Rexford Industrial Realty Inc (REXR) 2019 Q4 法說會逐字稿

Greetings, and welcome to the Rexford Industrial Realty, Inc. Fourth Quarter 2019 Earnings Call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Steve Swett with ICR. Please go ahead, sir.

We thank you for joining us for Rexford Industrial's Fourth Quarter 2019 Earnings Conference Call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package in the Investor Relations section on our website at www.rexfordindustrial.com. Today's call, management's remarks and answers to your questions contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our 10-K and other SEC filings. Rexford Industrial assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call represents non-GAAP financial measures. Our earnings release and supplemental package present GAAP reconciliation and an explanation of why such non-GAAP financial measures are useful to invest. Today's conference call is hosted by Rexford Industrial's Co-Chief Executive officers; Mike Frankel, 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'll turn the call over to Michael.

Thank you, and welcome to Rexford Industrial's Fourth Quarter 2019 Earnings Call. I'll begin with a summary of our operating results and some perspective on our market opportunity. Howard will then cover our acquisition activity and Adeel will follow with more details on our financial results and guidance. We will then open the call for your questions. We are very pleased with the fourth quarter and full year 2019 results. Our team continues to execute on our strategy to create value by investing within the infill Southern California industrial market.

For the quarter, we achieved company share of core FFO of $35.8 million, which is a 31.4% increase over the prior year quarter. Core FFO per share was $0.32, which represents a 10.3% increase year-over-year.

On a same-property basis, NOI increased 5.5% on a GAAP basis and 7.2% on a cash basis. And after excluding the impact from the lease-up of properties and repositioning, stabilized same-property GAAP NOI increased by 4.1% and cash NOI increased by 5.1%.

During the quarter, we signed 115 leases for approximately 1.5 million square feet. Our comparable leasing spreads were 42% on a GAAP basis and 27.1% on a cash basis.

We achieved 97.6% occupancy in our stabilized same-property portfolio at year-end. We also completed 10 acquisitions during the quarter for an aggregate purchase price of approximately $258 million and completed $20.8 million of disposition.

And for the full year, we grew company share of core FFO by 34.3% and by 9.8% on a per share basis. Same-property NOI increased 6.2% on a GAAP basis and 8.7% on a cash basis.

Excluding the impact from the lease-up of properties and repositioning, stabilized same-property GAAP NOI increased by 3.7%, and cash NOI increased by 6.1%. We signed over 400 leases, totaling 5.3 million square feet, and we completed 34 acquisitions for a total of $970 million of investment in our target infill Southern California industrial market, representing a 24.7% increase in portfolio square footage. Approximately 79% of 2019 acquisitions were achieved through off-market or lightly marketed transaction sourced through our proprietary originations method with 41% of investments providing value-add renovation and repositioning opportunities to increase cash flow and value over time.

2019 was also notable for the release of our inaugural Environmental, Social and Governance Report, which detailed numerous positive ESG impact achieved through the execution of our unique business model. We quantified the substantial environmental benefits associated with our value-add repositioning and recycling of industrial buildings at the higher value industrial use. The year was also notable as our team drove the dramatic growth of Rexford's unique portfolio within the nation's largest and strongest industrial market while maintaining a low leverage, fortress-like balance sheet, which ended the year at 3.7x net debt to adjusted EBITDA. As a result of these exceptional results, we are pleased to announce that we are increasing our quarterly dividend by 16.2% to $0.215 per share. This is our fifth consecutive year with a dividend increase, and we have now raised the quarterly dividend by 79% since our IPO in 2013.

With regard to market conditions, we continue to experience the substantial supply-demand imbalance. Despite the extremely limited supply, incremental tenant demand continues to be driven by a few key factors, including a strong economy with Southern California positioned as the nation's largest and most diverse zone of consumption. We also benefit from sustained e-commerce growth and the continued demand for shorter delivery time frames. Our portfolio is 100% positioned within prime, last-mile infill Southern California industrial markets, located within and adjacent to the nation's largest regional population.

Our infill locations are critical to enable tenants to satisfy the increasing demand for short delivery time frame. Meanwhile, on the supply side, although certain other large U.S. industrial markets are experiencing an increase in supply, infill Southern

California continues to experience diminishing supply due to a lack of developable land, permanent barriers limiting new construction. And as product continues to be removed from the market through conversion to nonindustrial, high-value uses.

