Q3 2023 EastGroup Properties Inc Earnings Call

Good day, everyone and welcome to the Eastgroup properties third quarter 2023 earnings conference call and webcast.

All participants will be in a listen only mode.

You need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Ask a question you May press Star and then one using a touchtone telephone.

Withdraw your question you May press Star two.

Also note todays event is being recorded.

And at this time I'd like to turn the floor over to Marshall Loeb, President and CEO.

Sir you may begin.

Good morning, and thanks for calling in for our third quarter 2023 conference call as always we appreciate your interest Brent Wood. Our CFO is also on the call and central will 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. L 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 is 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 1934 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.

We undertake no duty to update such statements or remark, whether as a result of new information future or 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, Keena, good morning, I'll start by thanking our team for a strong quarter. They continue performing at a high level and capitalizing on opportunities in a fluid environment.

Our third 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 13% for the quarter and 11% 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 track.

Demonstrating the market's normalizing trend, our average quarterly occupancy and quarter end occupancy or down from both third quarter 'twenty two and June 30.

Our quarterly occupancy was historically strong at 97, 7%.

It's down from what were P clause.

And our percentage leased however remained consistent with June 30 at 98.5%.

Our quarterly re leasing spreads reached a record at approximately 55% gas and 39% cash. These results posted year to date spreads to 53% gas and 37% cash same.

Same store NOI was solid up six 9% for the quarter and eight 1% year to date.

And finally, I'm happy to finish the quarter with F. F O rising to $2 a 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 2% of rents down 70 basis points from third quarter, 2022 and in more locations.

<unk>, we view, the geography geographic and tenant diversity as ways to stabilize future earnings regardless of the economic environment.

In summary, I'm proud of our year to date performance, especially given the larger economic backdrops.

We continue responding to strengthen the market end user demand for industrial products by focusing on value creation via raising rents.

And more recently acquisitions this strength allowed us to end the quarter at 98, 5% leased and push rents throughout a wider portfolio geography.

Due to current capital markets, we're seeing broader strategic acquisition opportunities.

It's hard to predict how large the opportunity may be but we're pleased with our ability to acquire newer fully leased properties with below market rents and attractive initial yields.

As we've stated before our development starts are.

Poll by market demand within our parks based on our read theater, we're forecasting 2023 starts a $360 million.

And while our developments continue leasing with solid prospect interest, we're seeing more deliberate decision making.

In this environment, we're also saying to promising trends the first thing that decline in industrial starch.

Starts have fallen now for four consecutive quarters with third quarter 2023 being roughly two thirds lower than third quarter 2022.

Assuming reasonably steady demand then in 'twenty 'twenty four of the markets will Titan, allowing us to continue pushing rents and create development opportunities.

The second trend, we're saying, it's being with developers who have completed significant site work prior to closing with the forward sale window tightening it's allowed us to step into shovel ready sites in several markets such as Tampa, Denver Austin etcetera.

Brent will now space to several topics, including our assumptions within the updated 2023 guidance.

Morning, our third quarter results reflect the terrific execution of our team the strong overall performance of our portfolio and the continued success of our time tested strategy F O per share for the third quarter was $2 per share compared to $1 77 for the same quarter last year.

<unk> were attributable to an involuntary conversion gain recognized as a result of roof replacements that were damaging storms along with related insurance claims excluding the gain F O per share for the quarter exceeded the upper end of our guidance range at $1 95 per share an increase of 10 point.

2% 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 strength 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 $177.14 per share.

During this period of elevated interest rates equity proceeds have been our most attractive capital source.

And our updated guidance for the year, we increased our stock issuance assumption by 110 million to $585 million 465 million of which is complete.

During the quarter, we repaid two loans totaling $52 million, including our loan remaining secured mortgage.

The company's debt portfolio is now 100% unsecured.

Also we refinanced 100 million dollar unsecured term loan with a 45 basis point reduction in the effective fixed interest rate. While the maturity date was unchanged that will produce interest savings of approximately 2.25 million over the remaining five years of term.

Although capital markets are fluid our balance sheet remains flexible and strong with record good financial metrics.

Our debt to total market capitalization was 18% unadjusted debt to EBITDA ratio was down to four one times and our interest in fixed charge coverage ratio increased to 9.1 times.

Looking forward F O guidance for the fourth quarter of 2023 is estimated to be in the range of $1 98 to $2.02 per share and $7.73 to $7.77 for the year of 12% per share increase over our prior guidance those mid points represent.

Increases of 9.9% and 10, 7% compared to the prior year respectively.

The revised guidance produces the same store growth midpoint of seven 8% for the year, an increase of 50 basis points from last quarters guidance. We also increased the midpoint of our average occupancy again by 10 basis points to 97.9%.

This is the result of outperforming our budget expectations in the third quarter, along with continued optimism for the final quarter of the year.

In closing we were pleased with our third quarter results and are well positioned to close out 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, Brent and.

In closing I'm proud of the results our team is creating internally operations remained strong and we're constantly strengthening the balance sheet.

Externally the capital markets and the overall environment remain clouded.

And while never Pleasant experience, it's leading to further declines in starts in the meantime, we're working to maintain high occupancy while pushing rents.

And in spite of all the uncertainty I liked our positioning.

More specifically our portfolio was benefiting from several long term positive secular trends such as population migration of all the logistics chains onshoring near shoring et cetera.

We have a proven management team with a long term public track record.

Portfolio quality in terms of buildings and markets improves each quarter.

Balance sheet is stronger than it's ever been and we're expanding our diversity both in our tenant base as well as our geography.

We'll now take your questions.

Yeah.

Ladies and gentlemen at this time, we'll begin the question and answer session.

To ask a question you May press Star and then one using a touchtone telephone withdraw your question you May press Star two.

If you are using a speaker phone we do as you. Please pickup your handset prior to pressing the keys to ensure the best sound quality.

We also ask that in the interest of time, please limit yourselves to one question and a single follow up.

Once again that is star and then one to join the question queue.

Our first question today comes from Craig Mailman from Citi. Please go ahead with your question.

Hey, good morning, I'm, just you know the market right now is clearly focused on a sequential market rent growth.

And Marshall I know you guys don't give us a mark to market, but I'm just kind of curious if you guys looked at kind of where your market footprint stacked up in the sequential market perspective, and maybe you know what impact you're seeing to kind of the trajectory of spreads or your embedded.

The mark to market from some of the recent kind.

Kind of movement.

Okay. Good morning, Craig. Thanks for the question I guess as we look at our kind of what the market's done recently in our Mark to market maybe the the good news now for a trailing 12 months on a GAAP basis and again, we've got cash numbers have been high but our trailing 12 months' GAAP.

Rental rate increases have averaged 50% a little higher than that and this quarter and you know in spite of all of the interest rate increases and things like that it was a record quarter for us in terms of cash and GAAP spreads. So we were in the mid fifties and our year to date averages in the kind of come round 53 is a little better but not.

Not out of the park, but continually improving there and then what we were looking at recently in terms of what the market's done this year I know some of our peers for estimating around 7% a solid CBRE number in the mid sevens, but.

And working with Cushman Wakefield, we took there in a market growth rate and really market weighted it based on our NOI and that's on the overall market and then that gets you just north of an 8.5%. So we're calling this the rent yes, it's gone negative in L. A at least as we've read and things like that.

But in our markets.

Well, you know using cushman Wakefield, it's call it eight and a half a little above that and then really I wouldn't I would also encourage people if you're if you're curious on I wish we had the ability to share a slide on our investor presentation on our website, if you'll flip through it if you have a chance and go to about page 12, There's another chart.

That shows vacancy rates for 100000 feet and below really have not moved much in a year that where what's happened in the market. What's moving the rents is big box is getting delivered and those prospects are deliberate and it's taken a little more time to lease does so that 8.5%.

For our product type I'd, probably add 100 to 150 basis points to that just because the supply has not been there and that's why it was thankfully we've seen our occupancy hold in our our percent leased hold fairly steady this year at 98.5%. So we still feel like we've got good mark to market, although I wouldn't agree maybe with where.

Operator: Good day, everyone, and welcome to the Eastgroup Properties third quarter 2023 earnings conference call and webcast. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

You started the rent it's not a hyperbolic kind of frenzy that it was post COVID-19, but it's still pretty solid rent growth.

And a little bit longer term, we're encouraged to see starts fall for the fourth consecutive quarter I think they'll fall again in fourth quarter, two just given what what's going on in the world. So that we can stay around 98% leased with supply falling as fast as it is we feel pretty good about our ability to push rents going forward.

Operator: After today's presentation there will be an opportunity to ask questions to ask a question you may press star and then one using a touch on telephone. So withdraw your questions you may press star and two.

Operator: There's also note today's event is being recorded and at this time I'd like to turn the floor over to Marshall Loeb, President and CEO. You may begin.

Assuming steady demand.

And I appreciate you guys haven't given 24 guidance yet but.

As you guys look at what's expiring next year, it's kind of a lot of 2019 vintage right pre COVID-19 leases I mean do you anticipate continued growth.

Marshall Loeb: Good morning and thanks for calling in for a third quarter 2023 conference call. As always we appreciate your interest. Brent Wood our CFO is also on the call and since we'll make forward looking statements we ask that you listen to the following disclaimer.

From kind of a mark to market you've seen in the last couple of quarters.

Before maybe it received a little bit as you get into some of the Covid era leases or kind of.

Marshall Loeb: Please note that our conference call today will contain financial measures such as PNOI and FSO that are non-GAP measures as defined in regulation G. Please refer to our most recent financial supplement into our earnings press release both available on the investor page of our website and to our periodic reports furnished or followed with the SEC for definitions and further information regarding our use of these non-GAP financial measures and a reconciliation. So the reconciliation of them to our GAP results.

I again I appreciate you haven't given guidance, yet, but just some framework as people are thinking about yeah, yeah yeah.

Sure Fair question here, but you know I'm.

I'm an optimist.

Yes, I'd say I feel pretty good about I feel good about our ability to push rents and the next year and then really if I parse next year, even more I think the back half of the year. When we said I think as things get absorbed what what little shallow Bay and our average building size is about 90.

Marshall Loeb: Please also note that some statements during this call are forward looking statements as defined in and within the safe harbor under the security act of 1933 the Securities Exchange Act of 1934 and 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 and tensions expectations strategies and prospects based on the information currently available to the company and on assumptions it has made.

5000 feet and our average tenant is about 34000 feet. So again, if you. If you look those vacancy rates haven't moved a I really felt even better about our ability to push rents assuming the economy doesn't have to get a lot better just doesn't get worse or maybe the fed eventually stops raising rate.

Or even drops it a little bit I felt better about the second half of 'twenty four probably than the second half of 'twenty three in terms of our ability to push rents.

Thank you.

Marshall Loeb: We undertake no duty to update such statements or remarks whether as a result of new information future or 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 10k for more detail about these risks. Thanks, Keena.

Sure.

Our next question comes from Jeff Spector from Bank of America. Please go ahead with your question.

Great. Good morning, Marshall can you expand on your comments a little bit on the acquisition market I think in your opening remarks, you said theres more opportunities and I guess.

You know what's changed there.

Is there less competition.

Or again.

Somehow sellers are now, but you know being more active what what's exactly changed.

