Rexford Industrial Realty (REXR) 2 May 182018 Q1 Earnings call transcript

Greetings, and welcome to Rexford Industrial Realty Inc.

First Quarter 2018 Earnings 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. to conference like host to now Mr. would turn over the your I ICR. Swett Steve with proceed. Please

We thank call. like first would to quarter Rexford us XXXX Industrial’s for earnings conference you for joining

yesterday forward-looking remarks In the On website contain have a questions Investor as our supplemental addition quarterly at Relations and today’s in your the on market with may details in press distributed www.rexfordindustrial.com. posted additional to package answers results defined closed, to after statements, Securities of release section we management’s Reform Litigation the call, XXXX. the our on Private Act

Forward-looking similar statements intends, such may, by expressions. of potential, use expects, as seeks, projects, of variations should, will, are words usually identified plans, predict estimates, or anticipates, words believes, and the such

address revenue, and are forward-looking financial actual income statements discussed matters cause may from to risks of guidance. today. to Examples that related operating to results those subject uncertainties differ statements or include those that Forward-looking

represent more current contained Rexford encourage Company’s related the As the the a forward-looking to update management’s with in these forward-looking estimates. to no SEC. discussions reminder, filings the Industrial review obligation future. listeners statements We in any to detailed statements statements forward-looking assumes

measures Howard with Financial are some They we presented Co-Chief the on Company’s website, measures. present Officers, addition, call hosted of financial supplemental prepared Khan. will an are Industrial’s on is the and non-GAAP call were together will of and for and Executive financial available questions. GAAP conference the explanation Chief then Company In Company’s measures released represents and Frankel reconciliations non-GAAP which certain the financial earnings remarks, package, this by information your why believes The to useful information and call Adeel release make yesterday Today’s the investors. appropriate such afternoon, open Officer, to Michael Rexford Schwimmer

the turn to Michael. call will I Now, over

our summary we will activity. begin results. operating an I of detail and Thank transaction quarter more first for questions. will XXXX call. then with earnings results financial call provide a you. And open our with the then Adeel Howard welcome will follow to of will overview and recent your on guidance and Rexford Industrial’s our financial

extreme to Southern product fundamentals. strong California remains more than industrial as trench we demand scares additional less Our exceptionally favorable to extensive market. converted usage delivered dramatic extreme available scarcity market across X% future and our continues continue target This and scarcity other due see operate the of space, of with available with infill foreseeable to imbalance Available E-commerce Despite growth can in appear this industrial product fundamentals supply of land. demand. be fuels to infill of landlord vacancy tenants

focused title] higher balance the rates and (Ph) the interest superior these trends today’s economy, Rexford’s to translate the as and tariffs. rates. we principally strong [leveraged higher market for acquisitions is To fact into advantages some economic and model rise. to competitive support sheet general compete raising our Beyond including believe an business growth to represent macro rates diversified for fundamentals, of proxy higher relative extent exceptionally interest tenants well-positioned also healthy we that rates to buyers rental drive capital ability factors the continue as may Further, greater low-levered against our should are access reflect

extensive concerns rates. infill space of portfolio, impact tariffs, which throughout is regard our primarily rising increase our of increases focus contain industrial as our on and value-add Finally, rate to work consumption. cash to rising the over business almost driven flow X% rental we leases integral all of model, our by With our mitigate to both annual of an help contractual regional part interest

only more our local it entrepreneurial that higher than are in the driven is research, box by trading majority of product any Inversely innovation, that primarily differentiates nation. logistics. demand the other big growth demographic vast non-infill but regional education, substantially driven disproportionately larger countries, from and is by combination end, differently operate for and this diverse is of region from driven not our and global markets markets Our economy which by to consumption

exceptionally Turning of recent it our Rexford. to results, was strong another quarter

Our Net on basis, team to the share We prior We increased to by the share GAAP a our was same on by core a cash increase and XX.X%. basis year and same driven property basis of increased property on Company’s portfolio basis. a year share on full X.X% point X.X% portfolio FFO quarter. X% repositioning our NOI revenue in $X.XX increase XX% core XXX quarter. property property same the space, X.X% a a stabilized per increased and in XX% rental cash per stabilized by of basis same FFO to X.X% occupancy over compared growth by prior in NOI GAAP

cash activity our and to leasing Our to strongly continues flow contribute NOI growth.

