Q4 2019 Earnings Call

Greetings and welcome to the Rexford industrial real T. Inc. fourth quarter 2019 earnings call.

Tom All participants Arnie listen only mode. A question and answer session will follow the formal presentation. If anyone should require operators to since during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I'd now like to turn the conference over to your host Mr., Steve Swett with I see our please go ahead Sir.

We thank you for joining us for Rexford Industrials fourth quarter 2000, Nike Inc. earnings Conference call.

In addition to the press release distributed yesterday after market close we posted a supplemental package in the Investor Relations section on our website at Www Dot Rexford industrial Dot com.

Today's call management management's remarks in interest your questions contain forward looking statements as defined in the private Securities Litigation Reform Act Nike 95.

These statements are dress matters that are subject to risks and uncertainties.

Cause actual results to differ from those discussed today.

More information about these risk factors, we encourage you to review, our 10-K and other actually see filings.

Rexford industrial assumes no obligation to update any forward looking statements in the future.

In addition, certain financial information presented on this call represents non-GAAP financial measures.

Earnings release supplemental package present, GAAP reconciliations and an explanation why such non-GAAP financial measures are useful to investors.

Today's conference calls hosted by Rexford Industrials co Chief Executive Officer, Michael Franco and Howard Schwimmer, together with Chief Financial Officer ideal calling.

They will make some prepared remarks, and then we'll open the call for your questions now I'll turn the call looking like.

Thank you and welcome to Rexford Industrials fourth quarter 2019 earnings call.

Began with a summary of our operating results and some perspective on our market opportunity.

We will then cover our acquisition activity and a deal will follow with more details on our financial results and guidance. We we'll then open the call for your questions.

We're very pleased with the fourth quarter and full year 2019 results. Our team continues to execute on our strategy to create value by investing within the infill Southern California industrial markets.

For the quarter, we achieved company share of core EPS, though up $35.8 million, which is a 31.4% increase over the prior year quarter.

Or at the FFO per share was 32 cents, which represents a 10.3% increase year over year on a same property basis, and why increased 5.5% on a GAAP basis and 7.2% on a cash basis.

And after excluding the impact from the lease up of properties and repositioning stabilized same property GAAP in Hawaii increased by 4.1% and cash NOI increased by 5.1%.

During the quarter, we signed 115 leases for approximately 1.5 million square feet.

Comparable leasing spreads were 42% on a GAAP basis, and 27.1% on a cash basis.

We achieved 97.6% occupancy in our stabilized same property portfolio at yearend.

We also completed 10 acquisitions during the quarter for an aggregate purchase price of approximately $258 million and completed $20.8 million of dispositions.

And for the full year, we grew company share of core FFO by 34.3% and by 9.8% on a per share basis.

Same property NOI increased 6.2% on a GAAP basis, and 8.7% on a cash basis, excluding the impact from the lease up of properties and repositioning stabilized same property GAAP in Hawaii increased by 3.7% and cash NOI increased by 6.1%.

We signed over 400 leases totaling 5.3 million square feet, and we completed 34 acquisitions for a total of $970 million up investment in our target infill Southern California, industrial markets, representing a 24.7% increase and portfolio square footage.

Approximately 79% of 2019 acquisitions were achieved through off market or lightly marketed transactions sourced through our proprietary originations methods with 41% of investments providing value added renovation and repositioning opportunities to increase cash flow and value overtime.

2019 was also notable for the release of our inaugural environmental Social and governance report, which detailed numerous positive U.S.G. impacts achieved through the execution of our unique business model.

We quantified the substantial environmental benefits associated with our value added repositioning and recycling of industrial buildings, the higher value industrial use.

The year was also notable as our team drove the dramatic growth of Rexfords unique portfolio within the nations largest and strongest industrial market, while maintaining a low leverage fortress like balance sheet, which ended the year at 3.7 times net debt to adjusted EBITDA.

As a result of these exceptional results. We are pleased to announce that we're increasing our quarterly dividend by 16.2% to 21 and a half cents per share. This is our fifth consecutive year with a dividend increase and we have now raised the quarterly dividend by 79% since our IPO in 2013.

With regard to market conditions, we continue to experience a substantial supply demand imbalance.

Despite extremely limited supply incremental tenant demand continues to be driven by a few key factors, including a strong autonomy with southern California positioned as the nations largest and most diverse zone of consumption.

We also benefit from sustained ecommerce growth and the continued demand for shorter delivery time frames.

