Q4 2021 Eastgroup Properties Inc Earnings Call

Speaker 1: Good day and welcome to the East Group Properties fourth quarter 2021 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal conference specialist by pressing star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Marshall Loeb, President and CEO . Please go ahead.

Good day and welcome to the Eastgroup properties fourth quarter 2021 earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded and now I'd like to turn the conference over to Marshall Loeb President and CEO . Please go ahead.

Good morning, and thanks for calling in for our fourth quarter 2021 conference call as always we appreciate your interest Brent Wood. Our CFO is also participating on the call since we'll make forward looking statements. We ask that you listen to the following disclaimer.

Speaker 1: Good morning and thanks for calling in for our fourth quarter 2021 conference call. As always, we appreciate your interest. Brent Wood, our CFO , is also participating on the call. Since we'll make forward-looking statements, we ask that you listen to the following disclaimers.

Speaker 2: Please note that our conference call today will contain financial measures such as P&OI and FFO that are non-GAAP measures as defined in Regulation G.

Please note that our conference call today will contain financial measures such as P. N O Y and SFO that are non-GAAP measures as defined in regulation G.

Speaker 2: Please refer to our most recent financial supplement and to our earnings press release, both available on the investor page of our website, and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.

Please refer to our most recent financial supplement to our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.

Speaker 2: Please also note that some statements during this call are forward-looking statements as defined in and within the safe harbors under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.

Please also note that some statements. During this call are forward looking statements as defined in and within the safe harbors under the Securities Act of 1933.

The Securities Exchange Act of $19 34 in the private Securities Litigation Reform Act of 1995.

Speaker 2: Forward-looking statements in the earnings press release, along with our remarks, are made as of today, and we undertake no duty to update them, whether as a result of new information, future or actual events, or otherwise.

Forward looking statements in the earnings press release, along with our remarks are made as of today and we undertake no duty to update them, whether as a result of new information future or actual events or otherwise.

Speaker 2: Such statements involve known and unknown risks, uncertainties, and other factors, including those directly and indirectly related to the outbreak of the ongoing coronavirus pandemic that may cause actual results to differ materially. We refer to certain of these risks in our SEC filings.

Such statements involve known and unknown risks uncertainties and other factors, including those directly and indirectly related to the outbreak of the ongoing coronavirus pandemic that may cause actual results to differ materially.

We refer to certain of these risks in our SEC filings.

Speaker 1: Good morning and thank you for your time. I'll start by thanking our team for a great quarter and year. They continue performing at a high level and capitalizing on a very positive environment.

Good morning, and thank you for your time I'll start by thanking our team for a great quarter and year.

To continue performing at a high level and capitalizing on a very positive environment.

Speaker 1: Our fourth quarter results were strong and demonstrate the quality of our portfolio and the strength of the industrial market.

Fourth quarter results were strong and demonstrate the quality of our portfolio and the strength of the industrial market. Some of the results. The team produced include funds from operations coming in above guidance up 17% for the quarter and 13% for the year well ahead of our initial forecast this march 3rd.

Speaker 1: Some of the results the team produced include funds from operations coming in above guidance of 17% for the quarter and 13% for the year, well ahead of our initial forecast.

Speaker 1: This marks 35 consecutive quarters of higher FFO per share as compared to prior year quarter. Truly a long term trend.

35 consecutive quarters of higher <unk> per share as compared to prior year quarter truly a long term trend.

Speaker 1: Our quarterly occupancy averaged 97.3%, up 40 basis points from fourth quarter 2020. And at year end, we're ahead of projections at 98.7% leased and 97.4% occupied. Our occupancy is benefiting from a healthy market with accelerating e-commerce and last mile delivery train.

Quarterly occupancy averaged 97, 3% up 40 basis points from fourth quarter 2020, and at year end were ahead of projections at 98, 7% leased and 97, 4% occupied our occupancy is benefiting from a healthy market with accelerating E Commerce and <unk>.

Last mile delivery trends.

Speaker 1: Quarterly releasing spreads were 31.5% GAAP and 18% CAAS.

Quarterly releasing spreads were 31, 5% GAAP and 18% cash <unk>.

Speaker 1: Similarly, for the year, those results were at a record pace of 31.2% gap and 18.4% cash.

Similarly for the year those results were at a record pace of 31, 2% GAAP and 18, 4% cash.

Speaker 1: And finally, cash SAME store NOI rose a healthy 6.4% for the quarter and 5.7% for the full year. In summary, I'm proud of our team's results creating arguably the best year in our history.

And finally cash same store NOI rose a healthy six 4% for the quarter and five 7% for the full year.

In summary, I'm proud of our team's results, creating arguably the best year in our history.

Speaker 1: So now on to 2022. Today we're responding to strengthen the market and demand for industrial product by both users and investors by focusing on value creation via development and value add invest.

So now on to 2022 today, we're responding to strengthen the market and demand for industrial product by both users and investors about focusing on value creation via development and value add investments.

Speaker 1: I'm grateful we ended the quarter at 98.7% least, one of our highest quarters on record. And to demonstrate the market strength, our last five quarters marked the highest five quarterly rates in the company's history.

I am grateful we ended the quarter at 98, 7% leased one of our highest quarters on record and to demonstrate the market strength, our last five quarters Mark.

Highest five quarterly rates in the company's history.

Speaker 1: looking at Houston where 95.9% leased, and Houston is projected to represent under 11% of 2022's NOI total, falling 130 basis points from 2021.

Looking at Houston, where 95, 9% leased and Houston is projected to represent under 11% of 2020 twos NOI total.

Falling 130 basis points from 2021.

Speaker 1: I'm happy to finish the quarter at $1.62 per share in FFO and the year at $6.09, $6.09 per share, up $0.06 from our most recent annual guidance.

I'm happy to finish the quarter at $1 62 per share in <unk> and the year at $696 nine per share up <unk> <unk> from our most recent annual guidance, helping us achieve these results is thankfully, having the most diversified rent roll in our sector with the top 10 tenants only accounting for.

Speaker 1: Helping us achieve these results is thankfully having the most diversified rent role in our sector, with the top 10 tenants only accounting for 7.6% of rent.

Seven 6% of rents rent.

Speaker 1: Brent will speak to our 2022 guidance, which I'm pleased is to a midpoint of $6.63 per share, up roughly 9% from 2021's record level.

Brent will speak to our 2022 guidance, which I'm pleased as to a midpoint of $6 63 per share.

Up roughly 9% from 2020 one's record level.

Speaker 3: As we stated before, our development starts are pulled by market demand.

As we've stated before our development starts are pulled by market demand.

Speaker 3: Based on the market strength, we're seeing we're forecasting 2022 starts of 250.

Based on the market strength, we're seeing we're forecasting 2022 starts of $250 million, we plan to closely monitor leasing results along the way and expect to update our starts guidance throughout the year.

Speaker 3: We plan to closely monitor leasing results along the way and expect to update our starts guidance throughout the year.

Speaker 3: position us for this market demand. We have acquired several new sites with more in our pipeline along with value add and direct investment.

To position us for this market demand, we've acquired several new sites with more on our pipeline along with value add and direct investments more details to follow as we close on each of these opportunities.

Speaker 3: More details to follow as we close on each of these.

Speaker 3: Brent will now review a variety of financial topics, including our 2021 results, and introduce our 2022 guidance.

Brent will now review a variety of financial topics, including our 2021 results and introduce our 2022 guidance.

Speaker 4: Good morning. Our fourth quarter results reflect the terrific execution of our team, strong overall performance of our portfolio, and the continued success of our time-tested strategy.

Good morning, our fourth quarter results reflect the terrific execution of our team strong overall performance of our portfolio and the continued success of our time tested strategy <unk> per share for the fourth quarter exceeded our guidance range of $1 62 per share and compared to fourth quarter 2020 of $1 30.

Speaker 4: FFO per share for the fourth quarter exceeded our guidance range at $1.62 per share and, compared to fourth quarter 2020 of $1.38, represented an increase of 17.4%

Eight represented an increase of 17, 4%.

Speaker 4: The outperformance continues to be driven by our operating portfolio performing better than anticipated, particularly occupancy and rental rate growth.

The outperformance continues to be driven by our operating portfolio performing performing better than anticipated, particularly occupancy and rental rate growth.

Speaker 4: From a capital perspective, during the fourth quarter, we issued $120 million of equity at an average price of $205 per share. In October , we repaid a maturing $33 million mortgage loan that had a rate of $4.1 million.

From a capital perspective during the fourth quarter, we issued $120 million of equity at an average price of $205 per share.

And in October we repaid a maturing $33 million mortgage loan that had a rate of four 1%.

Speaker 4: After year end, we agreed to terms on the private placement of $150 million of senior unsecured net.

After year end, we agreed to terms on the private placement of $150 million of senior unsecured notes with a fixed interest rate of three 3% and a 10 year term.

Speaker 4: with a fixed interest rate of 3.03% and a 10-year term. We expect to issue and-

We expect to issue and fund these notes in April .

Speaker 4: Also, after year end, we agreed to terms on a $100 million senior unsecured term loan with a total effective fixed interest rate of 3.06% and 6.5 year term.

Also after year end, we agreed to terms on a 100 million senior unsecured term loan with a total effective fixed interest rate of three 6% and six and a half year term.

The loan is expected to close on March 31.

Speaker 4: That activity, combined with our already strong and conservative balance sheet, has kept us in a position of financial strength and flexibility.

That activity combined with our already strong and conservative balance sheet has kept us in a position of financial strength and flexibility.

Speaker 4: our debt total market capitalization was a record low 13.

Our debt to total market capitalization was a record low 13% and for the year our debt to EBITDA ratio finished at five two times and our interest in fixed charge coverage ratio was eight five times.

Speaker 4: And for the year, our depth EBITDA ratio finished at 5.2 times.

Speaker 4: and our interest in fixed charge coverage ratio was 8.5 times. Our rent collection...

Our rent collection collections have been equally strong.

Speaker 4: Bad debt for the year was a net positive $475,000 as tenants whose balances were previously reserved came current, exceeding new tenant reserve.

Bad debt for the year was a net positive $475000 as tenants, whose balances were previously reserved came current exceeding new tenant reserves. This trend continues to exemplify the stability credit strength and diversity of our tenant base.

