Greetings. Welcome to Rexford Industrial Realty Third Quarter 2020 Earnings Conference Call. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Steve Swett with Investor Relations. You may now begin.
We thank you for joining us for Rexford Industrial's third quarter 2020 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package in the investor relations section on our website at www.rexfordindustrial.com. On today's call, 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 reconciliations and an explanation of why such non-GAAP financial measures are useful to investors. Today's conference call is hosted by Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer, Laura Clark, and our General Counsel, David Lanzer. They will make some prepared remarks, and then we will open the call for your questions. Now I'll turn the call over to Michael Frankel.
Thank you, and welcome to Rexford Industrial's third quarter 2020 earnings call. We hope this call finds you and your families well and healthy. Today, I'll begin with a brief summary of our third quarter operating results, and Howard will then cover our market activity. We are also very pleased to welcome Laura Clark, who joined Rexford on September first as our new Chief Financial Officer. Laura will provide more details on our financial results, balance sheet, and outlook. We will then open the call for your questions. We are very pleased with our strong third quarter results, to which we credit the hard work of our entire Rexford team and the extraordinary resilience and overall quality of our tenant base within infill Southern California. Highlights from the quarter include the following.
We increased company share of Core Funds From Operations by 20% to $40.6 million and generated a 6.5% increase in Core FFO per share to $0.33. Consolidated Net Operating Income grew by 23.8% on a GAAP basis and by 22.2% on a cash basis. Our stabilized same-property NOI grew by 4.4% on a GAAP basis, and our stabilized same-property cash NOI grew by 5%. We signed 101 leases for 1.6 million square feet during the third quarter and achieved leasing spreads of 26.8% on a GAAP basis and 17.4% on a cash basis. We achieved 98.4% occupancy in our stabilized same-property portfolio. During the quarter, we also acquired five properties for approximately $69 million, and subsequent to quarter end, we acquired one additional property for $22 million, bringing our year-to-date investment volume to $375 million.
With regard to rent collections, suffice it to say the third quarter and now October are all tracking essentially very close to strong pre-pandemic levels. The strength of our collections is truly a testament to the high quality of our infill tenant base, particularly in light of the fact that many of our tenants have the unilateral right to defer rent under unique California mandates due to COVID. Laura will provide additional color regarding our collections. We also completed the quarter with a low leverage fortress-like balance sheet at 2.9x net debt to EBITDA, which equaled about 9.7% debt to total enterprise value. We ended the quarter in a very favorable position with upwards of $1 billion of liquidity as we move forward. The company's outperformance has been exceptional, rivaling our strongest pre-pandemic quarters.
As a result, we are very pleased to be increasing our guidance, which Laura will be describing in more detail. Rexford has grown to become the third largest and fastest growing publicly traded logistics Real Estate Investment Trust focused on the nation's strongest market. Looking forward, we believe Rexford is very well positioned into 2021 and beyond. With regard to internal growth, we are positioned to capture about 18% NOI growth embedded within our in-place portfolio over the next 12 -2 4 months, principally driven by our entrepreneurial and value-add asset management strategies. Our external growth prospects are also strong. The ongoing benefit of our proprietary research-driven originations continues to increase the volume and quality of our investment pipeline. We see a very substantial opportunity to consolidate well beyond our current 1.5% market share within our highly fragmented, exceptionally large infill Southern California industrial market.
We believe a principal reason our market is the most highly valued and sought-after industrial market in the country is due to operating history that demonstrates our infill SoCal tenant base to be the strongest tenant base in the nation, driven by a range of key factors. To begin with, our infill locations are generally mission critical for our tenants. Their businesses depend upon our infill locations as they generally serve regional consumption and would not be able to do so if located outside infill Southern California. Due to extreme constrained supply within infill Southern California, our tenants would be challenged to find similar quality space anywhere else within our submarkets. Tenant demand continues to expand, driven by growth across a range of sectors from consumer staples and food distribution, healthcare and medical products, renewable energy and electric vehicles, space exploration and aerospace technology, among many other growth sectors.
The dramatic growth in e-commerce, which has been accelerated by the pandemic, continues to drive unprecedented new demand for space within our target infill markets as we are positioned within the largest first mile as well as the nation's largest last mile of goods distribution and consumption in the United States. As a result of these dynamics, tenant demand is as intense as ever. In fact, CBRE now projects industrial market rent growth in Los Angeles County to increase a full 41% through 2025, which equates to 7.1% per year compared to only 2.9% per year projected for the rest of the nation's major industrial markets.
