Q2 2023 EastGroup Properties Inc Earnings Call
Good day and welcome to the Eastgroup properties second quarter 2023 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after today's presentation.
There will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two 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 morning, and thanks for calling in for our second quarter 2023 conference call as always we appreciate your interest Brent Wood. Our CFO is also on the call and central make forward looking statements. We ask that you listen to the following disclaimer.
Please note that our conference call today will contain financial measures such as P and L. A and S. S that are non-GAAP measures as defined in regulation G.
Please refer to our most recent financial supplement and to our earnings press release, that's 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 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.
Forward looking statements in the earnings press release, along with our remarks are made as of today and reflect our current views about the company's plans intentions expectations strategies and prospects based on the information currently available to the company and on assumptions. It is made and we undertake no.
Duty to update such statements or remark, whether as a result of new information future, our actual events or otherwise.
Such statements involve known and unknown risks uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more detail about these risks.
Thanks, Dana good morning, I'll start by thanking our team for a strong first half of the year. They continue performing at a high level and capitalizing on opportunities in a fluid environment.
Our second quarter results were strong and demonstrate the quality of our portfolio and the continued resiliency of the industrial market.
Some of the results produced include funds from operations coming in above guidance up 11% for the quarter and 10% year to date for over 10 years now our quarterly <unk> per share has exceeded the <unk> per share reported in the same quarter prior year truly a long term growth trend.
Occupancy averaged 98, 1%, which was consistent with second quarter 2022.
And quarter end occupancy of 98, 2% is up 30 basis points from March 31st.
Quarterly releasing spreads reached a record at approximately 53% GAAP and 38% cash with these results pushing year to date spreads to 51% GAAP and 35% cash.
Cash same store NOI came in up six 4% for the quarter and eight 7% year to date.
And finally, I'm happy to finish the quarter with F F O rising to $1 91 per share.
Helping us achieve these results is thankfully, having the most diversified rent roll in our sector with our top 10 tenants falling to eight 3% of rents down 50 basis points from second quarter 2022, and in more locations in summary, I'm proud of our start up the year.
Statistically it was one of the best quarters on record all with continued was that recession concerns.
We're responding to strengthen the market end user demand for industrial products by focusing on value creation via raising rents and new development.
This market strength is what allowed us to end the quarter, 98.5% lease average over 98% occupied and continue pushing rents through a wider and wider geography.
As we've stated before our development starts are pulled by market demands within our park.
Based on our races, where forecast we're forecasting 2023 starts a $360 million.
And while our developments continue leasing out we're closely watching demand with the goal of a balanced fluid response pending what the economy allows.
What is promising to see as the decrease in industrial starch, primarily due to capital market volatility and credit tightening.
Starts have fallen three consecutive quarters with second quarter, 2023 thing almost 50% lower than third quarter 2022.
Assuming reasonably steady demand then turning into 2020 for the markets will Titan, allowing us to continue pushing rents and create earlier development opportunities.
Given the capital market volatility, we've taken a measured approach towards transactions since mid 'twenty two.
That said when we find the right strategic opportunities we pursue them.
We're seeing these windows, mainly on the development side, and then strategically opportunistic on core investment opportunities.
Brent will now speak to several topics, including assumptions within our updated 2023 guidance.
Good morning, our second 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 quarter exceeded the upper end of our guidance range at $1 91 per share compared to $1 72 for the same quarter last year.
Two sets of second quarter F. F. O was attributable to an involuntary conversion gain recognized as a result of roof replacements that were damaged in a hurricane.
Excluding the gain S. F O per share was at the upper end of our guidance range at $1 89 per share an increase of 10% over the same quarter last year. The outperformance continues to be driven by stellar operating portfolio results and the success of our development program.
From a capital perspective, the strengthening in our stock price continued to provide the opportunity to access the equity markets. During the quarter. We sold shares for gross proceeds of $165 million at an average price of $169.72 per share.
During this period of elevated interest rates equity proceeds remain our most attractive capital source and our updated guidance for the year, we increased our stock issuances assumption from 180 million to 475 million 300 million of which is complete and removed any unsecured debt assumption as.
A reminder, the company does not have any variable rate debt other than the revolver facilities and our near term maturity schedule as light with only 50 million scheduled to mature through July 2024.
Although capital markets are fluid our balance sheet remains flexible and strong with healthy financial metrics, our debt to total market capitalization was 18% unadjusted unadjusted debt to EBITDA ratio was down to four four times and our interest in fixed charge coverage ratio increased to seven eight times.
Looking forward <unk> guidance for the third quarter of 2023 is estimated to be in the range of $1 87 to $1 93 per share and $7.58 to $7 68 for the year and eight cent per share increase over our prior guidance those mid points represent increases.
A seven 3% and 9% compared to the prior year respectively.
<unk> revised guidance produces a same store growth midpoint of seven 3% for the year, an increase of 30 basis points from last quarters guidance. We also increased the midpoint of our average occupancy by 10 basis points to 97.8%.
This is the result about forming our budget expectations in the second quarter, along with continued optimism for the remainder of the year in closing we were pleased with our second quarter results and are well positioned entering the latter half of the year.
As we have in both good and uncertain times in the past, we were allowing our financial strength the experience of our team and the quality and location of our portfolio to lead us into the future now Marshall will make final comments. Thanks, Brett in closing I'm proud of the results. Our team created we're carrying that momentum forward and <unk>.
<unk> operations remain historically strong and we're constantly working to strengthen the balance sheet externally the capital markets and the overall environment remain clouded and while never found the experience. This is leading to a marked decline in development starts.
In the meantime, we're working to maintain high occupancies, while pushing rents and longer term I remain excited for eastwood's future. There are several long term positive secular trends occurring within last mile shallow Bay distribution space in sunbelt markets that will play out over years, such as population migration.
Evolving logistics change onshoring, near shoring et cetera, which we're well positioned for and we'll now open up the call for your questions.
Yeah.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time.
We will pause momentarily to assemble our roster.
Also please limit yourself to two questions.
The first question comes from Craig Mailman with Citi. Please go ahead.
Yeah, Nick Joseph here with Craig Marshall, you touched on what's happening in the overall industrial construction market.
In terms of new starts coming down obviously from from recent peaks pretty materially how are you thinking about euro in new development starts and underwriting them just given current construction costs and also what you're seeing on the demand side today.
Hi, good morning, Thanks, Nick.
A couple of different ways, one we've pushed up our development yields I guess, maybe internally our goal. Although the numbers were where they are so we're kind of high sixes to sevens, usually on new starts.
