Rexford Industrial Realty, Inc. (REXR) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to the Rexford Industrial Realty Incorporated Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Steve Swett of ICR. Thank you. Mr. Swett, you may begin.

Good afternoon. We would like to thank you for joining us for Rexford Industrial’s fourth quarter and full year 2014 earnings conference call. In addition to the press release distributed today, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rexfordindustrial.com. On today’s call, management’s remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, projects, seeks, should, will and variations of such words or similar expressions. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income or financial guidance. As a reminder, forward-looking statements represent management’s current expectations. 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 Now I will turn the call over to Michael.

Thank you and welcome to Rexford Industrial’s fourth quarter and full year 2014 earnings conference call. I will begin with a brief summary of our operating and financial results for the quarter and year; Howard will then provide an overview of our markets and recent investment activity; and Adeel will then follow with more details on our fourth quarter and full year financial results, our balance sheet and provides the metrics which help to frame our outlook for 2015. 2014 was an exceptional year of operating results for Rexford. We made 23 acquisitions comprising 36 industrial properties containing more than 3.7 million square feet across our prime infill markets for an aggregate cost of $397 million. To-date we have grown our portfolio by 82% since our IPO just a year and a half ago. Our team grew consolidated NOI by 67% when comparing the fourth quarter of 2014 at the same period in 2013 enabling us to capture margin expansion as we increased efficiency across our platform. Most importantly, the year's investment activity highly accretive with about two-thirds of acquisition required to off market or lightly marketed transactions enabling enhanced yields. Further half of the transactions represent value add opportunities to increase cash yield and value overtime. Rexford’s internal growth was equally strong. During the year our team consummated 435 new and renewal leases covering 2.4 million square feet. The fourth quarter of 2014 represented our fifth consecutive quarter of positive double digit re-leasing spread and we achieved a 400 basis point increase in our stabilized same property portfolio occupancy reaching 93.7% by year end. From a capital market perspective 2014 represented a terrific start as our first full calendar year public company. We maintained a flexible nimble capital structure highlighted by our follow-on operating last August where there is the net $223 million in proceeds. We also secured or restructured about $400 million of debt including the substantial improvement of the terms of our $200 million unsecured line of credit and the placement of the $100 million unsecured term loan. Finally for the full year we achieved a total stockholder return of about 23%, a testament to the quality and hard work of the entire Rexford team. Turning to our fourth quarter 2014 operations we achieved recurring FFO of $0.21 per share which was up 10.5% in the same period one year ago reflecting our strong portfolio of results that substantially overcame a 61% increase in share and unit count resulting from our August 2014 offering. Our portfolio continues to perform well. Occupancy on a stabilized same property portfolio basis was 93.7% as I mentioned, representing a year-over-year increase at 400 basis points. On a consolidated basis, fourth quarter property net operating income of $13.9 million increased 67% year-over-year. On a same property basis, NOI increased 10.7% in the fourth quarter of 2014 compared to fourth quarter of 2013 driven primarily by increased occupancy, positive releasing spreads and some one-times that Adeel will highlight. Same property portfolio cash NOI increased 9.7%. With regards to leasing, for the consolidated portfolio we signed 99 leases accounting for approximately 430,000 square feet during the quarter. We signed 43 new leases for about 201,000 square feet and we signed 56 lease renewals for about 229,000 square feet. Our tenant retention was 59% in the quarter, which also reflects our choosing from time-to-time not to renew certain tenants when we believe we can re-tenant a high demand space at higher rates. In addition, we continue to see strong rental rate growth. For our new and renewal leases combined, our rental rates increased 11.8% on a GAAP basis and 1.9% on a cash basis. While they're excluding one 15,000 square feet lease in San Diego, our cash releasing spreads were 3.3% with nearly 50% of our leases rolling during the next two years we believe we are well positioned to continue to capture strong upside in revenues as we mark rents to market. While we are very pleased with our results, we believe our success is due to a few key factors. To begin with we remain focused and disciplined in executing our internal and external growth initiatives adhering to strict underwriting guidelines. We are stripping out our business model of accretive internal and external growth and by acquiring a majority of properties via off-market lightly marketed and value add transactions. We've remain dedicated to creating value in in-field southern California a markets that’s equal in market value to the next largest four or five markets combined, a market that is highly fragmented with substantial barriers limiting new or competing products where strong growing long-term tenant demand combined with an extreme scarcity of available space. Consequently rental rates within our markets are on average about 50% higher than rates for the next 10 largest markets which translates into higher property values. Finally our commitments to ensuring we have the best team in the business is our top priority and key to our long-term success. We would like to thank the Rexford team for their dedication and great work. With regards to our Board of Directors we are pleased to welcome Tyler Rhodes as our newest board member. Tyler brings a wealth of experience from his 29 year real-estate career including his core role as Executive Vice President and Chief Financial Officer at Kilroy Reality. We remain confident in our mandate to deliver substantially better than core returns and growth in the highest quality and sought after and most difficult to access industrial market and infill Southern California. I'll now turn the call over to Howard.

