Rexford Industrial Realty Inc (REXR) 2015 Q1 法說會逐字稿

Greetings, and welcome to the Rexford Industrial Realty first-quarter 2015 earnings conference call. (Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Mr. Steve Swett. Thank you, you may begin.

Good afternoon. We would like to thank you for joining us for Rexford Industrial's first-quarter 2015 earnings conference call. In addition to the press release distributed today, we have posted a quarterly supplemental package with additional details on our results in the investor relations section on our website at www.RexfordIndustrial.com.

On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, projects, seeks, should, will, and variations of such words or similar expressions.

Forward-looking statements address matters that are subject to risk and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income, or financial guidance.

As a reminder, forward-looking statements represent management's current estimates. Rexford Industrial assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the Company's filings with the SEC.

In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The Company's earnings release and supplemental information package, which were released this afternoon and are available on the Company's website, present reconciliations to the appropriate GAAP measure and explain why the Company believes such non-GAAP financial measures are useful to investors.

This afternoon's conference call is hosted by Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer Adeel Khan. They will make some prepared remarks, and then we will open the call for your questions.

Now I will turn the call over to Michael.

Thank you, and welcome to Rexford Industrial's first-quarter 2015 earnings call. I'll begin with a summary of our operating and financial results for the quarter. Howard will then provide an overview of our markets and recent investment activity. And Adeel will then follow with more details on our quarterly results, our balance sheet, and an update on our outlook for 2015.

The first quarter of 2015 represented another strong quarter for Rexford as we achieved strong same-property NOI growth driven by occupancy gains and favorable releasing spreads. And we continue to source exceptional investments, acquiring over $52 million during the quarter and $68 million year to date.

We've now almost doubled the size of our portfolio since our IPO almost two years ago. We also have strengthened our balance sheet and liquidity through the completion of our $177 million follow-on equity offering during January. And we remain committed to maintaining our investment-grade profile as we move forward.

More specifically turning to our first quarter 2015 operating results, we achieved recurring FFO of $10.1 million. Which is almost two times the amount of FFO compared to the same period one year ago. We achieved recurring FFO per share of $0.20 driven by our accretive internal and external growth which represented an exceptional result considering we more than doubled our share and units count during the prior year primarily through our two equity offerings.

Our portfolio continues to perform well. Occupancy on a stabilized same-property portfolio basis was 94.9% representing a year-over-year increase of 460 basis points. On a same-property basis the NOI increased 7.4% in the first quarter of 2015, compared to the first quarter of 2014, driven by a 4.2% increase in same-property revenue and a 3.4% decrease in same-property expenses. Same-property portfolio cash NOI increased a robust 7.3%.

With regard to leasing, for the consolidated portfolio we signed 141 leases accounting for approximately 778,000 square feet during the first quarter which was a leasing record for Rexford.

We signed 72 new leases for about 458,000 square feet. And we signed 69 lease renewals for about 320,000 square feet. The quarter's tenant retention was 51%, and reflects our ongoing strategy to capitalize on rising market rents to maximize our portfolio cash flow and value by selectively retenanting high-demand spaces with expiring leases at higher rents. Sometimes by merely remarketing to new tenants, and sometimes by selectively moving tenants out so we can perform value-add upgrades to achieve higher rents.

To put this into perspective, if we adjust for the expiring tenants we vacated to achieve higher rents, and then only adjust the retention rate to account for those spaces we've already released then our retention rates would have been in the 70% range by square footage, and a full 77% by tenant count, increasing to 79% if we include leases with agreed terms that are out for signature.

This strategy is paying off handsomely. And I'd like to highlight some key metrics as these demonstrate the strong tenant demand fundaments associated with our target Southern California infill markets and our ability to proactively and expeditiously convert favorable demand fundamentals into increased cash flow and enhanced portfolio value.

To begin with, despite the volume of retenanting of high demand space, we achieved 153,000 square feet of net positive absorption with lease spreads for new leases at 15.1% on a GAAP basis and 5.7% on a cash basis which exceeded our renewal releasing spreads of 10.2% on a GAAP basis and 3.9% on a cash basis.

In addition, these higher rents on new leases compared to renewals were captured and locked in for longer lease terms which averaged 4.7 years for our new leases compared to an average of 2.3 years for our renewal activity during the quarter.

Finally, if we look at the retenanting of vacated space, the velocity and volumes are impressive. As of today we've already released or have out for signature 61% of tenants that were vacated in pursuit of higher rents by retenanting. And including those leases out for signature, this increases to 67%.

