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spk11: And welcome to Rexford Industrial Realty first quarter 2021 earnings call. At this time, all participants are on 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, Costa Carminholis, Senior Vice President of Corporate Finance and Investor Relations. Thank you. You may begin.
spk08: Thank you for joining Rexford Industrial's first quarter 2021 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package in the investor relations section of our website, www.rexfordindustrial.com. Joining today's call are Rexford Industrial's co-chief executive officers, Michael Frankel and Howard Schwimmer, along with chief financial officer, Laura Clark, and General Counsel David Lanzer. Before we begin our prepared remarks, I would like to remind everyone on today's call that 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 risks 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 filings. Rexford Industrial assumes no obligation to update any forward-looking statement 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 reconciliations and an explanation of why such non-GAAP financial measures are useful to investors. With that, it is my pleasure to hand the call over to Michael.
spk06: Thank you, and welcome to Rexford Industrial's first quarter 2021 earnings call. We hope you and your families are well. Today I'll begin with a brief overview. Howard will then cover our transaction activity, and Laura will discuss our financial results. We will then open the call for your questions. With regard to the first quarter, we are pleased with our exceptional results. From an operational perspective, a robust 2 million square feet of leasing drove 98.3% occupancy in our stabilized portfolio. Releasing spreads continue at record levels, averaging 33% cash and 47% on a GAAP basis. Our extraordinary internal growth, coupled with our strong investment volume, resulted in year-over-year core FFO growth 29% and 12.1% on a per-share basis. As we look forward, Infill Southern California appears positioned to outperform UCLA economists project California will grow faster than the rest of the United States, driven by a diverse range of growing business sectors, combined with lifting of some of the nation's most constraining pandemic restrictions. Moreover, e-commerce continues to surge, representing more than $1 for every $5 spent on retail purchases. First quarter port volumes exceeded pre-pandemic levels, with imports growing 25%, compared with the first quarter of 2019. Moreover, with unprecedented tenant demand, Rexford's last mile portfolio is positioned to outperform within our markets due to our focus on the best locations delivered with superior functionality. Within our infill markets, a dearth of developable land and high barriers constrain new construction, resulting in essentially no ability to introduce any material volume of net new supply. In fact, our infill markets continue to lose supply on average year over year. Consequently, CBRE projects greater Los Angeles rental rates to grow at a rate that is two and a half times greater than the remaining major markets outside of Southern California into the next four years. With an incurable supply-demand imbalance, the infill Southern California tenant base continues to prove itself as the strongest, most resilient, and highest demand tenant base in the nation. Looking forward, the company is positioned for favorable internal and external growth. Overall, we project approximately 18% of embedded NOI growth equal to $54 million within our in-place portfolio, assuming no further acquisitions over the next 18 to 24 months. Regarding external growth, the company has perhaps never been better positioned, as our research and local relationship-driven origination methods enable us to harvest a proprietary pipeline of investment opportunities. We are well positioned to grow accretively, significantly beyond our current 1.7% market share within the infill of Southern California, the nation's most highly valued industrial market. Regarding our Rexford team, this past March marked one year since we began working remotely. We are truly humbled by the extraordinary manner with which our Rexford team rose to the task despite many hardships, to perform at the highest levels within the entire real estate industry. We'd like to acknowledge and thank the Rexford team for your tremendous dedication, entrepreneurial spirit, and market-leading performance. And with that, I'm very pleased to turn the call over to Howard.
