Everyone to the 9:15 AM. session at Citi's 2023 Global Property CEO Conference. I'm Craig Mailman with Citi Research. We're pleased to have with us Rexford Industrial and CEOs Michael Frankel and Howard Schwimmer. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can sign on to liveqa.com and enter code Citi 2023 to submit any questions if you do not wish to raise your hand. Want to remind you, if you do wanna raise your hand, you have to hit the button and have the mic light up. Otherwise, no one will hear you. Michael and Howard, we will turn it over to you to introduce the company, and any members of management that are with you today, and then turn it over to Q&A. Thank you. All right, we're gonna let Laura kick it off, and we just wanna thank everybody for joining today. Great. Craig, would you like me to answer your three questions? If you wanna jump into the first question or give a quick overview of Rexford, whatever you... How about I do both? I'll give a quick overview of Rexford, you asked us to give the top three reasons why to buy Rexford today. Quick overview of Rexford. Rexford Industrial is the nation's largest pure play, U.S.-focused industrial REIT. We have an entity value over $14 billion. We are solely focused on infill Southern California. Infill Southern California is the fourth largest industrial market in the world behind the U.S., China, and Japan. Our portfolio consists of 44 million sq ft of high-demand, generic use industrial space occupied by a very exceptional, and stable and diverse tenant base. Our proprietary investment sourcing advantage, unique market access, and value add expertise enable us to generate returns that are substantially above market. We maintain a very low leverage balance sheet with a sector low Net Debt to EBITDA of 3.7x, and that provides us with tremendous flexibility and access to many attractive sources of capital to fund all of our future internal and our external growth opportunities. In 2022, our entrepreneurial approach to creating value drove 20% Core FFO per share growth. That brought our average annual growth to 22%, and substantially higher than all the other industrial REITs, which averaged 13% over the same period. That nearly 70% outperformance is what we like to call the Rexford Alpha. To your question, what are the top three reasons an investor should buy Rexford today? Number one, first is the persistent and incurable supply and demand imbalance in our infill Southern California markets. Market vacancy today in infill Southern California is approximately 1%. That's well above structural full occupancy levels. Our markets have an extreme scarcity of land and development constraints that prevent really any material increase in new supply. You couple this with continued strong and diverse tenant demand. Our tenants serve a consumption base of over 22 million people that have growing purchasing power. When you put all this together, these unique market dynamics and the current activity we're seeing in the market, we're projecting approximately 15% market rent growth in 2023 within infill Southern California. The second reason to buy Rexford today is our ability to deliver investment opportunities that generate substantially above market returns. We do this through our proprietary data-driven acquisition sourcing that enabled us to acquire last year our $2.4 billion that we acquired in 2022. 90% of that was off market or in lightly marketed transactions. We also combine this with our value add expertise that enables our execution on today our pipeline, our in-process repositioning redevelopments, total $1.1 billion that we expect to start in the next two years. Projected unlevered returns on total investment at 6.5%. When you look at what we've closed year to date, of $405 million, as well as the $125 million we have under contract or accepted offer, in aggregates, our investments today are positioned to generate higher FFO accretion compared to last year, and that's inclusive of today's cost of capital. Finally, the third reason to buy Rexford today is our exceptional projected embedded NOI growth. Today sits at over 43%. That equates to $200 million of NOI growth over the next 24 months. That assumes no acquisitions, and that assumes today's market rent without future growth. When you look at breakdown the $200 million, that's comprised of $78 million of NOI growth. It's driven by the Mark-to-market of our of our leases as well as our contractual rent steps. The weighted average Mark-to-market of our portfolio today sits at 73% on a net effective basis and 58% on a cash basis. The second component of that growth is $48 million of NOI from repositioning redevelopments that will stabilize in the next two years. Finally, $74 million of NOI from recent investments that we closed in the fourth quarter and year to date. I know, Craig, you only asked for three things, but I have to acknowledge our team because they're truly the primary determinant of our success at Rexford. It's their entrepreneurial, collaborative, and dedicated efforts that truly enable the great business that we have today and where we're going in the future. With that, I'll turn it back to you. Perfect. Thank you. You're the first company to offer a fourth, so you get the early