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

So welcome to the Rexford Industrial roundtable here. I'm happy to have the Rexford team with us. This afternoon. I'll turn it over to Laura Clark, COO, who can introduce the team and then opening remarks.

Well, thank you so much, Samir, and thank you all for spending time with Rexford today. With me today are Co-CEOs, Howard Schwimmer, Mike Frankel; and our CFO, Mike Fitzmaurice. I'll begin with a brief overview of Rexford before highlighting our recent operating and disposition and capital markets update, and then I'll turn it over to Fitz to cover our current capital allocation priorities. Quickly, Rexford Industrial is the largest U.S. focused industrial REIT. We have an exclusive focus on creating value within infill Southern California. Our 51 million square feet portfolio represents the highest quality and most functional industrial product within our submarkets. Our differentiated value creation strategy is supported by a number of key factors. One, our superior long-term supply and demand fundamentals two, a disciplined approach to capital allocation, which is continuously reevaluated and adjusted based on market conditions. Our vertically integrated team a substantial embedded NOI growth profile; and lastly, a fortress-like balance sheet. These all position Rexford to deliver long-term value through all cycles. Our focus on infill Southern California is grounded in a compelling long-term fundamentals of the market. While Southern California has recently experienced a cyclical downturn, it is a top 12 economy in the world and the nation's largest gateway and first and last mile distribution market. It is supported by compelling long-term sector demand drivers, which Rexford is uniquely suited benefit from. While uncertainty in today's macroeconomic environment remains, we are encouraged by the positive leasing momentum our team is driving across our uniquely positioned portfolio as demonstrated by our operating update issued last week. A few highlights. In July and August alone, we executed a total of 1.9 million square feet of leasing, exceeding our second quarter leasing volume. Leasing spreads remained healthy and in line with our expectations at 30% on a net effective basis and 15% on a cash basis and same-property occupancy increased 50 basis points to 96.6% compared to the end of the second quarter. Notably, our leasing activity included the execution of our 500,000 square foot space at our 1601 Mission property. In line with our internal strategy of continuously assessing our portfolio on an asset-by-asset basis, we ran a two-pronged review of the mission property, weighing a repositioning plan against leasing the building and its current condition. Given the unique circumstances with the functionality of the building and use restrictions within the municipality, we prioritize leasing the building as is at a strong 43% cash leasing spread. Importantly, we avoided construction and lease-up risk, additional capital investment and downtime while driving over $3 million of annualized NOI. In regard to our repositioning and redevelopment projects, we leased more than 400,000 square feet quarer-to-date, in the quarter and year-to-date activity is 1.1 million square feet, equating to over $20 million of incremental annualized NOI. Importantly, we continue to effectively allocate capital towards our most accretive opportunities. We remain highly focused on opportunities that drive the highest risk-adjusted return, taking into account market conditions and our cost of capital. And with that, Fitz will go into more detail around our priorities.

Thanks, Laura. As demonstrated by our performance year-to-date, our focus has been on capital recycling. By disposing of selective properties, we can realize the value that we've created through our business model and opportunistically and really redeploy into share repurchases and targeted repositioning and redevelopment opportunities where we're yielding about 11% returns. Year-to-date, we've sold about $166 million of assets at a 4.2% exit cap rate and recycled about $100 million into share repurchases where we achieved an implied FFO yield of about 6.4%. It's about a 220 basis point spread. Importantly, that was a significant discount to our intrinsic value. The Board did also authorize a $500 million share repurchase program. That's a fresh new one that demonstrates our commitment to continue to accretively capital lease cycle, but also our belief that Rexford stock is a very, very good investment. Repositioning and redevelopment. We've stabilized 9 projects this year. Just north of 1 million square feet, 15% incremental returns. We're also driving the operating leverage. Earlier this year, in January, we made some tough decisions. We had a strategic reduction in force. We also cut other corporate expenditures that allowed us to maintain G&A levels at about $82 million despite growing our portfolio about 5 million square feet over 2024. So we'll continue to look for ways to drive operating leverage as another lever that we can pull to create value for our shareholders. As we look ahead, our embedded NOI growth positions us very, very well to have significant share appreciation as market conditions stabilize. Today, we have $195 million of incremental NOI stemming from repositioning and redevelopment, contractual rent increases and our mark-to-market opportunities. Pretty significant. Supporting that growth is a fortress-like balance sheet like we talk about it inside our 4 walls where net debt to EBITDA today at 4x, we have $1.6 billion of liquidity, which is going to support the execution around our priorities through all points of the cycle to help and to create durable and strong term -- a strong long-term shareholder value. And with that, Samir?