Marshall Loeb: Good morning and I'll start by thanking our team for a strong quarter. They continue performing at a high level and capitalizing on opportunities and a fluid environment. Our third 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 13% for the quarter and 11% year to date. For over 10 years now our quarterly FFO for share has exceeded the FFO for share reported in the same quarter prior year truly a long term growth trend.

That's a good question good morning, Jeff what well, it's it's been really a more dynamic acquisition market or maybe market on the capital transaction than we've seen in a few years and.

It's almost two parts when we bid on portfolios. We've we bet on a couple and I say portfolio is like three to six buildings, we've been clobbered and those are still traded there are some out there in the fours one larger one below four type GAAP yield and things like that but we've seen a few one off transaction.

Marshall Loeb: Demonstrating the markets normalizing trend our average quarterly occupancy and quarter and occupancy are down from both third quarter 22 and June 30. The quarterly occupancy was historically strong at 97.7% just down from what were peak levels. And our percentage leased, however, remained consistent with GM30 at 98.5%. Our quarterly releasing spreads reached a record at approximately 55% gap and 39% cash. These results pushed year-to-date spreads to 53% gap and 37% cash. Same store NOI was followed up 6.9% for the quarter and 8.1% year-to-date.

And the way we've looked at it.

Well, we're pretty indifferent between equity and debt, if all being equal, but this year. We've had the advantage of having our equity price and kind of that low to mid fours implied cap rate and we've been able to say we've closed on three and then we have another one is we moved our acquisition guidance that we have.

We're optimistic about by the end of the year, but the ability to buy new buildings.

In markets, where you're in Submarkets, we want to be and you know it.

A round up call. It a six GAAP yield in the high five six GAAP and kind of a trend and I'm trying to not violate every confidentiality agreement, but and then all in below market rents. So we had those would've been four type cap rates or some for 18 months ago and that would have been up.

Marshall Loeb: And finally, I'm happy to finish the quarter with FFO rising to $2 a share. Helping us achieve these results is thankfully having the most diversified rent role in our sector, with our top 10 tenants falling to 8.2% of rents down 70 basis points from third quarter 2022 and in more locations. We view the geographic and tenant diversity as ways to stabilize future earnings regardless of the economic environment.

Bidding frenzy, but all of a sudden with debt prices, where they are and some of the funds as we read about and hear about needing liquidity and it's awfully hard to sell office buildings. So they're trying to get things closed by the end of the year and industrial is the most is the brokers explain it to us the most attractive.

<unk>.

Product to have on the market and in all of these cases, our pitch has been where we may not be your highest better but what are your most certain.

Marshall Loeb: And summary, I'm proud of our year-to-date performance, especially given the larger economic backdrop. We continue responding to strengthen the market and user demand for industrial product by focusing on value creation via raising rents, developments, and more recently acquisitions. This strength allowed us to end the quarter 98.5% lease and push rents throughout a wider portfolio geography. Due to current capital markets, we're seeing broader strategic acquisition opportunities. It's hard to predict how large the opportunity may be, but we're pleased with our ability to acquire newer, fully-least properties with below-market rents and attractive initial yields.

Have the line of credit we have zero outstanding of roughly a low balance on it most of kind of second and third quarter, we have the ability to close and we know this market in the Submarket.

And so that's actually worked where our batting average has been much lower and then just anecdotally talking to our three regionals, we have good relationships with the national marketing firms brokerage firms and we'll get calls, but the ratio of inbound calls is really increased all of a sudden we're a more.

<unk> attractive buyer and I think it's just been I.

Our ability to kind of acquire so all of a sudden acquisitions and I don't think the window will stay open terribly long, but you know if if our equity price where they are and it's not today, but where it was an awful lot of third quarter. If we can kind of buy new assets at below market rents and get that spread on investments.

Marshall Loeb: As we've stated before, our development starts are pulled by market demand within our parks. Based on our read-through, we're forecasting 2023 starts of 360 million. And while our developments continue leasing with solid prospect interest, we're seeing more deliberate decision-making.

What we've lined up <expletive> out a little more than a nickel to next year's earnings on a run rate without you know with 140 million dollar in the average building is probably literally two years old of those floor that we've acquired so we like that model N and.

Marshall Loeb: In this environment, we're also seeing two promising trends, the first thing that decline in industrial starts. Starts have fallen now for four consecutive quarters with third quarter 2023 being roughly two-thirds lower than third quarter 2022. Assuming reasonably steady demand been in 2024, the markets will tighten, allowing us to continue pushing rents and create development opportunities. The second trend we're seeing is being with developers who've completed significant site work prior to closing. With the forward-so window tightening, it's allowed us to step into shovel-ready sites and several markets, such as Tampa, Denver, Austin, etc.

And if we can pursue that strategy. We would we don't have the capital today, our equities not price like that and it's below our N. A V. But we'll want continue to watch that window and so we've.

Seen some interesting opportunities and I think we we won't change what we're doing but in terms of product markets, but I think we should pivot our strategy as the market gives us those opportunities.

Great. Thank you very helpful. My one follow up is on again the.

The comment you made in on declines in industrial starts or are you able to quantify.

Brent Wood: And Brent will now speak to several topics, including our assumptions within the updated 2023 guidance.

The well I guess supply like the decrease in supply of $24 23 and.

Brent Wood: Good morning. Our third quarter results reflect the terrific execution of our team, the strong overall performance of Oracle Polio, and the continued success of our time-tested FFO for the third quarter was two dollars per share compared to $1.77 for the same quarter last year. Five cents of FFO were attributable to an involuntary conversion gain, recognized as the result of roof replacements that were damaged in storms along with related insurance claims. Excluding the gain, FFO for the quarter exceeded the upper end of our guidance range at $1.95 per share, an increase of 10.2 percent over the same quarter last year.

In industrial whether it's national or in your markets what.

Have you yet have any stats on that.

Some of that's the best I could point, you don't I hate to.

Well it was interesting. We said this is one call I wish we had a zoom call with one of our slides on our investor presentation, and we just put this out late yesterday. So it's.

About page 12, we'll show you the vacancy rates by size for anyone that wants to flip through that and about and I may be off the page, but I'm in the right ZIP code about page 10, you'll see national starch.

And they fall in four quarters in a row and road from third quarter last year, which was the peak and we're down quarter to quarter, but the almost two thirds this quarter and shallow bay, usually makes up and Theres. Another chart in there that will show you the shallow bay numbers on our webcast.

Brent Wood: The outperformance continues to be driven by stellar operating portfolio results and the success of our development program. From a capital perspective, the strength in our stock price continues 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 $177.14 per share. During this period of elevated interest rates, equity proceeds have been our most attractive capital source. In our updated guidance for the year, we increased our stock issuance assumption by $110 million to $585 million, $465 million of which is complete.

It's it's pretty far down, it's usually 10% to 15% of supply we felt like in any markets.

Competitive so the whole thing with starts falling off in the supply construction pipeline emptying out there'll be a vacuum for debt which should enable.

Enable us kind of earlier question to really push on rents and then and then it'll be a minute before we get there but should also allow us with our parks to really if I'm being an optimist hope up ramp up our development pipeline because people will need expansion space you know down the road in 'twenty four if they feel better about the economy and use.

Brent Wood: During the quarter, we repaid two loans totaling $52 million including our loan remaining secured mortgage. The company's debt portfolio is now 100 percent unsecured. Also, we refinanced a $100 million unsecured term loan with a 45 basis point reduction in the effective fixed interest rate while the maturity date was unchanged. That will produce interest savings of approximately $2.25 million over the remaining five years of term. Although capital markets are fluid, our balance sheet remains flexible and strong with record good financial metrics.

That's one of our developments lease up quickly when there's lack of available product on the market that people have to go ahead and sign a pre lease and things like that so hopefully that's helpful to you you'll you'll see the start kind of graph.

And then where vacancy is where our vacancy hasn't moved very much with an average building size under 100000 feet, where the vacancy is really moved us kind of when you get a 300000 square feet and above that's where most of the new product because that's mostly what's been built in where you could put a lot of capital to work the last.

Brent Wood: Our debt to total market capitalization was 18 percent. Unadjusted debt to EBITDAW ratio is down to 4.1 times and our interest in fixed charge coverage ratio increased to 9.1 times. Looking forward, FFO guidance for the fourth quarter of 2023 is estimated to be in the range of $1.98 to $2.02 per share and $7.73 to $7.77 for the year, a 12-cent per share increase over our prior guidance. Those midpoints represent increases of 9.9 percent and 10.7 percent compared to the prior year respectively.

Few years, and it's worked until all of a sudden people got nervous about the economy and that's stopped and I've always said I like where we kind of fit on the playground.

Great very helpful. Thank you.

Thanks, Jeff.

Our next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead with your question.

Yeah.

Hey.

Good morning, good morning down there.

Marshall.

Two questions I guess, one question one follow up.

First on the supply dropping out there presumably this is helping you guys at one of the so you know people, who can develop a odd year round not having to borrow.

Brent Wood: The revised guidance produces the same store growth midpoint of 7.8 percent for the year and increase of 50 basis points from last quarter's guidance. We also increased the midpoint of our average occupancy again by 10 basis points to 97.9 percent. This is the result of outperforming our budget expectations in the third quarter, along with continued optimism for the final quarter of the year.

Are you seeing this increased opportunity and you guys want to ramp that up or are the global concerns and sort of all the risks that we read about interest rates et cetera means that you're probably going to keep your development program at that level right now just trying to understand.

Yeah, you know we used to look out over the next year or two where you guys are thinking about putting a shovel.

Brent Wood: In closing, we were pleased with our third quarter results and our well-position to close out the year. As we have in both good and uncertain times in the past, we will rely on our financial strength, the experience of our team, and the quality and location of our portfolio to lead us into the future.

Yeah, No. That's a good question and I figure I think we've always said we'll go.

We'll go as fast or as slow as really the market dictates phase.

<unk> three in a park is moving slowly we're not going to roll into phase four, but if we run out of inventory and especially if we have tenants telling us they need expansion space or nabors will move pretty quickly we always try to have permits in hand.

Marshall Loeb: Now Marshall will make the final comment. Thanks, Brent.

Marshall Loeb: In closing, I'm proud of the results our team is creating. Internally, operations remain strong and we're constantly strengthening the balance sheet. More specifically, our portfolio is benefiting from several long-term positive, secular trends, such as population migration, evolving logistics chains, ensuring near-shoring, etc. We have a proven management team with a long-term public track record. Our portfolio quality in terms of buildings and markets improves each quarter. Our balance sheet is stronger than it's ever been, and we're expanding our diversity both in our tenant base as well as our geography.

So it was.

Looking into next year I think the market will get tight you know hopefully in the back half of the year tighter because what comes out of the pipelines not being replaced.

We are seeing opportunities as you know over the past few years theres been such an appetite for industrial product that developers have been able to go to the permitting zoning all that kind of you.

And it could take years, you know usually a year and a half at a minimum in some cases three years to get the wet ones every issue so that you're ready to break ground and a number of cases those local regional developers have been flipped. The land are built the building and sold it on a forward basis and things like that where we are.

Seen in a couple of cases with our Denver land acquisition, we made recently the one in Tampa, We've got another one that we're optimistic about one in Austin, where.

Operator: We'll now take your questions. Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-to-unit telephone. But draw your questions, you may press star and two. If you are using a speaker phone, we do ask you please pick up your hands that prior to pressing the keys to ensure the best sound quality. We also ask that in the interest of time, you please limit yourselves to one question and a single follow-up. Once again, that is star and then one to join the question key.