spk07: Thank you, Michael, and thank you everyone for joining us today. Market fundamentals in infill Southern California continued with unprecedented strength in the first quarter despite impacts associated with the pandemic. Vacancy tightened and demand accelerated as a diverse group of growing industries and e-commerce companies absorbed warehouse space at a torrid pace. Over the past 12 months, according to CBRE, our info markets experienced strong rental rate growth with asking rents up 4.9% on a weighted average basis. For further perspective, based on our internal portfolio analytics, We believe market rents increased by an estimated 9.3% over the prior year for comparable product within our target infill Southern California markets. Our target markets, which exclude the Inland Empire East, ended the first quarter at 1.9% vacancy. By comparison, our same property portfolio ended the first quarter with 98.6% occupancy, outperforming the market by 50 basis points. a testament to the high quality of the Rexford portfolio, our strong tenant retention, and elevated new leasing volume. Of our top 20 largest expiring leases this year, approximately 80% of spaces representing 1.4 million square feet have already renewed, been re-tenanted, or are in lease negotiations. The remaining 675,000 square feet of top 20 spaces are headed for value-add repositioning and future lease-up. A recent leasing example in our San Gabriel Valley portfolio demonstrates the strength of our market. During the quarter, a tenant occupying about 150,000 square feet was dismayed with a higher renewal rate and spent months searching for alternative, less expensive space. Unable to find any similar functional space, the tenant finally renewed with us. at a rent that was a full 21% higher than our original proposal had they not waited. In the end, we generated a cash-releasing spread of 95%. This is representative of the unprecedented pace of rent growth within our infill markets and set another record for all-time high rent for the submarket. In addition, we obtained 3.25% contractual annual rent increases through the term of the lease which exceeds the 3% historical standard for our markets. As a general note, we are increasingly pushing our annual rent bumps above 3%, and in some cases, as high as 4%. Year to date, we completed 11 acquisitions, which included 807,000 square feet of buildings, including 26.9 acres of low coverage outdoor storage sites and land for future redevelopment, for an aggregate purchase price of $191 million. Eighty-two percent of these transactions were off-market or lightly marketed, enabled through our proprietary research-driven sourcing methods. These investments are projected to generate an aggregate 5.2 percent or greater stabilized yield on total investment and provide strong value-add cash flow growth over time, initially contributing about two cents of FFO per share through the remainder of 2021 and growing to about nine cents per share after repositioning or redevelopment. We currently have over $450 million of acquisitions under LOI or contract. These acquisitions are subject to customary due diligence with no guarantee of closing. We will keep you apprised as transactions are consummated. On the disposition front, we sold two properties totaling $21 million in the San Fernando Valley and Inland Empire East submarkets. The proceeds were used to tax efficiently fund a portion of our acquisition activity. Moving forward, we expect to continue to sell assets opportunistically to unlock value and recycle capital. Turning to repositioning and redevelopment activities, we have over 3 million square feet of current and planned value-add projects throughout our portfolio. Of these, 1.3 million square feet of current projects in repositioning, redevelopment, or lease-up, which are detailed in our supplemental, are estimated to deliver an aggregate return on total investment of 6%. These projects are expected to deliver substantial value creation as our stabilized yield represents more than a 200 basis point premium compared to the sub-4% market cap rates that they would be valued at in today's market. And with that, I'm pleased to now turn the call over to Laura.