award for that. I have more. Keep going. We got 15 minutes. Okay. No. Fill the whole half hour. Correct me if I'm wrong, the 73%, is that an update from the call? No. That seems higher. No. That's the net effective number from the call. Okay. Perfect. You know, I wanna start with acquisitions because, you know, following a $2 billion year and this location in the acquisition market, maybe we all thought there'd be a slowdown, but you guys have come out of the gates pretty strongly here with $400 million in the bag, another $100+ million under LOI. You're on track to do another strong year, and yields are moving higher commensurate with kind of where cost of capital is going. I'm just kinda curious, beyond what's under LOI and close, what is the broader opportunity pipeline look like at this point? It's very strong. You know, we're tracking 200 million sq ft of product in our proprietary database. Near term, you know, the pipeline is even stronger, I'd say. You know, our team does a tremendous amount of research. We have these amazing relationships into the marketplace, which help us generate those 90% off market and lightly marketed transactions Laura mentioned. Today, we're better positioned than we were a year ago. There's less competition in the markets. Rexford has tremendous access to capital and a reputation in our markets in which brokers can rely on our ability to close, which is much different than others. The pipeline is actually just building by how we've structured and really operate in the marketplace itself. I wanna touch on one other point that you mentioned about the market. You know, interest rates are moving up, but yields haven't really dramatically changed in the marketplace. There's still people that are coming into our markets and buying at lower yields. There's two transactions that are tied up right now in the Inland Empire, one is at a 1.9% yield that'll stabilize in five years at a four and a half percent yield. The other is inbound at a 2.4, it'll stabilize at a 4.3. That's kinda what's happening today on the ground. I'd just add to that briefly because, you know, I think Howard did a good job of describing the dynamics in terms of how we're acquiring. Craig, you mentioned that you kind of expect yields to have gone up commensurate with the cost of capital. Actually what we're seeing at Rexford is our yields have gone up substantially greater than the increase in the cost of capital, particularly the debt markets. In fact, inclusive of today's cost of capital, yields on our investments are about 40% more accretive on an FFO per share contribution basis than they were a year, a year and a half ago when cost of capital was substantially lower. I wanna go back and kind of bridge, Howard, your commentary that you're still having these deals go off in the IE and elsewhere in Southern California at cap rates, even on a stabilized basis, you know, well below where you guys are finding assets today. Is it just that the deals you're quoting are highly marketed core deals that are still attracting institutional capital versus you guys, going after deals that maybe are not, you know, the high profile, you're sourcing them off market? Kinda what's driving that delta relative to where you guys have been able to kinda get assets here over the last couple months? Right. No, that's a great question. Yes, there's always been a difference between how we buy and how the rest of the capital accesses the market. You're seeing exactly that. Yeah, so those deals that I mentioned, those were marketed. As I just mentioned earlier, 90% of what we buy is really not actively on the market. There's always a difference. Laura, maybe this one's more for you, but you gotta finance this growth, right? Just kind of curious on, you know, you guys did the equity raise back in November, but the deal flow that you guys have done has kind of eaten through some of that. From here, what kind of capacity do you have left given your target leverage levels? You know, as you look at the market today, where debt pricing is, where equity costs are, where your ability to sell assets and redeploy that, kinda what's the funding plan here the balance of the year? I mean, I think because of the low leverage on our balance sheet, we've, we're really optimizes, you know, all the abilities to fund the business, right? 3.7x Net Debt to EBITDA, or we target to be somewhere in that 4%-4.5%, 4-4.5x area. We certainly have a lot of flexibility in terms of how we wanna fund, and we have access to a lot of different sources of capital. Equity obviously favorable, you know, from a cost basis today, especially given where we're acquiring. As of the quarter end, we had about $73 million of proceeds forward remaining outstanding for settlement. We just renewed our ATM, that has $1.25 billion capacity. When you think about, you know, when you think about dispositions, certainly could be a source of capital. We're constantly, you know, assessing the portfolio and looking for opportunities. We haven't sold as much in the last couple of years. Really, when you look at the embedded growth within these assets and you look at the mark-to-market, it's been a little bit more challenging to sell the assets because there's still a lot of value to capture