Greetings, and welcome to the Rexford Industrial Realty first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to David Lanzer, General Counsel. Thank you. You may begin.
We thank you for joining us for Rexford Industrial's first quarter 2022 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and investor presentation in the investor relations section on our website at www.rexfordindustrial.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risk 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. 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, David, and thank you everyone for joining our Rexford Industrial first quarter 2022 earnings call. We hope you and your families are well. I'll provide some brief remarks, followed by Howard, who will discuss our transaction activity, and then Laura will provide an update on our financial metrics and guidance. As we start the new year, our exceptional first quarter performance demonstrates the extraordinary tenant demand that continues to strengthen even beyond last year's historic levels. Rexford continues to differentiate itself as the nation's fastest growing and strongest performing industrial REIT. Our portfolio now comprises over 38 million sq ft of industrial property, 100% located within Southern California infill markets, the strongest industrial market in the nation, and the fourth largest industrial market in the world.
Our portfolio is performing at essentially full occupancy, with our same property pool ending the quarter at over 99% occupancy. We are seeing an exceptionally deep and diverse range of tenant demand across sectors. Demand substantially exceeds supply, with overall market vacancy tracking at well below 1%. We expect to continue to experience an incurable supply-demand imbalance due to an extreme lack of developable land. This inability to increase supply within infill Southern California is a key feature that we believe will differentiate our markets into the foreseeable future. In addition to this exceptional market backdrop, our entrepreneurial business model continues to position us to drive accretive cash flow growth and value creation well in excess of secular tailwinds. Our team is executing on a range of internal and external growth strategies that are unlocking tremendous value.
Leasing spreads for the quarter were a full 71% on a GAAP basis and 57% on a cash basis. On the external growth front, year to date, our team acquired $458 million of assets sourced predominantly through off-market or lightly marketed transactions. Compared to the prior year quarter, we grew net operating income by 41% and grew core FFO by a full 58%. As we look forward, we are very well positioned to continue to grow our cash flow and value.
From an internal growth perspective, over the next 24 months, we project approximately $140 million or 33% of annualized NOI growth embedded within our in-place portfolio, assuming no further acquisitions, which includes $31 million of incremental NOI as our redevelopment and repositioning projects stabilize, $29 million of incremental NOI from recent acquisitions, and $82 million of incremental NOI contributed as we roll below market rents to higher market rates. In fact, the mark-to-market on rental rates for our entire portfolio is now estimated at 55% on a cash basis and 63% on a net effective basis. In addition, we have an extensive pipeline of additional investments currently comprising over $500 million of acquisitions under contract or accepted offer, and we have an extensive originations pipeline beyond these transactions.
To fuel our growth, we are favorably positioned with a low leverage, best in class balance sheet, closing the quarter at 10.3% net debt to enterprise value. As a reflection of the company's strong performance, our first quarter dividend represented a 31% increase compared to last year. With that, we'd like to thank our entire Rexford team for your extraordinary dedication, passion and entrepreneurial approach to growing our great company. Now I'm very pleased to turn the call over to Howard.
Thank you, Michael, and thank you everyone for joining us today. Rexford began the year with outstanding results, reflecting the high quality of our portfolio and the incredibly strong fundamentals of the Southern California infill markets. Based on Rexford's internal portfolio metrics, market rents for comparable space continue to accelerate, increasing by 62% over the prior year. According to CBRE, quarter end vacancy decreased to 0.7% across our infill markets. Due to the ongoing lack of availability within our supply constrained infill markets and ongoing strong tenant demand, we see our markets continuing to perform at below 1% vacancy, positioning us well to capture strong rent spreads in the coming quarters.
The consolidated portfolio weighted average mark-to-market for our remaining 4.1 million sq ft of 2022 lease expirations is now estimated at 67% on a net effective basis and 58% on a cash basis. Regarding external growth, in the first quarter, we completed 14 acquisitions totaling $458 million, representing 1.5 million sq ft of buildings on 82 acres of land, including 13 acres for near-term redevelopment. Approximately 50% of acquisitions were value add investments. In aggregate, our first quarter acquisitions generate an initial unlevered yield of 3.2%, growing to an estimated 4.7% unlevered stabilized yield on total costs. Year to date, over 85% of our acquisitions were acquired through off market or lightly marketed transactions, sourced through our proprietary research driven processes and deep market relationships.