Speaker 4: This trend continues to exemplify the stability, credit strength, and diversity of our tenant

Speaker 4: The dynamic growth of our earnings, as well as exhausting a prior tax accounting change benefit, pushed us to increase the dividend for a second time during the year from 90 cents to $1.10 per share, an increase of 22%

The dynamic growth of our earnings as well as exhausting a prior tax accounting change benefit pushed us to increase the dividend for a second time during the year from 90 to $1 10 per share an increase of 22%.

Speaker 4: We anticipate that the rate of our dividend increase will normalize.

We anticipate that the rate of our dividend increase will normalize in 2022.

Speaker 4: Looking forward, FFO guidance for the first quarter of 2022 is estimated to be in the range of $1.59 to $1.65 per share.

Looking forward <unk> guidance for the first quarter of 2022 is estimated to be in the range of $1 59 to $1 65 per share.

Speaker 4: $6.56 to $6.70 per share.

And $6 56 to $6 70 per share for the year.

Speaker 4: 2022 FFO per share midpoint represents a 9% increase over

2022, <unk> per share midpoint represents a 9% increase over 2021.

Speaker 4: Among the notable assumptions that comprise our 2022 guidance include an average occupancy midpoint of 97%, Cash state property at midpoint of 5, Bullet effect, Bonus effect,

Among the notable assumption assumptions that comprise our 2022 guidance include an average occupancy midpoint of 97% cash.

Cash same property midpoint of five 6%.

Bad debt of $1 5 million.

Speaker 4: operating and value add acquisitions of $76 million offset by $70 million in

Operating and value add acquisitions of $76 million offset by $70 million in dispositions issues.

Speaker 4: issuing $375 million in unsecured debt, which will be offset by $75 million of debt repayment, and common stock issuance.

Issuing $375 million in unsecured debt, which will be offset by $75 million of debt repayment and.

In common stock issuances of $120 million.

Speaker 4: As Marshall mentioned, our projected development starts are $250 million, which is down from $341 million in 2021.

As Marshall mentioned, our projected development starts are $250 million, which is down from $341 million in 2021. However.

Speaker 4: However, recall that last year's amount includes $90 million for a large build-a-suit in San Diego.

However, recall that last year's amount includes $90 million for a large build to suite in San Diego.

Speaker 4: 2022 start guidance does not include any unknown build-a-suits that might occur through the course

Our 2022 start guidance does not include any unknown build to suits that might occur through the course of the year.

Speaker 4: In summary, we are very pleased with our record setting 2021 results.

In summary, we are very pleased with our record setting 2021 results as we turn the page to 2022, we will continue to rely on our financial strength.

Speaker 4: As we turn the page to 2022, we will continue to rely on our financial strengths, the experience of our team, and the quality and location of our portfolio to maintain our momentum.

<unk> of our team and the quality and location of our portfolio to maintain our momentum now Marshall will make some final comments.

Speaker 3: Thanks, Brent. In closing, I'm excited about the year we just completed. We're now carrying that momentum into 2022. Our company, our team and our strategy are working well as evidenced by the results posted. And it's the future that has been

Thanks, Brant and closing I'm excited about the year, we just completed.

We're now carrying that momentum into 2022.

Our company our team and our strategy are working well as evidenced by the results posted.

And it's the future that has me excited for eastgroup.

Speaker 3: Our strategy has worked well the past few years, and now we're seeing an acceleration in a number of positive trends for our properties and within our market.

<unk> has worked well the past few years and now we're seeing an acceleration a number of positive trends for our properties and within our markets.

Speaker 3: Meanwhile, our bread and butter traditional tenants remain and will continue needing last mile distribution space and fast growing Sunbelt market.

While our bread and butter traditional tenants remain and will continue needing last mile distribution space in fast growing sunbelt markets.

Speaker 3: These, along with the mix of our team, our operating strategy, and our markets, have us optimistic about the future. And now we'd like to open up the floor for questions.

These along with the mix of our team our operating strategy and our markets has us optimistic about the future and now we'd like to open up the floor for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker 1: To ask a question, you may press star then one on your touch tone phone.

Speaker 1: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star.

Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Speaker 1: Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, please enter the question queue.

Please limit yourself to one question and one follow up if you have further questions you may reenter the question queue.

At this time, we will pause momentarily to assemble our roster.

Speaker 1: Our first question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.

Our first question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.

Speaker 5: Hey, morning, morning down there. So the first question is then is on the supply chain. Now we have truckers part of the part of the fund and the headlines, but between the ports, factories trying to catch up with orders, you know, shipping and all this stuff.

Hey.

Morning, Good morning down there.

<unk>.

So first question here then is on the supply chain.

Now we have truckers part of the part of the fund.

The headlines but between the courts.

Factories trying to.

Chuck with orders.

Shipping and all of this stuff.

Speaker 5: What are your candidates saying as far as when they see the normalization of the supply chain? Because obviously it's been great for you guys for demand and certainly the just in case type conversion on distribution thoughts. So just trying to see how much longer you guys think that we'll be in this tight supply market.

What are your kind of saying as far as when they see the normalization of the supply chain because obviously, it's been great for you guys for demand and certainly.

Just in case type.

Conversion on on distribution thoughts so just trying to see how much longer you guys think that will be in that.

Tight tight supply market.

Speaker 3: Hey Alex, good morning. It's Marshall, you know, it's, I guess maybe I'll preface it with a positive with we have about 1600 tenants and they're a little over 7.5% of our NOI. So that's a pretty low number so you know just a wide range of tenants so maybe with that preface or caveat.

Hey, Alex good morning, its Marshall.

I guess, maybe I'll preface it with a positive with we have about 1600 tenants.

And there are a little lower seven 5% of our NOI. So that's a pretty low number.

A wide range of tenants, so maybe with that preference or caveat.

Speaker 3: I think there's probably a mix of answers, but you're right whether it's the

I think there is a problem.

Mix of answers, but youre right whether it's.

Speaker 3: truckers or backlogs at the port or just pure warehouse workers or the warehouse is closed and kind of hiring shortages. I think by and large most people or our tenants are feeling like the demand is there today and feel optimistic about their business.

Truckers are backlogs at the port or just pure warehouse workers or the warehouses closed in kind of hiring shortages I think by and large most people of our tenants are feeling like the demand is there today and feel optimistic about their business, but.

Speaker 3: I really don't as we order building materials ourselves and then dealing with our tenants. I think we'll go through 2022 before the supply chain. You know there may be improvements during the year, but it'll still be.

Well I really Don as we order building materials ourselves and then dealing with our tenants I think we'll go through 2022 before the supply chain there may be improvements during the year, but it will still be.

Speaker 3: kind of a mess. And I think the other kind of help for all the industrial REITs that we'll participate in is people that move to more safety stock or a vertical just in case inventory. And to date, I think there are a number of tenants who would like to do that. But the best description I've heard is someone called it a pipe dream that most of our tenants or most people are out there scrambling.

Kind of a math and I think the other kind of health for all the industrial rates will participate and his people that.

Move to more safety stock or hard to call just in case inventory and today I think there are a number of tenants who would like to do that but the best description I have heard is someone called it a pipe dream that most of our tenants are most people are out there scrambling to meet current demand much less where demand is going in at least the.

Speaker 3: to meet current demand, much less where demand is going, and at least the charts and things you see and read. It looks like the inventory to sales ratio.

Charge send things you see and read it looks like the inventory to sales ratios are still pretty historically low. So we think I guess the good news if you think of it as.

Speaker 3: are still pretty historically low. So we think, I guess the good news if you think of..................

Speaker 3: as I or we think about it is we're pretty full, we're pushing rents, it's hard to deliver new product and people still are scrambling to add more inventory. So we, at least in terms of our planning for this year and we'll adjust it as best we can on the fly, we think there's going to be more demand and supply and people will be...

I or we think about it is we're pretty full we're pushing rents it's hard to deliver new products and people still are scrambling to add more inventory.

At least in terms of our planning for this year and we'll adjust it as best we can on the fly we think theres going to be more demand than supply and people will be.

Speaker 3: scrambling to meet that growing demand. And it probably won't change until next year.

Scrambling to meet that growing demand and it probably won't change until next year.

Speaker 5: Okay, and then maybe as a follow-up to that, Marshall, you guys, you know, every year you say, you know, we were, we got lucky last year, last year was an amazing year, this year is going to be tough, and I think we're now going on, you know.

Okay, and then maybe as a follow up to that Marshall you guys every year you say.

We got Lucky last year last year was an amazing year. This year is going to be tough and I think we're now going on.

Speaker 5: I lost count how many years that you guys have beaten raised. The story that you're laying out is still pretty similar to last year. Really strong demand. The external environment remains tough, but you guys seem to find a way. It doesn't seem like you have any pushback on pricing, and the capital markets are favorable for you on the financing side. That truly gives you pause versus you guys just...

I lost count how many years that you got the beat and raise.

The story that you're laying out is still.

Pretty similar to last year really strong demand the external environment remains tough, but you guys seem to find a way.

Doesn't seem like you have any pushback on pricing and.

The capital markets are favor are favorable.

Lansing side, so what what truly gives you pause versus you guys just.

Speaker 5: say, hey, we're 97 percent, you know, maybe it's tougher to exceed from there. But, you know, Brent made the point about the dividend going back to a normalized growth level. And yet everything that you guys have described on this call.

Hey, Hey, we're 97%.

Maybe it's tougher to exceed from there but Brent.

Brent made the point about the dividend going back to a normalized growth level and yet everything that you guys have described on this call.

Speaker 5: speaks to a still, you know, robust, abnormally superior growth environment.

Speaks to us still.

Robot abnormally superior growth environment.

Speaker 3: Yeah, no, a fair question. I guess I'd say one is, it probably speaks to management or my personality to a great degree. OK, just conservative. It's been.

Yes.

Question, I guess why did it probably speaks to management or my personality.

Great. Okay, just conservative it's been last time I went to a casino its been a while so on topic. Although there can start all invest a little bit conservative and I Hope you I'd love for you to be able to say I told you. So later in 'twenty two that we were conservative youre right at 97% average occupancy if we just met AD budget.

Speaker 3: Last time I've been to a casino, it's been a while. So I'm talking a little bit concerned, I'll confess to being a little bit conservative. And I hope you, I'd love for you to be able to say I told you so later in 22 that we were.