Those developers got to the end and they hadn't closed I guess I should have backed up where they've done all of this work, while it's under contract, but haven't closed yet so that ability with afford window.

Heightening than they needed.

Look for capital sources to move forward.

And it feels like my analogy, it's been we've been able to jump into the game in the fourth inning, rather than the first inning and like in Denver. For example, they had worked on this site for several years and we broke ground within I think call. It 60 days of closing and the same thing in Tampa and some of these were all of a sudden those offers.

Craig Mellman: Our first question today comes from Craig Mellman from City. Please go ahead with your question.

<unk>, we were getting outbid for for for years, because people wanted to nuveen heightened mandate you name it different companies wanting to put capital out now we've become a source for them or again, we've said they've created all this work and if they don't close the value that it created reverts back to that seller and.

Marshall Loeb: Good morning. Just, you know, the market right now is clearly focused on sequential market rent growth. And Marshall, I know you guys don't give a market market, but I'm just kind of curious if you guys looked at kind of where your market and footprint stacked up from the sequential market perspective and maybe, you know, what impact you're seeing to kind of the trajectory of spreads or your embedded portfolio. That's really a market market from some of the recent kind of movement.

So they're looking for capital and we've been able to step in and and gets really circumvent an awful lot of that development cycle.

Okay, and then sort of as a follow up to that sort of going back to I think it was Craig.

Marshall Loeb: Good morning, Craig. Thanks for the question. I guess, and we as we look at our kind of what the market's done recently and our market market, maybe the good news now for a trailing 12 months on a gap base. Again, we've got cash numbers have been high, but our trailing 12 months gap rental rate increases of average 50% a little higher than that. And this quarter and in spite of all the interest rate increases and things like that, it was a record quarter for us in terms of cash and gap spread.

And who asked about you know sort of looking into next year. You guys. Traditionally are always a cautious group. You know you you always think that like this year was bad next year will be tougher.

But you have the big Covid rent uptick that you know creates a wonderful mark to market in your portfolio. You are the sole developer so what's really the risk here going forward is it that your stock remains depressed that you can't really issue equity and that slows down your growth or is it truly.

Tenant issues, which so far have not seemed to be you know.

Marshall Loeb: So we were in the mid 50s and our year-to-date averages in the kind of come around 53. So a little better, but not out of the park, but continually improving there. And then what we were looking at recently in terms of what the market's done this year and some of our peers were estimating around 7%. I saw a CBRE number in the mid sevens, but in working with Cushman Wakefield, we took their in a market growth rate and really market weighted it based on our NOI and that's on overall market.

At all.

At issue. So I'm just wondering you know in a tangible way.

What is really the risk here of that growth is it more your equity price.

Or you know potential for turbine challenges.

Yeah, I'll take a stab and then Brent can correct me if he disagrees I mean to me the risk is always that we've said for years were way less about supply than we do demand given not many people build what we build and especially today that that's you know kind of an exclamation point at the end.

Marshall Loeb: And that gets you just north of an eight and a half percent. So we're calling the rent. Yes, it's gone negative in LA at least as we've read and things like that, but in our market, using Cushman Wakefield. It's called eight and a half, a little above that. And then really I would also encourage people if you're curious and I wish we had the ability to share a slide on our investor presentation on our website.

I I do worry about our tenant's balance sheets, you know with <unk>.

Oil prices higher labor wages higher interest rates higher rents higher it's a lot on them. So I'm worried about the tenant demand, but if we can stay full we do have land for development. We do have and you know I guess in reverse order, we've got the ability to push rents first in that organic growth and then we.

Marshall Loeb: If you'll flip through it, if you have a chance and go to about page 12, there's another chart that shows vacancy rates for 100,000 feet and below really have not moved much in a year that where what's happened in the market what's moving the rent is big boxes getting delivered and those prospects are deliberate and it's taken a little more time to lease those so that eight and a half percent for our product type. I'd probably add 100 to 150 basis points to that just because the supply has not been there.

Can we can develop and funded with dispositions or this or that it's it's great to have the equity when we do and we can take advantage of it in this market, but but I'd also say, we don't feel compelled you know I think we've got a perfectly good company and if we don't buy a lot will be all right on that it's a way to access.

<unk> our growth, but we will have growth one way or the other and we'll just.

The way, we've tried to view it as being nimble in what the market allows us we'll take advantage of it and we won't change our strategy, but we may change the way, we implemented and Ah.

Marshall Loeb: And that's why I was thankful you've seen our occupancy hold and our percent lease hold fairly spedied this year at 98 and a half percent. So we still feel like we've gotten good mark to market. Although I would agree maybe with where you started the rent. It's not the hyperbolic kind of frenzy that it was post-COVID but it's still pretty solid rent growth and a little bit longer term. We're encouraged to see starts fall for the fourth consecutive quarter.

A few for several years when everybody wanted to own U S. Industrial with our attitude was it's better to create it then outbid people for it.

And now if there is some good acquisition opportunities will pivot to that doesn't mean, we'll stop development. If it's there, but we'll we'll pivot to those and then sometimes it's okay to sit on your hands and wait for a window to open two in and thankfully, we've got that organic growth that you were talking about.

Marshall Loeb: I think they'll fall again in fourth quarter to just given what what's going on in the world. So it we can stay around 98% least with supply falling as fast as it is. We feel pretty good about our ability to push rents going forward. Assuming steady demand. And I appreciate you guys haven't given 24 guidance yet. But as you guys look at what's expiring next year is kind of a lot of 2019 vintage right pre-COVID releases.

Okay. Thank you.

Sure.

Yeah.

Our next question comes from Nick Tillman from Baird. Please go ahead with your question.

Hey, good morning, there maybe.

Maybe touching on the acquisition opportunities you guys were pretty active in Las Vegas recently are there any specific markets that you're kind of targeting where are you seeing more opportunities there.

That's a good question, which is the way we think about it is really.

Marshall Loeb: I mean, do you anticipate continued growth from kind of the market to market receiving the last couple quarters before maybe it received a little bit as you get to some of the covert error releases or kind of again, I appreciate. But just some framework that people are thinking about. Sure, and very question. You know, I'm an optimist of a process. I feel pretty good about I feel good about our ability to push rents into next year.

We will look at our percent N O Y kind of as a as a portfolio and then kind of where we are and you know in that market. Las Vegas has been a really strong market all complement my taco or a guy look they've been able to really push rents in Las Vegas over the last couple of years and we're under allocated and they did so.

And looking about 3% of our NOI, so strong market and and really it just the way our pricing worked out and really our story I'm not.

Marshall Loeb: And then really if I parse next year even more, I think the back half of the year where we said I think as things get absorbed what what little shallow bay and our average building size is about 95,000 feet and our average tenant is about 34,000 feet. So again, if you if you look those vacancy rates haven't moved, I really feel even better about our ability to push rents. Assuming the economy doesn't have to get a lot better just doesn't get worse or maybe the Fed eventually stops raising rates or even drops it a little bit. I feel better about the second half of 24 probably than the second half of 23 in terms of our ability to push rents.

I'm pretty positive on one if not both of those that we acquired there were higher offers but again, we were the most certain buyer, we believe and so you know the west coast. The last few years, we've been under allocated to that market and we try to look at it you know what's the right real estate the right Submarket and then also by market.

Craig Mellman: Thank you.

We don't want you know any market. We spent a lot of time, bringing Houston down from 20% to you know into the tens as a percent of our NOI too. So that's <unk>.

Part of it's the real estate itself and then part of it is how much we allocate to that market and then we think having more of our NOI from Las Vegas positions us long term to have.

Higher cash same store NOI higher releasing spreads all of the things we get measured by each quarter, but those that's kind of one of the markets. It's really those high performing markets you've seen us do a lot in Austin El Paso has been a strong market, Florida has had a great run in the last couple of years as well.

Jeff Spector: Our next question comes from Jeff Specter from Bank of America. Please go ahead with your question. Great.

Jeff Spector: Good morning. Marshall, can you expand on your comments a little bit on the acquisition market? I think in your opening remarks, you said there's more opportunities and I guess, you know, what's changed? Is there less competition or again? and somehow sellers are now being more active. What's exactly changed?

That's helpful and then maybe touching a little bit on the development lease up and you've got you really pull demand from existing parks. Historically, maybe just an update on kind of what youre seeing from tenants in your existing parks like willing to expand or are they a little bit more cautious today than maybe say six months from now or like <unk>.

Six months ago, yeah, like any commentary around that would be helpful. Yeah.

Marshall Loeb: A good question, good morning, Jeff. It's been really a more dynamic acquisition market or maybe market on the capital transaction than we've seen in a few years. It's almost two parts. When we bid on portfolios, we're dead on a couple, and I say portfolios, like three to six buildings. We've been clobbered. And those have still traded. There's some out there in the fours, one, you know, large one below four type gap yield and things like that.

Marshall Loeb: But we've seen a few one off transactions. And the way we've looked at it, whether, you know, we're pretty indifferent between equity and debt. If all being equal, but this year we've had the advantage of having our equity priced and kind of that load of mid fours implied cap rate. And we've been able to see we've closed on three and then we have another one as we moved our acquisition guidance that we are optimistic about by the end of the year, but the ability to buy new buildings, you know, and markets, we're in submarkets.

We feel good about our development pipeline that we've pulled half dozen buildings in and we can maybe talk I'll save it for later in the call them kind of parsing our development pipeline answering your question I would say yes.

And understandably. So people are we have activity and we're getting leases signed.

Getting people you know closing and once you get in the Red Zone seems slow.

And I think it's all about the economy, it's hard to feel confident to expand your business probably given the larger climate. So I I appreciate from a future bad debt perspective, I appreciate our tenants and our prospects being a little more hesitant than shooting from the hip for so yes. It was.

Felt a little frenzied kind of post COVID-19 to the point, where you felt it made you a little bit nervous of brokers, saying things. They hadn't seen you know in years in their career.

Revoking offers to tenants and things like that because the time clock at past and things that people have told us they'd never done so I'm glad it's normalized a little bit and now it feels like you know where the interest rates in two different wars and everything else I get why people are being a little slow and deliberate in their decision making.

Marshall Loeb: We want to be in, you know, at around a call it a six gap yield, you know, high five, six gap and kind of the trend and I'm trying to not violate every confidential agreement. But and then below market rent. So we had those would have been four times. Type cap rates are sub four, 18 months ago, and there would have been a bidding frenzy, but all of a sudden, with debt prices where they are, and some of the funds as we read about and hear about needing liquidity, and it's awfully hard to sell office buildings.

That's helpful. Thank you.

Youre welcome.

Our next question comes from Todd Thomas from Keybanc Capital markets. Please go ahead with your question.

Hi, Thanks first question Marshall You know you mentioned that you've been fortunate to issue equity in the low to mid 4% implied.

Marshall Loeb: So they're trying to get things closed by the end of the year. And industrial is the most, as the brokers explain it to us, the most attractive product to have on the market in, and all of these cases, our pitch has been where we may not be your highest better, but where you're most certain that we have the line of credit, we have zero outstanding or roughly a low balance on it, most of kind of second into third quarter, we have the ability to close and we know this market and this sub market.

Implied cap rate range and and the stock has pulled back more recently and I think you mentioned that you're trading below an EV.

