Rexford Industrial Realty, Inc.

Greetings and welcome to the Rexford Industrial Realty, Inc. First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Sweat with ICR. Thank you. You may begin.

We thank you for joining us for Rexford Industrial's first quarter 2020 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package in the investor relations section on our website at www.rexfordindustrial.com. On today's call, management's remarks and answers to your questions contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risk and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our 10-K and other SEC files. Oxford Industrial assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call represents non-GAAP financial measures. Our earnings release and supplemental package present GAAP reconciliation and an explanation 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 Adil Khan and our General Counsel, David Lanzer. They will make some prepared remarks, and then we will open the call for your questions. Now I'll turn the call over to Michael.

Thank you, and welcome to Rexford Industrial's first quarter 2020 earnings call. To begin with, on behalf of our entire Rexford team, We hope that everyone on this call, your colleagues, friends, and families, are healthy and coping well during these challenging times. I'll begin with a brief summary of our first quarter operating results, followed by some perspective on the impacts from COVID-19. Howard will then cover our transaction and repositioning activity, and a deal will follow with more details on our financial results, balance sheet, and outlook. We will then open the call for your questions. Our first quarter performance continued the exceptional trends we saw in 2019. We increased company share of core FFO by 28% to $37.5 million and generated a 10% increase in core FFO per share to $0.33. Our stabilized same property NOI grew by 3.7% on a GAAP basis and by 7.5% on a cash basis. We also achieved 98% occupancy in our stabilized same property portfolio. We signed 107 leases for 1.6 million square feet. Our leasing spreads were 36.6% on a gap basis and 24.4% on a cash basis. We acquired a 10 property portfolio during the first quarter for $203 million, and year-to-date investment volume is approximately $219 million. Although first quarter results were not materially impacted by COVID-19, I'll begin with a brief description of our market backdrop as we see it today. In recent years, our target infill Southern California industrial markets have been operating at historically high occupancy at about 98%, with limited and diminishing supply, causing a persistent supply-demand imbalance. Market rent growth has also been accelerating at sustained high single-digit growth in infill Southern California. While many businesses are facing challenges, we continue to see substantial incremental demand driven by e-commerce, and other distribution-oriented tenants such as Amazon, among others. In addition, businesses from other growing sectors of the economy continue to demand space in a market with the nation's lowest level of available supply. These sectors include the electric vehicle industry, space exploration, pharmaceuticals, medical and health care products, food and consumer staples, as well as a wide range of industries feeling pressure to increase their last-mile presence as they face the need to reconfigure their supply chain and inventory management. As we try to understand the impacts from the COVID-19 crisis, it is essential to consider the underlying tenant demand fundamentals within infill Southern California. Historical data clearly shows, and our experience through prior downturns also confirms, that the tenant base within infill Southern California is about as strong, diverse, and as resilient and stable as it gets. While on a global scale, one might expect larger tenants to be more resilient than smaller tenants. However, it has been demonstrated that our infill markets have outperformed the big box, large tenant base located in non-infill markets. While this may seem counterintuitive, we believe the historical data paints a clear picture. It is very instructive to consider how our infill tenant base in Southern California performed during prior downturns as compared to large tenants located in non-infill markets. To begin with, during the Great Recession, by way of example, vacancy within our infill markets increased by a mere 100 to 150 basis points, while vacancy in the large tenant market in the Eastern Inland Empire doubled, tripled, or worse. We believe the greater resilience of our infill SoCal tenants is due to two key factors. First, it is due to the extreme scarcity of available product, exceptionally high barriers limiting supply, and a persistent supply-demand imbalance. Additionally, the resilient nature of these entrepreneurial tenants is driven by the fact that our spaces generally represent mission-critical locations required for their businesses and to support their livelihoods. It is also helpful to consider how today's crisis may be similar or different from prior downturns, such as the Great Financial Crisis, and how that may impact our recovery within infill Southern California. To begin with, in early 2009, at the onset of the Great Recession, When business order flows essentially stopped, no sector was spared. We did not have the magnitude of growth in e-commerce and other growth drivers that we still have today within infill Southern California. In addition, our markets were not as highly occupied in 2008 and 2009 as they are today. In