Speaker 3: Conservative, you're right. At 97% average occupancy, if we just met our budget...

Speaker 3: That would be our second highest year in the company's history, second to last year, which was

That would be our second highest year in the company's history second to last year, which was 97, one so hopefully we will get maybe we could go a little better on the rent increases, but that will probably benefit 2024, and later years more about timing on when that lease expires.

Speaker 3: 97.1. So I don't, you know, hopefully we'll get, maybe we can go a little better on the rent increases.

Speaker 3: But that'll probably benefit 2024 and later years more depending on when that lease expires.

Speaker 3: this year, it's probably more the external environment is where I felt like, and probably twofold. One, if

This year, it's probably more of the external environment is where I felt like in probably twofold one.

Speaker 3: Given the supply chain shortage and the tightness in the market, hopefully if we get ahead, we're seeing more activity earlier on developments. For spec developments, we usually, kind of our rule of thumb is once you tilt the walls, then the tenant rep brokers start to take your delivery dates more seriously and the activity picks up.

Given the supply chain shortage on the tightness in the market hopefully if we get ahead, we're seeing more activity earlier on developments for spec developments, we usually kind of a rule of thumb is once you talked the walls and the tenant rep brokers start to take care of delivery dates more seriously in the activity picks up but given the tightness.

Speaker 3: But given the tightness in the market, we've seen more activity earlier in our development pipeline. So that...

And the market, we've seen more activity earlier in our development pipeline. So that that gives me some hope rather than pause and then hopefully we can find some acquisitions out there, but we didn't want to kind of is by our nature put some big acquisition targets in our budget and then feel like you have to go meet them because I'd rather look.

Speaker 3: That gives me some, or I guess hope rather than pause. And then hopefully we can...

Speaker 3: find some acquisitions out there, but we didn't want to, kind of, as by our nature, put some big acquisition targets in our budget, and then feel like you have to go meet them. Because I'd rather look if something makes sense.

If something makes sense.

Speaker 3: You're right, the capital markets are attractive and will acquire it. But if we go a number of months and there's really nothing that makes sense.

The capital markets are attractive and we'll acquire it but if we go a number of months and there's really nothing that make sense to us in a competitive environment as I've ever seen it too.

Speaker 3: to us in a competitive environment as I've ever seen it to.

Speaker 3: good industrial properties, we're okay being patient and sitting on our hands in that regard too.

<unk>, good industrial properties, where okay paying patients sitting on our hands in that regard.

Okay. Okay. Thank you.

Youre welcome.

Speaker 1: The next question comes from Elvis Rodriguez from Bank of America.

The next question comes from Elvis Rodriguez from Bank of America. Please go ahead.

Speaker 6: Good morning guys and congrats on another good year. Just following up on the external front, Marshall, you bought a piece of property in San Diego, the Siempre Viva value add deal, 65% leased. Why would a developer sell this given how strong the leasing market is and what opportunities do you see out there to do more of these type of transactions?

Good morning, guys and congrats on another good year.

Just following up on the external front Marshall you bought it.

A piece of property in San Diego, the Siempre Viva value add deal, 65% leased why would a developer sell this given how strong.

The leasing and leasing market is in.

What opportunities do you see out there to do more of these type of transactions.

Speaker 3: Good morning Elvis and thanks. You know on this one it's the Semper Viva, you may remember we own, in separate transactions we bought Semper Viva 1 then 2 and kind of in last year, early in the year we had 40 acres that we were really had outlined and worked with the architects were going to build a business park. 7 Terardon

Okay.

Good morning, Alice and thanks, Scott.

On this one.

The CFO Veeva you may remember, we own in separate transactions, we bought separately one then too.

And kind of in last year early in the year. We had 40 acres that we were really had outlined and work with the architects we're going to build a business park.

Speaker 3: And then Amazon came along and thankfully, and they said, we'll take all 40 acres. So that's our speed distribution center that's under construction and we hope to deliver in late.

And then Amazon came along and thankfully as I said, we'll take out 40 acres. So thats our speed distribution center, that's under construction and we hope to deliver in late first quarter and then since then we've been looking for additional land for opportunities or are some.

Speaker 3: first quarter and then since then we've been looking for additional land for opportunities or some value add opportunity with vacancy. This is, I guess without naming them, I don't want to violate our confidentiality large pension plan. It had kind of reached the life of their whole period. They still own buildings.

Value add opportunity with vacancy this is without naming them I don't want to violate our confidentiality large pension plan. It has kind of reached the life of their hold period, they still own buildings in this park and in this sub market. They had they had bought it with the way the market had run they had a good <unk>.

Speaker 3: in this park and in this submarket. They had bought it with the way the market had run, they had a good profit on this investment and had a large tenant, a 200, I believe it was 250,000 foot tenant go bankrupt. It's right along the border with Mexico. We're near the border crossing, what we liked about it. And they're building a new kind of better technology, high speed border crossing that's under construction. So we're really right there between the two border crossings.

<unk> on this investment and had a large tenant at 200 250000 foot tenant go bankrupt, it's ride along the border with Mexico, where near the border crossing what we liked about it.

And they are building, a new kind of better technology high speed border crossing Thats under construction. So we are really right. There between the two border crossings and really building up our presence as the same developer local developers that built this park. So I think it really hits there.

Speaker 3: and really building up our presence. It's the same developer, local developer that built this park. So I think it really hit their whole period for the pension fund, the state pension plan that owned it. They had a good profit in spite of the vacancy. As we were bidding on it, it was 50% lease, kind of during due diligence we were able to get.

Full period for the pension fund the state pension plan that owned it.

Had a good profit in spite of the vacant say it was as we were bidding on it it was 50% leased during due diligence we were able to get.

Speaker 3: a 3PL, a tenant in, and so we've got it at about 65% lease today in good activity and we'll, you know, as I view it, almost like an assembly line, we'll finish this project up and then find that next opportunity in San Diego. We like the proximity to the border. If you think long term, that there'll be maybe more near-shoring for manufacturing. It'll take years, but leaving China and coming to Mexico and then with the

<unk> a tenant in and so we've got at about 65% leased today and good activity and we will.

As I view it almost like an assembly line, we will finish this project.

And then find that next opportunity in San Diego, we liked.

The proximity to the border. If you think long term that <unk>, maybe more near shoring for manufacturing that will take years, but leaving China and coming to Mexico and then with.

Speaker 3: Move in San Diego more to life science and creative office. A lot of the traditional office.

Move in San Diego more to life Science, and creative office, a lot of the traditional office.

Speaker 3: in the center of San Diego is becoming more lab space, so the traditional industrial users are getting pushed south towards the border as well. So we really like the kind of geographic dynamics of this location. Probably longer answer than you were seeking, but that was what attracted us to this one.

In the center of San Diego is becoming more lab space of the traditional industrial users are getting pushed south towards the border as well. So we really like the kind of the geographic dynamics of dislocation for a longer answer than you were thinking but that was what attracted us to this one.

Speaker 6: Thank you, and maybe one from Brent. What's the impact from higher borrowing rates that you're seeing today relative to 2021 in the future? How should we be thinking about capital allocation with rising rates?

Thank you and maybe one for Brent.

What are the what's the impact from higher borrowing rates that youre seeing today relative to 2021 in the future how should we be thinking about capital allocation with rising rates for eastgroup. Thank you.

Speaker 4: Yeah, good morning Elvis. You know, something we're keeping an eye on, you saw us act pretty quickly early in the year here, locking in, as we disclosed, 250 million between two loans and lock that in at just a shade over 3%, which we were frankly pretty satisfied with. I think that'll insulate us some from early part of the year. Also, we only have one maturing mortgage that comes up here in a couple of months or at the end of this month.

Yes, good morning, Alice Yes, it's something we're keeping an eye on you saw US Act pretty quickly early in the year here locking in as we disclosed $250 million between two loans and lock that in at just a shade over 3%, which we were frankly pretty satisfied with.

I think that will insulate us some from early part of the year also we only have one maturing mortgage it comes up here in a couple of months or at the end of this month.

Speaker 4: and that rate's over 4%. So, you know, again, we're retiring one at a higher rate than I think we'll anticipate incurring. So, you know, it's like we've kept an eye on both lanes, so we were very active on the ATM with equity in fourth quarter. We really like the pricing.

And that rates over 4% so.

Again, we're retiring one at a higher rate than I think we would anticipate incurring so.

It's like we've kept an eye on both linked so we're very active on the ATM with equity in the fourth quarter, we really liked the pricing.

Speaker 4: Again, we've started early part of the year with placing some of our debt early with anticipation the rates go up. But over time as we move out, if rates do rise, I mean that will be part of the environment. But historically speaking, they're still very attractive. And when you compare whether it's 3%, if that grows to 3.5% of whatever the number turns out to be, when you look at our ability to continue to put money out, especially on the development side at that mid 6 to 7 range.

Again, we've started early part in the year with.

Placing some of our debt early with anticipation that rates go up but yes over time as we move out if rates do rise I mean that will be part of the environment, but historically speaking they are still very attractive and when you compare whether it's 3% if that grows to three 5% or whatever the number turns out to be when.

When you look at our ability to continue to put money out, especially on the development side at that mid 6% to 7% range.

Speaker 4: We want to make as big a spread as we can, but it's not, I guess I would say, stressing the yield spread there. We'll continue to play both sides. We have a very conservative balance sheet. We've intentionally put ourselves in a position to where if the markets were to turn such on the equity side, that would have plenty of runway on the debt side. If both are attractive, which we view it now, you'll probably see us continue to play both sides.

It's not we want to make as big a spread as we can but it's not I guess I would say stressing.

The yield spread there so.

We will continue to play both sides, we have a very conservative balance sheet, we have intentionally put ourselves in a position to where the markets were to turn such on the equity side that would have plenty of runway on the debt side.

And in Europe .

Both are attractive, which we view it now you'll probably see us continue to play to play both sides.

Speaker 6: And just to squeeze one more from Marshall, any read-throughs on what could potentially happen at CapRate.

And just to squeeze one more for Marshall any read throughs on what could potentially happen to cap rates.