I'm I'm, just I'm, a little confused by some of the comments.

You know around the go forward plan here do you do pumped the brakes on an equity or do you continue to issue at these levels. These are the the $125 million of incremental equity issuance. That's implied in the guidance that was updated guidance issued last night.

Marshall Loeb: And so that's actually worked where our batting average has been much lower and then just anecdotally talking to our three regionals. You know, we have good relationships with the national marketing firms in brokerage firms and we'll get calls, but the ratio of inbound calls has really increased. All of a sudden we're a more attractive buyer and I think it's just been our ability to kind of acquire so all of a sudden acquisitions and I don't think the window will stay open terribly long, but, you know, if our equity price were there and it's not today, but where it was an awful lot of third quarter if we can kind of buy new assets at below market rents and get that spread on investments.

Yeah I'll jump in Todd This is Brent good morning, Yeah. The the equity you know, it's our stock prices had some volatility just due to macro concerns and so it's moved around a lot and you know even at even in a V itself has been very fluid. This year I mean as most everyone on the call realizes that has been.

A moving target, but has been drifting down so yeah, we have full capacity on our revolver, we have just a little bit drawn on our 675 million. So.

It would just depend we've not been crunched for capital. So far this year as you can say we've been very active on the ATM.

Somewhere around I think 465 million year to date issued at very good pricing.

Marshall Loeb: What we've lined up should add a little more than a nickel to next year's earnings on a run rate with, you know, with a hundred and forty million dollar and the average building is probably literally two years old of those four that we've acquired. So we like that model and, and if we can pursue that strategy, we would we don't have the capital today, our equity is not price like that and it's below our NAV, but we'll continue to watch that window.

We would take a pause at the current pricing, but the way, it's moved up and down but look if it were just shut us out for an extended period then you've got to you know maybe we won't be able to do certain things on some of the the good opportunities Marshall alluded to maybe on some one off acquisitions or you know that could impact our decisions on starts next year, but yeah, we're just going to take that.

It comes with again understanding we have plenty of.

You know of dry powder to fund what we're doing it's just a matter of the cost of funding and obviously, we've been very pleased with what we've been able to do this year and so we'll just take it as it comes you know the way that the market's been if I can almost look at my phone and see our price drop and say what was the fed's must have talked about you know higher long.

Marshall Loeb: Until we... James from interesting opportunities, and I think we won't change what we're doing, but in terms of product or markets, but I think we should pivot our strategy as the market gives us those opportunities.

Jeff Spector: Great, thank you, very helpful.

Jeff Spector: My one follow-up is on, again, the comment you made on declines and industrial starts. Are you able to quantify the, I guess, supply, like the decrease in supply 24 or 23 in industrial, whether it's national or in your markets? Have you have any stats on that?

Or or you know in this odd environment today, you have good consumer news, which is bad because we want the most of you know that the economy to slow French rates come down. So it's all of those factors that go into it so.

We've always been we'll stay flexible and let you know if the market will allow us. We're excited about you know what opportunities are out there, but at the same time, we're not as Marshall said, we don't have to do anything obviously, we'd have to you know unwind, what we're doing but so we'll just take it as it comes.

Marshall Loeb: Some of the best I could point you down, I hate to, you know, we said this was one call, I wish we had a Zoom call with our slides on our investor presentation, and we just put this up like yesterday. So it's about page 12. We'll show you the vacancy rates by size. If anyone that wants to flip through that and about, and I may be off the page, but I'm in the right zip code, about page 10, you'll see national starts, and they've fallen four quarters in a row, and from third quarter last year, which was the peak, and we're down quarter to quarter, almost two thirds, this quarter, and shallow bay usually makes up, and there's another chart in there that will show you the shallow bay numbers on our webcast, you know, it's, it's pretty far down. It's usually 10 to 15% of supply we feel like in any markets, competitive.

We're in a good position in that the price raises its head up just for a little bit we're in a position to grab chunks and continue what we're doing so we will just take.

Take a wait and see approach.

Okay and then.

My follow up question on the development and value add pipelines.

It looked like some of the conversion dates moved around a little bit some of the 'twenty 'twenty four.

Conversion dates you know moved into 2025 for example that does that reflect delays in the completion of construction or delays in your assumptions around around lease up for those assets and then.

Can you also just for clarification.

Marshall Loeb: So the hope being was starts falling off and the supply construction pipeline, emptying out, there'll be a vacuum for a bit, which, you know, should have enabled us kind of earlier question to really push some rents, and then, and it'll be a minute for we get there, but should also allow us with our parks to really, if I'm being an optimist, hope up, ramp up our development pipeline. Because people will need expansion space, you know, down the road in 24, if they feel better about the economy, and usually that's when our developments lease up quickly, when there's lack of available products on the market that people have to go ahead and sign a release and things like that.

You know I'm curious when you stop capitalizing interest and cost capitalization on developments altogether is that at the time of conversion.

Yeah, I guess answering it reversed and good morning, Todd. It's if you will we will always underwrite 12 months after completion.

The role of the well the earlier of.

When we hit 90% occupancy or 12 months after completion setup thankfully. The outside date has been the last few years has been that 12 months. After the the movement within completion dates it you're right. It's more construct construction timing related than US you know.

Marshall Loeb: So hopefully that's helpful to you, you'll, you'll see the start kind of graph, and then where vacancy is, where our vacancy hasn't moved very much, with an average building size under 100,000 feet, where the vacancies really moved is kind of when you get to 300,000 square feet and above, that's where most of the new product, because that's mostly what's been built and where you could put a lot of capital work the last few years, and it's worked until all of a sudden, people got nervous about the economy, and that stopped, and I've always said, I like where we kind of fit on the playground.

Stopping construction that we really didn't do any of that or things like that traditionally it's been weather and things like that could be one of the reasons and things have certainly gotten better supply chain wise post COVID-19, but what we're hearing kind of ordering switch gear electrical trends.

Formers those type things, that's really gotten debate that's always the new item that takes a year now so we're able that we used to be able to deliver buildings in about six months pre COVID-19 and now that's stretched out and that's what's kept the construction pipeline so full for a little bit longer than it normally does but any kind of electrical.

Jeff Spector: Great, very helpful, thank you, thanks Jeff.

Alexander Goldfarb: Our next question comes from Alexander Goldfarb from Piper Sandler, please go ahead with your question. Hey, morning, morning down there. Marshall, two questions, I guess one question, one follow up. First, on the supply dropping out there, presumably this is helping you guys as one of the soul, you know, people who can develop on your own, not having to borrow. So are you seeing this as increased opportunity and you guys want to ramp it up or are the global concerns and sort of all the risks that we read about interest rates, etc.

Equipment takes a while and my guess is just the timing here or there on orders or concrete I guess the good news in a number of our markets is where we've had the new semi conductor plants or some of the government work that's done between whether its Dallas or Austin or Phoenix. The Bad news is when we're also ordering those same.

Concrete and subcontractors, it's awfully hard to get on their schedules on a timely basis to at times.

Okay.

Yes, if we look at the under construction pipeline in those conversion dates is that currently.

Schedule, they're set for when you know.

Alexander Goldfarb: I mean that you're probably going to keep your development program at this level right now, just trying to understand, you know, we look out over the next year or two where you guys are thinking about putting your show.

<unk> is as anticipated that or did you move them back, though it's related to construction completion I'm being delayed it is not related.

Related to a delay at all and in your lease up assumptions.

Alexander Goldfarb: Yeah, no, that's a good question and a failure. I think, you know, we've always said, we'll go as fast or as slow as really the market dictates. You know, phase three in a park is moving slowly. We're not going to roll into phase four, but if we run out of inventory, and especially if we have tenants telling us they need, you know, expansion space or neighbors, we'll move pretty quickly. We always try to have permit in hand.

Correct.

Yeah correct.

Just to be clear, we you know just on the side of being conservative we typically always put into the anticipated conversion date that we list there typically the 12 month.

Date outside of what we expect to be completion, and then we typically don't narrowed that window and the last one if its a build to suit obviously, we would base that on delivery day or if a project begins to get leased up or to 100% like you see on the schedule now we have a project is 100% leased but still under construction, we will begin to.

Alexander Goldfarb: So we'll, you know, looking into next year, I think the market will get tight, you know, hopefully in the back half of the year, tighter, because what comes out of the pipeline is not being replaced, where we are seeing opportunities is, you know, over the past few years, there's been such an appetite for industrial product that developers have been able to go through the permitting zoning, all the kind of, you know, in it could take years, you know, usually a year and a half. At a minimum, in some cases, three years to get the wetlands, every issue is so that you're ready to break ground.

Titan that window once it's 100% in that case, it's closer to delivery, but.

On the newer projects started we always start from a basis of 12 months outside of our expected completion and so when those dates move around a little bit as Marshall mentioned is typically that construction may be bought back a month or two from the expected expected timeline.

Okay got it thank you.

Sure.

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

Alexander Goldfarb: And a number of cases, those local regional developers have been flipped the land or built the building and sold it on a forward basis and things like that, where we've seen in a couple of cases, the Denver Land acquisition. We made recently the one in Tampa. We've got another one that we're optimistic about one in Austin, where those developers got to the end. And then they hadn't close, I guess I should have backed up where they've done all this work while it's under contract, but haven't closed yet.

Hi, Marshall or Brent. This is more of a modeling question just curious your your G&A expense guide was down.

Which was about a two cents in earnings I guess, what was driving that and I'm just trying to figure out the right run rate to use going forward.

Yeah. This is Brent the G&A was down actually our actual expenses for the quarter relative to G&A were along the lines of our budget, but we actually had more cash.

Capital overhead development costs than we anticipated.

Alexander Goldfarb: So that ability with the Ford window tightening, then they needed to, you know, look for capital sources to move forward. And it feels like my analogy, it's been we've been able to jump into the game and the fourth inning, rather than the first inning. And like in Denver, for example, they had worked on this site for several years, and we broke ground within, I think, call it 60 days of closing and the same thing in Tampa and some of these where all of a sudden, those opportunities.

So that that capitalization.

And that line item reduces G&A.

So I think where we are for the three quarters.

Year to date would be a good run rate number for the third quarter I say that quarterly number was a little bit low relative to the other two and that was just again the the capitalization impact of that particular quarter, but I would say for the nine months. The total for the nine months to date is.

Alexander Goldfarb: We were getting out bid for for years, because people want to move in height, many, you know, you name it different companies wanting to put capital out. Now we've become a source for them. Well, again, we've said they've created all this work. And if they don't close the value, they created reverts back to that seller. And so they're looking for capital and we've been able to step in and it's really, you know, circumvent an awful lot of that development cycle.

It has landed about where it should be.

And fourth quarter as you can see where you know pretty much from that point forward I think that year to date number were forecasting now is it a good optimal 12 month G&A figure for us that pretty much Max it maximizes the amount we can capitalize from the development side of things.

Got it and I guess for Marshall you know theres been a lot of conversations around you know.

Onshoring I mean, maybe talk about.

Marshall Loeb: Okay, and then so as a follow up to that, sort of going back to I think was Craig, them and who asked about, you know, sort of looking into next year. You guys traditionally are always a cautious group, you know, you always think that like this year was dead next year will be tougher, but you have the big COVID rent uptick that, you know, created wonderful market in your portfolio. You're the sole developer.