I've always liked our model and that the way. It works is as we build out apart. It's usually the team in the field and it's rather than corporate pushing out our starts goal for the year are updating that goal. It's really they will call them. The conversations are typically where pay where 99% leased in Dallas and the.
Last phase leased up and we need to build a couple more buildings and then oftentimes even the benefit as we're talking to two or three of our own tenants in that Submarket, who need more space. So will taper that new supply and the demand and then really if if one of our projects has not leased up we won't start that.
Next phase so we'll wait until the market kind of.
Sales in our sales the inventory and then restock. So that's how we're looking at it I think.
A little bit and maybe where you where you're going with your question, what we like about this environment or what makes it a little.
Typical is.
Some of the pieces to talk about it and we would agree that demand is maybe you know the world is kind of normalizing after COVID-19 in terms of demand. We still think it's pretty strong its just not frenetic like it was at one point, maybe in 'twenty, one or early 'twenty, two which felt was fine but felt unsustainable about what's also.
A really unique environment is how hard it is for merchant developers local regional the people that often we're building our shallow bay type products or to get capital are know what yields to bill two to then turnaround and flip it where we have the advantage where we can hold it in a growing market. So we're really seeing supply taper off.
So that's got US more encouraged about development as we look and really start looking into 'twenty four.
Assuming there's not some type of black Swan economic turn.
So I hope that helps.
Sure very helpful. Thank you.
And then just maybe on the increased cash same store NOI guidance for the year implies.
Implies a deceleration obviously in the back half of the year, but you touched on occupancy a bit demand yourself seeing so can you just walk through how are how we get to the big point there.
Yeah in terms of the updated guidance.
Yeah I'll jump in there Nick Good morning. This is Brent yeah. It really comes down to and we've been a little bit ahead, even we had anticipated. The you know the slower growth in same store NOI in the second quarter. As you saw we were down over first quarter, but raise the guide because it came in second quarter came in ahead of what we were projecting but it really <unk>.
Comes down to the slowness it isn't really to do with rent increases, which continue to be strong, but its more on the occupancy side. We've had the benefit for many quarters of comparing favorably to the prior year's quarter by 50 to up say 130 basis points first quarter for example, where we have the 11% increase.
We were comparing a 98, 7% average occupancy to 97 four so we had you know all the rental wrote great rental rate growth rent bumps plus the occupancy gain but then you move to second quarter in our same store compare to 98 four to a 98 four and so you know the occupancy side of.
That becomes flatter.
And then even looking at our our budget calls for you know a few basis points here and there or pullback in occupancy.
The comparison metrics for third quarter for example.
'twenty two is 98.5% same store occupancy of 98 eight for fourth quarter and so those would be the two benchmarks, which we'll be comparing to so yeah. We hope we do better than what we're projecting at the moment I mean, it's not out of the realm that our occupancy could come in ahead of what we're projecting for the end of the year, but you still got a stiff comparison so.
Again, we're still very pleased with the other components rental rate growth that we've had we've been able to accomplish higher annual rent bumps in our leases over the last few years. The guys have done a good job of leveraging the market there.
But clearly the occupancy side. The comparison is a it was a bit of headwind in the overall, it's just stick there, but as Marshall often says you know same store is an important component, but it's just one component of many that come and formulate to our bottom line.
And we've been very pleased with our bottom line <unk> growth as evidenced to getting close to 9% almost double digit per share again so.
You know, we have a way of putting all our pieces together, making them work to be very competitive on the bottom line.
Thank you very much.
The next question.
The next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Thanks, So much named the question. So maybe just first you touched a little bit about not being concerned about the rent spread side or just I guess being more conservative on the occupancy, but you know as we look into the second half you know you've definitely seen a broadening out and come to the rental rate rental growth strengthening in the rent spreads.
Pretty solid in parts of Texas, and Florida can you just give us your updated view.
How you see rent growth.
In the second half across some of your key markets and does that essentially imply rent spreads will continue to widen out into the second half.
Good morning, and good question.
Broadly.
Speaking kind of viewing rent growth this year, and maybe that high single digits lower double digits, you know call. It eight.
13, 14% and it feels like it's tracking there.
Tenants are taking longer to make decisions, but we're staying.
Painful and you're right one of the things when you know when we've gotten questions about our southern California markets. We still said there are strong the differences when you look at our re leasing spreads really over the last couple of years Southern California is still a good market for us, but so are the other markets. The delta isn't nearly what it was three years ago.
Playing in that and I don't see that changing given the supply formula and the growth just population and business growth in markets like Texas, Florida, Georgia, The Carolinas I think that embedded rent growth is there and rents continue to grow so we feel pretty good about our rent spreads look we had to.
The best quarter, and best first half of the year, we've had historically so that you know.
In a period, where we've been the most anticipated recession and history feels pretty good right now and it feels like we will stay there and it's going to be interesting to see with.
We've not seen supply come down like this since probably the GSE or something like that so really it'll be interesting to see how supply continues to come down if demand can stay where it is if I'm really an optimist I could say there is more upward pressure on rents and 24, then there wasn't journey right.
And just to clarify that last comment is more specific to your <unk>.
Submarkets are you know in Texas et cetera, you're just talking more broadly.
Well I don't know maybe im laughing because say my answer is maybe yes, I think supply is coming down nationally, but I certainly like having maybe the combination of ours in the markets. We're in we're in on purpose I liked that supply is coming down nationally and I, especially like.
If we can double in <unk>.
What I've done in some of our markets, we don't need a great economy, given the growth of E. Commerce population growth job growth onshoring, all the things like that we just need an okay economy, and we'll gain more than our fair market share based on what we're evolving logistics chains things like that but if you can mix and falling.
Supply and growing demand was kind of where I got to my short answer of laughing, whether yes, but I like the markets. We're in and I think they'll benefit a little more than the national average make.
It makes sense and then just to clarify.
You referenced sort of near shoring onshore in a couple of times in the past doors.
Rent spreads were very solid I'm, just wondering any can you give us any more like specific anecdotal evidence that this trend is finally building you know we've been talking about it for three four years since the start of Covid.
You know other other data points suggest theres, probably more activity, but I'm. Just wondering you are you seeing it translate into a warehouse demand.
You know what.
Mostly what were Youre right were seeing it within our re leasing spreads and occupancy on our main two markets or maybe two and a half to three we're seeing rental rate growth in El Paso, that's historically strong where it's really kind of.
California like markets, where it's triple digits.
