Rexford Industrial Realty, Inc. Stock

Why don't we get started? I know it's 4:30. This is the last panel of the day. So I know everybody is excited from that perspective. So welcome to the Rexford Roundtable. Happy to have Laura Clark, CEO, up here. Laura, why don't you introduce your team? I mean, we have a big group here and give us any opening remarks.

It sounds good. Well, thank you all for joining us today, and thank you for your interest in Rexford. Thank you all for hosting Bank of America. With me today are Mike Fitzmaurice, who is our CFO; John Nahas, our COO; and Doug Bettisworth is our SVP of Investor Relations and Capital Markets.

So before we move to your questions and Q&A and any questions that we have in the room, I'd like to provide an update on what we're seeing in the overall Southern California industrial market and an update on our current strategic priorities. So let me start with the market. The leasing activity continues to improve in our market. We are seeing evidence that demand is strengthening across Southern California. In the second quarter, the market generated nearly 6 million square feet of positive net absorption, resulting in the first decline in overall vacancy that we've seen in the market in 4 years.

Leasing activity has been strong throughout the third quarter, and we are seeing demand from a broad range of industries, including advanced manufacturing, logistics and consumption-based users like food and beverage, automobile and construction-related businesses. Of note, demand across the market is broadening, and that's a good sign. We're seeing activity across more submarkets and size ranges than we were earlier in the year and leasing momentum remains strong in spaces under 50,000 square feet, while activity in larger Class A spaces, especially in the North Orange County and Mid-Counties market has improved as corporate users have become increasingly active. While availability in the market remains elevated, we are moving in the right direction. That said, incremental tenant demand driving net positive absorption is fundamental to the market's continued recovery.

So turning to our strategic priorities. We have taken decisive actions this year to strengthen our platform and sharpen our focus. Earlier this year, we completed a comprehensive portfolio review, and we identified approximately $2 billion of noncore assets for dispositions. This initiative reflects a very disciplined effort to concentrate our portfolio around properties we believe offer the strongest long-term growth and value creation potential. Including our recently announced $1.2 billion transaction with EQT, we have closed or have under contract approximately $1.5 billion of dispositions year-to-date, which positions us to achieve our full year disposition objectives.

Proceeds from our dispositions will enhance our ability to execute on our capital allocation priorities and increase financial flexibility. We are reducing near-term debt maturities, repurchasing shares when attractive opportunities arise, and we are continuing to invest in our high-return repositioning and development opportunities across our portfolio. At the same time, our conviction in the long-term outlook for infill Southern California industrial real estate remains strong.

The Southern California industrial market benefits from one of the most diverse demand bases in the country. At the same time, supply under construction has fallen to multi-decade lows and increasing restrictive state and local regulations, specifically including AB 98 and State Bill 415 are making new development increasingly more difficult. These dynamics further strengthen the long-term value of our portfolio and our differentiated platform.

Before I conclude, I want to recognize the Rexford team. The progress that we've made this year reflects the exceptional execution across the entire organization. So in closing, we have acted decisively to strengthen Rexford. We have sharpened our portfolio. We have enhanced our balance sheet strength. We have improved operational efficiency and all reinforcing our long-term growth platform. So as market conditions continue to improve, we believe that Rexford is exceptionally well positioned to create value for shareholders and capitalize on the opportunities ahead.

So with that, I'll turn it to you for questions, Samir.

Yes, I'll start, and I want to keep this interactive. So if anybody has questions, please. So maybe talk about the submarkets, right? I mean there are certain markets that are clearly doing well in L.A. and South Bay, but talk just kind of broad kind of what you're seeing within the markets.

Yes. I'll start a little bit higher level and then John can dive into some of the submarkets. As I mentioned in my prepared remarks, what we've seen from the second quarter into the third quarter is, I'd say, just a broad pickup across the market in terms of activity, and that includes across submarkets and size ranges. As I mentioned, that sub-50,000 square feet continues to be strong. That's been a spot of strength for several quarters now.

We've even seen market rent growth for the past 2 quarters within that product, the sub-50,000 square feet. And what we've seen generally in the third quarter is that pickup in Class A, driven by those corporate users, as I mentioned, and that's been very positive for the pipeline, the leasing pipeline that we have from a development and repositioning perspective. So generally, we've seen more activity and more lease executions around those assets that we have for lease-up in the development and repositioning pipeline.

John can certainly speak more about some of the submarkets.

Yes. So you touched on South Bay. We've been describing that market in 2 parts. There's the coastal portion, which I think most people are familiar with. Advanced manufacturing demand is quite robust, and that is continuing. But that is acutely focused on the most coastal areas of the beach cities between El Segundo down to Torrance with some spilling over into Long Beach. When you look beyond that one tenant sector beyond advanced manufacturing, it is a bit different. General logistics demand is there, but not nearly at the level that we're seeing with advanced manufacturers. And so the whole market is a bit bifurcated. And we're seeing rents and occupancy and absorption behave differently across those 2 areas.

Similarly, we have other markets like the San Gabriel Valley, which are exhibiting strength in pockets around the city of industry. That's one area, as Laura mentioned, where we're seeing increased demand for Class A product. We have a couple of development sites that were completed and are happy with increased activity we're seeing there. But like the South Bay, there's a bit of a bifurcation. And when you look at the Irwindale portion, which is the north part of the San Gabriel Valley market, it's not quite the same. We're seeing healthy demand sub-50,000 square feet, as Laura noted, and as well as with product that's Class B with higher functionality, but Class A remains a bit slower in that market.

Logistics demand is one of the bigger drivers for San Gabriel Valley overall. That is also true for the Inland Empire West. And so we're continuing to see good demand coming from those sectors. Our product in the IE is on the smaller scale as compared to most. Our average unit size in that market is 30,000 square feet. Nevertheless, we do own a few bigger boxes and have some exposure to some of the increased 3PL and warehousing tenant demand that we've seen there.

Probably most notably, what's different from earlier this year, certainly even last quarter is some of the Class A demand focused on markets like Orange County and Mid-Counties. Those markets year-to-date have been a bit quieter in that space. And over the last 60 to 90 days, we've seen increased activity and more deals getting to the finish line. Light manufacturing, some advanced manufacturing is driving a lot of that tenant activity in those markets. Mid-Counties, you'll see a little bit more logistics there as well.

And then real quickly rounding out San Fernando Valley, which is a big presence for us. Class A remains a bit slow there, but Class B product and smaller sized units are continuing to lease and perform very well. That market does historically have a larger component, roughly around 20% that's tied to entertainment. That sector has not gotten any better. It's still a lot of the same. And so we haven't seen that demand portion come back yet. But overall, again, activity generally is going in the right direction across all the markets and most size ranges that we operate in.

John, remind the audience, what is your exposure to South Bay?

Yes. It's our largest submarket, and we have product there that ranges as small as 2,500 square feet up to a few hundred thousand square foot size boxes. It's concentrated mostly in the coastal and Harbour Gateway corridor areas of the market, which are focused on the logistics corridor that extends from the port to Downtown L.A. as well as the advanced manufacturing epicenter that I described earlier.

I think it's around 12 -- it's about 7.5 million square feet. Is that 12% to 15% or something like that?

Yes, in that ballpark.

Yes.

Okay. And is there a way to bifurcate A product versus B which you own in South Bay? Just curious.

We have a bit of everything in that market. It's hard to give you a number off the top of my head. We also have a couple of projects in our development pipeline that are underway that are going to increase our presence in that submarket.

Why don't you maybe talk a little bit more about the development pipeline? It sounds like you've seen some more activity there this quarter.

Yes. That largely aligns with the Class A tenant activity trends that we're describing. We have product in our pipeline that is completed and in lease-up. Those buildings are generally located in Orange County, St. Gabriel Valley. There's a few others in a couple of other markets, but that's the higher concentration. And so we're pleased with the increased activity that I was describing earlier.

In terms of the future pipeline, we have a few projects that have started and will start as we get through the end of the year. Those are all projects that we're really excited to get underway and deliver to the market. They are projects that meet our current financial threshold guidelines and will deliver differentiated product to the market, which is really important. The big element of our strategy is to make sure that across our operating platform and when we do development that our product has a competitive advantage. And so the projects that are in our future development pipeline are great examples of that.

Yes. And just from a financial perspective on development, we're selling for between 150 and 200 basis points on top of a market cap rate. So right now, that's about a 6.5% to 7% yield, which are in line with other projects that we've started this year. And as we look ahead, it has to hit that hurdle for us to greenlight it. Otherwise, it's a no-go. And as we look at our development pipeline going forward, it's smaller.

We sold 6 development sites earlier this year and/or they didn't pencil, and we were penciling between 3.5%, 4% because they're largely bought in '22 and '23. So as we move forward, the focus is going to be more on the repositioning, the light CapEx work inside the 4 walls of the building where it's lower CapEx, lower downtime, much bigger tenant demand, broad-based demand from different tenant sizes and industries. So it's a big change in how we allocated capital in the past.

And Laura, when you mentioned -- I just want to make sure, when you say demand is strengthening, you're talking across the board, right? Yes.

Yes, yes, yes. And I mean, as John mentioned, I mean, we're certainly seeing -- when you dive into the submarket level, right. There's a differentiation in terms of the performance within a submarket and within size ranges. But even when you compare to the levels of activity 3 months ago, 6 months ago, 9 months ago, generally speaking, the levels of activity across the board are higher. And I would say the demand pool is also deeper.

Is there like a leasing pipeline? Can you -- are you able to quantify versus like...

Yes. We haven't reported kind of mid-quarter stats which we will certainly. We report earnings in 45 -- less than 45 days from now. And so we'll certainly provide updates at that point in time.

And you've talked about the demand improving. I mean have you seen a sort of a shorter time line for decision-making as well from customers?

Yes, I think that's been -- I'm glad you asked that question because I think that's really key. I think we've had periods where we've had leasing activity going to pick up. But what we've seen is the tenants are executing leases, they're making decisions. And I think that the tenant decision-making period has shortened as well. I think there's a lot of reasons that can be driving. I don't think it's just one thing.

We certainly continue to see the reconciliation of spaces. Tenants are very focused on driving efficiencies within their operations. They're also very focused on being in the right buildings from a functionality and quality perspective to be able to drive their businesses forward in the most efficient way possible. When you think about given the fact that there's more availability in the market today, there's more options, you see them going and looking at those options, looking at where rates are today and wanting to lock in today's rates in better buildings.

And so we certainly benefit from that from our portfolio, from -- especially Fitz mentioned in terms of our value creation model is about delivering the most functional and highest quality space on a relative basis to the market. And so we're certainly benefiting from that inflow. And I do think that tenant decision-making is strengthening just generally around the tenants are seeing activity pick up across the market and wanting to lock in today's rates. Some are trying to push that decision-making sooner. Maybe I've got a renewal in a couple of years, and I'd like to go ahead and lock in today's rates and extend my term substantially. So we are seeing that, I think, is also part of the driver there.

Can you talk about the lease negotiation process a little bit? Like now that tenants are coming in and wanting to lock in today's rates, how much are you able to push on the annual escalator? Is that still like in the 3-ish percent range?

Yes, around 3.5%, 3.5%. Yes. And that's been pretty sticky over the last few quarters. It feels like overall, the market has settled at that number. In our smaller size spaces, think sub-10,000 square feet, we're still able to achieve a bit higher, average is around 4%. But really, what it's coming down to because that's pretty sticky. Concessions are still pretty sticky. It's generally about a month per year of term for new deals and TIs aren't super meaningful in terms of overall dollar value and the deal economics, it's coming down to rate and it's coming down to commencement date.

And going back to your question, Samir, and what Laura touched on, the urgency shows up in 2 ways. There's tenants that have been putting off decision-making and now they want to go, and they want to get in the building in 3 weeks, which is great. We love that. Then there's other tenants who are entering the market proactively much earlier than they otherwise would to take advantage of where rates are today. And so the 2 biggest conversations our teams have is around rate and commencement date, some being accelerated, some being, as Laura was touching on, maybe further out in the future so that they can benefit from today's market versus what they might be dealing with later down the road if the market continues to improve.

And maybe on the rate piece, market rates have been declining, but the pace of the declines have slowed the last couple of quarters. I guess, just any general sense of how close we are to sort of more of a flattish point?

Yes. I would say what's been going on with market rates is a bit expected. We still have elevated availability and vacancy across all of our submarkets. And so with that, the tenants have options and can leverage that. The net absorption that we've been seeing, especially what we think is happening on the ground today in the market is very encouraging, and there's steps in the right direction of chipping away at that elevated vacancy and availability. Until that comes down, we expect there to be continued pressure on rents because the landlords like us are competing for deals coming back to what I was mentioning before, rate is one of the big topics of discussion. So it's expected.

We think that's going to continue, Generally speaking, getting through this year and '27 and the first part of '28, we're going to be dealing with 2021, '22 and early '23 vintage leases that are expiring where tenants are going to reconcile their space needs and make different decisions in today's market versus what they decided to do when back in '21 and '22 vacancy was really low, and they didn't have a lot of choice. So we expect it to continue to fluctuate. The rate of decline in rents flattening out has been helpful.

And then there are certain areas of the market, particularly spaces under 50,000 square feet, rents have been stable, and we've actually seen some growth over the course of this year. So it's important because when you think of Rexford, remember that our average unit size is 28,000 square feet. So we have a lot of exposure to that segment of the market, which is pretty stable.

Yes. I mean I think what's really important to focus on is that the recovery will not -- in terms of net absorption and in terms of market rents, will not be linear. We're in a 2 billion square foot market, and it will differ by submarket, and it's going to different by size range. So really focusing in on the competitive set. That's what's really going to drive absorption when you think about the competitive set within our portfolio and the market.

The competitive set is what's going to drive our ability to push rates or not. And so that's really what we're focused on in terms of as we're looking through to the recovery is -- it truly is on a submarket and a size and quality perspective going to vary as we get through this period of time.

I guess, Mike, there's been a lot of conversations around cash leasing spreads. And I mean you're still down, it was 11% in the second quarter. Help us understand like how to think about that metric and it feels like market rents are still under pressure for the next sort of whatever is '27, '28. Help us take that.

Yes. Look, we've been pretty clear eye with our investors over the last several quarters on what our expectations for cash re-leasing spreads will be this year. They're going to be negative 10%, negative 15% because what we're facing on the rent roll in terms of expirations is leases that were signed in 2021. Our average lease term is about 5 years. So rolling into next year in '27 and '28, we're starting to get at those vintage leases that were signed in '22 and '23. And as a reminder, the height of the market in terms of market rents when they peaked was the first half of '23. So these are structural in nature.

We sold some of this off via the EQT transaction that Laura noted earlier. So re-leasing spreads are a bit better. But you can't fix this stuff overnight. We have -- 50% of our portfolio today is still above market. It's a little bit less after the sale of the $2 billion worth of assets. So we'll face some pressure. It will probably be negative mid-teens in '27 and '28. Big caveat there, though, is that's assuming market rent does not grow from here on out. That assumes flat rent. But it's important to talk about the other side of it. And the biggest swing factor in terms of earnings growth for this company today is occupancy. That's why we've been prioritizing this for the first almost 9 months of this year. We're at 90% today.

We have about 3.5 million square feet in our repositioning and development pipeline that has a rough number, $60 million of NOI tied to it. So if we continue to experience positive net absorption like we did this past quarter and market rents begin to moderate to hopefully flatten out and maybe even go up, that will accelerate the occupancy. The other piece of it, which we haven't talked about, which I'm sure a question will come up, is that we're going to get our net debt down to 3.5x via this transaction that we're doing this year of the $2 billion or so.

That's going to bring us down to, like I said, 3.5x, and that's going to position us very, very well for the recovery. You want to have high liquidity, you want to have low leverage because you want to be able to buy when buy-in is low, which is kind of the inverse of what we experienced in '22 and '23 when we were buying at the height of the market. So it's quite the inverse of that and having that type of firepower is going to change the direction of this company.

[indiscernible] We achieved with the context of the market cycle. So the peak '21, '23, you were signing leases at typically a spread -- cash spread of blank, you signed up escalations on average of why. I mean the spreads for '21, '23 were like 50%, 70% and you signed escalations in the leases. So we have cash rent roll downs, but it's off a very cyclical market.

Yes, that's correct. The market overall increased almost 80%. And the escalations at that point in time were north of 4, many 4.5 and in some cases, even 5.

So that compounds since '21, '22 and '23. That's why we're having the roll-up that we expect. Like look, timing is the best gift we can give ourselves in just getting through this and getting through this reset, and we're getting there and the market is getting better. 12 months ago, sitting in front of you guys, we were in worse moves. We're a much better moves today given the market fundamentals, the way we're allocating capital, leadership changes, it's been great.

Yes. I mean, look, and we've been -- we've said this a lot, we're controlling what we can control. There's structural headwinds, but we're bettering the portfolio. This $2 billion portfolio realignment is about bettering future growth, right? We're positioning the balance sheet better than ever. We're driving operational efficiencies. We've reduced G&A by $25 million. We've continued to reduce G&A this year. So we're doing all the things that we can control today that we believe are positioning this business for long-term growth as we move forward.

And maybe talk about the -- and you touched on the disposition, right, the $1.2 billion. Talk a little bit about pricing, kind of the timing and the size relative to your expectation. And then also kind of how to think about the use of proceeds, right, given that we talked about share repurchase at one point, but given where your stock trades today, how attractive is that?

Yes. Let me -- I'll just -- let me talk a bit about the overall $2 billion. I can touch on pricing and then I'll let you talk about proceeds. So I think it's important to kind of take a step back and how did we and why did we curate this $2 billion portfolio that we have deemed noncore that we want to sell. Number one is it started with the real estate. Our goal, our objective is to produce highest relative TSR for all of you, total shareholder return. And how do we do that?

We do that by driving outsized cash flow per share growth. We do that by owning product that's differentiated in the market. We do that by owning the best real estate in the market, real estate that's differentiated in many ways and real estate where we're able to execute our value creation business model. So that was the framework in which we identified the $2 billion of assets. So these assets don't align with that framework. Competitive set is higher. They're not as differentiated, maybe more commodity-like product in the market. And there's headwinds ahead for those assets.

And over the long term, those are assets that we did not believe will allow us to achieve outsized cash flow per share growth. So that's how we circle those assets and identify those. And then we move forward and we marketed the portfolio, and we had a number of institutional buyers interested in a large percentage of that $2 billion. As I mentioned, we are executing $1.2 billion of the portfolio with EQT. We've already closed on $300 million. So we've got another $500 million to go. I would say that we're in various stages of the disposition process with that $500 million and expect to be complete by -- mostly complete with that other bucket by the end of the year.

So we're excited about how it's going to position the business going forward. From a pricing perspective, we'll just speak to the $1.2 billion transaction with EQT. Those assets generally were above market, about 27% above market, certainly outsized compared to our overall portfolio and our WALT was shorter, so more near-term vacancy risk. So when we look at that portfolio overall, the 2027 cash NOI yield was about 5.5%. So we're excited about the opportunity to execute on this transaction.

And before I turn it to Fitz for some comments on use of proceeds, I also think it's -- when you look at the amount of institutional capital that's flowing back into the market and the demand that we have for this portfolio and other assets, that we are -- that we have on the market we're selling. I think that's a great look through in terms of how others are thinking about the market, the current state of the market and their desire to grow our footprint long term in Southern California. So only talk about [ use of proeeds ].

Yes, sure. In terms of deployment, as I mentioned earlier, we're going to prioritize debt. We got about $1 billion of debt maturing in 2027. So that's the opportunity set in front of us today. We can get at about half that round number, $500 million here in the third quarter, we can prepay it, open at par or has a de minimis prepayment penalty. And then the remaining $575 million comes due in March of next year. That's in connection with our $575 million convertible notes that mature. And then the remaining $700 million or so, we're going to be opportunistic with.

I think we've shown a track record on the share repurchases over the last 12 months or so. We bought about $550 million to date. The zone has been between $35 and $45 a share. That's a spot yield of about 6% to 6.5%, still pretty attractive relative to other places we can put the cash. And look, we're going to be aggressive on putting the cash to work if it makes sense. I mean, for example, we -- EQT waived due diligence in mid-August. So at that point, we had pretty good conviction and confidence that we're going to execute on that portfolio. We've been trading between $35 and $40.

So we've been taking advantage of the share repurchases even during that time because that's -- we have a $1.25 billion revolver that gives us the opportunity to go ahead and do that. So we're ahead on that to a certain degree. But as we move forward, it's going to be a great position we're going to be in with 3.5x on a net debt-to-EBITDA basis. And we'll just have the firepower to redeploy towards the highest risk-adjusted return that we've been doing for the last 12 to 18 months.

As you negotiate the other $500 million that's left, right, in terms of asset sales, has anything changed here given I mean you look at where rates are? I mean is there -- what's early indication in terms of buyer interest or pricing? Anything that you could share?

I'd say, generally speaking, pricing, when I look at the $500 million collectively is probably going to be right in line with that [ $550 million ] that we've transacted on to date. Where we can transact on user sales, we will and we are able to achieve higher valuation on those. But net-net, probably in that 5.5% range on a stabilized basis. So I think that's a strong indication, again, in the market in terms of the demand. I'd say buyer pool is pretty deep.

And we're watching closely in terms of our rates having an impact on overall pricing. And we're not seeing that flow through yet. I think there's a couple of reasons we're not seeing that flow through. Number one, when you have a pretty deep pool of demand for assets, that can certainly keep pricing down, keep cap rates down, push pricing up. And the other thing, I think, is underwriting assumptions as the activity picks up in the market, and I think people get more comfortable with their underwriting assumptions, lease-up assumptions, market rent assumptions. So when you put all those together, I think that, that is helping keep cap rates where -- around our expectations even in this rising rate environment.

So as we're identifying the $2 billion right? I have to assume that when you look to sell [indiscernible] there was a bucket of we're not going to sell, there was a bucket of we're definitely going to sell and then there is something in the middle. Can you just talk about sort of how big the gray bucket was and did we lean towards more or less [indiscernible] generalize?

Yes. I would say we lean towards more. So the gray bucket was not that big is what I would say. And look, I think that's a really important -- I'm glad you asked the question, Tim, I think it's a really important point. Look, we believe that capital recycling -- programmatic capital recycling program is a really important part of any great capital allocation strategy. So going forward, you're going to sell -- you're going to see us recycle capital on a programmatic basis, 1% to 3% of assets annually, and we'll evaluate that on an opportunistic basis.

So that's going to be part of the DNA as we move forward. But we don't have another -- said another way, there's not another $1 billion of assets that we look to go and sell next year or the next. It's going to be much more programmatic as part of any great capital recycling framework.

I know we've got a couple of minutes here. But Mike, in terms of -- I'm not asking for earnings growth into next year but what are kind of the -- help us understand kind of swing factors to consider for 2027. There's clearly a lot of things going on here.

