Rexford Industrial Realty's (REXR) CEO Michael Frankel on Q4 2015 Results - Earnings Call Transcript

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Rexford Industrial Realty (NYSE:REXR)

Q4 2015 Results Earnings Conference Call

February 18, 2016 05:00 PM ET

Executives

Steve Swett - ICR

Michael Frankel - Co-CEO

Howard Schwimmer - Co-CEO

Adeel Khan - CFO

Analysts

Juan Sanabria - Bank of America Merrill Lynch

Manny Korchman - Citi

Michael Mueller - JPMorgan

Brendan Maiorana - Wells Fargo

John Guinee - Stifel

Tom Lesnik - Capital One Securities

John Peterson - Jefferies

Operator

Greetings and welcome to the Rexford Industrial Realty, Inc.'s, Fourth Quarter 2015 Earnings 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.

It is now my pleasure to introduce your host, Steve Swett of ICR. Thank you, Mr. Swett. You may begin.

Steve Swett

Good afternoon. We would like to thank you for joining us for Rexford Industrial's fourth quarter and full year 2015 earnings conference call. In addition to the press release distributed today, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rexfordindustrial.com.

On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, projects, seeks, should, will and variations of such words or similar expressions. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income or financial guidance. As a reminder, forward-looking statements represent management's current estimates. Rexford Industrial assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC.

In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental information package, which were released this afternoon and are available on 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.

This afternoon's conference call is hosted by Rexford Industrial's Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer, together with Chief Financial Officer, Adeel Khan. They will make some prepared remarks and then we will open the call for your questions.

Now, I will turn the call over to Michael.

Michael Frankel

Thank you and welcome to Rexford Industrial's fourth quarter and full year 2015 earnings call. I will begin with a summary of our operating and financial results for the year and the quarter, Howard will then provide an overview of our markets and recent investment activity and Adeel will follow with more details on our quarterly results, our balance sheet and introduce our outlook for 2016.

First I'd like to briefly explain why we are so proud of our team's exceptional results for 2015. We increased same property NOI by 7.5% on a cash basis, driven by strong releasing spreads and a 290 basis point increase in our stabilized same property occupancy, which ended the year at 95.6%. On a consolidated basis we increased NOI by a full 46.2%. Most importantly, we achieved this exceptional growth with substantial operating leverage and margin expansion. For example, although our portfolio square footage increased by 21.5%, we increased company share of FFO by a full 58.3%.

Rental revenue increased almost 4 times as much as our cash operating expenses. Our accretive growth also enabled us to increase our dividend rate by 12.5% to $0.135 per share. Most importantly we finished the year with a strong balance sheet that is more flexible than ever. Early last year we raised a net $177 million through a follow on equity offering. In February we attained a Fitch investment grade rating and in August the company issued a private placement of a $100 million 10 year senior note, thereby reducing our secured debt exposure and expanding our debt maturity.

Before turning to our fourth quarter results, I'd like to focus on a few key themes relevant at this stage of the real estate cycle. Despite historically low vacancy it remains nearly impossible to build new product release within our core infill Southern California markets. Meanwhile long term tenant demand continues to grow. For example e-commerce continues to drive a disproportionate share of incremental tenant demand to infill Southern California, driven by the rising need for same day delivery within the nation's largest zone of regional consumption. In addition 70% of the nation's imports from the Pacific Rim pass through our two ports of Los Angeles and Long Beach with over 40% of these goods estimated to be consumed locally, with an increasing share distributed through e-commerce. As our infill tenants generally serve regional business and consumer demand we benefit from the increasing volume of goods growing locally.

Consequently we are also more insulated from certain risks in the global economy, such as a slowdown of China as compared to non-infill markets comprised of large big box tenants serving global markets. These exceptional fundamentals combine in a very unique way in Southern California's infill market and are great reminders to why we remain focused as the local sharpshooter on creating value by investing in industrial property here.

Now, turning to our portfolio results, we achieved recurring FFO of $11.9 million for the fourth quarter of 2015 which is a 33% increase over the prior year. Recurring FFO per share was $0.21. During the quarter we signed 119 leases for 582,000 square feet, our leasing spreads were 12.9% on a GAAP basis and 6.4% on a cash basis in the fourth quarter, which marks our ninth consecutive quarter of positive double-digit GAAP releasing spreads. We achieved approximately 203,000 square feet of net positive absorption. We acquired six industrial properties for approximately $79 million during the fourth quarter and 21 properties for the full year for $248 million.

Most of our investments were acquired through off-market or lightly marketed transactions originated through our proprietary research and related efforts, which has enabled better than market yields and strong value-add opportunity. On an aggregate basis our weighted average inbound cap rates for the year were just below 5% despite the fact that last year's investments included some vacancy and were only 70% occupied on average at the time of acquisition. As we complete our value-add work and lease up, we conservatively estimate a weighted average stabilized unlevered yield on cost in the mid 6% range or better for our 2015 acquisitions. And if we look at just the investments made during the fourth quarter we expect the weighted average stabilized unlevered yield on cost well above 7% for our most recent acquisition.

