Greetings and welcome to the Rexford Industrial Realty, Inc. 2nd Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Cara Smith of Investor Relations. Thank you. You may begin.
We thank you for joining us for Rexford Industrial's Q2 2020 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package in the Investor Relations section on our website at www.brechtfordindustrial.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 ks 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, Adeel Khan and our General Counsel, David Lanzer. They will make some prepared remarks and then we will open the call for your questions.
Now, I will turn the call over to Michael.
Thank you, and welcome to Rexford Industrial's 2nd quarter 2020 earnings call. First, we hope that everyone joining us today, as well as your colleagues, families and friends remain well during these very challenging times. Today, I'll begin with a brief summary of our 2nd quarter operating results. Howard will then cover our transaction activity, and Adeel will follow with more details on our financial results, balance sheet and outlook. We will then open the call for your questions.
With regard to the Q2, we are humbled by the exceptional work from our team that is driving Rexford's strong performance despite unprecedented challenges presented by the COVID-nineteen pandemic. We must also remark that the strength and resilience of the infill Southern California industrial property market, where the supply demand imbalance continues to differentiate this market as the highest demand, lowest supply industrial market in the nation. The extreme scarcity of developable land means there is no path to resolve our market supplydemand imbalance through new construction, one of the many reasons we choose to remain focused on creating value within infill Southern California. Our team's quarterly performance speaks for itself, highlighted
by the
following. We increased company share of core FFO by 21 percent to $38,800,000 and generated a 6.7% increase in core FFO per share to $0.32 Our stabilized same property NOI grew by 3.1% on a GAAP basis. Our stabilized same property cash NOI decreased by 2.3%, which was driven by short term rent deferrals averaging 1 to 2 months. We achieved 97.6 percent occupancy in our stabilized same property portfolio. We signed 123 leases for 1,400,000 Square Feet during the Q2.
Our leasing spreads were 32.3% on a GAAP basis and 18.2% on a cash basis. Our leasing performance reflects the fundamental strength of our infill market and our team's intense entrepreneurial focus. During the quarter, pent up demand reentered our Southern California infill market as many government mandated shutdown restrictions were lifted and as e commerce continues its dramatic growth. We experienced a notable acceleration in tenant demand through the second half of the quarter. During the quarter, we also acquired 7 properties for approximately $76,000,000 and subsequent to quarter end, completed 3 acquisitions to bring our year to date investment volume to more than $350,000,000 With regard to rent collections, we proactively worked with tenants, some of whom were impacted by COVID and some of whom simply took advantage of their government mandated ability to unilaterally defer rent in California.
Overall for the quarter, just over 98% of Penn's billings were accounted for through cash collections and relief agreements. Cash collections represented about 87% of billings for the quarter. We were pleased to see the quarter end on a positive trend with June cash collections at 91%. Of the tenants not covered under deferment or release agreements, cash collections equaled 98.5 percent for the quarter. Further, July is off to a very strong start, tracking very close to a typical non COVID month at this point in the monthly collection cycle, with 92% of tenant billings collected in cash so far.
July's cash collection numbers are particularly impressive given that most of our rent deferment, which on average was about 1 to 2 months, has already burned off, leaving only 1.6 percent of tenant billings covered under relief agreements during July. In addition, for July, of the tenants not covered under deferment or relief agreement, cash collections are already at about 96%. With regard to balance sheet activity, we completed a total of approximately $295,000,000 of equity issuance during the quarter. We continued to maintain a low leverage fortress like balance sheet, completing the quarter with leverage of 2.9x net debt to EBITDA, which equaled about 10.5 percent debt to total enterprise value. We also ended the quarter in a very favorable liquidity position with access to upwards of $1,000,000,000 of liquidity as we move forward.
We believe we are very well positioned both defensively to weather COVID related uncertainty as well as offensively to capitalize upon emerging internal and external growth opportunities to drive shareholder value. Finally, I'd like to take a moment to fully acknowledge and thank each Rexford team member, each of whom has worked so diligently to drive our performance and to distinguish our company despite working remotely and despite a range of COVID related personal and professional challenges. Tremendous thanks to all of our Rexford teammates. You continue to prove yourself as the best team in the business. There is one special person who deserves additional mention.
As you know, Adeel Khan, our CFO, had expressed a desire to pursue a new chapter in his professional career. On behalf of our entire team, I'd like to thank Adeel for his exceptional service and contributions to the company and personally for his partnership and dedication. It's been a true privilege to work with Adeel. Although Adeel is a very hard act to follow, we are exceptionally pleased to have Laura Clark starting as our new CFO on September 1. For those of you who know Laura from her prior REIT experience, I'm sure you can appreciate how fortunate we are to have her join our team.
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. While vacancy rates for the infill Southern California industrial market increased during the Q2, Rexford's portfolio demonstrated resiliency. Our stabilized same property portfolio ended the second quarter at 2.4% vacancy, which is lower than the infill markets overall, a testament to the quality of the Rexford portfolio and our management team's focus. Low market vacancy and a pervasive supply demand imbalance continue to support strong market fundamentals. Despite the impact of COVID-nineteen and associated shutdowns, our markets achieved positive rental rate growth with asking rents up 2.2% on a weighted average basis over the past 12 months according to CBRE.