Yes. Look, I think 2027 potentially it could be that floor, right? I think we'll share more updates on our third quarter call and into fourth quarter. But like I mentioned earlier, the biggest swing factors today are occupancy. We're at 90%. We feel like this portfolio can get to 94%, 95%. For every percent increase in occupancy, it's about $0.03 to $0.04 of FFO per share. And again, if we continue to see positive net absorption and market rent begin to flatten and to moderate, occupancy could be a key driver in '27 and '28.

And it really comes from the repositioning and development pipeline that I mentioned earlier of about $50 million of NOI. And again, we're going to have about $1 billion of dry powder with our net debt getting down to mid-3s. So if we can push forward on both those levers, I think you'll see better growth than maybe expected by the Street in '27 and '28. But again, a lot depends on the market fundamentals. It's got to be fully squared back to make those comments true.

We've got a couple of rapid fire questions here. So one, if long-term rates stay higher for longer, which has the biggest impact on your sector? Is that higher refinancing cost, lower transaction activity or less new supply?

Less new supply.

Number two, over the next 3 years, will third-party capital become a more important source of growth for public REITs and balance sheet capital? Yes or no?

Yes.

And number three, for your sector, will same-store NOI growth in 2027 next year be higher, the same or lower than this year?

I'm going to go with the same.

Thanks a lot.

Thank you. Thank you all for joining us today.

Good morning. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rexford Industrial Realty, Inc. Second Quarter 2026 Earnings Call.

[Operator Instructions]

I will now hand the call over to Doug Bettisworth, Senior Vice President, Investor Relations and Capital Markets at Rexford Industrial. Doug, please go ahead.

Thank you, and welcome to Rexford Industrial's Second Quarter 2026 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 the federal security laws, which are based on certain assumptions and subject to risks and uncertainties outlined in our 10-K 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. 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 Rexford's CEO, Laura Clark, together with our COO, John Nahas, and our CFO, Mike Fitzmaurice. It's my pleasure to now introduce Laura Clark. Laura?

Thank you, Doug, and thank you all for joining us today. The Rexford team delivered another quarter of strong execution. Leasing volume is up 50% year-to-date compared to this time last year, and we are raising core FFO per share guidance for the second consecutive quarter. We are also encouraged by improving fundamentals across the broader infill Southern California industrial market with increasing tenant demand, driving positive net absorption and lower market vacancy.

Our second quarter results reflect continued progress against the strategic priorities we laid out earlier this year, opportunistic dispositions, accretive capital recycling and operational rigor. We have moved with discipline, conviction and speed, taking meaningful action to position Rexford to deliver durable growth and shareholder value. Today, we are building on that momentum by announcing a comprehensive portfolio realignment through the planned disposition of approximately $2 billion of non-core assets. This is a pivotal and deliberate step to further strengthen Rexford's portfolio, enhance the quality and sustainability of our cash flows and position the company to deliver outsized total shareholder returns.

Over the first half of the year, we conducted a comprehensive asset-by-asset review of the portfolio, evaluating every property through the lens of future growth potential, cash flow durability and the opportunity to create value. That review identified approximately $2 billion of non-core assets, representing approximately 8 million square feet that do not align with our long-term strategy.

These assets are generally characterized by more limited value creation opportunity, elevated competitive supply, shorter remaining lease durations and substantially above market in-place rents. Just as importantly, this process reinforced our conviction in the quality, durability and embedded growth potential of the approximately 43 million square feet of core assets that will comprise our go-forward portfolio. These are assets we believe will drive outsized FFO and NAV per share growth and form the foundation of Rexford's next chapter.

We have made significant progress executing this planned portfolio realignment. During the quarter, we launched a robust disposition process, and we are now in advanced discussions on a substantial portion of the planned sales. Based on the depth of interest and progress to date, we are confident in our ability to execute this realignment, and we expect the vast majority to be completed this year. The current valuation gap between private and public markets creates a compelling window to act now.

Our disciplined capital recycling strategy gives us the ability to capitalize on this opportunity in a way that is accretive over the long term. As we redeploy capital, our priorities remain clear and unchanged. We will continue to allocate capital to the highest risk-adjusted return opportunities available.

This includes strengthening our balance sheet and liquidity profile, opportunistically repurchasing shares at a meaningful discount to intrinsic value and selectively investing in high-yielding repositioning and development opportunities across our portfolio. Taken together, this portfolio realignment enhances our financial flexibility, improves the quality and consistency of our cash flows and positions Rexford for long-term growth and value creation.

To be clear, these actions together reflect conviction around our long-term view of infill Southern California industrial real estate. This market is powered by a robust local economy larger than most countries. New supply remains limited, and barriers to future development are increasing. In fact, supply under construction today is at multi-decade lows and recent regulatory changes have introduced additional development constraints that will make it increasingly difficult to bring new industrial supply to the market.

These dynamics reinforce the scarcity and long-term value of the assets we are choosing to own and strengthen the competitive advantages of the Rexford business model. Operational rigor also remains a core priority and is reflected in our execution to date. Through an in-depth and ongoing review of our cost structure, we identified an additional $3 million of G&A savings this quarter, bringing our total G&A savings since 2025 to $22 million. Our focus remains on driving greater operational effectiveness and efficiency across the business.

In summary, our transformative strategic actions, combined with the strength of our team, value creation framework, dynamic market fundamentals and commitment to operational rigor provide a powerful foundation for Rexford to deliver meaningful value for our shareholders in the years ahead.

Before I turn it over, I want to thank the entire Rexford team for their extraordinary efforts this quarter across the platform. I am energized by the focus, dedication and execution our team continues to bring every day. John?

Thank you, Laura, and good morning, everyone. The infill Southern California market experienced positive net absorption in the second quarter, with overall vacancy declining by 30 basis points. Performance continues to vary by submarket, size range and product type, reflecting diverse demand drivers and varying levels of competitive supply, but we are optimistic about the signals we're seeing. Net absorption turned positive in the IE West and San Diego markets this quarter and Greater Los Angeles posted its second consecutive positive quarter.

Orange County continued to experience negative net absorption, though we are encouraged by our recent pickup in tour activity there. As the market works through elevated supply and landlords compete for deals, market rents remain under pressure, declining just over 1% sequentially in the quarter. We are pleased by the overall trajectory and are closely monitoring the market for successive quarters of positive net absorption, which we believe is a precursor to market inflection.

Leasing activity in our portfolio gained momentum throughout the second quarter. We executed 2.1 million square feet, which brings our year-to-date total to 6.2 million square feet, a 2 million square foot improvement compared to the first half of last year. Cash re-leasing spreads for the quarter were negative 11.3% driven primarily by rent roll downs from leases signed at the peak of the market. Rexford's leasing activity continues to be driven by a diverse mix of industries, including advanced manufacturing and consumption-related uses such as logistics, food and beverage, automotive and construction.

We are seeing healthy demand across our portfolio for spaces under 50,000 square feet and activity is picking up in spaces over 100,000 square feet, partially driven by incremental corporate demand for Class A product. Tenants continue to evaluate the efficiency of their operations and Rexford has directly benefited from the resulting flight to more functional space, which supports our leasing pipeline and builds our confidence in our leasing expectations for the remainder of 2026. As we have done throughout the year, we will continue to aggressively prioritize occupancy to capture demand.

Shifting to capital allocation, our planned portfolio realignment will further concentrate ownership in the assets best aligned with our long-term strategy, focusing on the opportunities where we see the greatest long-term value creation potential. Through this process, we are targeting non-core disposition candidates generally having lease durations shorter than our portfolio average and in-place rents that are more than 20% above market while having characteristics that do not align with our value creation strategy, operational focus on uniquely competitive assets.

We believe that executing upon this $2 billion rebalancing will enhance the portfolio's long-term growth profile and value. Our decision to execute this strategy now is supported by the increasing depth and activity of institutional capital focused on infill Southern California as investors continue to be drawn to these markets because of their unique supply-constrained characteristics and long-term fundamentals. This investor activity in part is why we are confident in our ability to execute this planned realignment at scale.

With respect to repositioning and development, we continue to focus on creating value by executing on opportunities within our portfolio that are best suited to deliver appropriate risk-adjusted returns. We started on new development project, 16425 Gale, which exceeds our return thresholds and will deliver a highly differentiated property to the City of industry submarket featuring best-in-class specifications and demisable cross-dock layout that is unique to the market. The project is expected to be complete in late 2027. I'll now pass the call over to Fitz.

Thanks, Laura, John, and good morning, everyone. Through this phase of the cycle, we remain focused on what we can control. Today, we're taking the next step in executing our strategic priorities acting on our comprehensive asset review to realign the portfolio and meaningfully strengthen our balance sheet to unlock significant capital allocation flexibility. Our updated full year disposition guidance of $1.5 billion to $2 billion gives us optimal flexibility to allocate capital where it creates the most value. We view balance sheet flexibility as an important strength, supporting both financial resilience and capital allocation optionality. We will use approximately $1 billion of the projected proceeds to repay debt maturing in 2027 rather than refinance into a higher rate environment, which will meaningfully strengthen our balance sheet.

We estimate this will bring us to 3.5x on a net debt to adjusted EBITDA basis, down from 4.5x today, reflecting a deliberate disciplined sequencing of our capital allocation. This improved leverage profile puts us in a position of strength. Combined with remaining disposition proceeds, it provides us significant flexibility and liquidity to allocate capital toward the highest risk-adjusted return opportunities, including share buybacks. As a result, making this planned portfolio realignment accretive over the long term.

The ultimate magnitude of that accretion will depend on how we deploy the remaining proceeds, which will be guided by market conditions, and the most attractive opportunities available to us at that time. We're not delevering to sit idle. We're delevering to redeploy, and we are committed to being prudent and disciplined in deploying shareholders' capital.

Turning to results. Second quarter core FFO per share came in at $0.63, $0.02 above the first quarter, driven by accretive share buybacks, settlement income and lower G&A. Same-property NOI growth was 1.5% on a cash basis and a negative 0.5% on a net effective basis, both ahead of expectations. Same-property ending occupancy was 95.1%, up 30 basis points year-over-year. We ended the quarter with net debt to adjusted EBITDA of 4.5x and total liquidity of approximately $1.3 billion.

During the quarter, we redeployed year-to-date disposition proceeds into $100 million of share buybacks, repurchasing approximately 3 million shares at a weighted average price of $36. Over the last year, that brings our buyback activity to approximately 15 million shares for $550 million or approximately 6% of shares outstanding.

Given the additional capacity created by our planned portfolio realignment, our Board has authorized a new $1 billion share repurchase program. As for guidance, we're raising our full year core FFO per share midpoint by $0.01, driven by better-than-expected same-property NOI growth, lower G&A and second quarter settlement proceeds. This is partially offset by modestly dilutive projected capital recycling activity due to the timing of deployment, but it meaningfully lowers leverage, while also avoiding future rent roll-down risk and eliminating the need to refinance our 2027 maturities at higher rates.

To execute this, we plan to pay off all but $575 million of our 2027 maturities in 2026 with the remainder repaid at maturity in March '27. As a result, we are reducing our 2026 interest expense guidance to $105 million. These prepayments carry little to no penalty, making this an efficient use of projected proceeds. We've also raised our same-property NOI growth outlook by 75 basis points at the midpoint on both a net effective and cash basis, primarily reflecting the removal of lower growth assets tied to our 2026 expected dispositions, along with continued leasing momentum.

Consistent with that, we raised our average same-property occupancy guidance to a range of 95.3% to 95.7% for the year, up 15 basis points at the midpoint. Cash re-leasing spreads are now expected to be a negative 15% to negative 10%. This incremental change from last quarter reflects a change in the mix of leases we expect to execute in 2026. Further, our total portfolio cash mark-to-market stands at approximately negative 4% down from negative 3% last quarter. Lastly, G&A guidance now stands at $57 million, down from our original $60 million target, a tangible result of our continued cost discipline.

I also want to provide context on the $625 million impairment charge we recognized this quarter, which has no impact on cash flow and is excluded from core FFO. As part of our increased disposition guidance, we shortened the holding period on non-core assets, which triggered the charge, a deliberate portfolio decision to drive long-term value.

Before we turn to questions, here's the one thing I want you to walk away with. Everything we're doing, including scaling our portfolio realignment, executing our plan to lower leverage and authorizing a new $1 billion buyback plan enhanced our flexibility to act on the opportunities ahead. That's what will drive sustainable FFO and NAV per share growth over the long term. Finally, I want to thank the entire Rexford team. I see the work everyone puts in every day, and I don't take it for granted. I'll now turn the call back to the operator to open the line for questions.

[Operator Instructions]

I will now hand the call back to Doug Bettisworth to begin the question-and-answer session.

Our first question comes from Blaine Heck from Wells Fargo.

Great. So the disclosure on dilution in 2026 was very helpful. And obviously, I'm not looking for guidance on '27 yet, but I think it would be helpful to contextualize how much dilution from these specific transactions we should expect to impact '27 earnings. I guess the question is, how should we think about cap rates on the dispositions? And how are you thinking about keeping cash on the balance sheet for eventual debt paydown at maturity in March of '27 versus maybe putting the cash to work immediately or at least earlier through the share repurchases?

Blaine, I'll start and Fitz will jump in with some more detail around '27 and expectations. But what I'll say around cap rates and valuation is that, as I mentioned in my prepared remarks, we are well underway and in advanced negotiations on a substantial portion of the dispositions -- but given that negotiations are ongoing, disclosing valuation at this point and cap rates could impact optimal execution.

So as transactions close, we will provide cap rates and valuation at that time. But what I can tell you is this, we have confidence in our ability to execute the planned dispositions by the end of the year. We expect that pricing will be achieved at levels that allow us to redeploy proceeds on a neutral to accretive basis to our 2027 FFO per share, and this is not a dilutive exercise.

And look, we're going to redeploy the proceeds pretty quickly. We estimate that the $1.5 billion to $2 billion will close in probably the mid-fourth quarter. We have an opportunity, like I said in my prepared remarks, to bring forward some of the $1 billion of debt maturities that are maturing next year about $500 million or so, we can pay off pretty quickly. And then the remaining $575 million, which is tied to our converts, doesn't mature until March '27. So I can't get it that early. And then in between all that, we're going to be very opportunistic with share repurchase, depending on where our share price is. We've been very active, very committed over the last 12 months.

As I mentioned in my prepared remarks, we bought over $550 million. We're very grateful for the Board to authorize a new program, and we're going to put it to work. And we do believe that this will be at the minimum neutral next year and potentially accretive depending on market conditions.

Our next question comes from Samir Khanal of BofA.

I guess, John, you talked about positive signs in the overall market there in Southern California. Maybe just expand on those comments. I mean where are you seeing those sort of improvements, maybe some strength. And on the other side, I mean, where are things still under, sort of, the pressure or weakness in terms of these submarkets?

Yes. Samir, so overall, consistent with last quarter, sub-50,000 square feet continues to be a good vein of strength. We're seeing pricing stability and some growth in some submarkets below that threshold. And that's fairly consistent across all the submarkets. We obviously like to talk about the under 50 and then everything above that. When you get to the larger sized space, which for us, 100,000 square foot or larger, it starts to vary a little bit. What we saw overall in the market is a good step, right? We saw a positive net absorption, and that's been growing.

So as you look into where that's occurring within each submarket, that's an important nuance. So for example, in the IE, most of the positive net absorption was coming in much larger spaces, those over 500,000 square feet. We don't have a lot of exposure to that size range in that submarket. Our average unit size there is around 30,000 square feet, but that falls into the sub-50 where we've seen some continued strength.

And converse to the IE, if you look at Greater LA, which had an additional quarter of positive net absorption, most of the gains there are sub-200, which fits right in the wheelhouse of the Rexford portfolio and has been a good trend for us where there's pockets of weakness continue to be around Class A in certain submarkets.

As I mentioned in the prepared remarks, Orange County is one of those. That's a market that received a lot of additional supply in the peak periods. And it's going to take some time to work through that. And so we saw negative net absorption there again this quarter. And I would say rents probably moved the most in that specific size range within that submarket. So it continues to be varied. This is expected as we've, kind of, progress towards recovery here, we do not expect it to be linear. We're going to see certain pockets of certain submarkets improve before others and pricing stability will occur kind of in tune. So we continue to be very focused on the net absorption numbers by market and by size range and are optimistic that things will continue to improve.

Our next question comes from Craig Mailman from Citi.

Mike or Laura, I just want to go back to the commentary that you think that at the end of this, the transaction could be potentially a push or accretive to '27. Maybe just help me walk through the math on that. I know you guys don't want to talk about cap rates today, but if you're selling a good amount of assets with 20% above market rents, I can't imagine you're getting super low cap rates on those because those would roll down even more, right? So if you assume that -- I don't want to put a number out there, but if you assume 6% or higher on that, and you're paying off $1 billion of your '27 roll, which is on average, 4.1%. I'm just trying to figure out how that can ultimately be accretive even if you then swap out and relever back up to 4.5 and buy back stock. Could you just try to help me bridge that math? And also just -- I know you guys said this -- your math could be accretive. Does that just mean that the dividend is safe here? Is there any risk to that going forward?

Sure, Craig. Thanks for the question. Look, directionally, the full year interest savings from the $1 billion debt repayment, the in-place rents or in-place interest is about 4.1%. That's a highly certain quantifiable benefit. You combine that with the redeployment of the remaining proceeds plus the option to lever up into buybacks. It's all designed to be accretive on a run rate basis.

If you look at the last 12 months and what we bought in terms of share buybacks, that yielded anywhere between 6% and 7%. So that's a toggle in terms of -- or the range of possibility as we look at share buybacks going into next year. We can combine those 2 factors with how we're selling these assets and what we're selling them at in terms of pricing. We do believe it's going to be neutral to accretive next year. I'd remind you that in our disclosure last night in the prepared remarks, I think you heard in John's or Laura's sections that the roll-down risk is real here, right? That's what we're eliminating with the sale of these assets. It's plus 20%. So that roll-down risk is real. It's going to happen, expect it to happen in '27 and into '28. So that also allows us to -- this transaction to be accretive as well.

And as far as the dividend, it's safe. Like, this portfolio realignment plan: one, it strengthens the balance sheet; and two, it strengthens the durability of our cash flow. So we're very confident that we can continue to grow the dividend.

Our next question comes from John Kim from BMO.

On the impairment, I just wanted to clarify, was that on the full $2 billion that you've identified for sale? And can we assume that you have a good sense of where the market value is for these assets? And finally, can you confirm that these assets will be sold at a taxable loss and there's no need for 1031?

Great question. The impairments, so let's take a step back on that. So the planned dispositions, the $1.5 billion, $2 billion that we expect to sell this year were largely bought at the height of the market. To Laura's point, we're in advanced negotiations on a substantial amount of those planned dispositions or the intent to sell is very clear, which triggered the impairment charge. Look, further charges are possible if additional assets are added to the pool and there's an intent to sell. But this impairment charge is not indicative of any impairment risk within our broader portfolio. As far as any need to -- I think this is what you are alluding to, to issue a special dividend, the answer is no. Similar to the impairment, there are tax losses which will offset any tax gains as part of these planned dispositions.

Our next question comes from Vikram Malhotra from Mizuho.

Congrats on a lot of work, I guess, done to get the step done already started, I should say. I just want to go back again. I know you've been asked on this sort of how to keep this accretive? And I'm wondering, in effect, are you saying that there are certain buyers willing to pay a 5% cap even though there's a big roll down because they're assuming a lot of rent growth going forward. And then do you mind just sort of clarifying on the -- on your presentation, you talked about 20% roll down for these assets and then the portfolio at 4%. I just want to clarify, the 4% or roll down 4% including these assets as it is today? Or is it like ex these assets, the roll down is 4%?

Yes. As far as the roll down that we put in our disclosure last night, the 4% includes the entire portfolio that exists today. We do believe that, that 4% will get better after we get through the portfolio realignment, but that's just like one part of our growth profile going forward. So I want to spend a little time there to discuss that as we move through this portfolio alignment plan throughout the remaining part of this year. Look, this puts us in a much better place, just given the roll down and the vacancy risk associated with this portfolio and the firepower that it gives us the $1.7 billion to reshape the business from a position of strength, paying down debt ahead of maturity while we're buying back stock at a discount to intrinsic value, we're preserving the optionality to invest where we see the best risk-adjusted return as conditions change.

We absolutely believe a stronger balance sheet plus real capital to deploy here is what creates the most value for shareholders. You can't forget the embedded opportunity that we have already underway within our repositioning and development pipeline that represents approximately $50 million of annualized NOI once it's fully leased. And the backdrop is getting better, as John noted, fundamentals are improving, real signs of improvement, net absorption turn positive, vacancy is going down, construction starts continue to remain at multi-decade lows.

Now the re-leasing spreads that you're alluding to, Vikram. Let's be clear-eyed on this, re-leasing spreads on our retained portfolio will stay under pressure for a bit as we do have leases signed that are rolling -- that were signed at the peak that are rolling over the next couple of years. That's real, and that's something a portfolio this size fixes overnight, but it's a known. It's a shrinking headwind. I can tell you that, it's not an open-ended one. It's why we prioritize selling the assets that face a steep reset. So overall, one thing that we wanted to continue to walk away with here. This is a cleaner, lower risk portfolio, stronger balance sheet and higher liquidity with strong embedded growth in place from our pipeline.

And I'll -- Vikram, I'll offer some general commentary on the cap rate component of your question. And what we're seeing in the market broadly across Southern California is transactions that are focused on good product quality, good locations with good credit and a decent amount of [ wall ]. That's hitting about a 5.5% on average is where I would put market cap rates. Cap rates, as we've discussed and you know, fluctuate significantly up and down from there, largely depending on the mark-to-market and how much duration there is, in fact, on the lease and the quality of the real estate, which is preeminently important. We've seen some transactions in the market where there was a big positive mark-to-market opportunity.

We've seen cap rates dip well below 5% for that type. Conversely, it's well above 5.5% and can be into the 6s if you have lower quality assets or significant negative mark-to-market. Generally, the buyers in the market are going to underwrite to a restabilized deal that is congruent with today's market cap rates, adjusting for all those factors that I went through.

Our next question comes from Greg McGinniss from Scotiabank.

I appreciate the commentary on the market and the backdrop that's improving. But the market also saw vacancy go down while Rexford's vacancy increased. Is this related to timing, and so we should assume some occupancy growth in the back half of the year? Were there specific assets that were drivers? Any explanation on this disconnect would be appreciated.

Sure. Greg. So yes, we saw quarter-over-quarter average occupancy decline about 60 basis points. This was largely driven by a few larger move-outs. The two most significant ones were located in the IE West market, a couple of spaces that were just north of 200,000 square feet a piece. One of those move-outs was unplanned. It was related to a bankruptcy. The other one was expected and budgeted.