And we won't go to the other side of the border, but in reading about Juarez and Tijuana, both have incredibly low vacancy rates and that will continue to drive those market. So el Paso feels strong it feels like there is you know.
Every quarter there is a new company Theres, new demand, what we like about San Diego and a good a good portion of our San Diego portfolio is really in EM.
Excuse me a sub market or time, they said that's right there on the border and that continues to have strong demand every fortune 1000 company transport <unk> APL is in that <unk> Mesa area, and then the other market, where 100% leased in Arizona. So Nogales, Mexico is not quite as big a market and a little bit further.
Way, but we still see strong demand in Arizona, So it feels like it's.
It's not a light switch, but it incrementally built in those markets, which fills more sustainable as well.
Makes sense and then just lastly, if I can sneak one more in just you know your cost of capital you referenced the the equity raising taking advantage of where you are but also I guess relative cost to capital to public and private peers.
It's pretty wide today, and so I'm wondering.
You know apart from sort of deleveraging like you outlined or maybe better development spreads is there anything else you youre monitoring or are looking to take advantage of it you have the relative cost of capital.
Maybe a little bit in Brent jump into I think one one interesting trend we're seeing on really.
Part of it is cost of capital, but more importantly access to capital and that.
Where we've seen opportunities in the market and that's that's pushed us to the equity I mean, maybe a lot of different reasons, when you're not sure where the economy's going.
Rather have a safer balance sheet than an unsafe balance sheet, but a.
A lot of our peers that build what we believe will build our local regional developers and we've had a number of them come to us.
And in several markets and hopefully well we've closed on a couple of days and hopefully we'll have a few more down.
The road that we're evaluating and the conversation is generally that I've had this site tied up for two to three years.
It's hard to raise equity that is more expensive would you step in and maybe we get we give them some promote feature or they participate on the development or some fee and really it's shovel ready sites that we're that we're finding and so that's where whereas a year or two years ago. They would have had.
Your line of bidders when you have the site ready you really didnt have to break ground and you could have made probably a few million dollar spending the market now those those developers are in a tight financial spot I think it's going to get its might be guessing I think it's going to get worse before it gets better given some of the ripple effects through commercial banks and things like that.
That is their exposure to real estate and so that's where we're seeing the opportunities as development sites, where someone else has gotten through the zoning permitting all the things that usually are measured in a year or two of headwind before we actually close on this side well, we're having a chance to maybe.
Jump cut in line basically closer to the start of the race and have to to do that leg work on the front end.
Makes sense. Thank you.
Sure.
Again.
Please limit yourself to two questions. The next question comes from Nicholas Tillman with Baird. Please go ahead.
Hi, This is Daniel Hogan on Nick.
So looking at your Oh, and then pipeline it looks like you pushed back some conversion dates for two projects for Springwood in stone children. I know those are larger buildings, but only pushed back a quarter is that.
A function of longer development times.
Lower lease up assumptions.
It's really development, yes, Lisa the projects are going fine I would say, it's two parts one weather can definitely play a factor in our pending where you are and those are early enough in construction that it's.
Probably a little bit of weather delay and then.
Overall on construction and talking to our construction team it feels like delivery times have normalized for the most part.
Ill overused or normalized on this call, but for electrical equipment. So the transformers. The panels all the things that people have pushed to green energy.
If you said where are we having issues within our construction and I think its everyone is the lead time on electrical is about one year. So it could be on those two a little bit weather related and probably a little I know, where our construction guys their stress level is getting.
Any kind of electrical equipment and delivered I don't think it's a pricing issue so much as just availability.
Got it and then.
Given that you talked about a seamless shallow bay of competition in the past on the supply front.
Have you seen any instances of mid or large box developers, putting in the capital we've tried to break up their spaces.
And computer space or is it you know.
Still a similar trend of.
I think it would look at you would probably they will have <unk>.
Financial pressure and where the market is to do that I think the challenge and I guess I could maybe get on the margins depending the size box you build our average tenant size is in the 30000 square feet, 75% of our revenue comes from tenants under 100000 feet.
So if but if you and I have built and I'm, saying 800000 foot building much less than the million plus.
The dimensions of those buildings. It is such a deep building that if you try to.
Cut it out for a 50 or 70000 foot tenant you end up with such a long, but narrow space you can't compete on dock doors and things like that so our it becomes very inefficient space for the tenants because you don't have enough loading doors at the back of the space you can kind of picture cutting up direct time.
And then the other thing that would happen to you on the landlord side is you have to build a fire rated demise in malls in coming from ceiling to that and so that gets awfully expensive. So I think the tenant improvements wouldn't work. So that's why.
The big boxes. They can maybe it doesn't have to go to one or two tenants you can maybe cut it up a little bit, but probably not in small enough pieces still that it would really compete with 120000 foot building because the tendency when you're having those kind of deliveries and loading and unloading. It just physically wouldn't work for you.
Great. Thanks for the clarity.
Youre welcome.
The next question comes from Conor Mitchell with Piper Sandler. Please go ahead.
Hey, good morning, Thanks for taking my questions.
So you guys had talked a little bit about the.
Merchant builders and regional developers, having trouble access to capital and reaching out to you guys. So I guess I'd just like to ask about maybe what do you see in the near term and maybe a little bit longer term.
With whether it be kind of competitors maintain and stay on the sidelines for a bit longer.
Or is it possible they find capital soon to be able to jump back in the mix.
Good morning, Conor Good question I think.
And then and that's a harder one to a good question. Another one another way to say it is a hard one to answer I think the pro for an industrial there is a lot of capital, though still would like to be in real estate and I think industrial is attractive compared to summit.
Office is it sounds like its incredibly hard right now retail where do you go multifamily is still strong so industrial is attractive as an alternative so you can get capital there I still think it's hard to know and I guess, we'll learn a little more today when the fed finishes raising interest rates much less.
Lowers them to know where cap rates are because so many of these developers are merchant developers and they've been willing to build on a pretty thin margin in until you really nowhere capital settles out it's hard.
You may and Brent to build it and know where we can flip the building in 12 months to 18 months.
And I think as we've talked to the banks that we work with it still sounds like there what regulation may come out or what.
What pressures theyre going to have to reduce their commercial real estate exposure, which isn't industrial so much but we get thrown into that bucket with every other product types. So I think I think loans are going to be harder to come by in the near term than than they've been in the last couple of months and the interest rate sure feels like it.
Going to be a little bit harder. So I think those those developers are going to be on the sidelines for a while we're not seeing the forward sales or the land sales that we had and the demand was great in 2020 around 'twenty, one kind of early 'twenty, two and maybe that's moderated but supply has adjusted.