I'd like to highlight why we are so excited about 2016 and beyond. We believe we have a substantial opportunity to drive strong internal growth from our in-place portfolio. Our average consolidated rent of $8.79 per square foot are currently about 13% below the average market asking rent, according to CoStar. Moreover the in-place rents for our leases that expired during 2015 are approximately 22% below current market asking rents on average. Consequently the 3 million square feet of leases rolling during 2016 we see a substantial opportunity to drive rent growth. We also believe we will continue to see favorable occupancy gain as tenant demand continues to grow amid historically low vacancy. Further our properties that are in repositioning or lease-up as of December 31st, are projected to contribute an incremental $11 million or more of NOI growth alone over the next 12 to 18 months.

On the balance sheet side we significantly reduced our exposure to interest rate risk with our recent fixed rate debt placement and our higher interest costs are more than offset by the significant internal growth occurring within our portfolio. Finally we also have some potential asset sales in process that we expect will contribute to our ability to internally fund our internal and external growth this year in a manner that we believe will further enhance the FFO per share growth and shareholder value over the long-term.

And with that I'm very pleased to turn the call over to Howard.

Howard Schwimmer

Thank you, Michael. And thank you everyone for joining us today. As on past calls I'll update you on our markets, and review our recent transaction activity. By virtually any measure our core infill markets remain strong with availability running at or near historic levels. The overall Southern California vacancy rate reported by CBRE, excluding the Eastern Inland Empire ended the fourth quarter at 1.8% dropping 10 basis points from the last quarter. I'll provide additional perspective on our markets primarily utilizing market data provided by CBRE.

Los Angeles County ended strong, generating 915,000 square feet of positive net absorption in the fourth quarter and 5.8 million square feet overall in 2015. The overall vacancy rate in the region dropped 10 basis points since last quarter and finished the year at 1.3%. Rexford's LA portfolio finished the year at 97% occupancy excluding our repositioning assets. Construction deliveries already lag far behind absorption with only 2.8 million square feet under construction at the end of the fourth quarter representing just 0.2% of the market base and accounting for space removed from the market to be converted to alternative usage, net supply growth remains negative.

Asking lease rates jumped 6.1% quarter-over-quarter and 9.4% over the prior year. Over the next 12 months CBRE expects asking rents to further increase by 5.8%. Activity in Orange County showed a dramatic improvement over the last year. The market generated 2.7 million square feet of positive net absorption for the year compared to 1 million square feet in 2014. The overall vacancy rate in the region was unchanged over the prior quarter and ended at 1.9%. Rexford's Orange County portfolio was 97.8% occupied at year end excluding our repositioning assets. The rates continue their upward trend and increased by 2.7% over the prior quarter and 7% over the prior year. CBRE expects lease rates to improve by further 6% over the next 12 months.

The San Diego market experienced a historical year with net absorption of 3.5 million square feet, the highest figures since 2006. More than 80% of the year's net absorption occurred in low-finish product that is Rexford's focus. In fact our San Diego portfolio finished the year at 94.5% occupancy excluding one recently purchased repositioning asset. Vacancies hit the lowest ever recorded in the region at 4.3%, a drop of 10 basis points over the last quarter. Asking rates across all product types remained flat quarter-over-quarter and were up 11% over the prior year. However asking rents for low-finish industrial products such as ours increased 14% for the year.

The industrial market in Ventura County had 222,000 square feet and a positive net absorption in the quarter and the vacancy rate dropped another 50 basis points to end at 3.1%. The average asking lease rate stayed unchanged since the last quarter and increased about 2% over the prior year. The Inland Empire generated 23.2 million square feet of positive net absorption for the full year, the vacancy rate dropped by 50 basis points since the last quarter and finished the year at 3.3%. The average asking lease rate rose by 7.1% since last quarter, the smallest on spaces experiencing the largest growth. CBRE expect asking rates to increase by 11% over the next 12 months. However there may be a risk on the horizon related to consumers for global growth and over supply as the pipeline of about 90 million square feet is in various stages of development primarily within the Eastern Inland Empire which we did not focus on.

We entered 2016 in a strong position within our markets. Rexford's high quality infill portfolio is well positioned despite growing global and domestic economic uncertainty. We continue to see strong demand for space with competing offers and a turnover within our portfolio realizes quickly. As an example of that 75% of the space vacated in fourth quarter has already been released, a testament of the high demand nature of our product and to the lease type of available space going forward.

