Incentive Award Plan

In July 2013, our board of directors adopted the Rexford Industrial Realty, Inc. and Rexford Industrial Realty, L.P. 2013 Incentive Award Plan (the “Plan”). The Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, LTIP units of partnership interest in our operating partnership (“LTIP Units”), performance units in our operating partnership (“Performance Units”), and other stock based and cash awards.

Our employees, consultants and non-employee directors are eligible to receive awards under the Plan. The Plan is administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (collectively the “plan administrator”), subject to certain limitations. The plan administrator sets the terms and conditions of all awards under the Plan, including any vesting and vesting acceleration conditions.

The aggregate number of shares of our common stock, LTIP units and Performance Units that may be issued or transferred pursuant to the Plan is 2,272,689 shares (of which 920,381 shares of common stock, LTIP units and Performance Units remain available for issuance as of December 31, 2016). Shares and units granted under the Plan may be authorized but unissued shares or LTIP units, or, if authorized by the board of directors, shares purchased in the open market. If an award under the Plan is forfeited, expires, or is settled for cash, any shares or LTIP units subject to such award will generally be available for future awards.

LTIP Units and Performance Units

LTIP Units and Performance Units are each a class of limited partnership units in the Operating Partnership. Initially, LTIP Units and Performance Units do not have full parity with OP Units with respect to liquidating distributions. However, upon the occurrence of certain events more fully described in the Operating Partnership’s partnership agreement (“book-up events”), the LTIP Units and Performance Units can over time achieve full parity with the common units for all purposes. If such parity is reached, vested LTIP Units and vested Performance Units may be converted into an equal number of OP Units, and, upon conversion, enjoy all rights of OP Units. LTIP Units, whether vested or not, receive the same quarterly per-unit distributions as OP Units, which equal the per-share distributions on shares of our common stock. Performance Units that have not vested receive a quarterly per-unit distribution equal to 10% of the per-unit distribution paid on OP Units.

On December 29, 2016, the compensation committee approved the grant under the Plan to Messrs. Schwimmer, Frankel and Khan (collectively, the “executives”) of 116,690 LTIP Units, that are subject to time-based vesting requirements (the “2016 LTIP Award”), and 199,000 Performance Units, that are subject to market-based vesting requirements (the “2016 Performance Award”).

On December 15, 2015, the compensation committee approved the grant under the Plan to the executives of 166,669 LTIP Units, that are subject to time-based vesting requirements (the “2015 LTIP Award”), and 315,998 Performance Units, that are subject to market-based vesting requirements (the “2015 Performance Award”).

LTIP Unit Awards

The 2016 LTIP Award and the 2015 LTIP Award are scheduled to vest in equal installments of 25% on each of the first, second, third and fourth anniversaries of the grant date, subject to each executive’s continued employment through the applicable vesting date, and subject to earlier vesting upon certain termination of employment or a change in control event, as described in the award agreements. Compensation expense will be recognized using the accelerated expense attribution method, with each vesting tranche valued as a separate award. The total grant date fair value of the 2016 LTIP Award and the 2015 LTIP Awards is based on the Company’s most recent closing stock price preceding the grant and the application of a discount for post-vesting restrictions and uncertainty regarding the occurrence and timing of book-up events. The following table summarizes these fair valuation assumptions and the grant date fair value of the awards:



	2016 LTIP Award			2015 LTIP Award
Valuation date	December 29, 2016			December 15, 2015
Closing share price of common stock	$	22.71		$	15.90
Discount for post-vesting restrictions and book-up events	5.0		%	5.0		%
Grant date fair value (in thousands)	$	2,518		$	2,518

