Rexford Industrial Realty Q4 2024 Earnings Report

Rexford Industrial Realty EPS Results

• Actual EPS: $0.58
• Consensus EPS: $0.27
• Beat/Miss: Beat by +$0.31
• One Year Ago EPS: N/A

Rexford Industrial Realty Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $244.73 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Rexford Industrial Realty Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 1:00PM ET

Rexford Industrial Realty (NYSE:REXR) is a self-administered and self-managed real estate investment trust, which engages in owning and operating industrial properties in infill markets. The company was founded by Richard S. Ziman on January 18, 2013 and is headquartered in Los Angeles, CA.

Rexford Industrial Realty Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rexford Industrial's Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

I would now like to turn the conference over to Mikaela Lynch, Director of Investor Relations and Capital Markets. Please go ahead.

[Mikayla Lynch, Head of Investor Relations & Capital Markets at Rexford Industrial Realty]

Thank you, and welcome to Rexford Industrial's fourth quarter twenty twenty four earnings conference call. In addition to yesterday's earnings release, we posted a supplemental package and earnings presentation in the Investor Relations section on our website to support today's remarks. As a reminder, management's remarks and responses to your questions may contain forward looking statements as defined by federal securities laws, which are based on certain assumptions and subject to risks and uncertainties outlined in our 10 ks and other SEC filings. As such, actual results may differ and we assume no obligation to update any forward looking statements in the future. We'll also discuss non GAAP financial measures on today's call.

[Mikayla Lynch, Head of Investor Relations & Capital Markets at Rexford Industrial Realty]

Our earnings presentation and supplemental package provide GAAP reconciliations as well as an explanation of why these measures are useful to investors. Joining me today are Co CEOs, Michael Franklin and Howard Schwimmer our COO, Laura Clark and our CFO, Mike Fitzmorris. Today, Michael and Howard will provide an introduction followed by Laura on market conditions and operations and Mike on financial results and guidance. It is my pleasure to now introduce Co CEO, Michael Frankel. Michael?

[Michael Frankel, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

Thanks, Mikaela, and thank you all for joining us today. I want to begin by acknowledging the devastating wildfires that continue to impact Los Angeles. While we are fortunate our portfolio sustained no damage, our priority continues to be supporting our Rexford team and our extended community. We're very pleased to welcome Mike Fitzmorris as our new CFO. With Mike on board, we completed Laura's planned promotion from CFO to Chief Operating Officer.

[Michael Frankel, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

Both Mike and Laura will play key roles in unlocking the full potential of our portfolio and expanding our opportunities for future growth. Now, I'll turn the call over to Howard.

[Howard Schwimmer, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

Thanks, Michael, and thank you all for joining. I echo Michael's remarks. Welcoming Mike to the Rexford team and elevating Laura, the COO, is a key step forward for the company, and we're confident they will continue driving operational excellence across our platform. Before turning the call over to Laura, Michael and I want to take a moment to thank our entire Rexford team for your dedication and strong performance over the past quarter and as we move into 2025. I will now turn the call to Laura.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Thank you, Howard, and thank you all for joining us today. Starting with market conditions, we continue to navigate choppiness following pandemic era growth as well as recent macroeconomic, interest rate and political uncertainty. While these factors are impacting our near term projected 2025 growth, the long term outlook for supply demand fundamentals and robust levels of regional consumption within our infill Southern California market remain intact. Although market conditions have impacted overall occupancy and the lease up timing of some repositioning and redevelopment projects, we remain confident we will realize the substantial growth and value creation embedded within our portfolio. Notably, since the start of the year, we have observed the pickup in tenant activity and lease negotiations across our vacant spaces that we are working to convert to executed leases.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Regarding market rents, we observed a decline in taking rents for quality products comparable to the Rexford portfolio of 1.5% sequentially and 8% year over year. This compares favorably to the broader infill markets, which are down 12.5% year over year and even more favorably when compared to the larger box market in the Inland Empire East and West, where rents have declined approximately 25% year over year according to CBRE. Consistent with historical trends, Rexford's superior and highly functional infill locations averaging 26,000 square feet have continued to outperform. By way of example, the average executed lease rate on our 8,000,000 square feet 2024 leasing activity was 19% higher than the executed lease rate across the overall infill markets. Turning to our fourth quarter performance, the Rexford team delivered solid results in line with our expectations.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

