Rexford Industrial Realty Inc (REXR) 2014 Q4 法說會逐字稿

Greetings, and welcome to the Rexford Industrial Reality 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 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 questions. Now, I will turn the call over to Michael.

Thank you, and welcome to Rexford Industrials' 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 recnet investment activity. And Adeel will then follow with more details on our fourth quarter and full-year financial results, our balance sheet, and provide some 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 with the same period in 2013, enabling us to capture margin expansion as we increase efficiencies across our platform.

Most importantly, the year's investment activity was highly accretive with about two-thirds of acquisitions acquired through off-market or lightly marketed transactions, enabling enhanced deals. Further, over half of the transactions presented value-add opportunities to increase cash yields and value over time.

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 releasing spreads. And we achieved a 400-basis-point increase in our stabilized same-property portfolio occupancy, reaching 93.7% by year end.

From a capital markets perspective, 2014 represented a terrific start as our first full calendar year as a public company. We've maintained a flexible, nimble capital structure highlighted by our following offering last August when we raised a net $222 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 a $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% from the same period one year ago, reflecting our strong portfolio 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 of 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 the fourth quarter of 2013, driven primarily by increased occupancy, positive releasing spreads, and some one-time items that Adeel will highlight.

Same-property portfolio cash NOI increased 9.7%. With regard 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 retenant 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. Although excluding one 15,000-square-foot 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 proving 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 remain dedicated to creating value in infill Southern California, a market that is 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 product where strong growing long-term tenant demand combines with an extreme scarcity of available space.

Consequently, rental rates within our markets are on average a full 50% higher than rates for the next 10 largest markets, which translates into higher property values.

Finally, our commitment to ensuring we have the best team in the business is our top priority and key to our long-term success. We'd like to thank the Rexford team for their dedication and great work.

With regard to our Board of Directors, we are pleased to welcome Tyler Rose as our newest Board member. Tyler brings a wealth of experience from his 29-year real estate career, including his current role as Executive Vice President and Chief Financial Officer at Kilroy Realty.

We remain confident in our mandate to deliver substantially better-than-core returns and growth in the highest-quality, most sought after, and most difficult to access industrial market in the 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 CBRE.

From everything we see on the ground, we are now clearly in a landlords' market throughout all of our Southern California infill markets. We are experiencing strong performance exhibited by solid leasing demand, falling 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 sustained growth in rental rates.

In Los Angeles County, leasing activity has been strong through 2014, with an increase of 21% positive net absorption over 2013, smaller-sized buildings generating double the activity of larger buildings during the fourth quarter.

Vacancy finished the year at 1.9%, down 20 basis points since last quarter and down 50 basis points since 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.

CBRE expects rents to further increase by 6.7% over the next 12 months. The settlement of the port strikes should restore port activity to normal over the coming months, which removes uncertainty in the regional economy.

That said, it's important to note that we had not seen any material slowdown in the recent months. We believe that our portfolio, which largely supports local commerce, is less driven by the flow of trade into and out of the region.

[In] 2014, Orange County generated over 1 million square feet of positive net 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 asking lease rate was unchanged over the prior quarter and was up 3% for the year. CBRE expects rents to increase 8.3% over the next 12 months as landlord pricing power 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 prerecession level of 5.4% set in 2006.

With less available product 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 in this region, as it has increased nearly 25% from the fourth quarter 2011. With availability continuing to decline, we expect landlord pricing power to continue strengthening.

Rental market conditions continued improving in Ventura County. Posting its highest positive net absorption for the year in this quarter and throughout all of 2014, Ventura 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 rate was at 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 of tenants in the market. The overall vacancy rate decreased 10 basis points over the prior quarter to end at 4.5%.

Asking rents were relatively flat in the region since year-end 2013, as they were noticeably hindered due to the large amount of development in the Eastern Inland Empire. Overall, CBRE 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, [expected] to bring the [eligibility] rate back into the 9% range by the end of 2015.

Based on the positive trends we see in all of Rexford's markets, we believe we are well positioned with our infill portfolio to capture the benefit of a tightening market for industrial space in Southern California.

Now, moving onto 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, aggregate cost of about $136 million.

2014 was a demonstrative year at Rexford, acquiring about $400 million and proving out our business model. Our earnings release has details of these transactions. So, I will only provide some insight and quite highlights.