Just a quick note on the one that was a result of bankruptcy. We actually just re-leased that unit this week with occupancy recommencing in September. So good results on that. So part of it is just some of these move-outs that are getting offset by move-ins that you'll see in the next quarter's data.

And Greg, in terms of the shape of the occupancy as we move through the second half of the year, we do expect it to decelerate some in the third quarter between 50 and 100 basis points. due to planned move-outs and then reaccelerate in the fourth quarter of this year.

Our next question comes from Rich Anderson from Cantor Fitzgerald.

So on the positive net absorption figure for the second quarter, that sort of came out of nowhere relative to the historical patterns that we've seen. It's not in disagreement though with some of what your peers have said about the market. So a good sign. But I'm curious if you can make any comment about subsequent to second quarter, what you're feeling about the net absorption being somewhat repeatable -- positive net absorption being somewhat repeatable as we go forward. Obviously, you call it a prerequisite for a continuation of a market inflection. Any signs post second quarter that you can talk about in terms of the cadence of fundamentals?

Yes. Thanks, Rich. Thanks so much for your question. In regards to third quarter, and it's early, but what we can tell you is that when we look at what happened in the second quarter, our leasing pipeline built through the back half of the second quarter, and that has continued early into the third quarter. Executions and our pipeline, we're less than a month in, but I would say that it has been strong as we've entered the third quarter. So that's -- those are all positive indications.

As you noted, it was a strong quarter, positive absorption, lowering vacancy and availability in the overall market. I think it's important to also consider, obviously, tenant demand is increasing and that's a positive indication. But also to look at supply. Supply today under construction and what is going to be delivered to the market is that multi-decade lows. So as -- and those are 2 good things to put together.

While we still have elevated vacancy and availability in the market, we are not increasing the supply. And so as tenant demand is increasing in the market, that incremental demand will continue to absorb the space. And that sets up the market for continued improvement and inflection in the future.

Our next question comes from Dave Rodgers from Raymond James. Dave?

Fitz, all of your comments were really helpful earlier. I wanted to take one other shot at the portfolio realignment. Everything you've sold, I think, year-to-date is like a 0 cap rate, 0 occupancy. As you look at the occupancy or where these assets of the portfolio realignment are coming from, can you give us a sense of kind of what the occupancy might be or whether they're coming out of same-store versus the redevelopment because you had made the comment about $50 million of real upside in redevelopment. So trying to reconcile to see if we're selling some of that upside off going forward?

And then maybe just a follow-up to Laura, your last comment about leasing during the second quarter. It sounds like it ended stronger than it started. Was there anything in particular at the beginning of the quarter that kind of kept the second quarter leasing pace a little lower than what you saw in the first quarter?

Dave, this is Fitz. Yes, the vast, vast majority of the assets that we plan to sell this year are operating properties and are coming out of the same property portfolio.

Yes. Going back to the leasing, I can offer a little bit more color there. So yes, this quarter number was a little bit lower, 2.1 million square feet. Keep in mind, in the first quarter, we did have a renewal of our largest unit in the portfolio that increased the volumes there. So when you adjust for that, and you also look at more than one quarter together, I think it is more indicative of the overall trend that we're seeing for them, which is incrementally positive.

I wish everything lined up perfectly with quarter end. But subsequent to quarter end. We have seen continued touring activity, and we've actually made some good progress in certain areas of the market.

I can give you a few examples. We've touched on previously how the South Bay continues to be particularly strong. A lot of that is being driven by advanced manufacturing, which is focused on the most coastal areas of the South Bay market. We have a project in our -- that's under construction currently in that market that's delivering 2 buildings, and we have just completed leases on both of those buildings ahead of the completion of construction. So we're happy with that.

In the San Fernando Valley, we've been making some progress on some of our repositioning buildings, most recently, signing leases at Plummer, which completed before as a new development and more recently, our Avenue Kearny project. Both of those were leased to tenants that are in the consumer products business. So overall, we're pleased with the levels of activity that we're seeing. I think it is a steady improvement, but it is moderated in pace, and we are carefully watching each submarket in our properties and what they're competing with in each case.

And Dave, to answer your question about whether or not we're selling any of the $50 million of upside in our repositioning and development pipeline, the answer is no.

Our next question comes from Michael Griffin from Evercore ISI.

Great. Not to belabor the point on the valuation for the portfolio realignment, but could we get a sense maybe, Laura, you started off the prepared remarks talking about $2 billion of asset sales on 8 million square feet. That would equate to about $250 a square foot versus what you sold this year about $300 a square foot. I guess, is $250 a good sort of floor valuation that we could look at? And then maybe just one more, just buyer pool and interest types, do you expect to sell these properties and one-off portfolio deals? And then what kind of capital is interested in buying them?

As I mentioned in an answer earlier, we'll certainly provide cap rates and valuations as these transactions close, providing that today could impact execution. So that's important that we continue to be able to execute these at the highest level of pricing. In terms of the process that we ran, I'll give you a little bit more visibility around that. We ran a competitive process and a substantial portion of the planned dispositions.

We had multiple institutional buyers involved. We received offers that, we believe, represented a competitive pricing. And so today, we're in advanced negotiations around a portfolio transaction. So while a substantial portion of the pool will be sold via a portfolio sale, we're also in various stages of our process to transact on the remaining assets, which will likely be sold via one-off or maybe smaller portfolio transactions. So that's what -- given our current visibility and the progress that we've made to date, that's what gives us the confidence in our ability to transact on the majority of these planned dispositions at attractive pricing by the end of the year.

Our next question comes from Brendan Lynch from Barclays.

It looks like you've lowered your development yield assumptions by 50 basis points quarter-over-quarter. Can you discuss the puts and takes there? And also maybe discuss the rent assumptions relative to where the market is in your currently expected yields?

Yes. Brendan, so the yield is aggregated based on what goes in and out of the pipeline. So there's some impact there. We do also adjust our returns based on what we're seeing in the market and overall, we saw, as we mentioned, a slight decline, and particularly for the new buildings that are getting developed, those are going to fall into the Class A segment and in certain submarkets, we're seeing more movement around pricing based on competitive supply than others. We'll say for what we have in the pipeline, we're pretty excited about those properties. They all represent assets that are going to be delivered with unique and differentiated functionality that we think are going to be completed at the appropriate returns and it will be great long-term additions to our portfolio.

Yes. I mean look, we continue to be very disciplined around capital allocation related to our repositioning and developments, solving for 100 to 200 basis points above a stabilized cap rate, and the ones we started to date have followed that framework. And in fact, the Gale project that we added to the pipeline this quarter is over 200 basis points excess of the stabilized cap rate. And then another asset that we started under construction is 500 to 600 basis points above a stabilized cap rate. So we continue to be very, very disciplined around that front.

Our next question comes from Mike Mueller from JPMorgan.

Can you give us a sense as to how much 2027 rent spreads should improve with the sales relative to what you previously messaged. And I think you said that '27 spreads were going to be worse than '26?

Like I mentioned in the earlier answer, Mike, there's going to be continued pressure on rent spreads, but that's just 1 part of the P&L. We only have 15% of our rent roll expiring in any given year, which is a great natural hedge against market rate fluctuations with market rent. But what I can tell you, it's shrinking. Like I said, it's a known -- it's a known commodity. We're just going to have to get through over the next couple of years. We've got plenty of offsets with accretive cap recycling and occupancy upside across the portfolio. But again, it's going to be -- there'll be continued pressure next year on re-leasing spreads.

Our last question comes from Vince Tibone from Green Street.

Could you discuss how you think about intrinsic value for Rexford and kind of what share price levels you consider taking a pause from buybacks, I mean, John, you mentioned market cap rates of 5.5% on average. And on our numbers after today's pop in the share price, the implied cap rate is also in the mid-5s. So just trying to get a sense of how you think about the gap between public and private valuations in your portfolio and stock?

By no means are we going to share what our NAV is on today's call, but I appreciate the question, Vince. But that's -- the share price is the #1 thing we look at when assessing and whether or not we're going to buy back shares. Obviously, that's combined with where our balance sheet leverage is at and then other competing uses of capital. And I think what we've proven over the last year is that this has been very accretive to FFO per share and NAV per share. As I mentioned earlier, the FFO yield that we're achieving, that's compounding very quietly in the background to our earnings growth profile going forward has been between 6% and 7%. So very, very good use of capital for us and we're committed to that, and we look forward to taking advantage of that going forward.

Jamie Feldman from Wells Fargo will be our last call. Jamie?

Thanks for taking a follow-up from our team. So I mean your commentary certainly sounds like transaction markets are getting healthier quicker. I'm just curious, I mean we've now seen several big announcements across multiple sectors and large portfolio buys. Can you just talk about how fast things are changing, both on the buyer pool and also on the cost of capital for buyers? It seems like there's a lot happening quickly.

Yes, Jamie, we have seen a change and an incremental improvement in terms of the institutional demand for product in the market. And so I think that is what we are doing today is taking advantage of that change. Certainly, improving market conditions. There's a lot of conviction around the Southern California market, not just in the near term but long term. And I think that's all driving capital and more capital into the market.

Certainly, I would say that there's been an incremental increase in institutional capital and demand for product in this market over the last 6 months. But for us today, I mean this is -- we really view this as an incredibly unique opportunity in a moment in time where we can capitalize upon this. And so we are not reacting. This is incredibly proactive.

We're going to be able to achieve competitive pricing. At the same time, we can redeploy proceeds in an accretive manner. So it's not a dilutive exercise as we've talked about. And we can do this all at the same time while we're increasing the portfolio quality, our future cash flow durability and value creation opportunities that align with our strategy. So these factors rarely emerge together, and we are taking advantage of this unique opportunity that sets Rexford up for the future.

That concludes the Q&A portion of our earnings call. I'd now like to turn the call over to Laura Clark for closing remarks.

Thank you all for joining us today, and we look forward to spending time with you over the next few months.

This concludes today's conference call. You may now disconnect.

Good afternoon, everyone. Thank you for joining us. My name is John Kim with BMO Capital Markets. It is my pleasure to be hosting this presentation with Rexford Industrial, one of the preeminent industrial REITs. With us today, Laura Clark, CEO, she's in the middle, to her immediate left, Michael Fitzmaurice, or Fitz, the Chief Financial Officer; to her right to my left, John Nahas, Chief Operating Officer. And not to confuse everyone, but then all the way to the end of the table, Doug Bettesworth, Vice President of Corporate Finance. So at this point, I'm going to hand it off to Laura for some opening remarks, and then we'll go into Q&A.

Yes. Well, thank you so much. Thank you for being here, and thank you all for spending time with Rexford today. Investment in Rexford today offers a very unique and compelling entry point for investors. We remain focused on taking action and controlling what we can to build a stronger and more agile Rexford, which positions the company to deliver a resilient growing stream of cash flows that drives long-term shareholder value. Today, we are allocating capital with discipline.

We're recycling capital accretively in the highest risk-adjusted return opportunities, all while enhancing operational effectiveness and efficiency within the business. Our decisive actions to evolve the business are taking hold, and we are beginning to see improving fundamentals in select segments of the market, which we'll talk about more later. Right now, I'm briefly going to recap our refresh strategy and recent progress, which reinforces our confidence in our path forward.

We are successfully executing our programmatic disposition strategy and continue to assess the portfolio for additional opportunities that enhance the durability of future cash flow growth. We are redeploying capital today towards the highest risk-adjusted return opportunities and that includes share repurchases, repositioning's, and select developments, all supporting long-term value creation.

Notably, we are capitalizing on the market dislocation between Rexford share price in the company's intrinsic value through opportunistic share repurchases while also preserving balance sheet strength. In the first quarter, we executed $200 million of share repurchases, and that was a key driver of our ability to beat and raise our guidance.

We will continue to be opportunistic around share repurchases, we have an ample capacity under our current program. Importantly, with share repurchases, we are executing and not only driving accretion today, but we're also contributing to FFO and NAV per share growth over the long term. Today, we're also focus on operating the business even more effectively and efficiently. We remain intensely focused on occupancy and operational execution, and you're seeing that in our results.

In the first quarter, we executed on a high volume of activity from the leasing front. A direct result of our team's rigorous execution to prioritize occupancy and reduce downtime. Regarding operational efficiency, we have achieved meaningful G&A savings, bringing G&A as a percentage of revenue below our peer average, and we expect to continue reducing this metric over time as well. We remain confident in Rexford's future due to our high-quality portfolio and supply-constrained locations.

The infill Southern California market is driven by unique supply and demand dynamics that we believe are underappreciated and reinforce Rexford's differentiated positioning in the market. Supply under construction is at all-time lows and, at the same time, recent regulatory changes impacting industrial development have further limited the ability to add new supply into the future.

While the market today is currently working through elevated levels of vacancy, we believe these significant structural supply constraints further reinforce the value of our irreplaceable portfolio and position Rexford for outsized growth. So in closing, our renewed focus, differentiated value-creation platform and the depth and expertise of our team enable us to continue to capture opportunities against this market backdrop. We are confident that the actions we are taking today are strengthening Rexford's foundation for durable growth and long-term value creation, and we remain highly energized for the opportunities we have ahead. So with that, we look forward to your questions.

And I will open the mic for questions to the audience at some point. But that was a great introductory remarks. You answered a lot of my questions, but I'm going to try to summarize what you said. So your strategy under your leadership has changed from being more focused on acquisitions to more discipline on developments, on dispositions, on leasing execution and share repurchases. My question is, where are you and what phase are you in the strategy? And how should we measure success? Is success NAV growth, FFO-per-share growth? Or what are the metrics we should be looking at?

Yes, success should be measured. I'll start with that question. Success should be measured in how we are driving highest and outsized relative total shareholder return for all of you. So, that means that we are allocating capital. We're operating the business in a way that's driving the highest FFO-per-share and NAV-per-share growth.

And so as we look across -- our -- as we look across our focus, and I talked a lot about how we're focused around driving operations, so driving occupancy today, driving cash flow growth, how we're focused on allocating capital to the highest risk-adjusted returns, how we're focused on driving value creation within our portfolio, and then recycling capital accretively. All of those including acquisitions at some point in the future when that is a compelling use of capital. All of those are going to contribute towards driving that FFO-per-share and NAV-per-share growth that then is what will allow us to produce that outsized relative to TSR.

One of the terms that I heard a lot in the call, and looking at the transcript, was operational rigor. So what does that mean exactly? Is that focusing on occupancy? Is it preserving cash, net cash flow? Just -- maybe you could just describe that a little bit more, please?

Yes. I'll take that one. We are certainly prioritizing occupancy. When we look at what's happening in the market where Southern California as a whole, still experiencing negative net absorption, we are prioritizing getting leases done. And so prioritization of occupancy means meeting tenant demand where it exists, where appropriate. We're not doing deals just to do deals. We're still very mindful of tenant credit and are very focused there, especially with certain tenant sectors. But we are being very proactive.

And so that's the first part of the operational rigor. An additional component is really our strategy. We are scrutinizing business plans. We are evaluating multiple options and creating them where we can to make sure that we are maximizing value, and we are executing in a way that's going to deliver the best return for shareholders. So some examples of that could be pivoting on the strategy where -- and I think we talked about this last quarter where we were headed towards a repositioning of a certain property, but found a more accretive outcome through disposition and pivoted to execute there. So, this is just a quick example of how we're constantly monitoring the market and making sure we're deploying capital and operating to the highest level of execution.

Turning to dispositions. I think you had $185 million under contract as of the first quarter. Can you talk about who the buyers are in the market today? And then when you get that the cap rate -- the disposition cap rate and you reinvest into share and buybacks or something else. What is the typical spread that you're achieving on that trade?

Yes. I'll answer the second part of the question first, and John you can handle the buyer pool part of the question, but thanks for the softball. This is an easy answer here. It's compelling, the spread between what we're selling at. Owner-user assets were sold around a 4% cap rate, marketed assets are around a 5% cap rate. So based on what we're trading today, we're an implied 7% cap rate. So it's between 200 to 300 basis points. And to go back to your opening remarks and your opening answer, that's how we're driving FFO per share. We're driving NAV per share, not only today, but over the long term.

Yes. In terms of the dispositions we've completed to date, there were 6 properties that were previously slated for development those projects did not meet our current underwriting criteria. And so, an example of where we decided to pivot and so we went to market and engaged groups that were focused on Southern California development and closed on all 6 of those in the first quarter, and a couple of them went into the second quarter. The buyer profile there were largely groups with institutional capital, or institutions themselves, that we're ready to make a bet on Southern California. These sites represented development opportunities that, if tried to be replicated today, would not be possible.

We've had a lot of regulation change in our market. We see future supply coming in as being something that will be more constrained than it has been in previous cycles. And these buyers agreed with that and purchased the site so that they can take on that development opportunity. Outside of the development sales, we continue to execute on user transactions, which involve businesses that want to own their real estate. Those are great transactions for us because we can create low cap rate opportunities to recycle capital into more accretive uses.

But those transactions are a little bit harder to predict. And oftentimes, the buyers, which are businesses, require financing. So, we take them as appropriate. That example I gave earlier was an example of that, the property in San Gabriel Valley that we pivoted away from a repositioning. We ended up selling it to a user to generate that additional accretion. So far, those have been the 2 buyer profiles through which we've executed transactions. It is important to note we are seeing more institutional capital form and start to look at opportunities in our market. We just haven't transacted there yet.

Fitz, just turning back to the share buybacks. A lot of investors like it, investors reward earnings growth. They also reward a good balance sheet, which you have. So how do you weigh preserving that balance sheet, or maybe even improving that versus the earnings growth that you're getting from share repurchases?

Look, when we're evaluating share repurchases, paramount to that decision, #1 consideration is balance sheet strength. And that's what positions us and has a '25 and '26, our leverage has been low. Our target range is between 4x and 4.5x. We're at the high end of the range right now at 4.5x. We have high levels of liquidity, and that's paramount to us. We have capital needs to support the business organically over the next few years with our repositioning and select development spend.

So it's going to be balanced between share repurchases in terms of deployment and repositioning's in select developments. The balance sheet strength is number one. And look, next year, if we continue to lean into dispositions, if there's an opportunity set there, we have about $1 billion of debt coming due. So, there is an opportunity to pay down debt there to keep leverage at bay, and also continue to lean in on share repurchases if the equity price is there, and we're trading at a big discount.

I wanted to turn into leasing and the momentum that you had in the first quarter. It really accelerated during the quarter, which, from the outside, seemed like a surprise. There was the more rising interest rates, there's tariff uncertainty that's still lingering. Can you just talk about tenant health and why more tenants are making leasing decisions today?

Yes. So in the first quarter, as you mentioned, we did have a high amount of leasing volume. Keep in mind that also included a renewal for our largest unit in the portfolio, which is about 1.1 million square feet. So if you back that out, the total volume is consistent with what we've observed over the prior 2 quarters, the back half of 2025. And so throughout that period to date, tenant activity has ebbed and flowed. Well there's periods where we see increased activity, and that gets converted into leasing and then the cycle kind of repeats.

We don't expect the overall market recovery to be linear, and tenant activity in the market is also not linear as well. And so it ebbs and flows; through the first part of Q1 this year was a bit slower. We didn't see as much leasing activity building in the pipeline that did change, as you noted, about halfway through the quarter, which allowed us to execute at a higher level of volume. And so we're seeing that same cadence and pattern continue on today as we observe what's going on in the market. In terms of tenant health, it's been pretty consistent and stable. Fitz, I don't know if you want to talk about that piece.

Sure. It's -- I'll just continue on what you're saying. It's been very stable for this portfolio. Over the last several years, bad debt as a percentage of our revenues has been between 40 and 50 basis points. Our assumption for this year is a little bit higher because of the uncertainty in the market. But in terms of the tenant watch list, we have 1,600-plus tenants within our portfolio. Our watch list and our priority watch list. We have both -- it's about 15 to 20 tenants, which just gives you the -- another strong indicator of the health of our portfolio. So the tenants are definitely sticky. You can also look at our retention ratios, which are between 70% and 80% over the last couple of years, and we see that continuing so far this year.

Can you talk about what pockets of strengths and maybe weaknesses are, either by submarket or by industry category?

Yes. I'll start here, and John probably step in and elaborate more. And John said it well in terms of as we move through the bottom phase of the cycle and to an inflection, the market is going to perform differently across size ranges, across submarkets, and that recovery won't be linear. So what that means is that you're going to see parts of the market where we could actually see positive absorption and landlord pricing power whereas there may be other parts of the market that may be softer and you could see some pressure on rents.

We're actually seeing that and we saw that in the quarter, and we're seeing that in the second quarter to date. Across all markets, importantly, from a strength perspective, properties or unit sizes less than 50,000 square feet continue to be very strong from a demand perspective, very stable in terms of overall rents actually across the market. It was the only segment of the market where there was actually rent growth sequentially quarter-over-quarter. That's great for Rexford. That is the heart of our portfolio. Our average tenant size is 28,000 square feet. That's where we go and we really create value.

We reposition space in that size range, that's smaller size range, smaller-format size range, where we go when we increase functionality and quality of the real estate. And so we are very well positioned within our portfolio to capture that demand. So we are seeing -- continuing to see strength there. We're also seeing strength in parts of the South Bay market around advanced manufacturing and defense, and John will talk about a little bit more about that in a minute.

In terms of the weaker areas in the market, the weaker areas in the market tend to be those submarkets, and the quality or the size ranges, where you saw more deliveries, where there was more supply and construction delivered into that market. So in particular, Class A new development in the North Orange County, Mid-Counties, and San Gabriel Valley markets, where we did see more supply added during the pandemic phase. We are seeing more weakness there and largely driven by the competitive set and some softer demand there. But John, would you like to elaborate there?

Sure. So, continuing on with the trends that Laura touched on, a little bit more about advanced manufacturing. That's been a great area of the market for us. It is fairly specific to a small location within the South Bay market. It's particularly the coastal portion. So, if you're looking at a map, think between LAX and the port and stay west to the 405, and that's really where those tenants are focused. And the reason for that is because of the consolidated highly skilled engineering labor that's located in that area.

It's not to say it's the only place we're seeing that demand driver -- we are observing it in parts of San Diego as well as the San Fernando Valley, but very much localized overall for the South Bay. Outside of that tenant group, we continue to see increased activity from 3PLs, particularly in the Inland Empire West. Our average unit size out there is about 30,000 square feet. So, we tend to participate in the lower end of the range where that activity bottoms out, which is around 100,000 square feet.

But that's a trend that we've been observing for the last quarter, and it seems to be continuing on. Outside of that, more broadly, food-related uses, food and beverage as well as construction tends to be categories that we see showing up on our deal pipeline pretty consistently. When you get down to the 50,000-and-under-square-foot size category that Laura mentioned, tenant demand is a lot more diverse. These are businesses that need to be located in the hearts of these communities and the Rexford portfolio offers great positioning there. And so we see wide diversification in that size range.

