Rexford Industrial Realty, Inc. (REXR) Q2 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Rexford Industrial Realty Second Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Swett. Thank you, sir. You may begin.

Good afternoon. We would like to thank you for joining us for Rexford Industrial’s second quarter 2015 earnings conference call. In addition to the press release distributed today, 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, intend, may, plans, projects, seeks, should, will 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 this afternoon and are available on our 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. This afternoon’s conference call is hosted by Rexford Industrial’s Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer, Adeel Khan. They will make some prepared remarks and then we will open the call for your questions. Now, I will turn the call over to Michael.

Thank you and welcome to Rexford Industrial’s second quarter 2015 earnings call. I will begin with a summary of our operating and financial results for the quarter; Howard will then provide an overview of our markets and recent investment activity; and Adeel will then follow with more details on our quarterly results, our balance sheet and an update on our outlook for 2015, including expanded FFO guidance. To begin with, we have just completed our 2-year anniversary as a public company. It’s been a very productive two years. We have grown total revenue by 94% and recurring FFO by 147%. We have acquired more than $600 million of industrial property in prime in-fill Southern California locations at favorable yields and predominantly through off-market and lightly marketed transactions. We have raised more than $400 million in equity through two follow-on stock offerings and we have achieved a corporate credit rating and issued $100 million in unsecured bonds. We are exceptionally proud of our team’s accomplishments and we couldn’t be more excited about the prospects for our business going forward as we continue to create value for shareholders. Our quarterly results continue to demonstrate the successful execution of our business plan, with another excellent quarter for Rexford. We achieved company recurring FFO of $11.1 million, more than 80% higher than the FFO recorded during the prior year period. And we achieved recurring FFO per share of $0.20, which was even with our first quarter result, even as we absorbed the full impact of our January equity offering into our share count. On a same property basis, NOI increased 6.2% in the second quarter of 2015 compared to the second quarter of 2014 driven by a 5.5% increase in same property rental revenue and a 3.8% increase in same property expenses. Same property portfolio of cash NOI increased a robust 8%. We continued to see favorable NOI growth driven by strong releasing spreads, increasing occupancy and margin expansion as our ongoing portfolio and top line revenue growth leverages the relatively fixed costs of our operating platform. We pushed our stabilized same property portfolio occupancy to 94%, representing a year-over-year increase of about 360 basis points. For the consolidated portfolio, we signed 142 leases accounting for approximately 726,000 square feet during the second quarter. We signed 57 new leases for about 284,000 square feet and 85 lease renewals for about 442,000 square feet. We generated strong leasing spreads of 7% on a cash basis and 15.4% on a GAAP basis for the quarter. Q2 represents our seventh consecutive quarter of positive double-digit GAAP releasing spreads and demonstrates the success of our strategy to roll recessionary in-place rents to higher recovered rents. With over 36% of our leases rolling through the end of 2016, we have a great opportunity to continue to drive strong NOI growth as we proactively mark rents to market. The quarter’s tenant retention rate was 52%, which was impacted by negative net absorption of about 132,000 square feet primarily due to move-outs at two repositioning properties, Birch and Frampton. We are initiating upgrades to reposition these properties to achieve higher rents, increased cash flow and greater value. Adjusting for these two properties, our retention rate would have been 62% and our net absorption would have been positive. We are pleased to report that we have already re-leased over 56% of spaces that were vacated during the quarter demonstrating our ability to rapidly re-tenant high demand space, where our product is competitively positioned in the best infill locations with superior quality and functionality. Further, we continue to capitalize on our deep market presence, strong balance sheet and extensive sourcing methods to add another $76 million of high-quality infill industrial properties to our portfolio since the start of the second quarter bringing our year-to-date acquisitions to more than $128 million. As Howard will detail shortly, our acquisition pipeline remains very active as a testament to the strength of our originations platform through which we continue to source high-quality investments at attractive yields in our prime infill markets through off-market and lightly marketed transactions. With regards to the balance sheet, as most of you may know, we recently executed an agreement to issue $100 million of 10-year, fixed rate senior guaranteed notes through a private placement transaction. Adeel will provide more specifics later on the call, but we are pleased that our ability to issue unsecured debt at great pricing adds another source of capital to our balance sheet and positions us for further growth. Finally, I would like to note that earlier this week, our Board approved a third quarter dividend of $0.135 per share, representing a 12.5% increase from the prior dividend, which is enabled by the accretive growth being generated across our platform. As we move into the second half of 2015, we believe we are well-positioned to continue to drive strong performance to generate substantially better than core returns and accretive growth in the nation’s best performing, largest and most sought-after industrial market in infill Southern California. And with that, I am pleased to turn the call over to Howard.