What you're seeing on the ground how much of that is a conversation with your customers and you know how much of that is sort of it.

Demand driver in your markets.

Its definitely helping I mean, when you look when we look at our our activity in markets and especially some of the Texas market on I guess I'm.

Lumping, onshoring and near shoring together and the number of.

Marshall Loeb: So what's really the risk here going forward is is that your stock remains depressed, thus you can't really issue equity. And that goes down your growth or is it truly tenant issues which so far have not seem to be, you know, at all an issue. So I'm just wondering, you know, in a tangible way, you know, what is really the risk here the growth, is it more your equity price? Or, you know, potential for tenant channels?

The building we acquired in Dallas for example, it's a.

It's a tech company or electrical equipment and they are a supplier to the semiconductor plant in Sherman, Texas, which suburb of Dallas. So again as we see those things so many of the.

Different kind of semi conductor EV plants have been Tesla going to Austin, we've picked up Tesla suppliers in Austin, and even where in North East San Antonio. So just on I 35, there's San Diego, we're feeling the effects of Tijuana and Juarez, Although we're going to stay on this side of the.

Marshall Loeb: I'll take a stab and then Brent can correct me if he disagrees. To me, the risk is always that we've said for years, we're way less about supply than we do demand. Given not many people build what we build and especially today, that's got an exclamation point at the end, I do worry about our tenants' ballot sheets. With all prices higher, labor wages higher, interest rates higher, rents higher, it's a lot on them.

Border have really picked up and then so many of the plant whether it and even Phoenix has the TSMC plant and some things like that so it's picked up a number of those so we're in a weather. If we're directly involved maybe it won't be directly involved with if we are it'll be is that we'll have the suppliers to that plan.

But it's also helping push that economy forward. So I like again, when I mentioned some of the secular drivers whether it's just e-commerce growing every year more people moving to Phoenix, Orlando or our Dallas, Texas, those that onshoring near showing it seems like the tech plants really come onto the U S and then UN.

Marshall Loeb: So I worry about the tenant demand, but if we can stay full, we do have land for development, we do have, I guess in reverse order, we've got the ability to push rents first and that organic growth, and then we can, we can develop and fund it with dispositions or this or that. It's great to have the equity when we do and we can take advantage of it in this market, but I'd also say we don't feel compelled and I think we've got a perfectly good company and if we don't buy a lot, we'll be all right on that.

With a lot more activity, we've we've been looking for our next opportunity in patient with that end markets like El Paso, and San Diego as an example, it's been hard with kind of we'll wait until we find it but we'd like to grow in those two markets just given the pace of activity.

Marshall Loeb: It's a way to accelerate our growth, but we'll have growth one way or the other and we'll just, I think the way we've tried to view it as being nimble and what the market allows us, we'll take advantage of it and we won't change our strategy, but we may change the way we implement it and a few for several years when everybody wanted to own US industrial, our attitude was it's better to create it than we do. We can now bid people for it and now if there's some good acquisition opportunities, we'll pivot to that, doesn't mean we'll stop development if it's there, but we'll, we'll pivot to those and then sometimes it's okay to sit on your hands and wait for a window to open to, and thankfully we've got that organic growth that you were talking about.

Across the border and I don't I don't think that's slowed down it really started with some of the trade tariffs with China and in each quarter. It seems that you.

The Mexican the trade with Mexico seems to grow in China falls as a trade partner in and again, we think between Arizona, Southern California, and Texas were in a good position to try to grab a piece of that market share.

Marshall Loeb: Okay, thank you. Sure.

Thank you.

Mhm.

Our next.

Comes from Bill Crow from Raymond James. Please go ahead with your question.

Yeah. Thanks, Good morning, Marshall you talked about the the.

The wounded risk out there potentially be in the health of the of the tenant and their balance sheets et cetera, I'm wondering as you look ahead to the lease roll next year.

Nick Filman: Our next question comes from Nick Filman from Beard, please go ahead with your questions. Hey, good morning there. Maybe he's talking on the acquisition opportunities. You guys were pretty active and lost by this recently. Are there any specific markets that you're kind of targeting where you're seeing more opportunities? Good question. Is what do we think about it? There's really, we'll look at our percent in a line kind of as a portfolio and then kind of where we are in, you know, in that market Las Vegas has been a really strong market.

Is that causing you to think about retention rates being lower than they were say this year.

No. It's interesting I cannot actually what seems to happen is when things get bad like during Covid, our retention rate goes up and that's what makes sense to me as you know.

People are nervous to expand or things like that so you might do a shorter term renewal.

Nick Filman: I'll compliment my cycle. We've been able to really push rents in Las Vegas over the last couple of years and we're under allocated and that it's about looking about 3% of our in a line. So strong market and really just the way our pricing worked out and really our story, I'm not, I'm pretty positive on one if not both of those that we acquired. There were higher offers, but again, we were the most certain buyer we believe.

Think next year's role, where we've taken a big bite out of it from where we started we're down to about 11%.

It should be an opportunity for us to push rents next year as we as we move those to today's market I guess I just worry about all the compounding effect that say it may be two fold.

At a high level, you think of all the things that are impacting any business today and our tenants aren't immune to that.

And so that concerns me, but then when I look at our bad debt and our watch list. It feels very manageable and it's been in a lot of it's been actually each quarter, it's been a little bit less than what we budgeted knock on wood. So we haven't had the problems there.

Nick Filman: And so, you know, the West Coast the last few years we've been under allocated to that market and we try to look at it. You know, what's the right real estate, the right sub market and then also by market. We don't want, you know, any market we spent a lot of time bringing Houston down from 20% into the tens as a percent of our NOI too. So that's part of it. It's the real estate itself and then part of it is how much have we allocated that market and then we think having more of our NOI from Las Vegas positions us long term to have.

It probably than I would've expected at this point in time I'm glad we have the tenant diversity, we do and things like that and I think the role next year will give us an opportunity to push rents, which are really benefit mainly assuming kind of a mid year convention 2025, even more will benefit.

Next year from this year's rent increases and as you know.

Nick Filman: You know, higher cash same store in a lot higher release and spreads all the things we get measured by each quarter, but but those that's kind of one of the markets. It's really does high performing markets. You've seen us do a lot in Austin. El Paso's been a strong market. Florida's had a great run the last couple of years as well.

I hope our tenants as well as the tenants in the buildings next door can can hang in there given this drops in supply.

So is there any reason to.

Think about a material downshift in same store NOI as we turn the calendar to next year.

Marshall Loeb: That's helpful. Then maybe you're touching a little bit on development, lease up. And you've really pulled demand from existing parks historically. Maybe just an update on kind of what you're seeing from tenants in your existing parks, like willing to expand, or they're a little bit more cautious today than maybe say six months from now, or like six months ago. Like any commentary around that would be helpful. Yeah, no, we feel good about our development pipeline.

Marshall Loeb: We pulled half dozen buildings in, and we can maybe talk, I'll save it for later in the column, kind of parsing our development pipeline, answering your question. I would say yes, and understand really so people, or we have activity and we're getting leases signed, getting people closing and once you get in the red zone seems slow. And I think it's all about the economy. It's hard to feel confident to expand your business, probably given the larger climate.

And unless we have a lot of tenant bankruptcies I guess as I've tried to think about it mathematically it would have to be a pretty big drop in occupancy.

And we only have 11% rolling in and well you know any quarter. It can bounce around but it always seems that we averaged somewhere even if you're if you and I were picking up coverage of our company I would model, 70% to 75% retention rate that seems to be or kind of on an annual basis about where we shake out and any.

Time, and if the economy gets weak we might pick up a little bit and in a low number isn't always bad, especially if we're moving them into the next building in that park.

Yeah, Okay. That's it for me thank you.

Thanks Bill.

Our next question comes from Vincent the bone from Green Street Advisors. Please go ahead with your question.

Marshall Loeb: So I appreciate, you know, from a future bad debt perspective, I appreciate our tenants and our prospects being a little more hesitant than shooting from the hip. So yes, it was felt a little frenzied, kind of post-COVID to the point where you felt it made you a little bit nervous of, you know, brokers saying things they hadn't seen, you know, in years in their career, you know, revoking all first the tenants and things like that because the time clock had passed and things that people told us they'd never done.

Hi, good morning it.

It looks like the expected yield on third quarter development starts were slightly higher than.

And then the existing pipeline can you just confirm if that was the case and also just discuss kind of where you believe market cap rates are today for new development and what profit margins you're targeting on any new starts just given there's a lot of uncertainty right now around where cap rates may be and kind of what profit margins could be on.

Some of these developments.

Yeah.

Marshall Loeb: So I'm glad it's normalized a little bit, and now it feels like, you know, with interest rates and two different wars and everything else, I get why people are being a little slow and deliberate in their decision making. That's helpful.

Good point.

We typically will probably for a new start now look ideally I'd say and again it would depend on if we had some pre leasing an existing tenant or what city that sand because the cap rates were very.

Todd Thomas: Thank you.

North of seven we've typically said as a rule of thumb, we'd like a 150 basis points above our market cap rate just kind of justify the construction and the leasing risk of a new development and I will say the cap rates and you all study it you know.

Todd Thomas: Our next question comes from Todd Thomas from Keybank Capital Markets. Please go ahead with your question. Hi, thanks. The first question, Marshall, you know, you mentioned that you've been fortunate to issue equity in the low to mid four percent, implied cap rate range, and the stock has pulled back more recently, and I think you mentioned that you're trading below NAV.

More closely probably than even we do it it's been a pretty fluid market, we've been able to buy one off buildings at attractive cap rates and we've gotten clobbered on some portfolio transactions and again, not big portfolios, meaning kind of 345 building portfolios, so cap rates seem pretty fluid.

Brent Wood: I'm just a little confused by some of the comments, you know, around the GoFuller plan here. Do you pump the breaks on equity or do you continue to issue at these levels? You know, these are the 125 million of incremental equity issuance that's implied in the guidance that was the updated guidance issue last night. Yeah, I'll jump in Todd. This is Brent. Good morning. Yeah, the equity, you know, our stock prices had some volatility just due to macro concerns, and so it's moved around a lot.

Now and and ideally we thought if we can start in the sevens call. It we have a high fixed at least a seven year.

Looking at our cost of capital, we're creating value above a cap rate when we deliver the building and what I like about the REIT model compared to maybe private equity or a merchant developer.

I bet has always been they'll be another half million people in Austin, Texas 10 years from now so if we can start with a good yield it will only grow over time. So if that helps that's kind of how we how we think about it.

Brent Wood: And, you know, even even NAV itself has been very fluid this year. I mean, as most everyone on the call realizes, that has been a moving target, but has been drifting down. So, you know, we have full capacity on our revolver. We have just a little bit drawn on our 675 million. So, you know, it would just depend. We've not been crunched for capital so far this year. As you can see, we've been very active on the ATM.

No that's really helpful and maybe just clarify one point when you say your kind of high <unk> low sevens is that on a GAAP or a cash basis that yields.

It's usually about a call. It 10 to 15 I start quoting gap and it's usually about a 10 to 15 basis points spread.

Brent Wood: Somewhere around I think 465 million year to date issued is very good pricing. You know, so we would take a pause at the current pricing, but the way it's moved up and down. But look, if it were to shut us out for an extended period, then you've got to, you know, maybe we won't be able to do certain things on some of the good opportunities. Marshall alluded to maybe on some one-off acquisitions, or, you know, that could impact our decisions on starts next year.

