Q1 2024 EastGroup Properties Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Eastgroup properties first quarter 'twenty 'twenty four earnings conference call and webcast. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator: Good morning, ladies and gentlemen, and welcome to the East Group Properties first quarter 2024 earnings conference call. At this time, all lines are in a listen-only mode.

Operator: Following the presentation, we will conduct a question-and-answer session; please press star zero for the operator. This call is being recorded on Wednesday, April 14, 2020. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead. Good morning, and thanks for calling in for our first quarter 2024 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.

Any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Wednesday April 14th 2024, I would now like to turn the conference over to Marshall Loeb President and CEO. Please go ahead.

Good morning, and thanks for calling in for our first quarter 2024 conference call as always we appreciate your interest Brent Wood. Our CFO is also on the call and central make forward looking statements. We ask that you listen to the following disclaimer.

Operator: Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulations. Please refer to our most recent financial supplement and to our earnings press release, both available on the investor page of our website, and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the Safe Harbors under the Securities Act of 1933. The Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.

Marshall A. Loeb: Please note that our conference call today will contain financial measures such as P. N L. A N S. S that are non-GAAP measures as defined in regulation G. Please refer to our most recent financial supplement and to our earnings press release is available on the Investor page of our website and to our periodic reports furnished or filed with the S.

Marshall A. Loeb: For definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.

Marshall A. Loeb: 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.

Marshall A. Loeb: 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 has made. 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 included in our most recent annual report on Form 10-K for more detail about these risks. Thanks, Keena. Good morning.

Marshall A. Loeb: 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.

Marshall A. Loeb: On the information currently available to the company and on assumptions is made we undertake no duty to update such statement or remark, whether as a result of new information future or actual events or otherwise.

Marshall A. Loeb: Such statements involve known and unknown risks uncertainties and other factors that may cause actual results to differ materially.

Please see our SEC filings included on our most recent annual report on Form 10-K for more detail about these risks.

Speaker Change: Thank you Dana good morning, I'll start by thanking our team for another strong quarter. The team continues performing at a high level and finding opportunities in an evolving market.

Marshall A. Loeb: I'll start by thanking our team for another strong quarter. The team continues to perform at a high level and find opportunities in an evolving market. Our first quarter results demonstrate the quality of the portfolio we've built and the resiliency of the industrial market. Some of the results produced include Funds from operations rising 8.8%, excluding a 2023 involuntary conversion. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter of the previous year.

Speaker Change: Our first quarter results demonstrate the quality of the portfolio, we built and the resiliency of the industrial market. Some of the results produced include funds from operation rising, 888%, excluding a 2023 and voluntary conversion for over a decade now our quarterly <unk> per share.

Speaker Change: <unk> exceeded the <unk> per share reported in the same quarter prior year truly a long term trend.

Marshall A. Loeb: Truly a long-term trend. Quarter-end leasing was 98%, with occupancy at 97.7%; average quarterly occupancy was 97 and a half percent, which although historically strong, is down from first quarter 2023. Releasing spreads for the quarter were solid at 58% GAAP and 40% cash, with cash same-storm NOI rising 7.7% for the quarter.

Speaker Change: Quarter end leasing was 98% with occupancy at 97, 7%.

Speaker Change: Average quarterly occupancy was 97, 5%, which although historically strong is down from first quarter 2023.

Speaker Change: Releasing spreads for the quarter were solid at 58% GAAP and 40% cash with cash same store NOI rising seven 7% for the quarter.

Marshall A. Loeb: Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 7.8% of rents down 70 basis points from first quarter 2023 and in more locations. We view our geographic and revenue diversity as strategic paths to stabilize future earnings, regardless of the economic environment. In summary, we're pleased with our performance out of the gate for 2024 while being mindful of the near-term economy. Today, we're focused on value creation via raising rents, acquisitions, and development.

Speaker Change: Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to seven 8% of rents down 70 basis points from first quarter 2023 and in more locations.

Speaker Change: We view, our geographic and revenue diversity of strategic paths to stabilize future earnings regardless of the economic environment.

Speaker Change: In summary, we're pleased with that performance out of the gate for 2024.

While being mindful of the near term economy.

Speaker Change: Today, we're focused on value creation via raising rents acquisitions and development.

Marshall A. Loeb: This allowed us to end the quarter 98% leased and continue pushing rents throughout the portfolio. On the acquisition front, we continue to patiently search for the right opportunities. We're excited to acquire Spanish Ridge in Las Vegas, which we announced earlier in the year.

Speaker Change: This allowed us to end the quarter at 98% leased and continue pushing rents throughout the portfolio.

Speaker Change: On the acquisition front, we continue to patiently search for the right opportunities.

Speaker Change: We're excited to acquire Spanish ridge in Las Vegas, which we announced earlier in the year.

Marshall A. Loeb: This acquisition also allowed us to move to self-management in the market, further raising our returns. In keeping with our strategy of targeting high-growth markets, we're excited near-term to enter the Raleigh market, a market we've looked at for years. And similar to a number of our other markets, we're attracted to its economic stability and growth due to the mix of a state capital, a large educational presence, and technology companies which follow the

Speaker Change: This acquisition also allowed us to move to self management the market further raising our returns.

Speaker Change: In keeping with our strategy of targeting high growth markets. We're excited near term to enter the Raleigh market a market we've looked at for years and similar to a number of our other markets where it talks to do its economic stability and growth due to the mix of a state capital large educational products technology companies, which.

Speaker Change: Follow the University products topography constraints for new development and long term population growth.

Marshall A. Loeb: Topography Constraints for New Development and Long-Term Population Growth. Our acquisitions will continue to be guided by two criteria, one, to be accretive, and secondly, raising the long-term growth profile of the portfolio, thus creating NAV as well. As we've stated before, our development starts are driven by market demand within our product. Based on our read-through, we're forecasting 2024 starts of $260 million, and though our developments continue leasing with solid prospect interest, we're seeing longer, deliberate decision-making. As always, we ultimately follow demand on the ground to dictate pay.

Speaker Change: Acquisitions will continue to be guided by two criteria.

Speaker Change: Wanted to be accretive and secondly, raising the long term growth profile of the portfolio, thus, creating niv as well.

Speaker Change: As we've stated before our development starts of Pearl bond market demand within our parks.

Speaker Change: Based on our read through we're forecasting 2024 starts of $260 million and though our developments continue leasing was solid prospect amtrust.

Speaker Change: Seeing longer deliberate decision, making as always we ultimately solid demand on the ground to dictate the pace.

Marshall A. Loeb: Based on the decision-making timeframes we're seeing, I expect our starts to be more heavily weighted to the second half of 2024. Within this environment, we're seeing two promising trends. The first thing is the decline of the decline and industrial start.

Speaker Change: Based on the decision, making timeframes were saying I expect our starts to be more heavily weighted to the second half of 2024.

Speaker Change: Within this environment, we're seeing two promising trends.

Speaker Change: The first thing the decline in industrial starch.

Marshall A. Loeb: Sharks have fallen six consecutive quarters, with first quarter 2024 being over 70% lower than third quarter 2022, when the decline began. Assuming reasonably steady demand, the markets will tighten later in 2024, allowing us to continue pushing rents and create development opportunities. The second trend is the rise in investment opportunities with developers who've completed significant site prep work prior to closing and need capital to move forward. This allows us to take years off our traditional development timeline and materially reduce site development legal risk.

Speaker Change: Starts have fallen six consecutive consecutive quarters.

Speaker Change: With first quarter 2024, being over 70% lower than third quarter 2022, when the decline began.

Assuming reasonably steady demand the markets will tighten later in 2024, allowing us to continue pushing rents and create development opportunities.

Speaker Change: The second trend is the rise in investment opportunities with developers.

Speaker Change: <unk> significant site prep work prior to closing and need capital to move forward.

Speaker Change: This allows us to take years off our traditional development timeline and materially reduce site development legal risk.

Marshall A. Loeb: Brent will now speak to several topics, including assumptions within our 2024 guidance. My belief is that when or if interest rates begin to fall and or global turmoil settles, then confidence and stability within the business community will rise. Good morning.

Speaker Change: Brent will now speak to several topics, including assumptions within our 2020 for guidance.

Brent W. Wood: Our belief is that when or if interest rates begin to fall <unk> global turmoil settles, then confidence and stability within the business community will rise.

Brent W. Wood: Good morning, our first quarter results reflect the terrific execution of our team the solid overall performance of our portfolio and the continued success of our time tested strategy.

Brent W. Wood: Our first quarter results reflect the terrific execution of our team, the solid overall performance of our portfolio, and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance range at $1.98 per share compared to $1.82 for the same quarter last year, an increase of 8.8% excluding involuntary conversion gains. As a reminder, we typically incur about a third of our annual G&A expense in the first quarter, primarily due to the accelerated expense of newly granted equity-based compensation for retirement-eligible employees, which totaled approximately $1.7 million during the quarter.

Brent W. Wood: <unk> per share for the quarter exceeded the midpoint of our guidance range at $1 98 per share compared to a $1 82 for the same quarter last year, an increase of eight 8% excluding voluntary conversion gains as.

Brent W. Wood: As a reminder, we typically incur about a third of our annual G&A expense in the first quarter, primarily due to the accelerated expense newly granted equity based compensation for retirement eligible employees, which totaled approximately $1 7 million during the quarter.

Brent W. Wood: Okay.

Brent W. Wood: From a capital perspective, we continue to access the equity market. During the quarter, we settled shares for gross proceeds of $50 million, and after quarter end, we settled an additional $25 million, all at an average price of $183 per share. We have an additional $52 million in commitments outstanding, at an average share price of $180. Debt maturities are minimal this year, with $50 million in August and $120 million in mid-December.

Brent W. Wood: From a capital perspective, we continue to access the equity market during the quarter, we settle shares for gross proceeds of $50 million and after quarter end, we settled an additional $25 million all at an average price of $183 per share.

Brent W. Wood: We have an additional $52 million of commitments still outstanding at an average price and an average share price of $180.

Brent W. Wood: Maturities are minimal this year with 50 million in August and $120 million in mid December.

Brent W. Wood: Although capital markets are fluid our balance sheet remains flexible and strong with increasingly healthy financial metrics our debt to total market capitalization was 16, 3% an adjusted debt to EBITDA ratio decreased to four times and interest in fixed charge coverage increased to $10.

Brent W. Wood: Although capital markets are fluid, our balance sheet remains flexible and strong with an increasingly healthy financial net worth. Our debt-to-total market capitalization was 16.3%, the unadjusted debt-to-EBITDA ratio decreased to 4 times, and interest and fixed charge coverage increased to 10.4 times. Looking forward, we estimate FFO guidance for the second quarter to be in the range of $1.99 to $2.07 per share and $8.17 to $8.37 for the year, which is unchanged from our prior guidance. Those midpoints represent increases of 7.4% compared to the prior period, excluding insurance-related gains on involuntary conversion claims. The range midpoints for cash same store growth and occupancy remain unchanged from prior guidance.

