Rexford Industrial Realty Inc (REXR) 2015 Q2 法說會逐字稿

Greetings, and welcome to the Rexford Industrial Realty second quarter 2015 earnings call. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Swett. Thank you, sir. You may begin.

Good afternoon. We would like to thank you for joining us for Rexford Industrial's second 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, intend, may, plans, projects, seeks, should, will, and variations of such words or similar expression.

Forward-looking statements address matters that are subject to risks 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 our website, present reconciliations to the appropriate GAAP measure and an explanation of 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 second quarter 2015 earnings call. I will 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, including expanded FFO guidance.

To begin with, we've just completed our two-year anniversary as a public company. It's been a very productive two years. We've grown total revenue by 94% and recurring FFO by 147%. We've acquired more than $600 million of industrial property in prime infill Southern California locations as favorable yields and predominately through off-market and lightly marketed transactions. We've raised more than $400 million in equity through two follow-on stock offerings, and we've achieved a corporate credit rating in issued $100 million in unsecured bonds.

We are exceptionally proud of our team's accomplishments, and we couldn't be more excited about the prospects of our business going forward as we continue to create value for shareholders.

Our quarterly results continue to demonstrate the successful execution of our business plan with another excellent quarter for Rexford. We achieved company-recurring FFO of $11.1 million, more than 80% higher than the FFO recorded during the prior year period, and we achieved recurring FFO per share of $0.20, which was even with our first quarter result, even as we absorbed the full impact of our January equity offering into our share count.

On a same-property basis, NOI increased 6.2% in the second quarter of 2015, compared to the second quarter of 2014, driven by a 5.5% increase in same-property rental revenue and a 3.8% increase in same-property expenses. Same-property portfolio cash NOI increased a robust 8%. We continued to see favorable NOI growth, driven by strong re-leasing spreads, increasing occupancy, and margin expansion as our ongoing portfolio and top line revenue growth leverages the relatively fixed costs of our operating platform.

We pushed our stabilized same-property portfolio occupancy to 94%, representing a year-over-year increase of about 360 basis points. For the consolidated portfolio, we signed 142 leases, accounting for approximately 726,000 square feet during the second quarter. We signed 57 new leases for about 284,000 square feet and 85 lease renewals for about 442,000 square feet. WE generated strong leasing spreads of 7% on a cash basis, and 15.4% on a GAAP basis for the quarter.

Q2 represents our seventh consecutive quarter of positive double-digit GAAP re-leasing spreads and demonstrates the success of our strategy to roll recessionary in place rents to higher recovered rents. With over 36% of our leasing rolling through the end of 2016, we have a great opportunity to continue to drive strong NOI growth as we proactively mark rents to market.

The quarter's tenant retention was 52%, which was impacted by negative net absorption of about 132,000 square feet, primarily due to move outs at two repositioning properties, Birch and Frampton. We are initiating upgrades to reposition these properties to achieve higher rents, increased cash flow, and greater value. Adjusting for these two properties, our retention rate would have been 62%, and our net absorption would have been positive. We are pleased to report that we have already re-leased over 56% of spaces that were vacated during the quarter, demonstrating our ability to rapidly re-tenant high-demand, where our product is competitively positioned in the best infill locations with superior quality and functionality.

Further, we continued to capitalize on our deep market presence, strong balance sheet, and extensive sourcing methods to add another $76 million of high-quality infill industrial properties to our portfolio since the start of the second quarter, putting our year to date acquisitions to more than $128 million.

As Howard will detail shortly, our acquisition pipeline remains very active, and is a testament to the strength of our originations platform through which we continue to source high-quality investments at attractive yields in our prime infill markets through off-market and lightly marketed transactions.

With regard to the balance sheet, as most of you may know, we recently executed an agreement to issue $100 million of 10-year fixed-rate senior guaranteed notes through a private placement transaction. Adeel will provide more specifics later in the call, but we are pleased that our ability to issue unsecured debt at great pricing adds another source of capital to our balance sheet and positions us for further growth.

Finally, I'd like to note that earlier this week, our Board approved a third-quarter dividend of $0.135 per share, representing a 12.5% increase from the prior dividend, which is enabled by the accretive growth being generated across our platform.