All but one of the acquisitions were off-market or lightly marketed sales. And they are all consistent with our value-driven investment strategy.

In November, Rexford acquired Anderson Street, a 47,000-square-foot, 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 cost after completing value-add repositioning and retenanting.

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 $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, part of the Inland Empire West, one seller for approximately $16.7 million or $69 per square foot. Both buildings are 100% leased at substantially below market rents, with 75% of the leases expiring in 24 months. We anticipate an initial yield of 4.8% and a stabilized yield of 6.3% based on upside anticipated on lease renewal or releasing.

In December, the Company also acquired Ivy, a 46,000-square-foot, multitenant industrial building near LAX, for approximately $5.9 million or $129 per square foot. Property is 100% leased, and we anticipate an initial yield of 5.9% with upside expected as below-market leases expire.

In December, the Company acquired a five-building -- a five-property, rather, industrial portfolio in Oxnard, largest industrial submarket in Ventura County, containing an aggregate of 408,000 square feet for $38.7 million or approximately $95 per square foot. The portfolio is 97 -- 93% leased. And we anticipate an initial yield of 5.2% and a stabilized yield of 6.2% based on upside anticipated and lease renewal or releasing.

In December, Rexford acquired Hindry Avenue, an industrial complex located at LAX and consisting of three multitenant industrial buildings, with a total of 64,000 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 of 5.9% based on additional occupancy and upside anticipated on lease renewal or releasing.

And finally, in December, the Company acquired Convoy Court in Central San Diego County, consisting of a 13-building multitenant industrial complex, with a total of 188,000 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 releasing.

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 the first two months and currently have more than $31 million of product in escrow and another $28 million under LOI 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'll now turn the call over to Adeel.

Thank you, Howard. In my comments today, I will review our operating results. Then I will summarize on our balance sheet and recent financing transactions. And finally, I'll provide some metrics that support our outlook for 2015.

Starting with our operating results, for 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 excluded the impact of approximately $627,000 of nonrecurring 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.

For the 12 months ending December 31, 2014, Rexford Industrial reported Company share of recurring FFO of $28 million or $0.89 per fully diluted share. Recurring FFO excluded the impact of approximately $2 million of nonrecurring acquisition expenses and $585,000 of legal expenses. Including these costs, Company 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 predecessor entities 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 4.1% quarter over quarter. Same-property portfolio NOI was $8.9 million for the fourth quarter as compared with $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. Adjusting for some one-time items which benefited 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 our same property NOI was up 4.8%. Cash NOI was up 4.4% compared to 2013. Adjusting for one-time items which benefitted 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 outstanding of approximately $357.1 million. Our consolidated debt includes approximately $164.6 million of secured debt.

During the fourth quarter, our total consolidated debt increased by $87 million due to increasing the amount outstanding on our revolving credit facility, partially offset by paydown of some debt.

At December 31, 2014, our $200 million unsecured credit facility had $92.5 million outstanding. As we have stated, we intend to maintain a strong balance sheet with sufficient flexibility (inaudible) growth objective.

Subsequent to the end of the quarter, we issued 11.5 million shares in a secondary offering, raising net proceeds of $176.6 million. Proceeds were used to pay off the outstanding balance on our revolving line of credit, fund acquisitions, and for general corporate purposes.

On a pro forma basis, we have zero balance on the line and 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 a 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 our strategy [of which] we may proactively 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 acquisition 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 our first full year of Sarbanes-Oxley-related compliance expenses, noncash 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're 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'd be happy to take your questions.

(Operator Instructions). Michael Mueller, JPMorgan.

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

Hi, Mike. It's Adeel. So, this question -- so, first and foremost, I would point you to the Q4 G&A. So, if you take that G&A as reported, that essentially gets you to pretty close to our guidance for next year.

Furthermore, what I can point out, this year, in June 30th, we would breach under the -- as you recall, under the Jobs Act, we weren't required to file in the Sarbanes attestation requirement. So, we're going to breach that because of the market cap. So, that's going to naturally [further] some costs relating [from professional fees] (inaudible) things of that nature.

We had preliminarily assumed that that was going to happen a little later. But, our growth that we've been talking about clearly advanced that -- those kind of costs. Furthermore, there were some equity grants that took place in Q4 of 2014, which are going to amortize and (inaudible) into the numbers in 2015. And there's also an assumption of additional cost along that line that can potentially come in 2015.