Performance Unit Awards

For each of the 2016 Performance Award and the 2015 Performance Award (collectively the “Performance Awards”), the number of Performance Units that ultimately vest, which will range from 0% to 100% of the units granted, will be based on the Company’s total shareholder return (“TSR”) over a three-year performance period, and further subject to the executive’s continued employment. For the 2016 Performance Award, the three-year performance period begins on December 29, 2016, and ends on December 28, 2019, and for the 2015 Performance Award, the three-year performance period begins on December 15, 2015, and ends on December 14, 2018. TSR is measured as the appreciation in the price per share of the Company’s common stock plus dividends paid during the three-year performance period, assuming the reinvestment in common stock of all dividends paid during the performance period. Each of the Performance Awards is comprised of a number of units designated as base units and distribution equivalent units. Forty percent (40%) of the base units are designated as “absolute TSR base units,” and vest based on varying levels of the Company’s TSR over the three-year performance period. The other sixty percent (60%) of the base units are designated as “relative TSR base units” and vest based on the Company’s TSR as compared to the TSR percentage of a peer group of companies included in the SNL U.S. Equity REIT Index over the three-year performance period. As noted above, Performance Units that have not vested will receive 10% of the distributions paid on OP units. The remaining 90% of the distributions will accrue (assuming the reinvestment in common stock of these distributions) during the three-year performance period and a portion will be paid out as distribution equivalent units based upon the number of absolute and relative units that ultimately vest.

The TSR levels and vesting percentages for the absolute TSR base units and relative TSR base units for the 2016 Performance Awards and the 2015 Performance Awards are summarized in the following tables:



	2016 Performance Award
	Absolute TSR Base Units				Relative TSR Base Units
Level	Company TSR Percentage		Absolute TSR Vesting Percentage		Peer Group Relative Performance	Relative TSR Vesting Percentage
	< 21%		—	%	< 50th Percentile	—	%
“Threshold Level”	21	%	25	%	50th Percentile	25	%
“Target Level”	35.5	%	60	%	62.5th Percentile	60	%
“Maximum Level”	≥ 50%		100	%	≥ 75th Percentile	100	%



	2015 Performance Award
	Absolute TSR Base Units				Relative TSR Base Units
Level	Company TSR Percentage		Absolute TSR Vesting Percentage		Peer Group Relative Performance	Relative TSR Vesting Percentage
	< 24%		—	%	< 50th Percentile	—	%
“Threshold Level”	24	%	20	%	50th Percentile	20	%
“Target Level”	37	%	60	%	62.5th Percentile	60	%
“Maximum Level”	≥ 50%		100	%	≥ 75th Percentile	100	%

If the Company’s TSR percentage or the peer group relative performance falls between the levels specified in the tables above, the percentage of absolute base units or relative base units that vest will be determined using straight-line interpolation between such levels.

The fair value of the Performance Awards are based on the sum of: (1) the present value of the expected payoff to the vested absolute and relative base units, (2) the present value of the 10% portion of the distribution expected to be paid during the three-year performance period, and (3) the present value of the distribution equivalent units expected to be awarded at the end of the three-year performance period. The fair value of the Performance Awards were measured using a Monte Carlo simulation pricing model, which uses 100,000 trial simulations to estimate the probability that the market conditions, TSR on both an absolute and relative basis, will be achieved over the three-year performance period. The following table summarizes the assumptions we used in the Monte Carlo simulations and the grant date fair value of the Performance Awards.



	2016 Performance Award			2015 Performance Award
Valuation date	December 29, 2016			December 15, 2015
Expected share price volatility of the Company	20.0		%	24.0		%
Expected share price volatility of peer group companies - low end of range	21.0		%	21.0		%
Expected share price volatility of peer group companies - high end of range	50.0		%	62.0		%
Expected dividend yield	2.80		%	3.40		%
Risk-free interest rate	1.49		%	1.28		%
Grant date fair value (in thousands)	$	1,753		$	2,157

The expected share price volatilities are based on a mix of the historical and implied volatilities of the Company and the peer group companies. The expected dividend yield is based on our average historical dividend yield since our IPO and our dividend yield as of the valuation date for each award. The risk-free interest rate is based on U.S. Treasury note yields matching the three-year time period of the performance period.

Compensation cost will be recognized ratably over the requisite service period, regardless of whether the TSR levels are achieved and any awards ultimately vest. We will only reverse compensation expense if the holder of a Performance Unit forfeits the award by leaving the employment of the Company prior to vesting.

