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 toRexford 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; •acquisition risks, including failure of such acquisitions to perform in accordance with expectations; •the timing of acquisitions and dispositions; •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 tothe United States and goods exported to other countries; •the general level of interest rates; •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 real estate investment trust ("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 fromStandard 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 (such as the outbreak and worldwide spread of novel coronavirus ("COVID-19"), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities may implement to address it, which may (as with COVID-19) 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 38 --------------------------------------------------------------------------------
•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 endedDecember 31, 2020 . Company OverviewRexford Industrial Realty, Inc. is a self-administered and self-managed full-service REIT focused on owning and operating industrial properties inSouthern California infill markets. We were formed as aMaryland corporation onJanuary 18, 2013 , andRexford Industrial Realty, L.P. (the "Operating Partnership"), of which we are the sole general partner, was formed as aMaryland limited partnership onJanuary 18, 2013 . Through our controlling interest in ourOperating Partnership and its subsidiaries, we acquire, own, improve, redevelop, lease and manage industrial real estate principally located inSouthern California infill markets, and, from time to time, acquire or provide mortgage debt secured by industrial property. We are organized and conduct our operations to qualify as a REIT under the Internal Revenue Code of 1986 (the "Code"), as amended, 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 ofJune 30, 2021 , our consolidated portfolio consisted of 266 properties with approximately 33.0 million rentable square feet. In addition, we currently manage an additional 20 properties with approximately 1.0 million rentable square feet. Our goal is to generate attractive risk-adjusted returns for our stockholders by providing superior access to industrial property investments and mortgage debt investments secured by industrial property in high-barrierSouthern California infill 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 renovations 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 infillSouthern 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. 2021 Year to Date Highlights Acquisitions •During the first quarter of 2021, we completed the acquisition of 11 properties, which included 0.7 million rentable square feet of buildings and 19.0 acres of low coverage outdoor storage sites and land for future redevelopment for an aggregate purchase price of$163.5 million . •During the second quarter of 2021, we completed the acquisition of ten properties, which included 0.8 million rentable square feet of buildings and 15.5 acres of low coverage outdoor storage sites and land for future redevelopment for an aggregate purchase price of$256.9 million . Dispositions •During the first quarter of 2021, we sold two properties with a combined 0.1 million rentable square feet, for a total gross sales price of$20.8 million , and recognized$10.9 million in gains on sale of real estate. •During the second quarter of 2021, we sold one property with 29,730 rentable square feet, for a gross sales price of$8.2 million , and recognized$2.8 million in gains on sale of real estate. Equity •During the first quarter of 2021, we issued 2,415,386 shares of common stock under our at-the-market equity offering program for gross proceeds of$119.8 million , or approximately$49.61 per share. •During the first half of 2021, we entered into forward equity sales agreements with certain financial institutions acting as forward purchasers under our at-the-market equity offering program with respect to respect to 1,797,787 shares of common stock at a weighted average initial forward sale price of$50.77 per share. InJune 2021 , we physically settled 39 -------------------------------------------------------------------------------- these forward equity sales agreements by issuing 1,797,787 shares of common stock in exchange for net proceeds of$91.2 million . •InMay 2021 , we entered into forward equity sales agreements with certain financial institutions acting as forward purchasers in connection with an underwritten public offering of 9,000,000 shares of our common stock at an initial forward sale price of$55.29 per share, or$497.6 million . InJune 2021 , we partially settled these forward equity sales agreements by issuing 1,809,526 shares of common stock in exchange for net proceeds of$100.0 million . •OnJuly 12, 2021 , we announced that we will redeem all 3,600,000 shares of our 5.875% Series A Cumulative Redeemable Preferred Stock onAugust 16, 2021 , at a redemption price of$25.00 per share, plus all accrued and unpaid dividends throughAugust 15, 2021 . Financing •OnJune 30, 2021 , we exercised the accordion option on our existing credit facility to increase the borrowing capacity of our senior unsecured revolving credit facility by$200.0 million to$700.0 million from$500.0 million . •OnJune 30, 2021 , we amended our$150 million unsecured term loan facility to, among other things, reduce the applicable LIBOR margin by 60 basis points so that our current pricing is LIBOR plus 0.95% per annum, subject to our credit ratings. Repositioning & Redevelopment •During the second quarter of 2021: •We stabilized our redevelopment project that was branded as "The Merge" and our repositioning property located at16221 Arthur Street , which have a combined 0.4 million rentable square feet; •We completed the repositioning of two of our properties located at8745-8775 Production Avenue andRancho Pacifica Buildings 1 and 6, which were 46.6% and 50.0% occupied, respectively, and both 100% leased, as ofJune 30, 2021 . These properties will stabilize in the third quarter of 2021 upon lease commencement. We also completed the redevelopment of our property located at851 Lawrence Drive , and subsequent toJune 30, 2021 , we leased all four available units; and •We pre-leased each of our repositioning/redevelopment properties located at19007 Reyes Avenue and 29025-29055 Avenue Paine to a single tenant. The leases are expected to commence in the fourth quarter of 2021 subject to completion of repositioning/redevelopment site work. Factors That May Influence Future Results of Operations COVID-19 Update In response to COVID-19, most municipalities inSouthern California , including many municipalities in which we own properties, have mandated a moratorium on all commercial evictions and have given tenants impacted by COVID-19 the unilateral right to defer rent while the emergency orders are in effect, with repayment generally within six to twelve months after the end of the local emergency. Only a small number of municipalities have allowed their local orders to expire or modified the orders to exclude some tenants (based on the tenant's number of employees, being a publicly traded company or multinational company, or other characteristics), and in many of the local municipalities in which we operate, the eviction restrictions and rent deferment rights are set to expire bySeptember 30, 2021 , while in other municipalities the restrictions expire when the local emergency is lifted. We cannot currently predict whether or not these restrictions may be extended or for how long. Some of the orders have been extended multiple times. A number of our tenants have taken advantage of the relief provided by the local government mandates authorizing deferral of rent, irrespective of such tenants' actual ability to pay such rent, and we are currently unable to predict the ultimate impact that the COVID-19 pandemic will have on our tenants or the number of tenants that will continue to take advantage of the relief provided by the local government mandates authorizing the deferral of rent. •As ofJuly 22, 2021 , we have collected 98.7% of our second quarter 2021 contractual billings, which includes contractual base rent (including COVID-19 related deferral billings) and tenant reimbursements charged to tenants. •As ofJune 30, 2021 , we had 1,532 leases representing in-place annualized base rent ("ABR") of$340.8 million . ABR is defined/calculated as the monthly contractual base rent per the leases, excluding any rent abatements, as ofJune 30, 2021 , multiplied by 12. •Since the onset of the COVID-19 pandemic, we have provided rent relief to tenants in the form of deferred rent of 40 -------------------------------------------------------------------------------- approximately$4.6 million , or 1.4% of our ABR. •As ofJuly 22, 2021 , we have collected approximately$3.9 million , or 97.6% of deferred rent payments due as ofJune 30, 2021 . •As ofJune 30, 2021 , we had outstanding rent deferrals of$554,000 , or 0.2% of ABR, of which$413,000 is due through the remainder of 2021. •During 2021, we did not enter into any rent relief agreements granting additional deferrals of base rent. The continued impact of the pandemic on our and our tenants' businesses is largely dependent on efforts to stem the spread of COVID-19, including governmental efforts to distribute vaccines and overall vaccination rates in the areas in which we own properties. Market and Portfolio Fundamentals
Our operating results depend upon the infill
The infillSouthern California industrial real estate sector has continued to exhibit strong fundamentals. These high-barrier infill markets are characterized by a relative scarcity of available product, generally operating at approximately 98% occupancy, 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. Consequently, available industrial supply has continued to decrease in many of our target infill submarkets and construction deliveries have fallen short of demand. Meanwhile, underlying tenant demand within our infill target markets continues to demonstrate growth, illustrated or driven by strong re-leasing spreads and renewal activity, an expanding regional economy, substantial growth in ecommerce transaction 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. Tenant demand remains strong within our portfolio, which is strategically located within prime infillSouthern California industrial markets. The quality and intensity of tenant demand through the second quarter of 2021 is demonstrated through the Company's strong leasing spreads and volume, achieving rental rates and related terms from new and renewing tenants that have generally exceeded those from pre-COVID-19 periods (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, construction, and logistics, as well as by an emerging electric vehicle industry, among other sectors. We have also observed a notable increase in ecommerce-oriented tenants securing space within our portfolio, in part driven by the impacts of the COVID-19 pandemic, which has accelerated the growth in the range and volume of goods and customers transacting through ecommerce. In addition, ecommerce-related delivery demand associated with last-mile distribution are driving discernible shifts in inventory-handling strategies among retailers and distributors, which we believe is driving incremental demand for our infill property locations. 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 attract incremental ecommerce-oriented demand. We believe our portfolio's leasing performance during the first half of 2021 has generally outpaced that of the infill markets within which we operate, although, as discussed in more detail below, our target infill markets continue to operate at or near historically 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 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 are general market conditions and do not necessarily reflect the results of our portfolio. For our portfolio specific results see "-Rental Revenues" and "-Results of Operations" below. InLos Angeles County , market fundamentals were strong during the second quarter of 2021. Average asking lease rates increased significantly both quarter-over-quarter and year-over-year, and vacancy decreased quarter-over-quarter, with several submarkets achieving or retaining sub 1% vacancy rates, bringing overall vacancy below pre-pandemic levels. Current market conditions indicate rents are likely to increase throughout 2021, as demand has been consistently strong, occupancy still 41 -------------------------------------------------------------------------------- remains at near capacity levels and new development is limited by a lack of land availability and an increase in land and development costs. InOrange County , market fundamentals were strong during the second quarter of 2021. Average asking lease rates increased both quarter-over-quarter and year-over-year and vacancy was unchanged quarter-over-quarter, remaining at low levels. Current market conditions indicate rents are likely to continue to increase throughout 2021, as demand has accelerated over the year and there remains a continued low availability of industrial product in this region. InSan Diego , vacancy decreased quarter-over-quarter to a record low and average asking lease rates were increased quarter-over-quarter and year-over-year.