Speaker 3: To date, we've not seen any, you know, with the debt market moving up, have not seen any movement in cap rates. You know, I don't, it's hard to say they're falling, but they probably are slightly or really maybe the biggest difference, say over 12 months, is the differentiation between cap rates that we used to, you know, maybe outside of a Dallas, LA, Atlanta, there'd be a little bit higher cap rate in Phoenix or Las Vegas.

Okay.

To date, we've not seen any with the debt market moving up have not seen any movement in cap rates.

Hard to say they are falling but they probably are slightly or really maybe the biggest difference say over 12 months is the differentiation between cap rates that we used to maybe outside of the Dallas La Atlanta, there'd be a little bit higher cap rate.

Phoenix or Las Vegas, Denver, Charlotte, but.

Speaker 3: Those secondary markets are just as intensely competitive and the pricing on those assets are, it's really not much different than it is in Southern California. That they're just...

Those secondary markets or just is intensely competitive and the pricing on those assets, it's really not much different than it is in southern California that Theyre, just still seems to be this wall of capital out there that likes us included that.

Speaker 3: still seems to be this wall of capital out there that likes, and us included, that

Speaker 3: like, you know, well located, you know, well designed industrial product and we've kind of learned the hard way. Having a checkbook is not a competitive advantage in the bidding process that there's a lot of folks out there with a lot of dry powder trying to buy industrial and.

Mike.

Well located well designed industrial product in and we've kind of learned the hard way, having a check book is not a competitive advantage in the bidding process that there is a lot of folks out there with a lot of dry powder trying to buy industrial and <unk>.

Speaker 3: you know, this is more hypothetical, but until people get more comfortable underwriting.

This is more hypothetical but until people get more comfortable underwriting.

Speaker 3: office buildings and work from home and maybe retail and hotels and things like that, it feels more and more crowded in the industrial space or new competitors.

Office buildings and work from home and maybe retail and hotels and things like that it feels more and more crowded in the industrial space or new competitors.

Speaker 3: arriving every month depending on which market we're talking about.

<unk> remarks, depending on which market we're talking about.

Thank you.

Sure.

Speaker 1: The next question comes from Craig Mailman from KeyBank Capital Markets.

The next question comes from Craig Mailman from Keybanc capital markets. Please go ahead.

Speaker 7: guys. Marshall, just wanted to touch on your commentary about e-commerce. We all know it's

Yes, Marshall just wanted to touch on your commentary about ecommerce. We all know it's extremely strong and definitely the demand is broadening out beyond Amazon, but just kind of curious this is a tenant that that's coming to your market more recently in the CFO was recently, saying they're going to.

Speaker 7: extremely strong and definitely the demand is broadening out beyond Amazon. But just kind of curious, this is a tenant that's coming to your market more recently and the CFO was recently saying they're going to moderate their appetite for industrial. I'm just kind of curious what your thoughts are on that, whether you've seen anything on that.

Moderate there their appetite for industrial I am just kind of curious what your thoughts are on that whether you've seen anything on that.

Yes, I guess im not thanks.

Speaker 3: I don't know the tenants specifically, but in general, you know, we still think whether it's e-commerce or delivery, you know, a number of our buildings get used for delivery and I think there'll be more and more shifts away from, you won't close your traditional brick and mortar, but you'll have omni-channel retail where it can be, here's our

For the.

I don't know the tenant specific lease but in general.

We still think whether it's e-commerce or delivery.

Number of our buildings get used for delivery and I think there'll be more and more shifts away from you all closure traditional brick and mortar, but you'll have omnichannel retail where it can be here's our class.

Speaker 3: class, you know, our Ape Prototype retail store and the A-retail property in town, or maybe two in town, and you'll have more.

A prototype retail store and the April a retail property in town or maybe two in town and you'll have more <unk>.

Speaker 3: curbside pickup is where we'd love to go. And we're aware of a couple of tenants that have moved to that within our properties or at least designated those, or showrooms in our property that we see, especially like the Ferguson plumbing, dial tile, insert tile, some of those kind of home improvements. So I think is one of our directors describe it when COVID hit.

Curbside pickup is where we'd love to go and we're aware of a couple of tenants that have moved to that within our properties or at least designated those or showrooms at our property that we see especially liked up Ferguson plumbing Dal tile and <unk>. Some of those kind of home improvement. So I think as one of our <unk>.

Actors describe it when COVID-19 hit.

Speaker 3: It demystified e-commerce for a large portion of the population. And it's continuing to grow, and I think with Amazon's dramatic growth over the last

Demystified e-commerce for a large portion of the population is continuing to grow.

And I think with Amazon's dramatic growth over the last couple of years, if you and I were at a retailer.

Speaker 3: couple of years. If you and I were at a retailer...

Speaker 3: we would have to be thinking of how do I shorten my delivery times and keep up with Amazon or they're going to take my market share, you know, depending on what, where you fit in but Amazon seems to be getting into about every, you know, whether it's pharmaceuticals or this or that, about every different type of business which I think puts...

Would have to be thinking of how otherwise shortened mine delivery times, and keep up with Amazon or theyre going to take my market share depending on what where you fit in but Amazon seems to be getting into about everything it whether it's pharmaceuticals or this or that about every different type business, which I think puts more.

Speaker 3: know more logistics pressure on all the other retailers in time kind of to keep up with Amazon's growth.

More logistics pressure on all the other retailers in time kind of to keep up with Amazons growth.

So.

Speaker 7: And Cuddy, your feeling is even if Amazon kind of pulls back, there's plenty of demand behind them from competitors.

Youre feeling is even if Amazon kind of pulls back there's plenty of demand behind them.

Welcome to the hours that you shouldn't see a big falloff okay.

Speaker 3: I think, yeah, I'm an optimist, but I think so. You're telling me, I guess I've thought if Amazon has just, you know, dramatic amounts of square footage that they've gobbled up, if you're at Lowe's, Home Depot, Best Buy, you know, RH, you name, our house, you name the retailer, or, you know, online mattresses and things like that, you know, or we see pharmaceuticals getting pushed more and more online as a way to manage cost within our buildings. I think all those folks.

Yes.

<unk>, but I think so you're telling me I guess I've thought of Amazon is just.

Dramatic amounts of square footage that they've gobbled up.

Youre at Lowe's home depot best buy.

<unk> named our house, you named the retailer or online mattresses and things like that.

Obviously pharmaceuticals, getting pushed more and more online as a way to manage cost within our buildings I think all of those folks.

Speaker 3: would have to just if you're from, you know, just a business strategy have to find ways to meet Amazon delivery wise and so many people realize it's so easy and convenient to order online versus driving and especially during COVID and which wave we're in versus traditional brick and mortar and I don't think brick and mortar will will ever go away. I think it's a social activity but I think it continues to grow and capture a bigger and bigger piece of the retail pie.

Would have to just if you are from just a business strategy have to find ways to meet Amazon delivery wise and so many people realize it's so easy and convenient to order online versus driving especially during COVID-19 and which way we're in versus traditional brick and mortar and I don't think brick and.

<unk> will ever go away I think it's a social activity, but I think it continues to grow and capture a bigger and bigger piece of the retail pie.

Speaker 7: that's helpful. Then just on development, you guys, you know, what you started subsequent to your end, you're kind of already a third of the way to your development start guidance.

Okay. That's helpful. And then just stopped development you guys. What you started subsequent to year end Youre kind of already a third of the way to your development start guidance.

Speaker 7: You know, as you look at the runway, you mentioned you had a big development last year, but do you guys feel like you can close the gap relative to what you did in 21? And then just also on the yields side, I know you guys get asked all the time, yields are kind of sticky in that high 6% range despite...

As you look at the runway you mentioned you had a big development last year, but.

Do you guys feel like you can close the gap relative to what you did in 'twenty. One and then just also on the yield. So I know you guys get asked all the time yields are kind of sticky in that high 6% range. Despite.

Speaker 7: inflation and higher land costs. I mean, do you feel like the market rent growth aspect of things could continue to keep yields up in that area?

Inflation and higher land cost I mean, do you feel like the market rent growth aspect of things can continue to keep yields up of that that area.

Maybe I guess two.

Speaker 3: Two thoughts, one, I hope so. I mean, we'll go with, usually kind of our motto is always internally, but we'll go as fast as the market leases our buildings. And last year went quickly. I think as one of your peers pointed out, we started the year at, it just shows how bad I am at forecasting at 205 million in starts.

Two thoughts one.

I hope so I mean, we'll go with kind of our motto is always internally, we'll go as fast as the market leases are buildings last year went quickly I think is one of your peers pointed out we started the year. It just shows how bad I am forecasting at $205 million in starts and finished at $3 40.

Speaker 3: and finished at $340. And we did have that $90 million speed pre-lease move and it obviously a lot. I hope the market's as strong as we're.

And we did have that that $90 million feed pre lease move the needle obviously.

I hope I hope the market is as strong as where.

Speaker 3: thinking it will be and that leasing activity picks up on our developments and that we can beat the 250 million. So I'd like to think, as you said, we started a lot this quarter. We're seeing good activity within our leasing, you know, good movement from last quarter to this quarter as you kind of compare the percent lease. So hopefully there's upside there. And then on the development yields, we'll, our underwriting, we'll use today's construction costs and really today's.

Thinking it will be and that leasing activity picks up on our developments and that we can beat the $250 million. So I'd like to think as you said we started a lot. This quarter, we're seeing good activities within our leasing good movement from last quarter to this quarter as you kind of compare the percent lease so hopefully there's upside there.

Sure.

And then on the development yields.

Our underwriting will use todays construction costs and really today's <unk>.

Speaker 3: rental rates because it gets to be a slippery slope.

Rental rates because it gets to be a slippery slope.

Speaker 3: start projecting where rents will be when we deliver the building. So as we underwrite them...

Start projecting where rents will be when we deliver the building so as we underwrite them we have seen some degradation in returns, but then by the time <unk>.

Speaker 3: We have seen some degradation in returns, but then by the time, you know, six, eight months when we deliver the building and the team starts leasing them up, we have been able to catch up. And yeah, and I guess what hit me, if you looked within our supplement, what we pulled out of the development pipeline.

Eight months when we deliver the building in the team starts leasing them out and we have been able to catch up.

And yes, and I guess, what what hit me if you look within our supplement what we pulled out of the development pipeline.

Speaker 3: It was 17 projects last year, about $280 million.

