Q2 2025 Rexford Industrial Realty Inc Earnings Call
Operator: Second Quarter 2025 Earnings Call. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question-and-answer session.
Good morning and welcome to Rexford industrial second quarter 2025 earnings call.
All participants are in a listen-only mode.
Operator: To ask a question at this time, you will need to press star followed by the number one on your telephone key. As a reminder, this conference call is being recorded.
After the speakers, remarks will conduct a question and answer session.
To ask a question at this time, you will need to press star followed by the number 1 on your telephone keypad.
Mikayla Lynch: I would now like to turn the call over to Mikayla Lynch, Director of Investor Relations and Capital Markets. Please go ahead.
As a reminder, this conference call is being recorded.
Speaker Change: I would now like to turn the call over to Michaela Lynch director of investor relations and capital markets. Please go ahead.
Laura Clark: Thank you and welcome to Rexford Industrial's second quarter 2025 earnings conference call. In addition to yesterday's earnings release, we posted a supplemental package and earnings presentation in the investor relations section on our website to support today's remarks. As a reminder, management's remarks and responses to your questions may contain forward-looking statements as defined by federal securities laws, which are based on certain assumptions and subject to risks and uncertainties outlined in our 10-K and other SEC filings.
Laura Clark: As such, actual results may differ and we assume no obligation to update any forward-looking statements in the future. We'll also discuss non-GAAP financial measures on today's call. Our earnings presentation and supplemental package provide GAAP reconciliations as well as an explanation of why these measures are useful to investors.
Speaker Change: Thank you and welcome to Rexford industrial second quarter 2025 earnings conference. Call in addition to yesterday's earnings release, we posted a supplemental package and earnings presentation in the investor relations section on our website to support. Today's remarks as a reminder, Management's remarks and responses to your questions. May contain forward-looking statements as defined by federal Securities laws which are based on certain assumptions and subject to risks and uncertainties outlined in our 10K and other FCC filings as such actual results, May differ. And we assume no obligation to update any forward-looking statements in the future. We'll also discuss non-gaap Financial measures on today's call. Our earnings presentation and supplemental.
Unknown Executive: Joining me today are our Chief Mike Fitzmaurice.
Mikayla Lynch: Our co-CEOs Michael Frankel and Howard Schwimmer will join us for the Q&A session following prepared remarks.
Laura Clark: It's my pleasure to now introduce Laura Clark. Laura. Thank you, Mikayla. And thank you all for joining us today. I'd like to start by thanking our Rexford team for your exceptional work and for delivering strong second quarter results in line with our expectations. In the quarter, we executed 1.7 million square feet of leases, including lease up of four repositioning and redevelopment projects. Net effective and cash leasing spreads for comparable leases were in line with expectations at 21% and 8% respectively. Embedded risk steps in our executed leases averaged 3.7% up 10 basis points from last quarter.
Package provide Gap reconciliations, as well as an explanation of why these measures are useful to investors. Joining me today are our chief operating officer Laura Clark and Chief Financial Officer. Mike Fitz Morris. Our co-ceos, Michael Franco and Howard Schwimmer will join us for the Q&A session following prepared remarks. It's my pleasure to now introduce Laura Clark. Laura
Thank you Michaela, and thank you all for joining us today.
Speaker Change: I'd like to start by thanking our Recs for teams for your exceptional work and for delivering strong second quarter results in line with our expectations.
In the quarter, we executed 1.7 million square feet of leases including lease up of 4 repositioning and Redevelopment projects.
Net effective and cash leasing for us for comparable leases for in line with expectations at 21% and 8% respectively.
Laura Clark: Healthy tenant retention and new leasing activity drove increased same property occupancy and positive net absorption in the quarter. We ended the quarter with same property occupancy at 96.1%, an increase of 40 basis points sequentially, and net absorption was a positive 220,000 square feet. Additionally, the strength of our tenant base and the critical nature of our infill locations was reflected in de minimis levels of bad debt in the quarter at only six basis points of revenue. In regard to the current market environment, while leasing activity remains steady, and tenant health continues to be solid, macroeconomic and tariff uncertainty are still impacting some tenant decision making.
Speaker Change: Es average 3.7% up 10 basis points from last quarter.
Speaker Change: Healthy tenant retention and new leasing activity, drove increased. Same property, occupancy and positive. Net. Absorption in the quarter.
Speaker Change: We ended the quarter with same property occupancy at 96.1% and increase of 40 basis point sequentially and net absorption was a positive 220,000 Square ft.
Speaker Change: Additionally, the strength of our tenant base and the critical nature of our Enzo locations was reflected in Dominus levels of bad debt. In the quarter at only 6 spaces lengths of Revenue.
Laura Clark: This is putting some pressure on overall demand, impacting rent levels and lease up time frame. In the quarter, market rents across Rexford's portfolio declined approximately 3.5% sequentially and 12.8% year-over-year. Despite these market dynamics, our portfolio continues to exhibit relative strength when compared to the broader market. The standout quality of our portfolio and the operational excellence of our team is positioning us to capture incremental demand in the near and long term. By way of example, we continue to execute on the lease-up of repositioning and redevelopment projects, unlocking significant embedded growth. In the quarter and subsequent to quarter end, we executed 520,000 square feet of leases out of repositioning and redevelopment projects, which includes Turnbull Canyon Road in the San Gabriel Valley, Salboa Avenue in San Diego, and Coronado Street in North Orange County.
Speaker Change: In regard to the current market environment. While leasing activity remains steady and tenant, Health continues to be solid macroeconomic and tariff uncertainty are still impacting. Some tenant decision-making.
Speaker Change: This is putting some pressure on overall demand impacting rent levels and Lisa time frames.
Speaker Change: In the quarter Market rents, across rexburg's, portfolio declined, approximately 3.5% sequentially and 12.8% year-over-year.
To exhibit relative strengths when compared to the broader markets, the standout quality of our portfolio and the operational excellence of our team is positioning us to capture incremental demand in the near and long term.
Speaker Change: By way of example, we continue to execute on the lease up of repositioning and Redevelopment projects unlocking, significant embedded growth.