In
Lastly, in the Inland Empire, new industrial product continues to be absorbed well in the market. In the Inland Empire West, which contains infill markets in which we operate, vacancy decreased quarter-over-quarter and year-over-year, reaching a new historic low, and average asking lease rates increased significantly both quarter-over-quarter and year-over-year. Current market conditions indicate rents are likely to continue to increase throughout 2021. 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. Acquisitions and Value-Add Repositioning and Redevelopment of PropertiesThe 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 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 infillSouthern California . However, from time-to-time, portfolios could be acquired comprising a critical mass of infillSouthern California industrial property that could include some assets located in markets outside of infillSouthern 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 infillSouthern California , while endeavoring to take appropriate steps 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 presented in the tables below, as well as range of smaller 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. 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. A repositioning is considered complete once the investment is fully or nearly fully deployed and the property is marketable for leasing. 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. 42 -------------------------------------------------------------------------------- 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 ofJune 30, 2021 , seven of our properties were under current repositioning or redevelopment and three of our properties were in the lease-up stage. In addition, we have a pipeline of 12 additional properties for which we anticipate beginning repositioning/redevelopment construction work between the third quarter of 2021 and the third quarter of 2022. The tables below set forth a summary of these properties, as well the properties that were most recently stabilized in 2021 and 2020, as the timing of these stabilizations have a direct impact on our current and comparative results of operations. 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. Estimated Construction Period(1) Total Property Repositioning/ Total Property Rentable Square Lease-up Rentable Leased % at Property (Submarket) Market Feet(2) Square Feet(2) Start Completion 6/30/21 Current Repositioning: 12821 Knott Street (West OC)(3) OC 165,171 165,171 1Q-2019 4Q-2021 -%12133 Greenstone Avenue (Mid-Counties)(4) LA 12,586 - 1Q-2021 1Q-2022 -% 19007 Reyes Avenue (South Bay)(5) LA - - 2Q-2021 4Q-2021 100% 11600 Los Nietos Road (Mid-Counties) LA 103,982 103,982 2Q-2021 1Q-2022 -% Total Current Repositioning 281,739 269,153 Lease-up (Repositioning):8745-8775 Production Avenue (Central SD) SD 46,820 26,200 1Q-2021 2Q-2021 100%Rancho Pacifica Buildings 1 & 6 (South Bay)(6) LA 488,114 488,114 4Q-2020 2Q-2021 100% Total Lease-up 534,934 514,314 Future Repositioning:15650-15700 Avalon Boulevard (South Bay)(7) LA 98,259 98,259 3Q-2021 1Q-2022 92% 900 East Ball Road (North OC) OC 62,607 62.607 4Q-2021 2Q-2022 100% 8985 Crestmar Point (Central SD) SD 56,550 56,550 4Q-2021 2Q-2022 87%3441 MacArthur Boulevard (OC Airport) OC 122,060 122,060 1Q-2022 4Q-2022 100% Total Future Repositioning 339,476 339,476 - See footnotes starting on page 44 - 43 --------------------------------------------------------------------------------
Estimated Construction Period(1) Estimated Redevelopment Total Property Rentable Square Leased % at Property (Submarket) Market Feet(8) Start Completion 6/30/21 Current Redevelopment: 29025-29055 Avenue Paine (San Fernando Valley)(9) LA 111,260 1Q-2021 4Q-2021 100% (9)415-435 Motor Avenue (San Gabriel Valley) LA 94,315 2Q-2021 2Q-2022
-%
1055 Sandhill Avenue (South Bay) LA 127,853 2Q-2021 1Q-2023 -% Total Current Redevelopment 333,428 Lease-up (Redevelopment): 851 Lawrence Drive (Ventura)(10) VC 90,773 4Q-2019 2Q-2021 -% (10) Future Redevelopment:9615 Norwalk Boulevard (Mid-Counties)(11) LA 201,467 3Q-2021 4Q-2022
100%
15601 Avalon Boulevard (South Bay)(12) LA 86,830 3Q-2021 4Q-2022
100%
9920-10020 Pioneer Blvd (Mid-Counties) LA 165,449 3Q-2021 1Q-2023
5%
12752-12822 Monarch Street (West OC)(13) OC 275,695 4Q-2021 4Q-2022
100%
4416 Azusa Canyon Road (San Gabriel Valley)(14) LA 129,830 1Q-2022 4Q-2022
-%
8888-8892 Balboa Avenue (Central SD) SD 120,900 1Q-2022 4Q-2022
21%
15010 Don Julian Road (San Gabriel Valley) LA 219,242 1Q-2022 2Q-2023
100%
12772 San Fernando Road (San Fernando Valley) LA 146,746 3Q-2022 3Q-2023 52% Total Future Redevelopment 1,346,159 Stabilized Rentable Total Property Stabilized(15) Market Square Feet Period Stabilized Leased % at 6/30/21 The Merge (Inland Empire West) SB 333,544 2Q-2021 91% 16221 Arthur Street (Mid-Counties) LA 61,372 2Q-2021 100% Total 2021 Stabilized
394,916
2455 Conejo Spectrum Street (Ventura) VC 98,218 1Q-2020 100% 635 8th Street (San Fernando Valley) LA 72,250 1Q-2020 100% 16121 Carmenita Road (Mid-Counties) LA 105,477 3Q-2020 100% 10015 Waples Court (Central SD) SD 106,412 3Q-2020 100% 1210 North Red Gum Street (North OC) OC 64,570 3Q-2020 100%7110 E. Rosecrans Avenue - Unit B (South Bay) LA 37,417 3Q-2020 100% 29003 Avenue Sherman (San Fernando Valley) LA 68,123 4Q-2020 100% 727 Kingshill Place (South Bay) LA 46,005 4Q-2020 100% Total 2020 Stabilized 598,472 (1)The estimated 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 the COVID-19 pandemic), 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) 44 -------------------------------------------------------------------------------- (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/building, and may be less than Total Property Rentable Square Feet. (3)At12821 Knott Street , we are repositioning the existing 120,800 rentable square foot building and are constructing approximately 45,000 rentable square feet of new warehouse space. (4)12133 Greenstone Avenue is a single tenant container storage facility with a 12,586 rentable square foot truck terminal building on 4.8 acres with excess land. As part of the repositioning, we plan to demolish the existing building. (5)At19007 Reyes Avenue , a 4.5 acre industrial site, we are clearing dysfunctional improvements and converting to a single tenant paved container storage facility. As ofJune 30, 2021 , this property has been pre-leased with the lease expected to commence in the fourth quarter of 2021, subject to completion of repositioning work. (6)Rancho Pacifica Buildings 1 & 6 are located at2301-2329 Pacifica Place and2332-2366 Pacifica Place , and represent two buildings totaling 488,114 rentable square feet, out of six buildings at ourRancho Pacifica Park property, which have a total 1,152,883 rentable square feet. As ofJune 30, 2021 , the two remaining vacant units have been leased with leases expected to commence in August/September 2021 . (7)As ofJune 30, 2021 ,15650-15700 Avalon Boulevard contains two buildings totaling 166,088 rentable square feet. Upon termination of the current short-term lease, we plan to demolish one of the existing buildings and reposition the property into a single-tenant low coverage facility which will have one 98,259 rentable square foot building at completion. (8)Represents the estimated rentable square footage of the project upon completion of redevelopment. (9)As ofJune 30, 2021 , 29025-29055 Avenue Paine has been pre-leased with the lease expected to commence inDecember 2021 , subject to completion of redevelopment work. (10)Subsequent toJune 30, 2021 , we leased all four units at851 Lawrence Drive . As of the filing date of this Quarterly Report on Form 10-Q, this property is 100% leased. (11)9615 Norwalk Boulevard is a 10.26 acre storage-yard with buildings totaling 26,362 rentable square feet. The property was leased to a tenant under a short term lease throughJune 30, 2021 . We plan to demolish the existing buildings and construct a new 201,467 rentable square foot building. (12)InFebruary 2021 , we leased15601 Avalon Boulevard to a tenant under a short-term lease. Upon termination of the lease, we will demolish the existing building (63,690 rentable square feet) and construct a new 86,830 rentable square foot building. (13)As ofJune 30, 2021 ,12752-12822 Monarch Street contains two buildings totaling 276,585 rentable square feet. We plan to demolish one building with 98,360 rentable square feet and add a new 97,470 rentable square foot building after the in-place lease terminates. At completion, the total project will contain 275,695 rentable square feet. (14)At4416 Azusa Canyon Road , we will demolish the existing building (70,510 rentable square feet) and construct a new 129,830 rentable square foot building upon termination of the in-place lease. (15)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. 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$0.9 million and$1.6 million of interest expense and$0.4 million and$0.8 million of insurance and real estate tax expenses during the three and six months endedJune 30, 2021 , respectively, related to our repositioning and redevelopment projects.