Looking towards the future, we currently have over $500 million of new investments under LOI or contract, which are subject to customary closing conditions. During the first quarter, we stabilized a 111,000 sq ft redevelopment property at a 6.6% unlevered stabilized yield on total cost, representing substantial value creation as this stabilized yield is about double the market yield for similar quality assets in today's market. Although increasing construction costs are top of mind, we continue to see rent growth well in excess of inflationary impacts. The team is executing on a broad range of accretive internal growth initiatives. We have approximately $415 million of projected total incremental investment for value add and redevelopment projects underway or expected to start over the next two years.
These projects are projected to deliver an aggregate return on total investment of about 6.7%, representing over $1 billion in estimated incremental value creation. With that, I'm pleased to now turn the call over to Laura.
Thank you, Howard. First quarter results were exceptional, with same property NOI growth at 8% on a GAAP basis and 11.7% on a cash basis, equal to 12.3% when normalized for COVID related repayments. This strong performance was driven by continued occupancy gains and record leasing spreads. Average same property occupancy was 99.2% in the first quarter, up 150 basis points year-over-year, ending the quarter at 99.3%. Leasing spreads executed over the prior four quarters averaged 46% on a GAAP basis and 32% on a cash basis. Additionally, annual embedded rent steps on our executed new and renewal leases increased to 4.2% on average, compared to 3.9% in the prior quarter.
This strong embedded internal growth, combined with our accretive external growth, enabled us to grow Core FFO per share by 30% over the prior year to $0.48 per share. Moving to our balance sheet and capital markets activities. At the end of the first quarter, net debt to EBITDA was a sector low 3.7 times , below our 4-4.5 times target. We continue to execute on our strategy to maintain a low leverage investment grade balance sheet that opportunistically positions us to execute on strategic capital markets transactions through all points in the cycle. During the first quarter, we sold 5.7 million shares of common stock through the ATM on a forward basis at an average price of $71.32 per share.
At the end of the quarter, we settled forward sale agreements associated with this quarter and last quarter's ATM sales, issuing 4.4 million shares of common stock for net proceeds of $306 million. At quarter end, our liquidity was approximately $856 million, including $49 million of cash, $232 million remaining for settlement from our first quarter ATM sales, and $575 million of availability on our revolving credit facility. Now, turning to our full year guidance. We are increasing our core FFO guidance range to $1.84-$1.88 per share from our previous range of $1.77-$1.81. Our revised guidance represents 13% year-over-year earnings growth at the midpoint.
As a reminder, our guidance does not include acquisitions, dispositions, or related balance sheet activities that have not closed. We have provided a roll forward detailing the drivers of our revised guidance range on our supplemental package. A few highlights include same-property NOI growth on a cash basis has been increased to 6.75%-7.75%, up 75 basis points at the midpoint. When normalized for COVID related repayments, cash same-property NOI growth is projected to be 7.25%-8.25%. Same-property NOI growth on a GAAP basis is now projected to be 4%-5%, also increased 75 basis points at the midpoint. Assumptions driving same-property growth include average occupancy of 98.25%-98.75%, an increase of 25 basis points at the midpoint.
Cash leasing spreads of approximately 50% and GAAP leasing spreads of approximately 60%. Our projection for bad debt as a percent of revenue is now 25 basis points for the full year as compared to 35 basis points in the prior guidance, driven by the strength of our tenant base. Finally, I'll note that our overall same-property expense growth is in line with our prior projections. The incremental NOI from the $288 million of acquisitions closed after we initiated guidance is projected to be approximately $11 million in 2022. Our revised guidance also includes approximately $5 million of incremental NOI from our repositioning and redevelopment properties and prior year acquisitions, driven by higher occupancy levels and increasing rental rates.
Lastly, G&A expenses are now projected to be $59 million-$60 million, and net interest expense is projected to be in the range of $39 million-$40 million. This completes our prepared remarks, and we now welcome your questions. Operator.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question comes from the line of Manny Korchman with Citi. Please proceed with your questions.
Hey, everyone. Just given the massive amount of rental rate growth, how are the tenants in the market dealing with sort of that inflationary pressure? Specifically, maybe the tenants that have locations in your sub-markets that are national, and so maybe they can't push pricing as much as they can. Is it just that real estate becomes a bigger piece of their cost puzzle?
Hey, Manny, it's Michael. Thank you so much for joining us today. You know, again, just a reminder that the vast majority of our tenants, you know, demand from those tenants is driven by regional consumption. We have the largest zone of consumption in the country here. Even your larger national tenants, you know, have an increasing need to push their warehousing capability in closer, you know, to the endpoints of distribution. Just take an example of Target. You know, Target's fundamentally changed their business model actually over the last, you know, five, 10 years, by opening actually small footprint stores in and among the population centers. Very diametrically opposed to their previous big box, you know, business strategy.
