Rexford Industrial Realty, Inc. (NYSE:REXR) Q2 2016 Earnings Conference Call August 3, 2016 5:00 PM ET
Steve Swett - Investor Relations
Howard Schwimmer - Co-Chief Executive Officer
Michael Frankel - Co-Chief Executive Officer
Adeel Khan - Chief Financial Officer
Jamie Feldman - Bank of America Merrill Lynch
Blaine Heck - Wells Fargo
Manny Korchman - Citi
Thomas Lesnick - Capital One Securities
John Guinee - Stifel
Michael Mueller - JPMorgan
Jonathan Petersen - Jefferies
Good afternoon. We would like to thank you for joining us for Rexford Industrial's second quarter 2016 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 ww.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.
Thank you and welcome to Rexford Industrials second quarter 2016 earnings call. I will begin with a summary of our operating and financial results. Howard will then provide an overview of our markets and recent transaction activity. Adeel will then follow with more details on our quarterly results, our balance sheet, and our guidance for 2016.
The second quarter was extremely productive with strong and accretive internal and external growth. We achieved same-property NOI growth of 6.9% over the second quarter of 2015 driven by a 440 basis point increase in stabilized same-property occupancy to 95.7% and weighted average lease spreads of 23.5% on a GAAP basis, and 11% on a cash basis.
We signed more than 1 million square feet of leases, a record for Rexford. For new leases, we achieved leasing spreads of 29.1% on a GAAP basis and 14.8% on a cash basis. And for renewal leases, we captured spreads of 20.7% on a GAAP basis and 9% on a cash basis.
Company share of core FFO for the second quarter was $13.9 million, which is a 25% increase from second quarter 2015. And core FFO per share was $0.22, which is a 10% increase from the prior year quarter even after accounting for more than a 15% increase in weighted average share count.
During the quarter, we acquired 1.7 million square feet of both lease and value-add industrial assets in our target infill Southern California market for an aggregate $206 million. And we were able to recycle about $22 million worth of product through accretive disposition and reinvestment, all of which Howard will describe in more detail. Year-to-date, we have acquired nearly 2.3 million square feet of assets for an aggregate $256 million.
Finally, we've reloaded our balance sheet with a well-received equity raise of a net $175 million in April using proceeds to help fund our acquisition activity. We'd like to acknowledge our Rexford team for their exceptional accomplishments during the quarter. From our property managers to our leasing team, from our construction managers to our accounting and finance teams, and from our acquisitions team to our human resources and marketing teams, you are the best in the business and you are proving each day just how exceptional our business is.
We're also very pleased to mark our three-year anniversary as a public company with some very exciting milestones since our IPO. We've more than tripled revenue, and we've grown company share of FFO by more than four times. We've acquired nearly $1 billion of industrial property at substantially better than market cash yields and we've increased our equity market value from about $400 million to $1.5 billion while delivering FFO per share growth of about 38% since our IPO.
As we move ahead, we continue to prove that there are tremendous advantages associated with our pure play sharpshooter focus on infill Southern California. This starts with our decision to remain focused on the strongest, most diverse, and most fragmented market in the nation. A market that consistently demonstrates the exceptional fundamentals and highest occupancy in the nation through both up and down cycles.
Despite signs of increasing supply in other major markets, it remains virtually impossible to deliver or to construct any material level of new product per lease in our target market. In fact, Rexford's primary infill target market of Greater Los Angeles, Orange, San Diego, and Ventura Counties at a mere 0.5% of base inventory under construction during the quarter, and the vast majority of this new product will not be offered for lease.
In stark contrast, the non-infill Eastern Inland Empire, which is not our focus, had 3.6% of base inventory under construction with a total development pipeline estimated by CBRE to be over 90 million square feet. Despite historically low vacancy and growing tenant demand, we continue to lose supply of industrial property in our infill market as it is converted to other uses.
Further, we operate in a market that will disproportionally benefit from the growth in ecommerce and shorter delivery timeframes as Southern California is the country's largest regional zone of consumption, positions as the nexus of trade linking the world's largest economy, United States, with the Pacific Rim, the world's largest supplier of goods. Consequently, our Fortress portfolio is positioned in and among the largest most productive population in the nation. With a regional economy that is substantially larger and healthier than most countries.