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. 45 --------------------------------------------------------------------------------
Occupancy Rates
As ofJune 30, 2021 , our consolidated portfolio, inclusive of space in repositioning as described in the subsequent paragraph, was approximately 95.4% occupied, while our stabilized consolidated portfolio exclusive of such space was approximately 98.2% 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 ofJune 30, 2021 , seven of our properties with a combined 0.6 million rentable square feet at completion are under current repositioning or redevelopment, and three additional properties with a combined 0.6 million rentable square feet are in the lease-up stage. Additionally, we have a near-term pipeline of 12 repositioning and redevelopment projects with a combined 1.7 million of estimated rentable square feet at completion. Vacant space at these properties is concentrated in ourLos Angeles ,Orange County ,San Diego andVentura markets and represents 2.9% of our total consolidated portfolio square footage as ofJune 30, 2021 . Including vacant space at these properties, our weighted average occupancy rate as ofJune 30, 2021 in ourLos Angeles ,Orange County ,San Diego andVentura markets was 95.0%, 95.1%, 94.7% and 93.5%, respectively. Excluding vacant space at these properties, our weighted average occupancy rate as ofJune 30, 2021 , in these markets was 98.4%, 98.6%, 97.7% and 97.0%, 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, 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 ourSouthern California infill markets. In the last several years, theLos Angeles ,Orange County andSan Diego markets have continued to show historically low vacancy and positive absorption, resulting from high tenant demand combined with low product availability. Accordingly, our properties in these markets have generally exhibited a similar trend. We believe that general market conditions will remain positive in 2021, and the opportunity to increase occupancy and rental rates at our properties will be an important driver of future revenue growth; however, there can be no assurance that recent positive market trends will continue, due in part to the ongoing COVID-19 pandemic and the impact it will have on the global economy and our local infillSouthern California markets. 46 --------------------------------------------------------------------------------
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
New Leases Weighted Average Effective Rent Number Lease Term Per Square GAAP Leasing Cash Leasing Quarter of Leases Rentable Square Feet (in years) Foot(1) Spreads(2)(4) Spreads(3)(4) Q1-2021 52 909,694 5.2$ 12.52 43.8 % 26.7 % Q2-2021 71 1,207,516 5.7$ 15.48 38.9 % 25.3 % Total/Weighted Average 123 2,117,210 5.5$ 14.21 40.8 % 25.8 % Renewal Leases Expired Leases Retention %(7) Weighted Average Effective Rent Number Lease TermPer Square GAAP Leasing Cash Leasing NumberRentable Square Rentable Square Quarter of Leases Rentable Square Feet (in years) Foot(1) Spreads(2)(5) Spreads(3)(5) of Leases Feet(6) Feet Q1-2021 70 1,049,547 4.6$ 12.93 48.5 % 35.4 % 120 1,781,667 79.2 % Q2-2021 68 981,781 4.1$ 11.96 30.7 % 18.8 % 121 1,881,074 74.0 % Total/Weighted Average 138 2,031,328 4.3$ 12.46 39.2 % 26.7 % 241 3,662,741 76.6 % (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 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 endedJune 30, 2021 , exclude 33 leases aggregating 1,144,913 rentable square feet for which there was no comparable lease data. Of these 33 excluded leases, 11 leases aggregating 687,102 rentable square feet are leases of recently repositioned/redeveloped space. Comparable leases generally exclude: (i) space that has never been occupied under our ownership, (ii) recently repositioned/redeveloped space, (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 endedJune 30, 2021 , exclude four leases totaling 102,577 rentable square feet for which there was no comparable lease data. Comparable leases generally exclude space with lease terms shorter than six months. (6)Includes leases totaling 789,989 rentable square feet that expired during the six months endedJune 30, 2021 , for which the space has been or will be placed into repositioning 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 after the tenant vacates, (ii) early terminations with pre-negotiated replacement leases and (iii) move outs where space is directly leased by subtenants. 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 ofJune 30, 2021 , we have seven current repositioning/redevelopment projects with estimated construction completion periods ranging from the fourth quarter of 2021 through the first quarter of 2023, and additional repositioning and redevelopment projects in our pipeline with estimated completion dates through the third quarter of 2023. We expect these properties to have 47 --------------------------------------------------------------------------------
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 ofJune 30, 2021 , for each of the 10 full and partial calendar years beginning with 2021 and thereafter, plus space that is available and under current repositioning. Percentage of Total Annualized Base Number of Leases Total
Expiring Feet(1) Owned Square Feet Base Rent(2) Rent(3) Foot(4) Vacant(5) - 920,299 2.8 % $ - - % $ - Current Repositioning(6) - 599,896 1.8 % - - % $ - MTM Tenants 12 202,097 0.6 % 2,783 0.8 % $ 13.77 Remainder of 2021 171 1,779,375 5.4 % 19,815 5.8 % $ 11.14 2022 403 4,821,913 14.6 % 53,539 15.7 % $ 11.10 2023 358 4,732,192 14.4 % 54,088 15.9 % $ 11.43 2024 273 5,245,138 15.9 % 55,944 16.4 % $ 10.67 2025 129 4,028,996 12.2 % 40,522 11.9 % $ 10.06 2026 115 5,028,637 15.3 % 52,022 15.3 % $ 10.35 2027 16 1,202,372 3.6 % 11,390 3.4 % $ 9.47 2028 12 591,074 1.8 % 6,810 2.0 % $ 11.52 2029 9 550,549 1.7 % 6,917 2.0 % $ 12.56 2030 12 1,320,331 4.0 % 15,132 4.4 % $ 11.46 Thereafter 22 1,932,516 5.9 % 21,864 6.4 % $ 11.31 Total Consolidated Portfolio 1,532 32,955,385 100.0 %$ 340,826
100.0 % $ 10.84
(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 ofJune 30, 2021 , multiplied by 12. Excludes billboard and antenna revenue and 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 ofJune 30, 2021 . (4)Calculated as annualized base rent for such leases divided by the occupied square feet for such leases as ofJune 30, 2021 . (5)Represents vacant space (not under repositioning) as ofJune 30, 2021 . Includes leases aggregating 415,219 rentable square feet that had been signed but had not yet commenced as ofJune 30, 2021 . (6)Represents vacant space at properties that were classified as repositioning or redevelopment properties as ofJune 30, 2021 . Excludes stabilized properties and properties in lease-up. Refer to the table under "-Acquisitions and Value-Add Repositioning and Redevelopment of Properties" for additional details related to these properties As ofJune 30, 2021 , in addition to 0.9 million rentable square feet of currently available space in our portfolio and 0.6 million rentable square feet of vacant space under current repositioning, leases representing 5.4% and 14.6% of the aggregate rentable square footage of our portfolio are scheduled to expire during the remainder of 2021 and 2022, respectively. During the six months endedJune 30, 2021 , we renewed 138 leases for 2.0 million rentable square feet, resulting in a 76.6% retention rate. Our retention rate during the period was impacted by the combination of low vacancy and high demand in many of our key markets. During the six months endedJune 30, 2021 , new and renewal leases had a weighted average term of 5.5 and 4.3 years, and we expect future new and renewal leases to have similar terms. The leases scheduled to expire during the remainder of 2021 and 2022 represent approximately 5.8% and 15.7% respectively, of the total annualized base rent for our portfolio as ofJune 30, 2021 . We estimate that, on a weighted average 48 -------------------------------------------------------------------------------- basis, in-place rents of leases scheduled to expire during the remainder of 2021 and 2022 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, we expect market dynamics to remain strong and that these positive trends will continue to provide a favorable environment for additional increases in lease renewal rates. Accordingly, we expect the remainder of 2021 will show positive renewal rates and leasing spreads. Conditions in Our Markets The properties in our portfolio are located primarily inSouthern California infill markets. Positive or negative changes in economic or other conditions, including the impact of the ongoing COVID-19 pandemic, and related state and local government reactions, 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 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 ofJune 30, 2021 , ourOperating Partnership indirectly and wholly ownsRexford 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 ourOperating 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 endedJune 30, 2021 and 2020.