There's a lot of questions I could ask about L.A., but I wanted to focus on -- so this year, there's the World Cup. In 2028, you have the Olympic Games. It's estimated that the Olympic Games will bring $13 billion to $18 billion of economic impact to Southern California. When do you see that in terms of industrial leasing demand? And just talk about what you're seeing today and what you expect?

Yes. I mean those events are certainly very positive. Both of them, however, keep in mind are build is no-build. No building events, right? So we're not going to be constructing a lot of venues in Southern California to accommodate either one. So what we won't see in our market is all of the incremental demand associated with that construction that's not going to occur. But aside from that, as you've noted, there's going to be a large influx of people coming through. So it's more of operational demand -- we've seen a few Olympics-related requirements hit the market. It still is a bit early, given that there's less of a lead time for the operational component as opposed to something that requires construction.

And then right now, currently, there is a mayor race in L.A. and the gubernatorial race in California, a new governor. Can you talk about what that could mean for the L.A. economy? And could there be a doom-loop moment, like you had in San Francisco, with Los Angeles?

Yes. I think it's a little bit too early to tell. We're not sure yet how the results from yesterday's election are going to unfold. It takes a little bit more time to get to those vote counts. And I do think it's -- we're going to have the election will be in November. So I think it's going to be some time before we get more visibility and what the potential impacts could be to the overall market.

I do want to -- I do think it's important to mention, while the mayor is very important within L.A. within L.A. also is the City Council. It's very important in terms of driving change. There's 15 districts across; there were 8 seats up for election in this cycle. And so, when we think about the mayor and the impact the mayor can have the City Council is very important in terms of being able to drive change as well.

And do you think change will be there no matter who wins the mayoral race if it's Spencer Pratt. Will there be major changes that are going to?

I think it's challenging to predict at this point in time.

Okay. Where are you seeing the greatest amount of demand? A lot of your portfolios infill; big box is also doing really well in L.A. Can you talk about overall the market where you're seeing the strongest amount of demand today?

Yes. It's -- the strongest demand is certainly in the smaller-sized spaces. But it's also important to note that the way that we describe small and large might be different than a lot of our peers, given our average unit size is 28,000 square feet. So, when we say small, we mean that 50,000 and under category. As we've touched on, that represents an area of the market that has not seen new supply come in meaningful amounts, really from the last couple of cycles.

And so, that's one of the reasons why it's healthier. And the other is the other comment I made about tenant diversification. That's where we see the widest opportunity set in terms of leasing prospects. For us, on the larger end, we don't have a tremendous amount of exposure to true big box, large-format bulk however you want to describe it. We have pretty limited exposure there. And so for the larger boxes when we describe it, call it, 100,000 square feet plus. And that's where we see variable demand, as Laura touched on, particularly in the Class A portion of that sector.

And with rising fuel prices, is there a greater demand to have those infill locations? And does that give you some increased pricing power?

The fuel cost topic doesn't come up as often as you might think, again, at least with our tenants, given where our portfolio is located and the size of businesses that operate within it, average lease term in our market is 5 years. So it's hard for businesses to make 5-year decisions based on near-term fluctuations in fuel. And also given the fact that we don't have that many businesses that are involved in the drayage component of moving a container to a specific location for the ultimate purpose of sending it out of market with super-regional distribution. So a lot of our tenants are engaged in the local economy, which means the product stays there. And so they're kind of in that opportune location already, which makes variations in fuel prices and energy costs a little bit less impactful.

We touched upon this a little bit. But in the first quarter, you had a major renewal, which is Tireco, your largest tenants. It did have a pretty big negative rent spread as you focused on occupancy, but what should we take away from that lease? Is that something that could recur in other future lease negotiations? Or was this truly a one-off event?

It was generally a one-off event involving our largest tenant within our portfolio. It's over 1 million square feet. It was at a negative 30% re-leasing spread. It's not a read-through necessarily '27 or '28. We did that because there was a threat that tenant would leave. There was $20 million of ABR there, and we wanted to secure that cash flow and that was the right decision to make. More importantly, the question you didn't ask, which comes up often, if I got a nickel for every time I was asked, I'd be rich. But is what the rent roll looks like a rent roll down, looks like in '27 and '28.

We're starting to get at those vintage leases that were signed in '22 and '23 at the height of the market. Since then, rents have rolled down overall in Southern California about 20%. So we're starting to experience that negative cash re-leasing spread. This year, they're going to be mid-single digits on the negative side. And then in '27, '28, they're going to give further pressured, just given the rental rates we're going to be dealing with at that point in time. That's structural.

So, what are we doing about it? What are the solutions we're putting around it. Number 1 is occupancy. We talked about that today. We're prioritizing that. We have $50 million of NOI tied to our development and repositioning pipeline that will come online over the next 2-plus years. Number two, we are prioritizing capital recycling. We talked a bit about it today, dispositions into share repurchases as it has made the most sense. That was $0.02 accretive last year from an FFO-per-share basis. We're on track again for this year.

And we will lean into that, if that makes sense to improve the quality of our cash flows going forward. The third thing is G&A. We've made a lot of progress on this front. If you look at end of 2024, on a percentage-of-revenue basis, we're at 9%. Today, we're at 6% on an absolute basis, in a dollar amount. We're at $60 million. So, there's a little bit of room to run there. So, all those things we can control. The market we necessarily can. But to Laura's point, we're going to focus on what we can control and improve the quality of cash flows going forward.

Yes. And I just want to -- I want to touch on one element that Fitz mentioned around the ability to mitigate some of that headwind from a cash flow perspective. These are structural challenges that we have, obviously, from the roll-down, as Fitz mentioned, but one way that we can improve the future growth of the cash flow stream and build a more resilient cash flow stream as we have re-underwritten our portfolio.

And number one, it starts with the real estate decision. What real estate do we want to own over the long term that aligns with our strategy and our strategy of generating value creation and that drives our ability to then create outsized cash flow per share growth. And so, as we look across the portfolio, where are there opportunities where we could potentially dispose of assets that maybe have some of those headwinds, either rent roll-downs, maybe there's a vacancy risk, maybe there's capital that's acquired to be put into those assets?

And is there an opportunity to dispose of those assets, that then allow us to mitigate some of those headwinds, grow future cash flows at a higher level, and build a more stable and consistent cash flow growth stream. And oh, by the way, recycling that capital on an accretive basis. And so as Fitz mentioned, where we have that opportunity to mitigate some of those near-term headwinds and then that then further impacts our ability to grow FFO and NAV per share over the long term, you're going to see us execute on that area of capital recycling as well.

Any questions from the audience?

The East Group CEO noted that, I think it was 10 consecutive quarters of negative growth in the L.A. market. And his comment was, when does it become a trend? So the question is, do you still have confidence overall in that market?

Yes. We absolutely have confidence in this market over the near, medium and long term. We certainly saw an increase of supply that was added to the market during the pandemic. In some cases, we saw rents double and triple. And we're in the phase of the recovery cycle where we're working through that availability. We're working through that vacancy. And we believe that this market is from the supply constraints as well as the demand perspective in a unique position to be able to perform over the long term.

We are serving a population base of over 23 million people. We are the 12th largest economy in the world. We are focused on infill product that serves that consumption base. So we absolutely believe in the demand drivers of this market and the tenants, which we focus on in these infill areas that serve that consumption base. On the supply side, and I think it's really underappreciated today and it's underappreciated because we do have some availability to work through because, as I mentioned, there was an increased supply added to the market.

But on the supply side, underappreciated as the regulatory changes that have been put into the environment just in the past 2 years. In particular, AB 98, it's a statewide mandate regulation around the development of industrial. That mandate is going to significantly impact the ability to add supply into the future. That's great for Rexford. It increases the value of our portfolio. It also is great in terms of our ability to -- our business model of repositioning assets, increasing that functionality and quality -- so our business model is going to thrive through that supply constraints.

So we do have some time to work some supply to work through. But all that being said, that the supply constraints that will be experienced in this market going forward in terms of the inability to develop are going to set up a very unprecedented value proposition for this market over the long term.

Maybe just 1 final question because we're pretty much out of time. But as a follow-up to that, when do you think market rents will inflect? And when does Rexford go back on offense? And what are the indicators that will lead you to go back on offense?

Yes. In terms of an inflection point, as I mentioned earlier, it's not going to be linear. It is going to depend on the size of the space. It depends on the submarket and the segment from a quality perspective. So, as I mentioned, you're going to have parts of the market where you see rent growth and you see inflection, and other parts that may be softer. And we're already seeing that happen in the market today. But all that being said, I think market-wide, if you kind of roll it all up, we're really focused on when we see positive absorption in the market is when we believe then you're going to -- then we can see that rent growth and flat and then you can start to see market rent growth again.

And when do you go back on offense?

We are focused on allocating capital to the highest risk-adjusted returns. Capital is not infinite. And so we are evaluating what are those areas of opportunity where we can allocate capital and achieve the highest return. So to date, that has been on share repurchases, that's allocating capital back into our portfolio through repositioning, through select developments, acquisitions will certainly be part of our growth strategy as we move forward. It's a critical component of our growth strategy into the future that allows us to embed those value-creation opportunities. At this point in time, that's not our highest risk-adjusted return, but we'll continue to evaluate that over time.

With that, I think we're out of time. I want to thank you for your attendance, and to Rexford management.

Thank you so much for joining us.

Good morning, ladies and gentlemen. I'm Tyler Rose, Chairman of the Board of Directors of Rexford Industrial Realty, Inc. It is my pleasure to welcome you to the company's 2026 Annual Meeting of Stockholders, which is being held as a virtual-only meeting via live audio webcast. Please note that this meeting is being recorded. Stockholders can submit appropriate questions during the annual meeting by clicking the questions box to the right of your screen, typing the question in the text box and then clicking the submit button. Appropriate questions will then be answered by the company in accordance with the meeting rules of conduct within the time allotted during the meeting. Additionally, all questions submitted in accordance with the meeting rules of conduct will be posted on the company's website with answers following the meeting, including any not addressed directly during the meeting.

In accordance with our bylaws, I will act as Chairman of this meeting, and David Lanzer will act as Secretary. The Inspector of Election today is Craig Colosso, a representative of a Equiniti Trust Company. The inspector of election will tabulate all votes and were applicable abstentions. If there are any disruptions on my end, David Lanzer, as the Corporate Secretary, is authorized to proceed with the meeting.

The Secretary of the annual meeting has delivered an affidavit of mailing from Equiniti Trust Company, establishing that notice of the annual meeting was duly mailed commencing April 8, 2026, to all stockholders of record of Rexford Industrial Realty, Inc. as of the close of business on March 27, 2026, the record date for this annual meeting.

A copy of the notice of the meeting and the affidavit of mailing will be incorporated into the minutes of the annual meeting. I've been advised by the inspector of election that based upon a preliminary tabulation stockholders entitled to cast the majority of all the votes entitled to be cast at this annual meeting are present in person, virtually or by proxy. I, therefore, declare that a quorum is present and that the meeting is lawfully convened for the purpose of transacting such business as may properly come before it.

As you entered the meeting this morning, virtually for the live audio webcast, a copy of the conduct of meeting guidelines was made available. To conduct an orderly annual meeting, we asked the participants to abide by these guidelines. Should you desire to vote electronically or ask a question during the annual meeting, please follow the instructions previously provided in our proxy statement as implemented on the virtual annual meeting website, you are now on. We will have the opportunity to address properly submitted stockholder questions at an appropriate time or during the question-and-answer period, which is scheduled to occur at the end of the annual meeting.

After being recognized with confirmed identity and status of the stockholder or as a representative of a stockholder with a valid proxy, we will review your submitted questions and respond as appropriate. Thank you for your cooperation. Before we begin the formalities of the annual meeting, I would like to introduce the other members of the company's Board of Directors who are here with us today. The company's Chief Executive Officer and Director, Laura Clark, and Chief Financial Officer, Michael Fitzmaurice; and Independent Directors, Diana Ingram, Angela Kleiman, Debra Morris and Dave Stockert. We will now turn to the business of the annual meeting and vote on the items presented in this proxy statement.

First, we will consider the 4 matters to be voted on at this meeting by stockholders of our common stock, which are described in our proxy statement. We will vote after all items have been presented. You are entitled to vote if you are a holder of record of our common stock as of the close of business on March 27, 2026, which was a record date for a proxy holder for the stockholder of record as of the record date.

First item to be considered is the election of directors. Each meeting nominee is nominated for a term expiring at the 2027 Annual Meeting and until his or her successor is duly elected and qualifies. In order to be elected as a director, a nominee must receive the affirmative vote of a majority of the votes cast, meaning that a nominee will be elected as a director if the number of votes cast for this nominee exceeds the number of votes against this nominee. The proxy statement made available to our common stockholders, contains the names of the following 7 director nominees who are standing for election today.

Robert Antin, Laura Clark, Diana Ingram, Angela Kleiman, Debra Morris, Tyler Rose, and Dave Stockert.

The second item to be voted on by holders of our common stock is the ratification of the Board's appointment of KPMG LLP as the company's independent registered public accounting firm for the fiscal year ended December 31, 2026. KPMG has acted as our independent registered public accounting firm since their appointment on February 14, 2024, and is presented today virtually by Mr. Todd Refnes. The affirmative vote of a majority of the votes cast is required for the ratification of the selection of KPMG LLP as our independent registered public accounting firm, meaning the number of shares voted for proposal 2 must exceed the number of shares voted against such proposal.

The third item to build on by the holders of our common stock is the advisory resolution to approve the company's executive compensation for the fiscal year ended December 31, 2025, and as more fully described in the proxy statement. The affirmative vote of a majority of the votes cast is required for the ratification of the passage of the advisory opinion to approve the company's executive compensation for the fiscal year ended December 31, and 2025, meaning that the number of shares voted for proposal 3 has to exceed the number of shares voted against such proposal.

The fourth and final item to be voted on by holders of our common stock is whether to approve the fourth amended and restated Rexford Industrial Realty, Inc. and Rexford Industrial Realty LP 2013 Incentive Award Plan as more fully described in the proxy statement here and after referred to as the amended and restated incentive award plan. The affirmative vote of a majority of the votes cast is required. Meaning the number of shares voted for proposal 4 must exceed the number of shares voted against such proposal.

The polls are now open, and we will proceed with a vote. Stockholders who have voted by mail, proxy, telephone or the Internet do not need to vote again unless they wish to change their vote. If you've not -- if you have not already voted or you wish to change your vote, you may do so by clicking the Vote My Shares tab at the top right side of your screen. When you have completed your online ballot, please submit it through the Equiniti system, so the inspector of election can receive it.

[Voting]

Equiniti, please confirm that everyone had an opportunity to cast his or her ballot.

All those wishing to vote have had the opportunity to cast their ballots.

The polls are now closed. I have been asked from the sector election -- sorry, I have been advised that the inspector of election has completed the preliminary vote count. Inspector of election has informed me of the following.

Each nominee for director has received the majority of the votes cast for the proposal to ratify the selection of KPMG as the company's independent registered public accounting firm has received the affirmative vote with a majority of the cast for. The advisory resolution to approve the company's executive compensation for the fiscal year ended December 31, 2025, has received the affirmative vote with the majority of the casts, for. And the proposal to approve the amended and restated incentive award plan has received the affirmative vote of a majority of the votes cast.

Based on these results, I hereby declare that each director nominee has been duly elected; the selection of KPMG has been ratified; the compensation of the company's named executive officers for the fiscal year 2025 has been approved by the stockholders on an advisory basis and the amended and restated incentive award plan is adopted and now effective.

This concludes the formal portion of the 2026 Annual Meeting, which is now adjourned. We will now turn to any questions that have been properly submitted in accordance with the proxy statement. The Board and meeting Secretary, David Lanzer, shall identify any such questions.

I have reviewed the virtual meeting site for stockholder questions and no questions have been submitted.

That concludes the question-and-answer session. I want to thank all of you for attending today's meeting and for your kind interest in Rexford Industrial Realty, Inc.

Good afternoon. My name is Pia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rexford Industrial, Inc. First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the call over to Mikayla Lynch, Director Relations and Capital Markets at Rexford Industrial. Mikayla, please go ahead.

Thank you, and welcome to Rexford Industrial's First Quarter 2026 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-K 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. 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 Rexford's CEO, Laura Clark, together with our COO, John Mehas and our CFO, Mike Fitzmaurice. It's my pleasure to now introduce Laura Clark. Laura?

Thank you, Mikayla, and thank you all for joining us today. The Rexford team delivered a strong quarter. We set a record for leasing activity, executing 4.1 million square feet of leases reflecting increased tenant activity and demand for our higher quality portfolio. The decisive actions we are taking to advance our strategic priorities are driving top and online growth. supporting our outperformance and higher expectations for the full year. Today, I'll provide an update on our strategic focus areas and the broader environment. John will then discuss our operating performance, and share a deeper view on market trends. Finally, Fitz will walk through our financial results and increased full year outlook.

We entered the year with clearly defined goals to drive long-term shareholder value. In the first quarter, we made meaningful progress against our 3 strategic areas of focus: opportunistic dispositions, accretive capital recycling and operational rigor. I'll start with our promatic disposition strategy, which is focused on strengthening future cash flows and reducing development exposure. To date, we have closed on $144 million of dispositions with another $170 million under contract or accepted offer, keeping us firmly on track to achieve our target for the year.

Through these strategic dispositions, we are derisking cash flows capturing premium valuations and avoiding future dilutive capital spend, all while directly supporting our next priority, accretive capital recycling. As we redeploy capital from dispositions, our investment decisions remain anchored and our commitment to delivering superior risk-adjusted returns. Given the dislocation between Rexford's public market valuation in the intrinsic value of our platform, share repurchases remain a compelling driver of FFO and NAV per share accretion.

In the first quarter, we executed $200 million of share repurchases. Looking ahead, we will continue to evaluate opportunities across our portfolio to increase the quality and durability of our future cash flow growth and unlock meaningful value through accretive capital recycling. We also made material progress against our commitment to enhanced operational rigor. Last quarter, we shared our focus on prioritizing occupancy amid softer market fundamentals. Our team's strength of execution proactively engaging tenants, addressing end market requirements and driving demand for our assets translated into stronger leasing and shorter downtime.

Our first quarter results and increased full year guidance expectations directly reflect our efforts to preserve cash flows and reduce capital cost, a continued focus moving forward. Regarding operational efficiency, our actions to date have positioned us to achieve meaningful G&A savings, bringing G&A as a percentage of revenue below the peer average, and we expect to continue reducing this level over time.

Turning to the infill Southern California Industrial market, where Rexford's unique positioning provides unparalleled visibility into conditions on the ground. Infill Southern California is home to more than 24 million people, represents the 12th largest economy in the world and includes the fourth largest industrial market globally. A diverse set of macro and microeconomic drivers shapes demand and supply across the segment end market, meaning that no submarket, building size or quality tier performs the same. Importantly, this diversity underpins strong long-term supply and demand fundamentals. Against that backdrop, the first quarter reflected a shift across the market, increased tenant activity translated into higher leasing volumes.

Specifically, first quarter leasing activity for the Rexford portfolio was over 70% higher year-over-year. In addition, current leasing interest on our vacant spaces increased to approximately 90% compared to 75% last quarter and a year ago. Notably, momentum accelerated through the quarter with the majority of our leases executed in the second half of the quarter. While demand in certain submarkets and product types remain soft and market fundamentals are still under pressure. We are encouraged by the early positive signs we are seeing within our portfolio and the market.

We view this incremental improvement as a necessary precursor to broader stabilization, setting the stage for an eventual tightening in availability and lower vacancy across the market. Importantly, our high-quality functional assets and supply constrained locations reinforce our confidence in Rexford's ability to deliver outsized growth. Supply under construction remains near historic lows and the structural barriers to new supply that have emerged in recent years, including significantly increased regulatory restrictions have fundamentally altered the market's ability to add supply.

We believe these long-term constraints will deepen Rexford's competitive moat and reinforce the value of our irreplaceable portfolio. These favorable dynamics are amplified for buildings under 50,000 square feet and align with Rexford's core focus on smaller format consumption-driven industrial. Supply under construction in this size range is immaterial, and approximately 80% of the existing inventory was built over 50 years ago, reflecting the long-standing difficulty of adding smaller format product and positions our value creation platform to deliver outsized per share growth over time.

In closing, we're encouraged by the incremental improvement we're seeing in the market. We're confident Rexford will continue to capitalize as the market approaches the trough and demand conditions improve, and we remain well positioned to deliver meaningful, sustainable value creation for our shareholders. Before turning the call over to John, I'd like to congratulate him on his well-deserved promotion to COO, recognizing his exceptional leadership and substantial contributions across Rexford's operations. John?

Thank you, Laura, and good morning, everyone. Before I begin, I would like to express my gratitude for the opportunity to step into the COO role. I'm proud to be a part of a tremendous Rexford team, and I'm excited to help lead Rexford as we execute upon our strategy to drive performance. Overall, we delivered a solid first quarter with results tracking ahead of our expectations and reinforcing the durability of our platform. Leasing activity gained momentum throughout the quarter and our focus on prioritizing occupancy has resulted in over 4.1 million square feet of lease transactions.

The volume is comprised of 144 deals, averaging 29,000 square feet with approximately 70% coming from renewals. And including the renewal of Tyco at our 1.1 million square foot building on Production Avenue in the Inland Empire West. Cash re-leasing spreads for the quarter were negative 15.4% and inclusive of the Tire co renewal and negative 1.8%, excluding the Tireco renewal, in line with our expectations.

I'd like to take a moment to further describe the Tire co renewal, given its relative size and impact. The renewal was strategic for a number of factors. First, at the time of negotiation, we had visibility to the upcoming vacancy of an immediately adjacent building, similar in size and functionality, that would have represented an efficient low-cost relocation option for the tenant. Second, considering the significant capital investment and downtime associated with the potential vacancy next year, it was financially advantageous to preserve the occupancy.

Finally, we opportunistically chose to limit the extended term to 3 years and to convert the lease structure to gross, thereby allowing us to collect a material reduction in property tax assessments anticipated to occur over the term. While this renewal generated an approximately 30% negative spread, it was amplified by the above-market in-place rent that was established during the last lease extension and is not indicative of future leasing spreads in the portfolio.

Turning to the market. As Laura mentioned, we are seeing higher levels of leasing activity. Demand drivers continue to emanate from consumption-related sectors such as construction-related uses, food and beverage and automotive businesses. And notably, we have not seen a negative impact on demand related to the current geopolitical conflict. Importantly, the level of activity and conversion rate to executed leases continues to be dependent on product size, class and submarket, demand for spaces under 50,000 square feet remains healthy and well diversified.

Tenants seeking larger spaces over 50,000 square feet are generally focused on functional space that can be leased at value rates. As a result, Class A product in certain submarkets, such as San Fernando Valley, Orange County and San Gabriel Valley continue to see slow activity as evidenced by delayed rent commencement on development projects that we have delivered in those markets.

