Greetings, and welcome to he Rexford Industrial Realty, Inc. Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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 with ICR.

We would like to thank you for joining us for Rexford Industrial's fourth 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 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 the 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 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'll 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 fourth quarter 2018 earnings call. I will start with a summary of our operating results and some perspective on a on our go-forward market opportunity. Howard will then cover our recent acquisition activity and investment pipeline. Adeel will follow with more details on our financial results and we'll introduce our guidance for 2019. We will then open the call for your questions. We are very pleased with our exceptional fourth quarter and full-year 2018 results as we continue to drive accretive growth and create shareholder value through the successful execution of our highly focused business plan. Beginning with our fourth quarter results, we achieved company share core FFO of $27.2 million which is a 35.9% increase over the prior year quarter. Core FFO per share was $0.29 which represents an 11.5% increase year-over-year. On the same property basis, the NOI increased 9.6% on a GAAP basis and 12.4% on a cash basis. And after excluding the impact from the lease up of properties and repositioning, same property GAAP NOI increased by 5.1% and cash NOI increased by 7.8%. During the quarter, we signed 90 leases for approximately 632,000 square feet. Our leasing spreads were 25.1% on a GAAP basis and 14.8% on a cash basis. We achieved 98.2% occupancy in our stabilized same property portfolio at year end. We also completed year end seven acquisitions during the quarter for an aggregate purchase price of approximately $132 million and completed $10.4 million of this position. As we begin the new year, it is a great time to consider macro conditions that may impact our business and to reflect on key aspects of our longer term strategy and results. Today, global uncertainty is relatively high and many pundits project moderated growth going forward. With this…

Thanks, Michael, and thank you everyone for joining us today. We continue to benefit more focused strategy of acquiring and adding value to assets and the Infill Southern California industrial market, which continues to demonstrate superior volume demand fundamentals. Our target market, which excludes the Eastern Roman Empire ended the fourth quarter at 98.1% occupancy, but asking rent up 7% on a weighted average basis over the past 12 months. Supply continues to diminish due to the sustained conversion of industrial property to other uses and low levels of replacement delivery is the scarcity and high cost of land. These dynamics, pressure rental rate growth and high occupancy resulting in continued growth in the value of our portfolio overtime. Moving on to the recent transaction activity, in the fourth quarter, we completed seven acquisitions for $131.7 million. All the two the fourth quarter acquisitions were off market with projected stabilized returns within a range of 5.4% to 6.4%. For the full-year, we completed 26 transactions holding $493 million adding just over 3 million square feet to our portfolio. Approximately 73% were off market or lately market transactions accessed as a result of our research driven platform and local market relationships. About half of 2018 acquisitions were in the Greater Los Angeles market with the balance spread throughout our other target Infill markets and about 25% were value additional. In October, we acquired Rocky Point in the North San Diego County submarket for $10.2 million. The value-add modern property system. Three high image buildings totaling 74,000 square feet and is 31% occupied. We intend to implement minor functional and cosmetic improvements and upon near term stabilization, projected 5.7% yield on costs. In November, we acquired innovation way in the North San Diego County submarket for $24.2 million. The property consider consists…

Thank you, Howard. Beginning with our operating results, for the fourth quarter 2018, net income attributable to common stockholders was approximately $12.4 million and $0.13 per fully diluted share. This compares to $11.8 million or $0.15 per fully diluted share for the fourth quarter of 2017. For the three months ended December 31, 2018 company share of core FFO was $27.2 million as compared to $20 million for the three months ended December 31, 2017. On a per share basis company share, of course, FFO was $0.29 a fully diluted share representing an 11.5% increase year-over-year. For the full-year 2018, Rexford reported net income attributable to common stockholders of approximately $36.1 million or $0.41 per fully diluted share as compared to net income attributable to common stockholders of $34.4 million or $0.48 per fully diluted share for 2017. For the full-year 2018, Rexford reported company share of core FFO of $97.6 million compared to $69.1 million for the year ended December 31, 2017. On a per share basis company share of core FFO was $1.12 per fully diluted share for 2018. 16.7% increase compared to $0.96 a fully diluted share reported in 2017. Same property NOI was $28.8 million in the fourth quarter which compared with $26.3 million for the same quarter in 2017 an increase of 9.6%. Our same property NOI was driven by 8% increase in total rental revenue and a 3.2% increase in property operating expenses. On a cash basis same property NOI increased by 12.4% year over year, stabilized same property NOI growth that'll be impacted repositioning that's 5.1% in the fourth quarter on a gap basis and 7.8% on the cash basis. For the full-year 2018, same property NOI increased 10.6% driven by 8.9% increase in revenue and 4% increase in property operating expenses. On…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.

