Rexford Industrial Realty, Inc. (REXR) Earnings Call Transcript & Summary

My name is Camille Bonnel. I'm the industrial analyst on the BofA U.S. REIT team. I'm joined today by Jeff Spector, who heads our team, across the table as well as Rachel Hu, who's next to me and Andrew Berger from the BofA REIT team. And we're welcoming you to our day 2 roundtable with senior management of Rexford Industrial Property -- Realty. Joining us from Rexford, we have, to my left, Howard Schwimmer, co-CEO; and going down the table next to him is Mike Frankel, also co-CEO; followed by Laura Clark, CFO; and their new member, [ Eric Chang ], SVP of IR and Capital Markets. We are asking management to provide just a quick intro to the company and then we can go into Q&A. So Laura, can you kick it off for us?

Yes, that would be great. Well, first of all, I'd like to thank you all for joining us today and spending some time with Rexford. So I'm going to provide a brief overview of Rexford in our recent results, and then we'll turn it back to you for questions. So Rexford Industrial is the nation's third largest and fastest-growing logistics REIT. We have an entity value of over $13 billion. We are solely focused, 100% focused on infill Southern California. Infill Southern California is the fourth largest industrial market in the world, the nation's strongest and most highly valued market. We have an irreplaceable portfolio of 41 million square feet of high demand generic use industrial space occupied by an exceptionally stable and extremely diverse tenant base. At Rexford, we have a very differentiated sourcing model and advantage. We have a unique access to the market and you combine that with our value-add expertise, and that really positions us to create value and drive accretive cash flow growth. In fact, as a result, our proprietary research-driven acquisition model, we have generated over 85% of our investments year-to-date. They've been acquired through off-market or lightly marketed transactions, and we expect to generate really substantially above-market returns on those transactions. So through the combination of internal and external value creation strategies, Rexford has consistently delivered sector-leading NOI, FFO and dividend per share growth, resulting in sector-leading total shareholder return of 155% over the past 5 years. We continue to see very strong levels of tenant demand. It spans a diverse and really expansive array of industries, as infill locations and close proximity to our customers are really essential to their operations. With overall market vacancy in infill Southern California is less than 1%, we expect the supply and demand imbalance within infill Southern California continue due to the extreme lack of developable land and the diminishing industrial supply. These very favorable dynamics have led to record occupancy levels and leasing spreads within our portfolio, and we are well positioned to continue to grow cash flow and value. The mark-to-market on rental rates for our entire portfolio are estimated to be at 70% on a net effective basis and 60% on a cash basis. Quarter-to-date through the third quarter, we have executed 88 new and renewal leases, representing approximately 850,000 square feet at 69% GAAP and 54% cash leasing spreads. Year-to-date, leasing spreads are exceptionally strong at 75% and 58% on a GAAP and cash basis, respectively. The average contractual rent steps embedded in our executed leases continue to increase. Quarter-to-date, the annual contractual rent steps embedded in our leases is 4.5%, and that compares to 4.3% in the prior quarter and 3.6% in the full year of 2021. Occupancy levels quarter-to-date are in line with our expectations and our full year guidance. A same-property average occupancy in the quarter is currently 98.7%. So our proprietary market access, our value-add expertise, our very highly selective approach to capital allocation is driving substantial value creation. Our year-to-date $2 billion of acquisitions, combined with our repositioning and redevelopment investments, are projected to generate an aggregate 5.4% stabilized yield, and that represents about 140 to 190 basis points above current market yields. We currently have over $200 million of additional acquisitions under contract or accepted offer that are projected to generate a 5% stabilized yield on investment, well in excess of market yields. And finally, our low-leverage balance sheet, substantial and our substantial liquidity positions us to capitalize on our differentiated strategy and drive outsized long-term value creation for our shareholders. We currently have approximately $1.25 billion of liquidity. And at the end of the second quarter, net debt to EBITDA was a sector low 3.8x and below our target range of 4 to 4.5x. Also, during the third quarter, we received a ratings upgrades by both Moody's and S&P, reflecting the strength of our business model and our balance sheet. And with that, I'll turn it back to you, Camille.

Thank you for the update. I just want to mention, we do welcome any questions from the audience. But maybe to kick it off, a lot of good news coming out at the start of the third quarter. Maybe just sticking on the operation and the leasing side, it looks like -- well, it sounds like the 54% cash leasing spreads that you achieved so far have slightly moderated. Just wondering, they're very impressive still, but just wondering, is there anything kind of driving that, or...