Rexford saw a steady increase in leasing activity as we moved through the Q2, completing our largest volume of new leasing of the past 4 quarters. Due to COVID-nineteen social distancing requirements, market demand is most focused on vacant space and Rexford continues to deliver the most functional quality space to each of our submarkets. As a result of our team's hard work, we believe we outperformed the market, meeting or exceeding our pre COVID budgeted rental rates, which resulted in strong blended leasing spreads, achieving GAAP and cash spreads of 32.3% and 18.2%, respectively. We are now more than halfway through the year and have made strong progress on 2020 lease expirations, even with many tenants taking a wait and see approach. Of the total 20 20 expiring square footage at the start of the year, not including 3 buildings moved to repositioning, we have renewed or released 57% and for our top 20 expirations by size, we've renewed or leased 58% with an additional 15% currently in active negotiations.
Let me now turn to acquisitions. We acquired 7 properties during the Q2 for an aggregate purchase price of $76,500,000 adding approximately 334,000 rentable square feet of buildings and 6.8 acres of development land to our portfolio. First quarter end, we completed 3 additional acquisitions totaling $68,700,000 In April, we acquired Vernon Avenue in the L. A. San Gabriel Valley submarket for $15,500,000 at land value, which consists of 6 acres with 72,000 square feet of buildings.
The fully occupied sale leaseback has an initial yield of 5.5%, which will grow through scheduled annual rent increases. As a note, the yields I referenced here and for subsequent transactions are on an unlevered basis. Also in April, we acquired a 1 acre land parcel at Brady Way, expanding our Knott Street repositioning project in the Orange County West submarket for $870,000 In May, we acquired LaPilla Street in the LA Central submarket, which consists of a single tenant industrial building containing 120,000 square feet on 5.1 acres of land for $21,000,000 The property is fully leased at rent estimated to be approximately 40% below market for the near term lease expiration. The property features high image office, extensive dock high loading and a large secured yard. After light improvements, we intend to renew or release the property at market rents at a projected stabilized yield of 4.7%.
Also in May, Rexford acquired Sand Hill Avenue in the LA South Bay submarket, which consists of 158,000 square feet of vacant manufacturing buildings on 5.8 acres of land for $14,500,000 We intend to demolish the existing structures and construct a new 126,000 square foot single tenant logistics building with 20 dock high loading positions and 32 foot clear height. The projected stabilized yield is 5.4%. In June, we acquired East Park Drive, the final building of our Q1 portfolio purchase located in the North Orange County submarket for $6,800,000 The single tenant building contains 35,000 square feet on 2.4 acres of land and is fully leased on a long term basis at an initial yield of 5%. Also in June, Rexford acquired Production Avenue in the Central San Diego submarket, which consists of 2 industrial buildings totaling 47 1,000 square feet on 2.9 acres of land for $7,900,000 The property is 65% leased at rents that are estimated to be 15% below market. After repositioning and lease up, the stabilized yield is projected to be 6.3%.
Finally, for the quarter, we acquired Slover Avenue in the Inland Empire West submarket, a newly constructed, state of the art 60,000 square foot building on 2.8 Acres for $10,000,000 The projected stabilized yield is 4.7%. After quarter end, in July, Rexford acquired South Avalon Boulevard, a 2 building industrial property located in the LA South Bay submarket for $28,100,000 The property contains 166,000 square feet on 7.2 acres of land. After a short term leaseback, the company intends to reposition the property and projects a stabilized yield of 5%. Also in July, we acquired a portfolio of 3 industrial buildings, Penrose, Fleetwood and Touchwood Streets, located in the LA San Fernando Valley submarket for $35,100,000 The fully occupied contain a total of 207,000 square feet on 8.4 acres of land and are leased at rents estimated to be over 33% below market. After repositioning, we expect to bring the initial yield of 3.1% to 5.3% upon stabilization.
Finally, in July, we acquired Greenstone Avenue in the LA Mid County submarket for $5,500,000 The near term value add property consists of a single tenant trucking and container facility containing 12,600 square feet on 4.8 Acres. The projected stabilized yield is 6.3%. With respect to our repositioning program, we continue to progress through our pipeline with some relatively nominal COVID-nineteen related delays in permitting and inspections. We currently have 922,000 square feet of projects under ground up development, another 330,000 square feet expected to start in 2021 and 368,000 square feet under repositioning, including Q3 acquisitions. Consistent with our mission, we believe these projects represent the best locations and will be the most modern functional product within their submarkets due to very limited availability and continued strong demand with little to note competition from equally functioned vacant space, we believe these projects are well positioned for strong lease up.
