Greetings, and welcome to the Rexford Industrial Realty Second Quarter 2017 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. I would now like to turn the conference over to your host, Steve Swett. Thank you, Mr. Swett, you may now begin.

We would like to thank you for joining us for Rexford Industrial's second quarter 2017 earnings conference call. In addition to the press release distributed yesterday after market closed, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our Web site 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, plans, 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. Company’s earnings release and supplemental information package, which were released yesterday afternoon, and are available on the Company’s Web site, present reconciliations to the appropriate GAAP measures 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’ll turn the call over to Michael.

Thank you. And welcome to Rexford Industrial’s second quarter 2017 earnings call. I will begin with a summary of our operating and financial results. Howard will then provide an overview of our markets and transaction activity. Adeel will then follow with more details on our quarterly results, our balance sheet and our guidance for 2017. We are very pleased with our second quarter results as we continue to achieve strong internal and external growth. We achieved same property NOI growth of 6.6% on a GAAP basis and 5.1% on a cash basis. Our consolidated portfolio, which includes 864,000 square feet of space held vacant for value-add repositioning, was 91.4% occupied in the quarter. Our stabilized portfolio is 96.5% occupied. During the second quarter, we acquired 1.7 million square feet of product or $224 million. So far, year-to-date, we’ve acquired 3.5 million square feet or $527 million, representing 20% in consolidated square-footage. As a result of these factors, we are pleased to increase our FFO guidance for the year, which Adeel will discuss in greater detail. Turning to leasing activity during the second quarter. We signed 781,000 square feet of leases again, achieving extremely attractive spread. On new leases, we achieved leasing spreads of 31.3% on a GAAP basis and 24.2% on a cash basis. And on renewal leases, we drove spreads of 16.5% on a GAAP basis and 5.9% on a cash basis. Company’s share of core FFO for the same quarter was $15.9 million, a 14% increase over the prior year, driven by our strong internal growth, our accretive deployment of capital and our increasing scale and operating efficiency. With regard to market conditions, robust tenant demand continues unabated. Our Southern California economy continues to outperform with the activity at the ports of Los Angeles and Long Beach, the…

Thanks, Michael. And thank you everyone for joining us today. I’ll start with a brief update on our market, utilizing data from CBRE and discuss our recent acquisition, disposition and pipeline activity which has been robust. In the second quarter, strong market fundamentals continued in Rexford’s Southern California infill market. Excluding the Inland Empire East, which is not our focus, asking rents increased in all of our sub-market by 7.2% on a weighted average basis versus one year ago, and occupancy ended at 98.4%, up 10 basis points from the prior quarter. Moving on to our recent acquisition activity which totals about $224 million in the second quarter. In April, we purchased Ward Avenue and Simi Valley, a 139,000 square foot two tenant industrial building into Ventura County market for $16.5 million. This high quality property is 100% leased two tenant at the low market rates and was acquired in an off market transaction. The initial yield on cost is approximately 5.8%. In May, the Company acquired Safari Business Center in a 16 building industrial park, containing 1.14 million square feet on 52 acres, located in Ontario in the Inland Empire West submarket for $141.2 million. This property was 97% leased at closing. At in place rent estimated to be approximately 17% below market. This high image property is the largest and considered to be the best industrial park in the submarket with an average tenant size of about 15,000 square feet. The acquisition is immediately accretive to cash flow and operating margin with an initial yield just below 5% and with the projected stabilized yield on cost of 5.4%. However, we are outperforming on new and renewal rates already, so the stabilized yield maybe higher. In June, Rexford completed the acquisition of Conant Street and Long Beach, a newly…

Thank you, Howard. In my comments today, I'll review our operating results for the second quarter, then I'll summarize our balance sheet and recent financing activity and finally, I'll update you on our guidance for 2017. Beginning with our operating results, for the second quarter 2017, net income attributable to common stockholder was $17.9 million or $0.26 per fully diluted share. This compares to $12.3 million or $0.19 per fully diluted share for the second quarter of 2016. Net income for the second quarter of 2017 included $16.6 million of gain on sale of real estate as compared to $11.6 million for the second quarter of 2016. For the three months ending June 30, 2017, Company share of core FFO was $15.9 million or $0.23 per fully diluted share. This compares to $13.9 million or $0.22 per fully diluted share in the second quarter of 2016. Net income and core FFO per share increased due to our strong acquisition activity completed in the past 12 months and same property portfolio growth, which was partially offset by increased interest expense, preferred dividend and higher diluted share count. Same property NOI was $20.8 million in the second quarter, which compares to $19.5 million for the same quarter in 2016, an increase of 6.6%. Our same property NOI was driven by an 8.2% increase in total rental revenue and 12.7% increase in property operating expenses. On a cash basis, same property NOI increased by 5.1% year-over-year. Netting out approximately 300,000 of non-recurring cost related to historic rate, expenses would have been up only 8.2% and our GAAP NOI would have been up 8.1%. Turning now to our balance sheet and financing activity. During the second quarter, we used cash, sales proceeds, line of credit capacity and proceeds from our ’18 issuance to fund…

Thank you. At this time, we’ll be conducting question-and-answer session. [Operator Instructions] Thank you. Our first question is coming from the line of Manny Korchman with Citigroup. Please proceed with your question.