Got it no. Thank you that's helpful. And then maybe one more for me I mean could you just discuss some trends in the market for development land I know you guys bought a few parcels in different markets in the quarter. Just you know how volatile that market. You know do you think values are down significantly or like the stuff even bought in the third quarter. Do you think you got that at a much lower.

Brent Wood: But, you know, we're just going to take that as it comes. Again, understanding we have plenty of, you know, of dry powder to fund what we're doing is just a matter of the cost of funding. And obviously, we've been very pleased with what we've been able to do this year. And so we'll just, you know, take it as it comes, you know, the way that the market's been. I can almost look at my phone and see our price drop and say, well, the Fed's must have talked about, you know, higher and longer, or, you know, in this odd environment today, you have good consumer news, which is bad because we want the money, you know, the economy to slow for interest to come down to.

Your price than you would have you know six to 12 months ago.

Yeah, the short answer would be yes, and I think what.

Probably and I can't speak for the.

The developer the groups, we work with on those they had tied it up a couple of years ago or more in the markets and the prices had risen.

But then it was they basically run through all of their contingency successfully thankfully zoning planning permitting all of the things like that and when it came time to close their options were more limited. So that's probably a trend. We're seeing is the ability to jump and the projects that are pretty far along much further.

Brent Wood: It's all those factors that go into it. So... As we've always been, we'll just be flexible. If the market will allow us, we're excited about what opportunities are out there. But at the same time, as Marshall said, we don't have to do anything. Obviously, we'd have to unwind what we're doing. So we'll just take it as it comes. We're in a good position. And if the price raises its head up just for a little bit, we're in a position to grab chunks and continue what we're doing.

Brent Wood: So we'll just take a wait and see approach.

Long than us acquiring a greenfield our site to start from scratch and those land prices they didn't lose money on it but we were really able to step in at about their basis because their timing was they were under some time pressure to get things closed and perform with their with their seller. There. So it was.

Less than where it would have been at the peak, but they were able to get a successful outcome and move on or in one case in Denver stay in partner with us on the project.

Todd Thomas: Okay, and then my follow-up question on the development and value add pipeline. Looked like some of the conversion dates moved around a little bit. Some of the 2024 conversion dates moved into 2025, for example. Does that reflect delays in the completion of construction or delays in your assumptions around lease-op for those assets.

Smaller way.

Got it that's really helpful color. Thank you.

Awesome.

Our next question comes from Toronto to Camden from Morgan Stanley. Please go ahead with your question.

Hey, just going back to the same store NOI guidance as we're thinking about sort of 24, maybe can you remind us what is the lease role just as large as it was in 'twenty three.

Brent Wood: And then can you also just for clarification, you know, just, you know, I'm curious when you stop capitalizing interest and cost capitalization on developments altogether. Is that at the time of conversion? Yeah, I'm answering it reverse.

And you know, obviously occupancy could potentially be down, but just trying to figure out what are some of the puts and takes as we're rolling into 'twenty four.

The lease role this is Brent the lease roll is very similar to be at around 11% at this point to pretty typical standpoint for us obviously the occupancy. We we had you know if you recall our original midpoint guide for this year was I forget the exact number now, but it was several hundred basis points lower than what we've achieved and.

Brent Wood: Good morning, Todd. It's you will always underwrite 12 months after completion. Well, the earlier of when we hit 90% occupancy or 12 months after completion. So thankfully, the outside date has been the last few years has been that 12 months after. The movement within completion dates, it's more construction timing related than us, you know, stopping construction that we really didn't do any of that or things like that. Traditionally, it's been weather and things like that could be one of the reasons.

Part of that is we did anticipate having some occupancy headwind.

We didn't know it would be sitting here in October and still be over 98% leased we're very appreciative of the teams executed very well so kind of.

To the comment earlier that we feel good about the the the rental rate side of things the ability to push rents. We've also been able to obtain a bit higher annual escalators in our leases, which add up over time, that's been more in the 4% area as opposed to maybe two or 3% in the past.

Brent Wood: And things have certainly gotten better supply chain wise post-COVID, but what we're hearing, I'm kind of ordering switch gear, electrical transformers, those type things. That's really gotten to be, you know, that's always the new item that takes a year now. So we're able that we used to be able to deliver buildings in about six months pre-COVID. And now that's stretched out, and that's what kept the construction pipelines so full for a little bit longer than it normally does.

But you know the occupancy is the one bit of a wildcard in that factor that we didn't incur that this year. So now we're guiding to you know a much higher almost an eight midpoint on same store.

Next year. It just depends if you want to factor in if we could be in that 90, 798, again or do you give up a little bit of room or not that's just part of the the fact that it's hard to put your parts put your finger on at this point.

Brent Wood: But any kind of electrical equipment takes a while and my guess is just the timing here, they're on orders or concrete. I guess the good news in a number of our markets is where we've had the new semiconductor plants or some of the government work that's done between whether it's Dallas or Austin or Phoenix. The bad news is when we're also ordering those same concrete and subcontractors, it's awfully hard to get on their schedules on a timely basis, too, at times.

Great and then my one follow up is just you know you guys are on the development side clearly focused on smaller shallow bay. So does that mean that data center development is completely off the table or is that something where on a one off basis.

Peak your interest.

I guess, it's probably again.

Never say always or never so now well you know there are circumstances, where we would do it and we have you know look we've got a couple of data center, we've talked to data center brokers.

Brent Wood: Okay, but I guess if we look at the under construction pipeline and those conversion dates, is that currently, you know, the schedule there set for when, you know, completion is anticipated or did you move them back though? So it's related to construction completion, being delayed, it is not related to a delay at all in your lease-up assumptions. Correct. And just to be clear, we, you know, just on the side of being conservative, we typically always put in to the anticipated conversion date that we list there typically the 12 month date outside of what we expect to be completion.

It would be at the margin, it's not going to be a driver of our business. It won't be a focus of our business, but if we had the right center and either could sell the land or ground lease the land and get the right type transaction.

Then we would look at it or some things like that but you know.

We've explored that just from the sense that look if theres opportunities there and we're exploring it we should take advantage of it but that'll be ancillary and minor to look where I'd, rather stick to what we do well and kind of do it over time and more markets are in the right Submarkets then.

Brent Wood: And then we typically don't narrow that window unless one of it's a build a suit, obviously, we would base that on delivery day or if a project begins to get leased up or 200% like you see on the schedule now, we have a project that 100% leased, but still under construction, we will begin to tighten that window once it's 100% you know, in that case, it's closer to delivery, but on the newer project started, we always start from a basis of 12 months outside of our expected completion. And so when those dates move around a little bit, as Marshall mentioned, it's typically that, you know, construction, maybe it's back a month or two from the expected time line. Okay, got it. Thank you.

Tell ourselves we understand data centers.

Brendan I would shoot ourselves our AMA shoot myself in the foot a year or two down the road, but if we do one it'll be the stars aligned rather than we really went out with a big net looking for data centers.

Great. Thanks, Congrats on a great quarter.

Thanks, Ron.

Brent Wood: Sure.

Okay.

Our next question comes from Blaine Heck from Wells Fargo. Please go ahead with your question.

Great. Thanks. Good morning can you talk about contractual rent increases of bumps and what you guys are incorporating in newly signed leases and I guess, whether you're getting any pushback on that aspect of the lease agreement and then also just remind us what the average escalator is across your portfolio at this point.

Samir Khanal: Welcome. Our next question comes from Samir Canal from Evercore, ISI. Please go ahead with your questions. Hi, Marshall or Brent. This is more of a modeling question. Just curious, your, your GNA expense guide was down, which was about a two cents on earnings. I guess what was driving that and was trying to figure out the right run rate to you is going forward. Yeah, this is Brent. The GNA was down actually are actual expenses for the quarter relative GNA were along the lines of our budget, but we actually had more capital overhead development cost than we anticipated.

Yeah Blaine good morning. This is Brent as the mid tier where we've really done quite well. There you know anytime you have the leverage as long as it's been on the landlord side. That's when we've been able to make and I would say, it's probably been a little more pronounced maybe in Texas, where the annual rent bumps kind of lagged the other markets and that's caught up some but I would say that's more in the four person.

On average on the portfolio, we'd be able to move the average from upper twos over time to more toward that mid three on an average for the annual escalator. So as we churn through 18, 20% role a year and will continue to be in this strong landlord environment.

Samir Khanal: And so that that capitalization in that line item reduces GNA. So, you know, I think where we are for the three quarters year to date would be a good run rate number, you know, for the third quarter, I say that quarterly number was a little bit low relative to the other two. And that was just, again, the capitalization impact of that particular quarter, but I would say for the nine months, the total for the nine months today is, you know, has landed about where it should be.

It's been some wins that we've made and you obviously when youre maintaining our high occupancy as we have you know that's important because you need that it's great to have that stabilization, but you also don't want it to be it also needs to contribute though to help same store growth and so our team has done a good job of executing that in the field and growing there.

Samir Khanal: And four quarters, you can see we're pretty much from that point forward. I think that year to date number, we're forecasting now is a good optimal 12 month GNA figure for us that pretty much maximize the amount we can capitalize from the development side of things.

And I'd say, it's a broader base now and across all of our markets versus it had been concentrated more so at one point say, California, Florida.

And some of our other call it Texas or even some of our ancillary markets are catching up during this period.

Marshall Loeb: Got it. And I guess for Marshall, you know, there's been a lot of conversations around, you know, on shortening. I mean, maybe talk about. What you're seeing on the ground, how much of that is a conversation with your customers and, you know, how much of that is sort of a demand driver in your market. Thanks. It's definitely helping. I mean, when you look, when we look at our, our activity and markets, you know, especially some of the Texas market on, I guess I'm, I'm, I'm launching on shorting and near showing together and the number of the building we acquired in Dallas, for example, it's.

Okay, great. Thanks, and then we've heard from some brokers that developers with large box properties.

Reluctantly begun shopping them up into smaller spaces. The demand is smaller in that segment of the market have you guys seen any of that on the ground and how do you feel about that potentially affecting the supply in your segment of the market.

I think it's it's.

Marshall I think it's inevitable I guess, if you don't lease it or depending on how long do you want to carry it.

I again, I think we could see some of that but depends on how big the big box is really when you think of our average.

Marshall Loeb: It's a tech company or electrical equipment, and they are a supplier to the semiconductor plant in Sherman, Texas, which suburb of Dallas. So again, as we see those things so many of the different kind of semiconductor EV plants have been Tesla going to Austin. We've picked up Tesla suppliers in Austin and even we're in Northeast, San Antonio, so just down I 35. There's San Diego, we're feeling the effects of Tijuana and Juarez, although we're going to stay on this side of the border, have really picked up.

Tenant size is 34000 feet, we certainly have tenants that are larger than that but if you've got them.

800000 foot building for example that may be five or 600 feet deep million square foot building that depth is probably twice the depth of our large building for us and so for that.

What you end up with as you know, it's a very long narrow space with very few dock doors. So it's not efficient for those tenants.

Daily and you're running the forklifts up and down an awfully long run if that inventory is going from one side of the warehouse down to where the two or three dock doors. So it.