Focusing further on submarket-specific demand, we continue to see notable increased activity from 3PLs in the Inland Empire West and from advanced manufacturers, which are seeking both larger and smaller format spaces in specific portions of the San Fernando Valley and South Bay markets. One such example is the stabilization of our completed repositioning project at 1315 Storm Parkway, which is a 38,000 square foot building in the South Bay that we leased to an advanced manufacturer.

Overall, we are encouraged by these trends and the general increase in activity. However, we continue to closely monitor net absorption across our markets. The overall infill SoCal market continues to experience negative net absorption, resulting in a 20 basis point increase in vacancy with rents declining approximately 70 basis points compared to last quarter. Deal terms aside from rate continue to be stable, including concessions and annual escalations.

Moving on to capital allocation. We remain focused on our disposition strategy and disciplined capital deployment. During the quarter, we disposed of 5 assets comprised of 2 development projects that did not meet our current return requirements and 3 operating assets that were sold to users at premium valuations. Subsequent to quarter end, we closed on 1 additional property that was formerly in our near-term development pipeline, and we have $170 million of additional dispositions under contract or accepted offer which are subject to customary closing conditions.

In regard to repositioning and development, we continue to rigorously evaluate the strategy for each asset in our pipeline with a focus on maximizing risk-adjusted returns. As a result, 2 projects were removed from our prior near-term pipeline to pursue more accretive outcomes. At Green Drive in the City of Industry, we were able to meet an active user sale requirement and have pivoted to executing a sale and capitalizing on a premium valuation.

At Mulberry Avenue in the Inland Empire West, we are foregoing a previously planned repositioning project that no longer meets our return requirements and the property is now being offered both for sale and for lease as is. At the same time, we continue to move forward with value creation opportunities that meet our underwriting targets. Rofin Road in San Diego was added to our future development pipeline as it will ultimately deliver a highly competitive building and a desirable location and is forecasted to achieve a 200 basis point development spread.

With that, I'll turn it over to Fitz.

Thanks, Laura and John, and good morning, everyone. We are pleased with our first quarter financial results, which reflect our continued focus on what we can control, driving accuracy, recycling capital accretively and preserving balance sheet flexibility and strength.

Starting with financial results. First quarter Core FFO per share of $0.61 was $0.01 above our internal forecast and up $0.02 sequentially from the fourth quarter last year. The $0.01 beat was largely driven by stronger NOI growth and accretive share buybacks.

The $0.02 sequential improvement was driven primarily by lower G&A and also accretive share buybacks and stronger NOI growth. Same property NOI growth was 90 basis points on a net effective basis and negative 40 basis points on cash. While the year-over-year change benefited from average occupancy gains, we did experience higher concessions. Regarding bad debt, as expected, expense was elevated this quarter. It was concentrated in a few tenants and now broad-based.

Our tenant watch list continues to trend low, underscoring the strong credit quality and stability inherent in our diverse tenant base.

Turning to capital recycling and the balance sheet. Disposition proceeds were redeployed into share buybacks. We bought back $200 million of shares at a weighted average price of $36 bringing our cumulative total since mid-2025 to $450 million. This capital rotation was meaningfully accretive and selling assets and redeploying into shares at a significant discount to intrinsic value was a key factor in our ability to raise full year guidance.

We view share buybacks at these price levels as a superior use of capital, providing a direct and meaningful increase to shareholder returns. We ended the quarter with net debt to adjusted EBITDA of 4.5x and $1.3 billion of total liquidity with no significant maturities in balance sheet that gives us strength and flexibility. Based on approximately $300 million of remaining dispositions expected to be completed by the end of the year, we have significant liquidity and opportunity to deploy capital towards the highest risk-adjusted returns across our suite of opportunities, share buybacks, repositionings and select developments.

Turning to our 2026 guidance increase. We are raising our full year Core FFO per share at midpoint by $0.02, primarily driven by outperformance in the first quarter due to strong leasing activity as we continue to prioritize occupancy and accretive capital recycling. We have also raised our same-property NOI growth outlook by 50 basis points at the midpoint both on a net effective and cash basis. Average same-property occupancy is now expected to be 95.1% to 95.6%, up 30 basis points at the midpoint.

Our bad debt assumption of 75 basis points of revenue remains unchanged, as does our net effective re-leasing spreads of 5%. All other assumptions, G&A of approximately $60 million and interest expense of approximately $112 million remain intact. On the repositioning and development front, we expect to stabilize and commence rent on approximately 1.1 million square feet of value-add projects generating $17 million of annualized NOI, with the majority expected to come online in the second half of this year.

This is down slightly from our earlier expectations due to rent commencement delays that John noted. Conversely, approximately $12 million of annualized in-place NOI will come offline related to 2026 construction starts in line with last quarter. The weighted average timing of the annualized NOI coming offline is late in the third quarter. Before we open up the call for questions, we acknowledge the near-term pressure from re-leasing spreads given the market rent decline over the past 3 years. However, our focus is clear: control the controllables. We are navigating the current phase of the cycle with a clear, disciplined strategy centered on execution.

Our primary bridge to growth is a rigorous focus on driving occupancy in our overall portfolio, and we have a robust repositioning and development pipeline, representing roughly $50 million of NOI poised to come online over the next 2-plus years which serves as a powerful offset to current market rent resets. Furthermore, we are aggressively optimizing our capital allocation by selling noncore assets and redeploying those proceeds into accretive share buybacks at attractive valuations.

By pairing these actions with a lean approach to G&A, we are strengthening our cash flows while positioning us for outsized growth as the broader environment improves. In closing, a big congrats to John on his promotion. John, I truly appreciate your leadership and our continued partnership. Finally, on behalf of Laura, John and myself, I want to extend our gratitude to the entire Rexford team for their ongoing dedication and consistent execution of our strategic goals.

And with that, I'll turn the call back to the operator and open the line for questions.

[Operator Instructions] I will now hand the call back to Mike balance to begin the Q&A session.

Our first question comes from Craig Mailman from Citigroup. Craig .

Laura, you had mentioned that you're seeing some improvement in that accelerated through the back half -- the back end of the quarter. Can you talk about just where you're seeing that pocket of strength in terms of your submarkets? What -- I heard John's comments on 3PLs in the West. But any other verticals or tenant type to call out as you guys are seeing some kind of continuing bottoming in the process in?

Yes. Craig, this is John Nahas. I'll jump in and take that. So overall, we've continued to see some consistent themes construction-related uses, advanced manufacturing in certain submarkets, as I mentioned in the prepared remarks. Food and beverage, those are themes that we saw active last quarter and those continue this quarter across all markets. And then from there, there's really a bifurcation whether we're talking about below 50,000 square feet, where we continue to see a broad base of demand just based on consumption in the infill markets.

And then above the 50,000 square feet, it gets a little bit more submarket dependent. So while 3PL activity remains increased in Empire, it's not the only tenant activity we're seeing out there, it does go beyond a bit more, but it's really mixed and micro market dependent. I think it's maybe helpful to talk a little bit about where we are today with activity compared to where we were last year. We saw the back half of 2025 show increased activity as compared to the first half of the year, where there was a bit more turmoil from tariffs and other macroeconomic impacts.

And that produced some good volumes in the market. When we got to the fourth quarter, there were deals that were being executed, but what we did not see at the time was the early formation of the leasing pipeline. So there, it was slower touring activity. And so as a result, this quarter, we saw less conversion into executed deals particularly around some of the Class A product. And I mentioned this in the prepared remarks as well, that's a pocket in a number of submarkets where we still don't see the same levels of demand recovery.

There are exceptions to that, the South Bay market, in particular, is one to point out where Class A really fits the advanced manufacturing demand. I mentioned San Fernando Valley, there are certain pockets, particularly Santa Clarita Valley where we see that tenant demand forming as well as in San Diego. And then, there's been some recent deals that hit the market in the Long Beach area where that demand is forming as well. So it's really kind of across the board feeling better. There's better sentiment in the market.

This quarter, we are seeing more signs of that early leasing pipeline starting to form, but we're watching it very closely in terms of how that's going to convert into executed deals, which we would expect to see happen over the next 2 to 3 months.

Thanks, Craig. Our next question comes from Sameer Connell from Bank of America.

I guess, Laura, on the one hand, it looks like you're starting to see improvements in the market. You talked about tenant activity. But when I look at sort of the development leasing side, it's still taking a bit longer. So I guess maybe just reconcile kind of the 2 items.

Yes. John just touched on what we're seeing from a development perspective in terms of some of the drivers there. But just overall, Samir, what I would say is, I mean, we are encouraged by the early signs of improvement a pickup in activity. We're seeing obviously increased tenant decision-making and increased level of lease executions and that certainly varies by size, submarket and product type.

So -- but all that said, market fundamentals are under pressure. Net absorption is negative and vacancy ticked up. So we take all of these different dynamics into account we do see the bottom forming of the cycle and these -- but these are good early signs. And as we look ahead, we expect and hope to continue to see quarters of improved incremental demand. And that's what's really going to be critical to net absorption turning positive in the market, vacancy moving down and rates firming.

Thanks, Samir. Our next question comes from Greg McGinniss from Scotiabank.

Good morning. I'm curious who you're finding as buyers for the dispositions, whether those are in place assets or ones that are coming from the redevelopment pipeline and what types of cap rates being achieved on those?

Yes. Greg, this is John. So if you look at what we sold in the first quarter, as an example, there's really 2 buckets. There's the development sites that we sold and the buyer profile for that tends to be merchant developers that are well known in the region and good groups that develop product here. Those deals don't really trade on a cap rate basis. It's more about land basis that supports their underwriting targets. And then the other half of the sales that we completed were operating assets that were sold to users.

And so that pricing there represents pretty strong cap rates on a blended basis. We were below 4% this quarter with the 3 assets that we sold to users. And the reason for that is the users don't really look at it from a cap rate basis. They're looking at it from a dollar per square foot standpoint. And there's other considerations that drive that demand, such as some of the accelerated depreciation benefits that they now have, not only from the real estate but investments that they're making into fixturization and equipment.

Right now in the market overall, we're still seeing low transaction volume. And so it presents this opportunity for users to continue to be active. And so we're capitalizing on that where it generates these low cap rates that allow us to accretively recycle capital. We actually had a couple of repositioning projects that I mentioned in my prepared remarks where we've shifted gears on strategy to take advantage of interest in the market. So we're going to continue to do that where we see low cap rate opportunities that will allow us to collect those proceeds and put them to work at higher yields.

Thank you, Greg. Our next question comes from Michael Griffin from Evercore.

Just wondering if you can give us some more color on where market rents are. And I realize it can be submarket by submarket, but maybe for the portfolio broadly. And now rents signed in the quarter were call it in the mid range, but you've got $18 rents expiring for the rest of the year. If you kept your, I guess, net effective and cash mark-to-market guidance the same, which I believe cash mark-to-market is 0 to down 5%.

Does that imply that the, I guess, rents you're signing on those expiring leases are going to come in and -- in the mid-$16 range. Is it $17 just maybe help us contextualize where market rents are and the expectations for the rest of the year?

Yes. Our expectations for re-leasing spreads haven't changed since last quarter. On a net effective basis, they're going to be between 5% and 10%. And on a cash basis, flat to negative 5%. As we disclosed last night, Tire Co did have a disproportionate impact on our re-leasing pods this quarter. As we move throughout the remaining part of the year, we do expect releasing spreads to reaccelerate to the back half of this year.

Our next question comes from Michael Mueller from JPMorgan.

If you continue to buy stock back like you did in the first quarter, would it likely be coupled with an increase in disposition activity?

Mike, yes. Look, buybacks are tied to disposition activity. Our expectations for this year are between $400 million and $500 million. Today, we get about $145 million already closed and another 170 under contract. But look, we view buybacks through an opportunistic lens. And we see a disconnect between our intrinsic value and the current market price, we're going to lean in.

We demonstrated this approach over the last months. We have a $500 million remaining on the program. In terms of appetite, it's obviously share price sensitive balance with ensuring we maintain our low leverage of 4.5x and other competing uses of capital.

Our next question comes from John Kim from BMO.

On the buybacks, you certainly make a compelling case to continue it. But looking at the market reaction today and year-to-date, it doesn't seem like you're really being rewarded for it. So I'm wondering if this doing how it continues, would you consider pausing buyback back activity?

John, thanks, so much for the question. The -- as we think about the foundation of how we're allocating capital is, how we're going to drive the highest we're going to allocate capital to the highest risk-adjusted returns. And obviously, where we're going to be able to drive FFO per share, NAV per share and shareholder value and growth in those areas.

So we are going to continue to assess what are -- where are those opportunities to do that. As Fitz mentioned, when you look at the disconnect between our intrinsic value and where the stock is trading that has been a compelling use of capital today. So we will continue to assess that as well as opportunities to invest within our value creation platform through our repositioning and select developments as we move through the year.

Our next question comes from Vince Tibone from Green Street.

So I just wanted to dive into the leasing activity, you mentioned was at a record high. I mean looking at the sup, it looks like it's mostly driven by renewals and then the tire co-lease being a part of that. But outside of Tire Co, are you generally attacking -- trying to do more early renewals than in the past?

And spreads obviously have held up a little better there. So just trying to get a sense of your strategy on the renewal side of thing in a softer market. Are you going after more renewals as a way to -- hopefully have helped the retention or hold up better on the rent side of things. Just curious your approach there.

Vince, this is John. As you noted, the Taco transaction did help lift the overall leasing volumes. And then when you look beyond that, there's a number of deals that were made across the various unit sizes across our portfolio. And so really, when it comes to renewals and retention, we're prioritizing that where we can. As part of our overall strategy to prioritize occupancy. I will say that tenants in today's market, depending on the size range and depending on the submarket, there might be more options that work for them.

And so part of the activity levels that we're seeing overall with tenants touring is being driven by tenants evaluating what's available in the market relative to the space that they currently have. And so when we see that happening, we're we're pretty proactive in engagement and in some cases, trying to preempt that exercise. That was part of the strategy with that tireco renewal, as I had mentioned.

And our numbers show that. I think our retention is up a bit and renewals are making up a slightly higher component of our overall leasing activity in the quarter, which is a result of that approach.

Our next question comes from Vikram Nahla from Mizuho.

I guess I just had one clarification and then a broader question. it, you mentioned sort of the leasing dollar ramp up. I'm wondering if you can give us a square footage target you have to keep the portfolio occupancy for the core portfolio? And then how much you need to lease square footage wise for the development portfolio to meet your goals? And then just maybe a bigger picture question for the whole team.

Clearly, you're selling attractively buying back stock. But I'm wondering if there's a thought to take a deep dive into the portfolio, maybe identify markets or submarkets you don't want to be in long term and take advantage right now by doing a bigger sale -- $1 billion sale or just muni portfolio sale, where you position this portfolio for the long run.

Sure. Vikram. In terms of square footage that we expect to commence as it relates to our guidance between $8.5 million this year, which includes about 1 million square foot -- 1 milling core square foot from repositioning and development.

In regards to your question on additional dispositions we do continually assess the portfolio. We're looking to assess the portfolio for additional opportunity to build a more resilient and higher growth platform and portfolio going forward. We're assessing risk, we're assessing capital needs. We are assessing product that aligns with our ability to drive true value creation and differentiated growth.

Really importantly, though, and as is contemplated in our current disposition guidance for the year, we are focused on recycling capital on an accretive basis that enables us to drive FFO and NAV per share growth.

Our next question comes from Richard Anderson from Cantor Fitzgerald.

So I just wanted to ask a broad question myself. -- around some of the sort of tangential demand factors around advanced manufacturing and data centers and even in your case, aerospace and defense, being a potential lightning rod of demand as well in Southern California? And how that sort of manifests itself in your smaller format consumption-oriented platform.

I'm just curious if -- is there a dotted line, a straight line, a dark line to your business from these sort of outside demand factors? Or do you feel it directly in your leasing process?

Rich, this is John. So just to start off the bat, data centers is not really a core component of our business. There's a lot of power demands that come with that. And so -- that one is not something that makes up a material opportunity for our portfolio. But when it comes to advanced manufacturing, the answer is yes. It is a very bold connected line, and we see that demand being applied to spaces, both large and small.

The property I mentioned in the prepared remarks, Storm Parkway, it's pretty close to our average unit size represents the typical unit in the Rexford portfolio, and we leased that to an advanced manufacturer. It's important to note that there's all different facets and layers to this sector. Some of them are the biggest household names that everybody recognize that are producing things that everyone is familiar with.

And then there's all of the suppliers and vendors and service providers that kind of come with that industry. And we see a lot of demand, especially in the South Bay markets, specifically the coastal portions of that market where there's demand across all those ranges. We've executed those with the household names, and we've been very happy with the level of demand that ranges from some of our smallest units in that market going down to 5,000 square feet that are a little bit more incubator type, up to things like storm and beyond, even Western, which we stabilized last year which is in Class A development and we delivered in Torrance fits into that category.

So it's a very relevant and active sector. As I mentioned also, we do see this demand in other pockets of San Fernando Valley, San Diego and now a little bit in Long Beach and a little bit into Orange County. So we're very focused. We spend a lot of time focused on the demand that comes from that sector in the market and have had some success to date. So we're pretty pleased by it.

Our next question comes from Nick Thillman from Baird.

I was hoping to unpack the decline in lease term signings during the quarter, if there's anything to specifically call out there. I would think if tenants were sort of seeing an inflection point or abutting the out phase that they would be seeking a little bit more term and lock in favorable terms. But this is a strategy that Rexford is pursuing to sort of the weather the near term and kick out for a cycle in, say, 2029 and beyond.

I guess just -- is there anything worth highlighting within the lease term? Or are we just reading through on print and there's some hodgepodge numbers that are in there?

Yes. Nick, so it really depends there are tenants in the market who are trying to capitalize on current market rate levels and lock it up for longer periods of time. And in some cases, that might be the best decision to meet that requirement and do that deal. In others, we may proactively try to shorten terms strategically so that we can get to a reset moment, if we believe that, that's going to come in the next few years.

I think Tire co is a good example of that, we chose to limit that term on the extension to 3 years. It really just depends on competitive supply and how much leverage there is on each side of the table for each 1 of those situations. In terms of also the overall statistics for the activity that we converted in the first quarter, it also comes down to size. And so the mix of units that falls into our volume can have an impact, generally speaking, the smaller units in our portfolio, on average, tend to have shorter terms anyway. So that is impacting the number as well.

Our next question comes from Brendan Lynch from Barclays.

Maybe you can just talk about the long-term plan for the asset. I'd imagine getting the lease renewal makes it easier to dispose of if you so choose, and it doesn't really fit in with the rest of your portfolio. So just how we should think about that going forward?

Brandon, our focus was on addressing the lease roll for next year as we thought about structuring that renewal. So it's not really a read-through to any longer-term strategic plan for that asset.

Thanks, Brendan. Our final question comes from Yang Ku from Wells Fargo.

Yes. Thank you. Good morning out there. I just wanted to go back to rent a little bit. It looks like the pro forma targeted rent in your redevelopment portfolio seems to be a little bit higher than current market rent. So I'm just wondering, is that part of a mix issue? Or is there some type of rent growth that's taken to that pro forma yield?

No, that as it is to do with the mix issue.

Thanks. That concludes the Q&A portion of our earnings call.

I'd now like to turn the call over to Laura Clark for closing remarks.

Thank you all for joining us today. We look forward to spending time with you throughout the quarter, and I hope everyone has a wonderful weekend.

Thank you. And ladies and gentlemen, this concludes today's conference call. You may now disconnect.

[Audio Gap] Citi Research. Pleased to have with us Rexford and CEO -- incoming CEO, Laura Clark. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC 26 to submit questions.

Laura, I'll turn it over to you to introduce the company and team, providing the opening remarks. Tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A.

Great. Well, thanks so much, Nick, and thank you, Craig, as well, and thank you all for spending time with Rexford today.

I would like introduce. Joining me today is Mike Fitzmaurice, our CFO; as well as John Nahas. He's our current Managing Director of Operations, but also the incoming COO.

Last week, we announced the promotion of John to COO. And with that, that completes the strategic realignment of our management team. And I am very energized to partner with Fitz and with John as we entered Rexford's next chapter.

So we believe that now is the right time to buy Rexford. And my conviction is driven by 3 key factors: The first is that our reformed capital approach -- our reformed approach to capital allocation into operational rigor. The second reason to buy Rexford today is that there are current market indications that the bottom is forming in Southern California industrial and that as market rent declines are tapering and touring activity levels are increasing. This represents a very compelling entry point for Rexford. And the third reason to buy Rexford today is that Rexford's unique portfolio, our team and ability to drive value creation that position us to deliver shareholder value. So I'll spend a few minutes expanding on these factors and then turn it over to you all for Q&A.

So first, in November, we outlined a reformed return-driven strategy that's focused on portfolio optimization as well as operational rigor. To enhance the resilience of our portfolio and improve the quality of our cash flows. This shift is designed to drive accretive growth in per share FFO and NAV. We're refining our portfolio through capital recycling. Today, we're selling properties where we can, number one, capture premium valuation. Where number two, we're reducing development exposure. And number three, we're mitigating future cash flow risk or lower growth assets.

We are redeploying that capital into superior risk-adjusted returns such as share repurchases today and select value-add properties. Since November, we have moved swiftly from strategy to execution. We initially identified 6 development projects that no longer meet our return thresholds. We put those projects under contract for sale within 30 days. These very decisive actions allowed us to avoid dilutive capital spend, and we preserved about $150 million of future capital requirements.

Today, we have about $185 million of dispositions that are under contract or accepted offer, and we project $400 million to $500 million of dispositions for the full year. In the current market environment, share repurchases offer a very compelling opportunity to drive FFO and NAV per share accretion. Year-to-date, as announced last week, we've accretively recycled capital into $100 million of share repurchases. And this is on top of $250 million of share repurchases last year.

As we move forward, we will prioritize repurchases to capture the dislocation today between our share price and the intrinsic value of our high-quality industrial platform. We also have reformed our approach to operational rigor and efficiencies. In regard to revenue today, we are prioritizing occupancy and protecting cash flow in the market.

On the expense side, we've made significant change in a very short period of time as well there. In 2026, we expect that our G&A as a percentage of revenue will be 6%, and that's in line with peer average, and we expect to reduce this further over time. We've also recalibrated both the structure as well as absolute level of executive compensation to better align with all of you, our shareholders. In aggregate, total executive compensation is now approximately half compared to prior levels.

The second reason to buy Rexford today is that current market indications signal that the bottom is forming. While net absorption does remain negative in the market, and we are seeing vacancy continue to increase, the pace of market rent decline is moderating, and touring activity levels have picked up in the market over the last 30 days. While it's too early to call an inflection today, we are confident in the strong supply and demand fundamentals within infill Southern California. New supply under construction is near historic lows and long-term structural supply constraints continue to increase.

