Rexford Industrial Realty (REXR) 3 Aug 182018 Q2 Earnings call transcript

Greetings, and welcome to the Rexford Industrial Realty, Inc.

Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my Investor Kara now Relations. is to host, introduce Smyth, It you, Thank Ms. Smith.

begin. may You

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

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

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

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

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

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

to the Now call I over Michael. turn will

then operating of with will details follow and Thank will XXXX quarter transaction results, value-driven market conditions our earnings you, on cover I will summary Rexford guidance. to welcome about a call. financial some and activity, unique our our more our and start and results comments Howard recent with our Industrial's second Adeel strategy.

open will for your the questions. then We call up

very company core are a by We continued pleased share active strong acquisition FFO XX% share top quarter. as growth XX.X% per up of another year-over-year, was FFO full as grew our report to strong by line Core internal activity. We $X.XX, well driven year-over-year.

basis assigned XXX property quarter-end. quarter and basis in growth, property high same XXX,XXX again a XX.X% property Leasing increased the feet. the for impact team was retention GAAP NOI same on X.X% basis X.X% XX% We a cash the exceptional by achieved a on volume second square on the portfolio Our occupancy XXX during GAAP on XX.X% a remains cash cash basis. quarter. on leases was on leasing a with basis Tenant and basis. double-digit up a stabilized to for at of and spreads XX.X% portfolio points of X.X% XX.X% repositioning GAAP basis, net with NOI at same quarter by Stabilized

industrial infill So square far our throughout footage million Southern this square $XXX increasing million feet. over year, of portfolio we've XX to acquired property California,

overall industrial market levels continues remains historic Tenant California at market Southern strong. infill Our above demand with occupancy XX%.

largest which regional and economy. portfolio largest center, population in the represents nation's Our of one operates the among world's

examples markets, It driven a distribution. potential for patterns. have changing consider is is stop the global superregional differentiator, of experienced and of non-infill the increased infill the trade by trade this change flows. differ distribution, product the industrial with historical may Consequently, and users last demand In target with is demand This to goods in consumption. principally generally representing footprint property tariffs and way, tenant from the tenant we markets key where consumers. last or mile Our by when our comprises our instructed trade delivery driven end big-box to particularly infill be

Beach of example, XXXX, down and shut due down ports For Angeles Long infill reduction the the in portfolio. We demand to within slowed not during tenant and any during XXXX, when when both ports did labor Los issues. material our see

As tariffs a from flows increase impact do see in not a our also the an result, might material we future. portfolio from in to that trade to result expect changing

stages early growing future. expected In addition, is for e-commerce, into demand the time the tenant continue in is demand with to still to frames, which shorter-delivery of growing together industrial foreseeable its growth, drive

infill that largest believe nation's like benefit from e-commerce. we market other dissipation forward, will as California, in of the endpoint the Southern Looking no continue to growth

technologies also believe productive blockchain-enabled will the warehouse printing warehouses and platforms product smart make of our from to transactions new to infill more continue and valuable. XD introduction and We more locations distribution

our markets continue to Southern are to We innovate acquired space, us tenant as our are in and supply with opportunities to technology leading-edge net California to differentiated that growth, our product removed research also aspect innovate demand we in acquisitions investment is to cash which our infill our more outcompete a vertically or see management ourselves marketed from asset Our the and fact experiencing yields every infill with With platform continue we technology. of leasing superior ongoing off-market in superior integrated industrial key although, at outperform lightly generate be by and own to upon business creation. value reduction the Rexford. lead of and by through we most position utilizing offense enable means market business. Playing transactions, play We by strategy, advantages specific operating offense or to can our we respect that break market expanding competitive than built. our that make

as growing as also innovate leveraging our we back we build efficiency improvement our office company technology with in We and grow margins, portfolio. the and process increasing operating

sheet, FFO Playing Rexford we've means share the in X.Xx to our XX.X%. net debt at XX.X%, we strike years arise. our per debt Consequently, XXX result, total approximately we to to EBITDA IPO, increased increased leveraged net our XX%. combined opportunities as market by a the a operating a balance since position maintaining points to with also have As and X X.X, capitalization margins quarter by finished basis ratio a to and adjusted low offense of

