Rexford Industrial Realty Inc (REXR) 2015 Q4 法說會逐字稿

Greetings, and welcome to the Rexford Industrial Realty Inc. fourth quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Swett of ICR. Thank you, Mr. Swett, you may begin.

Good afternoon. We would like to thank you for joining us for Rexford Industrial's fourth quarter and full year 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 of 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 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, and 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 measures 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 fourth quarter and full year 2015 earnings call. I will begin with a summary of our operating and financial results for the year and the quarter. Howard will then provide an overview of our markets and recent investment activity. And Adeel will follow with more details on our quarterly results, our balance sheet and introduce our outlook for 2016.

First, I'd like to briefly explain why we're so proud of our team's exceptional results for 2015. We increased same property NOI by 7.5% on a cash basis, driven by strong re-leasing spreads and a 290 basis point increase in our stabilized same property occupancy, which ended the year 95.6%. On a consolidated basis, we increased NOI by a full 46.2%. Most importantly, we achieved this exceptional growth with substantial operating leverage and margin expansion.

For example, although our portfolio square footage increased by 21.5%, we increased Company share of FFO by a full 58.3%. Rental revenue increased thomas four times as much as our cash operating expenses. Our accretive growth also enabled us to increase our dividend rate by 12.5% to $0.135 per share. Most importantly, we finished the year with a strong balance sheet that is more flexible than ever.

Early last year, we raised a net $177 million through a follow-on equity offering. In February, we obtained a Fitch investment grade rating, and in August the Company issued a private placement of $100 million in 10-year Senior notes, thereby reducing our secured debt exposure and extending our debt maturities. Before turning to our fourth quarter results, I would like to focus on a few key themes relevant at this stage in the real estate cycle.

Despite historically low vacancy, it remains nearly impossible to build new products for release within our core infill Southern California markets. Meanwhile, long-term tenant demand continues to grow. For example, e-Commerce continues to drive a disproportionate share of incremental tenant demand to infill Southern California, driven by their arising need for same day delivery within the Nation's largest and zone of regional consumption.

In addition, 70% of the Nation's imports from the Pacific Rim pass though our two ports of Los Angeles and Long Beach with over 40% of these goods estimated to be consumed locally with an increasing share distributed through e-Commerce. As our infill tenants generally serve regional business and consumer demand, we benefit from the increasing volume of goods flowing locally. Consequently, we are also more insulated from certain risks in the global economy, such as the slowdown in China as compared to non-infill markets comprised of long large big box tenants serving global markets.

These exceptional fundamentals combine in a very unique way in Southern California's infill markets, and are great reminders as to why we remain focused local sharpshooter on crating value by investing in industrial property here. Now turning to our fourth quarter results, we achieved recurring FFO of $11.9 million for the fourth quarter of 2015, which is a 33% increase over the prior-year. Recurring FFO per share was $0.21.

During the quarter, we signed 119 leases for 582,000 square feet. Our leasing spreads were 12.9% on a GAAP basis and 6.4% on a cash basis in the fourth quarter, which marks our ninth consecutive quarter of positive double-digit GAAP re-leasing spreads. We achieved approximately 203,000 square feet of net positive absorption. We acquired six industrial properties for approximately $79 million during the fourth quarter and 21 properties for the full year for $248 million.

Most of our investments were acquired through off market or lightly marketed transactions, originated through our proprietary research and related efforts, which has enabled better than market yields and strong value add opportunities. On an aggregate basis, our weighted average inbound cap rates for the year were just below 5%, despite the fact that last year's investments included some vacancy, and were only 70% occupied on average at the time of acquisition.

As we complete our value add work and lease-up, we conservatively estimate a weighted average stabilized unlevered yield on cost in the mid 6% range or better for our 2015 acquisitions. And if we look at just the investments made during the fourth quarter, we expect a weighted average stabilized cost unlevered yield on cost well above 7% for our most recent acquisitions. I would also like to highlight why we are so excited about the 2016 and beyond.

We believe we have a substantial opportunity to drive strong internal growth from our in place portfolio. Our average consolidated rents of $8.79 per square foot are currently about 13% below average market asking rents according to Costar. Moreover, the in-place rents for our leases that expire during 2016 are approximately 22% below current market asking rents on average.

Consequently, with 3 million square feet of leases rolling during 2016, we see a substantial opportunity to drive rent growth. We also believe we will continue to see favorable occupancy gain, as tenant demand continues to grow amid historically low vacancy. Further, our properties that are in repositioning or lease-up as of December 31, 2015 are projected to contribute an incremental $11 million or more of NOI growth alone, over the next 12 to 18 months.