Maybe a quick comment on that, and thank you, everybody, for joining today. Cash leasing spreads of around 60%, GAAP and cash leasing spreads around 60%. And is pretty exceptional, especially first of all, there, it's still well in excess of the prior 4 quarter average. So we're still high even relative to recent performance. But you have to realize that infill industrial, these are relatively short leases in terms of term. So some of the leases that we renew that went into that, those leasing spreads were maybe 2 years old, 3 years old. So they rolled fairly recently. And so to achieve these types of leasing spreads on some leases that have recently rolled is nothing short of extraordinary. And don't forget that stated leasing spread is just an average across all the activity. So you had some spreads that were 100%, some spreads that were a little bit lower. So we think it's indicative of ongoing unprecedented strength in demand.

Okay. We've been hearing similar comments through the other roundtables that we hosted with your peers. I guess the big question is that everyone is trying to understand is how long can we continue to see these levels of rental growth? Do you have an outlook that you can share with us?

Well, we can share what we're seeing in the market that are indicative. And first and foremost, we're seeing tremendous price elasticity among the tenant base in terms of their ability to pay more rent. And that's reflected in many metrics, not just the leasing spreads, but in the annual rental rate bumps that we're locking in. For instance, quarter-to-date, the average bumps, contractual bumps that we've been locking in all of our new and renewal leasing activity has been 4.5%. So that's an acceleration over the prior quarter. The time -- the downtime in terms of re-tenanting space has further compressed. We didn't think it could compress more, but it has further compressed. So the leasing velocity is up. Those are things that don't necessarily come out in the top line numbers. And frankly, the diversity of demand driving today's market is unprecedented. So the market is positioned in a way that, frankly, we've never seen before in our careers. So the question is, where does it end? Rent in our markets represent a very small share of the typical tenant's economics and expense structure. In fact, it resolves a lot of their issues in terms of helping to reduce transportation costs by locating close to the end points of distribution and customers, so we continue to see tremendous potential for rent growth.

Another way to ask the question is just in terms -- I know we've been tracking closely the mark-to-market that has been growing across many markets. I guess where is the latest on kind of that? I think you said right now, it's at 70%. What is -- maybe you could just explain like how that trend has been and I don't -- do you have any updates on that?

Yes, I'll jump in there. So our mark-to-market on a net effective basis is 70%, on a cash basis of 60%. In terms of rent growth, what we've seen through last -- just to give some color here. So market rent growth within our portfolio last year was about 60%. If we look at year-to-date through the end of the second quarter, market rent growth was -- has been about 20%. We have not given an update of our mark-to-market or that market rent growth. But what I can tell you is on a quarterly basis, we reforecast and we budget for the market rents within our portfolio. And when we look at the deals that we're signing today, those rents are coming in above those reforecasted rents that we set a quarter ago. So we continue to see market rent growth within our portfolio.

And just think -- there's a question.

It seems like those numbers are abnormally high. So the question goes to sustainability. I thought I heard you just say is we increased the rent there, but they've increased their transportation costs elsewhere. So their overall cost to effect this trade and your abilities should change. Is that what I understand you to say?

It's not really a dollar-for-dollar trade, transportation costs for rent per se. It's just one of the factors that enabled them to pay more rent, one of the many factors. And -- so it's not quite as simple as that, if you will.

That's what I'm getting to. It seems abnormal. So the question is as always, well, are there -- why is that the case? If it doesn't seem sustainable then when is it [indiscernible] how? Or are there some factors here that we don't really see or...

Yes, I think there was an explanation actually, at least a partial explanation, and it is abnormal. We should not expect 60% market rent growth to continue, and that is not sustainable. However, if you look at this on more of a historical perspective, the valuation, the market rent growth, it's -- if you look over 20 or more years, market rent growth was anemic, barely exceeded long-term inflation rates. If you look back 20 years on a CAGR basis, for instance, market rent growth was under 3%. In fact, Howard and I, going back 20 years, used to ask ourselves, why isn't there more market rent growth? We have an extreme supply/demand imbalance even then. And the reason -- there is actually an explanation and it's very interesting. Because although this is the most highly sought after industrial market in the nation, it's also owned predominantly by private individuals who are not real estate professionals. And these private individuals and families and partnerships bought, build or aggregated this product largely during the post-World War II era. We have over 1 billion square feet and a 2 billion square foot market built prior to 1980. Now those owners, which still represent the vast majority of the ownership base are not active owners. They're passive owners. They're not real estate professionals. They were not optimizing their property for cash flow value. In fact, we had a serious allergy against investing in their property. It was like an annuity for them. And so flash forward to today, you have extreme market occupancy. Instead of being on average 3% plus or minus percent, it's well below 1%, as Laura mentioned. And you have active owners, sophisticated owners like Rexford who are now driving pricing in the market. And -- but again, if you look on a historical perspective and straight line the appreciation in rents and values, it's not abnormal. The abnormality is only the catch-up that we're seeing in the most recent periods.