As we move into the second half of 2015, we believe we are well-positioned to continue to drive strong performance to general substantially better than core returns and accretive growth in the nation's best performing, largest, and most sought after industrial market in infill Southern California.

And with that, I am pleased to 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. I'll start by providing some perspective on our markets, primarily utilizing market data provided by CBRE.

With vacancy levels nearing all-time lows, the Southern California infill markets have further become more landlord-controlled in the second quarter with multiple offers on vacant space, rents increasing, and TI concessions decreasing further. In many of the markets where Rexford focuses, we continued to see a decreasing supply of industrial properties, as buildings are removed or converted to higher-value uses, which creative conversions to office space accelerating significantly in recent quarters.

In Los Angeles County, gross activity has stayed strong through the second quarter, generating 1.2 million square feet of positive net absorption with 58% of gross activity concentrated in buildings less than 100,000 square foot.

The overall average asking lease rate improved by 1.5% over the prior quarter, and over the next 12 months, CBRE expects rents to further increase by 5.1 percent. The overall vacancy rate dropped to 1.6%, a 10 basis point decline since last quarter.

In the greater San Fernando Valley, where 25% of Rexford's portfolio resides, the average asking lease rate increased 4% over the previous quarter and ended with the lowest vacancy in the region at 1.1%

Orange County experienced a strong second quarter, posting 1.2 million square feet of positive net absorption, representing an increase of 73% compared to the previous quarter. The overall vacancy rate dropped 30 basis points over the last quarter to end at 2%, the lowest rate since the fourth quarter of 2000 when the vacancy rate was 1.3%.

Market conditions remain tight for buildings under 10,000 square feet, which have a vacancy rate of 1.2%, while buildings over 100,000 square feet have the highest vacancy rate at 4.7%. The average asking lease rate was unchanged from the prior quarter, but concessions on new leases have tightened further. Overall, CBRE predicts that rates will gain significantly more traction and increase by 8.8% by the second quarter of 2016.

In San Diego County, net absorption was positive for the quarter, occurring at a faster pace than in 2014, as year to date net absorption is at more than 60% of 2014's record total. North San Diego County accounts for more than half of the positive net absorption year to date, and since the last quarter, overall market vacancy decreased by 40 basis points to end at 5.1%, now below the 2006 pre-recession low of 5.4%. Since the last quarter, asking rental rates increased nearly 10%.

The industrial market in Ventura County had positive net absorption in the quarter, but the vacancy rate increased 10 basis points at 3.9% due to new building deliveries. The average asking lease rate stayed unchanged since the last quarter.

The substantial growth of the Inland Empire continued with 6.5 million square feet of positive net absorption for the second quarter, which is an increase of 44% over the last quarter. The overall vacancy rate dropped 50 basis points to end the quarter at 3.6%.

Under construction activity has increased by 153% since the beginning of 2013, with 53 buildings under construction, totally 19.8 million square feet, with most of the construction occurring in the eastern Inland Empire in big boxes, which is not Rexford's focus. Since the prior quarter, the average asking lease rate increased by 5.1%, and CBRE forecasts the average asking lease rate to increase by 12.2% over the next 12 months, which would make it the highest recorded asking rate in the Inland Empire industrial market has ever experienced.

Now, moving on to our transaction activity. Since the start of the second quarter, Rexford has acquired six properties for an aggregate cost of $75.8 million, bringing year to date acquisitions to about $128 million. All of the second quarter investments were purchased in off-market transactions, and each has unique characteristics providing a potential upside over time, in keeping with our ability to source and acquire properties with value-add and core-plus returns.

Our earnings release has details of these transactions, so I will only provide some quick highlights. In April, Rexford acquired Norwalk Boulevard in Santa Fe Springs, a 10.26 acre parcel with 38,000 square feet of industrial and office buildings and about 400,000 square feet of paved outdoor storage for $9.6 million, which represents $22 per square foot of land. The tenant vacated the property in June, and we are in the process of re-leasing this highly sought after yard storage facility. We anticipate a stabilized yield on cost of 6.9% upon re-leasing at market rents.

