure around the mark to market the quarterly, but I just had a question as it pertained to the $0.34 that you guys had expected to come in through the net effective mark-to-market as of the last presentation. I think $0.05 of that had been expected to come in at $0.23, so an incremental $0.29 was expected to come in at $0.24. And I saw in the same store that you guys are getting $0.11 basically from that.
Craig Mailman: To the 34 cents that you guys had expected to come in through the matter of effective mark to market as of the last presentation. I think five sensor that had expected to come in in 'twenty. Three showed incremental 29 cents was expected to come in in 'twenty four.
Craig Mailman: And I saw you know in the same store you got you're getting 11 cents basically from that I'm, just could you kind of give us a bridge from that incremental 29 cents at the 11th Sachin what else would be embedded in guidance that would have been comparable to that are there incremental upside that was in the last presentation.
Laura Clark: Could you kind of bridge from that incremental $0.29 to the $0.11, and what else would be embedded in guidance that would have been comparable to that incremental upside that was in the last presentation? Yeah, Craig. I think I've provided the components of guidance for our same property guidance, and then we also provide a roll forward of those components. And so, yeah, I think what, you know, what I can kind of walk you through as helpful is, you know, the components of that same property NOI guidance that we put out on a cash basis. I know I gave you the components on a gap basis, but on a cash basis, and how we generate that seven and a half percent.
Craig Mailman: <unk>.
Speaker Change: Yeah correct.
Speaker Change: You know I think I've provided are the components of our guidance of our our same property guidance them and then we also provide a roll forward of those components and so yeah I think what you know what you know.
Speaker Change: What I can kind of walk you through it as helpful. As you know the components of that same property NOI guidance that we put out on a cash basis and I gave you the components on a GAAP basis and on a cash basis, and how we generate that seven and a half per start.
Laura Clark: So, in terms of the seven and a half percent midpoint of our cash, same property NOI guidance, 900 basis points of that is from base rent growth that's associated with the market to market of our expiring leases within the same property pool with an average 50% leasing spread. Additionally, included in that is another 300 basis points of rent steps, the embedded rent steps in our portfolio that average 3.6% on the total portfolio. That's offset by concessions of about 350 basis points. We're projecting concessions this year of about one and a half months. That's in line with pre-COVID averages.
Speaker Change: So in terms of the seven 5% net point of our cash same property NOI guidance 900 basis points of that is from base rent growth that's associated with the mark to market of our expiring leases within the same property pool.
Speaker Change: With an average 50% leasing spread.
Speaker Change: Included in that is another 300 basis points of rent steps are the embedded rent steps in our portfolio that averaged three 6% on the total portfolio.
That's offset by concessions.
Speaker Change: It's about 350 basis points, we're protecting concessions this year, that's about one and a half months that's in line with our pre COVID-19 averages.
Laura Clark: In terms of an average occupancy decline of 25 basis points, that has another 30 basis point impact. A bit higher bad debt assumptions, given where we're at in the year, have about a 20 basis point impact. And then higher expenses net of recoveries have another 50 basis points of impact. So these components together bring you to our 7.5% cash same property guidance. No, no, I was getting more at the FFO impacts of, and maybe this goes back to John's question about the 350 versus 95 this quarter. But if you just had looked at the old kind of disclosure you guys had in there, you know, that you guys called it the near-term conversion of mark-to-market to FFO, assuming no incremental rent growth, right, it was $0.34 cumulative from 3Q23 to the end of 24.
Speaker Change: In terms of average occupancy decline of 25 basis points that has another 30 basis point impact.
Speaker Change: A bit higher bad debt assumptions are given where we're at in the year has about a 20 basis point impact and then higher expenses net of recoveries have another 50 basis point impact. So these components together, bringing into our seven 5% cash same property guidance.
Speaker Change: No no I was getting more of the EF all impacts of and maybe this goes back to John's question about the $3 50 versus 95 this quarter, but if you just had looked at the old kind of disclosure you guys had in there, but you know that you guys called it the near term conversion of Mark to market.
Speaker Change: So assuming no incremental rent growth rate. It was 34 cents cumulative from <unk> 23 to the end of 'twenty four and embedded in that 34 cents was five sensor would hit in 'twenty three so that especially we leased 29 cents in 'twenty, four and I'm, just kind of figuring out.
Laura Clark: And embedded in that $0.34 was $0.05 that would hit in 23, so that implicitly leaves $0.29 in 24. And I'm just kind of figuring out where in the bridge to your FFO guidance I see $0.11 coming in from the same-store gap into it, but I'm not seeing maybe where that incremental $0.18 would come into play. And if there is a change in timing or if that's related to, you know, what you talked about, I don't know if there was a pull-forward of... tension in that previous number. I'm just kind of trying to bridge that 34 cents in the last presentation. I know you guys don't provide any more, but is that still 34 cents?
Speaker Change: We're in a bridge to your F O guidance I see 11th trends coming in from same store GAAP.
Speaker Change: Intuit, but I'm, not seeing maybe where that incremental.
18 cents would come into play and if there is a change in timing or if that's related to you know where you talked about I don't know if there was a pull forward of of retention in that previous number I'm just kind of trying to bridge that.
Speaker Change: At 34 cents in the last presentation. I know you guys don't provide anymore is that still 34 cents for year end 'twenty four or has that number changed for what should come through F. F. O just from the net effect of Mark to market.
