Rexford Industrial Realty, Inc.

Thank you for standing by. My name is Mandeep and I'll be your operator today. At this time, I'd like to welcome everyone to the Rexford Industrial Realty Inc. second quarter 2024 earnings call. All lines being placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to David Blanzer, General Counsel. You may begin.

Thank you for joining Rexford Investor's second quarter 2024 earnings comments 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 rexfordinvestor.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. Wexford 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 an explanation of why such non-GAAP financial measures are useful to investors. Today's conference call is hosted by Rexford Investor's 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, and welcome everyone to Rexford Industrial's second quarter earnings call. I'll begin with a few remarks, followed by Howard, who will provide market and operational detail. Then Laura will provide our financial results and outlook. I'd like to begin by thanking our Rexford team for your strong results, demonstrating the strength of our Rexford platform and the resilience of our infill Southern California industrial market. As a reminder, we are the only industrial REIT focused exclusively on investing principally in smaller and medium-sized spaces within infill Southern California, where we find superior tenant demand fundamentals and substantial opportunities to add value. With our portfolio's average space size equal to 26,000 square feet, we operate in a fundamentally different segment of the market as compared to the big box market comprised of buildings in the 250,000 to over 1 million square foot range. Our segment of the market is a much larger portion of the market, is a much higher barrier segment of the market, and our target infill tenant base has proven to be more stable through cycles as compared to the big box market within Southern California. Turning to our second quarter performance, we are pleased with the team's strong operating results. which continued to track the expectations we set earlier this year. On the leasing front, the team completed 2.3 million square feet of leasing activity, generating leasing spreads of 68% on a net effective basis and 49% on a cash basis. We generated 400,000 square feet of positive net absorption to end the quarter with our same property portfolio occupancy up 70 basis points to 97.3%. Our second quarter consolidated net operating income was up 21%, and our FFO per share was up 11% compared to the prior year quarter. Net operating margins were up 50 basis points to 77.7% compared to the prior year quarter, demonstrating the quality of our growth through increased operating leverage. As expected, our infill industrial markets continue to normalize from the pandemic-era levels of frenzied demand. which continues to be impacted by persistently high interest rates, an uncertain domestic political environment, and ongoing global unrest. Despite these macroeconomic factors, our infill Southern California industrial markets continue to demonstrate relative resilience supported by the strongest underlying long-term supply-demand fundamentals of any major industrial market in the nation. Drilling down into our segment of the infill Southern California industrial market, We continue to see a distinct bifurcation in relative performance in favor of higher quality, highly functional, small to medium-sized spaces compared to the older vintage, less functional product that makes up the vast majority of our 1.8 billion square foot infill market. The long-term outlook for our infill Southern California market remains very positive due to a virtually incurable long-term supply-demand imbalance. The near-term outlook for market rents may continue to reflect a nominal level of volatility. However, we believe the foundation for market rent growth is inherent within our markets. Our tenants are indicating through their behaviors that they expect to pay higher rents in the future. They are expressing this expectation through their proactive renewal activity and through the average compounding 4% annual contractual rental rate increases we are embedding within our leases. The relative resilience and superior performance of the Rexford portfolio reflects our differentiated business model and market opportunity focused on value creation. The single greatest driver of our growth over time is generated through our value-add modernization, repositioning, and redevelopment of vintage and underutilized properties within Southern California. With over 1 billion square feet of product built prior to 1980 within our target infill market, we benefit from an almost limitless palette of opportunities to drive value creation into the foreseeable future by substantially increasing the cash flow generating capacity of these properties through physical improvements that are not reliant upon market rent growth to create value. Rexford's forward internal growth opportunity is also substantial and reflects the balance and strength of our business model. Over just the next three years, we expect cash NOIs to increase by $229 million, or 35%, driven most significantly by our value-add property improvements, repositioning, and redevelopment. Importantly, this assumes today's rents and no future acquisitions. With that, I'd like to thank the Rexford team once again for your sector-leading results, driven by your entrepreneurial passion for creating value. Lastly, I'm pleased to acknowledge that Howard and I just completed our 20th anniversary