spk01: Thank you, Howard. I'll begin today with details around our operating and financial results. In the first quarter, stabilized same property NOI came in ahead of our forecast with 6.8% growth on a gas basis and 8.2% on a cash basis, driven by a 40 basis point pickup in average occupancy and strong releasing spread. Ring collections were over 98% of contractual billings in the first quarter, essentially at pre-pandemic levels. Since the pandemic began, we have provided tenants a relatively nominal amount of rent deferral, totaling $4.8 million, representing about 1.5% of ADR. And we have collected over 96% of deferrals billed to date. We currently have only $535,000 remaining to collect in 2021. In addition, bad debt came in better than expected at 50 basis points of revenue. This quarter's lower bad debt levels are reflective of the health of our tenant base as well as the proactive efforts of the Rexford team. As we discussed last quarter, our team is successfully recapturing below market rent spaces and re-tenanting at substantially higher rents. The combination of strong results generated core FFO per share growth of over 12% or 37 cents per share in the first quarter. Turning now to our balance sheet and financing activities, We are maintaining a best in class, low leverage balance sheet, which allows us to be opportunistic during all phases of the capital cycle. At quarter end, net debt to EBITDA was four times, coming in at the low end of our target range of four to four and a half times, with net debt to enterprise value at 13%. During the quarter, we raised $197 million of equity through the ATM program, at an average price of $50.10 per share. $77 million of the total was issued on a forward basis with settlement to occur within the next 12 months. Proceeds from this quarter's ATM activity were used to fund first quarter acquisitions as well as those identified to close later this year. As of March 31st, we had approximately $124 million of cash on hand. we remain in a strong liquidity position with no debt maturities until 2023 for full availability on our $500 million credit facility and approximately $524 million available under our ATM program. Turning to guidance, we are increasing our full-year projected core FFO per share range to $1.41 to $1.44. Our revised midpoint represents 8% year-over-year growth. As a reminder, and consistent with our prior practice, our guidance does not include acquisition, disposition, or balance sheet activities that have not yet closed to date. Other notable components of guidance include an increase to our stabilized same property NOI growth by 75 basis points at the midpoint to 3.75, 4.75% on a GAAP basis and 6.75 to 7.75% on a cash basis, driven by our strong first quarter performance. Updated guidance includes the assumption of bad debt expense as a percent of revenue of 110 basis points for the full year, a reduction of 15 basis points from our previous view. We are increasing our expectation for average occupancy in the stabilized same property pool to a range between 97.25 to 97.75%, up 25 basis points at the midpoint, driven by our robust first quarter leasing activity. We included a guidance roll forward and a supplemental package that further details the components of our 2021 core FFO per share guidance. Before turning the call over for your questions, We are excited to announce that we will be publishing our annual ESU report at the end of the month. At Rexford, we are committed to optimizing positive impact to the environment, our communities, our tenants, employees, and shareholders. This completes our prepared remarks. We now welcome your questions.
spk11: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Emmanuel Kortsman with Citi. Please proceed with your question.
spk10: Hey, everyone. Good afternoon and good morning. Maybe this is one for Howard or Michael. You've had a little bit of success with doing some unit deals to get transactions unlocked amongst that pipeline you talked about. Are there unit deals included in that, or are those all going to be sort of straight cash deals?
spk07: Hi, Manny. It's Howard. Nice to hear your voice. Yeah, the $450 million pipeline, you know, there are, some discussions within that. But it's funny, a lot of times they just turn into cash deals. So, you know, it's hard to comment really specifics right now on it. But, you know, the upgrade transaction pipeline has been growing. You know, there's a lot we consummated last year. And, you know, we're optimistic of being able to talk more about future upgrade transactions as well.
spk10: And then you guys talked about 18% embedded and a wide growth. That's exclusive of sort of just rental rate mark-to-market, right? That's just if all the developments come in the way that you expect and annualizing sort of the growth from closed acquisitions, that gets you to the 18%, right?
spk06: Hey, Manny, it's Michael. Great to hear from you, and thanks for joining today. So that, yes, it includes more than just the mark-to-market. So it includes also the repositionings. contributing about $32 million, $33 million of the $54 million. In fact, leasing spreads are only contributing about $17.5 million of that $54 million.
spk10: Great. Thank you.
spk11: Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
spk03: Great. Thanks. Good morning out there. So we continue to hear about the wall of capital chasing industrial products. Can you just talk a little bit more about the overall competitive environment in Southern California and your markets in particular? And, you know, have you seen any change in interest as cap rates have compressed to really historic lows here?
spk07: Hi, Blaine. It's Howard. You know, I guess looking back over many cycles, we've always had quite a bit of capital interested in penetrating into the Southern California marketplace. It's difficult because there's not a lot of transactions that are out there on an actively marketed basis. So people do have the difficulty penetrating. So at this point in the cycle, it's no different than the past. Some of the names have changed. Some of the different capital sources obviously are shifting over. And really, it's really testament to our unique access to the market where we focus on off-market and letting the marketed transactions as well as occasionally buying on market product. You know, last quarter, I think, you know, over 80% of our transactions were off market or lightly marketed. And so it's interesting, you know, most of that capital out there really never even had a chance to compete with what we're buying. So, you know, really nothing new. It's no secret. I think California is, you know, the best industrial market in the country. So, There's plenty of capital that's always left to place in our markets.