Was 17 projects last year about $280 million, and we were able and thanks to the team. The average is seven 2% yield in.

Speaker 3: And we were able, and thanks to the team, to average a 7.2% yield.

Speaker 3: I think it's unreasonable. You could say a 3.6 market cap rate.

I don't think it's unreasonable you can say a three six market cap rate and just because that can do the math on that so it really doubles the value of what we pulled out of the pipeline. So to me if you say that's a.

Speaker 3: just because I can do the math on that. So it really doubles the value.

Speaker 3: of what we pulled out of the pipeline. So to me, if you say that's a 100% profit margin, even if we get pulled backwards on some of those yields, if we earn a 70, 75%, you know, value creation factor, I think that's a great return. And the trick is we'll go as fast as we can. We could start more. It's really more how fast do they lease up? And then as you saw in fourth quarter, we're.

100% profit margin, even if we get pulled backwards on some of those yields if we earn up 70, 75% value creation factor I think that's a great return under the trick is we'll go as fast as we can we could start more it's really more how fast they lease up.

And then as you saw in fourth quarter were <unk>.

Speaker 3: trying hard to find whether it's vacancy and value adds where we can find space.

Trying hard to find whether it's vacancy and value adds where we can find space near term, while the demands there and or find land sites as much competition is out there and the growth we're seeing demand from industrial tenants, we handled record absorptions and about all of our markets.

Speaker 3: near term while the demand's there and or find land sites as much competition is out there and the growth we're seeing.

Speaker 3: demand from industrial tenants, with record absorptions in about all of our markets.

How can we find land that we can pencil and makes it makes sense. So yes.

Speaker 3: land that we can pencil and make sense of. So yeah, we're we like the value creation component, especially when you know, kind of core leased assets are extremely competitive to bid on. So we're, that's an awful lot of our focus.

We liked the value creation component, especially with kind.

Core leased assets are extremely competitive bid on so where.

That's an awful lot of our focus.

Speaker 3: And hopefully we can hang in there with those yields even with prices going up. We'll do our best. And hopefully the rent can help keep offsetting those increases.

And hopefully we can hang in there with those yields even with prices going up will do.

So our best hopefully can help keep offsetting those increases.

Great. Thanks.

Youre welcome.

Speaker 1: The next question comes from Manny Korchman from Citi. Please go ahead.

The next question comes from Manny Korchman from Citi. Please go ahead.

Speaker 5: Hey, it's Chris McCurry on with Manny. I was wondering if you could comment on onshoring trends and specifically the impact of labor cost, inflation and just hiring shortages on any of these conversations.

Hey, it's Chris Mcquarrie on with Manny I was wondering if you could comment on onshoring trends and specifically the impact of labor cost inflation and just hiring shortages on any of these conversations.

Speaker 3: Yeah, you know, I think a good question we see, you know, I don't know, it's hard to even call it on, probably where we've been more effective is

Yes, I think a good question, we see it as it's harder to even call it onshore and probably where we've been more effective as well.

Speaker 3: we do see a number of tenant relocations from California to Arizona, Nevada, Texas. We've seen more that are relocations into the state of Florida. So we definitely see the population grows onshoring.

We do see a number of tenant relocations from California to Arizona, Nevada, Texas, we've seen more of that or relocations into the state of Florida. So we definitely see the population growth onshoring.

Speaker 3: You know, I actually, as we've talked about it, given the labor shortage and the cost of labor...

I actually as we've talked about it given the labor shortage and the cost of labor, we felt better about near shoring, maybe that people will it'll take a while will move plants to Juarez, where were developed where we have a presence in el Paso or building or we.

Speaker 3: we feel better about nearshoring maybe, that people will, it'll take a while, we'll move plants to Juarez, where we're having a presence in El Paso or a building or.

Speaker 3: We talked about South San Diego to Tijuana or even Nogales, Mexico, which is near our Tucson properties as well as our Phoenix. So I think longer term, I think with trade tensions with China that even were started before COVID. We talked about South San Diego to Tijuana or even Nogales, Mexico, which is near our Tucson properties as well as our Phoenix.

You talked about south San Diego to Tijuana, or even Nogales, Mexico, which is near our kind of our Tucson properties as well as our Phoenix, So I think longer term.

Zinc with trade tensions with China.

We're started before COVID-19 .

Speaker 3: and the supply chain issues of getting your properties in. We feel we're optimistic longer term about nearshoring. I think that would take a while to, you know, close a plant somewhere else and move it into Mexico. And I think that would be, would seem to me to be, and with the preface of what do I know, but would seem more attractive than opening, you'll see some manufacturing, and we certainly see that in Atlanta or in Dallas. But there it's just so competitive for workers and things.

And the supply chain issues of getting your properties in we feel we're optimistic longer term about near shoring I think that would take a while to.

Close the plant somewhere else.

And move it into Mexico, and I think that would be it would seem to me to be.

And with the preface of what do I know, but would seem more attractive than opening youll see some manufacturing and we certainly see that in Atlanta or in Dallas, but there. It's just so competitive for workers and things like that.

Speaker 3: probably a little more difficult I would imagine than moving if you're Home Depot your supplier to Mexico from China

Probably a little more difficult I would imagine then moving home depot your supplier to Mexico from China.

Speaker 5: Got it. Yeah, just one more for me. And I guess it kind of builds off that. But with some of those nearshoring conversations, and just like supply chain issues in general, are those impacting any real estate decisions for some of your auto and home building tenants? Or have you seen any, you know, long term or near term change in trends with those two categories?

Got it yes, just one more for me and I guess, it kind of builds off that but with some of those near shoring conversations and just like supply chain issues in general are those impacting any real estate decisions for some of your auto and homebuilding tenants or have you seen any long term or near term change in trends with those two.

Categories.

Speaker 3: A little bit of study, I mean, and maybe give me a month, and this probably speaks more to one of our prospects we're working with and things, where they are touring and focused a little bit on nearshoring and their logistics. vibrate

A little bit Ah study, I mean, and maybe give me a month and Thats probably speaks more to one of our prospects, we're working with and things where they are touring and focused a little bit on near shoring and their logistics. So we've.

Speaker 3: It's kind of worked our way. It's kind of interesting timing, this conversation this week within their real estate.

I have kind of worked our way it's kind of interesting timing just conversation this week within their real estate team and even their CEO is out touring some of the assets now so we're seeing some of that we have.

Speaker 3: team and even their CEO is out touring some of the assets now. So we're seeing some of that. We have.

Speaker 3: You know, we did lease a building to a German automotive company in Atlanta within, you know, it's probably eight, nine months ago. So we're seeing some movement like that. Within home building, we're definitely seeing that activity pick up and that's probably more just, I guess in my mind, a function of the housing demand in places like.

We did release a building to a German automotive company.

Atlanta within its probably eight or nine months ago. So we're seeing some movement like that within homebuilding, we're definitely seeing that activity pick up and Thats, probably more just I guess in my mind.

A function of the housing demand in places like.

Speaker 3: Florida and Georgia and Arizona and places, you know, we are seeing those type tenants definitely pick up. We just, you know, one of the buildings in Fort Myers which just leads to a Canadian company that serves the home building industry and we, you know, it's kind of other, as an aside, interesting.

Florida, and Georgia, and Arizona in place, we are seeing those type tenants definitely pick up we just.

One of the buildings in Fort Myers, which just leads to a Canadian company that serves the homebuilding industry.

Scott the other is an aside interesting trend we've seen we build our same multi tenant buildings, but we've seen more and more in the last year, where a single tenet will come along and even though we've designed it to be able to multi tenant the building they will take the entire building and thats really the other factor.

Speaker 3: trend we've seen. We've built our same multi-tenant buildings, but we've seen more and more in the last year where a single tenant will come along and even though we've designed it to be able to multi-tenant the building, they'll take the entire building and that's really the other factor that obviously helps speed up our development pipeline is we'll move to the next building and the park as quickly as we can. Got it. Thank you.

That obviously helps speed up our development pipeline is we'll move to the next building in the park as quickly as we can.

Got it thank you.

Sure Youre welcome Chris.

Again, if you have a question. Please press Star then one.

Speaker 1: Our next question comes from Samir Kanal from Ivorcor ISI.

Our next question comes from Samir Khanal from Evercore ISI. Please go ahead.

Speaker 5: Hey, Marshall, good morning here. I guess my question is around the guidance of sort of 5.5 at the midpoint for NOI, which is similar to what you did in 21. But, you know, considering how strong demand is and all the rent growth you hear about, I would have thought that would have been a little bit higher. Just trying to figure out, you know, are there any sort of headlines we need to think about? Or contemplate to get you kind of the midpoint or even the low end here, which is the 5.1. I guess I'm trying to see how much conservatism you're baking in here. Thanks.

Hey, Marshall Good morning here I guess my question is around the guidance of sort of size side at the midpoint for NOI, which is similar to what you did in 'twenty one.

Considering how strong demand is in the older rent growth you hear about it would've thought that would've been a little bit higher just trying to figure out are there any sort of headwinds we need to think about.

Contemplate to get your kind of the midpoint or even the low end here, which is a five one.

I guess I'm trying to see how much conservatism you're baking in here. Thanks.

As this is Brent I'll jump in there our midpoint of guidance is 97% as Marshall mentioned that would be our second highest year on record.

Speaker 4: is 97%. As Marshall mentioned, that would be our second highest year on record if we even just meet that. That equates to, as you mentioned, 5.6% thanks to ORS.

Even just meet that that equates to as you mentioned a five 6% same.

Same store midpoint.

Speaker 4: Most of that, obviously, occupancy being at that level, your occupancy increases, basically, we're not baking into being really a component or part of thanks to our growth. So then you're really heavily leaning into the rental rate increase side, which again, has been very good for us, the low 30% gap and very, very high teens cash. And so we're projecting similar, I guess what I would say, we're projecting similar record type results, but

That obviously occupancy being at that level.

Occupancy increase is basically we are not baking into.

Being really a component part of same store growth. So then you're really heavily leaning into the rental rate increase at which again has been very good for us.

Low, 30% GAAP and very very high teens cash and so we're projecting similar I guess, what I would say, we're projecting similar record tight results, but we.

Speaker 4: We hope that we can build off those in terms of higher increases, but...

