Rexford Industrial Realty, Inc.: Form 10-Q for the period ended Jun 30, 2024

The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto that appear in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q. The terms “Company,” “we,” “us,” and “our” refer to Rexford Industrial Realty, Inc. and its consolidated subsidiaries except where the context otherwise requires.

Forward-Looking Statements

We make statements in this quarterly report that are forward-looking statements, which are usually identified by the use of words such as “anticipates,” “believes,” “expects,” “intends,” “may,” “might,” “plans,” “estimates,” “projects,” “seeks,” “should,” “will,” “result” and variations of such words or similar expressions. Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:

• the competitive environment in which we operate;
• real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;
• decreased rental rates or increasing vacancy rates;
• potential defaults on or non-renewal of leases by tenants;
• potential bankruptcy or insolvency of tenants or our borrower;
• acquisition risks, including failure of such acquisitions to perform in accordance with expectations;
• the timing of acquisitions and dispositions;
• risks associated with redevelopment and repositioning activities, including the possibility that costs may exceed original estimates, the time to complete a project or to lease up the completed project may be greater than originally anticipated or changes in entitlements or laws may impact or prevent execution of intended projects;
• potential natural disasters such as earthquakes, wildfires or floods;
• the consequence of any future security alerts and/or terrorist attacks;
• national, international, regional and local economic conditions, including impacts and uncertainty from trade disputes and tariffs on goods imported to the United States and goods exported to other countries;
• the general level of interest rates;
• potential impacts of inflation;
• potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or REIT tax laws, and potential increases in real property tax rates;
• financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
• lack of or insufficient amounts of insurance;
• our failure to complete acquisitions;
• our failure to successfully integrate acquired properties;
• our ability to qualify and maintain our qualification as a REIT;
• our ability to maintain our current investment grade rating by Fitch Ratings (“Fitch”), Moody’s Investors Services (“Moody’s”) or from Standard and Poor’s Ratings Services (“S&P”);
• litigation, including costs associated with prosecuting or defending pending or threatened claims and any adverse outcomes;
• possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us;
• an epidemic or pandemic, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities may implement to address it, which may precipitate or exacerbate one or more of the above-mentioned factors and/or other risks, and significantly disrupt or prevent us from operating our business

in the ordinary course for an extended period; and

• other events outside of our control.

Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The reader should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Company Overview

Rexford Industrial Realty, Inc. is a self-administered and self-managed full-service REIT focused on owning and operating industrial properties in Southern California infill markets. We were formed as a Maryland corporation on January 18, 2013, and Rexford Industrial Realty, L.P. (the “Operating Partnership”), of which we are the sole general partner, was formed as a Maryland limited partnership on January 18, 2013. Through our controlling interest in our Operating Partnership and its subsidiaries, we acquire, own, improve, reposition, redevelop, lease and manage industrial real estate principally located in Southern California infill markets, and, from time to time, acquire or provide mortgage debt secured by industrial zoned property or property suitable for industrial development. We are organized and conduct our operations to qualify as a REIT under the Code and generally are not subject to federal taxes on our income to the extent we distribute our income to our shareholders and maintain our qualification as a REIT.

As of June 30, 2024, our consolidated portfolio consisted of 422 properties with approximately 49.7 million rentable square feet.

Our goal is to generate attractive risk-adjusted returns for our stockholders by providing superior access to industrial property investments in high-barrier Southern California infill markets. Periodically we also engage in mortgage debt investments secured by industrial zoned property or property suitable for industrial development within these markets. Our target markets provide us with opportunities to acquire both stabilized properties generating favorable cash flow, as well as properties or land parcels where we can enhance returns through value-add repositioning and redevelopments. Scarcity of available space and high barriers limiting new construction of for-lease product all contribute to create superior long-term supply/demand fundamentals within our target infill Southern California industrial property markets. With our vertically integrated operating platform and extensive value-add investment and management capabilities, we believe we are positioned to capitalize upon the opportunities in our markets to achieve our objectives.

2024 Year to Date Highlights

Financial and Operational Highlights

• Net income attributable to common stockholders increased by 26.5% to $138.4 million for the six months ended June 30, 2024, compared to the prior year.
• Core funds from operations (Core FFO)(1) attributable to common stockholders increased by 19.9% to $253.1 million for the six months ended June 30, 2024, compared to the prior year.
• Net operating income (NOI)(1) increased by 18.0% to $344.6 million for the six months ended June 30, 2024, compared to the prior year.
• Total portfolio occupancy at June 30, 2024 was 93.7%.
• Same Property Portfolio(2) average occupancy for the six months ended June 30, 2024 was 97.0% and ending occupancy at June 30, 2024 was 97.3%.
• Executed a total of 243 new and renewal leases with a combined 5.5 million rentable square feet, with leasing spreads of 35.3% on a GAAP basis and 26.3% on a cash basis. Excluding one lease extension executed in the first quarter of 2024 on a 1.1 million rentable square foot lease, leasing spreads were 61.7% on a GAAP basis and 42.7% on a cash basis.

(1) See “Non-GAAP Supplemental Measures: Funds From Operations” and “Non-GAAP Supplemental Measures: NOI and Cash NOI” included under Item 2 of this Form 10-Q for a definition and reconciliation of Core FFO and NOI from net income and a discussion of why we believe Core FFO and NOI are useful supplemental measures of operating performance.

(2) For a definition of “Same Property Portfolio,” see “Results of Operations” included under Item 2 of this Form 10-Q.

Acquisitions

• During the first quarter of 2024, we completed $1.1 billion in total investments representing 49 properties with 3.2 million rentable square feet of buildings on 158 acres of land.
• During the second quarter of 2024, we completed $169.5 million in total investments representing three properties with 0.5 million rentable square feet of buildings on 23 acres of land.

Dispositions

• During the second quarter of 2024, we sold four properties with a combined 144,678 rentable square feet for a total gross sale price of $37.0 million and recognized $16.3 million in gains on sale of real estate.

Repositioning & Redevelopment

• During the first quarter of 2024, we stabilized two of our repositioning projects located at 9755 Distribution Avenue and 8902-8940 Activity Road, with two spaces totaling 38,021 square feet.
• During the second quarter of 2024, we stabilized two of our repositioning projects located at 444 Quay Avenue and 263-321 Gardena Boulevard, which have a combined 84,998 rentable square feet.
• As of the date of this filing, our repositioning projects located at 17311 Nichols Lane, 12907 Imperial Highway and 20851 Currier Road were 100% leased and our redevelopment project located at 12752-12822 Monarch was 93% leased. These projects have a combined 428,538 rentable square feet and are expected to reach 100% occupancy during the second half of 2024.
• During the first quarter of 2024, we completed the construction of four repositioning/redevelopment properties located at 500 Dupont Avenue, 11308-11350 Penrose Street, 4039 Calle Platino and 3071 Coronado Street. During the second quarter of 2024, we completed the construction of two additional redevelopment properties located at 1901 Via Burton and 2390-2444 American Way. As of June 30, 2024 these six properties were in the lease-up stage.

Equity

• During the first quarter of 2024, we issued 5,263,602 shares of common stock for total net proceeds of $290.2 million through the following equity transactions:
• We settled the forward equity sale agreement that was outstanding as of December 31, 2023 under our 2023 at-the-market equity offering program by issuing 3,010,568 shares of our common stock for net proceeds of $164.5 million, based on a weighted average forward price of $54.65 per share at settlement.
• We settled the remaining forward equity sale agreements related to our May 2023 underwritten public offering by issuing 2,253,034 shares of common stock for net proceeds of $125.7 million, based on a weighted average forward price of $55.79 per share at settlement.
• In March 2024, we completed a public offering of 17,179,318 shares of common stock to an existing long-only investor based on the West Coast, subject to a forward equity sale agreement, at a price of $48.95 per share for a gross offering value of $840.9 million.
• Subsequent to June 30, 2024, through the date of this filing, we partially settled the above mentioned forward equity sale agreement by issuing 1,650,916 shares of common stock for net proceeds of $80.0 million.
• As of the date of this filing, we had approximately $752.5 million of forward net proceeds remaining for settlement prior to March 27, 2025, based on a weighted average forward sale price of $48.46 per share.

Financing

• In March 2024, we completed the issuance of three-year $575.0 million exchangeable senior notes with a 4.375% coupon and a 30% conversion premium and five-year $575.0 million exchangeable senior notes with a 4.125% coupon and a 30% conversion premium. Net proceeds were approximately $1.126 billion after deducting the initial purchasers’ discounts and commissions and offering expenses.

Factors That May Influence Future Results of Operations

Market and Portfolio Fundamentals

Our operating results depend upon the infill Southern California industrial real estate market.

The infill Southern California industrial real estate sector continues to exhibit strong long-term fundamentals. These high-barrier infill markets are characterized by a relative scarcity of highly functional product, coupled with the limited ability to introduce new supply due to high land and redevelopment costs and a dearth of developable land in markets experiencing a net reduction in supply as, over time, more industrial property is converted to non-industrial uses than can be delivered. Meanwhile, despite the post-pandemic normalization of demand, underlying tenant demand within our infill target markets continues to be healthy, which is illustrated by strong renewal leasing activity, a dynamic regional economy, continued ecommerce activity and delivery volumes, as well as further compression of delivery time-frames to consumers and to businesses, increasing the significance of last-mile facilities for timely fulfillment. While we believe that our infill Southern California industrial property markets have demonstrated a high degree of resiliency related to occupancy and rental rates in the context of key market drivers over the last several years, we expect some ongoing volatility within our markets through the near term, principally driven by continued inflation and heightened uncertainty in the interest rate environment exacerbated by the current global geopolitical unrest. Market rent growth has normalized and decreased in the quarter in our infill Southern California markets, after increasing by approximately 80%, on average, through the pandemic.