Finally, we owe a tremendous thank you to the entire Rexford Industrial team as we express our appreciation for their superior performance and as they continue to prove themselves as the most effective team in our business. With that, I'm very pleased to turn the call over to Howard Schwimmer.
Thank you, Michael, and thank you everyone for joining us today. Despite the impact of COVID-19 and associated shutdowns, market fundamentals in infill Southern California industrial market remained very healthy in the third quarter. Vacancy on markets remains persistently low, demand accelerated as we have seen increased leasing from both traditional industries and e-commerce growth. As a result, we continue to see strong rental rate growth and net absorption in infill Southern California. Our target markets, which exclude the Eastern Inland Empire, ended the first quarter at 2.6% vacancy, with asking rents up year-over-year despite COVID. During the quarter, we experienced our largest volume of new leasing, which speaks to the incredibly high demand for our quality, well-located generic warehouse and distribution product. We generally achieved or exceeded our pre-COVID projected lease rates, resulting in aggregate leasing spreads at pre-COVID levels.
COVID dynamics are directing activity toward vacant, move-in ready space and are driving increased rent growth, as demonstrated by our 1 million square feet of new leases signed at impressive spreads of 38.9% on a GAAP basis and 25.5% on a cash basis. Turning to acquisitions. In the third quarter, we acquired five properties for a total cost of $69 million, adding approximately 386,000 rentable square feet to our portfolio, which are projected to deliver a 5.5% aggregate unlevered yield. Post quarter end, we completed one acquisition for $22 million. Details on acquisitions can be found in our recent press releases and supplemental posted to our website.
In the next few weeks, we expect to complete the non-contingent acquisition of Gateway Pointe Industrial Campus in the L.A. Mid-Counties submarket for $297 million. The modern 989,000 sq ft, four-building complex is 100% leased at rents estimated to be 21% below market. The project is strategically located in proximity to the Central Los Angeles, Mid Counties, and West San Gabriel Valley submarkets. The buildings are 32 ft clear at first bay with an elevated dock loading ratio, excess container parking, and currently serve the high-demand e-commerce and last mile distribution sector. The initial stabilized yield is 3.6%, and using conservative rent growth projections grows to over 4% with mark-to-market upside as leases roll over the next several years.
Additionally, it is important to note that this project is one of the highest quality industrial properties in one of our strongest submarkets and is ideally positioned to capture the excess market rent growth projected by CBRE that Michael mentioned earlier, which is not incorporated in our underwriting. As you may recall, our investment strategy is to acquire a blend of core plus, and value add opportunities, and Gateway Pointe fits squarely into our core bucket, which provides cash flow growth and stability in future periods when some value add projects may be in transition. We continue to leverage our information advantage through our deep market knowledge and research-driven platform, which has enabled us to complete 77% of our acquisitions this year through off-market or lightly marketed transactions.
As we look ahead, our acquisition pipeline remains strong, with approximately $675 million of new investments under Letter of Intent or contract, including Gateway Pointe. These acquisitions are subject to the completion of due diligence and satisfaction of customary closing conditions. We will provide more details as transactions are completed. Regarding dispositions, as announced last week, we sold three properties totaling $44 million during the third quarter. The proceeds will be used to tax efficiently fund a portion of the Gateway Pointe acquisition. Moving forward, we expect to continue to sell assets opportunistically to unlock value and recycle capital. Finally, I'd like to provide an update on our value add repositioning program. Our repositioning projects have remained on track through COVID, with only nominal impacts from slowed permit processing.
During the third quarter, we stabilized or pre-leased four repositioning projects totaling 349,000 sq ft at an aggregate unlevered yield on total cost of 5.8%. In light of recent increased demand for our vacant space and amid a backdrop of very low vacancy, we feel very good about future performance for the 1.4 million square feet of projects that are planned or currently under repositioning or development. I'm pleased to now turn the call over to Laura Clark.
Thank you, Howard. I am excited to join the Rexford team and to be with you all today. Over the past eight y ears, Rexford's highly differentiated strategy, irreplaceable high-quality properties, leading internal and external growth, all supported by a best-in-class balance sheet, have solidified Rexford's leading platform in the industrial sector. The future opportunities ahead for Rexford are great, I am excited to be a part of our next level of growth. Today, I'll begin with the highlights of our operating results. In the third quarter, stabilized same property NOI was up 4.4%, driven by a 5% increase in rental revenue related to higher occupancy and leasing spreads, offset by bad debt expense. Property operating expenses increased 6.9%, which was mostly related to some repair and maintenance expenses that were delayed into the third quarter due to the pandemic.
