Rexford Industrial Realty Inc (REXR) 2016 Q1 法說會逐字稿

Greetings and welcome to the Rexford Industrial Realty, Inc. Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (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 2016 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, believe, 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 estimate. 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 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 First Quarter 2016 Earnings Call. I will begin with a summary of our operating and financial results, Howard will provide an overview of our markets and recent transaction activity, Adeel will then follow with more details on our quarterly results, our balance sheet and our updated guidance for 2016.

We just closed another strong quarter and we couldn't be more proud of our team. Our results reflect our overriding mission to build a great focused business with enduring competitive advantage that delivers better than market cash flow and value creation by investing in the nation's most sought after industrial market in infill Southern California.

Market conditions remained strong. With vacancy at historically low levels, high land and development costs make new development of core leased product nearly impossible and supply continues to diminish as it is converted to other uses. Meanwhile, tenant demand continues to grow and intensify throughout infill Southern California driven by a robust regional economy, growing population, our location at the nexus for trade between the United States and the Pacific Rim and the dramatic growth of e-commerce and same-day delivery, the nation's largest regional economy among other factors.

Turning to our Q1 performance, we achieved same property pool NOI growth of 8.3% driven in part by 100 basis point increase in same property occupancy compared to Q1 2015. It is worthwhile to note that our same property pool for 2016 includes 98 properties comprising over 9.8 million square feet representing a 62% increase in square footage, compared to last year's 6.1 million square foot same property pool. As a result, metrics such as occupancy are not comparable on a sequential basis.

NOI growth was also driven by robust GAAP and cash re-leasing spreads of 13.6% and 5.6%, respectively, for our new and renewal leases combined. GAAP re-leasing spreads for new leases [were up] 28.8% and were 15% on a cash basis with average lease terms of 4.6 years, while spreads for renewals were 11.7% GAAP and 4.4% cash with average term of 3.4 years. We completed record gross leasing activity of almost 1 million square feet during the quarter.

We generated recurring FFO of $12 million, representing a 19% increase from the first quarter of 2015, and we generated recurring FFO per share of $0.22, representing a 10% increase over the prior year quarter. We continue to execute on our external growth strategy in an accretive manner, having acquired more than 1.7 million square feet for an aggregate $215 million so far this year. Howard will detail these investments and Adeel will elaborate on our increased FFO per share guidance for the year.

We continue to maintain a fortress balance sheet to complement our fortress infill portfolio, having partially funded our acquisitions with an equity follow-on offering in early April through which we raised net proceeds of $175 million. Most importantly, we are pleased about the quality of our growth.

We've increased the square footage of our portfolio by almost 150% since our IPO less than three years ago. And if we look at just the prior 12 months, we've increased NOI by about 31% with only an 18% increase in square footage. In fact, rental revenue increased 3.5 times the increase in cash operating expenses and G&A combined.

As we increase our scale, we are driving increasing operating leverage, margin expansion and FFO per share growth. This is one of the many advantages of running a focused business as the local sharp shooter in infill Southern California where we operate with substantial competitive advantage and scale.

Looking ahead, we are excited about the continued strong growth embedded within our portfolio and the quality and volume of our investment pipeline. With 2.1 million square feet of leases representing over 18% of our annualized base rent rolling to the end of 2016, we see a great opportunity to continue to drive rents and NOI growth by capitalizing upon intense tenant demand and the lack of available space in infill Southern California. In addition, we anticipate over $10 million of incremental NOI to be brought online as our repositioning assets re-enter service and are leased up over the next 12 months to 18 months.

And with that, I'm very pleased to turn the call over to Howard.

Thanks, Michael. And thank you everyone for joining us today. As on past calls, I'll update you on our markets, review our recent transaction activity, which has been substantial. The Southern California industrial region started the 2016 year with occupancy at historic highs of 97.8% and if we excluded the Eastern Inland Empire, which is not our focus, occupancy was 98.2%. I will provide additional perspective on each of our markets primarily utilizing market data provided by CBRE.

