Rexford Industrial Realty Inc Q2 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Nick Joseph - Citi - Analyst : So it's actually Nick Joseph here with Craig. I guess just maybe first on external growth, I was hoping you could touch on the appetite for acquisitions today and what type of opportunities that you're seeing.

Question: Nick Joseph - Citi - Analyst : Thanks. And then just on the announcement in June on looking for CFO. I was hoping to get an update on the timing there and the opportunity for the newly created COO position.

Question: Nick Joseph - Citi - Analyst : Thanks. And then just on the COO opportunity and how that will add to the organization.

Question: John Kim - BMO Capital Markets - Analyst : Thank you. Good morning. I wanted to ask about the occupancy guidance. And although you touched upon it a little bit with some of the move-outs expected in the second half of the year, but how should we be modeling the 50 basis points decline? Will it be even throughout the next couple of quarters, or will that possibly end the year below the 96.5%?

Question: John Kim - BMO Capital Markets - Analyst : Okay. And similar question on the commenced leases, I think like $8 million of ABR, which is a little bit over 1%. Are these going to be commenced in 2024 or thereafter?

Question: John Kim - BMO Capital Markets - Analyst : Got it. I know you don't put the annual mark to market by year, but the last time you did provide it, the peak years of the mark-to-market on the exploration were this year and 2026. I'm wondering if that's still the case., I know you've done some acquisitions since then.

Question: John Kim - BMO Capital Markets - Analyst : Understood. Great. Thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Blaine Heck - Wells Fargo Securities, LLC - Analyst : Great. Thanks. Michael, I think you talked about near-term nominal volatility in market rent that's expected to continue. So I just wanted to get yours and maybe Howard view on what the catalysts might be to see rent growth inflect from the flat to negative growth we've seen for several quarters now. And any thoughts on potential timing from your standpoint?

Question: Blaine Heck - Wells Fargo Securities, LLC - Analyst : Okay, great. That's helpful. And I think you alluded to this, but obviously discussions around the election and potential impacts of new legislation in each scenario have been picking up. And I think with respect to industrial, a lot of the conversation has been focused on potential impacts from increased tariffs. So just wanted to get your thoughts on that subject and whether you guys have any concern on the potential impact to demand in the Southern California market.

Question: Blaine Heck - Wells Fargo Securities, LLC - Analyst : Great. Thank you, guys. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Michael Mueller Mueller - J.P. Morgan - Analyst : Yes, hi. I was wondering, can you talk a little bit about the bid-ask spreads that you're seeing in the market for acquisitions? And I apologize if I missed it, but for your pipeline of transactions that are under contract, what's the mix of off-market opportunities in there?

Question: Michael Mueller Mueller - J.P. Morgan - Analyst : Got it. Okay. That was it. Thank you.

Question: Samir Khanal - Evercore ISI - Analyst : Hey, good morning, Howard and Michael. Just in terms of market rent growth, I know you don't provide a forecast for the year. But as you think about the Inland Empire West, I mean, that got incrementally worse in the quarter. Just trying to understand like what are the dynamics you're seeing on the ground there. Is this -- do you feel like we're getting to the bottom here and you feel like we're turning the corner, or just trying to understand a bit more what you're seeing on the ground there? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Samir Khanal - Evercore ISI - Analyst : Okay. Got it. And I guess on the redevelopment pipeline, just in terms of the lease up there with demand normalizing. I mean, how should we think about the timing of the lease up? Are you seeing any slippage in timing at all? And I'm just trying to get an idea of the lease up of the pipeline, given that demand continues to normalize. Thanks.

Question: Samir Khanal - Evercore ISI - Analyst : Okay. Thank you.

Question: Vikram Malhotra - Mizuho Securities USA LLC - Analyst : Good morning, guys. Thanks for taking the questions. Maybe just on the redevelopment side, you mentioned it's just been put very modestly by one month in terms of I think you said lease-up or stabilization. I'm just wondering for projects that may be -- and that's the average for projects that may be taking a bit longer. Are these more tenant delays? Are they just construction? It's taking a bit longer because of supply chain issues. Like what's causing the delay in your stabilization estimates? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Vikram Malhotra - Mizuho Securities USA LLC - Analyst : Okay. That's helpful. So obviously, you had good spreads this quarter. You mentioned the cash mark-to-market is now 26%, I think. So if I just take that forward and use your estimates for the three-year opportunity on mark-to-market, assume flat occupancy -- I'm not putting words in your mouth, but I'm getting to 6%-ish same-store NOI growth next year. And if I lever that up, add your benefit acquisitions, I'm just wondering can you still generate that 14% to 17% FFO growth next two years? Or does that get pushed out, or the trajectory gets changed a little bit over the next few years?

Question: Vikram Malhotra - Mizuho Securities USA LLC - Analyst : Got it, and then just one last one. It's clear you mentioned versus your product and portfolio that there's a difference between the average older product. But I'm wondering just maybe private players that are somewhat similar to your portfolio, like are the tactics different from those private players in terms of lease up or gaining share? Like are they pushing incentives or prices? And could that dynamic cause may be a bit somewhat of a mini price war over the near term? Just some of the larger private guys who have maybe similar portfolios.

Question: Vikram Malhotra - Mizuho Securities USA LLC - Analyst : Thank you.