As dramatically at least in our portfolio much more dramatically than demand has to date and you still got a lot of things in the pipeline, but as that empties out theres not much coming back into that pipeline and I don't see that changing for the next few quarters until the capital markets kind of settle down a little bit more.
Thanks, I appreciate that and then just a second question regarding <unk>.
The rise in the homebuilders.
And demand for new houses, which we haven't seen in.
While maybe even.
Past 15 years or so before 2008.
Just I was wondering how has the right in the new housing demand and the homebuilders impacting the warehousing demand like is it isn't showing up materially overall in the industrial market or could it be more attributed towards the growth in the sunbelt and maybe some of your markets.
A little hard to differentiate exactly but I think we're definitely seeing it it's not driving our business. So much as it is a positive contributor certainly were.
Reading, where Florida population growth, Florida has had the Carolinas Maricopa County, Phoenix, Arizona, a huge population growth Austin, Texas. So we definitely have our share of weather.
Whether it's train air conditioning or home depot best buy Loews, all the tenants like that and then some of the tile.
Tile companies things like that where we're benefiting from their growth.
Taken a couple of our developments I can think of a couple in Fort Myers, where it was people homebuilding related appliances things like that where are we in a it's a nice benefit but I like that.
Tenancy is so diversified demand I wouldn't want to get too reliant on homebuilding because it is cyclical but right now it seems to be picking up there is a shortage of homes of homes. It sounds like as we read about it and where it's kind of one more tailwind that we're thankful to have.
That's great color. Thank you very much.
Sure you're welcome Thanks Connor.
Our next question comes from Jeff Spector with Bank of America. Please go ahead.
Great. Thank you.
Big Picture Marshall just appreciate all the comments on the different drivers of demand and there is a lot of debate or angst over some of those those drivers and I guess, where we are let's say in the cycle or.
What inning we're in.
Per driver of demand I guess, just big picture what are your thoughts here on on the various drivers I mean, you know.
Is there still a nice balance between all of them that.
You would still characterize the demand for some of these drivers are still early mid late innings like how are you thinking about it.
Hey, Jeff Good morning.
Like that we've got any number of drivers I think we're still early innings and kind of kept picking them apart.
It's hard to call e-commerce early innings, but I do think last mile delivery and kind of how retailers I think there is they continue to rationalize store count and things like that I do think we're earlier innings.
In terms of how they do.
Door curbside delivery things like that I think there's more to go there and I think we're early innings on onshoring of near shoring because that would strike me as.
Our multi year process.
To move a plant out of China, or China, plus one manufacturing I think it's happening, but we're early on.
On there and I think some may ebb and flow like like our last question on homebuilding and things like that so I like that there's that many and I think E. Commerce is just to.
Also just the penetration of continual drip drip drip versus brick and mortar I don't think brick and mortars going away, but I do think ecommerce every year seems to gain a little more market share just as they get better and faster and faster with their delivery. So I like that there's no to us we're very flexible.
Low cost real estate in infill locations or.
Our top 10 tenants or just over 8% of our revenues eight 3%, which is actually down 50 basis points from a year ago. So I like that there's a million ways to use our buildings and I know you all have I would encourage any of the investors if you're out and you want to take a tour or join an analyst tour, you really get a sense for.
Just the variety of ways people use good industrial buildings and every few years. It seems like Green energy is a new one will leave leased to a number of tenants that are doing something with green energy that we wouldn't have had any three years ago and now we've got 10 or 12 tenants and there's one or two.
New prospects every quarter it feels like so I like that idea.
<unk> continues to widen and.
<unk> is one of these tell wins may die down revisit reaches late.
Late inning, it feels like there's a new tailwind that we pick up on the type of tenancy, we hadn't seen before but then online pharmacies, where something we didn't have several years ago and now we've got several of those as your insurance companies push you to.
To order recurring prescriptions online rather than say to a duane reade or Cvs words brick and mortar and so that's a new time tendency somewhat.
We will take up this whole hour of the list of tenants, who has been a life that our tenant base or prospect pool continues to grow and then in the meantime, the coal supply guys and the Budweiser distributor and this and that all of those tenants are still there that we've had for 20 years.
Thank you very helpful. And then my second question more detail that I'm, sorry, if I missed this did you explain the.
The bump in the stabilized development yields if you if you didn't if you can please.
Okay, now I guess, it's a little bit there.
Glad we had it's really where rents were able to get rents higher than what we had.
What we had pro forma so when we do the underwriting we'll underwrite to current market rents and the construction costs, we have in hand, and a lot of times as we lease those buildings. The couple of things that can help us get better yields would be one mainly getting rents that were a little bit higher than the market was at the time, when we kind of said, okay, let's let's break.
Ground and go and then the other thing we can usually pick up onto would be getting the building leased up faster. So our theory is a little bit less so a combination of those but the bigger driver would just be hey, the market continues to rise and so on.
I'm glad that the buildings that we had under lease up at dock and I'm hopeful by the time they move out that what we've got under construction can maybe pick up a few basis points between now and the end of it if it gets leased up quickly or a single tenant takes it and we can get better rents that will keep keep trending higher and if we can.
Raise capital at the rate we are not again as Brent mentioned earlier, we think things like same store NOI and all those are very important but our successful development program has been a huge driver to our <unk> growth in our NAV creation. So it's great to see those yields coming out.
Great. Thank you.
Sure. Thanks, Jeff.
The next question comes from Samir Khanal with Evercore. Please go ahead.
Hey, good morning Marshall.
You know on the one hand, you talk about market strength operations being strong and then you know you talked about demand drivers still intact, but then.
When I look at your development starts it's up.
Up modestly right. So I'm just trying to understand like what's holding you back.
From pushing that number higher I guess, what are the guideposts that you were looking at to kind of get a little bit aggressive on that.
And ours is really I think Scott we felt like for us over the years 360 million is a pretty good start right for us and we're happy with that and I don't know really holding us up.
Two things will look as if it is helpful. We have our starch that we've dialed out for the year, which is that 360 million and then when we look at the pages internally we call. It a shadow pipeline of if we get Lucky Here's the next batch of the next phase in our part typically here's what.
Could happen and really the $360 million, we feel pretty good of solid about theyre going to happen. This year and we've raised it a couple of times. This year I hope the market demands there and will go on.
I've always tried to take an approach to it.
Our investors will go as high or as low as the market tells us to I'm glad I'm glad we're 98, 5% leased and the demands there, but a phase III in apart doesn't lease up I would look I think that's the right decision I'd be comfortable going from 360 million.