On a cash basis, same property NOI was up five% in the quarter. Regarding rent collections and deferrals, we are pleased with third quarter cash collections at 96.8%, near pre-COVID levels, and 920 basis points above the second quarter. October collections are tracking in line with the third quarter at this point in the month at 91.7%. It's important to note that nearly all deferrals had burned off in the quarter. These strong collection numbers are a true testament to the health of our tenant base and the strong infill Southern California market dynamics. In regards to rent deferral, we have executed approximately $4.6 million of base rent deferrals, including $700,000 in the third quarter, or 20 basis points of Annual Base Rent, with an average deferral period of one and a half months.
In the third quarter, we collected $160,000 of deferral rent, representing 100% of amounts due. As of October 19th, we have collected approximately 85% of the $1.5 million deferred rent due in October, with only $220,000 remaining to be collected. About $3.6 million or nearly 80% of all deferrals are scheduled to be paid back in the fourth quarter. Turning now to our balance sheet and financing activities. At Rexford, we have a commitment to maintain a leading best in class, low leverage balance sheet. Our strong balance sheet has allowed us to capitalize on our value add model over time as we have produced sector leading growth, while at the same time maintaining a low leverage balance sheet. A true testament to our internal and external value creation.
We have never been better positioned for the future growth opportunities ahead, while at the same time being well-positioned for any future disruption. At the end of the third quarter, we had approximately $286 million of cash on hand, which includes $42 million of 1031 proceeds related to our third quarter disposition. We remain in a very strong liquidity position with no debt maturities until 2022, $500 million available on our revolver, and approximately $260 million available under our at-the-market program. As Howard discussed, we anticipate closing on the acquisition of Gateway Pointe in the coming weeks for approximately $297 million. We will initially use cash on hand and our revolver to fund this accretive acquisition. We estimate that this transaction will contribute approximately $0.07 per share to Core FFO in 2021.
Before turning the call over for your questions, I would like to discuss our updated 2020 guidance. Given our performance to date, including the added visibility we now have on collections, as well as the announced acquisition of San Fernando Road and the imminent closing of Gateway Pointe, we are increasing guidance for Core FFO per share to $1.29-$1.31 per share from our previous guidance range of $1.26-$1.29 per share. As a reminder, guidance does not include assumptions for prospective acquisitions, dispositions, or capital transactions that have not yet been announced.
We have also increased our expected 2020 same property NOI growth range to 3%-3.5%, driven primarily by occupancy gains to date as well as lower than expected bad debt expense in the third quarter as the overall health of our tenant base remains solid. Our updated guidance range includes the assumption of bad debt expense of approximately 180 basis points for the full year. While we continue to be very pleased with collection levels, we do feel that it is prudent to remain cautious given the uncertainty of the current environment. Lastly, we anticipate year-end stabilized same property occupancy will be in the range of 97.5%-98% and no change to our previous G&A guidance range of $36.5 million-$37 million, which includes twelve and a half million dollars of non-cash equity compensation.
With that, I would now like to turn the call over to the operator for your questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Emmanuel Korchman with Citigroup. Please proceed with your question.
Hey everyone. Good morning and afternoon. Maybe this is one for Howard or maybe Laura. As you thought about the change in guidance from 2Q to 3Q, obviously the occupancy and same-store assumptions changed s ignificantly in a positive way.
Just maybe what did you or didn't you see happen during the third quarter that drove that change in sort of your projections or sentiment for fundamentals?
Hey, Emmanuel, this is Laura. I'll start with that one. I think it's really important to go back to the time when our prior guidance was set. If we can all remember back to July, when we were experiencing a new wave of shutdowns and much uncertainty remained. Fast-forward three months, and while uncertainty still certainly continues, we have much more visibility into leasing demand, as demonstrated by our record leasing levels this quarter and as well as record absorption levels that are at pre-COVID rents. Our updated guidance ranges really reflect what we're seeing in regards to the demand for our portfolio, as well as what we're seeing from a collection standpoint when you see our cash collections at nearly 97% and the collections of our deferrals that we're really pleased with at nearly 85%.
Right. Laura, on bad debt, I think you gave guidance for the year of 180 basis points. Could you just give us actual numbers for 3Q and where you are year-to-date?