We executed 1,000,000 square feet of leasing at net effective leasing spreads of 55% and cash leasing spreads of 41% with annual embedded rent steps averaging 3.9%. Same property average occupancy declined by 120 basis points sequentially driven by the expected move outs communicated last quarter. Regarding investment activity, in the fourth quarter, we stabilized three repositioning projects, which met or exceeded our forecasted stabilization timing and yields. For the full year, we stabilized 10 repositioning and redevelopment projects across 825,000 square feet, achieving an aggregate 7.5% unlevered stabilized yield on total investment. During the quarter, we closed two acquisitions for $2.00 $7,000,000 and for the full year, we completed $1,500,000,000 of acquisitions projected to generate 5.6% unlevered stabilized yield.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

In addition, for the full year, we sold five properties for a total of $44,000,000 generating a 12.8% unlevered IRR. In light of current market conditions, our capital allocation strategy is focused on maximizing returns and accretion through capital recycling and repositioning and redevelopment opportunities. With regard to our acquisition pipeline, we currently have no acquisitions under contract or accepted offer. Separately, we have $105,000,000 of dispositions under contract or accepted offer, subject to customary closing conditions. Regarding our repositionings and redevelopments, we have 3,500,000 square feet of projects under construction or in lease up, which are projected to deliver a 6.1% unlevered stabilized yield on total investment.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Our value creation focus continues to differentiate the Rexford business model and generate substantial embedded NOI growth. Today, our embedded growth represents an estimated 40% increase in total incremental NOI equal to $280,000,000 which includes annual embedded rent steps averaging 3.7% for the total portfolio, the portfolio lease mark to market of 25% on a net effective basis and projected incremental NOI of $75,000,000 from our repositioning and redevelopment projects currently under construction or in lease up. In closing, as I step into the COO role, I am excited to expand upon my work with the Rexford team to drive greater efficiency, effectiveness and profitability. To that end, recognizing current market conditions, we are taking proactive actions internally to drive further efficiency across the organization. These initiatives resulted in no increase to year over year projected G and A despite growing consolidated NOI by 17% in 2024 and demonstrates our commitment to driving shareholder value through all points in the cycle.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

With that, I'm happy to turn the call over to Mike. We are excited to welcome Fitz to the team and for all he brings to Rexford. Mike?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Thank you for the kind introduction, Laura. To you, Michael and Howard, thank you for placing your trust in me as we work together to drive Rexford's next phase of growth. I'll now briefly comment on quarterly and full year results, walk through our 2025 guidance and then conclude with the balance sheet. Our fourth quarter twenty twenty four earnings results were in line with our expectations. For the full year, we delivered 7% growth in both core FFO per share and same property cash NOI, demonstrating the resilience of our earnings despite challenging market conditions.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Moving on to our initial 2025 outlook. For clarity, as I walk through the components of guidance today, I will be referring to the midpoint of our assumption ranges as disclosed in yesterday's earnings release. And consistent with historical practice, our outlook does not include any assumptions for additional acquisitions, dispositions or related balance sheet activities that have not closed. We are establishing our core FFO guidance range of $2.37 to $2.41 per share. Let's begin with our key same property drivers.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Same property net effective NOI growth is expected to be 1%, primarily driven by longer projected downtime resulting in a decline of 100 basis points in average occupancy, bad debt equating to 70 basis points of revenues, cash releasing spreads of 20% and contractual rent increases of 3.7%. As for our value add construction projects, we estimate $35,000,000 of incremental NOI in the lease up of repositioning and redevelopment projects, of which $15,000,000 is related to projects leased in 2024. This is partially offset by $20,000,000 of NOI coming offline as we commence construction on new projects. For the NOI coming online in 2025, we assume an average lease up time of eight months, up two months compared to our prior quarter expectations. And as Laura highlighted, we are taking proactive measures to control costs.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

So we scaled our platform by adding 4,600,000 square feet last year, we were able to keep G and A flat compared to 2024 reinforcing our commitment to increasing operating leverage. Regarding our balance sheet, we continue to maintain a low leverage profile and strong liquidity. At quarter end, net debt to EBITDA was 4.6 times. Today, liquidity totals $1,400,000,000 including nearly full availability on our $1,000,000,000 revolver and $400,000,000 of forward equity requiring settlement by the end of the first quarter. As a reminder, the forward equity was raised in March 2024 at $48.95 per share.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