300 million are much below that if we're not leasing up what we built but hopefully.
If that 360 number rises it's really the team in the field finding tenants for our current development and we'll.
Our task at corporate is really to help them get the capital to cash.
Capitalized on those opportunities. So we'll go as fast or as slow as the market demands and really through call. It late July we're forecasting $3 60, but look if it becomes 400 million in great that means we're leasing up our buildings and the markets pulling the next phase of the park faster and faster and that's really what's happened the last.
<unk> couple of years, and we'll see how this year plays out.
Got it and then I guess my second question is around.
Your guidance and I know this was asked earlier about sort of NOI growth.
Implying that there's going to be a bit of a slowdown in the second half I know and look at your coming off a very high level. So I understand that but maybe talk about some of the markets that are driving that right I mean L. A we certainly know that it's been.
We've talked about that a lot, but maybe talk about your other markets, which are sort of driving that slower growth in the second half.
Because I'm just kind of looking at where we are for the year. It's typically you know now.
The market that pulls you down this year is the good market next year and it's mainly more of a function of in our Fort worth we had to move out it's not a big it's a million square feet, there's nothing wrong with the Fort worth market, but the same store NOI will be less it's it's more some of those markets you are coming off 99% to 100% leased and then we.
Can a vacancy San Francisco's a market, where we've got a little bit of vacancy there.
As I think about that one is not in our same store NOI, but that will.
It's one of the properties, we acquired last year were back filling our space, where tenant moved out so it should be a nice pick up next year. So it's probably more a function not in terms of market weakness that we're seeing that are above and below the average so much as where where's their vacancy rolling in and out of any market I mean I think.
Maybe if it's more helpful. When I look at our core market stats I've always thought kind of the year to date kind of.
Rent GAAP rent growth and cash same store, NOI, or where I look and when I say.
Phoenix, Las Vegas, El Paso, Dallas, GAAP rent growths, all much closer to what we used to achieve only in California for our portfolio, it's great to see that as well.
Lightning and then the same store NOI in any given year, maybe we're just not quite as big as some of our peers are one of our peers in particular that I'll move out here or there can make our same store negative in one year and very positive the next.
Got it thanks, so much.
Sure you're welcome.
The next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Yeah. Thanks, I wanted to touch on the development questions that you've kind of commented earlier I mean, how when you underwrite new development projects I mean, how have those initial targeted yields changed over time, I mean has the higher construction costs and financing costs.
Is that food yields down or have market rents really kept those yields really unchanged over the past year or so.
Good morning, it's really more what we were probably way with capital market changes when interest rates were probably at their low and cap rates, where we're seeing things in the threes. We would have looked at a development. If it were in one of our major markets and it's.
Probably as low as we would've gone at any given point in time was call. It maybe a five and $5 75, something like that because we would have said hey, it's still 200 basis points or more above our market cap rate not that we would exit, but just where cap rates, but as cap rates and interest rates have come up really our floor has moved into the high.
<unk> in terms of kicking off a new development. The good news is we're still.
Achieving those and we achieved those even though we would have looked at something it but it was as we competed for land what were you willing to underwrite to we probably two years ago would have dipped below six we're now that's probably moved up a good 100 basis points and Youre right construction costs have risen, but thankfully rents have kept pace.
And so it's been an offset to those two and it really hasn't sped up or slowed our development pipeline so much as some things.
We would have said, yes to will probably think we need to get a little bit better yield on her let's let's kind of keep working on that or if it was a lower yield it would probably be a look at.
If somebody has pre leased the project or a good bit of the project, we'd probably accept a little bit lower yield just because the risk is less.
Okay.
If I heard you correctly is like the floor. Your target is probably about 100 basis points higher than what it was but what about the exact projects. I mean has those yields actually increased by that amount over the past year or as market rents really kept them in the high sixes. So you're still achieving similar yields as you were last year.
Yeah, you're correct more or a lot of there are targets probably resin.
Thresholds resin buy a call it a good 100 basis points.
But rents have matched construction so that the yields have stayed pretty consistent in that.
Hi, six or seven type range.
Okay, great. Thank you.
Sure you're welcome.
The next question comes from Todd Thomas with Keybanc Capital markets. Please go ahead.
Hi, Thanks.
I wanted to switch gears and ask about the capital raising in the quarter and the updated forecast for the year regarding common stock issuance.
Brent maybe you know within the guidance revision.
I guess first can you just provide some additional detail around the impact that the increase in stock issuance had on the guidance and from a timing perspective, how should we think about the remaining $175 million of issuance embedded in the guidance is that more heavily weighted towards the third quarter, just given where the stock is today or do you have.
Soon that it's more ratable throughout the balance of the year.
Yeah, I'll start with the latter there yeah, the $175 million, we pretty much have that equal weighted throughout the remainder of the year as our capital sourcing.
Just to back up for a moment as we always do when we're looking at at our funding sources from outside our funding that's required.
Look back going into 2022 we had about $600 million of of what I would say outside our external source funding.
And that was about $525 million of debt and we did that if you remember we got kind of what we felt like in hindsight. We did get ahead of rate hikes, we did that 525 million at an average rate of three 8%.
Which in hindsight is very good and we only did $75 million of equity last year, but then you look at this year and as rates did go up latter half of last year entering this year no long term debt for us today, given our <unk> two you're probably looking at somewhere around a six I mean, the 10 years crept back up.
Three nine ish.
So if you add 210 somewhere in there is probably where we would be on top.
And even the revolver.
Which obviously has traditionally been in.
In short term has been the cheapest debt by far at one point 18 months ago, we were sub one and now the revolver is like 6% itself. So any dollar that you have sitting on the revolver now suddenly costing you a pretty meaningful percentage. So that's why you've seen this this year pivot to the equity.
Sad so out of a projected call at $575 million of external sourcing we've kind of pivoted the opposite of last year, we're projecting $475 million.
Of equity.
300 is already done.
And $100 million of debt, which we did back in January So we'll continue to toggle back and forth in a in a short measurement period. It might look while they're really leaning heavily into equity, which we are but when you back up for a moment kind of average everything out we think it's important to look at every avenue and to tap into each case.
<unk> yourself too much you don't want to get to Delever it either so.
So we like where it is where the prices actually rebounded some since quarter end. So they can hang in there would be even incrementally more attractive. The good news is as we continue to have good reason to raise capital, we're not raising capital for retiring certain debts or this that and the other were raising capital because our team continues to put.
