Feb 20, 2014
Executives
Gabriela Reyes – IR Wilson Eglin – President and CEO Patrick Carroll – EVP, CFO and Treasurer
Analysts
Sheila McGrath – Evercore Partners Craig Mailman – KeyBanc Capital Markets, Inc. Yasmine Kamaruddin – J.
P. Morgan John Guinee – Stifel, Nicolaus & Co., Inc.
Todd Schneider – Wells Fargo William Segal – Development Associate Incorporated
Operator
Good morning and welcome to the Lexington Realty Trust’s Fourth Quarter 2013 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.
Today’s conference is being recorded. It is now my pleasure to turn the floor over to your host for today Ms.
Gabby Reyes, Investor Relations for Lexington Realty Trust. Please go ahead, ma’am.
Gabriela Reyes
Hi, and welcome to the Lexington Reality Trust fourth quarter 2013 conference call. The earnings press release was distributed over the wire this morning and the release and supplemental disclosure package will be furnished on a Form 8-K.
In the press release and supplemental disclosure package, Lexington has reconciled all historical non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available on Lexington’s website at www.lxp.com in the Investor Relations section.
Additionally, we are hosting a live webcast of today’s call, which you can access in the same section. At this time, we’d like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Although Lexington believes expectations reflected in any forward-looking statements are based on reasonable assumptions, Lexington can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in today’s press release and from time-to-time in Lexington’s filings with the SEC and includes the successful confirmation of any of lease, acquisition, build-to-suit financing or other transactions or the final terms of any such transaction.
Lexington does not undertake a duty to update any forward-looking statements. Joining me today from management are Will Eglin, Chief Executive Officer; Robert Roskind, Chairman; Rick Rouse, Chief Investment Officer; Patrick Carroll, Chief Financial Officer, and other members of management.
Wilson Eglin
Thank you, Gabby and welcome everyone and thank you for joining the call today. As always I would like to begin our operating results and accomplishment for the quarter.
For the fourth quarter 2013 our company’s funds from operations as adjusted were $0.28 per share, a 12% increase compared to the prior year, primarily driven by strong investment activity and interest savings that we captured throughout the year with our refinancing activity. In 2013, we invested $717.6 million, lowered our weighted average cost per debt financing by approximately 70 basis points through 5.4% to 4.7%, and executed leases totaling 5.7 million square feet and in the year 97.6% lease for the balance roll over schedule.
These accomplishments are reflected in the guidance we announced today for Company’s funds from operations per share of $1.11 to $1.15 for 2014 which represent growth of 9% to 13% over 2013. Looking more closely at our results, the fourth quarter featured strong execution on the investment front with the total $428.9 million put to work which consisted of $19.9 million invested active build-to-suit projects, $362.2 million in acquisition, $39.4 million in financing and the completion of a build-to-suit project totaling $7.4 million.
In addition, we placed one build-to-suit project of a contract for a commitment of $12.8 million during the fourth quarter. Subsequent to quarter end we completed the $42.6 million industrial build-to-suit for Easton Bell Sports, purchased a newly constructed office property subject to a 19 year lease for $13.9 million and entered into a forward commitment to acquire build-to-suit office property for $40 million.
We are building our pipeline for 2014 and 2015, and at this point we believe build-to-suit funding will total about $200 million to $225 million in 2014 based on current transaction activity. In addition, we believe we have an additional $100 million to $125 million of good prospect that we are working on for purchase.
Accordingly our current forecast for 2014 property investment activity is $300 million to $350 million. Cap rates on four double suit pipeline average about 7.3% on a cash basis and 8.8% on GAAP basis.
In addition to our portfolio of long term leases with escalating rent continuous to be a priority for us in order to further strengthened our cash flows, extend our weighted average in lease term, further balance our lease expiration schedule, reduce the average age of our portfolio and support our dividend growth objectives. We also continue to make progress on capital recycling in the fourth quarter.