Laura Clark: for year-end 24, or has that number changed for what should come through FFO just from the net effective market? No, there's a lot of different components, right, that are going to impact that. Some of that could be that we've already converted some of that mark to market in Q3 and Q4 of 2023. Some of that could be how we pulled the additional properties that we pulled into repositioning and redevelopment, and we talked about that 6 cent impact from the NOI that's coming offline in 2023. And some of that is associated with additional share impacts as well from additional share counts, share issuance, and so higher share counts.
Speaker Change: I know, there's there's a lot of different components that are going to impact that.
Speaker Change: Some of that is that we've already converted some of that mark to market and and and Q3 and Q4.
Speaker Change: As of 2023, some of that could be how we pulled that the additional properties that we pull it into repositioning and redevelopment and we talked about that six cent impact from the NOI, that's coming offline in 'twenty two 'twenty three.
Speaker Change: And some of that is associated with additional I'm sure impacts as well from additional share count our share share issuance and so high higher share counts. So there's a number of different components that go into that and I think we've provided a very thorough bridge they get that walks you through the.
Laura Clark: So there are a number of different components that go into that, and I think we've provided a very thorough bridge that walks you through the reconciliation and the roll forward of our prior FFO, same property guidance, and then to our current FFO. Okay, so part of it's just dilution of equity into the share count from the 34. So, you're saying the nominal cumulative number for year-end 24, adjusting for the kind of redevelopment coming in and out, should be roughly the same? I don't want to put words in your mouth. I just want to try to bridge that gap.
Speaker Change: <unk> and the roll forward of our prior SSO same property guidance and then to our current <unk>.
Speaker Change: Okay. So part of it is just dilution from from equity into the share count from the 34 cents, so you're saying the nominal cumulative number for year end 'twenty four adjusting for kind of redevelopment coming either now should be roughly the same.
Speaker Change: I don't want put words in your mouth I just wonder.
Speaker Change: Richard I think I think I was really clear about what the components are in that we've provided that we provided a really transparent look in terms of the components of guidance as we're seeing it today.
Laura Clark: No, I think I was really clear about what the components are and that we've provided a really transparent look in terms of the components of guidance as we're seeing it today. Okay, and then just one quick one. What's the updated cash mark-to-market? You guys gave the net effect of a 51. What's it on a cash basis?
Speaker Change: Okay, and then just one quick one what's the updated cash Mark to market are you you guys gave the net effect of a 51 whats it on a cash basis.
Speaker Change: Yeah on a cash basis, and and you know we're happy to provide we're happy to provide the cash mark to market. We do feel like the net effect of Mark to market is much more helpful. It's certainly captures the significant embedded rent steps that we're achieving in our leases, but that being said the cash mark to market is 38% today, that's down from 43% in the.
Laura Clark: Yeah, on a cash basis, and, you know, we're happy to provide the cash mark to market. But we do feel like the net effective mark to market is much more helpful. It certainly captures the significant embedded rent steps that we're achieving in our leases. But that being said, the cash mark to market is 38% today. That's down from 43% in the prior quarter. And that's a similar change that we saw from our net effective mark to market. It was impacted by about 200 basis points from the conversion of the mark to market in the fourth quarter of leases that we signed, about 200 basis points from rent steps, and about 100 basis points from those properties moving into repositioning. Perfect. Thank you. Thanks, Craig.
Speaker Change: Prior quarter at a similar change that we saw from our net effective mark to market. It was impacted by about 200 basis points from the conversion of of Mark of the Mark to market in the fourth quarter of leases that we signed are about 200 basis points from rent steps and are about 100 basis points from those properties moving under.
Speaker Change: Repositioning.
Speaker Change: Perfect. Thank you.
Speaker Change: Thanks, Craig.
Speaker Change: Thank you. Our next question comes from the line of Greg <unk> with Scott with Scotiabank. Please proceed with your question.
Greg: Hey, good morning.
Greg: So I know you are may be tired of answering the question, but just to expand on on Craigs point.
Laura Clark: Thank you. Our next question comes from the line... Hey. So I know you may be tired of answering the question, but just to expand on that. Craig's Point, that $0.34...
Greg: 34 since it was originally disclosed was that the expected contribution to 2024, what are the expected run rate contribution by year end.
Laura Clark: Is that the expected... More or the expected run rate? It was not a run rate, but I think, like, let's go back to mark-to-market really quick. And one of the reasons that, and I think that one of the reasons that we decided to take that decision is because our mark-to-market changes every single day. Mark-to-market is a point in time, and it's based on, you know, the leasing that we're doing. So in the fourth quarter, we mark the portfolio to market on a daily basis. Some of those releases that were expiring this year, some of those releases that were expiring in 2024, and some even in 2025.
Greg: It was it was not it was not a run rate, but I think let's go back to mark to market really click in and one of the reasons that I and I think that one of the reasons that we decided to take out that this is Eric.
Greg: Is because our mark to market changes every single day Mark to market is a point in time and its based on you know.
Greg: The leasing that we're doing so in the fourth quarter. We are in the fourth quarter, we mark the portfolio to market on a daily basis. Some of those releases that were expiring. This year. Some of those releases that Eric Butler expiring in 'twenty 'twenty four and some even in 2025. So I think it's really really important to truly loves holistically the portfolio Mark.
