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

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 closed, 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, project, 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.

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 center, which represents one of the world's largest regional economy. Our industrial property footprint comprises the last mile of product distribution, representing the last stop with the delivery of goods to end users…

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…

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 our 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 to $25.4 million for the same quarter in 2017, an increase of 10.5%. Our same property NOI was driven by 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 objective. During the second quarter, we issued approximately 10.2 million shares of common stock through our ATM…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

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 tariff? Is it increasing material cost for construction? Or maybe, that just the general effect on GDP and/or consumption?

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 focused on generic industrial space, and so we're able to feel 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 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.

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?

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 transaction. 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 indication of really what we're working on. And other deals that are obviously under contract or LOI and are more imminent but behind that, it's quite a bit of activity. So really not an indication of any change in the activity level for us.

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 them on expansion lease during the quarter? I guess what's going on there?

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, Mike, you want to speak to what happened with the Unified the last week.

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.

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

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

Manny, thanks for joining the call and thanks for the question. So first of all, I think, just to reiterate we did moved the guidance up both on the high end and the low end from $2.10 to -- from $1.02 to $1.05 to $1.05, $1.07. So I think clearly, there is a lot of good organic growth that 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, it's a clearly great trajectory there. We did have equity issuance 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 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 base, 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 quarters, we have progressively improved that. So I think if that stays true to what we have done, then we should be in good shape.

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

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

Manny, I think -- it's Michael, thanks, again for joining the call. If you put our business in perspective, the key to our business is also to focus on such a large fragmented marketplace. And we will see some larger transactions we think in the not too distant future. But to put 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 of Rexford today is, we can be more excited and frankly continues to improve for us over time, as we benefit from the cumulative impacts of all the research and regeneration that we're doing.

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

Great, thank you. 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 in the next year? Thank you.

Hi 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 cast rent spreads we captured was on 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 Empires is really going to have anaemic rent growth, which is being dragged by a lot of the larger space buildings that are in the Eastern Inland Empire, which as know, Rexford doesn't focus in. But because there's so much product out, 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 and to be able to demonstrate large rent growth in our portfolio, because we're not reliant just on market rent growth. It comes with the momentum in the market that creates 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.

Okay, that’s helpful. And 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?

Market, we have spent 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 the portion that's already rolled.

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

Sure. Well, as we've mentioned on the last call, really, this year was really about blocking and tackling. Really, on with some of the larger leases that we're able to renew and to the balance of this year, we really don't have anything, have any impact at all. In fact, there's only 1 building that's keeping close to 50,000 feet and then 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, were already talking to about renewals. So it's really most of the small space occupiers that are 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 base is about 100,000 feet. We're already in discussions with that tenant on a renewal. And the reason being, there's no where 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 that, 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 well-finished distribution building on the exit. But the credit owner of that business, bought the company and took over that lease fundings value in those improvements. So I expect that they probably will stay and will have significant rent growth in the building.

Okay. 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 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 outside 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.

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

We'd love to but not yet.

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

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

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.