Critical Accounting Policies
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 endedDecember 31, 2020 , 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 during the period covered by this report.
Results of Operations
49 -------------------------------------------------------------------------------- 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 "Stabilized Same Properties Portfolio." For the three and six months endedJune 30, 2021 and 2020, our Stabilized Same Properties Portfolio includes all properties in our industrial portfolio that were wholly-owned by us for the period fromJanuary 1, 2020 throughJune 30, 2021 , and that were stabilized prior toJanuary 1, 2020 , which consisted of 195 properties aggregating approximately 24.7 million rentable square feet. Results for our Stabilized Same Properties Portfolio exclude any properties that were acquired or sold during the period fromJanuary 1, 2020 throughJune 30, 2021 , properties classified as current or future repositioning, redevelopment or lease-up during 2021 or 2020, interest income, interest expense and corporate general and administrative expenses. In addition to the properties included in ourStabilized Same Properties Portfolio, our Total Portfolio includes the 59 properties aggregating approximately 6.5 million rentable square feet that were purchased betweenJanuary 1, 2020 andJune 30, 2021 , and the seven properties aggregating approximately 0.4 million rentable square feet that were sold betweenJanuary 1, 2020 andJune 30, 2021 . AtJune 30, 2021 and 2020, our Stabilized Same Properties Portfolio occupancy was approximately 98.4% and 97.4%, respectively. For the three months endedJune 30, 2021 and 2020, our Stabilized Same Properties Portfolio weighted average occupancy was approximately 98.5% and 97.5%, respectively. Comparatively, for the six months endedJune 30, 2021 and 2020, our Stabilized Same Properties Portfolio weighted average occupancy was approximately 98.4% and 97.7%.
Comparison of the Three Months Ended
The following table summarizes the historical results of operations for our Stabilized Same Properties Portfolio and Total Portfolio for the three months endedJune 30, 2021 and 2020 (dollars in thousands): Stabilized Same Properties Portfolio Total Portfolio Three Months EndedJune 30 , % Three Months EndedJune 30 , % 2021 2020 Increase/(Decrease) Change 2021 2020 Increase/(Decrease) Change REVENUES Rental income$ 79,376 $ 72,682 $ 6,694 9.2 %$ 104,236 $ 79,770 $ 24,466 30.7 % Management, leasing and development services - - - - % 109 114 (5) (4.4) % Interest income - - - - % 15 66 (51) (77.3) % TOTAL REVENUES 79,376 72,682 6,694 9.2 % 104,360 79,950 24,410 30.5 % OPERATING EXPENSES Property expenses 17,940 16,887 1,053 6.2 % 24,555 18,884 5,671 30.0 % General and administrative - - - - % 10,695 8,972 1,723 19.2 % Depreciation and amortization 24,329 25,480 (1,151) (4.5) % 36,228 28,381 7,847 27.6 % TOTAL OPERATING EXPENSES 42,269 42,367 (98) (0.2) % 71,478 56,237 15,241 27.1 % OTHER EXPENSES Acquisition expenses - - - - % 2 14 (12) (85.7) % Interest expense - - - - % 9,593 7,428 2,165 29.1 % TOTAL EXPENSES 42,269 42,367 (98) (0.2) % 81,073 63,679 17,394 27.3 % Gains on sale of real estate - - - - % 2,750 - 2,750 - % NET INCOME$ 37,107 $ 30,315 $ 6,792 22.4 %$ 26,037 $ 16,271 $ 9,766 60.0 % 50
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Rental Income
Under current lease accounting guidance, we account for and present all rental income earned pursuant to tenant leases, including tenant reimbursements, as a single component in one line, "Rental income," in our consolidated statements of operations. In the following table, we present the components of rental income separately, which includes rental revenue, tenant reimbursements and other income related to leases. We believe that 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. Stabilized Same Properties Portfolio Total Portfolio Three Months EndedJune 30 , % Three Months EndedJune 30 , % Category 2021 2020 Increase/(Decrease) Change 2021
2020 Increase/(Decrease) Change
Rental revenue(1)$ 66,563 $ 61,451 $ 5,112 8.3 %$ 86,814 $ 67,349 $ 19,465 28.9 % Tenant reimbursements (2) 12,595 11,254 1,341 11.9 % 17,119 12,433 4,686 37.7 % Other income(3) 218 (23) 241 1,047.8 % 303 (12) 315 2,625.0 % Rental income$ 79,376 $ 72,682 $ 6,694 9.2 %$ 104,236 $ 79,770 $ 24,466 30.7 % Our Stabilized Same Properties Portfolio and Total Portfolio rental income increased by$6.7 million , or 9.2%, and$24.5 million , or 30.7%, respectively, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , for the reasons described below: (1) Rental Revenue Our Stabilized Same Properties Portfolio and Total Portfolio rental revenue increased by$5.1 million , or 8.3%, and$19.5 million , or 28.9%, respectively, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . The increase in our Stabilized Same Properties Portfolio rental revenue is primarily due to an increase in average rental rates on new and renewal leases, an increase in the weighted average occupancy of the portfolio and a net increase in rental revenue due to bad debt recoveries and a decrease in reserves for tenant and deferred rent receivables, partially offset by a decrease in amortization of net below-market lease intangibles. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 59 properties we acquired betweenJanuary 1, 2020 , andJune 30, 2021 . (2) Tenant Reimbursements Our Stabilized Same Properties Portfolio tenant reimbursements revenue increased by$1.3 million , or 11.9%, and our Total Portfolio tenant reimbursements revenue increased by$4.7 million , or 37.7%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . The increase in our Stabilized Same Properties Portfolio tenant reimbursements revenue is primarily due to an increase in the weighted average occupancy of the portfolio, an increase in recoverable property expenses, and an increase in tenant reimbursements due to timing differences in completing prior year recoverable expense reconciliations for comparable periods. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental tenant reimbursements from the 59 properties we acquired betweenJanuary 1, 2020 andJune 30, 2021 . (3) Other Income Our Stabilized Same Properties Portfolio and Total Portfolio other income increased by$0.2 million , or 1,047.8%, and$0.3 million , or 2,625.0%, respectively, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , due to an increase in miscellaneous income and the reversal of prior period late fee income in 2020. Management, Leasing and Development Services
Our Total Portfolio management, leasing and development services revenue
decreased by
51 --------------------------------------------------------------------------------
Interest Income
Interest income decreased by$0.1 million , or 77.3%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to a decrease in the average cash balance invested in money market accounts. Property Expenses Our Stabilized Same Properties Portfolio and Total Portfolio property expenses increased by$1.1 million , or 6.2%, and$5.7 million , or 30.0%, respectively, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . The increase in our Stabilized Same Properties Portfolio property expenses is primarily due to increases in repairs and maintenance expense, including non-recoverable costs related to fire and water damage at two properties, real estate tax expense relating to California Proposition 13 annual increases, allocated overhead costs reflecting a higher employee headcount and insurance expense due to increased premiums. Our Total Portfolio property expenses were also impacted by incremental expenses from the 59 properties we acquired betweenJanuary 1, 2020 , andJune 30, 2021 . General and Administrative Our Total Portfolio general and administrative expenses increased by$1.7 million , or 19.2%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to increases in non-cash equity compensation expense, accrued bonus expense and payroll related costs due to a higher employee headcount. Depreciation and Amortization Our Stabilized Same Properties Portfolio depreciation and amortization expense decreased by$1.2 million , or 4.5%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to acquisition-related in-place lease intangibles becoming fully depreciated at certain of our properties subsequent toJanuary 1, 2020 , partially offset by an increase in depreciation expense related to capital improvements placed into service subsequent toJanuary 1, 2020 . Our Total Portfolio depreciation and amortization expense increased by$7.8 million , or 27.6%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to the incremental expense from the 59 properties we acquired betweenJanuary 1, 2020 , andJune 30, 2021 . Acquisition Expenses Our Total Portfolio acquisition expenses decreased by$12 thousand , or 85.7%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . Interest Expense Our Total Portfolio interest expense increased by$2.2 million , or 29.1%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . The increase in interest expense is primarily comprised of the following: (i) a$2.1 million increase due to the issuance of$400.0 million of 2.125% senior notes inNovember 2020 , (ii) a$0.2 million increase due to the assumption of$66.4 million of debt as part of the consideration for the acquisition of 11 properties during 2020 and one additional property during 2021 and (iii) a$0.2 million decrease in capitalized interest related to our repositioning and redevelopment properties. These increases were partially offset by a$0.3 million net decrease in interest expense related to the repayment of our$100.0 million term loan facility and termination of the related interest rate swap inNovember 2020 (see Note 7 to the consolidated financial statements for additional details). Gains on Sale of Real Estate During the three months endedJune 30, 2021 , we recognized gains on sale of real estate of$2.8 million from the disposition of one property that was sold for a gross sales price of$8.2 million . During the three months endedJune 30, 2020 , we did not complete any property dispositions. 52 --------------------------------------------------------------------------------