Brent W. Wood: Four times.

Brent W. Wood: Looking forward, we estimate our <unk> guidance for the second quarter to be in the range of $1 99 to $2 75 per share.

Brent W. Wood: 817 to 837 for the year, which is unchanged from our prior guidance.

Brent W. Wood: Those mid points represent increases of seven 4% compared to the prior periods, excluding insurance related gain on involuntary conversion claims.

Brent W. Wood: The range midpoint for cash same store growth and occupancy remained unchanged from prior guidance, we increased our reserve for uncollectible rent by 500000 to $2 5 million or three 9% of revenue.

Brent W. Wood: We increased our service for uncollectible rent by $500,000 to $2.5 million, or 0.39% of revenue. This is the result of an uptick in bad debt in the first quarter that was driven primarily by three tenants in varying industries. Overall, our collections remain healthy. We also increased our G&A guidance by $900,000 to $20.8 million.

Brent W. Wood: This is the result of our uptick in bad debt in the first quarter that was driven primarily by three tenants in varying industries.

Brent W. Wood: Overall, our collections remain healthy.

Brent W. Wood: We also increased our G&A guidance by 900000 to $20 8 million.

Brent W. Wood: Much of the increase relates to less capitalized development costs as a result of lowering our projected development starts for the year.

Marshall A. Loeb: Much of the increase relates to lower capitalized development costs as a result of lowering our projected development starts for the year. In closing, we were pleased with our first quarter results, especially considering the economic uncertainty and prolonged higher interest rate environment. And 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 shallow bay portfolio to lead us into the future. Now Marshall will make his final comments.

Brent W. Wood: In closing we were pleased with our first quarter results, especially considering the economic uncertainty and prolonged higher interest rate environment.

Brent W. Wood: And as we have in both good and uncertain times in the past, we will rely on our financial strength.

Brent W. Wood: The age of our team and the quality and location of our shallow bay portfolio to lead us into the future now Marshall will make final comments. Thanks, Brent in closing I'm proud of our first quarter results and the value. Our team is creating internally we continue to grow earnings while strengthening the balance sheet.

Marshall A. Loeb: Thanks, Brent. In closing, I'm proud of our first quarter results and the value our team is creating. Internally, we continue to grow earnings while strengthening the balance sheet. Externally, the capital markets and the overall environment remain clouded, which has led to continued decline and starvation.

Marshall A. Loeb: Externally the capital markets and the overall environment remains clouded, which has led to continued decline in starts in the meantime, we're working to maintain high occupancies, while pushing rents.

Marshall A. Loeb: In the meantime, we're working to maintain high occupancies while pushing rents. And in spite of the uncertainty, I like our positioning as our portfolio is benefiting from several long-term positive secular trends such as population migration, near-shoring and on-shoring trends, evolving logistics chains, and historically lower shallow bay market vacancy. We also have a proven management team with a long-term public track record. Our portfolio quality, in terms of buildings and markets, is improving each quarter. Our balance sheet is stronger than ever.

Marshall A. Loeb: And in spite of the uncertainty I like our positioning as our portfolio is benefiting from several long term positive secular trends such as population migration.

Marshall A. Loeb: Near shoring and onshoring trends evolving logistics chains, and historically lower shallow bay market vacancies.

Marshall A. Loeb: Also have a proven management team with a long term public track record.

Marshall A. Loeb: Portfolio quality in terms of buildings and markets is improving each quarter, our balance sheet is stronger than ever and we're expanding our diversity and both our tenant base as well as our geography.

Operator: And we're expanding our diversity in both our tenant base as well as our geography. We would now like to open up the call for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you ask a question, please press star followed by number one on your touch screen; you will hear a prompt that matches your hand.

Speaker Change: We would now like to open up the call for questions.

Speaker Change: Yeah.

Speaker Change: Thank you ladies and gentlemen, he will now begin the question and answer session. She didn't need a quick should you ask a question. Please press star followed by number one on your Touchtone phone, you'll hear a problem that you had just been raised should you wish to decline from the polling process. Please press star followed by number two if you are using.

Marshall A. Loeb: Should you wish to decline from the polling process, please press star, followed by an, If you are using a speakerphone, please leave the handset before pressing, One moment for your first question. Your first question comes from the line of Jeff Spector from Bank of America. Please go ahead. Thank you. Marshall, in your opening remark, talked about the resiliency in the sector, clearly the market. There's some angst here right on that comment, or on the resiliency, I should say.

Speaker Change: Speaker phone please lift the handset before pressing any keys one moment for your first question.

Your first question comes from the line of Jeff Spector from Bank of America. Please go ahead.

Jeffrey Spector: Thank you.

Jeffrey Spector: Marshall in your opening remarks, you talked about the resiliency in the sector are clearly the market. There is some angst here right on that comment or on the resiliency I should say, so I guess I wanted to focus my question a bit more on that and the comments around <unk>.

Marshall A. Loeb: So I guess I wanted to focus my question a bit more on that and the comments around, you know, leasing decisions taking a bit longer, economic uncertainty, because consumption remains strong, e-commerce has been rising, like, is it simply because of the fat and rates, is it, you know, tenants took too much space? Like, could you just talk about this a little bit more? Sure. Hey, good morning, Jeff.

Jeffrey Spector: Leasing decision is taking a bit longer.

Jeffrey Spector: Economic uncertainty because consumption remains strong e-commerce has been rising.

Jeffrey Spector: Like is it simply because of the fed in and rates is it.

Jeffrey Spector: Tenants took too much space like can you just talk about this a little bit more.

Marshall A. Loeb: Okay sure Hey, good morning, Jeff.

Marshall A. Loeb: I'm happy to add my color and commentary on the resilience. Yes, I, we see it and believe it's there. And maybe if I take a maybe a look back, I look at today and kind of look ahead. So we've had this great run the last handful of years, all of us as well as our industrial peers. And then I think it's, we've had kind of this historic run right now, you touched on it, I view it as a combination of interest rates.

Speaker Change: Happy to add my.

Speaker Change: Color and on the resilient so yeah, yeah side, where we see it and believe it's there and maybe if I take a.

Speaker Change: Look back I look at today and kind of a look ahead. So we've had this great run the last handful of years all of the us as well as our industrial peers.

Speaker Change: And then I think it's we've had kind of this historic Ryan right now you touched on it I view it as a.

Speaker Change: Combination of interest rates and earlier in the year, everyone thought they were about to drop in March and then it was June and now it's a maybe December that keeps getting pushed out along with just a lot of troubling global unrest and I think.

Marshall A. Loeb: And earlier in the year, everyone thought they were about to drop in March, and then it was June, and now it's maybe December, that keeps getting pushed out along with just a lot of troubling global unrest.

Marshall A. Loeb: And I think my kind of analysis, I think short-term decisions, more like retail and things like that, the consumer's holding up well. And if you went through our portfolio, what's been interesting for a couple of quarters now, we have prospects and have conversations about our vacant spaces. I think people are really taking a wait and see approach; they're maybe waiting for a little more business confidence. So we've seen supply coming down, and there's just a lot of people on the sidelines.

Speaker Change: Kind of analysis, I think short term decisions more like retail and things like that.

Speaker Change: The consumer is holding up well and if you went through our portfolio. What's what's been interesting for a couple of quarters now we have prospects and have conversations on our vacant spaces.

Speaker Change: I think people are really taking a wait and see there may be waiting for a little more business confidence. So we've seen supply coming down and Theres just a lot of people on the sidelines. There's been we put it in our slide deck. If people have a chance to go to the Investor relations on our website at slide 14.

Marshall A. Loeb: There's been, we put it in our slide deck, if people have a chance to go to the investor relations section on our website, it's slide 14, where renewals have really picked up in our sector. So I think there are a lot of people taking a wait and see approach.

Speaker Change: Renewals have really picked up in our sector. So I think theres a lot of people, taking a wait and see so right now we're I'm glad we're still 98% leased we're pushing rents supplies dropped what we need is that kind of a third leg of the stool as a pick up in business.

Marshall A. Loeb: So right now, I'm glad we're still 98% leased. We're pushing rents, and supplies have dropped. What we need is that kind of third leg of the stool as a pickup in business confidence.

Marshall A. Loeb: And then I think you'll see, we'll probably have a several-year, if not several, or several quarters, several-year growth spurt. Again, where I see that resilience, as you mentioned, e-commerce isn't slowing down, on-shoring, near-shoring people and companies moving to the Carolinas, Florida, Texas, Arizona, all of our markets. So it's been a great few years, and longer term, I'm still really excited about where we fit in, kind of our part of the playground.

Speaker Change: Confidence and then I think you'll see we'll have a probably a several year if not several several quarters several year growth spurt again, when I say that resiliency as you mentioned e-commerce isn't slowing down onshoring near shoring people and companies moving to the Carolinas, Florida, Texas.

Speaker Change: Arizona all of our markets. So long it's been a great few years longer term I'm still really excited about where we fit.

Speaker Change: Our part of the playground, and I think right now people are.

Marshall A. Loeb: And I think right now people are pushing off. If you can put off a 40, 50,000-foot expansion, which is an awful lot of our development leasing, about a third of it is existing tenants, I think people are saying, "Let's wait a quarter or two and maybe get a little more settled." Okay, thank you. And then, if I could ask a follow-up question, you also commented that you think the markets will tighten later in 2024. Anything more to elaborate on that? Specific timing, 4th quarter, 3rd quarter, more into 25?

Speaker Change: Pushing off I think if you can put off a 40 50000 foot expansion, which is an awful lot of our development leasing about a third of it is existing tenants I think people are saying lets wait a quarter or two and maybe get a little more settled environment.

Speaker Change: Okay.

Speaker Change: Okay. Thank you and then if I could ask a follow up.

Speaker Change: You also commented that you think the market will tighten later in 'twenty four but.

Speaker Change: Anything more to elaborate on that any any specific timing fourth quarter third quarter more into 'twenty five.

Marshall A. Loeb: I'm hopeful, just, but look, we've had Six quarters and counting of a lack, you know, drops and starts. And our product type, thankfully, Shallow Bay has had significantly fewer deliveries and availability, as a result of availability than the bigger box. So I think as people gain this confidence, I'm kind of with our tenants and our prospects. I keep thinking in 90 days, we just need a little bit of economic good news. And so that's why I think when people do, if I use a retail analogy, come back to the store, there won't be much inventory on the shelves.

Speaker Change: And I'm hopeful.

Speaker Change: We've had six quarters and counting of a lack of drops and starts.

Speaker Change: And our product tide thankfully shallow bay has had less significantly less deliveries and availability as a result of availabilities and kind of the bigger box. So I I think as people gain this confidence I am kind of with our tenants and our prospects I keep thinking in 90 days.

Speaker Change: Just need a little bit of economic good news and so that's why I think when when people do I use a retail analogy do come back to the store there won't be much inventory on the shelves and for our product type that will go away pretty quickly and well that'll pick up another lag of pushing rats, and then really development that I think.