During quarter, the feet. signed approximately leases first square we XXX,XXX XXX for

a on acquisition have year provide leases, on XX.X% and a full new a the acquired details XX.X%. these basis cash spreads a on GAAP On as additional on $XXX our basis. Our million we spreads were and will XX% to the cash we GAAP leasing were had have front. Howard as acquisitions current and XX.X% start Year-to-date, property were spreads approximately pipeline. Further great well of

very with to thank your this opportunity are turn this that to for Howard. during Rexford increased results, over now and I to shortly. are guidance, entire increasing NOI result XX% also like which enabling would we to take I'm common a call Company. the will Company’s build team quarter focus FFO strong dividend the us and we detail performance, XXXX over our to by pleased first which exceptional the our of the and great Adeel just As And

joining strong. Michael and us everyone today. remain you for in our thank Thanks, extremely Fundamentals markets

which the weighted the Our rents first X.X% capacity target increased XX.X% infill of Empire, Southern and average occupancy closed California with on industrial market Eastern quarter excludes near Inland asking basis. a

other grow, to regard continues activity, recent totaling acquisitions, while million. our eight the is as overall As continues Michael market removed industrial With to space investment demand have inventory shrink, completed year-to-date, to for $XXX mentioned, uses. for we approximately in space

on yield A X.X% XX functional our for X.X% foot cosmetic five Ventura acquired the yield. on Inland West occupied acquired Empire opportunity initial in with April, vacant a the upgrades of foot in Inland cost XX% the X% for for Street, submarket on market. of on XXX,XXX is a plan roll. estimated Counties located leases building strong Avenue, renewal $XX.X Also property North stabilized driven substantial multi-tenant at high a a million. the a West is yield building adjacent after XX% building is we platform to rent market Norton XXX% selling. contains approximately XXX,XXX feet to that below average positions. re-leasing transactions Avenue achieve process of just a Main our and $XX.X XX.X $X.X and implement in XXX% million, XXX,XXX and acquired quarter and and yield yield with of near-term in part acquired, XX,XXX of buildings January functional with years. initial initial and located of dock million, we X.X% over in in of are a XX total end, a and contains volume land term The where submarket less to differentiated completing yield market We property submarket are a to stabilized we The cost. lease below rents platform XX XX than infill and In estimated we once cost building we Commerce positions vast investment foot expect located a XX% Drive, square of February more. acres In of at March core location cost weighted expect acquired yield feet the project stabilized three-building Angeles-Mid to are leased the better the continues we of building multi-tenant improvements, located Center, continue and drive dock a County just with our or XX% foot under X.X% submarket research In million. the dock XXX% opportunities expect Orange X.X% XX re-tenanting to stabilized a we square yield markets million. upon is submarket move We Year-to-date, XXX,XXX X%. Ontario comprised clear in with The generate more a square two to below completed. to industrial were in on In-place approximately delivering dock renovations, positions Cerritos, advantage. prime The we lease in off-market than we expect of take single and square XX consolidation located our expiration. foot facility. clear leased, X.X% Los flex North XXX% to foot or at are than improvements Empire market $X.X targeting advantage rent as originations two feet to building, The yield stabilized Chino, modern minor cosmetic Shoemaker be achieve to clear complex a tenant XX,XXX current the square County be Subsequent in of to for Lawrence we square a leased After is a to rents property at

Diego San for $XX.X is Additionally a we a in Calle North square million, building submarket leased. feet acquired Platino XXX,XXX XXX%

yield to stabilized on X.X%. yield cost expect and of initial We the drive a X.X%

Road for a Diego with We initial The also acquired North Twin X.X%. Oaks million. San of XX,XXX $XX with the County yield two of North square in property contains buildings total feet submarket an Valley

Angeles square for and located Finally, the a building Street, in to property X.X%. we submarket Carson West $X.X achieve vacant expect stabilized South Bay yield million. contains of XX,XXX The Los we the feet acquired

have and under than pleased acquisitions pipeline. pace satisfaction issues. forward active diligence about We excited we completion customary with and due go are so million closing in of Currently contract investments to remain or of new of we XXXX extremely our $XXX more far subject our LOI of

are provide as will more details We transactions completed.