Comparison of the Six Months Ended
The following table summarizes the historical results of operations for our
Stabilized Same Properties Portfolio and Total Portfolio for the six months
ended
Stabilized Same Properties Portfolio Total Portfolio Six Months Ended Six Months EndedJune 30 , %June 30 , % 2021 2020 Increase/(Decrease) Change 2021
2020 Increase/(Decrease) Change REVENUES Rental income$ 156,724 $ 145,648 $ 11,076 7.6 %$ 203,880 $ 157,260 $ 46,620 29.6 % Management, leasing and development services - - - - % 214 207 7 3.4 % Interest income - - - - % 29 163 (134) (82.2) % TOTAL REVENUES 156,724 145,648 11,076 7.6 % 204,123 157,630 46,493 29.5 % OPERATING EXPENSES Property expenses 35,294 33,683 1,611 4.8 % 48,130 36,998 11,132 30.1 % General and administrative - - - - % 22,175 18,289 3,886 21.2 % Depreciation and amortization 48,959 51,607 (2,648) (5.1) % 71,372 55,904 15,468 27.7 % TOTAL OPERATING EXPENSES 84,253 85,290 (1,037) (1.2) % 141,677 111,191 30,486 27.4 % OTHER EXPENSES Acquisition expenses - - - - % 31 19 12 63.2 % Interest expense - - - - % 19,345 14,877 4,468 30.0 % TOTAL EXPENSES 84,253 85,290 (1,037) (1.2) % 161,053 126,087 34,966 27.7 % Gains on sale of real estate - - - - % 13,610 - 13,610 - % NET INCOME$ 72,471 $ 60,358 $ 12,113 20.1 %$ 56,680 $ 31,543 $ 25,137 79.7 % Rental Income The following table reports the breakdown of 2021 and 2020 rental income, as reported prior to the adoption of ASC 842 (dollars in thousands). We believe that 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 evaluate the Company's performance. Stabilized Same Properties Portfolio Total Portfolio Six Months Ended Six Months EndedJune 30 , %June 30 , % Category 2021 2020 Increase/(Decrease) Change 2021 2020 Increase/(Decrease) Change Rental revenue(1)$ 131,494 $ 122,957 $ 8,537 6.9 %$ 169,667 $ 132,604 $ 37,063 28.0 % Tenant reimbursements (2) 24,911 22,509 2,402 10.7 % 33,763 24,426 9,337 38.2 % Other income(3) 319 182 137 75.3 % 450 230 220 95.7 % Rental income$ 156,724 $ 145,648 $ 11,076 7.6 %$ 203,880 $ 157,260 $ 46,620 29.6 % Our Stabilized Same Properties Portfolio and Total Portfolio rental income increased by$11.1 million , or 7.6%, and$46.6 million , or 29.6%, respectively, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , for the reasons described below: 53 --------------------------------------------------------------------------------
(1) Rental Revenue
Our Stabilized Same Properties Portfolio and Total Portfolio rental revenue increased by$8.5 million , or 6.9%, and$37.1 million , or 28.0%, respectively, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . The increase in our Stabilized Same Properties Portfolio rental revenue is primarily due to the increase in average rental rates on new and renewal leases, an increase in the weighted average occupancy of the portfolio, and a net increase in rental revenue due to bad debt recoveries and a decrease in reserves for tenant and deferred rent receivables, partially offset by a decrease in amortization of net below-market lease intangibles. Our Total Portfolio rental revenue was also positively impacted by the incremental revenues from the 59 properties we acquired betweenJanuary 1, 2020 , andJune 30, 2021 . (2) Tenant Reimbursements Our Stabilized Same Properties Portfolio tenant reimbursements revenue increased by$2.4 million , or 10.7%, and our Total Portfolio tenant reimbursements revenue increased by$9.3 million , or 38.2% during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . The increase in our Stabilized Same Properties Portfolio tenant reimbursements revenue is primarily due to an increase in the weighted average occupancy of the portfolio, an increase in recoverable property expenses and an increase in tenant reimbursements due to timing differences in completing prior year recoverable expense reconciliations for comparable periods. Our Total Portfolio tenant reimbursements revenue was also impacted by the incremental tenant reimbursements from the 59 properties we acquired betweenJanuary 1, 2020 andJune 30, 2021 . (3) Other Income Our Stabilized Same Properties Portfolio and Total Portfolio other income increased by$0.1 million , or 75.3%, and$0.2 million , or 95.7%, respectively, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , due to an increase in miscellaneous income and the reversal of prior period late fee income in 2020. Management, Leasing and Development Services Our Total Portfolio management, leasing and development services revenue increased by$7 thousand , or 3.4%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . Interest Income Interest income decreased by$0.1 million , or 82.2%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , due to a decrease in both the average cash balance invested in money market accounts and the average interest rate earned. Property Expenses Our Stabilized Same Properties Portfolio and Total Portfolio property expenses increased by$1.6 million , or 4.8%, and$11.1 million , or 30.1%, respectively, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . The increase in our Stabilized Same Properties Portfolio property expenses is primarily due to increases in real estate tax expense relating to California Proposition 13 annual increases, repairs and maintenance expense, including non-recoverable costs related to fire and water damage at two properties, allocated overhead costs reflecting a higher employee headcount, insurance expense and utilities expense. Our Total Portfolio property expenses were also impacted by incremental expenses from the 59 properties we acquired betweenJanuary 1, 2020 , andJune 30, 2021 . General and Administrative Our Total Portfolio general and administrative expenses increased by$3.9 million , or 21.2%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , primarily due to increases in non-cash equity compensation expense, payroll related costs due to a higher employee headcount and accrued bonus expense. 54 -------------------------------------------------------------------------------- Depreciation and Amortization Our Stabilized Same Properties Portfolio depreciation and amortization expense decreased by$2.6 million , or 5.1%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , primarily due to acquisition-related in-place lease intangibles becoming fully depreciated at certain of our properties subsequent toJanuary 1, 2020 , partially offset by an increase in depreciation expense related to capital improvements placed into service subsequent toJanuary 1, 2020 . Our Total Portfolio depreciation and amortization expense increased by$15.5 million , or 27.7%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , primarily due to the incremental expense from the 59 properties we acquired betweenJanuary 1, 2020 , andJune 30, 2021 . Acquisition Expenses Our Total Portfolio acquisition expenses increased by$12 thousand or 63.2%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . Interest Expense Our Total Portfolio interest expense increased by$4.5 million , or 30.0%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . The increase in interest expense is primarily comprised of the following: (i) a$4.3 million increase related to the issuance of$400.0 million of 2.125% senior notes inNovember 2020 , (ii) a$0.7 million increase due to the assumption of$66.4 million of debt as part of the consideration for the acquisition of 11 properties during 2020 and one additional property during 2021 and (iii) a$0.3 million decrease in capitalized interest related to our repositioning and redevelopment properties. These increases were partially offset by the following decreases: (i) a$0.7 million net decrease related to the repayment of our$100.0 million term loan facility and termination of the related interest rate swap inNovember 2020 (see Note 7 to the consolidated financial statements for additional details) and (ii) a$0.4 million decrease related to our variable rate$60 million term loan due to a decrease in LIBOR. Gains on Sale of Real Estate During the six months endedJune 30, 2021 , we recognized gains on sale of real estate of$13.6 million from the disposition of three properties that were sold for an aggregate gross sales price of$29.0 million . During the six months endedJune 30, 2020 , we did not complete any property dispositions. 55 --------------------------------------------------------------------------------
Non-GAAP Supplemental Measure: Funds From Operations
We calculate funds from operations ("FFO") attributable to common stockholder in accordance with the standards established by theNational Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income (loss) (computed in accordance with accounting principles generally accepted inthe 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 amortization of above/below-market lease intangibles) 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.