And also, you're asking about go-forward. We've never been at a place in the market where we are today. And what I mean by that is vacancy and demand, right? So 0.8% vacancy in the overall market. Some of our larger submarkets are literally at 0.2% vacancy. So there's just a dearth of quality, let alone any product available in the market. And we're in a market that is supply constrained on a long-term basis. You can't add supply into the infill markets. The only place where you see a volume of construction happening is, frankly, out in the Eastern Inland Empire, which actually is not in a market that Rexford focuses in. So the idea of growing the supply to meet the demand that's out there is not a reality in our market, which is really different because all the other major markets in the country have land availability. So there's just -- as Michael pointed out, there's just a lot of different elements that add to this pressure cooker that provides for outsized rent growth and possibly for it to continue very strong into the foreseeable future.

So just to make sure I understand what you said, what I heard you say was the reason why is because both the lessees or tenants have overstated earnings effect, understating earlier cost [indiscernible] and now that's captured [indiscernible]. Is that right?

You asking in my explanation? I wouldn't say they overstated their earnings. I wouldn't say they overstated their earnings, they just benefited -- well, they just benefited over the last 20 to 30 years on very low embedded rent, when in reality, there was room for that to grow. And they benefited from a passive ownership base that wasn't concerned with driving rents, quality, functionality or value.

I think we have seen [indiscernible] we've heard national, right, the massive mark-to-market wave that I think everyone is seeing it. Obviously, you guys are seeing it as well. [indiscernible]

Yes. But then there's so many factors that are part of that equation. I mean think about replacement costs. When we do find land and there is some development in our market, it's substantially higher costs that dictate a higher rent to pencil even a moderate return. So that also drives the rent growth. So again, we can talk about this for the next hour. But maybe we should allow some other people to answer questions or get back to any of your prepared questions coming in.

Just one follow-up on the topic. I think on one of the thematic panels this morning, one of the panelists said that we're kind of just really midway on the changes in logistics, right? E-commerce, now [ shore running ], and so I guess, how does that impact more business like on the demand side? Where is the -- can you talk a little bit more about strengthened demand? And do you agree with that comment like -- and are we still just midway through some of these changes?

I think that's a great question. And we are still -- I would not say we're even midway. I'd say we're in the early stages in terms of the impacts of many emerging technologies, one of them being e-commerce as it drives incremental demand in our markets. I mean so many new technologies out there and sector growth. And I'll name a few, and I'll end with more of the technology driven, but think about the electric vehicle industry. We have numerous players in the electric vehicle sector alone looking for several dozen meaningful-sized spaces. Think about the transformation that we're witnessing before our eyes in the 3PL business. The 3PL, third-party logistics, those are basically just pure distribution companies, just warehouse companies. Historically, that would be a very low-margin commodity business. They're basically just selling warehouse rack space. Today, that sector is transforming itself, leveraging new technology to provide transparency and value-add services to their customers from raw material to production to shipping all the way to delivery to their customers, whether it's one unit to a household or millions of units into a warehouse. So what was a very low margin commodity business in the 3PL world is now becoming a high value-add service. So that's driving incremental demand on a square-foot basis from those types of tenants. It's also because they're converting to high-margin businesses, increasing their ability to pay more rent. Think about e-commerce. Despite what we've read recently in the newspapers about Amazon, they still have substantial requirements for additional square feet in infill Southern California. They have not and will not and don't anticipate reducing their footprint in any way in infill Southern California. Fact of the matter is, as compared to their presence in many other big box markets around the country, where they drove pricing and drove demand, they're actually a laggard in our market because they haven't been able to act fast enough. Leasing happens so quickly in our market. By the time Amazon wants to negotiate a letter of intent, we've already leased the space 2 or 3x, right? So they just can't keep up. They can't penetrate fast enough. Think about e-commerce-enabled businesses, not just new businesses, so I'll get to that in a second. Think of a legacy line retailer like Target, already completely turn their business model upside down because they didn't want to be the next Sears. It used to be the classic supercenter big box retailer. Today, they've opened up small-scale footprint stores in Manhattan and Santa Monica where I live, across the country in small and large towns. To service that, those smaller footprint stores, they had their lease houses, small, medium-sized warehouses closer to those distribute -- to those stores in and among the population centers. They call them sortation centers. Those are Rexford warehouses. So even your old line bricks-and-mortar retailer adjusting to an e-commerce environment is driving demand for us. Think about e-commerce-enabled businesses, whether it's food processing, food manufacturing, packaging or delivery. I can think of one prepared food delivery company that has a mandate with Rexford right now, not for 1 space in 1 submarket, but for 30 spaces throughout infill Southern California, and they need it yesterday. Their mandate is to be within 20 minutes of every door, whether it's a home or business, that counts. And we can talk about all sorts of other industries, but we have tremendous incremental growth across a whole range of sectors that we have never seen before.

