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Edited Transcript of REXR earnings conference call or presentation 1-Aug-18 5:00pm GMT

Q2 2018 Rexford Industrial Realty Inc Earnings Call

Los Angeles Aug 22, 2018 (Thomson StreetEvents) -- Edited Transcript of Rexford Industrial Realty Inc earnings conference call or presentation Wednesday, August 1, 2018 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adeel Khan

Rexford Industrial Realty, Inc. - CFO

* Howard Schwimmer

Rexford Industrial Realty, Inc. - Co-CEO & Director

* Kara Smith

ICR, Inc. - IR

* Michael S. Frankel

Rexford Industrial Realty, Inc. - Co-CEO & Director

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Conference Call Participants

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* Blaine Matthew Heck

Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst

* Emmanuel Korchman

Citigroup Inc, Research Division - VP and Senior Analyst

* James Colin Feldman

BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Rexford Industrial Realty, Inc. Second Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kara Smith, Investor Relations. Thank you, Ms. Smith. You may begin.

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Kara Smith, ICR, Inc. - IR [2]

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We would like to thank you for joining us for Rexford Industrial's Second Quarter 2018 Earnings Conference Call. In addition to the press release distributed yesterday after market close, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rexfordindustrial.com.

On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plan, projects, seeks, should, will, potential, predicts and variations of such words or similar expressions. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income or financial guidance. As a reminder, forward-looking statements represent management's current estimates.

Rexford Industrial assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC. In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental information package, which were released yesterday afternoon and are available on the company's website, present reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Today's conference call is hosted by Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer Adeel Khan. They will make some prepared remarks, and then we will open the call for your questions.

Now I will turn the call over to Michael.

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [3]

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Thank you, and welcome to Rexford Industrial's Second Quarter 2018 Earnings Call. I will start with a summary of our operating results, some comments about market conditions and our unique value-driven strategy. Howard will then cover our recent transaction activity, and Adeel will follow with more details on our financial results and our guidance. We will then open up the call for your questions.

We are pleased to report another very strong quarter. We grew company share of core FFO by a full 44% year-over-year, driven by continued strong top line internal growth as well as our active acquisition activity. Core FFO per share was $0.27, up 17.4% year-over-year. Our team increased same property NOI by 10.5% on a GAAP basis and by 9.9% on a cash basis, with stabilized same-property portfolio occupancy up 210 basis points to 98.4% at quarter-end. Stabilized same property portfolio NOI growth, net of the impact of repositioning, was 7.7% in the second quarter on a GAAP basis and 9.5% on a cash basis.

Leasing volume remains high, with 128 leases assigned during the quarter for 843,000 square feet. We again achieved exceptional double-digit leasing spreads at 35.5% on a GAAP basis and 23.9% on a cash basis. Tenant retention was 71% for the quarter. So far this year, we've acquired $348 million of industrial property throughout infill Southern California, increasing our portfolio square footage to over 20 million square feet.

Our infill Southern California industrial market remains strong. Tenant demand continues at historic levels with overall market occupancy above 98%. Our portfolio operates in and among the nation's largest population centers, which represents one of the world's largest regional economies. Our industrial property footprint comprises the last mile of product distribution, representing the last stop for the delivery of goods to end users and consumers.

Consequently, our infill tenant demand is principally driven by consumption. In this way, our target infill markets differ from non-infill big-box markets, where tenant demand may generally be driven by global or superregional trade and distribution. This is a key differentiator, particularly with the potential for increased tariffs and changing trade patterns. It is instructive to consider historical examples when we have experienced a change in trade flows. For example, during 2002, when the ports of Los Angeles and Long Beach shut down and during 2014, when the ports slowed down, both due to labor issues, we did not see any material reduction in infill tenant demand within our portfolio.

As a result, we also do not expect to see a material impact to our portfolio from changing trade flows that might result from an increase in tariffs in the future. In addition, e-commerce, which is still in its early stages of growth, together with the growing demand for shorter-delivery time frames, is expected to continue to drive growing industrial tenant demand into the foreseeable future.