on of South in to couple I At Turning to update our renovate activity, projects. a at Figueroa a XXX,XXX our the would project square repositioning our like feet you Bay.

we repositioning of foot LOIs and These compared well compensated project in the scope. and the above the and a our San have lease to today, square projected complete in rents X.X% achieving and than We for leased at higher initial complete to leases yield. stabilized now sign X.X% Nelson are rates X% We yield underwriting. weeks underwriting. expansions work to buildings coming existing for higher have completed Gabriel XXX,XXX interior Also over project XX% original our all of our Valley, the regard expect more with renovation, are XX% the than rates exterior

increased have on and in have made progress square originally currently. X.X% X.X% feet construction from of building overall to great project XX,XXX the yield We of new cost

Finally, In call to we now value sell turn properties properties dispositions and four XX.X% sold opportunities. reinvested in million. a total, Year-to-date, of average order I through harvested growth proceeds recycle continue these capital exchanges. have to to tax $XX.X aggregate will to new weighted significant where unlevered for deferred can efficiently be all IRR generated we of proceeds the Adeel. over into

Thank Howard. our with you, Beginning operating results.

income million XXXX, XXXX. to For compares quarter or $X.XX approximately $XX.X the of fully $X.X This $X.XX net to first stockholders for attributable fully the per per was or diluted million share diluted first share. common quarter

months count. ended a which growth, due compares months diluted share X.X%. three $XX.X and share quarter months million increase of in On FFO activity, the same as March to increased compared $XX.X million core was interest of core by Core same for representing Company property offset XXXX, and For per XX, $XX.X Same million acquisition the FFO per basis, the quarter, past XX, property was Company higher the of was FFO portfolio year-over-year. XXXX. which fully $XX.X completed an diluted first share expense in $X.XX NOI XXXX, share XX for in strong was per share, to share of higher partially increase ended three XX% million to March the

total increase basis, in same revenue in increased was a Our cash by by increase property property rental NOI operating On same and a NOI property expenses. X.X% year-over-year. driven X.X% X.X%

to balance now and financing Turning sheet activity. our

believe and suited We balance continue of is sheet growth product strong, our both to work to plan. flexible capital lower our cost to our

Rexford $XXX had average million. At X.X stock net million of our program. availability ATM end we quarter, the of the $XXX per credit we of share, approximately quarter, a approximately through to which first shares $XXX million the cash, weighted million our $XX.XX facility resulted $XX.X million of $XX million at the on under During common ATM price of million in approximately $XXX and first proceeds available of issued

XXXX, With to second and April in strong just $XX of remain We our million our position. XXth, have XX, XXXX. a XXXX a declared and payable liquidity in XX, to of cash very XXXX, share common on per in we no holders Board maturities debt of dividend, $X.XX regard XXXX dividend unit July on June and on quarter stock Directors for the record of

Additionally, of of payable $X.XX declared XX, our share Directors cash quarter XXXX. XX, June XXXX our stock at per to Board dividend preferred second stockholders on preferred the approximately of XXXX a for June

been within any capital portfolio transaction that X% or to impact from range Finally, growth any guidance up that this cost does to cost per include that to our This remarks. our and activities a have we questions. range NOI range completes property we of guidance our typically open eliminate from would to market for $X.XX NOI of $X.XX portfolio Please per now are take expect of raising line other X% nor portfolio to to of to stabilized of from the driven not expectations That our X% from X.X%. core range $X.XX growth $X.XX previous share. growth X.X% or same year that announced, of X% expect share Operator? May. our up by full-year a XXXX X.X% we in range will calculating not note in share NOI specifically changes to the yet With our the of range Company’s X.X% previous was acquisition our we same property to this FFO of prepared

you. this we [Operator session. time, be a Thank question-and-answer At will conducting Instructions].