Thank you Michael and thank you everyone for joining us today. As on past calls I'll update you on our markets and review our recent transactions which continue to be substantial. Let me start by providing some perspective on our markets, primarily utilizing market data provided by CBRA. From everything we see on the ground we are now clearly in the landlords market throughout all of our Southern California infill markets. We are experiencing strong performance executed by forward leasing demand, fallen vacancy rates, rising rental rates and an uptick in positive net absorption year-over-year. With vacancy rates tight it is not uncommon to see multiple tenants competing for the same space which should support the same growth in rental rates. In Los Angeles County, leasing activities has been strong through 2014 with an increase of 21% positive net absorption over 2013 with small sized buildings generating double the activity of larger buildings business during the fourth quarter. Vacancy finished the year 1.9% down 20 basis points since last quarter and down 50 basis points in the first quarter of the year, with continued upward pressure on rental rates, with asking lease rates increasing 3.2% over the prior quarter and 6.7% since the start of the year we expect rents to further increase by 6.7% over the next 12 months. The settlement of first [indiscernible] productivity will normal over the coming months which will remove the uncertainty in the regional economy. With that said, it's important to note that we had not seen any material slowdown in recent months. We believe that our portfolio which largely supports local commerce is less driven by the flow of trade in to and out of the region. Through 2014 Orange County generated over 1 million square feet of positive absorption. Vacancy rates remained tight in the region and finished the year at 2.7% which is an increase of 30 basis points from the third quarter and down 20 basis points year-over-year. Concessions are decreasing due to the market being constricted and highly competitive. The average lease rate was unchanged over the prior quarter and was up 3% for the year. We expect rents to increase 8.3% over the next 12 months as landlord pricing strengthens further. In San Diego county net absorption was positive for the 10th consecutive quarter which brought the year end total to more than 3.3 million positive square feet. Vacancy further declined 40 basis points to end at 6.3% closing in on the pre-recession level of 5.4% set in 2006. With less available products on the market average asking lease rates increased by 3.1% versus the prior quarter. The sustained increase in the average asking lease rate is notable on this region as they have increased 25% from the fourth quarter of 2011. Availability continued to decline and we expect landlord pricing power to continue strengthening. General market conditions continue to improve in the Zurich [ph] County posting its highest positive net absorption for the year in this quarter and throughout all of 2014, when Zurich County posted a strong net absorption of 1.6 million square feet. The vacancy rate declined 30 basis points from the last quarter to end at 4.5% and the average asking lease was up 8.5% for the full year. The Inland Empire generated one of the highest levels on record for net absorption putting the year-end total at 16.1 million square feet which is strongly above the 14.9 million square feet of net absorption generated in 2013, largely propelled by the expansion in growth the tenants in the market. Overall vacancy rate decreased 10 basis points over the prior quarter to end at 4.5%. Asking rents were relative flat in the region since year end 2013 as they was no sub-leasing there due to the large amount of development in the Eastern Inland Empire. Overall CBRA expects that asking rents will increase by 10.5% over the next 12 months although this could be tempered by an increased amount of construction that could bring the [indiscernible] back into the 9% range by the end of 2015. Based on the positive trends we see in all of our express [ph] market. We believe we are well positioned within our infill portfolio to capture the benefit of a tightening market for industrial space in Southern California. Now moving on to our transaction activity, during the fourth quarter we continued to execute on our growth strategies acquiring 12 properties totaling approximately 1.2 million square feet at aggregate cost of about $136 million. 2014 was a demonstrative year at Rexford, acquiring [ph] about $400 million and proving out our business model. Our earnings release has details of these transactions so I’ll only provide some insight and quick highlights. Also one of the acquisitions were off market or lightly marketed sales and they're all consistent with our value driven investment strategy. In November Rexford acquired Anderson Street, a 47,000 square feet two-story industrial building in downtown LA for $6.5 million or $137 per square foot. The property is 100% leased on a short term basis and we anticipate a stabilized yield of 6% on total costs after completing value add repositioning and re-tenanting. In November the company also acquired Nelson Road, a 203,000 square foot single tenant industrial building in the San Fernando Valley for $24.3 million, or approximately $120 per square foot. We anticipate a stabilized yield on total cost of 5.9% after dividing into a two tenant property and leasing the vacant building. In December Rexford acquired two industrial buildings totaling 240,000 square feet located at Business Drive and Slover Avenue in Fontana in the Inland Empire West from one seller for approximately $16.7 million, or approximately $69 per square foot. Both buildings are 100% leased at substantially below market rents, with 75% of the leases expiring in 24 months. I anticipated an initial yield of 4.8% and stabilized deals of 6.3% based on an upside anticipated on lease renewal or re-leasing. In December the company also acquired Ivy, a 46,000 square foot multi-tenant industrial building near LAX for approximately $5.9 million or $129 per square foot. Roughly at a 100% leased we anticipate an initial yield of 5.9% with upside expected as below market leases expire. In December the company acquired a five-property industrial portfolio in Oxnard, the largest industrial sub market in Ventura County, containing an aggregate of 408,000 square feet for $38.7 million, or approximately $95 per square foot. The portfolio is 93% and we anticipate an initial yield of 5.2% and stabilized yield of 6.2% based on upside anticipated on renewal or releasing. In December 2014, Rexford acquired Hindry Avenue an industrial complex located at LAX and consisting of three multi-tenant industrial buildings, with a total of 63,654 square feet for $11.9 million, or approximately $187 per square foot. The property was purchased from a lender after foreclosure and is 88% occupied. We anticipate an initial yield of 5.5% and a stabilized yield 5.9% based on additional occupancy with upside anticipated on lease renewal or re-leasing. And in December the company acquired Convoy Court, in Central San Diego County, consisting of 13 multi-tenant industrial complexes with a total of 187,763 square feet for $32.3 million, or approximately $172 per square foot. The project is 98% occupied. We anticipate an initial yield of 5.5% with upside expected on lease renewal or re-leasing. As we move into 2015 our guidance assumes that we acquire 250 million or more and I note that we have already closed about 31 million in first two months. We currently have more than $31 million of product in escrow and another 28 million under LOI that we anticipate closing in the coming months and quarters as we deploy the capital raised in our recent equity offering. As is typical our active pipeline includes as much as $1 billion under consideration or active pursuit. I will now turn the call over to Adeel