Yeah, absolutely. Year-to-date, bad debt expense is approximately 120 basis points of revenue. In the third quarter, it was $1.5 million or 170 basis points of revenue. On a same-property basis, bad debt impacted our 3Q same-property NOI growth by approximately 200 basis points or $1.1 million. As I mentioned in my prepared remarks, we anticipate bad debt expense for the full year to be in the 180 basis point range.
Great. Thank you very much.
You're welcome.
Thank you. Our next question comes from the line of Jamie Feldman with Bank of America. This is you. Your question.
Great. Thank you. I guess, just to confirm on the bad debt expense. You've taken $120 year-to-date and there's $180 in the guidance. Does that mean there's $60 more to go? I just want to make sure we're thinking about this the right way.
Yeah, absolutely. Kind of think about how it rolls. We've taken $120 to date, and we're estimating that to get to $180 for the full year. That would mean that our 4Q estimate of bad debt is higher than what we've experienced in the prior quarter. I think it's important to dive in here a little bit and talk about what we're seeing in terms of the drivers of our increase in bad debt expense. As you can see with our cash collections at 97%, we're actually doing pretty well. We've always taken a very conservative approach in regards to our watch list and our bad debt. Despite the fact that some of the tenants that are on our watch list today are actually quite healthy and are taking advantage of the moratoriums in place.
When I think about the drivers of the bad debt increase, I think the tenants can really be broken down into two buckets. It's first tenants that are following the California moratoriums that are in place, and then there is a bucket of about half of that is tenants that are struggling. In terms of the first bucket that represents about half of the non-payers, these are generally healthy tenants but are following the California municipal moratoriums that have given them the unilateral right to defer rent. Once the moratoriums lift, we do believe that these tenants will pay rent again and pay back the amounts that they owe. The second bucket of tenants are those that have businesses that have been impacted by the pandemic and may be struggling post-COVID.
We certainly are looking to the opportunity to proactively work to take back that space as that will allow us to re-lease to better quality tenants at higher rents. We had the opportunity to do that this quarter as well. I think what's really important when you think about our bad debt and what I would say is really a cumulative impact of our conservative approach to our bad debt reserve is how we account for bad debt. Regardless of the reason a tenant isn't paying rent, either the moratorium or credit risk, if a tenant accrues more than two months of base rent, we fully reserve for the rent and our bad debt expense. For example, if you have tenants that are following the moratoriums that are in place, our bad debt expense will continue to grow until those payments commence again.
We're continuing to evaluate our policy as we gain further insights into new information that we have into overall collections as well as the visibility we have into deferral payments. Again, I think it's important to note that that list of tenants on our watch list and that aren't paying is relatively small, as you can see in our nearly 97% collection levels that are near pre-pandemic levels.
Okay. Thank you. That's helpful. Then you have a large acquisition coming soon. Can you just talk about how the acquisition market has changed during the pandemic? I know there's a lot of potential sellers you've been speaking to for years. Do you think that they're going to be more willing to sell in a downturn or it's just not a downturn and it's not really going to matter? Just any thoughts there.
Sure. Hi, Jamie. Howard. Well, first of all, from the results we've put up this quarter, if you didn't know the word COVID, you'd probably be thinking things were just pretty typical in terms of our business. That carries through to the entirety of our market. There's a significant amount of demand in the market. Vacancy is still incredibly low. The amount of tenants, for instance, in our portfolio that Laura described that are having either trouble paying rent or just taking advantage of the moratorium is fairly small. When you really look at the entirety of the market, there is not really any distress that's out there. There's a few things going on here and there, but that's not leading to sellers thinking because of the pandemic, they need to sell their real estate.
I think if anything, they've seen rents increasing dramatically and values as well through some of the recent transactions and some that are about to hit. The market's incredibly strong, and we don't really see any signs of any financial issue that would create any more selling in that respect.
Jamie, it's Michael. I do think it's a great question. Just to add to it, I think we are seeing continued, maybe growing interest, for instance, from potential upfront property contributors. There's some very major long-term trends in the market that arguably could be accelerating a little bit. We track well over 1 billion square fee t owned by these private owners who own small and large portfolios. That activity is, we did a $210 million deal, for instance, an upfront transaction earlier this year, and we have a lot of those in the hopper. We are seeing some interest from some of the corporate owner users on the sale leaseback, which over the years we've been pretty active on the sale leaseback front. We're probably seeing incrementally a little more activity there. Hard to say that that's directly tied to the pandemic.
