Rexford Industrial Realty Inc

NYSE:REXR

Earnings Call Transcript 2018-Q1

[Operator]

Greetings, and welcome to Rexford Industrial Realty Inc. First Quarter 2018 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.

I would now like to turn the conference over to your host Mr. Steve Swett with ICR. Please proceed.

[Steve Swett, Investor Relations]

We would like to thank you for joining us for Rexford Industrial’s first quarter 2018 earnings conference call. In addition to the press release distributed yesterday after the market closed, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rexfordindustrial.com.

On today’s call, management’s remarks and answers to your questions may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, projects, seeks, should, will, potential, predict and variations of such words or similar expressions.

Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income or financial guidance.

As a reminder, forward-looking statements represent management’s current estimates. Rexford Industrial assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the Company’s filings with the SEC.

In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The Company’s earnings release and supplemental information package, which were released yesterday afternoon, and are available on the Company’s website, present reconciliations to the appropriate GAAP measures and an explanation of why the Company believes such non-GAAP financial measures are useful to investors.

Today’s conference call is hosted by Rexford Industrial’s Co-Chief Executive Officers, Michael Frankel and Howard Schwimmer together with Chief Financial Officer, Adeel Khan. They 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, Co-Chief Executive Officer]

Thank you. And welcome to Rexford Industrial’s first quarter 2018 earnings call. I will begin with a summary of our operating and financial results. Howard will then provide an overview of our recent transaction activity. Adeel will follow with more detail on our financial results and guidance and we will then open the call for your questions.

Our target infill Southern California industrial market continues to operate with exceptionally strong fundamentals. Available product remains scares with less than 2% vacancy across our infill market.

Despite this extreme scarcity of available space, we continue to see more industrial product converted to other usage and can be delivered due to the extreme scarcity of available land. This extensive supply demand imbalance and favorable landlord fundamentals appear in trench of foreseeable future as dramatic growth of E-commerce fuels additional tenants demand.

Beyond the strong market fundamentals, we believe Rexford’s focused business model is also well-positioned relative to some of today’s macro trends including higher interest rates and raising tariffs.

To the extent higher interest rates reflect healthy economic growth and as our tenants represent an exceptionally diversified proxy for the general economy, these factors should continue to support our ability to drive higher rental rates.

Further, the fact that we principally compete for acquisitions against [leveraged title] (Ph) buyers are superior access to capital and low-levered balance sheet may translate into greater competitive advantages as rates rise.

Finally, almost all of our leases contain contractual 3% annual rental rate increases and as an integral part of our business model, we focus on extensive value-add work to increase our cash flow throughout our portfolio, both of which help to mitigate the impact of rising interest rates.

With regard to concerns over rising tariffs, our infill industrial space is primarily driven by regional consumption. Our markets operate differently from non-infill big box markets which are disproportionately driven by global trading logistics.

Inversely demand for our product is primarily driven by local consumption and to that end, our regional economy is not only substantially larger and more diverse than the vast majority of countries, but it is driven by combination of innovation, higher education, research, demographic and entrepreneurial growth that differentiates this region from any other in the nation.

Turning to our recent results, it was another exceptionally strong quarter of Rexford. Our team increased Company’s share of core FFO by 42% compared to the prior year quarter. We increased core FFO per share by 17% to $0.27 per share over the prior year quarter.

We increased same property NOI by 9.3% on a GAAP basis and 8.3% on a cash basis, driven by 7.8% increase in the same property portfolio rental revenue and 110 basis point increase in occupancy in our stabilized same property portfolio to 97.5%.

Net of repositioning space, our stabilized same property NOI growth was a full 7.4% on a GAAP basis and 8% on a cash basis. Our leasing activity continues to contribute strongly to our cash flow and NOI growth.

During the first quarter, we signed 117 leases for approximately 850,000 square feet. Our leasing spreads were 25.3% on a GAAP basis and 14.9% on a cash basis. On new leases, GAAP spreads were a full 32% and cash spreads were 18.1%.

Further we have had a great start to the year on the acquisition front. Year-to-date, we have acquired approximately $108 million of property and Howard will provide additional details on these acquisitions as well as our current pipeline.

As a result of the Company’s strong performance, we increased our common dividend by just over 10% during the first quarter and we are now increasing our 2018 FFO and NOI guidance, which Adeel will detail shortly.