In short, we couldn't be more excited about our leasing activity and our ability to proactively recalibrate rents to higher market levels as leases expire. In fact, every single one of our 141 new and renewal leases across 778,000 square feet leased during the quarter generated a positive releasing spread.

We also just completed our sixth consecutive quarter with strong double digit positive releasing spreads. Moreover with nearly 63% of our leases rolling through the end of 2017, we see a substantial opportunity to continue to drive strong NOI growth as we proactively mark rents to market.

As a team, we couldn't be more excited about the opportunities we have before us as we look ahead to the rest of 2015 and beyond. We remain confident in our mandate to deliver substantially better than core returns and accretive growth in the nation's highest quality, largest, and most sought after industrial market in infill Southern California.

And with that, I'll now turn the call over to Howard.

Thank you Michael. And thank you everyone for joining us today. As on past calls, I'll update you on our markets and review our recent transaction activity. Let me start by providing some perspective on our markets, primarily utilizing market data provided by CBRE.

2015 has started off continuing the trend of our Southern California infill markets being more landlord favored. As available supply continues to dwindle, tenants actively looking for space are facing challenges as options are limited, allowing landlords to more dramatically push rents and lower concessions in virtually every market.

In Los Angeles County, gross activity has started off strong. The market generated 11.2 million square feet of gross activity with 60% of the activity occurring in the under 100,000 square foot segment. The market generated 2.2 million square feet of positive net absorption, which is an increase of 12% over last quarter.

Garment, consumer goods, food, e-commerce, and third-party logistics contributed immensely to the positive net absorption. The vacancy rate dropped 20 basis points since the last quarter bringing the overall vacancy rate to 1.7%. The rapid fall in vacancies is a trend that has continued since the beginning of 2014 due to high demand and low product supply.

The average asking lease rate increased 3.1% quarter-over-quarter which represents a growth of 8% year over year. Further, CBRE expects rents to increase another 5.1% over the next 12 months.

Orange County is also off to a good start posting positive net absorption of 690,000 square feet in the quarter. The overall vacancy rate dropped 30 basis points since the last quarter to 2.4%. While average asking rental rates were flat in the third and fourth quarter of 2014, the market has tightened and the average asking lease rate has grown 2.9% in the first quarter of this year.

Lease rates have moved up due to the lack of available industrial product allowing landlords to continue pushing rates and reducing concessions. CBRE expects rents to further increase 8.5% over the next 12 months as landlord pricing power strengthens further.

In San Diego County, net absorption was positive for the 11th consecutive quarter posting an impressive 1.1 million square feet versus 881,000 square feet in the last quarter. Every investor building type posted positive net absorption in the quarter with warehouse product posting more than half of the total positive net absorption.

The vacancy rate decreased 60 basis point to 5.5%. Overall, vacancy is now 6.1% lower than the peak vacancy of 11.6% reached in the first quarter of 2010 and is now only 10 basis points away from the prerecession trough of 5.4% in 2006. Rental rates have increased as well, growing 2.1% over the last quarter.

The industrial market in Ventura County continues to show encouraging fundamentals as well. Net absorption was a positive 146,000 square feet in the quarter. And the vacancy rate dropped 70 basis points to 3.8%. The firming up of the market caused 1.6% growth in asking lease rates over the last quarter.

In the Inland Empire the substantial growth of 2014 carried over into this quarter. The county generated 4.1 million square feet of positive net absorption which almost doubled the net absorption in the last quarter. The overall vacancy rate dropped 40 basis points over the quarter to end at 4.1%.

The Inland Empire West posted a vacancy rate of 3%, which was down 70 basis points since the fourth quarter of 2014. Meanwhile in the Inland Empire East, which is not a focus for Rexford, vacancy increased 10 basis points to 5.7% compared to the fourth quarter of 2014. Positive rent growth in certain space size ranges has been neutralized by the underperforming growth in others. So the average asking lease rate remained unchanged since the end of 2014.

Overall, CBRE expects that asking rents will increase 13.2% over the next 12 months although this could be tempered by an increased amount of construction. Currently, there's 19.2 million square feet under construction in the Inland Empire which is a 22% increase when compared to the first quarter of 2014.

Now moving on to our transaction activity. During the first quarter we acquired four properties containing a total of about 432,000 square feet for an aggregate cost of about $52.4 million. Three of the four acquisitions were off market or lightly marketed sales, and they were all consistent with our value-driven investment strategy.