Speaker Change: In the quarter and subsequent to quarter end. We executed 520,000 square feet of leases at a repositioning and Redevelopment projects.
Laura Clark: This brings total year-to-date repositioning and redevelopment lease-up activity to over 900,000 square feet, representing over $16 million of annualized NOI. Year-to-date, we have stabilized seven repositioning and redevelopment projects, achieving a 7.4% unleveraged stabilized yield on total investment. In addition, further demonstrating the demand for our highly functional and superior quality portfolio, we currently have leasing activity on approximately 80% of our vacant spaces. This is consistent with prior quarter and up significantly when compared to a year ago, when activity on our vacant spaces was about 60%. In regard to transaction activity, we sold two properties totaling $82 million, bringing year-to-date dispositions to $134 million at a weighted average cap rate in the low 4% range, achieving an unlevered IRR of 11.9%.
Which includes herbal Canyon Road in the St. Gabriel Valley Balboa Avenue, and San Diego, and Coronado Street in North Orange County.
Speaker Change: This brings total year to date repositioning and Redevelopment lease up activities to over 900,000 square feet. Representing over 16 million dollars of annualized, noi year to date. We have stabilized 7 repositioning and Redevelopment projects achieving a 7.4% unlevered stabilized yield on total Investments.
Speaker Change: In addition further demonstrating the demand for our highly functional and Superior Quality portfolio. We currently have leasing activity on Approximately, 80% of our vacant spaces.
Speaker Change: this is consistent with prior quarter and up significantly when compared to a year ago, when activity, on our vacant spaces was about 60%
Laura Clark: Looking forward, we have approximately $54 million of dispositions under contract or accepted offer, which are subject to customary closing conditions. Separately, while we have no acquisitions under contract or accepted offer today, we are actively pursuing a range of potential near-term opportunities to accretively recycle disposition proceeds. In closing, over the long term, we remain confident that our irreplaceable infill Southern California portfolio will continue to benefit from persistent and growing supply constraints, coupled with demand from the nation's largest regional zone of consumption and 11th largest economy in the world.
Speaker Change: In regard to transaction activity. We sold 2 properties totaling. 82 million dollars, bringing year-to-date dispositions to 134 million at a weighted average cap rate in the low 4% range, a Tegan and unlevered irr of 11.9%.
Speaker Change: Looking forward, we have approximately 54 million of dispositions under contract for accepted offer, which are subject to customary closing conditions.
Speaker Change: Separately while we have no Acquisitions under contract or accepted offer today, we are actively pursuing a range of potential near-term opportunities to accredited recycled. Disposition proceeds
In closing over the long term, we remain confident that our Irreplaceable. Infill Southern, California portfolio. Will continue to benefit from persistent and growing Supply constraints.
Laura Clark: These superior long-term fundamentals are the foundation of our value creation business model that drives shareholder values.
Michael Fitzmaurice: And with that, I'll turn the call over to FIT. Thanks, Laura, and thank you all for joining us. Second quarter results were in line with our expectations. Core FFO was $0.59 per share, representing a $0.01 increase over the prior quarter, when excluding one-time termination revenue that was recognized in the first quarter. The key driver for the increase was lower bad debt expense, demonstrating our strong tenant health. We are reaffirming our full year 2025 core FFO outlook of $2.37 to $2.41 per share. Prior to the prior quarter, we now expect lower interest expense due to achieving a more favorable interest rate at our $400 million term loan and higher capitalized interest offset by some delays in reconciliation.
Coupled with demand from the nation's largest regional zone of consumption and 11th largest economy in the world. These Superior long-term fundamentals are the foundation of our value creation, business model that drive, shareholder value. And with that, I'll turn the call over to fist.
fist: Thanks, Laura, and thank you all for joining us.
Speaker Change: Second quarter results were in line with our expectations coore ffo was 59 cents. Per share, representing a 1 cent increase over the prior quarter. When excluding 1-time, termination Revenue, that was recognized in the first quarter.
The key driver for the increase was lowered. Bad debt expense demonstrating, our strong tenant health,
Speaker Change: We are reaffirming our full year 2025 core of VO Outlook of $2.37 at 2041 cents per share.
Michael Fitzmaurice: Our remaining underlying assumptions are unchanged. I'd like to take a moment to highlight the embedded growth opportunity within our portfolio. continues to be substantial, totaling $195 million of incremental cash NOI, representing growth of 28%. Contractual rent steps are expected to generate approximately $105 million of incremental NOI, providing a steady and predictable source of growth. Our repositioning and redevelopment projects in process or in lease up are projected to contribute an additional $70 million of incremental NOI, reflecting our value creation strategy. In addition, this does not capture the upside embedded in our future pipeline, which totals over 3 million square feet.
Speaker Change: Period of the prior quarter. We now expect lower interest expense due to achieving a more favorable interest rate at our 400 million Term Loan and higher capitalized. Interest offset by some delays and recommends.
Speaker Change: Our remaining underline assumptions are unchanged.
I'd like to take a moment to highlight the embedded growth opportunity within our portfolio, which continues to be substantial totaling, 195 million of incremental cash and AI representing growth of 28%.
Speaker Change: Study and predictable source of growth.
Speaker Change: Our repositioning and Redevelopment projects in process, or in lease up, are projected to contribute an additional 70 million dollars of incremental, NY reflecting our value creation strategy.
Michael Fitzmaurice: And lastly, today, our Cash Mark the Market for Portfolio stands at 3%, contributing about $20 million of incremental NOI to our Embedded Growth Profile.
Speaker Change: In addition, this is not capture the upside embedded in our future pipeline which totals over 3 million square feet.
Michael Fitzmaurice: Turning to the balance sheet, we ended the quarter with over $1.8 billion of liquidity, including $560 million of cash and a low leverage balance sheet with net debt to EBITDA of four times. continue to prioritize allocating capital toward our repositioning and redevelopment projects and opportunities to recycle capital into creative acquisitions that meet our underwriting criteria. During the quarter, we successfully closed the recast of our credit facility, extending duration, increasing capacity, and reducing interest expense. Overall, our balance sheet continues to provide flexibility to execute on a strategy and to create long term value.