I would also like to take this opportunity to thank the entire Rexford team for your exceptional focus and results, which are enabling us to build this great Company.

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

[Howard Schwimmer, Co-Chief Executive Officer]

Thanks, Michael and thank you everyone for joining us today. Fundamentals in our markets remain extremely strong. Our target infill Southern California industrial market which excludes the Eastern Inland Empire, closed the first quarter with near capacity occupancy of 98.2% and asking rents increased 5.9% on a weighted average basis.

As Michael mentioned, demand for industrial space in our market continues to grow, while the overall inventory continues to shrink, as space is removed for other uses. With regard to recent investment activity, year-to-date, we have completed eight acquisitions, totaling approximately $108 million.

We continue to take advantage of the vast consolidation opportunity in our markets with our research driven originations platform delivering a substantial advantage. Year-to-date, 75% of our transactions were off-market opportunities where our differentiated platform continues to generate a strong volume of investment in prime infill location as better than core stabilized yield.

In January we acquired Norton Avenue, 100% leased, 103,000 square foot building located in Chino, part of the Inland Empire West submarket for $11.4 million, a 24 foot clear building at 16 dock positions with current rent estimated to be more than 30% below market. The initial yield is 3.6% and after completing cosmetic and functional renovations, we expect to achieve a 5.2% stabilized yield on total cost.

In February we acquired, Ontario Commerce Center, a three-building multi-tenant industrial complex located in the Inland Empire West submarket at 24.1 million. A 214,000 square foot property is comprised of a modern 100% occupied 135,000 square foot dock high multi-tenant building and two adjacent flex buildings that we are in the process of selling.

In-place rents are estimated to be 20% below market and the weighted average lease term is less than two years. We plan to implement cosmetic and functional upgrades and expect to drive rents to market at leases roll. The initial yield is 4.7% and we expect to achieve a 5.5% yield on cost once improvements and re-leasing are completed.

In March we acquired Shoemaker Avenue located in Cerritos, in the Los Angeles-Mid Counties submarket for $17.2 million. The 24 foot clear building contains a 116,000 square feet with 12 dock positions. The property is a 100% leased to a single tenant at approximately 18% below market rent with a near-term lease expiration. After minor improvements, we expect to move the initial yield of 4.5% to a stabilized yield on cost of 5.3% upon renewal or re-tenanting of the facility.

Subsequent to quarter end, in April, we acquired Lawrence Drive, located in the Ventura County submarket for $6.6 million. The property contains a vacant 50,000 square feet building on just under five acres of land and we are targeting a stabilized yield on cost of approximately 6% or more.

Also we acquired North Main Street, located in Orange County North submarket for $7.2 million, a 100% leased 40,000 square feet building, 24 foot clear with 10 dock positions and project a stabilized yield of just over 5%.

Additionally we acquired Calle Platino in North San Diego submarket for $20.0 million, a 143,000 square feet building is a 100% leased. We expect to drive the initial 4.3% yield and a stabilized yield on cost of 6.2%.

We also acquired North Twin Oaks Valley Road in the North San Diego County submarket for $14 million. The property contains two buildings with a total of 97,000 square feet with an initial yield of 6.1%.

Finally, we acquired West Carson Street, located in the Los Angeles South Bay submarket for $4.5 million. The property contains a vacant 34,000 square feet building and we expect to achieve the stabilized yield of 5.7%.

We are extremely pleased with our pace of acquisitions so far in 2018 and we remain excited about our active go forward pipeline. Currently we have more than $200 million of new investments under contract or LOI subject to completion of due diligence and satisfaction of customary closing issues. We will provide more details as transactions are completed.

Turning to our repositioning activity, I would like to update you on a couple of our projects. At our renovate at a 134,000 square feet Figueroa project in the South Bay. We have completed all the exterior renovation, are over 80% complete for interior work and are 75% leased today, achieving rents 6% higher than our original underwriting. We now project the stabilized yield of 7.4% compared to a 6.7% initial projected yield.

Also with regard to our 200,000 square foot Nelson project in the San Gabriel Valley, we expect to complete repositioning of the existing buildings in the coming weeks and sign leases and LOIs at rates well above our underwriting. These higher lease rates have more than compensated for expansions and scope. We have made great progress in construction of 64,000 square feet of new building and have increased the overall project yield on cost from 6.4% originally to 7.4% currently.