As it relates to capital needs for 2025, we have $275,000,000 allocated for repositioning and redevelopment with no material debt maturities. Lastly, our board authorized a $300,000,000 share repurchase program further expanding our opportunities to allocate capital. Before I turn the call over to the operator, I want to thank the entire Rexha team for their warm welcome and support as my family and I settled into Southern California. I'm truly grateful to join a team that upholds such a high standard of excellence, dedication and teamwork. Together, we're going to accomplish great things.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Operator?

[Operator]

We'll take our first question from the line of Mike Mueller with JPMorgan. Please go ahead. Mike, your line might be on mute.

[Michael Mueller, Analyst at JPMorgan Chase]

There we go. Sorry about that. Yes, I was wondering, looking at the supplemental on Page 20, where you have the leasing volumes going from 3,200,000 square feet in 1Q sequentially down to 1,000,000 in 4Q. Can you talk a little bit about what's happening real time and how you see that graph playing out based on what you're guiding to for 2025?

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Hi, Mike. Thanks for joining us today. Just Well, let's touch on fourth quarter and then we'll look at into what we're seeing in the market today. So in terms of fourth quarter activity, it was the 1,000,000 square feet of leasing was in line with our expectations that we discussed on the call last quarter, really driven by minimum level of lease expirations as well as our expectations around the slower demand environment we were experiencing in the back half of the year. As we look forward to what we're seeing today, importantly, in January, we did see a pickup in overall activity in the market and around our leasing negotiations on our vacant spaces.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Year to date, we've actually executed 1,000,000 square feet of leasing through today through yesterday, which represents the same level of activity in all of Q4. That also includes lease up of three of our repositioning and redevelopment projects about 200,000 square feet. So we're seeing good activity in the market, I'd say, on about 90% of our vacant spaces. We have some level of activity and so, you know, we're really focused on converting that activity into executed leases.

[Operator]

Our next question comes from the line of Blaine Heck with Wells Fargo. Please go ahead.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Great. Thanks. And certainly want to pass along our sympathies to everyone affected by the wildfires. I guess with my one question, I just want to dig in a little bit more into the components of cash same store NOI growth if possible. You know, obviously, there are some headwinds to occupancy, but maybe you can talk about the puts and takes related to rent spreads, rent bumps, bad debt, and even margins and kind of the bridge or how that all builds up to get us closer to the midpoint of guidance?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Sure, Blaine. Good morning. This is Mike. I'll start with the major drivers. First, it's elevated downtime, increased concessions, higher bad debt, and the components of those items are as follows.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

It's two seventy basis points from cash releasing spreads, which again are about 20% for the year. We have three twenty basis points from rent steps, which are driven by the 3.6% in place rent steps we have in the portfolio. So those are the two positive drivers, Blaine, offset by about 130 basis points of concessions. And then we're experiencing about three months of concessions, which is about up one month from last year. Then we have the 100 basis points of average occupancy decline that we noted in our press release last night.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

And then there's just a tiny bit of erosion from net expenses of about 30 basis points. And then the higher bad debt is causing the profile drag about another 80 basis points. That gets you down to the 2.5 that we posted last night.

[Operator]

Our next question comes from the line of Andrew Berger with Bank of America. Please go ahead.

[Andrew Berger, Equity Research Associate at Bank of America]

Hey, how's it going? I know you guys stopped providing commentary on market rent growth forecast, but I saw obviously in the presentation you highlighted that rents for the comparable portfolio declined minus 1.5% during the quarter. And just curious if you have any high level thoughts as to how close to the bottom we are and whether or not you think we'll see that stabilize this year?

[Analyst]

Yeah. It's Michael. Thanks so much for dialing in today. Great to hear from you. It's always hard to call a bottom with respect to market rents.

[Analyst]

A lot of drivers both on the demand and the supply side. And I think really what we can tell you is what we're seeing in the markets today. And I think Lourdes did a great job of describing current conditions. And look, the business is fundamentally sound. And I think a lot of the data out there tends to disproportionately cover the big box, larger box markets, frankly.

