Rexford Industrial Realty, Inc. (REXR) Q1 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to Rexford Industrial Realty First Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Kosta Karmaniolas, Senior Vice President of Corporate Finance and Investor Relations. Thank you. You may begin.

Thank you for joining Rexford Industrial's First Quarter 2021 Earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package in the Investor Relations section of our website, www.rexfordindustrial.com. Joining today's call are Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer; along with Chief Financial Officer, Laura Clark; and General Counsel, David Lanzer. Before we begin our prepared remarks, I would like to remind everyone on today's call that management's remarks and answers to your questions contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our 10-K and other SEC filings. Rexford Industrial assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call represents non-GAAP financial measures. Our earnings release and supplemental package present GAAP reconciliation and an explanation of why such non-GAAP financial measures are useful to investors. With that, it is my pleasure to hand the call over to Michael.

Thank you, and welcome to Rexford Industrial's First Quarter 2021 Earnings Call. We hope you and your families are well. Today, I'll begin with a brief overview, Howard will then cover our transaction activity and Laura will discuss our financial results. We will then open the call for your questions. With regard to the first quarter, we are pleased with our exceptional results. From an operational perspective, a robust 2 million square feet of leasing drove 98.3% occupancy in our [indiscernible] portfolio. Re-leasing spreads continue at record levels, averaging 33% cash and 47% on a GAAP basis. Our extraordinary internal growth, coupled with our strong investment volume, resulted in year-over-year core FFO growth of 29% and 12.1% on a per share basis. As we look forward, infill Southern California appears positioned to outperform. UCLA Economists project California will grow faster than the rest of the United States, driven by a diverse range of growing business sectors combined with lifting of some of the nation's most constraining pandemic restriction. Moreover, e-commerce continues to surge, representing more than $1 for every $5 spent on retail purchases. First quarter port volumes exceeded pre-pandemic levels, with imports growing 25% compared with the first quarter of 2019. Moreover, with unprecedented tenant demand, Rexford's last mile portfolio is positioned to outperform within our markets due to our focus on the best locations delivered with superior functionality. Within our infill markets, a dearth of developable land and high barriers constrain new construction, resulting in essentially no ability to introduce any material volume of net new supply. In fact, our infill markets continue to lose supply on average year-over-year. Consequently, CBRE projects greater Los Angeles rental rates to grow at a rate that is 2.5x greater than the remaining major markets outside of Southern California into the next 4 years. With an incurable supply demand imbalance, the infill Southern California tenant base continues to prove itself as the strongest, most resilient and highest demand tenant base in the nation. Looking forward, the company is positioned for favorable internal and external growth. Overall, we project approximately 18% of embedded NOI growth equal to $54 million within our in-place portfolio, assuming no further acquisitions over the next 18 to 24 months. Regarding external growth, the company has perhaps never been better positioned as our research and local relationship-driven origination methods enable us to harvest a proprietary pipeline of investment opportunities. We are well positioned to grow accretively, significantly beyond our current 1.7% market share within the infill Southern California, the nation's most highly valued industrial market. Regarding our Rexford team, this past March marked 1 year since we began working remotely. We are truly humbled by the extraordinary manner with which our Rexford team rose to the task despite many hardships to perform at the highest levels within the entire real estate industry. We'd like to acknowledge and thank the Rexford team for your tremendous dedication, entrepreneurial spirit and market-leading performance. And with that, I'm very pleased to turn the call over to Howard.