Finally, we continue to sell properties where significant value can be harvested in order to recycle capital into new growth opportunities. Year-to-date, we have sold four properties to aggregate proceeds of $28.5 million. In total, these dispositions generated a weighted average unlevered IRR of 16.9% and proceeds for all efficiently reinvested through tax deferred exchanges.

I will now turn the call over to Adeel.

[Adeel Khan, Chief Financial Officer]

Thank you, Howard. Beginning with our operating results. For the first quarter 2018, net income attributable to common stockholders was approximately $12.2 million or $0.15 per fully diluted share. This compares to $4.2 million or $0.06 per fully diluted share for the first quarter of 2017.

For the three months ended March 31, 2018, Company share of core FFO was $21.4 million as compared to $15.1 million for the three months ended March 31, 2017. On a per share basis, Company share of core FFO was $0.27 per fully diluted share, representing increase of 17% year-over-year.

Core FFO per share increased due to strong acquisition activity, completed in the past 12 months and same property portfolio growth, which was partially offset by higher interest expense and higher diluted share count.

Same property NOI was $27.4 million in the first quarter, which compares to $25.1 million for the same quarter in 2017, an increase of 9.3%. Our same property NOI was driven by a 7.8% increase in total rental revenue and 3.7% increase in property operating expenses. On a cash basis, same property NOI increased by 8.3% year-over-year.

Turning now to our balance sheet and financing activity. We continue to work to lower our cost of capital and believe our strong, flexible balance sheet is both suited to product our growth plan. During the first quarter, we issued approximately 2.5 million shares of common stock through our ATM at a weighted average price of $28.16 per share, which resulted in net proceeds to Rexford of approximately $59.3 million.

At the end of the first quarter, we had $20 million of cash, $299 million of availability on our $350 million credit facility and approximately $159 million available under the $300 million ATM program. We have no debt maturities in 2018, and just $59 million in 2019 and we remain in a very strong liquidity position.

With regard to our dividend, on April 30th, our Board of Directors declared a cash dividend of $0.16 per share for the second quarter of 2018, payable on July 16, 2018 to common stock and unit holders of record on June 29, 2018. Additionally, our Board of Directors declared a preferred stock cash dividend of approximately $0.37 per share for the second quarter of 2018 payable on June 29, 2018 to our preferred stockholders at June 15, 2018.

Finally, we are raising our full-year 2018 guidance of Company’s share of core FFO from a range of $1.01 to $1.04 per share to a range of $1.02 to $1.05 per share. This was driven by changes in our expectations for our portfolio NOI growth this year specifically we now expect same property portfolio NOI growth to range from 6.5% to 8.5% up from our previous range of 6% to 8% and we expect stabilized same property portfolio NOI growth within the range of 4.5% to 6% up from our previous range of 4% to 5.5%.

Please note that our guidance does not include the impact of any transaction or capital market activities that have not yet been announced, nor acquisition cost or other cost that would typically eliminate in calculating this May.

That completes our prepared remarks. With that we will open the line to take any questions. Operator?

[Operator]

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

[Jamie Feldman, Bank of America]

Great thank you. Nice quarter guys. Michael I wanted to go to your comment about higher rate and how it might impact levered buyers in your market? can you just talk about maybe give some more color around that and have you seen it already this cycle and if not maybe talk about what happened in prior cycles.

[Michael Frankel, Co-Chief Executive Officer]

Hey Jamie, thanks for your question, I appreciate you joining us today. We have seen similar scenarios in prior cycles and a lot of this private buyers are typically that will be incurring more leverage and so number one, higher interest rates just from a percentage of the capital stake are going to have a disproportionate impact.

And also they have a tougher time controlling their overall rate exposure. So from the business model perspective whereas we are more - with swaps and longer term debt structures that's less common with a typical private buyer that we will be competing with.

[Howard Schwimmer, Co-Chief Executive Officer]

Jamie I might add that too this is Howard. Typically sellers I think we are actually done a good job of training, the brokers are the one to ask for all cash and faster closes. So it's not that right now we have got a lot of private buyers that have been outcompeting us. it's just that sometimes they drive pricing if we want to be competing with them a little bit, because of the lower interest rates. So if interest rate is increasing the offers that the sellers still aren't going to accept, because they can't close quickly are going to want to come in at lower pricing and that's really what is going to help us also.