Tenant demand remains healthy within our portfolio, which is strategically located within prime infill Southern California industrial markets. The quality and intensity of tenant demand through the second quarter of 2024 is demonstrated through the Company’s strong leasing spreads and volume and retention rate (see “—Leasing Activity and Rental Rates” below). This tenant demand has been driven by a wide range of sectors, from consumer products, healthcare and medical products to aerospace, food and beverage, construction and logistics, among other sectors. We also continue to observe a notable volume of ecommerce-oriented tenants securing space within our infill property locations driven in part by delivery demand associated with last-mile distribution and local omnichannel retail fulfillment which are driving discernible shifts in inventory-handling strategies among retailers and distributors. Our portfolio, which we believe represents prime locations with superior functionality within the largest last-mile logistics distribution market in the nation, is well-positioned to continue to serve our existing diverse tenant base and attract incremental ecommerce-oriented and traditional distribution demand over the long-term.

We believe our portfolio’s leasing performance during the second quarter of 2024 has generally outpaced that of the infill markets within which we operate, and, as discussed in more detail below, our target infill markets continue to operate at high levels of occupancy. We believe this performance has been driven by our highly entrepreneurial business model focused on acquiring and improving industrial property in superior locations so that our portfolio reflects a higher level of quality and functionality, on average, as compared to typical available product within the markets within which we operate. We believe that our portfolio, with last-mile infill locations and a smaller average tenant size versus other non-infill competitors, is well positioned to serve regional consumption and less susceptible to changes in global trade flows. We also believe the quality and entrepreneurial approach demonstrated by our team of real estate professionals actively managing our properties and our tenants enables the potential to outcompete within our markets that we believe are generally otherwise owned by more passive, less-focused real estate owners.

General Market Conditions

The following general market conditions have been sourced from third-party market data and do not necessarily reflect the results of our portfolio. For our portfolio specific results see “—Rental Revenues” and “—Results of Operations” below.

In Los Angeles County, vacancy increased quarter-over-quarter and average asking lease rates increased slightly quarter-over-quarter. Occupancy generally remains at high levels and new development is limited by a lack of land availability and an increase in land and development costs.

In Orange County, average asking lease rates decreased quarter-over-quarter and vacancy increased quarter-over-quarter while still remaining at low vacancy levels. Market conditions are expected to be favorable over the long-term due to steady demand and the continued low availability of industrial product in this region.

In the Inland Empire West, which contains infill markets in which we operate, vacancy increased quarter-over-quarter, primarily due to excess new construction supply in larger unit size ranges, and average taking lease rates in the market decreased quarter-over-quarter. We generally do not focus on properties located within the non-infill Inland Empire East sub-market where available land and the development and construction pipeline for new supply is substantial.

In San Diego, vacancy increased quarter-over-quarter and average asking lease rates increased quarter-over-quarter.

In Ventura County, vacancy increased quarter-over-quarter and average asking lease rates increased quarter-over-quarter.

Acquisitions and Value-Add Repositioning and Redevelopment of Properties

The Company’s growth strategy comprises acquiring leased, stabilized properties as well as properties with value-add opportunities to improve functionality and to deploy our value-driven asset management programs in order to increase cash flow and value. Additionally, from time to time, we may acquire industrial outdoor storage sites, land parcels or properties with excess land for ground-up redevelopment projects. Acquisitions may comprise single property investments as well as the purchase of portfolios of properties, with transaction values ranging from approximately $10 million single property investments to portfolios potentially valued in the billions of dollars. The Company’s geographic focus remains infill Southern California. However, from time-to-time, portfolios could be acquired comprising a critical mass of infill Southern California industrial property that could include some assets located in markets outside of infill Southern California. In general, to the extent non-infill-Southern California assets were to be acquired as part of a larger portfolio, the Company may underwrite such investments with the potential to dispose such assets over a certain period of time in order to maximize its core focus on infill Southern California, while endeavoring to take appropriate steps to satisfy REIT safe harbor requirements to avoid prohibited transactions under REIT tax laws. Similarly, while our focus is owning and operating industrial properties in Southern California infill markets, occasionally an acquisition may include non-industrial properties, such as office and other uses, with the intent to reposition or redevelop the properties into industrial use or to dispose of the non-industrial assets in a manner intended to satisfy REIT safe harbor requirements to avoid prohibited transactions under REIT tax laws.

A key component of our growth strategy is to acquire properties through off-market and lightly marketed transactions that are often operating at below-market occupancy or below-market rent at the time of acquisition or that have near-term lease roll-over or that provide opportunities to add value through functional or physical repositioning and improvements. Through various repositioning, redevelopment, and professional leasing and marketing strategies, we seek to increase the properties’ functionality and attractiveness to prospective tenants and, over time, to stabilize the properties at occupancy rates that meet or exceed market rates.

A repositioning can provide a range of property improvements. This may include a complete structural renovation of a property whereby we convert large underutilized spaces into a series of smaller and more functional spaces, or it may include the creation of additional square footage, the modernization of the property site, the elimination of functional obsolescence, the addition or enhancement of loading areas and truck access, the enhancement of fire-life-safety systems or other accretive improvements, in each case designed to improve the cash flow and value of the property.

We have a number of significant repositioning properties, which are individually presented in the tables below. A repositioning property that is considered significant is typically defined as a property where a significant amount of space is held vacant in order to implement capital improvements, the cost to complete repositioning work and lease-up is estimated to be greater than $1 million and the repositioning and lease-up time frame is estimated to be greater than six months. We also have a range of other spaces in repositioning, that due to their smaller size, relative scope, projected repositioning costs or relatively nominal amount of down-time, are not presented below, however, in the aggregate, may be substantial (and which we refer to as “other repositioning projects”).

A repositioning is generally considered complete once the investment is fully or nearly fully deployed and the property is available for occupancy. Because each repositioning effort is unique and determined based on the property, targeted tenants and overall trends in the general market and specific submarket, the timing and effect of the repositioning on our rental revenue and occupancy levels will vary, and, as a result, will affect the comparison of our results of operations from period to period with limited predictability.

A redevelopment property is defined as a property where we plan to fully or partially demolish an existing building(s) due to building obsolescence and/or a property with excess or vacant land where we plan to construct a ground-up building.

As of June 30, 2024, 28 of our properties were under current repositioning or redevelopment and six of our properties were in the lease-up stage. In addition, we have a pipeline of six additional properties for which we anticipate beginning repositioning/redevelopment construction work between the third quarter of 2024 and the second quarter of 2025. The tables below set forth a summary of these properties, as well as the properties that were most recently stabilized in 2023 and 2024, as the timing of these stabilizations have a direct impact on our current and comparative results of operations. Furthermore, we estimate that over the next four years we have up to approximately 5.0 million rentable square feet of additional repositioning/redevelopment projects embedded in our portfolio that are not currently listed in the tables below. We consider a repositioning/redevelopment property to be stabilized upon the earlier of (i) reaching 90% occupancy or (ii) one year from the date construction work is completed.

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(1) The estimated construction start period is the period we anticipate starting physical construction on a project. Prior to physical construction, we engage in pre-construction activities, which include design work, securing permits or entitlements, site work, and other necessary activities preceding construction. The estimated completion period is our current estimate of the period in which we will have substantially completed a project and the project is made available for occupancy. We expect to update our timing estimates on a quarterly basis. The estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements, delays in construction (including delays related to supply chain backlogs), changes in scope, and other unforeseen circumstances.

(2) “Total Property Rentable Square Feet” is the total rentable square footage of the entire property or particular building(s) (footnoted if applicable) under repositioning/lease-up. “Repositioning/Lease-up Rentable Square Feet” is the actual rentable square footage that is subject to repositioning at the property/buildings and may be less than Total Property Rentable Square Feet.

(3) 14434-14527 San Pedro Street is a low coverage site with 58,094 rentable square feet of buildings on 335,905 square feet, or 7.7 acres, of land.

(4) As of June 30, 2024, 29120 Commerce Center Drive has been leased on a short-term basis through June 30, 2025. We are currently performing repositioning work around the short-term tenant.

(5) As of June 30, 2024, 17311 Nichols Lane has been leased and the tenant is expected to take occupancy in the third quarter of 2024 upon completion of the repositioning.

(6) As of June 30, 2024, 12907 Imperial Highway has been leased and the tenant has taken partial occupancy. The tenant is expected to take full occupancy in the fourth quarter of 2024 following completion of the repositioning.

(7) As of June 30, 2024, 17000 Kingsview Avenue has been partially leased on a short-term basis through July 31, 2024. We are currently performing repositioning work around the short-term tenant.

(8) As of June 30, 2024, 29125 Avenue Paine has been leased on a short-term basis through June 30, 2025. We are currently performing repositioning work around the short-term tenant.