Marshall A. Loeb: And for our product type, it'll go away pretty quickly, and that'll pick up another leg of pushing rents. And then really development. I think so much of our development competition is local regional developers, and they don't have the balance sheets and the teams, and if we have the land and the permits, we'll be able to come out of the gate on development a lot earlier than our private peers. Thank you. Sure, you're welcome. As a reminder, ladies. Limit yourself. Your next question comes from the line of Eric Worden from BMO Capital Markets. Good morning, everyone.

So much of our development competition is local regional developers than they.

Speaker Change: Don't have the balance sheet and the team's unless we have the land and the permits will be able to come out of the gate on development a lot earlier than than our private peers.

Speaker Change: Thank you.

Speaker Change: Sure you're welcome.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Reminder, ladies and gentlemen, please limit yourself to one question. Your next question comes from the line of Eric Gordon from BMO Capital markets. Your line is now open.

Eric Gordon: Hey, good morning, everyone I, just wanted to talk a bit a little bit about the acquisition opportunities as they appear to be increasing.

Marshall A. Loeb: I just want to talk a little bit about the acquisition opportunities as they appear to be increasing. I was hoping you could speak to the cap rate expectations for the remainder of the year and how they compare to your development. Sure, good question and really maybe noticing maybe as far back as a year ago that our development leasing, although we are signing development leases, so I don't want to discount that. We signed a good half dozen more, you know; our projects made movement during the quarter. It's just not moving as rapidly as it was at its peak.

Eric Gordon: I was hoping you could speak to the cap rate expectations for the remainder of the year and how they compare to your development yields in the current pipeline. Thank you.

Speaker Change: Okay sure good question, and and really maybe noticing maybe as far back a year ago that our development leasing, although we're where we are signing development leases.

Speaker Change: Want to discount that we signed a good half dozen more.

Speaker Change: Kind of our projects made movement during the quarter, it's just not moving as rapidly as it was at the peak, but then we noticed acquisitions, we've always been in the market for acquisitions, but we were just getting more yeses. So today, if I if I roll the Raleigh acquisition that we mentioned in will have.

Marshall A. Loeb: But then we noticed acquisitions; we've always been in the market for acquisitions, we were just getting more yeses. So today, if I roll the Raleigh acquisition that we mentioned in, we'll have, What excites me is we'll have bought seven projects for about 200, a little under 280 million. And those buildings are just over a year old on kind of a weighted average.

Speaker Change: What excites me as well about seven projects for about 200, a little under $280 million and those buildings are just over a year old and kind of a weighted average so everything we've been buying as is new and it's a it raises the growth profile going forward of our company and we've added a dime.

Marshall A. Loeb: So everything we've been buying is new, and it raises the growth profile going forward of our company. And we've added a dime on a kind of matching the quarter, the equity raised versus the going in gap yield, which adds a dime to our earnings. So we've viewed this as a nice way to maybe be nimble when the development's slowing but the acquisition window opens up, let's pivot that way. This year, we were able to pick up a fair amount, kind of in the third and fourth quarter last year. This year has been a little more competitive out of the gate.

Speaker Change: On a kind of matching the quarter the equity raised versus the going in GAAP deal that adds a dime to our earnings. So we view this as a nice way you kind of maybe be nimble when development slowing but the acquisition window opens up let's put it that way.

Speaker Change: This year, so we were able to pick up a fair amount.

Speaker Change: Third and fourth quarter last year. This year, it's been a little more competitive out of the gate, we're still saying cap rates. If it's a portfolio, it's really low cap rates like sub five and things like that and it doesn't even have to be a large portfolio, but kind of four or five buildings, where people can put some dollars out that's.

Marshall A. Loeb: We're still seeing cap rates. If it's a portfolio, it's really low cap rates, like, you know, sub-five and things like that. And it doesn't even have to be a large portfolio, but kind of four or five buildings where people can put some dollars out. That's still very competitive.

Speaker Change: Still very competitive what we bought has been more one off and someone needing to close quickly that's R. R.

Marshall A. Loeb: What we've bought has been more of a one-off and someone needing to close quickly. That's our... Our pitch has been, we have, so especially with Brent and the team implementing a forward ATM, we have the funds raised, and we can close in roughly about a month. And that wasn't a differentiating factor in the past, but suddenly, in the last year, having capital and being able to close quickly has allowed us to kind of move forward.

Speaker Change: Our pitch has been we have especially when all with Brent and the team implementing our forward ATM. We have the funds raised and we can close and roughly about a month and that wasn't a differentiation factor in the past, but suddenly in the last year, having capital and being able to close quickly has allowed us.

Speaker Change: Just to kind of move forward I think.

Marshall A. Loeb: I think, you know, it's disappointing on the development leasing front that interest rates look like they're going to be higher for longer, but I do think it will keep the acquisition, especially the second half of the year, we were able to be more competitive. I think people get their capital allocation at the beginning of the year. It's been a little more competitive in the first quarter, although I'm glad we got the Raleigh opportunity.

It's disappointing on the development leasing front that interest rates look like theyre going to be higher for longer but I do think it will keep the acquisition.

Speaker Change: Especially the second half of the year, and we were able to be more competitive I think people get their capital allocation at the beginning of the year. It was spent a little more competitive first quarter, although I'm glad we got the Raleigh opportunity and I'm optimistic on the acquisitions front that will still be able to go find basically new.

Marshall A. Loeb: And I'm optimistic on the acquisitions front that we'll still be able to find basically new development type properties and gap yields that are maybe, I think our average has been in the six and a quarter to six and a half. So in our development yields, they've come in above pro forma at around seven. So the team did a nice job of sourcing some really good opportunities, and that Delta between development versus a brand new 100% lease building, where the rents may be slightly below market, we view as a really attractive risk return.

Speaker Change: New development type properties and at GAAP yields that are maybe I think on average has been in the.

Speaker Change: Six and a quarter to six and a half so on our development yields they've come in above pro forma have been at around seven so the team's done a nice job sourcing some really good opportunities at and that Delta between development versus saying a brand new 100% leased building, where the rents may be slightly below market, we view as our.

Speaker Change: Really attractive risk return and I think that window will slam shut when interest rates start to move and so I think it's a moment in time and we'll be back to Bang developers again, but we'll keep trying to buy but I think thats really what the market's open and I thought it would be shut by now, but I think that it will have another couple of quarters of <unk>.

Marshall A. Loeb: And I think that window will slam shut when interest rates start to move. So I think it's a moment in time, and we'll be back to being developers again, but we'll keep trying to buy, but I think it's really what the markets are opening up for. And I thought it would be shut by now, but I think it will have another couple of quarters of hopefully finding those opportunities, assuming the capital's available to us as well in the market. All right. Thank you very much.

Speaker Change: Finding those opportunities assuming the capital is available to us as well in the market.

Speaker Change: Alright, Thank you very much.

Marshall A. Loeb: You're welcome. Your next question comes from the line of Craig Mailman from Citi. Morin.

Speaker Change: Youre welcome.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Craig Mailman from Citi. Your line is now open.

Craig Mailman: Hey, good morning.

Marshall A. Loeb: Marshall, just want to go back to your commentary, clearly, that things are taking longer. With that in mind, though, from Elise... You guys had a big quarter for new leasing volume? talk a little bit about kind of the cadence of that and what the pipeline looks like into 2Q so far, you know, relative to the volume we had in 1Q. Yeah, no, thanks, and again, I'm happy, kind of, good morning, Craig, we're, we actually signed more leases in first quarter this year than we did last year by a few hundred thousand, so that was good news, and it's really flat, it's roughly flat with fourth quarter of 23, so we've got good leasing volume, and if it's helpful, I got an email from one of our guys in the field, and his description was tire kickers abound, so we've got activity, and we've got, in some cases, leases out, and even one of our team members said, I used to get excited when we sent leases out, and I still do, but I'm not, you know, they don't, I'm not waiting at the mailbox, that people want space, and I think the dollar commitment has gotten so big, that's what has people hesitating a little more, and there's not a fear of, if I don't take this, it won't be available tomorrow, so I feel good, and I think it will be kind of like the acquisition window, I'm hopeful it turns pretty quickly, and if it does, we'll see it, and we'll move our development starts back up, but for the time being, look, it's a cyclical, long-term business, so we said, all right, let's be a little more thoughtful, we're always thoughtful, but maybe a little more thoughtful on how we, when do we want to be delivering these buildings, we've said, look, I'd rather wait a quarter or two to deliver the buildings, than be a quarter or two early, and wait, so the prospects are out there, it's getting them to pull the trigger, but it's not that there's, you know, during the GFC, by comparison, I remember someone making the comment, I'd offer more free rent, but I don't have anyone to offer it to, there literally weren't prospects, now we've got people, we've got leases out in conversations, it's really getting them out of the red zone, and leases signed, so that makes me feel a lot better than, hey, there's just no tours, and we're holding a broker open house, and no one's showing up, and things like that, and thankfully, again, I think we've got, two of the three legs of our stool where we're 98% leased. There's no supply, so the inventory is going to be really low when things do turn here.

Craig Mailman: Marshall just wanted to go back.

Craig Mailman: So your commentary clearly that things are taking longer.

Craig Mailman: That in mind, though from a leasing perspective.

Craig Mailman: You guys had a big quarter for new leasing volume could.

Marshall A. Loeb: Could you talk a little bit about kind of the cadence of that and what the pipeline looks like into <unk>. So far.

Marshall A. Loeb: Relative to the <unk>.

Speaker Change: Yeah, no thanks, and again I'm I'm happy you kind of.

Speaker Change: Good morning, correct, where we actually sign more leases in first quarter. This year than we did last year by a few hundred thousand so that was good news and its really flat roughly flat with fourth quarter up 23. So we've got good leasing volume and if it's helpful. I got an email from one of our guys in the field in his description was tire kicker.

Speaker Change: <unk> are bound so we've got activity and we've got in some cases leases out and even one of our team members said I used to get excited when we sent leases out and I still do but I'm not.

Speaker Change: I don't I'm not waiting at the mailbox that people won't space I think the dollar commitment has gotten so big and that's what has people hesitating a little more and there is not a fear of if I don't take this it wont be available tomorrow. So I feel good and I think it will be.

Speaker Change: Kind of like the acquisition window I'm hopeful it turns pretty quickly and if it does we'll we'll see it and we will move our development starts back up but for the time being look it's a cyclical a long term business. So we said all right, let's be a little more thought, but we're always thoughtful about maybe a little more thoughtful on how we when do we want to be delivering these bill.

All things, we've said look I'd, rather wait a quarter or two to deliver the building is simply a quarter or two early and wait so the prospects are out there, it's getting them to pull the trigger but it's not that there's.

Speaker Change: During the GSC back comparison, I remember someone making the comment I'd offer more free rent, but I don't have anyone to offer it to their literally weren't prospects now we've got people. We've got leases out in conversations it's really getting them out of the Red zone and leases signed so that makes me feel a lot better than hey, there's just.

Speaker Change: No tours, and we're holding our broker open house and no one showing up and things like that it's and thankfully again I think we've got.