Now moving onto our transaction activity; during the fourth quarter and throughout 2015, we continue to drive external growth with accretive acquisition. In the fourth quarter we acquired six industrial properties for an aggregate cost of $78.5 million. For the full year we recorded 21 properties close to $250 million. As in previous quarters, our earnings release has details of these transactions but I will provide some brief highlights. The majority of these transactions were off market or lightly marketed sales, as our deep local market knowledge continues to provide a competitive advantage as we source acquisitions. As a result we continue to achieve stabilized returns that are 150 basis points to 250 basis points or more above the prevailing market yield of 4% to 5%.

In October we purchased Arrow Highway, a three-building, 64,000 square foot industrial complex located in the San Gabriel Valley for $8.1 million. The 100% leased building is occupied by a single tenant and the initial return is approximately 7.4%. Additionally in October we purchased Midway, two prominent buildings totaling 374,000 square feet in the severely supply constraint Central San Diego submarket for $19.3 million. We are repositioning the asset in two phases and creating a high quality industrial complex. Phase 1 delivers 229,000 square feet in 10,000 to 35,000 square foot spaces and at stabilization yield on cost is projected to be 6.5%. Upon stabilization of Phase 2 the return on total cost is expected to increase to approximately 8.6% or more.

In December the company acquired Milliken Avenue, for $13 million which is a three-building, a 178,000 square foot industrial complex in Ontario. We are executing a value add capital improvement plan to maximize revenue as the low market leases grow and anticipate a stabilized return on -- from cost of 6.1%. Also in December we acquired Walnut Street and Lakeland Road. Walnut Street is the 172,000 square foot cold storage industrial building located in Carson in the Los Angeles South Bay market. The property is a 100% leased with two tenants with long-term leases and was purchased for $16.7 million. The low cost base in some of the assets provides the opportunity for future renovation and potential re-tenanting into a single tenant dockside distribution facility. The in place yield on costs is approximately 8.9%.

Lakeland Road is a vacant 25,000 square foot building with 50,000 square feet of excess land located in Santa Fe Springs in the LA Mid-Counties submarket. We purchased the property for $4.3 million which of course is the land value alone. After addressing deferred maintenance, the quality industrial space with dockside loading and excess land will be highly desirable in this low vacancy market. We expect to stabilize return on cost of 5.9%.

Finally at the close of the year we acquired Nichols Lane, a 115,000 square foot industrial building in Huntington Beach in the West Orange County submarket for $17.1 million. The high quality building is a 100% leased with a single aerospace tenant. We have invested significantly in the space and has eight years remaining on its lease. We anticipate an initial return of 5.1%.

In closing we added in excess of 2 million square feet to our portfolio in 2015 in our core Southern California infill market. These properties are in prime locations and offer very strong relative yields both initially and on a stabilized basis. As we look forward we have a significant pipeline of value-add and stabilized opportunities and we continue to work on potential transactions that fit our return objectives. At this time we have more than $38 million under contract or 11%. We also have about $90 million of dispositions under contract, letter of intent or subject depending letter of intent. These opportunistic sales with more than 60% of the square footage either vacant or facing near term lease expiration allow us to recycle proceeds at values that substantially exceed industrial market cap rate valuation. These sales are subject to contingency period but there's no guarantee if or when they will close.

I'll now turn the call over to Adeel.

Adeel Khan

Thank you, Howard. In my comments today I'll review our operating results, then I'll summarize our balance sheet and recent financing transaction and finally I'll provide some metrics to support our outlook for 2016. Starting with our operating results, for the three months ending December 31, 2015, company share recurring FFO was $11.9 million or $0.21 per fully diluted share. This compares to $8.9 million or $0.21 per fully diluted share in the fourth quarter of 2014. Recurring FFO per share was flat due to the impact over equity offering in January of last year. Recurring FFO excludes the impact of approximately $500,000 of non-recurring acquisition expenses. Including these costs company FFO was $11.4 million for the quarter or $0.21 per fully diluted share.

For the year ended December 31, 2015, Rexford Industrial reported company share of recurring FFO of $44.2 million or $0.82 per fully diluted share. Recurring FFO excludes the impact of approximately $2.1 million of non-recurring acquisition expenses and about $345,000 of non-recurring legal expenses. Including these costs company FFO was $41.9 million or $0.77 per fully diluted share. Same property NOI was $10.5 million for the fourth quarter as compared to $10 million with the same quarter in 2014, representing an increase of 4.8%. Same property NOI was driven by a 2.8% increase in fourth quarter rental revenue and a 2.2% decrease in operating expense. On a cash basis same property fourth quarter NOI was up 7.5% year over year.