[Analyst]

And I think what you're also seeing with regard to market conditions is that our smaller medium sized tenant base is showing more resiliency in terms of market rents, at least in Southern California, as compared to the larger box tenants. Your larger box tenants are down about 25% year over year, whereas our portfolio tenant on average, similar quality is down about 8%. So the backdrop and the foundation is there ultimately for market rent growth. It's just hard to say. It's hard to call when we start to see that inflection point.

[Operator]

Our next question comes from the line of Steve Sakla with Evercore ISI. Please go ahead.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Yes, thanks. As you look at your 25 lease expirations, you've got, I guess, a little over 7,000,000 feet. How would you sort of think about retention ratios on that? And are there any large known move outs that you have in the portfolio this year?

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Hey, Steve. Thanks for joining us today. In terms of our occupancy guidance, we are guiding to about 100 basis points of occupancy decline in the portfolio on average, average portfolio occupancy for 2025. The largest driver of that is really higher projected downtime. So that's, you know, longer time between a move out of a tenant and a new rent commencing.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

So we're we're projecting about six and a half months of projected downtime on average for 2025. And that compares to about five months that we experienced in 2024. And it's really associated with longer tenant decision making and the factors around demand that we've talked about. Just drilling into your question around specific tenants, about the 100 basis point decline, about 70% of it is impacted by four tenants. Two of those four spaces, actually were vacates in the fourth quarter and then the other two are expected vacates in 2025.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah. And then one thing I would add there, Steve, as I mentioned in my prepared remarks, we've got about $20,000,000 or so coming offline of NOI coming offline in 2025 related to a preparing project for a reposition or redevelopment. Most of those on a weighted average basis come off in the first quarter. So from a shape of our occupancy relative to the start of this year, it's going to decelerate in the first quarter and reaccelerate in the back nine months of the year.

[Operator]

Our next question comes from the line of John Kim with BMO Capital Markets. Please go ahead.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

Thank you and good morning. Congrats to you, Mike. Can you just walk us through again the GAAP same store NOI growth? I'm a little bit unclear as to why that would be lower than your cash same store guidance. The GAAP spreads would likely be higher than cash.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

You don't have a free rent impacting GAAP that would with cash. I know you went through the flat occupancy and the bad debt, but what else would be driving that GAAP same store lower than cash?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yes. So the delta between our midpoint on cash of 2.51% on the net effective is really a straight line rent as we burn off below market leases, which are generally in our portfolio where we're at in our the evolution of our leases, we're in the back half of the leases. So that's the

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

drag there.

[Operator]

Our next question comes from the line of Greg McGinnis with Scotiabank. Please go ahead.

[Greg Mcginniss, Director at Scotiobank]

Hey, good morning. I was

[Greg Mcginniss, Director at Scotiobank]

just wondering if you could talk about

[Greg Mcginniss, Director at Scotiobank]

your view on, I'm trying to understand the lease up sorry, the leasing has improved or the view on leasing activity has somewhat improved into the beginning of this year, but then offset by that commentary on pushing out the development leasing. So is that just reflective of the development leasing is what's happened recently versus what's kind of going on more recently on leasing? Or if you can just kind of reconcile those two comments for us, appreciate it.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yes. I'll just from a guidance perspective and the range we set out there last night, it's based on today's realities with the most up to date information as of early this week. Some of the commentary that Laura just shared with you on the on the, you know, nice momentum we're we're experiencing here over the last week with leasing activity. We take a very bottom of approach with budgeting every every lease, every asset, we look at every specific assumption and align that with the risk of the market. And so we feel very good about where we're at with the range today and it takes into account all the information up up until just a few days ago.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Yeah. I mean, and I think what I'll add is, you know, what we're seeing around demand, and, you know, what's right, you know, there's a number of factors, I believe, that are that are impacting kind of this increase in demand. I think, number one, we're seeing some clarity, you know, the tenants are seeing some clarity around the interest rate environment, political environment. And I do believe that's unlocking some pent up demand that's been in the market. We're seeing that tenants are valuing higher quality functional space in the market.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

They're really focused on space that allows them to drive higher revenue, how can they gain efficiencies and that's the Rexford product. We're delivering the highest quality, highest functional space into the market and I think that's driving some of our incremental demand as well. But we are continuing to see tenants, you know, being very thoughtful about their decisions they're making around expansion and their space needs and it is, you know, continuing to take some time, you know, for those decisions to happen in the lease up space and so as those opportunities convert into executed leases you'll see that flow through our results.