spk06: And, Blaine, this is Michael. I'll just add a little more perspective. You know, we have seen a rotation from certain investors that might have targeted other asset classes, you know, retail, et cetera, who have increasingly, you know, come into approach industrial. And so there's certainly more competition, as Howard indicated. But what's really interesting about our business is if you look at the trend line for Rexford, you know, for the prior eight, nine years, our percentage of transactions through off-market and lightly marketed transactions has actually increased despite there being more competition in the market. And so, you know, five years, six years ago, we were probably hovering around 70% off-market, lightly marketed deals. And today, this year, we're over 80%. You know, last year, we were close to 80% despite, you know, increased volume of activity as well at Rexford. So I think that really tells the story. We are just digging deeper into the markets. We're better at what we do. We're leveraging better technology. Our team is further developed. And we are just penetrating deeper and deeper into the marketplace.
spk03: Yeah, that's really helpful. And I guess just related to that and given how cap rates have continued to compress, you know, you guys certainly have your pick of capital sources, but You know, are you thinking any more about opportunistic dispositions? Would you guys consider selling a small portfolio of assets given where valuation is?
spk07: Well, we're always looking through the portfolio. Most of our sales tend to be more opportunistic. And, you know, if you look at the overall portfolio, the market is about 11% in terms of where we sit below market and lease rate. So there's always plenty of upside in our assets. And yeah, it's funny, we get we look back at a couple of things even today that we've been considering selling, you know, even just a year ago, and the right growth that we're experienced, we experienced in those assets is astounding. And so that value creation is very strong. So we really tend to really more focus have more focus on just the opportunistic sales that may may tend to outperform a cap rate type sale. or maybe another reason or two, you know, sometimes something's a little bit more management-intensive or we don't see ranks growing as quickly in something we might consider selling.
spk06: And maybe I'll just add again, as Michael, to that. You know, we're getting to a point where Rexford's scale in the marketplace is affording different levels of opportunity for both Rexford and our customers. And I'll give an example of that. For instance, we recently – I might have mentioned on a prior call that we established a new customer solutions function at Rexford. And we're able to look at the market and offer our customers and prospective tenants a much more strategic opportunity throughout Southern California. And so today we're talking to tenants not just about one space, but we're talking maybe about their needs for 20 spaces or 30 spaces throughout the region. And also as a company, you know, the scale is really beneficial in terms of achieving greater operating leverage within the portfolio. So I think you're going to start to see Rexford's operating margins, you know, really start to accelerate over the next, call it, you know, 12 to 36 months as the, you know, the platform is fully built out. And you're not going to see a lot of heavy expenditure incrementally in the platform, you know, as we move forward. So I think that's a really exciting time for the company. And by the way, Howard mentioned the mark-to-market, but if you look at expiring leases through the end of the year, the mark-to-market is around 20%. And that's typically found given the rate of market rent growth that as we approach next year, that mark-to-market will probably be higher than the 11% that we might be projecting out in the portfolio as a whole as well. I think currently we're looking at about 14% for next year.
spk03: So a lot of room to grow. Yep. Thanks, guys.
spk11: Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.
spk00: Great. Thank you. I was just hoping to get a little bit more color on, you know, how the type of tenants leasing space has changed even into the first quarter. I assume there's been kind of a change in the type of tenant based on the fact that we're kind of coming off the bottom. And then also if you can just address the bad debt expense and, you know, just kind of any lingering downside to that or kind of how your approach has changed there as well.
spk06: Jamie, I just want to understand the first part of your question. Change in tenant demand, maybe I missed the question, by business type, are you saying what is the nature of that demand?