Yes. No. Thank you for that. I guess you talked about the pickup in leasing in July and August. Maybe for the people in the room, help us kind of think through what's sort of driving that pickup?

Yes, I'll start. Yes, we certainly saw a pickup in July and August. I think it's important to kind of frame what typically happens over the summer months. There's seasonality in leasing, and we typically see a bit of a slowdown in those months. So July and August pickup was a pleasant surprise within the market. There's a number of factors that we see driving that. It's not one single factor. I would say, Samir, that we're certainly seeing tenants need to make decisions. Generally speaking, our tenants businesses are healthy. Our bad debt levels remain low, lower than expectations. Our retention levels remain very healthy. And so all that being said, given the uncertainty and volatility earlier in the year that may have caused some pause, tenants need to make decisions about their real estate needs. And that could be driven by the need -- they have lease expirations. They have contracts. They've executed product coming in, it could also be driven by the fact that they want to get into more functional space, more high-quality space that allows them to more effectively operate their businesses. And I think overall, while we don't have full visibility into tariff policy to date, certainly, some of the fear and anxiety about elevated levels of tariffs, I think those have calmed down to some extent. And at the end of the day, their businesses, they're thinking strategically about how they're going to continue to execute on their business models. They're getting strategic, how they're thinking about their logistics and supply chains and that is driving their need to make real estate decisions today.

Maybe I'll add just a little bit because I think the diversity of tenants in terms of the types of businesses and their different sectors as reflected in the leasing activity the last few months is really indicative and important to look at because we have a lot of sectors that are experiencing pretty exciting secular growth within those sectors. For example, aerospace and defense, even consumer products, food and beverage, were prominent leasing activity, construction trades, wholesale trade, business-to-business, wholesale trade, industrial inputs, things like that. So incredibly diverse electric vehicles is another area where we've seen a lot of activity. So I think we look for that. We look for the diversity of activities. Somebody asked earlier in a meeting, what's the trend in terms of sector and tenant demand. I said the trend is there is no trend. And it's extremely diverse, but it's reflective of the incredible and diverse economy in Southern California. And I think for us, those are some of the leading indicators that we look for. And I think the other thing about the leasing activity that characterizes we're locking in 3.5% annualized embedded rent spreads in the leasing activity that we accomplished the last few months. And so I think the tenants are telling us through their behaviors that they expect to pay more rent in the future. That has a pretty nice compounding impact of time.

What about when you think about the Southern California market, I mean there's the Inland Empire, and there's all the different breakdowns you have in your presentation. Talk about the different markets, what are your you seeing? And when you say -- when you talked about that pickup in activity, where was it more prominent and also sort of box size here?

Thanks, Samir. I'll take that one. Well, I think it's pretty broad-based. We've seen the activity pick up pretty much in every one of the submarkets throughout Southern California. Vacancy is still elevated in a few of the submarkets where we maybe had a little more supply delivered. Some of the demand in those markets still isn't enough to bring it down and pick up some of that excess supply, which is mainly buildings over 100,000 feet. But as you've seen in our most recent leasing results, certainly a big change in the market from now where we have activity on about 85% of our vacant spaces. And if you even drill down a little bit further, we have another -- I think it's 1.1 million square feet of our repositioning projects to lease up through the remainder of this year. And we literally have activity on about 100% of those spaces, and we're even trading paper on 2/3 of them.

And just stepping back a little bit because I'm not sure everybody here is as familiar with the Rexford business as some of the folks who have been covering us for a long time. But when Samir asked about how do you see the market and what's happening in different markets, remember that Southern California is about a 2 billion square foot market, and there's the Inland Empire East, which is a very big box market, low barrier because there's lots of land. And then there's the rest of the market that we call infill Southern California. That's about 75% of the market, plus or minus by square footage. That's where we focus. We only focus on the infill markets. So if you're asking us to comment overall in Southern California, that Inland Empire East, that big box market is a very different segment. That's -- when you hear other -- for instance, Prologis talking about Southern California, their comments reflect more the IE East. And so the demand dynamics from tenant base, the supply dynamics are fundamentally very, very different there. There's an endless supply of land for new development. And so that's the first differentiation. And then as Howard described, we do have some subtleties within our infill markets. So I just want to make sure that, that differentiation is clear.