Speaker Change: Two of the three legs of our stool, where we're 98% leased there is no supply. So the inventory is going to be really low when things do turn here.

Marshall A. Loeb: And we just need a little bit of momentum on the demand side. I think that'll either be kind of a global environment feeling a little more secure or, at least, thinking interest rates are finally going to come back down. And look, I guess, as a flip side, you raise interest rates as fast as we did as a country in 2022. And now you're moving into the mid-2024, and it starts to weigh on our tenants. It's got to do with it.

Speaker Change: And then we just need a little bit of momentum on the demand side.

Speaker Change: I think that will either be kind of the global environment, feeling a little more secure and ore.

Speaker Change: At least thinking interest rates are finally going to come back down and look I guess as I flip side, you raise interest rates as fast as we did as a country in 2022 and now you're moving into mid 2024. It starts to weigh on our tenants it's got to.

Speaker Change: And apologies if you answered this already but.

Marshall A. Loeb: And apologies if you answered this already, but it looked like maybe Orlando and L.A. were partly contributors to that. Is this sort of a one-off kind of hit for retention, or is there...

The quarter it looked like maybe Orlando and L. A were partly contributors to that is this sort of a one off kind.

Speaker Change: Kind of hit the retention or is there.

Marshall A. Loeb: There's nothing going on, any other known move-outs this year to contend with. You broke up just for a moment, Craig, but I think on our L.A. moves this year we do have two tenants moving around. The good news there, knock on wood, we're close, and one hasn't moved, so we've got really kind of two spaces in L.A. It's definitely one of our choppier markets, and as everyone's been talking about, LA has been messy, but thankfully, if we can get two leases signed, we'll backfill both of those spaces.

Speaker Change: Something going on any other known move outs this year to contend with.

Speaker Change: Oh no okay.

Speaker Change: Look up just for a moment, Craig, but I think on our on our L. A moves thankfully. This year, we do have two tenants moving around the good news there knock on wood, we're we're close and one hasn't moved so we've got really kind of two spaces in L. A it's definitely one of our choppy our markets and as everyone's been talking about L.

Speaker Change: <unk> been messy, but thankfully if if we can get two leases signed.

Speaker Change: We will backfill both of those spaces. So it's really.

Marshall A. Loeb: So it's really, the market's not great, but thankfully, it's a little under, we'll call it 6% of our NOI, and if we can land these two, that we feel, you know, as reasonably confident as you can get before the signed lease comes back, then that puts L.A. to bed for the balance of 2024.

Speaker Change: The market is not great, but thankfully it's.

Speaker Change: A little under of a call it 6% of our NOI and if we can land. These two that we feel reasonably confident as you can get before the signed lease comes back then that puts L. A to bed for the balance of 2024 and hopefully the market has which we think it will longer term will heal and normalize a little bit before.

Brent W. Wood: And hopefully, the market, which we think it will in the longer term, will heal and normalize a little bit before we, absent of bankruptcy, before we have to deal with anything else in L.A. So we lost two tenants, but I think we're going to backfill and one fairly quickly because one tenant hasn't even moved out yet, and we've got a good, solid prospect that we're closer to a deal, knock on wood. closer to a deal with.

Speaker Change: <unk>.

Speaker Change: Absent a bankruptcy before we have to deal with anything else in L. A so we <unk>.

Speaker Change: Last two tenants, but I think we're going to backfill and one fairly quickly because one tenant hasn't even moved out yet and we've got a good solid prospect that we're closer to a day a knock on wood closer to a deal with.

Okay, and then just if I could sneak one more in guidance.

Brent W. Wood: Okay, and then just if I could sneak one more in, guidance assumes a pretty good ramp up through kind of the back half of the year. How much of that is kind of already, given deliveries and on the development side and commencement timing on leases versus the kind of speculative activity that you need to get to that. Yeah, Craig, I'll jump in.

Speaker Change: Our guidance assumes a pretty good ramp up through kind of the back half of the year, how much of that is kind of already baked given deliveries.

Speaker Change: On the development side and commencement timing of leases versus.

Speaker Change: Kind of speculative activity that you need to hit to get to that guidance.

Brent W. Wood: I would say, you know, three quarters to go, so it's hard to say it's all baked, but I will say it's not overly dependent, for example, on development starts. We have that pretty heavily weighted to the back half of the year, and even further, really heavily weighted to the fourth quarter. If that was to go back, say, if the market were to be slow and we were to roll back development starts even more, it would have a little less of an impact than we did earlier in the year just because, again, we've got that weighted toward the back end. We've only got about 7, I think 7.5% of rollover remaining for this year, so we've already put to bed over half of our roll for this year.

Speaker Change: Yeah, Greg I'll jump in I would say three quarters to go so it's hard to say its all baked but I will say, it's not it's not overly dependent for example for development starts we have that pretty heavily weighted to the back half of the year and even further really more heavily weighted to fourth quarter. So.

Speaker Change: If that was to go back to say if we were to if market were to be slow and we were roll development starts back even more it would have a little less of an impact than we did earlier in the year, just because again, we've got that weighted towards the back end.

Speaker Change: We've only got about seven I think seven 5% rollover remaining for this year. So we've already put to bed over half of our role for this year.

Marshall A. Loeb: So, you know, there's obviously three quarters to go, there are moving parts, but it's not overly dependent, I would say, on a lot of external factors in terms of a lot of acquisitions or, you know, banking on getting a lot of development starts in the second quarter or anything like that. And, you know, our occupancy, how they were budgeting it to slowly go down through the year. There's no particular lease or large lease or two that you could say is really going to move those numbers one way or the other.

Speaker Change: So yes, there's obviously three quarters ago, there's moving parts, but it's.

Speaker Change: It's not overly dependent I would say you know a lot of external factors in terms of a lot of acquisitions or banking I'm getting a lot of development starts in the second quarter or anything like that in our occupancy how they were budgeting it to slowly go down through the year.

Speaker Change: There's no particular lease or large lease or two that you could say, it's really going to move those numbers, one way or the other so as Marshall said if demand hangs in there.

Marshall A. Loeb: So, as Marshall said, if demand hangs in there, you know, we feel like that, you know, we basically had a good quarter, maintained our guide, and, you know, feel, you know, optimistic about what we've got out there as it relates to, again, not being dependent on any one or two big factors to occur. Great. Your next question comes from the line of Billy Crawl from Raymond James. Your line is open.

Speaker Change: Feel like that we basically had a good quarter maintained our guide and.

Speaker Change: So feel optimistic about what we have.

Speaker Change: We've got out there as it relates to again not being dependent on any one or two big factors to occur.

Great. Thanks, Brian.

Speaker Change: Yep.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Billy Kroll from Raymond James Your line is now open.

Billy Kroll: Yeah. Thanks, good morning, guys.

Marshall A. Loeb: Thanks. Good morning, guys. A two-parter on lease economics. You cited the wait-and-see attitude, so I'm wondering how much of that is maybe encouraged by the tenant reps who are maybe seeing some weakness in rent growth, and they're thinking the economics might get a little bit better as time goes by. And the second part of that is, have we now seen a peak in annual rent increases? We've kind of got up to that four, four and a half percent. Is that starting to come down? Hey, good morning, Bill.

Billy Kroll: Two parter on <unk>.

Billy Kroll: Lease economics, if I could how much you cited the wait and see attitude by the tenants and I'm wondering how much of that is is.

Billy Kroll: This may be encouraged by the tenant reps you are maybe seeing some weakness.

Billy Kroll: And rent growth and they're thinking the economics might get a little bit better as time goes by in the second part of that is heavily now seen a peak.

Billy Kroll: In annual ramp up rate.

Billy Kroll: Kind of got up to that 445% is that starting to come down.

Speaker Change: Hey, good morning Bill.

Bill: I think it's kind of plateaued, maybe and again it maybe it's a month.

Marshall A. Loeb: I think we've kind of plateaued, maybe, and again, I'm a self-professed glasses-half-full guy. I think we ran up to four. I think we're taking a breather. I've said it's like we're in a construction zone. You're still heading in the right direction. You just got off the freeway.

Bill: Self professed glass is half full I think we ran up to four I think we're taking a breather I've said, it's like we're in a construction zone Youre still youre still heading in the right direction you just got off the freeway youre in a construction zone.

Marshall A. Loeb: You're in a construction zone, and I'm really optimistic that when the economy turns, given where supply and how many private guys that had gotten into the development business have kind of been weeded out or on the sidelines will have to start again. I think there's going to be a pretty big space squeeze. So we've not seen so much as, I don't think the tenant rep brokers, my perception isn't saying wait and see.

Bill: I'm really optimistic when the economy turns given where supply and how many private guys that had gotten into the development business they've kind of been weeded out are on the sidelines. So we'll have to start again, I think theres going to be a pretty big space squeezed. So we've not seen so much as I don't think that rep broke.

Bill: Theres not perception isn't saying wait and see I think it's the tenants themselves and again, especially look I've always said our development leasing is less risky than our peers because it's so much dependent on our existing tenants I think people are pushing expansions off and so they have to.

Marshall A. Loeb: I think it's the tenants themselves, and again, especially, look, I've always said our development leasing is less risky than our peers because it's so much dependent on our existing tenants. I think people are pushing expansions off until they have to make a decision right now, and that's what we're seeing.

Bill: Make a decision right now and that's what we're saying and we are still seeing those but I think it's kind.

Marshall A. Loeb: And we are still seeing those, but I think it's kind of a wait and see and let's push off the 50,000-foot expansion another quarter or two, but we're seeing the economics of the leases hold in there pretty firm, other than maybe some free rent here or there, and I'll probably say L.A. is a choppier market given availability there, and we really aren't seeing a whole lot of, Sublet you know the things you would see during a downturn. We're not seeing a lot of sublease We've seen some typically some smaller ones and our lease term fees are really historically low this year We're not you know the other thing you see in a downturn is people wanting to buy out of their lease So I think it's I think it's we're in more of we're still moving forward look our earnings are Projected to grow about seven and a half percent this year We we beat our internal guidance in first quarter and even slowing down development starts and some and raising bad debt We're I'm happy we were able to maintain in spite of kind of getting you know Taking a maybe a little more conservative approach towards the balance of the year and I look up I hope we're wrong and people will say we're Conservative historically and I hope we're proving them right That things get better and I like that.

Bill: Kind of a wait and see and let let's push off the 50000 foot expansion another quarter or two but we're seeing the economics of the leases hold in there pretty firm other than may be some free rent here or there and I'll, probably say L. A is a little bit as a choppy or market given availability there and we're really.

Bill: We aren't seeing a whole lot of.

Bill: Suddenly you know the things you would see during a downturn, we're not seeing a lot of sublease, we've seen some typically some smaller ones and our lease term fees are really historically low this year were not the other.

Bill: The thing you see in a downturn as people wanting to buy out of their lease so I think it's.

Bill: I think it's we're in more of a we're still moving forward look our earnings are projected to grow about seven 5%. This year, we we beat our internal guidance in first quarter, and even slowing down development starts and some and raising bad debt.