Turning now to our balance sheet and financing activity. In total our consolidated debt was approximately $418.7 million which included approximately $78 million of secured debt. During the fourth quarter our total consolidated debt increased by $82.8 million and we ended the quarter with approximately $131 million outstanding on our revolving credit facility primarily as a result of our acquisition activity. As we look ahead to 2016 we believe our balance sheet positions us well to fund our strategic objectives as we have significant financial flexibility and multiple capital sources. We have no debt maturities through 2017 and have approximately $176 million of total liquidity. Additionally we have approximately $90 million of dispositions in process, the majority of which are vacant or soon to be vacant buildings allowing us to recycle capital in a accretive manner to help fund our internal and external growth initiatives.

Finally I'd like to provide color on our outlook for 2016. With regard to FFO guidance for 2016, our guidance refers only to our in-place portfolio as of January 1, and does not include any assumptions for acquisitions or dispositions which have not yet closed including the potential sales and profit that we mentioned. For 2016 recurring FFO, our in-place part of the portfolio we expect to achieve a range of $0.83 to $0.86 per share. Please note that our guidance for recurring FFO does not include acquisition costs or other costs that we typically eliminate when calculating this metric.

Our guidance is supported by several factors. For the 2016 same property portfolio we expect yearend occupancy within a range of 94% to 95% and expect to achieve a same property NOI growth rate target for the year to a range of 5% to 7%. Please note that our 2016 same property pool now comprises 97 properties with an aggregate of 9.8 million square feet representing 82% of our consolidated portfolio square footage. For G&A we anticipate a full year range from $16.5 million to $17 million including about $4 million of non-cash companywide equity compensation.

I'd like to note though we're not providing guidance for 2016 acquisitions at this time we remain excited about our robust pipeline and expect to continue to grow our portfolio in a accretive manner. As we look through the year we look forward to updating you with our acquisition activity and any updates to our full year guidance.

With that we'll open the lines to take any questions. Thank you.

Question-and-Answer Session

Operator

Thank you, [Operator Instructions] Our first question comes from Juan Sanabria with Bank of America Merrill Lynch. Please state your question.

Juan Sanabria

Hi, good afternoon. I was just wanting to get a little bit more color on the dispositions, something you haven't necessarily done in large scale in the past. Kind of what's changed -- I mean the markets seem pretty tight, I think Michael mentioned 22% upside on the '16 expiration. Wouldn’t the vacancy be an opportunity to grow earnings? If you could just kind of help us think about what could be -- the plan is?

Howard Schwimmer

Hi Juan, it's Howard. You know I think we're at an interesting point in the market and we -- our assets are in very tight infill locations, so that some of dispositions have opportunities for changing use which as you know Rexford doesn't focus on. So it's really a plan of unlocking higher value potentially through a redevelopment but in general all of these dispositions are at pricing that is well above the typical industrial cap rates we see in our markets. But there're really more opportunistic sales and they're not programmatic in any sense. So, it's really just the opportunities now are presenting themselves and so we're taking advantage of them.

Juan Sanabria

What percentage of the 90 million would be kind of potentially higher or better use or alternate use?

Howard Schwimmer

Yes, I think -- there's probably 40%-ish of that. Interestingly about 60% of these transactions are either vacant or assumed to be vacant assets.

Juan Sanabria

On the G&A can you help us think about what's driving the -- I think it's a 12% increase off of '16?

Adeel Khan

Juan, it's Adeel. It's just about 13% increase year-over-year and majority of that is the non-cash equity compensation expense that's coming through for 2016, if you slip that out and we quoted the fact that there was $4 million of non-cash stock comp in next year's -- for the SG&A guidance. That's gives you some idea as to what's creating that delta between year-over-year and if you also recall late in 2015 there were grants that were executed for the executives here, so you are seeing the full year impact of those grants showing up in 2016.

Juan Sanabria

And then just one other quick one, re-leasing spread, I think Michael you referred to 20% plus mark-to-market on explorations through the year, can you give us the ranges of what you are expecting in your guidance for '16 and where do you think market rent growth could be?

Michael Frankel

Juan its Michael. We don't really prognosticate in terms of market rent. CBRE -- Howard quoted the CBRE statistics and their expectations, frankly we underwrite to more moderate rental rate growth and are underwriting naturally. And also with regard to re-leasing spreads at the end of the year, I think what we can tell you is that the activity continues to be very, very robust. I think Howard cited a great statistic and now it was 35% of our leases that rolled during Q1 and has already re-leased and at very favorable leasing spreads, Q4 rather have already re-leased during -- since the end of the year and since the end of quarter and we do have some great examples of leasing activity, since the end of the quarter that are very, very robust re-leasing spreads. So, we don’t really have guidance related to re-leasing spreads through the year but what we can tell you is that we don't see any change and the trend line continues to be very favorable and we see that the re-leasing spreads and the growth in revenue is really one contributor to NOI growth through the year. Another key contributor to NOI growth through the year is the repositioning assets that are going to be coming up through lease up over the next 12 to 18 months and we see potential there to be well over $11 million over the next 12 to 18 months. So, we feel like we're positioned really well in terms of NOI growth and we think that more of that's going to be [flowing] down FFO per share over time as well.