Our portfolio is 100% position, but in prime last mile infill Southern California industrial markets located within an adjacent to the nations largest regional population. Our infill locations are critical to enable tenants to satisfy the increasing demand for short delivery time frames.

Meanwhile, on the supply side, although certain other large U.S. industrial markets are experiencing an increase in supply infill southern California continues to experience diminishing supply due to a lack of developable land permanent barriers limiting new construction and as product continues to be removed from the market.

[music] conversion to Nonindustrial higher value uses.

As a result of these factors our portfolio is operating at essentially full occupancy and we believe we are positioned to generate favorable and why growth into future periods.

Our in place portfolio for example, assuming no additional acquisitions, it's positioned over the next 18 to 24 months it potentially generate about 17% incremental annualized NOI growth compared to Q4 2019 equal to almost $40 million driven by the following go forward contributions to N y.

About $14.6 million from the completion and lease up of properties in repositioning.

Approximately $12.6 million through the Mark to market up 9.3 million square feet of expiring leases with rental rates estimated to be about 15% below market.

About $6 million from the impact of properties acquired in the fourth quarter.

Plus about $5 million generated by 2.4 million square feet of executed, but uncommenced leases.

In addition, as our investment pipeline continues to grow in volume and quality, we expect to continue to acquire accretive investments within high demand infill Southern California, industrial markets, which we believe will drive additional and elaborate.

In closing we couldn't be more excited about our go forward opportunities. Our team continues to execute at an outstanding level and we are grateful to our team members each of whom makes an exceptional contribution towards our collective success.

In particular, we'd like to acknowledge and thank our chief financial officer ideal cod, whereas exemplary service at Rex over the prior eight years.

As we announced last month, we are excited and supported deal as he seeks a new chapter in his career as he ultimately transitions out of the CFO role.

Deal plans to stay onboard serving as our CFO until a new CFO his transition into the role and thereafter, we hope to establish a new growth will go forward role for a deal at Rexford consistent with his personal and professional objectives.

With that I'm very pleased to turn the call overdone.

Thanks, Michael and thank everyone for joining us today.

Infill Southern California, industrial market continues to outperform.

But the supply demand imbalance, maintaining the strong landlord market that allows us to continue driving rents and maintain high occupancy levels.

Our target markets, which exclude the eastern inland Empire ended the fourth quarter, a 2% vacancy with asking rents up 8.7% on a weighted average basis over the past 12 months according to she'd be Ari.

Turning to acquisitions the full year 2019 was still there for our growth. We completed 34 acquisitions for a total of $970 million, which added 5.4 million rentable square feet to our portfolio.

During the fourth quarter, we completed 10 acquisitions totaling approximately $258 million and adding 1.8 million square feet to the portfolio, 80% of these transactions were off market or lightly marketed with 50% of the transactions value at.

Our ability to source off work investment opportunities derives from our unique sourcing methodologies and deep market relationships, which result in significant benefits to rexford in terms of superior returns.

Our projected stabilized yields remain very attractive and accretive ranging from 5.3% to 7.3% in the quarter.

In October we acquired Slawson Commerce Center, a 336000 square foot industrial complex located within the L.A. Central Submarket for $41 million. The two building property is in an extremely supply supply constraints submarket fully leased at rents that are estimated to be approximately 17% below market.

Our initial yield is about 5% and growing thereafter.

As a note the yields I reference here and for subsequent transactions are presented on an unleveraged basis.

We acquired West Mannville Street, 60000 square foot 22 foot clear industrial building in the L.A. self pay submarket for $11.5 million. The property is fully leased on a long term basis at an initial yield of 5.3%.

Also in October we acquired Krestmark point, a 56000 square foot building in the central San Diego Submarket for $8 million. The two tenant low coverage property has the opportunity to increase approximately 24% below market rents by renewing in place tenants or repositioning the property the initial yet.

All this 4.8% with a projected stabilized yield on total cost of 7.3%.

In November we acquired very way 820000 square foot three building industrial property with excess land located in the Orange County, North Submarket for $27.6 million, which equates to a below market land value of $58 per square foot.

Fully leased property offers future value add opportunity and our initial yield is 5.6%.

Also in November Rexford acquired Motor Avenue, a 4.2 acre land site located in the L.A., San Gabriel Valley Submarket for $7.2 million, we intend to construct the 97000 square foot 30 to 32 foot clear class a industrial building on this infill land parcel that completion our yield on.

Total costs is estimated to be 5.7%.

