Rexford Industrial Realty, Inc.

Greetings. Welcome to Rexford Industrial Realty Incorporated second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to David Lanzer, General Counsel. Thank you. You may begin.

We thank you for joining Rexford Industrial's second quarter 2023 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package and investor presentation in the investor relations section on our website at rexfordindustrial.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined by federal securities laws. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information about these risk factors, please review our 10-K and other SEC filings. Rexford Industrial assumes no obligation to update any forward-looking statements in the future. Additionally, certain financial information presented on this call represents non-GAAP financial measures. Our earnings release and supplemental package present GAAP reconciliations and explanations of why such non-GAAP financial measures are useful to investors. Today's conference call is hosted by Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer, Laura Clark. They will make some prepared remarks and then we will open the call for your questions. Now I turn the call over to Michael.

Thank you, David. I'd like to welcome everyone to Rexford Industrial's second quarter 2023 earnings call. I will begin with a brief introduction. Howard will discuss our operations, followed by Laura, who will focus on our financial metrics. I'd like to start by acknowledging our Rexford team for delivering an exceptional quarter, which included a 33% increase in quarterly earnings, or FFO, and a 10% increase in FFO per share over the prior year quarter. Our strong results were driven by value creation across all of Rexford Industrial's internal and external growth strategies. From an internal growth perspective, we maintained same property pool average occupancy of 98%. Our high occupancy was supported by 450,000 square feet of positive net absorption and 2.1 million square feet of lease activity, achieved with record leasing spreads of 97% on a gap basis and 75% on a cash basis. During the quarter, our team stabilized four value-add reposition properties that are contributing an estimated $9 million of incremental annualized NOI, growing by 4% through our embedded annual rent steps. From an external growth perspective, our team completed approximately $905 million of investments year-to-date, generating an estimated $47.5 million of initial annual FFO contribution which is projected to grow to over $60 million as value-add investments are stabilized over the next three and a half years on a weighted average basis. The strength of our portfolio's ongoing performance is driven by three key factors, which include our superior functionality relative to an overall infill market comprised largely of older, lower functional products, our premium infill locations, and focus on the highest demand lowest supply product categories in each of our submarkets, and our entrepreneurial approach to maximizing value. With regard to market conditions, as expected, we are seeing our infill markets normalizing in terms of market occupancy compared to the extraordinary levels achieved during the pandemic. Directionally, occupancy is approaching pre-pandemic levels, which at that time also represented a very strong market. With regard to market rents, also as expected, we are seeing some normalizing from the torrid rent growth experienced during the pandemic, which exceeded 100% market rent growth in our markets. As our markets adjust to the post-pandemic environment, we expect some volatility in market rent growth in the very short term, depending on sub-market, product quality, and category size. However, in the medium to longer term, our favorable underlying fundamentals position infill Southern California for superior rent growth over time. Just as superior underlying market fundamentals within infill Southern California drove the strongest rent growth in the nation through the pandemic, those same superior underlying fundamentals continue to drive long-term demand within our markets. The infill Southern California industrial market continues to benefit from the lowest threat of disruption from new supply of any major market in the nation, driven by an essentially incurable supply-demand imbalance for high-quality, well-located space. Additionally, we focus on providing mission-critical locations for the nation's largest and most diverse industrial tenant base, requiring infill locations close to their customers, serving the nation's largest regional populations. As we look forward, the company is well positioned for substantial internal growth. Embedded within our in-place portfolio, assuming today's rents and no future rent growth, we project $165 million of incremental NOI representing 31% NOI growth embedded within our in-place portfolio over the next two years. Our largest internal growth driver comes from our value-add repositioning pipeline. which is projected to contribute about $64 million of incremental NOI over the next two years. In addition, we project $60 million of incremental NOI generated as we roll below market leases to higher market rents, and recent investments completed during the quarter and subsequent to quarter end are expected to contribute $17 million of incremental NOI growth. In addition to our favorable operating positions, The company continues to execute on our strategy to maintain a fortress-like, best-in-class balance sheet, closing the quarter at about 16% net leverage to total enterprise value with $1.9 billion of liquidity, affording the company the ability to protect against economic uncertainty while positioning us to capitalize upon accretive internal and external growth opportunities. Above all else, we thank our Rexford team for your tremendous work and dedication to that continue to set our great business apart. Before turning the call over to Howard, we'd like to remind investors that we will be hosting our Investor Day and Property Tour in Los Angeles on November 13, the Monday preceding the NARIC conference. We promise this will be an informative, fun, and memorable opportunity to see both the Rexford team and our value creation in action. And with that, it is now my pleasure to hand the call over to Howard.