On the balance sheet side, we significantly reduced our exposure to interest rate risks with our recent fixed rate debt placements and our higher interest costs are more than offset by the significant internal growth occurring within our portfolio. Finally, we also have some potential assets sales in process that we expect will contribute to our ability to internally fund our internal and external growth this year in a manner that we believe will further enhance FFO per share growth and shareholder value over the long-term. With that, I'm very 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. By virtually any measure, our core infill markets remain strong with availability running at or near historic lows. The overall Southern California vacancy rate reported by CBRE, when excluding the eastern inland empire, into the fourth quarter at 1.8% dropping 10 basis points from last quarter.

I will provide additional perspective on our markets primarily utilizing market data provided by CBRE. Los Angeles County ended strong generating 915,000 square feet of positive net absorption in the fourth quarter and 5.8 million square feet over all of 2015. The overall vacancy rate in the region dropped 10 basis points since last quarter and finished the year at 1.3%. Rexford's LA portfolio finished the year at 97% occupancy, excluding our repositioning assets.

Construction deliveries already lagged far behind absorption with only 2.8 million square feet under construction at the end of the fourth quarter. Representing just 0.2% of the market base and accounting for space removed from the market to be converted to alternative uses, net supply growth remains negative. Asking lease rates jumped 6.1% quarter over quarter and 9.4% over the prior-year. Over the next 12 months, CBRE expects asking rents to further increase by 5.8%.

Activity in Orange County showed a dramatic improvement over last year. The market generated 2.7 million square feet of positive net absorption for the year compared to 1 million square feet in 2014. The overall vacancy rate in the region was unchanged over the prior quarter and ended at 1.9%. Rexford's Orange County portfolio was 97.8% occupied at year-end excluding our repositioning assets. Rents continued their upward trend and increased by 2.7% over the prior quarter and 7% over the prior-year.

CBRE expects lease rates to improve by a further 6% over the next 12 months. The San Diego market experienced a historical year, with net absorption of 3.5 million square feet, the highest figure since 2006. More than 80% of the year's net absorption occurred in low finish product that is Rexford's focus. In fact, our San Diego portfolio finished the year at 94% occupancy, excluding one recently purchased repositioning asset.

Vacancy hit the lowest ever recorded in the region at 4.3%, a drop of 10 basis points over the last quarter. Asking rents across all product types remain flat quarter-over-quarter and are up 11% over the prior-year. However, asking rents for low finish industrial product, such as ours, increased 14% for the year. The Industrial market in Ventura County had 220,000 square feet of positive net absorption in the quarter, and the vacancy rate dropped another 50 basis points to end at 3.1%.

The average asking lease rate stayed unchanged since the last quarter and increased about 2% over the prior-year. The inland empire generated 23.2 million square feet of positive net absorption for the full year. The vacancy rate dropped by 50 basis points since the last quarter and finished that year at 3.3%. The average asking lease rate rose by 7.1% since last quarter, with smaller sized spaces experiencing the largest growth.

CBRE expects asking rates to increase by 11% over the next 12 months. However, there may be risks on horizon related to concerns for global growth and oversupply as the pipeline of about 90 million square feet is in various stages of development, primarily within the eastern Inland Empire, which we did not focus on. We entered 2016 in a strong position within our markets.

Rexford's high-quality infill portfolio is well positioned despite growing global and domestic economic uncertainty. We continue to see strong demand for space with competing offers and the turnover within our portfolio releases quickly. As an example, about 75% of the space vacated in the fourth quarter has already been released. A testament to the high demand nature of our product and to the lease-up of available space going forward.

Moving on to our transaction activity, during the fourth quarter and throughout 2015, we continued to drive external growth through accretive acquisitions. In the fourth quarter, we acquired six industrial properties for an aggregate cost of $78.5 million. For the full year, we acquired 21 properties for close to $250 million. As in previous quarters, our earnings release has details of these transactions, but I will provide some brief highlights.

The majority of these transactions were off market or lightly marketed sales. As our deep local market knowledge continues to provide a competitive advantage as we source acquisitions. As a result, we continued to achieve stabilized returns that are 150 basis points to 250 basis points or more above prevailing market yields of 4% to 5%. In October, we purchased Arrow Highway, a three building 64,000 square foot industrial complex located into the San Gabriel Valley for $8.1 million.