Looking forward, we believe that infill Southern California, as the nation's largest endpoint of distribution, will continue to benefit like no other market from the growth in e-commerce. We also believe the introduction of new technologies, from smart warehouses and 3D printing to blockchain-enabled transactions and product distribution platforms, will continue to make our infill warehouse locations more productive and more valuable.

Our infill Southern California markets are also differentiated by the fact that although we are experiencing ongoing tenant demand growth, we continue to see a net reduction in supply as more industrial product is removed from our infill markets than can be built. With respect to our specific operating strategy, we continue to play offense by expanding upon our competitive advantages that make for a great business at Rexford. Playing offense means that we innovate and outcompete in every key aspect of our business.

We innovate with leading-edge technology and research to enable us to generate our own investment opportunities with most of our acquisitions acquired through off-market or lightly marketed transactions, which lead to superior cash yields and value creation. We position ourselves to outperform the market in leasing space, by utilizing our vertically integrated asset management platform and superior technology.

We also innovate in our back office as we build a company with increasing efficiency and growing operating margins, leveraging technology and process improvement as we grow our portfolio. As a result, in the 5 years since our IPO, we have increased our net operating margins by 330 basis points to 75.3%, and we've increased our FFO per share by approximately 45%. Playing offense at Rexford also means maintaining a low leverage balance sheet, positioned to strike as opportunities arise. Consequently, we finished the quarter with a net debt to adjusted EBITDA ratio of 4.1x and a debt to total combined market capitalization of 6.3 -- 16.3%.

Finally, a strong offense at Rexford means setting new standards in sustainability and community stewardship, which goes beyond merely improving energy efficiency at the property level. When we reposition blighted industrial property into high-functioning industrial assets, we are also helping to reposition neighborhoods and communities by enabling higher-quality local businesses, jobs and safer living and working environments.

We pride ourselves on our unique mandate to recycle and to reinvent existing buildings to create not just superior economic returns but to create the potential for substantially reduced environmental or carbon impact compared to discarding existing buildings and replacing them with new buildings. All these factors contribute to our ability to perform through cycles and to outcompete (technical difficulty) after industrial market and infill Southern California.

Our go-forward market opportunity is fast as the economic value of the Southern California industrial market equals the value of the next 5 largest markets combined. Further, with over 1 billion square feet having been built prior to 1980 within a more than 2 billion square foot total market, we are capitalizing upon a nearly limitless well of value creation opportunities before us into the foreseeable future. Most importantly, we'd like to acknowledge our tremendous Rexford team for driving exceptional execution of our unique business.

And with that, I'm very pleased to turn the call over to Howard, who will discuss our acquisitions activity in more detail.

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Howard Schwimmer, Rexford Industrial Realty, Inc. - Co-CEO & Director [4]

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Thanks, Michael, and thank you, everyone, for joining us today. Fundamentals in our infill Southern California industrial markets remain consistently strong. Our target markets, which exclude the Eastern Inland Empire, ended the second quarter at 98.3% occupancy, and asking rents increased 3.3% on a weighted average basis.

Strong demand for industrial space combined with low availability of inventory continues to place upward pressure on rents. We had a very busy second quarter of investment activity, completing 13 acquisitions of high-quality industrial product totaling just under $275 million. 85% of these acquisitions were off-market, demonstrating the power of our research-driven platform to continue uncovering opportunities to acquire quality investments in our target markets with better-than-core stabilized yields.

In April, we acquired Lawrence Drive in the Ventura County submarket for $6.6 million. We are now planning to construct a new 90,000 square-foot, 4-tenant building on the 5-acre site, replacing an existing 50,000 square-foot structure. Once complete, we project an unlevered stabilized yield on total cost of approximately 6% or more.

In April, we acquired 1581 Main Street, a 40,000 square-foot building in the Orange County-North submarket for $7.2 million. The 100% leased building is 24-foot clear with 10 dock positions, ideal for last-mile distribution. The initial yield is 4.8%, based on an in-place lease estimated to be 18% below market.

Additionally, we acquired Calle Platino in the North San Diego submarket for $20 million. The 143,000 square-foot building is 100% leased to 4 tenants at rates estimated to be 39% below market. Over time, we expect to drive the initial 4.3% yield to a stabilized yield on cost of 6.2%.