Thank you, Michael, and thank you, everyone, for joining us today. Market fundamentals in infill Southern California continued with unprecedented strength in the first quarter despite impacts associated with the pandemic. Vacancy tightened and demand accelerated as a diverse group of growing industries and e-commerce companies absorbed warehouse space at a torrid pace. Over the past 12 months, according to CBRE, our infill markets experienced strong rental rate growth with asking rents up 4.9% on a weighted average basis. For further perspective, based on our internal portfolio analytics, we believe market rents increased by an estimated 9.3% over the prior year for comparable product within our target infill Southern California markets. Our target markets, which exclude the Inland Empire East, ended the first quarter at 1.9% vacancy. By comparison, our same-property portfolio ended the first quarter with 98.6% occupancy, outperforming the market by 50 basis points, a testament to the high-quality of the Rexford portfolio, our strong tenant retention and elevated new leasing volume. Of our top 20 largest expiring leases this year, approximately 80% of spaces, representing 1.4 million square feet have already renewed, been retenanted or are in lease negotiations. The remaining 675,000 square feet of top 20 spaces are headed for value-add repositioning and future lease-up. A recent leasing example in our San Gabriel Valley portfolio demonstrates the strength of our market. During the quarter, our tenant occupying about 150,000 square feet was dismayed with a higher renewal rate and spent months of searching for alternative, less expensive space. Unable to find any similar functional space, the tenant finally renewed with us, but at a rent that was a full 21% higher than our original proposal had they not waited. In the end, we generated a cash re-leasing spread of 95%. This is representative of the unprecedented pace of rent growth within our infill markets and set another record for all-time high rent for the submarket. In addition, we obtained 3.25% contractual annual rent increases through the term of the lease, which exceeds the 3% historical standard for our markets. As a general note, we are increasingly pushing our annual rent bumps above 3% and in some cases, as high as 4%. Year-to-date, we completed 11 acquisitions, which included 807,000 square feet of buildings including 26.9 acres of low coverage outdoor storage sites and land for future redevelopment for an aggregate purchase price of $191 million. 82% of these transactions were off-market or lightly marketed, enabled through our proprietary research-driven sourcing methods. These investments are projected to generate an aggregate 5.2% or greater stabilized yield on total investment and provide strong value-add cash flow growth over time, initially contributing about $0.02 of FFO per share through the remainder of 2021 and growing to about $0.09 per share after repositioning or redevelopment. We currently have over $450 million of acquisitions under LOI or contract. These acquisitions are subject to customary due diligence with no guarantee of closing. We will keep you apprised as transactions are consummated. On the disposition front, we sold 2 properties totaling $21 million in the San Fernando Valley and Inland Empire East submarkets. The proceeds were used to tax efficiently fund, a portion of our acquisition activity. Moving forward, we expect to continue to sell assets opportunistically to unlock value and recycle capital. Turning to repositioning and redevelopment activities. We have over 3 million square feet of current and planned value-add projects throughout our portfolio. Of these, 1.3 million square feet of current projects in repositioning, redevelopment or lease-up, which are detailed in our supplemental, are estimated to deliver an aggregate return on total investment of 6%. These projects are expected to deliver a substantial value creation as our stabilized yield represents more than a 200 basis point premium compared to the sub-4% market cap rates that they would be valued at in today's market. And with that, I'm pleased to now turn the call over to Laura.

Thank you, Howard. I'll begin today with details around our operating and financial results. In the first quarter, stabilized same-property NOI came in ahead of our forecast with 6.8% growth on a GAAP basis and 8.2% on a cash basis, driven by a 40 basis point pickup in average occupancy and strong re-leasing spreads. Rent collections were over 98% of contractual billings in the first quarter, essentially at pre-pandemic levels. Since the pandemic began, we have provided tenants a relatively nominal amount of rent deferral totaling $4.8 million, representing about 1.5% of ABR, and we have collected over 96% of deferrals billed to date. We currently have only $535,000 remaining to collect in 2021. In addition, bad debt came in better than expected at 50 basis points of revenue. This quarter's lower bad debt levels are reflective of the health of our tenant base as well as the proactive efforts of the Rexford team. As we discussed last quarter, our team is successfully recapturing below-market rent spaces and re-tenanting at substantially higher rent. The combination of strong results generated core FFO per share growth of over 12% or $0.37 per share in the first quarter. Turning now to our balance sheet and financing activities. We are maintaining a best-in-class, low leverage balance sheet, which allows us to be opportunistic during all phases of the capital cycle. At quarter end, net debt-to-EBITDA was 4x, coming in at the low end of our target range of 4 to 4.5x with net debt to enterprise value at 13%. During the quarter, we raised $197 million of equity through the ATM program at an average price of $50.10 per share. $77 million of the total was issued on a forward basis, with settlement to occur within the next 12 months. Proceeds from this quarter's ATM activity were used to fund first quarter acquisitions as well as those identified to close later this year. As of March 31, we had approximately $124 million of cash on hand. We remain in a strong liquidity position with no debt maturities until 2023 for full availability on our $500 million credit facility and approximately $524 million available under our ATM program. Turning to guidance. We are increasing our full year projected core FFO per share range to $1.41 to $1.44. Our revised midpoint represents 8% year-over-year growth. As a reminder, and consistent with our prior practice, our guidance does not include acquisitions, disposition or balance sheet activities that have not yet closed to date. Other notable components of guidance include: an increase to our stabilized same-property NOI growth by 75 basis points at the midpoint to 3.75%, 4.75% on a GAAP basis and 6.75% to 7.75% on a cash basis, driven by our strong first quarter performance. Updated guidance includes the assumption of bad debt expense as a percent of revenue of 110 basis points for the full year, a reduction of 15 basis points from our previous fields. We are increasing our expectation for average occupancy in the stabilized same-property pool to a range between 97.25% to 97.75%, up 25 basis points at the midpoint, driven by our robust first quarter leasing activity. We included a guidance roll forward in the supplemental package that further details the components of our 2021 core FFO per share guidance. Before turning the call over for your questions, we are excited to announce that we will be publishing our annual ESG report at the end of the month. At Rexford, we are committed to optimizing positive impact to the environment, our communities, our tenants, employees and shareholders. This completes our prepared remarks. We now welcome your questions.