Thank you, Michael and thank you everyone for joining us today. As on past calls, I will update you on our markets and review our recent transaction activity. I will start by providing some perspective on our markets, primarily utilizing market data provided by CBRE. The vacancy levels nearing all-time lows. The Southern California infill markets have further become more landlord-controlled in the second quarter, with multiple offers on vacant space, rents increasing and TI concessions decreasing further. In many of the markets where Rexford focuses, we continued to see a decreasing supply of industrial properties as buildings are removed or converted to higher value leases, with creative conversions to office space accelerating significantly in recent quarters. In Los Angeles County, gross activity has stayed strong through the second quarter, generating 1.2 million square feet of positive net absorption, with 58% of gross activity concentrated in buildings less than 100,000 square feet. The overall average asking lease rate improved by 1.5% over the prior quarter, and over the next 12 months, CBRE expects rents to further increase by 5.1%. The overall vacancy rate dropped to 1.6%, a 10 basis point decline since last quarter. In the Greater San Fernando Valley, where 25% of Rexford’s portfolio resides, the average asking lease rate increased 4% over the previous quarter and ended with the lowest vacancy in the region at 1.1%. Orange County experienced a strong second quarter, posting 1.2 million square feet of positive net absorption, representing an increase of 73% compared to the previous quarter. The overall vacancy rate dropped 30 basis points over the last quarter to end at 2%, the lowest since – the lowest rate since the fourth quarter of 2000 when the vacancy rate was 1.3%. Market conditions remained tight for buildings under 10,000 square feet, which have a vacancy rate of 1.2%, while buildings over 100,000 square feet have the highest vacancy rate at 4.7%. The average asking lease rate was unchanged from the prior quarter, but concessions on new leases have tightened further. Overall, CBRE predicts that rates will gain significantly more traction and increased by 8.8% by the second quarter of 2016. In San Diego County, net absorption was positive for the quarter, occurring at a faster pace than in 2014 as year-to-date net absorption is at more than 60% of 2014’s record total. North San Diego County accounts for more than half of the positive net absorption year-to-date and since the last quarter, overall market vacancy decreased by 40 basis points to end at 5.1%, now below the 2006 pre-recession low of 5.4%. Since the last quarter, asking rental rates increased nearly 10%. Industrial market in the Ventura County had positive net absorption in the quarter, but the vacancy rate increased 10 basis points to 2.9% due to the new building deliveries. The average asking lease rates stayed unchanged since the last quarter. The substantial growth of the Inland Empire continued with 6.5 million square feet of positive net absorption for the second quarter, which is an increase of 44% over the last quarter. The overall vacancy rate dropped 50 basis points to end the quarter at 3.6%. Under construction activities increased by 153% since the beginning of 2013, with 53 buildings under construction totaling 19.8 million square feet, with most of the construction occurring in the Eastern Inland Empire in big boxes, which is not Rexford’s focus. Since the prior quarter, the average asking lease rate increased by 5.1% and CBRE forecasted the average asking lease rate to increase by 12.2% over the next 12 months, which would make it the highest recorded asking rate the Inland Empire industrial market has ever experienced. Now moving on to our transaction activity, since the start of the second quarter, Rexford has acquired six properties for an aggregate cost of $75.8 million, bringing year-to-date acquisitions to about $128 million. All of the second quarter investments were purchased in off-market transactions and each has unique characteristics providing potential upside over time in keeping with our ability to source and acquire properties with value-add and core-plus returns. Our earnings release has details of these transactions, so I will only provide some quick highlights. In April, Rexford acquired Norwalk, Boulevard in Santa Fe Springs, a 10.26 acre parcel with 38,000 square feet of industrial and office buildings and about 400,000 square feet of paved outdoor storage for $9.6 million, which represents $22 per square foot of land. The tenant vacated the property in June and we are in the process of re-leasing this highly sought after yard storage facility. We anticipate a stabilized yield on costs of 6.9% upon re-leasing at market rents. In May, we acquired Arthur Street, a 61,000 square foot industrial building in Cerritos for $5.8 million or $94 per square foot. Rexford acquired the building at a significant discount to market value, through execution of a favorable tenant purchase option that was assigned to us. Upon acquisition, we executed our new 5-year lease with the existing tenant, which provides a stabilized return of 5.7%. In May, the company acquired a two-building industrial portfolio in Lynnwood within South Bay submarket, containing a total of about 165,000 square feet or $22 million or $134 per square foot. Rexford worked with the primary tenant to acquire the property through a first grade refusal and executed a 15-year master lease. In addition, the property includes about 60,000 square feet of excess paved land that can be leased separately or developed. We anticipate an initial yield of 6.1%. In May, Rexford acquired Hacienda, a 28-foot clear 52,000 square foot industrial facility in the City of Industry within the San Gabriel Valley submarket for $7 million or $135 per square foot. The property, including 50,000 square feet of excess land, was leased back to the seller under a new 10-year lease providing an initial return of 5.5%. In June, we acquired 6700 Alameda, a 78,000 square foot, 40 foot clear, best-in-class cold storage facility in Huntington Park within the Central Los Angeles submarket for $14.5 million or $185 per square foot. The facility offers clear heights that are 30% to 40% higher than competitive product in the submarket, providing substantially greater cubic storage. The property has been leased under a new 10-year triple-net lease at an initial return of about 7%. Subsequent to quarter end, in July the company acquired Danielson Court, 112,000 square foot industrial business park in Poway within the Central San Diego submarket, for $16.9 million or about $151 per square foot. The property is 100% occupied, with several in place below market leases at an initial stabilized return of 6%. Moving ahead, we continue to see a large volume of potential product that fits our criteria and we currently have $50 million under contract and another $75 million under LOI, which we anticipate closing in the coming months and quarters. We remain extremely comfortable with our full year guidance or expectation for acquisitions of $250 million or more. I will now turn the call over to Adeel.