Operator

Our next question comes from Manny Korchman with Citi. Please state your question.

Manny Korchman

If we think about that $11 million of additional income that's going to be coming online, how much additional capital investment do you need to make to get there?

Michael Frankel

If you look at our repositioning page on Page 24, you'll see total investment from all the assets including the acquisition costs today is about $177 million and you can -- there's a column there where you can also calculate the incremental investment since the acquisition. And that provides your data there. In fact if you look at the NOI that's contributed as a result that $177 million of total investment you generate about a 7.2% yield on those transactions and maybe we think that's fairly conservatively estimated.

Manny Korchman

And then Adeel just given the strong performance of the stock or strong outperformance of the stock how does equity play into your capital plan over the next 12 to 18 months?

Adeel Khan

I think we always start with the key focus which is the balance sheet, I think that's the disciplined strategy that we've always been focused on from the very beginning and I think you saw us execute on the seven year term loan at the end of the year, actually beginning of this year and that has potentially established some liquidity for us from a credit facility perspective. And also the $90 million that Howard just talked about, I think, we are always constantly evaluating every equity need in correlation with the accretive nature of the deal that we're going to possibly be doing with. And I think that's how we kind of look at it. Again the ATM is out there still on touch, so again we have a lot of tools in our chest here that we can execute on. Again it all has to come down to the deals that we are underwriting and how they are supporting and the equity market at that time. So we'll continue to guide you guys as we move forward in the quarter but I think we kind of started the year in a pretty nice manner as to what we have coming up and how we can write through some of these things in the near future.

Manny Korchman

And maybe a final one for me. If we think about the dispositions especially the vacant ones that we spoke about earlier in the call, how many of those did you structure or did you think about purposefully making vacant because of this alternate deals or some other reason? And how many of those were just too difficult to lease up and so they were naturally vacant?

Howard Schwimmer

We didn’t create any vacancies purposefully to sell. Two assets are vacant. One is a repositioning asset -- and again these are all in their contingencies. So we don’t want to give you a lot of specifics to focus on any particular asset. But so one of them is a repositioning asset or we actually haven’t started spending the money yet, that's a very unique opportunity to outperform all of our underwriting through repositioning on that particular asset. Another is an expiring lease that has some capital requirements but wasn’t really expected to produce revenue until -- till the end of the year -- As you just saw -- you have heard us talk about how users pay premiums for properties that really don’t correlate to the cap rate values. So it's a great example of one of those types of sale.

Michael Frankel

It's Michael. I'll just add that none of these dispositions are what you might would consider problem children. They are all great assets that we would be very happy to keep to the extent that the sales don’t materialize. On the other hand, the sale value potential are very substantial and we are certainly excited about those as well.

Manny Korchman

Great, thanks.

Operator

Our next question is coming from Michael Mueller with JPMorgan. Please state your question.

Michael Mueller

[indiscernible]. So for the same-store NOI guidance of stabilized -- it's not stabilized, same store NOI of -- or occupancy of 94% to 95%. What does the number does that compares to, is it the 94.4 at yearend. Is that the right one?

Michael Frankel

No Mike it's a good question. So let me explain a little bit on the same-store. So same-store we ended the year with 6.1 million square feet and that number is changing to 9.8 million square feet beginning 1/1/2016 and that's the same-store pool that we are going to start using starting from Q1 2016. That's a number that we are quoting the 94% to 95% and the 5% to 7% now that number at the end of the year was at 92.96% or 93% closer. So that's the number that we are using. That 92.96% or 93% was not disclosed with the Q4 supplemental but it will show up as you start to see the supplementals in 2016.

Michael Mueller

Okay so it looks like [indiscernible]?

Michael Frankel

That's correct.

Michael Mueller

Okay, great. And then I know it's not in guidance but Adeel can you walk through what you are thinking in terms of acquisitions, dispositions is it the normal 250 that you are thinking about and for asset sales is it just that 90?

Howard Schwimmer

Hi, Mike. It's Howard. Well the 90 is really the assets we have identified right now. We really are looking at the portfolio and trying to find the whole lot more but we do review the portfolio on a quarterly basis and we certainly -- if other assets prop up that makes sense. But at higher prices than the industrial cap rate bag is we might see some more but we don’t have anything to remark right now. As far as acquisitions our pipeline is very robust, I would say we are still tracking a similar amount of products that we were in the beginning of 2015. So in terms of the opportunities that are out there nothing would have changed, we've just made the decision to just now report on the acquisitions just because the volume of them varies quarter-to-quarter. And I think the intention really is just to announce some of the products we've always done and update guidance with respect to the closed transactions and each quarter we will continue to mention what we have in the contract, as I did in my remarks earlier mentioning that we have $38 million of products under contract.