Greg: Market and provides transparency into what we expect to achieve them from mark to marking the portfolio to market as leases roll.
Laura Clark: So I think it's really important to really look holistically at the portfolio mark-to-market and provide transparency into what we expect to achieve from marking the portfolio to market as leases roll. Could you just walk us through the expected cadence of occupancy levels through this year? Guy in Strange and Law or Not, both.
Greg: Okay.
Speaker Change: Okay could you just walk us through the expected cadence of occupancy levels through this year that get us to the guidance range and while we're not looking for future guidance.
Speaker Change: Guidance, whether this overall downward trend is expected to continue in 2025.
Laura Clark: Thank you for your guidance, whether this overall downward-ish trend. We are not providing 2025 occupancy guidance. In terms of the cadence of guidance, we don't provide the cadence of occupancy guidance on a quarterly basis. Instead, we provide you with the average occupancy number, which can allow you to appropriately model occupancy and those impacts through the year.
Speaker Change: And we are not providing 2025 occupancy guy asked him in terms of our in terms of the the cadence of guidance. We don't provide the cadence of occupancy guidance on a quarterly basis. We will provide you with the average occupancy number which can allow you to to appropriately model.
Speaker Change: Occupancy in those impacts through the year.
Laura Clark: Thank you. Maybe just one follow-up, um Regarding the month and a half, I'm going to ask you a question about the number of people who have been in line with pre-COVID levels. Have concessions ever gone above that level? What is the risk?
Speaker Change: Okay. Thank you and maybe just one follow up here.
Speaker Change: Regarding the month and a half of concessions that are currently being offered and leases like I understand that that's in line with pre COVID-19 levels have concessions ever gone above that level and you know what is the risk I've seen concessions increase from here.
Speaker Change: Yeah.
Laura Clark: I would say that, on average, we have generally not seen levels rise above that. There are exceptional moments in time, for instance, during the great financial crisis, which obviously we don't really see anything of that nature on the horizon today. And those are very consistent levels during the probably many, many years before COVID. And oftentimes, we beat that on a sub-market basis or a certain size product type. But it's probably a very reasonable assumption.
Speaker Change: I would say that on average we have generally not seen levels rise above that they're exceptional moments in time for instance, during the great financial crisis, which obviously, we don't really see anything of that nature on the horizon today.
Speaker Change: And those that those are very consistent levels. During the probably you know many many years pre COVID-19.
Speaker Change: And oftentimes, we beat that on a submarket basis or a certain size product type.
Speaker Change: But it's it's it's probably a very reasonable assumption.
Speaker Change: But but I think.
Laura Clark: But I think, you know, if we think about different products and markets, submarkets, and what competition could be out there, on a case-by-case basis, you'll see a lot of variability, perhaps, you know, and Michael mentioned an example earlier about what's happening in the Inland Empire on some of those larger buildings. Probably would see a little bit more concession on those, whereas, you know, the majority of the infill markets, you wouldn't. Alright, so we take a month and a half on average. That's a good indicator.
Speaker Change: If we think about different product in markets Submarkets and what competition could be out there.
Speaker Change: On a case by case basis, you'll see a lot of variability, perhaps yeah and Michael mentioned. The example earlier about what's happening in the inland Empire on some of those larger buildings, probably would see a little bit more concession on those whereas you know the majority of the infill markets you wouldn't.
Speaker Change: Yeah.
Speaker Change: Alright, so we take a month and a half as an average then right.
Speaker Change: That's a good indicator.
Michael S. Frankel: Okay, thank you. Thank you. Thank you. Our next question comes from the line... Good morning, guys. Can we start with Howard or Michael, if you want a little update on the transaction market and kind of what you're seeing, you're seeing more competition in the market, larger institutions looking to buy, and do you see that as an ability to maybe recycle some more assets that you view as like non-core? Thanks so much for joining us today.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Nick Allman with Baird. Please proceed with your question.
Nick Allman: Hey, good morning, guys.
Nick Allman: Let me start with Howard or Michael If you want a little update on the transaction market and kind of what youre seeing youre seeing like more competition in the market larger institutions looking to buy and do you see that as an ability to maybe recycle some more assets that you view as like noncore.
Nick Allman: Yeah.
Speaker Change: Thanks, so much for joining us today I'm, just briefly I'd say and how it could add if he has some more color, but generally speaking in the transaction market really hasn't seen much changed probably over the last six months or so.
Michael S. Frankel: Just briefly, I'd say, you know, and Howard could add if he has some more color, but generally speaking, the transaction market really hasn't seen much change probably over the last six months or so. You know, I think maybe the higher interest rate environment is a contributor or just some general uncertainty out there, which is good news for Rexford, quite frankly. It means that buyer competition is somewhat moderated, generally speaking, and we continue to find great opportunities. You know, as a buyer. So I would say no, no big change in the transaction environment with regard to dispositions. That also can have an impact, because if buyer competition is low, it means there might just be, generally speaking, fewer buyers in the market.
Speaker Change: You know I think maybe the higher interest rate environments that contributor or just some general uncertainty out there.
Speaker Change: Yeah, So which is good news for Rexford credit quite frankly, it means that buyer competition is is somewhat moderated generally speaking.
Speaker Change: And we continue to find great opportunities.
Buyer.
Speaker Change: So I would say no no big change in transaction.