To deliver on that and to support that network of small footprint stores as well as their e-commerce activity, you know, they're really forced to establish a greater presence with smaller warehouses throughout infill Southern California. You know, whether it's a smaller business or a legacy business or large national business operating in infill Southern California, the key driver is that, you know, in order to execute on their business model, in order to have a business, they need to have these spaces. We can talk through a range of industry sectors, new and emerging businesses and industries that they're all experiencing the same set of circumstances. They can't execute on their business if they don't have the space in infill Southern California.
Frankly, you know, companies that could afford to move out of the region did so, you know, many years ago because this has been the most expensive operating environment for decades. With regard to your question about, you know, what are they doing about it, these increasing rental rates, you know, they're absorbing them. You know, they just don't have a lot of options. We're seeing a level of tenant demand and intensity that we've never seen before. As I mentioned in my prepared remarks, even well beyond what we saw last year at those historic levels. You know, we can talk about this literally, you know, for a long time today. I think what it really differentiates today is the deep diversity of demand that we're seeing. There are incremental drivers.
I mean, California now has a mandate to increase housing stock by over 20%. It's gonna take over 20 years to achieve that. Now we have, you know, demand from the building trades, which used to be more cyclical, with a 20-year trajectory. We're seeing the impacts already. You know, it's a unique time here for us. Really, you know, remember, we have a market that cannot increase supply. We'll actually continue to lose supply on average year-over-year.
Manny, one more comment on that. This is Howard. Nice to hear your voice. You know, the tenants are the ones setting the rents right now in the market. All our space generally we put out there is unpriced. We get a multitude of offers, and the tenants are literally competing with each other, and they're pricing the space. It's really, to you know, to Michael's point, you know, these spaces are essential to their businesses, and they're determining how badly they want them and pricing them in terms of what works for them to take the space.
Thank you for that detail. Howard, while I have you on, just in terms of the acquisition pipeline. Is there any change in mix or asset type or that value add component versus what you've been buying over the last few quarters?
Well, it's going to vary quarter to quarter. You know, this past quarter, about half of what we purchased was value add type transactions. We had, you know, 13 acres for near-term redevelopment. Yeah, quarter to quarter it varies. You know, we're pretty pleased with the quality and the volume of opportunity that we're still seeing in the marketplace.
Manny, it's Michael again. I'd like to come back to your original question because I realize we have some really interesting data when you ask about how are the national tenants, you know, responding to the dramatic increase in rental rates in Southern California. It's interesting, if you compare our larger tenants, which is more comparable to the other industrial REITs that own across the nation, who have national portfolios, their tenant base is typically larger than Rexford's on average in terms of their space sizes. If you look at a more comparable metric in our leasing spreads that would more directly compare to the national REITs, national industrial REITs.
For instance, for our spaces over 25,000 sq ft in size, which will tend to be more of your national tenants as compared to our smaller spaces, our leasing spreads for the quarter were a full 91%. You know, that's a leasing spread that's more comparable to the leasing spreads that you'll hear, for instance, from the national industrial REITs. I think it's an indication to your question that, you know, the national REITs, they're adjusting. They don't have an option. Frankly, the reason that the larger spaces are experiencing a higher leasing spread in our portfolio is simply because they don't roll as often. The larger spaces tend to have longer term leases, and so they have more time to build up that mark-to-market. We're seeing that reflected in their higher leasing spread.
Great. Cool.
Thank you. Our next question is coming from the line of Jamie Feldman with Bank of America. Please proceed with your questions.
Great. Thank you. You know, we hear talk about, you know, buyers kind of rethinking maybe pricing, or, you know, in the debt markets, you know, cost of capital has certainly backed up with higher rates. How are you thinking about, you know, the change in your required returns? I know you'd mentioned your unlevered yields going in and you're stabilized. But how is your firm thinking about, you know, what's changed here and what kind of returns you want on your investments?
Hey, Jamie, it's Laura. Great to hear you today. I have some feedback here. All right. Hey, Jamie, it's Laura. Do you hear me now?
Yep. Sounds good.
Okay, great. Sorry about that. In terms of how we're thinking about, you know, looking at capital raises and how we're thinking about our cost of capital moving forward. You know, I think you're gonna see us continue to take a very opportunistic approach to capital raises and how we deploy capital. Our balance sheet currently allows us to take advantage of all attractive capital sources, including debt and equity, to fund all of our investment activities. I think it's important to note that we don't focus on a cost of capital at a point in time. We take a much longer term approach and view because we've built a business that's enabled us to do that.
