Rexford Industrial Realty Q2 2025 Earnings Report

Rexford Industrial Realty EPS Results

• Actual EPS: $0.59
• Consensus EPS: $0.58
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.60

Rexford Industrial Realty Revenue Results

• Actual Revenue: $241.57 million
• Expected Revenue: $251.72 million
• Beat/Miss: Missed by -$10.16 million
• YoY Revenue Growth: +5.00%

Rexford Industrial Realty Announcement Details

• Quarter: Q2 2025
• Date: 7/16/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 17, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 leasing volume of 1.7 M sq ft, 96.1% same-property occupancy (+40 bps) and 3.7% rent steps drove +220 K sq ft net absorption and just 6 bps bad debt.
• Negative Sentiment: Market rents fell 3.5% sequentially (and 12.8% YoY) amid tariff and macroeconomic uncertainty, pressuring demand and lease-up timelines.
• Positive Sentiment: Repositioning/redevelopment projects leased-up 520 K sq ft in Q2 (YTD 900 K sq ft) adding $16 M annualized NOI and stabilizing 7 projects at a 7.4% unlevered yield.
• Positive Sentiment: Embedded growth of $195 M incremental NOI (28% growth) from $105 M contractual rent steps, $70 M redevelopments in process and $20 M cash mark-to-market underpins reaffirmed full-year core FFO guidance of $2.37–$2.41 per share.
• Positive Sentiment: Balance sheet strength with $1.8 B liquidity, low net debt/EBITDA of 4× and an extended credit facility underpins capital flexibility for value-accretive redevelopments and acquisitions.

Presentation

[Operator]

Good morning, and welcome to Rexford Industrial Second Quarter twenty twenty five Earnings Call. All participants are in a listen only mode. After the speakers' remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mikayla Lynch, Director of Investor Relations and Capital Markets. Please go ahead.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thank you, and welcome to Rexford Industrial's Second Quarter twenty twenty five 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, Director - IR & 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 our Chief Operating Officer, Laura Clark and Chief Financial Officer, Mike Fitzmaurice. Our Co CEOs, Michael Frankel and Howard Schwimmer, will join us for the Q and A session following prepared remarks. It's my pleasure to now introduce Laura Clark. Laura?

[Laura Clark, COO at Rexford Industrial Realty]

Thank you, Mikayla, and thank you all for joining us today. I'd like to start by thanking our Rexford team for your exceptional work and for delivering strong second quarter results, in line with our expectations. In the quarter, we executed 1,700,000 square feet of leases, including lease up of four repositioning and redevelopment projects. Net effective and cash leasing spreads for comparable leases were in line with expectations at 218% respectively. Embedded rent steps in our executed leases averaged 3.7%, up 10 basis points from last quarter.

[Laura Clark, COO at Rexford Industrial Realty]

Healthy tenant retention and new leasing activity drove increased same property occupancy and positive net absorption in the quarter. We ended the quarter with same property occupancy at 96.1%, an increase of 40 basis points sequentially and net absorption was a positive 220,000 square feet. Additionally, the strength of our tenant base and the critical nature of our infill locations was reflected in de minimis levels of bad debt in the quarter at only six basis points of revenue. In regard to the current market environment, while leasing activity remains steady and tenant health continues to be solid, macroeconomic and tariff uncertainty are still impacting some tenant decision making. This is putting some pressure on overall demand, impacting rent levels and lease up timeframes.

[Laura Clark, COO at Rexford Industrial Realty]

In the quarter, market rents across Rexford's portfolio declined approximately 3.5% sequentially and 12.8% year over year. Despite these market dynamics, our portfolio continues to exhibit relative strength when compared to the broader market. The standout quality of our portfolio and the operational excellence of our team is positioning us to capture incremental demand in the near and long term. By way of example, we continue to execute on the lease up of repositioning and redevelopment projects, unlocking significant embedded growth. In the quarter and subsequent to quarter end, we executed 520,000 square feet of leases at our repositioning and redevelopment projects, which includes Turnbull Canyon Road in the San Gabriel Valley, Balboa Avenue in San Diego, and Coronado Street in North Orange County.

