Rexford Industrial Realty Inc (REXR) 2017 Q4 法說會逐字稿

Greetings, and welcome to Rexford Industrial Realty Fourth Quarter 2017 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Steve Swett. Thank you. Please go ahead.

We would like to thank you for joining us for Rexford Industrial's Fourth Quarter 2017 Earnings Conference Call. In addition to the press release distributed yesterday after market close, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rexfordindustrial.com.

On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, projects, seek, should, will, potential, predicts 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 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 yesterday afternoon, are available on the company's website, present reconciliations to be appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Today'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 2017 Earnings Call. I will begin with a summary of our operating financial results. Howard will then provide an overview of our markets and transaction activity. Adeel will follow with more details on our financial results and will introduce our guidance for 2018.

2017 was another exceptional year for Rexford and for our shareholders. Our strong growth and singular focus on value creation stand out. In 2017 alone, we grew our portfolio by 23% to 18.5 million square feet. We acquired $667 million of industrial property located in prime, high-demand infill Southern California locations, which are partially funded through $99 million of disposition.

During the year, our team completed the renovation and lease-up of major repositioning projects totaling 450,000 square feet. These projects are generating a weighted average unlevered cash yield of 6.3% on total costs, which is about 200 basis points higher than similar quality marketed transactions in today's environment.

From an economic perspective, in 2017, we grew rental revenue by 28%, NOI by 29% and company share of core FFO by 25%. And with our operating platform essentially built out, we see further opportunity for margin expansion as we continue to grow.

With regard to fundamentals within our target market, tenant demand continues at the highest levels we have seen in our long careers due to the strong economy, growing impact of e-commerce and the demands of last-mile distribution and shorter delivery time. Our rent spreads continue at historically high levels, and our occupancy is at an all-time high. And yet, our markets continue to experience a net reduction in overall supply of core rent industrial space as more products is removed or converted to alternative uses than can be replaced through new construction. Consequently, we see the existing supply-demand imbalance persisting into the foreseeable future in our Southern California infill market.

Now turning to our fourth quarter results. We achieved company share core FFO of $20 million, which is a 33% increase over the prior year quarter. Core FFO per share was $0.26, which represents a 13% increase year-over-year. On a same-property basis, NOI increased 9% on a GAAP basis and 8.7% on a cash basis. And after excluding the impact from the lease-up of properties and repositioning, same-property GAAP NOI increased by 5.8% and cash NOI increased by 6.4%.

During the quarter, we signed 119 leases for approximately 1.1 million square feet. Our leasing spreads were 27.7% on a GAAP basis and 18.9% on a cash basis. On new leases, GAAP spreads were 40.1% and cash spreads were 30.1%. We achieved 98.1% occupancy in our stabilized same-property portfolio at year-end, a 120 basis point increase from the prior year. We also completed 8 acquisitions during the quarter for an aggregate purchase price of approximately $132 million, which was partially funded by $33 million of disposition.

As a result of the company's strong growth and performance, we are pleased to announce a 10% increase in our quarterly cash dividend to $0.16 per share. This now represents a total increase of 33% in our dividend since our 2013 initial public offering.

As we look ahead, the company is positioned for strong embedded internal growth into the foreseeable future. Our current portfolio, without considering the benefit of any additional acquisition, has the potential to add about 18% NOI growth over the next 12 to 24 months, driven by several factors. First, the completion on lease-up of our properties and repositioning is expected to generate an additional $10.2 million of NOI. Second, the 5.3 million square feet of leases rolling through 2019 with current in-place rent estimated to be about 15% below market are projected to contribute $8.3 million of incremental NOI. Third, the full year run rate of acquisitions completed during the fourth quarter 2017 and earlier this year is estimated to add $5.1 million of NOI. Separately, the 3% annualized rental rate bump embedded in nearly all of our leases is expected to contribute an additional $4.8 million of cash rent over the next few years.

