Rexford Industrial Realty's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.13.14 | About: Rexford Industrial (REXR)

Rexford Industrial Realty, Inc. (NYSE:REXR)

Q4 2013 Earnings Conference Call

March 13, 2014 5:00 PM ET

Executives

Steve Swett – IR

Michael Frankel – Co-CEO

Howard Schwimmer – Co-CEO

Adeel Khan – CFO

Analysts

Michael Mueller – JPMorgan

Blaine Heck – Wells Fargo Securities

Nikhil Bhalla – FBR

Operator

Greetings and welcome to the Rexford Industrial Realty Inc. Fourth Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions).

I’ll now like to turn the conference over to your host, Steve Swett of ICR. Thank you, you may now begin.

Steve Swett

Good afternoon. We would like to thank you for joining us for Rexford Industrial’s fourth quarter 2013 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, made, plans, projects, seeks, should, will and variations of such words or similar expressions.

Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income or financial guidance. As a reminder, forward-looking statements represent management’s current estimates.

Rexford Industrial assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company’s filings with the SEC. In addition, certain of the financial information presented on this call represents non-GAAP financial measures.

The company’s earnings release and supplemental information package which were released this afternoon are available on the company’s website present reconciliations to the appropriate GAAP measures and explain 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 up the call to your questions.

Now I will turn the call over to Michael.

Michael Frankel

Thank you and welcome to Rexford Industrial’s fourth quarter 2013 earnings conference call. I will begin with a brief summary of our operating and financial results for the fourth quarter and full year 2013. 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 financial results and an update on our balance sheet and some color on our outlook for 2014.

Let me begin by stating that 2013 was a very productive year for Rexford. We recorded strong results within our portfolio with substantial leasing volumes, significant gains in lease percentage and occupancy and double-digit growth in our same-store NOI.

We acquired approximately 1.7 million square feet of properties for $157.5 million representing a 37% increase in our portfolio by square footage. We also completed our IPO and formation transactions in July, which provides Rexford with an enhanced capital structure to support the execution of our growth initiative.

While we have spoken to many of you over the past year, it’s worthwhile to provide a quick overview of Rexford and what makes us so excited about our unique opportunities. Rexford Industrial is the only pure play publicly traded industrial REIT focused solely on Southern California, the largest most diverse industrial market in the nation.

In addition, Southern California combines a unique blend of strong underlying long-term drivers of increasing industrial tenant demand. These drivers include the nation’s largest and growing regional population and consumption base with the nation’s largest and most diverse base of distribution and manufacturing driven businesses, the nation’s two busiest ports of LA and Long Beach, and the increasing movement of goods locally driven by an increasing share of consumer and business transactions taking place via eCommerce.

Our target infill fed markets have historically demonstrated amongst the highest occupancy and highest rental rates in the nation, with significant land and economic constraints limiting the introduction of new industrial supplies for lease, we believe Rexford is uniquely positioned to capture strong and sustainable internal growth and cash flow and valuation over time.

Further, in a highly fragmented infill markets, our external growth prospects are substantial. With our decades of experience, our relationship, unique origination methods and exclusive Southern California focus, augmented now with our flexible public company capital structure, we expect to source and close attractive acquisitions on a steady pace.

Our recent activity is indicative, as we have increased the square footage of our underlying portfolio by 24% in only 8 months since our IPO, with the pace of acquisitions accelerating over the more recent four months.

Turning to our fourth quarter 2013 operations, our portfolio continues to perform well. As we reported in our operations update in late February, our total consolidated portfolio was 89.7% occupied at the end of the fourth quarter. Occupancy on the same property portfolio basis was 89.3% at year-end, an increase of 300 basis points compared to the fourth quarter of 2012.

On a same property basis, we generated a 10% increase in fourth quarter revenue as compared to the prior year period, which was driven primarily by a combination of increased occupancy and positive re-leasing spreads.

Same property portfolio NOI increased 7% year-over-year. On a cash basis, our same property portfolio NOI was up 15% year-over-year. With regard to leasing for the consolidated portfolio, we signed 91 leases accounting for approximately 386,000 square feet during the fourth quarter, including 38 new leases and 53 renewals.

For the full year of 2013, we leased nearly 2 million square feet which represents nearly one third of our entire consolidated portfolio, and we achieved over 454,000 square feet net positive absorption representing 7.2% of our portfolio. These accomplishments are a testament to the high quality of our properties, their superior locations and the hard work of our entire Rexford leasing and asset management team.