And lastly, today, our cash Mark to market for a portfolio. Stands at 3%. Contributing about 20 million of incremental. NY to our embedded growth profile.
Speaker Change: According to the balance sheet, we entered the quarter with over 1.8 billion of liquidity, including 560 million of cash, and a low leverage balance sheet with net debt to ebita of 4 times. We continue to prioritize allocating Capital toward our repositioning, and Redevelopment projects, and opportunities to recycle Capital into a creative Acquisitions that meet our underwriting criteria.
Speaker Change: During the quarter, we successfully closed and recast our credit facility, extending duration, increasing capacity and reducing interest expense.
Michael Fitzmaurice: In closing, a big thank you to Team Rexford. The teamwork, standard of excellence, and commitment continue to be the foundation of our success. And with that, I'll turn the call back to the operator and open the line for questions. Thank you.
Overall, our balance sheet continues to provide flexibility, to execute on a strategy and to create long-term value.
In closing a big thank you to team. Rexford, the teamwork, standard of Excellence and commitment continue to be the foundation of our success. And with that, I'll turn the call back to the operator and open the line for questions.
Operator: As a reminder to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again.
Mikayla Lynch: I will now turn the call back over to Mikayla Lynch for our first Thanks, Julianne.
Thank you as a reminder to ask a question. Please press star. Followed by the number 1 on your telephone keypad to withdraw. Your question, press star 1 again.
Speaker Change: I will now turn the call back over to Michaela Lynch for our first question.
Craig Mailman: Our first question comes from Craig Mailman at Citi. Please go ahead. Thanks. Laura or Fitz, maybe I just want to go over, you know, page 30 on your stuff, you guys are giving, you know, better disclosure about potential future repositioning and redevelopment starts. And if you, you know, annualize the quarterly NOI you have in there, it's somewhere between 30 and 32 million of potential NOI that's going to come offline by the end of 26. Can you just talk about with maybe some of the slower lease up projects under construction today? Like, should we think about that as being a pretty firm plan as we get to the end of 26?
Michaela Lynch: Thank you, Julian. Our first question comes from Craig mailman at City. Please go ahead.
Michael Fitzmaurice: Or what kind of variability could that be with some of that pushed into 27 or some of the 25s pushed into 26? Yeah, look, I think that that pipeline is somewhat fluid. It has changed quarter to quarter. But the biggest driver in that in that pipeline today is the Hertz asset, which we expect that will expire that lease in the first quarter of March. And it has about 8.6 million of ABR. From an NOI perspective, it's about 9 million or so. So that's gonna have a significant impact of rent coming offline next year.
Thanks, um, Laura or or fits? Um, maybe I just want to go over, you know, page 30 on your stuff. You guys are giving, you know, better disclosure about potential future repositioning and Redevelopment starts. And if you, you know, annualized the the quarterly. I don't know why you have in there. It's somewhere between 30 and 32 million of potential, um, and why that's going to come offline by the end of 26. Can you just talk about with maybe some of the slower lease? Up of projects under construction today? Like, should we think about that as being a pretty firm plan, as we get to the end of 26, or what kind of variability could that be with some of that pushed into 27 or some of the 25s pushed into 26?
Laura Clark: Now in terms of our plan for Hertz, Laura, if you want to touch on what the plan is there. Yeah, absolutely. I think just as a reminder on the Hertz asset in particular, this is an irreplaceable location. It's adjacent to LAX. We acquired this property from Hertz back in 2023. This was a sale lease back. Hertz is moving to a centralized rental car facility at LAX when that facility is complete. So currently expires in March of 26.
Michaela Lynch: Yes, look look. I think that, that, that pipeline is is somewhat fluid. Um, it has changed, uh, quarter quarter, but the the the biggest driver, uh, in that in that pipeline today uh, is the Hertz asset, uh, which we expect that will expire that lease in the first quarter, uh, of March. And it has about 8.6 million of ABR, uh, from an noi perspective, it's it's about 9 million or so. So that's going to have a significant impact of uh, rent coming offline. Next year, down in terms of our plan for hers, Laura, if you want to touch on what the plan is there,
Yeah. Absolutely. I think this is a reminder, on the Herz asset in particular. Um, this is an Irreplaceable location. It's adjacent to LAX. Uh, we acquired, uh, this property from her back in 2023. This is a sale lease back. Uh, hers is moving to a centralized rental car facility, uh, at LAX when that facility is complete,
Unknown Executive: We're ready to start development. We're going to be able to deliver 400,000 square foot building there. It will be one of one in the market. And we're really excited about being able to move forward with that value creation. Okay, that's helpful.
Michaela Lynch: So currently expires in March of 26, uh, we're ready to start development, we're going to be able to deliver 400,000 square foot building. There it will be 1 of 1 in the market. Uh, and we're really excited about being able to move forward with that, that value creation.
Okay, that that's helpful. Um,
Unknown Executive: Thank you, Craig.
Samir Khanal: Our next question comes from Samir Khanal at Bank of America.
Laura Clark: Samir, please go ahead. Thank you and good morning. I guess, Mike, you know, just the help us understand how you think about that. The 3% cash mark to market going forward. Just trying to understand what your view on that. So you know how that will trend over the next few quarters. and what that impact could be on sort of the cash same store growth going forward. Thanks.
Craig: Um, thank you Craig. Our next question comes from Samir Canela Bank of America Samir. Please go ahead.
Thank thank you and and and good morning I guess Mike, you know, just the the help us understand how you think about that, the 3% cash Mark to Market going forward.
Craig: Um, just trying to understand what your view on that. So, you know how that will Trend over the next few quarters.
And and what that impact could be on sort of the cash same store growth um going forward. Thanks.
Laura Clark: Hey, Samir, this is Laura. Thanks for your question. Yeah, in terms of the mark to market, currently, as you mentioned, the cash mark to market sits at 3%. And the cadence of what that mark to market looks like over the next few quarters is going to depend on a number of factors, including market rent growth. I think it's really important to remember that only about 15% of our portfolio rolls annually. So future leasing spreads, and how that's going to impact and slow down producing property is going to be driven by the mix of units and properties that are rolling.