[Jamie Feldman, Bank of America]

Have you seen that at all so far this cycle?

[Howard Schwimmer, Co-Chief Executive Officer]

Interest rates have gone up nominally as far as from a historical perspective and in our markets we haven’t seen any impact so far on the transaction side.

[Michael Frankel, Co-Chief Executive Officer]

By the way Jamie, don't forget we are a private Company for over 10 years before took the Company public. So we have lived that life intimately and so we have a pretty good sense for how rising rate environment impacts those types of buyers.

[Jamie Feldman, Bank of America]

Okay thank you. And then can you just talk about rent growth. I mean what are you seeing, what do you expect to see across your major submarkets?

[Howard Schwimmer, Co-Chief Executive Officer]

Well as I pointed out in the prepared comments. Rent growth I guess 5.9% in our infill markets in aggregate over the year-over-year for the first quarter. If you look and drill down the largest market in Southern California is Greater Los Angeles representing about half the square footage in our market.

And year-over-year through the last quarter, we saw rent growth of about 7% and if you drill down even further, the strongest of the markets in Central market was the South Bay that had 10.4% rent growth year-over-year followed by Mid Counties with 8% year-over-year rent growth.

So the markets are still functioning at extraordinarily at high levels of demand and what we are also seeing is from an e-commerce standpoint and last mile delivery, people are really trying to solve more for transportation costs which are growing significantly faster than rents and represent typically a larger impact on people’s income statements.

They are really feeding into our strategy of focusing on those infill markets where we are seeing more and more demand, which enables them to be closer and closer to the ports to lower those transportation costs.

[Michael Frankel, Co-Chief Executive Officer]

Hey, Jamie, one more thought on rental rate growth, one thing that statistics don’t drill down into is how rental rate growth varies across product quality in specific location, and these are extremely large and deep markets and diverse markets with a tremendous amount of product that is highly function and also tremendous amount of products that is not well located, is not functional. And when you drill down and look at product quality, our mandate is to own best product in the market in the best locations and if it’s not that way when we buy it. We proactively make it so.

And so our ability to commence premium rents driven by our higher quality product and locations is one of the key attributes to our business model where we look to house compete and that’s you know look it’s easy when the market is strong as it is today, but we strive to outcompete in the market as not as strong. And I think that’s something it’s really important to think about with respect to this very large diverse market.

[Jamie Feldman, Bank of America]

Okay. Alright. Thank you.

[Operator]

Our next question comes from the line of Manny Korchman with Citigroup. Please proceed with your question.

[Manny Korchman, Citi Group]

Thanks. Howard, can you talk a little bit more about the 200 million of assets that you spoke that running under contract or expectations of closing, more specifically timing and is there any portfolio deals within effect?

[Howard Schwimmer, Co-Chief Executive Officer]

Sure, Manny, nice to hear from you. Yes, with over 200 million and it’s truly representative of what you see us continuing to buy. It’s a combination core plus and value add assets. For, closing, you know we will continue to close assets in the near-term and some of the deals have some rights for extensions with the sellers so that we can allow for their combination particularly when the trade is well. But again, as usual we will continue to keep everyone abreast of the closings as they occur and we work through the stages of diligence on a lot of the properties.

[Manny Korchman, Citi Group]

Great. And Adeel a couple for you. You mentioned that you don’t have any forward activity in your guidance which is typical, how much of the closings are in guidance, I guess are the April deal included in the guidance figures as is?

[Adeel Khan, Chief Financial Officer]

Hey, Manny. Yes. So essentially in the last press release that we sent out everything is included, up to that point is included in the guidance. And actually ATM activity that took place in Q1 and that we already have reported is included. So typically the guidance includes up to everything up to the earning state, which is today or yesterday, everything is included in there.

[Manny Korchman, Citi Group]

And just from the modeling perspective you gave some of the initial yields and some of the stabilized yields. I don't know if this calls the right venue, but maybe could you provide the initial yields for all of the acquisition activity and maybe you could provide that on a go forward basis, just to aid in modeling?

[Howard Schwimmer, Co-Chief Executive Officer]

Yes. Manny, it's Howard, I believe we really gave most all of the yields, you saw what we missed, we are happy to catch with you offline and make sure that’s clear.

[Manny Korchman, Citi Group]

Great. Thanks guys.