(9) Harcourt & Susana is a low coverage site with 34,000 rentable square feet of buildings on 239,364 square feet, or 5.5 acres, of land.

(10) 14400 Figueroa Street will be a low coverage site with 56,700 rentable square feet of buildings on 209,668 square feet, or 4.8 acres, of land.

(11) Represents the estimated rentable square footage of the project upon completion of redevelopment.

(12) As of June 30, 2024, 3233 Mission Oaks Boulevard comprises 409,217 rentable square feet that are currently occupied and not being redeveloped. We are constructing one new building comprising 117,358 rentable square feet. We are also performing site work across the entire project. At completion, the total project will contain 526,575 rentable square feet.

(13) 17907-18001 Figueroa Street will be a low coverage site with 76,722 rentable square feet of buildings on 221,055 square feet, or 5.1 acres, of land.

(14) Rancho Pacifica Building 5 is located at 2370-2398 Pacifica Place and comprises one building totaling 51,594 rentable square feet, out of six buildings at our Rancho Pacifica Park property, which has a total of 1,111,885 rentable square feet. We demolished the existing building and are constructing a new building comprising approximately 76,500 rentable square feet in its place.

(15) 1500 Raymond Avenue contains one acre of excess paved land.

(16) We consider a repositioning property to be stabilized upon the earlier of (i) reaching 90% occupancy or (ii) one year from the date construction work is completed.

(17) As of March 31, 2024, 8210-8240 Haskell Avenue reached one year from the date of completion of repositioning work. On May 17, 2024, we sold the vacant building located at 8210 Haskell Avenue (26,229 square feet). The remaining two buildings located at 8230-8240 Haskell Avenue (26,705 square feet) are 100% occupied as of June 30, 2024.

(18) As of June 30, 2024, 20851 Currier Road reached one year from the date of completion of repositioning work. The property has been leased and the tenant is expected to take occupancy in the third quarter of 2024.

(19) 12752-12822 Monarch Street comprises 275,189 rentable square feet. The project includes 111,325 rentable square feet with tenants in-place that were not redeveloped. We repositioned 65,968 rentable square feet, demolished 99,925 rentable square feet and constructed a new 97,896 rentable square foot building in its place.

(20) As of June 30, 2024, 12752-12822 Monarch Street reached one year from the date of completion of repositioning work. As of July 19, 2024, the property is 93% leased and is expected to reach 100% occupancy in the third quarter of 2024.

Capitalized Costs

Properties that are nonoperational as a result of repositioning or redevelopment activity may qualify for varying levels of interest, insurance and real estate tax capitalization during the redevelopment and construction period. An increase in our repositioning and redevelopment activities resulting from value-add acquisitions could cause an increase in the asset balances qualifying for interest, insurance and tax capitalization in future periods. We capitalized $7.4 million and $15.3 million of interest expense and $2.0 million and $4.4 million of insurance and real estate tax expenses during the three and six months ended June 30, 2024, respectively, related to our repositioning and redevelopment projects.

Construction Costs and Timing

Continued inflationary and supply chain pressures have led to increased construction materials and labor costs, which when combined with longer lead times for governmental approvals and entitlements, have led to an overall increase in budgeted and actual construction costs as well as delays in starting and completing certain of our redevelopment projects. While low vacancy in our markets and continued rent growth (see “—Leasing Activity and Rental Rates” below) over the last several years has helped to mitigate some of the impact of rising construction costs and project delays, additional increases in costs, further delays or declining market rents could result in a lower expected yield on our redevelopment projects, which could negatively impact our future earnings.

Rental Revenues

Our operating results depend primarily upon generating rental revenue from the properties in our portfolio. The amount of rental revenue generated by these properties is affected by our ability to maintain or increase occupancy levels and rental rates at our properties, which will depend upon our ability to lease vacant space and re-lease expiring space at favorable rates.

Occupancy Rates

As of June 30, 2024, our consolidated portfolio, inclusive of space in repositioning as described in the subsequent paragraph, was approximately 93.7% occupied, while our stabilized consolidated portfolio exclusive of such space was approximately 97.9% occupied. We believe the opportunity to increase occupancy at our properties will be an important driver of future revenue growth. An opportunity to drive this growth will derive from the completion and lease-up of repositioning and redevelopment projects that are currently under construction.

As summarized in the tables under “—Acquisitions and Value-Add Repositioning and Redevelopment of Properties” above, as of June 30, 2024, 28 of our properties with a combined 2.9 million of estimated rentable square feet at completion are under current repositioning or redevelopment, six properties with a combined 0.8 million of rentable square feet are in lease-up, and we have a near-term pipeline of six repositioning and redevelopment projects with a combined 0.6 million of estimated rentable square feet at completion. Additionally, we have 0.2 million rentable square feet of other repositioning projects. Vacant space at these properties is concentrated in our Los Angeles, Orange County and San Bernardino markets and represents 4.2% of our total consolidated portfolio square footage as of June 30, 2024. Including vacant space at these properties, our weighted average occupancy rate as of June 30, 2024 in our Los Angeles, Orange County and San Bernardino markets was 94.9%, 88.0% and 94.8%, respectively. Excluding vacant space at these properties, our weighted average occupancy rate as of June 30, 2024, in these markets was 98.5%, 99.0% and 98.2%, respectively. We believe that an important portion of our long-term future growth will come from the completion of these projects currently under or scheduled for repositioning/redevelopment, as well as through the identification or acquisition of new opportunities for repositioning and redevelopment, whether in our existing portfolio or through new investments, which may vary from period to period subject to market conditions.

The occupancy rate of properties not undergoing repositioning is affected by regional and local economic conditions in our Southern California infill markets. Although there has been a post-COVID normalization of market vacancy over the past year, the Los Angeles, Orange County, San Bernardino and San Diego markets are generally experiencing healthy tenant demand and low product availability. Accordingly, our properties in these markets have generally exhibited a similar trend. Although we cannot predict how our markets may perform in future periods, we believe that general market conditions will remain healthy through the remainder of 2024, and the long-term opportunity to increase occupancy and rental rates at our properties will be an important driver of future revenue growth.

Leasing Activity and Rental Rates

The following tables set forth our leasing activity for new and renewal leases for the three and six months ended June 30, 2024:

(1) Effective rent per square foot is the average base rent calculated in accordance with GAAP, over the term of the lease, expressed in dollars per square foot per year. Includes all new and renewal leases that were executed during the quarter.

(2) Calculated as the change between GAAP rents for new or renewal leases and the expiring GAAP rents (excluding the impact of amortization of intangible assets or liabilities) on the expiring leases for the same space.

(3) Calculated as the change between starting cash rents for new or renewal leases and the expiring cash rents on the expiring leases for the same space.

(4) The GAAP and cash re-leasing spreads for new leases executed during the six months ended June 30, 2024, exclude 42 leases aggregating 1,230,124 rentable square feet for which there was no comparable lease data. Of these 42 excluded leases, 19 leases for 676,558 rentable square feet were recently repositioned/redeveloped space. Comparable leases generally exclude: (i) space that has never been occupied under our ownership, (ii) repositioned/redeveloped space, including space in pre-development/entitlement process, (iii) space that has been vacant for over one year or (iv) space with lease terms shorter than six months.

(5) The GAAP and cash re-leasing rent spreads for renewal leases executed during the six months ended June 30, 2024, exclude eight leases aggregating 772,015 rentable square feet for which there was no comparable lease data. Comparable leases generally exclude space with lease terms shorter than six months or space in pre-development/entitlement process.

(6) Includes leases totaling 907,616 rentable square feet that expired during the six months ended June 30, 2024, for which the space has been or will be placed into repositioning (including “other repositioning projects”) or redevelopment.

(7) Retention is calculated as renewal lease square footage plus relocation/expansion square footage, divided by the square footage of leases expiring during the period. Retention excludes square footage related to the following: (i) expiring leases associated with space that is placed into repositioning (including “other repositioning projects”) after the tenant vacates, (ii) early terminations with pre-negotiated replacement leases and (iii) move outs where space is directly leased by subtenants.

(8) Reflects our renewal leasing activity, weighted average lease term, effective rent per square foot and leasing spreads for the six months ended June 30, 2024, excluding a 1.1 million square foot lease extension with Tireco, Inc. at 10545 Production Avenue. The original Tireco, Inc. lease expiration date was January 2025 and included a fixed rate renewal option. In March 2024, the lease was extended through January 2027 at the current in-place rent at the time of execution and includes a 4% contractual rent increase in 2026 and two months of rent abatement. This lease extension was excluded for comparability purposes, in order to allow investors to make investment decisions based on our quarterly leasing statistics as compared to our prior periods.

Our leasing activity is impacted both by our repositioning and redevelopment efforts, as well as by market conditions. While we reposition a property, its space may become unavailable for leasing until completion of our repositioning efforts. As of June 30, 2024, we have 28 current repositioning/redevelopment projects with estimated construction completion periods ranging from the third quarter of 2024 through the fourth quarter of 2025, and an additional six repositioning and redevelopment projects in our pipeline with estimated construction completion dates through the third quarter of 2026. We expect these properties to have positive impacts on our leasing activity and revenue generation as we complete our value-add plans and place these properties in service.