Great, thank you. I just want to start with the deal. Can you talk about what your same-store guidance would be on a cash basis, rather than GAAP?

Hi, Jamie, good afternoon. So the same property, we guide on a GAAP basis, which was 3.5% to 5.5%. On a cash basis, that would be 5.5% to 7.5%, so two percentage points higher, which is also very much equivalent to what actually happened in 2018 if you take a look at the supplemental. The stabilized same property NOI growth we are going to 3% to 3.5% on a GAAP basis, on a cash basis it would also be 5% on the low end and 5.5% on the high end, so also two percentage points higher.

Okay, thank you. And I know you talked about the leasing spreading contributing most kind of back-half of the year, even fourth quarter. Any thoughts on how same-store should trend throughout the year by quarter?

Sure. Jamie, it's Adeel again. So, as Michael pointed out, abut 70% of the growth is back-loaded, and we talk back-loaded in Q3 and Q4, and that's actually pretty typical to what we have seen in the past years as well, and about 40% of that growth is actually coming in Q4. So, it's typical to what we have seen. We have about 2.7 million square feet expiration at the end of 2018, and our same-store pool changed to about 83% of our consolidated portfolio. There's just a lot of blocking and tackling throughout the year, so no major leases. But we expect the ramp to pick up during the year. And that's, like I said, very consistent with prior years.

Okay, thank you. And then Howard, I know you mentioned the pipeline you're working on today, but as you just think about this year and even farther out, I mean -- and the competition of potential acquisitions or value-add investments, how much of it is more portfolio based versus single asset?

Well, if you think about the -- I mentioned we have $312 million worth of transactions in progress, that's 13 separate transactions. So, occasionally, you've seen this by a larger portfolio. But predominantly our growth has come from a lot of the blocking and tackling we do every day on the one-off transaction. And looking forward, there are some one-sey -- or rather two-sey, three-sey kind of building portfolios for sale. We chased a couple of things last year that were larger that had some assets out of our markets, and we were able to capture those. But for the most part I think it's business as usual going forward this year.

Okay. And what do you think on pricing, has it been pretty firm or are cap rates still going lower?

I think, for the most part, you see marketed transactions that are trading in the 4% to 4.5% cap range, which really compares favorably to the repositioning results we had mentioned on the call where we're achieving 100 to 200 basis points higher in our spread. Prices move really in line with what's happening with rental rates, so rents have been growing significantly. Our leasing spreads have been very strong, and the market itself had about 7% rent growth for the year in the infill markets. So as pricing moves a little bit further ahead based on just that same rent growth.

Okay. And then a question for Michael, you had mentioned port volumes being at all-time high. It sounds like some of the port volumes have been a pull-forward ahead of tariff activity or concerns over tariff activity. Just if you would think if there was to be a pullback in port volumes, I know you guys have talked about being more of an infill portfolio, I mean, what do you think the implications would be for Rexford if port volumes did actually decline in a meaningful way?

Hey, Jamie, thanks, and great question. We actually have seen great real world case studies where port volumes did decline, and that was during the great recession. And the short story is that our product and our tenants are really consumption driven, and we've really never had a supply problem in Southern California, even when port volumes decreased dramatically during the great recession. And we've seen port shutdowns due to labor, both in 2014 and earlier, I think in 2002. And we didn't see -- we didn't even hear anything from our tenants during those. We had a port slowdown during labor unrest and due to a lack of chasses for the trucks about two-and-a-half year ago. Again, we didn't hear anything from our tenants. And what we found during periods where the ports might have an issue is our tenants get creative. They figure out how to get the product in, and they still strive to service the consumption-driven demand in the region. Don't forget, Southern California is the largest zone of consumption in the nation. And it's very, very diversified. And if you look at our tenant base, if you look at the portfolio of tenants that we have crafted, the construction of that portfolio has been very deliberate and diversified. So the sources of our cash flow from a tenant industry or a type of business perspective are about as diversified as you can get. And so we haven't really seen any issue from the tariff so far, and in prior periods we haven't seen an issue when the ports have an issue.