In May, we acquired Arthur Street, a 61,000 square foot industrial building in Cerritos for $5.8 million, or $94 per square foot. Rexford acquired the building at a significant discount to market value through execution of a favorable tenant purchase option that was assigned to us. Upon acquisition, we executed a new five-year lease with the existing tenant, which provides a stabilized return of 5.7%.

In May, the company acquired a two-building industrial portfolio in Lynwood within the South Bay submarket, containing a total of about 165,000 square feet for $22 million or $134 per square foot. Rexford worked with the primary tenant to acquire the property through a first right of refusal and executed a 15-year master lease. In addition, the property includes about 60,000 square feet of excessed paved land that can be leased separately or developed. We anticipate an initial yield of 6.1%.

In May, Rexford acquired Hacienda, a 28-foot clear, 52,000 square foot industrial facility in the city of Industry, within the San Gabriel Valley submarket for $7 million, or $135 per square foot. The property, including 50,000 square feet of excess land, was leased back to the seller under a new ten-year lease providing an initial return of 5.5%.

In June, we acquired 6700 Alameda, a 78,000 square foot, 40-foot clear, best-in-class cold storage facility in Huntington Park within the Central Los Angeles submarket for $14.5 million or $185 per square foot. This facility offers clear heights that are 30% to 40% higher than competitive product in the submarket, providing substantially greater cubic storage. The property has been leased under a new 10-year, triple-net lease at an initial return of about 7%.

Subsequent to quarter end, in July, the company acquired Danielson Court, a 112,000 square foot industrial business park in Poway within the Central San Diego submarket for $16.9 million or about $151 per square foot. The property is 100% occupied with several in place below market leases and an initial stabilized return of 6%.

Moving ahead, we continue to see a large volume of potential product that fits our criteria, and we currently have $50 million under contract and another $75 million under LOI, which we anticipate closing in the coming months and quarters. We remain extremely comfortable with our full year guidance and 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, including our newly established guidance for 2015 regarding FFO.

Starting with our operating results, for the three months ending June 30, 2015, Company share recurring FFO was $11.1 million, or $0.20 per fully diluted share. This compares to $6.1 million, or $0.24 per fully diluted share, in the second quarter of 2014. Recurring FFO per share declined due to the impact of two of three offerings completed within the last year, which increased the weighted average share count by more than 100%. Recurring FFO excludes the impact of approximately $847,000 of non-recurring acquisition expenses and $364,000 of legal fees. Including these costs Company share of FFO was $10.2 million for the quarter or $0.19 per fully diluted share.

For the six months ending June 30, 2015, Rexford Industrial reported Company share of recurring FFO of $21.2 million or $0.40 per fully diluted share. Recurring FFO excludes the impact of approximately $1.1 million of non-recurring acquisition expenses and about $400,000 of non-recurring legal expenses. Including these costs, Company FFO was $19.7 million for the six months ending June 30, 2015, or $0.37 per fully diluted share.

On the same property basis, we generated a 5.5% increase in second quarter rental revenue and operating expenses increased 3.8% year-over-year. As a result, same-property NOI was $10.1 million for the second quarter, as compared to $9.5 million for the same quarter in 2014, representing an increase of 6.2%. On a cash basis, our same-property portfolio NOI was up 8% year-over-year.

Turning now to our balance sheet and financing activity. During the second quarter, our total consolidated debt increased by $27 million, and we ended the quarter with $37 million outstanding on our revolving credit facility, primarily as a result of our acquisition activity. In total, our consolidated debt was approximately $296.7 million, which includes approximately $160 million of secured debt.

Subsequent to quarter end, we executed $100 million 10-year note at a fixed rate of 4.29% to through a private placement offering. The note is expected to be issued on August 6, and will be used primarily to pay down two tranches of secured debt. In doing so, we will reduce or secured debt exposure, flag our debt maturities, and protect against an increase in the interest rate environment. We were truly pleased with the execution of this transaction, and we were excited to be able to expand (inaudible) relationship.

As we move forward, we'll continue to maintain a strong balance sheet and provide the flexibility and strong foundation to support our growth objective.