100% leased buildings are occupied by a single tenant and the initial return is approximately 7.4%. Additionally in October, we purchased Midway, two prominent buildings totaling 374,000 square feet in the severely constrained central San Diego submarket for $19.3 million. We are repositioning the asset in two phases and creating a high-quality industrial complex. Phase 1 delivers 229,000 square feet in 10,000 square feet to 35,000 square foot spaces and at stabilization, yield on costs is projected to be 6.5%.

Upon stabilization of phase 2, the return on total cost is expected to increase approximately 8.6% or more. In December, the Company acquired Milliken Avenue for $13 million, which is a three building 128,000 square foot industrial complex in Ontario. We are executing a value-add capital improvement plan to maximize revenue as below market leases role, and anticipate a stabilized return on total cost of 6.1%.

Also in December, we acquired Walnut Street and Lakeland Road. Walnut Street is a 172,000 square foot cold storage industrial building located in Carson, in the Los Angeles South Bay market. The property is 100% leased to two tenants with long-term leases and was purchased for $16.7 million. The low cost basis of the asset provides the opportunity for future renovation and potential retenanting into a single tenant dock high distribution facility. The in-place yield on costs is approximately 8.9%.

Lakeland Road is a vacant 25,000 square foot building with 50,000 square feet of excess land. Located in Santa Fe Springs in the LA mid County submarket. We purchased the property for $4.3 million, which is close to land value alone. After addressing deferred maintenance, quality industrial space with dock loading and excess land will be highly desirable in this low vacancy market. We expect a stabilized return on cost of 5.9%.

Finally, at the close of the year, we acquired Nichols Lane, 115,000 square foot industrial building in Huntington Beach in the west Orange County submarket for $17.1 million. The high-quality building is 100% leased to a single aerospace tenant who has invested significantly in the space, and has eight years remaining on its lease. We anticipate an initial return of 5.1%.

In closing, we added an excess of 2 million square feet to our portfolio in 2015 in our core Southern California infill markets. These properties are in prime locations and offer very strong relative yields both initially and on a stabilized basis. As we look forward, we have a significant pipeline of value add and stabilized opportunities, and we continue to work on potential transactions that fit our return objectives. At this time, we have more than $38 million under contract or letter of intent.

We also have about $90 million of dispositions under contract, letter of intent, or subject to pending letter of intent. These opportunistic sales with more than 60% of the square footage either vacant or facing near-term lease expiration, allow us to recycle proceeds at values that substantially exceed the increase industrial market capital market valuations. These sales are subject to contingency period so there's no guarantee if or when they will close. I will now turn the call over to Adeel.

Thank you, Howard. In my comments today, I will review our operating results, and then I will summarize our balance sheet and recent financing transaction. And finally, I will provide some metrics to support our outlook for 2016.

Starting with our operating results, for the three months ending December 31, 2015, Company share recurring FFO was $11.9 million or $0.21 per fully diluted share. This compares to $8.9 million or $0.21 per fully diluted share in the fourth quarter of 2014. Recurring FFO per share was flat due to the impact of our equity offering in January of last year.

Recurring FFO excludes the impact of approximately $500,000 of nonrecurring acquisition expenses. Including these costs, Company FFO was $11.4 million for the quarter or $0.21 per fully diluted share. For the year ending December 31, 2015 Rexford Industrial reported Company share recurring FFO of $44.2 million, $0.82 per fully diluted share. Regarding FFO excludes the impact of approximately $2.1 million of nonrecurring acquisition expenses and about $345,000 of nonrecurring legal expenses.

Including these costs, Company FFO was $41.9 million or $0.77 per fully diluted share. Same property NOI was $10.5 million for the fourth quarter as compared to $10 million in the same quarter 2014, representing an increase of 4.8%. Same property NOI was driven by 2.8% increase in fourth quarter rental revenue and a 2.2% decrease in operating expenses. On a cash basis, same property portfolio NOI was up 7.5% year-over-year.

Turning now to our balance sheet and financing activity, in total our consolidated debt was approximately $418.7 million, which included approximately $78 million in secured debt. During the fourth quarter, our total consolidated debt increased by $82.8 million. We ended the quarter with approximately $141 million outstanding on our revolving credit facility, primarily as a result of our acquisition activity.

As we look ahead to 2016, we believe our balance sheet positions us well to fund our strategic objectives, and we have significant financial flexibility and multiple capital sources. We have no debt maturities through 2017 and approximately $176 million of total liquidity. Additionally, we have approximately $90 million in dispositions and profits, the majority of which are vacant or soon-to-be vacant buildings, allowing us to recycle capital in a creative manner to help fund our internal and external growth initiative.