But if I'm seeing it correct, I just looked at our comp sheet, and I can't believe the years go by that [ Bud ] just had worked on your IPO. But I think you now have the second largest industrial REIT by equity market cap.

Soon to be.

Soon to be. Soon to be. Yes, yes.

I mean does that change anything? Does that matter to you, the value, to become the largest industrial REIT?

No. It really doesn't change anything for us. So I think it's consistent with the vision that we had for Rexford when we started this business 20 years ago. We saw an opportunity to build a great business that had true embedded competitive advantage with a tremendous market opportunity. And actually, the direct addressable market opportunity for Rexford today is substantially better. It's larger and it's higher quality than it was even when we did our IPO 9 years ago. And the reason for that is it goes to the quality of our research and the quality of the work that we do to identify new investment opportunities. We define our direct addressable market opportunity not as the 2 billion square foot market, but as all the research leads and the catalysts that we're identifying that enable us to acquire investments and properties which generate substantially higher yields than was traditionally or historically or currently available to competing buyers. And so because of the cumulative effect of all the years of lead generation and research every year, that universe of direct addressable market opportunities in our pipeline, in our control more or less, is increasing in quality and volume. So even though we've grown a lot, actually, the market opportunity going forward is even larger for Rexford than it was when we went public.

And here, if I think about your cost of capital and whether your current capital market, it's thinking about [ based on external front ]?

Yes, I'll start with that one. And the question for all of you that are listening on the webcast is about our cost of capital and how we're thinking about that and the pace of our external growth. So I think really important is when we think about investments, #1 is we're focused on how are we accretively growing cash flow and long-term NAV. And that's the focus, and that's the lens in which we make investment decisions. And so what that means is that means that we are extremely selective in how we make decisions. And so you may look and say, will be about $2 billion of acquisitions year-to-date. How can you be selective when you're buying $2 billion of acquisitions? And I would say, to Michael's point, the direct addressable market is considerable. If you actually look at the deals, the acquisition opportunities that we are tracking right now, it's over 2,000 opportunities that represent over 240 million square feet. And those are direct addressable opportunities in our market. And if you think about just this year alone, we've sent out over 550 ROIs on nearly $27 billion worth of real estate. So yes, we've acquired $2 billion. We could have acquired a lot more. Because we are so selective in how we allocate capital, because we are so focused on how we're going to generate long-term value creation for our shareholders, we are very, very thoughtful about that cost of capital. And so just to think about how we like holistically think about cost of capital, I think is really important. So we've acquired $2 billion worth of acquisitions, and that's comprised of core, some more stabilized deals that have embedded growth, and then also is that includes value-add opportunities as well, which will have a repositioning redevelopment component at some point in the future. And then that includes our -- and then later into that, our current in-process repositionings and redevelopments. And when you look at that in the aggregate to this year, if you look at kind of how we're investing capital, that's about -- it's a little bit over $3 billion of investments. And that represents an aggregate 5.4% stabilized yield. And to put that into context in terms of how we create value, so if we take that 5.4%, where would that trade today on a market cap rate basis, you're looking at something at a 4 and lower than that. So I mentioned in the prepared remarks, when you look at where we're stabilizing and where we're investing our capital, there are significant value creation that we're embedding into the business. Yes.