As we look ahead to the second half of twenty twenty and beyond, we have a deep pipeline of opportunities and currently we have $52,000,000 of new investments under LOI or contract. These acquisitions are subject to completion of due diligence and satisfaction of customary closing conditions. We will provide more details as transactions are completed. Finally, to echo Michael's comments, thank you, Adeel, for all your tireless work toward RestWorks Growth. It's been a pleasure working with you over the past years, and I wish you only the best on your future endeavors.
I'll now turn the call over to Adeel.
Thank you, Howard. Beginning with our operating results. For the Q2 2020, net income attributable to common stockholders was approximately $11,400,000 or $0.10 per fully diluted share. This compares to $12,800,000 or $0.12 per fully diluted share for the Q2 of 2019. For the 3 months ended June 30, 2020, company share of core FFO was $38,800,000 as compared to $32,100,000 for the 3 months ended June 30, 2019.
On a per share basis, constant share of core FFO was $0.32 per fully diluted share, representing a 6.7% increase year over year. Stabilized same property NOI was $44,300,000 in the 2nd quarter, which compares with $43,000,000 for the same quarter in 2019, an increase of 3.1%. Our stabilized same property NOI was driven by a 3% increase in same property rental revenue, while same property operating expenses increased by 2.6%. On a cash basis, stabilized same property NOI decreased by 2.3% year over year, mainly due to rent deferrals related to COVID-nineteen. Turning now to our balance sheet and financing activities.
We continue to believe that maintaining a low leverage balance sheet with ample available liquidity and a diverse array of capital sources is a competitive advantage for Rexford. In May, we completed an underwritten secondary offering of 7,200,000 shares of common stock at $39.85 per share. We raised net proceeds of $285,100,000 After deducting the underwriting discount, these proceeds will be used for future acquisitions to fund our development and redevelopment program and general corporate purposes. Also during the Q2, we issued approximately 249,000 shares of common stock to our ATM at a weighted average price of $40.59 per share, which resulted in net proceeds to Rexford of approximately $9,900,000 At the end of the second quarter, we had approximately $254,000,000 of cash, full availability on our $500,000,000 credit facility and approximately $260,000,000 available under the $550,000,000 ATM program. We have no debt maturities until 2022 and we remain in a very strong liquidity position with a net debt to EBITDA ratio of 2.9 times.
With regard to our dividend, on July 20, 2020, our Board of Directors declared a cash dividend of $0.215 per share for the Q3 of 2020, payable on October 15, 2020, to common stock and unitholders of record on September 30, 2020. Finally, I'll turn to guidance. Given the impact of COVID-nineteen on our tenants and its impact to general market conditions as well as local regulations allowing our tenants to defer rent, we're maintaining our guidance as follows. Please note this guidance is based on our knowledge as of today. We expect to achieve company share core FFO within a range of $1.26 to $1.29 per share.
Our guidance is supported by several factors. We expect year end stabilized same property occupancies within the range of 95% to 96%. We expect to achieve stabilized same property NOI growth for the year of 1.3% to 1.8%. Please note that our 2020 stabilized same property pool comprises 161 properties with an aggregate of 19,800,000 square feet, representing approximately 72% of our consolidated portfolio square footage as of June 30, 2020. For G and A, we anticipate a full year range from $36,500,000 to $37,000,000 including about $14,000,000 of non cash equity compensation.
As in the past, our guidance does not include any assumptions for other acquisitions, dispositions or capital transactions, which have not yet been announced. Also, our guidance for core FFO does not include acquisition costs or other costs that we typically exclude from calculating this metric. Before we start Q and A, I'd just like to thank the entire Rexford team for the past 8 years. At that time, the portfolio has grown by over 400%, which is truly exceptional. I'm truly grateful to Michael and Howard for their support as I take these next steps.
Finally, to our investors and analysts, it has been a pleasure getting to know all of you as well. With that, we'll open the line to take any questions.
Thank you. At this time, we will now be conducting a question and answer Our first question comes from the line of Jamie Feldman of Bank of America Merrill Lynch. Please proceed with your question.
Great. Thank you. And, Adeel, it's been a pleasure working with you also. We wish you the best. So I guess it seems like there's a lot of confusion already on same store NOI and how companies are going to report it on a cash basis.
So you guys reported minus 2.3%. But can you talk about and I think Prologis yesterday reported a much higher number, but they did not treat their deferred rent. They kind of included it in that same quarter. So if you had done that same analysis, can you tell us what your same store NOI would have been if you hadn't pushed it out? And also maybe talk about why you use this methodology?
Jamie, thanks for the question. And yes, it has been a pleasure working with you guys. And you guys have been here with us since the IPO, so it's been absolutely fantastic. The question in terms of the same store and the cash NOI, which was reported a negative 2.3. If you look at our table that was presented in the earnings release, it was the acceleration of concessions of $825,000 plus the $3,600,000 in deferrals.
The same store component of that is about $2,700,000 or about roughly 61% or so, which would equate to 4.4% positive cash NOI growth year over year. And to the second part of your question, which is the reporting, these are arrangements and agreements and short term amendments to leases. And I think that was the most prudent thing to do, which was to document these as such within the construct of the lease amendment and the deferrals are reported as just exactly as that, just like a concession, but we report it in a normal contract. And so that's what you're seeing in the reporting. Naturally, as these deferred concessions are billed back in the latter half of the year, September, October and mostly which are going to be due back in 2020, we anticipate to see the cash NOI go higher because they're going to be billed back.