[Laura Clark, COO at Rexford Industrial Realty]

This brings total year to date repositioning and redevelopment lease up activity to over 900,000 square feet representing over $16,000,000 of annualized NOI. Year to date, we have stabilized seven repositioning and redevelopment projects achieving a 7.4% unlevered stabilized yield on total investment. In addition, further demonstrating the demand for our highly functional and superior quality portfolio, we currently have leasing activity on approximately 80% of our vacant spaces. This is consistent with prior quarter and up significantly when compared to a year ago when activity on our vacant spaces was about 60%. In regard to transaction activity, we sold two properties totaling $82,000,000 bringing year to date dispositions to $134,000,000 at a weighted average cap rate in the low 4% range, achieving an unlevered IRR of 11.9%.

[Laura Clark, COO at Rexford Industrial Realty]

Looking forward, we have approximately $54,000,000 of dispositions under contract for accepted offer, which are subject to customary closing conditions. Separately, while we have no acquisitions under contract or accepted offer today, we are actively pursuing a range of potential near term opportunities to accretively recycle disposition proceeds. In closing, over the long term, we remain confident that our irreplaceable infill Southern California portfolio will continue to benefit from persistent and growing supply constraints coupled with demand from the nation's largest regional zone of consumption and eleventh largest economy in the world. These superior long term fundamentals are the foundation of our value creation business model that drives shareholder value. And with that, I'll turn the call over to Fitz.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Thanks, Laura, and thank you all for joining us. Second quarter results were in line with our expectations. Core FFO was $0.59 per share, representing a $01 increase over the prior quarter when excluding one time termination revenue that was recognized in the first quarter. The key driver for the increase was lower bad debt expense, demonstrating our strong tenant health. We are reaffirming our full year 2025 core FFO outlook of $2.37 to $2.41 per share.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Compared to the prior quarter, we now expect lower interest expense due to achieving a more favorable interest rate on our $400,000,000 term loan and higher capitalized interest, offset by some delays in rent commencements. Our remaining underlying assumptions are unchanged. I'd like to take a moment to highlight the embedded growth opportunity within our portfolio, which continues to be substantial, totaling $195,000,000 of incremental cash NOI, representing growth of 28%. Contractual rent steps are expected to generate approximately $105,000,000 of incremental NOI, providing a steady and predictable source of growth. Our repositioning and redevelopment projects in process or in lease up are projected to contribute an additional $70,000,000 of incremental NOI, reflecting our value creation strategy.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

In addition, this has not captured the upside embedded in our future pipeline, which totals over 3,000,000 square feet. And lastly, today, our cash mark to market for our portfolio stands at 3%, contributing about $20,000,000 of incremental NOI to our embedded growth profile. Turning to the balance sheet, we ended the quarter with over $1,800,000,000 of liquidity, including $560,000,000 of cash and a low leverage balance sheet with net debt to EBITDA of four times. We continue to prioritize allocating capital toward our repositioning and redevelopment projects and opportunities to recycle capital into accretive acquisitions that meet our underwriting criteria. During the quarter, we successfully closed the recast of our credit facility, extending duration, increasing capacity and reducing interest expense.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Overall, our balance sheet continues to provide flexibility to execute on our strategy and to create long term value. In closing, a big thank you to Team Rexford. The teamwork, standard of excellence and commitment continue to be the foundation of our success. And with that, I'll turn the call back to the operator and open the line for questions.

[Operator]

Thank you. I will now turn the call back over to Mikaela Lynch for our first question.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Julian. Our first question comes from Craig Mailman at Citi. Please go ahead.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

Thanks. Laura or Fitz, maybe I just want to go over Page 30 on your stuff. You guys are giving better disclosure about potential future repositioning and redevelopment starts. And if annualize the quarterly NOI you have in there, it's somewhere between 30,000,000 and $32,000,000 of potential NOI that's going to come offline by the end of twenty twenty six. Can you just talk about with maybe some of the slower lease up of projects under construction today?