Along with continued improvement in lease percentage and occupancy, we continue to see signs of strengthening fundamentals across our infill markets as evidenced by our positive re-leasing spread. For our new and renewal leases combined, in the fourth quarter 2013, we recorded average GAAP rental rate increases of 12.9% and cash rental rate increases of 3.5%.

Our cash rental spreads for new leases as opposed to renewals was 4.5%. These positive rental spreads confirm our comments last year with the momentum we have seen in GAAP leasing spreads was a leading indicator of an inflexion point in the cash spread, which have now turned positive.

Further with over 20% of leases rolling in each of the next two years, we see a substantial opportunity to roll relatively low recessionary in-place rents to higher levels in the near to medium term.

While we expect the positive momentum, we are seeing across our portfolio to continue through 2014, our short-term quarterly metrics may experience the degree of variation, as we see our landlord pricing power recovering, we may selectively move or remove some tenants as lease is rolled in order to achieve higher rents by re-tenanting or by executing on value-add repositioning opportunities.

Due to the relatively small size of our portfolio, execution of these strategies may impact monthly or quarterly occupancy numbers on a short-term basis. However, these strategies are also expected to deliver accretive, near and longer term impact to our cash flow and asset value. These efforts reflect unique opportunities associated with our Southern California inter-locations and smaller mid-sized multi-tenant focus to create incremental long-term value and cash flow growth for shareholders.

Moving on, we are pleased to announce earlier this month that Peter Schwab was elected as a new Independent Director on our board. Peter brings a wealth of experience to Rexford, particularly with respect to financing and corporate management and compliments the significant experience and expertise of our current board members. We look forward to Peter’s contributions as we continue to execute our strategies to refine and grow our operating platform going forward.

Overall, and I believe I speak for Howard and our entire management team, we were extremely pleased with our results in the fourth quarter of 2013, and believe we are exceptionally well positioned to continue to execute our growth and capital strategies as we move forward in 2014 and beyond.

With that, I’ll turn the call over to Howard.

Howard Schwimmer

Thank you, Michael, and thank you everyone for joining us today. I will update you on our markets and review our recent transactions which continue to run at an active pace into 2014.

Beginning with an update on markets. Fundamentals of our core Southern California infill industrial markets continue to improve. We’re seeing strength in virtually every sub market in which we operate, growing demand for space and increasing pricing power for well located and functional industrial properties like Rexford.

In the Los Angeles County, overall vacancy remained extremely tight for the fourth quarter at 2.1% accordingly to CBRE. Absorption remains solid and asking rents were up 10% year-over-year. In Orange County, net absorption was very strong for the full year 2013 at 1.8 million square feet. Asking rents were up 5% in the past 12 months and with further declines in availability, CBRE is forecasting an acceleration in asking rents in Orange County in 2014.

San Diego County also continues to show rapid improvement with more than 600,000 square feet of net absorption in the fourth quarter which was the 10th straight quarter of positive net absorption. As availability has trended lower, CBRE estimated that San Diego asking rents were up 16% in the past year. As a reminder, Rexford’s primary focus is the 1.6 billion square-foot Southern California infill market, which is distinguished from the Eastern Inland Empire, non-infill big box market.

The broadcast is generally more tempered going forward for the big box, non-infill markets that are not Rexford’s focus, while rental rates have largely recovered to near peak levels and where increases in development have occurred and are expected to continue.

Our results confirm many of these trends, and we believe we are particularly well positioned within our infill portfolio to capture the benefits of this market strength that drive rent growth on a sustainable basis.

With our occupancy rates still below market occupancy due to our redevelopment and repositioning activities, which are now largely in a lease-up stage, we are able to capitalize upon the general mark on availability to drive rent growth and increasing cash flow within our portfolio.

With asking rents still substantially below our peak rents, 14% below peak in Los Angeles County, 15% below peak in Orange County and 8% below peak in San Diego County according to CBRE. We see a substantial runway ahead of us in terms of our ability to raise rents.

Due to the scarcity of supply, with the inability to introduce competing products for lease in our high barrier markets and in a phase of increasing long-term senate demand, our infill markets represent a virtual pressure cooker out of rents, which is driving sustained rate increases into future periods.

Moving on to our transaction activity, in 2013, we closed $157.5 million in acquisitions, representing 1.7 million square feet. And in the 8 months, since our IPO we’ve acquired $112.8 million of property, representing a 24% increase on square foot of our own portfolio.