We also closed on North Twin Oaks Valley Road in the North San Diego County submarket for $14 million. The fully leased 2-building property contains a total of 97,000 square feet. The initial stabilized yield of 6.1%.

We purchased West Carson Street in the Los Angeles-South Bay submarket for $7.5 million. We have begun repositioning the vacant 28-foot clear 44,000 square-foot building, including extensive dock-high loading, ESFR sprinkler upgrades and overall modernization. Our expected stabilized yield is 5.9%.

In May, we acquired Sheila Street in the LA Central submarket for $121 million. The 36-foot clear logistics facility contains 700,000 square feet on 36 acres of land with 118 cross-dock loading positions and excess land accommodating storage for almost 500 containers. The property is leased long term on an absolute triple-net basis to a high-quality credit tenant at a rate that is estimated to be 17% below market. The initial yield is 4.3%.

Also in May, we completed the acquisition of Stanford Court in the Orange County-North submarket for $6.1 million. The property contains a modern 35,000 square-foot building leased short term to a single tenant at a lease rate estimated to be 30% below market. After minor functional and cosmetic upgrades, we expect to roll the rent to market and achieve a 5.3% yield on cost.

We acquired Surveyor Avenue located in the Ventura submarket for $5.8 million. The under-construction building, once complete, will encompass 56,000 square feet on 3 acres with 30-foot minimum clear height and 5 dock high-loading positions. The property is in a prime location within a severely supply constrained submarket and the stabilized yield is expected to be 5.6%.

We acquired Gateway Circle in the Orange County Airport submarket via a sale-leaseback transaction for approximately $8.1 million. The 37,000 square-foot modern building is leased to an entrenched tenant on a long-term lease at an initial yield of 5%.

In June, Rexford acquired Fujita Street in the Los Angeles-South Bay submarket for $14 million. The property contains 91,000 square feet on about 4 acres and has been occupied by an entrenched tenant since 1992. The in-place yield is 5.2% with optionality for value-add visibility should the in-place tenant vacate.

Also in June, we purchased North McKinley Avenue in the Los Angeles-South Bay submarket for $30 million. The recently constructed state-of-the-art property contains 137,000 square feet with 32-foot clear height, ESFR fire sprinklers and 27 dock-high positions. The building was fully leased during escrow to a logistics tenant at an initial yield of 4.4%.

We acquired Azusa Canyon Road in the LA San Gabriel Valley submarket for $12 million. The property contains 71,000 square feet with excess land equating to only 27% site coverage. The building is leased short term at a below-market rent to a credit tenant with optionality for value-add repositioning or redevelopment at lease expiration. The initial yield is 5%.

At the end of June, we acquired Montague Street in the LA San Fernando Valley submarket for $22.5 million. The recently renovated 123,000 square-foot building is 100% leased on a short-term basis to a single tenant at a lease rate estimated to be 18% below market. The initial 3.3% yield is expected to stabilize at a 5.7% yield on cost at lease roll.

Subsequent to quarter-end, we acquired Norwalk Boulevard, a stabilized asset in the LA Mid-Counties submarket for $10.8 million at an initial yield of 4.3%. (technical difficulty) Avenue Sherman, a vacant value-add building in the LA San Fernando Valley submarket for $9.5 million with a projected stabilized yield of 5.1%.

For 2018, we've completed $348 million of acquisitions so far, and our pipeline includes over $85 million of acquisitions under LOI or contract. These acquisitions are subject to completion of due diligence and satisfaction of customary closing conditions, and we will provide more details as transactions are completed.

Regarding our disposition activity, we sold 2 properties for approximately $11 million in the second quarter and $38 million year-to-date. In aggregate, these dispositions generated a weighted average unlevered IRR of 31% for the second quarter and 21% for the year-to-date total. All proceeds have been efficiently reinvested through tax-deferred exchanges.

I'll now turn the call over to Adeel.

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Adeel Khan, Rexford Industrial Realty, Inc. - CFO [5]

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Thank you, Howard. Beginning with our operating results. For the second quarter 2018, net income attributable to common stockholders was approximately $5.2 million or $0.06 per fully diluted share. This compares to $17.8 million or $0.26 per fully diluted share for the second quarter of 2017. Net income for the second quarter of 2018 included $1.6 million of gains from the sale of real estate as compared to $16.6 million of gains for the second quarter of 2017.