Thank you, Howard. In my comments today, I will review our operating results. Then I will summarize our balance sheet and recent financial transactions. And finally, I'll update you on our outlook for 2015, including our newly established guidance for 2015 recurring FFO. Starting with our operating results, for the three months ending June 30, 2015 company’s share recurring FFO was $11.1 million or $0.20 per fully diluted share. This compares to $6.1 million or $0.24 per fully diluted share in the second quarter of 2014. Recurring FFO per share declined due to the impact of two equity offerings completed within the last year, which increased the weighted average share count by more than 100%. Recurring FFO excludes the impact of approximately $847,000 of non-recurring acquisition expenses and $64,000 of legal fees. Including these costs, company share of FFO was $10.2 million for the quarter or $0.19 per fully diluted share. For the six months ending June 30, 2015 Rexford Industrial reported company’s share of recurring FFO of $21.2 million or $0.40 per fully diluted share. Recurring FFO excludes the impact of approximately $1.1 million of non-recurring acquisition expenses and about $400,000 of non-recurring legal expenses. Including these costs, company FFO was $19.7 million for the six months ending June 30, 2015 or $0.37 per fully diluted share. On a same property basis, we generated a 5.5% increase in second quarter rental revenue and operating expenses increased 3.8% year-over-year. As a result, same property NOI was $10.1 million for the second quarter as compared to $9.5 million for the same quarter in 2014, representing an increase of 6.2%. On a cash basis, our same property portfolio NOI was up 8% year-over-year. Turning now to our balance sheet and financing activities. During the second quarter, our total consolidated debt increased by $27 million and we ended the quarter with $37 million of outstanding on our revolving credit facility, primarily as a result of our acquisition activity. In total, our consolidated debt was approximately $296.7 million, which includes approximately $160 million of secured debt. Subsequent to quarter end, we executed $100 million 10-year note at a fixed rate of 4.29% through a private placement offering. The note is expected to be issued on August 6 and will be used primarily to pay down two tranches of secured debt. In doing so, we would reduce our secured debt exposure, tag our debt maturities and further protect against an increase in the interest rate environment. We were extremely pleased with the execution of this transaction and we were excited to be able to expand and strengthen our banking relationships. As we move forward, we will continue to maintain a strong balance sheet that provides us flexibility and solid foundation to support our growth objectives. Finally, I would like to provide an update on our outlook for 2015. We are initiating guidance for 2015 recurring FFO of $0.77 to $0.80 per share. I would like to note that our guidance for recurring FFO does not include acquisition costs or other costs that we typically eliminate when calculating this metric. Our guidance is supported by several factors, none of which have changed from prior expectations which we have provided to you on previous calls. For the 2015 same property portfolio, we expect year end occupancy within a range of 93% to 94% and same property NOI growth for the year of 5% to 7%. For recurring G&A, we anticipate a full year expense of about $14.5 million to $15.5 million. Our full year acquisition target remains $250 million or more. As a reminder, a significant portion of transactions have a value-add component, which we expect to add meaningful accretion in the medium to long-term that may have a near-term impact from redevelopment or re-tenanting activity. With that, we will open the line to take any questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Manny Korchman with Citi. Please go ahead with your question.