Turning $46.8 million more of non-core assets from the portfolio bringing our total dispositions for the year to $167.3 million. We continue to refocus on dispositions from a strategic perspective augmenting the transformation of our portfolio and providing cost effective capital to support investment activity.
Our current expectations for 2014 are that disposition activity will roughly equal investment activity with our focus on multi -tenant and some single-tenant office sales. As we look ad dispositions going forward, one of our objectives is to achieve better balance between office and industrial revenue in the part of our portfolio that has lease term shorter than 10 years.
Recently the office versus industrial mix in this part of our portfolio has been about three to one and we would like to manage this ratio down to about two to one over the next several year. The targeted sale of certain office building will speed this transition and make our portfolio less capital intensive to manage.
Further about $275 million of our current pipeline are industrial build-to-suit or sale lease backs. Going forward we plan to activity manage our long-term lease portfolio by selling certain office properties while allowing most industrial properties to migrate into the portion of our portfolio which has lease term less than shorter than 10 years.
With regard to our leasing we continue to achieve a steady pace of activity. In the fourth quarter of 2013 we executed 471,000 square feet of new leases and lease extension.
During the quarter we had 309,000 square feet of leases which expired and were not renewed. Overall, in the quarter we extended 11 leases with annual gap rent of $2.7 million which is flat compared to the previous rent and cash rate declined about 10% on renewals.
Our same property net operating income increased 4.2% in the quarter partly reflecting a fact that about half of our portfolio now has annual rent escalation. As we execute our acquisition and capital recycling strategy, we expect that our portfolio is likely to contain greater and greater numbers of leases with annual or other rent increases.
Looking ahead, we currently have 3.3 million square feet space subject to lease that expire through 2014 or which are currently vacant. We believe that through the end of this year we can address 1.5 to 1.9 million square feet of such expiring or vacant square footage through extensions and disposition, with disposition representing about 50% of the activity.
We expect to incur $0.12 to $0.14 per diluted share in leasing related expenditures in 2014, a short decline from 2013 when these expenditures totaled $51.3 million or $0.23 per diluted share. Included in our forecast is the sale of vacant office properties totaling up to approximately $93.5 million representing a disposition value of approximately $140 per square foot.
While the suburban office class continues to have challenges we believe that they can building values have roughly doubled over the last several year. As a result of our leasing activity and new investments for the quarter we generated 35.1% of our revenue from leases of 10 years or longer.
Our goal continues to be derive at least half our revenue from leases 10 years or longer providing additional cash flow visibility and expect to make dramatic progress in 2014 through a combination of capital recycling and new investments. Our single-tenant lease rollover through 2018 has been reduced to 36.9% of revenue from 44.7% at quarter end a year ago and we no longer have concentrated risk of least rollover in one year.
By any measure we have made good progress in managing down our shorter term leases and extending our weighted average lease term which is now approximately 11 years. Each of these metrics is an important measure of cash flow stability and we will continue to focus on further improvement.
The composition of our balance sheet improved dramatically last year and we have included details in our supplemental disclosure package on page 23 showing our improving credit metrics. In the fourth quarter of 2013, we completed $213.5 million mortgage financing secured by our New York City land purchase with a term of 13 years and fixed rate of 4.66%.
We also drew $87 million under our five year term loan and swapped into a current fixed rate of 2.64%. Subsequent to quarter we drew the remaining $99 million of availability on this loan facility and swapped into a current fixed rate of 2.51% using the proceeds to fully retire amount outstanding on our revolving credit facility.
While our secured debt increases in the fourth quarter, our objective remain to lower secured debt to 20% or less of our gross assets. We expect to continue to retire mortgages as they mature and unencumbered assets with the goal of having about 65% to 70% of our assets unencumbered.
Dispositions that we are working on unencumbered by about $120 million of mortgage debt and we have other mortgage maturities on wholly-owned properties totaling approximately $206.1 million in 2014 and 2015 at a weighted-average interest rate of approximately 5.5%. We expect these maturities to be addressed through re-financings which provide a continuing opportunity to further lower our financing costs and unencumbered assets which we expect will improve our cash flow, financial flexibility and credit metrics.