For the 3 months ended June 30, 2018, company share of core FFO was $22.9 million as compared to $15.9 million for the 3 months ended June 30, 2017. On a per share basis, company share of core FFO was $0.27 per fully diluted share, representing a 17% increase year-over-year. Core FFO per share increased due to strong acquisition activity completed in the past 12 months and same property portfolio growth, which was partially offset by higher interest expense and higher diluted share count.

Same property NOI was $28.1 million in the second quarter, which compares with $25.4 million for the same quarter in 2017, an increase of 10.5%. Our same property NOI was driven by a 9.3% increase in total rental revenue and a 5.6% increase in property operating expenses. On a cash basis, same property NOI increased by 9.9% year-over-year. Stabilized same property NOI growth, net of the impact of repositioning, was 7.7% in the second quarter on a GAAP basis and 9.5% on a cash basis.

Turning now to our balance sheet and financing activities. We continue to make great progress as we optimize our cost of capital while maintaining a strong, flexible balance sheet with ample liquidity to support our growth objectives. During the second quarter, we issued approximately 10.2 million shares of common stock through our ATM at a weighted average price of $31.17 per share, which resulted in net proceeds to Rexford of approximately $312 million. We utilized these funds to fund our acquisitions, repay borrowing on our credit facility and for other corporate purposes.

At the end of the second quarter, we had $162.7 million of cash, full availability on our $350 million credit facility and approximately $242 million available under the $400 million ATM program. We have no debt maturities through 2021 with our next maturity being our $100 million term loan in 2022. With regard to our dividend, on July 30, our Board of Directors declared a cash dividend of $0.16 per share for the third quarter of 2018, payable on October 15, 2018, to common stock and unitholders on record on September 28, 2018.

Additionally, our Board of Directors declared a preferred stock cash dividend of approximately $0.37 per share for the third quarter of 2018 payable on September 28, 2018, to our preferred stockholders as of September 14, 2018.

Finally, we're increasing our full year 2018 guidance for company share of core FFO to a range of $1.05 to $1.07 per share from our previous range of $1.02 to $1.05 per share. This was driven by strong acquisition activity as well as better-than-expected portfolio NOI growth so far this year. Specifically, we now expect that same property portfolio NOI growth will range from 8% to 9.5%, up from our previous range of 6.5% to 8.5%. And we expect stabilized same property NOI growth in a range of 5.5% to 7%, up from our previous range of 4.5% to 6%.

For G&A, we're tightening our guidance to a range of $24.5 million to $25 million, including about $8.5 million of noncash company-wide equity compensation. Please note that our guidance does not include the impact of any transactions or capital market activities that have not just been announced, nor acquisition costs or other costs that are typically eliminated when calculating this metric.

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

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Questions and Answers

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Operator [1]

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

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Blaine Matthew Heck, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [2]

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

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [3]

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Blaine, thanks for joining us today. I appreciate the question. And by design, our business model is to focus on extremely diversified tenant base. Again, that's why we focus on generic industrial space, and so we're able to field the widest, deepest possible universe of tenants. And we really don't have any segment of concentration dedicated to any particular industry or function. So I think, to your point, the latter point, which is just to the extent there is a general reduction in GDP, that's going to affect everybody. But we really don't see particular concentration in industries or tenants that would be specifically affected to the degree it would materially impact on their own, our portfolio or our performance.

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Blaine Matthew Heck, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [4]

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Okay, that's helpful. And then, Howard, you mentioned $85 million of properties under LOI or contract. I think that's meaningfully below what you were -- where you were last quarter when you talked about $200 million. Is there anything to read into that? Whether it be related to your appetite for deals or the amount of attractive deals on the market?

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Howard Schwimmer, Rexford Industrial Realty, Inc. - Co-CEO & Director [5]

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No, I really don't think there's a correlation to that. First of all, our team was exceedingly busy trying to close deals this past quarter. We've never had a quarter where we've done 13 transactions. In fact, we've had years where we've done 13 transactions. So tremendous amount of our focus was on closing deals. We, of course, have a focus on sourcing new acquisitions and the team is very busy. And I think the $85 million is really just an indication of really what we're working on and other deals that are obviously either under contract or LOI and are more imminent. But behind that is quite a bit of activity, so it's really not an indication of any change in the activity level for us.