Michael Mueller

Okay so in the past you've typically talked about, if I am not mistaken here, about 250 of acquisitions give or take. So without asset sales that's net 250 on the acquisition side. Do you think the net acquisitions will be comparable with that 250 or lower this year?

Howard Schwimmer

Well like we said we don’t want to offer guidance right now on a specific number, but again the acquisition pipeline really is robust. We are looking at a lot of one off value add deals, core deals and we are always tracking a portfolio or two. It's just hard to predict what those numbers are going to be and that's why today we are really more focused on the existing portfolio and talking about all the embedded growth in that in terms of some of the numbers that we are offering in the guidance.

Michael Mueller

Okay and then just one last little question here. Going to the redevelopment page or the repositioning page, for the stuff that was completed in the fourth quarter it looks like it was about 270 of NOI annualized upon stabilization to about 2.6 million. And it shows that it stabilized I am assuming that happened at the beginning of the year. Does stabilize mean that's all hitting in this quarter so that 250, that 270, would go to 600 in the first quarter give or take, or it's leased but you're not going to get the income for some time so, I mean how do we read that?

Michael Frankel

Mike that's a great question and I think the one caveat that's in the stabilized number is the fact that it does not include any concessions. Some of those deals might have some concessions that might flow through this quarter otherwise your statement is accurate but that number should all hit in Q1 '16. And you can kind of see what the Q4 NOI was and you can kind of read from that perspective because that is actual NOI, cash NOI and you can kind of interpret the data from that perspective. But that's the only caveat that I'll point in the stabilized that's the difference.

Michael Mueller

Okay, thanks.

Operator

Our next question comes from Brendan Maiorana with Wells Fargo. Please state your question.

Brendan Maiorana

Thanks, good afternoon. So do you guys think about capital outlook now as being more of a asset recycler as the longer term capital plan or is it just hitting the market at the right point in time with respect to the $90 million of sales and just being opportunistic and over time you're more likely to grow the portfolio than to just kind move the chess pieces around a little bit.

Michael Frankel

Hey Brendan it's Michael, I think the latter is probably even more accurate than that. We are really capitalizing more on timing of the market. It's very opportunistic opportunities in terms of the $90 million of disposition and over time we do see our sales growing the portfolio and continuing to do what we do. As Howard mentioned we have a tremendous volume of very exciting deals in the pipeline, ranging from value add, core plus and core and we also have some large portfolios that we're looking at. So I think you can plan on our continued growth. But as always it's very, very selective and I think one of the interesting things about our growth over the last year is if you look at our inbound yields and our stabilized yields, I think not only they are both substantially above market, that you probably see an acceleration at Rexford in terms of the stabilized yields we’ve been able to project on the acquisitions we made through last year as compared to prior year. So, we couldn't be more excited about the pipeline.

Brendan Maiorana

Sure and so let's say if you're to be a net acquirer, so maybe you get the $90 million of sales done and then you get another $90 million of acquisition, the acquisitions beyond that, how should we think about the funding outlook for that? Do you feel like it would be funded a portion with ATM issuance and a portion with some debt or do you think that your leverage is well enough where you could do another let's say $100 million of net acquisitions without having to tap the equity?

Adeel Khan

I think one of the things that I point out and I think you can see from our guidance perspective you know we have great traction when it comes to NOI growth that's coming in '16. So we have a little bit of leverage neutrality built into our portfolio. So I think if all else being equal, if we don't do any acquisitions, you delever simply by the fact that NOI is going in the EBITDA is going to -- some of those ratios and margins won't naturally improve over the course of time. You’re absolutely right about the ATM. We have not transacted on that and we will be opportunistic as the opportunities present themselves. So that's certainly something we can use. Again you've seen us, how we've deployed the debt side of the business. We've got the seven year term loan at the end of the year to create some liquidity for us, the line has about a $176 million available. So this year looks awfully strong from that perspective but again these are all tools that are available to us. The key focus here is that we constantly align our equity needs to the underlying deals that we're doing and to make sure that they're accretive in the overall FFO perspective and ultimately the [G&A] perspective. So that's how we kind of gauge and determine every single capital move that we make to make sure that we provide that lift in the short term and the long term.

Brendan Maiorana

Okay, then the last one. So you did $0.21 in the quarter, I know it is very difficult to annualize a quarter but I am going to do it any way so, that's $0.84 which is kind of around the midpoint of your guidance for '16. So G&A is going to be a little bit higher for '16 than your run rate was in the fourth quarter but it seems like you got -- as you were just highlighting to Michael Mueller you got 2.5 million of NOI coming online just from these recently stabilized repositioned assets. You got a few more that are going to come online during the year. And then you have got this kind of all the NOI growth, the better rent and occupancy. And so I would think that, is there something about -- something else that's maybe a headwind that we're not thinking about other than maybe a little higher G&A you know maybe a little bit higher interest cost?