as partners growing Rexford together. Howard, it continues to be a true privilege and great fun to work with you and the entire Rexford team, and I couldn't be more excited about the next phase of Rexford's growth. And with that, I'm pleased to turn the call over to Howard. Thank you all for joining us today, and thank you, Michael. It continues to be an incredible journey, and I am, too, also very excited for Rexford's future growth. Rexford delivered solid second quarter operating results delivered by the sustained strength of our high quality portfolio and great execution by our entrepreneurial team. As Michael mentioned, we continue to see a bifurcation in performance between higher quality product compared to the older vintage, less functional product that represents the majority of our vast, infill Southern California market. It is important to recall that our value creation mandate focuses on converting those older vintage properties into the most functional, highest quality assets within their respective sub-markets. These modernization and functional improvements substantially increase the utility and the per square foot value of our spaces for tenants, positioning Rexford to out-compete through all phases of the economic cycle. The favorable relative performance of our portfolio compared to the market is noteworthy. For example, our 400,000 square feet of positive net absorption equal to 80 basis points of our total square footage dwarfs activity in the market, which saw 10 basis points of positive net absorption, according to CBRE. Our positive net absorption contributed a 70 basis point increase in our same property occupancy, ending the quarter at 2.7% vacancy, which compares favorably to the overall infill market vacancy of 3.9%, according to CBRE. Another positive leading indicator is our continued strong renewal demand in the second quarter with 79% net effective rent spreads and 58% cash spreads. This resulted in a strong second quarter retention and backfill rate of 80%. Looking at general market conditions within infill Southern California, second quarter leasing activity was strongest in the 10,000 to 100,000 square foot size segment up 24% compared to the prior quarter, according to CBRE, with about 60% of Rexford's AVR coming from spaces below 100,000 square feet. And given our second quarter average lease size, approximately 18,000 square feet, our irreplaceable assets are ideally positioned at the strongest demand segment in the market, a direct result of our strategic value-driven business model. Regarding rent levels, As expected, we continue to see choppiness across sub-markets and size ranges, with rents down approximately 2% sequentially for highly functional product comparable in quality to our Rexford assets. Year over year, taking rents for high-quality product comparable to our portfolio are off about 4.5%, which compares favorably to the overall infill market. The relatively favorable performance of well-located, highly functional products within our markets is logical, as we have generally noted over recent quarters that a majority of vacancy contributing toward negative absorption in the market is typically comprised of lower quality, older vintage, or obsolete products. Although we can expect some continued near-term relative volatility, the current supply-demand backdrop seems to be supporting current rent levels within a relatively tight range and maintaining the foundation for potential future growth. This favorable backdrop is further supported by the fact that it is nearly impossible to materially increase net supply within our markets. Construction of new product in our size range is at near zero and is expected to continue to be de minimis. With little construction, what little construction may occur within our size range is generally replacing older product and is not adding to net supply. Turning to Rexford's investment activity during the quarter, we completed $170 million of investments, comprising approximately 500,000 square feet, generating an aggregate initial yield of 5.8% and a projected unleveraged stabilized yield of 6.1% on total cost. Looking forward, we currently have approximately $160 million of investments under contract or accepted offer which are subject to customary closing conditions. Moving to our capital recycling program, during the quarter, we disposed of four properties for an aggregate sales price of $37 million, generating a weighted average 12.9% unbothered IRR. In addition, we have over $20 million of dispositions currently under contract or accepted offer, which are subject to customary closing conditions. During the quarter and subsequent to quarter end, we leased four repositioning and redevelopment projects, totaling approximately 380,000 square feet across the Orange County, San Gabriel Valley, and South Bay submarkets, which are projected to stabilize at an aggregate 8.8% unlevered yield. We stabilized two projects with rent commencement in the second quarter, totaling approximately 85,000 square feet with a total investment of $54 million generating a weighted average unlevered stabilized yield of 9.5%. Looking forward, we have 4.2 million square feet of value-add repositioning and redevelopment in process or projected to start within the next 18 months, with the remaining incremental spend of approximately $340 million, which are expected to deliver a 6% unlevered stabilized yield on total investment. Finally, I'd like to thank our Rexford team for your dedication in delivering another strong quarter of results. Now, I'm pleased to turn the call over to Laura.