Further, our unique acquisitions capability is driven by our proprietary research methods, our industry leading broker loyalty program, and our brand as the best industrial property buyer in the market. The results speak for themselves with about 70% of our acquisitions accomplished through off market or lightly marketed transactions, which are generating cash yields that are about 150 basis points to 200 basis points or more beyond those that are being achieved at typical fully marketed transactions in Southern California.
As we look ahead to the second half of 2016 and beyond, we believe we are well positioned to drive continued accretive growth. We project NOI growth potential of over 18% for the next 12 months to 24 months driven by several factors including the pro forma impacts of our recent acquisitions, acquisitions and uncommenced leases totaling about $5 million of annualized NOI contribution, over $10 million of annual NOI from the ongoing lease up of our repositioning properties as well as additional upside as we continue to drive occupancy and strong releasing spreads across our entire portfolio.
On this last point, we see the 1.4 million square feet of expirations through the end of the year as opportunities to continue to roll recessionary level rents to higher recovered market rents as demonstrated by our exceptional releasing spreads.
And with that, I am very pleased to turn the call over to Howard.
Thanks, Michael, and thank you everyone for joining us today. As on past calls, I'll first update you on our markets primarily utilizing market data from CPRE and then review our recent acquisition and disposition activity.
Southern California, excluding Eastern Inland Empire, reported record industrial occupancy of 98.4%, up from 98.2% last quarter as unemployment dropped 4.3% from 5% at the start of 2016. There was further rate growth with asking rates up in most of Rexford's submarkets. A third of our submarkets reported asking rate increases of 6% or more and two submarkets were up more than 10%.
Greater Los Angeles County, a 1 billion square foot industrial market achieved historic 99% occupancy during the quarter, up 20 basis points from Q1. Asking lease rates were up 1.4% quarter-over-quarter with essentially no land availability, new deliveries in LA County severely lagged absorption, which is placing additional upward pressure on Rexford's lease rates and occupancy.
Ventura County, where our recent Mission Oaks acquisition is located, reported significant improvement with vacancy declining from 3.4%, 2% during the quarter. Asking rates increased 1.6% during the quarter and there were no new construction deliveries in Q2 and those spaces currently under construction.
Orange County reported a 20 basis point decrease in vacancy from last quarter from 1.6% with a 20% decrease in net absorption during the first quarter, which reflects minimal available space for lease. Asking rents continue their upward trend increasing 1.3% over the prior quarter. Inland Empire absorbed another 5.8 million square feet of new product while recording a drop in vacancy from 4% to 3.7%.
The Inland Empire West, where Rexford does operate, saw vacancy decrease from 2.5% to 1.8%. Asking rates increased 10% quarter over quarter, and net absorption was more than double the first quarter at 3.4 million square feet.
In San Diego, asking rents increased 3.4% and vacancy increased 10 basis points ended the quarter at 4.5%. North County San Diego saw a drop in vacancy from 4.2% to 3.8% during Q2. Our consolidated San Diego portfolio, net of one repositioning asset, ended the quarter at 97.3% occupancy.
Now moving onto our transaction activity. Year to date, we've acquired 14 industrial properties in our target Southern California infill markets for an aggregate cost of approximately $256 million. All but one of these transactions were off market or lightly marketed sales, which continues to allow us to drive attractive stabilized returns that exceed prevailing market cap rates.
In April, we completed the acquisition of a nine-building industrial portfolio for $191 million from a local private REIT. The 1.53 million square foot portfolio is located within four of our top performing submarkets and is 100% occupied by only 12 tenants allowing for management leverage. We expect an initial return on this investment of 5.3%, with value-add opportunities that over time can bring our aggregate stabilized yield on cost closer to 6%.
In May, we purchased Lower Azusa Road, a 79,000 square feet four-building industrial complex in the San Gabriel Valley for $7.7 million or $97 per square foot. The property is currently 100% occupied at rents that are approximately 25% below market with month-to-month or near-term lease expirations. After completing cosmetic upgrades and further maintenance repairs, we expect to achieve a stabilized return on cost of 6.3%.