Marshall Loeb: And then so many of the plant, you know, whether and even Phoenix has the TSMC plant and some things like that. So it's picked up a number of those. So we're, you know, whether if we're directly involved, maybe it won't be directly involved with if we are, it'll be as a sub, we'll have the suppliers to that plant, but it's also helping push that economy forward. So I like, again, when I mentioned some of the secular drivers, whether it's just e-commerce growing every year or more people moving to Phoenix or Orlando or.

They will break those buildings, but I think pending on how big they are that that's going to be awfully expensive.

When you think of the cost of adding that much more office in which wasn't in their original plans and then the demise and walls, where you build Florida ceiling.

<unk> fire rated walls, that's going to be awfully expensive for those developers and at the end of the day.

Marshall Loeb: Or Dallas, Texas, those that onshoreing near shoreing it seems like the tech plants really come onto the US and then you end up with a lot more activity. We've we've been looking for our next opportunity and patient with that in markets like El Paso and San Diego's an example. It's been hard with kind of well wait till we find it, but we'd like to grow in those two markets just given the pace of activity across the border.

The the loading efficiency isn't it's not gonna be ideal for those tenants. So I think some of it will happen, but the die is cast you felt what you've built and you can maybe move it doesn't have to be single tenant, but it's probably hard to put seven or eight tenants in those buildings. The way. They were designed to what they were designed for.

Yeah, I would even go blind.

Language, we're building some of those bigger box properties that sometimes an easy way to look at pretty much the maximum wage divide a large bulk building would be by four I mean, they don't want to do it but they would probably say we designed what we could do it into a quote quad where you can put it.

Marshall Loeb: And I don't I don't think that slowed down it really started with some of the trade tariffs with China and in each quarter it seems that, you know, the Mexican, the trade with Mexico seems to grow and China falls as a trade partner. And again, we think between Arizona, Southern California and Texas we're in a good position to try to grab our piece of that market share.

Divided into quarters, but even there if you were talking about a five 600000 square foot building, you're still talking about it 125000 or larger minimum tenant size. So you have like what Marshall said to kind of the the die is pretty much cast once you commit to the bigger building you could put a few tenants in it but youre still not going to get down into that 30.

Marshall Loeb: Thank you.

Bill Crowe: Our next question comes from Bill Crowe from Raymond James. Please go ahead with your question. Thanks. Good morning. Marshall, you talked about the the the limiting risk out there potentially being the health of the tenant, their balance sheets, etc. I'm wondering as you as look ahead to the least role next year, is that causing you to think about retention rates being lower than they were say this year? No, it's interesting.

50 to 75000 square foot tenant sounds like like you know you.

You would see in a multi tenant type building, they still really aren't going to cross pollinate very much.

Great. Thanks, guys.

Thank you.

And our final question comes from Rich Anderson from Wedbush. Please go ahead with your question.

Final question, sorry about that so I haven't I do have a question as it relates to acquisition acquisitions. Specifically you are unique in your disposition guidance came down in your acquisition guidance went up so so.

Marshall Loeb: Actually what seems to happen is when things get bad like during COVID, our retention rate goes up. And I guess what makes sense to me is, you know, people are nervous to expand or things like that. So you might do a shorter term renewal. I think next year's role, we've taken a big bite out of it from where we started, we're down to about 11%. It should be an opportunity for us to push rents next year as we move those to today's market.

That's that is obviously specific to you guys, but when it comes to operating acquisition to operate property acquisitions.

Mentioned some of the things that developers coming in the fourth inning, but specifically about operating assets are you seeing any trends materializing. There in terms of the nature of the seller our banks involved at all in any cases, just curious if you can sort of give an idea or a picture of what the pipeline looks like a potential seller.

Marshall Loeb: I guess I just worry about all the compounding effects. I say it maybe twofold. You know, at a high level, you think of all the things that are impacting any business today and our tenants aren't immune to that. And so that concerns me. But then when I look at our bad debt and our watch list, it feels very manageable. And it's been in a lot, it's been actually each quarter. It's been a little bit less than what we budgeted knock on wood.

As of operating assets.

Good morning Rich.

We've seen a couple of banks involved although we've been like there'll be a lot of distress hopeful but that might come in time.

Yeah.

It's been we have seen a couple of pension funds.

Marshall Loeb: So we haven't had the problems. It probably that I would have expected at this point in time. I'm glad we have the tenant diversity we do and things like that. And I think the role next year will give us an opportunity to push rents, which will really benefit mainly, you know, assuming kind of a mid-year convention 20, 25 even more will benefit next year from this year's rent increases. And I hope our tenants as well as the tenants and the buildings next door can can hang in there, given the drops and supply.

That we've either acquired from or had conversations or looked at portfolios and where they need I gave I mentioned my the earlier they've needed to raise some liquidity and industrial is what you could sell.

Some of the funds that have raised or different things, whether it's pension funds or just to fund itself and they've wanted liquidity and they were selling their industrial.

The dispositions and I guess that they werent big numbers, what I would say maybe the difference the 60 million, we had assets more of a placeholder of little bit, whereas this quarter and I'm hopeful by the end of the year with our next update we've got it's more specific we've got funds at risk on a disposition.

Bill Crowe: Is there any really reason to think about a material downshift and same store NY as we turn the calendar to next year? And unless we have a lot of tenant bankruptcies, I guess as I was trying to think about it mathematically, it would have to be a pretty big drop in occupancy. And when we have 11% rolling and any quarter it can bounce around, but it always seems that we average somewhere.

We've got one that we were looking to sell where the tenant has the buyer and hopefully that gives me a little bit higher probability since they know the asset better than we do probably at this point and another under a letter of intent that really that we thought we might close this year, but as they get their financing it'll probably drift and hopefully.

Bill Crowe: And if you and I were picking up coverage of a company, I would model 70 to 75% retention rate. That seems to be our kind of an annual basis about where we shake out at any time. And if the economy gets weak, we might pick up a little bit and and a low number isn't always bad, especially if we're moving them into the next building in our park. Yeah, okay.

January of 'twenty forward that we'll get that closed so that's what drove the drop so it's.

234 transactions that total that 40 to 50 million, but I do feel better call. It 60, 90 days later, where we stand on those dispositions and term, but we're just a little bit further down the road with those than we were last call.

To keep kind of keep pruning and it'll be a good source of capital or equity stays where it is I like the idea of trading some of our older assets and if we can find the right one off acquisition to kind of move chips around to just kind of nudge growth at a little bit higher rate in the future. Yeah. I was more interested in the acquisition side, but thank you for that.

Bill Crowe: That's it for me. Thank you. Okay. Thanks.

Vince Tibone: Our next question comes from Vince the bone from Green Street Advisors. Please go ahead with your question.

Vince Tibone: Hi, good morning. It looks like the expected yield on third quarter development starts were slightly higher than the existing pipeline. Can you just confirm if that was the case and also just discuss kind of where you believe market cap rates are today for new developments and what profit margins you're targeting on any new starts just given you a lot of uncertainty right now around where cap rates may be. And kind of what profit margins could be on some of these developments.

Color and then the.

Second question is you know.

You talked about how all of the development largely is in bigger bigger assets that don't aren't necessarily competitive with you.

Your you know 95000 square foot average, but do you do you concern yourself with the secret getting out about this shallow bay model and you know if if developers maybe want to dial down there their cost profile and build something that's not quite as expensive due do they come into.

Marshall Loeb: Good point. We typically, we'll probably for a new start now, look, ideally, I'd say, again, it would depend on if we had some pre-leasing and existing tenant or what city that's in for the cap rates will vary. North of seven, we typically said as a rule of thumb, we'd like 150 basis points above a market cap rate to justify the construction and the leasing risk of a new development. And I'll say, the cap rates and you all study it more closely, probably than even we do, it's been a pretty fluid market.

Your market, a little bit more and in terms of being more and more competitive with you and you start to see some of that.

Some of that pressure or are you just not seeing that in and why not I guess you know since I would think it would be an easier pill to swallow for a for a merchant developer.

Probably yes, probably.

Two or threefold one at all.

Hard to be a secret and have a public company and our web site.

And go to NAREIT and do all the other things we do so well I wish we could be more secretive then than we are at times about it. So I think it's out there and certainly the number of developers balloons kind of industrial development everybody that came in industrial developer. We said it was you know your Uber driver, giving stock tips you knew it was things where we're seeing them.

Marshall Loeb: We've been able to buy one-off buildings at attractive cap rates. And we've gotten that we have, you know, high-six to at least a seven, you're looking at our cost of capital, we're creating value above a cap rate when we deliver the building and what I like about the REIT model compared to maybe private equity or merchant developer, our bed has always been, there'll be another half million people in Austin, Texas 10 years from now, so if we can start with a good yield, it will only grow over time, so if it helps, that's kind of how we think about it.

Hot I, probably two fold that makes us comfortable as I I don't it's not like it's a well kept secret.

The big pension funds or larger public private peers. They have so much capital to put to work.

If our average developments, maybe 14 15 may and to build a building or the next phase you can stay awfully busy but miss your alley.

Allocation targets doing what we do so I think that's one of the reasons and even talking to some of the kind of local.

Vince Tibone: No, that's really helpful and maybe just clarify one point, when you say kind of high six is low seven, is that on a gap or a cash basis that yields? It's usually about a call it 10 to 15, a slight quoting gap, and it's usually about a 10 to 15 basis points for that. Got it. Nope, thank you. That's helpful.

Regional merchant developers Theyre working for promotes and things like that so you can make so much more money flipping a half million square foot buildings, and 100000 foot building and then probably.

I'm doing in reverse order. The biggest reason is we struggle to find good infill land sites and it's.

Vince Tibone: And then maybe one more for me. I mean, if you just discuss some trends in the market for development land, I know you guys bought, you know, few parcels and different markets in the quarter, just, you know, how volatile that market, you know, do you think values are down significantly, or like the stuff you even bought in the third quarter, do you think you got that much lower price than you would have, you know, six, 12 months ago?

Edge of town.

Low price point.

Bigger tracks of land South of Dallas, South of Atlanta, Southwest Phoenix Inland Empire East, it's easier to find the land and put it into production more quickly than go through all of the zoning permitting issues that we deal with it can be measured in a couple of three years on an infill side and so I really think it's actually gotten worse.

Vince Tibone: Yeah, he's sure that should be yes, and I think what probably, and I can't speak for the, you know, kind of the developer, the groups we worked with on those, they had tied it up a couple of years ago or more, and the markets had the prices had risen, but then it was, they basically run through all of their contingency, successfully, thankfully, you know, zoning planning, permitting all the things like that, and when it came time to close. Their options were more limited, so that's probably a trend we're seeing is the ability to jump into projects that are pretty far along much further along than us acquiring, you know, a greenfield or site to start from scratch.

Worse, it's interesting with the e-commerce, everyone. The dilemma is everyone wants the delivery or the repair person to their house immediately but they don't want it to originate from around the corner. So I think our zoning challenges have gotten harder over the last couple of years.

Okay sounds good thanks very much okay.

Okay. Thanks rich yeah.

And ladies and gentlemen, with that we'll be concluding today's question and answer session I'd like to turn the floor back over to the management team for any closing remarks.

Okay.

Thanks, Jamie Thanks, everyone for your time your interest in Eastgroup. If we if you have any follow up questions were certainly available by phone by email and we look forward to seeing many of you in a couple of weeks at NAREIT. Thank you everyone.