So from our perspective, the accounting of it was straightforward and simple and that's what you're seeing on the numbers.
Okay. Thank you. That's helpful. And then as we think about deferrals and rent collection, you guys gave some numbers in the release about 23.7% of your of the tenants that you have or the tenants contributing 23.7% of ABR having some relief agreements. But can you talk about what the actual agreements are in terms of your annual base rent?
Yes. Jamie, good question. And when we presented that data, that was simply to give the investor community and the analyst community just the number of requests in terms of magnitude, that magnitude could have been compared to 3 different variables, which is square feet, on the lease count and of course ADR. That's what you're seeing there. But the data that we presented again in
the table, if you take
a look to see what in terms of the total relief, it shows about $9,100,000 that's only 3.4% of the ABR as of June 30, 2019, which includes security deposit applications. If you further take that back and only focus on the concessions and the deferrals, that's only 1.8% of the ABRS of 6:30. So, yes, the number is very small from that perspective, but the number that was presented in the release, but just to give a cross section of the relief request and just a comparison in terms of the total portfolio in terms of size.
Okay, that's helpful. And then just last for me, I guess as you take a step back, California is actually seeing cases increase and maybe even more closures. But you've actually seen rent payments increase, the percentage rent increase. Can you just talk us through your thought process or what you think is ahead in terms of A, why things are improving in terms of your rent collections? And B, maybe how do you think about when PPP burns off, how do you think about the risk that maybe you do see rents maybe pull back or the percentage of rent collections pull back and when rent deferral periods end as well?
Hey, Jamie, it's Michael. Thanks again for your question and great to connect with you today. So I agree, it is really truly a testament to the strength of the infill tenant base, given the two factors that A, obviously many companies are hurt by COVID and B, the local municipalities have given so many of them the ability to unilaterally defer their rent. And what we're seeing on the ground and frankly we've seen this through prior cycles including the great financial crisis is that these spaces are truly irreplaceable, related to the in terms of the businesses that operate in them. They are truly mission critical locations for these businesses.
These are not like big box tenants looking at a global logistics supply chain and rationalizing logistics by getting rid of a location. These businesses on average can't afford to not have these locations. And so, although some of them may be hurting, they do believe they have a business post COVID. They do believe that COVID is not permanent. And they also generally are reflecting the view that to the extent they give up their space today, there is a real likelihood they may not be able to re enter the market, with anything comparable to the space they currently have.
That's how tight the markets are in our markets. And frankly, those are some of the many reasons that we have chosen to focus exclusively on infill Southern California. And so these are similar patterns from the tenant base perspective as we've seen through prior cycles. Might seem counterintuitive, but it is consistent with our historical observations over decades. And with regard to the PPP component of it, frankly, we've taken a pretty deep dive on the PPP consumption in our tenant base.
You can track tenants that have received PPP loans by name who have received loans of greater than $150,000 And we mapped that against our tenant base. And it's pretty interesting what we found was that 80% about 80% of the PPP
money
that went into our tenant base was to tenants who didn't even request rent relief. And so just by the amount of PPP loans coming into our tenant base, it does not seem to be reflective of the difficulty that the tenants are having in paying rent. The aggregate PPP amount equals about 2% of their monthly base rent in terms of the tenants that took those PPP loans. So again, not an impactful number. And so, we think that, look, if the governments are offering free loans, that companies are rational in taking advantage of that.
But it clearly has not been an indicator in our market of the tenant's ability to pay or not pay rent. And so as these expire and or as they are renewed, we expect to see similar trends with respect to those PPP loans impacts on our businesses and our tenants and that things have improved dramatically through the second half of the quarter and certainly through July. But having been said, we can't really predict to the extent there are ongoing full on commercial shutdowns to the extent COVID hospitalization rates continue to increase. Naturally we can't predict the impacts to our business over the medium to long term. But I think what we're seeing here is a true level of resilience for the tenant base here in infill Southern California.
Okay.
Thanks, Michael. That's helpful.
Thank you. Our next question comes from the line of Emmanuel Torchmann of Citi. Please proceed with your question.
Hey, everyone. Thanks for that. Maybe first to follow-up on Jamie's PPP question. I think, Michael, unless I misheard you, you did an analysis of who received loans and did ask for relief. I guess if you think about the constructs of PPP, you actually get to get forgiveness on the part that you use to pay rent.
So if PPP goes away, are you worried that there will be more tenants that won't be able to pay rent because they were using some
of that PPP money? To me, it's kind
of counterintuitive to say the guys that asked for relief got PPP because the PPP was meant to be used for salaries and rent.
Yes. No, it's a good question. Thanks, Manny, and thanks for connecting with us today. So number 1, a business can receive X dollars in PPP money and they're not required to spend any of that on rent. In other words, they can have other payroll and things that they can spend that money on and still get the full amount of their PPP loan.