As a result of these factors, our portfolio is operating at essentially full occupancy, and we believe we are positioned to generate favorable NOI growth into future periods. Our in-place portfolio, for example, assuming no additional acquisition, is positioned over the next 18 to 24 months, to potentially generate about 17% incremental annualized NOI growth compared to Q4 2019, equal to almost $40 million, driven by the following go-forward contributions to NOI.

About $14.6 million from the completion and lease-up of properties in repositioning, approximately $12.6 million through the mark-to-market of 9.3 million square feet of expiring leases with rental rates estimated to be about 15% below market, about $6 million from the impact of properties acquired in the fourth quarter, plus about $5 million generated by 2.4 million square feet of executed but uncommenced leases. In addition, as our investment pipeline continues to grow in volume and quality, we expect to continue to acquire accretive investments within high demand infill Southern California industrial market which we believe will drive additional NOI growth.

In closing, we couldn't be more excited about our go-forward opportunities. Our team continues to execute at an outstanding level, and we are grateful to our team members, each of whom makes an exceptional contribution towards our collective success. In particular, we'd like to acknowledge and thank our Chief Financial Officer, Adeel Khan, for his exemplary service at Rexford over the prior 8 years.

As we announced last month, we are excited and support Adeel as he seeks a new chapter in his career as he ultimately transitions out of the CFO role. Adeel plans to stay on board, serving as our CFO until a new CFO is transitioned into the role. And thereafter, we hope to establish a new go-forward role for Adeel at Rexford, consistent with his personal and professional objectives.

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

Thanks, Michael, and thank you, everyone, for joining us today. The infill Southern California industrial market continues to outperform with the supply-demand imbalance, maintaining the strong landlord market that allows us to continue driving rents and maintain high occupancy levels. Our target markets, which exclude the Eastern Inland Empire ended the fourth quarter at 2% vacancy with asking rents up 8.7% on a weighted average basis over the past 12 months according to CBRE.

Turning to acquisitions, the full year 2019 was stellar for our growth. We completed 34 acquisitions for a total of $970 million, which added 5.4 million rentable square feet to our portfolio. During the fourth quarter, we completed 10 acquisitions, totaling approximately $258 million and adding 1.8 million square feet to the portfolio. 80% of these transactions were off-market or lightly marketed with 50% of the transactions value-add. Our ability to source off-market investment opportunities derives from our unique sourcing methodologies and deep market relationships, which results in significant benefits to Rexford in terms of superior returns.

Our projected stabilized yields remain very attractive and accretive, ranging from 5.3% to 7.3% in the quarter. In October, we acquired Slauson Commerce Center, a 336,000 square foot industrial complex located within the LA Central submarket for $41 million. The 2 building property is in an extremely supply-constraint submarket, fully leased at rents that are estimated to be approximately 17% below market. Our initial yield is about 5% and growing thereafter.

As a note, the yields I referenced here and for subsequent transactions are presented on an unleveraged basis. We acquired West Manville Street, a 60,000 square foot, 22-foot clear industrial building in the LA South based submarket for $11.5 million. The property is fully leased on a long-term basis at an initial yield of 5.3%.

Also in October, we acquired Crestmar Point, a 56,000 square-foot building in the Central San Diego submarket for $8 million. The 2 tenant, low coverage property has the opportunity to increase approximately 24% below-market rents by renewing in-place tenants or repositioning the property. The initial yield is 4.8% with a projected stabilized yield on total cost of 7.3%.

In November, we acquired Berry Way, a 120,000 square foot, 3-building industrial property with excess land, located in the Orange County North submarket for $27.6 million, which equates to a below-market land value of $58 per square foot. The fully leased property offers future value-add opportunity and our initial yield is 5.6%.

Also in November, Rexford acquired Motor Avenue, a 4.2 acre land site located in the LA San Gabriel Valley submarket for $7.2 million. We intend to construct a 97,000 square foot, 32-foot clear Class A industrial building on this infill land parcel.

At completion, our yield on total cost is estimated to be 5.7%. We also acquired East E Street located in the LA South based submarket for $14.9 million. The port adjacent 58,000 square foot modern property is fully occupied by 3 tenants at approximately 38% below market rents and includes excess paved land for container storage. Our initial yield is 3.1% and the estimated stabilized yield on total cost is 5.3%.