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Blaine Matthew Heck, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [6]

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Okay, that's fair. And then we noticed your top tenant, Unified Grocers, was not on the top 10 for the last quarter. Is this a new tenant to your portfolio? Did you sign an expansion lease during the quarter? I guess what's going on there?

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Howard Schwimmer, Rexford Industrial Realty, Inc. - Co-CEO & Director [7]

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Unified Grocers is the tenant that was in the 695,000-foot building we acquired on Sheila Street. And -- so that is a new tenant, and that's the reason why you're seeing them for the first time. And interesting story behind them, maybe, Michael, you want to speak to what happened with the Unified last week?

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [8]

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Yes, actually there was a recent announcement, they were acquired by a larger firm that is the largest distributor to Whole Foods. And so obviously, we think that, that may expand the opportunity for the tenant as Amazon is expanding the business driven by Whole Foods not just from their in-store purchases but also direct to consumer.

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Operator [9]

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

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [10]

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Adeel, question for you. If we look at sort of the trajectory of FFO, it feels like we've got flat guidance from an FFO perspective, if not a dip into year-end. Is that simply a function of the increased share count from doing equity or is there something else we should be thinking of?

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Adeel Khan, Rexford Industrial Realty, Inc. - CFO [11]

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Manny, thanks for joining the call and thanks for the question. So first of all, I think just to reiterate, we did move the guidance up both on the high end and the low end from $1.02 to $1.05 to $1.05, $1.07. So I think clearly, there is a lot of good organic growth that's come through the year. Also, it shows up in the re-leasing spreads and just the leasing and the -- where the occupancy levels have been for the year and how they compare to last year, so clearly great trajectory there. We did have equity issuance here during the quarter, which we disclosed already. So there is balance sheet -- cash sitting there which is going to get deployed in the not-too-distant future. We did a couple of deals right after the quarter and then Howard disclosed the -- what's under LOI and escrow. So a lot of that is just going to be timing based, right? So it's more timing than anything but I think from a -- I think not putting any acquisitions to our guidance clearly is the other factor, right? So I think if you've seen the path that we've taken over the last 2 quarters, you know we have progressively improved that. So I think if that stays true to what we have done, then we should be in good shape.

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [12]

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

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Howard Schwimmer, Rexford Industrial Realty, Inc. - Co-CEO & Director [13]

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There's -- there are some things floating around and we hear that there will be some other opportunities coming to market. Most of them are not truly Southern California-based portfolios. They're more national, and there's some interesting opportunities that we might be able to participate in. So we have some focus on a couple of things right now, that we're working on and trying to peel out some assets, or work with other people to split up some of the portfolio.

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [14]

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Manny, I think -- this is Michael, thanks again for joining the call. If you put our business in perspective, the key to our business also is we're focused on such a large fragmented marketplace. And we will see some larger transactions we think in the not-too-distant future. But to put it in perspective, that -- year-to-date we've issued about 170 LOI. And we've transacted on about, what, 15, 16 transactions this year. And those LOIs that we put out offers on represent about $3.7 billion of opportunity. So it doesn't necessarily take the big transactions to move the needle at Rexford. And the opportunity set at Rexford today is -- we couldn't be more excited and frankly continues to improve for us over time, as we benefit from the cumulative impacts of all the research and lead generation that we're doing.

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Operator [15]

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

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James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst [16]

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I'm hoping you guys can talk more about what you're seeing in terms of market rent growth. Just kind of where do you think it's been year-to-date and where do you think -- how do you think it trends for the rest of the year and even into next year?

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Howard Schwimmer, Rexford Industrial Realty, Inc. - Co-CEO & Director [17]

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Jamie, it's Howard. It's interesting, our -- I think what we're achieving in market rent growth, in other words in our rental spreads, is substantially greater than the overall blended market, which includes, obviously, bigger and smaller-sized spaces. In terms of growth, it looks like Orange County probably is projected to have the largest rent growth this year, if you look at some of the CBRE numbers. I think year-to-date, Orange County lease rates have increased about 2.2% and CBRE is projecting be over 5% end of the year.