Finally, I would like to provide color on our outlook for 2016. With regard to FFO guidance for 2016, our guidance refers only to our in-place portfolio as of January 1, 2016 and does not include any assumptions for acquisitions or dispositions, which have not yet closed including the potential sales and profits that we mentioned.

For 2016 recurring FFO, our in-place consolidated portfolio, we expect to achieve a range of $0.83 to $0.86 per share. Please note that our guidance of recurring FFO does not include acquisition costs or other costs that we typically eliminate when calculating this metric. Our guidance is supported by several factors. For the 2016 same property portfolio, we expect year-end occupancy within a range of 94% to 95%. We expect to achieve the same property NOI growth rate target for the year to a range of 5% to 7%.

Please note that our 2016 same property pool, now comprised of 97 properties with an aggregate of 9.1 million square feet, representing 82% of our consolidated portfolio square footage. For G&A, we anticipate a full range from $16.5 million to $17 million, including about $4 million of non-cash Company-wide equity compensation.

I'd like to note though we're not providing guidance for 2016 acquisition at this time, we remain excited about our robust pipeline and expect to continue to grow our profile in a creative manner. As we work through the year, we look forward to updating you with our acquisitions activity and any updates to our full-year guidance. With that, we will open the line to take any questions. Thank you.

(Operator Instructions)

Juan Sanabria, Bank of America Merrill Lynch.

Good afternoon, guys. I just wanted to get a little bit more color on the dispositions -- something you haven't necessarily done in large scale in the past.

What's changed? I mean the markets seem pretty tight. I think Michael mentioned 22% upside on the 2016 expirations. Wouldn't the vacancy be an opportunity to grow earnings? If you could just help us think about what the plan is.

Hi, Juan. It's Howard. I think we are at an interesting point in the market. And our assets are in very tight infill locations, so some of the dispositions have opportunities for change in use, which as you know Rexford doesn't focus on. So it's really matter of unlocking higher value potentially through a redevelopment.

But in general, all of these dispositions are at pricing that is well above the typical industrial cap rates we see in our markets. So they are really more opportunistic sales, and they're not programmatic in any sense. It's really just the opportunities now are presenting themselves and so we're taking advantage of them.

What percentage of the $90 million would be potentially higher and better use, or alternate use, any sense?

Yes, I think there's probably 40%-ish of that. Interestingly, about 60% of these transactions are either vacant or soon-to-be vacant assets.

That's helpful. On the G&A, can you help us think about what's driving I think it's a 12% increase off of 2016?

Hello, Juan, it's Adeel. It's about a 13% increase year over year, and a majority of that is the non-cash equity compensation expense that is coming through for 2016. If you strip that out, and we quoted the fact that there was $4 million in non-cash stock comp in next year's full-year G&A guidance.

So that gives you some idea as to what's creating that delta bip in year over year. And if you also recall, late in 2015, there were grants that were executed for the executives here, so you are seeing the full-year impact of those grants showing up in 2016.

Okay and then just one other quick one. Re-leasing spreads. I think, Michael, you referred to 20% plus market to market on expirations for the year. Can you give us a range of what you are expecting in your guidance for 2016, and what you think market rent growth could be?

Hey, Juan. It's Michael. We don't really prognosticate in terms of market rent. We know CBRE, Howard quoted the CBRE statistics and their expectations. Frankly, we underwrite to more moderate rental rate growth in our underwriting naturally. And also with regard to re-leasing spreads through the end of the year, I think what we can tell you is that activity continues to be very, very robust.

I think Howard sited a great statistic that now over 75% of our leases that rolled during Q1 have already re-leased and at very favorable leasing spreads. Q4 rather have already re-leased during -- since the end of the year and since the end of the quarter. We do have some great examples of leasing activity since in the end of the quarter that are very, very robust re-leasing spreads.

So don't really have guidance related to re-leasing spreads through the year, but what we can tell you is that we don't see any change, and the trend line continues to be very favorable. And we see that the re-leasing spreads and the growth in revenue is really one contributor to NOI growth through the year.

Another key contributor to NOI growth through the year is the repositioning assets that are going to be coming up through lease-up over the next 12 to 18 months. And we see the potential there to be well over $11 million over the next 12 to 18 months. We feel like we're positioned really well in terms of NOI growth, and we think that more of that is going to be flowing down to FFO per share over time as well.

Okay, guys. Thanks, I will get back in the queue.

Manny Korchman, Citi.

If we think about that $11 million of additional income that is going to be coming online, how much additional capital investment do you need to make to get there?