Finally, I'd like to provide an update on our outlook for 2015. We're initiating guidance for 2015, recurring FFO of $0.77 to $0.80 per share. I'd like to note that our guidance for recurring FFO does not include the acquisition cost or other costs that we typically eliminate when calculating this metric. Our guidance is supported by several factors, none of which have changed from our prior expectations which we have provided to you on previous calls.

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%. We recurring G&A, we anticipate a full year expense of about $14.5 million to $15.5 million.

Our full year acquisition target remains at $250 million or more. As a reminder, a significant portion of transactions have a value-add component, which we expect to add meaningful accretion in the medium to long-term but may have a near-term impact for redevelopment or re-tenanting activity.

With that, we'll open the line to take any questions. Thank you.

Thank you. We will now be conducting a question and answer session. (Operator Instructions). Manny Korchman with Citi.

Just wondering whether you're seeing any more or less competition, especially for some of the value-add buildings you're going for, and especially based on the comments you made earlier about other potential uses for some of these sites.

Hi, Manny. It's Howard. I think we're seeing our acquisitions accelerating in terms of the pipeline at this point in the year. And as we mentioned in our comments, all the acquisitions we made during the second quarter were off-market transactions. So in terms of competition, I think from IPO to date even, 72% of our acquisitions have been lightly marketed or off-market. So we generally don't have a lot of competition, because people don't know about these transactions we're doing. If you were looking at just on-market acquisitions, there's still a tremendous amount of interest in industrial real estate in our markets, and you're seeing probably more competition in that side of the buying arena. But for us, we haven't really noticed any increase, I think by virtue of how we buy our acquisitions.

And maybe following up on that comment, have you run across any or have you tried to run across any asset acquisitions where there would be a sort of better use, then instead of taking it into the portfolio, just flip it out immediately?

There's actually one or two things cooking right now that I really can't comment further on at this point. It's a little premature. But in addition to those, we continually look at our portfolio and look at those opportunities. It's not our focus in terms of redeveloping those assets ourselves, but we'll look at them in terms of the ability to resell them and maybe capture some of those higher values beyond the underlying, income-producing capacities.

Great. Thanks, Howard.

Juan Sanabria with Bank of America.

Just hope you could talk a little bit about using equity and/or and [ATM] to fund acquisitions and how you think about that versus selling assets given presumably year-over-year the stock trading at a discount to the NAV.

Hey, Juan. It's Michael. Thanks for joining us today. So the way we see it is, as long as we have great use for the capital, as long as the acquisitions are accretive, both from an NAV perspective and from an FFO per share growth perspective, we're still comfortable to purchase. And in terms of where we source the capital, we have a variety of options available to us, both the ATM, other forms of equity raise, and debt. So we feel very fortunate. We feel the Company is very well-positioned. And we're very, very comfortable with the acquisitions we've been making and those that are in the pipeline.

And in the guidance, are you guys assuming you do raise equity, or how should we think about leverage as you go toward that $250 million of acquisitions?

Juan, hi. This is Adeel. So the model, the guidance that we put out there, does (inaudible) from a bottoms up approach from our Company's model, and that has the basic, the credit facility from a debt perspective, and of course, some incremental equity. So that's baked in there. But based on what we commented earlier this year and the equity offering for the first part of the year, set us up pretty nicely from that perspective, so you can kind of see the balance of the year how that's going to lay out.

Furthermore, so add some perspective from a line of credit availability, we have $163 million available as of the end of the 6/30 period, so that gives you some perspective as to how much we have in availably from a line of credit perspective and also what's coming down the pipeline that Howard mentioned in his comments.

So you're then comfortable to finance the rest of the acquisitions on the line, is that what I'm hearing?

We're very comfortable. We're very comfortable from that perspective. And also, I think where we ended the quarter on a debt to EBITDA multiple, that also gives you a very good indication as to where we are and how much capacity or runway from that perspective we have. So we're very comfortable as to where we sit, and the balance sheet seems very strong.

Okay. And then just a follow up on sort of the occupancy trends we saw in Orange County and San Diego. I know you mentioned both markets are relatively tight, but I think your individual or your portfolio occupancy dropped in those two submarkets. Any comments as to what drove that?