Los Angeles County, a 1 billion square foot industrial market, saw gross leasing activity down 12% from the fourth quarter as limited availability is restricting leasing opportunities. Overall vacancy in the region dropped 10 basis points since Q4 and finished the quarter at 1.2%, while asking lease rates increased by 1.4% quarter-over-quarter. CBRE expect asking rents to increase 6% overall by year-end 2016.

Orange County showed additional rate improvement in the first quarter with 715,000 square feet of positive net absorption, [170%] increase as compared to the fourth quarter. Overall vacancy was virtually unchanged at 1.8%, while asking rents continued their upward trend, increasing 4% over the prior quarter. CBRE forecast that lease rates will continue their upward trajectory increasing over 5.5% by Q1 2017.

San Diego market fundamentals continue to be strong during Q1, reporting 466,000 square feet of positive net absorption and asking rates declined 5.4% after having been flat for almost a year. Vacancy stayed near the recent historic low, ending the quarter at 4.4%. low-finish product which is Rexford's focus continues to substantially outperform the market.

The industrial market in Ventura County posted a nominal amount of negative absorption and a vacancy rate increase of 30 basis points in the quarter at 3.4% with 1.5% decrease in the average asking lease rate quarter-over-quarter. However the submarkets for Rexford's product is focused at positive absorption for the quarter.

Inland Empire Q1 gross leasing activity was 9.6 million square feet, with mid and small sized product responsible for majority of activity. Vacancy across the market increased 80 basis points with the Inland Empire West ending the quarter at 2.5% and Inland Empire East, which is not Rexford's focus, ending the quarter at 6% vacancy. Average lease rates were flat in the Inland Empire West submarket and down 4.5% in Inland Empire East attributed to slow demand for products in the 600,000 square foot to 800,000 square foot range.

Now moving on to our transaction activity, year-to-date, including transactions completed subsequent to quarter-end, we've acquired 11 industrial properties for an aggregate cost of about [$215 million]. All of these transactions were off market or lightly marketed sales and we continue to achieve stabilized returns that are above prevailing Southern California industrial market cap rates of 4% to 5%.

In March, we purchased Livingston, a 134,000 square foot, high-quality building located in the Greater San Fernando Valley for $16 million or $119 per foot. The building is 100% leased on long-term basis to a single tenant who has invested considerable capital in the building. The initial return is approximately 6.2%.

Additionally, in March, we purchased Camino Santa Fe, a 59,000 square foot industrial building in the Central San Diego submarket for $8.5 million or approximately $142 per square foot. The property is a 100% leased for tenants at below market rents with over a third of the square footage expiring within six months. The initial return is approximately 4.8% and we expect to achieve a stabilized return on cost of almost 6%.

Subsequent to quarter end, we acquired a nine-building 1.53 million square foot industrial portfolio for $191 million. The properties are 100% occupied, leased to only 12 tenants and located within existing Rexford infill submarkets. Rexford was able capitalize on this opportunity as the selling entity was a private REIT facing Safe Harbor constraints necessitating the acquisition of REIT shares versus selling the asset separately.

The initial return on this portfolio investment is projected to be 5.3% and there are several value-add opportunities that we expect to capture over time bringing the aggregate stabilized yield on cost to just under 6%. Let me provide a short summary of each of the buildings. Five of the properties are located in Orange County, increasing our square footage in this key market by almost 50% and allowing us to capture significant efficiencies from our in-place leasing and management teams.

Western Avenue is [208,000] square foot facility, with 28 foot to 32 foot clear height cross-dock loading. The in place lease expires in the near term, allowing for a value add repositioning program to modernize the building and capture premium rent.

(inaudible) is 127,000 square foot, 24 foot clear building, that was modernized and renovated in 2015 with a single tenant in place through 2025.

Fairview Avenue is a 117,000 square foot building leased long-term through 2021 to two tenants and has excess land providing oversized [backyards]. (inaudible) 181,000 square foot 24 foot clear industrial property, leased through 2022 two tenants. Both tenants have invested significant capital in their respective spaces and are paying below market rents.