Michael Frankel

Well I think the one thing I will point out is the timing of some of this and I think I always start with the fact that this is in-place portfolio guidance. So that's the first and foremost point that I want to reference. Second of all is that this -- let's just say the high end of the guidance at $0.86 it's not necessarily normalizing and you're going to see a buildup to that. So where we end up in Q4 will look different than when we were at Q1 or Q2, you have certain leases that roll, you might see some downtime and obviously we'll do our best to execute on the strategy on getting those re-leased as soon as possible. But I think you are not going to see a normalized effect. So as far as the headwinds are concerned, you kind of already mentioned then the interest expense is obviously something that we have been communicating. We will see a full impact this year for all the slots that we put into place, about the private placement that took place in August last year. We talked about the G&A and then the NOI just on the high end of the range of $0.86 is contributing by 20% increases year-over-year. So I think kind of gives you some of the building blocks as to how we are looking at from this in-place modeling perspective. So again, the timing is the key thing. We will put ourselves in a great spot if we execute on the strategy we laid out for this in-place portfolio, where we end up at the end of this year and run rate that's going dictate it's going to be drastically better than we've ended the year this year.

Operator

Our next question comes from John Guinee with Stifel. Please state your question.

John Guinee

Can you talk about where they're actually building in for example LA County and do you have any idea what is costing to build product these days, that would be interesting?

Howard Schwimmer

I think LA County I mentioned some stats in the prepared remarks about new construction. I mean literally 0.2% of the base in terms of the amount of construction. So, the new construction -- it doesn't really even keep up with the amount of product that's been lost in the market converted through hiring better leases than industrial. But the other important part of that even that small amount of new construction, the majority of it will be buildings for sale in the LA County market because we don't really have a lot of large land areas to deliver big box and because of the high cost of land and those high construction costs they don't align to deliver for leased product. Typically you're seeing a lot of buildings being built and sold on to users which as I also mentioned they pay prices that don't correlate in terms of the cap rates to valuation. And then in terms of what buildings cost I mean the numbers are all over the board depending on whether you're building a large box or whether you're building a multi-building for sale project. So, it's hard to really comment on that and we could take more time offline if you like to have a deeper discussion.

Operator

Our next question comes from Tom Lesnik with Capital One Securities. Please state your question.

Tom Lesnik

I guess first, just talking about the acquisition pipeline you guys have today, I guess what percent of that would you consider projects that are immediately going to go into the value-add redevelopment pipeline and how many are going to be income producing from day one?

Howard Schwimmer

Well, I mentioned the $38 million under contract. Those are fully leased products, so that's income producing day one. There are value-add projects in the pipeline but we're not able to talk about them right now because they're not under contract. But there's plenty of opportunities out there. In the past you've seen our acquisitions really looking more like 30 to -- almost a third of which I can say would be value-add versus more stabilized core, core plus type properties.

Tom Lesnik

Obviously you guys are giving guidance on a static basis without acquisitions or dispositions built in, but assuming you guys do another $250 million or so in acquisitions what is the incremental G&A that would be required to do another $250 million acquisition?

Adeel Khan

Tom, great question, the answer would be next month and I think as I pointed out in the last call we hit our major milestone last year in the terms of Oxley-Sarbanes compliance from the attestation perspective. So those costs are in there. This year I think the G&A is increasing because of the non-cash equity compensation expense. Other than that we are fairly built out. You will not see any meaningful increase in the G&A. Now as far as the property NOI is concerned you always have overhead costs there but we keep a very mindful eye on that part of that equation about margins. From an NOI margin perspective we're always locked on and we're constantly looking at those numbers to make sure that we can at least improve that. So the answer would be from a general perspective you'll not see an increase.

Tom Lesnik

And then on the subject of G&A obviously we're heading into proxy season pretty soon here and you guys being an emerging growth company, the JOBS Act here in a disclosure doesn't have to be quite as intensive as a lot of other companies, but given the growth profile that you guys have should we expect to see any incremental detail in this year's proxy?

Adeel Khan

Well we are out of the JOBS Act. We essentially breached that market cap last year and that's the reason why we have to be Sarbanes-Oxley at sufficient compliance this year. So yes, [indiscernible], this year, so that hopefully answers your question. And that's what we were preparing for also last year and that's why you saw an uptick in G&A costs because we knew we were going to breach that at June 30, 2015.

Tom Lesnik

And then I guess finally looking at expense recoveries is there any seasonality to that throughout the year for you guys?