Sure. This is Howard. In looking at Orange County, we had one larger planned vacate. We had bought a property, it was middle to late last year in Santa Ana market. It was 97,000 feet. And we have a short-term lease in place with the seller until they relocated. So they did move out during the quarter. We also had a 21,000 foot vacate in another project in Fullerton, and that one, I think we just delivered leases to a new tenant actually yesterday.

And then I think in terms of San Diego, San Diego, we had a fairly robust quarter in terms of leasing. I think we leased anybody 112,000 square feet of new properties, like 25 transactions, many of which were in the North County area, some spaces, actually, that had been empty for quite a while through the recession. So we actually have seen some great uptick in leasing velocity for our portfolio there.

But in terms of the decline, I think there was one, I think, default, I think it was near downtown. San Diego is, like, 29,000 feet, and then a couple other just small move-outs, and we have traction on most of that. So we're very encouraged about our activity in San Diego and our ability to grow back and move up those occupancy levels fairly rapidly through the balance of the year.

Okay. And then you mentioned, last question, a legal charge. Can you comment on any litigation that may be ongoing?

Juan, hi. This is Adeel again. So the legal charge that we called out in our adjusted FFO or recurring FFO was only $64,000 for the quarter, and that's essentially the last remaining piece or so that we're going to see. I think as we commented on the first quarter, the litigation was solved in the first quarter, so that's behind us on this perspective, so the FFO, the carve out that we have been doing for the last three to four quarters, you're going to see that piece of equation clean up a little bit.

Great. Thank you.

Brendan Maiorana with Wells Fargo.

So Adeel, so you guys did $0.20 of core FFO in Q1, $0.20 in Q2. Sounds like your guidance is in line with that range for the back half of the year or maybe down a little bit, because it's $0.77 to $0.80 versus $0.40 the first half of the year. You've got the debt that you're going to do, which is going to hurt you a little bit in terms of just fixed rate debt, paying off low floating rate, but you've got acquisitions, too, that ought to help the number. So just on sort of the back of the envelope math, kind of feels like the run rate would be flat from where you were in the first half of the year. What would maybe cause it to be down at the low end of your guidance?

Hi, Brendan. Adeel. Great question. And I think the sensitivities in our model comes primarily as a by-product of the timing of the acquisition. So depending upon when those acquisitions take place can have a material impact from where the FFO comes on line. I think that primarily is the biggest catalyst of the range that we have given out in our remarks.

And the other thing is that we have about 9.1% of annualized base rent that's going to be expiring for the year, so I think that's also -- I think we're very confident about what we can do with that renewing those leasing and having a positive absorption for the rest of the year, but those are your basic deltas between the high end and the low end. But I think the acquisitions primarily take the lion's share of the volatility and their timing coming on the FFO perspective.

And you guys would, at the margin, say we've got this debt that you're raising tomorrow, paying off the mortgages, as you've highlighted, for the acquisitions that happen going forward, that would be initially funded, or at least, as we think about it for the 2015 year, funding with the line?

That's correct. As a matter of fact, as I mentioned earlier, $163 million availability on the line as of the end of the Q2, and what Howard disclosed, $50 million (inaudible) and $75 million in LOI currently. That kind of gets you pretty close to the full year target guidance of $250 million and the capacity is certainly there. So obviously, we will continue to look to see what the best source of capital with the organization and the most accretive source of capital.

Okay. Great. And then I think just for occupancy purposes, my recollection was your 93% to 94% occupancy target was the stabilized same-store pool, which is 94% today. So is there some occupancy pressure on the back half of the year?

No. The 93% to 94% -- this is Adeel, by the way -- 93% to 94% was normal. But those stabilized properties, the repositioning must be complete, so we're looking at an all-in portfolio same-store. So what's currently listed at 92.6% is what we're quoting to be 93% to 94%.

Okay. Great. And then last one, probably Howard or Michael. So next year, you guys have 27% of your portfolio rolling, so it's a big number. Looks like average rents are maybe a little lower than your average overall. Anything that we should know about in terms of big tenants that are at risk, and how do you guys think about the rent growth you can get next year as it looks like they may be dropped rents.