Thank you, Howard. In my comment today I will review our operating results and then I will come to our balance sheet and recent financial transactions and finally I’ll provide some metrics on our outlook for 2015. Starting with our operating results the three months ending December 31, 2014 Rexford Industrial reported company share of recurring FFO of $9 million or $0.21 per fully diluted share. Recurring FFO excludes the impact of approximately 627,000 of non-recurring acquisition expenses and $205,000 of legal fees. Including these costs company share of FFO was $8.2 million for the quarter or $0.19 per fully diluted share. In the four months ending December 31, 2014 Rexford Industrial reported company’s share of recurring FFO of $28 million or $0.89 per fully diluted share. Recurring FFO includes the impact of approximately $2 million of non-recurring acquisition expenses and $585,000 of legal expenses. Including these costs company’s share of FFO was $25.6 million for the 12 months ending December 31, 2014 or $0.81 per fully diluted share. As a reminder 2014 was our first full year as a public company and per share earnings and FFO comparisons for any period prior to August 2013 include results of our [indiscernible] and may not be comparable to the current quarter’s results. On a same property basis we generated an 8.8% increase in fourth quarter rental revenue, and operating expenses increased 1.1% quarter-to-quarter. Same property portfolio NOI was $8.9 million for the fourth quarter as compared to $8 million for the same quarter in 2013, representing an increase of 10.7%. On a cash basis our same property portfolio NOI was up 9.7% year-over-year. Adjusted for some one-time items affecting [ph] same property revenue and NOI in the quarter same property revenue growth would have been 5.6% and same property NOI growth would have been 6.2%. For the full year 2014 our same property revenue was up 5% and same property NOI was up 4.8%. Cash NOI was up 4.4% compared to 2013. Adjusted for onetime items that benefited same property revenue and NOI in 2014 same property revenue growth would have been 4.4% same property NOI growth would have been 4.1% for the full year 2014. Turning now to our balance sheet and financing activities. At December 31, 2014, Rexford Industrial had total consolidated debt accounting for approximately $357.1 million. By consolidated that includes approximately $164.6 million of secured debts. During the fourth quarter, our total consolidated debt increased by $87 million due to the increase in the amount outstanding under our revolving credit facility partially offset by paid outs on debt. At December 31, 2014 our $200 million of unsecured credit facility had $92.5 million outstanding. As we have stated, we intend to maintain a strong balance sheet with sufficient flexibility capacity to support our growth objective. Subsequent to the end of the quarter we issued 11.5% million shares in a secondary offerings raising net proceeds of $176.6 million. Proceeds were used to pay off the outstanding balance in our revolving line of credit, fund acquisitions and for general corporate purposes. On a pro forma basis, we have a zero balance on the line with cash and cash equivalents totaling approximately $69 million. Finally I would like to provide some metrics that support our outlook for 2015. For the 2015 same property portfolio we expect year end occupancy within the range of 93% to 94% compared to 92.8% for the same property portfolio at the start of the year. I remind you that our occupancy rates reflect the ongoing execution of strategy through which we may proactively to choose to vacate tenants to upgrade or reposition space or upgrade tenancy. We expect same property NOI growth for the year of 5% to 7%. Our full year occupation target is $250 million or more. For recurring G&A we anticipate a full year expense of about $14.5 million to $15.5 million driven by a first full year of Sarbanes-Oxley related compliance expenses and non-cash impact of restricted stock compensation. Despite increased G&A, we continue to see substantial operating leverage and margin expansion. With that, I'll turn the call back to Michael.