Our earnings release has details of these transactions, so I'll only provide some insight and quick highlights. In January, Rexford acquired Imperial Highway, a 101,000 square foot single tenant investor building in Santa Fe Springs within the mid-county submarket in Los Angeles. A Class A property acquired for $12.2 million, or $120 per square foot, is 100% leased through 2019. We anticipate an initial yield of 5.3% with below market in place rent.

In January, we acquired Miramar Commerce Center, a 112,500 square foot industrial park within the central San Diego submarket for $18.5 million, or $164 per square foot. The property is 92.5% leased with in place rents approximately 30% below peak levels. We plan to implement cosmetic upgrades and lease up the remaining vacant space. We anticipate an initial yield of 5.5% based on stabilized occupancy with substantial room to grow rents thereafter.

In March, the Company acquired Red Gum, a 65,000 square foot industrial facility in Anaheim for $7.7 million, or $118 per square foot. The single tenant property is leased through 2019 at a below-market rent. And we anticipate an initial yield of 5.3% increasing in future periods as we roll to market.

In March, Rexford acquired De Soto, a 28 foot clear, 154,000 square foot industrial building in Chatsworth within the greater San Fernando Valley submarket for $14.1 million, or $91 per square foot. The property is vacant and we plan value-add cosmetic and functional enhancements to capture higher rents on leasing. We anticipate a stabilized yield of 6% on total costs.

Subsequent to quarter end, we closed two acquisitions totaling $15.4 million. In April, we acquired Norwalk Boulevard, Santa Fe Springs, a 10.26 acre parcel that includes a 26,000 square foot industrial building, a 12,000 square foot office building, and about 400,000 square feet of paved outdoor storage for $9.64 million which represents $22 per square foot of land. In May, we also acquired Arthur Street, a 61,400 square foot single-tenant building in Cerritos for $5.77 million, or $94 per square foot.

It's worth noting again, that our acquisition volumes can vary from quarter to quarter as we do not control the timing of closings. We continue to see a large volume of potential product that fits our criteria. And we currently have $29 million under contract comprised of three single-tenant buildings and another $40 million under LOI which we anticipate closing in the coming months and quarters. We remain extremely comfortable with our full year guidance expectation for acquisitions of $250 million or more.

I'll now turn the call over to Adeel.

Thank you, Howard. In my comments today, I will review our operating results. Then I will summarize our balance sheet and recent financing transactions. And finally, I'll update you on our outlook for 2015.

Starting with our operating results, for the three months ending March 31, 2015, Rexford Industrial reported Company share recurring FFO of $10.1 million or $0.20 per fully diluted share. This compares to $5.9 million or $0.21 per fully diluted share in the first quarter of 2014. Recurring FFO excluded the impact of approximately $233,000 of non-recurring acquisition expenses and $369,000 of legal fees. Including these costs Company share of FFO was $9.5 million for the quarter or $0.19 per fully diluted share.

The bulk of the Company's legal expenses pertain to litigation related to the accommodation matter which we're pleased to announce has now been fully settled at an immaterial cost to the Company.

On the same property basis we generated 4.2% increase in first quarter rental revenue and operating expenses decreased 3.4% quarter-over-quarter. The decrease in same-property operating expense was mainly due to timing of maintenance and repair items. Same-property NOI was $9.5 million for the first quarter as compared to $8.9 million for the same quarter in 2014 representing an increase of 7.4%. On a cash basis, our same-property portfolio NOI was up 7.3% year over year.

Turning now to our balance sheet and financing activity. At March 31, 2015, Rexford Industrial had total consolidated debt outstanding of approximately $269.9 million. Our consolidated debt includes approximately $169.9 million of secured debt. During January, we issued 11.5 million shares in a secondary offering raising net proceeds of approximately $176.6 million. Proceeds were used to pay off the outstanding balance on our revolving line of credit, fund acquisitions, and for general corporate purposes.

During the first quarter, our total consolidated debt decreased by $87 million and we ended the quarter with a zero balance outstanding on our revolving credit facilities and $47.5 million of cash and cash equivalents.

A strong balance sheet has always been a cornerstone strategy for Rexford. To that end, during March Rexford received an investment grade rating from Fitch. This is further evidence of the strength of our platform and balance sheet and expands our capital options as we pursue our growth initiatives in 2015 and beyond.