[Operator]

[Operator Instructions] Our next question comes from the line of John Benda with National Securities. Please proceed with your question.

[John Benda, National Securities]

Hey guys, how are you today? So quickly on the new and rent renewal leases where you saw the nice increases. Can you speak to which tenant - which industry they are operating in that you are gaining the highest renewal rates from? Or is it really across all industries in your portfolio?

[Howard Schwimmer, Co-Chief Executive Officer]

This is Howard. It's really across all industries. We have a very deep market, very diversified in terms of the tenancies and uses and no one particular large lease drove those spreads this quarter. This year was really a year of just blocking and tackling. We didn't have any large leases that were coming up and most all of everything has been handled at this point.

In fact our largest lease remaining for the year expiring is only 111,000 feet and after that particular lease, it drops down to about 50,000 feet. So it's really I think evidence of the strength of our overall portfolio of these leasing spreads and not any one particular market or property.

[John Benda, National Securities]

Okay. And then on the repositioning portfolio, can you talk about common themes that you guys initiate in repositioning, I mean is there a standard across the properties or is it unique to each property or are there things that you put in place across all them to bring them up to your standards?

[Howard Schwimmer, Co-Chief Executive Officer]

Well, as Michael mentioned, when we buy a property, if it's not the best quality and most functional in its particular sub market to make itself. And sometimes, there is a leasing covering it so we are not able to do that work right away. But, yes, typically, you know, given the example when I mentioned the two buildings we bought this quarter that had significant dock head loading and were 24 foot clear and so forth.

So what you typically see us doing is going in and upgrading the sprinkler, calibration to make sure that we are able to utilize the full cubic capacity of the space, modernizing offices and really rebranding the product on the outside in terms of consistency that paying landscape, signage and so forth. And then the projects, they range - they were pretty wide range, the Nelson Avenue project I updated on.

That’s a very involved project where we are demising down the smaller incremental space and adding some new buildings and it's really all about getting to the same place though, it's delivering us consistent quality of low finish industrial product that we can move tenants in and out of with very low frictional cost.

[Michael Frankel, Co-Chief Executive Officer]

Hey, John, it's Michael. I will just add to that a little bit to give you another sense for what that repositioning capacity does press. And again if you take that Nelson property as an example, when we were competing for that product, the other buyers we are actually looking at that property with the idea of removing all the existing buildings about almost 140,000 square feet of improvements and building a brand new build on the site.

And they will probably going to solve to something in the order of sub five cap on their total development costs. We looked to that property and we saw about $140,000 existing improvements that we could completely reinvent and reposition and then we are going to remove a little small structure and build the brand new 64,000 square foot building which we are in process on.

And not only are we solving for substantially better yield, so we are solving to about 7.4% unlevered yield on total cost which is pretty dramatic compared to the competitors that we are going to solve to somewhere probably below 5% yield. So not only are we driving better economics for the company and for shareholders, but also enables us to outcompete in the market. so the recent activity is a key to our business model and we couldn’t be more excited about what we continue to see in the market.

[Adeel Khan, Chief Financial Officer]

John, I'm going to add one last point to what Howard and Michael added, this is the deal. This quarter we added a little additional disclosure on the CapEx page. So besides the repositioning page that we have talked about just now, we also have other smaller repositioning that takes place across our portfolio which is very important and meaningful.

It doesn't meet the definition of the downtime that we have defined in the supplement, but it's very meaningful and very critical to Company. So take a look at that disclosure where we have bifurcated those costs and that will give you some more perspective in terms of how we think about the step.

[John Benda, National Securities]

Alright great. Thanks very much.

[Operator]

Our next question comes from the line of Michael Mueller with JPMorgan. Please proceed with your questions.

[Michael Mueller, JPMorgan]

Thanks. Hi, couple of questions. looking at the stabilized same property portfolio and Ventura County, it looks like sequentially from the fourth quarter just about 400 basis points occupancy dip and I know repositioning are out of it. So just curious what is drove that.

[Howard Schwimmer, Co-Chief Executive Officer]

Hi Mike, it's Howard. I think again it was just locking and tackling. I mean we had a space that vacated at the end of the year that was 80,000 feet we are able to lease 57,000 feet of it and we had couple of other spaces that were 20,000 plus or minus square feet here and that that were leased up.