We can execute across all points in the capital cycle because of the value creation opportunities that we've embedded into our portfolio through repositioning, redevelopment, below-market rent opportunities. When you think about how we invest, we really invest in a basket of goods that achieve a range of yields that overall increase our earnings growth and FFO. As an example, if you look at the projected yield for our recent acquisitions and our in-process and pipeline repositioning and redevelopment investments, if you look at what's gonna stabilize in 2022, for example, the projected stabilized yield on that basket of goods is 5.8%.
If we look ahead and we look at the stabilizations occurring over the next five years, those are projected to yield 5.9% in the years in which they stabilize. I think even in the face of increasing interest rates and inflation, given these above market yields, that really positions us to drive substantial NAV and FFO accretion over time.
Jamie.
All right. Thank you.
Jamie, I'd just maybe add to that. In somewhere in your question, I think is, you know, interest in, you know, what's happening with interest rates affecting cap rates. I'd maybe just point out that because of the rent growth that you've seen in our portfolio and the market itself, there's less sensitivity to cap rates and interest rates for investments that have shorter duration lease expirations. We are starting to hear about some of the longer-term lease product. Not that we've seen a change in those cap rates yet, but perhaps maybe there's less buyers showing up to bid on them because some of them are interest rate sensitive.
If you know, the first place we will see something in the market is gonna be on the longer-term leased properties without an opportunity to reset to market.
Well, I think frankly, hey, Jamie, it's Michael. Thanks again for joining us today. I think what we've seen in prior cycles, you know, we've been doing this a very long time, and we've kind of seen this movie before in many respects. What we've seen during the expansion phase of the cycle, that people chase the risk curve down and they go to secondary, tertiary markets, and they drive those cap rates down disproportionately low in secondary, tertiary markets that are not as fundamentally strong over the long term as Southern California. When the cycle starts to come back around, you know, due to inflationary pressures, interest rates, recession, whatever it might be, we see those tertiary markets, secondary market cap rates sort of start to vaporize.
You know, they start to go up fairly dramatically. Whereas in infill Southern California in those prior cycles, at those inflection points where the market stabilizes, you know, we don't see the same cap rate impacts in infill Southern California. You know, simply because supply-demand here trumps these pressures over time. That's what we continue to see today. Except that today, supply-demand dramatically trumps these factors even more so than in prior cycles from our experience.
Thank you for that color. You know, we've seen the number of ships waiting outside of the Port of L.A. decline meaningfully. I'm just curious, you know, what has changed in terms of the demand profile or what tenants are saying or needing, as it seems like supply chains are starting to get a little bit better. I know there's obviously a lot of risk that they get worse, but, you know, what do you think we can expect if we do actually start to see supply chains improve?
I think if we start to see supply chains improve, we'll start to see our tenants' businesses functioning more efficiently, frankly. I think the short answer to your first question is we've seen no impact other than increasing demand consistent with a decrease in the backlog at the ports. Vessels waiting to dock are down from about 60 to 48 in March. But they're still above 2021 levels. Frankly, import volumes are up 17% versus February, up 29% year to date. The first quarter was the best quarter for the port system in Southern California ever on record. Really it's more about fundamental underlying demand.
People talk about increasing safety stock and all that sort of thing, but don't forget, we have a market that's already performing at full occupancy. You know, our markets are well below 1% vacancy. If you were to drill down into those vacant buildings to determine which or how many of the vacant buildings actually compete with Rexford on a locational or functional basis, and you're probably looking at less than half of the stated vacancy actually even competes with us. We really, you know, what it means in terms of reduced congestion at the ports is really enabling our tenants to operate more efficiently, to, you know, to replenish their inventories, to service the backlog of orders. But we see no letup in tenant demand.
We see our tenants actually just increasing demand because they can run their businesses the way they have, you know, plans for.
Okay. Thank you.
Thank you. Our next question has come from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks. Good morning out there. Laura, you guys are obviously off to a great start on same-store NOI this year with cash at 11.7% this quarter. To hit your midpoint on guidance for the year, there's a meaningful slowdown implied in the remainder of the year. Can you just talk about the cadence of same-store NOI that we should expect? Is there a big drop-off in any specific quarter? Is the deceleration all due to expense growth, as we've talked about earlier, or are there other drivers behind that slowdown?
Yeah. Blaine, thanks so much for your question today. The deceleration in same-property growth that we're projecting through the rest of the year is actually almost all tied to the cadence of our occupancy assumptions. As you mentioned, our cash same-property growth in the first quarter was 11.7%, and our guidance for cash same-property growth at the midpoint is 7.25%. That does imply some deceleration. It really has to do with the cadence of our occupancy assumptions compared to 2021.