It's Michael. If you look at our repositioning page, on page 24, you will see total investment from all of the assets, including the acquisition cost, to date is about $177 million. And there's a column there where you can also calculate the incremental investment since acquisition.

So that provides your data there. In fact, if you look at the NOI that's contributed as a result of that $177 million of total investment, you generate about a 7.2% yield on those transactions, and we think that is fairly conservatively estimated.

And then, Adeel, just given the strong performance from the stock or outperformance of the stock, how does equity play into your capital plan over the next 12 to 18 months?

That's a good question. I think we always start with the key focus, which is the balance sheet. I think that's the disciplined strategy that we've always been focused on from the very beginning, and I think you saw us execute on a seven-year term loan at the beginning of this year. And that essentially established some liquidity for us, from a credit facility perspective, and also the $90 million that Howard just talked about.

I think we are always constantly evaluating every equity REIT need in correlation with the creative nature of the deals that we're going to possibly be dealing with. And I think that's how we look at it. Again, the ATM is out there still untouched, so again, we have a lot of tools in our chest here that we can execute on. Again, it all has to come down to the deals that are underwriting and how they are supported in the equity market at that time.

We will continue to guide you guys as we move forward in the quarter. But I think we kind of started the year in a pretty nice manner as to what we have coming up and how we can write through some of these things in the near future.

And maybe a final one from me. If we think about the dispositions, especially the vacant ones that we spoke about earlier in the call, how many of those did you structure or did you think about purposely making vacant because of this alternate use or some other reason? And how many of those were just too difficult to lease up and so they were naturally vacant?

We didn't create any vacancy purposefully to sell. Two assets are vacant. One is a repositioning asset. Again, these are all under contingencies, so we don't want to give you a lot of specifics to focus on any particular asset. But one of them, the repositioning asset where we actually haven't started spending the money yet, so it's a very unique opportunity to outperform all of our underwriting through repositioning on that particular asset.

Another is an expiring lease that has some capital requirements, but wasn't really expected to produce revenue until toward the end of the year, and it's a user sale. You have heard us talk about how users pay premiums for properties that really don't correlate to the cap rate values. It's a great example of one of those type of sales.

And Manny, it's Michael. I will just add that none of these dispositions are what you might consider problem children. They're all great assets that we would be very happy to keep, but to the extent that the sales don't materialize. On the other hand, the sale value potential are very substantial, and we're certainly excited about those as well.

Great, thanks.

Michael Mueller, JPMorgan.

For the same-store NOI guidance of stabilized -- it's not stabilized, it's same-store NOI of -- or occupancy of 94% to 95%, was is the number that compares to? Is it the 94.4% year end? Is that the right one?

No, Mike, that's a good question, mike. Let me explain a little bit on the same-store. We ended the year with 6.1 million square feet, and that number is changing to 9.8 million square feet, beginning 1/1/2016. That's the same-store pool that we're going to start using starting from Q1 2016.

That's the number recording the 94% to 95% and the 5% to 7%. That number at the end of the year was at 92.96% or 93% close to, so that's the number that we're using. That 92.96% or 93% was not disclosed in the Q4 supplemental, but it will show up as you start to see the supplementals in 2016.

Okay. So it looks like 100 to 200 basis points of occupancy, correct?

That's correct.

Okay, great. And then, I know it's not in guidance, but can you walk through what you're thinking in terms of acquisitions, dispositions? Is it the normal 250 that you're thinking about and for asset sales, is it just that 90?

Hi, Mike. It's Howard. Well the 90 is really the assets we've identified right now. We really aren't looking at the portfolio and trying to find the whole lot more. But we do review the portfolio on a quarterly basis, and we certainly, if other assets prop up that make sense to sell at higher prices than the industrial cap rate values, you might see some more, but we don't see have anything earmarked right now.

As far as acquisitions, our pipeline is quite robust. I would say we're still tracking a similar amount of product that we were in the beginning of 2015. So in terms of the opportunities that are out there, nothing has really changed. We've just made a decision to just not report on the acquisitions just because the volume of them varies quarter to quarter.

And I think the intention really is to just announce them as they occur, as we have always done, and update guidance with respect to the closed transactions. And each quarter, we will continue to mention what we have under contract, as I did in our remarks earlier, mentioning that we have $38 million worth under contract.

Okay. So in the past, you have typically talked about, if I'm not mistaken here, about $250 million of acquisitions, give or take. So, without asset sales, that's net $250 million on the acquisition side. Do you think the net acquisitions will be comparable to that $250 million or lower this year?