Hey, Brendan. It's Michael. Yeah, we don't see any large potholes in terms of tenant issues going into the next 12 to 18 months, frankly. You can see our expirations. I think the first large one doesn't come until middle of next year. But we're very comfortable with that. And we see a continuance of the current level of activity for the foreseeable future in terms of re-leasing spreads. And don't forget that the overwhelming majority of our leases also have built in 3% annual bumps. Actually, they're structured the greater of 3% or CPI, 3% tends to trump CPI. So we're pretty comfortable with where we are in terms of continuing the trends that we see.

The one thing I wanted to add to your prior question, in terms of FFO per share and how we see it through the end of the year, if you've got a piece coming on line through the repositioning activities, and if you look at what we have listed and repositioning right now for the supplemental, that has the potential to drive $0.135 a share on an annual basis, just in terms of what we have in the hopper right there. And we've got some great, great projects in the works beyond that. So I think you're going to see additional accretion through the repositioning work.

Great. All right. Thanks, guys.

Mike Mueller with JPMorgan.

I guess following up on the prior question, Adeel, can you talk a little bit about how you see the numbers playing out once you go into 2016? I know you're not going to put specific guidance out, but looking at where FFO was in 2014, looking where it's going to end up this year in 2015, there seems to be a disconnect between occupancy going higher, the rent spreads, all the acquisitions and the direction that earnings have gone. So can you kind of frame what you think the growth model is over the next couple of years and how that plays out?

Mike, thanks for the question. Adeel here. The answer comes in two or three forms, two or three key points. Michael just ended the conversation by mentioning about the repositioning efforts that we've got, so that's going to be a nice uptick in FFO coming on line either later part of this year or 2016. And Michael also quoted it's about $0.13 for the full year basis on FFO perspective. So that gives you an indication as to what's coming down the hopper from the repositioning efforts.

Furthermore, each and every single one of the deals that we do now is accretive in the sense that we've got more scale from a G&A perspective I think. And we've talked about the G&A scalability in the past, and you're going to start to see a better ramp from that perspective. So you're going to see more accretion from that perspective coming on line. So those two, both of those two things are very positive to the 2016 growth model from an FFO perspective.

And last, of course, we've seen this over the last seven quarters or so the re-leasing spreads have been positive. So I think you can continue to see that trend continue. And of course, the occupancy uptick that we've been talking about, just talking about the same-store portfolio, 93% to 94% ending the year with 5% to 7% growth, and we continue to see that. We see that trend continuing in 2016.

So all of these factors that I just listed out should give you a nice growth presumption to be modeled in for the 2016 year-end. Of course, once we get closer, we'll put out something a little bit more finite from a guidance perspective, but right now, at least it gives you a good perspective of what to expect in 2016.

Okay. And the $0.13 commentary on the repositionings, was that specifically--is that just $0.13 to come down the pike at some point, or you're specifically thinking about 2016 relative to this year?

Yeah, I'm thinking more about it's coming on line in phases. I think you can take a look at the repositioning phase, and it'll give you a very finite perspective from a timing perspective on a project by project basis, but they'll roll in during different quarters in 2016. But if you were to take a look at the pro forma impact of all those acquisitions from this point, it's about $0.13 on an annualized basis.

Okay. So it sounds like in 2016 you think kind of the trend reverts and growth is positive on a recurring per share basis.

That (inaudible).

Okay.

Mike, it's Michael here. Just real quick in terms of the growth (inaudible) per share, if you look at uncommenced leases also that are already in contract, you're looking at almost a $0.03 per share increase on a quarterly basis alone. So we see a lot of growth intrinsic in the portfolio. Sometimes, you don't see it on the day that the quarterly reports are filed the end of each quarter, but we're pretty comfortable with where we're headed.

Okay. Thanks.

Tayo Okusanya with Jeffries.

I may have missed this in the opening comments, but could you talk a little bit about the cap rate on the assets you did buy this quarter and kind of what we should expect cap rate wise for the stuff you still have in the hopper?

Sure. Hi, Tayo. It's Howard. I think the cap rates in terms of this quarter, I think we're very strong compared to what you typically hear about the Southern California market. I'd say, on average, our cap rates were a little above 6%. We had a couple a little below then some above and well above. Whereas if you look at the markets and you see some of the more actively exposed heavily marketed properties, those are still trading in the 5% range, and there's a lot of product now selling that has in the mid- to upper-4% cap range.