We are pleased with the number of deals we closed in the fourth quarter and the pace has continued into the early part of 2014. Since the start of the fourth quarter, we acquired 10 properties for $98.8 million.

Let me provide a little color on these transactions to give you a flavor for the types of opportunities we’re able to acquire given our competitive advantages with new market relationships, strong capital structure and unique sourcing methodologies. Majority of these acquisitions have been sourced off-market or through really lightly marketed transactions, which are enabling investments with above market stabilized yields.

In November, we acquired Yorba Linda Business Park, a 115,000 square-foot Orange County Industrial Park for $12.7 million or about $110 per square-foot. This fore building complex was 79% occupied and to drive lease up, we planned to selective remove excess office space to enhance industrial functionality and marketability of vacant spaces, to capture a stabilized yield and cost in the 7% range.

In November, we also purchased Park, a six building industrial park in Anaheim for $10.6 million or about $88 a square-foot. The project was 85% occupied at the time of acquisition and through selected demolishing spaces, renovation and lease-up, we expect to achieve a stabilized yield in the high-7% to 8% or low-8% range.

In December, we acquired Bonita Thompson, the $27.2 million or about $74 per square-foot, located in the San Gabriel valley, Bonita Thompson consists of two 24-foot clear height, single-tenant distribution buildings or 52 dock-high loading positions. The buildings are currently 100% occupied with the potential to demolish after lease explorations.

We expect to achieve a stabilized yield in the high 6% range. In December, we purchased Madera, a 200,000 square-foot industrial and office property located in Simi Valley for $15.8 million or about $79 per square foot. Industrial building had a 10-year sale lease-back and upon sale of the vacant office building, which is currently in escrow, our yield is projected in the 7% range.

In December, we also acquired Vanowen, a 31,000 square-foot industrial building located in the San Fernando Valley for $3.4 million or about $110 per square-foot. The property was 100% leased to four tenants, and after cosmetic improvements to enhance market rental values, is projected to stabilize at an yield in the 7% range.

Subsequent to the year-end and through February, we acquired four additional properties totaling approximately 352,000 square feet for an aggregate cost of $29.1 million.

In January, we acquired Rosecrans, a 72,000 square foot industrial building located in the South Bay submarket for $5.0 million or about $70 per square foot. The seller is consolidating into half of the building under a five year lease-back, enabling value-add improvements to modernize and demolish the building to increase its rental value. We expect to achieve a stabilized yield in the mid-7% range.

In January, we purchased Oxnard Street, located in Van Nuys, for $8.9 million, or $114 per square foot. The six-building Business Park is currently 98% occupied and we plan aesthetic and modernization improvements which we expect to facilitate accelerated rent growth. We expect stabilized yields in the 7% range.

In February, we acquired Ontario Airport Business Park, a five-building multi-tenant complex or $8.6 million or about $75 per square foot. The project is currently 95% occupied at rents which we believe are well below market. Upon expected re-leasing and to our renewals, we expect a stabilized return in the low to mid 7% range.

And finally, in February, the company acquired 228 Street, a six-building 88,000 square foot industrial complex located within the South Bay submarket for $6 million or about $75 a square foot. While the property is 100% occupied, value-add improvements are planned to modernize and enhance functionality to enable substantially higher market rents, which we expect to support stabilized yield at over 8%.

The last two acquisitions were partially funded through a tax-efficient exchange giving proceeds from the sale of Kaiser, a 125,000 square foot industrial property in San Diego, which was sold in January for $10.1 million.

Looking ahead, we have visibility towards a substantial pipeline of additional opportunities. With our comprehensive sourcing methodologies and deep market relationships, we continue to believe we are uniquely positioned to mine accretive opportunities within our target markets. We remain comfortable with a full-year acquisition goal of $200 million or more of new investments.

I’ll now turn the call over to Adeel, to discuss our fourth quarter results, balance sheet and financing activity.

Adeel Khan

Thank you, Howard. In my comments today, I will first review our operating results then I will review our balance sheet and recent financing transactions. And finally I will provide some comments on our outlook for 2014.

Starting with our operating results. With the three months ending December 31, 2013, Rexford Industrial reported company shared FFO of $4.3 million or $0.17 per fully diluted share. This was our first full quarter as a public company and per share earnings and FFO comparison to any period prior to July 2013, includes results from predecessor entities and may not be comparable to the current quarter’s result.

For the fourth quarter 2013, our results include the impact of increases in portfolio occupancy and positive re-leasing spreads. In addition, there is the impact of acquisitions completed during the fourth quarter, combined with the full quarter effect of acquisitions completed during the third quarter of 2013.