Southern California remains one of the country's most dynamic and diverse economic engines reinforced by our immense population density and increasing growth across key sectors.

And lastly and finally, the reason to buy Rexford today is that we own the highest relative quality and functional industrial product in the market, with exceptionally high and continually increasing barriers to supply to entry, and that's all supported by our on-the-ground operating expertise. This underpins our value creation business model and our ability to produce outsized growth.

Our value-add platform enables us to unlock embedded growth opportunities within our existing portfolio. And we continue to advance projects that have superior risk-adjusted returns that will fuel our future growth. By way of example, in 2025 alone, we stabilized 21 projects that generate nearly $40 million of incremental annualized NOI.

And finally, and very importantly, is our team. The Rexford team is our competitive edge and the driving force of our success. Rexford is well positioned to capture future rent growth and occupancy upside as the market continues to stabilize.

In closing, we are acting with urgency, to position Rexford for superior growth. We are creating alpha through a fundamental shift in our capital allocation strategy and execution. And that has a direct benefit to our shareholders today and into the future.

And lastly, this past week, members of this management team, including Fitz and myself and a Board member have made significant open market purchases of Rexford stock, increasing our Rexford investment alongside each of you, our investors.

So with that, I'll turn it back over to you, Nick, and Craig.

Great. Thank you. Maybe just diving into one of your early comments was on share repurchases and kind of the opportunity that you're seeing right now. Makes a lot of sense financially. How do you think about other considerations around share repurchases? Is there anything from a scale perspective or a float perspective? Or is it purely just a financial opportunity where if you see a discount relative to where you're trading and it makes sense, you do it.

Sure. I can answer that question. Look, the things we look at is, one, the dislocation between our intrinsic value and where our share price is trading. Two, we look at leverage. We're at mid-4s today, our target range is between 4 and 4.5. Three, we're solving for the highest risk-adjusted return.

And look, it made a ton of sense last year to take advantage of it. We sold about $217 million worth of assets, bought back $250 million shares, created about $0.02 of FFO per share plus NAV-accretive. This year, the same playbook, no different. So we're looking forward to executing upon that as we move throughout the year, but it's going to be a function of dispositions.

But there's no diseconomies of scale as you shrink a little, does that...

No.

No big...

And Laurie, you said we're bottoming, right, not bottomed. And so I want to parse the nuance there.

Sure.

When you look at the market and every submarket is different that you operate in LA. It's a huge market or Southern California. If you were to kind of divide up your SoCal exposure, where would you -- what submarkets or what areas of SoCal are closer to bottoming or maybe have bottomed versus where are things still soft and could be further down? So I'm just kind of curious as you get more specific, right, versus look at the overall average, which in this market, it's tough because it's so big.

Yes, that's a great question. And I'm glad that you asked it. I'll let John jump in.

Yes, sure. So I'll start, generally speaking, and then dive into a couple of key differences that we see across the submarkets. So generally speaking, under 50,000 square feet is generally pretty stable. I think when we get above that, we start to see some differences across the various submarkets.

A couple of examples would be looking at the Inland Empire West, for example. The current weak spot in that market, I would describe is between 400,000 and 700,000 square feet. And we're fortunate to not have exposure there today. But above that threshold, things are certainly looking more stable and below it, that's definitely the case. I think we're seeing a lot of absorption in that market, in that size range that's kind of sub-400.

I would say the San Fernando Valley has continued to struggle, especially with Class A product. But when you look at smaller Class B highly functional product, that segment of that submarket is more stable. Similar dynamic in Orange County and mid-counties where the Class A product that represents more expensive space is typically taking longer to lease, and there's more pressure on rents. Whereas, the more value option again with Class B that has higher functionality is leasing up better.

Finally, I'll touch on the South Bay, similar dynamic to the other 2 submarkets I just described, except there, you have a wider variety of product types. And those that cater to more logistic intensive uses are tending to be a little bit slower as we're not seeing the tenant demand recover quite as quickly in the South Bay market as we're in some others related to that use.

And as you were to overlay kind of your expiration schedule for the next year or 2, I know you guys have guided to a little bit weaker occupancy this year. How much of that versus just continued consolidation because some of these tenants maybe took too much space in '21 and '22. Like where are we that it's the consolidation phase ending and kind of working its way through the expiration schedule versus just maybe some weaker submarkets or weaker verticals that the tenants operate in, that could continue to pressure a little bit on occupancy.

Yes. I think the space reconciliation trend is ongoing. We're about 5 years removed from the peak, the start of the peak of the market and our market generally trades in 5-year term. So I think we're going to continue to see tenants evaluate their space footprint and their needs and reconcile those 2 things. We've been seeing that, by the way. It's part of what's been contributing to the negative net absorption that we've experienced throughout Southern California over the last number of quarters.

Now that trend is lessening. Negative net absorption is less than it has been, but we're very focused on that because I think that's the metric that's going to tell you and that reconciliation process has been worked through.

And you guys are in the ongoing asset recycling phase. And Laurie, you're coming in, you guys re-underwrote the whole portfolio. Clearly, you guys were significant buyers in '21 and '22. As you kind of put the parameters around keep versus sell, how much of it is submarket? How much is the physical aspects of it? How much is it just you bought wrong and it's just time to punt it because you'll never -- that capital is better used somewhere else rather than being stuck in an asset. Could you just walk us through the decision tree how far through the underwriting process you are then, I'll follow up after that.

Yes. I mean all of those things are things we're thinking about, Craig, as we're building out, right, what are the right properties to sell. But it all -- what underpins and what are we trying to achieve? Like let's start there, right? What we're trying to achieve is a portfolio that has a more resilient stream of cash flow growth per share. So how can we create a cash flow stream that has higher relative growth than where we are today that allows us to mitigate future risk, that allows us to mitigate future dilutive capital spend, as you've seen us do in some of the development sales.

And at the end of the day, position the FFO per share or earnings growth of this business higher than where we would have been otherwise, right. and on a relative basis, how do we have a more consistent growing cash flow stream. And we know that value creation, and I talked about it in my prepared remarks, is a key element of our business model. And so -- and that is what ultimately allows us to drive cash flow per share growth. It's above what you could achieve in the market.

And so how do we position the portfolio in a way to be able to do that while at the same time mitigating some of this disruption to cash flow growth. So that's what we're thinking about high level and what we're trying to achieve. So to your question around, so what does that mean? That means that we're looking at everything, right? We're looking at those assets, as I mentioned, where we can capture compelling valuation because that's a great way for us to accretively recycle capital. We're looking at the developments, right, and not allocating dilutive capital to those. So just as an example, there's 6 projects that I talked about. We had projected to stabilize these projects at a 4% yield in aggregate. That's not a great use of our capital and that allows us to avoid dilutive capital spend of about $150 million. And so we can then avoid that spend and redeploy that in the future to more accretive uses.

And then lastly, as we look at, you said, is it unit size, is it submarket specific? It's really just about how do we build the better cash flow stream and how do we embed those opportunities into our portfolio where we can drive value creation over time.

And in terms of the buyer pool for the assets you're putting out there, I mean, how deep was it on the assets that you put out there from the development side versus what does it maybe look like from for the stabilized assets, how deep is that pool today, given you guys were one of the most active players in LA. So that is kind of taken out of the market.

Sure. I'll take this one. On the development sales specifically, we had a pretty long interest list. We had over 85 qualified groups enter the process and sign the required documentation to take a look. And on each individual asset, we had a focused bid list of between 5 and 10 groups that were competitive. So we were very pleased to see that level of interest. The composition of the bidders was also interesting. We had groups that certainly focused on development as a primary strategy in the region, but also saw larger institutions enter the mix as well.

And I think that speaks to just the overall level of interest that we're seeing from capital for Southern California, given where we are in the cycle and the bottom forming, I think a lot of groups are recognizing that it's a good entry point. And so I would suspect that as we sell other types of assets, we'll have similar interest.

Yes. What I would add to that is overall in the market, there aren't a lot of properties on the market for sale at this point. So it is pretty quiet on the seller side. We are hearing that there's more capital. And John said, we're obviously we're seeing some of that capital wanting to get into Southern California. But you're not seeing as much on the market today from the seller side.

Where we have been able to take advantage of those premium valuations is in the owner/user market. Those are businesses that want to buy their real estate. And where we can take advantage of that, we have. They tend to pay a higher premium valuations. They clearly look at real estate valuations from a different perspective. And we're taking advantage of that where we can. That pool though is unpredictable in terms of where they want to be and what properties can trade. It's unpredictable from an execution perspective. They tend to need financing as well, tend to not be typically real estate investors. And so where we can take advantage of it, we will, but it's not somewhere where you can say, okay, we want to tee up x million of owner user sales and execute. It's more opportunistic in nature.

And if you take out the users, have you tried to back into maybe what investor IRRs are trending to on an unlevered basis for assets in the market? Or maybe even what people and on the development side, the yields that people are trying to develop to make the risk/reward work?

Yes. I'd say we're pretty close, obviously, to the development side, selling the 6 properties. Generally speaking, we saw those developers solving to somewhere between a 6% and 6.5% yield. I would caution that a little bit. You typically see developments in the market, developers solving to were between 150 to 200 basis point spread.

In this case, because these sites were fully entitled and in some cases, already permitted. You're taking a lot of that predevelopment risk off the table. So it did allow for those developers to solve for a bit tighter spreads than you typically see from a development underwriting perspective.

And then you kind of touched on this a bit. You've done a lot of work coming in, you've rejiggered -- well, the management team was kind of the core there, but John got elevated, right, you're recognizing the people internally. From a culture standpoint, from what you stepped into taking the lead formally, what inning do you think you are in resetting the bar at Rexford to where you want it to be as a go forward versus maybe where it was under predecessors.

Well, we're still pretty early here. We're just a few months into the announcement and the transition officially happens on April 1. But I would say that the work has been being done, as Craig, that you mentioned. And I'd say, as a team internally, there's a lot of excitement for this next phase of Rexford. And there's a lot of excitement from all of us as well in terms of taking an incredible business model that we have and being able to just make it better and grow it from here.

And the Rexford team is excited and behind that, and we will continue to mold the team and the culture around what drives success at Rexford because they're such an important part of that.

As part of kind of looking forward in those opportunities, how are you thinking about using and deploying AI within Rexford to either become more efficient or from a capital underwriting perspective and just kind of the opportunity that you see right now?

Yes. It's pretty exciting. I think everyone probably agrees with that. So we take an incremental approach to it. It's the best way to describe it. And it starts with utilizing platforms that are already part of our data and software strategy for data security and integrity reasons, but also ease of deployment to the larger organization. And so we are accomplishing tasks that are more broad and widespread through those existing tools that we already have in our ecosystem. So I think things like workflow automation and data analysis and search optimization that we can put in the hands of all of our teams easily. We're a Microsoft shop. So we're using their tools for that.

On a property operations standpoint, we use Yardi. They have some tools and development that we're looking at that are pretty exciting, too. And so kind of the base level of our strategy is to utilize those platforms.

The next level up is bringing in, which we're doing now, tools that are for a bespoke purpose that aren't available through those platforms. So things like lease abstraction or lease document drafting and contract drafting, things that can effectively speed up the process, thereby creating more efficiency and productivity. So we see a lot of opportunity and have enjoyed some success to date with that, and we're going to focus on those 2 areas. There's a lot more that we can do there. And so we're a ways off from taking what I would describe as probably the next step after that, which is building something custom. I think there's enough tools in the market that we can get a lot of value out of based on what we see.

Makes sense. And then how about just from a tenant perspective. Obviously, I'm sure there's a lot of deployment of AI across their businesses. Is that starting to impact leasing decisions? Are you -- is that becoming more of a conversation as you look to lease space?

Yes. It starts to come up a little bit more primarily in the sense of using those types of tools to help inform real estate decisions, whether you're looking at a tenant who's mapping out their customers and figuring out the ideal location to service them, the valuation of lease comps is another application, which we use it for internally at Rexford as well. So we're starting to see more groups deploy it. Now it tends to be more with the more sophisticated, larger, more corporate-type users. But with the plethora of options out there, we're even seeing some of the smaller tenants get into it as well.

We've been -- we've heard from a couple of other of your peers, right, or not heard, but had a conversation with them around power allocations, what tenants are using, right? LA is starting to see some more high-tech manufacturing, light manufacturing. As you guys look through your portfolio, have you seen power needs from tenants start to increase, does this inform your decision on certain buildings to keep that may be antiquated where you can't pull the power. And so even though physically truck courts, other things, it's functional, but power-wise, it's getting to be obsolete. Like how is that impacting the LA market in your portfolio specifically?

Yes, it's a big factor. And we've been focused on it for quite some time. And as we look at upgrading certain properties, power is usually at the forefront of the conversation. As you touched on, it's not just about what you can put in the building in terms of infrastructure. It matters how much capacity the circuit has and what the utilities are doing is basically delivering capacity on a first come first serve basis. And so you won't know how much technically you can get if a certain circuit in the grid is nearing capacity, until you're ready to receive that power upgrade.

So it adds some risk to the equation. We're very early in planning for that ahead of time to try to get ahead of it, but it does limit the potential for certain properties, and we do take that into consideration when planning improvements or potentially considering a property for disposition.

Yes. And I'll just add to that. It does -- it is an important factor, an important functionality factor that certainly drives demand and can differentiate your product in the market today. So if you were able to deliver a building with 4,000 amps in the market versus 2,000 or 1,000, it absolutely will differentiate the demand and certainly, the leasability of that project sooner. We are -- it's not just from advanced manufacturing, by the way. There is a significant shift to electrification, which is driving the need for more power across the board from all tenants regardless of industry.

So it is something that, as John said, that we've been focused on for some time, working directly with the utilities, those relationships are very, very important, and it's something that because it's been something we worked on for some time, we're really well positioned to get the outsized power that we need and position our properties in a different way in the market.

And transitioning maybe a little bit to earnings. We've talked about a lot of the sort of inputs with a little bit of dilution from asset sales in some instances, offset by buybacks, but then you have the occupancy pressure that feels like it's going to be there for maybe a year or 2 until you really start to see the market inflect potentially. Then you have instances like Tireco, right, where strategically, it's better to take the rent hit and lock them in, right? So if I put this all through the grinder, from an investor expectation, in terms of -- and I know you haven't given '27 guidance, so this is more high level.

But the investor expectation for a snapback in FFO growth, should that be tempered to where maybe that's a little bit later dated, where there's -- some of these things you've identified are hit the run rate, they pressure. You guys aren't redeveloping as much, you're taking stuff out of the pipeline, right? Like I'm trying to get to the algorithm without kind of boxing you from a guidance perspective, but you got to see where I'm going. I'll let you take it from there.

Sure. Thanks, Craig, for the belabored question here. We're going to control what we can control. That's why we prioritized the occupancy. We've spoken about it quite a bit. It's why Tireco. We did an early renewal on that. That was $20 million of NOI. And a market like this, the most expensive thing you can do is not renew a tenant, especially your biggest tenant, 1.1 million square feet. They had a negative 30% re-leasing spread. I do want to make clear that that's not what the expectation is for 2027. They're not going to be anywhere near a negative 30%.

So back to prioritizing occupancy, we have about $55 million of NOI that's tied to our repositioning and development pipeline. That's either in lease-up or the construction is already complete or where we have a shovel in the ground. That's going to come online over the next 2-plus years. That's one lever we're going to pull.

The next one, we're going to control to the best of our ability is taking advantage of the disposition market. We talked a lot about that today. We have $400 million to $500 million of dispositions that we expect to get done ratably over the course of 2026. And right now, share repurchases are extremely attractive based on my earlier commentary. So we'll take advantage of that dislocation.

And the last thing, and Laura commented on this, too, to a certain degree, is G&A. At the end of '24, our G&A as a percentage of revenue was about 9%. This year is expected to be about 6%. So roughly $20 million less than last year, coming in at around $60 million. We'll continue to drive operating leverage where we can there. So what we can control are those 3 things to a certain degree. The pressure on the releasing spreads is something to be seen. We do expect we could have pressure in '27 and '28, just based on when market rents peaked in '22 and '23. But we feel, at this point, we have a lot of other things that we [ can't ] control or offset some of that.

Yes. And I'll add one other offset is just how we're thinking about capital recycling. And so to the extent that we have some of those headwinds in more near term and the specific assets that we think that we can sell and then be able to mitigate some of those headwinds and risk, it's absolutely something that we'll consider doing.

I know your tenants kind of skew smaller generally. But are there more risks of a Tireco type hit in the near term as you look at the expiration schedule in '27, '28?

Not at this point, no.

So as we think -- a lot of this talk has been about kind of rationalizing or rightsizing, but at the same time, you guys ultimately do want to grow, right? And so -- how do you -- I know it's not the priority today, but do you spend much if any time today underwriting opportunities either in your markets?

Are you spending time looking to see if it makes sense to diversify from just being SoCal to maybe a broader West Coast footprint. Like what's the -- as you get through this stage, which I know is going to take a while, but you always got to be a couple of steps ahead. Like what are the longer-term strategic focuses that you're thinking about, at least initially, what could we expect?

Look, we're -- we've got a lot of blocking and tackling in front of us, as you said. And we're spending time thinking about how we position this portfolio for the future and for better growth, as I talked about earlier. So that's number 1, 2 and 3 in terms of the current focus. And so -- and that means that as we do that and we're able to position this portfolio for better growth, it will improve our cost of capital. And so there will be a point in time where we will be able to grow.

Again, there's obviously a significant growth opportunity for us in Southern California into the future. So the relationships that we have in the market and across the market and the vast data that we have around what those opportunities look like, we continue to cultivate. And that's really important because that will be an important part of our growth in the future.

Importantly, though, as we think about how we will grow in the future, we are going to grow being very cognizant of achieving the appropriate risk-adjusted returns as we allocate capital in the future. So when we do grow again, it will be focused on what is our cost of capital, how are we underwriting in a very rigorous way. And so that when we allocate that capital that we are truly driving value creation for shareholders in the future.

I'd also add that, that opportunity set is there. As Laura mentioned, we are monitoring it day in and day out. And the fundamentals in our market are only going to get more favorable for us. I think this is something that is underestimated for our market is that there's something different about this cycle, which is the land use regulation has increased substantially over the last 2 years. And so as we get to the recovery portion of the cycle, what's going to be different from previous cycles is that you're not going to be able to add the same level of supply that was added to our market going forward. And that comes from state and local level land use changes.

So we're pretty excited by that and very bullish and continue to be on the opportunity set in Southern California because that's going to benefit the existing industrial stock and it's going to benefit us because we're well equipped to upgrade that stock and drive the mid-teens returns that we get through our repositioning program.

Yes. And just to maybe clarify or get you guys on the record. Once you get through the initial asset sales, will asset recycling continue to be a key part of the capital deployment discipline going forward?

Yes, absolutely. I think capital recycling should be a part of any great capital allocation strategy and framework. So I would expect, going forward, we'll continue to evaluate the portfolio on an annual basis, and we'll probably sell something between 1% to 3% of assets annually and recycle that capital accretively.

Perfect. Just quickly, rapid fire. Same-store NOI growth we'll just say for industrial sector overall, so not just Southern California next year in 2027.

Higher.

Needs to be typed into a spreadsheet .

5%.

5%. Perfect. And then a year from now, will there be more fewer or the same number of public industrial REITs?

Same.

Great. Thank you very much.

Thank you so much.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Rexford Industrial, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mikayla Lynch, Director of Investor Relations and Capital Markets. Please go ahead.

Thank you, and welcome to Rexford Industrial's Fourth Quarter 2025 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-K 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. Our earnings presentation and supplemental package provide GAAP reconciliations as well as an explanation of why these measures are useful to investors. Before we begin, our outgoing co-CEOs recorded some brief remarks that they'd like to share.

Good morning. Before the call begins, Michael and I wanted to share a brief personal note. Building Rexford from a start-up into a leading industrial real estate company has been an extraordinary journey. What we've achieved reflects the talent, discipline and commitment of a remarkable team as well as the trust and support of our partners and shareholders.

Thank you, Howard. I'd like to add that it's been a pleasure to build the company together with you over the prior 20-plus years. I'm deeply grateful to everyone who contributed to Rexford's growth and success, and I'm proud of what the team has accomplished. Looking forward, I'm also excited for Rexford's opportunity to create significant shareholder value through its next phase of growth.

I'd like to thank Michael and Howard and wish them the very best going forward. Turning now to our fourth quarter earnings call. Joining me today are Rexford's COO and incoming CEO, Laura Clark; together with our CFO, Mike Fitzmaurice. John Nahas, our Managing Director of Operations, will also be joining in the Q&A portion of today's call. I'd now like to turn the call over to COO and incoming CEO, Laura Clark. Laura?

Thank you, Mikayla, and thank you all for joining us today. The Rexford team delivered a solid quarter of results, including the execution of 3 million square feet of leasing and meeting our guidance expectations. Rexford's portfolio continues to outperform the broader market, and we remain confident in the long-term fundamentals of infill Southern California despite near-term pressure impacting our 2026 growth expectations. I'll provide additional detail on overall market dynamics following an update on our recent initiatives.

In November, we outlined the immediate strategic priorities that position Rexford to enhance the quality of our cash flow, drive per share FFO and NAV growth and optimize return for shareholders. I'm proud of the progress that we've made in just a few short months. First, we took a rigorous approach to re-underwriting our near-term development pipeline. At this point, we have identified 6 projects representing approximately 850,000 square feet of future development that we are not moving forward with and intend to dispose of, giving us flexibility to redeploy capital into more accretive opportunities. Our decisive actions to reduce our development exposure have resulted in swift progress to date, and we currently have all 6 projects under contract or accepted offer to be sold. Importantly, as we continue to refine our strategy, maximizing risk-adjusted returns remains a critical component of driving value creation. All capital allocation decisions will be evaluated through our revamped rigorous underwriting criteria that considers our current cost of capital and market dynamics.

Second, a programmatic disposition plan is a key component of our broader capital allocation strategy. We are focused on disposing of properties that allow us to realize value creation as well as properties that enhance the quality of our future cash flow growth. In 2025, we opportunistically sold 7 properties totaling $218 million. Looking forward to 2026, we are currently targeting between $400 million and $500 million of dispositions that will support our ability to continue recycling capital to accretive opportunities.

Third is our commitment to driving operating efficiencies across our business. As outlined in our November release, we targeted a reduction in G&A as a percentage of revenue below the peer average. And based on 2026 guidance, our G&A as a percentage of revenue will be 6%, in line with our commitment. We also communicated the importance of better aligning executive compensation with our shareholders. Per our December filing, we recalibrated our short- and long-term incentive compensation metrics as well as the absolute level of executive compensation, underscoring our commitment to operate in direct alignment with shareholder priorities. We will continue to identify opportunities to drive further efficiencies across the business, and we are confident we can further reduce G&A as a percentage of revenue over time.