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 (in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income$ 26,037 $ 16,271 $ 56,680 $ 31,543 Add: Depreciation and amortization 36,228 28,381 71,372 55,904
Deduct:
Gains on sale of real estate 2,750 - 13,610 - Funds From Operations (FFO)$ 59,515 $ 44,652 $ 114,442 $ 87,447 Less: preferred stock dividends (3,637) (3,637) (7,273) (7,273) Less: FFO attributable to noncontrolling interest(1) (3,256) (2,005) (6,390) (3,455) Less: FFO attributable to participating securities(2) (224) (192) (433) (387)
FFO attributable to common stockholders
(1)Noncontrolling interests represent (i) holders of outstanding common units of the Company'sOperating Partnership that are owned by unit holders other than the Company and (ii) holders of Series 1 CPOP Units and Series 2 CPOP Units. (2)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). 56 -------------------------------------------------------------------------------- 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) fair value lease revenue 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):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Rental income$ 104,236 $ 79,770 203,880 157,260 Property expenses 24,555 18,884 48,130 36,998 Net Operating Income$ 79,681 $ 60,886 $ 155,750 $ 120,262 Amortization of (below) above market lease intangibles, net (3,386) (2,669) (6,098) (5,071) Straight line rental revenue adjustment (4,840) (6,212) (9,039) (7,884) Cash Net Operating Income$ 71,455 $
52,005
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):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income$ 26,037 $ 16,271 $ 56,680 $ 31,543 Add: General and administrative 10,695 8,972 22,175 18,289 Depreciation and amortization 36,228 28,381 71,372 55,904 Acquisition expenses 2 14 31 19 Interest expense 9,593 7,428 19,345 14,877 Deduct: Management, leasing and development services 109 114 214 207 Interest income 15 66 29 163 Gains on sale of real estate 2,750 - 13,610 - Net Operating Income$ 79,681 $ 60,886 $ 155,750 $ 120,262 Amortization of (below) above market lease intangibles, net (3,386) (2,669) (6,098) (5,071) Straight line rental revenue adjustment (4,840) (6,212) (9,039) (7,884) Cash Net Operating Income$ 71,455 $ 52,005 $ 140,613 $ 107,307 57
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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, impairment losses 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):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income$ 26,037 $ 16,271 $ 56,680 $ 31,543 Interest expense 9,593 7,428 19,345 14,877 Depreciation and amortization 36,228 28,381 71,372 55,904 Gains on sale of real estate (2,750) - (13,610) - EBITDAre$ 69,108 $ 52,080 $ 133,787 $ 102,324 Supplemental Guarantor Information InMarch 2020 , theSecurities and Exchange Commission (SEC) adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule became effectiveJanuary 4, 2021 . The Company and theOperating Partnership have filed a registration statement on Form S-3 with theSEC registering, among other securities, debt securities of theOperating Partnership , which will be fully and unconditionally guaranteed by the Company. AtJune 30, 2021 , theOperating Partnership had issued and outstanding$400.0 million of 2.125% senior notes due 2030 (the "$400 Million Notes"). The obligations of theOperating Partnership to pay principal, premiums, if any, and interest on the$400 Million Notes are guaranteed on a senior basis by the Company. The guarantee is full and unconditional, and theOperating Partnership is a consolidated subsidiary of the Company. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company's consolidated financial statements, the parent guarantee is "full and unconditional" 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. Accordingly, separate consolidated financial statements of theOperating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for theOperating Partnership as the assets, liabilities and results of operations of the Company and theOperating 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 ourOperating 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. 58 -------------------------------------------------------------------------------- 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 ofJune 30, 2021 , our cash and cash equivalents were$64.2 million , and we did not have any borrowings outstanding under our unsecured revolving credit facility, leaving$700.0 million available for future borrowings. 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. Our ability to use cash from operations to continue to meet our liquidity needs could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic. We are subject to a number of risks, which have been heightened as the result of the COVID-19 pandemic, related to general economic conditions, including reduced occupancy levels, tenant defaults and bankruptcies and potential reductions in rental rates on new and renewal leases, which have the potential to affect our overall performance and resulting cash flows from operations. ATM Program OnNovember 9, 2020 , we established an at-the-market equity offering program pursuant to which we may sell from time to time shares of our common stock having an aggregate sales price of up to$750.0 million (the "$750 Million ATM Program") through sales agents or by entering into forward equity sale agreements with certain financial institutions acting as forward purchasers. During the six months endedJune 30, 2021 , we directly sold a total of 2,415,386 shares of our common stock under the$750 Million ATM Program at a weighted average price of$49.61 per share, for gross proceeds of$119.8 million , and net proceeds of$118.3 million , after deducting the sales agents' fee. During the six months endedJune 30, 2021 , we also entered into forward equity sales agreements with certain financial institutions acting as a forward purchasers under the$750 Million ATM Program with respect to 1,797,787 shares of our common stock at a weighted average initial forward sale price of$50.77 per share. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of sale. InJune 2021 , we physically settled the forward equity sale agreements related to the$750 Million ATM Program in full by issuing 1,797,787 shares of common stock in exchange for net proceeds of$91.2 million . The net proceeds were calculated based on a weighted average net forward sale price at the time of settlement of$50.71 per share. As ofJune 30, 2021 , approximately$508.1 million of common stock remains available to be sold under the$750 Million ATM Program. Future sales, if any, will depend on a variety of factors to be determined by us from time to time, including among others, market conditions, the trading price of our common stock and capital needs. We intend to use the net proceeds from the offering of shares under the$750 Million ATM Program, if any, to fund potential acquisition opportunities, repay amounts outstanding from time to time under our unsecured revolving credit facility or other debt financing obligations, to fund our repositioning or redevelopment activities and/or for general corporate purposes. 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. 59 -------------------------------------------------------------------------------- OnMay 24, 2021 , we entered into forward equity sales agreements with certain financial institutions acting as forward purchasers in connection with an offering of 9,000,000 shares of common stock (the "Forward Sales Agreements"), pursuant to which the forward purchasers borrowed and sold an aggregate of 9,000,000 shares of common stock in the offering. We did not receive any proceeds from the sale of common shares by the forward purchasers at the time of the offering. The net forward sale price that we will receive upon physical settlement of the agreements, which was initially$55.29 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 purchasers' stock borrowing costs and (iii) scheduled dividends during the term of the forward sale agreements. OnJune 21, 2021 , we partially settled the Forward Sales Agreements by issuing 1,809,526 shares of common stock in exchange for net proceeds of$100.0 million . The net proceeds were calculated based on the net forward sale price on the settlement date of$55.26 per share. We currently expect to physically settle the remaining 7,190,474 shares under the Forward Sales Agreements 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 ofNovember 23, 2022 . As ofJune 30, 2021 , the net forward sale price was$55.01 and would result in$395.5 million in cash proceeds upon physical settlement of the remaining shares under the Forward Sales Agreements.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 six months endedJune 30, 2021 , we completed the sale of three properties for a total gross sales price of$29.0 million and total net cash proceeds of$27.7 million . The net cash proceeds were used to partially fund the acquisition of five properties during the six months endedJune 30, 2021 , 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, which may be impacted by the ongoing COVID-19 pandemic. Investment Grade Rating OnOctober 29, 2020 , we received an investment grade rating of Baa3 from Moody's and an investment grade rating of BBB from S&P, and inNovember 2020 , Fitch affirmed our investment grade credit rating of BBB with a stable outlook on our Credit Agreement (described below), our$225 million unsecured term loan facility (the "$225 Million Term Loan Facility"), our$150 million unsecured term loan facility (the "$150 Million Term Loan Facility"), our$100 million unsecured guaranteed senior notes (the "$100 Million Notes"), our$125 million unsecured guaranteed senior notes (the "$125 Million Notes") and our$25 million unsecured guaranteed senior notes and$75 million unsecured guaranteed senior notes (together the "Series 2019A and 2019B Notes"). They also affirmed our investment grade credit rating of BB+ on our 5.875% Series A Cumulative Redeemable Preferred Stock, 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 OnJune 30, 2021 , we exercised our option under the Third Amended and Restated Credit Agreement (the "Credit Agreement") to utilize the accordion feature to increase the authorized borrowing capacity of our unsecured revolving credit facility (the "Revolver") by$200.0 million from$500.0 million to$700.0 million . Subject to certain terms and conditions set forth in the Credit Agreement, we may increase the size of the Credit Agreement by an additional$700.0 million , which may be comprised of additional revolving commitments under the Revolver, term loan tranches or any combination of the foregoing. 60 -------------------------------------------------------------------------------- The Revolver is scheduled to mature onFebruary 13, 2024 and has two six-month extension options available. Interest on the Revolver is generally to be paid based upon, at our option, either (i) LIBOR plus an applicable margin that is based upon our investment grade ratings or (ii) the Base Rate (which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the administrative agent's prime rate or (c) the Eurodollar Rate plus 1.00%) plus an applicable margin that is based on our investment grade ratings. As ofJune 30, 2021 , the margins for the Revolver range from 0.725% to 1.40% per annum for LIBOR-based loans and 0.00% to 0.45% per annum for Base Rate-based loans, depending on our investment grade ratings. In addition to the interest payable on amounts outstanding under the Revolver, we are required to pay an applicable facility fee on each lender's commitment amount under the Revolver, regardless of usage. The applicable facility fee ranges in amount from 0.125% to 0.300% per annum, depending on our investment grade ratings.