spk00: Yeah, just the types of industries and the types of businesses that are leasing space today or have become more active over the last three, four, five months. as things have started.
spk06: Yeah, maybe I'll touch on the first part, and then, Laura, you can touch on that debt. And I heard you mention also, you know, now that we're coming off the bottom, and what's really interesting in infill Southern California was that starting in June of last year, still early stages in the pandemic, you know, leasing activity really started to accelerate very dramatically after a very brief pause of, say, March, April, May. And so we really started coming off what, you know, if there was a bottom, you know, much earlier in the cycle in the infill of Southern California. And we've, and 10th Amendment, as Howard described, has really continued to accelerate beyond levels that we've ever seen in our 30, 40-year careers here. And truly driven by a pretty broad range of industries. You know, everything from food, consumer products, and staples, healthcare, healthcare products, pharmaceuticals, as you'd expect, but also, you know, aerospace and space technology, mobility and electric vehicles. And all these sectors, by the way, they represent ecosystems. So it's not just electric vehicles, but it's the suppliers of all the components, the batteries, et cetera. It's the service centers that supply those sectors, for instance. And so it's been an extraordinarily broad-based set of demand drivers from an industry perspective. And then you have e-commerce, of course, layered in, which we all know what's happening with e-commerce. But I think I think based on what we're seeing in the market, there's reason to believe that we're still in the early stages of the impact from e-commerce as it's going to impact our markets in a very positive way. Just a couple of indicative examples. People talk a lot about Amazon and how they're penetrating these info markets, but they're using the spaces differently. They bought an Uber-like company not too long ago, and they're using these vehicles and vans to distribute locally It's much more efficient than trucks. And now you've seen Walmart do the same. And now there's an announcement last week that Target is doing the same. And they're establishing these sortation centers that are going to be in our warehouses, you know, very local and close to the end points of distribution. And so you're really seeing the initial stages of a wave of impacts to the e-commerce driven demand for our product. And it also is impacting the way they use it, the way that these properties are configured. And frankly, it plays exceedingly well into what Rexford delivers to the market. So we couldn't be better positioned.
spk01: Yeah, and I'll also add one other comment around demand from different industries. I think we also are starting to see demand come back in some of those sectors that have been slower to reopen in California. Entertainment is one of those. Actually, this quarter, we signed a lease with a tenant that's going to use space for studio productions. and they're gonna invest between five and 10 million to convert this space. So it's good to see some of these industries that had been shut down and that had been operating in a limited capacity starting to come back to market and seeing demand from those sectors as well. In terms of your question around bad debt and let me, I'll speak a little bit about the drivers for Q1 and then talk about full year expectations. So bad debt for the quarter, as I mentioned in the call, was 50 basis points of revenue. The decline in bad debt this quarter as compared to the full year of 2020, which was around 150 basis points, the decline this quarter was primarily related to unanticipated payments by a handful of our watch loss tenants. And this resulted in cash recovery or positive impact to bad debt for the quarter. you know, excluding these unforeseen cash recoveries, our bad debt expense would have been about 125 basis points, which is in line with our full year, which was in line with our prior full year guidance. So in terms of our revised bad debt forecast of 110 basis points for the full year, it's really capturing that Q1 pickup in bad debt or better than expected bad debt in Q1. A little color around those cash collections, they really came from tenants that are in categories that have been slower to reopen, entertainment being one, travel-related industries being another. And we're certainly optimistic that these tenants are going to be able to fulfill their rent obligations once they're operating. It's challenging to forecast the ability of these tenants to pay rent consistently in the near term. especially given the fact that moratoriums are still in place that give tenants the unilateral right to defer rent. And those moratoriums are set to lift at the end of June, but as we all know, they've been pushed back several times. So with three-quarters remaining moratoriums in place, we're being cautious and prudent with our bad debt forecast as we look through the next three-quarters.