While we continue to unencumbered assets, from time to time we may continue to access secured financing when we believe it is advantageous to do so particularly if financing for terms longer than 10 years is available, will monetizes the remaining revenue from the assets such as in a credit tenant lease financing. As a result of our prudent balance sheet management, we believe the Company today has substantial financial flexibility with approximately $400 million of current availability under its revolving credit facility.
Last year our weighted-average cost of debt was reduced by 70 basis points to 4.7% and our weighted average maturity has increased to seven years from five and half a year ago. We continue to believe the current rates on long-term financing remain quite attractive and that there is great value in locking in fixed rate for long-term debt.
In summary, it was a great year for Lexington and our achievements position the Company for strong 2014. We remain committed to our strategy of enhancing our cash flow growth and stability, growing our portfolio with attractive long-term lease investments and maintaining strong flexible balance sheet to allow us to act on opportunities as they arise.
Now, I’ll turn the call over to Pat, who will take you through our results in more detail.
Patrick Carroll
Thanks, Wil. During the quarter Lexington has gross revenues of $109.6 million comprised primarily of lease rents and tenant reimbursement.
The increase compared to the fourth quarter of 2012 of $17.5 million relates primarily to the acquisition and build-to-suit projects coming online and an increase in rent in our Baltimore, Maryland and Orlando, Florida properties. In the quarter, GAAP rents were in excess of cash rents by approximately $14.4 million including the effects of above and below market leases.
For the year ended December 31, 2013, GAAP rents were in excess of cash rents by approximately $22.8 million. On Page 19 of the supplemented, we have included our estimates of both cash and GAAP rents for the year 2014 through 2018 for leases in place at December 31, 2013.
It also includes same store NOI data and weighted average lease term of our portfolio as of December 31, 2013 and 2012. The difference between cash and GAAP rents is currently expected to be about $37 million in 2014.
The most significant difference between cash and GAAP rents related to the 99 year leases on our New York City land portfolio. Property operating expenses increased primarily due to the increased use in occupancy in our multi-tenant properties which has a base year cost structure.
In the fourth quarter 2013, we recorded $22.6 million in impairment of properties, $19.3 million of which relates for Bridgewater, New Jersey property in which the tenant will not be renewing its lease in the fourth quarter of 2014. The properties encumbered by non-request mortgage of $14.3 million and our current basis after our write down are $8.3 million.
We’ve also recorded a loan-loss reserves of about $13.9 million in the fourth quarter 2013 on a loan collateralized by property in Westmont Illinois, the tenant exercise its termination option in 2013, and the borrower ceased making debt service payments. Our current GAAP basis in the note is about $12.6 million and we have $4.8 million in cash and security deposit escrows.
We also booked about $9.5 million income sale sales of property. In 2011-10, Lexington advanced money on our first mortgage loan secured by property in Schaumburg, Illinois, lease to Career Education Corporation through December 2022.
The no borrower rent was set 50% and was schedule to mature in January 2012; however the borrower defaulted on maturity. Lexington since recognize interesting amount of loan effective April 1, 2012.
In the fourth quarter of this year before closing the underlying property, we have also funded a tenant improvement allowance on balance of approximately $9 million, the lease with the tenant is net lease and provides for current annual cash rent and GAAP rent of approximately $4.2 million, our basis in this property is $30.8 million. On Page 44 of the supplement, we have disclosed selected income statement data for consolidated but not wholly-owned property and our joint venture investments.
We have also have included net non-cash interest expense incurred in the year ended December 31, 2013 on page 45 of the supplement. For the year ended December 31, 2013, our interest coverage is approximately 3.39; a net debt to EBITDA was approximately 6.4 times.
Our non-operating income generally consists of interest income on our notes investments and that is the reason for the $1.8 million increased due to investments we’ve made during 2013. Now turning to the balance sheet, we believe our balance sheet is as strong as we should – we believe our balance sheet is strong as we continued to increase our financial flexibility capacity.