To answer the last part of your question, I think that 2015 is a pivotal year for the Sarbanes reason that I just pointed out. I think, going forward, we will not see -- this will at least establish a base case for us, which will continue on because those costs will not be -- there will not be incremental increases in those costs in the future. So, I think this will establish a good baseline point for us going forward in 2016 and beyond.

Okay. And then when you -- .

-- I was going to say, Mike, by the way, one of the things that we think about in terms of G&A -- it's Michael, by the way -- we (inaudible) 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 to accelerate in 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 [easement] payment that we received on 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 on the books, about $190,000. So, again, that's on the positive side that the health of that one tenant did well, and we were able to reverse that. So, those are the two nonrecurring charges that we alluded to in our call and also footnoted in the supplemental.

Okay. That's it for now. Thank you.

Brendan Maiorana, Wells Fargo Securities.

Thanks. So, Adeel, I -- so, I think you mentioned the start of the year occupancy number. Did you say 92.8%? I think the two numbers in -- for the same store. So, is that an adjusted pool because I think the year-end pool 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.

Brendan, great question. And the math behind that -- so, 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 2015. So, our same-store pool is going to change from 5.2 million, as reported in the supplemental, to 6.1 million approximately. And that 92.8% represents that 6.1 million pool that we're going to present in Q1. And the guidance that we issued, 93% to 94%, relates to that exact 6.1 million pool.

Furthermore, the guidance that we issued on the NOI growth also reflects the same pool that we referred to. So, that's where the disconnecting -- that 92.8% number is not published because we're not -- we haven't reported the Q1 2015.

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

It's the stabilized.

Okay. The stabilized number. Okay. And so, how should we -- so, there's some occupancy growth. But, it's relatively modest at least from the beginning of the year. It's maybe somewhere between 20 basis points to 120 or so.

The overall number is significantly higher than that. And you've got ramp ups in the portfolio. And rent spreads have been positive on a cash basis, although they haven't been -- they haven't moved 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 up in the 5% to 7% range because that's a pretty big number relative to a modest occupancy increase?

Well, I think, naturally, the two main components are -- you've seen for about five quarters the releasing stats have been positive. So, we expect that to continue. I think the last quarter was, again, an [even] quarter from a releasing stats on a GAAP perspective and on a cash perspective.

So, we naturally that assumption. I think we've always stated the fact that our models typically assume a more conservative approach as far as what the increases are going to be. We have 3% baked into our current (inaudible) leases. And then we typically kind of go on a conservative basis from a market leasing assumption perspective.

And the last one -- the other point that's contributing to that growth is just the occupancy uptick that we (inaudible). So, those are two main areas that I can allude to that [come to those metrics].

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

Yes, so, either Michael or Howard, you guys mentioned that, if you look at the roll over the next two years, both in 2015 and 2016, 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 rent spreads are, either mark to market maybe for the whole portfolio or just maybe over the next couple of years where we think you guys can move rents as these tenants expire?

Hi. It's Howard. Yes, I think you have to look at the overall market. We've had strong rent book in really all the markets our portfolios are positioned in. And we've mentioned in the past where we felt asking rents were versus peak market levels. And we also commented that [replace] rents in our portfolio are below those asking rents.

So, we still feel that there's 10% to 15% more growth, assuming in our portfolio, before we get to what the prior peak market rents were. So, I think you're seeing the results of us pushing rents.

Just we've been talking today about some of the things that are happening since beginning of the year. We've had 100% positive rent growth in every one of the new leases and renewal transactions we've done. So, we're really seeing the benefits of this strong market playing out well in our portfolio. And you put that in combination with a lot of the value-add efforts that we've had. And we're really firing on all cylinders at this point.

Okay. So, it sounds like the rent spreads that you guys have put up over the past few quarters in the kind of 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. Yes, I think -- not obviously knowing how even the first quarter finishes out, but I can tell you already that this quarter looks pretty strong in terms of both the GAAP and the cash [base].

Okay. Go ahead. Sorry.

I was going to say, (inaudible) remember that, because we're still operating from a relatively small base of property, a given lease of a certain size can have a pretty material impact on releasing spreads during any given period or quarter. But, I think what captures our general expectations 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 caused occupancy to drop about 500 basis points, or is that -- there might've just been a (inaudible) that I'd forgotten about?