[Operator Instructions] Our first question comes from the line of Emmanuel Korchman with Citi.

Maybe this is one for Howard or Michael. You've had a little bit of success with doing some unit deals to get transactions unlocked amongst the pipeline you talked about. Are there unit deals included in that? Or are those all going to be sort of straight cash sales?

Manny, it's Howard. It's nice to hear your voice. Yes, the $450 million pipeline, there are some discussions within that, but it's funny, a lot of times, they just turn into cash deals. So it's hard to comment really specifics right now on it. But the UPREIT transaction pipeline has been growing. There's a lot -- we consummated last year, and we're optimistic of being able to talk more about future upgrade transactions as well.

And then you guys talked about 18% embedded NOI growth that's exclusive of sort of just rental rate mark-to-market, right? That's just if all the developments come in the way that you expect and annualizing sort of the growth from closed acquisitions, that gets you to the 18%, right?

Manny, it's Michael. Great to hear from you and thanks for joining today. So that -- yes, it includes more than just the mark-to-market. So it includes also the repositionings, contributing about $32 million, $33 million of the $54 million. In fact, leasing spreads are only contributing about $17.5 million of that $54 million.

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

So we continue to hear about the wall of capital chasing industrial product. Can you just talk a little bit more about the overall competitive environment in Southern California in your markets in particular? And have you seen any change in interest as cap rates have compressed to really historic lows here?

Blaine, it's Howard. I guess, looking back over many cycles, we've always had quite a bit of capital interested in penetrating into the Southern California marketplace. It's difficult because there's not a lot of transactions that are out there on an actively marketed basis. So people do have the difficulty penetrating. So at this point in the cycle is no different than the past. Some of the names have changed, some of the different capital sources, obviously, are shifting over and really -- it's really a testament to our unique access to the market where we focus on off-market and lightly marketed transactions as well as occasionally being on market product last quarter, I think over 80% of our transactions were off-market or lightly marketed. And so it's interesting, most of that capital out there really never even had a chance to compete with what we're buying. So really, nothing new. And there's no secret, Southern California is the best industrial market in the country. So there's plenty of capital that's always look to place in our markets.

And Blaine, this is Michael. I'll just add a little more perspective. We have seen a rotation from certain investors that might have targeted other asset classes, retail, et cetera, who have increasingly come into approach industrial. And so there's certainly more competition, as Howard indicated. But what's really interesting about our business is if you look at the trend line for Rexford over the prior 8, 9 years, our percentage of transactions through off-market and lightly marketed transactions has actually increased despite there being more competition in the market. And so 5 years, 6 years ago, we were probably around -- hovering around 70% off-market or lightly marketed deals. And today, this year, we're over 80%. Last year, we're close to 80% despite increased volume of activity as well at Rexford. So I think that really tells the story. We are just digging deeper into the markets. We're better at what we do. We're leveraging better technology. Our team is further developed, and we are just penetrating deeper and deeper into the marketplace.

Yes, that's really helpful. And I guess just related to that, and given how cap rates have continued to compress. You guys certainly have your pick of capital sources. But are you thinking any more about opportunistic dispositions? Would you guys consider selling a small portfolio of assets given where valuation is?