As we look ahead, we couldn't be more excited about our company's near- and long-term prospects. Although we've grown the portfolio substantially to 18.5 million square feet, we are still in the early stages of our growth. In fact, the over 1 billion square feet of product built prior to 1980 located in our prime infill target markets represents an exceptionally deep well of potential value-creation opportunities before us.

With this in mind, Rexford is committed to our focused, value-add business model providing the opportunity to drive growth and value creation throughout market cycle. And with our flexible and low leverage balance sheet, we are positioned to capitalize upon any market disruption should they occur.

Again, we are very pleased with our 2017 performance, and we thank the investment community for your continued support. Although we've set a high bar for ourselves with sector-leading total stockholder returns in 2017 and since our 2013 IPO, we believe the company has never been positioned as well as it is today. We remain laser-focused on catalyzing the opportunities before us in the nation's largest and most sought-after industrial market in infill Southern California.

We'd also like to acknowledge and thank the entire Rexford team for your tremendous dedication, hard work and performance.

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

Thanks, Michael, and thank you, everyone, for joining us today. I'll start with a brief update on our markets utilizing data from CBRE and then discuss our recent transaction activity.

With regard to our markets, fundamentals remain extremely strong. Our target infill Southern California industrial markets, which excludes the Eastern Inland Empire, closed 2017 with near-capacity occupancy of 98.3% and asking rents increased 8.2% on a weighted average basis. With the lack of available space and sustained strong demand, we believe the market is poised for continued strong rental rate growth ahead.

Turning to transaction activity. During 2017, we acquired 21 properties totaling 4.2 million square feet for $667 million indicative of the volume of opportunities available to us within our target infill Southern California markets. In aggregate, these acquisitions have in-place rents estimated to be 20% below market with a weighted average initial return of 4.2%. On completion of value-added improvement and rolling rents market, we project the stabilized yield on cost of about 5.2%.

Now moving on to recent investment activity. During the fourth quarter, we completed 8 acquisitions totaling $132 million of both core and value-add industrial properties. We continue to utilize our internal research platform and leverage our deep broker relationships to gain access to off-market acquisitions and value-add opportunities, allowing us to achieve substantially better than market unlevered yields.

In October, we acquired Western Avenue in south Figueroa Street, 2 single-tenant industrial buildings totaling 60,000 square feet for $6.7 million. Both properties are located in the Los Angeles South Bay submarket and each are leased short term at rents approximately 40% below market. We will immediately modernize and renovate the building and project a stabilized yield of 5.5% on total cost upon lease renewal or re-tenanting.

Also in October, Rexford purchased Slauson Avenue, a 4-acre improved land site with a 25,000 square-foot industrial building located in Pico Rivera, part of the Los Angeles Central submarket for $9 million. The site is used as a contractor yard and is leased to a publicly traded company at approximately 60% below market rent. Upon renewal or re-tenanting in mid-2019, a current return of approximately 3% is projected to stabilize at 6.4%.

In November, we closed on the acquisition of Eucalyptus Avenue, a 143,000 square-foot property located in the Los Angeles LAX South Bay submarket for $53.9 million. The recently constructed state-of-the-art facility is ideally located to service both airfreight and last-mile e-commerce delivery to West Los Angeles. The building is 100% leased to FedEx on a long-term basis and provides an initial return of 4%. We efficiently funded the equity for this acquisition with proceeds from the sale of a vacant building sold at a premium into this immediately cash-growing asset through a 1031 exchange.

In December, we acquired a 4-building portfolio totaling 417,000 square feet for $62.7 million. 2 properties are located in Ontario, part of the Inland Empire West submarket. Rockefeller Avenue is a 99,000 square-foot single-tenant cross-dock building fully leased at an initial yield of 4.7%. Brickell Street is a 30-foot clear 96,000 square-foot, 100% leased single-tenant property. We expect to achieve a stabilized yield of about 5% on renewal of the in-placed lease in July of this year.