Well, first of all, the portfolio size in that market is not large. So, we had a 28,000 square vacancy that occurred that weighed on the overall portfolio occupancy as well as the sale of two of the JV properties we had, which were 732,000 square feet, which would've weighed in a little bit in terms of our overall portfolio occupancy as well.

Sure. Okay. All right. Thanks, guys.

Omotayo Okusanya, Jefferies.

Yes, good evening, everyone, or good afternoon over there in LA. In regards to the guidance, again, I think you gave us most of the key drivers. But, then I noticed you didn't provide an actual per share number. Is that because you're still generally trying to figure out capital structure in 2015, given some of the news around Fitch and possibly you doing something in the debt market?

Hi. This is Adeel, Tayo. So, you're right. That's just a maturation process in our organization. I think, each quarter, you've noticed that we've taken additional steps to provide more guidance. And I think that you're absolutely right about that. Our capital structure is (inaudible) Fitch.

So, I think, hopefully, once we go further into the year, we can shore up some of that guidance. So, yes, your point is absolutely correct. I think that's primarily the reason. But, we wanted to give you at least the key variables, the key building blocks to be able to come to some terms as to what that number might look like. But, as we move forward, we can -- we'll certainly be looking forward to providing additional guidance on that side.

Got it.

And we're growing from a relatively small base. The type of acquisition volume that we're seeing is -- essentially, it's the challenge associated with that. And then you blend in your point with the capital structure. But, as Adeel said, we are working towards refining 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've reached out to Moody's (inaudible) and I think we naturally could pair that with our size as well. I think Fitch was a great opportunity for us to pursue. Naturally, there's a cost impact (inaudible). And I think Michael and Howard both realize and pointed out the fact our size of the Company. So, we want to make sure that we [carefully] match the cost aspect of getting a rating size with our current size and where we are in our lifecycle.

So, we've had preliminary conversations with one of the rating agencies. And I think we'll continue to evaluate. I think we have some (inaudible) as to what we can do with the Fitch rating. And we will certainly push on all cylinders to achieve what we need to achieve by expanding our capital stack and adding a little bit more (inaudible) our capital stack a little bit here. But, I think we will be looking at that as we reach out a little bit further (inaudible).

Good. I appreciate that. Just one more, and then I'll hop back in the queue. Again, the guidance of $250 million or more, again, I'm kind of looking for some color on the or more, just given you did almost $400 million in 2014.

Hi, Tayo. It's Howard. It's a little early in the year to really tell you anything more than we're expecting $250 million or more. You can certainly make some projections based on what's lined up already in the first quarter. We've closed $31 million. We've got another $59 million that's under contract or NOI.

But, acquisitions are lumpy. And it's hard to project much further than where we're at today. And as you might recall, last year, we upgraded our guidance really in the midpoint of the year. So, this and every time during the cycle, we're highly selective in 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). Omotayo Okusanya, Jefferies.

That's good. Just two quick ones, again, from me. The new leases that were signed during the quarter, cash rents being down (inaudible) basis points, again, just kind of curious what drove that.

It was really just one transaction in San Diego. It was a 15,000-foot lease on a space that had been vacant for a while. It was actually a [tougher] space in a project in Carlsbad. And that had a 20% decline in the cash rent spread.

Okay. And so, if you excluded that -- .

-- Yes, if you had excluded that, your cash spread would've increased 0.3%. And then your GAAP spread would've been 13.3%. So, kind of on a normal basis as 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'm not sure whether it was Howard who mentioned this, but I just wanted to confirm that there was some concern about seeing additional new supply in 2015 in your key markets. Did I hear that right?

No, in fact, we've seen a decline in supply.

That's what I thought.

(inaudible) market (inaudible) end of the third quarter to the end of the fourth quarter, the vacancy declined by 50% in the market. It closed at 1.7. So, if anything, there's more and more pressure that we're seeing out there for rents to increase, as we're having tenants competing for space.

And, Tayo, this is Michael. One additional thought, it's not just about available space. It's actually about available properties because, since 2001 alone, we've seen well over 30 million square feet of product taken out of our markets.

(inaudible) yes.

That's the beauty of these infill markets where product, if anything, is being taken out of the market as it gets converted to other uses. We see dramatically substantial increase in demand, yet supply is scarce and diminishing.

Sounds good to me.

Thank you.

That concludes today's question-and-answer session. And I'd 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.