Speaker Change: And the transaction environment, but with regard to dispositions that also can have an impact because of buyer a competition is low it means there might just be generally speaking fewer buyers in the market.
Michael S. Frankel: And I'm going to take a little longer on the distribution activity, although we do have a recycling program in place. We have assets that we intend to market for sale and are marketing for sale this year. So we'll see where that goes, but we're going to continue to use our best judgment in terms of how and when we transact on those. That's helpful. And then maybe a couple quick ones to Laura.
Speaker Change: And it would take a little longer on the disposition activity.
Speaker Change: Although we do have a recycling program in place.
We have assets, where that we intend to market for sale in our marketing for sale. This year. So we'll see where that goes but we're going to continue to use our best judgment in terms of how and when we transact on those.
Speaker Change: That's helpful. And then maybe a couple of quick ones for Lora of this mark to market is that still only 80% of the square footage that's being represented in that statistic.
Howard Schwimmer: Of this marked market, is that still only 80% of the square footage that's being represented in that statistic? Yeah, that's about right. Okay, and then the other one is just on the bridge from the prior presentation to what you quoted on net effective spreads for 2024. I think the prior presentation said 67%. Now you're quoting around like 60%. Is that just based on activity that's happened in the past? Yeah, that
Lora: Yeah, that's about right.
Lora: And then the other one is just on the bridge from the prior presentation to what you quoted on.
Lora: Net effective spreads for 2024, I think the prior presentation.
Lora: 7% now you're quoting around like 60% or is that just based on activity that's happened in the past.
Lora: Yeah. That's correct, we saw a flat market, we saw flat market rent growth in the quarter. So that's that's a good assumption.
Laura Clark: We sell flat market rankers in the quarter. So that's, that's a good assumption.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you Alright next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.
Laura Clark: Okay, thank you. Our next question comes from Laura, or even Michael, you've given sort of a broader, I'm wondering, you know, in the last few presentations, you usually give like a two-year or a multi-year same-store growth. Since you've given us FFO, do you mind giving us sort of a broad kind of multi-year same-store growth? Just where are you thinking things will shake out?
Vikram Malhotra: Thanks for taking the question.
Vikram Malhotra: Laura I guess, just you or even Mike because you've given sort of a broader.
Vikram Malhotra: To your outlook on that fits we'll go next to you. They can do that 14 to 17.
Vikram Malhotra: Annually I'm wondering you know in the last few presentation, you usually give like the two year or a multi year same store growth since you've given up that before would you mind, giving us sort of a broad kind of.
Speaker Change: Multiyear it seems slow growth just where are you thinking things will shake out.
Speaker Change: Yeah, we haven't provided our same property outlook beyond 'twenty 'twenty four but obviously, we are providing you with a three year look at our embedded internal growth, which is $240 million of NOI on a cash basis that represents 42% cash NOI growth.
Laura Clark: Yeah, we haven't provided a same property outlook beyond 2024. But obviously, we are providing you with a three-year look at our embedded internal growth, which is $240 million of NOI on a cash basis, that represents 42% cash NOI growth. And just to clarify, does that 14 to 17 assume steady state, like no more properties are repositioned?
And just to clarify does that 14 to 17, it assumed steady state like no more properties or reposition.
Howard Schwimmer: That assumes the current pipeline and what we have in the process of repositioning and redevelopment does not have anything outside of what we've already disclosed. Got it. Okay. I'm just second, you know, you mentioned the pipeline sort of what's on contract, or I think near term closed. But just from a broader perspective, you know, given the kind of stress in the market, is there a sort of a broader dollar number you can talk about? Like, what are you pursuing?
Speaker Change: That assumes the current current pipeline that we've disclosed our current pipeline and what we have in process of repositioning and Redevelopments. It does not have anything outside of what we've already disclosed.
Speaker Change: Got it Okay. Just second you mentioned the pipeline sort of what's under contract or I think near term close but just from a broader perspective you know.
Speaker Change: Given the stress in the market is there a sort of a broader dollar number you can talk about like what are you pursuing in 'twenty 'twenty four we're just trying to get a better sense of like where volumes acquisition volumes could shake out for the year.
Howard Schwimmer: In 2024? We're just trying to get a better sense of where acquisition volumes could shake out for the year. We really can't offer guidance on acquisition volume because, One variable we really don't know, but as Michael pointed out, we have capital. There's not a lot of capital floating around that can be placed in the market, so we're in a great position to capture opportunities. But it's really, it's just too difficult to give you an idea of what an opportunity could be like that we don't know about.
Speaker Change: Yeah.
Speaker Change: Hi, Vikram, we really can't offer guidance on acquisition volume because that's the one variable we really don't know, but as Michael pointed out we have capital.
Theres not a lot of capital floating around but can be placed in the market. So we're in a great position to capture opportunities, but it's really it's just too difficult to give you an idea of what an opportunity it could be like that we don't know about.
Speaker Change: Okay, and just lastly, I wanted to go back to sort of more of a competitive question you cited sort of your infill socal markets two 7% vacancy.
Howard Schwimmer: Okay. And just lastly, I wanted to go back to a more competitive question. You cited sort of your infill SoCal markets, 2.7% vacancy. I'm just having a hard time reconciling, like, you know, you have extremely low vacancy, yet you're seeing higher incentives, you know, arguably no rent growth. I know you haven't given a market rent growth forecast, but just going by the last data point, you know, no sequential rent growth. And then you talked a little bit about bad debt. So I'm just trying to wonder, like, how competitive the market in general and, you know, your product, what things are you watching to sort of say, hey, you know, we're still going to see a gap in fundamentals between our product versus a broader SoCal market. Hi, Vikram.