contrast, today, there is the potential risk for tenants that to the extent they give up space within infill Southern California, they may not be able to re-enter the market with any comparable space Thank you for joining us. Thank you for joining us. We are an entrepreneurial real estate team executing at a level of intensity that enables us to out-compete within our market, whereas the vast majority of product is otherwise controlled by passive owners. Now I would like to provide an update on the current status of our portfolio and tenants. Our in-place portfolio is exceptionally diverse, comprising over 27 million square feet with over 1,400 tenants from just about every industry and type of business imaginable. Our top 10 tenants comprise only 11.8% of our aggregate base rent, or ABR. Our portfolio is 100% located within prime infill markets in Southern California, the nation's largest, most highly valued, and highest demand last mile logistics market. Approximately 30% of our leasing activity over the prior several years has been with tenants citing e-commerce as an integral part of their business. Our ABR also skews towards our larger tenants, who tend to have extensive operating histories. About 65% of ABR is driven by tenants occupying over 25,000 square feet, and with almost half of ABR comprising tenants occupying greater than 50,000 square feet. With regard to current leasing activity within our portfolio, we continue to be very busy with renewals and new leases. So far, we generally continue to hit or exceed our budgeted numbers in terms of rental rates, which continue to represent very favorable leasing spreads. In some cases, we are seeing a nominal increase in tenant concessions. However, there's another facet of the crisis here in California that may be unique to our state and is also different from the Great Recession. While many states have put moratoriums on commercial evictions, our California municipalities have gone a significant step further by enabling tenants impacted by COVID-19 to unilaterally defer rent until the local order is lifted. Therefore, currently in our markets, are merely exercising their newfound, government-mandated ability to defer rent. In light of these unique circumstances, we've taken a very proactive approach with our tenants, securing short-term deferment and repayment agreements as necessary. It also seems fair to say that the number of tenants that continue to pay rent on a current basis Despite these government mandates is a strong testament to the strength of our market. So far, tenants representing 95.4% of ABR have either paid April rent or entered into a short-term rent relief agreement. On a cash basis, we have collected over 82% of April base rent. The balance of this group, representing 13% of ABR who did not pay April rent, have executed short-term relief agreements generally for one to two months of base rent to be repaid during 2020. Tenants representing about 4% of ABR have not paid April rent and have not entered into a repayment plan at this time. Many of these tenants may be taking advantage of their newfound government-mandated ability to unilaterally defer rent. As we move forward, we will continue to take an exceptionally proactive approach, working with our tenants to help them work through this challenging period while mitigating the impacts of our local government mandates enabling tenants to defer rent. As a result, we may experience a greater volume of short-term rent deferral as compared to portfolios that are not solely located within Southern California. The good news is that we have reason to believe such deferrals will be repaid in the near term, and the historical data and our experience informs us that underlying tenant demand fundamentals within infill Southern California remain the strongest of any industrial market in the nation, and rent deferral is currently not a strong indicator of tenant sustainability. Despite these challenges, we feel very fortunate at Rexford. We believe we have the strategy, team, focus, and low-leverage balance sheet to manage through this cycle, to capitalize on emerging opportunities, and to emerge stronger than ever through the recovery. Our construction team remains very busy creating value through our value-add repositioning and renovation work. Our investment team is also exceptionally busy as we benefit from our low-leverage balance sheet and proprietary originations platforms Thank you very much. We'd like to acknowledge our team for your exceptional level of execution and collaboration, demonstrating the strength of the Rexford platform. In return, we strive to differentiate ourselves in the way we proactively support our team as they work remotely. For example, as it quickly became apparent that families with children at home faced added challenges, we responded early on by providing cash subsidies to families with young children to help them cover child care expenses. We have also implemented a fully digital online learning environment, providing the opportunity for rapid onboarding of new employees and the training and advancement of current staff. Lastly, we believe our investment work, which largely occurs in underserved and under-resourced urban infill communities, delivers substantial social benefits by improving and repositioning industrial property into thriving centers of business and commerce that provide the longer-term opportunity for jobs and increased social welfare that are now more important than ever to those local communities. And with that, I'm very pleased to turn the call over to Howard.