Bill: I'm happy we were able to maintain in spite of kind of getting taking a maybe a little more conservative approach towards the balance of the year and I hope.

Bill: Hope were wrong and people will say, we're conservative historically and I hope.

Bill: Moving them right.

Bill: That things get better and I like that we've got the tenant activity.

Marshall A. Loeb: We've got tenant activity. I think it's if you're not worried about the global economy right now, I appreciate that our tenants are a little more thoughtful about it. If I could just, and thank you for that, if I could just follow up, the increase to the tenant, or the bad debt, pretty minor. But what's going on with the, Are you starting the..., is William Crow increasingly concerned, and is that specific to any... industries? No, Bill, this is Brent.

Bill: I think its if youre not worried about the global economy right now I appreciate that our tenants are.

Bill: Little more thoughtful about it.

Bill: If I could just.

Speaker Change: Thank you for that if I could just follow up.

Increased to the tenant.

Speaker Change: The bad debt reserves.

Speaker Change: Yeah.

Speaker Change: It's pretty minor.

Speaker Change: But what's going on with the with the watch list or you're starting to.

Speaker Change: Grow increasingly concerned and is that specific to any industry.

Brent W. Wood: Yeah, it was a little bit of a frustrating quarter in that 50% of our total bad debt for the quarter was driven by one tenant, a home decor sort of high-end group out of Southern California that wound up, a bit surprisingly, wound up filing for bankruptcy. So their cash balance wasn't even that high, but when you have a tenant, you deem them uncollectible. They had almost a $300,000 straight line balance, so that was the bigger hit.

Speaker Change: <unk> types.

Speaker Change: So bill this is Brent yeah. It was.

Brent W. Wood: Bit of a frustrating quarter in that 50% of our total bad debt for the quarter was driven by 110 at a home decor sort of high end group out of southern California that debt that wound up a bit surprisingly wound up filing for bankruptcy and so their cash balance wasn't even that high but when you have a tenant you deem uncollectible.

Brent W. Wood: They had a almost a $300000 straight line balance so that was the bigger hit so that was 50% of the quarter total amongst one tenant and then we had a logistics company and a jewelry slashed beauty supply.

Brent W. Wood: So that was 50% of the quarter total amongst one tenant, and then we had a logistics company and a jewelry slash beauty supply retailer type company. You add those two to the other one for those three, and that was 83%.

Brent W. Wood: Retailer type company you add those two to the other one for those three and that was 83%. So it just a coincidence.

Brent W. Wood: So it just, coincidentally, I think, but all three of those were in California, but we've only got 10 tenants that have a reserve balance that still occupy their space in total out of over 1,600. So that really hasn't changed much. Our collections remain strong.

Brent W. Wood: <unk> I think but all three of those were in California, but we've only got 10 tenants that have a reserve balance that still occupy their space in total out of over <unk> hundred so that really hasnt changed much our collections remained strong.

Brent W. Wood: So, you know, the uptick for the year was really driven more by those sorts of, you know, those occurrences in the first quarter, and just in our internal projections, we really didn't increase our second, third, and fourth quarter budgeted amounts that we had in our initial guide. And so the overall increase for the year really is just driven by that, mainly driven by that one particular tenant, but there's nothing there that's jumping out to us, giving us pause or concern, you know, other than just sort of, you know, being in a capital environment with 1,600 tenants, there's going to be, you know, somebody with something going on. understood. Thanks for your time.

Brent W. Wood: So the uptick for the year was really driven more by those those.

Brent W. Wood: Those occurrences first quarter and just in our internal projections, we really didnt increase our second third and fourth quarter.

Brent W. Wood: Budgeted amounts that we had in our initial guide so the overall up for.

Brent W. Wood: For the year really just driven by that mainly driven by that one particular tenant but there is nothing there that is jumping out to us.

Brent W. Wood: Giving us pause or concern.

Brent W. Wood: Other than just sort of.

Brent W. Wood: Being in a capital environment with 600 tenants, there's there's going to be some.

Brent W. Wood: Somebody was something going on.

Speaker Change: Understood. Thanks for the time.

Speaker Change: Thank you. Thank you.

Marshall A. Loeb: Thank you. Your next question comes from the line of Mike Hewler of J.P. Morgan. Yeah, hi.

Speaker Change: Your next question comes from the line of Mike Mueller of Jpmorgan. Your line is now open.

Michael Carroll: Yeah, Hi.

Michael Carroll: I was wondering.

Marshall A. Loeb: I was wondering, what's the game plan now that you've entered Raleigh? Do you anticipate growth over the next few years coming primarily from acquisitions or building a development pipeline? Good morning, Mike.

Michael Carroll: What's the game plan now that you've entered Rollie do you anticipate growth over the next few years coming.

Primarily from acquisitions or building a development pipeline.

Speaker Change: Good morning, Mike Good question.

Marshall A. Loeb: Good question. You know, I would say we're excited about going to Raleigh. And if you think maybe a two-part answer, you saw us this quarter; we sold all but one, and we'll get the last one out the door of our Jackson assets, kind of 40-year-old buildings. And they were all well leased and have performed well over time, but they don't have the growth profile that we view Raleigh or Nashville that we entered a couple of quarters ago as well.

Michael Carroll: I'd say were.

Michael Carroll: We're excited about going to Raleigh, and if you think maybe two part answer we you saw us this quarter, we sold all but one and we'll get the last one out the door of our Jackson assets kind of a 40 year old buildings and they were all well leased and have performed well over time, but they don't have the growth profile that we.

Michael Carroll: View, our Raleigh, or Nashville that we entered a couple of quarters ago as well.

Marshall A. Loeb: And kind of as we try to always be pruning our portfolio and kind of moving our capital into a better position for growth, we had one suburban office building left in L.A. that was a long sales process, but we were able to get that closed. Again, it was a 40-year-old but fully leased office building in suburban Los Angeles. We sold some land that we picked up and a portfolio acquisition.

Michael Carroll: And kind of as we try to always be pruning, our portfolio and kind of moving our capital into better positioned for growth. We had one suburban office building aloft in L. A that we were it was a long sales process, but we were able to get that closed again. It was up 40 year old, but fully leased office building in suburban.

Michael Carroll: L. A we sold some land that we picked up in our portfolio acquisition. So moving all of that capital what I view it as youre kind of consistently trying to move the median of your portfolio up each quarter and I think that's a slow process, but we're doing it and then the way we typically.

Marshall A. Loeb: So moving all that capital, I view it as you're kind of consistently trying to move the median of your portfolio up each quarter. And I think that's a slow process, but we're doing it. And then the way we typically talk is just, or think about it is, where are the market opportunities of late? Sometimes they find you.

Michael Carroll: Talk us just think about it is where the market opportunities of late we've.

Michael Carroll: Sometimes they find you felt like the acquisition market suddenly opened up and we were getting more <unk> than we were historically, so we said, let's buy things that are accretive that are.

Marshall A. Loeb: We felt like the acquisition market suddenly opened up, and we were getting more yeses than we were historically. So we said, let's buy things that are accretive, that are, you know, they've all been just over a year old, so they're very high functioning, in the right part of town, near the consumer. We're excited. Raleigh and Nashville both fit that state capital, large university presence, and technology presence. The topography makes it difficult to build there.

Michael Carroll: <unk> all been just over a year old so they're very high functionality the right part of town near the consumer we're excited Raleigh, and Nashville, both fit that state capital a large university presence technology presents the topography makes it difficult to build there. So hopefully we will keep.

Marshall A. Loeb: Hopefully, we'll keep, we want to grow in both markets. And if the market presents that, usually we go in with an acquisition or two as a lower risk way to learn a market, to kind of learn the rents. And this is probably our fifth or sixth building we've bid on in Raleigh and Nashville and not won. So even losing your offers is a good way to kind of learn the submarkets and get to know the brokerage community.

Michael Carroll: We want to grow in both markets and if the market presents that usually we go in with an acquisition or two is.

Michael Carroll: Lower risk way to learn the market to kind of learn the rats and this is probably our I'm trying to guess the number fifth or sixth building, we've bid on in Raleigh, and Nashville, and not one so even losing your offers is a good way to kind of learn the submarkets in and get to know the brokerage community. So.

Marshall A. Loeb: So if we can find the right land sites in both markets, and I'll be in Nashville this week actually too, we'll turn over a lot of stones and be patient. But we'd like to grow in both markets. The markets we're in, we'd be under allocated, and a little bit like you saw us last year in Las Vegas, where we were able to acquire some assets. We're still light, probably in our allocation to Las Vegas, but we like that market a lot, and we were able to grow and move to self-management and do some other things.

Michael Carroll: If we can find the right land sites in both markets and I'll be in Nashville. This week actually to a wall will turn over a lot of stones and be patient, but we'd like to grow in both markets, there, they're markets, where and that we'd be under allocated in a little bit like you saw us last year in Las Vegas, where we bought were able to.

Michael Carroll: Acquire some assets, we're still light probably in our allocation to Las Vegas, but we like that market a lot and we were able to grow.

Michael Carroll: And moved to self management and do some other things. So that's hopefully the same plan that youll see play out for Raleigh, and Nashville is kind of too rapidly growing markets with a lot of promising dynamics and if we can pull capital whether it's from accretive uses of equity that we raise or sell.

Marshall A. Loeb: So that's hopefully the same plan that you'll see play out for Raleigh and Nashville, two rapidly growing markets with a lot of promising dynamics. And if we can pull capital, whether it's from accretive uses of equity that we raise or selling really from the bottom end of our portfolio, which continues to get better, but there's always something that's the bottom end of the portfolio. So that's, I hope that's helpful. Sorry for the long winded response. No, a great answer.

Michael Carroll: <unk> really from the bottom end of our portfolio, which continues to get better but its theres always something thats. The bottom end of the portfolio. So thats I hope that's helpful. Sorry for the long winded response no great answer thank you.

Marshall A. Loeb: Thank you. You're welcome. Your next question comes from the line of Todd Thomas of. Your line is now open.

Speaker Change: Youre welcome.

Speaker Change: Your next question comes from the line of Todd Thomas of Keybanc. Your line is now open.

Todd Thomas: Hi, Thanks, Marshall I, just wanted to circle back to the.

Marshall A. Loeb: Hi, thanks. Marshall, I just wanted to circle back to the company's capital. Issues, I guess acquisitions specifically, which I think I heard you comment on, you're seeing, http://TheBusinessProfessor.com achieve. Does anything change for the company here? current cost of capital just given the pullback. Stock and Industrial REIT Shares, you know, in the last few months, and then, you know, have you, or would you change your return hurdles at all for new acquisitions? Yeah, I mean, we probably wouldn't change the return hurdles. I mean, because I think if you did that, you probably would.

Todd Thomas: The company's capital deployment initiatives, I guess acquisition, specifically, which I think I heard you comment that pricing youre.

Todd Thomas: You are seeing is in sort of the low to mid 6% range in terms of the cash cap rate that you think you can achieve.