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

Like should we think about that as being a pretty firm plan as we get to the end of twenty twenty six? Or what kind of variability could that be with some of that pushed into 2027 or some of the 2025 pushed into 2026?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah. Look, I think that pipeline is somewhat fluid. It has changed quarter to quarter. But the biggest driver, in that pipeline today, is the Hertz asset, which we expect that will expire that lease in, the first quarter, of March. And that has about 8,600,000.0 of ABR.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

From an NOI perspective, it's it's about 9,000,000 or or so, so that's gonna have a significant impact of rent coming offline next year. Now in terms of our plan for Hertz, Laura, if you wanna touch on what the plan is there.

[Laura Clark, COO at Rexford Industrial Realty]

Yeah. Absolutely. I think just as a reminder on the Hertz asset in particular, this is an irreplaceable location. It's adjacent to LAX. We acquired this property from Hertz back in 2023.

[Laura Clark, COO at Rexford Industrial Realty]

This was a sale leaseback. Hertz is moving to a centralized rental car facility at LAX when that facility is complete. So it currently expires in March. We're ready to start development. We're going to be able to deliver 400,000 square foot building there.

[Laura Clark, COO at Rexford Industrial Realty]

It will be one of one in the market, and we're really excited about being able to move forward with that that value creation.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

That that's helpful.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thank you, Craig. Our next question comes from Sameer Kunal of Bank of America. Sameer, please go ahead.

[Samir Khanal, Director - US REITs at Bank of America]

Thank you and good morning. I guess, Mike, just help us understand how you think about that, the 3% cash mark to market going forward. Just trying to understand what your view on that, sort of how that will trend over the next few quarters and what that impact could be on sort of the cash same store growth going forward? Thanks.

[Laura Clark, COO at Rexford Industrial Realty]

Hey, Samira. This is Laura. Thanks for your question. Yeah. In terms of the mark to market, currently, as you mentioned, the cash mark to market sits at 3%.

[Laura Clark, COO at Rexford Industrial Realty]

And the cadence of what that mark to market looks like over the next few quarters is going to depend depend on a number of factors including market rent growth. I think it's really important though to remember that only about 15% of our portfolio roll rolls annually. So future leasing spreads and how that's going to impact and flow down producing property is going to be driven by the mix of of units and properties that are rolling. The other thing to note is that Rexford's growth is not dependent upon mark to market. I think that's the most important thing to note.

[Laura Clark, COO at Rexford Industrial Realty]

We have significant embedded growth within the portfolio, irrespective of what happens with market, with the mark to market. We have $70,000,000 of incremental NOI embedded in the portfolio from our repositionings and redevelopments that are in process or in lease up today, and we also have strong growth from contractual embedded rent steps, which currently sit at 3.7% in the portfolio.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Sameer. Our next question comes from Blaine Heck at Wells Fargo. Please go ahead.

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

Great. Thanks. Good morning out there. With respect to capital allocation thus far, you've taken a more measured approach to acquisitions. In your commentary, it sounds like you might be more open to them.

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

So I guess, are you seeing opportunities to invest at much higher cap rates than you have in the past? Or what's driving that increased appetite given that your cost of capital hasn't seemingly changed for the better? And it does seem like there's a clear opportunity to buy back shares at a much lower basis than where you issued on the forward. I guess is that something you'd consider rather than the acquisition?

[Laura Clark, COO at Rexford Industrial Realty]

Hey, Belinda. Thanks for your question. In terms of capital allocation, our principles remain unchanged and intact. We're focused on allocating capital where we can drive cash cash flow accretion and net asset value. As we think about, you know, the various various places that we can allocate capital, certainly, repositioning redevelopment continues to be very attractive investment.

[Laura Clark, COO at Rexford Industrial Realty]

It's allowing us to achieve double digit incremental returns while we position properties to add value over the long term. As we think about acquisitions, we're continuing to evaluate evaluate acquisition opportunities that meet very stringent underwriting criteria. We are looking at opportunities where we can recycle cap we can recycle disposition proceeds at higher yields, and that will also drive accretion, increase the quality of our portfolio, and our cash flows. As a reminder, we've sold about a $134,000,000 of dispositions to date. We have $54,000,000 under contract or accepted offer today, and we and those are and the disposition cap rate on those is in the low 4% range.

[Laura Clark, COO at Rexford Industrial Realty]

So this gives us an attractive source of capital for both repositioning and redevelopments as well as acquisitions.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thank you, Blaine. Our next question comes from Greg McGinnis from Scotiabank. Please go ahead.

