Andrew Berger

Andrew Berger asked about the industry concentration within the 2026 bad debt watch list. He also questioned how the 5%-10% re-leasing spread guidance for 2026 aligns with expiring rents versus recently signed rents, implying a higher signing range. He inquired about the year-end same store occupancy of 96.5% versus the 95% average guidance for 2026, seeking clarity on the expected year-end 2026 occupancy. Furthermore, he requested a detailed breakdown of the cash same store NOI guide, struggling to reconcile it with given components, and asked if the Tireco lease impacts cash same store in 2026. He then posed a broader question on the measurement of success for Rexford's strategic changes (dispositions, lower development, lower G&A) given macro factors, asking about the timeline for results and if sustained tepid growth would prompt more substantive board actions. He also sought clarification on the 1% mark-to-market decline trend and whether the "right-sizing" effort would lead to multi-year earnings dilution. Finally, he asked for insights into the disposition market, including bidder pool, pricing, and if the portfolio evaluation is leading to changes in submarket thesis or exits, and inquired about the company's evolving view on port exposure and tariff risks, and the 30% Tireco roll-down's net effective impact including concessions and escalators. He concluded by asking for a walk-through of 2026 sources and uses of cash, specifically the free cash flow available after development spend for share buybacks or redeployment.

Answer

John Nahas (Managing Director of Operations) confirmed a logistics concentration in the bad debt watch list, noting larger spaces and specific business issues related to changing customer rates. Michael Fitzmaurice (CFO) confirmed expected signing rents of $16.75-$17 per sq ft for 5%-10% net effective re-leasing spreads, noting Tireco's 30% negative spread and flat to -5% cash spreads. Fitzmaurice clarified the 2026 same property occupancy starting point is 95.6% (due to pool change), expecting deceleration to a 95% midpoint with Q4 acceleration. He detailed the cash same store NOI components: -100 bps from occupancy decline, -50 bps from NOI margin, -75 bps from lower term fees/Tireco, -50 bps from bad debt, -200 bps from concessions, offset by +325 bps from contractual bumps, totaling 1.5% at midpoint. Laura Clark (COO and Incoming CEO) stated success is measured by "driving outside shareholder returns," emphasizing renewed capital allocation discipline, rigorous underwriting, limited development exposure, value creation, and operational efficiency. Fitzmaurice explained Q4 2025 mark-to-market had offsetting positive (below-market lease conversions) and negative (above-market vacating spaces) impacts. Clark outlined the disposition strategy (opportunistic, de-risking, future repositioning/development sales) aiming for FFO/NAV neutral to accretive growth, with Fitzmaurice adding offsetting cash flow from repositioning/development ($15M stabilized in Q4 2025, $20M commencing in 2026, $33M in 2027+). Clark described the disposition buyer pool: developers for development sites ($135M, $80/land sq ft, 4% projected yield) and users for operating properties ($95M under contract, ~4% cap rate), noting user sales increased in 2025 (average 4.2% cap rate). Clark reiterated limited direct port exposure but noted tariffs influence tenant decisions on expense structures and space rationalization. Fitzmaurice clarified the Tireco 30% roll-down was an apples-to-apples net effective comparison, including rent and triple net charges, due to a shift from triple net to gross lease. Finally, Fitzmaurice detailed 2026 cash sources ($166M cash + $450M dispositions = $616M) and uses ($203M development/repositioning spend), leaving $413M for redeployment or share repurchases.

Andrew Berger requested a walk-through of the expected sources and uses of cash for 2026, aiming to understand how much free cash flow, after all development spend, would be available for potential share buybacks or redeployment, given the $400 million to $500 million property sales guidance.

Answer

Michael Fitzmaurice, CFO, outlined the sources and uses of cash for 2026. Starting with $166 million of cash at year-end, and including dispositions at the midpoint of $450 million, total sources amount to $616 million. The expected development and repositioning spend for 2026 is $203 million. This leaves approximately $413 million of available cash to deploy towards the highest risk-adjusted returns, which could include share repurchases or future repositioning and development projects.

Andrew Berger of Bank of America asked for management's perspective on whether market rents are approaching a bottom, given the reported 1.5% sequential decline for comparable properties.

Answer

Co-CEO Michael Frankel stated that it is difficult to call a bottom for market rents but emphasized the underlying resilience of Rexford's portfolio. He contrasted the modest 8% year-over-year rent decline for their smaller, infill-focused properties with the much steeper 25% decline seen in the larger-box industrial market, highlighting the stability of their tenant base.

Andrew Berger asked about the Atlantic region's performance, which was down 7% in Q3, inquiring about the factors contributing to this and what Delta needs to achieve flat unit revenue. He also asked President Glen Hauenstein to rank Delta's geographies by margin performance in 2025 and how that might change into Q4 and 2026.