So they're not required to use it on rent. And furthermore, what we're seeing is rent, generally speaking, for these tenants is a small portion of their expense structure in their business. And number 2, it's an exceedingly small portion of the PPP money that was received in aggregate from these tenants. So, again, we don't really think that it's materially impactful, to our tenants so far based on the data that we've seen today. Again, that could change, but based on the data we've seen today.
Thanks. And then a clarification on the deferral agreements. Earlier in the call, I think you said those on average were 1 to 2 months. But then in one of Adeel's answers, you talked about getting most of that back, I guess, by the end of 'twenty or into 'twenty one. So what am I missing in terms of what do you mean when you say 1 to 2 months of deferral agreement?
This is David Lancer
with Brexford. And basically what we're describing is those agreements, we've worked out a deal or an arrangement essentially a lease amendment where this tenant is deferring 1 or 2 months worth of rent on average. And when we look at all the deferral agreements in whole. And then they also have the component that lays out the repayment period. And so as was noted before, most of those repayment periods are going to be paid or repaid during the 3rd Q4 of this calendar year.
Does that answer your question?
It does, David. So I guess when when we're on the phone with you guys in October and we're looking at the July, August September collections, those should naturally be higher because you're no longer again, on an average basis, talking to those tenants about deferrals. It was really just April, May June that were deferred because that's when the conversations were happening. Is that the right way to think about it?
Well, based on what we have today in front of us and the deferral agreements that are in place out is what our expectation would be. Obviously, different things can happen as far as orders getting extended and other impacts related to COVID. But based on what we have in front of us today, that's what it looks like.
Hey, Manny, this is Adeel. Just to expand on David's question and answer, if you also look at the table, it kind of shows you the pattern, right? May April May were the heaviest in terms of just the relief that was granted. June was almost half and then July was very little, if anything at all, right? So this is exactly to the point that Dave was mentioning that it's essentially being off.
And these are the deferrals that David just talked about that are going to be rebuilt back in the latter half of the year.
Adeel, my last question maybe just on that point then. If we're thinking about same store NOI growth, I would assume that that would mean a benefit then for 3Q and 4Q as you collect cash that should have been collected in April and May in the latter months of the year, but your same store NOI guidance doesn't imply that. Can you help me connect those, Ted?
Absolutely. Our guidance is based on GAAP not cash, right? So GAAP is supposed to normalize all of that stuff. So the guidance is on GAAP. If you noticed our Q2 same store numbers, right, you didn't see the impact.
And that's why when Jamie asked the question earlier, right, our cash is doing exactly what it's supposed to do because GAAP is supposed to normalize that behavior. So the GAAP is consistent. It's going to stay consistent even in Q3 and Q4 because it's supposed to normalize these deferrals. Q2 cash NOI was certainly impacted because you saw these deferrals factor through in. But to your point, as we go into Q3 and Q4 when those deferrals are built back, you expect to see a higher cash NOI number.
So, yes, absolutely from that perspective. But I wanted to make sure that it was clear for GAAP NOI versus cash NOI, the guidance is based on GAAP.
Thanks, everyone.
Thank you. Our next question has come from the line of Blaine Heck of Wells Fargo. Please proceed with your question.
Great, thanks. Good morning out there. So just looking at the investment sales market, can you talk about how your acquisition pipeline has changed, if at all, since the Q1 call? I mean, clearly, you guys have seen an uptick in activity thus far in July. Is that an indication you're starting to see any force selling?
And have you seen any movement on in place cap rates or valuation?
Hi, Blayne, it's Howard. Let me address the question. So, the pipeline is very strong. We've obviously closed quite a few transactions subsequent to quarter end. We did over 70,000,000 during the quarter and a little under $70,000,000 post quarter already.
We announced on the call earlier, we had 52,000,000 square feet rather $52,000,000 worth of product under LOI contract. But I think your point being that I don't think that really reflects how robust our pipeline is and the amount of conversations we're having, the amount of LOIs we're writing. We've written more LOIs through half of the year than we did all of last year. I think we've written a little over 400 LOIs this year, where last year in entirety, we did we were up 327. So a lot of what we're doing now is we're really planting seeds that we're going to be able to harvest either later this year or into next year.
A lot of that focus has been on some sale leaseback type transactions. You've seen us start closing some of those, some of the pipeline contains those. But not I wouldn't say there's really any forced selling occurring right now. The market is still very strong. What we didn't talk about really, we talked about a lot of the PPP impacts, but what we didn't talk about is the strength of the market.
We had one of our strongest leasing quarters in terms of new space being leased. And even just thinking about the vacates we had during the quarter, the 5 largest vacates we had, we leased 4 of them during the quarter. So the industrial market is doing pretty darn well when you think about what's happening in the world. And we've even seen some of the, call it, Class A or fully leased, more modern type buildings that come to market are garnering more offers than we've ever seen. There's obviously some shifts between people that focus on other product categories now that are looking towards industrial.