[Greg Mcginniss, Director at Scotiobank]

Hey, thanks for taking the question.

[Greg Mcginniss, Director at Scotiobank]

I was hoping you could touch on the delays in rent commencements on the repo repositioning, redevelopment front, kind of what you guys assuming today and what's giving you confidence in in achieving, you know, the new target or the new assumption, given the fact that, you know, you had the 80% interest this quarter, same as last quarter, but, you know, it's kinda leasing not getting across the finish line.

[Laura Clark, COO at Rexford Industrial Realty]

Hey, Greg. Thanks for your question. Yeah. We we actually feel good about the progress that we've made in terms of repositioning and redevelopment to date. As I mentioned in my prepared remarks, we've leased about 900,000 square feet.

[Laura Clark, COO at Rexford Industrial Realty]

That leaves us with about 1,500,000 square feet remaining through the end of the year. Our assumptions around rent commencement have been and continue to be very late in the year there. We have pushed out lease up timing a bit by about one month on average, that's driven by the the current market dynamics. But we do have activity on 80%, of of that 1,500,000 square feet. And based on where we're seeing activity levels today, what we were able to execute in late June and into July, we feel really comfortable with our projections at this time.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah. I would I would echo those same sentiments. In an extreme case, Greg, if we didn't sign the 1,500,000 square feet, it'd only be an unfavorable 1p impact to our guide.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Greg. Our next question comes from Nick Thielman from Baird. Please go ahead.

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

Hey, good morning out there. Maybe wanted to touch on kind of just tenant behavior, if you're seeing any sort of shift on whether it be like lease terms on length of term that people are doing or maybe even just when they're approaching sort of renewal activity, like are they taking longer to get back to you? Any sort of change in behavior there that you guys have noticed over the last sixty to ninety days? That'd be helpful. Thank you.

[Laura Clark, COO at Rexford Industrial Realty]

Yeah. Thanks for your question, Nick. In terms of lease term, no. Lease terms held pretty steady in the four to five year range on average for for Rexford, which is which is consistent with with prior years. In terms of renewals, we've had really strong renewal activity.

[Laura Clark, COO at Rexford Industrial Realty]

Tenants are, you know, are coming to us a bit earlier in terms of the renewal. In terms of renewals, it's it's interesting that we've seen a bit of a trend and an acceleration in early renewals, and early renewals means those spaces that we are renewing, you know, that's six months or earlier than their expiration. Just to put some numbers around that, year to date, early renewals at about 1,100,000 square feet. If you look at the back half of last year, so sec third and fourth quarter of last year, we did about 600,000 square feet of early renewals, so essentially double. I think that's what what that's telling us is tenants need their space.

[Laura Clark, COO at Rexford Industrial Realty]

They need to lock in that space, and I think it's a good indication of the strength of the businesses. And and they're and they're thinking long term about their strategy and need to serve the infill markets.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thank you, Nick. Our next question comes from Omotayo Oghosanya from Deutsche Bank. Please go ahead. Looks like we lost Teo. Apologies for that.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Our next question comes from Michael Griffin from Evercore ISI. Please go ahead.

[Michael Griffin, Director at Evercore]

Great. Thanks. I realize that sort of market rent growth was down both sequentially and year over year, but I'm wondering if we can dig into that a little bit more. And maybe April was an outlier to the downside and things got better in May and June. I don't know if there are any numbers you can quantify or put around it.

[Michael Griffin, Director at Evercore]

I'm just trying to get a sense of were things improving sequentially during the quarter or was it just all kind of impacted negatively on a year over year base kind of agnostic of the month?

[Laura Clark, COO at Rexford Industrial Realty]

Yeah. I mean, I I think it's it's tough to look at, you know, week over week or month over month changes in terms of market rents. So but we did see we did see a decline in market rents sequentially and year over year. I do think it's important to remember what happened in the quarter. We started the quarter on April 2 with sweeping tariffs were announced.