Finally, create and offense level. a repositioned local we in assets, are the which beyond enabling sustainability efficiency safer substantially community carbon reduced existing with not but strong and create them impact replacing businesses, to buildings working stewardship, discarding jobs potential When environmental property ourselves to also on and and by existing standards communities reinvent recycle We means industrial just the merely pride in new compared property and setting for and buildings. we or unique reposition the to higher-quality helping goes economic returns living Rexford neighborhoods at high-functioning industrial improving energy at to to environment. mandate to new bright our buildings superior

and market of to to after perform All California. cycles infill through to factors industrial outcompete ability our Southern and contribute these

opportunity X Our within foot economic over feet equals markets billion billion fast more market value largest the combined, X having the California than XXXX of the further a go-forward market is with square Southern market. prior next built as value total of the to industrial X been square

to into turn And the with who nearly limitless unique pleased our Howard, well detail. more team opportunities driving Rexford execution the I'm over a to acknowledge like exceptional for will upon activity of importantly, that, very our us capitalizing business. we'd call are foreseeable before tremendous creation of in to future. Most discuss We value our acquisitions

thank for strong. consistently Thanks, us and Southern Fundamentals infill today. you, Michael, industrial our California everyone, joining in markets remain

high-quality demonstrating in demand at research-driven a second of Eastern which acquisitions of acquisitions exclude of continues Lawrence product Empire the target to yields. for XX we just platform on to $XXX second Ventura million. markets quarter investment our In Drive opportunities better-than-core pressure of industrial totaling uncovering the for our with million. X.X% increased acquire under inventory $X.X rents the had basis. combined County target upward the Inland quarter quality busy continue acquired Our Strong low in XX.X% off-market, to power industrial weighted-average activity. ended April, We very Completing stabilized place space were rents. investments and these asking markets, with occupancy, submarket XX% of on availability a

the construct based square-foot Main clear XX,XXX building unlevered The million. County-North an yield Once building in below a of replacing the now planning XX stabilized approximately with in-place square-foot for acquired site, be are X.X%, We XX,XXX XX% on market. XX,XXX an estimated submarket we X% XXXX last-mile complete, Street, lease XX-foot ideal on an for $X.X cost initial structure. is total to project is we a square-foot Orange on X-tenant existing leased April, yield positions, building distribution. new The or to dock X-acre In XXX% more.

is building initial rates yield a be submarket market. we on in of the tenants Platino Additionally, X.X%. Over $XX XXX,XXX we X North to acquired below X.X% leased million, for yield estimated Diego square-foot the the cost stabilized drive San expect at to to XX% time, to Calle XXX%

We San Oaks North Angeles-South leased of initial the $X.X The the in property X-building contains Carson in XX,XXX for on County square also the million. total North stabilized submarket Bay Valley a fully Diego Twin X.X%. feet, Street for Los Road closed $XX West million. submarket yield We of purchased

square-foot have sprinkler ESFR XX-foot repositioning extensive and begun We building overall clear including XX,XXX modernization. the vacant loading, upgrades dock-high

submarket Fernando rent submarket of $X.X submarket to The location a County-North we constructed at the functional term yield The We on expect purchased acres asset completed acquired in tenant million. achieve is Surveyor acquired a square height June, with on XXX a in of clear Central a modern transaction high-quality Norwalk June, X stabilize property the and credit San X%. yield The is and long-term Gateway in long land tenant entrenched the at feet containers. XX,XXX the Angeles-South contains Fujita Street feet on cross-dock expected is yield has property fire yield The at County minor cost end tenant with submarket below The X.X% in single logistics contains on stabilized acquired X%. At submarket XX and acquired ESFR $X.X to land an roll. Avenue The constrained the is In at XX-foot yield XX-foot cosmetic leased is the After acquired Ventura leased initial a yield X.X%. accommodating yield submarket we term with Also tenant is and we for We the a state-of-the-art square credit fully in stabilized LA short feet May, Subsequent feet stabilized initial yield the optionality lease on clear rate for sprinklers we be million. dock land below upgrades, LA Avenue an Bay X.X%. an at in-placed to million. expiration. under-construction we square property to lease to at vacant basis value-add or facility to a for equating expected was Orange is Bay once X.X% square-foot we positions. with is acres building be in-place absolute loading for complete to a XXXX. for building X.X% and since a Rexford Sherman, optionality be for Montague of Avenue the Fernando visibility XX,XXX cost. contains in building the of on XX% on estimated The market. Sheila building value-add million Circle market estimated submarket yield occupied sale-leaseback excess lease million. and a in in to rates escrow tenant We square Angeles-South should clear $XX LA X redevelopment value-add LA square-foot Valley Court in repositioning Also a acres recently XX property The expected been severely in yield lease property entrenched X.X%. building LA submarket a XXX storage stabilized XXX,XXX XX,XXX at for submarket Street is yield XXX,XXX an $XX single short at a The and Stanford to positions to a dock-high encompass a about North submarket million, to located positions. on The acquired $XX X.X%. XX% $XX.X Boulevard, with logistics tenant square-foot million. contains for with Azusa quarter-end, an XX% almost triple-net million site million. basis Road recently X contains prime at to acquisition of X.X% that a is XX-foot the height market. Los initial by building minimum XXX,XXX building market. The an the to Our vacate. the Airport in X.X%. San Street $XXX to in is of Valley at initial high-loading leased modern XX% short-term during Mid-Counties for The leased roll with leased initial via supply The million. yield below excess be in $XX.X the a XX,XXX June, acquired lease Los below-market within square rate will rent property is Canyon $X.X term coverage. to a for for approximately Gabriel of In only Orange a for The $X.X The tenant X.X%. initial submarket XX,XXX the XXX% Valley feet renovated leased San estimated for projected a tenant McKinley May,