Okay. Thank you. I know you had mentioned seven cent accretion from Gateway Pointe in 2021. I assume that's putting cash to work in your revolver to fund it. How do you think about either long-term debt on that, or I think you said you're also going to fund with disposition. Can you talk about rates, like cap rate disposition, just the moving pieces to get to that $0.07?
Sorry, you're on mute. You're on mute.
Thank you, Howard. Based on our position today, assuming no other capital transactions, that's what that $0.07 is based upon. In terms of the acquisition of Gateway Pointe, it's really a steady state $0.07. We have a strong pipeline of near-term acquisition opportunities of about $675 million, including Gateway, that are under contract or LOI. The capital structure is obviously somewhat fundable in terms of our go-forward funding. We'll continue to evaluate really a full range of debt and equity options available to us. Importantly, we're committed to maintaining our low leverage balance sheet and investment-grade profile as we move forward.
Okay. Finally, any large 2021 expirations we should be aware of or known move-outs?
There's 5.1 million square feet that expire in 2021, the largest is maybe a 200,000 ft building. The rest of them are hundreds and less. Nothing dramatic. In fact, we're in discussions with expirations right now with these expiring tenants. We've already done more renewal work with the remaining 2020 expirations. At the end of the quarter, there were 730,000 ft remaining, and as of today, that's about 548,000 ft. It's actually even lower when you break it down because more than half of that remaining square footage goes into our repositionings. Today, we're now starting full-bore tackling those 2021 expirations.
I think in the top 20 of those, I think we have activity and discussions and renewals taking place probably within the range of more than 30% of those occupants. I think from a renewal standpoint, we feel pretty good about where we sit in the market. As you know, we tend to have the best quality product in each of these sub-markets, and there's just limited options for tenants in terms of relocating and moving. We're excited about the discussions that are already taking place on some of those earlier renewals.
Okay. All right. Thank you.
Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed, sir.
Great. Thanks. Good morning out there. Can you comment on the October collections a little bit? First of all, how does the pace of regular rent collection compare with prior quarters? Then second, on the deferral repayments, do you have any sense of what that 84% collections at this point in the month means for your ability to collect the rest of those deferrals that are owed to you in October?
Hey, Blaine. Thanks for joining us today. In terms of kind of where we are in October to this point is at 91.7%, and when we look back over Q3, that's really right in line with where we were at this point in the month in the prior quarter. We have visibility into seeing those October collections be at or near where we were in Q3. In terms of the deferral payments, I actually just got a note from our team this morning, hot off the press, that we actually got another deferral payment in this morning. We're now at deferral collections about 88% compared to the 83.4% that were reported last evening. That leaves under $200,000 to be collected in October. It's still relatively early in the month standpoint.
We have pretty good visibility into those deferral collection percentages to be pretty in line with what our contractual billing collection percentages are in that 95%, 96% area.
Okay, that's helpful, Laura. Congrats on that additional collection. Just following up on one of Jamie's questions. You guys didn't issue any shares on the ATM this quarter, which is pretty atypical, but you clearly have the capacity to increase leverage a little bit. I think we calculate pro forma leverage, including the $297 million portfolio deal. It still remains in the low fours on a debt-to-EBITDA basis. The question is, looking forward, how much additional capacity do you think that affords you before hitting kind of the top of your leverage comfort targets? How should we think about ATM issuance going forward as well?
Blaine, in terms of our ATM issuance this quarter, I think it's important to note that we had a pretty significant cash in our balance sheet this quarter and ended the quarter with $286 million. We really had ample capacity to fund our needs this quarter. That really drove kind of the lack of ATM activity. In terms of your question on our balance sheet strategy, we believe our balance sheet is really one of our core competencies and our competitive strengths. Maintaining that strong investment-grade profile is really a key objective of ours. Our low leverage balance sheet today, we certainly have ample capacity, that provides us with what I think is ultimate flexibility to execute on both our internal and external growth opportunities does position us well for what could be future disruptions.
I think that if there's anything that this and other downturns have taught us is that it doesn't take much disruption to move leverage considerably. We feel like we've never been better positioned than we are today given the low leverage nature of our balance sheet and expect to continue to maintain this strategy going forward.
Great. Thanks, Laura. Thanks, guys.
The next question comes from the line of Dave Rogers with Baird. Please proceed with your question.