We also acquired East East Street, located in the L.A. self pay submarket for $14.9 million.

The Puerto Jay said 58000 square foot modern property.

Fully occupied by three tenants at approximately 38% below market rents and includes excess paved land for container storage. Our initial yield is 3.1% and the estimated stabilized yield on total cost is 5.3%.

Rexford also acquired Monarch Street, a five tenant to building complex located in the Orange County, West Submarket for $34 million. The project contains approximately 277000 square feet.

And at least exploration, we intend to redevelop one of the buildings with a state of the art 97000 square foot class a industrial building and also improved functionality anesthetics for the remaining building. Our initial yield is 4.6% and the projected stabilized yield on total cost is estimated to be 5.3%.

In December we acquired Pomona distribution center.

To tenant industrial building located in L.A., San Gabriel Valley Submarket for $88 million property contains approximately 752000 square feet.

In place rents estimated to be about 20% below market.

At lease expiration, we expect to drive cash flow by re tenanting at higher rich or by executing value add repositioning generating a projected stabilized yield on total cost of about 5.6%.

Also in December we acquired del Amo Boulevard, a single tenant industrial building located in the L.A. self based submarket for $12 million.

57000 square foot building is fully leased at approximately 50% below market rent and contains excess land for container storage upon lease expiration, we expect to perform minor repositioning to drive rents to market. The initial yield is 3.6% and the projected stabilized yield on total cost is five point.

8%.

Finally, Rexford acquired Euclid Street, a single tenant industrial building located in the Orange County, West Submarket for $14 million. The 63000 square foot property was acquired off it all long term sale leaseback transaction at an initial yield of 5.3%.

Turning to dispositions during the fourth quarter, we sold two multi tenant properties for an aggregate of $20.8 million.

This brings our 2019 disposition total to $33.6 million and we expect to continue to sell assets, although synergistic basis to unlock value and recycle capital.

Now I'd like to take a moment to update you on our value add repositioning program.

During the fourth quarter, we completed repositioning of 110000 square foot building in our mission Oaks project in Ventura.

Fully stabilized 462000 square foot project has achieved a 9% return on cost exceeding our initial underwriting 560 basis points.

For the full year 2019, we stabilized about 875000 square feet of repositioning at an average stabilized yield of 8.1%.

Moving forward, we have a deep pipeline for value creation, approximately 1 million square feet currently under repositioning or about to start construction and another approximately 400000 square feet to start later in 2020 <unk> in 2021.

Finally, though 2019 was certainly a record year in terms of acquisition volume our pipeline remains strong as we look ahead in 2020.

We currently have $268 million of new investments under Ela, why or contract, which includes a 210 million dollar portfolio recently announced.

These acquisitions are subject to completion of due diligence and satisfaction of customary closing conditions.

We will provide more details as transactions are completed.

I'll now turn the call over to a deal might also like to thank can acknowledge for his outstanding contributions to rexford success over the past years a deal.

Thank you Howard and thank you Michael in Howard for your kind words, beginning with our operating result.

Fourth quarter 2019, net income attributable to common stockholders worth approximately $19.9 million or 18 cents per fully diluted share.

This compares to $12.4 million or 13 cents per fully diluted share for the fourth quarter of 2018.

For the three month ended December 31, 2019 company share of core up before was $35.8 million as compared to $27.2 billion, where the three months ended December 31 2018.

<unk> per share basis company share of core Apropos was 32 cents per fully diluted share representing a 10.3% increase year over year.

With a full year 2019, Rexford reported net income attributable to common stockholders will approximately $50.5 million.

47 cents per fully diluted share that's compared to net income attributable to common stockholders or $36.1 million, a 41 cents per fully diluted share for 2018.

For the full year 2019.

Rexford reported company share of core up a full $431.1 million compared to 97.6 million dollar for the year ended December 31 to 2018.

On a per share basis company share of core outperform what the dollar 23 per fully diluted share for 2019.

A 9.8% increase compared $1.12 for fully diluted share reported in 2018.

Same property NOI was $39.3 million in the fourth quarter, which compares with $37.3 million same quarter in 2018, an increase of 5.5%.

Our same property NOI was driven by 6.7% increase in total rental revenue and a 10.5% increase in property operating expenses.

Increase in property operating expenses, but due to a favorable property tax adjustment in fourth quarter 2018, combined with an unfavorable property tax adjustment in fourth quarter 2019.

Moving to combine effects of these adjustments property expenses increased by 4.1%.