Just wondering whether you are seeing any more or less competition, especially for some of the value-add buildings you are going for and especially based on the comments you made earlier about other potential uses for some of the sites?

Hi, Manny, it’s Howard. I think we are seeing our acquisitions accelerating in terms of the pipeline at this point in the year. And as we mentioned in our comments, all the acquisitions we made during the second quarter were off-market transactions. So, in terms of competition, I think from IPO to-date, even 72% of our acquisitions have been lightly marketed or off-market. So, we generally don’t have a lot of competition because people don’t know about these transactions we are doing. If you were looking at just on-market acquisitions, there is still a tremendous amount of interest in industrial estate in our markets. And you are seeing probably more competition in that side of the buying arena. But for us, we haven’t really noticed any increase, I think by virtue of how we buy our acquisitions.

And maybe following up on that comment, have you run across any – or have you tried to run across any asset acquisitions where there would be sort of better use and sort of taking into the portfolio, just flip it out immediately?

There is actually one or two things cooking right now that I really can’t comment further on at this point. It’s a little premature, but we – in addition to those, we continually look at our portfolio and look at those opportunities. It’s not our focus in terms of redeveloping those assets ourselves, but we will look at them in terms of the ability to resell them and maybe capture some of those higher values beyond the underlying income-producing capacities.

Great. Thanks, Howard.

Thank you. Our next question comes from the line of Juan Sanabria with Bank of America. Please go ahead with your question.

Hey, good afternoon guys. Just hoping you could talk a little bit about using equity and/or an ATM to fund acquisitions and how you think about that versus selling assets given presumably your view of the stock trading at a discount to the NAV?

Hey, Juan, it’s Michael. Thanks for joining us today. So, yes, we – the way we see it as long as we have great use for the capital as long as the acquisitions are accretive both from an NAV perspective and from an FFO per share growth perspective, we are still comfortable to purchase. And in terms of where we source the capital, we have a variety of options available to us, both the ATM, other forms of equity raise and debt. So, we feel very fortunate. We feel the company is very well-positioned. And we are very, very comfortable with the acquisitions we have been making and then those that are in the pipeline.

And in the guidance, are you guys assuming you do raise equity or how should we think about leverage as you reached – or as you go towards that $250 million of acquisitions?

Juan, this is Adeel. So, the model that – the guidance that we put out there, that’s based on from a bottoms-up approach from our company’s model and that has the basic – the credit facility from a debt perspective and of course some incremental equity. So, that’s baked in there. But based on what we commented earlier this year and the equity offering for the first part of the year set us up pretty nicely from that perspective, so you can kind of see the balance of the year how that’s going to lay out. Furthermore, to add some perspective from the line of credit availability, we have $163 million available as of the end of 6/30 period. So, that gives you some perspective as to how much we have in availability from a line of credit perspective and also what’s coming down the pipeline from what Howard mentioned in his comments.

So, you are then comfortable to finance the rest of the acquisitions on the line, is that what I am hearing?

We are very comfortable. We are very comfortable from that perspective. And also, I think, where we ended the quarter a bit on a debt-to-EBITDA multiple that also gives you a very good indication as to where we are and how much capacity or runway from that perspective we have. So, we are very comfortable as to where we sit and the balance sheet seems very strong.

Okay. And then just a follow-up on sort of the occupancy trends we saw in Orange County in San Diego. I know you have mentioned both markets are relatively tepid. I think your individual or your occupancy dropped in those two submarkets. Any comments as to what drove that?