Yeah. Michael, Howard, maybe I'll start with you. A question on the tenant demand that you're seeing both in the quarter and I guess what you're seeing here into the fourth quarter. Can you talk about the mix or the breadth of the tenant demand that you're seeing? I think national numbers have quoted 40% from e-commerce and up to 40% from Amazon in the first half of the year. Are you guys seeing something similar, and can you give us more color on the breadth of the tenants you're talking to?
Hi, Dave. Howard. In the prepared remarks, we mentioned that demand's coming not just from e-commerce. There's a lot of demand just from traditional tenants that have been in the marketplace. Some of it clearly is pent-up demand because they weren't in the market in the second quarter. Some businesses are doing great, and they're growing and expanding. Some of them for obvious reasons, might be taking a little bit more space to have a bit more inventory on hand. Really a lot, I think, can be spoken to with just even the port activity, if you think about it. The ports were down, I think a little over 11% for the first half of the year, with all the activity in August, they're down only about a little over 7%. August were record-breaking periods for imports for both the ports.
There's never been more import volume in the history of those ports. There's a lot of product coming into Southern California, and that's creating incremental demand, whether it's e-commerce or even traditional retailers. They need a place to put the product. Demand's, I think, pretty diversified. You talk about Amazon and so forth. I mean, Amazon's been one of the largest takers of space in all of our sub-markets. Certainly contributed to helping the market maintain the exceptionally low vacancy rate we have. It's exciting. As far as our e-commerce demand, this was one of our highest quarters as well.
I think we had over 50% of our leasing that occurred, new leasing that had some e-commerce relationship which is up pretty significantly from what you've seen in the past quarters, which seemed to average more in the 30%-3 5% range. E-commerce is clearly a driver, but it's not just an Amazon. It's companies we've all never heard of before. Every business you can think of that knows now that bringing their sales online is more than a revenue generator. It's an insurance policy.
Dave, it's Michael. I think it's a really great question. Just adding a little bit of color to Howard's comments. Another way to think about demand in our markets, in our portfolio is when you look at just how low vacancy our markets are, hovering a little over 2% on average. Realize then these are very deep markets. Of that 2%+ vacancy in the market, the product that actually competes with us is probably half of the actual vacancy out there, maybe even less. Because again, our mandate is to acquire the best locations, and if they're not the most functional in the sub-markets when we buy them, we proactively make it so. In terms of product that actually competes with the Rexford portfolio, you're probably looking at half or less than half of the market vacancy out there.
I think it's reflected in our portfolio, by the way. I think our occupancy numbers are materially higher. Our vacancy numbers are about half of what the submarkets are where we operate. You layer in the dynamics that Howard's talking about, and the portfolio and the business is exceptionally well-positioned from a demand perspective. We're way above what we have considered structural occupancy.
Great. Thanks for all that, guys. That's really helpful. Yeah. Wanted to follow up, Laura, on the security deposits you guys have applied in the last quarter or so. Are you collecting those? Are those part of the deferrals that come back in this year? Is that something that we should also be looking at in those numbers?
Yeah. When we look at that deferral of base rent that we're reporting, that does not include the replenishment of those security deposits. That number, that close to 90% number that I just talked about in the last question, that we've collected in October is just the deferral of base rent.
Okay. That's helpful. Thank you.
The next question comes from the line of Mike Mueller, JP Morgan. Please proceed with your question.
Yeah. Hi. I think you mentioned opportunistic dispositions. I'm curious how you're thinking about dispositions today versus equity issuance, given where the stock is trading. I guess, what are the characteristics of those disposition candidates?
Hi, Mike. It's Howard. Thanks for visiting with us today. As far as dispositions, our thought process on them hasn't really changed much from quarter to quarter or even year to year. We're always looking deep in the portfolio and looking for dispositions that either can outperform cap rate values, where we might sell to some owner users, which we had an example of during the quarter, or more management intensive properties requiring more capital in the near term that we don't feel that we'll be paid an incremental return on. We sold some multi-tenant product as well. We took advantage of new capital coming into the market, frankly, that was hungry for industrial assets, less sophisticated, and significantly outperformed on an exit on one multi-tenant building that we sold in San Diego. The dispositions will continue to be a part of how we operate.
We do have some others in mind, and we'll certainly provide more information on those as we transact.