So tighter capital markets or higher cost capital doesn't slow you down?

Although we have seen a relative -- I mean a modest increase in the cost of capital, still very accretive, obviously, based on those spreads that I just mentioned. But when we think about cost of capital, we actually take a very much longer-term cost of capital view. And we've always done this. And so what that means is that we know that we're going to own these properties forever. When we buy them, when we invest in them, we're going to invest in repositioning the redevelopments over time. We're going to invest in CapEx. We're going to invest in TIs. And so we take a much longer-term view on cost of capital, which means we're not focused on the spot cost of capital today. Because if we were, maybe -- and maybe in times where valuation was even higher, would have bought more, right? And then -- but we didn't because we do think about how we're going to invest in these properties over the long term because we're adding long-term value.

How long -- I mean on the $2 billion on say like, I've seen -- I've been to your headquarters and have seen the proprietary system. Like on average, how long are you working on those deals? Like how long does it take to bring those in? And part of it, too, is, is it somewhat of a generational trade? There's been this relationship, I guess, if you could talk about that.

Yes. Sometimes they happen very quickly. Other times, they take a few decades to mature. We've closed one transaction recently we've been tracking for almost 15 years, and we know the family. But you mentioned generational. And I think the single greatest driver of our transactions is generational shift in assets from one generation to the next. Because again, as I mentioned earlier, these are private owners in general who have bought, built or aggregated this product during the post-World War II era. So that original ownership, they're in their 80s or 90s, they're aging out of active ownership in their real estate. And so if you want to trace really the core driver of -- the single greatest core driver of transaction activity, it's been this generational shift in these assets. It will never again occur to this magnitude in such a short period of time. And increasingly, that segment of the market is marching into our arms because they're not getting any younger. And it comes in different transaction formats. For instance, it might be a sale leaseback. It might be an UPREIT transaction where they're contributing their property and exchange for ownership in Rexford, or it could be a straight purchase. That is -- it's a great question because it's the single greatest catalyst.

Have you ever analyzed -- or I think of you as conservative -- whatever you, let's say, the acquisitions you've done over the last, I don't know, 10 years or 5 years, what you thought you were going to achieve versus what you're actually achieving? So when you talk about the cost of capital versus, let's say, this 5.4% yield, like 5.4% yield, like how conservative has that been over the years? Or you've actually aimed at much higher.

Yes. That's a great question, Jeff. So I think really, I have to start with how we underwrite these acquisitions. And I think the first thing is really thinking about rent growth. I mean that's really what's driving these returns is where these rents stabilize. And so today, last year, the year before, we've always had very moderate rent growth in our models. So while rents grew 60% last year, 40% year-over-year and 20% year-to-date, we're still using 5% rent growth for the first year, 4% for the second and then back to 3% for the remainder. And -- so I guess our philosophy is really more one of conservative business, as you pointed out. We would rather be pleasantly surprised at outperformance than to see an underperformance in any of these investments we're making. And we do look at how they perform versus underwriting. And I'd say 90% of the time, we're outperforming our projected yields.

Could you quantify that, like by 50 bps, 100 bps?

Well, I'll say this. So Laura, I think, mentioned that the $200 million worth of acquisitions we have in the pipeline are projected to have a stabilized yield of about 5%. Well, I look back year-over-year, and typically, that's what we're projecting, about 5% for our stabilized investments. Then today, you look at the bucket of investments that we're executing our value-add work on, which are projected to stabilize at 6.7%. So that's a great example. We have many examples of stabilizing assets at 8% plus. So again, that's part of the philosophy. And the outperformance has a lot to do, obviously, with rent growth, but more so to do with actually our team and their ability to execute on these, whether it comes in terms of the cost to execute or their ability to just outperform in the market in terms of their leasing. Go ahead.

I'd just add one thing because I think there's actually one metric that really captures a couple of different questions that just came up. So I think FFO per share is a great metric to look at, right, because it captures how we're creating value, how we're accretively growing cash flow, and it also captures how we're funding it. And so if you look back over the past 5 years, the annual CAGR of our FFO goes to annual growth has averaged 15%. If you compare that to our peers, our peer average growth is 9%, a significant delta there, and there's no peer that even comes close to the growth that we've been able to produce on average over the last 5 years. And so I think that's a great measure of our ability to create value and accretively -- accretive cash flow.

[indiscernible] market surprise in your earnings growth [indiscernible].

When we don't have better investment opportunities.