And then what about just in terms of the impact on the regional economy and consumer spending, so less about your tenants and more just about consumer spending in the region?

Absolutely, to the extent that consumers and businesses are spending less in the region we're going to be impacted. And you'll probably see an impact to rental rates, less of an impact to supply, but more of an impact to rental rate.

All right, thank you.

Our next question is from Blaine Heck with Wells Fargo. Please proceed with your question.

Thanks. Good morning out there. So just to follow-up on same-store guidance, a few of your peers came out with a little more conservative guidance given some uncertainty in the market, so I guess I wanted to see whether there was any of that sort of consideration as you guys formulated your numbers for the year. Or in other words, how much of a consideration for external factors is built in to your guidance versus kind of the current view of the portfolio performance, assuming not much really changes with the economy?

Hey, Blaine, thanks for the question. It's Michael. It's a great question. We try to give it to you as we see it. We can't really predict. We're not economists, so we don't pretend to be. And frankly, we believe that we're paid to more pessimist. That having being said, if we look forward at our portfolio, as Adeel laid out, and as I mentioned in my prepared remarks, we've got a lot of blocking and tackling. We have more of our releasing contributions back-loaded into the second-half, and predominance of that in the fourth quarter. And a lot of our tenants are small or medium-sized tenants, so we don't get visibility often times for their intentions until a month or two or three before their expiration date. So, we don't pretend to deliver assumptions that we just can't know. And we try to tell it as we see it.

Okay, that's helpful. And I guess, not to back you into a corner, but to follow up on that, you know, looking at your top tenants page you guys as you said don't really usually have too much in the way of chunky leases, but you do have [indiscernible] at the end of the year, which is 171,000 square feet and then much smaller, but still 40,000 square feet in November is [indiscernible] hopefully, I'm getting those names right, you know, do you guys have any sense of the probability of renewal at each of those?

Hi, Blaine, it's Howard. We do actually. We look at those larger leases pretty carefully. The top 20 tenants the portfolio are actually about 1.22 million square feet in terms of the top 20 that have expirations during 2019. And really just going down the list, from the conversations we're having, or even some of the renewals that are about to happen right now, we see about 64% of those tenants, about 780,000 square feet in terms of high probability on renewal.

Okay. That's helpful. Last one from me, Adeel, your reported net debt to adjusted EBITDA has continued to come down over the year and at 3.6x, I think, is either the lowest it's ever been or close to it. How should we think about the target there if you guys look at this as a good level of leverage on an ongoing basis or maybe is there room to move that up during 2019 and get some more FFO growth without dilution from sales or ATM issuance?

Hey, Blaine, thanks for the question. So yes, that is the lowest we've seen, and that's all by design. I think with all this stated, the balance sheet, it is certainly one of our competitive strengths. And we've always tried really, really hard to manage that so that it stays as a strength for us and it's a strategic decision by the company. a :

Hey, Blaine, it's Michael, I'd like just to add to that briefly, because I think it's a very important question. I think when we see a company like Rexford that is delevering from a 5.4x to 3.6x debt to EBITDA ratio over the year and at the same time generates 16.7% FFO per share growth, you know, those are -- that's math that I think demonstrates the company that is performing exceptionally well and truly firing on all its cylinders. I mean just to give you a sense of it, if we had just maintained the leverage throughout the year, you would've seen substantially higher FFO per share growth. And so to deliver that very high level of FFO per share growth while simultaneously delevering the company, I think, that encapsulates so many things about the value creation capability of this business.

Agreed. That's a great step. Thanks, guys.

Our next question is from Emmanuel Korchman with Citi. Please proceed with your question.

Hey, guys. Just think about acquisitions for another minute. I think one of your recent deals was another new build or another new park, how do you think about that new whether you call it merchant build or something else product and both pricing and competition for that product and upside versus the database that you've spoken about for long time?

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And Howard have you seen any changes in the -- in competition out their markets buying these properties?