We had about $ 97 million of cash at quarter end including cash classified as restricted, restricted cash balances relate to money primarily held with vendors, that’s why deposits are mortgages. At quarter end, we had about $2.1 billion consolidated debt outstanding, we had a weighted-average interest rate of 4.7% of which about 98% is fixed rate.
We went in July for swaps on both $255 million outstanding our term loan which matures in 2019 and the $250 million outstanding our term loan which matures on 2018, The current spread components are 2019 term loan carrying from 1.5% to 2.25% and is currently 1.75% and our 2018 term loan can range from 1.1% to 2.1% and is currently 1.35%. The significant components of other assets and liabilities are included on Page 45 of supplement.
During the quarter ended December 31, 2013, paid approximately $2.1 million in lease course and approximately $8.7 million in tenant improvements. This put our total occupancy related expenditures to $51.3 million for the year.
We expect these expenditures to decline considerably next year due to the early expansion of post 2013 lease maturity, occupancy gains in 2013 and lower this rollover going forward. Currently, we estimate occupancy related expensive to be about $0.12 to $0.14 per diluted share in 2014.
Starting on page 38 through page 42 of the supplement, we got disclose the details of all consolidated mortgages maturing through 2018. And is included in page 14 of supplement, the funding our projections for our build-to-suit projects and forward commitment that were outstanding as of December 31, 2013.
Now, I would like to turn the call back over to Wil.
Wilson Eglin
Thanks, Pat. In summary, we had another strong year and we believe 2014 will be a pivotal year for us and one where business will become far less capital-intensive than it has been.
This is no surprise given the changes in our portfolio after the last several years. The impact of our acquisition activity combined with our capital recycling is change the composition of our portfolio, and made our cash flow as far more secure with better growth prospects given the number of leases we have with annual escalation.
We expect to continue to one, execute proactively on leasing opportunities in order to maintain high levels of occupancy and address lease rollover risk, two, realize values on non-core properties in certain fully valued properties with a bias toward reducing our suburban office exposure, three, capitalize on refinancing opportunities and four, investment in build-to-suit properties and other accretive investment opportunities. We believe our company remains well-positioned with an attractive dividend yield and conservative payout ratio in the opportunity to continue to execute strategies which improve cash flow, enhance our portfolio and provide ongoing value creation for our shareholders.
Operator, I have no further comment at this time. So we are ready for you to conduct the question-and-answer portion of the call.
Question-and-Answer Session
Operator
(Operator Instructions). And we will take our first question from Sheila McGrath from Evercore Partners.
Sheila McGrath – Evercore Partners
Yes, good morning. Wil, I was wondering if you could talk a little bit more about the guidance.
If you look at fourth quarter and analyzed it would be about $1.12 but your guidance says a $1.11 to $1.15. So it seems little conservative.
Could you give us an idea what’s in the assumption in terms of acquisition and is there any equity issuance in there that’s driving that lower?
Wilson Eglin
No, there is no equity issuance in the model Sheila. We are looking to finance the pipeline with sale proceeds.
One of the factors that will affect how the year plays out is the timing of sales versus reinvestment in new project. I think there is opportunity for us to revisit our guidance as the year progresses with a bias toward raising your guidance, but we do have something to execute in the meantime.
But we are certainly running the company to try ourselves to that point as the year progresses.
Sheila McGrath – Evercore Partners
And what kind of acquisition volumes are you thinking about in terms of target this year?
Wilson Eglin
Roughly $300 million to $350 million is what we have either underway good visibility on right now. And it’s early in the year so that number can grow and that would be a factor in reducing guidance as well.
Sheila McGrath – Evercore Partners
And does that include the forward commitment build-to-suit pipeline that’s already underway?
Wilson Eglin
That does.
Sheila McGrath – Evercore Partners
Okay. Then one other question.
You mentioned $0.12 to $0.14 I think you said referring kind of leasing cost or CapEx. I was just wondering is that level in 2014, is that a level that you would consider more normalized or do you think that there is room to even move that lower going forward?