In June, the company acquired 525 Park Avenue, a 63,000 square foot two-tenant building in the San Fernando Valley for $7.6 million or $119 per square foot. The Class A building has in place leases that are 25% below market, which we expect to increase the market rates at renewal or re-tenanting. Initial return is approximately 5%, and we expect to achieve a stabilized return on cost of 5.6%.
Subsequent to quarter end, we completed the acquisition of the 85% interest that we did not own in our Mission Oaks Boulevard JV for $21.8 million, or approximately $56 per square foot at total value. Overall, through the life of the JV, it returned $2.8 million of equity and $4.2 million of profit to Rexford.
We now own 100% interest in a two building, 458,000 square foot project located in Camarillo in the Ventura County submarket, which recently underwent an $11 million repositioning and is in lease up. The 32-acre land parcel has coverage of just 33% allowing for future expansion of industrial space on the site. The project is 66% occupied and we project the 7.5% yield on cost next year based on only a small occupancy increase to 75% and we are already negotiating new leases. As we look ahead, we have a strong pipeline of opportunities with $82 million of value-add and stabilized acquisitions currently under contract or letter of intent.
In the second quarter, we completed $21.7 million of accretive sales at premium values. All to owner users with the proceeds from the sales recycled efficiently in 1031 tax deferred exchanges. A noteworthy sale exemplifying the upside above a cap rate value and many of our assets was Mulberry, a recently vacated 153,000 square foot 17 foot clear building in the mid county submarket at an implied 4.1% cap rate on the recently expired annualized lease income. We currently have additional asset sales in various stages that would bring our full year's sales volume to $70 million to $90 million. We'll update you when and if these transactions close.
I'll now turn the call over to Adeel.
Thank you, Howard. In my comments today I'll review our operating results, then I'll summarize our balance sheet, and recent financing transactions and finally, I'll review our outlook for 2016. Beginning with our operating results of three months ending June 30, 2016, company share of core FFO was $13.9 million or $0.20 per fully diluted share. This compares to $11.1 million or $0.20 per fully diluted share for the second quarter of 2015.
Core FFO per share increased due to strong acquisition activity including our portfolio acquisition completed in the second quarter in same property for full year growth which was partially offset by increased interest expense.
Core FFO excludes the impact of acquisition expense, which was approximately $640,000 this quarter. Including these costs, company share of FFO was $13.3 million for the quarter, or $0.21 per fully diluted share. For the six months ending June 30, 2016, Rexford Industrial reported company share of core FFO of $25.9 million and $0.43 per fully diluted share.
Core FFO excludes the impact of approximately $1.1 million of non-recurring acquisition expenses and about $640,000 of non-recurring legal reimbursement. Including these costs, company share of FFO was $25.4 million at six months ending June 30, 2016 and $0.43 per fully diluted share.
Within our portfolio, we continue to capture strong growth and income. Same-property NOI was $16.3 million for the second quarter as compared to $15.2 million for the same quarter in 2015, representing an increase of 6.9%. Our same-property NOI was driven by 5.3% increase in rental revenues and a 1% increase in property operating expenses. On a cash basis, same-property NOI was up 9.1% year-over-year.
Turning now to our balance sheet and financing activity, as we mentioned on our first quarter call in April we successfully completed our third follow-on equity offering and raised net proceeds of approximately $175 million. We also exercised a $100 million recording [ph] feature on our $125 million term loan. We utilized the proceeds to fund our recent acquisition activity, and to repay amounts outstanding on our revolving credit facility.
As we move into the second half of the year, our balance sheet augmented our free cash flow positions as well to pursue our strategic growth objectives. We have zero debt maturities through 2017 and only about $5 million due in 2018. Additionally, we have approximately $47 million of available cash, nothing drawn on our $2 million line of credit, leaving us with plenty of flexibility and ample dry powder for acquisitions.
Finally, with regard to guidance for 2016 we're maintaining our guidance with core FFO within a range of $0.85 to $0.88 per share. Please note, that our guidance does not include the impact of any transactions or capital market activities that has not yet been announced, our acquisition costs or other costs that we typically eliminate when calculating this metric.