Scheduled Lease Expirations

Our ability to re-lease space subject to expiring leases is affected by economic and competitive conditions in our markets and by the relative desirability of our individual properties, which may impact our results of operations. The following table sets forth a summary schedule of lease expirations for leases in place as of June 30, 2024, for each of the 10 full and partial calendar years beginning with 2024 and thereafter, plus space that is available and under current repositioning.

(1) Represents the contracted square footage upon expiration.

(2) Calculated as monthly contracted base rent (before rent abatements) per the terms of such lease, as of June 30, 2024, multiplied by 12. Excludes tenant reimbursements. Amounts in thousands.

(3) Calculated as annualized base rent set forth in this table divided by annualized base rent for the total portfolio as of June 30, 2024.

(4) Calculated as annualized base rent for such leases divided by the occupied square feet for such leases as of June 30, 2024.

(5) Represents vacant space (not under repositioning/redevelopment) as of June 30, 2024. Includes leases aggregating 66,236 rentable square feet that had been signed but had not yet commenced as of June 30, 2024.

(6) Represents vacant space at properties that were classified as repositioning (including “other repositioning projects”) or redevelopment properties as of June 30, 2024.

As of June 30, 2024, in addition to 1.0 million rentable square feet of currently available space in our portfolio and approximately 2.1 million rentable square feet of vacant space under current repositioning, leases representing 6.4% and 14.3% of the aggregate rentable square footage of our portfolio are scheduled to expire during the remainder of 2024 and 2025, respectively. During the six months ended June 30, 2024, we renewed 133 leases for 3.6 million rentable square feet, resulting in a retention rate of 76.8%. During the six months ended June 30, 2024, new and renewal leases had a weighted average term of 4.7 and 4.3 years (excluding the 1.1 million square foot lease extension noted above under “—Leasing Activity and Rental Rates”), and we expect future new and renewal leases to have similar terms.

The leases scheduled to expire during the remainder of 2024 and 2025 represent approximately 6.0% and 14.1%, respectively, of the total annualized base rent for our portfolio as of June 30, 2024. We estimate that, on a weighted average basis, in-place rents of leases scheduled to expire during the remainder of 2024 and 2025 are currently below current market asking rates, although individual units or properties within any particular submarket may currently be leased either above, below, or at the current market asking rates within that submarket.

As described under “—Market and Portfolio Fundamentals” above, while market indicators, including changes in vacancy rates and average asking lease rates, varied by market and showed signs of a post-pandemic normalizing of tenant demand, overall there was continued low market vacancy and pervasive supply and demand imbalance across our submarkets, which continues to support favorable long-term market fundamentals.

Conditions in Our Markets

The properties in our portfolio are located primarily in Southern California infill markets. Positive or negative changes in economic or other conditions, high and persistent inflation and adverse weather conditions and natural disasters in this market may affect our overall performance.

Property Expenses

Our property expenses generally consist of utilities, real estate taxes, insurance, site repair and maintenance costs, and the allocation of overhead costs. For the majority of our properties, our property expenses are recovered, in part, by either the triple net provisions or modified gross expense reimbursements in tenant leases. The majority of our leases also comprise contractual three percent or greater annual rental rate increases meant, in part, to help mitigate potential increases in property expenses over time. However, the terms of our leases vary, and, in some instances, we may absorb property expenses. Our overall financial results will be impacted by the extent to which we are able to pass-through property expenses to our tenants.

Taxable REIT Subsidiary

As of June 30, 2024, our Operating Partnership indirectly and wholly owns Rexford Industrial Realty and Management, Inc., which we refer to as our services company. We have elected, together with our services company, to treat our services company as a taxable REIT subsidiary for federal income tax purposes. A taxable REIT subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we or our subsidiaries (other than a taxable REIT subsidiary) may not engage in directly without adversely affecting our qualification as a REIT, provided a taxable REIT subsidiary may not operate or manage a lodging facility or health care facility or provide rights to any brand name under which any lodging facility or health care facility is operated. We may form additional taxable REIT subsidiaries in the future, and our Operating Partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company. Any income earned by our taxable REIT subsidiaries will not be included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a taxable REIT subsidiary is subject to federal income tax, and state and local income tax (where applicable) as a regular corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries. Our taxable REIT subsidiary is a C-corporation subject to federal and state income tax. However, it has a cumulative unrecognized net operation loss carryforward and therefore there is no income tax provision for the six months ended June 30, 2024 and 2023. Additionally, the taxable REIT subsidiary had minimal activity during these periods.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for the reporting periods. Actual amounts may differ from these estimates and assumptions. Management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions that it believes are reasonable as of the date hereof. In addition, other companies in similar businesses may use different estimation policies and methodologies, which may affect the comparability of our results of operations and financial condition to those of other companies.

In our Annual Report on Form 10-K for the year ended December 31, 2023 and in “Note 2 - Summary of Significant Accounting Policies” to the consolidated financial statements under Item 1 of this report on Form 10-Q, we identified certain critical accounting policies that affect certain of our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not made any material changes to our critical accounting policies and estimates during the period covered by this report.

Results of Operations

Our consolidated results of operations are often not comparable from period to period due to the effect of (i) property acquisitions, (ii) property dispositions and (iii) properties that are taken out of service for repositioning or redevelopment during the comparative reporting periods. Our “Total Portfolio” represents all of the properties owned during the reported periods. To eliminate the effect of changes in our Total Portfolio due to acquisitions, dispositions, and repositioning/redevelopment and to highlight the operating results of our on-going business, we have separately presented the results of our “Same Property Portfolio.”

For the three and six months ended June 30, 2024 and 2023, our Same Property Portfolio includes all properties in our portfolio that were wholly-owned by us for the period from January 1, 2023 through June 30, 2024, and that were stabilized prior to January 1, 2023, which consisted of buildings aggregating approximately 37.0 million rentable square feet at 293 of our properties. Results for our Same Property Portfolio exclude properties that were acquired or sold during the period from January 1, 2023 through June 30, 2024, properties or buildings classified as current or future repositioning (including select buildings in “other repositioning”), redevelopment or lease-up during 2023 or 2024, interest income, interest expense and corporate general and administrative expenses.

In addition to the properties included in our Same Property Portfolio, our Total Portfolio includes the 71 properties aggregating approximately 8.0 million rentable square feet that were purchased between January 1, 2023 and June 30, 2024, and the six properties aggregating approximately 0.2 million rentable square feet that were sold between January 1, 2023 and June 30, 2024.

At both June 30, 2024 and June 30, 2023, our Same Property Portfolio occupancy was approximately 97.3%. For the three and six months ended June 30, 2024, our Same Property Portfolio weighted average occupancy was approximately 96.9% and 97.0%, respectively. Comparatively, for both the three and six months ended June 30, 2023, our Same Property Portfolio weighted average occupancy was approximately 97.1%.

Comparison of the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023

The following table summarizes the historical results of operations for our Same Property Portfolio and Total Portfolio for the three months ended June 30, 2024 and 2023 (dollars in thousands):

Rental Income

In the following table, we present the components of rental income for the three months ended June 30, 2024 and June 30, 2023, which includes rental revenue, tenant reimbursements and other income related to leases. The below presentation of rental income is not, and is not intended to be, a presentation in accordance with GAAP. We are presenting this information because we believe it is frequently used by management, investors, securities analysts and other interested parties to understand and evaluate the Company’s performance.

Our Same Property Portfolio and Total Portfolio rental income increased by $9.5 million, or 5.8%, and $38.9 million, or 20.0%, respectively, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, for the reasons described below:

(1) Rental Revenue

Our Same Property Portfolio and Total Portfolio rental revenue increased by $7.8 million, or 5.8%, and $31.5 million, or 19.5%, respectively, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in our Same Property Portfolio rental revenue is primarily due to an increase in average rental rates on new and renewal leases, partially offset by a decrease of $0.8 million in amortization of net below-market lease intangibles and a decrease in average occupancy rates. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

(2) Tenant Reimbursements

Our Same Property Portfolio tenant reimbursements revenue increased by $1.7 million, or 6.2%, and our Total Portfolio tenant reimbursements revenue increased by $7.4 million, or 23.1%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in our Same Property Portfolio tenant reimbursements revenue is primarily due to higher reimbursable insurance expenses due to higher overall premiums, higher reimbursable property tax expenses and higher billings for other reimbursable expenses. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental tenant reimbursements from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

(3) Other Income

Our Same Property Portfolio and Total Portfolio other income decreased by $31 thousand, or 5.5%, and $51 thousand, or 7.9%, respectively, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to a decrease in fees charged for late rental payments.

Management and Leasing Services

Our Total Portfolio management and leasing services revenue decreased by $15 thousand, or 8.8%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Interest Income

Interest income increased from $1.5 million for the three months ended June 30, 2023 to $4.4 million for the three months ended June 30, 2024, due to a $2.5 million increase related to interest earned on the $125.0 million loan that we originated in October 2023 and a $0.5 million increase in interest earned on our money market accounts, primarily due to an increase in the average cash balance invested.

Property Expenses

Our Same Property Portfolio and Total Portfolio property expenses increased by $1.9 million, or 5.1%, and $7.6 million, or 17.1%, respectively, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in our Same Property Portfolio property expenses is primarily due to increases in property tax expenses, insurance expenses as a result of higher premiums and repairs and maintenance expenses. Our Total Portfolio property expenses were also impacted by incremental expenses from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

General and Administrative

Our Total Portfolio general and administrative expenses increased by $1.0 million, or 5.7%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to increases in non-cash equity compensation expense primarily related to performance unit equity grants made in 2023 and 2022, and non-executive payroll related costs and accrued bonus expense due to a higher employee headcount and rising labor costs.