Wilson Eglin
No. I think there is room for that number to move down.
The last few years 2012 and 2013 were very heavy from an expenditure standpoint, but once the portfolio is an imbalance that we been striving for with long-term revenue and shorter lease revenue, and in our mind what should follow is probably having honestly from the elevated levels of capital expenditures, so in our mind the last couple of years, it has been about $50 million a year, I think we would like to think that we can get the portfolio down to more normalized run rate of more like $25 million. That won’t happen in 2014, but that’s what we are eye on longer term.
Sheila McGrath – Evercore Partners
Okay, thank you.
Operator
And we will go next to Craig Mailman from KeyBanc Capital Markets.
Craig Mailman – KeyBanc Capital Markets, Inc.
Good morning, guys. May be just one follow up on the disposition guidance here.
Well, I think you said it’s going to be pretty close to match acquisition activities. Is that $100 million to $125 million of purchase or the $300 million to $350 million.
Wilson Eglin
$300 to $350
Craig Mailman – KeyBanc Capital Markets, Inc.
Okay and about $100 million of that is sort of office product that you guys would like to sell.
Wilson Eglin
Well, it’s almost entirely office or multi-tenant office. Little bit less than $100 million of it is empty or office grade but the balance will be single-tenant office and we’ve had very good traction and velocity on some of our multi-tenant buildings that are now leased up or on their way to being leased up 90% or so that tells an opportunity to sell the assets and values being created.
Craig Mailman – KeyBanc Capital Markets, Inc.
Has the pullback in rate here in the early part of the year, that accelerate maybe you guys go beyond the 350 and kind pre-fund or you want to do as we had to 2014 or 2015 rather but or would you guys rather kind of keep the pace relatively matched to manage dilution.
Wilson Eglin
I would say we are more focused on keeping the pace relatively matched. Now the interest rate environment is favorable right now, we I think from the financing standpoint we need to consider this year when we want to take out some of our forward debt maturities, but I think that later in the year need discussion.
Craig Mailman – KeyBanc Capital Markets, Inc.
Okay and then just more broadly has the pullback in rate here had any effect on your talks with sellers for assets or is it just been sort of nonevent as people – I guess what are people’s expectations here is that rate can stay where they are kind of bracing and pricing in our future rate increases.
Wilson Eglin
I think the expectation at least in our mind between buyers and sellers right now that we are in a stable rate environment. We obviously work through a very good spike in rate during the year last year that sort of distorted the market for six months or so that made it harder to make transactions work but I think the expectations that we are in pretty steady rate environment now.
Craig Mailman – KeyBanc Capital Markets, Inc.
Great, thank you, guys.
Operator
And we will go next to Yasmine Kamaruddin from J. P.
Morgan.
Yasmine Kamaruddin – J. P. Morgan
All right, so for the first quarter our lease is spread to earn negative 10%. Would you expect in 2014?
Wilson Eglin
Well, in our mind – we looked at sort of 2014 and 2015 together honestly because that’s really been the end of our significant exposure to above market rents primarily in office. We have said before the leasing spread can be negative 15% to 20%.
Our expectation isn’t much change. I think what different is that we are so far through this process of marketing rents that now it sort have been in absolute dollars if we look at 2014 and 20115 in the magnitude of exposures sort of $4 million $6 million, which from a dollar standpoint isn’t a big deal, but we do expect to continue to have negative lease spreads on office rollover.
In many cases that’s because we’ve had during the lease term substantial rent growth and rents are being reset to what they might have been at the beginning of the lease term. So we are still from that standpoint earning I think very good yield on our initial investment cost, but we do expect that leasing spreads will be negative into 2015.
Yasmine Kamaruddin – J. P. Morgan
Okay, so we can expect the same 15% to 20% negative range?
Wilson Eglin
Yes, but it will be sporadic. We just had a quarter where we had very strong same-store NOI growth for example.