Finally, I'd like to provide an update on our outlook for 2015 which is unchanged from what we provided on our fourth-quarter call. For the 2015 same property portfolio, we expect year-end occupancy within a range of 93% to 94% and same property NOI growth for the year of 5% to 7%.

Our full year acquisition target remains $250 million or more. For recurring G&A we anticipate a full-year expense of about $14.5 million to $15.5 million.

With that, we would be happy to take your questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions) Our first question comes from Jamie Feldman, Bank of America Merrill Lynch. Please proceed.

Thanks, good afternoon. I guess starting out, can you talk about in the guidance what your yields are, the yield expectations are on the acquisition? So I guess in place and then stabilized.

Hi, Jamie, it's Howard. So as we've mentioned in past calls for the inbound cap rate is not really our main focus. So we're really looking at where we stabilize assets in 12 to approximately 30 months. And the offsets are typically coming in in that timeframe north of 6% in terms of a yield on [total pop].

Okay, you're saying that's an in place, going in yield (inaudible)?

Well, we've bought some assets that have no occupancy, so obviously zero yield. Some of them are occupied. But I think what I'm referencing really is just the stabilized returns in 12 to 30 months on our assets. They're all over the board in terms of the inbound yields.

Hey, Jamie, it's Michael. Just to give you a sense of it I think if we look back at what we've been buying, and we don't see much change going forward based on what's in the current pipeline. Average inbound occupancy has probably been in the mid-80%s, 85%, 87% on average. And average inbound day one cap rate has been around 5%. And as Howard mentioned it's on a stabilized basis north of 6%.

Okay, but I guess I was just thinking in terms of your -- you know you have a model that's spitting out your guidance. So it sounds like kind of 5% to 6% is what the going in yield is for what's in your guidance?

Your day one yield based on a blend of vacant, stabilized, and the rest is probably around 5%. And on a stabilized basis, north of 6%. And depending on the complexion whether it's got a little stronger value-add component it could be well north of 6%. Or if it's got more of a core plus or core orientation it might be closer to 6%.

Okay, and then Adeel, can you tell us what you view as your current investment fire power before you need more capital?

Sure, Jamie, I think that as we've reported at the end of the quarter we have about $47 million in the cash. After the two recent acquisitions that we just announced along with some working capitals, we have fully deployed the cash that existed on the balance sheet as of March 31. Furthermore, we have $200 million available in the line of credit. So that gives you some indication as to from the credit vicinity how much we have available there.

And also we recently announced the [ATM] Program. And if an opportunity presents itself later on during the year, that's certainly going to be another capital source we can use to deploy depending upon the acquisitions and the volume within the acquisition pipeline. So I think that gives you some color as to where we are.

Okay, so it sounds like at this point if you need capital you're coming off your line of credit. Otherwise you need to issue equity? Did I hear that right?

Yes, I think that currently the line of credit is completely available, so that would be the needed source.

Okay, and then how comfortable would you be in terms of where you want to be on leverage? How much of the line would you be comfortable using?

Well, I think that if you recall the metrics per the supplement we have a 4.3 debt to EBITA multiple. So we're really on the low end and debt to total enterprise value was also on a very low end in the high 19s. So I think it gives you some decent runway. So I think we can go pretty far into the credit facility usage before we start reaching anything major from our own internal discipline perspective.

And also I think that one thing that I remind people, we are very pleased to get the Fitch rating that we received in the fourth quarter. But I think that's also another tool that we use to monitor ourselves from a discipline perspective, specifically when it comes to debt to EBITA multiple. So I think we have a very decent run rate for the next number of months and quarters.

Okay, and then we're seeing the pickup in interest for assets overall. Any chance we might see you guys actually start to sell some property?

Yes, Jamie, we're looking at the portfolio on a regular basis in terms of how the assets are performing. And keep in mind that a lot of the assets we have today have rents in place that are below market as we've seen rents grow rapidly over the past year or 18 months. So in terms of maximizing value, we still have a pretty good runway with all of our assets. But that said, we do have our eye on one or two things that we might put on the market, but nothing of any significance really.

Okay, great. Thank you.

Thanks, Jamie.

(Operator Instructions) Our next question comes from Brendan Maiorana with Wells Fargo. Please proceed.

Thanks. Good afternoon. First up, Adeel, the $47 million of cash on the balance sheet, anything that that is particularly slated for? Or is that sort of fully available to fund acquisitions first to the extent they come up?