The portfolio also included Monarch Street, a fully leased 2-building industrial property containing 121,000 square feet located in a densely populated Orange County West submarket. The initial yield is 4.5%. And after completing cosmetic and functional enhancements, we expect to increase rents, which are estimated to be 20% below market as leases begin to roll in 2020. The fourth building in the portfolio is Hanan Way, a single-tenant industrial building containing 101,000 square feet located in Los Angeles Central submarket. The property is 100% leased on a long-term basis to an entrenched tenant at an initial yield of 5.2%.

Subsequent to quarter-end, we acquired Norton Avenue, a 103,000 square-foot building located in the Inland Empire West submarket for $11.4 million. Property is 100% leased to a single tenant at a rental rate estimated to be more than 40% below market. The initial yield is 3.7%, and we plan cosmetic and functional renovation on lease renewal or rerenting to capture higher rent, achieving a 5.2% projected stabilized yield. Further, this acquisition was funded with 1031 proceeds from the sale of a non-core 50-tenant property, providing additional asset management accretion.

Turning to our property repositioning program. We continue to drive an incremental cash flow and value creation by implementing physical, functional and operating improvements. We currently have 773,000 square feet of repositioning space that we expect to deliver and begin leasing in 2018, projected to generate an expected stabilized yield of 6.6% on a weighted average basis.

Additionally, we have a robust pipeline of acquisition opportunities with $150 million new investments under LOI or contract. We continue to have a strong opportunity to be a consolidator in our infill markets and our proprietary research-driven sourcing methodology and value-added expertise are truly a differentiator. We believe we enter 2018 positioned better than ever before, and we are excited for the year ahead.

I will now turn the call over to Adeel.

Thank you, Howard. Beginning with our operating results.

For the fourth quarter 2017, net income attributable to common stockholders was approximately $11.8 million or $0.15 per fully diluted share. This compares to $6.9 million or $0.10 per fully diluted share for the fourth quarter of 2016. For the 3 months ended December 31, 2017, company share of core FFO was $20 million as compared to $15 million for the 3 months ended December 31, 2016. On a per share basis, company share of core FFO was $0.26 per fully diluted share, a 13% increase compared to $0.23 per fully diluted share recorded in the same quarter of 2016.

Core FFO per share increased due to strong acquisition activity completed in the past 12 months and same-property portfolio growth, which was partially offset by higher interest expense and higher diluted share count.

For the full year 2017, Rexford reported net income attributable to common stockholders of approximately $34.4 million or $0.48 per fully diluted share as compared to net income attributable to common stockholders of $22.8 million or $0.36 per fully diluted share for 2016.

For the full year 2017, Rexford reported company share of core FFO $69.1 million compared to $55.2 million for the year ended December 31, 2016. On a per share basis, company share of 2017 full year of core FFO was $0.96 per fully diluted share, a 9.1% increase compared to $0.88 per fully diluted share reported in 2016.

Same-property NOI was $22.1 million in the fourth quarter, which compares to $20.3 million for the same quarter in 2016, an increase of 9%. Our same-property NOI was driven by an 8.9% increase in total rental revenue and 8.7% increase in property operating expense, mainly due to timing of certain maintenance items. On a cash basis, same-property NOI increased by 8.7% year-over-year. Net of the contribution from properties in repositioning, fourth quarter 2017 same-property NOI increased 5.8% on a GAAP basis and 6.4% on a cash basis.

For the full year 2017, same-property NOI increased 8.6%, driven by an 8.1% increase in revenue and a 6.6% increase in property operating expenses. On a cash basis, same-property NOI increased by 9% compared to 2016. Net of the contribution from properties and repositioning, 2017 same-property NOI increased 5.4% on a GAAP basis and 6.2% on a cash basis.