On a same property basis, we generated a 10% increase in fourth quarter revenue as compared to the prior year period. Same property operating expenses increased 17% primarily driven by higher organized allocations and higher repair and maintenance costs associated with the substantial growth of our portfolio, as well as relative increase in property taxes due to refunds booked in the comparable quarter.

Same property portfolio NOI increased 7% year-over-year and on a cash basis, on our same property portfolio NOI was up 15% year-over-year.

Turning now to our balance sheet and financing activities. At December 31, Rexford Industrial had total consolidated debts outstanding of approximately $192.6 million. Our consolidated debt includes approximately $111.2 million of secured property debt. Most of this debt is variable rate financing with an average current interest rate of 2.2%.

In order to fix a portion of this variable rate debt, the recently executed two former interest rate swaps, effectively fixed the interest rate on our $60 million term loan. The swaps include 30 million of swaps with a former start date in approximately 12 months and 30 million of swaps with a former start date in approximately 18 months. Respective fixed rate of 3.726% and 3.91% and both have terms through February of 2019.

Our $200 million unsecured credit facility had about $81.4 million at the end of the fourth quarter. And on a pro forma basis, including funding for the acquisition, subsequent to the year-end, balanced today at $100.9 million.

As a reminder, our unsecured revolving credit facility has in according features that allows the company to increase the capacity to $400 million subject to certain requirements.

We believe our balance sheet continues to remain at significant point of strength for the company, the pro forma debt to market capital position of 38% and approximately $99 million of current capacity including cash and immediate availability on our revolving line of credit plus an additional $200 million available through our line of credit accordingly.

Going forward, we expect to maintain a strong balance sheet with ample capacity to support our growth strategies.

Moving on, I’d like to provide some color on our outlook for 2014. During 2014, we will continue to execute on our internal and external growth strategies. On our current portfolio, we’re projecting year-end 2014 occupancy of about 92.5% to 93.5%. And we anticipate acquisitions for the full year of $200 million or more.

For G&A, we anticipate a full year expense of $10 million to $11 million, we’re also comfortable with the expectations that has increased our net asset value for internal and external growth over-time, our net asset value growth will generally outpace our G&A growth, enabling higher margins in the medium to long-term.

As we move through the year, we look forward to updating our outlook and we will continually look at providing additional disclosure over time.

With that, we’ll open the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Michael Mueller from JPMorgan.

Michael Mueller – JPMorgan

Hi, few questions. First of all, what was the same-store sequential increase from Q3 for occupancy?

Michael Frankel

3%.

Michael Mueller – JPMorgan

Well, that’s for your year right, so, looking from September 30 to 12/31?

Michael Frankel

Just give us a second here. The same-store at the end of Q3 was 87.3%.

Michael Mueller – JPMorgan

Okay.

Michael Frankel

So, we’re going to roll for you on the supplemental that shows you how the transfer mix change from September 30, to December 31.

Michael Mueller – JPMorgan

Got it, okay. For – what are you expecting in terms of 2014 rent spreads, looks like you ended the year with cash spreads up at around 3% to 4%, what’s the outlook for ‘14?

Howard Schwimmer

Hi, Michael, it’s Howard. I think going forward, we’re very confident that this is not a one-time occurrence in terms of those rent spreads. We think it’s going to continue on to the future. When you look at our markets today, we have very vacancy as we pointed out.

And we’re very supply constraint so things are really shifting over to the landlord side. And we find that we’re really able to push on rents. I’ll give you a great example, we have a project in city of industry, we have a tenant there occupying two spaces therein like a total of about 26,000 square feet, and they’re paying us about $0.55 a square foot.

They want to stay but they want us to extend the lease at the current rates. We just leased the space next door to it, it’s over $0.70 a square foot. You do a math on that it’s not a 3% or 4% increase in the cash we anticipated, it’s very significant. So, our portfolio as you recall also we were doing some shorter term leases through the recession. So we have the opportunity to capture increasing rents fairly rapidly. And so we’re in a great runway over the next couple of years to really move up rents in existing portfolio.

Michael Mueller – JPMorgan

Okay. Over the near term for this year though, do you think it’s substantially more than that 3% to 4% number?

Howard Schwimmer

I think that we’re pretty comfortable in that range. It’s a little early in the year, start telling you that it’s going to be significantly greater, yeah, probably in the 6% or 7% range I would expect for the year.