No, it's fully available, and I think the cash, I'm talking about the cash, it's fully available as of March 31. As a matter of fact, the question that I answered earlier, we effectively deployed that cash with the most recent acquisitions that took place. We announced them just a day or so here. So effectively, with the cash being deployed and we're back down to the remaining working capital that we need to keep on the balance sheet. So no, it's fully available. I mean we've utilized it exactly [as planned].

Okay, and you've got the investment grade rating from Fitch. Kind of where from a debt to EBITA basis, which I know a lot of rating agencies like to look at as a core metric, where can you bring that number up to while still maintaining investment grade from the rating agencies?

So the investment grade rating, a 6.5 multiple, is essentially the loose guardrail that's been established. But I caution people in talking about that, is that it's not a [flip] test. You can have a quarter or two before you can rectify that. So I think especially with our organization and the heavy growth mode, you know? But that's essentially the loose guardrail that we are measuring ourselves against. And that's also the same answer that I gave earlier is that that's one or more additional disciplines that we've got built into our financials and our balance sheet, Brendan, as you know.

Sure, okay that's helpful. What was the reason for the drop in occupancy in the San Fernando Valley? It looked like it went down 900 basis points or so sequentially from Q4.

Hi, Brendan. It's Howard. Well, we bought a 202,000 foot vacant building towards the end of last year. And this year, we've acquired a 150,000 square foot vacant building as well in the San Fernando Valley. But that really was the main drivers of that occupancy decline. But we're very bullish on the San Fernando Valley.

It's frankly in the last quarter was one of our better performing markets. It's about 27% of our portfolio. It's about a 1.4% vacant marketplace. And if you look at our leasing that occurred during the last quarter, in terms of new deals, we had cash leasing spreads of 15.7% and GAAP leasing spreads of 16.7%.

And also I'd point that one of the 200,000 foot buildings we bought vacant, we've already leased 112,000 square feet of it. It's not occupied yet, but it's leased. And I believe the occupancy is still in July.

Okay, great. Then just it looks like same-store expenses dropped sequentially, or they dropped year over year. Was there anything driving that number? And you're a little bit above your guidance in terms of same-store growth in Q1. But a portion of that did seem to be driven by that drop in expenses. So is that sustainable as we go forward during the year? Or is it higher rent growth maybe that we get going forward to kind of keep you in that plus 5% to 7% same-store growth mode?

Right, Brendan, this is Adeel. So I think that's a great question. And as I've also talked in our earnings announcement the repair and maintenance was a primary driver and primarily due to the timing of those expenses. So I think those will normalize as we move farther into the year. So I think it's a one-time occurrence. I think those things will stabilize and normalize and that's why the initial guidance that we issued, the 5% to 7%, will still stand and we're still standing by that initial guidance. And you will also potentially see the continuing impact of the releasing spreads that we talked about in addition to the occupancy guidance that we gave out earlier, which was the 93% to 94%.

So the combination of all of those factors will give us the comfort to stay within that guidance range, but the expense question initially, will stabilize and normalize. So you will not see that pattern.

Brendan, it's Michael. I thought it was an interesting question. I think if you extend that to the consolidated portfolio, and if you look at the fact that we've increased our rental revenues by about $7 million year over year on a quarterly basis, but we only increased property expenses and G&A combined. So excluding depreciation and amortization, which are noncash, by about 38% we're seeing very, very strong margin expansion overall as we grow the portfolio. And I think we're seeing that both on a same-store basis, but even more dramatically on a consolidated basis.

Yes, okay that's helpful. So last one, probably Howard or Michael, so I appreciate the response to Jamie's question. I think kind of in the stabilized yields sort of low 6s to high 6s, it looks like your space under repositioning, I like the new disclosure or the enhanced disclosure. It looks like stabilized target yield is about 6.2% if I'm doing the math correctly, maybe 6.3%. On repositioned assets, how should we sort of think about that stabilized yield relative to where these assets would be valued upon stabilization? Is a stabilized cap rate for this stuff 5% flat?

By the way, Jamie, just one -- I mean I'm sorry, Brendan, it's Michael. Just one quick comment on your calculation on the stabilized yields. Those target estimated annual stabilized cash NOI, that gets to the first year of leasing, full leasing. So that's how we define stabilization for the purpose of this chart. It doesn't necessarily define where we get on an ultimate stabilized basis. Because a lot of times there's additional value-add activity that might occur subsequent to the first full year of lease up. And I think your question was about on a steady state basis, is that sort of how we see it? Was that your question?