May be I’ll start with a deal for the first one. How do you think about funding, especially for the larger deals in between the mix of debt, unsecured debt equity as a large issuance and then ATM equity? How do you weigh each of those?

In our opening remarks, we disclosed the fact that we have $145 million available on the ATM program. Furthermore, we also disclosed as to how we transacted on the program during Q2 ‘17. So that should hopefully give you an idea on our general thought process about equity and generally funding the acquisition volume for the year. Additionally, the other thing that we want to talk about, and Michael disclosed this as well in terms of just embedded NOI growth that we have in the portfolio. So that also takes into consideration how we essentially de-lever the balance sheet over the next upcoming quarters. So that's also very important point to talk about. And just generally talking about the capital sources, holistically speaking, you've seen us expand the spectrum of the capital sources that we have done over the last couple of years to give you an example. Last year, we did a preferred so that is also something that we are certainly able to transact on if the opportunity presents itself. So again, we have a few options at our disposal and just maintaining a strong balance sheet ultimately is the key part of the strategy and that’s how we look at everything when we focus on the future.

And then it sounded like at least one of your dispositions was related to a purchase option. Are you including purchase options in your new leases? And if so, how do you think about the valuations that you structure those?

We don't offer any purchase options, we never do. And this one, in particular, happened to be a legacy lease when we bought 1.5 million square foot portfolio last year. And we had counted on this tenant exercising the option. So it was not unexpected, it was underwritten that way.

And last one from me. It looks like acquisition costs were actually really low in 2Q. Is that just a timing thing, and there will be really high in 3Q or just surprised given the amount of activity you’ve got there?

So I think we talked about this probably in the first quarter or tail end of last year. There was an accounting pronouncement that changed the rules where we’re able to capitalize some of those acquisition costs. So that's what you're seeing now. On a go forward basis, you and I are going to see a lot of noise coming through that line item. So what you did see this quarter, which was about 20,000 which is essentially related to some debt deal cost. So you're going to see the gap between the nearly defined FFO versus the core FFO closed pretty dramatically because of that press accounting pronouncements and how we were able to capitalize those costs.

Our next question is form the line of Jamie Feldman with Bank of America. Please proceed with your question.

It looks like the same store portfolio had a 12.7% increase in expenses year-over-year. Can you just talk about the key drivers of that, and is this something that's going to -- is this going to sustain or is there something you're going to see better margins going forward?

And I think what we did for the opening remarks, we did call out about $300,000 non-recurring charge it's not a one charge it's across the portfolio about 11.2 million square feet. So that's the anomaly this quarter. But more importantly, our guidance is focused on full year, so we still have 6% to 8% guidance and we're still seeing -- we're still very comfortable with that guidance. So typically, we don't give you quarter-over-quarter guidance because of this choppiness that can happen. We also have something similar last year. But we remain comfortable with our full year guidance. And on a go forward basis, I think is anomaly more than likely will not exist and we’ll see more efficiencies in terms of the cost on a go forward basis. So I think you'll see that go away but the confidence on the full year guidance may appear which is still 6% to 8%. And right now for the full year at 7.4% it's still coming on a higher end of that range.

But I guess I am asking outside the chart, when you think about your taxes or your operating expenses, any room to make things even better or do you feel like this is a pretty good margin at a normal run rate?

No, there is actually room to make things better. So basically, I think one of the key things that is very important for us to focus on. These acquisitions that we've done that actually gives us some scalability and that gives us more scale. So we should see some of those costs spread out and the same pool will benefit from it. So hopefully on a go forward basis some of the deals that we've done so far because of the fact that the cost to maintain those projects that are best, you will see the benefit across our entire portfolio and the same store will benefit. So you will see some of those metrics improve on a go forward basis.

And then I guess for Howard or Michael, just the deal seem to be getting, the average deal size seems to be getting larger. Do you have a though in terms of how larger deal you could actually do, or you have the appetite for as you’re starting to see more out there?