Our Jamie Please comes the Merrill line Feldman of proceed your Lynch. questions. first from question of with Bank with America

levered Great quarter maybe more how in guys. seen talk can about rate comment Nice and you cycles. impact thank your market? higher it you buyers this that already talk it go wanted give might happened maybe about if not in I your and have you. color Michael around what just to cycle and some about prior to

question, you your for joining thanks Jamie, I today. Hey appreciate us

We exposure. in they time a be cycles higher of and have capital one, so similar of have their are a rates typically more going to buyers disproportionate the and overall this And scenarios that leverage have from incurring a stake seen are private controlling prior number percentage will lot tougher also a interest impact. just rate

more structures model with. we that's business the from So are with a swaps common with and perspective typical debt longer whereas buyer term less we - private that competing will be

I add I sellers done might that actually think brokers are a ask cash Jamie of Howard. too and to job closes. the all one we for is good faster are the this Typically training,

that have right bit, pricing buyers So us. of the of with competing private that now it's that we interest a not because be been just drive want it's little lower a if got outcompeting have they to we sometimes rates. them lot

going to really lower sellers the are to want interest and still to going at us what aren't going increasing help accept, come to the also. pricing can't close offers quickly if in that's because rate that So is is they

you far all Have at that this seen so cycle?

as gone from up Interest historical and haven’t far impact a rates on markets as perspective the any nominally in transaction our we side. have so seen far

are took the way forget over public. XX we a Company By don't before for the private years Jamie, Company

pretty a how buyers. good of rate that lived we impacts rising those environment types life sense have intimately so have we and So for

are you major Okay do rent thank seeing, your about you. just And see mean then across expect I you to growth. can talk you what what submarkets?

I quarter. for the prepared markets the first the in in infill out year-over-year X.X% Rent pointed I aggregate growth in guess comments. as over our Well

Los rent of if Counties X% year-over-year had California in about market. is of X% the growth. Central year-over-year growth Greater footage rent the strongest you you and down South down our last drill half and quarter, by largest If representing market saw the about with square markets And Bay year-over-year the market through in that Mid was even drill further, Angeles Southern look we the rent the growth XX.X% in followed

people’s from lower extraordinarily markets costs. really So really typically those strategy They on statements. a seeing transportation the e-commerce growing faster infill enables more into them for last impact of at and on where people solve functioning more markets than rents and ports mile delivery, we we are standpoint significantly trying of larger also are is closer income are still what seeing costs our at represent which closer the to demand an to are are those levels and more be to which feeding focusing are to high transportation and demand, and

drill rental products thing markets Hey, deep and of product down a one Jamie, and how into large varies highly that don’t markets that down specific functional. product not proactively it’s more diverse are growth, of amount is it. quality location, it the if across rental on when these with you amount that tremendous tremendous statistics in buy way and rate one make function best growth in is extremely located, our best thought rate We mandate and and is also in market is and own to at product product is that not quality, look the And so. well when not we locations drill

to today, to commence strong to important of something one this so respect our as to not that’s product we about the outcompete locations is And strong. that’s to really key easy premium where you with when the large strive know ability quality market very think it and it’s attributes I driven our the market as as but it’s is market. And diverse in think to house model business is look compete higher we rents look and by our

you. Alright. Thank Okay.

the Please with Manny Our proceed with question. your next Citigroup. question of comes Korchman line from

that of expectations of or that is running and bit you little effect? there a the contract you deals timing can about Thanks. closing, XXX within spoke portfolio more under talk more any assets specifically Howard, million

million to see Sure, of representative a assets. combination what you. us you hear Manny, from continuing it’s nice with core over XXX add and truly buy. value It’s plus Yes, and to

to of But of work well. closings of we sellers for deals For, when and the assets closing, extensions the have to we allow the trade some the stages continue usual in that continue properties. will lot everyone combination their on particularly can rights we will diligence the close is know the abreast again, as near-term and occur a they we so of the keep you through some as for with

a Adeel for And couple Great. you.

mentioned don’t guidance is? is typical, the you that your guidance, are guess closings how guidance as activity figures forward You in are have any April in included of which in much deal I the the