So, there's more capital coming over the industrial side. And in fact, we're seeing a bit of cap rate compression now starting to occur on some of those core type transactions, where probably isn't going to be unusual to see a lot of them starting to transact sub-four percent with a bit more compression in there.
Great. That's helpful. And then the second question, just following up on guidance. Both occupancy and same store guidance seem to imply a pretty meaningful deceleration in the second half of the year as Manny just pointed out. I guess my question is how should we think about the level of conservatism built into those forecasts?
Or do they reflect actual known move outs or maybe tenant bankruptcies that you guys are aware of?
Hey, Blayne. Thanks for the question. So, yeah, we did reiterate the guidance, which was consistent with what we reported last quarter. And when we built our guidance last quarter, right, naturally we were looking at the data set, which was fairly limited considering we were still early on into this pandemic in terms of what the world was experiencing. And was based on really what we were able to track at that particular point time in terms of release agreements that we have seen, which were reported.
And we knew that Q2 and Q3 were going to be dealt with in terms of these release agreements, in terms security deposit applications, some of the deferrals that you've seen. And I think that quarter has played out exactly how we planned it. And I think in some cases, it's been very I mean, the optimism has been higher in terms of what you've seen in July rents and that number is going to get hopefully higher in the next few days. But I think the reserves that were put on the guidance, which require us to reduce the guidance in terms of the total FFO and obviously that has a relationship to the same pool as well, was really to deal with the back half and to deal with any disruption and dislocation that our tenants can potentially experience, right. And we're seeing certainly some of that in in terms of what the world is experiencing in terms of the uptick in some of the cases.
And that's what it was really designed to address in the back half of the year. And actually, this still being July, right, there's still a lot of period left. So we felt like that the level of reserves still are accurate and just to maintain the guidance until we know a
little bit more. So, yes, I
think that's what you're essentially seeing in terms of the guidance and just the reserves that were placed on the books to deal with it. No specific tenant discussions within that reserve. They were more general in terms of looking at the trends of the collection patterns. So it was just a general reserve to address with any potential issues that could come down the pike, especially in the latter half of the year.
Okay, great. And Adeel, thanks for all your help. Great working with you over the years and good luck with everything in the future.
Thanks, Blayne. Appreciate it. Thank you. Our next question comes from the line of Mike Buehler of JPMorgan. Please proceed with your question.
Yes. Hi. And Adeel, same thing. It's been great working with you.
In terms of the question,
Hey, Mike, it's Howard. I'll take that one. As I just alluded to, the market is exceptionally strong right now. There's a shortage actually of quality product out there. So while the vacancy rate went up in the markets over the past quarter, if you really drill down and I'll give you a great example, in the infill Greater LA market, which is about half the market, the vacancy rate went up, I think it was a 100 basis point increase.
But a good majority of that, about 60 basis points was due to one tenant vacating a very poor quality 1,500,000 square foot building and another development site that vacated and is temporarily on the market for lease just in case anybody wants to rent some very poor quality building. So if you factor those 2 out, the vacancy rate really only increased about 40 basis points in that market. So, the market is exceptionally strong. And so, we feel pretty comfortable about our activities in the market and really our ability to achieve and exceed the rents that we've been able to forecast. And you look at our leasing, we're hitting rents that are pre COVID projected market rents.
In fact, we're exceeding them in many cases right now. So, it really adds a lot of comfort to us in terms of what's happening
out there.
Hey, Mike, it's Michael. And great to hear your voice today. I just will add to that as a reminder. It's hard to predict in any one period, quarter or year, what the mix will be of value add versus stabilized acquisitions, which I think was getting to your question. And but what we are seeing is an improving opportunity set for Rexford.
Because of all the research we do, the lead generation, the opportunities that we're able to look at and approach today is substantially greater in volume and quality as compared to even a year or 2 or 3 years ago. I don't know if Howard mentioned the number of LOIs already dramatically exceed this year to date, the number of LOIs dramatically exceeds what we did all of last year or the prior year. And I think what we really focus on is we've got over 1,000,000,000 square feet in infill Southern California alone that we've targeted that's owned by passive non professional real estate owners. And by and large, those assets are in deep deferred maintenance. It's really about what degree of dysfunction are they, not what degree of function are they.
And so we have this tremendous palette of opportunity that we are mining. And so we couldn't be more excited about the opportunity to create value going forward. And to the degree to which the percentage more value add versus stabilized comes into play this year or next year, hard to predict.
Yes. And Mike, let me just add one more comment to what we're doing on these acquisitions and so forth. This year, 91% of our transactions have been off market or lightly marketed, which is actually substantially higher than last year, which I think we're close to about 80%. And if you look at all the acquisitions we've done, the projected stabilized yields are very similar to what we've seen in prior years as well. And then finally, those acquisitions so far this year, including post quarter below market in place rents on average were about 17.5%.
So, they're interesting, there's great upside in them, and there's probably a little less on the value add side than we've seen in quarter to quarter year to year. And to Michael's comment, yes, we just can't predict when or what the quarter provides in terms of the value add versus core plus or really just the core transactions?