Thank you Adeel and we thank everyone for joining us today. We are obviously very pleased with our results in 2014. We look forward to continuing to execute on our strategy going forward and some of you may have noticed today's announcement from Fitch assigning Rexford an investment grade rating. This is further evidence of the strength of our platform and balance sheet and is another step in ensuring that we have the most advantageous capital options available as we pursue our growth initiatives in 2015 and beyond. And with that we'll be happy to take your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Michael Mueller of JPMorgan. Please proceed with your question.

Hi thanks. Couple of things. First of all Adeel can you walk through the G&A increase a little bit more, looks like it's got 20% year-over-year and then also, I mean how are you thinking about the ramp beyond 2015?

Hi Mike it's Adeel. So good question, so first of all Mike I will point you to the Q4 G&A. So if you take that G&A as a -- that essentially gets you to a pretty close to our guidance for next year. Furthermore what I can point out that this year in June 30th we've agreed under that, as you recall on the jobs active we've worked to acquire the [indiscernible] stations and acquire that. So we're going to breach that because of the market cap. So that's going to actually support some costs related to the former professional fees and audit fees and things of that nature. And we have preliminary assumed that was going to happen little later but our growth that we've been talking by clearly advanced those kind of. Furthermore there was some active rents [ph] that took place in Q4 of '14 which are going to amortize themselves into the numbers in '15 and there is also assumption of additional cost along that line, they can especially come in '15. As to the last part of your question I think that '15 is a pivotal year for the Sarbanes, reason that I pointed out. I think from going forward we will not see this was a piece that established a base case for us which will continue on, because this cost will not be -- will not be incremental increases in those costs in the future. So I think this will establish good case by point for us going forward in '16 and beyond.

Okay and then when you….

I would say Mike by the way one of the thing that we think by that in terms of G&A, it's Michael by the way, and we benefit from the fact that we don't have to open up offices in a lot of different geographies and so we see it. I think what Adeel was saying is we see a point in our business in the medium term where we're going to start accelerating our operating leverage here given the regional focus in southern California.

Okay got it. And then I think it was Adeel you mentioned some of the one-time items that benefited same store NOI in the quarter. And what exactly were those items?

Sure so we have in those numbers $176,000 at leasing payments that we've received in one of the properties and that's naturally a one-time item. And then we also benefited from a reversal of a doubtful account reserve that we had in the books about $190,000. So again that's on the positive side that they help that one tenant did well and we were able to reverse that. So those are the two non-recurring charges that we alluded to in our call and also footnoted in the supplemental.

Okay that's fair enough. Thank you.

Our next question is from Brandon Maiorana with Wells Fargo.