Todd Thomas: Does anything change for the company here as you look at your current cost of capital just given the pullback in your stock in an industrial REIT shares.

Todd Thomas: In the last few months and then have you or would you change your return hurdles at all for new acquisitions is that being contemplated.

Marshall A. Loeb: If it were you and I, I'd say we're really, you're trading down in quality. So we'll try to maintain that long-term growth, and look, if the market allows us, we'll grab it. But we don't want to lower the quality.

Speaker Change: Yeah Yeah.

Speaker Change: I mean, we could probably wouldn't change the return hurdles I mean, just because I think if you did that you probably.

Speaker Change: If it were you and I would say, we're really youre trading you're trading down in quality. So we'll try to maintain that long term growth and look if the market allowed us we'll grab it but we don't want to lower quality, we don't in our stock price today isn't very useful in terms of issuing equity are going to.

Marshall A. Loeb: Our stock price today isn't very useful in terms of issuing equity or going to find acquisitions. But we've said it's also very, very volatile. So debt's available, and equity is available; they're just not at great opportunities. And look, we'll have internal growth.

Speaker Change: Find acquisitions, but it's but we've said it's also very it's been very volatile. So that's available and equity are available. They are just not at great opportunities in and we will have internal growth.

Marshall A. Loeb: And look, if the capital markets weren't available, I'm glad we have internal growth. And where we do get that window, that's where we've tried to be more thoughtful before we had, you know, the luxury of an ATM for a long time. And then Brent and the team layered in a forward ATM late last year.

Speaker Change: And I look at the if the capital markets Werent available I'm glad we have internal growth and where we do get that window, that's where we've tried to be more thoughtful about before we had.

Speaker Change: Three of our ATM for a long time, and then Brent and the team layered in our forward ATM late last year and we've even just all the different alternatives we've talked about.

Marshall A. Loeb: And we've even talked about, you know, we haven't done an overnight offering or a block trade in forever. But we, it's kind of like looking at new markets. I think we should always be aware of it. And we certainly saw where one of our peers did a convertible debt offering. So there's, you just want to know what's on the menu and what kind of matches up.

Speaker Change: We haven't done an overnight offering or a block trade in forever, but.

Speaker Change: It's kind of like looking at new markets I think we should always be aware of it and we certainly saw where one of our peers did a convertible debt offering. So there's just wanted to know what's on the menu and what kind of matches that we'd need to uses first and just kind of see where everything shakes out in the market and and now it's been a pretty V.

Marshall A. Loeb: We need the uses first and just kind of see where everything shakes out in the market and know it's been a pretty volatile market all along the way. Look, we've maintained our guidance in spite of, look, we'll have 100 million fewer starts this year than we had last year. And that's a hit to our development fees that we earn each year. But we think that's the right long-term decision, you know, a casino going bankrupt in San Diego and some things like that that we can kind of weather through.

Speaker Change: I'll have to market all along the way I look we've maintained our guidance in spite of that we will have 100 million less in starts this year than we had last year and thats.

Speaker Change: A hit to our development fees that we earn each year, but we think thats the right long term decision and that's I'm glad we're maintaining our guidance in spite of.

Speaker Change: Perched going bankrupt and San Diego and some things like that that we can kind of weather through that and we'll just see where the windows are in if we need to sit on our hands on acquisitions for a little bit.

Marshall A. Loeb: And we'll just see where the windows are, and if we need to sit on our hands on acquisitions for a little bit, we will, although, and we did that last fall. We pulled away from a handful rather than, I don't want to worry people, we won't run up the line of credit buying assets and just assume we can issue debt later. That's not an attractive option either.

Speaker Change: We will although and we did that last fall, we pulled away from a handful rather than I don't want to worry people, we won't run up the line of credit buying assets and just assume we can issue debt later, that's that's not an attractive option either.

Speaker Change: Okay and then.

Marshall A. Loeb: Okay, and then, um.., to just follow up, from acquisitions was about a dime. That was sort of rough back-of-the-envelope math, but... Can you clarify which act? Correspondent, and Brent, https://www.youtube.com? What amount of a creep?

Speaker Change: If I could just follow up Marshall I think you mentioned that the accretion.

Speaker Change: <unk> from acquisitions was about a dime I don't know if that was sort of rough back of the envelope math, but.

Speaker Change: Can you can you clarify, which acquisitions that comment corresponded to specifically and Brent can you.

Marshall A. Loeb: is embedded in the guidance from this year's ACWA. I'll take the first part, and Brent, I'm not the fool. Yeah, and I did the calculations, so it probably is back of the envelope. We'll take it. But what I was looking back on, the way we did it, was I guess the first acquisition we made, really, probably right at a year ago, was Craig Corporate Center in Las Vegas. So if you're kind of starting with that one, which is really when we saw the acquisition and window opening up, and then we bought about another six buildings. We haven't closed on Raleigh yet, but we are reasonably close to it. Those total a little under 280 million.

Speaker Change: Discuss or.

Speaker Change: Clarify.

Speaker Change: What amount of accretion is embedded in the guidance from this year's acquisition and equity issuance that that's assumed.

Speaker Change: Okay I'll take the first part and Brent before yes, and it's probably I did the calculation. So it probably is back of the envelope or take it but what I was looking back the way we did it was I.

Speaker Change: I guess the first acquisition, we made really probably are right at a year ago was correct corporate center in Las Vegas, So if you're kind of starting with that one which is really when it felt like we saw the acquisition and window opening up and then we bought about another six buildings, we havent closed on Raleigh, yet better.

Speaker Change: A reasonably close on it.

Speaker Change: Those total a little under $280 million and then our math was to take the GAAP yield since that's what we'll report and compare it to the cost.

Marshall A. Loeb: And then our math was to take the gap yield, since that's what we'll report, and compare it to the cost. Basically, our equity cost assigned that quarter when we had closing to match it. So if you take that delta between the gap yields, we earned less the equity investment that we raised at that near-term cost, it adds over our, you know, our latest share count, so that's probably understating it a little bit since our share count has grown over the year, and this is a lot of math to walk you through on the phone, but it adds a dime to recurring FFO, ignoring any, you know, rent bumps and releasing and things like that, and the average age is just a little over one year on those buildings.

Speaker Change: Basically our equity cost assigned that quarter when we when we had closing the match. It. So if you take that delta between the GAAP yields we earn less the equity investment that we raised that near term cost it adds over here.

Speaker Change: Our latest share count, so thats, probably understating it a little bit since our share count has grown over the year and this is a lot of math to walk you through on the phone, but it adds a dime to recurring <unk>, ignoring any rent bumps and re leasing and things like that and the average age is.

Speaker Change: Just a little over one year on those buildings so that.

Marshall A. Loeb: I think what we've been, our strategy has been, look, the development window is there, but it's not going blazing the way it was for a few years where we were really trying to keep up with demand, but the acquisition window is open, so let's go with that, and in terms of accretion, I guess, Brent, I would say, you know, that dime is on a full year run rate, and two of those buildings, Spanish Ridge that we bought in Las Vegas, we bought in first quarter, and Raleigh we haven't closed yet, so those are adding, The two of those up, that's a little over $100 million of the $280 million we won't have on a full year run rate, if that helps, Todd. Yeah, that does.

What we've been our strategy has been look the development window is there, but it's not going blazing the way. It was for a few years. When we were really trying to keep up with demand at.

Speaker Change: The acquisition window is open so let's go with that and in terms of accretion I guess, Brent I would say that.

Speaker Change: Dime is on a full year run rate and two of those buildings Spanish ridge that we bought in Las Vegas, we bought in first quarter and Raleigh, We haven't closed yet so those are adding.

Speaker Change: The two of those up that's a little over 100 million of the $280 million. We don't quite have on US we won't have on a full year run rate if that helps Todd.

Todd Thomas: Yes that does okay. So its last year's all of last year.

Marshall A. Loeb: Okay, so it's it's last year's all of last year's, you know, acquisitions plus, Okay, got it. So yeah, and it's really it felt like to me, maybe I should have said it earlier. It was kind of going back where we first noticed, okay, wait a minute, something's changed in the market. When we say we have the ability to close in about a month, 30 days to 40 days, we're getting yeses from buyers and our batting average in terms of acquisition offers, not that we haven't lost out on a bunch, especially on the portfolio side or the bigger dollars, our batting average got a lot better and we said, okay, this is a new market.

Todd Thomas: Acquisitions, plus plus vanish range plus what's under contract Okay got it.

Todd Thomas: Yeah, and it's really it felt like to me maybe I should have said it earlier it was kind of going back where we first noticed of okay wait a minute something's changed in the market.

Todd Thomas: When we say we have the ability to close in about a month 30 days to 40 days.

Todd Thomas: We're getting yes is from buyers and our batting average in terms of acquisition offers not that we haven't lost out on a bunch.

Todd Thomas: On the portfolio side or the bigger dollars are batting average got a lot better and we said. Okay. This is this is a new market, we weren't able to buy new buildings and kind of the mid to high fives cash and maybe the low to mid sixes on a GAAP basis those would all Ben.

Marshall A. Loeb: We weren't able to buy new buildings in kind of the mid to high fives cash and maybe the low to mid sixes on a gap basis. Those would all have been four yields or below back in early 21.

Todd Thomas: For yields are below.

Todd Thomas: Back in 'twenty, one early 'twenty two.

Speaker Change: Yeah, and just to finish the thought up there Todd agree with what Marshall said in terms of budget, obviously all of that prior acquisitions in the budget of these couple of acquisitions or dialed into our guidance and the only out of $160 million in acquisition guidance Theres only $50 million of that that's not right.

Marshall A. Loeb: Yeah, just to finish the thought up there, Todd, I agree with what Marshall said. In terms of budget, obviously, all the prior acquisitions and the budgeted for these couple acquisitions are dialed into our guidance, and the only, out of our $160 million in acquisition guidance, there's only $50 million of that that's not earmarked. So we've got, we baked in $25 million in the third quarter and $25 million in the fourth quarter, just kind of like this. Okay, that's helpful. Thanks. Your next question comes from the line of Aditi Bawachandran of RBC, if your line is now.

Speaker Change: Either that's not earmarked so we've got we baked in $25 million in the third quarter and $25 million in the fourth quarter just kind of is.

Speaker Change: Acquisition Placeholders, if you will but so again not overly dependent on that so if we can do better than that and that's that.

Speaker Change: Beyond Raleigh, and the other acquisitions so.

Speaker Change: We've got a little bit dialed into the back end of the year, but not a lot. So if we were able to hit some opportunities early in the year that would be accretive to the way we've got it underwritten.

Speaker Change: Okay.

Speaker Change: Helpful. Thank you.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Eddie Bauer children of RBC. Your line is now open.

Speaker Change: Hi, Thank you just a question regarding your comments, so I guess, what exactly I'd be thrilled to compensate for delaying decisions on your book.