This money to work at very via primarily via development, but other avenues that make it still very accretive to do so and so right now it's the equity that could change.
But yeah that 175, that's left and again, that's a flexible number if the guys could as Marshall said if development starts climb because of good markets or if we can continue to find some opportunistic buys kind of like we did with the Vegas property you get a couple of those then you may even ratchet that number higher but.
That's kind of how we're looking at it at the moment.
Okay. Yeah. That's helpful. Yeah, I mean I guess.
In terms of the use of funding there you have a little under $200 million of remaining spend for that.
The development.
You know and lease up pipelines.
So that that makes sense, but you know in terms of investments.
It was a relatively quiet quarter I guess, maybe Marshall can you can you just talk about the pipeline today and maybe provide some color around what you're seeing and whether you're starting to see some better opportunities.
Surface.
Sure Good morning, Todd.
We were happy we're happy with the acquisition, we found in Las Vegas, which is again, a strategic market that we want to grow in and it's been a another's kind of strong rental rate growth market. We've tried to take the approach and we haven't been as successful as had hoped.
Given the capital market turn.
That we've seen development opportunities to step into but we haven't seen the acquisition opportunities that theres still a pool of whether it's private buyers or this or that we thought with that higher private equity is going to be stretched the funds, we're having redemption challenges and things like that that they would be better.
Our core buying opportunities and have turned out on the market today that said, we continue to kind of make our offer here and there and everywhere will.
We'll be strategic about it and the way we've kind of tried to take the mindset on it too. If this is helpful. If we if we don't make any acquisitions were okay. We will keep funding the development pipeline and grow at the pace we can.
If we can find some owners that are maybe having a little bit of distress or if it's an off market opportunities or.
A couple of cases, we've looked where it's a owner user selling a good multi tenant building and it's a way for them to raise capital that if we can get yields that where the spreads are not that far away from development or at least are attractive enough on a risk return.
<unk>.
Where will step in so I hope, we can make a few more acquisitions, but will be try to be patient and disciplined about it and the market definitely has firmed up a good bit from dramatically from where it was a year ago, which was meaning more of how bad the market was a year ago, but we're certainly seeing trades not portfolios, which was really.
Never where we were that active but there still is a number of bidders in second and third rounds, and we've come close but really only bought the one property year to date and we'll hopefully we can find another one or two before year end, but we will be okay either way.
Okay alright, thank you.
Sure.
Again, please limit yourself to two questions.
The next question comes from Jason Bell shared with Wells Fargo. Please go ahead.
Hello out there.
I noticed your occupancy was up sequentially in the quarter, while lease rate was down.
But both were flat just about a month and a half ago. When you provided your interim update on June one.
Flat with the prior quarter at that Tom can you just give us some color on what drove that divergence over the past month or so.
I'm trying to I don't have the apologize June pardon me.
I think in terms of just watching it that maybe it that a month ago, where we're happy where the quarter came out.
And again I know I'm grateful our occupancy was up.
For the average quarter year over year was flat for the overall portfolio Ana and actually for the same store pool, too and I'm glad we're a little bit higher 30 basis points that we were at the end of first quarter and Thats.
I don't know if thats indicative of the market just so much as a little bit of move here in the.
The numbers always the happiest with this quarter, a little better one of them was our re leasing spreads getting done 38% cash and the 53% GAAP and.
And again I would say at least kind of looking at where things stand you know maybe by the time, we wrap up second quarter and get a release out were virtually at the end of July so at least seven months of the year.
It's been a pretty consistent year, we've kind of stayed ebbed and flowed around 98% leased 98% occupied so the last five months of the trickiest and we'll see how those shake out but.
I am grateful that seven months of the year have been pretty stable in what felt like a pretty unstable environment at times, given mainly the capital market fluctuations. So I know that's not a very specific answer but at least that kind of helps where at the end of the day, our second quarter was pretty consistent with last year, which was a.
As Brent said, we're coming up against 40 year highs for our company in terms of where occupancy and percent lease we used to think of historically.
Historically, 95% leased is fully leased and we've been at $98 99, a couple of quarters, which as you know.
Theres not much not much margin to improve on that.
Happy that were hanging in there versus those comps.
Understood. Thank you and then secondly, you mentioned that the tenant decision timelines remain elongated can you just give us a little more color there and maybe comment on what that timeline looks like today versus a year or so ago and if that if that elongated timeline as it is today is continue.
Going to.
Widen out or Linkedin or does it appear to have stabilized somewhat in recent weeks.
Weeks or months.
It feels a little more stable maybe a couple of years ago. When things were so hot it felt like people were afraid of losing space and I remember talking to a couple of tenant rep brokers thing their jobs not much fun. They would go on a tour and they told two or three other people are looking at the same space and people.
Built in a rush to take space and Thats, maybe how you saw maybe a couple of large users commit to more space than they wanted and things like that that it turned out later.
Overdone, it and things like that.
And it probably theres almost.
If I oversimplify at two buckets and it's the national the larger the company and maybe not the more.
Legal back and forth happens on those leases and things like that that it just takes longer.
I've kind of thrown us off its just its natural human psychology when you.
Read the news or watch the news there is so much concern about the economy and waiting for a recession that it feels like large companies have.
It's probably more normalized I don't think it's getting longer but are being patient and thoughtful about their space needs.
And the smaller companies may be where its an owner or more regionally based theres still moving pretty quickly and maybe their process for all their approvals and things like that isn't client is cumbersome.
The other explanation. If this is helpful or was one of the brokers explained it to me.
Rents have risen so much over the last few years and as their space requirements.
The tenants are committing to in terms of lease liability. The absolute dollars has risen so much in a number of cases it takes depending the company another layer or two of approvals before they can get there. So that makes at least made sense to me why won't you had gone to LOI. It took so long to get a lease signed this by the.
Bigger the company, the more approvals and a lease liability, which triggering other layers of approval than it had maybe a year or two earlier.
Makes sense, thanks very much.
Sure Youre welcome.
The next question comes from Ronald Camden with Morgan Stanley . Please go ahead.
Hey, two quick ones for me.
So just first is just on the same store NOI and I think we're all trying to build a function.
What that could look like next year.
If I'm, taking your your cash spreads of 38% in the quarter.
Ah I see 13% coming due 13% rolling next year.
You easily get to a 6% to 7% number. So the question really is is occupancy and bad debt.
The biggest delta that that that we should be thinking about next year.
And so forth.
Yeah. Ron This is Brent I would say youre right on and certainly based on we still feel good about that rental rate growth component and we have annual escalators in the vast vast majority of our leases and that has grown now to be used to be like mid twos on average now I'd say that's grown just.