[Operator]

Our next question comes from the line of Nick Tillman with Baird. Please go ahead.

[Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co]

Hey, good morning. Mike, appreciate the commentary on redevelopment. So just taking some of the NOI offline. So just to drill down a little bit, you guys identified 3,300,000 square feet of redevelopment and repositioning. What percentage of that, I guess, is from the 2025 expirations of the 7,500,000 square feet?

[Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co]

And what's the expected spend of that amount this year?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah. The the the spend for for this year, that we have earmarked for repositioning redevelopment is about $275,000,000

[Operator]

Our next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks for taking the question. I guess I wanted to just touch upon your slide. You've given some key messages. One of them is capital allocation, you refer to like no acquisitions, but dispositions. So perhaps maybe just stepping back two parts to that.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

One, in this environment, given the superior quality you've outlined, if there is sort of a portfolio kind of once in generation that presents itself, your peers are maybe hurting more, do you act upon that? And then capital allocation wise, what about buybacks?

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Hey, Vikram, thanks so much for joining us today. Great questions all around capital allocation. Let's just take a step back and talk about our priorities. You know, our priorities have changed in light of today's market and our current cost of capital. To that end, our hurdle rates have increased and we are focused on capital recycling and executing on our repositionings and redevelopments.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

As we think about capital recycling, you know, we believe dispositions continue to be an attractive source of capital, obviously represented by the $105,000,000 that we have under contract or accepted offer today. Those allow us to capture value and redeploy that into accretive opportunities. And that certainly includes a repositioning redevelopment that drive substantial incremental yields, potentially our own stock share repurchases and potentially acquisitions, but they'd have to meet our very high hurdle rates in today's environment.

[Howard Schwimmer, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

And Vikram, hi, it's Howard. You asked about a once in a lifetime portfolio. We monitor plenty of opportunities in the market, but as I think we've made clear, our hurdle rates are up. And if we were going to buy something larger, they'd certainly have to meet those hurdle rates. And there's absolutely no reason for us to change those hurdle rates just because a portfolio comes up available for sale.

[Operator]

Our next question comes from the line of Craig Mailman with Citi. Please go ahead.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Hey, everyone. Just a follow-up on the capital allocation piece. It seems like you guys are clearly shying away from acquisitions, at least in the near term here. But could you just give us a sense of the stock has been depressed here for a couple of months now. Why go through with the December acquisition?

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Why not punt on that, use that capital for higher yielding redevelopment and then use some of the ATM issuance you have to pull down for, I mean,

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

I guess you

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

keep that balance sheet, it's not overly earnings dilutive and you can use some of it for buybacks. Why even spend the money on the recent acquisition at that yield given where your stock is trading?

[Howard Schwimmer, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

Hi, Craig. It's Howard. Well, first of all, the property we bought has fantastic functionality. It's an a location. And I'll just remind you that the capital we used in buying that asset was the forward equity that was raised at about $49 a share.

[Howard Schwimmer, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

And if you look at the transaction, the initial yield is about 4.8 and by year four, we're already at a 5.5% in place yield. So that's turning away with 4% rent increases annually. And there's about six point five years currently left on the term of the lease. And, you know, obviously, the hurdle rates would be different. I think I just made that clear in my last comment if we start looking at new transactions.

[Howard Schwimmer, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

But with that capital that we used, there was actually accretion.

[Operator]

Our next question is a follow-up from the line of Blaine Heck with Wells Fargo. Please go ahead.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Yeah, great. Thanks. Clearly, we're still very early in the process of determining kind of the ultimate impact of the wildfires in the region. But can you share any early reads or anecdotes around potential demand that could arise for industrial space to support kind of the rebuilding efforts and whether you think any specific submarkets or building sizes might see the most incremental demand?

[Analyst]

Hey, Blaine. Thanks again for the question. It's Michael. No. And it look, it is early, and obviously, our hearts go out to everybody impacted by these tragic fires.