In Lake Forest, there is a 102,000 square foot, 28 foot clear building leased to a single credit tenant who uses the building as their regional warehouse and operations center. The property also has two acres of excess land which can be developed, leased or sold. Two newly constructed 32 foot clear buildings are located in Fontana (inaudible) Inland Empire West submarket. (inaudible) Avenue is a 146,000 square feet and is 100% leased to a single tenant, Jurupa Avenue is 213,000 square feet and is leased to a single tenant as well.

Gale Avenue is located in the San Gabriel Valley submarket of Los Angeles. The building is 326,000 square feet with 22 foot to 26 foot clear height and is leased to two tenants at below market rents with future value-add opportunities upon lease expirations to upgrade and modernize the building.

And finally, Stow Drive is a 112,000 square foot, 24 foot clear building in the Central San Diego submarket. The building is fully leased to a credit tenant and the little site coverage offers expensive dock loading and an oversized yard, for [excess] parking and storage.

As we look forward, we continue to have a significant pipeline of opportunities while we continue to work on potential transactions that fit our return objectives. At this time, we have more than $46 million of primarily value-add opportunities under contract or letter of intent. Also, as I mentioned on our last call, we're looking to recycle capital in 2016, and we have approximately $90 million of identified sales in various stages of disposition. We will update you if and when these transactions close.

I'll now turn the call over to Adeel.

Thank you, Howard. In my comments today, I will review our operating results, then I'll summarize our balance sheet and recent financing transactions, and finally, I'll update you on the outlook for 2016.

Starting with our operating results, for the three months ending March 31, 2016, Company's share of Recurring FFO was $12 million or $0.22 per fully diluted share. This compares to $10.1 million or $0.20 per fully diluted share in the first quarter of 2015. Recurring FFO per share was up due to the benefit of higher income from our acquisition activity and same property portfolio growth partially offset by higher interest expense. Recurring FFO excludes the impact of non-recurring legal fees and acquisition expense. Including these costs, Company FFO was $12.1 million for the quarter or $0.22 per fully diluted share.

Same property NOI was [$16 million] for the first quarter as compared to $14.8 million for the same quarter in 2015, representing an increase of 8.3%. Same-property NOI was driven by an 8.4% increase in rental revenue and an 8.7% increase in operating expenses. If we exclude one-time repair cost relating to El Nino rains in the quarter, expenses would have been up 7.3%. On a cash basis, same property portfolio NOI was up 8.2% year-over-year.

Turning now to our balance sheet and financing activity, during the quarter, we executed $125 million seven year term loan with the rate of LIBOR plus 160 basis points at quarter end. We have executed a forward interest rate flop to effectively lock the LIBOR spread at 1.35% beginning in February 2018. Proceeds from the term loan were used to pay down the balance in the revolving credit facility and fund acquisition. In total, at quarter end, our consolidated debt was approximately $445.6 million which includes about $78 million of secured debt. Including loans for mid swaps have been put in place to fix interest rates, approximately $278 million of this debt is fixed rate with an average interest rate of 3.86% and a weighted average term-to-maturity of 5.5 years.

Subsequent to quarter-end, in April, we completed our third follow-on equity offering, issuing 10.35 million shares of common stock, including the exercise of the over-allotment at $17.65 per share, creating net proceed of approximately $175 million. In addition, we exercised a $100 million accordion on the $125 million seven-year term loan. The proceeds from the follow-on equity and the accordion expansion were used to fund the $191 million portfolio acquisition completed in April and to pay down the revolving credit facility.

As we move ahead in 2016, we continue to maintain a balance sheet (inaudible) strategic objective with significant financial flexibility. We have no debt maturities till 2017 and pro-forma following our portfolio transaction and equity offering, we have $26 million of cash on hand and $200 million available on our revolving line of credit.