Speaker Change: I'm, just having a hard time reconciling like you know you have extremely low vacancy yet youre seeing higher incentives arguably no rent growth I know you haven't given a market rent growth forecast, but just going by the log data point, you know no sequential rent growth.
Speaker Change: And then you talked about bad debt. So I'm, just trying to wonder like how competitive.
Speaker Change: It is the market in general and your product what what things are you watching to sort of say Hey, you know we are we're still going to see a gap in fundamentals between our product versus the broader soak out market.
Speaker Change: Hi, Graham Thanks, so much again for joining us today first of all the markets have performed well, let's be clear I mean with the with the exception of the Ie West for instance, we saw about 4% growth in the rest of the infill markets that we're in which cover 80% of our portfolio in the greater L. A orange county, a little bit of San Diego, a little bit mature markets. So the backdrop actually is.
Michael S. Frankel: Thanks so much again for joining us today. First of all, the markets have performed well. Let me be clear. With the exception of the IE West, for instance, we saw about 4% growth in the rest of the infill markets that we're in, which cover 80% of our portfolio in the greater LA, Orange County, a little bit of San Diego, and a little bit of Ventura markets. So the backdrop is actually strong, not weak.
Speaker Change: Strong not weak and those are those are great growth rates actually, particularly given the uncertainty that we saw with the prior year with interest rates and all the rest.
Speaker Change: And so we're not too worried about fundamentals and I think you know, perhaps we were spoiled during the pandemic period, where we saw them unsustainable pen fundamentals and rent growth and occupancy levels and no matter how much we tried to prepare the market for the fact that those were not very sustainable.
Michael S. Frankel: And those are great growth rates, actually, particularly given the uncertainty that we saw over the prior year with interest rates and all the rest. And so we're not too worried about fundamentals. And I think perhaps we were spoiled during the pandemic period where we saw unsustainable fundamentals, rent growth, and occupancy levels. And no matter how much we tried to prepare the market for the fact that those were not very sustainable, again, it's a change. But the fundamentals remain very strong.
Speaker Change: You know again, it's a change of our fundamentals remain very strong and I think the important thing also to remember is that although fundamentals are strong.
Speaker Change: Afflicting more you know 2019 levels, which again was a very strong market, so and Laura talks about a month and a half concessions and that sort of thing that is a those are indicators of a very strong market and yes. Some space will lease up in much less time and less downtime, but on an average basis that is a very strong market and I think it's also.
Speaker Change: Important to remember that our product is vastly superior in terms of functionality and location as compared to the broader market and so irrespective of what we may be seeing in the broader market. Our portfolio has been outperforming and I think there's some great data in our investor deck to that effect and we expect it will continue to outperform the general market.
Michael S. Frankel: And I think the important thing also to remember is that although fundamentals are strong, reflecting more 2019 levels, which was a very strong market. So when Laura talks about a month and a half of concessions and that sort of thing, those are indicators of a very strong market. And yes, some space will lease up in much less time and with less downtime, but on an average basis, that is a very strong market. And I think it's also important to remember that our product is vastly superior in terms of functionality and location as compared to the broader market. And so, irrespective of what we may be seeing in the broader market, our portfolio has been outperforming.
Speaker Change: Because of our properties are better position more functional there are problems are actually of more value to tenants because they can be more productive within our spaces.
Speaker Change: So you know the outlook I think it's it's not negative actually to your question, it's quite quite positive in terms of the underlying fundamentals.
Speaker Change: Okay. No fair enough I was just trying to square that with where the market rent growth is but thanks so much.
Speaker Change: Thank you Vikram.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Vince.
Vince: Hey, Bohn with Green Street. Please proceed with your question.
Vince: Hi, good morning, how.
Vince: And I think there's some great data in our investor deck to that effect. And we expect it will continue to outperform the general market because our properties are better positioned and more functional. Our properties are actually of more value to tenants because they can be more productive within our spaces. So the outlook I think is not actually negative in relation to your question. It's quite positive in terms of the underlying fundamentals. Okay, no, fair enough.
Vince: How much of the issues that the Suez Canal impact the Socal seaport from what I've read it seems like most ships now avoiding Suez are going around the Cape instead of going through the Pacific and into Socal. So I'd just love to hear any color you have or have you been hearing from your tenants on this topic and how maybe you know shipping routes are evolving.
Vince: As you know the situation unfolds.
Speaker Change: Well diverting the Suez to go down around the Cape increases time and cost.
Speaker Change: And even without that we had a substantial time and cost advantage, even compared to going through the Suez Canal. Originally so she was coming direct to the port Sabellian long Beach, and so obviously that benefit in terms of timing and cost here is you know accelerated and becomes a greater advantage. So we think it does have some positive impact.
Howard Schwimmer: I was just trying to square that with where the market rent growth is, but thanks so much. Thank you, Vikram. Thank you. Our next question comes from the line of Vendee Gables. Sibone with Green Street. Please proceed with, Hi, good morning.