North of three is we've been able to lever that overall as well.
But I would say more of that.
Component to look for next year would be occupancy side versus versus bad debt bad debt continues to be low collections. Good.
And so you know.
Not to say that Couldnt increase, but it feels at a manageable pace.
The occupancy side again as I just mentioned earlier.
For example, the the same store bucket the comparable occupancy for third quarter is going to be $98. Five in the same store comparable for the bucket for last year and fourth quarter is going to be $98. Eight I mean that we know I mean that was the occupancy last year for our current same store bucket. So.
Those are going to be pretty hefty comparisons and so I think that part of it would be I agree with what you're saying about the rental rate increases in that component of it being six to seven and then it's a matter of where do you think.
Occupancy is going to be we continue to budget it slightly.
On basis point measurement slightly coming down and it continues to as Marshall said continues to be pretty stubborn to hang around 98. So if that happens through the last two quarters of the year will do better than what we've got dialed up right now because we are showing just a slight bit of a pullback, but so we'll see but that is I agree with you that.
The biggest component going into next year is how might that impact one way or the other one to same store.
Great and then my second one just on maybe a little bit more commentary on onshoring or French storing oven. So for it's just what what sort of data are you hearing from times, where are you seeing in the markets.
We hear about it a lot of news, but curious where that's flowing through.
The portfolio. Thanks.
Maybe a little.
I guess.
What we seem to what we're seeing is maybe two fold in Texas, we're seeing companies. It's more tech and then maybe that's not onshoring or near shoring. So much as just I guess I'll put in population shifts I mean, Tesla has had a large impact not directly and indirectly went and all.
Austin and then even in San Antonio we've picked up Tesla suppliers. So they're relocation has been a pretty dramatic impact and we've seen where Texas seems to pick up as more technology and medical related manufacturers, Dallas, and Austin, where we've seen that pick up and <unk>.
Prospect activity, where we've seen it on and when we're looking for that next opportunity in San Diego were full there and we did buy four buildings that were 50% leased and quickly leased those up but it was.
Electronics manufacturing and medical products and things like that that are manufactured in Tijuana, and then coming over the border. So as those markets stay tight and then in San Diego you actually have the city pushing further and further south Amazon who was one of our big pre lease opportunities they wanted to be closer.
Her to the city of San Diego, but couldn't find the land. So it all gets pushed their together at the border and then the other thing that I think will really help San Diego as they're building a second border crossing that it'll be more technologically advanced so it's supposedly they are faster border crossing and a lot of our product is in between those two.
Order crossing so we're bullish on south San Diego, we need I Shouldnt say that because we're trying to find the next opportunity there but it's.
It seems to be slow builds here and there and when you look I think.
The vacancy rate I'm doing this from memory, which is dangerous, but was under 2% in Juarez, Mexico and things like that and I think Tijuana is about the same so theres just those markets are tight and continue to grow in that spillover continues to help us and where are we and again, we've seen it more where companies.
And look we hope, California stays a strong market, but if people do leave California, we like that we're balanced in that we're picking up that tenancy in markets like Las Vegas, and in Texas and in Arizona as well.
Thanks, so much.
Sure Arun.
The next question comes from key been Kim with Truest. Please go ahead.
Thanks, Good morning, just to follow up on that equity raise question I'm just curious what were some of the decision.
To get to that additional 105 5 million of equity in the second half and if you did.
Once you execute that your leverage all else equal will be closer to four times.
So I'm just curious.
In your press release, it sounded like a little bit more of a defensive posturing, but and I know you haven't been known to do large scale acquisitions, but are there some deals or opportunities that you see in the horizon for larger scale deals.
Yeah I'll address the first part again really it's a matter of of us evaluating in the moment, what we feel like is our is our best Avenue and as I alluded to earlier 2022 that wound up being heavy debt early in the year about <unk>.
525 out of $600 million and then this year, we've kind of gone almost the other if you put the two together, we're basically 50 50 debt to equity between 22 and 23. So we're.
We were careful to try to be balanced on the long run, but certainly in the short run it it does continue to drive our.
Debt to EBITDA and debt metrics down lower than you would say they quote need debate that the one thing that's been interesting in this environment keep in as it is I'd say, even where you could short term park caf.
Capital per se on the revolver and let that glide over time.
And then decide over a period of time, if he might want to do debtor equity I would say that the the high interest rate on the revolver has has kept us more immediately interested in issuing equity.
E to basically fund as we go just because it right.
Right now, it's such a big spread between you know say a low four four and a quarter versus a six just day one on an equity dollar versus a revolver dollar that'll come down and as it comes down. We May you know then begin to float a revolver a little bit more within reason, but.
So it's we take it as it comes.
Certainly theres a point you had reached where do you want to continue to go lower we look at other avenues, we've looked at even other avenues. Besides.
Our traditional private placement you know looking at convertible bonds and some of that and you're seeing more out in the market amongst other companies today. So.
Our role is to always be looking at those sources and then just tapping into it.
As best as it looks at the moment and hopefully that's hopefully that's helpful.
And keep it or not and this is Marshall I agree with Brent and I will jump in and then you did use the phrase I remember in your face that dry powder and we're seeing those opportunities for one good development side. So you want them.
Have the ability if you find an opportunity to execute on it.
I keep waiting for good or better acquisition opportunities in the market has allowed now and I don't know if regulators at some point step in and the banks have some issues to get some loans off their books or things like that.
I've been hopeful we'd find those it's been maybe more hopeful than reality, but I'm not sure. That's all played out yet as well. So if we do find those offered if we don't we'll continue funding development and maybe worst case, where a couple of months ahead of what we needed and in the best case, we can find some good.
<unk> acquisition opportunities kind of long term strategy, whether it's a market we wanted to grow in or are building around the corner ideally both and we will have that ability to step in when other people may be capital constrained as has been the goal.
And second question on the on what you just mentioned in convertible bonds.
How does the debt.
The pricing and effective yield compare it to like a straight bond and is that something that's more realistic to address your 'twenty 'twenty four maturities.
Well the yields lower than than say a public bond, but then you've got the other components that go along with that though right the conversion ability and what does that spread to convert.
And so you've got costs associated with it that you have to dial in that adds to that initial coupon rate. So.
There are some moving components there again, it's something that we're just keep ourselves apprised to and again just look at it as.
You sort of look at it arrows in your quiver and you want to keep this be completely.
Completely cognizant and aware of all of them. So that you can tap into the one that's needed I will say, we don't we only have like $50 million.