Now we have about half the portfolio with annual rent growth that will have mitigating impact against those roll down, but it won’t be consistent, it will – some quarters will be strong and others less strong.
Yasmine Kamaruddin – J. P. Morgan
Okay, got it. And so for G&A there was path in the fourth quarter, what can we expect going forward for 2014-15?
Patrick Carroll
I think this reduce the fourth quarter G&A and use it as a run rate. They might be little bit higher but it should be aligned.
Yasmine Kamaruddin – J. P. Morgan
Okay, all right. Is there a reason why it is higher?
Patrick Carroll
Compensation of management– management get compensated on share grants and the share grants that’s for the three years as opposed to five years in past.
Yasmine Kamaruddin – J. P. Morgan
Okay, got it, all right, great. That’s it.
Thank you.
Operator
And we will take our next question from John Guinee from Stifel.
John Guinee – Stifel, Nicolaus & Co., Inc.
Oh, thank you. Apologize for the cold here, hey Pat you slid property leases in vacancy back to page 27, it took me about a week to find them, but thank you.
I kind of look at there – I think we talked about this before, this business is very binary and either do really well in these lease renewals or its likely a vacancy, can you – it look to us like in 2014 and 2015 industrial is very manageable maybe about $4 million of cash NOI, but the office is about $39 million or $40 million of cash NOI, can you just roll through the assets in that would leases expire for office properties in 2014 and 2015 and give us some color is what you expect? Page 27, you got to look for it.
Patrick Carroll
Yeah, I know John, I apologize for the delay, and I am getting to page 27 so just bear with me. If we look at this –
John Guinee – Stifel, Nicolaus & Co., Inc.
We have this conversation on the next call.
Patrick Carroll
On 2014, if you are looking at the rollover the building in Chicago is under contract for sale to sell for about $35 million, in Northchase in Houston, that’s one where we’ll have some vacancy. In Bridgewater, New Jersey, that’s the one where we took the write down off so our expectation is that we will have a vacancy at the end of next year.
And it’s called Washington Spacelab that’s another one where right now we see move out. If I look – I am going further than that Frontier Corporation in Rochester have some discussions with us and might want about 40% of that building.
The Aventus building outside Pittsburgh, we think we have a vacancy there but think it will be an asset that will be pretty easy to reposition, and the Nextel building in Hampton Virginia we think that will stay in. We do think the 2015 will be a better year from our retention standpoint but we have do some on watch list in particular the Federal-Mogul building in Southfield, Michigan, and the inventive systems building in Foxborough, Massachusetts.
John Guinee – Stifel, Nicolaus & Co., Inc.
Great, thank you.
Operator
And we will go to now Todd Schneider from Wells Fargo.
Todd Schneider – Wells Fargo
Hi, thanks guys. For this year next look like about 13% your leases rolled and just kind of incorporating the disposition comments.
Are you looking at these as candidates for sale and may be just on a percentage basis what do you think – well on percentage basis what do you think you sell from that.
Wilson Eglin
Well, we said what vacant and coming off lease in 2014 we think we addressed about half through sale, and one of the things that happening in the market right now may be is the trend or may be it is just happening us is we now have some fairly strong interest from users in purchasing vacancy, that’s in our mind a little bit different dynamic than what we saw year ago. So that’s our expectation that about half with what is vacant or coming off lease will be sold.
Todd Schneider – Wells Fargo
Okay, that’s helpful. And just to get to the high end of guidance for this year does that assume fewer assets sales are not necessarily?
Wilson Eglin
Not necessarily
Todd Schneider – Wells Fargo
Okay, and Pat, what’s the current line balance and is there a drawdown in your term loan expected sometime soon just trying to gauge of what your sources and uses over the near term?
Patrick Carroll
As of today, Todd, we have nothing outstanding on the line and the term loan was fully drawn and earlier this month so the $250 million term loans fully drawn and we have nothing outstanding on the line.
Todd Schneider – Wells Fargo
And just to touch on the land acquisitions, would you add to this just kind of get gauging your appetite for further land lease investments and maybe what percentage of your pipeline represents land opportunity.