acquisitions satisfaction closing we've of $XXX over customary more million pipeline subject million as we For transactions are and completed. to completion of or LOI conditions, acquisitions under far, are diligence XXXX, details $XX includes completed our provide will and of and These contract. due of acquisitions so

properties Regarding quarter generated the the reinvested total. these over unlevered now sold disposition of been exchanges. for million $XX for the I'll $XX XX% tax-deferred dispositions proceeds Adeel. our turn a call for second to IRR average quarter X XX% efficiently year-to-date activity, and All weighted in In through year-to-date. million the aggregate, have and second we approximately

Thank you, results. operating with Beginning our Howard.

for per to For attributable the per quarter estate stockholders diluted share of for the $X.XX was real included million gains XXXX, second of $X.XX common second fully This million of XXXX. or from $XX.X diluted Net share. second XXXX. quarter net to approximately to compares income income XXXX, million $X.X gains quarter second the compared million the for of the sale fully $X.X quarter $XX.X as of or of

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

second NOI by in the a property GAAP in property same property on of increase was X.X% NOI X.X% basis. same by and cash a X.X% quarter same On and of NOI growth, net Our total rental X.X% repositioning in increase was revenue impact on a operating expenses. basis cash driven basis, the year-over-year. increased Stabilized a property X.X%

to and sheet activities. balance our now financing Turning

make cost to to great our flexible optimize of progress while continue maintaining ample strong, balance we sheet a objective. our growth We capital liquidity support with as

other million approximately available purposes. million second of facility pay program. had on borrowing on under our credit availability funds During the to full in to for we common price with We a share, $XXX end credit million million facility of XX.X the $XX.XX million. corporate through Rexford second our fund which $XXX ATM approximately and we utilized $XXX.X shares these per ATM quarter, million our proceeds the cash, stock acquisitions and resulted weighted issued quarter, approximately average $XXX the our At of net of at $XXX

stock have on being cash XX, debt to through in next We payable Directors the XXXX our XXXX. September XXXX, Board XX, million of our our per for common of on with With XXXX. $XXX regard $X.XX maturity of third a to loan our October maturities XX, dividend, term July unitholders no dividend share XXXX, declared on quarter record and on

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

our full $X.XX for our of of share $X.XX a as by core year we're XXXX to far to per previous $X.XX portfolio was so growth Finally, range guidance acquisition range driven company year. NOI from $X.XX per strong increasing FFO share. share of to activity well as This better-than-expected this

from from range Specifically, of range of to NOI our when X%. up growth from X% previous now to range X.X% our portfolio in previous growth up expect to same to property range of stabilized And X.X%. we to X.X% a X%, property same expect NOI X.X% X.X%,

market For G&A, include million, $XX.X guidance company-wide transactions any million $X.X the activities about other our have our that, a does costs range of that or impact have not eliminated guidance calculating typically this Please questions. the of compensation. Operator? equity capital remarks. note take to With to acquisition not noncash open we'll completes line our to our including And of on tightening that any just prepared That we're $XX been metric. announced. costs or million

you. Thank

We be Instructions]. a question-and-answer will session. conducting now [Operator