Hi thanks. So Adeel, I so I think you mentioned the start of the year occupancy numbers. Did you say 92.8; I think the two numbers in for the same store. So is that an adjusted tool for the -- I think the year end tool was 92.1. So I just want to clarify the difference between kind of how we should think about the year-end occupancy target of 93 to 94 versus where we're starting the year.

Brandon great question and the math behind that it's as you know the same store pool is changing every quarter. So that is an adjusted number for same store pool that we're going to present in Q1, '15. So our same store pool is going to change from $5.2 million as reported in the supplemental to 6.1 approximately. And that 92.8% represents that 6.1 pool that we're going to present in Q1. And the guidance that we issued of 93% to 94% related to that exact $6.1 million tool. Furthermore the guidance that we issued on the NOI growth also reflects the same pool that we referred. So that was the disconnect, that 92.8 number is not published because we're not we have report the Q1 '15.

Okay and that is and that number is -- that's an overall same-store pool right not the stabilized same store pool?

It's stabilized.

Okay, the stabilized number. And so how should we -- so there is some occupancy growth but it's relatively modest at least from the beginning of the year, maybe somewhere between 20 basis points to 120 or so. The overall number is significantly higher than that and you've got rents on the portfolio and rent spreads have been positive on a cash basis although they haven't been -- they haven’t move too high off of kind of the low-single digits over the past couple of quarters. So what are the components that are going to drive same store in the 5% to 10% range because that's a pretty big number relative to a modest occupancy increase.

Well I think naturally the two main components are, I mean just seen for about five quarters so really think they have been positive. So we expect that to continue I think over the last quarter but again an amazing quarter from a re-leasing spread or a GAAP perspective and on a cash perspective. So it naturally has that assumption. I think we have always stated the fact that our model typically assumes a more conservative approach as far as what the increases are going to be. We have 3% baked into our current in place leases and then we typically try to go on a conservative basis from a market leasing assumption perspective. And naturally the other point that are contributing to that growth is just the occupancy uptake that we have. So there are the two main areas that I can allude to that onto those metrics.

And Brandon the other thing that is a little hard to pinpoint that is equally strong is the fact that a lot of our value add initiatives at the property level are playing out they are paying off. And it's not necessarily the big CapEx items when you put a property out of service and you are doing a full positioning which we fully report on but it's a lot of smaller spaces where we going in and doing what we do on a current basis overtime which is freshing up space making it more marketable making it more functional and enabling us to release it at more favorable rents.

Yeah and so either Michael or Howard, you guys mentioned that if you look at the roll over the next two years both in '15 and '16, I think it's about 45% cumulative. Rents have been growing pretty nicely in Southern California. What should we expect in terms of where you think rents spreads are either for us mark-to-market maybe for the whole portfolio or just maybe over the couple of years where we think you guys can move rents as the tenants expire.

Hi-- it's Howard. I think if you look at the overall market we had strong rent growth in nearly all the markets our portfolios have positioned in. And we mentioned in the past where we saw active rents were versus peak market levels and we also commented to replacements in our portfolio are below the asking rents. So we still feel that there is 10% to 15% more growth certainly within our portfolio before we get to what the higher peak markets rents were. So I think these are the result of us pushing rents and just feeling positive today at some of the trends that are happening since beginning of the year where we've have 100% positive rent growth in every one of the new leases and renewal transactions we have done. So we really seeing the benefits of the strong market playing on well in our portfolio and we put that in a combination with along the value add efforts that we have. And we're really firing on all cylinders at this point.

Okay. So I mean it's sounds like the rent spreads that you guys have put out over the past few quarters in the low to mid-double digits on a GAAP basis and kind of low to mid-single digits on a cash basis, that's probably a fair outlook for as we think about 2015.

Absolutely. Yeah it's not obviously knowing how even the first quarter finishes out but I think kind of your rate that this quarter looks pretty solid in terms of both the GAAP and rent spread.

Okay, oh yeah go ahead sorry.

I would say keeping net rents that remember that because we are still operating from a relatively small base of property a given lease of the certain size and have a pretty material impact on a leasing spreads during any given period of quarter. But I think what captures our general expectation is the guidance that Adeel provided in terms of our projected NOI growth.

Sure. And then last one just in terms of, Ventura County occupancy was down there. Was there something specific that was happening in there that contracted due to drop about 500 basis points or is that there might have just been a known that I forgot about?