Adeel Khan

No, as a matter of fact our system is getting more and more profound and robust as far as us being able to recover even more timely. I think a lot of times some companies have a system where they recover at the tail end of the year. So we are trying to streamline that process. Our recovery process has become a little bit more closer to the quarter. So I think you'll see us improve that part of the equation even further.

Tom Lesnik

Got it. Really appreciate the insights guys, nice quarter.

Operator

Our next question comes from John Peterson with Jefferies. Please state your question.

John Peterson

So I guess first just the quick one for Adeel, just to make sure I understand. So the 125 million of new -- the new term loan you did subsequent to the end of the quarter, I assume that's in guidance and I also assume that guidance does not include any future assumptions for debt or equity issuances?

Adeel Khan

That's actually correct, it is in guidance and what's also in the guidance is the fact that we use $125 million to pay down the line, so it's got the -- the guidance includes the latest integrated -- grades related to the $125 million. We obviously have not executed any kind of swaps on this line, but I think we will disclose that in the future if and when we choose to do so. But the guidance includes all the pieces that are currently in place from a debt perspective.

John Peterson

All right great. And then if I could Michael or Howard. I mean after too much conversation on how cap rates are trending in the market, you are definitely hearing -- not LA just nationally across property types it seems like with the volatility that is going on the market there seems to be definitely more scrutiny on the buyer side of things and more buyers being a little more selective. Are you seeing that in the LA industrial market and then how are you expecting cap rates to trend through this year?

Howard Schwimmer

That's a really great question and it's interesting because we do have a lot more insight being on the other side of the fence, some of the fence right now. I would say that there are still plenty of buyers out there looking at our markets. There is an over abundance of capital trying to get in. We are seeing buyer profiles that are different meaning foreign capital that we might not have even expected to be there on some of the assets we are selling, they are showing up now. So LA, Southern California, just has phenomenal fundamentals to it and it's no secret that everyone wants a piece of it. So we don’t really have any expectations of increasing cap rates. In fact I think even on some of the larger sales probably more in the Inland Empire's some of the Big Box products you might even have a little bit more cap rate compression that you will see this year. But our market is solid and some of the conversations happening in other markets just aren't happening here at all.

John Peterson

And then one more question for Adeel. I know a lot of people have talked about kind of potential for raising capital and such things. I am just clicking through on the stock charts of all the different industrial REITs. You guys are trading here at 52 week high. I'm just wondering the thought process on doing that $120 million of debt rather than using the ATM when you guys -- especially relative to peers than to be trading pretty attractive?

Adeel Khan

Yes I think that's a good question. I think you first need to take a look at the seven year debt that we executed. I think it was very attractive piece of debt we were able to execute. Seven year is a great term from us, I think it was an opportunity for us to capitalize in the market that was closing pretty fast and I think if you would have take a look at that market today we looked probably different than when we executed that transaction in January. So it was a very opportunistic transaction which helped us really create something that we probably couldn’t do today. So furthermore I think we constantly evaluate the stock perspective, we put our perspective from an ATM side. I think it's -- again if our balance sheet is strong we feel comfortable about the internal growth and what that can do from a leverage perspective and we will consider that in our equation and that's what's part of the consideration during the quarter and also during the quarter the stock was a little volatile for the first part. So there is many things that go into the equation but key thing is that the ATM is entirely available to us and it's something we can execute. We are very disciplined and very focused on just creating a bottom line growth from the accretive amount of deals that we do and how we issue it. Again that's how we kind of look at maybe overall equation.

John Peterson

That's helpful. Thanks.

Operator

Our final question comes from Juan Sanabria with Bank of America Merrill Lynch. Please state your question.

Juan Sanabria

Just a one quick follow-up, is there any onetime items that cause the year-over-year decline in same-store expenses and if so what would the normalized same-store NOI growth going to strip that out?

Adeel Khan

I think I didn’t call -- this is Adeel. There were no onetime items. I think we have been very mindful and really been managing our portfolio with a fine tooth comb. So you have seen a lot of efficiencies that are showing up. So I think overall year-over-year it was a very minor difference I think it was in the amount of $80,000 or something. But I think it's a byproduct of us managing our portfolio with a fine tooth comb. We have a lot of efficiency projects that are going into our buildings. I think those deals can return the costs, repair and maintenance we are looking at in a way that's helping us mitigate those costs. Some of that is [twice those], partially offset by some of the overhead stuff that's been pushed out to manage these properties in a very Class A manner. Other than that I think that's what it is and I think you will continue to see that trend, because now that those efficiencies are put into place and they won't necessarily become a onetime thing, they will be continuously going forward.

Juan Sanabria

Okay, great. That's it for me. Thank you guys.

Operator

There are no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Steve Swett

Thank you, operator and we thank everyone for joining us today. We appreciate your interest in Rexford Industrial and we look forward to speaking with you again in about three months.

Operator

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

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