Michael S. Frankel: Um, how much do the issues at the Suez Canal impact the SoCal seaport? From what I've read, it seems like most ships now avoiding Suez are going around the Cape instead of going through the Pacific and into SoCal. So I would just love to hear any color you know or have been hearing from your tenants on this topic and how maybe, you know, shipping routes are evolving as the situation unfolds. Well, diverting the Suez to go down around the Cape increases time and cost. And even without that, we had a substantial time and cost advantage, even compared to going through the Suez Canal originally, especially coming directly to the ports of LA and Long Beach.
Speaker Change: And you know I think it also yeah. There was some concern about our diversification away from Los Angeles, and long Beach, and I think that that's just really not the case actually only in long beach turns out to be about the safest and most reliable entry point into the United States, which I think reflects in the in the volumes that were.
Speaker Change: Saying more recently.
Speaker Change: Like to add to that also.
Speaker Change: I think really for the ports and this increased activity a lot had to do with the labor contract finally, solidifying and I saw J O L had some information out recently that.
Speaker Change: You know wrapped a 15% increase just associated with <unk>.
Speaker Change: The pork contract completion.
Howard Schwimmer: And so, obviously, that benefit in terms of timing and cost here is accelerated and becomes a greater advantage. So we think it does have some positive impact. And, you know, I think there was also some concern about diversification away from Los Angeles and Long Beach. And I think that that's just really not the case. Actually, LA and Long Beach turn out to be about the safest and most reliable entry points into the United States, which I think reflects in the volumes that we're seeing more recently.
Speaker Change: Pretty quickly after that was done.
Speaker Change: So Suez, Panama et cetera could lead to incremental.
Speaker Change: Activity.
Speaker Change: That's that's really not not the driver.
Speaker Change: Michael's comment to the cost and timing.
Speaker Change: And by the way Vince just to add one final note I think it's important to recall with respect to our portfolio that our tenant base demand for their goods and services is predominantly driven by regional consumption. So this is a great benefit that the that the ports are operating labor is stable etcetera etcetera, but at the end of the day you know, we're very much distribution and.
Speaker Change: Function, driven and we're serving the largest zone of regional consumption. The most diverse economy in the country here in southern California by far so that that really was what's driving these superior fundamentals.
Howard Schwimmer: And I'd like to add to that also, you know, I think really, reports and this increased activity have a lot to do with the labor contract finally solidifying. And I saw JLL had some information out recently that showed a 15% increase just associated with the port contract completion pretty quickly after that was done. So, you know, Suez, Panama, et cetera, could lead to incremental activity. But, you know, that's really not the driver.
Vince: No. That's all helpful color I appreciate that I have just one quick clarification on just the comments around concessions I just wanted to confirm that month and a half of free rent per year.
Vince: In regard to new leases or are you guys expecting to have to give any form of concessions on renewals to kind of keep people in their spaces.
Speaker Change: Yeah, Vince that's an aggregate number so that includes.
Howard Schwimmer: Again, it's Michael's comment on cost and timing. And by the way, Vince, just to add one final note, I think it's important to recall with respect to our portfolio that our tenant base's demand for their goods and services is predominantly driven by regional consumption. So, this is a great benefit that the ports are operating, labor is stable, et cetera, et cetera. But at the end of the day, you know, we're very much distribution and consumption driven. And we're serving the largest zone of regional consumption, the most diverse economy in the country here in Southern California, by far. So, that really is what's driving these superior fundamentals. No, that's all helpful color.
Speaker Change: That includes new and renewal.
Speaker Change: Got it and then it's like those new like just in terms of the broader market place like as new new lease concessions, increasing pretty significantly and I don't mean to keep asking the same question, but just any any color on maybe what the overall market is doing versus just your expectations would be helpful as well.
Speaker Change: So that's the the nuc new leasing concessions, we're seeing are going to be a bit higher than renewals.
Speaker Change: And again, its really space driven and location driven.
Speaker Change: So you know if you have it.
Speaker Change: An abundance of a certain product size in a particular market, you're probably going to see a little heavier concessions being offered.
Speaker Change: And by the way I'd, just add one more thing here events, where we do see maybe heavier concessions for instance in the Ie West. We also see that stabilizing we see absorption over the near term for the size ranges that have a little bit of additional supply compared to historical periods, and we do see that reverting to more normalized supply.
Vince: Appreciate that. I have just one quick clarification on just the comments around concessions. I just wanted to confirm that a month and a half of free rent per year is in regard to new leases. Are you guys expecting to have to give any form of concessions on renewals to kind of keep people in their space? Yeah, Vince, that's an aggregate number.
Speaker Change: The man scenario Yep.
Speaker Change: Hard to predict but arguably over the next 12 months or so.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Dan.
Speaker Change: Thank you. Our next question come from the line of Nikita belly with J P. Morgan. Please proceed with your question.
Nikita Belly: Hi, How's it wrong as promised someone asked about the bridge to earnings anymore.
Howard Schwimmer: So that includes, that includes new and renewal. Got it. And it's like, so, just in terms of the broader marketplace, like, are new lease concessions increasing pretty significantly? And I don't mean to keep asking the same question, but any, any color on maybe what the overall market's doing versus just your expectations would be helpful as well. The new leasing concessions we're seeing are going to be a bit higher than renewals. And again, it's really space-driven and location-driven.