Mm-hmm.
If you look at 2021, our average occupancy increased 130 basis points from Q1 to Q4. 97.7% in the first quarter and grew to over 99% by the fourth quarter. What's happening in 2022 is the opposite's occurring. In 2022, our average occupancy assumes the reverse. Our average occupancy is starting at, you know, at levels today at 99.2% and assumes roughly 120 basis points decline from Q1 to Q4. That's really what's impacting the year-over-year comps and the primary impact to the deceleration.
Great. That's helpful. Just, you know, to follow up on that, are there any specific kind of large move-outs that you guys are anticipating that's gonna drive that occupancy lower? Or is it, you know, lower retention as you guys push on rates or anything specific you can point us to there?
Yeah, Blaine, that's a great question. You know, we're currently sitting in occupancy, as I mentioned, at 99.2%. The midpoint of our average occupancy for the year is 98.5%. I will note that that did increase 25 basis points over our prior guidance. I'd say that the drivers of our assumptions are really twofold. One, as you know, given our very current high occupancy levels, and although market fundamentals continue to be very strong, we really feel like our forecast is prudent at this time, really given by the timing of our expirations. Our expirations are heavily back-end weighted, so 70% of our expirations occur in the second half of the year. Actually 40% of those are in the fourth quarter.
I think, you know, when we think about occupancy today and as we start getting more visibility into those spaces, we'll continue to update our assumptions. It's just pretty early in the year for those back-end-weighted expirations. I think the second impact is really around the visibility that we have into capitalizing on some expiring leases, which certainly gives us the opportunity to drive substantial value creation, 'cause we are able to roll those to higher market rents. We have about 300,000 sq ft of spaces where we're projecting leasing spreads of up about 90%.
You know, that's gonna drive substantial value creation, but it does come with a little near-term impact to occupancy in the form of downtime.
Great. That's really helpful. Switching to Michael or Howard. Can you guys talk about your expectation for the trajectory of mark-to-market as we move throughout the year? Obviously, you've got, you know, older, lower rents that will be expiring and coming out of that in-place rent bucket each quarter. Market rent growth has been very strong. How do you think about those two dynamics balancing each other out and influencing the overall portfolio mark-to-market as we progress throughout the year?
Well, we'll continue to mark the portfolio to market every quarter, right? You know, we saw tremendous increase in the mark-to-market just from Q4 into Q1 here. You know, the reality is there's no space in the market, as Michael mentioned earlier. There's a tremendous pressure for market rent growth to continue. You know, it's really interesting. If you looked at the end of the quarter, we literally only had 340,000 sq ft of vacant space in our portfolio. You know, we don't have much to even lease on the new side. It's really more about the renewals that we're doing with tenants. You know, tenants are very conscientious of retaining their space.
They're calling us all the time about wanting to renew early, and we've been holding them off a bit, if they have expirations at the latter part of the year, or some are calling even about next year. There's just still tremendous pressure out there. It feels like we're set up quite well to see continued strong market rent growth in our portfolio and probably in the entire marketplace as well.
Blaine, hey, it's Michael. Thanks so much again for joining today. I think a great leading indicator also are the rent bumps that we're contractually structuring into almost all of our leases. We've seen a nice acceleration there as well. For example, our Q1 rent spreads were a full 4.2% on average, you know, for the quarter. We actually had our first 6% contractual rent spread, you know, booked during the quarter. Those are annual rent spreads. I'm sorry, annual rent bumps, that occur every year throughout the lease terms. I think that's a great leading indicator of maybe where things are going in the near term.
Very helpful. Thanks, everyone.
Thank you. Our next questions come from the line of Connor Siversky with Berenberg. Please proceed with your questions.
Hey, everybody. Thanks for having me on the call. Really just one question from me. Curious on the Inland Empire. I think it was noted in the last call that it acts as somewhat of an overflow valve for L.A. proper. Noticing that the vacancy rate is exceedingly low at the moment, are we at the point where virtually any development project in that market is pre-leased before completion? If that's the case, have you guys done any work to maybe identify what the next overflow valve looks like and whether or not you'd be willing to enter a new county?