Mike, what we are seeing in the market too is a lot of these passive owners who really haven't had to address their real estate needs for decades because the tenants just sort of stay put, where today some of those tenants are having issues or want to defer their rents or this and that. So in general, the turmoil in the market works in our favor with regards to generating attractive investment opportunities, particularly sometimes on the value add side.
Got it. Thank you.
Thank you. Our next question comes from the line of Jamie Feldman of Bank of America Merrill Lynch. Please proceed with your question.
You are all set. Thank you.
Thank you. Our next question has come from the line of Chris Lucas of Capital One Securities. Please proceed with your question.
Hey, good morning guys. Thanks for taking my question. I have 2 questions, both kind of follow-up. Howard, I guess just kind of curious as to how, if at all, any of your conversations with sort of tax sensitive property owners are moving given the increased probability that the future might include higher capital gains taxes and potentially negative changes to the 1031 tax free exchange strategy. Any thoughts there?
It's a little early. I think some of that information in terms of potential loss of 1031 is a little too fresh, but I think people do have digested it. But that said, a lot of the people that we converse with in the markets are long term real estate owners and they are extraordinarily focused on the tax consequences of selling. And so a lot of our upgrade conversations are starting to escalate. And so, unclear whether the ability to do an UPREIT could be changed in the same manner as a 1031.
But if not, it certainly would create more opportunities for us to grow the portfolio through the UPREIT. Keep in mind, we have a really just a completely fragmented market of owners. There's quite a bit of institutional ownership, but the majority of the ownership in our markets are mom and pops or smaller partnerships and so forth. And a lot of them are aged. And so, one of our greatest sources of a step up in basis, but many times the a step up in basis, but many times the patriarchs are trying to settle their estates before they get into the hands of the next generation because there's just not an understanding of how to operate industrial properties and so forth.
So we're having an increasing amount of those conversations right now. So it's too early to tell on the tax side related to some
of the announcements you've seen in the news over the past few days.
Okay. Thanks for that, Howard. And then, Adeel, just maybe one question here to tie up Alisa and on my end with you. So you note there's 98 for the Q2, 98.2% of the billing were either collected or there's an in place relief agreement. So for that 1.8% of uncollected and no relief agreement in place, so
it's about
$1,400,000 roughly. How did you guys treat that revenue? Was that not collected and therefore not flowing through the quarter's results? Or is that deemed collectible and therefore but just late? How are you guys doing that?
Yes. Absolutely. So that is deemed collectible. It's just sitting on the balance sheet as an AR. And actually you bring up a good point from that perspective is that if you heard my math or my calculus earlier in terms of overall reserves, this is the data set that we are using to help us kind of work backwards into what that potential reserve should look like, right?
And as I talked about in the back half of the year, right? So yes, so it's very much within our numbers and the reported numbers and that's just the way accounting should work, but it's more on the AR side and our collectability becomes more fair reserve. That is what I talked about in terms of doubtful reserve. So, yes, so the one so it's definitely being the reported GAAP NOIs and cash NOIs. Okay.
Thank you for that. That's all I have.
Thank you. Our next question comes from the line of Eric Frankel of Green Street Advisors. Please proceed with your question.
Thank you very much. Adeel, green work over the years and best of luck in the future. Rexford is in much better place. Thanks to your efforts. My first question just related to obviously, obviously, obviously, e commerce and local consumption has been a really big driver of industrial demand in Southern California over the last couple of years.
But the ports obviously have been more subdued and this year they've struggled quite a bit with the reduction in trade. Have you seen any change in industrial demand related to port activity just based on the fact that I think imports are down roughly 10% year to date versus last year?
Michael, we can't hear you. Are you answering that one?
Hey, Eric, it's Michael, sorry. And thanks so much for joining us today. We don't really see a strong correlation, frankly, between the port traffic changes and our infill tenant demand. I think where you're going to see a greater correlation is with the big box tenants that are more focused on trans shipment and global distribution. So that would be in markets like the Eastern Inland Empire and other major transshipment markets.
And again, in our market in these infill markets, and again, one of the very many reasons we stay focused on infill Southern California, is the demand drivers are more, as you mentioned, consumption driven and last mile driven today. And probably over 50% certainly today over 50% of goods imported are actually consumed regionally. And that's that regional consumption that's the much stronger driver within our tenant base. And so where we see weakness, it's more correlated to micro industries that are having a entertainment industry, supplying props or related infrastructure for content, things like that, not so much to do with port traffic.
Okay, understood. And then just kind of based on with the COVID cases rising in California over the past month or so and with the government that are restricting business activity, are there any more businesses that had to close again in your portfolio or percentage
of them just kind of based on
the health and health guidelines?
Yes, it's interesting. We back in, I think, March or so when there was a complete shutdown, we did a deep dive on our tenant base and estimated that upwards of 80% of our tenants were still considered essential business even back then amidst the total shutdown. And so we don't really see an impact today with these sort of lighter restrictions being put back in place in terms of creating the problems for tenants. It's really more about just the business realities, right? Irrespective of the restrictions imposed by the government, it's really more about just the fundamental demand for goods and services that for some companies have declined or have not recovered, even though technically they're allowed to operate.