Well, like we said we don't want to offer guidance right now on a specific number, but again, the acquisition pipeline really is robust. We are looking at a lot of one-off value-add deals, core deals, and we're always tracking a portfolio or two. It's just hard to predict what those numbers are going to be. And that's why, today, we're really more focused on the existing portfolio and talking about all the embedded growth in that in terms of some of the numbers that we are offering out in the guidance.

Okay, and just one last little question. Going to the repositioning page, for the stuff that was completed in the fourth quarter, it looks like it was about $270 million of NOI annualized upon stabilization, it was about $2.6 million. And it says everything is stabilized. I'm assuming that happened at the beginning of the year.

Does stabilized mean that's all hitting in this quarter? So that $250 million or $270 million would go to $600 million in the first quarter, give or take, or it's leased but you're not going to get the income for some time still? How do we read that?

Mike, that's a great question, and I think the one caveat that is in the stabilized number is the fact that it does not include any concessions. Some of those deals might have some concessions that might flow through in this quarter. Otherwise, your statement is accurate.

That number should all hit in Q1 2016. And you can kind of see what the Q4 NOI was, and you can kind of read from that perspective because that is actual NOI, cash NOI, and you can kind of interpret the data from that perspective. But that's the only caveat that I will point out in the stabilized difference.

Okay, thanks.

Brendan Maiorana, Wells Fargo.

Thanks, good afternoon. Do you guys think about capital outlook now as being more of an asset recycler as the longer-term capital plan? Or is it just hitting the market at the right point in time, with respect to the $90 million of sales, and just being opportunistic. And over time, you're more likely to grow the portfolio than to just move the chess pieces around a little bit?

Hey, Brendan. It's Michael. I think the latter is probably more accurate in that we are really capitalizing more on timing in the market and some very opportunistic opportunities in terms of the $90 million of dispositions. And over time, we do see ourselves growing the portfolio and continuing to do what we do. And as Howard mentioned, we have a tremendous volume of very exciting deals in the pipeline, ranging from value add, core plus and core, and we also have some large portfolios that we are looking at.

So I think you can plan on our continued growth, but as always, it's very selective. And I think one of the interesting things about our growth over the last year is if you look at our inbound yields and our stabilized yields, I think not only are they substantially above market, but you probably see an acceleration at Rexford in terms of the stabilized yields we've been able to project on acquisitions we made through last year as compared to prior years. We couldn't be more excited about the pipeline.

Sure, and let's say if you were to be a net acquirer, so maybe get the $90 million of sales done and then you get another $90 million of acquisitions, the acquisitions beyond that, how should we think about the funding outlook for that? Do you feel like it would be funded a portion with ATM issuance and a portion with some debt? Or do you think that your leverage is low enough where you could do another, let's say, $100 million of net acquisitions without having to tap any equity?

Well, I think one of the things I will point out and I think you can see from our guidance perspective, we have great traction when it comes to NOI growth that is coming in 2016. We have a little bit of leverage neutrality built into our portfolio. So I think if all else being equal, if you don't do any acquisitions, you delever simply by the fact that NOI is growing and the EBITDA is growing. So some of those ratios and margins will naturally improve over the course of time.

You are absolutely right about the ATM. We have not transacted on that and we will be opportunistic as the opportunities present themselves. That is certainly something we could use. You have seen us how we have deployed the debt side of the business. We've got the seven-year term loan at the end of the year to create some liquidity for us. The line has about $176 million available.

This year looks awfully strong from that perspective, but again, these are all tools that are available to us. The key focus here is that we constantly align our equity needs to the underlying deals that we're doing and to make sure they are accretive in the overall FFO perspective, and ultimately, the NAV perspective. That's how we gauge and determine every single capital move that we make to make sure that we provide that lift in the short term and the long term.

Okay, and then, Adeel, the last one. So you did $0.21 in the quarter. I know it is always difficult to annualize a quarter but I'm going to do it anyway. That's $0.84, which is around the mid-point of your guidance for 2016. So G&A is going to be a little bit higher for 2016 than your run rate was in the fourth quarter, but it seems like you've got, as you were just highlighting to Michael Mueller, you've got $2.5 million of NOI coming online just from these recently stabilized repositioned assets.

You've got a few more that are going to come online during the year, and then you've got all of the NOI growth from the better rents and occupancy. So, I would think that is there something about -- something else that's maybe a headwind that we're not thinking about, other than maybe a higher G&A, and maybe a little bit higher interest cost?