Michael Mueller – JPMorgan

Okay. And last question, I guess, with the acquisition target or goal of about $200 million, $200 million plus, can you talk a little bit about the financing plan for that, what do you envision?

Adeel Khan

Sure, Mike, this is Adeel. I think the key thing to keep in mind here on the balance sheet continues to be our strong audacity. It’s really well positioned for us and I think we’re going to use the line of credit to the best resource – that’s the best resource that we have available right now and we’re going to continue to use that as we need in future.

And as we move further into our acquisition spread, we’ll continue to entertain other capital strategies and other ideas as we move further keeping in mind the balance sheet is being so strong right, now, we’re going to keep that all within the background. And to make sure that stays significant expense for us as a company.

Michael Mueller – JPMorgan

Okay, thanks.

Operator

Thank you. Our next question comes from Jamie Feldman from Bank of America.

Unidentified Analyst

Hi guys, this is actually Steven with Jamie Feldman. I have a couple of questions. I guess, the first, I missed the capacity you guys talked about. Adeel, could you repeat that?

Adeel Khan

Sure. The capacity currently is, we’re at pro forma basis, $101 million. So, I just talked at the $200 million its $99 million available. But you got to keep in mind we have another $200 million recording. So that’s another level that you need to consider into the equation.

Unidentified Analyst

Okay, thank you. And then the other question I had, in terms of the acquisition outlook for $200 million, what are you envisioning in terms of the mix of value add versus core in your acquisition. Can you get any closer to what you guys have been doing so far in 2014 and then in terms of competition, on those acquisitions, are you starting to see any sort of creep like from any other players or anything like that? Thank you.

Howard Schwimmer

Sure. Hi, Steven, it’s Howard. And that’s a great question on the acquisitions. And I think this quarter we’re reporting on a significant volume in transactions and I try to get into more detail to give you a flavor of really the – the way we looked at those deals. And for the most part you see they were predominantly had some former value-add occurring in them.

In terms of our modeling, we model about 50% of our acquisition to be what we’d call core plus which does involve a lot of time, some light amount of value add, 25% of the acquisitions would be true value-add and then 25% being core type acquisitions.

And as far as our competition, it’s still the one-off individual buyer, the family office. And typically there are other smaller companies that just – they don’t have the same capitalization and market penetration as Rexford does.

But I think what you’re really asking is do we see our public peers in these deals. And we – if we go after something that’s actively marketed – sure we’ll see some of them. But it’s important to point out that over half the deals that we buy are out-market transactions where we really see our peers competing on with us.

Unidentified Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from Blaine Heck from Wells Fargo Securities.

Blaine Heck – Wells Fargo Securities

Thanks, good afternoon. Adeel, just following up on the balance sheet questions. On my numbers including the $29.1 million of acquisitions, you guys have done thus far put leverage at about 36% on our debt to gross asset value basis. What are the kinds of target leverage levels you guys are looking at, at this point? And how much capacity do you think it gives you before getting to kind of the upper end of the range?

Michael Frankel

That’s a great question. And I think the one thing that we have to keep in mind here again as a small company, our leverage ratio is naturally going to bounce around a little bit. And I think over the course of the next year or so, I think line of credit is again, it’s a great resource for us. And I think we have significant runway within that.

And I think so that leverage ratio will fluctuate but over the course of a long-term, if you trade across section, we’d like to be at about 40% but just 40% or lower. But the key thing in mind is, based on our size that can bounce around from quarter to quarter.

Blaine Heck – Wells Fargo Securities

Sure, okay. And then, sure, after considering some of the swaps you have in place or coming end to the place pretty soon here, the company still lands around 65% of its debt floating. Is that a percentage you guys are going to look to decrease overtime or you comfortable with that at this point?

Adeel Khan

No, absolutely. I think just on a pro forma basis, if you take the current swaps that what would be about 34% fixed when the swaps kick-in next year. And we’ll continue to monitor that percentage, fixed versus variable as we go further and look for opportunities to move that percentage to more on the fixed side, as the opportunity presents itself.

Blaine Heck – Wells Fargo Securities

Okay. I mean, acquisition side, have you guys been able to fund any deals using OP units and does that seem like it will be kind of a viable source of funding going forward?

Howard Schwimmer

We look at it as a tremendous opportunity. And we’ve engaged with many, many parties in those discussions already. I think that’s more of a long-term conversation. Keep in mind, many of these people are families that have only – these buildings for decades and are now starting to think about their state planning and transitions. But we think it’s going to be something that proves out to be very accretive for us.