Answer

President Glen Hauenstein acknowledged the disappointing Q3 Atlantic performance, attributing it to booking curve assumptions, the 'spring swoon' impacting the summer booking window, and a shift of high-yield leisure to the fall. He outlined a multi-faceted approach for next year, including more aggressive main cabin filling and capacity adjustments. Regarding margins, Mr. Hauenstein stated that domestic and international margins have converged and are relatively similar in 2025, setting up a 'race' between them for higher returns in 2026.

Andrew Berger inquired about the Atlantic market's performance, which was down 7% in Q3, asking what factors are needed for that entity to climb back to flat unit revenue. He also asked for a ranking of Delta's geographies by margin performance thus far in 2025 and how that is expected to change into Q4 and 2026.

Answer

President Glen Hauenstein acknowledged Q3 Atlantic performance was disappointing due to booking curve assumptions, the 'spring swoon' impacting main cabin bookings, and a shift in high-yield leisure to the fall. He outlined a multifaceted approach for next year, including more aggressive main cabin sales and capacity adjustments. He noted that historically, domestic and international premium margins were similar, and they have converged this year, with a 'race' to see which can generate higher returns in 2026.

Andrew Berger of Robert W. Baird & Co. inquired about the impact of macroeconomic uncertainty on leasing, the company's long-term portfolio strategy regarding mixed-use and office assets, and the sustainability of recent strong office leasing spreads.

Answer

CEO Shawn Tibbetts responded that macroeconomic pressures have primarily softened the new construction pipeline, not the core leasing portfolio, which remains strong. He affirmed the company's competency in mixed-use developments for long-term growth but sees no immediate acquisition plans. For the office portfolio, which is 97.5% occupied, Tibbetts explained that the strong leasing spreads are supported by long-term leases of around 10 years with 2-3% annual escalators, providing stability and locking in credit tenants.

Andrew Berger asked for clarity on the earnings trajectory, questioning if 2025 will be a trough year, and sought more detail on the 15% rent premium in mixed-use office assets versus their respective central business districts (CBDs).

Answer

CEO Shawn Tibbetts confirmed the expectation that 2025 will be an earnings trough, with growth resuming in 2026 driven by the stabilization of development projects and organic portfolio growth. He explained the office rent premium is a result of the 'ecosystem' of mixed-use environments, where retail and other amenities attract high-quality tenants willing to pay more. CFO Matthew Barnes-Smith provided specifics for the Baltimore market, noting a 22% vacancy rate in the CBD versus just 2.25% in Armada Hoffler's Harbor Point community, with their rents commanding a significant premium over the CBD average.

Andrew Berger of Bank of America asked why Armada Hoffler is hesitant to build new office space despite its portfolio's strong performance, requested quantification of target development spreads, and inquired about the strategy for upcoming debt maturities.

Answer

President and COO Shawn Tibbetts stated that while their existing office portfolio is strong at 95% occupancy, new development is unappealing because risk-adjusted return spreads are not achievable, noting a historical 20% target is out of reach. CFO Matthew Barnes added that the May term loan has a one-year extension, pushing refinancing needs to mid-2026, and they plan to use the debt private placement market when conditions improve.

Andrew Berger of Bank of America Merrill Lynch inquired about the 'green shoots' mentioned in the prepared remarks, asking if this positive activity was concentrated in specific markets. He also asked if tariff discussions have impacted tenant conversations.

Answer

Marshall Loeb, an executive, responded that the pickup in prospect activity is broad-based across the portfolio and not limited to any single market. He noted that while tariffs haven't been a topic in tenant conversations, the potential for trade volatility affirms EastGroup's strategy of focusing on last-mile properties close to the end consumer, which provides stability regardless of where goods originate.

Andrew Berger asked whether brokers are reporting excess capacity or slack in the system, particularly for smaller spaces, and if this is contributing to slower tenant decision-making.

Answer

President and CEO Marshall Loeb stated that excess capacity is not an issue for their portfolio's smaller spaces (averaging 35,000 sq. ft.), suggesting the issue is more prevalent in the big-box sector. He emphasized that the primary need is for increased tenant confidence to drive expansion demand, which in turn would accelerate their development pipeline.

Andrew Berger of Bank of America inquired why leasing concessions remain flat in strong markets like Back Bay Boston and Midtown Manhattan, despite high activity, and what it would take to drive them down.

Answer

President Douglas Linde cited significant inflation in tenant build-out costs, which makes BXP's contribution a smaller part of the total expense. Executive Hilary Spann added that availability outside the core Park Avenue corridor keeps concessions sticky in New York. Executive Bryan Koop noted that while concessions are firming in the Back Bay, the weaker downtown Boston market influences negotiations.