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

GDP involved are been biggest remarks that material increasing a you think Michael, Or I with but construction? and/or general fall consumption? under the I the guys industrial topic do your for that your that guess, just tariff? pretty on risk where the maybe, appreciate tenants to is in recently. big business, specific it is tariffs, cost on it goods might Is they've effect

we widest, of And why deepest concentration any to focused question. and industry joining by particular really able don't feel dedicated we're appreciate our to Again, of universe tenant function. so the to tenants. we any segment model extremely space, on have possible is I the industrial on today. us or focus thanks design, that's Blaine, business for base. And diversified generic

which in affected to be So it would that's see a portfolio think reduction the affect going would point, impact latter performance. our particular industries there or the I everybody. or degree to GDP, specifically that really to we tenants own, your is is don't our point, on the general concentration extent, to in But materially their

under And contract. mentioned Howard, you helpful. LOI properties million $XX that's of Okay, then or

related for quarter that's that? market? the where million. about attractive to were what $XXX amount to on last your of think read anything it appetite Is talked you you into were, meaningfully the I below be you when deals there deals or Whether

there's don't really that. think correlation a I No, to

busy our deals past quarter. First of all, done transactions. quarter We've team was exceedingly we've where close to trying had this never XX a

fact, we've In had where done years XX we've transaction.

course, really I So of that, And other focus what of our are a working and just is think on the new focus was of tremendous on we're contract on. under deals behind and sourcing is it's imminent deals. or And are indication that We, million $XX activity. of have very amount bit more closing busy. a but quite the acquisitions team really LOI obviously

So for level any change an activity really in us. of the indication not

noticed what's top was Okay, on for Did the the the guess sign last new top lease quarter. not that's tenant, going to we you on fair. them And there? I Grocers, tenant portfolio? XX Unified expansion quarter? then this your on during Is your a

Mike, we reason last them time. And to you the the why XXX,XXX-foot that's the in so the them, what And, want is happened interesting that that is Sheila for Street. building to you're a seeing speak the Grocers week. tenant. story maybe, acquired And Unified behind first new Unified with on tenant the was

firm the acquired announcement, foods. a Yes, actually was they whole is largest a to recent larger distributor were there that by

driven tenant we the to that the but obviously, purchases not so by in-store Amazon just direct consumer. as the their that, is expanding expand from whole also foods And may opportunity business for think

of from question the Korchman next comes Manny from Our Citi. line

of? guys how sort Is of FFO doing question guidance be year-end. hey got else from are look is the Hi, FFO. we a an equity simply different perspective, function we've count If something Adeel, a That or that increased thinking the years we share should from of trajectory you. for you. at not of flat

joining Manny, and call thanks for for the thanks the question.

to think, both from the guidance the to the end up $X.XX I just high $X.XX reiterate to first $X.XX. So of from we did $X.XX all, moved on $X.XX, to low end and --

which Also, is and re-leasing the they issuance spreads So compare the and occupancy I there up clearly clearly, where have organic already. -- through the We year, it did shows come quarter, to equity that growth a and of the year. year the great a leasing it's been disclosed have think in levels we just for lot good trajectory last how there. during the the

is the disclosed the deals cash which the base, not think right? of we've did going lot balance right? to LOI that. than get any acquisitions too a have over path Howard So -- quarter just seen anything improved right timing sheet I going it's is more from escrow, putting last if so not there that clearly -- other of to there So is we then I what's the future. sitting I a deployed but We after the think and think in taken timing progressively So that -- couple is quarters, distant guidance our be factor, under and to the you've

So we in I shape. then have to we if true good should stays what be think that done,

seeing are terms out in larger that. for what right acquisition terms market, there you the portfolios of And in just Thanks of now?

around truly more some be able to coming are hear things national, participate there we opportunities are floating portfolios. opportunities some of that -- They're and we that Southern be market. in. other will might California-based There's Most some not interesting there's there and to them

up split So the focus that right and some couple some other trying But to work of out with We'll now, on working people have we're on assets. we to peel portfolio. things. a to

Michael, call. again the joining for I it's -- think Manny, thanks,

out future. we put our such to some focus a the If also XX we we've LOIs on perspective, And transactions But issued our in opportunity. in of marketplace. on those will key business represent what we XXX XX, this fragmented And large to to we've perspective, about larger And about offers too is not transactions $X.X put put distant billion in that you LOI. on business that about see year. transacted year-to-date think the

to doesn't benefit Rexford. frankly and from the move to over the the needle impacts of for research continues time, can So transactions necessarily regeneration be it big the excited Rexford that all we today we're of us improve opportunity cumulative take we at the set more and And as is, doing.