Rexford also acquired Monarch Street, a 5-tenant, 2-building complex located in the Orange County West submarket for $34 million. The project contains approximately 277,000 square feet and at lease expiration, we intend to redevelop one of the buildings with a state of the art 97,000 square foot Class A industrial building, and also improve functionality and aesthetics for the remaining building. Our initial yield is 4.6% and the projected stabilized yield on total cost is estimated to be 5.3%.

In December, we acquired Pomona Distribution Center, a 2-tenant industrial building located in the LA San Gabriel Valley submarket for $88 million.

The property contains approximately 752,000 square feet, with in-place rents estimated to be about 20% below market. At lease expiration, we expect to drive cash flow by retenanting at higher rates or by executing value-add repositioning, generating a projected stabilized yield on total cost of about 5.6%.

Also in December, we acquired Del Amo Boulevard. A single-tenant industrial building located in the LA South Bay Submarket for $12 million. The 57,000 square-foot building is fully leased at approximately 50% below-market rent and contains excess land for container storage. Upon lease expiration, we expect to perform minor repositioning to drive rents to market. The initial yield is 3.6%, and the projected stabilized yields on total cost is 5.8%.

Finally, Rexford acquired Euclid Street, a single-tenant industrial building located in the Orange County West submarket for $14 million. The 63,000 square foot property was acquired in a long-term sale-leaseback transaction at an initial yield of 5.3%.

Turning to dispositions. During the fourth quarter, we sold 2 multi-tenant properties for an aggregate of $20.8 million. This brings our 2019 disposition total to $33.6 million, and we expect to continue to sell assets on an opportunistic basis to unlock value and recycle capital.

Now I'd like to take a moment to update you on our value-add repositioning program. During the fourth quarter, we completed repositioning of 110,000 square-foot building in our Mission Oaks project in Ventura. The fully stabilized 462,000 square foot project has achieved a 9% return on cost, exceeding our initial underwriting by 160 basis points. For the full year 2019, we stabilized about 875,000 square feet of repositioning at an average stabilized yield of 8.1%.

Moving forward, we have a deep pipeline for value creation with approximately 1 million square feet currently under repositioning we're about to start construction and another approximately 400,000 square feet to start later in 2020 and 2021.

Finally, 2019 was certainly a record year in terms of acquisition volume. Our pipeline remains strong as we look ahead in 2020. We currently have $268 million of new investments under LOI or contract, which includes a $210 million portfolio recently announced. These acquisitions are subject to completion of due diligence and satisfaction of customary closing conditions. We will provide more details as transactions are completed.

I'll now turn the call over to Adeel, who might also like to thank and acknowledge for his outstanding contributions to Rexford's success over the past years. Adeel?

Thank you, Howard, and thank you, Michael and Howard for your kind word. Beginning with our operating results. For the fourth quarter 2019, net income attributable to common stockholders was approximately $19.9 million or $0.18 per fully diluted share. This compares to $12.4 million or $0.13 per fully diluted share for the fourth quarter of 2018.

For the 3 months ended December 31, 2019, company share of Core FFO was $35.8 million as compared to $27.2 million for the 3 months ended December 31, 2018. On a per share basis, company share of core FFO was $0.32 per fully diluted share, representing a 10.3% increase year-over-year.

For the full year 2019, Rexford reported net income attributable to common stockholders of approximately $50.5 million or $0.47 per fully diluted share as compared to net income attributable to common stockholders of $36.1 million or $0.41 per fully diluted share for 2018. For the full year 2019, Rexford reported company share of Core FFO of $131.1 million compared to $97.6 million for the year ended December 31, 2018. On a per share basis, company share of core FFO was $1.23 per fully diluted share for 2019, a 9.8% increase compared to $1.12 per fully diluted share reported in 2018.

Same-property NOI was $39.3 million in the fourth quarter, which compares to $37.3 million for the same quarter in 2018, an increase of 5.5%. Our same-property NOI was driven by a 6.7% increase in total rental revenue and a 10.5% increase in property operating expenses. Increase in property operating expenses was due to a favorable property tax adjustment in fourth quarter 2018, combined with an unfavorable property tax adjustment in fourth quarter 2019. Excluding the combined effects of these adjustments, property expenses increased by 4.1%. On a cash basis, same-property NOI increased by 7.2% year-over-year. Stabilized same-property NOI growth, net of the impact of repositioning was 4.1% in the fourth quarter on a GAAP basis and 5.1% on a cash basis.