The cash basis same property NOI increased by 7.2% year over year.

Stabilized same property NOI growth net of the impact of repositioning was 4.1% in the fourth quarter on a GAAP basis and 5.1% Kashmir.

For the full year 2019 same property NOI increased 6.2%.

Driven by a 5.7% increase in revenue and the 3.9% increase in property operating expense.

On a cash basis same property NOI increased by 8.7% compared to 2018.

I don't being added the contribution from properties and repositioning 2019 stabilized same property NOI increased 3.7% on GAAP basis, and 6.1% on Kashmir.

Turning now to our balance sheet in financing activity.

We continue to focus on maintaining a highly flexible balance sheet, which support our growth objectives.

During the fourth quarter, we issued approximately 3 million shares of common stock through our ATM every at an average price of $46 and 77th and for sure.

Which resulted in net proceeds to rexford approximately $137 million.

We utilize this sponsor finder acquisitions, we're working capital and other corporate purposes.

At the end of the fourth quarter, we had $78.9 million the cash well availability on our $350 million credit facility and approximately $344 million available on our ATM program.

We have no debt maturities through 2021 with our next maturity being a 100 million dollar term law in 2020 to.

Finally, our net debt to adjusted EBITDA ratio at year end was approximately 3.7 times, which equates to about 12.3% debt to total enterprise value.

With regard to our dividend on February 10, our board of directors appeared a cash dividend of 21 and a half cent per share for the first quarter of 2020 payable on April 15, two common stock and unit holders of record as of March 31.

Additionally, our board of directors to clear the series, a and B preferred stock cash dividend or approximately 37 cents per share for the first quarter 2020 payable on March 31 to our series, a and B preferred stock holders as of March 13th.

Also our board of Directors Dakota series C preferred stock cash dividend were approximately 35 cents per share for the fourth quarter of 2020 payable on March 31 to our series C preferred stockholders as of March 13.

Finally, I'd like to introduce our outlook for 2020.

We expect to achieve company share of core up unfold within a range of Dollarsthirty dollarsthirty two per share.

Our guidance is supported by several factors, we expect year end stabilized same property occupancy within a range of 96% 97%.

We expect to achieve stabilized same property revpar growth for the year or 3.7% to 4.2%. Please note that our 2020 stabilized same property pool comprised 160 properties with an aggregate of 19.8 million square feet, representing approximately 75% of our consolidated portfolio square footage.

This portfolio was 97.9% occupied at January one 2020.

But generally we anticipate a full year range from $36.5 million to $37 million, including about $14 million a noncash equity compensation.

Please remember that our guidance refers to our in place, but boy as of today and the pending acquisition of the 11 property portfolio previously disclosed in the form 8-K filed on December 23 2019.

Our guidance does not include any assumptions for acquisition disposition, our capital transaction, which have not yet been announce also our guidance for core up before does not include acquisition costs.

While the cost that we typically exclude when calculating this metric.

And finally as a note for 2020 Onee, providing guidance was stabilized same store NOI as we believe this is the best measure to compare the performance of our operating portfolio.

That completes our prepared remarks without we'll open the line to take any questions operator.

Thank you at this time will be conducting a question and answer session. If you like to ask a question.

Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we pull for questions.

Your first question comes from line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.

Great. Thank you I guess just to start out can you talk about your outlook for cash same store NOI next year I know you provide gap.

Yeah, Hi, Jamie so the outlook for cash.

Just for their for everybody at 3.74 0.2, what the GAAP numbers cash will be 5.2% to 5.7, so a 1.5% higher.

Okay.

And then can you talk about your assumption for interest expense.

<unk> for next year, what's baked into the model and just how we should think about any kind of pieces of debt that might be.

Either I know you said <unk> you have no expirations over the next couple of years, but any other kind of unique financing we should be thinking about.

Oh right to Jamie to deal here again, so far it's what debt to just make a making certain that we are factoring in the model. The debt that we placed last year, you're gonna see the full year impact of that but that was fixed at $75 million 25 million, but suppose.

In Q3 last year, so that needs to be in the models for everybody and the other piece that is part of our guidance is relating to the 11 property portfolio, which is going to have some assumed debt.

Cameras issued in December 23, So that's also factored into our.

Interest expense for next year, which is also.

Sure.

Okay, and then sorry to keep.

Picking on so many details, but like leasing spreads what do you guys think that looks like next year.

Oh, Hi, Jamie its Howard, we don't see really any changes in the market.