So as we’ve always tried to describe the growth -- external growth side of our business. It's hard to predict from quarter-to-quarter or even year to year, the size of transactions, the volume of the transactions and that mix of core versus value add. It seems that every year we seem to see at least one larger or medium size portfolio. So far first half this year, we acquired two of them, but we don’t see that as unusual. We do have, in our pipeline, similarly large or even larger opportunities on the horizon, but it's just hard to say when those will come to fruition, or if they will come to fruition. I think the way we've always described our business is that we're going to do a lot of 1Z, 2Z, 3Zs, small medium size transactions. And from time-to-time, we’ll do a much larger transaction. And frankly, we do think that from time-to-time we’ll do -- we’ll see acquisition opportunities that are substantially larger potentially than the portfolios that you saw by earlier this year so again, just very difficult to predict. But just to give you a sense of it, we have many discussions ongoing with private owners who own many millions of square feet of product in these markets. And so we see a lot of opportunity but just hard or impossible to project the timing.

And then finally for me, if you could talk about some of the 0% lease buildings in the repositioning pipeline, and just leasing prospects.

We’ve got -- there is 100,000 foot building in the San Gabriel Valley that we're just I think completing repositioning on probably in the next week or two. And we have some strong leasing activity. We’re optimistic that we’ll have that building leased this quarter. We have 150,000 foot building in San Fernando Valley that has actually been empty a little longer than we had expected, but we continue to have very strong leasing activity on it. We're not also offering that building on divisional basis. And so we’ve seen couple of more potential tenants show up that we’re in, actually in negotiation with right now, so fairly optimistic on that one leasing as well. And I think that’s really for the vacant right now that have any near term delivery in terms of the space. The only other one is Avenue Paine, but that one, the 111,000 feet and we're still under repositioning and that won't to be deliberate until towards the latter part of the year.

And then what about Soto Avenue?

Yes, I mentioned that one. That was the one what I was mentioning in the San Fernando Valley.

That’s when you mentioned. All right, thank you.

But all-in-all, the market is still very, very strong. We have multiple offers generally on space. And in fact, the one I mentioned in the San Gabriel Valley may in fact even lease higher than our asking price with the bidding that’s occurring on that space.

[Operator Instructions] Our next question is from the line of John Guinee with Stifel. Please go ahead with your question.

Is that also 80 degrees and sunny with no humidity out there?

It’s beautiful here out here, John, as you know.

Couple of questions. Is there any -- where are you in these various markets and the possible growing vertical with any of your buildings or your sites? And then second, do you have any developable land in your portfolio, whether it’s vacant land or ability to upzone, or increased density?

As far as vertical, it’s certainly something that we talk about here in Southern California. But when we really drill down look at the land cost and those exceptionally high construction costs, it doesn’t seem likely that we’ll see anything in the near future. We certainly know there’s a two storey or three storey building in Golden Seattle that is part of something in the San Francisco area. But there’s just -- the numbers just don’t work in our markets, right now. You’d sooner see somebody carrying down existing buildings here to build new product. The economics, believe it or not would probably be as bad as they might be would probably be better than building multi-storey in this market. And then as far as opportunities so I think what you’re talking about is a higher and better use for our sites than potentially industrial. You saw it’s actually transact the sale in the first quarter where we sold the midway property right before we commenced our redevelopment of that where we sold to a developer going to convert property to office and residential multifamily. It happens once in a while. But if you’re looking for our ability to outperform, there’s another avenue that we’ve talked about in the past that happens more frequently and that’s selling some of our single tenant buildings to owner users, which tend to bit to pay the equivalent of exceptionally low cap rates. And we’ve mentioned a few of those over the past quarters where we’ve transacted. So you might see more frequency in our portfolio with that type of sale as opposed to that converter type value.

Our next question is from the line of Michael Mueller with J. P. Morgan. Please state your question.

First, for the deal when you’re talking about funding sources, you rattled off a bunch of options. And I think one is preferred. Just curious, I mean, how do you think about what’s the right level of preferred to have in a capital stack?

I think what we did last year was a very well executed preferred their tranche I think. So I think that kind of gives you perspective from what we think but more importantly that equation changes each year. So we have the ability to pull forward look at our model and how the preferred plays into the overall equation in terms of the FFO accretion on a go forward quarters and just how that translates into NAV value. So we’ll look at that holistically speaking with all of those components factored in. But what we did last year certainly was a good example of what we felt comfortable. So I think that's how we're looking at it. But more importantly, we're also looking to break little bit of boundary in terms of the dividend, the coupon rate from that perspective, which we executed pretty well. So all of those things factor in I think little sprinkling of preferred certainly helps, especially when you take a long term view of the organization and just the Company and the market itself. So that's how we think about it. But we definitely believe preferred has a place in our capital stack on a go forward basis.

And then two other ones and I apologize if I missed these if they were during the call. But did you comment on 2Q acquisitions as well as the 3Q, what the split was between the quarter and the value-add? And then is there anything else sizeable that's under contractor LOI today?