[Operator of from next Lynch. the with your proceed question Merrill of Instructions] line Our Jamie comes America question. Please Bank Feldman with

guys what Great, can thank rent hoping seeing you. I'm you're talk more you growth. about in terms of market

you and trends of Just the where do even rest kind year of how -- do think think where you. the year? you Thank think been you it's year-to-date do for in next it the and

think substantially Jamie, spreads overall is Howard. sized I greater which includes, interesting rental rent market other smaller growth, what achieving -- words market, than Hi obviously, in It's in we're bigger in and it's our the our blended spaces.

year. In it is this largest to rent the County have terms growth of looks projected growth, probably like Orange

I about look you GAAP in outstanding X% rent we CBRE renewal County Orange increased is of in portfolio, spreads year. bought rates Empire, Inland numbers, we've the XXX,XXX-foot and of on late captured think one at of rent had some last our we year-to-date, some cast of property X.X% over year. was fact, our growth the CBRE If be end have lease projecting and higher

more rent anaemic of space an larger rents had it. there's which really GAAP Inland store going the find and we had our as properties, they're up demonstrate strategy, is just growth, dragged in doesn't with what's in where know, are Empire, our great rent I overall in buildings out, buildings a be growth those really that you which able in we portfolio, same think But not growth. is, lot I X not Rexford set deal is But big if much rent a target impact. But momentum Rexford product focus market creates rent is mentioned the to to the market look growth forward is being and market undervalued, really because at so It push surprisingly, Eastern those example. able in to by to that the pool. large because large spread under-rented, business have well a our we're I interesting That reliant in. have the Inland on on mismanaged-type XX% going a Empires comes

If bought just that those in XX.X% last of below in acquisitions market. what we've in-place you worth the look acquisitions at were rents in aggregate, million quarter, $XXX

Rexford, our position because business I in of we're for think a So different really strategy.

opposed many to might in market. As who just momentum others more be the players

market that’s think as you where helpful. rents next your looks you compare for that year, Okay, And does to how of like your expirations in-place XXX, about think is?

already look that because the rolled. on spent our years, we have our we probably below leases. you Market, than basis, on XX% market. the X.X naturally a entire over portion And that's the about if mark-to-market next less look at expiring at expiring overall leases That's we're portfolio, bit a

any you're one end expiring there's thinking just you next of the half of with -- I either year of into year, we should and be think And it's year? about then they this likes about, if having conversations And looks at talk your Dendreon, which tenant can expirations any large Okay. next then are back them? largest with their also

last we've the really larger that able call, really, the renew this this any was and we and have with year, anything, tackling. leases Well, of all. have blocking Sure. year on Really, as impact balance really to the we're mentioned some at about to on of don't

about people expiring terms of remainder to of off to the the renewals. then the In that XX,XXX quickly only XX,XXX building to in looking list XX,XXX even year. talking fact, close feet, drops I'm keeping of now, and feet already that's X from pretty leases most And were there's at right

easy minute space predict staying So it's really they that till are wait or last because leaving. really sometimes most small the to of on less occupiers little the

terms decisions. In of those

Mid-Counties. have first market. half an where XXXX, reason there's with discussions we in expiring no We're renewal. XXX,XXX in And feet. base building into to the the tenant the As of on far looking move That being, as in about is the that largest building's a already with

year, looks real to really pretty really, next it's large as There's and buildings. looking blocking going So like no It's be well. tackling. decent

the that and turned investment current that the Dendreon, comes dramatically they've Dendreon they around the or in up of expect restore I I well-finished obligated improvements leave, credit of of business, remove the are know that But end as value to they to that that to building's in to the honest in those really And I building and far what has over that As been fundings I that, be below stay owner there clear the on made a read, don't had exit. $XX-plus-million you making with think recall that company now. you, from company building the year. if specialized to high business, distribution want the And the bought going lease right stay of whether in and and took next business improvements. owner building. actually an the value about tenant's

will they that rent and I So stay significant expect probably will in building. have the growth

Okay.

tenant any going because value of deliver embedded demand market is of outside around, it's whatsoever, we the of of model. and a NOI forward-lease our business assuming business the growth bought million we're NOI as And and to growth asset of are that $XX.X the don't but Just XX% the And the focused are growth and And on rent major prospects certainly are that's generally, really see we element about the that, it to add with XX.X% repositioning. as company, kind based expirations another what we never feels the cycle. key the the prospects. end to portfolio excited internal as growth about like quarter, through we in let-up for to questions in or contributed on by continue of the our see tenant

early guess give for I just on read store year? you an Are So able same that? numbers next to around some

We'd but to love yet. not

There are call questions management like no to back queue. comments. for the hand I'd closing to further the in

about everybody to in months. today. thanks joining look we Many for X forward reconnecting And for

teleconference. you today's Ladies and gentlemen, for this does participation. conclude Thank your

your this time, wonderful day. have You may lines disconnect at a and