Next, I'll provide an overview of the conditions we are seeing across the overall infill Southern California market, observations that are shaping our strategic actions and informing our expectations going forward. Today, tenant demand continues to be influenced by broader macroeconomic forces and elevated levels of market availability. These conditions are contributing to a more measured pace of demand. As a result, according to CBRE, market rents declined 10 basis points in the quarter and 9% year-over-year. Vacancy also increased 30 basis points during the quarter. Net absorption is another key metric we monitor closely as it typically begins to stabilize ahead of market rents. While net absorption was negative this quarter, reflecting broader market softness, we are starting to see some early signs of stabilization emerging across select submarkets and size categories.

Given the current market backdrop, we are maintaining rigorous capital discipline and aggressively prioritizing occupancy, driving leasing to maintain cash flow. By way of example, subsequent to year-end, we executed a strategic early renewal of our largest tenant, Tireco, who occupies our 1.1 million square foot production Avenue property. The 3-year renewal allows us to significantly derisk cash flow and preserve occupancy. Although we are not yet able to call an inflection point in the market, we are excited about Rexford's unique upside potential and believe Rexford is a compelling investment opportunity today.

Beyond the actions we are taking to position Rexford for outsized value creation, it is our unique assets, differentiated geographic focus and on-the-ground operating expertise that underpin our confidence in our business model. Southern California stands as one of the most dynamic economic engines in the country, powered by a deep, highly skilled labor pool and a robust local consumption base that consistently fuels strong diverse tenant demand over the long term. We have a superior portfolio of high-quality assets in a market where demand consistently outweighs supply. In fact, supply under construction in the market is near historic lows, supporting future rent growth potential. We are confident that as the market inflects, Rexford is well positioned to capture recovering demand to drive occupancy and NOI growth.

We are entering 2026 with a clear action plan focused on maximizing risk-adjusted returns through executing on our programmatic dispositions, reducing development exposure, accretively recycling capital, driving operational efficiencies and prioritizing occupancy. We will continue to thoroughly evaluate opportunities to increase per share, FFO and NAV guided by our commitment to optimizing shareholder returns. Finally, I'd like to thank our exceptional Rexford team for their dedication that continues to drive our success today and through our next phase of growth. I also want to acknowledge and thank Howard and Michael on behalf of the entire Rexford team for their contributions in co-founding this incredible business, and we look forward to this next chapter at Rexford. I'll now turn the call over to Fitz.

Thank you, Laura, and good morning. I would also like to thank Michael and Howard for their leadership over many years and wish them both much success in their next chapter. Today, I'll discuss fourth quarter results and provide additional details on our 2026 outlook. Fourth quarter core FFO per share of $0.59 was in line with expectations, driven by higher same-property NOI growth, lower G&A expense and accretive share buybacks, partially offset by higher bad debt. For the full year, after adjusting for the co-CEO transition severance charges and other nonrecurring costs, core FFO per share was $2.40, placing us at the high end of our initial expectations. Note that co-CEO transition severance charges were fully recognized in the fourth quarter and will not impact 2026 results.

During the quarter, we recognized $89 million of real estate impairments related to our development sites that we have elected to sell. These projects no longer meet our investment hurdles and selling these assets allows us to redirect $285 million of capital into higher-yielding uses. This approach drives the best economic outcome and aligns with our strategic shift to derisk cash flows and reduce development exposure.

Turning to full year operations. In 2025, we signed approximately 2 million square feet of repositioning and development leases, generating nearly $40 million of annualized incremental NOI. While we are encouraged by the pace of recent leasing activity, we continue to experience pressure on occupancy and market rent. Total portfolio occupancy ended the quarter at 90.2%, down 160 basis points sequentially, largely driven by near-term repositioning and development starts. These opportunities are expected to achieve an overall stabilized yield of roughly 7% -- additional move-outs were primarily driven by large tenants pursuing consolidation or expansion, the expiration of short-term renewals and in a limited number of cases, tenant financial difficulties.

Regarding market rent, we continue to experience a deceleration comparing to last quarter, with market rents within our portfolio down 1%. Market rents have now fallen 20% since the peak in early '23, which has put pressure on our expected re-leasing spreads for 2026 as we address expiring leases that were signed in the height of the market.

Touching on share buybacks, we continue to take advantage of market dislocation between our share price and intrinsic value. During the quarter, we repurchased $100 million of shares, bringing our 2025 full year total to $250 million. Share buybacks will remain a consideration in 2026, subject to a meaningful discount to intrinsic value, competing capital needs and preservation of balance sheet strength.

Moving to our 2026 expectations. We are introducing 2026 core FFO per share guidance of $2.35 to $2.40. Our outlook reflects a mix of puts and takes, which I'll walk through using the midpoint of the range. Starting with repositioning and development, we expect to stabilize and commence rent on approximately 1.2 million square feet of value-added projects, generating $20 million of annualized NOI with the majority coming online by midyear. Conversely, approximately $12 million of annualized in-place NOI will come offline due to new construction starts, primarily related to our project at 9000 Airport Boulevard. The weighted average timing of the annualized NOI coming offline is late in the third quarter.

Same-property NOI growth on a net effective basis is expected to decline approximately 2%. Key assumptions include net effective re-leasing spreads of 5% to 10%, average occupancy of approximately 95% and bad debt of 75 basis points of revenue. Of note, we expect unfavorable impact from lower termination income and the early renewal of the Tireco lease as the above-market rent was reset to current market levels.

With respect to dispositions, we expect to sell roughly $450 million of assets with nearly $230 million already under contract or accepted offer. Proceeds will be redeployed toward the highest risk-adjusted returns, including future repositioning and development projects as well as opportunistic share repurchases.

Before I wrap it up, I'd like to generally express my gratitude to everyone on our team for their commitment and tireless effort throughout this quarter. I'd also like to congratulate Laura on her appointment as CEO. Laura's leadership, sound judgment and vision have already made a meaningful impact, and I'm excited to partner with her as we lead Rexford into its next chapter. With that, I'll turn the call back to the operator.

[Operator Instructions]

Our first question comes from Greg McGinniss from Scotiabank.

I was just hoping just for a little more understanding on the Tireco lease resigning there. And I think the original plan was in 2024, you looked out to '27 and there's kind of the expectation that you'd be able to re-lease at a higher rent then. Has the competitive market changed much for that type of product? Or is there just like more competition for that space out there? And then why address it now versus early next year or later in this year?

Yes, Greg, this is Laura. Thanks for joining us today. Really, given the overall market backdrop, we made the decision here to prioritize occupancy and derisk future cash flow growth. The lease was expiring a year from now in January of 2027. It's our largest -- single largest tenant. They came to us to discuss an early renewal, and they were actually seeking a longer lease term of 5-plus years. And given the significant cash flow impacts from the downtime of that space, especially considering the capital investment that would be required to position that space for lease, we did engage in discussions around an early renewal. Although they were seeking a longer lease term, we strategically negotiated a 3-year lease here, which allows us to reset at market rents sooner. So the Tireco lease was above market. The roll down is about 30% on that space. And as I mentioned, I mean, the strategic renewal for us allows us to preserve occupancy and cash flow given the current market dynamics and derisk future growth.

And Greg, the one thing I would add there is the impact of same-property NOI for 2026 and our FFO per share impact as well. So it impacts same property about 50 basis points and then an FFO per share impact is about $0.015.

Our next question comes from Blaine Heck at Wells Fargo.

As you guys talked about, market rents showed less moderation during the quarter, down 1% overall in the fourth quarter. And Laura, I know you said you're not calling an inflection today, but do you have any additional commentary on how much further you'd expect rents to decline based on what you're seeing from vacancy in the market and how aggressive some of your competitors have been on pricing. I guess, would you expect that bottoming and inflection to come at some point during 2026?

Blaine, thanks so much for your question. I think it may be helpful to spend a little bit more time diving into the market and kind of what we're seeing across the markets. And as I mentioned in my prepared remarks, we're certainly seeing some signs of stabilization, while there's other indicators that show some continued challenge. So Collectively, when I put all those together, I think those are indicating that we're still bouncing around the bottom here. And we're not going to be able to call an inflection point at this -- an inflection at this point, but maybe you can talk about some of the positives that we're seeing around stabilization and then also maybe some of the challenges.

So on the positive side, I'd say that third and fourth quarter leasing activities levels were steady, although a portion of this activity was driven by some pent-up demand that we had seen in the first half of '25. We are seeing some tenants enter the market a bit sooner than they would historically, and we're seeing some early renewals come to us like Tireco. I think that's a sign of tenants seeing where market rents are today and wanting to lock those in for longer terms. Some submarkets and size ranges, as I mentioned, especially those in the, we'll call it, sub-50,000 square foot area, seem to have stabilized. Other lease terms like concessions and TIs are steady quarter-to-quarter. That's another good indication of some stabilization in the market. And as you mentioned, market rent declines this quarter were down 1%. That's in line with what we saw in the third quarter, which were down 1%. And that has moderated from more elevated levels of decline in the first half. So I'd say those are all positive things that we're seeing and that you need to see in a more stable market.

All that being said, I think there are some market challenges that really impede our ability to say we've hit the bottom. Leasing activity levels have moderated a bit as we've started the year. We measure activity on our vacant spaces. We have activity on about 75% of our vacant spaces today. That compares to about 80% this time last quarter. I'll note, though, that we're trading paper on probably a lower percentage of that activity than we had last quarter. As I mentioned in my remarks, net absorption is a really key indicator that we pay really close attention to. And as we look at net absorption today continues to be negative in the market and to see the inflection and really to see that pricing power shift to landlords, we need to be at a point where we're experiencing some continued quarters of positive absorption.

A few other notes about the market. I'd say that given the availability in the market, I'd say leasing is taking a bit longer. Tenants are certainly out shopping. And we're seeing tenants focused on wanting to capture more functional space in the market to operate their businesses. So some consolidations are happening as well, but Rexford is positioned well to capture that demand. So -- all that being said, challenging to call the inflection point or when that will occur. But I do feel like that we are seeing that we're bouncing around the bottom here. We are prioritizing occupancy to drive cash flow, making capital allocation decisions that take into account these market dynamics.

Our next question comes from Craig Mailman at Citigroup.

Laura and Fitz, you both kind of gave some good color here on the leasing environment. I guess my question to dig a little deeper is, Laura, you just mentioned you guys are prioritizing occupancy over rate. And I understand that maybe showing activity is down a little bit. But could you just give us a sense of what you guys are specifically seeing that's underpinning the occupancy decline versus what is just kind of a feel at this point? Like are there big known move-outs that we should be modeling in outside of the spaces coming off for redevelopment or repositioning? And maybe talk a little bit about the 75 basis points of bad debt. I think you guys are running closer to 0.25 point through the first 3 quarters. What happened in the fourth quarter? And kind of what does the watch list look like?

Sure, Craig. I'll start. This is Fitz. First, we're assuming a longer downtime in our occupancy assumption for 2026, both on a same-property perspective and repositioning and redevelopment. From a same-property perspective, we took about 1 million square feet back in the fourth quarter, and it's taken a bit of time for that to lease up. Also repositioning and redevelopment, given the mix in terms of a change relative to last year, it's a bit longer. Last year it was around 9 months. It's approaching 10 to 11 months this year. So that's what's driving the occupancy decline, both in same property and at least expectations in same property and total portfolio.

Yes, I'm happy to add a little bit more color. Craig, this is John. So for a couple of specific examples, if you're looking at our same property ending occupancy, we did have a sequential decline of about 50 basis points. There's a couple of bigger drivers in that bucket. We had 2 properties in the L.A. market that had some move-outs that were expected. One was at our Rancho Pacifica Park. It's 144,000 square foot space that was leased to a temp tenant, and they moved out in the quarter. We've since re-leased that space and the new tenant moved in as of 1/1. So it's not showing in that quarterly number. The other big driver in the same property bucket was an asset that we own at 3880 Valley, and that was an expected move-out as well that is on the market for re-lease. With respect to the bucket of properties that moved out and going into repositioning and development, the bigger drivers there are 3 properties that are on our development pipeline. Those are Gale, Balboa and 190th. These are assets that we are really excited to move forward with. They are great pieces of real estate and the development returns are meeting our expectations. So we're very excited to move forward with those.

And Craig, in regard to bad debt, first on the watch list, if I compare year-over-year in terms of the size of our watch list in terms of tenants and rent, it's about the same. In 2025, we experienced about 50 basis points of bad debt. That was tied to 3 tenants. We experienced 1 tenant that vacated in the first quarter. We had 0 bad debt in the second and third quarter. And in the fourth quarter, we had 2 tenants, 2 large tenants vacate. As we look into 2026, same story. We have a handful of tenants that are larger tenants that we're keeping an eye on. And therefore, we're going to take the same expectation that we set in 2025 in terms of being pretty judicious and having the appropriate bad debt reserve of about 75 basis points on revenues.

Our next question comes from Andrew Berger from Bank of America.

Great. Maybe just following up on the last question. Fitz, were there any particular industries for the 2026 reserves watch list?

Andrew, this is John. Yes, this quarter, we had the same number of tenants on our watch list. The difference from Q3 is that there's some larger spaces that are showing up, and there is some concentration in logistics. When we dive into each situation, they're a little different. There's specific business issues with the businesses that are operating in these properties. Many of the tenants in this space really are contending with changing rates from their customers. And so any time there's some misalignment between their contract revenue and their occupancy cost, it can create some disruption. So it's something that we're very focused on and working with these tenants to resolve, but that is representing a higher concentration this time around.

Our next question comes from Michael Griffin from Evercore ISI.

Maybe just circling back to sort of expectations for leasing and rents on the year. If I look at the expiration schedule, you've got about $16.50 rents expiring versus you were signing in the past quarter, call it, $14.50, $15. Maybe this is better for Fitz just on the guidance side. But if you're anticipating 5% to 10% re-leasing spreads this year, I guess, does that imply you're going to be signing leases in the $17 range? Like I'm just kind of curious how to marry the expectation for where rents could be versus what you've currently been signing. And I realize that you can have a mix issue quarter-to-quarter, but any context there would be great.

Yes. It always comes down to a mix issue, Griff, for sure. But yes, I think you're roughly around the right rent per square foot in terms of your 17, it's between $16.75 and 17, what we expect to sign. And like you said, on the net effective perspective in re-leasing spreads expectation, it is between 5% and 10%. Some of that obviously is impacted by Tireco. As Laura mentioned earlier, we do have a 30% negative spread on that lease. And then from a cash perspective, we'll give you the other side of that as well. We do expect those to be flat to negative 5%. And that is one of the more significant drivers or lack of drivers in both our same-property net effective and cash NOI expectations.

Our next question comes from Michael Mueller from JPMorgan.

Your year-end same-store occupancy was 96.5%, and it looks like the guidance is for about 95% average for the year. So can you give us a little color on where you expect occupancy to end '26?

So the 96.5% that we ended last year was based on a different same-property pool. Our pool did change from '25 to '26. That was primarily driven by the acquisition activity that we experienced in 2024 that entered the same property pool in 2026. So the appropriate starting point is actually 95.6%. And we -- our expectation is that it will decelerate into 2026 and our midpoint of our guide is about 95%. And generally, it's a deceleration from this point throughout the year and with a little bit of acceleration in the fourth quarter.

Our next question comes from Vince Tibone from Green Street.

I'd like to drill down further into the cash same-store guide. Based on the components you gave, I'm having trouble getting to the range of spreads are only going to be slightly negative, 60 basis points occupancy decline and it seems like a modest headwind from bad debt, lease term fees, free rent and contractual bumps are still 3.5%. So I just want to understand what I'm missing. And I just want to confirm, the Tireco lease extension does not have an impact on cash same-store in '26, right? So just if you can help me kind of stitch together how cash guidance is negative 1% to 2% given all those factors.

Yes. Vince, this is Fitz. I appreciate the question. But yes, to quickly answer your Tireco question on the cash side, we do have concessions in '26 versus '25. So that is impacting. But to pull back and give you the components of the buildup. So our 60 basis point decline in average occupancy translates into about 100 basis points of unfavorability. If you add on the NOI margin, which is correlated to occupancy, it's another 50 basis points. The lower term fees and the Tireco impact is about negative 75 basis points. And then bad debt, which includes some straight line -- I'm sorry, not straight line, but about 50 basis points. And that gets you to like a negative 2.75%. And then concessions brings you down even further. It's about 200 basis points and then bumps brings you back up at about 3.25%. And that gets you to the 1.5% at the midpoint on cash.

Our next question comes from Rich Anderson from Cantor Fitzgerald.

So I guess a bigger picture question here. I'm wondering what the measurement of success will be from everything you're doing. The things that are under your control, you're doing, higher dispositions, lower development, lower G&A, but so much is out of your control when you think of the macro and politics in a blue state and tenant behaviors. So come a year from now or 2 years from now, if we're still talking about the same growth profile, does that incite the Board to like think to do something even more substantive with the company? Or do you think you have a few years to see this through? I understand, Laura, you're just fresh in the seat. So I don't mean to be overly aggressive with this question. But I am curious as to what the time line is to sort of see some fruits of your labor.

Yes, Rich, great question, and thanks so much for joining us today. In 2026, as we've outlined, I mean, we're focused on executing our strategic priorities. And we believe that this will position us to create long-term value. And you asked about what's the measurement of success. It's about driving outsized shareholder returns for you all. So that's the guidepost and that's the measurement stick. And our priority there is to drive those returns, and we are going to be the best stewards of your capital. So that's our commitment is to continue to assess opportunities within the portfolio to drive value and position Rexford for future success. We're going to do that through a variety of ways. We've talked about how we're going to exercise a renewed capital allocation discipline. We're focused on driving to the highest risk-adjusted returns, taking into account our cost of capital and market dynamics. We've embedded a more rigorous underwriting criteria into how we're making decisions. We're limiting our development exposure. We've adjusted the spreads at which we need to achieve to move forward with those projects. We're focused on executing on value creation. I mean it's a key component of our business model, and that's really going to drive our cash flow and position us into the future. And we're committed to operating this company also as effectively and efficiently as possible. That allows us to maximize shareholder value, and we will continue to identify other ways to drive efficiencies across the business. So all that said, we're going to continue to assess those opportunities to drive value, and that is our focus today.

Our next question comes from Vikram Malhotra from Mizuho.

I just want to clarify 2 things. So one, I guess, just real quick, the mark-to-market kind of was only down 1%, and it seemed like no impact from either move-outs or re-leasing. So if you could just clarify kind of how you expect that mark-to-market to trend in the year? And then just clarifying on that last answer. I guess, given what you've said, still very tepid leasing, et cetera, your rent spreads are probably a headwind next year and then you have a lot of dispositions. So sort of Laura, as you rightsize the ship, so to say, there will be a lot of dilution. Is that like a multiyear effort? In other words, do you think it takes a while before we see earnings to drop?

Vikram, this is Fitz. I'll take the first question. We had offsetting items for the impact on both our net effective and cash mark-to-market for our portfolio. In the fourth quarter, we -- leasing, we had a positive impact of about 50 basis points as we converted below-market leases to positive spreads. That was offset one for one by spaces that vacated during the quarter that had an above-market rate.

Yes. And in terms of how we're thinking about dispositions, I mean, we've got $230 million identified between the near-term development pipeline and other operating properties. But as we think about additional properties and what's the strategy, it's comprised of future opportunistic sales where we can realize value creation, opportunities that we can sell that derisk future cash flow growth and then the potential for future repositioning and development properties as we assess the strategic plan for each asset and evaluate what the right appropriate risk-adjusted return is to move forward with those assets. All that being said, the goal is to execute on a programmatic disposition strategy that's neutral to accretive to FFO and NAV growth over time.

Yes. And then the one piece I would add there is just the continued cash flow generation for our for repositioning and development. We had about $15 million or so that stabilized during the quarter, which was about 750,000 square feet. And then we have another $53 million that's in lease-up or under construction. $20 million of that $53 million, as I mentioned in my prepared remarks, is going to commence in 2026 and then the remaining $33 million will be in 2027 and beyond. So there are some offsetting impacts to the re-leasing spread.

Our next question comes from Nick Thillman from Baird.

Maybe touching a little bit on the disposition side. Maybe some color on what you guys are seeing from the bidder pool, the type of bidders you're seeing in the market and what you're seeing on the pricing front. And then it seems as though most of the dispositions are targeted towards redevelopment and repositioning properties that have some vacancy. But as you are evaluating this portfolio, is there anything you're seeing from a submarket level that has us changing thesis or targeting different submarkets or looking to exit as well as we just evaluate the portfolio construction today?

Yes, Nick, I'll start on this one. In terms of the buyer pool, the buyer pool is really different depending on kind of what we're in the market selling. In terms of the 6 development sites, near-term development sites that we have under contract, that buyer pool is made up of mostly developers that have local Southern California development expertise. The pool was pretty deep on -- for the total sales value of those is about $135 million or $80 per land square foot on those 6 properties. I'll also note that those were projected to yield those properties a 4% yield upon stabilization, which is why we didn't move forward with those projects. In terms of other buyers in the market, I would say that we continue to see user sales have increased across the market, and it was a significant portion of the assets that we sold in 2025. User sales -- users typically pay a premium pricing, and we were able to take advantage of those opportunities, selling that $218 million at an average cap rate of 4.2%. As I look into the pool of what we have under contract, $135 million is under in the near-term development and then another $95 million is under contract, and those are operating properties mostly to user sales at about a 4% cap rate.

Thank you, Nick. Our next question comes from Brendan Lynch from Barclays.

I think in the past, you've highlighted that your port exposure is somewhat limited, and that was kind of limiting some of the tariff risks over the past year. Has your view evolved at all on that consideration? And do you see it as a potential catalyst if some of these tariffs are removed in the relatively near future?

Yes. I think overall, I mean, as we've talked about in the past, our tenant base is very much focused on the local consumption, and there hasn't been a direct -- we haven't seen as much of a direct impact from changes in port volumes. Port volumes year-over-year roughly flat in this market. All that being said, what I would say in terms of impacts of tariffs with our tenants is they have a very keen focus on their expense structures and driving operating efficiency. And I think tariffs are certainly playing a role in how they're making decisions. They're taking a more conservative approach to decision-making, and we're seeing this come through in some of their decision-making, either if it's around consolidation or space rationalization needs. And so yes, I do think tariffs are playing a role as our tenants are looking to drive operating margins and efficiencies.

Our next question comes from John Kim from BMO.

I wanted to ask on the roll down at Tireco of 30%, how that compares to the 12% roughly change in ABR. I'm wondering if this number is more of a net effective number that includes concessions? And if not or just generally, like how this transaction work in terms of concessions and maybe lower annual escalators?

Sure, John. This is Fitz. So the new lease shifted to a gross lease from a triple net lease. So on an apples-to-apples basis, the re-leases probably was an unfavorable 30%, including the rent and the triple net charges.

Our last question comes from Vince Tibone from Green Street.