Michael Frankel

And hi Blaine, it’s Michael. I’ll just add one thing to that that it’s the powerful aspect of having that OP unit contribution structure, now we have a public currency in our stock. It’s very powerful because it’s a huge catalyst to initiate dialog with a lot of these owners, own a substantial amount of product in our markets.

And frankly many of those may not end up being OP transactions in the contribution basis the ones are being cash failed purchases. But it will have been the OP transaction opportunity that initiated the dialog. So, it’s a great opener and we have numerous of those discussions ongoing.

Blaine Heck – Wells Fargo Securities

Okay, great. And then last one from me. It looks like you guys have the office building on Madera Road up for sale. Can you comment on how prolonged that process and maybe possible pricing? And then, are there any other targeted dispositions at this point?

Michael Frankel

I was hoping someone would ask that question. We closed escrow now (inaudible) this morning.

Blaine Heck – Wells Fargo Securities

Okay.

Michael Frankel

So that was our plan on that asset, we really wanted to get to this very high quality industrial business with a 10-year sale lease back. But in order to accomplish that we had to take on this office building. And we were able to underwrite the office building at a very low price so that we knew it would be easy to sell it. And we proved ourselves right, we sold that literally what was it, 45 days or not even that since we closed that transaction. And I’m sorry, what was the other part of your question?

Blaine Heck – Wells Fargo Securities

Just, is there any other kind of targeted dispositions at this point?

Michael Frankel

We don’t really have anything that we’re targeting, that’s not to say that something could come along or made an offer on a building that we can’t refuse to sell at present time we’re not actively targeting anything else.

Blaine Heck – Wells Fargo Securities

Okay, great. Thanks.

Operator

Thank you. (Operator Instructions). Our next question comes from Nikhil Bhalla from FBR.

Nikhil Bhalla – FBR

Hi, good afternoon everyone. Just a question on San Diego, so if I look at the occupancy trends in your supplement as your – looks like every one of your market saw a pretty robust sort of improvement over the third quarter with the exception of San Diego, that was down about 100 basis points. Any color on why that maybe the case?

Howard Schwimmer

Yes, sure, Nikhil, it’s Howard. Really that decline in San Diego is attributed to one property. We had a shorter term tenant, sort of someone else put in place in a property on Yorba Drive that exhibits 46,000 square feet. And what’s interesting is we have them in there, this is a classic case we had a recessionary rent-in. And it’s a very good space. And we have multiple parties looking at it, so we expect to be able to achieve a very positive spirit in terms of the GAAP and as well as the cash spread on terms of the leasing.

And overall, we are seeing some pretty significant improvement in San Diego. We have another building there that was in a business park about 17,000 square feet. We had a shorter term tenant in that. We actually leased the building and had to exit that tenant. And I think we have moved the rent from like $0.30 well into the $0.50 range on that space. So, we are seeing those improvements and just as we pointed out in our earlier comments, activity is grade of improving that.

Nikhil Bhalla – FBR

Got it. And just on some expenses here, Adeel, this question is for you. The SG&A expenses, I mean, if you were to think about a run-rate, what you had in the fourth quarter, is that a good run-rate to use or do you think it would be a little bit higher going forward?

Adeel Khan

Well, I think as we stated in the – in our comments earlier, on the low end it’s about $10 million, on a high end it’s about $11 million. Again, the only thing that I add into that is that with the increased cost related to growth in our portfolio and some four-year cost, the answer is somewhere in the middle.

But I think what you saw in the quarter is essentially what you’re going to see from the low-end of our range. But the range is $10 million to $11 million for the year.

Nikhil Bhalla – FBR

Okay, and one other question on, just other expenses below the DNA line. Could you just explain what all is included in that?

Adeel Khan

Right, I can explain that, this is Adeel again. Essentially, it’s the allocation for the management of those properties, overhead allocations and things of that nature. And we have separated it out. We might combine that in the future but that’s essentially what goes through that line item.

Nikhil Bhalla – FBR

And is that the good run-rate to use for future quarters?

Adeel Khan

Yes, that’s correct.

Nikhil Bhalla – FBR

Okay, great. Thank you so much.

Operator

Thank you. At this time we have no further questions. And we’d like to turn the call back over to our speakers for closing comments.

Michael Frankel

Well, thank you operator. And thank everybody again for joining us today. We appreciate your interest in Rexford Industrial. And we look forward to speaking with you again after the first quarter.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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