Just a reminder, I want to keep this interactive. So if there's any questions, please. Go ahead and raise your hand. On the operating metrics, so everybody is aware, the LL flooring space was not part of same-store, right?

Correct. That wasn't part of same store. It was slated for a repositioned at the start of the year, so it was taken out the same store.

Okay. So none of that 50 basis points increase in same-store was related to LL floor.

No, about 40 basis points was related to positive net absorption and then about 10 basis points from a few assets that we sold that were vacant.

And I know you talked about the 15% cash and the 30% net effective leasing spreads. That did not include LL flooring or it did?

It did include LL Flooring, but I think it's worth noting what the spreads were without LL flooring. So to your point, we reported 30% on effective, 15% on cash without LL flooring in there, 22% on net effective and 10% on cash. The re-leasing spread associated with LL flooring space was about 43%. And maybe it's a good opportunity for Laura to talk about the dynamic of the asset and a little bit about how we run strategic plans -- multiple strategic plans on assets.

Yes. I mentioned in my prepared remarks that we'd run multi-pronged approach. And look, every asset within our portfolio has a strategic plan. And we are constantly evaluating those strategic plans and changing those strategic plans going in different directions, depending on market conditions, depending on regulation, et cetera. And in some cases, that can mean that we lease the space as is. Others, it's moving forward with the repositioning and redevelopment. And in other cases, we may decide that a disposition is the right path. And this asset is obviously a very large space for us. Our average space size within our portfolio is 26,000 square feet. So 504,000 square feet, outsized site space for us. This is unique in terms of its functionality. It has great loading, but it is low clear, 20-foot clear building located in the city of Pomona. As we were looking at the repositioning plan and how we could position this for future repositioning, we certainly thought that there was value that could be created there. But there also has been recent regulation change within the city of Pomona where this asset is located. And it restricts the use of 3PL and some distribution, which limits the tenant pool and tenant demand pool in the future. So as we assessed both these paths, leasing this property as is, we thought was another viable option. And we've had this in the market, and we actually got several offers, and we're able to move forward with the execution of this lease, which we think is a great opportunity to drive current cash flow today, as I mentioned, over $3 million of annualized NOI. We signed a 5-year long-term lease, which is going to allow us to generate income, high credit quality tenant. And then in the meantime, we'll use our team and the relationships that we have within the city, to hopefully work towards change around this regulation, but we're really excited with that path. And I know that this is one example. It's a large space, so it gets more prominence. But we're doing this in every size space from 5,000 square feet to 25,000 to 50,000 to 100,000 square feet within our portfolio and constantly reassessing the opportunity and what's the right path to create the most value in our assets.

And this is a great result for us. We avoided the lease-up and the development risk. We got cash flow in the door day 1 at a very, very healthy spread. To Laura's point, the lease commenced in August. So very, very happy with the execution.

And as part of the update, you also talked about the -- you announced the 2 dispositions, right, that are under contract. Maybe provide some color around that, cap rates? And then what does that pipeline look like in terms of what else you can sell and potentially like buy back stock?

Right. Well. We have a pipeline currently under LOI or contract of another $90 million. But we don't really talk to any of the yields and so forth on that pipeline until the transactions are closed. The $166 million that we did close so far this year had an implied cap rate of about 4.2%. And those were selective transactions. Some of them were on our user. One was a condo converter, who was kind of a cap rate buyer but paid a premium because of the upside they saw in the asset. And I think -- every day, I think it's important to understand, we are looking at and studying our portfolio and determining which assets are ripe where we've created the most value, perhaps there's some risk or perhaps there's even greater efficiencies. For example, some of the assets we sold are multi-tenant. And those operationally are more intensive and we can recapture that capital and deploy it into more efficient assets and really work on our margin and increasing the margin of the business.

I'll touch on share repurchases. There's a lot of considerations that we put on the table and we consider allocating capital, specifically around share repurchases. A couple of things that are prominent in our minds. One is protecting the balance sheet, protecting our leverage. Today, we're at 4.0x. We like to toggle between 4%, 4.5%, that's where our comfort level is today. Also, liquidity. Liquidity is very important for us. We're a capital-intensive business. We have a significant amount of capital to redeploy into repositioning and redevelopment over the next 3-plus years. That's where we're achieving the double-digit returns. So that capital is very precious to us. So what has helped us throughout the year and position us to buy back shares, which we did in early August is dispositions. At the start of the year, we didn't announce a number as we progress the year where today, we're at $166 million, like I said in my prepared remarks. We have another $90 million under contract, and that does position us from a leverage standpoint, from a liquidity standpoint to take advantage of those share repurchases and do it at a significant discount to NAV.