Hi, Connor. It's Howard. Well, we're focused in the Inland Empire West. We really don't buy or operate in the Inland Empire East, which really is that overflow valve that you're speaking of because there's, you know, almost unlimited land just in continuing to head east. You know, you could build all the way to Arizona if you needed to. But in the Inland Empire West, yeah, I mean the vacancy was astounding there. You know, according to CBRE stats, the vacancy ended in that market at 0.1%. So essentially the market is beyond full capacity, right? Coincidentally, that had the highest year-over-year rent growth on their stats as well at, you know, almost 82%.
You know, the Inland Empire is now, you know, a real infill market in terms of the Western Inland Empire. Yeah, anytime literally we even have a space that's vacating, we'll have tenants and brokers coming to us ahead of time. We're able to actually even match our acquisitions now in that market, where we are buying a vacant building. We'll pre-lease the building during the escrow. We've had a couple instances of doing that recently. It's the tightest of the tight markets. But look, everything's some one percent. Really, all the infill markets are performing exceptionally well. Really, you know, just in terms of a relief valve, yeah, going further east is really always the option.
Got it. Thanks for that. Just a point of clarification. Apologies if I missed this before. Given the rising rate backdrop, I mean, and the $500 million under LOI or contract, does this change your calculus at all on how you fund these acquisitions? Specifically speaking, I'm wondering if you seek to use more equity in the debt-to-equity weight.
Hey, Connor. No, it doesn't change our approach. As I mentioned before, you know, we're not as focused on our cost of capital at a point in time. When you look at the stabilized yields in which we're investing on our recent acquisitions and in-process and pipeline repositions and redevelopments.
You know, pushing, you know, 5.8%-5.9%, you know, even in the face of increasing rates and inflation, you know, we're very well-positioned, given our above-market yields.
Okay, noted. I'll leave it there. Thank you.
Thank you.
Thank you. Our next question has come from the line of Mike Mueller with JP Morgan. Please proceed with your questions.
Yeah. Hi. I guess for the $450 million or so of acquisitions in the first quarter, I think the comment was about half were value add. Does that mean about half of that pipeline's ultimately gonna end up in your repositioning or the redevelopment pages in there? Or is it a little bit more, you know, wait for a tenant to roll, kinda mark-to-market? I mean, how should we think about that? I guess to get to that incremental stabilized 4.7% yield, is there a significant incremental capital commitment to tie to that? Just kinda what's an overall ballpark timing to get there?
Hi, Mike. It's Howard. I'll respond to a few of those points and maybe Laura can talk about the capital. You know, value add doesn't necessarily mean that we're going to have vacant product day one and push it onto the repositioning page. There were, I think it was like two or three sites for 13 acres that are near term for redevelopment. But some of those actually had some income in place on them. But those will show up on the repo page, you know, in the next year. But it takes time with a lot of these to wait out some of the expirations. You know, it may take 18 months or, you know, two years or so.
The nice part is that we're achieving great cash flow in the interim. Three of our transactions were what we refer to as covered land sites, where it might take a bit longer to actually get to and redevelop. Those came in with inbound yields in the low to mid four cap range. Very strong cash flows to hold and have plenty of time for the planning and the titling of those developments. It's not all gonna show up on the repositioning page in the next six months or so.
Mike, it's Howard. I mean, it's Michael. Thank you so much for joining today. We often confuse ourselves for each other.
We do.
We know each other that well. I know what Howard's thinking before he thinks it and vice versa. I think it's certainly interesting is you're seeing the Rexford business model, you know, truly executing on all cylinders. Because, you know, we talk about the yields for the acquisitions that we're buying. Equally important, if you look at the repositioning projects that we're starting this year, we have a total spend, almost $700 million of total spend represented by the 22 starts. They're solving to a 6.7 unlevered, weighted average stabilized yield. You know, that's arguably more than double the market cap rates that we could turn around and sell those assets for in today's market. You know, tremendous amount of value creation embedded in the activity throughout the portfolio.
Got it. Okay.
Mike, I'll-
Yeah.
Mike, I'll add one more thing to that. In terms of, you asked a question around kind of average stabilized. Yours tends to be in the kind of 4-5 year area for this.
Got it.
For these acquisitions.
Okay. That was it. Thank you.
Thank you. Our next question has come from the line of Dave Rodgers with Baird. Please proceed with your questions.
Yeah. Good morning out there. Michael, Howard. Wanted to ask two questions, one on the acquisition pipeline and recent closings of acquisitions. You know, in the last couple of quarters, we talked about OP units versus cash. So maybe talk about the seller mix. It looks like it's been a bulk of cash, although you did do one unique transaction this quarter, it seems like. But maybe is that just a function of seller mix? Is that just a function of price? Hey, let's take our money as a seller and go. But maybe some more color on kinda how that's playing out in the discussions.