Finally, with regard to guidance for 2016, we are increasing our guidance for recurring FFO to a new range of $0.85 to $0.88 per share on the prior range of $0.83 to $0.86 per share. Please note that our guidance does not include the impact of any acquisition or sale that has not yet been announced. No acquisition costs and other costs that we typically eliminate when calculating this metric. Further, as Michael noted, we have over 2 million square feet of leases rolling towards the end of 2016 with some larger spaces rolling mid-year.

Most probably, we don't expect our FFO to be linear through the year and maybe somewhat back loaded in Q4. Otherwise, our guidance (inaudible) several factors, which remains unchanged. For the 2016 same property portfolio, we expect year-end occupancy within a range of 94% to 95% and expect to achieve same property NOI growth for the year within a range of 5% to 7%. At Virginia, we anticipate a full year range from $16.5 million to $17 million including about $4 million on non-cash Company-wide equity compensation

That completes our prepared remarks. With that, we'll open the line to take any questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Blaine Heck, Wells Fargo.

Adeel, I'll just stick with you in the balance sheet. Obviously, you guys did a good job re-setting the balance sheet and leverage with your follow-on, but also took down a large portfolio. So I wanted to get your updated thoughts on how much capacity you think that gives you for acquisitions before kind of hitting the top end of any of your leverage targets?

Hey Blaine, its Adeel. So, a good question, and some that we mentioned in our earnings remarks. So, I'll start with stating the basics. So pro forma after the equity offering and the portfolio transactions we were left [with about $26 million] in cash on the balance sheet. We have full $200 million available on the credit facility.

And then I also remind you about $300 million recording that we still have and then of course, we have not tapped into the ATM, which is still at $125 million. And the last thing that I want to sprinkle in is the dispositions that we talked about. That can also come in during the quarters. Obviously, there is no exact timing, but that will also change the capital a little bit depending upon when they come online.

The last thing that I think I want to touch upon here which is something, if you take out the acquisitions from the equation, we do have organic deleveraging built into our portfolio as you move further to -- between Q2 and to the end of the year. So we are sitting at a nice spot that even if we don't do anything else, we're able to delever the balance sheet with some of the ratios that we close the quarter with.

Okay. And that's helpful. It seems like you guys are clearly on your way to another strong acquisition year. Can you talk about whether you see more opportunity to buy portfolios like you did early this quarter or whether you're more likely to do one off or small clusters like you have prior to that?

Right now, our pipeline is pretty robust, it's pretty typical of what we've seen over the past two years. We're looking at about $1 billion worth of opportunities at any time. I've mentioned on the call, prepared remarks, we had about $47 million of acquisitions in process.

In terms of other portfolios, I think -- maybe what I'll comment on is really just some of the conversations we have with larger owners in our markets, a lot of them tend to be of REIT type discussions. And there is -- we're always talking and pursuing them, but today there's nothing that are in it eminently in our sites as far as something we think is going to happen in the near-term.

Okay, great. And then just lastly for me, can you guys -- you talked a little bit about dispositions and you talked about the $90 million of dispositions under contract, but you didn't have anything close this quarter. Can you give any more color on the progress of those and should we expect them to close in the second quarter? And then separately, are you guys seeing more opportunity beyond that to take advantage of market pricing, especially for deals that involve a change in years?

Sure. Well, first of all, we didn't state that they're all under contract and they're really in some phase of disposition, whereas, we might be still negotiating an LOI or actually be in escrow and have continuously period. So we prefer really to announce them as they happen and not speculate on whether it will and when.

As far as anything else in that portfolio, every quarter we look to the portfolio and make determinations of what we might consider to sell, but typically the decisions on selling really as recently have been about how we can outperform a typical cap rate type sale of an asset. So that's been our focus as of lately and that's really what this $90 million in sales has been about.

Juan Sanabria, Bank of America.

Just following up on Blaine's question on the leverage, could you just provide the pro forma net debt-to-EBITDA post the acquisition, equity raising and debt that you raised and kind of remind us of your target and to put a dollars figure on the acquisition capacity?