Inland Empire, we've had some outstanding rent growth in our portfolio. In fact, one of our higher GAAP and cash rent spreads we captured was on a 100,000-foot renewal of property we bought late last year. I think we had an 85% GAAP rent spread on it. But surprisingly, the overall market in Inland Empire is really going to have anemic rent growth, which is being dragged down by a lot of the larger spec buildings that are in the Eastern Inland Empire, which as you know Rexford doesn't focus in. But because there's so much product out there, they're not really able to push those rents, and those large buildings have a big impact.

But what's more interesting I find is, if you look at our business strategy, where we had a target undervalued, under-rented, mismanaged-type properties, Rexford is really set up well going forward to be able to demonstrate large rent growth in our portfolio, because we're not reliant just on market rent growth in terms of the momentum in the market to create growth in our same store pool. That 1 deal I mentioned is a great example. If you look at what we've bought in the last quarter, that $275 million worth of acquisitions in aggregate, in-place rents in just those acquisitions were 16.6% below market. So for Rexford, I think we're in a different position really because of our business strategy. As opposed to many others who might be more just momentum players in the market.

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James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst [18]

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Okay, that's helpful. And then as you think about your expirations for next year, looks like your in-place rents of [909] how does that compare to where you think market is?

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [19]

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Market, we estimate -- on a mark-to-market basis, we look at our expiring leases over the next 1.5 years, about 15% below market. That's on our expiring leases. And if you look at overall the entire portfolio, we're probably a bit less than that naturally because a portion of that's already rolled.

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James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst [20]

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

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Howard Schwimmer, Rexford Industrial Realty, Inc. - Co-CEO & Director [21]

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Sure. Well, as we mentioned on the last call, really, this year was really about blocking and tackling. Really, early on were some of the larger leases that we're able to renew. And through the balance of this year, we really don't have anything of any impact at all. In fact, there's only 1 building that's even close to 50,000 feet and then it drops off pretty quickly in terms of expiring leases remainder of the year. And from the list I'm looking at right now, most of the people that even 20,000 to 50,000 feet, we're already talking to about renewals. So it's really more the small space occupiers that are a little less easy to predict because they wait really till the last minute sometimes on staying or leaving in terms of those decisions. As far as looking into the first half of 2019, the largest building we have with an expiring lease is about 100,000 feet. We're already in discussions with that tenant on a renewal. And the reason being, there's nowhere to move in the market. That building's in Mid-Counties. So next year, really looks pretty decent as well. There's no real large buildings. It's really looking like it's going to be blocking and tackling.

As far as Dendreon, that comes up I think the end of next year. And to be honest with you, whether they stay or leave, the building's dramatically below value right now. And the current owner of the Dendreon business has been making an investment in that company. And from what I read, they've really turned around the business, and I expect that they are going to want to stay in the building. I don't know if you recall, but that building actually had about $60 plus million of specialized improvements made in there that the tenant's obligated to remove and restore to a high clear, low-finish distribution building on the exit. But the current owner of that business bought the company and took over that lease, finding value in those improvements. So I expect that they probably will stay and we'll have significant rent growth in the building.

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [22]

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Just to add to that, it kind of feels like the questions are around, what are the internal growth prospects for the company, based on the forward-lease expirations and major tenant prospects. And generally, we see about a 17.3% embedded NOI growth in the portfolio as of the end of the quarter, assuming we never bought another asset. And about 39% of that or $10.5 million is contributed by the repositioning. And as excited as we are with the market rent growth and certainly we don't see any let-up in tenant demand whatsoever, but we're really focused on the value-add side of our business, because that's going to continue to deliver NOI growth through cycle and it's a key element of our business model.

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James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst [23]

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

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [24]

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We'd love to but not yet.

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Operator [25]

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

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Michael S. Frankel, Rexford Industrial Realty, Inc. - Co-CEO & Director [26]

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Many thanks for everybody for joining today and we look forward to reconnecting in about 3 months.

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Operator [27]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.