And on the acquisition side, is it sort of pencils down at this point? Or I mean I know in the earnings call, you talked about maybe potentially some, but where are you with acquisitions at this time?

No. Look, we're in a very fortunate luxurious position that we can drive significant value per share growth without buying an asset. And that's through all the embedded internal growth that we have through the repositioning and redevelopment we have embedded in our portfolio today. And so we're just going to enjoy that. We're going to continue to create a ton of value that way. And there's no hurry. And we'll see what the market brings into the future. But by way magnitude today, we're sitting with about 28% embedded NOI growth in the portfolio. $70 million of that is driven by the repositioning and redevelopments, another $105 million of that is driven by the re-leasing spreads, the 3.7% re-leasing spreads that are currently embedded within our portfolio on average, another $20 million as we monetize the mark-to-market across the portfolio. And I want to note that, that $70 million provided through our repositioning and redevelopment activity, that only includes product that is in process today, in process and lease-up or in process under construction. And behind that, we have a deep pipeline of opportunities that we carefully mine over time and will be added into that active in process flow as we move forward. So it's a significant opportunity for the company going forward. And that gives us the luxury of not having to rely solely on external growth to drive significant per share value growth in the company for shareholders.

The one topic I wanted to ask about was certainly the Elliott becoming a top shareholder here. I mean do you have any comments on that situation?

Yes, we haven't had any substantive discussions. We don't really know what they're thinking. And so we look forward to meeting with them in the not-too-distant future.

Okay. So no conversations, no...

Yes, we really have not had any conversations or any substance whatsoever. So we look forward to that, though.

Okay. And just your view on -- we talked about Southern California market. I mean is there -- what's your view on sort of market rents at this point? And any idea on how much further market rents could even fall before stabilizing here like at this point?

That is the magic question. We heard it a few times today and yesterday. And here's what we can guarantee you. After we bottom out, we're going to call the bottom. Hard to say, but I can say there's a really favorable backdrop. First of all, if you look at market occupancy, we never had a big vacancy problem in our infill Southern California industrial markets. Actually, you'd say that if you looked at just where we're sitting today on a market perspective, it's almost fully occupied in terms of just a normalized market. That's good. We're seeing an increase in activity in our portfolio. That's really good. We're seeing tenants signing up for a very aggressive contractual rent bumps. That's great. And if you look at the conversations that we're not having with tenants, it's inspiring, it's good. It's positive. Because during the great financial crisis, I can tell you there were different conversations occurring. It's kind of like, hey, I'm in trouble. I need 20% less rent -- can you help me out? We are not having any of those types of conversations with our tenant base. It's more about are they comfortable to make a growth decision right now. Anecdotally, tenants are telling us, business is pretty good. Actually consumption has held at levels that are pleasantly surprising us. But there's still a lot of confusion out there around tariffs and inflation. Oh, rates sound good, maybe rates are coming down. That's positive. Yes. So there's still relative uncertainty out there. Despite that we are seeing a lot of this pent-up demand coming to market, which we've talked about today. And so I think the backdrop is favorable. Leading indicators are positive. So we'll see where we go into the end of the year and next year.

Yes. And a couple of things that I'll add. When you think about the 1.9 million square feet, we have a lot of questions about what's happened with market rent growth in the last 60 days. But -- and we'll certainly update our look on market rent growth when we report earnings next month. But what we have seen is that to be able to execute on this 1.9 million square feet of leasing quarter-to-date, it hasn't meant that we needed to go and cut rates another 10% or 20% to get that level of activity. And I think that's really important. Also, I think that you look at where we're signing from a spread perspective, 30% on a net effective basis, 15% on a cash basis. And if you look at where we are year-to-date, we're right in line with our guidance expectations. So what I would say is that we're signing at rates that are in line with our expectations. But at the end of the day, it's a space-by-space decision. And we are prioritizing occupancy today that's going to drive that future cash flow growth for Rexford.

On the leasing. So obviously, strong rebound -- what does the pipeline look like going forward in terms of both volume rates and underlying volume, year over year volumes?