Turning now to our balance sheet and financing activity. We continue to maintain a healthy balance sheet with diversified sources of debt, which provides us with ample funding for our growth plan in 2018 and beyond. In November, we priced our Series B cumulative redeemable preferred stock and received net proceeds of approximately $72.6 million. Additionally, we elected to utilize our $300 million ATM program.

During the fourth quarter, we issued approximately 600,000 shares of common stock at a weighted average price of $30.44 per share, which yielded net proceeds to Rexford of approximately $17.9 million. As a result of this activity, we ended the quarter with $6.6 million of available cash, $290 million of availability on our $350 million credit facility and approximately $229 million available under the $300 million ATM program.

Finally, we have no debt maturities in 2018 and just $59 million in 2019, and we remain in a very strong liquidity position.

With regard to our dividend, on February 12, our Board of Directors declared a cash dividend of $0.16 per share for the first quarter of 2018, a 10% increase over the prior dividend payable on April 16, 2018, to common stock and unitholders of record on March 30, 2018. Additionally, our Board of Directors declared a preferred stock cash dividend of approximately $0.37 per share for the first quarter of 2018, payable on March 30, 2018, to our preferred stockholders at March 15, 2018.

Finally, I'd like to introduce our outlook for 2018. Our guidance refers only to our in-place portfolio as of today and does not include any assumptions or acquisitions, dispositions or capital transactions, which have not yet been announced.

In 2018, we expect to achieve a company share of core FFO within a range of $1.01 to $1.04 per. Please note that our guidance for core FFO does not include acquisition costs, other costs and typically excludes when calculating this metric.

Our guidance is supported by several factors. We expect year-end same-property occupancy within a range of 95% to 97%, and year-end stabilized same-property occupancy within a range of 96.5% to 98%. We expect to achieve same-property NOI growth for the year of 6% to 8%, and stabilized same-property NOI growth for the year or 4% to 5.5%.

Please note that our 2018 same-property pool comprises 128 properties with an aggregate of 14.1 million square feet, representing approximately 77% of our consolidated portfolio square footage. This portfolio was 95.2% occupied at December 31, 2017.

For G&A, we anticipate a full year range of $24 million to $25 million, including about $6.8 million of noncash equity compensation.

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

(Operator Instructions) Our first question comes from the line of Blaine Heck with Wells Fargo.

Just wanted to start out with the clarification on guidance. I think Michael mentioned 15% mark-to-market when you're going through the NOI growth drivers. Is that the level of rent spreads that are implied in 2018 guidance? And I'm assuming those are GAAP spreads. Where do you think those are on a cash basis?

Blaine, it's Adeel. Thanks for the question. Yes. Actually, what Michael quoted in the script is actually for 2 years, 12 to 24 months. The GAAP spreads -- and those are GAAP spreads. They are actually little higher for the 2018 projection that's getting into our guidance. So from a cash perspective, the numbers -- we're not guiding the Street to that. But you can kind of use that what the current year numbers were as a little bit of a proxy to kind of scale back from that perspective. But the numbers are GAAP, and that's what's getting into our guidance. And 2018 numbers are actually little higher because of 15 years of blend of 2 years.

Okay, great. And if I'm reading your occupancy and guidance correctly, it implies a little bit of a decrease in stabilized same-store occupancy from current levels. Obviously, do you expect you guys to maintain 97.9%. But I was wondering if there were any known move-outs that were driving that? Or is it just general reversion towards kind of more normal levels?

Yes. I'll take the question first. This is Adeel again. So just a reminder, the same pool did reset. It's at 14.1 million square feet effectively 1/1/'18 which is about 77% of our consolidated portfolio. So that's the number one point of reference there. And we did end the year on a stabilized basis at 97.9%. So on the upper end of the range, it's still at 98%. Naturally, there's about in totality 2.5 million square feet expiring this year and roughly 77% of that could be same-store, right? So that gives us some ability to put some sort of projections in turn for the full year. And this is just the initial guidance. And similar to last year, we tightened our guidance as we moved through the year. So I think it's just more for a conservative perspective as you move forward in the year in terms of rolling those leases.