Laura Clark: The other thing to note is that Rexford's growth is not dependent upon mark to market. I think that's the most important thing to note. We have significant embedded growth within the portfolio, irrespective of what happens with market with the mark to market, we have $70 million of incremental NOI embedded in the portfolio from our repositions and redevelopments that are in process, or in lease up today. And we also have strong growth from contractual embedded rent steps, which currently sit at 3.7% in the portfolio. Thanks, Samir.
Uh, properties that are rolling. Um, the other thing to note is that rexford's growth is not dependent upon Mark to Market. I think that's the most important indic, uh, thing to note. Uh, we have significant embedded growth within the portfolio. Uh, irrespective of what happens with Market, uh, with the mark to Market, we have 70 million dollars of incremental, noi embedded in the portfolio from a repositioning and redevelopments that are in process or in lease up today. And we also have strong growth from contractual embedded rent steps, which currently set up, 3.7% in the portfolio.
Blaine Heck: Our next question comes from Blaine Heck at Wells Fargo. Please go ahead. Great, thanks. Good morning out there. With respect to capital allocation thus far, you've taken a more measured approach to acquisitions. In your commentary, it sounds like you might be more open to them. So, I guess, are you seeing opportunities to invest at much higher cap rates than you have in the past? Or what's driving that increased appetite, given that your cost of capital hasn't seemingly changed for the better? And it does seem like there's a clear opportunity to buy back shares at a much lower basis than where you issued on the forward.
Speaker Change: Thanks premiere.
Our next question comes from Blaine. Heck at Wells Fargo. Please go ahead.
Michael Fitzmaurice: I guess, is that something you'd consider rather than the acquisition?
Michael Fitzmaurice: Hey Blaine, thanks for your question. In terms of capital allocation, our principles remain unchanged and intact. We're focused on allocating capital where we can drive cash, cash flow accretion, and net asset value. As we think about the various, various places that we can allocate capital, certainly repositioning redevelopment continues to be very attractive investment. It's allowing us to achieve double-digit incremental returns while we position properties to add value over the long term. As we think about acquisitions, we're continuing to evaluate, evaluate acquisition opportunities that meet very stringent underwriting criteria. We are looking at, at opportunities where we can recycle, we can recycle disposition proceeds at higher yields, and that will also drive accretion, increase the quality of our portfolio and our cash flows.
Blaine Heck: Great, thanks. Good morning out there. Um, with respect to Capital allocation, thus far, you've taken a more measured approach to Acquisitions, uh, in your commentary. It sounds like you might be more open to them. So, I guess, are you seeing opportunities to invest at much higher cap rates than you have in the past or or what's driving that increased appetite? Given that your cost of capital hasn't seemingly changed for the better and it does seem like there's a clear opportunity to buy back shares at at a much lower basis than where you issued on the forward. I guess is that something you'd consider rather than the acquisition.
Michael Fitzmaurice: As a reminder, we've sold about $134 million of dispositions to date. We have $54 million under contract or accepted offer today. And we, and those are, and the disposition cap rate on those is in the low 4% range. So this gives us an attractive source of capital for both repositioning and redevelopments as well as acquisitions. Thank you, Blaine.
Hey, Billy. And thanks for your question. Uh, in terms of capital allocation, our principles remain unchanged and intact. We're focused on allocating Capital where we can drive cash, uh, cash flow accretion and net asset value. Um, as we think about, you know, the various, um, various places that we can allocate Capital, certainly repositioning Redevelopment continues to be very attractive investment, it's allowing us to achieve double digit. Incremental returns, while we position, uh, properties to add value over the long term, um, as we think about Acquisitions, we're continuing to evaluate evaluate acquisition opportunities that meet very stringent underwriting criteria. Um, we are looking at at opportunities where we can recycle a cap. We can recycle disposition proceeds at higher yields, uh, and that will also Drive accretion increase the quality of our portfolio and our cash flows. Um, as a reminder, we've sold about 134 million dollars of dispositions to date. We have 54
Blaine Heck: 44 million dollars under contract or accepted offer today. Uh, and we and those are, um, in the disposition cap rate on those is in the low 4% range. So this gives us an attractive source of capital for both repositioning the redevelopments as well as acquisitions.
Greg Mcginniss: Our next question comes from Greg McGinniss from Scotiabank. Please go ahead. Hey.
Blaine Heck: Thank you, Blaine. Our next question comes from Greg mcginness from Scotia Bank. Please go ahead.
Michael Fitzmaurice: I was hoping you could touch on the delays and rent commencements on the repo, you know, repositioning, redevelopment front, kind of what you guys are assuming today and what's giving you confidence in achieving, you know, the new target or the new assumptions. This quarter, same as last.
Uh hey uh thanks for taking the question. Um, I was hoping you could touch on the delays and rent commencements on the repo re, uh, you know, repositioning Redevelopment front kind of what you guys are assuming today and what's giving you confidence in a in achieving, um,
You know, the new Target or the new assumption, uh, given the fact that, you know, you had the 80% interest this quarter same as last quarter, but you know, kind of leasing not getting across the finish line.
Michael Fitzmaurice: Hey, Greg, thanks for your question. Yeah, we actually feel good about the progress that we've made in terms of repositioning and redevelopment to date. As I mentioned in my prepared remarks, we've leased about 900,000 square feet. That leaves us with about 1.5 million square feet remaining through the end of the year. Our assumptions around rent commencement have been and continue to be very late in the year there. We have pushed out lease of timing a bit by about one month on average. That's driven by the current market dynamics. But we do have activity on 80% of that 1.5 million square feet.
Michael Fitzmaurice: And based on where we're seeing activity levels today, what we were able to execute in late June and into July, we feel really comfortable with our projections at this time.
Michael Fitzmaurice: Yeah, I would echo those same sentiments. In an extreme case, Greg, if we didn't sign the 1.5 million square feet, it'd only be an unfavorable one penny impact for our guide. Thanks, Greg.