Yes. It's a great question. Is this a pull forward of -- or is this pent-up demand and what's behind it, right? And so when we look at the overall kind of our pipeline of activity, and we're very early in September, but I would say that September has -- the level of activity we saw in July and August has continued into September. We have activity on about 85% of our vacant spaces. When we kind of think about that in relation to where we were about 45 days ago, that was about 80%. So somewhere between 80% and 90% of activity on vacant space -- this is a healthy level of overall activity. I think it's important, though, one thing that we don't talk enough about, and then I think that you all probably don't ask us about is the team, because our business model is different than others. We have a vertically integrated business model. And what that means is, number one, as you all know, we're focused on one market that positions us very uniquely to be able to drive leasing and drive execution in a different way. We have an in-house leasing team, in-house property management, in-house development and construction, in-house asset management. And what that allows us to do is when there are tenant requirements in the market, when there is that incremental demand in the market, we are uniquely positioned to go and capture that demand. And I can give you example after example of how we do that. I'll give you one for now. Let's say that you have a tenant that's in the market and they're looking at 3 other spaces. They're thinking about how I'm going to set up my business here, how am I going to rack this? How can I essentially open the doors? So instead of saying, hey, here's a racking vendor, go call them and get a consultant, we use our team. We use our in-house design team. And we can literally put a space plan and a racking plan in place for a tenant within less than 24 hours. And then we don't only just say, okay, we'll go call the racking vendor. We'll get on the phone with them. We'll tweak that plan. We'll work with them at no cost. And essentially, what we're doing is we're taking out the friction points, right? And then we're also reducing the time that it takes to then move that transaction closer to a lease execution and then closer to commencement. And so we're doing -- that's just one example I could give you. I could sit here for hours and talk about all the different ways that our team is driving execution. But if you look at what we're doing in the market, it is what is driving the outperformance of that plus the quality and functionality of our portfolio, it's what's driving the outperformance from a leasing perspective today.

The one thing I wanted to talk about, we talked a little bit about yesterday was the earnings growth, the positive FFO growth into next year and even the years out. I know Fitz, you kind of highlighted maybe just remind us sort of the building blocks of growth.

Sure, sure. I'd love to give you guidance and I can give you guidance.

No, no guidance.

No. So the building blocks for next year, I think a lot of it comes down to repositioning and redevelopment. This year, we've executed about 1 million square -- 1.1 million square feet year-to-date, which is a significant contribution thus far this year. Associated with that, we have about $10 million coming online this year. If you annualize that, it's about $40 million. So it's an incremental $30 million next year, which is great news as a tailwind going into 2026. But also coming offline. We have future starts in the second half of this year, about $4 million incrementally in terms of '25. But if you annualize that, it's about $16 million, so it's $12 million headwind in 2026. And the other nuance in 2026 for repositioning redevelopment is the Hertz asset. We have about, on an annualized basis, about $9 million or so coming offline as of 3/31 next year when they expire, we could extend that. But today, I would -- for the ones that are modeling out there, I would model 3/31. The other levers that we are hopeful we can pull is same-property occupancy. As most of you are aware, we had a decline of about 100 basis points in '25 versus '24. We're at about 96%. We think stabilized for this portfolio is 97% to 98%. We also have contractual rent increases in place today is about 3.7%. We also continue, lastly, the lever we pull is operating margin. Being in one market is great. Having local boots on the ground is great, achieving those economies of scale. So we continue to drive down expenses as well.

Mike, can you show up with a net-net repo redev contribution for next year?

Yes, net-net-net, all those numbers I gave you, it's about $8 million positive based on what we have visibility on today.

You talked about costs. On the transaction side, felt like you're not looking to acquire. Help us understand how big that team is on the investment side today versus last year or 24 months ago?

Yes. Well one thing I'll mention is we did announce -- we did some strategic changes on that team. We had a net reduction really across the company at the beginning of the year. And most of it actually impacted the acquisitions team. And I think today, we're probably about 8 people on that team. At the peak of the market, we were probably around 20. So significant pull-in on the team. And we're sort of going through a restructuring right now. We have an amazing talented team that's not just acquisitions. We've got people that are forward facing our leasing team, and they're pretty influential as well. So we're really sort of taking a different look and approach to the acquisitions. And as we've talked about here, we have a lot of growth to be captured within the portfolio. So the acquisitions are going to be, I think, more opportunistic going forward as opposed to one of the larger drivers in terms of increasing NOI generation.

Great. The other thing we had talked about, I know there's some confusion on this 3% cash mark-to-market going forward. I know, Laura, we talked about what does that mean if that number gets worse from a sensitivity standpoint and what does that mean for same-store NOI growth?