Yes. Manny. Hey,

the in essentially place So And sent that the included. QX included ATM is press that in actually up out is point took already in that included, that last activity reported and is we release to everything guidance. have we

up today there. everything the which in So the earning or included state, to includes to is yesterday, guidance typically everything up is

from And if that stabilized could initial yields provide I basis, in to a just the could modeling you initial of go for maybe yields. you forward the the of know the just perspective and the this don't provide acquisition activity the you venue, but yields right gave and calls aid modeling? some some maybe all of on

all and clear. I make believe you offline Yes. what yields, really Manny, gave the Howard, we missed, sure we of that’s catch are saw with it's to happy we you most

guys. Great. Thanks

with from line National next the Our Benda Instructions] [Operator your proceed John Securities. Please question. of comes question with

they from? which your are are highest quickly which speak the renewal you to rates is how on leases industries all industry you portfolio? in today? So you the across and in it increases. saw Or Can you new are guys, gaining that Hey - operating renewal nice tenant the where really rent

all really It's Howard. is across This industries.

just leases market, and been a quarter. didn't this the year and large handled We that in have point. very were at drove tackling. diversified was uses most those coming lease have tenancies and very and of up has really of terms particular year We any deep no large this one of everything spreads all This a blocking

and feet about the it is XX,XXX our expiring feet. only that lease down XXX,XXX to largest fact particular In after remaining lease, for year drops

So these any the strength one spreads it's of of I evidence of really overall think property. portfolio and not or leasing particular our market

can standard property in Okay. standards? you that you I are or then them talk to is on common a up mean or to themes put there you initiate across the about there the portfolio, across to that And repositioning, your place in properties is things it each repositioning bring all guys them unique

if Well, quality it's in as Michael best particular market itself. to and not most mentioned, when we its buy functional sub property, the make a

to were there But, sometimes, had head quarter leasing two so so that XX when the a we significant covering right this I clear forth. typically, example mentioned work able away. not given do bought yes, buildings we it is you know, are dock loading And foot the and and that

and consistency a of typically you able doing in incremental move space, and some the with offices it's of getting signage utilize forth. capacity of cost. Nelson really so delivering to range, And we buildings That’s can adding they are Avenue outside finish down on. sprinkler, very really the pretty demising terms new that - in product that tenants what I the rebranding calibration So to us range and the frictional the we about they landscape, upgrading it's going us is wide make place industrial though, and space then the were to smaller low quality we all see consistent modernizing in involved cubic project where the that and projects, very low out and the paying of are project updated product sure full same on the

competing square what idea the building solve in We something on they repositioning that we build and to we building cap looked build the that when buyers does square reinvent going brand order little take the then site. for to process And at were remove a to XX,XXX on with that yield. we are we John, product, an you small are completely the improvements of only you it's better other on. almost is press. And sub cost we again which in will foot XXX,XXX we feet not another to somewhere development that a we capacity the if of probably on that we Nelson of are improvements substantially five compared we to for And about their costs. solving property probably looking X.X% so $XXX,XXX going are just and saw new about I yield bit solve a that and yield, Hey, Michael. as will add competitors pretty the property to to X% to solving about actually new unlevered that give dramatic little total are removing sense to and the that all for brand reposition which and buildings existing existing total are going property structure to could below example,

only the market. model the are but business about in outcompete for shareholders, a not couldn’t also So we we is continue our the activity us key driving the so in enables be we to what economics and market. recent and better see excited to for to more company

and point to this John, last added, the going add I'm deal. is what one to Howard Michael

additional This added quarter disclosure CapEx on the a page. we little

defined and is our page it's place supplement, we but critical meet repositioning repositioning about have to in the important takes across and doesn't that of very meaningful. Company. besides also It we very downtime the definition the the we just meaningful other have talked very portfolio which that have So smaller now, that

think where will that at you a some have those look give the So we in that we disclosure costs perspective about how more bifurcated of terms take and step.

great. Thanks very Alright much.

Please of Our JPMorgan. with questions. Mueller next line question comes with from your Michael the proceed

and like sequentially know points from XXX looking it the looks and out fourth it. questions. portfolio couple stabilized property Hi, Thanks. dip of about County, same the repositioning basis are just of at quarter Ventura occupancy I

what is So drove curious just that.