Blaine Heck: Hey Greg. Thanks for your question. Yeah. We we actually feel good about the progress that we've made in terms of repositioning uh and Redevelopment today. Um as I mentioned in my prepared remarks, we've leased about 900,000 square feet. Um that leaves us with about 1 Point uh 5 million square feet remaining uh through the end of the year. Um our assumptions around rent commencement um have been and continue to be very late in the year there we have pushed out. Lisa priming a bit by about 1 month on average. Um that's driven by the the current market dynamics. Uh but we do have activity on 80% um of of that 1.5 million square feet and based on where we're seeing activity levels today. What we were able to execute and late June and into July. Um, we feel really comfortable with our projections at this time.
yeah, I would, I could those same sentiments if in an extreme case Greg, if we didn't sign them, 1.5 million square feet and it'd only be an unfavorable 1 Penny impact to our guide,
Nick Thillman: Our next question comes from Nick Thillman from Baird. Please go ahead.
Blaine Heck: Thanks Greg.
Laura Clark: Hey, good morning out there, maybe wanted to touch on kind of just tenant behavior, if you're seeing any sort of shift on whether it be like lease terms on length of term that people are doing, or, or maybe even just when they're approaching sort of renewal activity, like, are they taking longer to get back to you any sort of change in behavior there that you guys have noticed over the last 60 to 90 days? That'd be helpful. Thank Yeah, thanks for your question, Nick. In terms of lease term now, lease terms held pretty steady in the four to five year range on average for Rexford, which is, which is consistent with, with prior years.
Speaker Change: Our next question comes from Nick bilman from beard. Please go ahead.
Speaker Change: Hey, good morning out there, maybe I wanted to touch on kind of just tenant Behavior. If you're seeing any sort of shift on whether it be like, lease terms on length of term that people are doing or or maybe even just, when they're approaching, uh, sort of renewal activity, like, are they taking longer to get back to you, any sort of change in Behavior there that you guys have noticed over the last 60 to 90 days? That would be helpful. Thank you.
Laura Clark: In terms of renewals, we've had really strong renewal activity. Tenants are, you know, are coming to us a bit earlier in terms of the renewal. In terms of renewals, it's, it's interesting that we've seen a bit of a trend and an acceleration in early renewals and early renewals means those spaces that we are renewing, you know, that's six months or earlier than their expiration. Just to put some numbers around that, year to date, early renewals at about 1.1 million square feet. If you look at the back half of last year, so, third and fourth quarter of last year, we did about 600,000 square feet of early renewals.
Laura Clark: So, essentially double. I think that's what that's telling us is tenants need their space. They need to lock in that space. And I think it's a good indication of the strength of the businesses and, and they're, and they're thinking long term about their strategy and need to serve the infill market. Thank you, Nick.
Speaker Change: With prior years, um, in terms of renewals, we've had really strong renewal activity. Uh, tenants are, um, you know, are coming to us a bit earlier in terms of the renewal, uh, in terms of renewals. It's, it's interesting that we've seen a bit of a trend in an acceleration, uh, in early renewals and early renewals means those spaces that we are renewing. Um, you know, that's 6 months or earlier, uh, than their expiration. Um, just to put some numbers around that year to date, uh, early renewals to about 1.1 million square feet. If you look at the back half of last year, so, uh, SEC third and fourth quarter of last year we did about 600,000 square feet of early renewals so essentially double, um, I think that's what what that's telling us is. Tenants need that they're safe. Um, they need to lock in that space and I think it's a good indication of the strength of the businesses and, uh, and they're, and they're thinking long term, um, about their strategy and need to serve the infill markets.
Omotayo Okusanya: Our next question comes from Omotayo Okusanya from Deutsche Bank. Please go ahead.
Thank you, Nick. Our next question comes from omote. Okna from Deutsche Bank, please go ahead.
Operator: Looks like we lost Tao. Apologies for that.
Michael Griffin: Our next question comes from Michael Griffin from Evercore ISI. Please go ahead. Yeah, I mean, I think it's, it's tough to look at, you know, week over week or month over month changes in terms of market rents. So, but we did see, we did see decline in market rents sequentially and year over year.
Speaker Change: Looks like we lost Tayo, um, apologies for that. Our next question comes from Michael Griffin from evercore isi. Please go ahead.
Michael Griffin: Great, thanks. Um, you know, I realized that sort of Market, rent growth was down, both sequentially and and year-over-year. But I'm wondering if we can dig into that a little bit more. And, you know, maybe April was a outlier to the downside and things got better. And in May and June, I don't know if there are any numbers you can quantify or put around it. I'm just trying to get a sense of, you know where things improving sequentially during the quarter, or was it just all kind of impacted negatively on a on a year-over-year basis? Kind of agnostic of the month.
Michael Fitzmaurice: I do think it's important to remember what happened in the quarter. We started the quarter on April 2, with sweeping tariffs were announced. And throughout the quarter, there was tremendous volatility around tariff policy, and when an expected resolution would occur. So I think that certainly impacted, as we mentioned, some tenants decision making was paused or delayed. And that has impacted market rents in the quarter. You know, that said, we continue to execute leases, tenants are making decisions. And we've made great progress on the repo redevelopment lease up.
Michael Fitzmaurice: I will note that I think in today's environment, it's important to to indicate where we're focused. We're focused on capturing demand and occupancy. And in some cases that has also impacted rent level. Thanks, Griff.
Michael Griffin: Yeah, I mean, I I think it's it's tough to look at, you know, week over week or month over month changes in terms of the market rents. So, um, but we did see, uh, we did see a decline in Market rents sequentially and year-over-year. Um, I do think it's important to remember what happened in the quarter. Uh, we started the quarter on April 2nd with sweeping tariffs were announced, uh, and throughout the quarter, there was tremendous volatility around tariff policy and when an expected resolution would occur. So, I think that certainly impacted. Um, as we mentioned some tenants decision-making was paused or delayed, uh, and that has impacted Market rents, uh, in the quarter. Um, you know, that said we continue to execute leases, tenants are making decisions, uh, and we've made great progress on the repo, uh, Redevelopment lease up. Um, I I will note that I think in today's environment it's important to to indicate where we're focused. We're focused on capturing demand and
Michael Griffin: An occupancy and in some cases that has also impacted rent levels.