Further, please recall we have over 1.4 million square feet of leases running through the end of 2016, some of which may not be renewed. Otherwise, our guidance in support of several factors, which remain unchanged. For the 2016 same-property portfolio, we expect year-end occupancy within a range of 94% to 95% and expect to achieve GAAP same property NOI growth for the year within a range of 5% to 7%. And for G&A, we anticipate a full-year range from $16.5 million to $17 million including about $4 million of non-cash company-wide equity compensation.
That completes our prepared remarks. With that, we'll open the line to take any questions. Operator?
Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jamie Feldman from Bank of America Merrill Lynch.
Great, thank you. I guess, Adeel, back to the closing part of your commentary you talked about firepower based on the amount of capital you've raised and the dispositions you've done. How should we think about the amount of assets you could buy based on your current balance sheet?
Jamie, if you look at our balance sheet as of 6/30, we ended the quarter with $47 million of cash, of which $18 million [inaudible], which was immediately used post quarter for the Mission Oaks transaction. That left us with a pretty good position. Also, we have full availability on the credit facility in terms of $200 million and we also have the ATM that's untapped. So we feel very comfortable from our liquidity position at the end of the quarter for the latter half of the year.
I guess what I'm asking if you could just quantify like how much could you guys buy before you needed more capital based on your thoughts on leverage and of course…?
Well, I think, if you take a look at our leverage, it's at about 6X. And if you factor in the restricted cash that we did not put into the adjusted net debt number, we're really in the high fives. So it gives us a pretty decent run rate. And I always point out the fact that we do have organic growth coming in later this year in the terms of repositioning and some absorption from the property. So we are in a pretty good spot. So I think based on that, I think even if you were to draw down the full $200 million in the facility for acquisitions, which are obviously going to produce a yield that we've been disclosing in other yields. We feel fairly comfortable with them staying in our range. And again, that range on the debt to EBITDA can bounce around a little bit again. But we feel comfortable with where we are even if we were to deploy the capital.
Okay. Does anyone want to quantify the amount you could buy before you think you need more capital? Or you guys don't want to do that?
We don't want to put out any more numbers from a guidance perspective on how much we can quantify. Obviously, these are deals that are as they come along we'll announce them. But I think we're just putting out there what's available to us in the terms of liquidity, and what that does to our ratios when it comes to debt to EBITDA. And where we've always said that that remains to be a very disciplined strategy from our perspective to maintain that we stay within a very comfortable range. So we feel comfortable with that.
Okay, can you talk more about – I mean you've seen very good rent growth and very good occupancy across the submarkets. But as you kind of look forward to 2017, maybe talk about what you're thinking in terms of mark to market? And in addition, it looks like you've got a couple on your top tenants list you've got Money Mailer expiring at the end of the year. You've got Warehouse Specialists expiring in November of 2017. Can you maybe just talk about mark to market and then known move outs and thoughts on those two leases?
Hi, Jamie. It's Michael here. Good to talk with you, I appreciate the questions. I'll address the mark to market question and Howard will talk a little bit about those key tenants. And with regard to mark to market, we estimate we're currently probably around 10% to 15% in terms of portfolio-wide rental rates with respect to where asking rates are today. And with regard to this, leases that tend to expire over the next six to twelve months there's probably a slightly wider gap for those with respect to where asking rents are today. And we are still seeing asking rents in our markets continuing to accelerate. And again we don't like to prognosticate where those might be next year. But we still see a nice runway in terms of capturing cash flow gains through rolling our leases and recounting.
Hi, Jamie. It's Howard. So, on the two properties you mentioned, the Money Mailer Building was part of the portfolio we bought last quarter or actually this quarter. And that was a planned vacancy obviously. The tenant we knew was moving out, so we have plans to reposition that asset. But interestingly that Orange County market is so tight right now that we've actually been receiving offers on the space and we have located one tenant that actually I think we've gone back two or three times in responding to proposals. So while we don't project that leasing I think it was for about eight or nine months into 2017, we're optimistic something pleasant could surprise us.