Marshall A. Loeb: Hi, thank you. Just a question regarding the tenants. So I guess what exactly is the update that you've talked about, and I guess, are they just running higher capacity through existing properties? Yeah, I think it's more as they gain business, and I think they're trying to, you know, they're making do. They may be crammed into their space, but they're making it work for as long, I won't say as long as they can, but for a little bit longer at least, rather than saying, you know, and it's usually the way it goes.

Speaker Change: Talked about and I guess are those.

Eddie Bauer: Running high possibly through existing properties.

Eddie Bauer: Yeah, I think it's more as they gain business I mentioned that I think theyre trying to they're making do.

Eddie Bauer: May be crammed in their space, but they're making it work for as long as long as they can but for a little bit longer at least rather than saying you know and it's usually the way. It goes is.

Marshall A. Loeb: And a lot of the conversations, you know, the local warehouse manager or people like that are ready. They're saying they need more space, but corporate's putting it on hold for a bit. So I think they make due as best they can and have that pent-up demand for space. And it's really probably gotten stuck at corporate, saying, you know, we're going to wait a little bit longer. So that's really the trend or, and they've been out touring space, have, you know, some have leases in hand, some were working towards letters of intent. It is just.

Eddie Bauer: And a lot of the conversations.

Eddie Bauer: The local warehouse manager or people like that are ready, they're saying they need more space, but corporate is putting that on hold for a bit. So I think they may do as best they can and have that pent up demand for space and it's really probably gets stuck at corporate saying.

Eddie Bauer: We're going to wait a little bit longer so that's really the.

Eddie Bauer: The trend or and they've been out touring space have some have leases in hand, some we're working towards letters of intent. It is just.

Marshall A. Loeb: Sometimes you have prospects that want to get in, you know, the first day of the next month, and sometimes it drags out for 90 days. So that's a little bit where it is, and I think a lot of them are just putting their expansion plans on hold until they feel a little better that they really need this space long-term, and it's not a short-term need that they need this space, and that they're going to lose some business because the economy is going to deteriorate on the back end.

Sometimes you have prospects that want to get in the first day of the next month and sometimes it drags out of 90 days. So that's a little bit where it is and I think a lot of them are just putting their expansion plans on hold until they feel a little better that we really need this space long term and it's not a short term need that we need the space.

Eddie Bauer: We're going to lose some business because the economy is going to deteriorate on the back end, so I think thats, where its they need up and making assumptions a little more sturdy footing on the economy than where people probably feel right now and I think they were feeling in until the March interest rate cut went away and then it sounds like the June interest rate.

Marshall A. Loeb: So I think that's where it's – they need a – and I'm making assumptions a little more sturdy footing on the economy than people probably feel right now. And I think they were feeling it until the March interest rate cut went away, and then it sounds like the June interest rate cut went away, and things like that. I understand. Thanks. You're welcome. Your next question comes from the line of Jason Belcher of Wells Fargo. Good morning.

Scott.

Eddie Bauer: And things like that.

Speaker Change: Understood. Thanks.

Speaker Change: Youre welcome.

Speaker Change: Your next question comes from the line of Jason Belcher with Wells Fargo. Your line is now open.

Jason Belcher: Hi, good morning.

Marshall A. Loeb: Marshall, you mentioned nearshoring and onshoring briefly in your prepared remarks. Just wondering if you could give us an update on what you're seeing there and maybe if you could touch on any leasing activity that you've seen, you know, within your portfolio that's been driven by onshore. I think good morning and a good question that we still see. Strength, Arizona, we're 100% leased there, Phoenix, Tucson, El Paso, it's been the best market, we've been there probably 25 years, I'm looking at Brent, he used to have El Paso for us, and probably the last three years have been the best three years of those 25 years, and really even California, where we've seen some struggles, as people talk about, I've mentioned L.A. and others So I think those continue to be strong; I read a stat the other day that over the last few years, Mexico and into Central America are up 130 basis points, while China is down 250 basis points.

Jason Belcher: Marshall you mentioned near shoring and Onshoring briefly in your prepared remarks.

Jason Belcher: Wondering if you could give us an update on what youre seeing there and maybe if you could touch on any leasing activity that you've seen.

Within your portfolio Thats been driven by onshore near shore.

Marshall A. Loeb: No I think again good morning, and good question now we still see <unk>.

Speaker Change: Strength, where its going I think Arizona, where 100% leased there Phoenix.

Speaker Change: <unk> El Paso, it's been the best market, we've been there probably 25 years I'm looking at Brent used to have El Paso for us and probably the last three years have been the best three years of those 25 years, and really even California, where we've seen some struggles as people talk about I've mentioned.

Speaker Change: And in others and the Bay area, you have had some negative absorption there as well, but San Diego has been stronger at least for us than than L, a or San Francisco and the majority of our product in San Diego and where we're seeing the most strength is really that <unk> Mesa area, which is really right along the <unk>.

Speaker Change: <unk>. So I think those continue to be strong I read a stat. The other day that over the last five years and I think these are long term decisions as a percentage of our imports.

Speaker Change: Mexico and into Central America are up 130 basis points, while China is down 250 basis points and then as I was kind of thinking about that Thats from 2019 to 2023, My my amateur analysis would be post COVID-19.

Marshall A. Loeb: And then as I was kind of thinking about that, that's from 2019 to 2023; my amateur analysis would be post-COVID, that that's when people really got... pushed to come up with a China Plus One manufacturing plan. And so I think it's a long-term trend that we're seeing play out. You certainly see a lot of the chip plants and things like that that we funded.

Speaker Change: That's when people really got.

Speaker Change: Push to come up with a China plus one manufacturing.

Speaker Change: Plan and so I think it's a long term trend that we're seeing play out you certainly see a lot of the <unk>.

Speaker Change: <unk> plants and things like that that we funded so much manufacturing has gone to Dallas, and Phoenix, where we won't get those manufacturers, but we'll pick up the suppliers to that so we feel good long term about that we're going to.

Marshall A. Loeb: You know, so much manufacturing has gone to Dallas and Phoenix, where we won't get those manufacturers, but we'll pick up the suppliers to them. So we feel good long-term about that we're going to, that kind of San Diego through, you know, through Arizona to El Paso have been really strong markets for us and can continue to be. We looked at an acquisition recently, even in Tucson, and were shocked at how aggressive the cap rate was.

Speaker Change: Kind of San Diego's through.

Speaker Change: Through Arizona to El Paso or have been really strong markets for us and can continue to be and we looked at an acquisition recently, even in and Tucson and were shocked at how aggressive the cap rate. We thought we had a good opportunity and it <unk> I don't think its probably has not closed yet, but it quickly surpass the price and we thought we'd see.

Speaker Change: In a market like Tucson.

Speaker Change: That's helpful. Thanks, very much for the update.

Speaker Change: Sure you're welcome.

Speaker Change: Thank you. Your next question comes from the line of Ronald Camden of Morgan Stanley. Your line is now open.

Marshall A. Loeb: We thought we had a good opportunity and it lasted; I don't think it's probably not closed yet, but it quickly surpassed the price we thought we'd see in a market like Tucson. That's helpful, thanks. Thanks very much for the update.

Ronald Kamdem: Hey, just a quick one on the guidance on the same store NOI saw you reiterate it but if you think about sort of the seven 7% in <unk>.

Ronald Kamdem: Is that a decent amount 230 basis points of D. Sal.

Marshall A. Loeb: Sure, you're welcome. Thank you. Your next question comes from the line of Ronald Kamdem of Morgan Stanley. Hey, just a quick one on the guide and...

Ronald Kamdem: I guess asking the demand question. Another way is that are you guys sort of feeling and conservatism is it sort of the demand slow down just a little bit more color on sort of the rest of the year on that same storefront.

Brent W. Wood: I don't know why, it's all you reiterated, but if you think about... guests, is that, are you guys... Yeah, we show, Ronald, we basically show, you know, just based on our lease by lease assumptions, and we roll it all up, but we basically show our same store portfolio, you know, basically kind of just meandering down some through the mid part of the year before kind of picking back up before the end of Again, it's, you know, those are just budgeted assumptions. Obviously, we would hope to, you know, outperform that.

Speaker Change: Yeah, We show, while we basically show just based on our lease by lease assumptions and we roll it all up but we basically show you our same store portfolio.

Speaker Change: Basically kind of just meandering down some through the mid part of the year before kind of picking back up for the end of the year again.

Speaker Change: That's just budgeted assumptions, obviously, we would hope to.

Speaker Change: Outperform that but when you look year over year, we're projecting at least we're budgeting about a 120 basis point or so decline in same store occupancy.

Marshall A. Loeb: But when you look year over year, you know, we're projecting, at least we're budgeting, about a hundred and twenty.., https://www.youtube.com.uk, You know, they're subconsciously or consciously, you know, influenced with just sort of what they see relative to the tenor and the pace at which they're leasing, and so that can ebb and flow a little bit, but we hope that it proves conservative, but that's basically, you know, just have we, as we have it dialed up, and, again, I'd repeat, it's not really being driven by one or two known large move-outs that could sway it a lot one way or the other. It's more granular than that, so, you know, we'll take a quarter of the time.

Speaker Change: Obviously, a project into a solid same store in result, but that lower occupancy is just offsetting some of the prolific Brent increases that we've enjoyed and even first quarter, we were up 58% so still seeing the strength there but.

Speaker Change: It's just the guys.

Speaker Change: In the field there.

Speaker Change: They're constantly constantly influence towards this sort of what they see relative to the tenor and the pace at which they are leasing and so that can ebb and flow a little bit, but we hope that it proves conservative but thats basically.

Speaker Change: Have we as we have it dialed up and again I would repeat is not really being driven by one or two known large move outs that could sway it a lot one way or the other it's more granular than that so yes, we will take a quarter ton mark. So we're still seeing activity and so wed like to think we could beat those but we're pleased with showing.

Marshall A. Loeb: But more so, we're still seeing activity, and so we'd like to think we could beat those, but we're, you know, we're pleased with showing, you think about it, showing 120 or 30 basis points of projected or budgeted decline in same-store occupancy, yet still showing that good of the same-store strength, which, again, I think speaks to the portfolio and the rental rate strength that we've continued to enjoy, just beyond What sort of bake do you want?

Speaker Change: You think about it showing 120 or 30 basis point projected or budgeted decline potentially in same store occupancy yet still showing that good at the same store strength, which again I think speaks to the portfolio and the rental rate strength that we continue to enjoy.

Speaker Change: Just beyond the leasing activity.

Speaker Change: Last year, you did over 8 million square feet, 40% cash spread sorry.

Speaker Change: During the year with $2 million and 40%.

Marshall A. Loeb: You know, I'm pleased that, good morning, that first quarter this year, actually, I think we're a million six or a little north of that a year ago and up to two million. So, I think we'll be similar this year and I'm really not seeing a slowdown in rents. I mean, maybe Mark has a two-part answer.

Speaker Change: What's sort of baked into for the rest of the year in terms of volume.

Speaker Change: Volume and spreads and you could speak high level.

Speaker Change: That's if that's easier.

Speaker Change: Yes.

Speaker Change: Pleased that good morning.