Yes, well I was trying to compare the initial stabilized yield. And maybe that's a depressed number or not a full number versus kind of where the stabilized value is to sort of think about the value creation that you're getting for taking the risk on these repositioned assets, right? You're not buying a stabilized asset, so you're getting something for the risk that you're taking. And I'm trying to figure out how much value creation you're getting for that risk.

Sure, Brendan, it's Howard. Let me give you an example. So toward the end of last year, we bought the 202,000 square foot building in the San Fernando Valley. And as I mentioned we leased 112,000 feet of it. We leased it for $0.02 a foot higher than our pro forma. So that we expect to now stabilize in the low 6% cap range. And that's a Class A asset that would be valued today if it was fully leased sub 5%, probably in the 4.5% cap range. So we're creating a lot of value in that respect.

Okay, so maybe about 150 basis points on a fixed cap, which is sort of 20% give or take?

Sure, somewhere in that range sounds reasonable.

Okay, all right. Thanks, guys.

Our next question is from Michael Mueller with JPMorgan. Please proceed.

Yes, hi. I just had a quick one, and I apologize if this was mentioned. But if you're looking at sequential occupancy and thinking more on a same-store basis ignoring anything you bought during the quarter, what did the occupancy do I guess ignoring the repositionings and then including the repositionings from Q4 to Q1?

We're thinking about that one. Give us a sec.

Yes, just thinking about the portfolio occupancy change from natural organic leasing as opposed to mix changes?

Right, well I could tell you this. In the first quarter we were a little over 150,000 feet positive net absorption. We had a tremendous amount of leasing volume. And that represents about a 1.5% increase in the occupancy from that positive absorption.

Sorry, Michael, by the way.

Yes.

I mean we had a pretty substantial same-store composition change in terms of the portfolio. So we don't have that data right now at this second for you, but we can address that later off line.

Okay. That was it. Thank you.

Thank you. Our last question will come from Manny Korchman with Citi. Please, proceed.

Hi, guys. How many vacant buildings are you comfortable buying if you look at that $250 million? Could half of that be vacant buildings? Or is there some limit where you'd want to have incoming cash flow?

Hi, Manny. It's Howard. We typically have projected that in our model that about 25% of what we would buy would be value add. And frankly, we always projected to have a substantial amount more of that be vacant buildings. Whereas I think as Michael made a comment earlier, we've actually been able to perform a little bit better in terms of the inbound value add where overall we were bringing it in between vacant and about a 87% occupancy, about a 5% inbound cap rate including vacant space and buildings.

That said, we're pretty careful when we look at the markets in terms of taking risk on those vacant buildings. And different markets we feel a little bit differently about because as I gave the example earlier about the San Fernando Valley, that 200,000 foot vacant building we bought we literally leased the 112,000 feet, probably about nine months prior to our pro forma occupancy goal.

And we already have activity and an offer on the remaining 90,000 square feet. So in terms of the risk profile, we don't think we're taking a very large risk in the San Fernando Valley especially when we're talking about a Class A asset. And if you really drill down to the market there's maybe one other building right now. Let's say the 90,000 square feet. There's maybe one or two other buildings that would even be competing with us.

So it's a lot different than if we were buying a vacant building in the Inland Empire East where we don't buy really any assets. So I hope that gives you some color on it, but again we do look at what we have that's vacant, what our leasing looks like, repositioning timelines and we make those decisions on a quarter-by-quarter basis based on the assets we're looking at.

Got it, thanks. And then Adeel, in terms of the ATM how comfortable are you issuing at these sort of stock levels or what kind of upside would you need before you thought about using the ATM?

Well, I think I'd go back to the initial answer that I gave. We have plenty of capacity on the credit facility right now. I think we have decent run rate. Also just the credit metrics and the debt metrics look really healthy for where we are. The balance sheet is extremely strong.

Having said that, if the opportunity presents itself later on during the year or the quarter we'll certainly look at that. It's just another opportunity. It's just another tool for us to have now to have really evolved debt and capital stock from this perspective.

But I think I'd go back to the initial points that I made to you, where were are from a debt [fact] currently at the end of the quarter and how those metrics look like and how much run rate do we have to be able to achieve some of these target goals that we have laid out.

Great. Thanks guys.

Thank you. I will now turn the floor back over to Mr. Frankel for closing comments.

We just want to thank everybody for joining the company today. We can't tell you how much we appreciate your interest and focus on Rexford. Thanks everybody.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.