And Blaine, this is Howard. I might add to that, that this year really is more about blocking and tackling in terms of our expirations. Our largest expiration is only 111,000 square feet. And if you look at the top 10 in size expirations, they only total about 663,000 square feet. So it's really just blocking and tackling.

Okay. That's very helpful. Last question. Recently, I think the majority of your industrial REIT peers adopted kind of standardized guidelines with some non-GAAP metrics. Can you guys just comment on whether you guys were included in this discussion? And if so -- I guess, what was it that kept you from agreeing to the same measurements?

Blaine, it's Adeel again. So we were not part of the discussions and -- but one thing we can state is that understanding the policies and disclosures that the group came up with are fairly -- are largely in line with what we are already doing. That being said, I think we've always taken -- we strive to always put out a very transparent and clear message in our supplemental [Audio Gap] hope that provides clarity for the investment community.

Blaine, it's Mike. I was just going to add to that. I was very pleased to see, and we don't know the full detail yet because that will come with the Q1 results. But from what we can tell essentially models where we've already been doing. So it's a great reaffirmation of Rexford's policies and procedures with respect to that disclosure.

Our next question is from the line of Manny Korchman with Citi.

Adeel, if we just stick to guidance for a second, can you maybe give us some color on the trajectory of guidance throughout the year? Usually, you have a higher G&A load in 1Q. But then the rest of the year, how do we compare that to where you ended 2017?

Well, I think, Manny, typically, Q4 does set the pace a little bit in terms of a run rate. If you take a look at how 2017 looked at the beginning of the year versus how we ended the year, $0.23 was our reported FFO for the first quarter, and then we ended the year at $0.96. So that does set a new plateau in terms of what we've seen over the last 2 years. So that's kind of a good thing to kind of keep in the back of our minds. That being said, we have about 2.5 million square feet of roll this year on a consolidated basis, right? And this is just the initial guidance, obviously, right? So if you have to put some sort of level of probability in terms of the renewal and retention rates so on and so forth, so that does have a little bit of a timing impact as to when those replacement rents come back into play or renewal rents come back into play for that matter. So do you have a little bit of lag. And that's not anything different than what we've experienced in the past year or past 2 years for that matter. So it's very consistent. And one thing you did point out about the G&A, right, that certainly is an increase. But one thing I will point out on the G&A also is that -- and we've stated this before that we've been on a cycling process in terms of the main executive officers, in terms of the G&A coming on. 2018 would be the third year. And from all else equal, 2019 and beyond, we should head back into the steady state basically. This should be the last step-up that cycling process in terms of, say, the grants that were granted beginning in 2015. So that gives you some color. We have guided on the full year basis. Obviously, you can see fluctuations during the years. But on a full year basis, we remain comfortable with the guidance.

And then if you think about the space that you don't intend to retain, how much of that is going to go into redevelopment pool versus trying to re-lease it? So I guess the bigger question is, how much of that is 2 or 3 or 4 months downtime? And how much of it is 6 or 7 or 8 or more months downtime?

Right. So again, Adeel here. We have about 773,000 square feet of repositioning -- square footage that's currently listed on our repositioning page that's going to get delivered in 2018. Naturally, there's a target completion date and potentially there could be some lease-up time, and all those dates and time periods have been disclosed in the period. From the same pool, there's about 400,000 square feet of expiring square footage that's going to enter into repositioning and come out of repositioning also within the 2018 period. Again, all that's been disclosed in the repositioning phase in terms of timing. So that does go back to the initial question that you asked in terms of this -- the guidance and overall what can happen during the year, and that certainly is an important factor to bake into the numbers, and that's already been baked into our guidance for the full year.

Our next question comes from the line of Jamie Feldman with Bank of America.