And as far as the other building, you're mentioning a 250,000 foot building in the San Gabriel Valley. That tenant has been in the building I think since it was built, probably like 20 plus years ago. And it's a unique building in that it has rail that's actually in the yard versus just the typical rails to the doors and it's nearly impossible to replicate that scenario for them. So they seem to be fitting well in the space. And at this point, our expectation would be that they would renew in place.
Okay, that's very helpful. Thanks guys.
Thank you. Our next question comes from Blaine Heck from Wells Fargo.
Thanks. Just wanted to start out on guidance. You guys have done well thus far this year with core FFO of about $0.44, which obviously annualized at the top of your guidance range. And just thinking through the rest of the year, it seems like same-store NOI is healthy. Any lease up on the repositioning assets should help. The pro forma effect of acquisitions is more than pro forma effective dispositions this quarter and given that there are no other transactions contemplated, it seems like there's a lot of positives. So I guess my question is what's kind of the negative that's keeping the guidance unchanged at this point?
Hi, Blaine, it's Adeel. So a couple parts to that question. First and foremost, we did update our guidance. We increased our guidance at the end of the Q1 earnings call. Now breaking down the guidance and what we're looking for from the second half of the yea, if you take a look, we had 1.4 million of square footage that's going to be expiring. So there's some timing impacts as to when the replacement rent kick in. So there's certainly that aspect of it that's going to be feeding through. Of 1.4 million square feet, approximately 71% of that is same store. So that's why you're also seeing a similar pattern showing up in the same store even though for the first half we're coming in at 73 for the full GAAP NOI for the first half year. That might normalize itself into the guidance range that we quantified as 5% to 7%. So it's primarily due to the expirations coming during the rest of the year and the timing impact from the rent placement.
Okay, that's helpful. Maybe can you give us your assumption for kind of a retention rate on the remaining expirations for this year?
Hi, Blaine. It's Howard. If you look at our prior quarters, we're averaging in the 60% range. This last quarter was about 60%. Some quarters have been higher; some have been a little bit lower. It obviously has a lot to do with our strategy in terms of whether we reposition space or choose to replace existing tenants with higher paying type leases, but that's typically what we would expect.
But it seems as though if that's the one kind of negative going towards guidance you would expect maybe a little bit less than what the average is. Is that fair?
I think right now it's a bit too early really to tell. I think a lot of these leases we have smaller spaces, and some of those decisions aren't made months and months in advance, but it's a bit early to really comment on that and we certainly would update our guidance in the third quarter as we see more of those results.
Okay, fair enough. And then thanks for the commentary on dispositions. Can you talk about whether you'd characterize the sales as more of you getting rid of non-core properties or just taking advantage of kind of value harvesting opportunities at this point?
Well, all the dispositions that we've made or are contemplating are really sales that we think would outperform a typical cap rate type sale. But they're really more opportunistic, and the Mulberry property was a great example of some of the opportunities within our portfolio where we might have a single-tenant building. Some of these buildings in the market right now are worth more empty to these owner occupants than the cap rate values on them. And that implied 4.1% cap rate is the kind of cap rate that we're starting to hear about and see with some of the larger Class A transactions. And this was a 17 foot clear building that was built in the 1960s. So it was really a pleasant surprise we were able to achieve that type of a sale price.
Okay, great. That's helpful. Thanks guys.
Thank you. Our next question comes from Manny Korchman from Citi.
Hi, guys. Adeel, maybe to ask Blaine's question a different way. What's driving your same-store NOI guidance to dip given you're much higher year-to-date than where your guidance ends up for the year?
Right, so let me drill down further, Manny, on that question. So I spoke about the timing impact from the revenue side. But there's also a timing impact from the expenses. I think our expenses are not linear. They're not normalized. You can have certain quarters a little heavy. For example, in Q3, you can have a little bit more tree trimming, things of that nature. So that stuff eventually normalizes itself into that 5% to 7% guidance.
And also from a revenue perspective, we spoke about the expirations that are coming for the second half. The other catalyst also that feeds into it is the tenant reimbursement revenue or the CAM revenue that can also be from a timing perspective top heavy from the first part of the year versus the second half of the year. So you have a couple of those variables that can skew that number, but I think that's sitting where we are as of Q2, we felt comfortable for the guidance striking with the 5% to 7%.