Wilson Eglin
We would be interested in further long-term land purchases, and we are looking at one transaction but I think we totaled everything up it wouldn’t be more than – cannot not more than 30% of what we are looking at, 25% to 30%.
Todd Schneider – Wells Fargo
Okay and just finally if you incorporate all the announced build-to-suit that are expected to be completed in as your pushing out your average lease duration, what do you think that looks like once incorporate asset sales as well? What do you think your average lease term looks like by the end of this year?
Patrick Carroll
I mean it depends on to the acquisition that we do, mostly acquisition are longer term leases but when you have $ 5 billion portfolio, you buy through $ 50 million a year in the 20 years, it is difficult to move that needle up that significantly.
Wilson Eglin
But I think there’s a good Todd that it can be pushed modestly longer this year.
Todd Schneider – Wells Fargo
Great, thank you.
Operator
And we will take our next question from Tayo Okusanya from Jefferies.
Unidentified Analyst
Hey, good morning, guy. This is David Sean here with Tayo.
I don’t know if I miss this but this $300 million -$350 million of investments you talked about what’s the split between acquisitions in build-to-suit?
Patrick Carroll
Well we said that purchases would be $100 million to $125 million with the balance in deposit.
Unidentified Analyst
Okay and then just on the dispositions, you had mentioned in the past that you would like to sell your 100 Light Street assets in Baltimore, just wondering that’s on the table, I know that it is 95% lease and talked about selling more assets with vacancy, so just want your thoughts.
Wilson Eglin
It is not in the pool of assets that we are flowing into the market right now to finance. The current pipeline of 2014 that we had visibility on but later in the year if acquisition volumes is greater than what we see now that’s an asset that we could consider looking at again.
I think all the free rent period is burned off and most of our rents have annual escalators in them and the building is well financed. I’ve still got about nine years to ago on the financing at a fixed-rate 432 so that should be of value to the buyer.
So that’s one that we have in our back pocket to consider monetizing later in the year.
Unidentified Analyst
That’s helpful. And then just looking big picture with all the recent M&A activity happening in a triple net space.
That seems you guys could potentially be an ideal target for one of the big acquire so just hoping you can comment.
Wilson Eglin
I couldn’t comment on that. We think it’s great that the sectors gotten so big and has so much investor attention, and we are very focused on executing our business plan to make our company more valuable for all kinds of investors.
Unidentified Analyst
Great, thanks a lot guys.
Operator
And we will take our next question; follow up question from Craig Mailman from KeyBanc Capital Markets.
Craig Mailman – KeyBanc Capital Markets, Inc.
Thanks, guys. Just want to circle up on the shift to a larger portion of industrial, obviously as you become more desirable property type and we have seen kind of cap rate jut adjust accordingly in competition for assets increase, and I am just curious as you guys go out and look for build-to-suit opportunities, one, just how big that pool is today versus may 6 to 12 months ago, and can you talk just a little bit about what sellers are looking for in terms of pricing relative to 6 to 12 months ago?
Wilson Eglin
Well, I think the industrial component of our forward pipeline in percentage terms is probably larger right now than that ever has been. They are definitely seems to be more activity in industrial than office for example.
Industrial for us from a purchase standpoint is still priced that is extremely low cap rate that were not particularly interested in. We think on forward industrial build-to-suit, that cap rate as much of 100 basis points higher, but I think with what you’re seeing to get that yield premium you might be committing further forward than you might been a year ago, so there is – for sure compared to a year ago when cap rates were extremely low, may be there’s been about 50 basis point of upward movement I would say.
Patrick Carroll
So on our industrial build-to-suit were still in our mind getting in the low seventh right now but in some cases we are committing further forward.
Craig Mailman – KeyBanc Capital Markets, Inc.
Are you guys seeing increased competition from the industrial REIT or non-traded guys or anybody kind of wanting to get in to this business given further rent growth projections people have for industrial and are the developers looking to get more on the backend than they had been?