For the full year 2019, same-property NOI increased 6.2%, driven by a 5.7% increase in revenue and a 3.9% increase in property operating expense. On a cash basis, same-property NOI increased by 8.7% compared to 2018. Net of being -- net of the contribution from properties and repositioning, 2019 stabilized same-property NOI increased 3.7% on a GAAP basis and 6.1% on a cash basis.

Turning now to our balance sheet and financing activity. We continue to focus on maintaining a highly flexible balance sheet to support our growth objectives. During the fourth quarter, we issued approximately 3 million shares of common stock for ATM at a weighted average price of $46.77 per share, which resulted in net proceeds to Rexford of approximately $137 million.

We utilized this fund to fund our acquisitions, for working capital and other corporate purposes. At the end of the fourth quarter, we had $78.9 million of cash, full availability on our $350 million credit facility and approximately $344 million available on our ATM program. We have no debt maturities through 2021, with our next maturity being our $100 million term loan in 2022. Finally, our net debt to adjusted EBITDA ratio at year-end was approximately 3.7x, which equates to about 12.3% debt to total enterprise value.

With regard to our dividend, on February 10, our Board of Directors declared a cash dividend of $0.215 per share for the first quarter of 2020 payable on April 15 to common stock and unitholders of record as of March 31. Additionally, our Board of Directors declared the Series A and B preferred stock cash dividend of approximately $0.37 per share for the first quarter of 2020, payable on March 31 to our Series A and B preferred stock holders as of March 13.

Also, board directors declared a Series C preferred stock cash dividend of approximately $0.35 per share for the first quarter of 2020, payable on March 31 for our Series B preferred stockholders as of March 30. Finally, I'd like to introduce our outlook for 2020. We expect to achieve company share of core FFO within a range of $1.30 to $1.32 per share. Our guidance is supported by several factors. We expect year-end stabilized same-property occupancy within a range of 96% to 97%. We expect to achieve stabilized same-property NOI growth for the year of 3.7% to 4.2%.

Please note that our 2020 stabilized same-property pool comprises 116 properties with an aggregate of 19.8 million square feet, representing approximately 75% of our consolidated portfolio square footage. This portfolio was 97.9% occupied at January 1, 2020. For G&A, we anticipate a full year range from $36.5 million to $37 million, including about $14 million of noncash equity compensation.

Please remember that our guidance refers to our in-place portfolio as of today and the pending acquisition of the 11 property portfolio previously disclosed in the Form 8-K filed on December 23, 2019. Our guidance does not include any assumptions for acquisitions, disposition or capital transactions, which have not yet been announced. Also, our guidance for core FFO does not include acquisition cost, or other costs that we typically exclude when calculating this metric. And finally, as a note for 2020, we're only providing guidance of stabilized same-store NOI as we believe this is the best measure to convey the performance of our operating portfolio. That completes our prepared remarks.

With that, we'll open the lines to take any questions. Operator?

(Operator Instructions) Your first question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.

Great. I guess, just to start out, can you talk about your outlook for cash same-store NOI next year? I know you provide GAAP.

Yes. Jamie, so the outlook for cash and just for the -- for everybody, 3.7%, 4.2% was the GAAP numbers, cash will be 5.2% to 5.7%, so 1.5% higher.

Okay. And then can you talk about your assumption for interest expense for next year? What's baked into the model? And just how we should think about any, kind of, pieces of debt that might be either -- I know you said you have no expirations over the next couple of years, but any other kind of unique financing we should be thinking about?

Right. Jamie, so Adeel here again. So for debt, just making certain that we're factoring in the model, the debt that we placed last year, you're going to see the full year impact of that, but that was fixed debt $75 million, $25 million we closed that in Q3 last year. So that needs to be in the model for everybody. And the other piece that is a part of our guidance is relating to the 11-property portfolio, which is going to have some assumed debt, and that 8-K that we issued in December 23. So that's also factored into our interest expense for next year, which is all flowing into the FFO guidance that we issued.

Okay. And then, sorry to keep nitpicking on some of these details, but like leasing spreads, what do you guys think that looks like next year?

