Earnings Call Transcript - REXR Q1 2021

Operator, Operator

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

Kosta Karmaniolas, Senior Vice President of Corporate Finance and Investor Relations

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

Michael Frankel, Co-CEO

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

Howard Schwimmer, Co-CEO

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

Laura Clark, CFO

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

Operator, Operator

Our first question comes from Emmanuel Korchman with Citi.

Emmanuel Korchman, Analyst

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

Howard Schwimmer, Co-CEO

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

Emmanuel Korchman, Analyst

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

Michael Frankel, Co-CEO

Manny, it's Michael. Great to hear from you and thanks for joining today. Yes, it includes more than just the mark-to-market. It also encompasses the repositionings, which contribute about $32 million to $33 million of the total $54 million. In fact, leasing spreads only account for about $17.5 million of that $54 million.

Operator, Operator

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

Blaine Heck, Analyst

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

Howard Schwimmer, Co-CEO

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

Michael Frankel, Co-CEO

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

Blaine Heck, Analyst

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

Howard Schwimmer, Co-CEO

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

Michael Frankel, Co-CEO

This is Michael. We are reaching a point where Rexford's presence in the market is creating various opportunities for both Rexford and our clients. For instance, we have recently established a new customer solutions function at Rexford, allowing us to offer our customers and potential tenants more strategic options across Southern California. Currently, we are engaging with tenants about their requirements for multiple spaces, not just one. Additionally, our scale is proving advantageous in terms of enhancing operating leverage within our portfolio. I anticipate that Rexford's operating margins will begin to improve significantly over the next 12 to 36 months as we fully develop our platform, with minimal incremental expenditure required. This represents an exciting period for the company. Howard mentioned the mark-to-market, and as we approach the end of the year, the mark-to-market for expiring leases is around 20%. Historically, we've observed that market rent growth tends to push the mark-to-market above the 11% we are currently projecting for the entire portfolio. At this time, we are estimating around 14% for next year, indicating substantial growth ahead.

Operator, Operator

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

James Feldman, Analyst

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

Michael Frankel, Co-CEO

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

James Feldman, Analyst

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

Michael Frankel, Co-CEO

Yes. I'll discuss the first part, and Laura can address bad debt. What's notable in infill Southern California is that beginning in June of last year, during the early stages of the pandemic, leasing activity began to accelerate significantly after a brief pause in March, April, and May. We really began to rebound much earlier in the cycle for infill Southern California. As Howard mentioned, this acceleration has continued beyond levels we've experienced in our 30- to 40-year careers. This demand is being driven by a wide range of industries, including food, consumer products, health care, pharmaceuticals, as well as aerospace, space technology, mobility, and electric vehicles. These sectors represent interconnected ecosystems, not just electric vehicles but also their component suppliers, battery producers, and service centers. The demand drivers are exceptionally broad from an industry standpoint. Additionally, e-commerce plays a significant role in this trend, and the positive impact from e-commerce on our markets is still unfolding. For example, major players like Walmart and Amazon are effectively penetrating these infill markets, utilizing spaces in innovative ways. Recently, Walmart and Target announced their acquisition of delivery companies and their plans to establish sortation centers in our warehouses, which are strategically located near distribution endpoints. This marks the beginning of significant changes in e-commerce-driven demand for our properties and influences how these spaces are used and configured. This aligns well with what Rexford provides to the market, positioning us favorably.

Laura Clark, CFO

Yes, I will address another point regarding demand from various industries. We are beginning to observe a return in demand from sectors that have been slower to reopen in California, such as entertainment. This quarter, we signed a lease with a tenant that plans to use the space for studio production, investing between $5 million and $10 million for the conversion. It is encouraging to see these industries, which have faced shutdowns and limited operations, starting to bounce back and generating demand. Regarding your question about bad debt, I'll discuss the factors affecting Q1 and provide full-year expectations. For the quarter, bad debt was 50 basis points of revenue, a decline compared to the full year of 2020, which was around 150 basis points. This quarter's drop was mainly due to unexpected payments from some of our watch-list tenants, leading to a positive effect on bad debt. Without these unanticipated cash recoveries, our bad debt expense would have been approximately 125 basis points, aligning with our previous full-year guidance. In our revised forecast for bad debt at 110 basis points for the full year, we’re reflecting that Q1 improvement in bad debt. The cash collections primarily came from tenants in slower-reopening categories like entertainment and travel-related industries. We are optimistic that these tenants will meet their rent obligations once they resume operations. However, forecasting their ability to consistently pay rent in the near term is challenging, especially since moratoriums still allow tenants to defer rents. With moratoriums set to lift in June, although there have been delays, we remain cautious and prudent with our bad debt forecast for the next three quarters.

James Feldman, Analyst

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

Howard Schwimmer, Co-CEO

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

James Feldman, Analyst

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

Howard Schwimmer, Co-CEO

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

Operator, Operator

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

Connor Siversky, Analyst

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

Michael Frankel, Co-CEO

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

Connor Siversky, Analyst

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

Howard Schwimmer, Co-CEO

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

Connor Siversky, Analyst

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

Laura Clark, CFO

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

Operator, Operator

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

Dave Rodgers, Analyst

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

Howard Schwimmer, Co-CEO

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

Dave Rodgers, Analyst

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

Howard Schwimmer, Co-CEO

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

Laura Clark, CFO

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

Operator, Operator

Our next question comes from Chris Lucas with Capital One Securities.

Christopher Lucas, Analyst

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

Laura Clark, CFO

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

Christopher Lucas, Analyst

So that's a cash basis tenant paying for the current period?

Laura Clark, CFO

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

Christopher Lucas, Analyst

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

Howard Schwimmer, Co-CEO

We've dealt with most of our significant lease expirations so far. Now, we're back to focusing on the usual tasks, managing moderately sized spaces.

Christopher Lucas, Analyst

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

Michael Frankel, Co-CEO

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

Operator, Operator

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

Michael Mueller, Analyst

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

Laura Clark, CFO

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

Howard Schwimmer, Co-CEO

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

Michael Frankel, Co-CEO

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

Howard Schwimmer, Co-CEO

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

Laura Clark, CFO

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

Michael Frankel, Co-CEO

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

Operator, Operator

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

Howard Schwimmer, Co-CEO

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

Operator, Operator

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