Depreciation and Amortization

Our Same Property Portfolio depreciation and amortization expense decreased by $0.7 million, or 1.5%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to acquisition-related in-place lease intangibles becoming fully depreciated at certain of our properties subsequent to January 1, 2023, partially offset by an increase in depreciation expense related to capital improvements placed into service subsequent to January 1, 2023. Our Total Portfolio depreciation and amortization expense increased by $9.1 million, or 15.5%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to the incremental expense from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

Other Expenses

Our Total Portfolio other expenses decreased by $2 thousand from $0.3 million for the three months ended June 30, 2023 to $0.3 million for three months ended June 30, 2024, primarily due to a $0.2 million decrease in acquisition dead deal costs, partially offset by a $0.1 million increase in construction demolition costs and a $0.1 million increase in write-offs of construction costs related to cancelled projects.

Interest Expense

Our Total Portfolio interest expense increased by $11.2 million, or 65.4%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to a $13.7 million increase related to the aggregate $1.15 billion of exchangeable notes offering we completed in March 2024, partially offset by a $2.5 million decrease due to an increase in capitalized interest related to repositioning and redevelopment activity.

Gains on Sale of Real Estate

During the three months ended June 30, 2024, we recognized gains on sale of real estate of $16.3 million from the disposition of four properties that were sold for an aggregate gross sales price of $37.0 million. During the three months ended June 30, 2023, we did not complete any property dispositions.

Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

The following table summarizes the historical results of operations for our Same Property Portfolio and Total Portfolio for the six months ended June 30, 2024 and 2023 (dollars in thousands):

Rental Income

In the following table, we present the components of rental income for the six months ended June 30, 2024 and June 30, 2023, which includes rental revenue, tenant reimbursements and other income related to leases. The below presentation of rental income is not, and is not intended to be, a presentation in accordance with GAAP. We are presenting this information because we believe it is frequently used by management, investors, securities analysts and other interested parties to understand and evaluate the Company’s performance.

Our Same Property Portfolio and Total Portfolio rental income increased by $18.8 million, or 5.8%, and $64.7 million, or 17.1%, respectively, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, for the reasons described below:

(1) Rental Revenue

Our Same Property Portfolio and Total Portfolio rental revenue increased by $15.6 million, or 5.8%, and $52.8 million, or 16.8%, respectively, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase in our Same Property Portfolio rental revenue is primarily due to an increase in average rental rates on new and renewal leases, partially offset by a decrease of $1.4 million in amortization of net below-market lease intangibles, an increase of $0.7 million in bad debt write-offs and reserves for tenant receivables not deemed probable of collection and a decrease in average occupancy rates. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

(2) Tenant Reimbursements

Our Same Property Portfolio tenant reimbursements revenue increased by $3.1 million, or 5.5%, and our Total Portfolio tenant reimbursements revenue increased by $11.7 million, or 18.3% during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase in our Same Property Portfolio tenant reimbursements revenue is primarily due to higher reimbursable insurance expenses due to higher overall premiums, higher reimbursable property tax expenses and higher billings for other reimbursable expenses. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental tenant reimbursements from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

(3) Other Income

Our Same Property Portfolio and Total Portfolio other income increased by $0.2 million, or 16.6%, and $0.2 million, or 19.0%, respectively, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to an increase in fees charged for late rental payments and an increase in miscellaneous income.

Management and Leasing Services

Our Total Portfolio management and leasing services revenue decreased by $0.1 million, or 20.2%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Interest Income

Interest income increased from $2.4 million for the six months ended June 30, 2023 to $7.4 million for the six months ended June 30, 2024, primarily due to a $5.0 million increase related to interest earned on the $125.0 million loan that we originated in October 2023.

Property Expenses

Our Same Property Portfolio and Total Portfolio property expenses increased by $4.0 million, or 5.4%, and $12.3 million, or 14.1%, respectively, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase in our Same Property Portfolio property expenses is primarily due to increases in insurance expenses as a result of higher premiums, property tax expenses, repairs and maintenance expenses and allocated overhead costs driven by higher employee headcount and rising labor costs. Our Total Portfolio property expenses were also impacted by incremental expenses from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

General and Administrative

Our Total Portfolio general and administrative expenses increased by $2.8 million, or 7.7%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to increases in non-cash equity compensation expense primarily related to performance unit equity grants made in 2023 and 2022, and non-executive payroll related costs and accrued bonus expense due to a higher employee headcount and rising labor costs.

Depreciation and Amortization

Our Same Property Portfolio depreciation and amortization expense decreased by $1.1 million, or 1.2%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to acquisition-related in-place lease intangibles becoming fully depreciated at certain of our properties subsequent to January 1, 2023, partially offset by an increase in depreciation expense related to capital improvements placed into service subsequent to January 1, 2023 and an increase in amortization of deferred leasing costs. Our Total Portfolio depreciation and amortization expense increased by $16.0 million, or 13.5%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to the incremental expense from the 71 properties we acquired between January 1, 2023 and June 30, 2024.

Other Expenses

Our Total Portfolio other expenses increased by $0.8 million from $1.0 million for the six months ended June 30, 2023, to $1.7 million for the six months ended June 30, 2024, primarily due to a $0.8 million increase in construction demolition costs and a $0.4 million increase in write-offs of construction costs related to cancelled projects, partially offset by a $0.2 million decrease in acquisition dead deal costs and a $0.2 million impairment charge recorded in February 2023 to reduce the carrying value of the right-of-use asset in connection with the early termination of a sublease for one of our office space leases.

Interest Expense

Our Total Portfolio interest expense increased by $12.2 million, or 39.5%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to a $14.3 million increase related to the aggregate $1.15 billion of exchangeable notes offering we completed in March 2024 and a $4.0 million increase related to the $300.0 million of 5.000% Senior Notes due 2028 offering we completed in March 2023, partially offset by a $5.4 million decrease due to an increase in capitalized interest related to repositioning and redevelopment activity.

Gains on Sale of Real Estate

During the six months ended June 30, 2024, we recognized gains on sale of real estate of $16.3 million from the disposition of four properties that were sold for an aggregate gross sales price of $37.0 million. During the six months ended June 30, 2023, we recognized gains on sale of real estate of $12.1 million from the disposition of one property that was sold for a gross sales price of $17.0 million.

Non-GAAP Supplemental Measure: Funds From Operations and Core Funds From Operations

We calculate funds from operations (“FFO”) attributable to common stockholder in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated joint ventures.

Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization, gains and losses from property dispositions, and asset impairments, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of performance used by other REITs, FFO may be used by investors as a basis to compare our operating performance with that of other REITs.

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate or interpret FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to pay dividends.

We calculate “Core FFO” by adjusting FFO for non-comparable items outlined in the reconciliation below. We believe that Core FFO is a useful supplemental measure and that by adjusting for items that are not considered by us to be part of our on-going operating performance, provides a more meaningful and consistent comparison of our operating and financial performance period-over-period. Because these adjustments have a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited. Other REITs may not calculate Core FFO in a consistent manner. Accordingly, our Core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.

The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO and Core FFO (in thousands):

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(1) Reflects the write-off of the portion of a below-market lease intangible attributable to below-market fixed rate renewal options that were not exercised due to the termination of the lease at the end of the initial lease term.

(2) Noncontrolling interests represent (i) holders of outstanding common units of the Company's Operating Partnership that are owned by unit holders other than the Company and (ii) holders of Series 1 CPOP Units, Series 2 CPOP Units and Series 3 CPOP Units.

(3) Participating securities include unvested shares of restricted stock, unvested LTIP units and unvested performance units.

Non-GAAP Supplemental Measures: NOI and Cash NOI

Net operating income (“NOI”) is a non-GAAP measure which includes the revenue and expense directly attributable to our real estate properties. NOI is calculated as rental income less property expenses (before interest expense, depreciation and amortization).

We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs’ NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.

NOI on a cash-basis (“Cash NOI”) is a non-GAAP measure, which we calculate by adding or subtracting the following items from NOI: (i) amortization of above/(below) market lease intangibles and amortization of other deferred rent resulting from sale leaseback transactions with below market leaseback payments and (ii) straight-line rental revenue adjustments. We use Cash NOI, together with NOI, as a supplemental performance measure. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities computed in accordance with GAAP.

The following table sets forth the revenue and expense items comprising NOI and the adjustments to calculate Cash NOI (in thousands):

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The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI and Cash NOI (in thousands):

Non-GAAP Supplemental Measure: EBITDAre

We calculate earnings before interest expense, income taxes, depreciation and amortization for real estate (“EBITDAre”) in accordance with the standards established by NAREIT. EBITDAre is calculated as net income (loss) (computed in accordance with GAAP), before interest expense, income tax expense, depreciation and amortization, gains (or losses) from sales of depreciable operating property or assets incidental to our business, impairment losses of depreciable operating property or assets incidental to our business and adjustments for unconsolidated joint ventures.