spk00: Okay. Thank you. That's very helpful. And then going back to the cap rate discussion, can you maybe talk about, you know, what you think cap rates actually are in across your different sub markets? And then I guess even more importantly, what, what assumptions you think people are underwriting to get to those numbers?
spk07: Um, yeah, no, that's a great question. So, uh, we've obviously seen some cap rate compression on marketed transactions. especially when you have quality assets with tenants on longer-term leases. And today, you know, those transactions, not unusual to see them sub 4%. And I think when you say what are some of the underwriting assumptions, you know, Rexford underwrites cap rate expansion in our acquisition. So we don't assume that we're going to exit anywhere close to where cap rates are in the marketplace today. But what we do here is that there's a lot of allocators, capital allocators out there that underwrite very similar cap rates at exit. So really having strong expectations of continued performance in the marketplace. But yeah, and of course, as you know, Jamie, we're really not cap rate buyers. We're really more focused on where we're able to stabilize assets. you know, over the, you know, near-term, short-term periods of time. And, you know, you've obviously seen the results of that in terms of our repositioning pipeline. I mentioned on the prepared remarks those assets that were stabilizing over the near-term looking about 6% stabilized yield on total costs, which is, you know, creating substantial value compared to where these assets would trade today in the marketplace.
spk00: And what do you think people are assuming for NOI growth or rent growth?
spk07: You know, I think if you, you know, talk to brokers out there, you know, it's higher single-digit growth over the first year here, something, you know, not too different maybe into next year, and then, you know, dropping down into, you know, maybe a bit above 3% for the next year or two. We're not underwriting that aggressive of rent growth in our acquisitions. We still would rather be pleasantly surprised as opposed to pricing to absolute perfection in how we buy our products.
spk00: Okay, great. Thank you.
spk11: Our next question comes from the line of Connor Savitsky with Berenberg. Please proceed with your question.
spk02: Hey, everyone. Good morning over there. Thanks for having me on the call. Thinking about one of the peers' calls from earlier this week on the development repositioning pipeline, I'm wondering if you're expecting any disruption here from rising costs of input steel specifically, and if you could add some color on how you're approaching procurement in the current environment.
spk07: Sure. Hi, Connor. Nice to hear from you. What we're seeing out there is really some disruption on larger projects. You know, there are shortages of steel and some of the other commodities used in constructing buildings. But what's interesting is that, you know, in the middle of this pandemic, we saw construction costs actually go down. We actually had some rebidding of some of the projects that we were doing and locked in some real favorable pricing. And so what we, you know, are really looking at internally is we're seeing construction costs coming up off those lower numbers. So, you know, not too far different than where we might have been projecting maybe about a year ago. But, you know, that said, we are projecting some higher cost increases in our underwriting today just to be safe. We kind of view, you know, some of this disruption as something maybe over the next six months to a year. Interestingly, though, on our smaller projects that are less than a million dollars, We're not seeing really any significant pricing fluctuations, and we attribute that perhaps to a lot of other contractors coming into the space having shifted out of other product categories, so they're being more competitive in order to win jobs from us. So hopefully that helps you.
spk02: That's very helpful. Are you seeing any delays in schedules or not yet?
spk07: Not necessarily. I mean, a little bit. We've adjusted on our repositioning page some of the projected completion dates because of some of those projected delays. But at this point, nothing dramatic that I could point to.
spk02: Okay, fair enough. And then one last one for me. Apologies if I missed this earlier, but on the remaining lease rule for the year, I think it's 11% of ABR. Is there any sense of timing whether this is back-end waiting or spread throughout the next three quarters?
spk01: Yeah, Connor, I can take that. About 43% of our lease expirations are in the fourth quarter, and that's certainly impacting our occupancy assumptions as we have less visibility into those expirations. So as we move through the year and we get more visibility, we'll provide updates around our assumptions around lease up and timing as we move through the year.
spk02: Okay, thanks. That's all from me.
spk11: Our next question comes from the line of Dave Rogers with Robert W. Baird. Please proceed with your question.