Can you just walk through the expected sources and uses of cash for '26? So if you sell the $400 million to $500 million of properties this year with the guide, I'm just trying to get a sense of how much free cash flow after all development spend could be available to potentially buy back shares or redeploy in some fashion this year?

Yes. Good question, Vince. So at the end of the year, we had $166 million of cash, including disposed at the midpoint of $450 million, that puts us at $616 million of sources. The redevelopment -- I'm sorry, development and repositioning spend is expected to be about $203 million in 2026. So that leaves about $413 million of available cash to deploy to the highest risk-adjusted returns, and that can include share repurchases or future repositioning or development.

Thank you, Vince. That concludes the Q&A portion of our fourth quarter 2025 earnings call. I'd now like to turn the call back over to Laura for some brief closing remarks. Laura?

Thank you all for joining us today, and we look forward to connecting with you all over the quarter.

This will conclude today's call. Thank you all for joining. You may now disconnect.

Good afternoon. My name is Lacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rexford Industrial Realty, Inc. Third Quarter Earnings Call. [Operator Instructions] I will now hand the call over to Mikayla Lynch, Director of Relations and Capital Markets at Rexford Industrial. Mikayla, please go ahead.

Thank you, and welcome to Rexford Industrial's Third Quarter 2025 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-K 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. 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&A session following prepared remarks. It's my pleasure to now introduce Laura Clark. Laura?

Thank you, Mikayla, and thank you all for joining us today. I'd like to start by recognizing the Rexford team for their hard work and strong execution of our strategy. Third quarter results, which were ahead of expectations, are a testament to the strength of our business model and our focus on driving value. We executed 3.3 million square feet of leasing, nearly double last quarter and healthy leasing spreads.

Our performance demonstrates 3 broad themes that position Rexford to generate long-term value for our shareholders. One, our irreplaceable and high-quality infill Southern California portfolio; two, our ability to drive outperformance through strategic asset management powered by our vertically integrated team; and three, our focus on accretive capital allocation.

Starting with the performance of our portfolio and current market dynamics. Rexford's portfolio continues to outperform the broader infill market, and we are encouraged by improving tenant sentiment in the quarter. However, uncertainty around the overall macroeconomic environment and tariff policy remains, which could continue to impact tenant demand in an unpredictable manner. For the overall 1.8 billion square foot infill Southern California market, net absorption was nominally positive at 400,000 square feet in the quarter according to CBRE.

In comparison, net absorption in Rexford's portfolio was a positive 1.9 million square feet, equal to 380 basis points of positive net absorption. This reflects the solid execution by our team and the superior quality and functionality of our assets relative to the overall market that is generally comprised of older vintage inferior properties. Strong new leasing activity and healthy retention levels throughout the portfolio drove same-property ending occupancy to 96.8%, a 60 basis point increase compared to the prior quarter.

Leasing spreads for comparable leases were 26% and 10% on a net effective and cash basis, respectively, and in line with expectations. Additionally, bad debt levels are below historical averages at 30 basis points as a percentage of revenue year-to-date, underscoring the health and quality of our diverse tenant base. As it relates to market rents, Rexford's portfolio experienced a decline of 1% sequentially compared to the overall market decline of 2%.

Notably, this quarter marks an improvement with respect to sequential rent change compared to recent quarters within the Rexford portfolio as well as the overall infill Southern California market. While we cannot predict when market rents will reach an inflection point, the underlying supply-demand dynamics in our market remains strong with supply growth severely limited by scarce developable land and highly restrictive development regulations.

These supply constraints, combined with demand from the nation's largest regional zone of population and consumption in key growth sectors, including in aerospace, defense, manufacturing, consumer products and construction, to name a few, will continue to support favorable long-term industrial fundamentals.

Turning to our strategic approach to asset management that drives outperformance and value creation. Our vertically integrated team's on-the-ground presence and expertise enables us to proactively identify opportunities to capture tenant demand and drive occupancy. Through strategic asset management, we continually evaluate each property to determine the optimal value creation strategy, whether that be repositioning or redevelopment, leasing as is or disposing of an asset that strengthens and derisk our future cash flows and capital requirements.

For example, during the quarter, our team procured tenants and executed leases at 2 properties in the San Gabriel Valley, totaling 556,000 square feet. These properties have been previously slated for near-term repositioning and redevelopment. We also opportunistically disposed of a 76,000 square foot property in the San Gabriel Valley, which would have otherwise been a near-term redevelopment, unlocking an accretive capital recycling opportunity at an implied exit cap rate of 3.7%. The execution of our strategy on these assets afforded us the flexibility to generate near-term NOI, avoid additional capital investment and downtime while capitalizing on an accretive disposition.

Turning now to our capital allocation priorities. We continue to focus on allocating capital to drive the highest risk-adjusted returns while remaining cognizant of market conditions. We are pleased with our progress on repositionings and redevelopments, which continue to yield double-digit incremental returns. In the quarter, we executed 845,000 square feet of repositioning and redevelopment leases, bringing total year-to-date lease-up of our repositioning and redevelopments to 1.5 million square feet, representing $27 million of annualized incremental NOI.

Regarding dispositions, we sold 3 properties totaling $54 million in the quarter, bringing year-to-date dispositions to $188 million at a weighted average exit cap rate of 4.2%, with proceeds being redeployed into accretive share repurchases. We currently have $160 million of dispositions under contract or accepted offer. We have not closed any acquisitions year-to-date and have none under contract or accepted offer.

In summary, we're pleased with our performance in the quarter and are encouraged by improved leasing activity across our portfolio. We remain focused on strengthening our cash flow, accretive allocation of capital and expanding our operating leverage while maintaining a low levered, flexible balance sheet. We appreciate your continued support. And now I'll turn the call over to Fitz.

Thanks, Laura. Third quarter Core FFO was $0.60 per share, up $0.01 from last quarter, driven by higher occupancy and accretive capital recycling from dispositions and the share repurchases. Total portfolio occupancy, including repositioning and redevelopment, was up 260 basis points sequentially. Notable rent commencements included 500,000 square feet at 1601 Mission as well as 191,000 square feet at 218 Turnbull Canyon and 123,000 square feet at 8888 Balboa, the latter 2 being recently repositioned or redeveloped properties.

Turning to guidance. We are raising our full year 2025 core FFO per share midpoint to $2.40, up $0.01 compared to last quarter. The increase is driven by strong leasing activity, accretive capital recycling from dispositions and the share repurchases and higher capitalized interest. This is partially offset by projected lease-up delays related to repositioning and redevelopment projects. We also increased our same-property cash NOI midpoint to 4%, up 150 basis points from last quarter, primarily due to lower concessions within our same-property pool.

We continue to allocate capital with a focus on FFO and NAV per share accretion while preserving healthy levels of liquidity totaling $1.6 billion as of quarter end and maintaining a low net debt to EBITDA of 4.1x. During the third quarter, we executed $150 million of share repurchases funded by disposition proceeds, capturing a 200 basis point spread between the weighted average exit cap rate and implied FFO yield. Our Board also authorized a new $500 million share repurchase program, which provides us renewed capacity and the ability to remain opportunistic.

Turning to repositioning and redevelopment NOI. As of the third quarter, we have approximately $65 million of projected annualized NOI, of which $41 million is tied to projects that stabilized during the quarter or are in lease-up, with an additional $24 million related to properties under construction. This is offset by about $25 million of annualized NOI expected to come offline as future projects commence construction in late 2025 and throughout 2026. Importantly, these projects are expected to deliver incremental cash flow upon stabilization.

The off-line impact is largely driven by 4 assets: the Hertz site at 9000 Airport Boulevard, 9400 Santa Fe Springs Road, along with 2 obsolete office buildings, Herbalife at 950 West 190th Street and 600 Vermont Avenue. As we move forward, we will continue to evaluate the full range of strategic value creation opportunities for our assets, be it reinvestment, leasing as is or selling, while remaining disciplined and responsive to evolving market conditions and our cost of capital. This discipline has led us to release or sell certain assets that had otherwise been slated for repositioning or redevelopment, reducing future capital spend by about $40 million.

In closing, I want to thank our team for their commitment to excellence, execution and a winning attitude, which continue to be the foundation of Rexford's success. And with that, I'll turn the call back to the operator and open the line for questions.

[Operator Instructions]

I will now hand the call back to Mikayla Lynch to begin the Q&A session.

Our first question comes from Samir Khanal from Bank of America.

I guess, Mike, you talked about the 3.3 million square feet in the third quarter. How should we think about the run rate of that, right? I mean how much of that is sort of carryover from 2Q being that 2Q is low? Just think about -- just help us think about kind of the run rate and what's sustainable?

Samir, thanks so much for your question. Yes, we had a great quarter of leasing 3.3 million square feet, the highest actually leasing quarter in our history, strong positive net absorption, the highest ever as well, as we're seeing improved tenant decision-making across the portfolio and strong retention levels.

As we look at activity across our portfolio today, we have activity on about 80% of our vacant spaces. That's in line with activity levels at this time in the second quarter. So we are certainly encouraged by what we're seeing in the market. As I mentioned in my remarks, though, there continues to be a lot of uncertainty around the macroeconomic picture, volatility and tariffs. So it's challenging to predict the go-forward demand and what that could look like, but we are certainly encouraged by signs we're seeing in the market today.

Our next question comes from Michael Griffin from Evercore ISI.

I want to circle back, Laura, just to your comments on leasing and really I think driving occupancy as we saw with the sequential uptick this quarter relative to last. How should we think about the trade-off of boosting that occupancy maybe at the expense of some elevated concessions or the rent side? Or maybe walk us through those 2 pieces to how you solve for revenue growth going forward?

Yes. Thanks so much for your question. We have -- we've been communicating -- our strategy has been a focus on driving occupancy, driving cash flow and NOI. So in some cases, where we're able to capture immediate NOI from either dropping rate or other terms of the deal on concessions, TIs, we're going to take that approach.

In some cases, we are able to sign shorter lease terms, which allows us to get back to that space sooner. But across the board, the focus is on driving NOI and driving occupancy. I think most importantly, though, our buildings are of higher quality in the market, and our team is proactively driving demand today. And both of those factors are what are contributing to our overall leasing success that we've seen this year and certainly in the quarter.

Our next question comes from Mike Mueller from JPMorgan.

I guess going back to the redevelopment pipeline. When you sit there and look at everything today that's there, how much of it do you think could be sold off as you previously referenced? And on a go-forward basis, how are you thinking about what's the right level to have either under construction and in process at any given time?

Mike, nice to hear your voice. It's Howard. As far as -- I think you're asking about dispositions, and we continually assess our portfolio in the market for those opportunities, really where we can strengthen the quality and the growth profile and reduce risk. And we've been leaning into dispositions as we're achieving very attractive spreads there. We currently have about $160 million under contract or LOI, accept LOI. And on top of that, we've already closed a significant amount of acquisitions year-to-date, which in total brings to about $350 million. And there are opportunities in the portfolio well into the future that allow us to recycle capital at attractive spreads.

Yes. And then in regards to repositioning and redevelopment and the future pipeline, as I mentioned in my remarks, we're going to -- we evaluate multiple paths for every asset through our strategic planning process. We're focused on going the right -- taking the right path forward that's going to drive cash flow and position the portfolio for long-term growth.

So as we assess repositioning and redevelopment, we're assessing moving forward with those projects today, potentially pausing those projects, should we lease a property as is or should we sell a property. And so that optionality is what's allowing us to drive the optimal value creation strategy. And what -- it really comes back to we're going to continue to evaluate that ongoing forward strategy with our capital allocation framework in mind and to allocate capital to the highest risk-adjusted returns.

And Mike, the way we would like to think about in terms of managing the risk around it is based on square footage today. We have around 5.5% to 6% of our square footage is in redevelopment and repositioning. Our comfort zone on that front in terms of a range between 5% and 7.5%.

Our next question comes from Craig Mailman from Citigroup.

I guess maybe just a 2-parter here. I guess, number one, you guys are ramping up share buybacks here and dispositions. Have you talked to Elliott or has there been any communication? Is this part of their feedback here? And just also on that front, how much could you sell and be able to absorb gains without having -- to be able to absorb it within your current dividend versus having to special out part of the proceeds?

Craig, it's Michael. Thanks so much for joining us today, and thanks for your question, and thanks for your 3-part question, I think. Yes, we have met with Elliott, and we have a constructive dialogue with them as we encourage with all of our shareholders. And addressing your question around buybacks and whatnot, actually, that's a process that started almost a year ago. We announced it at the beginning of the year, and we were executing on it. Frankly, long before, we -- there was a rumor that Elliott had even become a shareholder. So certainly not a reaction to that.

Yes. And Craig, as far as dispositions goes, we're committed to being a bigger part of our fabric as we move forward in terms of capital allocation priorities. And today, we sold $190 million. We have another $160 million under contract, as Howard alluded to. In terms of tax gains versus losses in 2025, we don't expect to have to do a special dividend. But as we continue to evaluate the portfolio and dispositions going into 2026, we'll share more information whether or not there'll be a special dividend or not next year.

Thanks, Craig. Our next question comes from Blaine Heck from Wells Fargo.

Can you just talk about where you are with respect to credit and bad debt relative to expectations? And any visibility into how those metrics could trend throughout the rest of this year and into next? Any trends on the watch list?

Yes, sure. From a watch list perspective, Blaine, not much has really changed since the outset of the year. We have about 20 or so tenants on our watch and pre-watch list. The tenant health in our portfolio has been resilient and look no further than the bad debt levels that we've experienced over the last couple of quarters. In the second quarter, we had a negligible $100,000. This quarter, it was effectively 0.

As we look forward into the fourth quarter, we do have a reserve of about 70 basis points, which is obviously heightened in the second and third quarter, which equates to about $1.7 million of NOI. And that's just out of a bunch of caution. There could be upside there, but we're watching a few tenants within our watch list that could be disruptive in the fourth quarter. As we look out to next year, it's a bit early to talk about, but I think there's a possibility we can get back to more historical levels between 40 and 50 basis points of revenue.

Our next question comes from Vikram Malhotra from Mizuho.

I guess just one clarification and a question. The asset sales you mentioned, the 4.4%, I think, cap rate, I believe some of those assets were vacant. Do you mind just giving us a sense of like what the square footage or the occupancy of those assets were? And does that play into future sales? Meaning are you looking to sell vacant assets? And then just secondly, can you just confirm the mark-to-market? I think it's 0% or 1% cash mark-to-market. What does that mean for rent spreads into '26?

Sure. So the occupancy on the assets that we sold during the quarter were about 67%. But the cap rates that we quote within our disclosure based on market cap rates. So we do assume a market cap rate for those vacant assets.

And in terms of occupancy as well, I think this is kind of where you were going, the occupancy increase that we had. Sequentially, both on the same property and total portfolio, that was primarily driven by net absorption. We only had about a 10 basis pickup due to dispositions that we sold during the quarter.

Your other question on mark-to-market, yes, net effective this quarter was about 10%. On a cash basis, it's negative 1%. As we look forward, we could have pressure on our re-leasing spreads into '26 and '27. But here's how we're thinking about it. Here are some of the mitigants of Vikram. One, our lease maturity profile is fairly staggered, no more than 15% of our rent expires in any given year. And we have plenty of other cash flow drivers that we can pull, starting with repositioning and redevelopment.

As I noted in my prepared remarks a few minutes ago, we have $65 million of NOI tied to our repositioning and redevelopment. $12 million of that stabilized during the quarter with another $30 million tied to what's in lease-up, which is represented about 1.5 million square feet. We have 75% of activity on that space, meaning we're trading paper with tenants through LOIs and lease negotiations.

We also have other mitigants like accretive capital recycling. This year, we've showcased our abilities on that with dispositions and the share repurchases, and we are absolutely committed to that if the opportunities arrive going forward in 2026. And we're going to continue to drive operating margin. We made some tough decisions earlier this year with the reduction in force, reducing some of the comp there. And then we also had a reorg during the quarter with our asset investment management team. So we're very focused on operating margin as well. So we have multiple levers to pull to drive our cash flow from an FFO per share perspective and create NAV.

Our next question comes from Greg McGinniss from Scotiabank.

How did the assets that stabilized in Q3 at that 4.4% yield compared to the initial underwriting when they were put into the pipeline? And how have you adjusted assumptions for assets currently in the pipeline? And how should we think about targeted yields going forward?

Yes. Thanks so much for your question. In terms of -- we've stabilized 14 properties year-to-date with an average yield of 5.8%. And as you mentioned, in the quarter, we stabilized 7 properties at a 4.4% yield. Look, admittedly, some of these yields are not meeting our expectations, given the overall market conditions and the decline in rents that we've seen in the prior 2 years.

We're certainly very excited about the superior positioning of these properties within the markets and their prospects for outperformance over the medium to longer term. So these properties are the highest quality and functionality in their submarkets. They're unmatched when compared to the overall older vintage product in the market. And importantly, these projects are contributing an annualized $12 million of NOI.

But as we think forward, we're certainly committed to allocating capital to the highest risk-adjusted returns. As we look at yields going forward, we're adjusting yields based on what the rents in which we can achieve to date. And we're going to make capital allocation decisions based on -- going forward, based on where we can allocate capital to those highest risk-adjusted returns. And if needed, we'll pause future projects and could potentially dispose of projects if they don't meet our criteria.

Our next question comes from Rich Anderson from Cantor Fitzgerald.

So could you maybe hazard a guess, let's assume for a moment, you're bouncing at the bottom now and everyone wants to see an inflection up consuming most of all you guys. But when you take into account supply coming down, sort of flattish market rent growth sequentially, a little bit negative; tenant sentiment just generally in the marketplace; maybe some influence on China and port activity, even though you're not a port-centric story.

Like how quickly can we pivot from bottom flat sort of sitting along the bottom to actually seeing a growth trajectory start to materialize? Is that -- like in your history in this market, do you see that as a year, 2 years, 6 months? I mean, what -- how would you sort of characterize when we could return to a story of growth here versus sort of finding the bottom?

Rich, it's Michael, and thank you so much for that good question. I think in part, you answered your own question, and I'll add to it. And it really starts with a very favorable market backdrop. Overall market vacancy is about 5%. However, and importantly, when you drill down and look at the high-quality, well-located product that's comparable to our portfolio, that market vacancy is substantially lower. And so the backdrop is very strong. And overall tenant health is holding very well. Within our 51 million square foot portfolio, for example, tenant bad debt was essentially 0 for the quarter. And we're also continuing to see a range of drivers of demand that are very favorable.

Obviously, there's some pent-up demand that came back to market. But more importantly, we're seeing a lot of incremental demand from a wide range of industry sectors. Laura named several of them, just to name a few. Interest rate environment is helping us. And I think some business leaders, to your point and question, have become somewhat desensitized around a constantly changing tariff environment and maybe they're feeling it's time to get on the business.

But I think most importantly, and then I'll come to the -- to your last question, tenants are driven to our portfolio for 2 key factors. As Laura mentioned, it's the superior quality and functionality of our product, and it's the entrepreneural approach by our unique team who are proactively capturing and catalyzing incremental tenant demand and leases that enable us to outperform in our markets. And so I think all these things are painting a positive picture and backdrop, and we're very encouraged about what we're seeing, et cetera.

But the ongoing macroeconomic and geopolitical uncertainty, makes it really impossible to predict the forward arc of recovery or exactly when the inflection point for rents may occur. But I can tell you, and as Fitz mentioned very eloquently, we have many drivers of growth within the portfolio. So irrespective of what market rents do in the very near term or even medium term, the company is very well positioned to capitalize on our substantial embedded NOI growth as we move forward.

Our next question comes from Nick Thillman from Baird.

I appreciate the added disclosure on the upcoming repositioning and redevelopment. Just for clarification on the mark-to-market, that excludes all redevelopment and repositioning and future redevelopment. And then as we look at just the overall projected square footage of like 2.3 million square feet, what is the actual amount that is currently in place as a square footage amount and the occupancy as we kind of are looking at what's going to be rolling out of just expirations in late '25 and 2026?

Yes. So the negative 1% excludes anything from repositioning redevelopment to answer your first question. And the way I would think about the building blocks for repositioning and redevelopment, I go back to my previous comments there, Nick, is $12 million of the $65 million that we have in future projected annualized NOI with repo and redev stabilized during the quarter. So that will come online in the fourth quarter. And then we also have another $30 million that currently is tied to about 1.5 million square feet that is in lease-up that we expect to come on in the near term. And then we have about $20 million -- plus $20 million or so that's related to projects that are currently under construction. So it's a bit longer dated, coming online late in '26 and '27.

Our next question comes from Jon Petersen from Jefferies.

Great. I was hoping we could talk about G&A levels. I know as a percent of revenue, it's a bit above the peer group. I know there's been some efforts though to control that in 2025. So just curious if you could maybe give us your longer-term vision as we start to think towards '26 and '27, how you're trying to trend that expense line?

John, it's Michael, and thank you so much for joining us today and for your question. And this is really front and center for the company. If you look back to our transcripts of our IPO, we described this business as one that should drive significant operating leverage as we grow and scale the company. And we're super pleased that the company today is at a scale where we can really double down on that focus, and I think you've seen great progress this year.

For example, you saw, I think, about 17% NOI growth year-over-year from last year with 0 G&A growth this year. And we've talked a lot this year about some of the initiatives internally. Fitz described some of them a few minutes ago. And those are really designed to continue to drive efficiency and more importantly, effectiveness as we move forward. And so I think we see a lot of opportunities as we move forward. Obviously, we're not going to provide guidance into the future years around G&A, et cetera, but we're pretty optimistic there.

Our next question comes from John Kim at BMO Capital Markets.

Just a follow-up on Elliott. Was there any topic discussed that was maybe surprising to you or different than you've had with other shareholders? And are they still a major shareholder of the company today?

John, it's Michael, thank you so much for joining for the question. We really aren't in a position to comment on the nature of discussions that we're having with any of our investors. Above all, we think they generally don't appreciate that. And so I'm afraid that that's pretty much all that we can comment on.

Our final question comes from Brendan Lynch from Barclays.

You mentioned that you have kind of been leaning into occupancy versus pushing rate for a while now. Maybe you can just talk about where you fall on that spectrum now relative to the past 18 to 24 months?

Yes. I mean it's a great question. And I would just say today and throughout the year, that's been our focus. So I wouldn't say that, that focus has shifted more so today versus it did at the beginning of the year. Where we can capture immediate NOI today, we'll make those decisions. And like I said earlier, whether it's around rate, term, TIs, rent steps, we do believe that driving cash flow today is a really important focus.

That concludes the Q&A portion of our earnings call. I'd now like to turn the call over to Laura Clark for closing remarks.

In closing, Rexford's third quarter results underscore the strength of our platform and high-quality infill portfolio, strategic approach to value creation and our focus on accretive capital allocation to deliver long-term shareholder value. Thank you all again for joining us today.

This concludes today's conference call. You may now disconnect.