[Analyst]

But the fact of the matter is if you look at the backdrop before the fires, you know, we already had a significant mandate to increase housing in Southern California by about 2,500,000 units of affordable housing. And we'd already started to see, you know, a marginal increase in demand from, you know, the building trades, etcetera. And I think that, you know, there's no question with the volume, the magnitude of impact that drive from the fires, that we're going to see demand. And I think it will come in phases. And frankly, we have tenants that service all phases of rebuilding.

[Analyst]

You know, it's going to start with infrastructure, pipes, conduit, wire. We have tenants that service that and store that and deliver that and install that. And then it's going to move on up to wood and framing and steel and everything that goes into a home. And these aren't just affordable houses and affordable housing units. This is these are homes that deploy extensive finishes and extensive appliance level of appliances.

[Analyst]

So I think there's no question it's going to drive incremental demand over time for the portfolio.

[Operator]

Our next question is a follow-up from the line of John Kim with BMO Capital Markets. Please go ahead.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

I do like the one question role, but I did want to follow-up on my question on the cap spreads you expect this year. You signed at 55% in the fourth quarter. I imagine a lot of that's going to commence in 2025. So what should we be modeling as far as, GAAP spreads?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah. GAAP spreads are expected to be about 30% in 2025.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

Okay. Thank you.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

You're welcome.

[Operator]

Our next question is a follow-up from the line of Vikram Malhotra with Mizuho. Please go ahead.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks for clarifying thanks for the follow-up. Just two, so first on leasing, I think you said you've done a million square foot year to date. I was wondering if you can kind of break that out into new and renewals and clarify the comment you had on taking rents. I think you said we're up 1.5% sequentially and 8% year over year. I'm just wondering how does that compare to what you have in the deck in terms of comparable rent growth?

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Yeah. In terms of the leasing activity today, it's about one third new, two thirds renewals, which is pretty consistent with what, what we typically see within a leasing quarter.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

The second was just you mentioned something about 8% year over year rent growth in taking rents and 1.5% sequentially. I just want to understand how does that compare or like what compared to what you put in the deck which is year over year your rent growth is down 81.5% sequentially?

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Yes, that's the market rent growth that we've experienced within the Rexford portfolio and comparable product to ours within the portfolio.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah, and just from a guide perspective, what we've baked in for 2025, we're assuming flat growth throughout the year relative to last year on our market rate assumptions.

[Howard Schwimmer, Co-Chief Executive Officer and Director at Rexford Industrial Realty]

And we'll give more details next quarter in terms of lease spreads, etcetera, in what we accomplished this quarter.

[Operator]

Our next question is a follow-up from the line of Steve Sakla with Evercore ISI. Please go ahead.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Yes, thanks. I just wanted to clarify, Laura, when you talked about the or Mike, when you talked about the 100 basis point decline, was that relating to the same store occupancy decline, which is part of guidance? Or was that 100 basis point decline on kind of the overall portfolio, which has continued to drift down? I think it was a little over 91% at the end of the year. Thanks.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yes. It's 100 basis points of average occupancy decline for same property.

[Operator]

And that will conclude our question and answer session. I'll turn the call back over to Laura Clark for any closing remarks.

[Laura Clark, Chief Operating Officer at Rexford Industrial Realty]

Before we wrap up, I'd like to leave you all with two final thoughts. First is that our infill Southern California market and portfolio are uniquely positioned for long term value creation despite some near term market challenges. Our projected embedded NOI internal growth opportunity remains substantial equal to $280,000,000 of incremental NOI, and that represents 40% growth. Second, we maintain a strong financial position and are taking a disciplined approach to capital allocation with a focus on maximizing returns and accretion while also proactively enhancing operational efficiencies to drive shareholder value. With that, we thank you all for joining us today.

[Operator]

That will conclude today's call. Thank you all for joining and you may now disconnect.

Participants

Executives

• Mikayla Lynch, Head of Investor Relations & Capital Markets
• Michael Frankel, Co-Chief Executive Officer and Director
• Howard Schwimmer, Co-Chief Executive Officer and Director
• Laura Clark, Chief Operating Officer
• Michael Fitzmaurice, CFO

Analysts

• Michael Mueller, Analyst at JPMorgan Chase
• Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities
• Andrew Berger, Equity Research Associate at Bank of America
• Analyst
• Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI
• John Kim, Managing Director - US Real Estate at BMO Capital Markets
• Greg Mcginniss, Director at Scotiobank
• Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.
• Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.