Howard. it's Mike, Hi

I That of space just I actually year that feet plus other had well of feet XX,XXX leased to we couple think and that XX,XXX were spaces preferring at feet that XX,XXX tackling. locking square lease here we able and are now. minus had mean that very is up. vacated it was of that right were again and the a or it market the was end we

another have are problems. have exit was that the space our We actually market well financial is We for them now and us. negotiated real that quarter. able right the Oaks But release and rent to in performing tenant in XX,XXX for and the project in same Mission the we

it you. was Thank it. Got okay. That

question next line with Please Fargo. questions. your the Heck Our comes Blaine from of Wells proceed with

guys Hey there. out morning good

you seen of talked market you So a to wanted interest But on or helpful. rates tenants. about your the bit I was event ask which the on also little the impact reform markets rising if have any from tax

really Good really new we any from impacts to Blaine. noticeable We haven’t Hey, hear from and anecdotal heard you. seen any comments haven’t renewals. tenants whether tenants or

guidance NOI quick a the expectations QX expectation a maybe above one same-store the is for it or entire by Was Okay in a that And Adeel. driven increase higher then little entirely it's was fair. your for year? a

for the last more Blaine. or trending what specific. expirations be bit terms as right, behave bit are little that we year visibility little how And a typically you the upcoming in passes have each It of that do a little can renewals as to how is how bit are day we more a coming of that perform they up, more perspective we get year going both was right and us the as with to saw

QX witnessed So are we Clearly by which bit in it’s right. both. are reported trends what strong we very a of seeing little

to something are certainly is through. looking trajectory that So we follow

combination So that. of of both it’s terms a in

have footage the of Just to that same-store. give perspective we you due million a in supplemental expiring little bit the to square more is X.X

in got X all December. terms color the also just that some puts coming So what April up have from way of to we

have what both putting bit been piece of and in three fill last color in us to that’s left. that year bps. has so quarters course, still raise of of of perspective allows to is combination So kind the it’s just that same those by up of that just renewed that the of a time, factors at you essentially XX of But

bit to for. So kind you that of sort of do that area still need have we little

for Sure, that’s color. Thanks the fair.

When team just very Blaine, extremely performing to it’s you it’s well, that. is we business, to not a just add tenant-intensive this run because focused the about market very, our working business. hard very is think and

has lot the drive to numbers of things to And a what feet FFO. average these market sense of a square are, go give and us. kind overall to of just you delivers for that’s equates to us beyond So well how on just penny to sensitive XX,XXX half right a

square lot so footage. a of that’s not And

You could don’t have two those in you that easily or levels. to I usually gets expect change it to change, one tenants

team is our you the down and that tenants. renewals customer impact the staying that the service and focused but drill this more so is if not much And overall for same-store extremely pool, magnified. just And on experience

we just and can focused you to forward look are going and deals I to perspective. So we think that try more gives stay best color we and the

comments. Appreciate Great. the

next is a with Benda with question proceed your Our follow-up John question. Security. from National Please

you and some started for another into having current that XXXX there any of K quick guys. half that given of getting and on is you XXXX have renewals performance renewals? that disclosed are rentable square expect you the real XXXX feet In on renewable XX% those up in conversations way yet the Just would had you the of coming we are

Yes.

tenants example if the I range X.X give We of as as and terms lot it or things that until then it expiration and to gets as largest expirations, to leaving feet million starts a staying they are can. whether and are have an they quicker, at are dropping we look drops feet dates. those of I you mentioned ahead closer a don’t it even in stay we you lot trying year XXX,XXX of stops, much And really the always XX have of this visibility will their then is to the

lot first successful XXXX real front So the lot for those early a conversations the do is those those we early ones and doing renewals are type get XXXX of larger there we during at of frankly quarter. tenants, have and a of of and some in

in time It’s on push renewals. cycle that terms of view we Company right a So to well. as the it of do as try philosophy to the early and the

Thank Great. you.

call closing session. completes back I now to the Thank management our That will question-and-answer you. remarks. for turn

Well we and support in your reconnecting for to three months. we thank forward today look about joining us to everybody want and

concludes This today's conference.

your your You for this at Thank you time. may disconnect lines participation.