Oh, yeah today in 2020 things are fast pace, we're signing along a lot of transactions and.

What I, what I've seen through the beginning of the year were worse pretty similar to where we've been in the past maybe not as high as the past quarter. We've just reported on in terms of those spreads.

But you know very impressive spread and Jamie its Michael good to hear voice and yet I think we've indicated that the mark to market on expiring leases.

It's about 15%.

Okay and.

And then just last from me you know kind of your peers have talked about just how business feel today versus this time last year.

How would you answer that question.

Oh, that's a great question and ER business feels equally strong as it did a year ago, we're not seeing any signs of change in terms of tenant demand.

Okay all right. Thank you.

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

Great. Thanks, good morning out there so clearly the Corona virus has been dominated the headlines and how it's been a popular topic of discussion amongst retailers and then some logistics companies. You just talk about whether you guys have seen any disruption and leasing or or even discussions with tenants that might be worried about the impacts too.

Their supply chain.

Hi, Blaine its Howard Yeah. That's a great question and you know, we really we pulled all of our leasing people the property management style.

And I think really the best barometer that we're seeing as a couple of our projects. One is a few of the a small they dock high projects in the inland Empire as well as the San Gabriel Valley and there's no. One was a 1.1 million square foot project than we have two others that really are they add up to about it.

Million that I have feed their occupied in the high 90% range in our leasing people surprisingly actually work, we're telling us there's been a resurgence of leasing activity.

In the beginning of the year. So you know surprisingly, we're doing quite well and they're not seeing any signs of a slowdown in those particular projects, which are I would think probably 80% or more occupied by Asian businesses.

We also talked too.

A few of the different tenants, we have that are expiring right now that were already in lease renewal negotiations that are threepl and interestingly there all telling us that they are diversifying our rather their customers are actually diversifying where their goods are coming in from so they're not as relying on China and some of these guys are.

Actually talk to US now about even taking more space. So again, not not really seeing any impact or or slowdown in demand or growth from the three appeals and Blaine its Michael I'll add to that to you as a reminder, that our tenant base and infill southern California in our portfolios disproportionately on demand is disproportionately driven by low.

Local regional consumption and you know about 50% of all imports or or distributing consumed regionally plus or minus and you know we've we've seen other periods, where and historical periods, where we've seen a slow down or even a shutdown of the port which would be a good proxy for a slowdown of imports driven by anything for instance in 2002 in actual shut.

Down of the for its due to labor.

And what we saw during those periods was literally no no change at all in tenant demand within our portfolio and again, it's principally because its demand driven consumption driven as Howard stated you know the tenants I get creative they need to into is where they find the goods or how they source the goods, but demand has not showing any signs of letting up.

Great. That's helpful. A then great job on the renewal lease.

You got signed with cosmetic labs during the quarter I think the other large expiration you guys have this year as 280 or so thousand square feet with command logistics can you just speak to the probability of a renewal the error or any discussions you guys are having what that tenant.

Sure.

Howard again.

So if you looked at our top 20 expiring leases that's about one in three quarter million square feet. It represents about 45% of all of 2020 expirations.

And today, we're actually in discussions for renewals with about 70% of those top 20 tenants.

And that sort of certainly also includes command, which at this point, we feel there's a high probability on on their renewal as well.

Great last one for me. It was the reported I think that you guys bought a property from per largess. This quarter, a 41 million I think there was the slawson Tom Commerce Center.

Can you just talk about any differences you guys may have seen in negotiating with a large kinda publicly traded riet versus maybe some of them off market deals you guys do with a lot more local players.

Oh I'd I'd say, it's you know, it's always a pleasure to work with a professional.

And most of the time when we deal with institutional sellers are large rates such as a pro largest the transactions go very smooth because we all know what we're doing.

Do you guys expect a lot more opportunity could come from P.L.D. since their trimming down a couple of the large portfolios. They purchase recently or is this more about a one off.

Well, we bought actually two product properties from them. The other was the district 700 and thousand chains distribution building in Pomona that was also purchased the from them as well and we have ongoing discussions and we'd love the opportunity to buy more of the obviously, we can't predict or tell you.

Anything about what's happening today.

Alright fair enough thanks, guys.

Yeah.

Your next question comes from line of Manny Korchman with Citi. Please proceed with your question.

Hey, everyone.

A deal if we look at your occupancy guidance for the year. It shows that a significant dip at year end 20 versus January Onest of 20 can you talk about sort of the but maybe to.