Coming this August and then a very low the maturities next year when you look at the schedule.
Think about $120 million of next year's 170 million comes due like late December . So we don't have a lot coming due over the next 18 months. So we don't need big slugs.
So the ATM continues to be again, a good drip capital source for us, but yeah, we evaluated evaluated all and just kind of make the decisions as we go.
Okay. Thank you guys.
Yes.
Yeah.
The next question comes from Vince T Boone with Green Street Advisors. Please go ahead.
Alright, Thanks for taking my question.
Discuss the health of Bay area fundamentals, and specifically touch on some of the challenges leasing the Hayward value add acquisition that transferred to the operating portfolio. This quarter and also if you can touch on just how the tall Oak acquisition has performed.
Year or so of ownership versus your original original expectations.
Okay, Hey, Vince good morning, and thanks, Dan sorry, It took us a minute to get to you. So appreciate the question.
The Bay area. It's been interesting just was we watch the number of <unk>.
And better stock Wise Tech layoffs, and things like that I would say maybe two parts. The Hayward acquisition is leased up slower than we'd hoped it was a value add and kind of what we're learning on some of the value adds the building was not institutionally owned great location, but older building.
So there was a few months of clean up really kind of.
Painting, the building parking lot work getting the existing office, it's one vacancy where knock on wood close to a lease that could start here in the next couple of three weeks. So you'll hear me yellow I'll drop you an email if we can get that so that's taken a little bit longer and it's really 47000 feet 110.
So we'll get that in the vacancy rate in Hayward as I want to say two 4% was the last number I read from CBRE. So it's up tight market. It just took a little bit longer than a change of brokers there to get that leased and then <unk>.
All in all I'd say the leasing we've done to date has been ahead of our pro forma so we've been happy with that and we do have one vacancy within it on that north shore Benicia Submarket that we're working on back filling that with a tenant move out but all in all that's the only vacancy within <unk> and to date. Thanks.
Really the leasing we have done has been.
Head of what we had underwritten as market rents at the time, we made the acquisition so.
The sellers than a gentleman and easy to work with he's a big eastgroup shareholder Thankfully now.
And we've been happy with that portfolio and still like the Bay area. Although it is a market kind of like I guess all of California, you watch a little bit more closely than you do some of the other markets. These days.
Yes. Thank you that's all very helpful color.
Just switching gears my second question I just wanted to.
Get your thoughts on just kind of a state of the private transactions market simply are you starting to see any more deal activity in your markets or is it still pretty quiet.
Wide bid ask spread between buyers and sellers more for core products.
It feels like it's picked up in our picking up that there is.
More more smaller kind of one off or it feels like people will breakout portfolios one of the comments I've heard from other national brokers that are large portfolio as a discount now and that was more a function of the inability to finance and things like that so they're all they all have market specific portfolios, but.
We are seeing more and more activity on core acquisitions in bidding on those and.
Not very successfully but we bid on a number of those and it does feel like a year ago, where things were just at a standstill on bid ask that there is a little more more transaction activity not nearly where it was at the peak, but better than it was a year ago, and then kind of hopefully improving quarter by quarter.
Great. Thank you.
Sure. Thanks, Matt.
The next question comes from Bill Crow with Raymond James. Please go ahead.
Hey, good morning, I guess good afternoon, Brian .
Quick question.
Hey, Bill.
Hey.
Thinking about the development side, the supply side of things have we ever seen.
Such a dramatic decline in starts when fundamentals have been so strong and it makes me wonder whether.
We're not just at a time out.
We look ahead 12 months or 18 months and all of a sudden we get that 40% that were given back now on the development side all of a sudden starting again.
Isn't that.
Quite possible.
Okay.
It's certainly possible.
Before when I've not seen it I guess, maybe it sounds.
I don't want to sound that old result is actually let's say that.
Usually when development starts drop the fundamentals are bad and we've gone really over a year as we all know we care about the most anticipated recession ever.
Where the economy feel shaky, but fundamentals are good the capital markets have been bad but the fundamentals are good so I've never seen it that's what probably early in the year had us pretty stressed about the demands there where are we going to find the capital to execute on that demands there it felt a little bit better today, it certainly stock price why.
And maybe that.
You can get that it's just expensive as Brent said.
I am hopeful look I'll look back at Covid, and we would've everybody would've thought I was crazy I won't put it as a way we should have kept developing right through COVID-19. When it started and we would've delivered products when the demand was there and gotten some really good construction pricing in them all.
I know that I would compare this timeframe to that but I hope it demand can just hang in there we'll be it'll it will pick back up but we may go a few quarters before drive it and those private developers can get their capital in order to jump back in the market to get supply back to a more normalized level.
But demanded 90 as we sit today at 98% leased and occupied I've never seen supply falling as fast as it is.
And then I think third quarter will be lower a bigger drop in second quarter was when we say it was half of what third quarter last year was I think third quarter will estimate 60% dropped something like that in terms of stocks.
And the starts youre seeing today.
The ones that you think may.
Happen over the next year or so do you think youre seeing more like you in other words more multi tenant.
Last mile.
Shallow bay and shorter product or.
Yes, because clearly it feels like Youre winning here.
Yeah. It is there, but maybe a little bit higher percentage I mean, what we hear is the big boxes and we're not in that that there a lot of those in the pipeline and that's usually the fortune 1000 and that's.
Where they'll maybe.
Those listening to our call you know maybe a temporary glut of goes but because of the lack of supply following and eventually those will get taken it will just be longer hold periods and probably those developers underwrote. So we may have a little bit slightly higher percentage, but I think so many of the developers.
We competed with.
They are really the ones are aspiring developers that werent developers until industrial really kind of took off in 2018 in 2019 are completely on the sidelines and so the starts or it's there's a few out there, but not not nearly what we had grown accustomed to seeing the last few years and so I think.
It's still a pretty mixed bag of probably what's getting started but not much and a lot of that is.
Probably pretty is tenant specific and I were you.
Usually say within our markets.
What's in the pipeline, 10% to 15% is comparable in terms of what we deliver in that that number's, probably is holding true maybe.
Slightly up just because big box is probably dropping faster than shallow bay, but it hasn't moved materially.
Got you thanks for the color I appreciate it sure. Thanks, Bill Thanks Bill.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Marshall Loeb for any closing remarks.
Thank you for everyone's time and interest in Eastgroup. This morning. We appreciate you appreciate that if we didn't get your question or if anything comes up later feel free to reach out or email Brent in me and look forward to seeing you soon thank you. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.