We hope that we can build off those in terms of higher increases but.

Speaker 4: We'll see if the year plays out where February of the year and so that's where we're at at this point. But really it's maybe trickier than you think when you're early into a year and you start looking at all the assumptions, our guys in the field go space by space on the rollovers and vacancies, looking at rental rates. Certainly if rental rate growth power continues to grow during the year, that could give us some potential to power over login rates going up, but if it does, then turn your <expletive> over to a new general center company to even better BIG

We will see as the year plays out.

February .

Of the year and so that's where we're at at this point, but it really is.

Maybe trigger do you think when you're early into a year and you start looking at all of the assumptions our guys in the field go space by space on a rollover some vacancies.

Looking at rental rates certainly for rental rate growth power continues to grow during the year that could give us.

Speaker 4: some more room to push there and to beat. Again, it's a midpoint. It factors into our FFO midpoint of guidance. We'll see. I would say we've probably leaned a little more conservative into our development or spec leasing into the overall budget, maybe more so than the operating side.

Some more room to push there and to beat so.

Yeah again, it's a midpoint, it's what factors into our <unk> mid point of guidance.

And so we'll.

We will see I would say, we probably leaned a little more conservative into our development or spec leasing into the overall budget maybe more so than then the operating side.

Yes, that's it from me guys. Thanks.

Thanks, Thank you.

Speaker 1: The next question comes from Vince Tabone from Green Street Advisors.

The next question comes from Vince to Bone from Green Street Advisors. Please go ahead.

Speaker 8: Hi, good morning. Could you discuss the supply landscape for shallow bay products in your market? Are there any regions or metros where supplies potentially becoming a concern?

Okay.

Hi, good morning.

Could you discuss the <unk>.

Hi landscape for shallow bay product in your markets are there any regions or metros, where supply is essentially becoming becoming a concern.

Speaker 3: Hey Vince, good morning, it's Marshall.

Hey, Thanks, good morning, its Marshall.

Speaker 3: I'm really not. I mean there is some supply for the most part if you ask me if we were building a model or something a rule of thumb is we'll typically say

I'm really not I mean, there is some supply for the most part.

Asked me if we were building a model or something of a rule of thumb is will typically say.

Speaker 3: where there's, I'll pick a market with a lot, I'm just looking at my Dallas numbers, where Dallas has 55 million under construction, which has probably gotta be close to a record, but last year, absorptions was 40 million.

Where there is I'll pick up a market with a lot I'm just looking at my Dallas numbers were Dallas has $55 million under construction, which has probably got to be close to a record but last year absorptions was was 40 million square feet.

Speaker 3: And over 60% of that's in South Dallas and North Fort Worth where we're not. And probably

And over 60% of that's in South Dallas in North Fort worth, where we're not and probably what would be shallow bay is probably usually our team estimates 10% to 15% of the total market supply. So again, maybe for me as I use a rule of thumb, it's usually about that.

Speaker 3: What would be shallow bay is probably, usually our team estimates 10 to 15 percent.

Speaker 3: of the total market supply. So again, maybe for me as I use a rule of thumb, it's usually about that amount or again, as I'm kind of looking at my market numbers and this one I even

That amount or again as I'm kind of looking at my market numbers and Thats why not even.

Speaker 3: I'll credit it, hesitate to repeat, but CBRE's numbers for Atlanta, at the end of the year, there's a little over 35 million square feet under construction. And of that, they designate 76,000 square feet of shallow bay. So I mean, it is just, that's minimal. There's more competition than, again, I think 10% is better than the 76,000. I like that number. And there's always, the tenants always seem to have

On credit it hesitate to repeat but cbre's numbers for Atlanta at the end of the year. There is a little over 35 million square feet under construction and of that de designate 76000 square feet of shallow bay. So I mean, it is just that's minimal theres more competition than I think.

10% better than the 76000, I like that number and Theres always tenants always seem to have an option, but it if we were starting a development company and Im biased maybe it's a grass is greener it would be easier for you and I'll stick with Atlanta to go to South Atlanta find us.

Speaker 3: an option, but if we were starting a development company and I'm biased, maybe it's a grass is greener, it would be easier for you and I, I'll stick with Atlanta, to go to South Atlanta, find a site.

Speaker 3: and build an 800,000 foot building and put more capital to work because so many of our peers are bigger or even if you're a local regional developer your promotes are better building an 800,000 foot building than a 120,000 foot multi-tenant building. So that's where we see so much of the competition and I can't fault them. I say that because those buildings are getting leased and it's working for them. It's just not kind of where we fit in the playground.

Sites and build an 800000 foot building and put more capital to work because so many of our peers are bigger or even if you're a local regional developer your promotes or better building, an 800000 foot building that up 120000 foot multi tenant buildings. So that's where we see so much of the <unk>.

Competition, and I can't fault them, I say that because those buildings are getting leased and it's working for them. It's just not kind of where we said on the playground. So.

Speaker 3: We really try to pace it more into demand, and there's always an option, but it's usually a local regional developer with a building here or there. There's just not that much.

We really try to pace it more into demand then and there is always an option, but it's usually a local regional developer with a building here or there there's just not that much shallower base supply.

Speaker 3: shallow base supply. I hate to say that out loud on a public earnings call, but it seems to be so much of our competition that it really falls more into bulkier big box buildings.

I hate to say that out loud on a public earnings call, but it seems to be so much of our competition really falls more on the bulk are big box buildings.

Speaker 8: No, that's really helpful and consistent what you said in the past. I just find it interesting that, you know, especially given the profit margins, these groups developed that in recent years that maybe more people aren't pursuing a similar strategy, but it makes sense on the edges, kind of the different points you laid out. So that's really helpful.

No that's really helpful and consistent what you've said in the past, but I just find it interesting that especially given the profit margins eastgroup develop that in recent years, but maybe more people arent pursuing a similar strategy, but it makes sense on the.

Just kind of the different points, you laid out but thats really helpful.

Speaker 3: You know, I think part of it helps too, Vince, or just for you to get what we... Well, one reason we think, because we have that same conversation internally, it's awfully hard to find those good infill land sites, and you're figuring out how to kind of almost Rubik's Cube a handful of buildings to build our park.

I think part if it helps to that so just for you to get that.

One reason, we think because we have that same conversation internally.

Awfully hard to find those good infill land sites and you're figuring out how to kind of almost rubik's cube.

Handful of buildings to build on our parks and it takes longer to go through zoning and entitlement and things when they are infill versus the edge of town. So thankfully with the REIT model, we can spend.

Speaker 3: And it takes longer to go through zoning and entitlement and things when they're in-field versus the edge of town. So thankfully with the REAP model we can spend...

Speaker 3: know, a few years. Like the Charlotte land that we closed, I think we had it under contract for about a year and a half before we closed it and worked our way through it. So that's just a different model than a lot of the private developers that we thankfully can have the luxury of patience and work on a lot of these sites for. You know, it feels to me like an iceberg that we're working on it, working on it, and then you all see it when we finally close on it.

A few years like the Charlotte land that we closed I think we had it under contract for about a year and a half before we closed it and worked our way through it. So that that's just a different model than a lot of the private developers that we thankfully. It can have the luxury of patience and work on a lot of these sites for.

It feels to me like an iceberg that we're working on it working on it and then you'll see it when we finally close on it.

Speaker 8: Got it. That's all helpful commentary. Thank you. Okay. You're welcome.

Got it that's all helpful commentary. Thank you okay.

Speaker 1: The next question comes from Jason Eidoin from RBC. Please kill us.

Yes.

The next question comes from Jason <unk> from RBC. Please go ahead.

Speaker 8: Hey, good morning guys. Quick question on the disposition front. So you guys had your first and only disposition of the year in the fourth quarter, and then started the year with another disposition. So I guess my question is, what led to the determination to prune these properties from the portfolio? And what are some of the common characteristics that you're looking at when you decide kind of maybe where you've maximized value?

Hey, Good morning, guys quick question on the disposition front. So you guys had your first normally disposition of the year in the fourth quarter and then started the year with another disposition. So I guess my question is what led to that determination.

To prune these properties from the portfolio and what are some of the common characteristic that you're looking at when you decide kind of maybe where you can maximize value.

Speaker 3: Sure. Jason, good question. The one in Tampa, we had acquired it in the 90s, it was well located, but a lot of small tenants, some of the projects...

Sure Jason Good question the one in Tampa, we had acquired it in the Ninety's as well located but a lot of small tenants some of the projects smaller building smaller tenants non sprinklered.

Speaker 3: Smaller buildings, smaller tenants, non-sprinkled. So we had it kind of as we worked through it, in my mind, it's almost like a batting order. And there.

So we had a kind of as we worked through in my mind is almost like a batting order and there we were not on work that the team did a good job we were able to get in a little under 4% cap rate on it.

Speaker 3: We were knock on wood that the team did a good job. We were able to get a little under a 4% cap rate on it.

Speaker 3: for going on a 40 year old project or maybe just over 40 years.

For going on a 40 year old project or maybe just over four years the property in Phoenix.

Speaker 3: The property in Phoenix, we originally thought we were going to have it closed last year. We had to switch buyers. The brokers did a good job. We had a backup buyer and it drifted into the first week of this year. But similar. And then it's one of our few service centers. We bought it in a portfolio in the 90s and it was right at a...

Originally we thought we were going to have it closed last year, we had to switch buyers for brokers did a good job back.

Backup buyer and it drifted into the first week of this year, but similar and then it's one of our few service centers, we bought it in our portfolio in the Ninety's and it was right at <unk>.

Speaker 3: or CAP2 and as I kind of give you an idea as I've mentioned the demand out there for industrial product I would have put both of those in the...

For Caf II and is that kind of to give you an idea as I mentioned the demand out there for industrial product I would've put both of those in the six I'm looking at brand as I said, 6% to 7% cap rates, maybe 18, 24 months and we were able to get forecast or just below that on both of them.

Speaker 3: I'm looking at Brent as I say it, 6 to 7% cap rates may be

Speaker 3: 18-24 months and we were able to get four caps or just below that on both of those We've got you know, another small service center out on the market today in South Florida I knock on wood and then I...

We've got another small service center out on the market today in South Florida.

Knock on wood and then as we can.

Speaker 3: We'll develop and create the value in Houston. We've got another project in Houston. And so anything that's got a little more office component.