I was hoping you can talk about what you think cap rates have done in your markets, I guess, certainly over the quarter but maybe even thinking about like 6 months to a year? And then how does that tie into what you see in the acquisition pipeline? And I know you don't have in your guidance, but just kind of thinking about what kind of yields you can get on the stuff that's out there.

Jamie, it's Howard. I don't think we've seen a tremendous change one way or another in cap rates. Interest rate increases we've seen so far have not moved them at all. If anything, I think maybe we've seen a little bit of tightening in the Class B type product. Class A is still trading in the 4% or sub-4% range. As far as what we see going forward in the year, I think Rexford, we always tell you, is not a cap rate buyer. We're really focused on how we can stabilize an asset. And a lot of how we've accomplished that is by off-market transactions. And as an example of how active our team is and the results of our research, we mentioned we had $150 million of acquisitions under LOI or contract right now. That's actually 9 properties, and 8 of those are off-market transactions. So our machine is working well right now. And we expect to see some good results this year. And we'll be buying a lot of value-add and core product.

Jamie, it's Michael. I just want to add to that, that if you look at the pace of repositioning in the results, last year, we're looking at the mid to high 6% range. And if look at what's in the hopper, it's in the mid-6% range -- 6% yield -- unlevered yield on total cost. So we haven't really seen a material impact in anyway on what we're able to achieve. I think that was the second part of your question on the assets that we're buying. And so, again, that goes to the efforts that we make to identify opportunities to create value oftentimes which are through off-market or lightly marketed transactions.

Okay. And as you underwrite, how do you think about rent growth? Like what are your thoughts on rent growth and exit cap rates today versus maybe this time last year?

Well, as far as exit cap rates, we've always underwritten exit cap rates that are in the 100 to 150 basis point range higher than our entry point cap rates. We've always taken that conservative view. And as far as cap rates we'll be able to achieve in the market, I think Michael cited an example of what we're achieving on our value-add transactions. If you look at the full year, those stabilized cap rates on the acquisitions were about 5.2% in the entry point, including vacancy. And we also mentioned all those assets we bought were about 20% below market in aggregate in rent. Those entered at about 4.2%. So I think we don't -- we can't predict in any one year if we buy a little more core or value-add. And sometimes those will skew the numbers one way or another. But as far as going forward, we're pretty comfortable with what you've seen in the past and don't expect any big changes at the moment.

Okay. Is this going to -- did you say asking rents are up 8.2% across all your markets in '17?

Those were the infill markets that we focus on. In other words, 1.7 billion square feet out of that little over 2 billion square-foot market really excluding the Inland Empire East, yes, that is a correct number.

And do you think you can see something similar this year, in '18?

Well, I think you saw us achieve our highest rent spreads in the fourth quarter. And the team is very active on new leasing right now. And at the moment, we don't really see anything that's changed in the marketplace to make us think that we won't be able to achieve that type of growth in our rents and see something similar in the overall market.

Our next question comes from the line of John Guinee with Stifel.

Great, great. Just a couple detailed questions on your transaction activity. Looks to me like when you bought the 4.5-acre site Slauson Avenue was about 13% coverage, 25,000 square-foot building. Seems to make a lot of sense to me. However, when you're buying Eucalyptus, $376 a foot floor/cap, it almost sounds like some of your brethren flying into town and trying to buy a couple of deals before the weekend. What -- how do you rationalize a floor/cap on long-term FedEx lease? And can you kind of walk us through that?

Sure, sure. For one, we felt we are buying that building at really about replacement cost. To figure the land value over there was about $144 a foot now. And keep in mind that when that building was originally conceived going back probably 3 years, nobody knew there was going to be a stadium coming out of the ground. And so today, that marketplace has completely changed. And from an e-commerce delivery standpoint, the other aspect that's really interesting about it is, the tenant is FedEx, and they wound up closing down their West LA facility and replacing it here. So this really is the closest facility that can deliver to the west side of Los Angeles, and it can actually handle their air freight needs as well. But if you look around from a price per square foot, you'll find that in the West LA market, El Segundo, markets that are within 10 to 20 minutes away from this building, this building is priced right in line with much lower quality real estate assets. So we like the building on a long-term basis. And then the other aspect of it was we were able to sell a couple of assets, one of which was a vacant building that had been on the market for a while. And we used those 1031 dollars as the equity in this transaction.