Okay. And then maybe just thinking about your ability or your appetite to do larger deals; A, do you have the appetite to do much larger deals? And B, how do you feel about doing even larger sort of secondary's than the one you just did to execute on those types of deals?
Hi, Blaine, it's Howard. Yes, I think really the best way to answer your question is – I'm sorry, Manny. The best way really to talk about it in terms of what the market really produces, right? We don't sit down and decide exactly, which kind of opportunities we're only going to pursue, we're more driven by the yields and properties that really fit the complexion that we want in our portfolio.
That said, that portfolio transaction we did earlier this quarter, this past quarter, was a great deal, was a great fit for us, had all the right properties in the existing submarkets and we are looking at some other opportunities in the marketplace. Sometimes, they'll meet our return requirements and other times they won't. But keep in mind, we buy typically 70% of our transactions are off market or lightly marketed. And the larger portfolios, generally are going to be very heavily marketed which tends to bring a lot more buyers to the table and drive down the yields on them.
And at this point in the cycle, again, I have an expectation even to see some of those yields come in a little bit on these bigger deals. So we're just out there blocking and tackling. We mentioned we had $82 million worth of transactions that are under contract or in LOI. So we still feel very good about our opportunities and our ability to grow.
Hi, Manny, it's Michael. I'll just add one little thought to that which is to remind you that our mandate is to deliver substantially better than core yield by investing in Southern California. And the way we do that, is by buying through three general buckets, right? One, probably the larger bucket, is Core Plus orientation in terms of the yield profile. And then maybe call it 50% of our activity potentially. Then we have a value-add component, maybe that's 25%, 30% of our activity. And then we have a Core component.
So it's just hard to predict in any given period what the ratios are going to be between those mixes of product. But I think the exciting thing about our business is even that larger portfolio that we bought earlier this year really fits into that Core Plus sort of category from a yield profile. And that's just a function of the hard work we do here and the relationships and everything else to originate those transactions. And remember we passed on many multiples of deals that we see as compared to the deals that we actually decide to close on.
Thank you. Our next question comes from Thomas Lesnick from Capital One Securities.
Hi, guys. Good afternoon. I guess first off, Adeel, just a quick question on G&A. Up modestly sequentially. It's not really the result of the stock-based comp accrual or are there some additional hires or something else in there?
Yes, so just sequentially there was a slight uptick obviously. One key thing that if you recall that I quoted last time, we had a $600,000 legal-fee reimbursement that we received for prior year litigation costs that took place last year. That is clearly causing a delta of everything quarter over quarter. There was slight uptick in a few nonrecurring professional fees. We had a pretty busy quarter when it comes to acquisitions. We had a couple of swaps that were put into place. And there were some incremental costs that came into this quarter. So on a run-rate basis, this quarter might be a little bit heavy. So I think that's how I can best interpret the quarter-over-quarter change in the G&A. But we still remain comfortable with our full-year guidance, which was $16.5 million to $17 million.
I appreciate that. And then, Howard or Michael, you guys obviously had a very strong quarter for leasing this quarter. Is there something different that you've been doing as of late that's incremental to your historical processes? And how would you quantify how hard you're pushing rate right now compared to earlier in the year in 2015?
Well, I think it's really a function of the market and where we're at, right? I mentioned in my comments that the LA County market is 99% occupied. So we've never seen a market as weighted toward a landlord as we've been experiencing as of lately. So as you can imagine with a shortage of space there's multiple offers, and sometimes we've got bidding wars with people trying to get a space from us. I think we just went through that on a couple leases we did actually in the quarter.
So there's really a balance between maintaining relationships on existing tenants or pushing the pedal to the metal on new leasing, which is really the opportunity we have to really accelerate on the leasing spreads. And we saw the results of that in this past quarter, and the market is in a great place, vacancies as tight as we've ever seen it and we don't really see that changing going forward. We still have the reduction in supply that's occurring and an inability to deliver any new product in our markets. So going forward, we're quite optimistic about continuing with some very strong leasing spreads.