We believe that EBITDAre is helpful to investors as a supplemental measure of our operating performance as a real estate company because it is a direct measure of the actual operating results of our properties. We also use this measure in ratios to compare our performance to that of our industry peers. In addition, we believe EBITDAre is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, our industry peers may not calculate EBITDAre in accordance with the NAREIT definition as we do and, accordingly, our EBITDAre may not be comparable to our peers’ EBITDAre. Accordingly, EBITDAre should be considered only as a supplement to net income (loss) as a measure of our performance.

The following table sets forth a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to EBITDAre (in thousands):

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Supplemental Guarantor Information

Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional,” the subsidiary obligor is consolidated into the parent company’s consolidated financial statements and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. At June 30, 2024, the Operating Partnership had issued and outstanding $300.0 million of 5.000% Senior Notes due 2028 (the “$300 Million Notes due 2028”), $400.0 million of 2.125% Senior Notes due 2030 (the “$400 Million Notes due 2030”), $400 million of 2.150% Senior Notes due 2031 (the “$400 Million Notes due 2031”), $575.0 million of 4.375% Exchangeable Senior Notes due 2027 (the “2027 Exchangeable Notes”) and $575.0 million of 4.125% Exchangeable Senior Notes due 2029 (the “2029 Exchangeable Notes” and together with the 2027 Exchangeable Notes, the “Exchangeable Notes”). The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the $300 Million Notes due 2028, $400 Million Notes due 2030, $400 Million Notes due 2031 and Exchangeable Notes are guaranteed on a senior basis by the Company. The guarantee is full and unconditional, and the Operating Partnership is a consolidated subsidiary of the Company. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented.

Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.

Liquidity and Capital Resources

Overview

Our short-term liquidity requirements consist primarily of funds to pay for operating expenses, interest expense, general and administrative expenses, capital expenditures, tenant improvements and leasing commissions, and distributions to our common and preferred stockholders and holders of common units of partnership interests in our Operating Partnership (“OP Units”). We expect to meet our short-term liquidity requirements through available cash on hand, cash flow from operations, by drawing on our unsecured revolving credit facility and by issuing shares of common stock pursuant to our at-the-market equity offering program or issuing other securities as described below.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through net cash flow from operations, proceeds from long-term unsecured and secured financings, borrowings available under our unsecured revolving credit facility, the issuance of debt and/or equity securities, including preferred stock, and proceeds from selective real estate dispositions as we identify capital recycling opportunities.

As of June 30, 2024, we had:

• Outstanding fixed-rate and variable-rate debt with varying maturities for an aggregate principal amount of $3.4 billion, with $67.4 million due within 12 months (including the $60,000 secured term loan maturing on October 27, 2024, which can be extended for three one-year terms at our option);
• Total scheduled interest payments on our fixed rate debt and projected net interest payments on our variable rate debt and interest rate swaps of $491.9 million, of which $126.4 million is due within 12 months;
• Commitments of $207.0 million for tenant improvements under certain tenant leases and construction work related to obligations under contractual agreements with our construction vendors; and
• Operating lease commitments with aggregate lease payments of $26.8 million, of which $1.8 million is due within 12 months.

See “Note 6 – Notes Payable” to the consolidated financial statements included in Item 1 of this Report on Form 10-Q for further details regarding the scheduled principal payments. Also see “Note 7 – Leases” to the consolidated financial statements for further details regarding the scheduled operating lease payments.

As of June 30, 2024, our cash and cash equivalents were $125.7 million, and we did not have borrowings outstanding under our unsecured revolving credit facility, leaving $995.0 million available for future borrowings after giving effect to the $5.0 million letter of credit that was issued under the unsecured revolving credit facility.

Sources of Liquidity

Cash Flow from Operations

Cash flow from operations is one of our key sources of liquidity and is primarily dependent upon: (i) the occupancy levels and lease rates at our properties, (ii) our ability to collect rent, (iii) the level of operating costs we incur and (iv) our ability to pass through operating expenses to our tenants. We are subject to a number of risks related to general economic and other unpredictable conditions, which have the potential to affect our overall performance and resulting cash flows from operations. However, based on our current portfolio mix and business strategy, we anticipate that we will be able to generate positive cash flows from operations.

ATM Program

On February 17, 2023, we established an at-the-market equity offering program (“ATM program”) pursuant to which we are able to sell from time to time shares of our common stock having an aggregate sales price of up to $1.25 billion (the “2023 ATM Program”). The 2023 ATM Program replaces our previous $1.0 billion ATM Program, which was established on May 27, 2022.

In connection with our ATM programs, we may sell shares of our common stock directly through sales agents or we may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under ATM programs. The use of a forward equity sale agreement allows us to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. Additionally, the forward price that we expect to receive upon physical settlement of an agreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends during the term of the agreement.

During the six months ended June 30, 2024, we did not sell any shares of common stock directly through sales agents or enter into any forward equity sale agreements under the 2023 ATM Program.

During the six months ended June 30, 2024, we physically settled the forward equity sale agreements that were outstanding as of December 31, 2023 under the 2023 ATM Program by issuing 3,010,568 shares of our common stock for net proceeds of $164.5 million, based on a weighted average forward price of $54.65 per share at settlement.

As of June 30, 2024, approximately $927.4 million of common stock remains available to be sold under the 2023 ATM Program. Future sales, if any, will depend on a variety of factors, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us.

Securities Offerings

We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and as circumstances warrant, we may issue additional securities, from time to time, to fund acquisitions, for the repayment of long-term debt upon maturity and for other general corporate purposes. Such securities may include common equity, preferred equity and/or debt of us or our subsidiaries. Any future issuance, however, is dependent upon market conditions, available pricing and capital needs and there can be no assurance that we will be able to complete any such offerings of securities.

Issuance of Exchangeable Senior Notes — In March 2024, we issued $575.0 million in aggregate principal amount of 4.375% exchangeable senior unsecured notes due 2027 and $575.0 million in aggregate principal amount of 4.125% exchangeable senior unsecured notes due 2029. The net proceeds from the issuance, after deducting the initial purchasers’ discounts, underwriting commissions and other offering expenses, were approximately $563.1 million for the 2027 Exchangeable Notes and $563.1 million for the 2029 Exchangeable Notes. Interest on the Exchangeable Notes is payable semiannually on March 15 and September 15 of each year beginning on September 15, 2024. The 2027 Exchangeable Notes will mature on March 15, 2027 and the 2029 Exchangeable Notes will mature on March 15, 2029, in each case unless earlier repurchased, exchanged or (in the case of 2029 Exchangeable Notes) redeemed.

Before December 15, 2026 (in the case of the 2027 Exchangeable Notes) or December 15, 2028 (in the case of the 2029 Exchangeable Notes), noteholders will have the right to exchange their notes only upon the occurrence of certain events. From and after December 15, 2026 (in the case of the 2027 notes) or December 15, 2028 (in the case of the 2029 notes), noteholders may exchange their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date of the applicable series of Exchangeable Notes. Exchanges will be settled by delivering cash up to the principal amount of the Exchangeable Notes exchanged, and in respect of the remainder of the exchanged value, if any, in excess thereof, in cash or in a combination of cash and shares of our common stock, at our option. The initial exchange rate is 15.7146 shares of our common stock per $1,000 principal amount of the Exchangeable Notes, which represents an initial exchange price of approximately $63.64 per share of our common stock. The initial exchange price represents a premium of approximately 30.0% over the last reported sale price of $48.95 per share of our common stock on March 26, 2024.

March 2024 Forward Equity Offering — In March 2024, we entered into a forward equity sale agreement with a financial institution acting as forward purchaser in connection with an underwritten public offering of 17,179,318 shares of common stock (the “March 2024 Forward Sale Agreement”), pursuant to which, the forward purchaser borrowed and sold an aggregate of 17,179,318 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchaser at the time of the offering. The net forward sale price that we will receive upon physical settlement of the agreement, which was initially $48.61 per share, will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends during the term of the forward sale agreement.

As of June 30, 2024, we had not settled any portion of the March 2024 Forward Sale Agreement. Subsequent to June 30, 2024, in July 2024, we partially settled the March 2024 Forward Sale Agreement by issuing 1,650,916 shares of common stock in exchange for net proceeds of $80.0 million, based on a weighted average forward price of $48.46 per share at settlement.

We currently expect to physically settle the remaining 15,528,402 shares under the March 2024 Forward Sale Agreement by issuing shares of our common stock in exchange for cash proceeds upon one or more settlement dates, at our discretion, prior to the scheduled maturity date of March 27, 2025. As of July 19, 2024, the date of this Quarterly Report on Form 10-Q, the net forward sale price was $48.46 and would result in $752.5 million of cash proceeds upon physical settlement of the shares under the March 2024 Forward Sale Agreement.

Settlement of May 2023 Forward Equity Offering — On May 10, 2023, we entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 13,500,000 shares of common stock at an initial forward price of $55.24 per share (the “May 2023 Forward Sale Agreements”), pursuant to which, the forward purchasers borrowed and sold an aggregate of 13,500,000 shares of common stock in the offering. During 2023, we partially settled the May 2023 Forward Sale Agreements by issuing 11,246,966 shares of common stock, leaving a remaining 2,253,034 shares of common stock for settlement as of December 31, 2023.

During the first quarter of 2024, we settled the outstanding May 2023 Forward Sale Agreements by issuing 2,253,034 shares of common stock for net proceeds of $125.7 million, based on a weighted average forward price of $55.79 per share at settlement.