Well, we've always had a lot of competition here. I mean, it's no secret that Southern California is the top industrial market in the country. So everybody's here trying to trying to fight their way into some acquisitions. You know, what separates us obviously is our platform that puts a tremendous effort into our research and our ability to create off market transactions in the fourth quarter. Actually 80% of the deals we bought were off market and for the year 73% were off market and if you look at the LOIs we wrote during the year, we wrote LOIs on $7 billion worth of product it's about 200 -- I think it's 284 LOIs, which means we had a 9% hit rate. So if you really think about it, we're probably our own largest competitor in that we have the opportunity to buy many more assets then we buy due to our stringent underwriting. And we are very selective on what we bought. And you know the bottom-line is most of our competitors didn't really even get a look at those deals when I referenced 73% of being off market.

Thanks, Howard.

[Operator Instructions] Our next question is from Michael Miller with JPMorgan. Please proceed with your question.

Yes, hi. Question going back to same store growth, so I'm looking at the stabilized same property pool, 3% to 3.5% this year was 7.5% last year and I'm just trying to connect some dots here because it seems like your rent spreads have gotten better throughout the year. And, it makes sense here at 98% occupancy just seem a little bit of downdraft. But even last year, occupancy was pretty flat throughout the year. So I'm just trying to figure out what the headwinds are from a number standpoint in 2019 for that metric worth less than half of what it was last year considering occupancy was quite last year as well.

Mike, hi, it's Adeel. So the occupancy I think was slightly lower, so we did have some gains from the occupancy that are not necessarily there this year in that manner and then releasing spreads are currently something that Michael added in its grip, we're assuming about 8% to 11% blended growth cash on a cash basis in our numbers but I think the key thing here again is that you do have the burning of these a gap numbers but as I stated earlier these are being hampered by the fact that you have to burn off the freelance grant and the last part and that vintage is currently contributing to that little bit of rents. So that's why the cash growth which was asked earlier, it's a 2 percentage points higher. So you're doing -- you are seeing that and the last piece, which I think has been the case here is that you know, how the role takes place during this year, which is something that we talked about earlier as well. A lot of it is backloaded, so you are seeing the impact of a lot of bad stuff. That being said, we've had a good, we've had great success and being able to do a good job in releasing over the course of last many quarters. So if the opportunity presents itself hopefully, we can improve but right now this is where we see and we do a really bottoms up analysis looking at lease by lease and that's what we feel most comfortable right now.

Okay. And then, for the -- and I think numbers to 266 million of acquisitions since 930, what was the going in yield on those and then what was the anticipated stabilized deal?

For the fourth quarter acquisitions including -- oh, I'm sorry, I can tell you…

Yes.

-- the fourth quarter ones those times, those transactions range from 5.4 to 6.4 as far as the stabilized yield, and I think the blended including vacancy initial yield is about 4.8% in terms of those fourth quarter transactions.

Okay. Got it. And should we assume something similar for the 1Q deal?

As Howard mentioned, I think on the call earlier the 1Q deal is going in, it's probably higher with prior year's average little over 5%.

On the cash side?

It was not initially, I'm sorry. Initially on the cash side we did have some value-add in there, so it's probably just under five.

Okay, okay. That was it. Thank you.

Our next question is from Chris Lucas with Capital One Securities. Please proceed with your question.

Hi, guys, just a quick one. On the G&A guidance sort of implied sort of upper teens year-over-year growth, just curious as to maybe if you could provide some color as to what's driving that, is it headcount, is it just comp, is it investments in systems, what is sort of driving that and is there point in the scale of the business that we should start to see that growth diminish out?

Hi, Chris, it's Adeel. Thanks for the question. So our $30 million in the upper end obviously includes these impact of the leasing standards, so there is about $1.3 million coming and being added to that range and if you compare that to last year reported one of 25.2% and if you add back the capitalization that took place last year it's really $26.2 million G&A number that you need to compare. So that's about 14.5% there is delta which is what you call that earlier on, the high end and on the low end on the 29 is about 9.7% increase. What we have stated in the past that we are in those final year of laddering effect of the equity grants that we're starting back in '15 and '16, is that what is you are seeing here is this is the last leg of those and all else being equal essentially things will start to be not additive, they will be steady state obviously you're assuming all else being equal from that perspective, that's a lion's share of the increase in 2019, there were some incremental hires that we did during 2018 and you're seeing the full impact in this year like in HR and marketing first now, but other than that, a lot of it's just non-cash equity comps that is being added for the year.

Great, thank you. Appreciate the color.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Thank you. And on behalf of the entire Rexford team, we want to thank everybody for joining us today and we wish you all a great Valentine's Day tomorrow. Thank you.

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