spk04: Yeah, good morning out there. Howard and Michael, I heard in your prepared comments, I think you said 9% market rent growth for your targeted submarkets. I guess I was wondering if you could bookend that a little bit by geography for you guys or maybe the submarkets that you think are performing well and aren't and how they compare to that overall average and And I guess with the rent growth that you're seeing, is there any push in the market for longer-term leases, I guess mostly by the tenants, I would assume?
spk07: I'll give you a little color on some of that rent growth that we're seeing. If you look from a county standpoint, the largest rent growth that we saw was in the San Bernardino area, which covers the Inland Empire West. Internally, that looked like it was, you know, in the mid-teens, followed by Orange County had very strong rent growth. In terms of, you know, interestingly, the size spaces that we're seeing the rent growth, it's pretty well dispersed. I think the largest rent growth we're seeing was, you know, in the low, let's see, it was a little over 11% in the 100,000 foot and greater category. And the next strongest was just even smaller space, 5,000 to 20,000-foot spaces, a bit over 10%. What's very interesting, though, Dave, is that we've seen an acceleration in rent growth just over the last quarter within our mark-to-market on the portfolio MLAs, looking more like 4% growth from the end of Q4 through Q1. So, you know, that has every indication of continuing throughout this year as well in terms of the strength of that growth. I'm sorry, you had one other part to your question. What was that?
spk04: Oh, just on the lease terms, the length of the lease terms, any push for tenants to get that out longer given the rent growth you are seeing?
spk07: Yeah, well, this is certainly a time in the cycle for us to try and lock in some longer-term leases based on these record-setting lease rates that we're achieving. And as well as what lends further comfort for us to push those terms is the larger rent increases that we're now able to capture in the leases. I'd mentioned earlier that we were achieving above 3% and even pushing now to 4% in many projects. So we don't have as much of a concern about being a bit behind in growth on a longer-term basis. Also, you know, tenants certainly recognize that we just have a shortage of space in the markets, and they're more interested in controlling space for a little bit longer period of time than they might have in the past. But, you know, overall, in terms of what you saw for the lengthening of our term, a lot really could be attributed to just the average size lease that we completed in this past quarter, it was about 50% higher than the average size space leasing in Q4. And so when you do the math, that sort of attributes as well to the increased average terms.
spk04: Great. That's helpful. Maybe one follow-up for Laura, if I could, in the FFO roll-forward that you provided, which was helpful. Thanks for doing that, Laura. I was curious on, I think you bought the $160-plus million of assets, had about a $0.02 impact, but you sold $20 million, and you had kind of a negative penny in there for that. Anything in particular with those assets that maybe had an outsized negative contribution, again, realizing it's just a penny, but was just kind of curious on the delta in those numbers?
spk01: Yeah. I think it's more related to and more of a function of what we've acquired year to date, which is $191 million, and that includes the subsequent to quarter end acquisitions. So as you mentioned, you know, we're estimating that those acquisitions will contribute $0.02 per share. As we discussed in our prepared remarks, our acquisition activity to date is very heavily weighted towards value add and core plus properties. and with an expected yield, a stabilized yield of 5.2 percent. So, that FFO per share contribution is expected to grow over time and grow to 9 cents per share and will certainly contribute to our long-term embedded NOI growth prospects.
spk04: That's helpful. Thank you.
spk11: As a reminder, it is Star 1 to ask a question. Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.
spk09: Hey, good morning out there. A couple of quick ones and then a bigger picture question. So, Laura, I just wanted to go back to you on the bad debt for the first quarter. Was that the improvement over expectations related to prior period recoveries? Is that specifically what it was?
spk01: It's related to cash collections that we received from tenants that are on the watch list, so prior reserves. and we receive amounts owed by those tenants.
spk09: So that's cash basis tenants paying for the current period? That's correct.
spk01: Yeah, that's correct, Chris.
spk09: Okay, great. That's helpful. And then, Howard, I guess just thinking about the lease expiration schedule, are there any major known move-outs at this point?