Nikita Belly: Oh easy one can you talk a little bit more about $125 million loan that you guys are extended a little more color just how they're all came aboard towards what the loans. So I don't know what the securitized by land what do you plan to do with the converting into ownership when and when and if you were going to build something on it was like what.
Nikita Belly: Ken how much investment in the site support over time.
Nikita Belly: Yeah, Hi, excuse its Howard.
Speaker Change: Thank you.
Howard Schwimmer: It's an amazing transaction.
Howard Schwimmer: On surface you know there was a an effective interest rate of 8%, but what you're not seeing is the opportunity that <unk> has.
Michael S. Frankel: So, you know, if you have an abundance of a certain product size in a particular market, you're probably gonna see a little heavier concession being offered. And by the way, I'd just add one more thing here, Vince, where we do see maybe heavier concessions, for instance, in the IE West, we also see that stabilizing. We see absorption over the near term for the size ranges that have a little bit of additional supply compared to historical periods, and we do see that reverting to a more normalized supply-demand scenario. Hard to predict, but arguably over the next 12 months or so.
Howard Schwimmer: Surrounding that we have a right of first offer to purchase or say, we have a right of first offer two JV. This site and if we choose not to do either of those we actually have a.
Howard Schwimmer: The kicker on top of these interest rates.
Howard Schwimmer: The property sold to somebody else, we're going to achieve a 5% net.
Howard Schwimmer: Net equity fee on.
Howard Schwimmer: On that sale and that's going to be in place for 2020 years. So.
Howard Schwimmer: So we were really were successful in structuring a transaction around that loan that puts us in a great position to create value on the site.
Vince: Great, thank you. Thanks, everyone. Thank you. Our next question comes from the line of Nikita Bailey with J.P. Morgan. Hi, how's everyone, guys?
Howard Schwimmer: Our loan to value on.
Howard Schwimmer: Today is just about 50% low fifties.
Howard Schwimmer: I promise I won't ask about the bridge to earnings anymore. Easy one. Can you talk a little bit more about the $125 million loan that you guys extended to some more colleges? How that all came about? What the loan is for? I know it's securitized by land.
Howard Schwimmer: And the work that's being done on the site right now by.
Howard Schwimmer: The ownership is to fill in some of the other.
Howard Schwimmer: Excavated areas there that this was a strip mining former former us yeah.
Howard Schwimmer: And on top of the buildable 60 acres there.
Howard Schwimmer: Over time, the first completion of it within the next three years with drop the.
Howard Schwimmer: What do you plan to do with it, converting it to ownership, and when? And if you're going to build something on it, how much investment can that site support over time? Hi Nikita, it's Howard.
Howard Schwimmer: Our loan to value down to 35% at a very low value on the land. So not only is it a very safe and secure transactions, but it has.
Howard Schwimmer: A lot of upside for us.
Howard Schwimmer: Thank you. You know, that was an amazing transaction. You know, on the surface, you know, there was an effective interest rate of 8%, but what you're not seeing is the opportunity that Rexford has surrounding that. We have a right of first offer to purchase a site, we have a right of first offer to JV the site, and if we choose not to do either of those, we actually have a kicker on top of these interest rates that if the property is sold to somebody And that's going to be in place for 20 years.
On the site and I believe the site with a comedy.
Howard Schwimmer: Upwards of three and a half million square feet in development.
Howard Schwimmer: Once once the entirety of the land is available to be built up.
Speaker Change: Uh-huh how did you guys do this transaction was it something <unk> been working on for years off market deal.
Speaker Change: It was an off market deal there was a lot of circling of relationships and so forth and the borrower had its a dire need to complete a transaction based on another loan that was a repayment was due on so.
Speaker Change: You know that that's I guess why we were in the driver's seat on this one to get some of the other goodies tustin here.
Speaker Change: Got you interesting interesting. My last question is did you talk about the your expectation for overall 2024 market trends for comparable properties for the full year.
Howard Schwimmer: So, we really were successful in structuring a transaction around that loan that puts us in a great position to create value on the site. And our loan to value on that today is just about 50%, the low 50s. And the work that's being done on the site right now by the ownership is to fill in some of the other excavated areas there that this was a former strip mining use. And on top of the buildable 60 acres there, over time, the first completion within the next three years would drop the loan to value down to 35% at a very low value on the land. So, not only is it a very safe and secure transaction, but it has a lot of upside for us on the site.
Speaker Change: Yeah, Nikita as we discussed and as we discussed last year, we are not going to be providing market rent growth expectations going forward, we're going to be providing.
Nikita Belly: An update on the market on a quarterly basis, and we'll be very transparent around that as you can see we provided market rent growth by sub market and we'll continue to communicate what we're seeing in the market as you see it from a demand and activity perspective.
Nikita Belly: Gotcha.
Speaker Change: Thank you guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Anthony Ah Ha with truly Securities. Please proceed with your question.
Howard Schwimmer: And I believe the site would accommodate upwards of three and a half million square feet of development once the entirety of the land is available to be built on. How did you guys do this transaction? Was it something you've been working on for years, an off-market deal? It was an off-market deal. There was a lot of circling of relationships and so forth, and the borrower had a dire need to complete a transaction based on another loan that the repayment of which was due.
Speaker Change: Thanks for the question guys, Florida. Other quick one for you what does the cadence of the six cents redevelopment and repositioning drag throughout the year.