Mike Mueller: Our next question comes from Mike Mueller from J.P. Morgan. Please go ahead. Yeah, hi.
Thanks Griff. Our next question comes from Mike Mueller from JP Morgan. Please go ahead.
Howard Schwimmer: I think you mentioned a low force cap rate on recent asset sales, just curious, like, how is that influenced, if at all, by user purchases? And then just if you're thinking of your comparable property, with an at market rent, what do you see as the band of cap rates today?
I think you mentioned, uh, low Force cap rate on recent asset sales. Just curious, like, how is that influenced? If at all by user purchases and then just, if you're thinking of your comparable property with an with an app market rent, what do you see as the band to cap rates today?
Howard Schwimmer: Hi, Mike, it's Howard. Good to hear your voice. Yeah, and clearly, we've we've really tried to sell assets and capitalize on some opportunities to achieve premium values. And the user side of that is very important. And several of our transactions have been user sales. In the quarter, we sold one property in Orange County, that was a company that was actually thinking forward, they're going to convert a site to battery storage, and bought it, I think, at the equivalent on that deal, it was three and a half cap rate. And there was a bit of term left and a few options for the tenant to extend, but an irreplaceable site that they paid the premium for.
Michael Griffin: Yeah. Hi Mike. It's Howard. Good to hear your voice.
Yeah, and and clearly we've, we've really tried to sell assets, uh, and capitalize on some opportunities, to achieve premium values and the user side of that is very important. And several of our transactions uh have been user sales uh in the quarter, we sold 1 property uh in Orange County. That was a company that
Howard Schwimmer: And in terms of cap rates in the overall market, you asked about, you know, at market leasing, you know, they're, they're still in the, you know, the five zone plus or minus in terms of cap rates, Thanks, Mike.
Michael Griffin: Was actually thinking forward, uh, they're going to convert a site to battery storage um, and bought it. I think it's equivalent on that deal. It was about 3 and a half cap rate and there was a bit of term left and a few options for the tenant to extend. Uh, but an Irreplaceable site, uh, that they paid the premium for um, and in terms of cap rates in the overall Market, you asked about, you know, add Market leasing, um, you know, there's there's still in the, you know, the 5.
Uh, Zone plus or minus in terms of uh cap rates.
Omotayo Okusanya: Our next question comes from Omotayo Okusanya from Deutsche Bank. Omotayo, please go ahead. I was telling you about that earlier. Sure. Thanks for the question, Teo. And you're correct. So we ended the second quarter at 96.1%. And we do expect some deceleration in the second half of the year. And our guide again is 95.5 to 96%. The driver of the deceleration is really planned move outs within our same property portfolio. So it was expected and part of our guide from the initial guidance to now. As far as as far as bad debt goes. In terms of what we should expect in the second half of the year, it's a bit structural.
Mike.
Speaker Change: Our next question.
Speaker Change: No, sorry about that earlier.
Michael Fitzmaurice: Last year, for the second half of 2024, we had a very low, low, low bad debt of about a million or so. And we have kept our reserve at about the same level for the second half of this year at about 70 basis points. So it's 1 million versus 4 million. So that's also some of the deceleration that you could see in same property NOI as well. Thanks, Teo.
Brendan Lynch: Our next question comes from Brendan Lynch from Barclays. Please go ahead. Great, thanks for taking my question.
Laura Clark: Having leasing activity on 80% of your vacant properties, I understand this is up from 65% a year ago, maybe you could disaggregate that increase from tenants that are just taking longer time to make decisions versus an actual increase in demand? And maybe any color that you could provide around that in terms of like conversion that you've had in the past? Yeah.
Laura Clark: Oh, can you repeat the end of your question, Brendan? You cut out. Yeah, sorry about that. Just any details on conversion rates in the past. Yeah, absolutely. Yeah, so we have activity in about 80% of our vacant spaces today. When you think about, you know, conversion, conversion levels, we can use, let's use a repositioning, redevelopment from last quarter as an example. So if we look at where we had activity last quarter on repositioning redevelopments, about two thirds of that activity has either leased or is still in negotiations and we expect to convert to leasing. And we also executed a couple of leases on repositioning redevelopments last quarter that had no activity actually when we reported last quarter.
Laura Clark: So overall, conversion is taking a bit more time, as indicated by some longer lease up assumptions. But what we're seeing is, is the majority of our activity is converting or expected to convert and to execute a lease.
Speaker Change: Yeah. Absolutely. Yeah. So we, we have activity on about 80% of our, uh, vacant spaces today. Um, when you think about, you know, conversion, uh, conversion levels, uh, we can use what, let's use the rep repositioning read about Redevelopment from last quarter, as an example. Um, so if we look at where we have, uh, activity last quarter on repositioning redevelopments about 2/3 of that activity has either leased or is is still in negotiations and we expect to convert to leasing uh and we also executed a couple of leases on repositioning. The developments last quarter that had no activity actually when we reported last quarter. So overall, um, conversion is taking a bit more time, um, as indicated by, uh, some long longer lease of assumptions. But what we're seeing is is the majority of our activity is converting or expected to convert into execute the leases.
Unknown Executive: Thank you, Brendan.
John Kim: Our next question comes from John Kim at BMO. Please go ahead. Good morning.
Michael Fitzmaurice: This quarter, you've taken on redevelopment yield expectations by 50 basis points of midpoint, and I was wondering if that was driven mostly by the change in rent expectations and what the new or what your hurdle rate is for new redevelopment. Hi, Jack. Good morning. The driver behind that was a mixed issue. We had two projects that stabilized during the quarter, Turnbill, which was a 9.2% stabilized yield, and also Via Burton, which was a redevelopment that was at a 6% yield. And then we added three projects, Cabot, Figaro, and Venise, one of our redevelopments, and those were a bit lower yields.