I guess that's what some of us are struggling with, this idea of if you can still kind of get off-market deals of slightly above 6%, you're implied cap rate with where the stock is trading right now is kind of around 6.25% and you can raise that at 4.25%, it seems like you should be getting all this accretion from all these deals you're finding. But yet, when we kind of just take a look at 2015 guidance, there doesn't seem to be much growth happening.

Tayo, this is the deal, and I think this goes back to the point that I just mentioned. This year is unique in its right, because we did place a private placement. So our average cost of debt, if you just kind of factor in the swaps that we have already talked about earlier this year, and they're coming into different stages for the remaining part of the year, plus the private placement that we just announced that's going to be funded tomorrow, our average cost of debt increases. I think we quoted 2.017% toward the 6/30 period, and that can ramp up to 3.2%. So that really does have an impact for the latter part of the year.

So some of the accretion that you just talked about is masked temporarily by that. However, I think the moves that we made there really does protect the Company from long-term perspective, including shaping the complexion of the debt stack from more unsecured to secured and taking that risk off the table. So you are seeing that plus and minus coming through the latter part of the year. But in going forward in 2016 and beyond, these things are fixed contracts that are going to be in place, and we're more protected, so the accretion ramp will be significantly different next year.

Okay. That's helpful. And then quick second question in terms of leasing spreads, 15.5 this quarter is very good. Would you kind of say, as you look over the next 12 to 18 months, that's kind of like a peak number, or can leasing spreads still kind of remain that strong over the next 6 to 12 months?

Hi, Tayo. It's Howard again. You have to think about our market in terms of the vacancy rates. And I'll give you an example. The San Fernando Valley, where 25% of our portfolio is located, it's 1.1% vacant. And I would imagine if you were to drill down even further to compare the quality of the assets we have in the market to the available product, you'd really see that the competing assets have a substantially lower vacancy rate.

So the fundamentals are fantastic in really all of these infill markets that we operate in. And we have multiple offers on spaces. It's not unusual for us today to be leasing space that vacates in a quarter up in actually the same quarter. So we look forward 12 to 18 months and expect to see very strong spreads going forward. Whether they will be as high as this last quarter or now, who can predict that? But certainly, I think, impressively strong in the very near to medium term.

Sounds good. Thank you.

(Operator Instructions). Craig Kucera with Wunderlich Securities.

I wanted to revisit the use of debt proceeds. I know you mentioned that you're going to be paying down two tranches of secured debt. What's the spread between what you're paying down versus the 4.29% on the new debt? And are you expecting any gain or prepayment penalty on what you're paying down?

Hi, this is Adeel. So the approximately 200 basis points of two secured debt tranches that we're paying off are at about 2.19% or so approximately, depending upon which debt you're looking at, but on a blended basis, it's about 2%, so it's about little over 200 basis points difference, but it's a 10-year secure unsecured debt, so I think it really puts us in a good perspective. So that gives you indication from a debt, the cost differential.

As far as the question regarding any initial cost, the cost is very minimal to pay down. There's no prepayment penalties. These are just simple balance sheet lenders that we have the debt with, and the cost is going to be very minimal to the balance sheet, to the P&L for the third quarter.

Got it. And then I may have missed this, but I appreciated the caller on the cap rates on acquisitions this past quarter, but as you look at the pipeline, are you seeing similar types of cap rates as you get sort of the remaining, I think you mentioned $175 million or so on your LOI.

Hi, Craig. It's Howard. Yeah, the pipeline is strong. We have quite a few transactions. And there's several that are value-add, and that's substantially higher stabilized some of the deals we mentioned today. So we're excited about what's in front of us and the different opportunities that come into the shop every day.

Does that mean that it's in the range of a 6%, or that maybe a little bit inside of that?

I mean, we have one transaction that we're working on that was a vacant property that is a repositioning asset, and that eventually will stabilize, we project, in the 7.5% range.

Okay. Thanks. I appreciate the color.

(Operator Instructions). Ladies and gentlemen, we have no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Thank you, Operator. And thank you, everyone, again for joining us today. We appreciate your interest in Rexford Industrial, and we look forward to speaking with you again when we report our third quarter 2015 result.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.