[Laura Clark, COO at Rexford Industrial Realty]

And throughout the quarter, there was tremendous volatility around tariff policy and when an expected resolution would occur. So I think that certainly impacted, as we mentioned, some tenants' decision making was paused or delayed, and that has impacted market rents, in the quarter. You know, that said, we continue to execute leases. Tenants are making decisions, and we've made great progress on the repo redevelopment lease up. I I will note that I think in today's environment, it's important to to indicate where we're focused.

[Laura Clark, COO at Rexford Industrial Realty]

We're focused on capturing demand and and occupancy. And in some cases, that has also impacted rent levels.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Grip. Our next question comes from Mike Mueller from JPMorgan. Please go ahead.

[Michael Muller., Venture Capitalist at JPMorgan Chase]

Yes. Hi. I think you mentioned low force cap rate on recent asset sales. Just curious, like, how is that influenced, if at all, by user purchases? And then just if you're thinking of your comparable property with an with an at market rent, what do you see as the band of cap rates today?

[Howard Schwimmer, Co-CEO & Director at Rexford Industrial Realty]

Yeah. Hi, Mike. It's Howard. Good to hear your voice.

[Michael Muller., Venture Capitalist at JPMorgan Chase]

Yeah. Likewise.

[Howard Schwimmer, Co-CEO & Director at Rexford Industrial Realty]

Yeah. And and clearly, we've we've really tried to sell assets, and capitalize on some opportunities to achieve premium values. And the user side of that is very important, and several of our transactions, have been user sales, in the quarter. We sold one property, in Orange County that was a company that was actually thinking forward. They're gonna convert a site to battery storage, and bought it, I think, the equivalent on that deal, it was about three and a half cap rate.

[Howard Schwimmer, Co-CEO & Director at Rexford Industrial Realty]

And there was a bit of term left and a few options for the tenant to extend, but an irreplaceable site, that they paid the premium for. And in terms of cap rates in the overall market, you asked about, you know, at market leasing. You know, they're still in the, you know, the five, zone plus or minus in terms of, cap rates.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Mike. Our next question comes from Omotayo Okusanya from Deutsche Bank. Teo, please go ahead.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Sorry about that earlier. Quick question about occupancy. So at the end of 2Q, average occupancy was at 95.9%, guidance is 95.5% to '96 Just kind of curious the back half of the year why you don't expect occupancy to increase from current levels. Are there any additional tenant fallouts? Any kind of issues with bad debt?

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Just kind of curious why the occupancy outlook is a not little bit higher given where you are at 2Q.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Sure. Thanks for the question, Teo, and you're incorrect. So we ended the second quarter at 96.1, and we do expect some deceleration in the second half of the year. And our guide, again, is 95.5% to 96%. The driver of the, deceleration is really planned move outs, within our same property portfolio.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

So it was expected in part of our guide from the initial guidance to now. As far as as far as bad debt goes, in in terms of what we should expect in the the second half of the year, it's a bit structural. Last year, for the second half of twenty twenty four, we had a very low low low bad debt of about a million or so, and we have kept our reserve at about the same level for the second half for this year at about 70 basis points. So it's $1,000,000 versus $4,000,000 So that's also some of the deceleration that you could see in same property NOI as well.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Teo. Our next question comes from Brendan Lynch from Barclays. Please go ahead.

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks for taking my question. Having leasing activity on 80% of your vacant properties, I understand this is up from 65% a year ago, Maybe you could just aggregate that increase from tenants that are just taking longer time to make decisions versus an actual increase in demand. And maybe any color that you could provide around that in terms of like conversion that you've had?

[Laura Clark, COO at Rexford Industrial Realty]

Oh, can you repeat the end of your question, Brenda? You cut out.

[Brendan Lynch, Director at Barclays Capital]

Yeah. Sorry about that. Just any details on conversion rates in the past?

[Laura Clark, COO at Rexford Industrial Realty]

Yeah. Absolutely. Yeah. So we we have activity in about 80% of our vacant spaces today. When you think about, you know, conversion conversion levels, we can use let's use a reposition redevelopment from last quarter as an example.