Trying to occupancy throughout the year, and what's causing that guarantee that to drop as much as it is.

Okay. Many thanks for the question and yes. So just as a reminder, that the year end guidance on the occupancy and that's a spot number at but as of 12 31 or 2020. So it's not indicative of what the average occupancy might look like for the full year end that is gonna be higher at the second piece. That's important to note is that the occupancy that we guide.

Hi, specifically, the 97% into high and ended the year I want our and a low I mean that it's not directly correlated to the NOI. So you are.

Benefiting from the average occupancy best within the portfolio during the year. So there is not a direct correlation between those two but that's not a different from what we've experienced in the past you know those are just timing differences and nothing more than that you know one 121, those seem to be rectify pretty quickly and it's based on the re leasing spread that you have seen over the last.

You know 12, plus quarters, I think that gives us a lot of Ah opportunity and ability to take those leases that are not being renewed and being pushing they'd be able to push higher rents. So I think it's an opportunities there's nothing more than timing from that perspective, but the the correlation to the anyway, it's not going to one and.

Manny This is Michael thanks for joining us today.

I'd like to give a little insight in terms of how we think about expirations and occupancy on a go forward basis relative to cash flow growth and the opportunity to drive an NPV growth and so if you were sitting here at Rexford management. If you were in our shoes and you look to those expiring leases through the end of the year and next year for example.

Yes, we have a lot of optionality associated with those choices and quite it's not infrequent that we choose to not renew a tenant who would otherwise wish to stay in the space because we see an opportunity to drive additional cash flow and they may be growth and I'll get a couple of examples.

Let's just say we have a space take a typical property hundred thousand square feet, let's assume a $10 per square foot rent per year, and let's say was on that property for awhile and as we've stated we have about a 15% mark to market on expiring leases into the next year in two years. If all we did his role that tenant in may.

We suffered a dip in occupancy for a short period of time to a higher tenant paying about 15% more rent will there there alone, we've driven and navy by 15%.

Now, let's take another example of the gets even more interesting, let's look at our acquisitions last year and of the 34 acquisitions. We made last year 28 of them had in place inbound cash flow at about a 5% a cap rate and even though they may not have been fully.

Leased and even though there may have been some value creation opportunities that low embedded rent on average those same 28 properties have a projected stabilized cap rate that's projected about 6%.

So now take that same property example, hundred thousand square foot property $10 rent today, when we bought it but at a 5% cap rate that means we paid $20 million for the asset, let's assume that we solve for a 6% stabilized.

Cap rate that drives rent to a million to from a million that's a 20% increase in Iran. Much of which would fall straight to the FFO bottom line and let's remember that market cap rates are substantially lower than what we're typically buying at so let's assume a market cap rate around 4%, although we know that market cap rates are often times below four.

<unk> percent, if you take that math together, yes that would then be worth $30 million, which would result in at 50% increase in in a b now I'm just gonna take one more example, and then I'll finish up here, but let's assume that another option for some expiring space as if we can reposition it and we do that a lot let's assume that same as.

700000 square feet started with $10 rent, but at a five cap, let's assume that we invest another 15% of the purchase price. So we invest up another $3 million. So total cost becomes $23 million, but if you'll notice as we've disclosed last year all of our repositioning a work resolve to about an 8.1 for us.

Unlevered stabilized yield on completions last year, it's not to say, we're gonna do that every year, but that's indicative of what our capacity is so you take that math together.

The.

The total.

Value creation, there would be about 46.

Resulting in a b would be about 46, and a half million dollars and so that's about that's over 100% increase in any of the on total cost of $23 million. So weve increased envy by two times and frankly, you know we do a lot of deals were increasing and it'd be by substantially greater amounts. So I think it's really important to.

Internalized I understand the Rexford business model that occupancy is not the primary measure of you know how we're creating value here at the company and that's one of the beautiful things about rexford that truly differentiates us from any other appear in the industrial sector and for many other Reits in the universe and that we have a fragmented universe of tenants in spaces.

Within our portfolio and within our pipeline of acquisitions, where we have continuous opportunities to create a tremendous amount of value. So often times, we'll see as trade occupancy for value creation.

Thanks, Michael.

Switching topics the prop 13 foot role has been a big topic of conversation recently can you give us your updated thoughts and then packs and your portfolio.

Theres changed anything in the transaction markets to date with what sellers trying to get ahead of it.