Great. But the other [indiscernible].

Sure. And certainly, obviously, it's something that we would look at. But at this point, we've got -- as we've talked about, we've got significant opportunities that we believe will add significantly more value over the long term to our shareholders.

Also, the free cash flow we're generating is generally being used on the execution of the value-add work we're doing. So if we aren't using that cash flow there, we're raising more equity or having to borrow those dollars in terms of consideration to our buybacks.

Where were you generally beginning to sort of losing deals to, and [indiscernible]?

Well, when you think about the deals we're buying, when we talk about buying 80% to 90% of our transactions off market, many times we're competing against nobody. Our team actually is tasked with creating these opportunities. So these are not people that had their property out in the marketplace, and we just happened to come along and talk to them. These are situations that we're monitoring or looking at data points that might translate, we think, to a transaction opportunity and we're approaching them through the brokerage community that we invite in to help us catalyze those opportunities. So yes, it's hard to say who we're really competing in it, in that sense. But sometimes we do compete on actively marketed opportunities. And in that instance, the buyer pool is going to range anywhere from 5 to 15 different parties and it changes at different points in the cycle. We see different type of capital coming into Southern California. No secret, we're the strongest, largest market in the country. Everyone wants to be in the marketplace. And so the competition that we think about is -- I guess it's really not on our mind, the way we've started the business and chose to operate and not really be reliant on brokers to tell us when we have an opportunity to grow or not.

And to add a little bit of perspective, we are the single greatest governor of our volume. It's not the competition. If we were to relax our underwriting criteria and accept slightly lower yields, we can double or triple our acquisition volume overnight, but we choose not to. The goal at Rexford is not to build the biggest business possible. The goal at Rexford is to build the best business on the planet, period. And that's the singular lens that we make every single decision through.

Just wondering how often [indiscernible].

Yes, they've been very, very productive. And it's an incredibly elegant solution for families and old-time partnerships to resolve whatever situations they have on their side. Some of those partners or family members need cash, others don't and don't want to pay tax. Others want to carry forward with ownership in Rexford. And by the way, it's differentiated also as compared to any other industrial peer because these are long-time owners who appreciate what they have in infill Southern California. They view any other market as a dilution in quality and future value creation. And so they're not even generally considering another industrial REIT. So it's a very unique value proposition to those owners.

As a percentage of the equity, like what part of that [indiscernible]?

It's still a small component, probably like 10%, 15% probably under 20% or well under 20%.

I'm just conscious of time. We'll probably accept 1 or 2 more questions.

So there's -- the 10-year's up, more basis point yield gains and could possibly go higher. Looking at how you're seeing that affect things in your market? And how you think about that, cap rates going forward?

Surprisingly, it's not really affecting cap rates in the market very much. And we saw a slight pause from some of those institutional buyers in late Q2 when the markets started to shift a little bit, but it's already sort of come back with strength. And by way, we've seen this in prior cycles, and it just goes to the inherent stability and attractiveness of our market. And during turbulent times, we tend to see capital fleeing other less strong markets and seeking quality in infill Southern California. So we have had -- we've seen a kind of a counterintuitive move in cap rates, but you don't see them expand the way you might expect in infill Southern California.

Well, and also where you do see the impact is longer-duration leased assets, right? So if you can reset the income stream, you're going to want to adjust the cap rate a little bit. But industrial assets generally are at least 3 to 5 years on average. So you can get to the reset relatively quickly.

For infill product like ours.

Yes.

I think we had one last question on this side. Are you set? Okay. So then we'll go into our rapid-fire questions. We have 3 of them. First is, which of the following is the greatest macro challenge facing U.S. public REITs today: a, a risk of higher rates; b, risk of recession; or c, the rise of private equity and non-traded REITs.

Should we tell them, recession, I think we are in a recession, or in general. I think the question's are in general, U.S. REITs, I'd say a recession.

Probably a recession. Yes. I'm going to go recession. Okay. And which of the following is the greatest sector-specific risk: one, labor issues; two, supply; or three, liquid capital markets?

For the industrial sector overall. Yes. I'd say for sector outside of infill Southern California, supply.

But not for us. Yes.

Lack of supply in our markets.

Our market, yes.

And supply in other markets.

Got it. And finally, are you seeing any signposts of weakening demand? Say yes or no.

No.

No.

Perfect. Thank you, everyone.

All right. Thank you.

Thanks, everybody.

Thank you.