Hi, Tom, it's Michael. And I think those are great thoughts. And in addition, I'd like to remind you that if you were to drill down into that extremely low vacancy and actually look at the properties that are vacant in that 1% vacancy in LA County for instance. If you were to drill down into those vacant buildings and look at those buildings, and say well of those vacant buildings, which actually compete with Rexford? And across our submarkets you'll find that actually a relatively small percentage of the actual vacant product competes with us on either a functional or a locational basis.
And that goes to our strategy as the local sharpshooter where we're identifying the best location. And if they're not the most functional product in the submarket when we buy it, we proactively make it so. And so we are in a market environment where relatively higher quality, higher functional, better located product should have an opportunity to outperform. We also like that by the way when the market shifts. Because when the market shifts, that's better quality, better located, better functional products also tends to outperform when there's a slight inequality. So it's really also part and parcel of our strategy.
I appreciate that. One more on leasing, the comps have obviously been very strong as of late. And I have to imagine part of that is a function of leases that are turning over from kind of the 2010, 2011 period. But as you look out to 2017 and 2018, how do you expect those rent comps to trend? Would you expect a modest deceleration from here?
It's really hard to predict. The market is in a very interesting position. So going forward over the next couple quarters, optimistically, I'd say they would remain strong, but any change from quarter to quarter, we're going to see fluctuations and it really depends on what leases in our portfolio are expiring in terms of when they were put in place below or above market. This past quarter, we happened to have some leases that were in some assets we bought where the strategy was to wait it out and to be able to roll those up to market rents. And in fact, we were able to do that and actually exceed the projected rents that we ever expected to capture on some of those assets.
That makes sense. And then last one for me, you guys obviously have to be extremely pleased with where your stock price is right now. But as you look across your portfolio and the majority of it is relatively recently acquired with a gross book value of approximately $1.4 billion. How do you guys kind of reconcile where your stock is with the valuation of your underlying real estate?
Hi, it's Michael. You know, first of all, we don't really talk about how we see NAV today and we don't really talk about how we think the stock is fairly valued, or overvalued, or undervalued. But we're very comfortable with where we are as a company. As you can see through the supplemental information, we have a tremendous amount of embedded growth in the portfolio today. And we have an opportunity to grow the top line as we've proven in the last three years since we've been a public company. So however you want to put those into the soup bowl and mix it up and determine a valuation all I can tell you, is that we're extremely comfortable with where we are as a business.
All right, really appreciate the insight. Nice quarter, guys.
Thank you. Our next question comes from John Guinee from Stifel.
Great, thank you. Just a lot of questions have been asked, so just a curiosity question. Is this a gross market, an industrial gross market, or a net market? And when you look at the in place rents that you're quoting in your sup, how much do you add to that to get a total occupancy cost for these tenants?
Hi, John. It's Howard. First of all, the question on net versus gross, you see for instance a scenario like the Inland Empire East, which we don't anticipate in having substantially all newer real estate, which is rented on a triple net basis. You come into the LA market, for instance the LA County and Orange County have about 1 billion square feet built before 1980 where you typically see more frequently those [indiscernible] product being leased on a gross basis. And if not, the leases are being negotiated to carving out what would typically be the gross coverage anyway.
And then in terms of in our portfolio, it's all over the place. The answer to your question really has to do mainly with the taxes on a property. And with Prop 13, depending on when you bought it those numbers are going to be all over the board. So I wouldn't really want to even try and give you a number to try and tack onto net rents to come to some conclusion. It's too difficult to do on a blended basis unless you looked at the entire portfolio and that doesn't even give you the right answer if you want to apply it asset by asset.
So when you're providing your GAAP and cash releasing spreads, are you doing that off of net rents or gross rents?
We're typically doing it off of the in place rents whether they're net or they're gross. We don't convert them all into gross or convert them down into net. So we're really just comparing apples to apples.
Got you, got you. Thank you.
Thank you. [Operator Instructions] Our next question comes from Michael Mueller from JPMorgan.