Mike, just adding again to that, it's Michael. When you look at the portfolio, and particularly when we look at the expirations, for instance, next year, the portfolio from an expirations perspective is about 16% of the in-place leases there being below market. In the aggregate, the portfolio is probably over 10% mark to market. There's a lot of value creation to be had throughout the portfolio. We're going to be opportunistic, is probably the right way to clarify it. I think we're really focused more over on value creation.
Got it. As maybe the way to think of it, dispositions are going to be what they're going to be, given the situation, and any excess equity requirement that you would need to fund whatever investments you make would come from traditional equity issuance, as opposed to that we like disposition cap rates more than the stock price today.
I think that's a fair statement.
Got it. Okay. That was it. Thank you.
Thanks, Mike.
As a reminder, if you'd like to ask a question today, you may press star one from your telephone keypad. Our next question comes from the line of Eric Frankel with Green Street Advisors. Please proceed with your question.
Thank you for taking my question. First, I guess, Howard, for you. Leasing activity is obviously pretty good this quarter. Can you just clarify the difference in leasing spreads between new and renewal leases? Were the new leases on rehab buildings or rehab spaces?
The new leasing, some of it obviously was on sort of the repositioning. We mentioned that we stabilized four repositioning projects in the quarter, where we achieved about a 5.8% return on total cost. Others were just space, obviously, that had been vacant. What's interesting is, I think, just testament to the demand in the marketplace. We had a few lease terminations in the quarter, which for the most part, were driven by us trying to get the space. We had one that was one of our larger expirations that was going to occur toward the end of the year. 200,000 ft building where we were able to talk the tenant into relinquishing about 100,000 ft and had a tenant in hand take that.
We had another one that was 135,000 ft building expiring next year that we were able to do the same thing and bring a tenant into that space. By the way, those are at incredibly strong rent spreads as well. A lot of the new leasing is being created by ourselves in terms of trying to get to the value in that space. You've heard us talk in the past about trying to get some of these tenants, even some of the ones that weren't paying us rent, get them out of the spaces because the market's been strong, that we could replace them quickly.
Produce those high leasing spreads. A lot of it now being done without any substantive capital work, in terms of the value add side as well.
Interesting. That's a good color. I appreciate that. Obviously, you haven't closed on it yet, just the Gateway deal. Obviously it's a pretty big purchase even for you guys. I just want to clarify, I didn't quite hear your comments well earlier in the call. Did you guys say you expect to achieve a 4% yield on that deal, and when would that exactly occur?
There's a lot of roll right now in the leases on that product. There's a 105,000 ft lease that expires this year, in the next couple of months. There's another 77 that expires, I think around May next year. If you look at the product, there was in aggregate, about 21% below market rents, and that's based on some of our more conservative underwriting. It's interesting to think about because if you look at some of the projections CBRE recently put out with 41% projected rent growth over the next five years, that averages about, I think on a compounded basis, a little over 7% per year. We obviously didn't underwrite anything near that, the Gateway product really is in the bullseye of the highest demand product in the marketplace right now.
It has probably about a 50% excess dock-high door count compared to typical buildings in the market with a 32 ft clear at first bay. It's got Early Suppression Fast Response sprinklers, it's got container parking, and the location is just right in the bullseye for e-commerce last mile type delivery. We're really optimistic that product is going to outperform a lot of the Class A product that we've bought over the past few years, has substantially outperformed our rent projections just because there's a dearth of the product in the market. Half of the greater Los Angeles market was built before 1980. You can imagine when you look at a market like Southern California today, there just isn't enough space to supply the demand that's out there. In fact, even construction, this construction pipeline in greater L.A. is down probably 30% quarter-over-quarter.
There's a shortage of space, and there'll continue to be. Gateway, we're real excited about it. We think it's got all the elements of the type of product that, at the end of the day, will perform very strongly and potentially outperform even our underwriting.
Yeah, no, they look like a very good building. No doubt about that. I appreciate all that color. Final question. I think one of your peers alluded to this on their earnings call yesterday, but I guess the cat is fully out of the bag in terms of industrial's fundamentals and its attractiveness as an investment class. I think you're remarking this in your disposition opportunities. Do you foresee any issues? Obviously, you guys canvassed the market so thoroughly. Do you see any issues in terms of just increased competitiveness identifying investment opportunities going forward versus, say, six months ago?