Jamie, it's Howard. We don't see, really, any changes in the market today in 2020. Things are fast paced. We're signing a lot of transactions. And from what I've seen, through the beginning of the year, we're pretty similar to where we've been in the past. Maybe not as high as the past quarter, we've just reported on in terms of those spreads, but very impressive for us.

And Jamie, it's Michael. Good to hear your voice. I think we've indicated that the mark-to-market on expiring leases is about 15%.

Okay. And then just last for me. Some of your peers have talked about just how business feels today versus this time last year, how would you answer that question?

It's a great question. And business feels equally strong as it did a year ago. We're not seeing any signs of change in terms of tenant demand.

Your next question comes from the line of Blaine Heck with Wells Fargo.

So clearly, the coronavirus has been dominating headlines and has been a popular topic of discussion amongst retailers and some logistics companies. Can you just talk about whether you guys have seen any disruption in leasing or even discussions with tenants that might be worried about the impact to their supply chain.

Blaine, it's Howard. That's a great question. And we really -- we pulled all of our leasing people, the property management staff, and I think really the best parameter that we're seeing is a couple of projects. One is a few of the small-bay, dock-high projects in the Inland Empire as well as the San Gabriel Valley, and there's -- one was a 1.1 million square foot project, and we have 2 others that, really they add up to about 1.5 million feet, they're occupied in the high 90% range. And our leasing people, surprisingly, actually, were telling us that there's been a resurgence of leasing activity in the beginning of the year. So surprisingly, we're doing quite well, and we're not seeing any signs of slowdown in those particular projects, which are, I would think, probably 80% or more, occupied by Asian businesses.

We also talked to a few of the different tenants we have that are expiring right now that we're already in lease renewal negotiations that are 3PL. And interestingly, they're all telling us that they're diversifying -- rather their customers are actually diversifying where their goods are coming in from, so they're not as reliant on China. And some of these guys are actually talking to us now about even taking more space. So again, not really seeing any impact or slowdown in demand or growth from the 3PL.

And Blaine, it's Michael. I'll add to that too, as a reminder that our tenant base in infill Southern California in our portfolio is disproportionately -- our demand is disproportionately driven by local regional consumption. And about 50% of all imports are distributed and consumed regionally, plus or minus. And we've seen other periods where -- historical periods where we've seen a slowdown or even a shutdown of the port, which would be a good proxy for a slowdown of imports, driven by anything, for instance, in 2002, we had an actual shutdown of the port due to labor. And what we saw during those periods was literally no change at all in tenant demand within our portfolio. And again, it's principally because it's demand driven, consumption driven. As Howard stated, the tenants get creative, they need to in terms of where they find the goods or how they source the goods, but demand has not shown any signs letting up.

Great. That's helpful. Then, great job on the renewal lease that you guys signed with Cosmetic Labs during the quarter. I think the other large expiration you guys have this year is 280,000-or-so square feet with Command Logistics. Can you just speak to the probability of renewal there? Or any discussions you guys are having with that tenant?

Sure. This is Howard, again, Blaine. So if you looked at our top 20 expiring leases, that's about 1.75 million square feet. That represents about 45% of all of 2020 expirations. And today, we're actually in discussions for renewals of about 70% of those top 20 tenants. And that certainly also includes Command, which at this point, we feel there's a high probability on their renewal as well.

Great. Last one for me. It was reported, I think, that you guys bought a property from Prologis this quarter, $41 million, I think that was Slauson Commerce Center. Can you just talk about any differences you guys may have seen in negotiating with a large kind of publicly traded REIT versus, maybe some of the off-market deals you guys do with more local players?

No, I'd say it's always a pleasure to work with a professional. And most of the time, when we deal with institutional sellers or large REITs, such as the Prologis, the transactions go very smooth because we all know what we're doing.

Do you guys expect a lot more opportunity could come from PLD since they're trimming down a couple of the large portfolios they purchased recently? Or is this more of a one-off? .

Well, we bought actually 2 product -- properties from them. The other was the 700,000-change distribution building in Pomona. That was also purchased from them as well. And we have ongoing discussions, and we'd love the opportunity to buy more. But obviously, we can't predict or tell you anything about what's happening today.

Your next question comes from the line of Manny Korchman with Citi.

Adeel, if we look at your occupancy guidance for the year, it shows a significant dip at year-end '20 versus January 1, '20. Can you talk about sort of the -- maybe the trend of occupancy throughout the year. And what's causing that year-end stat to drop as much as it is?