Speaker Change: It's about it's pretty even throughout the year and we provide actually within our disclosure on the repositioning and Redevelopments are we provide the for Q.
Howard Schwimmer: So, you know, that's I guess why we were in the driver's seat on this one to get some of the other goodies tossed in here. Gotcha. Interesting. Interesting. My last question is, did you talk about your expectation for overall 2024 market trends for comparable properties for the full year? Yeah, Nikita, as we discussed last year, we're not going to be providing market rent growth expectations going forward.
Speaker Change: NOI that was realized in four key of 2023 from each of our repositioning and Redevelopments that are in the pipeline and then we provide color around the end days surround a construction start as well as completion and stabilization. So that should be it should allow you to model appropriately in terms of the timing of pay down in the Cana.
Speaker Change:
Speaker Change: And what's that on an annualized basis. It's also like 16 similar to the contribution from Redevelopments.
Laura Clark: We're going to be providing an update on the market on a quarterly basis, and we'll be very transparent about that. As you can see, we provided market rent growth by sub-market, and we'll continue to communicate what we're seeing in the market as we see it from a demand and activity perspective. Gotcha. Awesome. Thank you, guys. Thank you. Thank you. Our next question comes from the line of Anthony. Please. Thanks for the question, guys. Laura, I have a quick one for you.
Speaker Change: That's correct, it's about 16 cents, a fully leased up annualized basis.
Speaker Change: Okay. Thank you.
Yeah.
Speaker Change: Thank you Aaron next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.
Vikram Malhotra: Thanks, So just want to quick clarification, just one on the equity line that you have in the guidance.
Vikram Malhotra: It has a line there which says.
Vikram Malhotra: It does add some additional equity correcting redevelopment. So I just wanted to be clear are you assuming any more incremental equity in the guide.
Laura Clark: What is the cadence of the sixth sense redevelopment and repossession drag throughout the year? It's pretty even throughout the year, and we provide, within our disclosure on the repositions and redevelopments, we provide the 4Q NOI that was realized in 4Q of 2023 from each of our repositions and redevelopments that are in the pipeline, and then we provide color around and dates around, construction start as well as completion So that should allow you to model appropriately in terms of the timing and the cadence.
Speaker Change: It's it's it's a marginal amount we have about $300 million of repositioning and redevelopment spend our remaining for 'twenty 'twenty four related to the projects that we've disclosed.
Speaker Change: We first found out with free cash flow are and then we have $138 million of a net forward equity remaining for subtle that and then remaining AR and in terms of the remaining funding them. We have a number of options. We could fund that with equity we can fund that through that we can fund that through dispositions.
Laura Clark: And what's that on an annualized basis? It's also like $0.16, similar to the contribution from redevelopment. That's correct. It's about $0.16 fully leased up on an annualized basis.
Speaker Change: So for purposes of the roll forward, we've we've attributed that to equity, but we've got a lot of optionality in terms of how we may find out as the year goes on.
Laura Clark: Thank you. Thank you. And our next question comes from the line of Vikram Malhotra. Thanks. I just want two quick clarifications.
Speaker Change: Got it and then just last clarification be reported a GAAP mark to market for the portfolio that you gave I mean, it was a 50 plus percent does that is that does that include the impact of all the volume of acquisitions, you've done over the last call it year or two years, it's been a big volume I just said because of you.
Michael S. Frankel: Just one on the equity line that you have in the guidance. It has a line there which says, and some additional equity for, I think, redevelopment. So I just want to be clear, are you assuming any more incremental equity in the guide? It's a marginal amount.
Laura Clark: We have about $300 million of repositioning and redevelopment spend remaining for 2024 related to the projects that we've disclosed. We first fund that with free cash flow. And then we have $138 million of net forward equity remaining for settlement. And then, in terms of the remaining funding, we have a number of options. We could fund that with equity. We could fund that through debt. We could fund that through dispositions.
Speaker Change: Mcgwire Daus you arguably those are already marked up and so I just want to understand if that is reflective of those acquisitions as well.
Speaker Change: Yes, it's included.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and we have reached the end of the question and answer session. I will now turn the call back over to Michael Franco for closing remarks.
Laura Clark: So for purposes of the roll forward, we've attributed that to equity, but we've got a lot of options in terms of how we may fund that as the year goes on. And then just last clarification, the reported gap mark to market for the portfolio that you gave, you know, the 50 plus percent. Does that include the impact of, say, all the volume of acquisitions you've done over the last, call it a year or two years; there's been a big volume. I just ask that because if you acquire those, arguably, those are already marked up. And so I just want to understand if that is reflective of those acquisitions as well.
Michael S. Frankel: What we'd like to thank everybody for joining us today, and we very much look forward to connecting next quarter. Thanks, everybody have a great day.
Speaker Change #100: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change #100: Okay.
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Speaker Change #100: Yeah.
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Laura Clark: Yes, it's included. Okay, thank you. Thank you. We have reached the end of the question and answer session. Back over to Michael Frankel for a closer look.
Speaker Change #100: Yeah.
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Michael S. Frankel: Well, we'd like to thank everybody for joining us today, and we very much look forward to connecting next quarter. Thanks, everybody. Have a great day.
Speaker Change #100: Okay.
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Operator: This concludes today's conference, and you may disconnect your lines. The Ultimate Parody Site! www.mytrendyphone.co.uk
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Speaker Change #100: Yeah.
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