Sure. One, it's Adeel. So that part of the equation would also be accretive post the transaction, post the equity raise, I don't have the precise number, but it will be in the low-sixes. So we closed the quarter with 6.4x. So it will be in the low-sixes but one thing that I do want to mention here, which I mentioned to Blaine's common question was the fact that even if we don't do any acquisitions, the organic leasing velocity that we have and the repositioning assets are going to be coming online between now and the end of the year, will allow us to delever quarter-over-quarter. So, even if we sit here, with the interest portfolio that we close the quarter with and after this recent portfolio transaction, we could be looking to be in the high fives just without doing anything.

Obviously, the rest of the equation depends on the kind of acquisitions that come down the pipe, which I can't comment on just yet. So I think that establishes the good base and a good trend for where we are or where we ended the quarter with or where we can be by the end of the year.

Okay. And then just on the occupancy, what drove the decreases? I know you mentioned that the Ventura County is a softer market, but it looks like even if I exclude the redevelopments' occupancy results quarter-over-quarter, if you could just comment on that?

Really, I would love to. About 142,000 feet that's comprised of three buildings that vacated in the quarter, and one of those is in Ventura County, which pretty much counts for the change there. And the other two are in the LA markets and in fact, one of them where sending out a lease today on. So as you've seen in past quarters our re-leasing velocity is still pretty strong.

Okay and then just lastly on the portfolio acquisition, focused on single tenant assets, should we read into that at all, is there any change in your strategy from multi-tenant to single-tenant. Is there complete any different view on risk perception? Is it driving that or impacted that decision to acquire the portfolio.

No, we buy a blend of tenant and multi-tenant assets and this opportunity presented itself and was very attractive transaction and it made a lot of sense for us to acquire it, but, no overall change in our strategy. One of the other acquisitions in our pipeline, actually had couple of multi-tenant deals. So, no change.

Manny Korchman, Citi.

So just given sort of the vintage of the portfolio of assets ending up in the private REIT, I assume that they're all assets that you looked at as they acquire them. So maybe we can talk about either A, changes that will happen in those assets between the time they acquired then and now or B, why you're comfortable sort of buying the portfolio now even though you hadn't bought the assets before?

There were some of those assets that we looked at and there are a couple of the assets were new buildings that they've built and the market had changed. Some of these assets now have substantially below market rents or is perhaps when we might have looked at them a couple years ago, it was a different story. And they didn't meet our underwriting criteria at that point to buy a vacant building. But we're pretty comfortable with the acquisition. We like the going-in yield, and we like being just shy of 6% in terms of where we expect to stabilize the portfolio.

And the other great part about it is, as you've obviously pointed out, being single-tenant, there's only 12 tenants and they're are all in current markets that we own substantial amount of assets. So in terms of onboarding these, it didn't require us to hire any new management people or frankly anyone else in the Company to handle, bringing on board these assets. So they're quite accretive in terms of the revenue strength.

And then a deal, one that's sort of in the week a little bit. In terms of transaction fees related to this transaction being as larger than you typically do, how much of that was recognized in 1Q, and how much will sort of impact 2Q numbers?

Manny, good question. First and foremost, I think just looking at the percentage relationship to the total deal size, this will be a much smaller as far as the gross dollars are concerned because we're able to get a lot of accountings of scale. So overall I would say half of the cost of these deal were in first quarter and the remaining 50% to 60% will come in Q2. And I think, generally speaking, whenever we underwrite deals, this is just a general proxy -- we use 50 bps as just general loose estimate. We expect this to be approximately half of that, once it's all said and done. So that give you some indication as to how we wrote to get the deal done from a cost perspective.

John Guinee, Stifel.

I was looking at your balance sheet now, looking at development cost and replacement cost and I realize its land is very, very location-dependent and then construction costs is very building side dependent, but do you have any examples of what you think it cost to replace the products you own maybe using a particular building or a particular deal you looked at recently as an example.