Sure. This is Howard. Looking at Orange County, we had one larger plan vacate. We had bought a property. It was middle of the late last year in Santa Ana market. It was 97,000 feet and we had a short-term lease in place for the seller until they relocate it. So, they did move out during the quarter. We also had a 21,000 foot vacate in another project in Fullerton and that one I think we just delivered leases to a new tenant actually yesterday. And then I think in terms of San Diego, San Diego, we had a fairly robust quarter in terms of leasing. I think we leased about 112,000 square feet in new properties. It was like 25 transactions, many of which were in the North County area. Some spaces actually that have been emptied for quite a while through the recession. So, we actually have seen some great uptick in leasing velocity for our portfolio there. But in terms of the decline, I think it was just – it was one, I think, default in – I think it was near downtown San Diego is like 29,000 feet, then a couple of other just small move-outs and we have traction on most of that. So, we are very encouraged about our activity in San Diego and our ability to grow back and move up those occupancy levels fairly rapidly through the balance of the year.

Okay. And then you mentioned – just last question, a legal charge, can you comment on any litigation there might be ongoing or...

Juan, hi, this is Adeel again. So, the legal charge that we called out in our adjusted FFO, our recurring FFO, was only $64,000 for the quarter. And that’s essentially the last remaining piece or so that we are going to see. I think as we commented on the first quarter, the litigation was solved in the first quarter. So, that’s behind us from this point of perspective. So, the FFO that the carve-out that we have been doing for the last three to four quarters, you are going to see that piece of the equation and clean up a little bit.

Good, thank you.

Thank you. Our next question comes from the line of Brendan Maiorana with Wells Fargo. Please go ahead with your question.

Thanks. Good afternoon. So Adeel, so you guys did $0.20 of core FFO in Q1, $0.20 in Q2. It sounds like your guidance is in line with that range for the back half of the year or maybe down a little bit, because it’s $0.77 to $0.80 versus $0.40 in the first half of the year. You have got the debt that you are going to do, which is going to hurt you a little bit in terms of just fixed rate debt paying off low floating rate, but you have got acquisitions too that ought to help the numbers. So, kind of – just on sort of the back of the envelope math, kind of feels like the run-rate would be flat from where you were in the first half of the year. What would maybe cause it to be down at the low end of your guidance?

Hey, Brendan. Adeel. Great question. And I think the sensitivities in our model comes primarily as a byproduct of the timing of the acquisition. So, depending upon when those acquisitions take place can have a material impact from where the FFO comes online. I think that’s primarily is the biggest catalyst of the range that we have given out in our remarks. And the other thing is that we have about 9.1% of annualized base rent that’s going to be expiring for the year, so I think that’s also – I think we are very confident about what we can do with that – renewing those leases and having a positive absorption for the rest of the year. But those are your basic deltas between the high end and the low end. But I think the acquisitions primarily taking the lion’s share of the volatility and their timing coming on the FFO perspective.

And you guys would – at the margins, so we have got this debt that you are raising tomorrow paying off the mortgages as you highlighted. For the acquisitions that happen going forward that would be initially funded or at least as we think about it for the 2015 year funded with the line?

That’s correct. As a matter of fact, as I mentioned earlier, $163 million availability on the line as of the end of the Q2 and what Howard disclosed $50 million, that’s going to $75 million in LOI. Currently, that kind of gets you pretty close to the full year target guidance of $250 million and the capacity is certainly there. So obviously, we will continue to look to see what’s the best source of capital for the organization and the most accretive source of capital.

Okay, great. And then I think just for occupancy purposes, my recollection was your 93% to 94% occupancy target was the stabilized same store pool, which is 94% today, so is there some occupancy pressure in the back half of the year?

No, the 93% to 94% – this is Adeel by the way, 93% to 94% was normal. But those stabilized properties, those repositioning will be complete, so we are looking at an all-in portfolio of same store. So what’s currently listed at 92.6% is what we are quoting to be 93% to 94%.

Okay, great. And then last one, probably Howard or Michael. So next year, you guys have 27% of your portfolio rolling, so it’s a big number, it looks like average rents are maybe a little lower than your average overall, anything that we should know about in terms of big tenants that are at risk and how do you guys think about the rent growth you can get next year, it looks like there may be trump [ph] rents?