(Operator Instructions) Our next question comes from the line of Michael Mueller with JPMorgan.

Couple of questions. First of all, Michael, at the beginning, when you were going through your remarks, I think you wrapped up with something essentially saying the platform was potentially built out or something along those lines? So just curious as to what aspects are still have yet to be built out?

Michael, great to hear from you. Appreciate the question. Yes, I mean, when we see fully built out, those are physical platform, meaning our regional presence, our regional offices are fully established. You won't see us establishing anymore regional offices in Southern California. And from an operational headcount, we are essentially fully built out. And that scales very, very well. When I say scale's well, I mean, we don't have to add that many people from an operational perspective as we add millions of square feet. It's the occasional property manager or accounting person. And with regard to higher-end executive headcount, you'll probably see us add a person or 2 over the next 2 years that will be more material in terms of impacts, but not terribly material in terms of the complexion of the overall company.

Got it, okay. And then, Adeel, in terms of CapEx, I was wondering can you go through and just talk about expectations for PIs, commissions, both CapEx buckets what you are thinking about for '18 relative to '17?

Yes, Mike. So starting off with the CapEx, I think I'll take the biggest bucket that was reported, and I'll focus on it from the full year 2017 and kind of add some color there. So we spent about $35.2 million in nonrecurring CapEx. And about 60% of that was primarily due to the repositioning efforts that we've been talking about throughout the year. And then there's another good solid 5% to 10% due to other major work that didn't bring the property down from a repositioning perspective. But it was all underwritten at the time we bought the property. So that gives you some colors. And on a go-forward basis, if you don't have those repositioning efforts and clearly that numbers look dramatically different. From a TI perspective, $1.53 for the full year, I think that is lower than last year. So I don't necessarily think that number is going to really change a whole lot. Again, us being industrial player, that's really not a very common trend to have higher numbers there. Leasing commission and lease cost, for the full year were $2.19, about $5.7 million spend. I will point out to that we did have a little bit of a longer lease complexion this year. One primarily lease at 12131 Western, which was a repositioning asset contributed a big chunk in terms of a 10-year lease. And if you exclude that number, we're really at about $1.97. So that is a little tick higher than last year or the year before. But that's also due to the lease complexion in terms of the time period.

Our next question is a follow-up from the line of Blaine Heck with Wells Fargo.

Just a couple more. Howard, you talked about $150 million of deals that are under LOI or contract. Can you just give us a little bit more color on that -- and that bucket? And I guess, what the mix between value-add and core deals is there?

Well, we really don't report on transactions under contract until they're closed typically, mainly because lot of them are in due diligence, some may not close. So it's hard to pin them down. But I mean, just briefly, I think they're really a mix of really what we tell you we're going to buy. I mean there's value-add transactions. There's a couple of high-quality newer buildings in here. So I'd say for the most part when we mentioned that they are mostly off-market transactions, they generally are going to stabilize at favorable yields. But we prefer to really give you more details as they close.

Okay. And then, Adeel, one kind of specific for you. Can you just talk me through the swaps on your $225 million term loan facility. I think they were put in place in 2016 with a forward agreement. But looks like that was amended recently. Obviously, your rates have gone up since the swap agreement was put in place. But can you just talk about when those will be fixed? And how the economics have changed versus if you were to put the swap in place in 2016?