Hey, Eric, it's Michael. Thanks for joining us today. Our market has been competitive or arguably hypercompetitive for a very long time. We see new capital come into our market frankly, consistently for many years. I wouldn't say there's necessarily an increase in demand from investors. I think it's people have acknowledged that industrial is a great asset class. I think what's amazing, frankly, about our market is that infill Southern California is probably only about 7% owned by all industrial REITs, all public REITs. The vast majority of our market is mom-and-pop owned. Probably upwards of 70% of our market is mom-and-pop owned. Those moms and pops by the way are not real estate professionals. Despite the heightened interest in the asset class, arguably, it's still a highly fragmented market.
What I find astounding is in the vast majority of our transactions, we're not competing with institutional capital. I think Howard might have noted about 77% of our transactions this year were through off-market and lightly marketed transactions that we catalyzed through our research and our broker efforts in-house. It's really just that we create a fundamentally different playing field by creating this information advantage through our proprietary originations capability. Frankly, when we started this company a couple of decades ago, we started with the fundamental premise that it wouldn't be a very exciting business if we were relying on third parties, namely brokers, to bring us our growth opportunities because they're highly competitive. We've created a machine at Rexford that's capable of, by and large, generating our own investment opportunities.
That translates directly into better economics, better cash flow growth, and better return on equity.
I appreciate that color. Thanks, guys. Appreciate it.
Next question comes from the line of Chris Lucas, Capital One Securities. Please proceed with your question.
I guess it's good afternoon for me and good morning for you guys. A couple of follow-up questions. Howard, great new leasing quarter. I'm curious on the five segments that you guys divvied up in terms of the disclosure. Is there a segment that has the most opportunity to push rents in it right now, or is it very specific to the asset?
I think if you look at the market and the low vacancy throughout, there's just a shortage of space. When you even think about just the smallest kind of spaces we own, the cost to replicate those makes it impossible to deliver any of that product. If you look back for quite a few decades and, for instance, greater L.A. with this half the market, there hasn't been any of that product delivered. There's a shortage of that product. We've seen leasing spreads pretty evenly distributed throughout, and that's quarter to quarter. I don't think there's anything dramatically different this quarter versus others. I mean, we can point to some of the larger leases that we did that had some large spreads to them. There's a whole bunch of small leases that are not worthy of even speaking to that had very strong spreads as well.
I think if you look at our portfolio, though, the smaller spaces today don't make up as much as the larger in terms of this ABR they contribute. Probably almost half the portfolio now, ABR comes from spaces above 50,000 ft, and I think it's in the 9% range is even some of the smallest spaces. I think if you look at some of the assets we've been buying, you don't also see us buying a lot of some of these small product type spaces. In fact, the majority of what we've been selling quarter-to-quarter has been taking advantage of the strong market and selling some of those more management intensive multi-tenant parks as well. Over time, I think our percentage of ABR derived through some of the larger tenancies, you'll see increasing as well.
Great. I guess, just in terms of the time process that tenants take to make decisions about leasing, has that been changing at all this year? I don't know how much COVID impacted it. I don't know whether or not it's recovering at this point. Can you give us a sense of?
Sure.
What you're seeing from tenants in terms of their responsiveness?
Well, certainly, people slowed that process as COVID hit during the second quarter. We certainly saw leasing pull back because people didn't know how to react. Obviously in the third quarter and even toward the latter part of the second quarter, leasing really rebounded, and it's really not slowing down or is not showing any signs of slowing down. I think what you saw, though, from our leasing in this past quarter was, first of all, our highest quarter ever in terms of new leasing. I think that was about 45% higher the new leasing that occurred in this quarter than our prior peak amount of new leasing. What that is that people are focusing on vacant space for obvious reasons concerning the pandemic, and those decisions are happening a lot quicker when they're looking at vacant space.
For instance, almost half of the new leasing this quarter was really from move-outs, where we had almost a little over 450,000 sq ft, and I think there was about 34 days of downtime on those, and they were re-leased during the quarter. That's obviously a testament to the market. In terms of leasing decisions, we've always seen leasing, it really depends on the size of the space. Most of the product in our portfolio, the leasing is fairly quick. Somebody's out in the market, they need space, they want to sign the lease, and they move in right away. That's really, I think, what you saw on the new leasing side this quarter was really, I think, solidifying that thought process and demonstrating it.
Thanks for the color, Howard. That's all I had to say today.
Thank you.
Thank you. At this time, I will turn the floor back to management for closing remarks.
This is Michael. On behalf of the entire Rexford Industrial team, we want to thank everybody for joining us today. We hope you and your families remain safe and healthy, we look forward to reconnecting next quarter. Thank you.
Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.