Hi Brendan, it’s Michael. Yes. We don’t see any large potholes in terms of tenant issues going into next 12 months to 18 months, frankly. You can see our expirations, I think the first large one doesn’t come until middle of next year, but we are very comfortable with that. And we see a continuance of the current level of activity for the foreseeable future in terms of re-leasing spreads. And don’t forget that the overwhelming majority of our leases also have built-in 3% annual bumps. Actually, the structure the greater 3% or CPI 3% tends to trump CPI. So now we are pretty comfortable with where we are in terms of continuing the trends that we see. But the one thing I want to add to your prior question in terms of FFO per share and how we see it through the end of the year, you have got a big piece coming online through the repositioning activities and if you look at what we have listed in repositioning right now for the supplemental, that has the potential to drive $0.135 a share on an annual basis, just in terms of what we have in the hopper right there. And we have got some great projects and the works beyond that. So I think you are going to see additional increase through the repositioning work.

Great, alright. Thanks guys.

Thank you. Our next question comes from the line of Mike Mueller with JPMorgan. Please go ahead with your question.

Yes. Hi. I guess, following up on the prior question. Adeel, can you talk a little bit about, I mean how you see the numbers playing out once you go into 2016, I know you are not going to put specific guidance out, but looking at where FFO was in 2014, looking where it’s going to end up this year, in 2015, there seems to be a disconnect between occupancy going higher, the rent spreads, all the acquisitions and the direction that earnings have gone. So and you – can you kind of frame what you think the growth model is over the next couple of years and how that plays out?

Okay. Mike thanks for the question, Adeel here. I think – I mean, the answer comes in two or three forms – two or three key points. Michael just ended the conversation by mentioning about the repositioning efforts that we have got. So that’s going to be a nice uptick in FFO coming online either later part of this year or 2016. And Michael also quoted it’s about $0.13 for the full year basis on FFO perspective. So that gives you an indication as to what’s coming down the hopper from the repositioning efforts. Furthermore, each and every single one of the deals that we are doing now is accretive in the sense that we got more scale from a G&A perspective. I think we have talked about the G&A scalability in the past and you are going to start to see a better ramp from that perspective. So you are going to see more accretion from that perspective coming online. So, both of those two things are very positive to the 2016 growth model from an FFO perspective. And then last of course, we have seen this over the last seven quarters, so the re-leasing spreads have been positive. So I think you can continue to see that trend continue. And of course, the occupancy uptick that we have been talking about, just talking about the same store portfolio, 93% to 94% ending the year with 5% to 7% growth. So we will continue to see that. We see that trend continuing in 2016. So, all of these factors that I just listed out should give you a nice growth presumption to be modeled in for the 2016 year end. Of course, as we get closer we will put out something a little bit more finite from a guidance perspective, but right now I am pleased to give you a good perspective of what to expect in 2016.

Okay. And the $0.13 commentary on the re-positionings was that specifically is that just $0.13 to come down the pike at some point or you are more specifically thinking about 2016 relative to this year?

Yes. I am thinking more about – it is coming online in phases. I think you can take a look at the repositioning phase and it will give you a very finite perspective from a timing perspective on a project-by-project basis, but they will roll in during different quarters in 2016. But if you were to take a look at the pro forma impact of all those acquisitions from this point, it’s about $0.13 on an annualized basis.

Okay. So it sounds like in 2016 you think kind of the trend reverts and growth is positive on a recurring per share basis?

Yes.

Okay.

By the way, Mike, it’s Michael. Just real quick in terms of the growth of FFO per share, if you look at un-commenced leases also that are already in contract, looking almost a $0.03 per share increase on a quarterly basis alone, so we see a lot of growth intrinsic in the portfolio, some as you don’t see it on the day that the quarterly reports are filed end of each quarter, but we are pretty comfortable with where we are headed.

Okay. Thanks.

Thank you. Our next question comes from the line of Tayo Okusanya with Jefferies. Please go ahead with your question.

Hi, good afternoon everyone. I may have missed this in the opening comments, but could you talk a little bit about the cap raised on the assets you did by this quarter and kind of what we should expect cap rate wise for the stuff you still have in the hopper?

Sure. Hi, Tayo, it’s Howard. Yes, I think the cap rates in terms of this quarter I think, were very strong compared to what you typically hear about the Southern California market. Let’s say, on average our cap rates were a little above 6%. We had a couple little below and some above and well above. Whereas if you look at the markets and you see some of the more actively exposed, heavily marketed properties, those are still trading with a 5% – in the 5% range and there is a lot of product now selling that has in the mid to upper 4% cap range.