No, actually we didn't comment on the split between core and value-add. But clearly, with the two larger transactions we did, we did a bit more on the core side in the quarter. And I think as Michael commented earlier we don't -- we can't really predict quarter-to-quarter whether there will be more value add or core to any one particular time. We’ve always said that core is a part of what we’ll buy. But it's really question of the right core transactions when they come along and really work for the portfolio. And I guess what I am referring to is the two deals we did one had in place rents of about 16% below market the other had rents over 25% below market. So there was an opportunity in the near future to really drive increased rents and create value in those assets.

So Q2 was a little more core than value-add. What about Q3?

We really haven't commented on any of the numbers yet in terms of those acquisitions. We'll be able to do that next quarter and we could probably get back to you offline even maybe talk about that.

And the quarter is not over.

That's true.

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

Just wanted to touch on same store guidance, appreciate the additional disclosure of same store, excluding the repositioning properties. That number came down a bit this quarter, and I think last quarter, Adeel, you mentioned 5% of the target for the year. And you have the footnote on that that didn't changed. But I just wanted to make sure that 5% target hasn't changed? And I guess the implication there is you expect that metric to pop back up in the second half?

Blaine yes, that's absolutely correct. That's exactly what I was stating earlier is that Q2 is a bit of an anomaly, that's what we focused on the full year guidance. And we do expect that number to pop up and get right back in the range faster when you take a look at the six month 7.4% growth. I think that's more relative to where the year-end is going to fall into so Q2 the anomaly, which is essentially the $300,000 non-recurring charge that took place. But again, that's not a common theme. But again, we're going to see more efficiencies across the Board and we feel comfortable with that 6% to 8% and right that on the high end. And if you take away some of the repositioning components of that the 5% is still a very good number.

And then secondly, Adeel, I’ll stick with you. Can you talk about how you think about and calculate your cost of capital. Obviously, you’ve been heavily using the ATM. So do you look at your implying cap rate versus yields on what you're buying, or I guess how do you become comfortable consistent buying in fours and even dipping into the threes on an initial cap rates basis. Is it as simple as it's pretty heavily based on your ability to add value and increase those initial yields?

Well, I think we try not to focus on the spot value, because I think that buy can change on a month-to-month basis, quarter-to-quarter basis. We do look at our long-term cost of capital, I think that’s the best and most prudent way of looking at cost of capital, we’d obviously don’t disclose that, but that’s how we think about it internally. But I think the profile the acquisitions that took place this quarter, there is something about them. The kind of cash flow the core yield that these guys, that these properties are that allows you to add scale to your portfolio, which is something that I talked about in terms of how that’s going to flow into our numbers on a go forward basis. So we do look at that. And because we are focusing on not just one dimension, we have a bucket of projects that we focus on value add to quarter-to-quarter plus. And you never can predict as to which projects going to fall into your bucket that quarter. But if you have an opportunity to add something like this to portfolio in a great location with great cash flow is stream and that also allows you improve your scalability across the portfolio in terms of cost and overhead then you certainly take a look at that. But I think our institution of the ATM market was certainly -- was indicative of how the stock is performing. But again we look at it on a long-term view in terms of cost of capital, and what that does on a go forward basis the years out in terms of just the FFO accretion and what that does to NAV.

And Blaine, its Michael, thanks for joining the call. I would just add a little bit of thought on that. We’ve always described our acquisitions businesses being less focused on the initial cap rate, because sometimes we’ll buy a probably that might be vacant. So we really look to the stabilized and value we're able to create in the near to medium term. And I think if you look at the numbers, the business model is really proving out in many ways exceeding our expectations through the mix of properties we're buying. And if you just look at the completed repositionings for instance, I think, are detailed in the supplemental and prior disclosure. Those are solving to and have achieved, they’re approaching mid 7% yield on total cost. And if you look at the repositionings and process with our estimated NOI into the stabilization period, you’ve got about $44 million of incremental CapEx in those generating just a hair under $10 million of incremental NOI. And so that’s over 22% return on go forward expenditures on dollar per dollar basis. So we just see that as a great lift in terms of creating NAV in the portfolio, generating cash flow in the business and really demonstrate what this business is all about. And we’ve won those with the occasional four deal and at the end of deal -- at the end of the day, we're delivering on our mandate, which is to deliver substantially better than core yield in the probably the best and generally from most of buying public what is otherwise the lowest yield market in country. So that’s really the unique value proposition that Company is delivering on to the market.

We've reached the end of our question-and-answer session. I’ll turn the floor back to management for your closing remarks.

Thanks everybody for joining us today. We’ll see you in 90 days. Hope everybody is enjoying a great summer.

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