Well, we're always looking through the portfolio. Most cost of our sales tend to be more opportunistic. And if you look at the overall portfolio, the mark-to-market is about 11% in terms of where we sit below market and lease rate. So there's always plenty of upside in our assets. And it's funny, we look back at a couple of things even today that we've been considering selling even just a year ago, and the rent growth that we experienced in those assets is astounding. And so that value creation is very strong. So we really tend to really more focus -- have more focus on just the opportunistic sales that they tend to outperform a cap rate-type sale or maybe another reason or 2, sometimes something is a little bit more management intensive or we don't see rents growing as quickly and something we might consider selling.

And maybe I'll just add, again, this is Michael, to that. We're getting to a point where Rexford's scale in the marketplace and supporting different levels of opportunity for both Rexford and our customers. And I'll give an example of that, for instance, we recently -- I might have mentioned on a prior call that we established a new customer solutions function at Rexford. And we're able to look at the market and offer our customers and prospective tenants, a much more strategic opportunity throughout Southern California. And so today, we're talking to tenants, not just about 1 space, but we're talking to them maybe about their needs for 20 spaces or 30 spaces throughout the region. And also, as a company, the scale is really beneficial in terms of achieving greater operating leverage within the portfolio. So I think you're going to start to see Rexford's operating margins really start to accelerate over the next, call it, 12 to 36 months as the platform is fully built out, and you're not going to see a lot of the heavy expenditure incrementally in the platform as we move forward. So I think that's a really exciting time for the company. And by the way, Howard mentioned the mark-to-market. But if you look at expiring leases, this -- through the end of the year, the mark-to-market is around 20%. And that's typically what we found, given the rate of market rent growth that as we approach next year, that mark-to-market will probably be higher than the 11% that we might be projecting out in the portfolio as a whole as well. I think currently, we're looking at about 14% for next year. So a lot of [indiscernible] growth.

Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.

Great. I was just hoping to get a little bit more color on how the type of tenants leasing space has changed even into the first quarter? I assume there's been kind of a change in the type of tenant based on the fact that we're kind of coming off the bottom. And then also, if you can just address the bad debt expense and just kind of any lingering downside to that? Or kind of how your approach has changed there as well?

Jamie, I just want to understand the first part of your question, change in tenant demand. Maybe I missed the question by business type, are you saying, what is the nature of that demand?

Yes, just the types of industries and the types of businesses that are leasing space today or have become more active over the last 3, 4, 5 months as things have started.

Yes. Maybe I'll touch on the first part, and Laura, you can touch on bad debt. And actions, now that we're coming off the bottom. And what's really interesting in infill Southern California was that starting in June of last year, still early stages in the pandemic. Leasing activity really started to accelerate very dramatically after a very brief pause of, say, March, April, May. And so we really started coming off -- if there was a bottom. Much earlier in the cycle in infill Southern California. And tantamount as Howard described, is really continue to accelerate beyond levels that we've ever seen in our 30-, 40-year careers here. And truly driven by a pretty broad range of industries, everything from food, consumer products and staples, health care and health care products, pharmaceuticals, as you'd expect, but also aerospace and space technology, mobility and electric vehicles and all these sectors, probably they represent ecosystems. So it's not just electric vehicles, but it's the suppliers of all the components, the batteries, et cetera. It's the service centers that supply in those sectors, for instance. And so it's been an extraordinarily broad-based set of demand drivers from an industry perspective. And then you have e-commerce, of course, layered in, which we all know what's happened with e-commerce. But I think based on what we're seeing in the market, there's reason to believe that we're still in the early stages of the impact from e-commerce as it's going to impact our markets in a very positive way. And just a couple of indicative examples. People talk a lot about Walmart, Amazon, and how they're penetrating these infill markets. But they're using the spaces differently. They bought Uber like company not too long ago, and they're using these vehicles and vans to distribute locally. It's much more efficient than trucks. And now you've seen Walmart do the same. And now there's an announcement last week that Target is doing the same. And they're establishing these sortation centers that are going to be in our warehouses, very local and close to the end points of distribution. And so you're really seeing the initial stages of a wave of impacts to the e-commerce-driven demand for our product. And it also is impacting the way they use it, the way that these properties are configured. And frankly, it plays exceedingly well into what Rexford delivers to the market. So we're -- we couldn't be better positioned.