there. We could sell incrementally some properties over the next 12 months. We're in a really favorable position. That's why we manage the balance sheet at this level, right? It puts us in a position where no matter where we are in this economic cycle, it puts us in a position to be able to be opportunistic. Where do you think you would price debt today? Kinda where in the curve would you look to kinda fill in from a maturity ladder that you have today as well? I mean, our maturity ladder, we're really well staggered. You know, we could issue anywhere from three to 10 to 30-year debt today and feel really comfortable about adding at any point some in the ladder. Where do you think you would price the range from, you know, five, seven, 10 years? Yeah. I mean, I think 10-year debt for us is probably today, the 10-year's trading down today, probably around 175 basis points, 170-175 over. I guess, as you think about that, you guys are buying in the five, so there'd be, you know, maybe a little bit of negative leverage out of the gate. You know, what are you guys throwing off from a cash flow perspective as well that you're reinvesting to blend that cost of capital down as you're potentially looking to maybe get up to that 4%-4.5% debt-to-EBITDA range? Yeah. I mean, look, I'm not, we're not necessarily trying to get back to 4x-4.5x, right? I mean, we're gonna add, you know, we're gonna source capital that's accretive to the business. You know, we're buying today. If you look at our pipeline today, initial yields, about a $125 million pipeline are about 5%, but stabilized yields are 6%+. You know, we're gonna make sure that we're focused on funding the business, where we're generating accretion in the near term and the long term. I'd just add to that our uses of capital also includes our repositioning, where we're deploying capital into repositioning many of our assets. Those are generating yields. For instance, last year, we generated, I think, about 8.9% aggregate yield on our repositionings that were stabilized. As Laura mentioned earlier, we've got over $1 billion of repositionings in the pipeline, stabilizing at about 6.5%. These are very accretive uses of even today's capital at its current cost. Not to belabor the balance sheet here, because you're in great shape, but as I'm thinking about your same-store growth has been high single digits, if not, you know, potentially getting to the low double digit range. Your EBITDA is growing quite fast, right? Your capacity every year, even if you're not trying to lever up, you're naturally de-levering, right? Yes. You have more debt capacity than most other companies that we think about because of that outsized growth, that you have runway here for probably, you know, a couple of years. I don't want to put words in your mouth, but you guys are in a little bit of a different situation to where at a point in time, if you go to that 4.5% range, you naturally can de-lever quicker than others, right? That's correct. It's Kinda how do you balance that optic of hitting that top end versus you knowing that the portfolio is gonna allow you to, without worrying about selling assets or other issuing equity that others have to kinda pull that lever that you're naturally gonna come back down? Yeah. I mean, look, I think when we think about the balance sheet, I'm not afraid of running a lower lever balance sheet than we sit today, right? At the end of the day, we're thinking about how we're gonna fund the business on an accretive basis. There's gonna be points in time, I mean, if you think back to, it was the fourth quarter of 2020, I believe our balance sheet was closer to 3x levered, which gave us the opportunity to opportunistically add debt to the stack. We were able to go and issue 10-year paper, you know, with the two handle on it, low two handle on it. I think that's what running a balance sheet at these levels allows you to do, is be opportunistic at those right points of time, in terms of how you're gonna source capital. That's helpful. Now to go back to the fun stuff, the leasing environment, right? It's still doing quite well. At the same time, you know, I can tell you certain people have come up to me and expressed some concerns already at the conference about Southern California, right? The IE. You're seeing maybe market rent growth slow a little bit sequentially. You know, the moratorium in the Inland Empire, what does that do structurally to a market that's already at 1% vacancy, right? If you can't grow as a tenant in the market, what are your alternatives? I'm just kinda curious. You guys are a sharpshooter in the Southern Cal market, so maybe you're a little bit more biased than others that can allocate capital in and out of the market. Where do you see or what pushback would you give to those concerns about Southern California being a little bit at risk here fundamentally because of some of those concerns I just went through? Maybe I'll start, Howard, you can maybe fill in a little bit. To begin with, I think your concerns are valid and that's why Rexford only focuses on infill Southern California. You mentioned the IE, the Inland Empire. That's the eastern segment of in Southern California, for those of you who are less familiar with the geography. The Inland Empire