Sure. Hi. Hi, Dave. It's Howard. You know, the UPREIT's an important part of our acquisition program. You know, we are working with sellers that have owned assets in our market for many years. They understand our market, and they're extraordinarily comfortable to invest in Rexford by contributing their assets into our operating partnership through UPREIT. That's, you know, most of the conversations we have, you know, close as UPREITs. Many of them start as an UPREIT and turn into cash acquisitions. You know, they vary obviously from quarter to quarter. You know, it was a smaller amount in this past quarter. There's a lot of conversations happening with people that are very interested in UPREITs.
Frankly, as we, you know, we look ahead, even some of the conversations with you know, from a federal level trying to eliminate the 1031 exchange, you know, that really just plays right into more UPREIT type of activity. And also many, many people today, a lot of times people sell because they're tired of operating a property. It's management intensive. It's gonna need a lot of capital. And so they will tend to sell and then do a 1031 exchange. You know, the markets are so tight that it's very difficult to even find exchange properties.
We find a lot of people, even if they're looking for or rather a 1031 exchange, they're asking us to build in some flexibility that we might allow them to do an UPREIT in the eleventh hour if the 1031 exchange doesn't even work out. It's a growing component of our acquisitions. The market in terms of, you know, the aging owners is really feeding into that and that's a huge opportunity for us going forward.
Dave, it's Michael. I'll just add a little bit to that because we're really seeing the direct addressable market opportunity from an external growth perspective increasing pretty dramatically, both in volume and quality for Rexford. Now, it doesn't mean that our acquisition volume goes up linearly every single year, but it means that the direct addressable market opportunity overall is increasing substantially in quality. The reason for that are really driven by multiple factors. Number one, you know, Howard briefly mentioned, you know, the aging out of this legacy ownership. We have over 1 billion square feet in infill Southern California, almost half the market, built before 1980. Predominantly owned by longtime private owners who bought, built, or aggregated these properties during the post-World War II era.
Frankly, just through the passage of time, you know, we're in the middle of an historical shift of these assets from one generation to the next. If you were to drill down and peel back, you know, the layers as to what are the core drivers of the transaction activity, which is kind of getting to your question, the single greatest core driver of transaction activity, one way or another, is this transition, this historical transition of assets from one generation to the next. Today, given where values are, you know, they can actually replace the cash flow that they're receiving from the properties in a pretty favorable way by monetizing the value of the assets and redeploying their cash flow either into Rexford through a UPREIT or otherwise. It's a unique time.
You combine that with the fact that we're simply deeper in the markets than we've ever been. Our team is better equipped. You know, Howard and I grew up here, our families grew up here, our roots go very, very deep. Then you look at the track record of Rexford. You know, there's just absolutely no reason that a private seller today wouldn't consider a UPREIT. We're really very fortunate, I would say, and benefiting from all those factors.
I appreciate the color on that. My second question maybe is slightly more obscure, but around real estate taxes in California. You've obviously bought a lot in the last couple of years, and it probably takes some time before those tax bills start to come into the tenants. I mean, is there any slippage in that where you guys are facing kind of more taxes until you can reinstitute your version of the lease? Does that happen? Or are the leases institutionalized enough where that's a tenant burden and you're just not really seeing that? I guess I'm just wondering if that's something we should think about building in as you get reassessed here in the coming years on a short-term basis.
I'd say that most leases on properties we buy are very standardized. You know, in Southern California, there's a lease that's called the AIR Standard Industrial Lease that was developed and modified over many decades here. We find that most all of these unsophisticated landlords that Michael was mentioning use that lease. Whether it's a net lease or a gross lease, they all provide for increases in property taxes to be passed through to tenants. Now occasionally, you know, a tenant might have negotiated for a tax stop in terms of annual increases, but we're building that into our underwriting. But that's very rare that we stumble across that.
Yeah. I'll just also note, Dave, that we have not seen an impact, and from a recovery rate perspective, in tenant collections of those increased taxes.
Gotcha. That's helpful. Last, Laura, for you, on the same store expenses, you had mentioned last quarter that they would be elevated this year, and you added some personnel around. Should we expect kind of sequentially for that to continue to increase, or was that kind of all loaded in in the first quarter?
Yeah. Good question. Thanks, Dave. Our full year guidance, as we talked about last quarter, included a negative 110 basis point impact from expenses, net of recoveries. And there has been no change in that overall expense guidance. Just as a reminder, that impact was related to a couple of things. One was related to occupancy assumptions for the full year, and the second was related to an increase in non-recoverable expenses related to operating, really overhead costs. When you look at, you know, our Q1 expense impact net of recoveries was actually 150 basis points, lower than what we're assuming for the full year.