spk07: We've handled the predominance of our larger expirations at this point. And, you know, we're sort of back to where we always wind up, where it's really just blocking and tackling on, you know, moderately sized spaces.
spk09: Okay, thank you. And then just taking a step back, both Howard, you and Michael have talked about the, you know, the last mile nature of your portfolio. I guess I was curious as to whether you've broken down your ABR exposure between those sort of tenants that are servicing the local economy, however you want to define it, versus those that are in your portfolio that have a multi-regional or multi-state sort of reach?
spk06: You know, the predominance of our tenant base is really regionally focused, and I think that's a function of many decades, actually, of the evolution of the tenant base in California, so it's not unique to the Rexford tenant base. And it's not just consumer distribution, but it's also business to business. You know, this is the largest economic zone in the nation by a fairly substantial margin, largest regional population in the nation, and the most diverse economy in the nation. So, you know, it's its own country. I think it'd be, you know, one of the largest countries in the world. So, you know, it's really more of a predominantly regional focus. And, you know, And by way of indication, you know, we're not as port-driven as your big box properties out in the Eastern Land Empire or in Arizona, but it's estimated that upwards of 50% of the product imported to the two ports, you know, the two largest ports in the country, Valley and Long Beach, are consumed or distributed regionally. So it just gives you a sense, you know, for the size of the regional economy. So the predominance is really regionally focused. Great, thank you. That's all I had this afternoon.
spk01: Thanks, Rick.
spk11: Our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your question.
spk05: Yeah, I guess, Laura, on the bad debt recovery, how significant was that? And just ask me, because if you take the 37 cents in the quarter, annualize that, you're already well north of the range.
spk01: Yeah, absolutely. That's a really good question. So as I mentioned, those cash recoveries offset, you know, our bad debt expense. So had we not had those cash recoveries, our bad debt expense would have been closer to 125 basis points for the first quarter as a percent of revenue. In terms of, you know, in terms of your question around, you know, annualizing that 37 cents for the full year, You know, first quarter included a few items. First is the impact in that lower bad debt that I just talked about. The second is a pickup in average occupancy, and that's offset by some non-recurring G&A expense that incurred in Q1 as well. So these items together equate to about one and a half cents per share. So if you use that as a run rate, and if you use that as a run rate, you can get to the midpoint of our full year guidance.
spk05: Got it. Okay. That makes sense. And then I guess on the shadow redevelopment repositioning pipeline, the 1.7 million square feet that's not processed, can you give us a rough sense as to how soon that could go into process and what an incremental investment could look like for it?
spk07: Sure. Maybe I'll just mention a bit about the projects, or you might want to add some color on some of those costs. We will be starting quite a few projects before the end of the year. I don't think at this time we're prepared to give you any specifics around the square footage of those. It might be something we talk about more offline in detail if you'd like to drill down project by project. But, you know, we're optimistic to have some further starts, and we'll update you more on the next quarterly call as we know more about, you know, timing locking in on those starts.
spk06: By the way, the 1.7 million square feet, only about 570,000 square feet are really future repositionings. And the rest of it, you can kind of see the target completion dates, the majority of it, you know, on our supplemental page.
spk07: Yeah. And I would add also that we expect lease up of some of the current repositioning work of about almost 1.2 million square feet through the end of 2021. Okay. Yeah. Okay.
spk01: One more add there, Mike, is that on our repositioning page, we do provide the projected repo cost on those repositionings and redevelopments. And so for our pipeline, if you total those together, it's about $180 million.
spk06: Got it. Okay. Thank you. Yeah, and I'd say that just looking over our notes too, the 1.7 million square feet of future redevelopment, you know, the majority of that starts and completes, you know, within the next one to two years.
spk11: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
spk06: Well, we'd like to thank everybody for joining today. Appreciate your focus and time on Rexford and we look forward to reconnecting in about three months and hope everybody stays well. Happy Earth Day and look forward to reconnecting soon.
spk11: Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.
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