Yes. And I'll answer on one other comment around demand from different industries. I think we also are starting to see demand come back in some of those sectors that have been slower to reopen in California. Entertainment is one of those. Actually, this quarter, we signed a lease with the tenant that's going to use space for studio production. And they're going to invest between $5 million and $10 million to convert this space. So it's good to see some of these industries that have been shut down and that have been operating in unlimited capacity starting to come back to market and seeing demand from those sectors as well. In terms of your question around bad debt, and let me -- I'll speak a little bit about the drivers for Q1 and then talk about full year expectations. So bad debt for the quarter, as I mentioned in the call, was 50 basis points of revenue. The decline in bad debt this quarter as compared to the full year of 2020, which was around 150 basis points. The decline this quarter was primarily related to unanticipated payments by a handful of our watch-list tenants. And this resulted in cash recovery or positive impact to bad debt for the quarter. So excluding these unforeseen cash recoveries, our bad debt expense would have been about 125 basis points, which is in line with our full year, which was in line with our prior full year guidance. So in terms of our revised bad debt forecast of 110 basis points for the full year. It's really capturing that Q1 pickup in bad debt or better-than-expected bad debt in Q1. A little color around those cash collections. They really came from tenants that are in categories that have been slower to reopen, entertainment being one, travel-related industries being another. And we're certainly optimistic that these tenants are going to be able to fulfill their rent obligations once they're operating. It's challenging to forecast the ability of these tenants to pay rent consistently in the near term, especially given the fact that we're still -- moratoriums are still in place, they give tenants the unilateral right to defer rents. So and as moratoriums are set to lift in the of June. But as we all know, they've been pushed back several times. So with 3 quarters remaining, there's moratoriums in place, we're being cautious and prudent with our bad debt forecast as we look through the next 3 quarters.

Okay. That's very helpful. And then going back to the cap rate discussion, can you maybe talk about what you think cap rates actually are across your different submarkets? And then, I guess, even more importantly, what assumptions do you think people are underwriting to get to those numbers?

Yes. No, that's a great question. So we've obviously seen some cap rate compression on marketed transactions, especially when you have quality assets with tenants on longer-term leases. And today, those transactions, not unusual to see sub 4%. And I think when you say what are some of the underwriting assumptions, Rexford underwrite cap rate expansion in our acquisition. So we don't assume that we're going to exit anywhere close to where cap rates are in the marketplace today. But what we do hear is that there's a lot of allocators, capital allocators out there that underwrite very similar cap rates at exit. So really having strong expectations of continued performance in the marketplace. But yes, and of course, as you know, Jamie, we're really not cap rate buyers. We're really more focused on where we're able to stabilize assets over the near-term, short-term periods of time, and you've obviously seen the results of that in terms of our repositioning pipeline. I mentioned on the prepared remarks, those assets that we're stabilizing over the near term looking about a 6% stabilized yield on total costs, which is creating substantial value compared to where these assets would trade today in the marketplace.

And what do you think people are assuming for NOI growth or rent growth?

I think if you talk to brokers out there, it's higher single-digit growth over the first year here, something not too different maybe into next year and then dropping down into maybe a bit above 3% for the next year or 2. We're not underwriting that aggressive of rent growth in our acquisitions. We still would rather be pleasantly surprised as opposed to pricing to absolute perfection in how we buy our product.

Our next question comes from the line of Connor Siversky with Berenberg.

Thinking about one of the peers' calls from earlier this week on the development repositioning pipeline. I'm wondering if you're expecting any disruption here from rising cost of inputs, steel specifically? And if you could add some color on how you're approaching procurement in the current environment?

Sure. Connor, nice to hear from you. What we're seeing out there is really some disruption on larger projects. There are shortages of steel and some of the other commodities used in the constructing buildings. But what's interesting is that in the middle of the pandemic, we saw construction costs actually go down. We actually had some rebidding of some of the projects that we were doing and locked in some real favorable pricing. And so what we are really looking at internally is we're seeing construction costs coming up off those lower numbers. So not too far different than where we might have been projecting maybe about a year ago. But that said, we are projecting some higher cost increases in our underwriting today, just to be safe. We kind of -- we view some of this disruption and something maybe over the next 6 months to a year. Interestingly, though, on our smaller projects that are less than $1 million, we're not seeing really any significant pricing fluctuations and we attribute that perhaps to a lot of other contractors coming into the space, having shifted out of other product categories. So they're being more competitive in order to win jobs from us. So hopefully, that helps you.