is an area in the east section of Southern California that has a nearly endless supply of land all the way to Las Vegas. You could continue to build buildings. That is fundamentally why we choose not to focus in that market. Yes, if I was an investor focused on the Inland Empire, I would be very concerned. However, that having been said, that's only about 20% of the total market in infill Southern California. The infill market, where we focus in and among the population centers, Greater L.A. County, Greater Orange County, the Ontario market, that's about 80% of the market in Southern California. I don't have a worry in the world about fundamentals for that marketplace. We have an extreme supply-demand imbalance that is only going to worsen. Worsen because we continue to see industrial property get cannibalized as it gets converted to other uses, and increasingly, it's gonna get converted to housing. California has an extreme housing shortage that is going to be resolved to some degree over the next 20 years-30 years. We see increasing regulation and constraints around industrial use and trucking. That's gonna further constrain, you know, the availability of it, of industrial, not just Inland Empire, but also in the, in the infill markets to some degree. It's gonna further reduce supply. That's the backdrop in infill Southern California. We have not a worry in the world. Trust me, we look for cracks in the market like nobody's business because that is our business, and we're just simply not seeing it. With that, maybe I'll turn it over to Howard to talk a little more in detail about the leasing market. I'll just mention also about Michael's comments on the Inland Empire. You know, that's really the relief valve for new deliveries because there is land in the Eastern Inland Empire. Even if you look at just the Inland Empire West, there is some construction, and 75% of that is 250,000 feet and larger. 50% of it is 500,000 feet and larger. You look at our portfolio, our average building size in that market's about 85,000 feet. The reality is most of those deliveries aren't competing with our product that we already own. In terms of the overall market, you know, we, as Michael mentioned, you know, we're looking for the cracks every day. I can tell you today that the demand we're seeing is actually stronger than it was even 30 days ago. You know, our team resets their rents, the forecasted market rents every quarter. It's not very long ago that we just finished reforecasting those rents. In terms of the leasing we're doing right now, we're still exceeding those recently forecasted rents. The tenants are strong in terms of the amount of demand we're seeing in the marketplace. We're not seeing any change, in fact, still an outperformance in our ability to achieve better rents than we even forecast. You know, as Michael said, where are the cracks? We're not seeing them. Remember, this is a market, the infill Southern California market. It's almost 2 billion sq ft at about 1% vacancy. Many of our submarkets, which are larger than most other markets in the country, are well below 1% vacancy, 0.5%, 0.7% vacancy. It's just a really favorable market backdrop for Rexford. Just one last thought. You know, it might be different for other owners in the marketplace because we deliver the best quality product in each one of the submarkets we're in, and that tends to drive higher rent and less vacancy and a faster lease up. We've learned that through many cycles, the program at Rexford is different than others in the marketplace. Our performance obviously could be different and generally is different, we think, than most others. You make the point, right? When you look at industrial, sometimes you start nationally, which skews relative to other retail, and then you look at a market like Southern California, that's 2 billion sq ft. You have to drill down to the submarket level, right? I mean, as you look across your submarkets, are there anywhere, you know, are there any big differences fundamentally or from a rent growth perspective that you could flag? Is it generally they're all kind of moving same similar magnitude, same similar direction? Well, if you look at our portfolio, it's about 70%-75% greater L.A. County, greater Orange County, and the Ontario market. On a little bit in San Diego, a little bit in Ventura. Across the areas where we own, we see similar tenant demand fundamentals. In great part because we focus on the same type of product. We focus on what we call generic industrial. For example, we don't get involved with heavily built out lab space in San Diego. We stay away from that. By staying true to that generic industrial footprint, meaning maybe it's 3%-18% office, the rest is warehouse and loading doors. We keep it simple, whether we deliver that in a small package or in a big package. The beauty of that is that Couple things. One, it enables us to appeal to the deepest, broadest, and most diverse tenant base probably in the world. Number two, it dramatically reduces any friction associated with re-tenanting, meaning lowest time frames and lowest cost associated with re-tenanting. By sticking to that generic product type, irrespective of where we're focused within our target markets, the tenant demand fundamentals