Hey, Matt if the deal. Thanks for the question. So if the the problem is passed in November 2020 would be effective in 2022, and we ran a bottoms up analysis and based on our current leases and what the task or inflection looks like in terms of assessed values on so for the impact would be less than a penny. Okay. So if we.

Our to do this today, so it's not very material in terms of the FFR impact. The other thing that's important to notice, which weve always educated everybody is about 48% of our portfolio. That's been acquired over the last three years. So certainly we are benefiting from bad and I think that allows us to do things that are different or the other thing.

Is that about 90% for our leases allow us to a path.

The increase is back so that's why the impact is very mitigate it when I spoke about the full impact so it's a pretty great spot for us to be and a you know I'm sure how would it Michael can add Livermore coloring just the opportunity set what it does in terms of us playing in a leveling the playing field.

The other landlords, who is going I see this increase.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, please well we pull from more questions.

Your next question comes from line of Eric Frankel with Green Street Advisors. Please proceed with your question.

Thank you I just want to discuss you know the capital market environment, obviously read share prices have come up quite a bit since it started the year has that changed the mindset of either you or your competitors in terms of just the investment landscape in and what are what buyers are willing to bed in terms of perspective.

Returns on acquisitions.

Hey, Eric its Michael Thanks for joining US today, you know, we obviously, we can't speak for competitors out there, but we see an intense activity on marketed transactions lot of capital trying to get into southern California, industrial because it's the strongest market in the country and but that's the it's been that way pretty much forever is it more intense today than it was a year ago.

You know, it's equally intense I would describe it that way and with regard to our how we looked at the world I think that was the first part of your question. We don't really think about our hurdle rates are weighted average cost of capital in terms of the spot cost of debt or equity because that can change on a daily or almost hourly basis, particularly.

The stock price when we think about our weighted average cost of capital in the hurdle rates more in terms of steady state cost of capital and on the equity and debt side and so our hurdle rates are probably a little higher than than a lot of our competitors internally and that's why you see is actually working so hard to identify off mark.

And then lightly marketed transactions, which comprise I think about almost 80% of our transactions last year, what's amazing would that intensity act of activities that we turned down about 90% of the deals that we actually sent our lives out on last year, we sent out otherwise on about tend to have billion dollars' worth of transactions last year.

And frankly had we been willing to pay just a little more on a lot of those deals you know we would have we would we have the potential to deliver substantially higher transaction volume last year, but you know, we're staying true to our knitting sustained focus going to keep the discipline and you know hopefully that gives you a little insight into how we see our hurdle rates and though and then.

Vesmen activity given in light of today's capital markets.

Ah that's very helpful color. Thank you ideal just a follow up on on the prop 13 split role could use maybe just clarify how much your reimbursed pop.

<unk> increased if the proposition came through and newer and you were had higher assessed values in 2022.

Yes, absolutely so right now again, obviously when I'm looking at this analysis as of today right now the gross dollar amount would be about 9 million.

Approximately in terms of increased assessed.

<unk> dollars in terms of taxes.

Keep in mind that you know, it's a 1% <unk>, maybe slightly higher increase us on a assessed value and that the rest are just direct assessment, which are not impacted so it's about $9 million, which we're covering most of it and that's how we get dropped to that.

Little less than a penny in terms of metaphor impact after recoveries.

Okay. Thank you.

Yeah.

Your next question comes from line of John Peterson with Jefferies. Please proceed with your question.

Great. Thank you and 8-K, you put out on the 11 property portfolio, which I know you guys said is in your guidance you indicated that you might financed that through LP units curious if there's any update there on how you. How you plan to do if you. If you could still continue to do that and if how that is worked into the guidance.

Hey, John It's Michael here, Thanks for joining US today, you know we were just not able to update at this time, but once the transaction closed you'll get all the information I apologize were not able to give anymore.

Okay, I mean, it but I guess, how how is that factor into the guidance then.

You know, we really can't comment because both the transaction and frankly, we don't have that information yet so yeah, a will but as soon as we know you'll know.

Okay, and I mean, maybe if you could just speak more broadly in in terms of conversations you're having with a with potential sellers.

And the attractiveness of using your LP units is currency I'm using more or less of that today.

Hi, John It's Howard Yeah, we've we've seen those conversations growing and frequency.

I think that you know from where we are as a company we're much more.

Stable and attractive business for people to consider trading their assets into and frankly I think at this point in the cycle people. Appreciate the focus are being in southern California, the strength of the market here and most people. We talk to you obviously have that we're talking about their assets in southern California, where they have great familiarity with them.