Capital Recycling

We continuously evaluate opportunities for the potential disposition of properties in our portfolio when we believe such disposition is appropriate in view of our business objectives. In evaluating these opportunities, we consider a variety of criteria including, but not limited to, local market conditions and lease rates, asset type and location, as well as potential uses of proceeds and tax considerations. Tax considerations include entering into tax-deferred like-kind exchanges under Section 1031 of the Code (“1031 Exchange”), when possible, to defer some or all of the taxable gains, if any, on dispositions.

During the second quarter of 2024, we completed the sale of four properties for an aggregate sales price of $37.0 million and net cash proceeds of $34.4 million. The net cash proceeds were used to partially fund the acquisition of two properties during the second quarter of 2024 through 1031 Exchange transactions.

We anticipate continuing to selectively and opportunistically dispose of properties, however, the timing of any potential future dispositions will depend on market conditions, asset-specific circumstances or opportunities, and our capital needs. Our ability to dispose of selective properties on advantageous terms, or at all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable.

Investment Grade Rating

Our credit ratings at June 30, 2024, were Baa2 (Stable outlook) from Moody’s and BBB+ (Stable outlook) from both S&P and Fitch with respect to our Credit Agreement (described below), Exchangeable Notes, $100.0 million unsecured guaranteed senior notes (the “$100 Million Notes”), $25.0 million unsecured guaranteed senior notes and $75.0 million unsecured guaranteed senior notes (together the “Series 2019A and 2019B Notes”), $300 Million Notes, $400 Million Notes due 2030 and $400 Million Notes due 2031. Our credit ratings at June 30, 2024, were BBB- from both S&P and Fitch with respect to our 5.875% Series B Cumulative Redeemable Preferred Stock and our 5.625% Series C Cumulative Redeemable Preferred Stock. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us, and, although it is our intent to maintain our investment grade credit rating, there can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings are downgraded, it may become difficult or more expensive to obtain additional financing or refinance existing indebtedness as maturities become due.

Credit Agreement

As of June 30, 2024, under the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), we have an unsecured revolving credit facility with a borrowing capacity of $1.0 billion (the “Revolver”), which also allows us to issue letters of credit up to an aggregate amount not to exceed $100.0 million, a $300.0 million unsecured term loan facility (the “$300 Million Term Loan”) and a $400.0 million unsecured term loan facility (the “$400 Million Term Loan” and together with the $300 Million Term Loan, the “Term Facility”). Subject to certain terms and conditions set forth in the Credit Agreement, we may request additional lender commitments and increase the size of the Credit Agreement by an additional $800.0 million, which may be comprised of additional revolving commitments under the Revolver, an increase to the Term Facility, additional term loan tranches or any combination of the foregoing.

The Revolver is scheduled to mature on May 26, 2026 and has two six-month extension options available. The $400 Million Term Loan is scheduled to mature on July 19, 2024 and has two one-year extension options available. On July 12, 2024, we extended the maturity date of the $400 Million Term Loan by one year to July 18, 2025. The $300 Million Term Loan matures on May 26, 2027.

Interest on the Credit Agreement is generally to be paid based upon, at our option, either (i) 1-month SOFR (“Term SOFR”) plus the applicable margin; (ii) daily Secured Overnight Financing Rate (“SOFR”) plus the applicable margin or (iii) the applicable base rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, (c) Term SOFR plus 1.00%, and (d) one percent (1.00%) plus the applicable margin. Additionally, Term SOFR and daily SOFR will be increased by a 0.10% SOFR adjustment. The applicable margin for the Term Facility ranges from 0.80% to 1.60% per annum for SOFR-based loans and 0.00% to 0.60% per annum for base rate loans, depending on our leverage ratio and investment grade ratings. The applicable margin for the Revolver ranges from 0.725% to 1.400% per annum for SOFR-based loans and letters of credit and 0.00% to 0.40% per annum for base rate loans, depending on our leverage ratio and investment grade ratings. In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable credit facility fee, on each lender's commitment amount under the Revolver, regardless of usage. The applicable credit facility fee ranges from 0.125% to 0.300% per annum, depending on our leverage ratio and investment grade rating.

In addition, the Credit Agreement also features a sustainability-linked pricing component that can periodically adjust the applicable margin by -0.04%, zero or 0.04% and adjust the applicable credit facility fee by -0.01%, zero or 0.01%, depending on our achievement of the annual sustainability performance metric. In June 2024, after certifying that our sustainability performance was achieved at the target level for 2023, the sustainability-linked pricing adjustment changed from -0.04% to zero for the applicable margin and changed from -0.01% to zero for the applicable credit facility fee.

The Revolver and the Term Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the Term Facility and repaid or prepaid may not be reborrowed.

The Credit Agreement contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Credit Agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Credit Agreement, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.

As of the filing date of this Quarterly Report on Form 10-Q, we did not have any borrowings outstanding under the Revolver and had $5.0 million outstanding in letters of credit that reduced our borrowing capacity, leaving $995.0 million available for future borrowings.

Uses of Liquidity

Acquisitions

One of our most significant liquidity needs has historically been for the acquisition of real estate properties. Year to date, as of the filing date of this Quarterly Report on Form 10-Q, we completed seven acquisitions representing 52 properties with a combined 3.7 million rentable square feet of buildings on 181 acres of land, for an aggregate purchase price of $1.3 billion, and we are actively monitoring a volume of properties in our markets that we believe represent attractive potential investment opportunities to continue to grow our business. As of the filing date of this Quarterly Report, we have approximately $160.0 million of investments under contract or accepted offer. There can be no assurance we will complete any such transactions. While the actual number of investments that we complete will be dependent upon a number of factors, in the short term, we expect to fund our investments through available cash on hand, cash flows from operations, borrowings available under the Revolver, recycling capital through property dispositions and, in the long term, through the issuance of equity securities or proceeds from long-term secured and unsecured financings. See “Note 3 – Investments in Real Estate” to the consolidated financial statements for a summary of the investments we completed during the six months ended June 30, 2024.

Recurring and Nonrecurring Capital Expenditures

Capital expenditures are considered part of both our short-term and long-term liquidity requirements. As discussed above under — Factors that May Influence Future Results —Acquisitions and Value-Add Repositioning and Redevelopment of Properties, as of June 30, 2024, 28 of our properties were under current repositioning and redevelopment and we have a pipeline of six additional properties for which we anticipate beginning construction work between the third quarter of 2024 and the second quarter of 2025. We currently estimate that approximately $332.9 million of capital will be required over the next few years (3Q-2024 through 3Q-2026) to complete the repositioning/redevelopment of these properties. However, this estimate is based on our current construction plans and budgets, both of which are subject to change as a result of a number of factors, including increased costs of building materials or construction services and construction delays related to supply chain backlogs and increased lead time on building materials. If we are unable to complete construction on schedule or within budget, we could incur increased construction costs and experience potential delays in leasing the properties. We expect to fund these projects through a combination of available cash on hand, the issuance of common stock under the 2023 ATM Program and/or settlement of the March 2024 Forward Sale Agreement, cash flow from operations and borrowings available under the Revolver.

The following table sets forth certain information regarding non-recurring and recurring capital expenditures at the properties in our portfolio as follows:

(1) Cost is reported in thousands. Excludes the following capitalized costs: (i) compensation costs of personnel directly responsible for and who spend their time on redevelopment, renovation and rehabilitation activity and (ii) interest, property taxes and insurance costs incurred during the pre-construction and construction periods of repositioning or redevelopment projects.

(2) For non-recurring capital expenditures, reflects the aggregate square footage of the properties in which we incurred such capital expenditures. For recurring capital expenditures, reflects the weighted average square footage of our consolidated portfolio during the period.

(3) Per square foot amounts are calculated by dividing the aggregate capital expenditure costs by the square footage as defined in (2) above.

(4) Non-recurring capital expenditures are expenditures made in respect of a property for repositioning, redevelopment, or other major upgrade or renovation of such property, and further includes capital expenditures for seismic upgrades, roof or parking lot replacements or capital expenditures for deferred maintenance existing at the time such property was acquired.

(5) Recurring capital expenditures are expenditures made in respect of a property for maintenance of such property and replacement of items due to ordinary wear and tear including, but not limited to, expenditures made for maintenance of parking lot, roofing materials, mechanical systems, HVAC systems and other structural systems.

Dividends and Distributions

In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to distribute a percentage of our cash flow on a quarterly basis to holders of our common stock. In addition, we intend to make distribution payments to holders of OP Units and preferred units and dividend payments to holders of our preferred stock.

On July 15, 2024, our board of directors declared the following quarterly cash dividends/distributions record dates and payment dates.

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Indebtedness Outstanding

The following table sets forth certain information with respect to our consolidated indebtedness outstanding as of June 30, 2024:

(1) Reflects the contractual interest rate under the terms of each loan as of June 30, 2024, and includes the effect of interest rate swaps that were effective as of June 30, 2024. The interest rate is not adjusted to include the amortization of debt issuance costs or unamortized fair market value premiums/discounts or the facility fee on the Revolver.

(2) Excludes unamortized debt issuance costs and premiums/discounts totaling $37.9 million, which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of June 30, 2024.