We will develop and create the value in Houston, We've got another project in Houston, and so anything Thats got a little more office component a little bit more age.

Speaker 3: a little bit more age. I think it's one of our

I think it's one of our really responsibilities to always kind of be pruning our portfolio and.

Speaker 3: really responsibilities to always kind of be pruning our portfolio and typically will ask the team

Typically we will ask the team if Jason if you came in in the morning, and you got an E mail or call telling you one of your tenants just went bankrupt what building do you hope that's not in and that really gives us our disposition list and so hopefully it will.

Speaker 3: Jason, if you came in in the morning and you got an email or a call telling you one of your tenants just went bankrupt, what building do you hope that's not in?

Speaker 3: And that really gives us our disposition list. And so hopefully we'll.

Speaker 3: You know, it's a form of capital. We like the equity markets and the debt markets. But if we can sell things, we can't sell them.

As a form of capital, we like the equity markets and the debt markets, but if we can sell things and coffee and if we can sell at a four on Tampa and develop into the fixes to maybe even a seven.

Speaker 3: If we can sell it a four in Tampa and develop into the sixes to maybe even a seven, we like that model a lot. And that's really what we've been doing in Houston the last couple of years is we think there's some development opportunities. We closed on some land there. But also sell in the threes to four if we can kind of keep that model.

And well into that we like that model a lot and that's really what we've been doing in Houston. The last couple of years as we think there is some development opportunities we closed on some land there, but also sell in the three to four if we can kind of keep that model.

Speaker 8: Okay, yeah, no, that makes sense. And then, touching on Houston, I know on the last call, you guys mentioned that you expected that exposure to drop further, and I guess I was just trying to put some rails around that. So is that from selling assets, or is that more just from growth in other markets?

Okay, Yeah, no that makes sense.

And then touching on Houston I know on the last call you guys mentioned that you expected that exposure to drop further and I guess I was just trying to put some rails around that so is that from selling assets or is that more just from growth in other markets.

Speaker 3: A little of both. I mean, mostly, predominantly, it's been growth and rising rents and other markets. We still like Houston. We have a good team there, fifth largest.

A little of both I mean, mostly predominantly there's been growth and rising rents and other markets. We still like Houston, we have a good team there fifth largest city in the country and the value creation, but well.

Speaker 3: city and the country and the value creation, but we're under contract, knock on wood, with a Houston asset presently looking at something else, so we'll kind of tread water in Houston a little bit while the other markets where we're under allocated continue to grow. And thankfully this year, as we were looking at our projected NLIs, it's been a long time

We're under contract knock on wood, we're the Houston asset presently looking at something else. So, we'll kind of tread water and Houston, a little bit while the other markets, where we're under allocated continue to grow in and thankfully. This year. It was as we were looking at our kind of projected NOI is at its fallen below 11%.

Speaker 3: it's fallen below 11 percent. So it continues to just drift lower and lower. And we won't certainly want to exit Houston but we like.

So it continues to just drift lower and lower and we won't certainly want exit Houston, but we like we do.

Speaker 3: we like a geographically diversified portfolio and we we've gotten too heavy being north of 20 a handful of years ago and I'm glad we're under 11 percent.

Like a geographically diversified portfolio and we we had gotten too heavy being.

North of 20, a handful of years ago, and I'm glad we're under 11% this year.

Speaker 8: Okay, and then with all the change in the energy markets, I guess are you seeing any changes in the underlying key drivers in Houston? Are you seeing some of that excess supply maybe get absorbed more quickly or any changes on that front?

Okay, and then with all the change in the energy markets. I guess are you seeing any changes in the underlying.

Key drivers in Houston.

Are you seeing some of that excess supply maybe get absorbed more quickly or any changes on that front.

Speaker 3: Houston, they had a lot of markets record absorption last year, it was 28 million square feet, which is a big number. There's about a little over 18 million square feet in Houston under construction that's 40% lease. So the market definitely has improved over the last two years. Houston's probably better today than it has been at any point in the last.

Houston, Yes, it has.

I guess they had like a lot of markets record absorption last year was 28 million square feet, which is a big number there is about a little over 18 million square feet in Houston under construction Thats, 40% lease. So the market definitely has improved over the last two years Houston is probably better today.

Hey than it has been at any point in the last couple of three years, we were asking the same thing with oil getting to $90 a barrel and maybe theres just so much uncertainty in that industry. We're not we're feeling demand in Houston, but not I don't believe increased demand from oil and gas companies there it's more.

Speaker 3: couple of three years. We were asking the same thing with oil getting to $90 a barrel and maybe there's just so much uncertainty in that industry.

Speaker 3: We're not, we're feeling demand in Houston, but not, I don't believe, increased demand from oil and gas companies there. It's more, you know, the tenants we see in other markets. You know, and as an aside, and we're not seeing that in Houston, but seeing it in some other markets, we are seeing energy-related tenants, but the...

The tenants, we see in other markets.

As an aside and we're not seeing that in Houston, but seeing it in some other markets. We are seeing energy related tenants, but theyre more green.

Speaker 3: green energy related where it's a tenant, you know, one converts buses from gas to electric, someone making electric batteries and things like that. So we are seeing energy related tenants, they're green energy related and they're oddly enough, or maybe it's not, they're in markets like Phoenix and Greenville, South Carolina and Atlanta, they're not in Houston.

Green energy related where it's a tenant.

<unk> converts buses from gas to electric someone making electric batteries and things like that so we are seeing energy related tenants. They are green energy related and oddly enough or maybe is not there in markets like Phoenix, and Greenville, South Carolina, and Atlanta, They are not in Houston.

Okay. Thank you.

Sure.

Speaker 1: The next question comes from Amit Nihalani from Mizuho. Please go ahead.

The next question comes from Amit <unk> from Mizuho. Please go ahead.

Speaker 9: Good morning. Are you guys able to comment on your bad debt reserve for your 2022 guidance? I know back in 2019, you had mentioned you were signing a number of leases with Peloton.

Good morning are you guys able to comment on your bad debt Reserve Bad debt reserve in 'twenty, two 2022 guidance.

I know back in 2019, you had mentioned youre, signing a number of leases with peloton.

Speaker 4: Yeah, good morning. This is Brent. I guess two parts to that. One as far as our bad debt guidance of 1.5 million. Obviously, in 2021, we had

Yes. Good morning. This is Brent I guess two parts to that one as far as our bad debt guidance of $1 5 million. Obviously in 2021, we had.

Speaker 4: You know, really an anomaly year, I would call it. We had a actually bad debt recovery of $400,000.

Really an anomaly year I would call. It we had to actually bad debt recovery of 475000.

Speaker 4: So, you know, just a reminder, when we entered last year, or looking back at a year ago, we had a little deeper reserve allowance at that point, not knowing exactly how everything was going to play out. Hard to think, but a year ago we were still shy of a vaccine.

So.

Just a reminder, when we entered last year looking back at a year ago, we had a little deeper reserve allowance at that point not knowing exactly how everything was going to pay out play out hard to think but a year ago, we were still shy of a vaccine.

Speaker 4: So this year, our allowance as the years played out has come down. So we're not entering this year. For example, last year we had 26 tenants included in the total reserve. This year, entering January , we only have 12 tenants. So I don't think there's going to be a lot of people

So this year our allowance as the years played out has come down. So we're not entering this year. For example last year. We had 2006 tenants included in the total reserve.

This year entering January we only have 12 tenants. So I don't think theres going to be.

Speaker 4: nearly as much reversal of bad debt to potentially offset bad debt. So we look more from a historical perspective. The 1.5 billion represents 0.33 of 1% of our revenue, which is our overall spend revenue of 4.4 million, least 60% of our revenue which was also

Nearly as much reversal of bad debt to potentially offset bad debt. So we look more of it from a historical perspective.

$1 5 billion represents.

<unk> three of 1% of our revenue which is a.

Speaker 4: a trend track record that we've looked at, or historical average. Do I hope we beat that? Yes, but when you start talking about 16, 1700 tenants, depending what size, what tenant may happen, maybe what their straight line balance is, that type thing, again, we're going to enter the year looking more at our past and dialing all of that in rather than just a very quick glimpse.

A trend track record that we've looked at our historical average do.

I hope, we beat that yes, but when you start talking about 16 to 1700 tenants, depending what size of what tenant may happen, maybe what their straight line balances that type thing again, we're going to enter the year looking more.

Ed.

Past and dialing all of that in rather than just a very quick glimpse.

Speaker 4: In terms of Peloton, we have, I know in South Florida we leased space to them and maybe another market or two, but I mean

In terms of peloton, we have I know in South, Florida, we lease space to them and maybe another market or two.

I mean their current we've had.

Speaker 4: No issues there and obviously they've been in the news some lately but they're not a top ten tenant and it sounds like at the end of the day that that credit could, if anything, maybe get enhanced if something were to potentially happen there. But there's something that you see in the news but nothing thankfully that's been anything we've had to deal with specifically.

No issues, there and obviously they've been in new some lately, but they're not a top 10 tenant and it sounds like at the end of the day that that credit if anything maybe get enhanced.

If something were potentially happen there but.

Something that you see in the news, but nothing thankfully thats been.

Anything we've had to deal with specifically.

Speaker 9: Great, thank you. And just, where would you guys like your Houston exposure to be?

Great. Thank you and just.

Where would you guys like your Houston exposure to be.

Speaker 3: Ideally. Yeah, certainly under 11. It'll probably just the reality.

Okay.

Sure.

Daily.

Yes, certainly under 11, it'll probably just the reality of it will probably continue to drift down.

Speaker 3: said if it's 10%, a little under 10%, my goal would always be to have runway in any market in case you do find that kind of aha opportunity.

So thats, 10%, a little under 10% Michael would always be to have runway in any market. In case, you do find that kind of opportunity and I think we do it under 11% unless we can also bought something huge there, but it will probably continue to and I think over the next year or two continue to drift down and Youll.

Speaker 3: And I think we do it under 11% unless we bought something huge there. But it'll probably continue to, I think over the next year or two, continue to drift down and you'll probably see it below 10% here in another 12 to 18 months.

Obviously, it below 10% here in another 12 to 18 months.

Great. Thank you.

You're welcome.