That's very helpful. Are you seeing any delays in schedules or not yet?

Not necessarily. I mean, a little bit, we've adjusted on our repositioning page, some of the projected completion dates because of some of those projected delays. But at this point, nothing dramatic that I could point to.

Okay. Fair enough. And then one last one for me. Apologies if I missed this earlier. But on the remaining lease roll for the year, I think it's 11% of ABR. Is there any sense of timing, whether this is back-end weighting or spread throughout the next 3 quarters?

Yes, Connor, I can take that. About 43% of our lease expirations are in the fourth quarter. And that's certainly impacting our occupancy assumptions as we have less visibility into those expirations. So as we get -- as we move through the year and we get more visibility, we'll provide updates around our assumptions around lease-up and timing as we move through the year.

Our next question comes from the line of Dave Rodgers with Robert W. Baird.

Howard and Michael, I heard in your prepared comments, I think you said 9% market rent growth for your targeted submarkets. I guess I was wondering if you could bookend that a little bit by geography for you guys or maybe the submarkets that you think are performing well and aren't and how they compare to that overall average? And I guess with the rent growth that you're seeing, is there any push in the market for longer-term leases, I guess, mostly by the tenants, I would assume?

I'll give you a little color on some of that rent growth that we're seeing. If you look from a county standpoint, the largest rent growth that we saw was in the San Bernardino area, which covers the inland in Part West. Internally, that looked like it was in the mid-teens followed by Orange County had very strong rent growth. In terms of, interestingly, the size spaces that we're seeing the rent growth, it's pretty well dispersed. I think the largest rent growth we're seeing was in the low -- it's about a little over 11% in the 100,000 foot in greater category. And the next strongest was just even smaller space, 5,000 to 20,000 foot space is a bit over 10%. What's very interesting, though, Dave, is that we've seen an acceleration in rent growth just over the last quarter within our mark-to-market on the portfolio as looking more like 4% growth from the end of Q4 through Q1. So that has every indication of continuing throughout this year as well in terms of the strength of that growth. I'm sorry. You had one other part to your question was, what was that?

Just on the lease terms, the length of the lease terms, any push for tenants to get that out longer given the rent growth you are seeing?

Yes. Well, this is certainly a time in the cycle for us to try and lock in some longer-term leases based on these record-selling lease rates that we're achieving and as well as what lends further comfort for us to push those terms is the larger rent increases that we're now able to capture in the leases. I had mentioned earlier that we were achieving above 3% and even pushing now to 4% in many projects. So we don't have as much of a concern about being a bit behind in growth on a longer-term basis. Also, tenants certainly recognize that we just have a shortage of space in the markets, and they're more interested in the controlling space for a little bit longer period of time than they might have in the past. But overall, in terms of what you saw for the lengthening of our term, a lot really could be attributed to just the average size lease that we completed in this past quarter, it was about 50% higher than the average size based leasing in Q4. And so when you do the math, that sort of attributes as well to the increased term average [ spend ].

Great. That's helpful. And maybe one follow-up for Laura, if I could In the FFO roll forward that you provided, which was helpful. Thanks for doing that, Laura. I was curious on -- I think you bought the $160 plus million of assets had about a $0.02 impact, but you sold $20 million and you had kind of a negative $0.01 in there for that. Anything in particular with those assets that maybe had an outsized negative contribution, again, realizing it's just $0.01, but I was just kind of curious on the delta in those numbers.

Yes. I think it's more related to -- more of a function of what we've acquired year-to-date, which is $191 million, and that includes the subsequent to quarter end acquisitions. So as you mentioned, we're estimating that these acquisitions will contribute $0.02 per share. As we discussed in our prepared remarks, our acquisition activity to date is very heavily weighted towards value-add and core plus properties and with an expected yield, a stabilized yield of 5.2%. So that FFO per share contribution is expected to grow over time and grow to $0.09 per share and will certainly contribute to our long-term embedded NOI growth prospects.