Vince Tibone: And those land prices, they didn't lose money on it, but we were really able to step in at about their basis because their timing was, they were under some time pressure to get the things closed and perform with their, with their seller, they are. So it was less than where it would have been at the peak, but they were able to get a successful outcome and move on or in one case in Denver, stay and partner with us on the project in a smaller way.

Okay.

And with that will be concluding today's conference call and webcast. We thank you for joining you may now disconnect your lines.

Marshall Loeb: John, that's really helpful color.

Marshall Loeb: Thank you.

Richard Anderson: You're welcome. Our next question comes from Ronald Kamdem from Morgan Stanley. Please go ahead with your question. Hey, just going back to the same story on why guidance as we're thinking about sort of 24 maybe to your mind. So is the least role just as large as it was in 23 and you know and obviously occupancy can potentially be down but just trying to figure out where does some of the puts and takes as we're rolling into 24.

Richard Anderson: So the least role this is Brent. The least role is very similar to being around 11% at this point to pretty typical standpoint for us. Obviously the occupancy we had if you recall our original midpoint guide for this year was I forget the exact number now but it was several hundred basis points lower than what we've achieved and part of that is we did anticipate having some occupancy headwind. You know we didn't know we'd be sitting here in October and still be over 98% least. We're very appreciative and the teams execute it very well.

Brent Wood: So kind of to the comment earlier that we feel good about the rental rate side of things the ability to push rents was also able to obtain a bit higher annual escalators in our leases which add up over time that's been more in the 4% area as opposed to maybe 2 or 3% the past but you know the occupancy is the one bit of a wildcard in that factor that you know we didn't incur that this year so now we're guiding to you know a much higher you know almost an 8 midpoint on same store you know next year it just depends if you want to factor in if we could be in that 97-98 again or do you give up a little bit of room or not you know that's just part of the factor that's hard to put your parts put your finger on at this point.

Richard Anderson: Great and then my one my one follow-up is just you know you guys are on the development side clearly focused on smaller shallow bay so does that mean that data center of development is completely off the table or is that something where on a one-off basis could could could could teach your interest. I guess it's probably yeah never stay always or never so now you know there are circumstances where we would do it and we have you know look we've got a couple of data center we've talked to data center brokers it would be at the margin it's not going to be a driver of our business it won't be a focus of our business but if we had the right center and either could sell the land or ground lease the land get the right type transaction then we would look at it or some things like that but it you know when we we've explored that just from the sense that look if there's opportunities there or we're exploring it we should take advantage of it but it'll be ancillary and minor to our bit and it look we I'd rather stick to what we do well and kind of do it over time and more markets or in the right submarkets than tell ourselves we understand data centers and Brent now would cheat ourselves or I would cheat myself in the foot a year or two down the road but if we do one it'll be the stars aligned rather than we really went out with a big net looking for data center Great, thanks, congrats on a great quarter. Thanks for all.

Blaine Heck: Our next question comes from Blaine Heck from Wells Fargo. Please go ahead with your questions. Great, thanks.

Brent Wood: Good morning. Can you talk about contractual rent increases or bumps in what you guys are incorporating in newly signed leases? And I guess whether you're getting any pushback on that aspect as a lease agreement. And then also just remind us what the average as the leader is across your portfolio. Yeah, Blaine. Good morning, this is Brent. As a mid to work, you know, we've really done quite well there. You know, anytime you have the leverage as long as it's been on the landlord side, that's a win we've been able to make.

Brent Wood: And I would say it's probably been a little more pronounced maybe in Texas where the annual rent bumps kind of lagged the other markets and that's caught up some. But I would say that's more in the 4% average. On the portfolio, we've been able to move the average from upper two's over time to more towards that mid three on an average. For the annual escalator. So as we turn through 18 20% roll a year and will continue to be in this strong landlord environment, you know, that's been some wins that we've made.

Brent Wood: And you obviously when you're maintaining a high occupancy as we have, you know, that's important because you need that. It's great to have that stabilization, but you also don't want it to be. It also needs to contribute though to help. Thanks door growth. And so our teams done a good job of executing that in the field and growing that. And I would say it's a broader base now and across all of our markets versus it had been concentrated more so at one point say California Florida. And some of our other call it with Texas or even some of our escalator markets over or catching up during this period. Okay, great.

Blaine Heck: Thanks. And then we've heard from some brokers that developers of large box properties have kind of reluctantly begun chopping them up into smaller spaces. The demand is smaller and that segment of the market. How do you guys see any of that on the ground and how do you feel about that potentially affecting the supply and your segment of the market. I think it's. It's more. It's much more so I think it's inevitable.

Blaine Heck: I guess if you don't lease it or depending on how long you want to carry it. Again, I think we could see some of that, but depends on how big the big box is really. And you think of our average average size is 34,000 feet. We certainly have tenants that are larger than that. But if you've got an 800,000 foot building, for example, that maybe five or 600 feet deep million square foot building, that depth is probably twice the depth of our, you know, a large building for us.

Blaine Heck: And so for that tenant, what you end up with is, you know, it's a very long narrow space with very few dot doors. So it's not efficient for those tenants. Ideally, and you're running the forklifts up and down an awfully long run. If that inventory is going from one side of the warehouse down to where the two or three dot doors. So it. I think they will break those buildings up, but I think pending on how big they are that that's going to be awfully expensive when you think of the cost of adding that much more office in, which wasn't in their original plans.

Blaine Heck: And then the demizing walls where you build floor to ceiling sheet rot, fire rate and walls, that's going to be awfully expensive for those developers. And at the end of the day. The loading efficiency isn't, it's not going to be ideal for those tenants. So I think some of it will happen, but the dies kind of cast you've built what you've built and you can maybe move it doesn't have to be single tenant, but it's probably hard to put seven or eight tenants in those buildings the way they were designed to what they were designed for.

Blaine Heck: Yeah, I would even add that. Blaine, Blaine, when you're building some of those bigger box properties that sometimes an easy way to look at pretty much the maximum way to divide a large bulk building would be by four. I mean, they don't want to do it, but you probably say we designed where we could do it into a quote quad where you could put it, you know, divided into quarters, but even there, if you're talking about a 500, 600,000 square foot building, you're still talking about a 125,000 or larger minimum tenant size.

Blaine Heck: So you're, you know, I like what Marshall said kind of the die is pretty much cast once you commit to the bigger building. You could put a few tenants in it, but you're still not going to get down into that 30, 50, 75,000 square foot tenant size like like, you know, you would see in a multi tenant type building. They still really aren't going to cross pollinate very much.

Blaine Heck: Great. Thanks, guys.

Operator: Thank you.

Ronald Kamdem: And our final question comes from Richard Anderson from Web Bush, please go ahead with your question. Final question, sorry about that. So I do have a question as it relates to acquisition, acquisition specifically, you are unique and your disposition guidance came down and your acquisition guidance went up. So, so that's that is obviously specific to you guys, but when it comes to operating acquisition, to operate property acquisitions, you mentioned, you know, some of the things that developers coming in the fourth inning, but specifically about operating assets.

Ronald Kamdem: Are you seeing any trends materializing there in terms of the nature of the seller or banks involved at all in any cases, you know, just curious if you can sort of give an idea or a picture of what the pipeline looks like of potential sellers of operating assets. Good morning, Rich. We've seen a couple of no banks involved, although, you know, we've been like, there'll be a lot of distress, hopeful that that might come in time.

Ronald Kamdem: And it's been we have seen a couple of pension funds that we've either acquired from or had conversations or looked at portfolios and where they've need, again, I mentioned that earlier, they've needed to raise some liquidity and industrial is what you do. You could sell, you know, kind of some of the funds that have raised are different things, whether it's pension funds or just a fund itself, and they've wanted liquidity and they were selling their industrial on the dispositions and, again, they weren't big numbers, what I would say, maybe the difference.

Ronald Kamdem: The 60 million we had assets more of a placeholder a little bit, whereas this quarter and I'm hopeful about into the year when our next update, we've got. It's more specific. We've got funds at risk on a disposition. We've got one that we were looking to sell with a tenant is the buyer and hopefully that that gives me a little bit higher probability since they know the asset better than we do, probably at this point.

Ronald Kamdem: And another under a letter of intent that really that we thought we might close this year, but as they get there financing, it'll probably drift into hopefully January of 24 that will get that close. So that's what drove the drop. So it's two, three, four transactions that total that 40 to 50 million, but I do feel better call it 60, 90 days later, where we stand on those dispositions in terms of we're just a little bit further down the road with those than we were last call.

Ronald Kamdem: And we'll keep kind of keep running. It'll be a good source of capital of equity stays where it is. I like the idea of trading some of our older assets and if we can find the right one off acquisition to kind of move chips around to just kind of nudge growth at a little bit higher rate in the future. Yeah, it was more interesting.

Ronald Kamdem: The acquisition side, but thank you for that color.

Ronald Kamdem: And then the second question. You know, you talked about how all the development largely is in bigger assets that aren't necessarily competitive with you and your 95,000 square foot average. But do you concern yourself with the secret getting out about this shallow bay model? And, you know, if developers maybe want to dial down their cost profile and build something that's not quite as expensive, do they come into your money? Market a little bit more in terms of being more competitive with you and you start to see some of that some of that pressure or you just not seeing that and why not, I guess, you know, since I would think it would be an easier pill to swallow for a merchant developer.

Ronald Kamdem: Thanks. You know, probably, you know, probably two or threefold. I mean, one, I don't, and it's hard to be a secret and have a public company and, you know, website and go to narrate and do all the other things we do. So I wish we could be more secretive than, than we are at times about it. So I think it's out there. And certainly the number of developers ballooned kind of industrial development.

Ronald Kamdem: Everybody became an industrial developer. We said it was, you know, your Uber drive for giving you stock tips. You knew it was. Things were too hot. Probably twofold that makes us comfortable is I don't, it's not like it's a well kept secret. The big pension funds are larger public private peers. They have so much capital to put to work. You know, if our average developments may be 14, 15 million developed a building or the next phase, you can stay awfully busy, but miss your allocation targets doing what we do.

Ronald Kamdem: So I think that's one of the reasons and even talking to some of the kind of local and regional merchant developers, they're working for promotes and things like that. So you can make so much more money flipping a half me and square foot building than a hundred thousand foot building. And then probably I'm doing a reversal or the biggest reason is we struggle to find good in fill landsite and it's, you know, edge of town, you know, low price point.

Ronald Kamdem: You know, bigger tracks of land south of Dallas south of Atlanta Southwest Phoenix in one of our east. It's easier to find the land and put it into production more quickly. Then go through all the zoning permitting issues that we deal with it can be measured in a couple of three years on an infill side. And so I really think and it's it's actually gotten worse. It's interesting with the e commerce.

Ronald Kamdem: Everyone. The dilemma is everyone wants the delivery or the repair person to their house immediately, but they don't want it to originate from around the corner. So I think our zoning challenges have gotten harder over the last couple of years. Yeah.

Marshall Loeb: Okay. Sounds good. Thanks very much. Okay. Thanks, Jamie.

Operator: Thanks everyone for your time. Your interest in East group. If we, if you have any follow up questions, we're certainly available by phone by email and we look forward to seeing many of you in a couple of weeks in there. Thank you, everyone.

Operator: And with that, we'll be concluding today's conference call and webcast. We thank you for joining.

Operator: You may now disconnect.