Yes. So Blaine, the swaps go effective -- one becomes effective on the 14th, today actually, and -- for $125 million, and the remaining $100 million becomes effective in August. So that's the only -- and after that, we're essentially swapped or fixed entirely -- with entire portfolio. The only caveat is any borrowings that we have under the credit facility will be the only floating rate debt. That being said what we amended on that note was the base rate, I mean, so essentially, where the company is benefiting for the remainder of the 5 years by reducing the rate by 30 bps on all tiers. So I think that's just economic benefits down to the bottom line. But from a fixed versus variable floating rate that we're all essentially 100% swapped or fixed, not including the credit facility. So we're in a really, really good situation. And we believe -- i know you hadn't asked this, but from a maturity perspective, we really don't have anything coming up till 2022. So the company is sitting in a really, really nice position.

And our next question comes from the line of Jon Petersen with Jefferies.

So looking at your lease expiration schedule over the next few years and the rent per square foot, it's actually lower in 2019 and 2020 than it is in 2018. I mean, curious if you can comment on what the mix is there between those years? I guess, what I'm getting at is, are the comps actually getting easier for you guys as you look out beyond 2018, thinking about leasing spreads? Or is that more of a mix of markets at lower rents?

It's probably less a discernible trend and probably just more a reflection of when we put those leases in place. And I think you'll notice that over the recent quarters, our average lease terms have gotten longer. So if you look into the near term, meaning 2 to 3 years out, you probably see product that was put in place when lease rates were materially lower than they are today. So there is a little bit of a trend line but probably not much more than that.

Our next question is from the line of Chris Lucas with Capital One.

Just 2 quick ones. On the guidance, Adeel, what sort of a built-in tenant retention that you guys have is part of your guidance?

Thank you for the question. We typically -- when we start, we use 70-30. I think our retention rate over the last few quarters -- couple of quarters at least 50-50, right? And then that essentially models itself out to the appropriate downtime and the relative probability weighted factor into the full year guidance. But again, I think what's happened in 2017, which is what I pointed out earlier is that as we move forward into these quarters, that numbers tend to tighten itself out because we have more visibility. So that's essentially how we modeled it, which is probably relatively pretty conservative from an industry standard.

Okay. It's Michael. Just as a reminder, Chris, when we look at our business internally, we're very bottoms-up. We're very, very granular. We're actually looking at every single space and assessing the likelihood of what we can do with that space, re-tenanting or renewing. And at Rexford, key element of our business is, we don't look at retention as necessary the highest level measure. We look at how can we create value in that space. And so oftentimes, we -- you might find Rexford moving tenants out who otherwise would stay, but where we see an opportunity to roll that tenant to a much higher paying tenant. So that's a big piece of our business model.

Okay, great. And then, I guess, and maybe too early to tell, but just can I know you guys take -- have regular conversations with property owners in your market. Just curious as to whether you had any change in the conversations with them as it relates to either the rise in rates or from the recent changes to tax policy, if either of those 2 have made any changes to how people are thinking about their long-term ownership perspective?

Chris, it's Howard. I don't think the tax changes really create any issues in terms of the ownership of assets. There are actually positive changes from both the entities and reduce the tax liabilities. So those changes are fairly positive. But that said, it's interesting for us today -- I mentioned we had $150 million, 9 transactions under LOI or contract. We typically don't see that kind of activity coming out of the gates in January, February. Usually, the first quarter is fairly slow, just getting over our hangover from all the activity we generally have at the end of the year. So what I am seeing is there's a lot of receptiveness aside from maybe pointing to any one particular issue or change from the tax laws, there is a lot of receptiveness on the part of smaller partnerships and private individuals that do have an interest in transacting in the marketplace. And that could be their perception of where we are in the cycle. But it's all boding well for us in terms of how we view the opportunity in our markets.

This concludes our question-and-answer session. I'd like to turn the floor back to management for closing comments.

On behalf of the entire team at Rexford Industrial, I want to thank everybody for listening today and for your continued support. And wish everybody a very happy Valentine's Day. Thank you.

Thank you. This concludes the conference. You may disconnect your lines at this time, and thank you for your participation.