[Laura Clark, COO at Rexford Industrial Realty]

So if we look at where we had activity last quarter on repositioning, redevelopments, about two thirds of that activity has either leased or is is still in negotiations, and we expect to convert to leasing. And we also executed a couple of leases on repositioning redevelopments last quarter that had no activity actually when we reported last quarter. So overall, conversion is taking a bit more time as indicated by some long longer lease up assumptions. But what we're seeing is is the majority of our activity is converting or expected to convert into executed leases.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thank you, Brendan. Our next question comes from John Kim at BMO. Please go ahead.

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

Good morning. This quarter, you've taken down redevelopment yield expectations by 50 basis points at the midpoint. And I was wondering if that was driven mostly by the change in Brent's expectations and what the new or what your hurdle rate is for new redevelopments?

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Hi, Jack. Good morning. The driver behind that was a mix issue. We had two projects that stabilized during the quarter: Turnbill, which was a 9.2% stabilized yield and also Via Burton, which was a redevelopment that was at a 6% yield. And then we added three projects: Cabot, Figueroa, and Venice, one of our redevelopments, and those were a bit lower, yields.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

But in terms of the incremental yields, that we're experiencing on the products that we stabilize year to date, which is about seven or so, we're at 19% on an incremental return basis. And that's why, as Laura noted earlier, in terms of our priorities for capital allocation, that's where highest risk adjusted return today, and that's where you're seeing a lot of those dollars on our balance sheet continue to be deployed in those opportunities.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, John. Our next question comes from Vikram Malhotra from Mizuho. Please go ahead.

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

Morning. Thanks for taking the question. I guess I wanted to clarify something. I a question. So the move in the flow of dollars coming in and out from the development pipeline, you had outlined $15,000,000 coming out, 15,000,000 going in.

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

I just want to focus on the dollars going out to 15,000,000 based on what you've done so far into next and in the second half. Seems like there's more than $15,000,000 if you could clarify that. And if you add up sort of the planned redevelopments for later in 'twenty five and 'twenty six, It seems like on my method like forty five million dollars or plus of coming out with next year and a half coupled with sort of negative rent spreads likely and just I mean higher vacancy across the market. I mean it just seems like the growth set up for 2026 is a lot lower than we're expecting. If you could just help us think through that. Thank you.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

Yeah. At this point, think we're ready to comment on 2026. But for 2025, Vikram, we had messaged from the start of the year that we're gonna have about 15,000,000, of NOI come offline, for 2025 starts. That is still consistent today. It's actually a little bit down from last quarter.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

It's right around 13,000,000 as we, execute on a couple of short term renewals. You know, in terms of what, is gonna come offline in 2026, yeah, we put some new disclosure out there to give you some guideposts on what those 2026 starts could potentially look like and also some guideposts around cost. I would would tell you that the, the pool is fluid. We, you know, have a strategic, strategic plan for every single one of our our assets, and sometimes it's it's multiple plans where we could release as is or we could reposition and redevelop. So that future pipeline is somewhat fluid.

[Michael Fitzmaurice, CFO at Rexford Industrial Realty]

It's largely driven by the Hertz lease that we've mentioned earlier when we're talking to Craig about it. So it's too early to tell you what exactly is gonna come offline, but at this point, we're we're okay giving you at least guideposts. And as we move throughout the rest of this year, we will continue to give you more guidance around what comes offline next year, including what the capitalized interest impact could be.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thank you, Vikram. Our last question comes from Craig Mailman at Citi. Please go ahead.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

Thanks for taking the follow-up. Just want to go back to the commentary, maybe a couple of follow ups here in my one question. Laura, on the 80% kind of activity, is any of that double counting like one tenant looking at three of your spaces? Or is it all unique kind of unique interest in each asset? And then also you had mentioned, LA is a little bit spotty with pockets of weakness on demand and rents versus others that aren't.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

Could you kind of bucket your portfolio? I don't know if you guys look at it like percent of NOI or percent of square feet that's maybe in like strongest submarkets, kind of moderate strength submarkets than the below average submarkets as we think about, you know, just LA in general, given your SoCal exposure is kind of more broad than some others?

[Laura Clark, COO at Rexford Industrial Realty]

Yeah, Craig. Thanks for the follow-up questions. In terms of your first question around the 80%, yeah, that that's all unique. We're not double counting interest if we have a tenant that's looking at a few spaces. So that's all unique interest.