Manny, thanks for the question. And yes, so just as a reminder, that's the year-end guidance on the occupancy. And that's a spot number FX as of 12/31/2020. So it's not indicative of what the average occupancy might look like for the full year, and that is going to be higher. The second piece that's important to note is that the occupancy that we guide, specifically, the 97% on the high end at the end of the year are on the low end. It's that -- it's not directly correlated to the NOI. So you are benefiting from the average occupancy that's within the portfolio during the year. So there is not a direct correlation between those two. But that's not different from what we've experienced in the past. Those are just timing differences and nothing more than that. 1/1/21, those things can be rectified pretty quickly and it's based on the re-leasing spreads that you have seen over the last 12-plus quarters. So I think that gives us a lot of opportunity and the ability to take those leases that are not being renewed and being pushed into -- able to push higher rents, so I think it's an opportunity. There's nothing more than timing from that perspective. But the correlation to the NOI is not going to be the one.

Manny, this is Michael. Thanks for joining us today. And I'd like to give a little insight in terms of how we think about expirations and occupancy on a go-forward basis relative to cash flow growth and the opportunity to drive NAV growth. And so if you were sitting here at Rexford management. If you're in our shoes, and you look at those expiring leases, through the end of the year and next year, for example, we have a lot of optionality associated with those choices.

And quite -- it's not infrequent that we choose to not renew a tenant, who would otherwise wish to stay in the space, because we see an opportunity to drive additional cash flow and NAV growth. And I'll give a couple of examples. Let's just say we have a space, take a typical property, 100,000 square feet, let's assume $10 per square foot rent per year. And let's say, we own that property for a while and as we've stated, we have about a 15% mark-to-market on expiring leases into the next year and few years. If all we did was roll that tenant and maybe we suffered a dip in occupancy for a short period of time to a higher tenant paying about 15% more rent well, there alone we've driven NAV by 15%.

And now let's take another example that gets even more interesting. Let's look at our acquisitions last year. And of the 34 acquisitions we made last year, 28 of them had in-place, inbound cash flow at about 5% cap rate even though they may not have been fully leased and even though there may have been some value creation opportunities with low embedded rents.

On average, those same 28 properties have a projected stabilized cap rate that's projected about 6%. So now take that same-property example, 100,000 square foot property, $10 rent today when we bought it, bought as a 5% cap rate. That means we paid $20 million for the asset.

Let's assume that we saw for a 6% stabilized cap rate that drives rent to $1.2 million from $1 million, that's a 20% increase in rent, much of which would fall straight to the FFO bottom line. And let's remember that market cap rates are substantially lower than what we're typically buying at. So let's assume a market cap rate of around 4%, although we know that market cap rates are oftentimes below 4%. If you take that math together, the asset would then be worth $30 million, which would result in a 50% increase in NAV.

Now I'm just going to take one more example, and then I'll finish up here, but let's assume that another option for some expiring space is that we can reposition it, and we do that a lot. Let's assume that same asset, 100,000 square feet, started with $10 rent, bought as a 5% cap. Let's assume that we invest another 15% of the purchase price, so we invest another $3 million, the total cost becomes $23 million. But if you'll notice, as we've disclosed last year, all of our repositioning work we solve to about an 8.1% unlevered stabilized yield on completions last year. It's not to say we're going to do that every year, but it's indicative of what our capacity is. So if you take that math together and the total value creation there would be about 46-- resulting NAV would be about $46.5 million. And so that's about -- that's over 100% increase in NAV on total cost of $23 million. So we've increased NAV by 2x. And frankly, we do a lot of deals. We're increasing NAV by substantially greater amount.

So I think it's really important to internalize and understand the Rexford business model, that occupancy is not the primary measure of how we're creating value here at the company. And that's one of the beautiful things about Rexford that truly differentiates us from any other peer in the industrial sector and from any other REIT in the REIT universe and that we have a fragmented universe of tenants and spaces within our portfolio and within our pipeline of acquisitions where we have continuous opportunities to create a tremendous amount of value. So oftentimes, you'll see us trade occupancy for value creation.

Thanks, Michael. Just switching topics. The Prop 13 split roll has been a big topic of conversation recently. Can you give us your updated thoughts and impact in your portfolio? And whether it changed anything in this transaction market to date, with sellers trying to get ahead of it?