Restricted Common Stock

Shares of our restricted common stock generally may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent or the administrator of the Plan, a domestic relations order, unless and until all restrictions applicable to such shares have lapsed. Such restrictions generally expire upon vesting. Shares of our restricted common stock are participating securities and have full voting rights and nonforfeitable rights to dividends.

The compensation committee has periodically awarded grants of restricted common stock to various employees of the Company, other than executives, for the purpose of attracting or retaining the services of these key individuals. These grants typically vest in four equal, annual installments on each of the first four anniversaries of the date of grant, subject to the employee’s continued service. During the year ended December 31, 2016, we granted 91,134 shares of restricted common stock to non-executive employees. The grant date fair value of these awards was $1.6 million based on the closing share price of the Company’s common stock on the date of grant, which ranged from $17.13 to $22.97 per share.

In accordance with the Rexford Industrial Realty, Inc. Non-Employee Director Compensation Program, each year on the date of the annual meeting of the Company’s stockholders, we grant shares of restricted common stock to each of our non-employee directors who are re-elected for another year of service. These awards vest on the anniversary of the earlier of (i) the date of the annual meeting of the Company’s stockholders next following the grant date and (ii) the first anniversary of the grant date, subject to each non-employee director’s continued service. During the year ended December 31, 2016, we granted 2,514 shares of restricted common stock to each of our non-employee directors. The grant date fair value of each award was $50,000 based on the $19.89 closing share price of the Company’s common stock on the date of grant.

The following table sets forth our unvested restricted stock activity for the years ended December 31, 2016, 2015 and 2014:



	Number of Unvested Shares of Restricted Common Stock		Weighted-Average Grant Date Fair Value per Share
Balance at December 31, 2013	140,468		$	14.00
Granted	243,233		$	14.40
Forfeited	(29,664	)	$	14.04
Vested⁽¹⁾⁽²⁾	(34,020	)	$	14.00
Balance at December 31, 2014	320,017		$	14.30
Granted	152,103		$	15.34
Forfeited	(31,925	)	$	14.54
Vested⁽¹⁾⁽²⁾	(106,754	)	$	14.34
Balance at December 31, 2015	333,441		$	14.30
Granted	103,704		$	18.03
Forfeited	(23,968	)	$	15.37
Vested⁽¹⁾⁽²⁾	(125,350	)	$	14.63
Balance at December 31, 2016	287,827		$	15.92


(1)	The total fair value of vested shares, which is calculated as the number of shares vested multiplied by the closing share price of the Company’s common stock on the vesting date, was $2.6 million, $1.6 million and $0.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.


(2)	Total shares vested include 36,374, 12,670 and 6,928 shares of common stock that were tendered by employees during the years ended December 31, 2016, 2015 and 2014, respectively, to satisfy minimum statutory tax withholding requirements associated with the vesting of restricted shares.

The following table sets forth the vesting schedule of total unvested shares of restricted common stock outstanding as of December 31, 2016:



Twelve months ending December 31:	Shares
2017	167,026
2018	60,466
2019	39,158
2020	21,177
	287,827

Compensation Expense

The following table sets forth the amounts expensed and capitalized for all share-based awards for the reported periods presented below (in thousands):



	Year Ended December 31,
	2016	2015	2014
Expensed share-based compensation⁽¹⁾	3,835	1,752	1,018
Capitalized share-based compensation⁽²⁾	147	101	107
Total share-based compensation	3,982	1,853	1,125


(1)	Amounts expensed are included in “General and administrative” and “Property expenses” in the accompanying consolidated statements of operations.


(2)	Amounts capitalized, which relate to employees who provide construction and leasing services, are included in “Building and improvements” and “Deferred leasing costs, net” in the accompanying consolidated balance sheets.

As of December 31, 2016, there was $9.9 million of total unrecognized compensation cost related to all unvested share-based awards expected to vest, of which we expect $0.4 million will be capitalized for employees who provide leasing and construction services. As of December 31, 2016, this total unrecognized compensation cost is expected to be recognized over a weighted average remaining period of 28 months.