Good question. 3% mark-to-market is for the 1,600-plus leases within our portfolio. As most of you know, we stagger our lease maturities. So on average, only about 15% of our rent roll expires in any given year. So as we look into at least next year, our in-place ABR is right around $15.50 per square foot. We're currently signing leases today at $18. I'm not saying that's your spread, but it's going to give you some leading indicators. And also, it depends on the mix of what's expiring next year. Not everything that is expiring next year was originated in '20 and '21 at the height of the market in terms of market rents. A lot of what is expiring next year had lease terms of 6, 7, 8, 9 and 10 years. So we still believe there's mark-to-market will run in 2026.

Can I follow up on that reacquisition [indiscernible] is that a response to the environment? Or is that a long-term strategic decision? I mean, do you see it as a more opportunistic.

Yes. I mean I think at this point, in the foreseeable future, it's long medium-term decision. We've learned a lot in the past years. And I think we're really focused on reinventing how we do that type of business.

I think it's about just making the company more effective overall, frankly, achieving the same results, which is nobody penetrates Southern California the way we do. You've heard us many of you talk about our research-driven efforts where we're catalyzing we're identifying investment opportunities before the brokers are even aware of them. And then we're bringing the brokers in. So we're creating a lot of value for the brokers as well. So that is going to continue. But the way we allocate the resources internally is shifting, and we're leveraging our people differently. And actually, I believe we're going to enable ourselves to penetrate our market even better. So it's not -- so I wouldn't say that a reduction in people in that area is going to reduce our effectiveness in the market. We're actually going to, we believe, make ourselves more effective. And so when the time comes to make investments, we'll be that well much better positioned. And remember, historically, most of our transactions were through off-market and lightly marketed situations, where we're creating an advantage because, a, we're not competing with the rest of the buyer pool out there, and that translates into investments that are achieving much better than market yields on investment.

I guess I was thinking that part of the reason you were able to get some of the off-market transactions lightly marketed is that you have a lot of people on the ground...

So it's more about the mix of people. And so the people on the ground are what we call like are forward-facing in another type of company, you call them the salespeople. They're out in front. So we are kind of -- we're not -- we're still going to have salespeople out there. But the way we operate the back end is going to be a little bit different. And because we don't want to replicate, for instance, underwriting related to asset management as related to acquisitions. You don't need to duplicate headcount for that. So that's where we're finding a lot of efficiencies. And the portfolio is of a scale now that we've really professionalized the asset management function. And so no need to replicate that also in the acquisitions team. So that's just one example of how we're creating efficiency and actually increasing our effectiveness, not reducing it.

Yes. And the other thing that I would add is that our investment team isn't the only ones on the ground, right, and that can help drive -- can help drive transactions, right, and driving those relationships with the brokerage community and then insights into the market, right? We have our leasing team, we have our property management team, development and construction team. So each of those individuals, so much of it's about how we utilize our team even more holistically across the business. Like we are today, many on our investments team are helping us drive leasing transactions, right? And so it's really thinking about how we most effectively utilize our great team.

[indiscernible] number of forward-facing people...

Well, there's a shift. We are changing how we want to deploy those people. Net-net, the number of those people probably won't be too dissimilar, to be honest. But I would say that the people that we're deploying now are more effective than the people that we had in those roles on average 1 or 2 years ago.

We only had about 4 forward-facing people at any one time. There was just a larger team backing them up. And I think at this point, we want to be nimble, and we want to be able to flex as the market and the capital allows. And so it's just a -- it's different way of really accomplishing the same thing as Michael was describing.

And by the way, it's not just the forward facing people on that team. We have a marketing team that really helps to put the Rexford brand out there. And this is really about the Rexford brand and capability in the market. And I don't want to say that the people are fungible, they're not. But we're trying to bring the right people that can take that brand and run with it in the most optimized fashion. And that's not for everybody, especially in sales. You've seen a lot of salespeople it's -- they want to just be a one-man shop. They operate like a silo. And at Rexford, it's a system. It's a method. And so we're going to further leverage that.

[indiscernible] appropriate time?

Just in our general approach. Same with leasing, by the way.

Rapid fire questions. We're at the end here. So I have to ask these. When the Fed starts to cut rates, do you expect long-term rates to decline, stay flat or potentially rise?

Fitz, you're a finance guy.

Stay flat.

AI initiatives, higher, flat or lower next year? Spending on AI initiatives.

I'm going to go with higher.

Okay. Sector -- same-store NOI growth for your sector next year, higher, lower or same?

I'd say higher.

Okay. Thank you very much.

All right.

Thank you.