Wilson Eglin
No, it is more competitive playing field than it was a year or two years ago. We actually think that the environment is better for us compared to when interest rates were so low.
And interest rate moved up a lot that tends to honestly make builders more interested in locking in their profits versus being tempted to hold the project till the end and selling the property getting all the upside. So honestly a spike in interest rates makes it easier for us to lock in an attractive terms on build-to-suit.
Craig Mailman – KeyBanc Capital Markets, Inc.
Great, thank you.
Operator
And we will go now to Dan Dangling [ph] from Liebenberg (indiscernible)
Unidentified Analyst
Thank you and good morning. Well, just looking at page 18, you give your credit rating, just curious if that investment grade 45%.
Is that include implied investment grade or is that just what Moody or S&P one of rating agencies does?
Wilson Eglin
Lot of rating agencies does.
Unidentified Analyst
Okay, so that unrated portion that you have – is any of that you think if you I mean some of your peers you like they did their own calculation and say certain percentage that has implied investment-grade rating with that ascribes you guys that 40% as unrated as well or–
Wilson Eglin
We don’t do that. It does not over rating.
Patrick Carroll
If they don’t have debt to rate the run, I think they are good credits in there obviously but no we don’t sit there and have shadow ratings.
Unidentified Analyst
And then well I wondered if you could comment on – the reasons for why some of your tenants did not renew and why some of the tenants that you talked about in 2014 will not renew its – is there any type of general trend, is it more these folks are consolidating into another building, is it that they are finding the building obsolete or –
Wilson Eglin
It is not functional obsolescence really, continues to be the general downsizing in office use that we are seeing throughout the corporate America for the most part.
Unidentified Analyst
Okay and then anything about I mean in terms of rent or they finding rent elsewhere or better rent –
Wilson Eglin
No, we never lose a tenant over rent. If anything were, we are the predatory landlord into the market, so it’s really been two companies who have used have four buildings and found out and figure out how to run the business with three, it’s more that than anything else.
Unidentified Analyst
Okay, thank you very much.
Operator
And we will take our final question from William Segal from Development Associate Incorporated.
William Segal – Development Associate Incorporated
Thank you, great execution gentlemen. Curious, Wil, you mentioned how you want to enlarge the industrial to office ratio, your goals for other metrics, any particular geographical areas that you guys like or want to avoid either for managerial reasons, capital appreciation, hedging your portfolio.
Is that entering into your decisions?
Wilson Eglin
I mean it does. Certainly although we do try understand for whatever reason a corporation is building new in whatever market there is.
So we are willing smaller market sometime, it doesn’t mean we’ll say no but we might require a 20 year lease term and then we might have a strategy to sell that asset before the lease is up, whether still 10 years of the terms to ago. So we are focused on being in market where there gap, but if there’s a good deal of opportunity in smaller market that doesn’t mean that will say no to it.
But the broad trend for corporate location is towards business friendly environments and states that can afford relocate corporations for purposes of creating jobs and are our portfolio is migrating towards those areas steadily.
William Segal – Development Associate Incorporated
Thank you, very much.
Operator
Okay, that does conclude today’s question-and-answer session. I’ll turn the conference back over to moderator for any additional comments or remarks.
Patrick Carroll
I just want to follow up one of the question that we were asked about the G&A. I want to make sure we are clear.
When I talked about the run rate I meant the 12 month December 2013 was a good run rate not an annual – of the fourth quarter. So the G&A that we had for the 12 months was about $29 million, I feel that sort of good run rate using the next year.
Wilson Eglin
Great, well, thank you all again for joining us this morning. We are very excited about our prospects of the balance of this year beyond.
And as always we appreciate your participation and support. If you would like to receive our quarterly supplemental package, please contact Gabriela Reyes or you can find additional information on the company on our website at www.lxp.com, in addition you may contact me for any the other members of our senior management team with any questions.
Thanks again.
Operator
And that does conclude today’s conference. And we thank you for your participation.