are pretty similar, not dramatically different and very strong. And, and- Craig, as far as the rent growth, you know, San Diego, Ventura have always had a bit lower rent growth than those real strong infill markets. You know, Michael mentioned that L.A. County, Orange County and the Inland Empire West. That's what, you know, we continue to see that type of performance. Are you feeling? I, you know, I always make the point that rent is a very small component of a tenant supply chain. There's still a lot of inflationary pressures in labor and transportation. I mean, as you talk to tenants who maybe move out, your retention rate's high, so you know, clearly rent is not as big of an issue. For the tenants that do move out, does rent even clock in the top 5 reasons, or is it other reasons? Like, how much pushback are you getting when you're going to reset rents? Because sticker shock should be pretty well known at this point for tenants in the market if you want to stay. I'm just curious of how many tenants are actually getting priced out of the markets versus, you know, kind of pushing back, complaining, trying to get some type of a better deal than maybe you're initially offering? I'd say at this point in time, we have very few tenants leaving the market, leaving our infill markets because of the cost of rent. I think that occurred over the last 20 to 30 years, because this has been the most expensive operating environment for decades, even though we didn't see the kind of rent growth until very recently that we've seen recently. It's been the most expensive operating environment and the most restrictive operating environment from environmental regulation, all sorts of issues, taxation. It's been an expensive operating environment. If you didn't have to be there, you probably left 20 years ago. Today, the composition of our tenant base is such that they're in our spaces because they require our spaces in order to run their business. They're predominantly consumption driven. They're delivering into the largest zone of consumption, the largest regional population in the country. I hate the word mission critical because it's overused. These tenants, they've proven to us that these locations are truly mission critical to their businesses. When you talk about, yeah, rent's a very small percentage of the economics for that business, that's true. Transportation costs for their goods are much more impactful and a much greater percentage on average, of their company's economics. That's true. Being close to their customers and being close to the ports actually helps reduce their transportation costs, keeps them low. That's true. At the end of the day, the biggest issues for our tenants is if they don't have these locations in our portfolio, they have no business. Craig Mailman, I'll just add that when you think about, you know, the tenant's ability to pay the rent, I think the annual embedded rent steps that we're achieving and that we've been able to continue to push higher is a really great reflection of how they're thinking about their ability to pay rent, right? Since, you know, pre-COVID, beginning of time in industrial real estate in Southern California, the annual steps were 3% or lower. Then about two years ago, we saw the ability to start pushing those higher and have pushed those higher pretty much every quarter for the last two years. Last year, annual rent steps in our portfolio averaged about 4.3%. We're still seeing the ability to continue to push annual embedded rent steps, you know, somewhere in that 4% to 4.5% range. I think it's a great reflection of how the tenants are thinking about rent. Yeah. Between those embedded steps, the Mark-to-market now north of 70% on a net effective basis, I'm assuming it's somewhere in the 60s on a cash basis. Yeah. yeah, we're right there around about 16. Right. Your ability, if you're rolling 15% a year, you're getting almost 9% from your rents, you're getting another 3%-4% just from your steps, right? Then you have ± on occupancy. I mean, your ability to continue to grow the core portfolio in the high single digit range seems pretty sustainable here for at least the next year or so. Am I missing anything? No. You're not missing anything. You got all the math. You got all the components, Craig Mailman. You know, we're projecting that cash, Same Property Growth in our portfolio should be 10%+ over the next two years. That assumes that kind of steady occupancy levels. But we do see, you know, when you think about the Mark-to-market, We expect kind of the same Mark-to-market to continue over the next few years as we roll the leases. Market rents, and that assumes that market rents aren't growing as well, and we are projecting 15% market rent growth this year. Right. To go back to, I know, looking for cracks in the armor, I'm getting a question here from someone who lives in Texas, and just talking about the outmigration there and really part of it being housing driven. You know, we've talked about the tax situation and everything, but just longer term, I don't know if it's measured in five, 10, 15 years, how do you view that? Is this just a continuation of the conversation we've had for the last 20 years about everyone leaving California, and it's still kind of a populous