That would imply higher expenses or a higher run rate there for the rest of the quarters. That actually is in line with our expectations. What's driving that is really the decline in recoveries that's directly tied to our occupancy assumptions. Obviously, as your occupancy declines, that would impact your recoveries a bit. What happened last year when I talked about this earlier on the call is last year, we were seeing an increase in occupancy through the year and an increase in recovery rates. The opposite is happening this year. We're having kind of the reverse impact there. That will accelerate the expense impact through the rest of the year.
Again, our guidance is no change to our overall guidance, and everything from an expense standpoint is tracking in line with our expectations. I think it's important to note that even with this increase in expenses and this impact we're having, we're still projecting very strong same property growth at 7.25% at the midpoint and an FFO growth of 13% at the midpoint from an earnings perspective.
Very helpful. Thank you.
Mm-hmm.
Thank you. Our next question has come from the line of Chris Lucas with Capital One Securities. Please proceed with your questions.
Hey, good morning, everybody. Just a couple of quick ones, if I could. Just on the renewal, lease term, length, a little shorter than it's been. Is that really mix related, or is there something more fundamental as it relates to strategy behind why that's a bit shorter than it's been for this past several quarters?
It's really just circumstantial. There are two leases that were short-term renewals, and if you net those out, it goes back to our norm of about just over four years.
Okay. Thanks for that, Michael. Then, just as it relates to sort of the impact, I think Michael, you touched on this. I guess it was just a little bit more material. As market rents have moved higher and really accelerated, how that's impacted sort of your you know, your opportunity set and maybe if you could touch on that as it relates to sort of the existing portfolio and the redevelopment opportunity within that. Has that changed at all the dynamics there, based on the you know, the significant move in market rents?
I think there's two embedded questions there. One is sort of like, you know, external growth, and then the other is really the internal growth. Yes, externally it is contributing to, you know, expanding the opportunity set without question. On the internal front, it's true, you know, every
really in real time, but on a more formal basis, every month and every quarter, we look inward at our portfolio, and we try to determine, based on market realities at that point in time, meaning rental rates, you know, construction costs, tenant demand, all the rest, you know, what additional opportunities do we have in our portfolio where it now may make sense given the acceleration in rental rates, you know, to reposition a property that may not have quite penciled out as well, you know, even as recently as one or two years ago. We do believe that, you know, the growth of the market in terms of value and rental rates is continuing to unlock a very exciting, you know, opportunity internally for us as well.
Yeah. Chris, the
Thank you for that, Michael.
I'll just add one more comment. The set of sellers that Michael mentioned earlier, the aging property owners, when they, you know, operate their properties, they tend to focus more on occupancy as opposed to pushing rents. The spread between in-place rents on those type of assets and the mark-to-market is enormous. It's not unusual to see us buying something and reporting, you know, there's a 60% below-market rent in place.
To Michael's comment, that opportunity set is growing as that gap widens, so there's a huge opportunity for us to buy assets like that and even do some value-add work to the buildings to further unlock incremental value, well beyond just the rental rates that are in place in the market even today, for the quality of the asset in its current state.
Okay. Thank you for that. Just last question from me as it relates to sort of the development, redevelopment, scale. Do you guys have a sort of a percentage of enterprise value or some metrics that you're using to sort of you know maintain a risk profile that you're comfortable with? Is there some max amount that you guys have sort of internally marked as the limit as to how much redevelopment, development you're willing to put in play?
Yeah. We are cognizant of managing risk in that respect. One of the reasons that Howard and I built this business around industrial value creation and industrial property assets is that the incremental capital required. You know, these are relatively simple structures. It's not like building an office building or a multifamily structure or even retail. You know, we have concrete tilt-up walls and a roof structure. Typically, we are building to you know, very low percentage of office build-out. It's generic finish, you know, not high finish. That's really the beauty of the business model. You know, it's really nominal incremental capital spending, you know, to drive the reposition activity.
I think you'll continue to see that be relatively nominal relative to the enterprise value of the company, you know, as we continue to grow the company, you know, into the future.
Thank you. Appreciate your time this afternoon.
Thank you. There are no further questions at this time. I would now like to turn the call back over to Michael Frankel for any closing comments.
We just wanted to thank everybody for joining us today, and your interest and support of the company. We look forward to reconnecting in about three months. We hope everybody stays well and healthy, and we're certainly hoping for peace across the world. Thank you so much.
This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.