Manny, it's Adeel. Thanks for the question. So if the Prop is passed in November 2020, it would be effective in 2022. And we ran a bottoms up analysis and based on our current leases and what the tax compression looks like in terms of assessed values, so on and so forth, the impact would be less than $0.01 of FFO if we were to do this today. So it's not very material in terms of the FFO impact.

The other thing that's important to note is -- which we've always educated everybody is about 48% of our portfolio that's been acquired over the last 3 years. So certainly, we're benefiting from that. And I think that allows us to do things that are different. The other thing is that about 90% of our leases allow us to pass the increase effect, so that's why the impact is very mitigated when I spoke about the FFO impact. So it's a pretty great spot for us to be. And I'm sure Howard and Michael can add a little bit more color on just the opportunity set, what it does in terms of us playing in a leveling playing field in terms of comparing with the other landlords who are going to see this increase.

(Operator Instructions) Your next question comes from the line of Eric Frankel with Green Street Advisors.

I just wanted to discuss the capital markets environment. Now as the REIT share prices have come up quite a bit since the start of the year, has that changed the mindset of either you or your competitors in terms of just the investment landscape and what buyers are willing to bid in terms of perspective returns on acquisitions?

Eric, it's Michael. Thanks for joining us today. We -- obviously, we can't speak for competitors out there, but we see intense activity on marketed transactions, a lot of capital trying to get into Southern California industrial because it's the strongest market in the country. And -- but that's -- it's been that way pretty much forever. Is it more intense today than it was a year ago? It's equally intense. I would describe it that way. And with regard to our -- how we look at the world, I think that was the first part of your question. We don't really think about our hurdle rates, our weighted average cost of capital, in terms of the spot cost of debt or equity because that can change on a daily or almost hourly basis, particularly with the stock price. When we think about our weighted average cost of capital and the hurdle rates, more in terms of steady state cost of capital and on the equity and debt side. And so our hurdle rates are probably a little higher than a lot of our competitors internally.

And that's why you see us actually working so hard to identify off-market and lightly marketed transactions, which comprised, I think, about almost 80% of our transactions last year. But what's amazing with that intensity of activity is that we turned down about 90% of the deals that we actually sent LOIs out on last year. We sent out LOIs on about $10.5 billion worth of transactions last year. And frankly, had we been willing to pay just a little more on a lot of those deals, we would have -- we had the potential to deliver substantially higher transaction volume last year. But we're staying true to our knitting, staying focused, going to keep the discipline and hopefully, that gives you a little insight on how we see our hurdle rates and investment activity given in light of today's capital markets.

That's very helpful color. Adeel, just a follow-up on the Prop 13 spit roll. Could you maybe just clarify how much your reimbursed taxes would increase if the proposition came through and you are -- had higher assessed value in 2022.

Yes, absolutely. So right now, again, obviously, we're looking at this analysis as of today, right? Now the gross dollar amount would be about $9 million approximately in terms of increased dollars in terms of taxes. Keep in mind that it's a 1% or maybe it's slightly higher increase just on a assessed value and the rest of the direct investment, which are not impacted. So it's about $9 million of which we're recovering most of it, and that's how we can grow up to that little less than $0.01 in terms of the net FFO impact after recovery.

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

Great. In the 8-K you put out on the 11 property portfolio, which I know you guys said it's in your guidance. You indicated that you might finance that through OP units. Curious if there's any update there on how you plan to do -- if you could still continue to do that? And if -- how that is worked into the guidance?

John, it's Michael here. Thanks for joining us today. We're just not able to update at this time, but once the transaction closed, you'll get all the information. I apologize for not able to give anymore.

Okay. But I guess, how is it factored into the guidance then?

We really can't comment because we're going to close the transaction. And frankly, we don't have that information yet. So -- but as soon as we know, you'll know.

Okay. And then maybe if you could just speak more broadly in terms of conversations you're having with potential sellers, and the attractiveness of using your OP units as currency? Are you seeing more or less of that today.

John, it's Howard. Yes, we've seen those conversations growing in frequency. I think that from where we are as a company, we're a much more stable and attractive business for people to consider trading their assets into.