state, a population dense, kind of views there? I'm gonna dovetail that also with, we are starting to see for the first time some port diversification really coming out of COVID, where people are considering, you know, not stopping just at L.A. Long Beach, but, you know, bringing stuff from Asia through to the East Coast and how that's sort of impacting tenant decisions and, you know, their locations, right? Whether it's Phoenix, whether it's Dallas, what have you. Just kind of your longer view. Again, maybe this may be a rehash of a question you've already hit on, but just, you know, as you guys think of the evolution here of the market and some of these dynamics which are a little bit different now, especially on the port diversification side. Maybe I'll jump in on the port question, and Laura and Michael can talk on the population. As far as the ports, you know, we have a major contract that still has not been settled, and we've seen this through cycles. You know, every time that contract comes up, there's a lot of shift because of the potential for strikes. You know, that is something that major importers, retailers, et cetera, they don't want to be caught in the middle of a strike at the L.A. Long Beach ports. So a lot of the diversion we think is happening because it's always happened that way. There have been, you know, some things happening at the port, some slowdowns. You know, the... It's contentious, you know, that negotiation. You know, Southern California is still the gateway, you know, from Asia. It's the shortest path in. You know, we believe in the long run, some of that will normalize out after the contracts are settled. I'll try to answer the bulk of your question. I'll try to be brief because we're running out of time. If you look at the cause of the relative outmigration, first of all, it's small numbers. It's less than 1% of the population. Number two, driven by a couple of factors, an imbalance in deaths versus births. With the pandemic, we had incrementally more deaths and also for political reasons than others, we've had almost zero immigration. I'm sorry. I'm sorry. The births have been relatively declining. The balance there has been a negative factor on population. You layer in immigration. Immigration has been, for all intents and purposes, zero, and that's starting to come back. Just from a baseline perspective, the near and medium term expectation is that we revert to sort of a 2% growth as immigration starts to fill back in and that unusual level of relative deaths starts to go back to more normalized levels. If you look at who's leaving and who's coming, the people that are leaving, to your point, Craig Mailman, have to do with, you know, cost of housing, cost of living. They're not your high income earners. The people that are coming into California tend to be highly educated, younger. We're the 11th youngest state in the country, and they tend to be higher wage earners and in a higher consumption factor. Net-net, we're not really too worried about the long-term ramifications of what we're seeing. It's been more of a short-term trend. I think I'll just add with regard to the East Coast ports, you know, people have looked to diversification because of the bumpiness with China and the COVID impacts there, factory shutdowns and all the rest. I think net-net, that really doesn't have a lot of impact for us because again, our tenants are predominantly consumption driven, occurring in, within our region. We don't really see a big long-term impact there either. That's helpful. Before we jump to rapid fires, I'm just kind of curious, your number one ESG priority for 2023? Well, it's really hard to pick just one, but I'll try to pick just one, Craig. You know, at the core of our business really is recycling buildings and, you know, reinvigorating the communities in which we all live and operate. That allows us to reduce our environmental footprint and also have a very positive impact on all of our stakeholders. This year, I'd say of our many ESG priorities, we're probably most excited about setting science-based targets and making a commitment, a net zero commitment, and which truly will deepen our, you know, commitment to reducing our environmental impact and having that positive impact in our communities. You know, to achieve these targets, we're gonna continue to raise the bar when it comes to how we're building green. Last year, we completed our first LEED Gold building. We're even looking to expand our LEED certifications into repositioning projects. We're excited about all of our initiatives from that perspective. We're increasing our investments in renewable energy. That's expanding our solar program, battery storage, EV charging, et cetera. We're really excited about all that we're doing from an ESG perspective and look forward to sharing an update with everybody with our annual ESG report that will come out in May. Perfect. Rapid fire time. Same external Y growth for the industrial group, not Rexford in 2024. Seven. Best real estate decision today: buy, sell, build, redevelop, or hold? All. Will industrial have fewer or the same number of companies this time next year? Same. All righty. Well, thank you all for your time. Thanks, everybody. Thanks so much. Thanks, everybody.