[Operator Instructions] Our next question comes from the line of Chris Lucas with Capital One Securities.

A couple of quick ones and then a bigger picture question. So Laura, I just wanted to go back to you on the bad debt for the first quarter, was that the improvement over expectations related to prior period recoveries? Is that specifically what it was?

It's related to cash collections that we received from tenants that are on the watch-list. So prior reserves. And we received amounts owed by those tenants.

And that is -- so that's -- so that's a cash basis tenant kind of paying in the current -- for the current period?

That's correct. Yes, that's correct. Correct.

Okay. Okay. Okay. Great. That's helpful. And then, Howard, I guess, just thinking about the lease expiration schedule. Are there any major known move-outs at this point?

We've handled the predominance of our larger expirations at this point. And we're sort of -- the back to where we always went up, where it's really just blocking and tackling on moderately sized spaces.

Okay. And then just taking a step back, both Howard you and Michael have talked about the last mile nature of your portfolio. I guess I was curious as to whether you've broken down your ABR exposure between those sort of tenants that are servicing the local economy, however you want to define it, versus those that use are in your portfolio that have a multiregional or multistate sort of reach?

The predominance of our tenant base is really regionally focused. And I think that's a function of many decades actually of the evolution of the tenant base in infill Southern California. So it's not unique to the Rexford tenant base. And it's not just consumer distribution, but it's also business to business. This is the largest economic zone in the nation by a fairly substantial margin, largest regional population in the nation and the most diverse economy in the nation. So it's its own country, I think it'd be one of the largest countries in the world. So it's really more of a predominantly regional focus. And by the way, by way of indication, we're not as port driven as your big box properties out in the east Inland Empire or in Arizona. But it's estimated that upwards of 50% of the product imported through the 2 ports -- the 2 largest ports in the country, Valley and Long Beach are consumed or distributed regionally. So it just gives you a sense for the size of the regional economy. So the predominance is really regionally focused.

Our next question comes from the line of Mike Mueller with JPMorgan.

Yes. I guess, Laura, on the bad debt recovery, how significant was that? And just ask me because if you take the $0.37 in the quarter, annualize that, you're already well north of the range?

Yes, absolutely. That's a really good question. So as I mentioned, those cash recoveries offset our bad debt expense. So had we not have this cash recoveries or bad debt expense would have been closer to 125 basis points for the first quarter as a percent of revenue. In terms of your question on annualizing that $0.37 for the full year, first quarter included a few items, first is the impact of that lower bad debts that I just talked about. The second is a pickup in average occupancy, and that's offset by some nonrecurring G&A expense that incurred in Q1 as well. So these items together equate to about $0.015 per share. So if you use that as a run rate and if you use that as a run rate, you can get to the midpoint of our full year guidance.

Got it. Okay. That makes sense. And then I guess on the shadow redevelopment repositioning pipeline of 1.7 million square feet that's not processed. Can you give us a rough sense as to how soon that could go into process and what an incremental investment could look like [ upward ]?

Sure. Maybe I'll just mention a bit about the projects and Laura, you might want to add some color on some of those costs. We will be starting quite a few projects before the end of the year. I don't think at this time, we're prepared to give you any specifics around the square footage of those might be something that we talk about more offline in detail if you'd like to drill down project by project, but we're optimistic to have some further starts, and we'll update you more on the next quarterly call as we know more about timing lacking on those starts.

By the way, the 1.7 million square feet, only about 570,000 square feet are really future repositionings. And the rest of it, you can kind of see the target completion dates, the majority of it on our supplemental stage.

Yes. And I would add also that we expect lease-up of some of the current repositioning work of about almost 1.2 million square feet through the end of 2021.

Yes. One more add there, Mike, is that our -- on our repositioning page, we do provide the projected repo cost on those repositionings and redevelopments. And so for our pipeline, if you total those together, it's about $180 million.

Yes. And I'd say that just looking over our notes, too, the 1.7 million square feet of future redevelopment, the majority of that starts and completes within the next 1 to 2 years.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Well, we'd like to thank everybody for joining today. I appreciate your focus and time on Rexford, and we look forward to reconnecting in about 3 months. And I hope everybody stays well. Happy Earth Day and look forward to reconnecting soon.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.