Well, the one thing that I will point out is the timing of some of this, and I think I always start with the fact that this is in-place portfolio guidance, so that's first and foremost point that I wanted to reference. Second of all is that this -- let's just say the high end of the guidance at $0.86, it's not necessarily normalized.

You are going to see a build up to that, so where we end up in Q4 will look different from where we were at Q1 or Q2. You have certain leases that roll. There might be some downtime, and obviously we will do our best to execute on the strategy on getting those things leased-up as soon as possible.

But I think so you're not going to see a normalized effect. So as far as the headwinds are concerned, you kind of already mentioned the interest expense is obviously something that we have been communicating. You'll see full impact this year for all of the swaps that we put into place, plus the private placement that took place in August last year.

We talked about the G&A, and then the NOI, just on the high end of the range at $0.86, is contributing about 20% increase year over year. So I think that kind of gives you some of the building blocks as to how we're looking at from this in-place modeling perspective.

So again, the timing is the key thing. We will put ourselves in a great spot if we execute on the strategy that we laid out. For this in-place portfolio where we end up at the end of the year and that run rate that is going to dictate is going to be drastically better than we ended the year this year.

Okay, great. Thanks, guys.

John Guinee, Stifel.

Can you talk about where they're actually building in, for example, LA County? And if you have any idea what it's costing to build product these days? That would be interesting.

Hello, John. It's Howard. I think LA County I had mentioned some stats in the prepared remarks about new construction. Literally, 0.2% of the base, in terms of the amount of construction. So the new construction doesn't really even keep up with the amount of product that's being lost in the market, converted to higher and better uses than industrial.

But the other important part about even that small amount of new construction, the majority of it will be buildings for sale in the LA County market. Because, we don't really have a lot of large land areas that deliver big box, and because of the high cost of land and those high construction costs, they don't align to deliver for lease product. So typically you're seeing a lot of buildings being built and sold to owner users, which as I also mentioned, they pay prices that don't correlate in terms of a cap rate to valuations.

And then in terms of what buildings cost, the numbers are all over the board depending whether you are building a large box or whether you are building a multi-building for sale project. So it's hard to really comment on that. We could take some more time offline if you like and maybe have a deeper discussion.

Perfect, thank you very much.

Tom Lesnick, Capital One Securities.

Thanks for taking my questions. First, talking about the acquisition pipeline that you guys have today, what percent of that would you consider projects that are immediately go into the value-add redevelopment pipeline, and how many are going to be income-producing from day one?

It's Howard. I mentioned the $38 million under contract. Those are fully leased products, so that's income-producing, day one. There are value-add projects in the pipeline, but we're not able to talk about them right now because they are not under contract.

But there's plenty of opportunities out there. In the past, you've seen our acquisitions really looking more like almost one-third which I consider to be value add versus more stabilized core, core-plus type properties.

Got it, thanks. Obviously, you guys are giving guidance on a static basis without acquisitions or dispositions built in. But assuming you guys do another $250 million or so in acquisitions, what is incremental G&A that would be required to do another $250 million in acquisitions?

Hi, it's Adeel. Great question, the answer would be next to nothing. I think, as I pointed out in the last call, we had a major milestone last year in terms of us being Sarbanes compliant from the active-station perspective. Those costs for in there. This year, I think the G&A is increasing because of the non-cash equity compensation expense, other than that, we're fairly built out. You'll not see any meaningful increase in the G&A.

As far as the property NOI is concerned, you always have overhead costs there, but we keep a very mindful eye on that part of the equation to show that our margins from an NOI margin perspective are always rock solid. And we're constantly looking at those numbers to make sure that we continue to improve that. The answer would be from a G&A perspective, you will not see an increase.

Got it, thanks. That's very helpful. On the subject of G&A, obviously we are heading into proxy season pretty soon here. You guys being an emerging growth Company and there are jobs out here and your disclosure doesn't have to be quite as intensive as a lot of other companies. But given the growth profile that you guys have, should we expect to see any incremental detail in this year's proxy?

We are out of the jobs act. We essentially breached that market capital last year, and that's the reason why we have to be Sarbanes active station compliant this year, so proxy will a little quicker, this year, so that hopefully answers your question. That's what we were preparing for also last year, and that's why you saw an uptick in G&A costs because we knew were going to breach that as of June 30, 2015.

Got it, that's really helpful. Finally, looking at expense recoveries, is there any seasonality to that throughout the year for you guys?