Speaker Change: Good morning. Um, this quarter you've taken down Redevelopment yield Expectations by 50 basis points of midpoint. And I was wondering if that was driven mostly by the change in rents expectations and what the new, uh, or what your hurdle rate is for new redevelopments.
John: Hi, John. Good morning.
Speaker Change: 2 projects that stabilized.
Michael Fitzmaurice: But in terms of the incremental yields that we're experiencing on the products that we stabilized year to date, which is about seven or so, we're at 19% on an incremental return basis. And that's why, as Laura noted earlier, in terms of our priorities for capital allocation, that's our highest risk for adjusted return today. And that's where you're seeing a lot of those dollars in our balance sheet continue to be deployed in those opportunities. Thanks, John.
John: During the quarter turn bill, which was a 9.2% stabilized deal and also via burden which is a Redevelopment that was at a 6% yield. Uh, and then we added 3 projects. Uh, have it figured out and venise, uh, 1 of our redevelopments, and those were a bit lower, uh, yields. But in terms of the incremental yields, uh, that we're experiencing on the products that we've stabilized year to date, uh, which is about 7 or so we're at 19% on an incremental return basis. And that's why as Laura noted earlier, uh, in terms of our priorities for Capital allocation, that's our highest risk for Jessica to return today and that's where you're seeing a lot. A lot of those dollars in our balance sheet, continue to be deployed in those opportunities.
Vikram Malhotra: Our next question comes from Vikram Malhotra from Mizuho. Please go ahead. Morning. Thanks for the question. I guess I want to clarify something. I had a question. So, the move in, the flow of dollars coming in and out from the development pipeline, you had outlined $15 million coming out, $15 million going in. I just want to focus on the dollars going out, the $15 million. Based on what you've done so far, Internex and in the second half, it seems like there's more than $15 million, if you could clarify that. And if you add up sort of the planned redevelopments for later in 2025 and 2026, it seems like on my method, like $45 million or plus is coming out with next year and a half, coupled with sort of negative rent spreads likely and just higher vacancy across the market.
Speaker Change: Thanks John. Our next question comes from Victor, Malta from mizuho. Please go ahead.
Uh, morning, thanks to the question. Um, I I I guess I wanted to clarify something. I I had a question so
Michael Fitzmaurice: I mean, it just seems like the growth set up for 2026 is, you know, a lot lower than we're expecting. If you could just help us think through that. Thank you.
Michael Fitzmaurice: Yeah, at this point, I think we're ready to comment on 26. But for for 2025, Vikram, we had messaged from the start of the year that we're gonna have about 15 million of NOI come offline. For 2025 starts, that is still consistent today, it's actually a little bit down from last quarter. It's right around 13 million as we execute a couple of short term renewals. You know, in terms of what is going to come offline in 2026, yeah, we put some new disclosure out there to give you some guideposts on what those 2026 starts could potentially look like, and also some guideposts around costs.
Speaker Change: The the moving the the flow of dollars coming in and out from the development pipeline, you would outline 15 million uh, coming out 15 million, uh, going in, I just want to focus on the dollars going out to 15 million based on what you've done so far, uh, into next. And, and in the second half, seems like, there's more than 15 million, if you could clarify that, and if you add up sort of the planned redevelopments for later in 25 and 26, it seems like on My Method, like 45 million or plus of coming out with next year and a half coupled with sort of negative rent, spreads likely. And just, I mean higher vacancy across the market. I mean it just seems like the growth set up for 26 is is uh you know a lot lower than we're expecting. I if you could just help us think through that. Thank you.
Michael Fitzmaurice: I would tell you that the the pool is fluid, we have a strategic, strategic plan for every single one of our, our assets. And sometimes it's it's multiple plans where we could release as is, or we can reposition redevelop. So that future pipeline is somewhat fluid, largely driven by the Hertz lease that we've mentioned earlier, when we're talking to Craig about it. So it's too early to tell you what exactly is going to come offline. But at this point, we're okay giving you at least guideposts. And as we move throughout the rest of this year, we will continue to give you more guidance around what comes offline next year, including what the capitalized interest impact could be.
Speaker Change: About 15 million. Uh, I've been away come offline. Um for 2025 starts. Uh that is still consistent today. It's actually a little bit down from last quarter. It's right around 13 million. As we uh, execute on a couple of short-term renewals, you know, in terms of what um is going to come offline in 2026. Yeah, we put some new disclosure out there to give you some guideposts on what those 2026 starts could potentially look like. And also some guideposts around costs. I would I would tell you that the, uh, the pool is fluid. Uh, we, you know, have a strategic, uh, strategic plan for every single 1 of our our assets. Uh, and sometimes it's it's multiple plans where we could release as is or we could reposition and redevelop. So that future pipeline is somewhat fluid. It's largely driven by the herd's lease that we mentioned earlier. When we were talking about the Craig about it, those 2 early to tell you what exactly is going to come offline. But at this point, we're we're okay. Giving you at least guideposts, uh, and as we move throughout the rest of this year, we will continue to give you more guidance around. What comes?
Is offline, uh, next year and including what the capitalized interest impact could be.
Vikram Malhotra: Thank you, Vikram.
Craig Mailman: Our last question comes from Craig Mailman at Citi. Please go ahead. Thanks for taking the follow up. Just want to go back to the commentary, maybe a couple of follow-ups here in my one question.
Speaker Change: Thank you vicram.
Our last question comes from Craig mailman at City. Please go ahead.
Thanks for taking the follow-up. Um,
Craig Mailman: Laura, on the 80% kind of activity, is any of that double-counting, like one tenant looking at three of your spaces, or is it all unique, kind of unique interest in each asset? And then also, you had mentioned, you know, LA is a little bit spotty with pockets of weakness on demand and rents versus others that aren't. Could you kind of bucket your portfolio? I don't know if you guys look at like percent of NOI or percent of square feet that's maybe in like strongest submarkets, kind of. moderate strength sub market to then the below average sub markets as we think about you know, just LA in general, given your SoCal exposures kind of more broad than some others.