I think we might have touched on this a little bit on our last call. We'll be happy to explore it in much greater detail at a later point, but I'll give you an example. When we were looking at the CT transaction and analyzing, let's say the cost to build about $125,000 or $150,000 foot building, when you look at construction, hard construction costs and soft costs which includes city, county fees, et cetera, it's literally about $70 a foot to build a building that size, when you look at your all-in-all costs excluding land.

And the reason I thought about this is I was looking to your balance sheet, you actually have lands $500 million and building and improvements is about 670, so when you look at your portfolio, your assets, it's 40% of the value is in the land. On this example that you just gave, $70 a foot, there is a land -- what does the land cost you if you are to the extent it's even -- pick a market where it might be available, San Diego or Ventura County. Any sense for what land sells for in an FAR these days?

Well, as we've mentioned in the past, there is very little land availability in our infill markets, and that's part of the reason why the markets are so highly occupied and typically when you do see land availability, the only type of development that generally make sense is people building spec buildings that are typically sold unless you could build a $1.5 million foot building and get some economies of scale and those are pretty rare but if you look at in the Mid Counties or even Orange County today, land values are approaching $40 a foot and that's probably about $84 plus or minus as per from an FIR basis.

John Peterson, Jefferies.

I was hoping to just get your thoughts more on the portfolio and the cap rate on it. Obviously, 5.3 is, it's still probably an attractive cap rate for our portfolio and you would expect it to be lower than and kind of the one-off transactions you do but I would also expect a portfolio like this would be more competitive. Can you talk about how competitive the process was as I would think some of the other, larger public reach, which you don't usually go against would be interested in a portfolio like this?

So this was not a widely marketed portfolio. It started out as a recapitalization where the operator was seeking to take out the joint venture partner. It then progressed into being a selectively marketed portfolio and what was unusual about it is that they weren't able to sell the individual buildings. There are safe harbor issues being a REIT and so they were constrained to sell the entire portfolio and do it as selling the REIT shares. So, as you can imagine, the pieces are certainly worth a lot more than the whole and the ability to sell it as an ongoing REIT on the limiting the buyer pool somewhat and Rexford is able to capitalize on that.

Okay. Alright, that's fair. And then, actually, another like more high level question. So leasing spreads, you guys mentioned in your press release, 10th consecutive quarter of being double digit. Can you just talk -- now you get a lot of like the CBRE projection and such, but can you talk -- bring that back to your portfolio and update us on where we're at in the leasing spread cycle? In other words, should they go up from here or are we at a peak?

No, it's a great question, and I think we still see ourselves, if you look at the CBRE data, we're probably -- if you look at our portfolio overall, we're probably a good 13% below current asking rents and that's a gross average. It may vary greatly from submarket to submarket, assets to asset, and what's interesting is if you drill down a little further and look at the space, it's expiring through the end of the year, that spread is probably closer to 20% which we'd expect because obviously a big chunk of the portfolio has rolled already over the last year, 1.5 years or so. So that's generally -- and that's relative to the CBRE asking rent data that's out there today.

And it is on cash or a GAAP basis, 20% below?

That's cash.

And then, just a loose end question, Adeel mentioned about the G&A guidance and how you guys are expecting some non-cash in the last few quarters of the year. Can you run through how we get from the $3.6 million run rate to be what is $70 million in your guidance?

Great question, and if you take a look at our FFO, we carved out $643,000 legal fee reimbursement from the insurance companies. This was related to some litigation stuff that was ongoing last year. So what we did was, we obviously would want to gross up our recurring G&A. So the recurring G&A is really about $4.2 million and if you annualize that number, it puts us right smack dab in the middle of the range. Hopefully that makes sense.

(Operator Instructions) Michael Mueller, JPMorgan.

Two quick ones may be. So first on sequential same-store occupancy trends, what was that? I know there was some commentary about how the poles aren't identical and I just couldn't eyeball it and get the number, but if you're actually looking at the same store, what actually happened with that portfolio from Q4 to Q1?