No, as a matter of fact, our system is getting more and more profound and robust as far as us being able to recover even more timely. I think a lot of times some companies have a system where they recover at the tail end of the year, so we're trying to streamline that process so our recovery process become a little bit more closer to the quarter. I think you we'll see us improve that part of the equation even further.

Got it, really appreciate the insight, guys. Nice quarter.

Jon Petersen, Jefferies.

Just a quick one for Adeel just to make sure I understand. So the $125 million of the new term loan you did subsequent to the end of the quarter, I assume that's in guidance? And I also assume that guidance does not include any future assumptions for debt or equity issuances?

That's absolutely correct. It is in guidance. What's also in the guidance is the fact that we used $125 million to pay down the line. So it's got the guidance includes the latest and greatest related to the $125 million.

We obviously have not executed any kind of swaps on this loan, but I think we will disclose that in the future if and when we choose to do so, but the guidance includes all the pieces that are currently in place, from a debt perspective.

Okay, great. Probably for Michael or Howard, I haven't heard too much conversation on how cap rates are trending in the markets. Definitely hearing -- not about LA just nationally across property types. It seems like with the volatility that's going on in markets, this seems definitely more scrutiny on the buyer side of things and more buyers being a little more selective. Are you seeing that in the LA industrial market? And then how are you expecting cap rates to trend through this year?

That's a really great question, and it's interesting because we do have a lot more insight being on the other side of the fence selling some things right now. I'd say there's still plenty of buyers out there looking at our markets. There's an overabundance of capital trying to get in. We're seeing buyer profiles that are different, meaning foreign capital that we might not have expected to be there on some of the assets we're selling that are showing up now.

Our LA, Southern California just has phenomenal fundamentals to it, and it's no secret, and everyone wants a piece of it. We don't really have any expectations of increasing cap rates. In fact, I think even on some of the larger sales, probably more in the Inland Empire, some of the big box product, you might even have a little bit more cap rate compression that you'll see this year. But our market is solid and some of the conversations happening in other markets just aren't happening here at all.

Maybe one more question for Adeel. I know a lot of people have talked about kind of potential for raising capital, and I'm just clicking through all the stock charts of all the different industrial REITs. You guys are trading at your 52-week high. I'm just wondering the thought process on doing debt, the $129 million of debt, rather than using the ATM, when you guys, especially relative to peers, tend to be trading pretty attractive.

That's a good question. I think you first need to take a look at the seven-year, the debt that we execute, and I think it was a very attractive piece of debt we were able to execute. Seven years is a great term from us. I think it was an opportunity for us to capitalize in the market that was closing pretty fast. And I think if you were to look at that market today it would look profoundly different than when we executed that transaction in January.

So it was a very opportunistic transaction, which helped us really create something that we probably couldn't do today. So furthermore, I think we constantly evaluate the stock perspective or the equity perspective from the ATM side. I think it's, again, if our balance sheet is strong, we feel comfortable about the internal growth and what that can do from a leverage perspective, then we will consider that in our equation. And that's one part of the consideration during the quarter, and also during the quarter, the stock was a little volatile for the first part.

There's many things that go into the equation. The key thing is that the ATM is entirely available to us and is something we can execute. We are very disciplined and very focused on just creating that bottom-line growth from the accretive manner of the deals that we do and how we issue equity. That's how we look at the overall equation.

Great, that's helpful. Thanks.

Juan Sanabria, Bank of America Merrill Lynch.

Just one quick follow up. Is there any one-time items that caused a year-over-year decline in same-store expenses? And if so, what would the normalized same-store NOI growth have been if you stripped that out?

This is Adeel. No one-time items. I think we have been very mindful and really been managing our portfolio with a fine-tooth comb. So you're seeing a lot of efficiencies that are showing up. I think overall, year over year, it was a very minor difference.

I think it was in the realm of $80,000 or something, but I think it's a byproduct of us managing our portfolio with a fine-tooth comb. We have a lot of efficiency programs that are going into our buildings that is helping us reduce some utility costs, repair and maintenance, we're looking at in a way that is helping us mitigate those costs.

Some of that is [less plus] partially offset by some of the overhead stuff that's been pushed down to manage these properties in a very Class A manner. Other than that, I think that's what it is, and you'll continue to see that trend because a lot of those efficiencies are put into place, and they won't necessarily become a one-time thing, they will be continuously going forward.

Okay, great. That's it from me. Thank you, guys.

There are no further questions at this time. I would like to turn the call back over to management for closing remarks.

Thank you, Operator. We thank everyone for joining us today. We appreciate your interest in Rexford Industrial, and we look forward to speaking with you again in about three months.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.