Markets and it's a lot easier to understand what they'd be getting by trading into a company like rexford versus potentially another business up perhaps owns assets around the country around the world. All these people are used to being able to understand and make decisions locally. So those conversations are getting more fruitful and we're hopeful that end.

For the future that we'll be able to transact more frequently it on a LP unit type basis.

Okay, all right. Thanks for the color. Thank you.

Your next question comes from line of Michael Mueller with JP Morgan. Please proceed with your question.

Hi, good morning.

On for Mike My.

A question on cash, but given that there's been a 20%.

Range. This year do you think that being.

Indicators, though.

I do like it today.

I'm, sorry, I'm could you repeat the question and you were breaking up a little bit there.

Given that cash spreads have been in the mid twenties.

Yes, 2019, do you see that being representative of the overall portfolio mark to market today.

I did you ask cash rent growth is projected mark to market, 20% and there's nothing was that the question. Yeah. If that is representative of fell helpful. Am I do I cant given that the <unk> 20 and 2019.

So we know I think weve, what we've indicated is on on the expiring leases a there's about a 15% mark to market and then of course on the in place leases typically we have about a 3% rental rate bump embedded in those contractually so thats sort of the color that we can provide at this point in time.

Thank you.

Your next question comes from Chris Lucas with capital One Securities. Please proceed with your question.

Hi, guys. Just a question on the DNA guidance for 2020 looks like about half of the bump in gross dollar increase.

Okay and guidance from 20 to over 19 is related to noncash comp. The rest of it is their head count increases associated with that or infrastructure investments or how should we be thinking about what.

Well, what you're doing what the sort of three plus million.

Increase in June I on the cash side.

No I appreciate it thanks for joining us today.

So there is some head count increase.

You know not so much on the facilities side marginally, but more on head count and I think also if you look at the DNA increase you you brought the great point, which is the bulk of it is noncash equity and the bulk of that frankly is performance based and so you know at the end today, if we're not performing exceedingly high levels over the longer term.

Then we won't actually receive that unfortunately, we have to account for it though today.

And I think also if you look at the DNA growth relative to the growth of the company, whether you measured by FFO growth. What is your mother measure it by portfolio growth in terms of square footage with sometimes drives head count growth, you'll find that the gionee growth has been substantially lower than the actual growth of the company. So yeah. We.

I think we do have a good good good amount to operating leverage and that in the company and so maybe we're doing a little catch up this year on the organizational side in the staffing side relative to the growth we've seen over the prior two three years, but I think as we move forward you'll continue to see a more leverage in the operating structure of the company and those margins continue to grow operating margins continue to grow as well.

And Chris This is the deal just to add just on the headcount piece, obviously about a year ago. When the leasing costs. Those are not part of the DNA as our portfolio continues to grow that some of the head count, but you're also experiencing that's part of your DNA and hours portfolio square footage, increasing be very meaningfully and that takes and caliber our people and just the overall.

Headcount. So that's also something you're experiencing it's just wanted to add that color in terms of.

I just talked about.

Okay, Thanks and just.

One more follow up on that which is just simply as it relates to the CFO transition as their embedded costs associated with that process in the guidance or is that sort of an extra deal.

Yeah, Chris I deal again, so we took a conservative approach and you essentially kept my comp its entirety cash and stock in its entirety for the full 2020 years I think that was the most conservative.

The way to do it and obviously once the transition is complete we will have further announcements and we can further revise guidance if necessary for right now we took most approach.

And then Michael or how are good.

Could you comment on terms of where you are in that search process.

Yes, we can comment a little bit but of course, you know, we'll disclose we actually have more concrete knowledge, but I would say that the interest in the roll. It rexford has been very very strong.

You know the one of the side benefits of sending out the 8-K. Some weeks ago was it kind of put everybody in the finance world. It that operates or is interested in operating in a hurry on on notice that there's an opportunity here and I. You know, we're very fortunate we're operating in the strongest industrial market in the country I think we've got a great company great team and.

Frankly, we're you know in terms of what we're going to create your rexford our vision for the future. We truly feel we're barely out of the starting gate and so it's a it's an exciting opportunity you know for the right candidate and so so far we're cautiously optimistic based on a very high high quality of interest.

That we've received so far.

Great. Thank you that's all I had.

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

On behalf of the company, we'd like to thank everybody for tuning in today, and we look forward to reconnecting in about three months.

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

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