I mean I guess, that’s what some of us are struggling with this idea of – and as we can still kind of get off-market, that’s slightly above 6%, your implied cap rate with where the stock is trading right now is kind of around 6.25% and you can raise debt at 4.25%. It seems like you should be getting all this accretion from all these deals you are finding, but yet when we kind of just take a look at 2015 guidance, there just doesn’t seem to be much growth happening?

Tayo, this is Adeel. And I think this goes back to the point that I just mentioned, this year is unique in its side, because we did place a private placement. So our average cost of debt, if you just kind of factor in the swaps that we have already talked about earlier this year and they are coming into different stages and for the remaining part of the year, plus a private placement that we just announced that’s going to be funded tomorrow, our average cost of debt increases. I think we quoted 2.017% towards 6/30 period and that can ramp up to 3.2%. So that really does have an impact for the latter part of the year, so some of the accretion that you just talked about is masked temporarily by that. However, I think the moves the we made are really does protect the company from a long-term perspective in truly making – shipping the complexion of the debt stack from more unsecured to secured, and taking that risk off the table. So you are seeing that plus and minus coming through the latter part of the year, but going forward in 2016 and beyond, these things are fixed contracts they are going to be in place and will be more protected. So the accretion ramp will be significantly different in next year.

Okay, that’s helpful. And then a quick second question in terms of leasing spreads, 15.5 million this quarter is very good, would you kind of say as you look over the next 12 months to 18 months that’s kind of like a peak number or can leasing spreads kind to remain that strong over the next 6 months to 12 months?

Hi Tayo, it's Howard again. If you think about our market in terms of the vacancy rates, and I will give you an example of the San Fernando Valley, where 25% of our portfolio is located, it’s 1.1% vacant. And I would imagine if you were to drill down even further to compare the quality of assets we have in the market to the available products, you would really see that the competing assets have a substantially lower vacancy rate. So the fundamentals are fantastic in really all of these infill markets that we operate in. And we have multiple offers on spaces. It’s not unusual for us today to be leasing space that vacates in a quarter up – in actually the same quarter. So, we look forward 12 to 18 months and expect to see very strong spreads going forward whether they will be as high as this last quarter or not, who can predict that, but certainly, I think impressively strong in the very near to medium-term.

Sounds good. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Craig Kucera with Wunderlich Securities. Please go ahead with your question.

Yes, hi guys. I wanted to revisit the use of debt proceeds. I know you mentioned that you are going to be paying down two tranches of secured debt, but what’s the spread between what you are paying down versus the 4.29% on the new debt? And are you expecting any gain or prepayment heavily on what you are paying down?

Hi, this is Adeel. So, approximately 200 basis points of two secured debt tranches that we are paying off are at about 2.19% or so approximately depending upon which debts you are looking at, but on a blended basis, it’s about 2%. So, it’s about a little over 200 basis points, but it’s a 10-year secure – unsecured debt. So, I think it really puts us in a good perspective. So, that gives you an indication from a debt – the cost differential. As far as the question regarding any initial cost, the cost is very minimal to pay down. There is no prepayment penalties. These are just simple balance sheet lenders that we have the debt with and the cost is going to be very minimal for the balance sheet or for the P&L for the third quarter.

Got it. And then I may have missed this and I appreciate the color on the cap rates on acquisitions this past quarter. But as you look at the pipeline, are you seeing similar types of cap rates if you get sort of the remaining, I think you mentioned $175 million or so under LOI?

Hi, Craig, it’s Howard. Yes, the pipeline is strong. We have quite a few transactions and there are several that are value-add and that’s substantially higher stabilized returns than some of the deals we mentioned today. So, we are excited about what’s in front of us and the different opportunities that come into the shop everyday.

Does that mean that it’s in the range of a 6 or is that maybe a little bit inside of that?

I mean, we have one transaction we are working on that – it was a vacant property that is a repositioning asset and that eventual – will stabilize we predict in the 7.5% range.

Okay, thanks. I appreciate the color.

Thank you. [Operator Instructions] Ladies and gentlemen, we have no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Thank you, operator and thank you everyone again for joining us today. We appreciate your interest in Rexford Industrial and we look forward to speaking with you again when we report our third quarter 2015 results.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.