Well first of all the portfolio size in that market is not large. So they had a 28,000 foot vacancy that occurred that weighed on portfolio occupancy as well as the sale of two of the JV properties we have which was 733,000 square feet which would have weighed in a little bit in terms of our overall portfolio occupancy as well.

Sure okay. All right thanks guys.

Our next question is from Talyor [indiscernible] from Jefferies.

Yes, good evening everyone or good afternoon over there in LA. In regards to the guidance, again, I think you give us more sort of the key drivers but I mean I know you didn't provide an actual per share number. Is that because you are still generally trying to figure out capital structure in '15 given some of the news around FICCs and possibly you doing something in the debt market.

Hi this is Adeel. Dale. So you're right that's just a maturation process of our organization. I think each quarter you've noticed that we're taking an additional steps to provide more guidance and I think that you're absolutely right about that. Our capital structure is closely to a point that [indiscernible] revenue in the FICC. So I think hopefully once we go further way into the year we can show up some of that guidance. So your point is absolutely correct, I think that's kind of the reason but we wanted to give you at least the key areas of building blocks to be able to come through some term as to what that number might look like. But as we move forward we can say we will certainly be looking forward to providing additional guidance on that side.

And we're growing from relatively small base the type of the acquisitions following that we are seeing. It accentuates the challenge associated there and then to your point with the capital structure but in the deal space we are working towards refining that guidance as we move forward.

That makes sense. What are you hearing at this point either from S&P and Moody's about the whole ratings process on their end?

We reached to Moody's already I think we imagine it appealed out to that side as well, I think Fitch will be great opportunity for us to pursue. Naturally there’s a cost impact to it and I think Michael and I both realize pointed out the fact our size of the company. So we want to make sure that we properly matched the cross aspects of getting a rating with our current size and where we are in our lifecycle. So we had preliminary conversations with one of the rating agencies and I think we'll continue to evaluate. I think we have some more inputs as to we can do with the Fitch rating and we will certainly push on our cylinders to achieve what we need to achieve by expanding our capital stock and adding a little bit fire [ph] to our capital stack little bit yes. I think Moody will be listening at that as we reach out to them.

Great. I appreciate that, just one more and then I'll hop back into queue. Again the guidance of 250 or more again I am kind of looking for some color or more is it giving almost $400 million in 2014?

Hi, it’s Howard. It's a little early in the year to really tell anything other than we are expecting 350 million or more. You can certainly make some projections based on what’s lined up already in the first quarter we closed $31 million, we’ve got another $59 million that’s under contract or NOI, acquisition are lumpy and it’s hard to project much further than where we are at today. As you might have recall last year we upgraded our guidance really in the midpoint of the year. So again at this and every time during the cycle what is left and what we buy and we typically turn down many more opportunities than we do buy.

Got it. Okay. That's helpful. Congrats on the quarter and the very strong outlook.

Thank you.

[Operator Instructions] You have a question from Taylor [indiscernible] from Jefferies.

Not again, just two quick ones again from me, the new leases that were signed during the quarter cash rents being down 70 basis point. Just kind of curious what drove that?

It was really just one transaction in San Diego. There was a 15,000 lease in in the space that has been inactive [ph] for a while and actually had a [indiscernible] that had a 20% decline in the cash rent spread.

So if you excluded that…

If you had excluded that your cash spread would have increased by 3.3% and then your GAAP that would have 13.3% kind of on a normal basis as to what you've seen in the past quarters.

Got it. That's exactly what I was looking for. And then the last thing again just to confirm, earlier on I am not sure there was Howard you mentioned this but I just wanted to confirm that there was some concern about seeing additional new supply in 2016 in your key markets. Did I hear that right?

In fact we've seen a decline in supply.

That's what I thought.

[indiscernible] in the Mid Counties market, it would seem that end of the third quarter and the fourth quarter the vacancy declined by 60% in the market, close to 1.7 [ph], any time there is more and more pressure that we're seeing out there that prevents the increase as we are having tenants…

And Taylor this is Michael one additional color, it's not just about available space, it's actually about available properties because since 2001 alone you have seen well over 30 million square feet of products taken out of our market. That's the beauty of these infill markets where products if anything’s been taken out of the market that gets converted out of usage you get a substantial increase in demand you have supplies scarce and diminishing.

Sounds good to me. Thanks again.

Thank you.

That completes today's question and answer session. I would like to turn the floor back to management for closing comments.

Thanks everybody for joining us today.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.