And frankly, I think, at this point in the cycle, people appreciate the focus being in Southern California, the strength of the market here. And most of the people we talk to, obviously, have -- we're talking about their assets in Southern California where they have great familiarity with the market, and it's a lot easier to understand what they'd be getting by trading into a company like Rexford versus potentially another business that perhaps owns assets around the country, around the world. These people are used to being able to understand and make decisions locally. So those conversations are getting more fruitful. And we're hopeful that into the future, that we'll be able to transact more frequently on OP unit type basis.

Your next question comes from the line of Michael Mueller with JPMorgan.

This is Sarah on for Mike Mueller. This question is on cash spreads, given it has been in 20% range, do you see that as being an indicator of the overall portfolio mark-to-market today?

I'm sorry, could you repeat the question? You were breaking up a little bit there.

Given that cash spreads have been in the mid-'20s in this 2019? Do you see that as being representative of the overall portfolio mark-to-market today?

Did you ask cash rent growth is projected mark-to-market 20% in 2019. Was that the question?

Yes. Is that representative of the overall portfolio mark-to-market, given that it's been in the mid-'20s in 2019?

So we -- I think we've -- what we've indicated on the expiring leases, there's about a 15% mark-to-market. And then, of course, on the in-place leases, typically, we have about a 3% rental rate bumps embedded in those contractually. So that's sort of the color that we can provide at this point in time.

Your next question comes from Chris Lucas with Capital One Securities.

Just a question on the G&A guidance for 2020. It looks like about half of the bump in gross dollar increase in guidance from '20 to over '19 is related to noncash comp. The rest of it comp, is there headcount increases associated with that or infrastructure investments? Or how should we be thinking about what you're doing with this, sort of, $3-plus million increase in G&A on the cash side?

Yes. No, we appreciate it. Thanks for joining us today. So there is some headcount increase, not so much on the facility side, marginally, but more on headcount. And I think also, if you look at the G&A increase, you brought up a great point, which is the bulk of it is noncash equity. And the bulk of that, frankly, is performance-based. And so at the end of the day, if we're not performing at exceeding at high levels over the longer term, and we won't actually receive that.

Unfortunately, we have to account for it though today. And I think also, if you look at the G&A growth relative to the growth of the company, whether you measure it by FFO growth, whether you measure it by portfolio growth in terms of square footage, which sometimes drives headcount growth, you'll find that the G&A growth has been substantially lower than the actual growth of the company. So we think we do have a good amount of operating leverage embedded in the company. And so maybe we're doing a little catch up this year on the organizational side and the staffing side relative to the growth we've seen over the prior 2, 3 years.

But I think as we move forward, you'll continue to see more leverage in the operating structure of the company. And those margins continue to grow -- operating margins continue to grow as well.

And Chris, this is Adeel. Just to add, just on the headcount base. Obviously, about a year ago when the leasing cost was not part of the G&A. As our portfolio continues to grow, that's some of the head count that we're also experiencing. So that's part of our G&A. And as our portfolio is sort of increasing very meaningfully and that takes a certain caliber of people and just the overall head count. So that's also something we're experiencing and just wanted to add that color in terms of the head count...

Okay. And just one more follow-up on that, which is just simply, as it relates to the CFO transition, is there embedded costs that are associated with that process in the guidance? Or is that sort of an extra deal?

Yes, Chris, it's Adeel, again. So we took a conservative approach, and we essentially kept my comp in its entirety cash and stock and its entirety for the full 2020 year. So I think that was the most conservative way to do it. And obviously, once the transition is complete, we will have further announcements, and we can further provide guidance if necessary. But right now, we take a more conservative approach.

And then Michael or Howard, and -- could you comment in terms of where you are in that search process?

Yes. We can comment a little bit, but of course, we'll disclose when we actually have more concrete knowledge. But I would say that the interest in the role of Rexford has been very, very strong. The -- one of the side benefits of sending out the 8-K some weeks ago, was to kind of put everybody in the finance world that operates or is interested in operating in a REIT on notice that there's an opportunity here. And we're very fortunate. We're operating in the strongest industrial market in the country. I think we've got a great company, great team, and frankly, we're -- in terms of what we're going to create here at Rexford, our vision for the future, we truly feel we're barely out of the starting gate. And so it's an exciting opportunity for the right candidate. And so far, we're cautiously optimistic based on a very high-quality of interest that we've received so far.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to management for closing remarks.

On behalf of the company, we'd like to thank everybody for tuning in today, and we look forward to reconnecting in about 3 months.

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