Okay. That makes sense. Just final question. Howard, I guess you touched upon this, you were talking about, let's say, the LA market and the cause of the rise in the vacancy rate. Just geographically, obviously, Southern California, generally, it's more correlated to what's happening within the markets and then with other markets.
But is there any difference in leasing activity between the submarkets you guys classify?
No, I would say not. I mean, if we look at what transpired during the quarter in terms of our leasing, it was fairly spread out throughout the different submarkets that we own in and probably followed percentages in terms of the concentrations where half the portfolio follows the size of the market being half of the Greater LA area. So we obviously had more transactions in each of those submarkets within Greater LA than we would have in Ventura County, let's say, which is really the smallest of the submarkets. So, the markets came roaring back. I think what's very interesting is if you look at our activity for the quarter, over 70% of our new leasing occurred in June.
And so, 2 thirds through the quarter, we didn't really know how the world was going to end up. And then all of a sudden, just demand skyrocketed and our team was exceptionally busy. And that activity has continued now into the Q3 as well. So we're quite pleased with the activity and it's really occurring in all of the markets in terms of these infill markets that we're focused on.
Okay. Thanks everyone. Best of luck. Stay healthy.
Our next question comes from the line of Elvis Rodriguez of Bank of America. Please proceed with your question. Hey, guys. Just a couple
of follow-up questions. More macro on the municipality level, how are those conversations coming along? And have the municipalities sort of eased the way they are their rhetoric with the tenants and allowing them to defer rent versus what you saw back in March April? And what any expectation that you can share on when you think they'll start to push tenants to actually start paying rent?
Hi, Elvis. This is David. Thanks for the question. The answer is that really we haven't seen them lightening up on the orders significantly. There have been a few important changes in Los Angeles County as
well as the City of
Los Angeles. They did modify their order to where they no longer allow publicly traded companies to not pay rent, they no longer allow multinational companies. And with respect to the county, if you have more than 100 employees, you can no longer defer rent. So those have been some positive steps in the right direction and a lot of other cities and counties then followed suit with those modifications. However, as far as the timing of those orders going away in response to your question, the governor extended the statewide order until the end of September and then the City of LA, the County of LA bus quickly followed suit.
So those orders are in
place. But
as we've noted in the past and as I think our rent collections reflect, we've been very proactive in working now and using our leverage to work out deferral agreements that are more beneficial to the company than otherwise might have been afforded under the order. And we really use our leverage points in terms of tenant incentives that would be lost by a tenant if they're not paying rent. They lose certain renewal options. Almost all of our leases have provisions that allow us to call back any previous incentives that were initially granted when the lease was signed, such as tenant allowances and upfront rent abatement. So we've used that leverage to really come out better than what the workers would have otherwise allowed.
So we're continuing to monitor the 45 orders that affect us in Southern California, but we've been able to exceed what those otherwise would have allowed.
Great. And then just one more, maybe my final one for Adeel, and thank you Adeel for all the help over the years. So historically, you sort of have always guided to saying that cash, same store NOI, is about 140 basis
points to 150 basis points over the GAAP number. Do
the deferral or the collections or anything that's going on change that this year? Or how should we be thinking about where cash where the cash number will come in at the end of the year?
Yes. Elvis, I appreciate the kind words as well. And I think at the beginning of the year, we had guided to about 150 basis points higher than the GAAP spreads on the cash. So at this junction, it's about 100 basis points. So once it's all said and done, if our guidance stays accurate, right, for the full year and if it comes on par to what we're saying, it should be about 100 basis points higher.
And I think it's just the other thing that's just worth mentioning is that even though Q2 showed what they showed and we can disclose the fact that it factored in the deprolin would be 4.4 percent, but later on in the year it would normalize itself a little bit, if not higher, right? So that's still about 100 basis points higher for the full year.
Great. Is that because of some of the deferrals the payments will happen in, call it, 1Q of 'twenty one?
No, I don't think so. I think it's a partial product of the reserves as also, right, that we're putting on. So obviously, if you're putting reserves that as I talked about that are going to potentially impact hopefully not in the latter half of the year, so that's why not only are you seeing some decrease in guidance on the GAAP NOI for a same store, but you're also seeing some decrease on the cash side. So it's just a byproduct of that. I think very little, if any, of the deferrals are going to get paid back post 2020, but majority of them are coming back in 2020.
Great. Thank you so much, Adeel.
We have reached the end of the question and answer session. I will now turn the call back over to management for any closing remarks.
Well, we'd just like to thank everybody for joining us today and also a heartfelt thank you again to Adeel for the many years of service and partnership and we're going to miss you next quarter, Adeel. And with regard to everybody on the call, we hope you stay safe and healthy and we look forward to reconnecting in about 3 months.
The deal out.
Thanks, everybody.
This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.