That market is actually preferring very well right now. We have another tenant in our Mission Oaks project that was in the 37,000 that have rent and financial problems. We negotiated and exit for them and we are able to actually release the space in the same quarter. But the market is performing real well right now for us.

[Michael Mueller, JPMorgan]

Got it okay. That was it. Thank you.

[Operator]

Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.

[Blaine Heck, Wells Fargo]

Hey guys good morning out there. So you talked a little bit about the impact of rising interest rates on the market which was helpful. But I also wanted to ask if you have seen any event from the tax reform on your markets or tenants.

[Howard Schwimmer, Co-Chief Executive Officer]

Hey, Blaine. Good to hear from you. We really haven’t seen any noticeable impacts and we haven’t really heard any anecdotal comments from tenants whether new tenants or renewals.

[Blaine Heck, Wells Fargo]

Okay it's fair. And then a quick one for Adeel. Was the increase in same-store NOI guidance driven entirely by maybe a Q1 that was a little above your expectations or is it a higher expectation for the entire year?

[Adeel Khan, Chief Financial Officer]

It was a little bit of both Blaine. And typically what you saw us do last year right as we get more perspective as to how the year is trending right, with each day that passes that we have a little bit more for visibility in terms of how the upcoming renewals or the expirations that are coming up, how are they going to perform and behave as we can be a little bit more specific. So it’s a little bit of both.

Clearly we are seeing very strong trends which are witnessed by what we reported in Q1 right. So that trajectory is certainly something we are looking to follow through. So it’s a combination of both in terms of that. Just to give you a little bit more perspective 1.1 million of expiring square footage that we have in the supplemental is due to the same-store. So that also puts some color in terms of what we have got coming up from April 1 all the way just to December.

So putting that in perspective that’s essentially what has been renewed and so of course, it’s just a combination of both of those factors that allows us to kind of raise that up by 50 bps. But at the same time, just to fill in the last bit of piece of color is that you still have three quarters of year left. So you do have that little bit of area that we still need to kind of sort for.

[Blaine Heck, Wells Fargo]

Sure, that’s fair. Thanks for the color.

[Michael Frankel, Co-Chief Executive Officer]

Blaine, just to add to that. When you think about our business, it’s not just the market is performing well, it’s this team is extremely focused and working very, very hard because we run a very tenant-intensive business. So a lot has to go right for us to drive these kind of numbers and that’s well beyond just what the market delivers to us.

And just to give you a sense of how sensitive things are, overall 45,000 square feet equates on average to half a penny of FFO. And so that’s not a lot of square footage. You could easily have it change, I don’t expect to change in one or two tenants that usually gets you to those levels.

And so this team is staying extremely focused and not just on the renewals but the overall customer service and experience for our tenants. And if you drill down the same-store pool, that impact is that much more magnified. So we just look forward and we are going to stay focused and try the best we can and I think that gives you more color to deals perspective.

[Blaine Heck, Wells Fargo]

Great. Appreciate the comments.

[Operator]

Our next question is a follow-up from John Benda with National Security. Please proceed with your question.

[John Benda, National Securities]

Just real quick guys. In the K you had disclosed that in 2019 there is another 15% of rentable square feet coming up for renewable and given that we are half way into 2018 have you started having any of those conversations yet and would you expect some of the performance on 2019 renewals that you are getting on the current renewals?

[Michael Frankel, Co-Chief Executive Officer]

Yes. We are always trying to stay ahead of things as much as we can. And if you look at the expirations, I will give you an example that we have the range of this year 1.1 million feet and as I mentioned the largest is 100,000 feet and then it drops to 50 and then it really stops, they are starts dropping even quicker, those tenants don’t have a lot of visibility in terms of whether they are staying or leaving until it gets a lot closer to their expiration dates.

So 2019 there is a lot of those type tenants, some of the larger ones we do get in front of and have those early conversations and frankly we are real successful at doing a lot of those renewals early for 2018 and during the first quarter. So we view it as a philosophy of the Company to try and push on early renewals. It’s the right time in terms of the cycle to do that as well.

[John Benda, National Securities]

Great. Thank you.

[Operator]

Thank you. That completes our question-and-answer session. I will now turn the call back to management for closing remarks.

[Michael Frankel, Co-Chief Executive Officer]

Well we want to thank everybody for joining us today and your support and we look forward to reconnecting in about three months.

[Operator]

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