[Laura Clark, COO at Rexford Industrial Realty]

In terms of, you know, kind of more color around markets and performance, a few a few comments there. What we are seeing generally across all submarkets with in in infill Southern California is that our smaller spaces, I'd say spaces less than 50,000 square feet, continue to be relatively stable in the market. We continue to see solid demand there, and rents rent levels have been the strongest in those spaces that are 50,000 square feet or smaller. That's great for Rexford, by the way. Our average tenant size is 26,000 square feet in the portfolio, and so I think it just speaks to the quality and functionality of our space in the market.

[Laura Clark, COO at Rexford Industrial Realty]

I'd say that we're we're just diving into a few of the submarkets. When when we're looking at some markets, think you also have to look at the size of spaces within those submarkets. But, you know, a couple of submarkets where I'd say we're seeing some pockets of weaknesses where you've got some more supply. So I'd say in the mid counties market, the supply of the supply in the kind of 100 to 200,000 square foot ranges is is elevated, and so there's some weakness. That being said, we had some we had some leasing activity in that submarket in that size range this quarter.

[Laura Clark, COO at Rexford Industrial Realty]

So seeing, you know, seeing some more interest there. Other pockets, you know, of weakness, you know, potentially, you know, some Central LA and North Orange County. But, again, you know, we're seeing we're seeing some increases in overall overall activity as we got to the end of the quarter. So I I'd say that those are generally, you know, what we're seeing from a market perspective. Michael?

[Michael Frankel, Co-CEO & Director at Rexford Industrial Realty]

Yeah. No. Hey, Craig. It's great great to hear you today. It's Michael here.

[Michael Frankel, Co-CEO & Director at Rexford Industrial Realty]

And I'd just like to add an answer to your question. Consistent with our strategy, upwards of 75% of our portfolio is generally positioned within Greater LA, Orange and the Ontario submarkets, in Orange County and Ontario submarkets. And over time, we'll find that those are tremendous markets. And what we're seeing more recently, as you roll through the different submarkets throughout Southern California, is the different submarkets are adjusting in their own time frames. And so they're not all adjusting equally to the post pandemic rent increase and all the uncertainty that has resulted post pandemic.

[Michael Frankel, Co-CEO & Director at Rexford Industrial Realty]

And we're just continuing to see some of that adjustment, but it's not at the same time across all submarkets. I think that we're seeing that variability today. But the markets where Rexford is present, our strategy is to own the best locations within the strongest infill market in the country, possibly the world, and to substantially outcompete by having the higher highest quality product in those submarkets. And so I think that we are well positioned in terms of relative strength of the submarkets. And, you know, over time, we believe that's going to prove itself out.

[Mikayla Lynch, Director - IR & Capital Markets at Rexford Industrial Realty]

Thanks, Craig. This will conclude today's Q and A session. I would like to turn the call over to Laura Clark for closing remarks.

[Laura Clark, COO at Rexford Industrial Realty]

Thanks, Mikayla. In closing, Rexford's differentiated portfolio and entrepreneurial team drove solid second quarter results. Our irreplaceable infill portfolio, substantial embedded NOI growth and value creation strategy position us to deliver significant shareholder value. Thank you all again for joining us today.

[Operator]

This concludes Rexford Industrial's second quarter twenty twenty five earnings call. You may now disconnect.

Participants

Executives

• Mikayla Lynch, Director - IR & Capital Markets
• Laura Clark, COO
• Michael Fitzmaurice, CFO
• Howard Schwimmer, Co-CEO & Director
• Michael Frankel, Co-CEO & Director

Analysts

• Craig Mailman, Director & Equity Research Analyst at Citigroup
• Samir Khanal, Director - US REITs at Bank of America
• Blaine Heck, ED & Senior Equity Research Analyst at Wells Fargo Securities
• Greg Mcginniss, Director at Scotiobank
• Nick Thillman, Senior Research Analyst at Robert W. Baird & Co
• Michael Griffin, Director at Evercore
• Michael Muller., Venture Capitalist at JPMorgan Chase
• Omotayo Okusanya, Managing Director at Deutsche Bank
• Brendan Lynch, Director at Barclays Capital
• John Kim, MD - US Real Estate at BMO Capital Markets
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.