Speaker 1: The next question comes from Ronald Canden from Morgan Stanley . Please go ahead.

The next question comes from Ronald Camden from Morgan Stanley . Please go ahead.

Speaker 5: Hi, yet to move on for Ronald Camden. He had talked a little about the guidance reflecting conservative assumptions of the speculative leasing, just maybe provide some color on the type of leasing you're expecting with the current development pipeline and how that compares to 2021 levels. I'm just thinking about 2021 and how the same sort of guidance was roughly in line with what ultimately came in ahead.

Hi, yet to me long for Ronald Camden can you just talk a little bit about the guidance just like being conservative assumptions.

The speculative leasing just.

If you could provide some color on the type of leasing you're expecting with the current development pipeline.

That compares the 2021 levels I'm, just thinking about 2021 and how the same store guidance was roughly in line.

So thats ultimately came in ahead.

Speaker 4: Yeah, you referenced in a comment I made earlier. It's just a general assumption where, you know, we have a fair amount of our development income that's doubted to the budget already covered via, you know, existing and prior leasing. You know, leases, there are a lot of leases that aren't in same store. You would have to have been an asset effective January 1 of 21 to be in the same store mix for this coming year. So we have a lot in that interim period. So a lot of that income's covered. But...

Yeah that you're referencing a comment I made earlier and it's just a general assumption, where we have a fair amount of our development income is down into the budget already covered.

Existing and prior to leasing.

Leases there are a lot of leases that aren't in same store you would have been an asset effective January one of 'twenty one to be in the same store mix for this coming year. So we have a lot in that interim period. So a lot of that income covered but.

Speaker 4: you know from an operating standpoint when you've got ninety seven or eight percent occupancy as you're analyzing the rent role in the rollovers obviously it's

From an operating standpoint, we've got 97%, 8% occupancy as you're analyzing the rent roll and the rollovers. Obviously, it's if you can run a 75% or so tenant retention.

Speaker 4: you know, if you can run a 75% or so tenant retention.

Speaker 4: That's a little easier to guide and project, whereas our development, just the nature of it, is pretty much speculative, oriented for the most part. And so in those cases, just by virtue of the definition of being spec, we don't have tenants in hand. So the timing of those, and then once you sign them, how quickly you might be able to get...

A little easier.

Easier to guided project, whereas our development just the nature of it.

Pretty much speculative oriented for the most part and so in those cases, just by virtue of the definition of being spec. We don't have tenants in hand, so the timing of those and then once you sign them and how quickly you might be able to get the permit done get it built out get the tenant in place get the lease started so that side of things can.

Speaker 4: permit done, get it built out, get the tenant in place, get the lease started. So that side of things can be just by its nature trickier to project. And so like I said, we tend not to get, I guess what I would say, aggressive with those parts schools.

Can be just by its nature trickier to two <unk>.

Project and so like I said, we tend not to get I guess, what I would say aggressive with those.

Speaker 4: writing with those assumptions and you know what that difference might be you know it'd be hard to tell just because of again delivery times and those type things but again we have both sides both on our upside on both operating and in development

Writing with those assumptions and what that difference might be it would be hard to tell just because of again delivery times and those type things, but again, we have both sides both on upside on both operating and <unk>.

And in development.

Speaker 4: And as you saw in the guidance too, even on acquisitions, we're basically showing acquisitions and dispositions being pretty much a wash. So anything that we might could acquire, which again, as you said here today, nothing under contract but you never know and that would be incrementally positive too, especially if that were to occur earlier in the year.

And as you saw on the guidance to even on acquisitions, we're basically showing acquisitions or dispositions being.

Pretty much awash.

So anything that we might could acquire which again as you sit here today nothing under contract but.

You never know when that would be incrementally positive to especially if that were to occur earlier in the year.

Yes that makes sense.

Uh huh.

Speaker 1: The next question is followed from Elvis Rodriguez from Bank of America. Please go.

The next question is a follow up from Elvis Rodriguez from Bank of America. Please go ahead.

Speaker 6: Hey guys, just a quick follow up on mark to market for the entire portfolio. Are you able to share on a gap in cash basis?

Hey, guys just a quick follow up on Mark to market for the entire portfolio, you're able to share on a GAAP and cash basis. Thank you.

Speaker 3: Not very well and not accurately. A number of our peers do that and we said it's just, thankfully having seen other sectors, it's easier to do in office, easier to do in retail than it is industrial because whether it's an in-cap space or it's air conditioned, things like that. That said, mark to market.

Yes.

Not very well and not accurately.

Number of our peers do that and we've said it's just.

Having thankfully having seen other sectors is easier to do in office easier to do than and retail than it is industrial because whether it's an end cap space or its air condition and things like that.

That said mark to market.

Speaker 3: We've seen our gap numbers in our annual numbers were low 20s, I think was 22% or 2020.

<unk> seen our GAAP numbers in.

At our annual numbers were low twenties.

I think it was 22% and 19 2020, 31% in 2021 and onwards.

Speaker 3: 31% in 2021 and I would.

Speaker 3: Some of it will be the mix. We had a lot of big leases where we were able to capitalize on some big, larger increases last year, but certainly would feel comfortable in the 20s this year on a gap basis, I would suspect. Maybe if we can get back to 30, that would be, I think the rent pressure's there, it may be the mix of leases rolling. And then on a cash basis, we're probably...

Some of it will be the mix, we had a lot of big leases, where we're able to capitalize on some big ink larger increases last year, but certainly we would feel comfortable in the <unk>. This year on a GAAP basis I would suspect maybe if we can get back to 30 that would be I think the rent pressures there maybe the mix of leases rolling.

And then on a cash basis, we're probably in the teens on the Mark to market and were certainly are seeing what's also helping those GAAP numbers and more and more of our markets where the annual increased used to be two 5% to 3% now we're moving into threes to fours in a number of our markets. So that will help those gap that's all.

Speaker 3: the teens on the market to market. And we're certainly seeing what's also helping those gap numbers in more and more of our markets where the annual increase used to be two and a half to three percent. Now we're moving to three to fours and a number of our markets. So that'll help those gap. That's obviously helping those gap rent increases. So I think there.

Obviously, helping those GAAP rent increases too so I think there.

Speaker 3: There's certainly there, there are a little bit tricky to predict, and in any quarter it'll depend on the mix that rolls, but I would think we'll be back in the upper teens on a cash basis, and then the...

There are certainly there, they're a little bit tricky to predict than in any quarter. It will depend on the mix that rolls, but I would think we'll be back in the upper teens on a cash basis and.

Speaker 3: 20s to maybe a 30 if we get, you know, if we push things and I hope I'm conservative on that this year in terms of rent increase.

<unk> to maybe a 30, if we get if we push things and I hope I'm conservative on that this year in terms of rent increases.

Speaker 6: just one more while you made a good statement, a good point there on

Thanks, Marshall and just one more while you've made a good statement good point there on.

The.

Speaker 6: new leases having higher rental bumps. Can you talk about that? You know, what percentage of leases are above 3% today and what are you seeing, you know, your ability to sort of...

New leases, having higher rental bumps can you talk about that what percentage of your releases are above 3% today and what are you seeing.

Your ability to sort of get to that 4% across markets.

Speaker 3: I think the ability, we're really, you know, I guess the good news is we're...

Thank the ability where really I guess the good news is were.

Speaker 3: we could push for 4%, but you really need it in the market. And so I think given the tightness in the market, we're seeing our peers do that. So, here.

We could push for 4% that you really need it in the market and so I think given the tightness in the market, we're seeing our peers do that so.

Speaker 3: You are seeing that more and more and it's really not a light. That's probably shifted by market within the last 12 to 18 months.

You are seeing that more and more.

And it's really not all.

That that's probably shifted by market within the last 12 to 18 months. So we haven't implement been able to Apple we typically roll about 14, 15% of our portfolio in a given year and given that the market has just gotten to that in the last.

Speaker 3: So we haven't been able to implement, you know, we typically roll about 14, 15% of our portfolio in a given year and given that the market's just got to that in the last.

Speaker 3: know 12 months we still have a lot of runway to go on increasing rents and I think given where we think the supply chain issues are you know we've kind of internally said where we you know struggle to get roofing materials and steel and everything else delivered and it takes longer and is more expensive than it historically has that

12 months, we still have a lot of runway to go on increasing rents and I think given where we think the supply chain issues are we've kind of internally said, where we struggled to get roofing materials and steel and everything else delivered and it takes longer and is more expensive.

It historically has that's tricky for call. It the $2 5 million square feet were trying to build at any given time, but that's great news for the 50 plus million square feet that we own. So I think that will continue.

Speaker 3: Tricky for call it the 2.5 million square feet we're trying to build at any given time, but that's great news for the 50 plus million square feet that we own.

Speaker 3: continue to keep those 4% bumps being the market everywhere and we'll be able to bump reps. You know, when they roll and get that higher increase and that's why we like gap rent numbers. The other thing we're seeing shrink is the free rent period. Usually tenants will say if I move, I've got moving cost in this and that and so you can get a look, we still see some of it, some free rent in there, but there's downward pressure on free rent in the market as well.

Continue to keep those 4% bumps being the market everywhere and we will be able to do.

Rents when they roll and get that higher increase and Thats why we like GAAP rent numbers. The other thing we're seeing shrink as the free rent period, usually tenants will say if I move I've got moving cost and this and that and so you can get a look we still see some of it some free rent in there, but there is downward pressure on free rent and the market is.

Well.

Great. Thank you.

Youre welcome.

Speaker 1: There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Marshall Loeb for any closing remarks.

There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Marshall Loeb for any closing remarks.

Speaker 3: Thank you. Again, we appreciate everybody's time. Thanks for your interest in East Group. Hopefully we're just feeling like we're getting near the point in the year where we're actually able to see some people in person and we look forward to that. And in the meantime, we're certainly available for any follow-up questions. Thanks again.

Okay. Thank you again, we appreciate everybody's time, thanks for your interest in Eastgroup.

Fully where it feels like we're getting near the point of the year will actually be able to see some people in person and we look forward to that and in the meantime, we're certainly available for any follow up questions. Thanks again.

Speaker 1: The conference is now concluded. Thanks for attending today's presentation. You may now just...

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker 10: That r F p that, that CRE that that.

Yes.

[music].

Okay.