Question: Greg McGinniss - Scotiabank - Analyst : Hey, good morning out there. So based on the opening remarks, it sounds like new supply is not a significant factor within the submarkets that Rexford operating. So the increase in vacancy purely a demand-side concern. And I understand predicting an inflection point is difficult, but in the near term, what are you expecting on rent growth based on tenant industry demand trends that you're seeing right now?

Question: Greg McGinniss - Scotiabank - Analyst : Okay. I can understand the different type of product that's competing. But the disclosure that you do provide on rent growth is for our comparable portfolio. So you are seeing the headwinds on rent growth on a comparable portfolio basis. So I'm just trying to get some understanding as to what you think in the near term some of the factors that could be driving that higher or lower.

Question: Greg McGinniss - Scotiabank - Analyst : Okay. All right. Thank you, and then one for Laura. The midpoint of core FFO per share guidance implies a $0.01 headwind for the back half of the year compared to the first half. Just trying to understand what some of the drivers are there.

Question: Greg McGinniss - Scotiabank - Analyst : Okay. Thank you, Laura. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Nicholas Thillman - Robert W. Baird & Co., Inc. - Analyst : Hey, good morning out there. Maybe starting with Howard or Michael, you've talked a lot about product quality in this conversation. So maybe just what percentage of the so-called market do you view as competitive to yours? And then maybe tying that into a little bit on the acquisition opportunity set and what you're evaluating today. What's the mix between redevelopment and repositioning versus, say, a traditional stabilized property?

Question: Nicholas Thillman - Robert W. Baird & Co., Inc. - Analyst : It was the mix and the transactions you're underwriting today between repositioning redevelopment versus traditional stabilized assets.

Question: Nicholas Thillman - Robert W. Baird & Co., Inc. - Analyst : That's very helpful. And then maybe following up with Laura. It sounds as though credit quality is still -- and credit metrics are tracking on the tenant side relative to first quarter. So maybe clarifying and correct me if I'm wrong. And then if you could just give what the underlying sublease percentages as a percentage of the portfolio today?

Question: Nicholas Thillman - Robert W. Baird & Co., Inc. - Analyst : That's very helpful. That's it for me. Thanks, everyone.

Question: Camille Bonnel - BofA Securities - Analyst : Hi. It seems like the probability of East Coast port strikes is rising every day and the West Coast are benefiting from the boost from this. So I know you operate in a slightly different area of the market, but I wanted to get your views on how much of these port volumes do you think is temporary in nature. Or are you starting to see excess warehouse capacity come down leading to any leasing? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Camille Bonnel - BofA Securities - Analyst : Thanks for the color there, Howard. Laura, I wanted to clarify on your comment about concessions being lower in the second half. Are you seeing a down shift because these markets are tighter? Or as and another way, if you were to sign these leases a year ago, would the concession levels be the same as what you're budgeting today?

Question: Camille Bonnel - BofA Securities - Analyst : Got it. And I just have one more question. Like depending on which broker you speak to, it seems like there are different views of where rents have peaked and declined to. And if we just step back and consider that the average lease rate you executed in 2023 was at a 7% premium to market rents. Are you still signing leases at these premium levels today, or has that gap narrowed?

Question: Camille Bonnel - BofA Securities - Analyst : Thank you for taking my questions.

Question: Richard Anderson - Wedbush Securities Inc. - Analyst : Thanks. Good morning. And my first Rexford experience, so thanks for having me. The cash releasing spread of 49% I think you said for the second quarter and in combination with declining market rents. At what point do you see a material reduction in net cash releasing spread math? Do you start to see it start to trend down meaningfully over the next couple of years? Or do you still have plenty of runway to continue to produce that type of number for shareholders?

Question: Richard Anderson - Wedbush Securities Inc. - Analyst : Okay. Fair enough. And so you pivoted to value-added redevelopment, and that was going to be my next question anyway. What is your comfort level of having investments in that important arm of your portfolio of your strategy as a percentage of total assets? Is it time to ramp that up or pull it back in again relative to the entirety of the company? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Richard Anderson - Wedbush Securities Inc. - Analyst : Fair enough. Fair enough. It's not a zero-income business, I get that. But if there is an element of risk associate with is I guess I would say. Last question for me, you mentioned Asian importers. Are there any utility issues in the area that would need to be addressed if there was a meaningful movement through manufacturing in the region? And what's the appetite of Rexford to be a party or landlord party to increase manufacturing activity? Thanks.

Question: Richard Anderson - Wedbush Securities Inc. - Analyst : Great. Thanks very much.

Question: Brendan Lynch - Barclays - Analyst : Great. Thank you for taking my question. I'm also a long-time listener, first-time caller. So glad to be here with you guys on record call today. One of the things that you mentioned was that you're embedding 4% escalators, which are above the long-term industry standard. Maybe you could talk about a little bit where you think the limit might be there and whether you have tried to push escalators even above 4%, or if that's a consideration for the future? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 5:00PM, REXR.N - Q2 2024 Rexford Industrial Realty Inc Earnings Call

Question: Brendan Lynch - Barclays - Analyst : And when you're pushing the escalators, are you getting the sense that tenants are looking for additional concessions? Is that part of the reason that maybe we're seeing 1.5 month to 50 this year versus 1 last year, or that kind of unrelated?

Question: Brendan Lynch - Barclays - Analyst : Okay. Thank you very much for the color.