Craig Mailman: Just want to go back um to the commentary, maybe a couple follow-ups here. Um, in my 1 question uh Laura on the the 80% kind of activity. Is any of that double counting like 1 Tennent looking at 3 of your spaces or is it all unique um to kind of unique interest in each asset and then also you had mentioned you know La is a little bit spotty with pockets of of weakness on on demand and rents versus others that aren't could you kind of bucket your portfolio? I don't know if you guys look at like percent of knee or percent of square feet. That's maybe in like
Speaker Change: strongest sub markets, kind of
Speaker Change: moderate strength sub Market to them, the below average sub markets as we think about, um,
Speaker Change: You know, just LA and general, giving your SoCal, exposures kind of more broad than some others.
Laura Clark: Yeah, Craig, thanks for the follow up questions. In terms of your first question around the 80%. Yeah, that's all unique. We're not double counting interest if we have a tenant that's looking at a few spaces. So that's all unique interest.
Craig Mailman: Yeah. Craig. Uh,
Laura Clark: In terms of, you know, kind of more color around markets and performance. A few, a few comments there. What we are seeing generally across all sub markets with an infill sub in California is that our smaller spaces, I'd say spaces less than 50,000 square feet, continue to be relatively stable in the market. We continue to see solid demand there and rent, rent levels have been the strongest in those spaces that are 50,000 square feet or smaller. That's great for Rexford, by the way, our average tenant size is 26,000 square feet in the portfolio. And so I think it just speaks to the quality and functionality of our space and the market.
Speaker Change: Uh, in terms of your first question around, uh, the 80%? Yeah, that that's all unique. We're not double counting, um, interest. If we have a tenant that's looking at a few spaces, so that's all unique interests. Um, in terms of, you know, kind of more color around markets and performance. Uh, a few, a few comments there. Um what we are seeing generally across um all some markets with uh and and until Southern California is in our smaller.
Laura Clark: I'd say that where we're just diving into a few of the a market in that size range this quarter. So seeing, you know, seeing some more interest there. Other pockets, you know, a weakness, you know, potentially, you know, some Central LA and North Orange County. But again, you know, we're seeing, we're seeing some increases in overall, overall activity as we got to the end of the quarter.
Speaker Change: Spaces, uh, I'd say spaces, less than 50,000 square feet. Continue to be relatively stable. Um, and the market we continue to see um, solid demand there and rents. Uh, rent levels have been um, the strongest uh, in those uh, spaces that are 50,000 square feet or smaller. Uh, that's great for Rexford, by the way, our average tenant size is 26,000 square feet in the portfolio. And so I think it just speaks to the quality and functionality, um, of our space in the market. Uh, I'd say that we're, we're, um, just diving into a few of the submarkets. Uh, when, when we're looking at some markets, I think you also have to look at the size of spaces within this sub markets. Uh but you know, a couple of sub markets where I'd say, we're seeing um some pockets of weaknesses where you've got some more Supply. Uh, so I'd say in the mid counties Market, um, the supply of uh the supply and the kind of 100 to 200,000 square foot. Ranges is, is is elevated. And so there's um, some weakness that being said we had some, uh, we had some leasing act,
Michael Frankel: So I say that those are generally, you know, what we're seeing from a market perspective.
Michael Frankel: Michael? Yeah, no, hey, Craig, it's great. Great to hear you today. It's Michael here. And I just like to add an answer to your question. You know, consistent with our strategy, upwards of 75% of our portfolio is generally positioned within Greater LA, Orange, and the Ontario sub markets in Orange County, and Ontario sub markets. And, you know, over time, we'll find that those are tremendous markets. And what we're seeing more recently, as you roll through the different sub markets throughout Southern California is the different sub markets are adjusting, you know, in different in their own timeframes.
Michael Griffin: Activity, uh, and that's the market, uh, and that size range, this quarter. So, uh, seeing you know, seeing some more interest there. Um, other Pockets, you know, a weakness, um, you know, potentially, you know, some Central LA and North Orange County, but again, um, you know, we're seeing we're seeing some increases in overall, uh, overall activity, as we got to the end of the quarter. Um, so I I say that those are generally, you know what, we're seeing from a market perspective, Michael.
Michael Frankel: And so they're not all adjusting equally, you know, to the post pandemic rent increase, and all the uncertainty that that has resulted post pandemic. And we're just continuing to see some of that adjustment, but it's, but it's not at the same time across all sub markets. And I think that we're seeing that variability today. But you know, the markets where Rexford is present, you know, our strategy is to own the best locations within the strongest info market in the country, possibly the world, and to substantially outcompete by having the higher highest quality product in those sub markets.
Michael Frankel: And so I think that we are well positioned in terms of relative strength of the sub markets.
Michael Frankel: And, you know, over time, I believe that's going to prove itself out. Thanks, Craig.
Michael Griffin: But it's not at the same time across all sub-markets. And I think that we're seeing that variability today. But you know, the the markets were Rexford is present, you know, our strategies to own the best locations within the strongest info market, for in the country, possibly the world and to substantially outcompete by having the higher highest quality product in those sub-markets. And so, I think that we are well, positioned in terms of relative strength of the sub-markets. And, uh, you know, over time, I believe that's going to prove itself out
Operator: This will conclude today's Q&A session.
Laura Clark: I would like to turn the call over to Laura Clark for closing remarks. Thanks, Mikayla. In closing, Rexford's differentiated portfolio and entrepreneurial team drove solid second quarter results. Our irreplaceable infill portfolio, substantial embedded NOI growth, and value creation strategy position us to deliver significant shareholder value.
Thanks Craig. This will conclude today's Q&A session, I would like to turn the call over to Laura Clark for closing remarks.
Laura Clark: Thank you all again for joining us today.
Laura Clark: Thanks Michaela. In closing rexford's differentiated portfolio and entrepreneurial team drives. Solid second quarter results. Our Irreplaceable and Phil portfolio. Substantial embedded in AI growth and value creation strategy position us to deliver significant shareholder value. Thank you. All again for joining us today.
Operator: This concludes Rexford Industrial's second quarter 2025 earnings call. You may now disconnect.
Laura Clark: This concludes Rexford industrial second quarter, 2025 earnings call. You may now disconnect