The Revolver may be voluntarily prepaid in whole or in part at any time without premium or penalty.
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 had$62.0 million outstanding under the Revolver, leaving$638.0 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 including properties acquired subsequent to quarter end, we have acquired 24 properties with 1.7 million rentable square feet of buildings and 45.8 acres of low coverage outdoor storage sites and land for future redevelopment for an aggregate purchase price of$493.9 million , 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 on Form 10-Q, we have over$650 million of acquisitions under contract or letter of intent. There can be no assurance we will complete any such acquisitions. While the actual number of acquisitions that we complete will be dependent upon a number of factors, in the short term, we expect to fund our acquisitions 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 properties we acquired during the six months endedJune 30, 2021 . 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 ofJune 30, 2021 , 10 of our properties were under current repositioning, redevelopment, or lease-up and we have a pipeline of 12 additional properties for which we anticipate beginning construction work during 2021/2022. We currently estimate that approximately$201.0 million of capital will be required over the next three full and partial years (2021-2023), 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 as a result of the COVID-19 pandemic and restrictions intended to prevent its spread, which has and may continue to cause delays or which may increase costs associated with building materials or construction services. 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 cash flow from operations, the issuance of common stock under the$750 Million ATM Program and borrowings available under the Revolver. 61 --------------------------------------------------------------------------------
The following table sets forth certain information regarding non-recurring and recurring capital expenditures at the properties in our portfolio as follows:
Six Months Ended June 30, 2021 Per Square Total(1) Square Feet(2) Foot(3) Non-Recurring Capital Expenditures(4)$ 38,552 18,826,541$ 2.05 Recurring Capital Expenditures(5) 4,594 32,065,289$ 0.14 Total Capital Expenditures$ 43,146 (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 (1) and (2) above. (4)Non-recurring capital expenditures are expenditures made with respect to improvements to the appearance of such property or any redevelopment or other major upgrade or renovation of such property, and further includes capital expenditures for seismic upgrades, or capital expenditures for deferred maintenance existing at the time such property was acquired. (5)Recurring capital expenditures are expenditures made with respect to the 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 lots, roofing materials, mechanical systems, HVAC systems and other structural systems. Contractual Obligations Refer to our Annual Report on Form 10-K for the year endedDecember 31, 2020 , for a discussion of our contractual obligations. There have been no material changes, outside of the ordinary course of business, to these contractual obligations during the six months endedJune 30, 2021 . See Note 5 "Notes Payable" to the Consolidated Financial Statements for information regarding our minimum future principal payments due on our outstanding debt. See Note 6 "Leases" to the Consolidated Financial Statements for information regarding our future minimum office lease payments. See Note 10 "Commitments and Contingencies" to the Consolidated Financial Statements for information regarding our commitments for tenant improvement and construction work. Notice of Redemption of Series A Preferred Stock OnJuly 12, 2021 , we announced that we will redeem all 3,600,000 shares of our 5.875% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") onAugust 16, 2021 (the "Redemption Date"). The redemption price for the Series A Preferred Stock is equal to$25.00 per share, plus all accrued and unpaid dividends on such shares up to but not including the Redemption Date, in an amount equal to$0.183594 per share, for a total payment of$25.183594 per share, or$90.7 million . Upon redemption of the outstanding Series A Preferred Stock onAugust 16, 2021 , we will incur an associated non-cash charge of$3.3 million as a reduction to net income available to common stockholders for the related original issuance costs. Dividends and Distributions In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject toU.S. federal income tax, we intend to distribute a percentage of our cash flow on a quarterly basis to holders of our common stock. In addition, we intend to make distribution payments to holders of OP Units and preferred units and dividend payments to holders of our preferred stock. 62 -------------------------------------------------------------------------------- OnJuly 19, 2021 , our board of directors declared the following quarterly cash dividends/distributions: Amount per Security Share/Unit Record Date Payment Date Common stock$ 0.24 September 30, 2021 October 15, 2021 OP Units$ 0.24 September 30, 2021 October 15, 2021 5.875% Series A Cumulative Redeemable Preferred Stock(1) $ - - - 5.875% Series B Cumulative Redeemable Preferred Stock$ 0.367188 September 15, 2021 September 30, 2021 5.625% Series C Cumulative Redeemable Preferred Stock$ 0.351563 September 15, 2021 September 30, 2021 4.43937% Cumulative Redeemable Convertible Preferred Units$ 0.505085 September 15, 2021 September 30, 2021 4.00% Cumulative Redeemable Convertible Preferred Units$ 0.45 September 15, 2021 September 30, 2021 (1)In connection with the redemption of our Series A Preferred Stock described above, on the Redemption Date, holders of our Series A Preferred Stock will receive a pro-rated dividend for the period commencing on and includingJuly 1, 2021 and ending on and includingAugust 15, 2021 . See "-Notice of Redemption of Series A Preferred Stock" above for additional information. 63 --------------------------------------------------------------------------------
Consolidated Indebtedness
The following table sets forth certain information with respect to our
consolidated indebtedness outstanding as of
Margin Above Effective Principal Balance Maturity Date of Contractual Maturity Date LIBOR Interest Rate(1) (in thousands)(2) Effective Swaps Unsecured and Secured Debt: Unsecured Debt: Revolving Credit Facility(3) 2/13/2024 (4) 0.850 % (5) 0.951 % $ -$225M Term Loan Facility 1/14/2023 1.100 % (5) 2.474 % (6) 225,000 1/14/2022$150M Term Loan Facility 5/22/2025 0.950 % (5)(7) 3.713 % (8) 150,000 11/22/2024$100M Senior Notes 8/6/2025 n/a 4.290 % 100,000$125M Senior Notes 7/13/2027 n/a 3.930 % 125,000$25M Series 2019A Senior Notes 7/16/2029 n/a 3.880 % 25,000$400M Senior Notes 12/1/2030 n/a 2.125 % 400,000$75M Series 2019B Senior Notes 7/16/2034 n/a 4.030 % 75,000 Total Unsecured Debt$ 1,100,000 Secured Debt: 2601-2641 Manhattan Beach Boulevard 4/5/2023 n/a 4.080 % $ 4,009$60M Term Loan 8/1/2023 (9) 1.700 % 1.801 % 58,499 960-970 Knox Street 11/1/2023 n/a 5.000 % 2,444 7612-7642 Woodwind Drive 1/5/2024 n/a 5.240 % 3,851 11600 Los Nietos Road 5/1/2024 n/a 4.190 % 2,706 5160 Richton Street 11/15/2024 n/a 3.790 % 4,330 22895 Eastpark Drive 11/15/2024 n/a 4.330 % 2,716 701-751 Kingshill Place 1/5/2026 n/a 3.900 % 7,10013943-13955 Balboa Boulevard 7/1/2027 n/a 3.930 % 15,492 2205 126th Street 12/1/2027 n/a 3.910 % 5,200 2410-2420 Santa Fe Avenue 1/1/2028 n/a 3.700 % 10,300 11832-11954 La Cienega Boulevard 7/1/2028 n/a 4.260 % 4,037 Gilbert/La Palma 3/1/2031 n/a 5.125 % 2,207 7817 Woodley Avenue 8/1/2039 n/a 4.140 % 3,192 Total Secured Debt $ 126,083 Total Consolidated Debt 2.990 %$ 1,226,083 (1)Includes the effect of interest rate swaps that were effective as ofJune 30, 2021 . Assumes a 1-month LIBOR rate of 0.10050% as ofJune 30, 2021 , as applicable. Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver. (2)Excludes unamortized debt issuance costs and premiums/discounts totaling$7.1 million as ofJune 30, 2021 . (3)The Revolver is subject to an applicable facility fee which is calculated as a percentage of the total lenders' commitment amount, regardless of usage. The applicable facility fee will range from 0.125% to 0.30% per annum depending upon our investment grade rating. (4)Two additional six-month extensions are available at the borrower's option, subject to certain terms and conditions. (5)The interest rates on these loans are comprised of LIBOR plus a LIBOR margin. The LIBOR margin will range from 0.725% to 1.400% per annum for the Revolver, 0.90% to 1.75% per annum for the$225 Million Term Loan Facility and 0.80% to 1.60% per annum for the$150 Million Term Loan Facility, depending on our investment grade rating, which may change from time to time. 64 -------------------------------------------------------------------------------- (6)As ofJune 30, 2021 , the$225 Million Term Loan Facility has been effectively fixed at 1.374% plus the applicable LIBOR margin through the use of two interest rate swaps as follows: (i)$125 million with a strike rate of 1.349% and an effective date ofFebruary 14, 2018 , and (ii)$100 million with a strike rate of 1.406% and an effective date ofAugust 14, 2018 , plus the applicable LIBOR margin. (7)OnJune 30, 2021 , we amended the$150 Million Term Loan to reduce the applicable LIBOR margin from a range of 1.40% to 2.35% per annum to a range of 0.80% to 1.60% per annum, based on our credit ratings. (8)As ofJune 30, 2021 , the$150 Million Term Loan Facility has been effectively fixed at 2.7625% plus an applicable LIBOR margin through the use of an interest rate swap with a notional value of$150.0 million and an effective date ofJuly 22, 2019 . (9)The$60 million term loan is secured by six properties. One 24-month extension is available at the borrower's option, subject to certain terms and conditions. The following table summarizes the composition of our consolidated debt between fixed-rate and variable-rate and secured and unsecured debt as ofJune 30, 2021 : Average Term Remaining Stated Effective Principal Balance (in years) Interest Rate Interest Rate(1) (in thousands)(2) % of Total Fixed vs. Variable: Fixed 6.4 3.05% 3.05%$ 1,167,584 95% Variable 2.1 LIBOR + 1.70% 1.80% $ 58,499 5% Secured vs. Unsecured: Secured 4.0 3.03% $ 126,083 10% Unsecured 6.4 2.98%$ 1,100,000 90% (1)Includes the effect of interest rate swaps that were effective as ofJune 30, 2021 . Excludes the effect of amortization of debt issuance costs, premiums/discounts and the facility fee on the Revolver. Assumes a one-month LIBOR rate of 0.10050% as ofJune 30, 2021 , as applicable. (2)Excludes unamortized debt issuance costs and discounts totaling$7.1 million as ofJune 30, 2021 . AtJune 30, 2021 , we had total consolidated indebtedness of$1.2 billion , excluding unamortized debt issuance costs and premiums/discounts, with a weighted average interest rate of 2.99% and an average term-to-maturity of 6.2 years. As ofJune 30, 2021 ,$1.2 billion , or 95% of our outstanding indebtedness had an interest rate that was effectively fixed under either the terms of the loan ($792.6 million ) or an interest rate swap ($375.0 million ). AtJune 30, 2021 , we had consolidated indebtedness of$1.2 billion , reflecting a net debt to total combined market capitalization of approximately 12.0%. 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,$225 Million Term Loan Facility,$150 Million Term Loan Facility,$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,$225 Million Term Loan Facility and$150 Million Term Loan Facility, 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%; 65 -------------------------------------------------------------------------------- •For the Credit Agreement,$225 Million Term Loan Facility and$150 Million Term Loan Facility, maintaining a minimum tangible net worth of at least the sum of (i)$2,061,865,500 , and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company afterSeptember 30, 2019 ; •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 afterSeptember 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; •Maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%; and •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$400 Million Notes contains the following covenants 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. The Credit Agreement,$225 Million Term Loan Facility,$150 Million Term Loan Facility and Senior Notes also contain limitations on our ability to pay distributions on our common stock. Specifically, our cash dividends may not exceed the greater of (i) 95% of our FFO (as defined in the credit agreement) and (ii) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make distributions sufficient to qualify and maintain our REIT status. Additionally, subject to the terms of the Senior Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal, make-whole payment amount, or interest under the Senior Notes, (ii) a default in the payment of certain of our other indebtedness, (iii) a default in compliance with the covenants set forth in the Senior Notes agreement and (iv) bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest and the make-whole payment amount on the outstanding Senior Notes will become due and payable at the option of the purchasers. 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. The$60 Million Term Loan contains the following financial covenants: •Maintaining a Debt Service Coverage Ratio (as defined in the term loan agreement) of at least 1.10 to 1.00, to be tested quarterly; •Maintaining Unencumbered Liquid Assets (as defined in the term loan agreement) of not less than (i)$5 million , or (ii)$8 million if we elect to have Line of Credit Availability (as defined in the term loan agreement) included in the calculation, of which$2 million must be cash or cash equivalents, to be tested annually as ofDecember 31 of each year; •Maintaining a minimumFair Market Net Worth (as defined in the term loan agreement) of at least$75 million , to be tested annually as ofDecember 31 of each year.
We were in compliance with all of our quarterly debt covenants as of
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Cash Flows
Comparison of the Six Months Ended
The following table summarizes the changes in net cash flows associated with
our operating, investing, and financing activities for the six months ended
Six Months Ended June 30, 2021 2020 Change Cash provided by operating activities$ 101,677 $ 71,179 $ 30,498 Cash used in investing activities$ (449,158) $ (210,317) $ (238,841) Cash provided by financing activities$ 234,203 $
314,721
Net cash provided by operating activities. Net cash provided by operating activities increased by$30.5 million to$101.7 million for the six months endedJune 30, 2021 , compared to$71.2 million for the six months endedJune 30, 2020 . The increase was primarily attributable to the incremental cash flows from property acquisitions completed subsequent toJanuary 1, 2020 , the increase in Cash NOI from our Stabilized Same Properties Portfolio and changes in working capital, partially offset by an increase in cash interest paid for comparable periods. Net cash used in investing activities. Net cash used in investing activities increased by$238.8 million to$449.2 million for the six months endedJune 30, 2021 , compared to$210.3 million for the six months endedJune 30, 2020 . The increase was primarily attributable to a$250.3 million increase in cash paid for property acquisitions and acquisition related deposits and a$16.3 million increase in cash paid for construction and repositioning/redevelopment projects, partially offset by a$27.7 million increase in proceeds from the sale of three properties during the current period. Net cash provided by financing activities. Net cash provided by financing activities decreased by$80.5 million to$234.2 million for the six months endedJune 30, 2021 , compared to$314.7 million for the six months endedJune 30, 2020 . The decrease was primarily attributable to a decrease of$64.9 million in net cash proceeds from the issuance of shares of our common stock and an increase of$16.0 million in dividends and distributions paid to common stockholders and unit holders resulting from the increase in the number of common shares and units outstanding and the increase in our quarterly per share cash dividend, partially offset by a decrease of$1.3 million in deferred loan costs paid for comparable periods. 67
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