Yes, hi, a couple of questions. First, it looks like your stabilized same-store occupancy went up about 440 basis points, and the same store went up 350 basis point and I guess intuitively when I think of stabilized I think of something that probably goes up less than something that may have more moving parts in it. Can you walk us through what's driving the differences there?
Hi, Mike, I think this quarter we've had a project under repositioning in Bledsoe that's been reported in the repositioning page and part of that project is leased up this quarter, 32,000 square feet. And I'm fairly certain that's what's creating the little bit of a difference that you just talked about and I think that's the first quarter that we had positive traction on that repositioning asset. I think that's where you're seeing some of the difference
So are the repositioning assets in the stabilized or are they just in the same store?
Well, I'm just comparing the difference between the two. Just the stabilized versus just the raw data with the repositioning property in the mix. So in our full year guidance, I think this is a secondary part, which you might not have asked, but the full year guidance it's not a stabilized number. It's the 92.5% that we disclosed in the supplemental. That's what we're guiding the 94% to 95%. So, some of the 318,000 square feet that's currently under repositioning, some of that would have been fully repositioned or stabilized by the end of the year.
Okay. Okay, and then I guess secondly going to the repositioning page in the sup, so for your definition of what's completed, where it's completed, and leased up that's a definition of its completed once all the dollars are spent. Is that correct?
That is correct. And typically once the dollars are spent, you know there could be some ancillary cost just extremely minor in dollar amounts, but the release off period starts immediately thereafter. So that's how we define it.
Okay, and the two projects that are listed as completed, Q2 it shows zero to five months to stabilize. That was also the same time to stabilize at the end of the first quarter? So is that metric from when it's stabilized? So we have two months left or it was implicitly pushed back a few months?
Yes, well we're updating these on a quarter to quarter basis based on activity in the projects. Sometimes we're ahead of schedule in delivering them, sometimes a little behind. So we're really trying to give you an accurate depiction when you look at this information real time of what we expect the completion period would be.
Mike, this is Adeel. Just another follow up on that just as another addition, you'll notice across the board on the repositioning page we have accelerated some delivery from a stabilization perspective. In some cases, we've kept the same data as the last quarter. So just like Howard stated, we'll look at these things in detail and we know exactly what's coming down the pike and we adjust those accordingly, but you'll see that across the board on the page this quarter.
Got it. Okay, that was all I had. Thanks.
Thank you. Our next question comes from Jonathan Petersen from Jefferies.
Thank you. So you guys gave good color on the Mulberry Drive disposition. I think you got a 401 cap rate. I'm curious if you could give us, I don't think you gave us, the cap rates on the other two dispositions in the quarter. And then you also mentioned a potential $70 million to $90 million of disposition in total for all of 2016. So is the Mulberry Drive 401 cap rate a good proxy for just generally what you guys are thinking in terms of what you're currently marketing for sale?
Hi, Jon. It's Howard. I think it was an interesting fact just to show you the type of upside we had versus these cap rate values. That being said, one of the dispositions that was in Glendale, a smaller building, 13,500 feet was empty. So I mean it had no TIs in it and we sold it to an owner occupant that was basically going to build out the space themselves. So there wasn't really a comparative cap rate to talk about. Although, if we were to run the numbers, they'd probably similar to what we described on the Mulberry transaction. And another one was the smaller deal in Long Beach and pretty much similar. Half the building was empty and we wound up selling the entire building to the occupant that wanted to expand into the full building and own it.
So in terms of the dispositions you guys are planning, not necessarily planning but are currently marketing is it a lot of similar half vacant, fully vacant type buildings? Or are we looking at more stabilized properties?
Yes, I think what we really mainly would focus on are some of those opportunities that probably have lesser occupancy or really are just opportunistic in nature. That being said, we continue to look at the entire portfolio. And we're thinking also in terms of just management efficiencies right now as well. So it's a little early to really speak in any specifics, but those are some of our thoughts.
Okay, all right. That's helpful. Thanks.
Thank you. This concludes our Q&A session. I will now turn the call back over to management for closing remarks.
Thank you, Operator. And on behalf of the company, we wanted to thank everybody for connecting with us today and we very much look forward to reconnecting in three months to talk about the next quarter. Thanks, everyone.
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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