So, Q4, the $9.8 million same-store pool that was reset at the beginning of the year was at 92.96% and we ended the quarter with 91.7%, stabilized with 95.1% and our guidance was 94% to 95% related to this 9.8 billion square feet same store.

So, sequentially it went down 120 basis points from Q4?

Correct. Sequentially, if you take a look at it, Q4 over Q1, yes, it did go down, but if you take a look at Q1 2016 versus Q1 2015, it was up 100 basis points, but also keep in mind, within that pool, we have a 350,000 square feet of repositioning. So, and pool resetting up, we had a lot to do with that.

Okay, got it. And do you know with the number will be without the repositioning if you're looking more in the stabilized same-store?

Yes, it's 95.1.

Okay. And going to the leasing spread for a second, the prior commentary where you talked about the mark-to-market on the portfolio being 13%, but if you're looking at expirations through year-end, the gap being 20%. Are you implicitly saying that, read the press release, your Q1 cash leasing spreads were 5%. As we go to Q2, Q3 and Q4, they're going to pop from 5% up to 20%. Am I reading that the right way?

No, that's really not the way I would encourage you or we would encourage you to think about it. And frankly, the spreads last quarter was similar to asking rents, not that far and couple factors to think about. One, in some instances, we're very focused on rolling the tenant base to higher quality tenants who can pay more rent at this point in cycle.

So there is still some cleansing of the portfolio from some recessionary tenants and rents that we brought in during the recession, and it's an opportunity to roll the quality of all the portfolio, so that as the market matures and in terms of the cycle that we've got as solid a tenant base as we could possibly ask for. And so, that means a couple of things. One, we had great tenants and to play in the submarket and the asset, we're going be aggressive on renewal rates, but we're not to be so aggressive that they seek to leave our portfolio at their first opportunity.

And secondarily, I think you see what we're doing on the new leases, which may be indicative of, in some instances, where we might've been able to keep the tenant, have they been happy with their rent or something close to their rent, but we decided to roll them and bring new tenants and that's where you see the much higher spreads, 28.8% on GAAP basis, 15% on a cash basis.

The other thing to note there is on new leases, we've been extending out the lease terms fairly materially, which was 4.6 years for new leases this last quarter and it's historically been probably substantially lower, close to three years. So I think we're doing what you would expect sort of as the cycle tends to mature.

Sure. So, from looking at guidance, what's embedded in guidance for leasing spreads for the year relative to the 5% to 6% cash number that you booked in the first quarter?

We're not disclosing guidance on re-leasing spreads but we're very comfortable with the NOI growth, the guidance that we provided, and we're just gonna work real hard to do our best to exceed it to the extend we can.

Manny Korchman, Citi.

Sorry for dragging up the topic, but I'm little bit confused on the same-store occupancy discussion, wonder if others are as well but, if I take the stabilized same-store property portfolio, the 95.1% as of March 31, what would have been that portfolio's occupancy at December 31? So, what number will be equivalent to 95.1% and would that be up or down?

I'll have to come back offline just to give you that exact number but again, the number was 92.96% including the repositioned properties and the properties that are under repositioning would've been also on the repositioning at the same time at Q4. So I think as I quantified is about 350,000 square feet, so you can do some reverse math here to get back from the 92.96%. So I know some of the variables, but I don't have the number exactly in front of me right now.

But the 95% -- I understand completely, the 95.1% does not include properties that are under repositioning?

That's correct.

So on a stabilized basis, without having the number, was your sequential occupancy within this stabilized pool up or down quarter-over-quarter?

Yes, probably normally down because if you just take a look at the 92.96%, which includes the repositioning, compare that to the 91.7%, that was down about 120 basis points. So nominally, was probably down just a bit.

As there are no further questions, I'd like to turn the call back over to management for closing remarks.

Well, thank you, operator and thank you everybody again for joining us today. We appreciate your interest in Rexford and we look forward to speaking to you again when we report our second quarter 2016 results.

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