(3) The Revolver has two six-month extensions and the $400 Million Term Loan has two one-year extensions available at the borrower’s option, subject to certain terms and conditions. On July 12, 2024, we exercised the first option to extend the maturity date of the $400 Million Term Loan by one year to July 18, 2025.

(4) As of June 30, 2024, the interest rates on these loans are comprised of daily SOFR for both the Revolver and $400 Million Term Loan and Term SOFR for the $300 Million Term Loan (in each case increased by a 0.10% SOFR adjustment), plus an applicable margin of 0.725% per annum for the Revolver and 0.80% per annum for the Term Loans, and a sustainability-related rate adjustment of zero. These loans are also subject to a 0% SOFR floor.

(5) The Revolver is subject to an applicable facility fee which is calculated as a percentage of the total lenders’ commitment amount, regardless of usage. As of June 30, 2024, the applicable facility fee is 0.125% per annum with a sustainability-related rate adjustment of zero. The effective rate assumes daily SOFR of 5.330% as of June 30, 2024.

(6) As of June 30, 2024, daily SOFR for the $400 Million Term Loan has been swapped to a fixed rate of 3.97231%, resulting in an all-in fixed rate of 4.87231% after adding the SOFR adjustment, applicable margin and sustainability-related rate adjustment.

(7) Noteholders have the right to exchange their notes upon the occurrence of certain events. Exchanges will be settled by delivering cash up to the principal amount of the Exchangeable Notes exchanged, and in respect of the remainder of the exchanged value, if any, in excess thereof, in cash or in a combination of cash and shares of our common stock, at our option.

(8) As of June 30, 2024, Term SOFR for the $300 Million Term Loan has been swapped to a fixed rate of 2.81725%, resulting in an all-in fixed rate of 3.71725% after adding the SOFR adjustment and applicable margin and sustainability-related rate adjustment.

(9) The $60.0 million term loan facility (the “$60 Million Term Loan”) has interest-only payment terms bearing interest at Term SOFR increased by a 0.10% SOFR adjustment plus an applicable margin of 1.25% per annum. As of June 30, 2024, Term SOFR for this loan has been swapped to a fixed rate of 3.710%, resulting in an all-in fixed rate of 5.060% after adding the SOFR adjustment and applicable margin. The loan is secured by six properties and has three one-year extensions available at the borrower’s option, subject to certain terms and conditions.

The following table summarizes the composition of our consolidated debt between fixed-rate and variable-rate and secured and unsecured debt as of June 30, 2024:

(1) Includes the effect of interest rate swaps that were effective as of June 30, 2024. Interest rates are not adjusted to include the amortization of debt issuance costs or unamortized fair market value premiums/discounts or the facility fee on the Revolver.

(2) Excludes unamortized debt issuance costs and premiums/discounts totaling $37.9 million, which are presented as a reduction of the carrying value of our debt in our consolidated balance sheet as of June 30, 2024.

(3) Fixed-rate debt includes our variable rate debts that have been effectively fixed through the use of interest rate swaps through maturity.

At June 30, 2024, we had consolidated indebtedness of $3.4 billion, reflecting a net debt to total combined market capitalization of approximately 24.1%. Our total market capitalization is defined as the sum of the liquidation preference of our outstanding preferred stock and preferred units plus the market value of our common stock excluding shares of nonvested restricted stock, plus the aggregate value of common units not owned by us, plus the value of our net debt. Our net debt is defined as our consolidated indebtedness less cash and cash equivalents.

Debt Covenants

The Credit Agreement, $60 Million Term Loan, $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes all include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:

• Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
• For the Credit Agreement and $60 Million Term Loan, maintaining a ratio of secured debt to total asset value of not more than 45%;
• For the $100 Million Notes, $125 Million Notes and Series 2019A and 2019B Notes (together the “Senior Notes”), maintaining a ratio of secured debt to total asset value of not more than 40%;
• For the Senior Notes, maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;
• For the Senior Notes, maintaining a minimum tangible net worth of at least the sum of (i) $760,740,750, and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company after September 30, 2016;
• Maintaining a ratio of adjusted EBITDA (as defined in each of the loan agreements) to fixed charges of at least 1.5 to 1.0;
• For the Credit Agreement and Senior Notes, maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and
• For the Credit Agreement and Senior Notes, maintaining a ratio of unencumbered NOI (as defined in each of the loan agreements) to unsecured interest expense of at least 1.75 to 1.00.

The $300 Million Notes due 2028, $400 Million Notes due 2030 and $400 Million Notes due 2031 (together the “Registered Notes”) contain the following covenants (as defined in the indentures) that we must comply with:

• Maintaining a ratio of total indebtedness to total asset value of not more than 60%;
• Maintaining a ratio of secured debt to total asset value of not more than 40%;
• Maintaining a Debt Service Coverage Ratio of at least 1.5 to 1.0; and
• Maintaining a ratio of unencumbered assets to unsecured debt of at least 1.5 to 1.0.

Subject to the terms of the Credit Agreement, $60 Million Term Loan, Senior Notes and Registered Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal or interest, (ii) a default in the payment of certain of our other indebtedness and (iii) a default in compliance with the covenants set forth in the debt agreement, the principal and accrued and unpaid interest on the outstanding debt may be declared immediately due and payable at the option of the administrative agent, lenders, trustee and/or noteholders, as applicable, and in the event of bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest on the outstanding debt will become immediately due and payable. In addition, we are required to maintain at all times a credit rating on the Senior Notes from either S&P, Moody’s or Fitch.

We were in compliance with all of our quarterly debt covenants as of June 30, 2024.

Cash Flows

Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

The following table summarizes the changes in net cash flows associated with our operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 (in thousands):

Net cash provided by operating activities. Net cash provided by operating activities increased by $32.7 million to $235.4 million for the six months ended June 30, 2024, compared to $202.7 million for the six months ended June 30, 2023. The increase was primarily attributable to the incremental cash flows from property acquisitions completed subsequent to January 1, 2023 and the increase in Cash NOI from our Same Property Portfolio, partially offset by changes in working capital.

Net cash used in investing activities. Net cash used in investing activities increased by $470.9 million to $1.4 billion for the six months ended June 30, 2024, compared to $895.7 million for the six months ended June 30, 2023. The increase was primarily attributable to a $425.7 million increase in cash paid for property acquisitions and a $72.9 million increase in cash paid for construction costs, including costs related to repositioning/redevelopment projects, partially offset by a $18.2 million increase in proceeds from the sale of real estate for comparable periods.

Net cash provided by financing activities. Net cash provided by financing activities increased by $430.9 million to $1.2 billion for the six months ended June 30, 2024, compared to $792.5 million for the six months ended June 30, 2023. The increase was primarily attributable to the following: (i) an increase of $1.1 billion in net cash proceeds from the issuance of the Exchangeable Notes in March 2024. This increase was partially offset by the following: (i) a decrease of $362.5 million in net cash proceeds from the issuance of shares of our common stock, (ii) a decrease of $296.9 million in net cash proceeds from the issuance of the $300 Million Notes in March 2023 and (iii) an increase of $36.7 million in cash dividends paid to common stockholders and common unitholders as a result of an increase in our quarterly per share/unit cash dividend and an increase in the number of common shares outstanding.

Inflation

We do not believe that inflation has historically had a material impact on the Company. However, beginning in 2021 inflation has significantly increased and a prolonged period of high and persistent inflation could cause an increase in our operating expenses, capital expenditures and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations. The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provide for fixed rent increases. We believe that inflationary increases to real estate taxes, utility expenses and other operating expenses may be partially offset by the contractual rent increases and tenant payment of taxes and expenses described above.

Market risk refers to the risk of loss from adverse changes in market prices and interest rates. A key market risk we face is interest rate risk. We are exposed to interest rate changes primarily as a result of using variable-rate debt to satisfy various short-term and long-term liquidity needs, which have interest rates based upon SOFR. We use interest rate swaps to manage, or hedge, interest rate risks related to our borrowings. Because actual interest rate movements over time are uncertain, our swaps pose potential interest rate risks, notably if interest rates fall. We also expose ourselves to credit risk, which we attempt to minimize by contracting with highly-rated banking financial counterparties. For a summary of our outstanding debt, see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources. For a summary of our interest rate swaps and recent transactions, see “Note 8 – Interest Rate Derivatives” to our consolidated financial statements.

As of June 30, 2024, we had total consolidated indebtedness, excluding unamortized debt issuance costs and premiums/discounts, of $3.39 billion. As of June 30, 2024, 100% of this consolidated indebtedness is fixed-rate debt under the terms of the loan or through the use of interest rate swaps. As such, as of June 30, 2024, if SOFR were to increase or decrease, there would be no impact to interest expense or future earnings and cash flows.

Interest risk amounts are our management’s estimates and are determined by considering the effect of hypothetical interest rates on our financial instruments. We calculate interest sensitivity by multiplying the amount of variable rate debt outstanding by the respective change in rate. The sensitivity analysis does not take into consideration the possibility of future changes in the balances or fair value of our floating rate debt or the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial structure.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the Security and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024, the end of the period covered by this report.

Based on the foregoing, our Co-Chief Executive Officers and Chief Financial Officer concluded that, as of June 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. No changes to our internal control over financial reporting were identified that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Please refer to our Risk Factors as set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to the risk factors as set forth in that document.