Speaker Change: First quarter of this year actually I think were EMEA and six or a little north of that a year ago and up to $2 million. So I think it will be similar this year and I'm really not seeing a slowdown in rents and then maybe mark is up two part answer I think market rent growth has slowed but I think it's going to pick back up again pretty quickly.

Marshall A. Loeb: I think market rent growth has slowed, but I think it's going to pick back up again pretty quickly, but I don't. I think our release spreads have hung in there. Look, we've been fortunate to have six consecutive quarters where our gap rent growth has been north of 50%, which I never really thought I would't have told you five years ago or whatever number of years ago that was possible. So, I feel pretty good about the leasing volume, and we're making progress on development leasing.

Speaker Change: But I don't think our re leasing spreads have hung in there look we've been fortunate to have six consecutive quarters, where our GAAP rent growth has been north of 50%, which I never really thought I wouldn't have told you five years ago or however, many years ago that was possible so feel pretty good about the leasing volume and we're making.

Speaker Change: Progress on development leasing where about two thirds leased or roughly or moving towards that on what we are delivering this year in our development pipeline and have those prospects. So I think leasing will be similar it's probably vacancies are sticking around as Brent talked about on the occupancy maybe a month or two.

Marshall A. Loeb: We're about two-thirds leased or roughly, or moving towards that on what we're delivering this year in our development pipeline and have those prospects. So, I think leasing will be similar. It's probably vacancies are sticking around, as Brent talked about on the occupancy, maybe a month or two longer than they were at the peak. But, you know, that said, last year was our record for occupancy. So part of our same store challenge this year was, you know, it was great setting the record last year, but it's not so much fun competing against the record for the balance of this year.

Speaker Change: Longer than they were at the peak, but that said last year was.

Speaker Change: Was a record for occupancy so part of our same store challenge this year was.

Speaker Change: It was great was setting the record last year, it's not so much fun competing against a record the balance of this year. So but I think we'll have a certainly a solid year of leasing it's just off a record pace a little bit.

Marshall A. Loeb: So, but I think we'll have a certainly a solid year of leasing. It's just off of record pace a little bit. But the best news maybe of that is when you look at the construction starts, numbers, and things like that, and that in our product type, the shallow bay, there's always historically less availability in it, and that will continue to be the trend. So I think it will tighten when it turns fairly quickly.

Speaker Change: But the best news maybe of that is when you look at the construction starts numbers and things like that and that in our product type the shallow bay.

Speaker Change: There is always historically.

Speaker Change: Yes.

Speaker Change: Availability on it and that we will continue to be the trend. So I think it will tighten when it turns fairly quickly.

Speaker Change: Thanks, so much.

Marshall A. Loeb: Sure, you're welcome. Your next question comes from the line of Jessica Zheng of Green Street. Your line is: Good morning.

Speaker Change: Sure Youre welcome.

Speaker Change: Your next question comes from the line of Jessica Zheng of Green Street. Your line is now open.

Jessica Zheng: Good morning could you please touch on the.

Marshall A. Loeb: Could you please touch on the stop leasing trends in your portfolio? [inaudible] Okay, now, Jessica. Good morning. No, really not. I mean, it's been mainly some small spaces here or there. And in most cases, maybe another way to watch for it, the prospect would usually rather have a direct lease. So we've got to kind of watch our term fees, which are low. So we're not seeing a lot of subleases. We did have, we've got one that I would say is a little bit larger that picked up in Charlotte, but the tenant just did a five-year renewal, and their rents are pretty, I say just, their rents are pretty far below market, and they will participate in the profits if they do sublet that.

Jessica Zheng: Solid leasing trends in your portfolio are you seeing any.

Jessica Zheng:

Jessica Zheng: Alastair.

Jessica Zheng: Okay.

Jessica Zheng: Jessica Good morning now.

Alastair: Really not I mean, it's been mainly some small spaces here or there and and in most cases, maybe another way to watch for that prospect would usually rather than have a direct lease. So it kind of watch our term fees, which are low. So we're not seeing a lot of sub leases. We did have we've got one there.

Alastair: I would say, it's a little bit larger that picked up in Charlotte, but the tenant just.

Alastair: Did a five year renewal and their rents are pretty I'll say just their rents are pretty far below market and we'll participate in the profits if they do sublet that so and pending the least we either participate or capture those rents and the prospect would always rather have a directly so and a lot of cases, especially if there is.

Marshall A. Loeb: So in pending the lease, we either participate or capture those rents, and the prospect would always rather have a direct lease. So in a lot of cases, especially if there's any improvement allowances. So it feels certainly manageable to not be out of any kind of historic norm right now within our portfolio. We've seen it, but we've got it.

Any improvement allowances. So it fills certainly manageable two not out of the historic any kind of historic norm right now within our portfolio, but we've seen it but we've got it it's mainly smaller spaces absent one that I can think of and thankfully that one rents are pretty materially below market.

Marshall A. Loeb: It's mainly smaller spaces, except one that I can think of, and thankfully, that one, rents are pretty materially below market. Great, thank you. You're welcome. Your next question comes from the line of Samir Khanal of Evercore Canada. Sorry, it's Evercore ISI.

Speaker Change: Great. Thank you.

Speaker Change: Youre welcome.

Speaker Change: Your next question comes from the line of Samir Khanal of Evercore, Canada. Your line is now open.

Samir Upadhyay Khanal: Sorry, its evercore ISI.

Marshall A. Loeb: So hey, Marshall, just on this, when I look at your renewal page in the self-... The average retention rate came down quite a bit, it was like mid-55, and you know, go look back at 70. Q of last year, sort of in the 90% and 4Q. Maybe just provide a bit of color.

So Marshall.

Samir Upadhyay Khanal: On this when I look at your renewal page in the supplement.

Samir Upadhyay Khanal: The average retention rate came down quite a bit it was like mid 55%.

Samir Upadhyay Khanal: Look back 70% <unk> of last year sort of in the 90% in <unk>.

Speaker Change: Maybe just provide a bit of color is that just a function of kind of what we've been talking about tenants not committing and.

Marshall A. Loeb: Is that just a function of kind of what we've been talking about? How do you think that? No, it's interesting. Good morning.

Speaker Change: How do you think that retention rate sort of plays out for the year.

Marshall A. Loeb: I'm glad you asked. A few of your peers mentioned retention, and that was one thing that, at least in the near term, I viewed it as good news. Here's my logic, is that if you're building a model on Eastgroup or any of our peers, I'd say 70% to 75% retention is kind of a historic run rate, a normal run rate. Last year, for the year, we were 79%, and that, to me, kind of shows that people are sitting tight. The last time we saw retention rates as high as we had was really during COVID, so I was, I'm encouraged.

Speaker Change: No its interest and good morning.

Speaker Change: Yes, I'm glad you asked that a few of your peers mentioned retention in and that was one.

Speaker Change: At least in the near term I viewed it as good news and here's Here's my logic is that if if you're building a model on eastgroup or probably any of our peers I'd say, 70% to 75% retention is kind of historic run rate our normal run rate.

Speaker Change: Last year, we did for the year, we were 79% and that to me kind of is people are sitting tight the last time, we saw retention rates as high as we had was really during COVID-19. So I was I'm encouraged.

Marshall A. Loeb: You know, look, I wouldn't want to run for the year at 56%. There'd be more expensive TI and leasing commissions and things like that. But the fact that we could get $2 million, kind of, we did more leasing volume than we did a year ago in the first quarter, materially. And that retention rate meant, to me, maybe the market might be loosening up a little bit or maybe, at least initially in the year, people felt better thinking there was going to be a March rate cut or at least June, some things like that.

Speaker Change: Look I wouldn't want to run for the year at 56% there'll be more expensive ti and leasing commissions and things like that but the fact that we could get 2 million kind of we did more leasing volume than we did a year ago in first quarter materially.

Speaker Change: And that retention rate mean to me that maybe the market might be loosening up a little bit or maybe at least initially in the year people felt better thinking there was going to be a march rate cut or at least June some things like that that things feel like they've gotten a little bit worse at the back end of the quarter than initially so.

Marshall A. Loeb: Things feel like they've gotten a little bit worse at the back end of the quarter than initially. So, you know, we'll look at our retention rate over the trailing four quarters to kind of get a more measured response. And that's still on the high end of our range.

Speaker Change: We'll look at our retention rate over a trailing four quarters to kind of get a more measured response and thats still on the high end of our range its probably come down to about 75, or 76%, which is still historically high but when it was at its lowest was during 2021 things.

Marshall A. Loeb: It's probably come down to about 75 or 76%, which is still historically high. But when it was at its lowest was during 2021, things like that, when the market was really booming. So, again, I kind of hope that it doesn't stay at 80%, that people start. Some of that is people moving into new spaces within our parks and things like that.

Speaker Change: Like that when the market was really booming. So again I kind of hope it doesn't stay at 80% that people start some of that is people moving into new spaces within our parks and things like that so I was I am pleased with the quarter and we'll see how the next one shakes out but are really high retention rate is another way of saying people arent make.

Marshall A. Loeb: So I'm pleased with the quarter, and we'll see how the next one shakes out. But a really high retention rate is another way of saying people aren't making leasing decisions. Again, if you get a chance and you want to look on our website, within, I think it's slide 14 roughly, you'll see that renewals, this is a CBRE chart, have run historically high, that they typically are in the mid-20s as a percentage of the leasing, and the last four quarters they've been in the mid-30s, which again is kind of another kind of signal to us that people are taking a So I was happy with the 56%.

Speaker Change: King leasing decisions again, if you get a chance and you want to look on our website, where then I think it's slide 14, roughly youll see that renewables. This is a CVR CBRE chart have run historically high.

Speaker Change: Typically in the mid <unk> as a percentage of the leasing in the last four quarters they've been in the mid Thirty's, which again is kind of another kind of signaled to us that people are taking a wait and see so I was I was happy with the 56% I don't want to do it long term, but a little bit of tenant movement is probably what we need it.

Marshall A. Loeb: I don't want to do it long-term, but a little bit of tenant movement is probably what we needed. And then, if I can just ask one more question, this is more of a, But when I look at your expenses, the property operating expenses for the quarter. They were up, year over year, I guess, how should we think about that serve as sort of a reminder for the balance of the year? Yeah, we're just a reminder; we're predominantly, pretty much everything gets passed through.

Speaker Change: And then if I can just ask one more this is more of a modeling question, but when I look at your expenses the property operating expenses in the quarter.

They were up sequentially and year over year, I guess, how should we think about.

Speaker Change: That that surface.

Speaker Change: The balance of the year.

Speaker Change: Yes, just a reminder, we're predominantly pretty much everything gets passed through so we have seen real estate taxes and insurance go up and so that certainly drives expenses up but.

Brent W. Wood: So we have seen real estate taxes and insurance, you know, go up. So that certainly drives expenses up. But correspondingly with that, we're getting that, you know, reimbursed from tenants. Maybe at a 97%, 98% occupancy, you're getting that percentage back. There was one chart in the supplemental that I think shows the expenses rising 14-15% but the income rising less than that, say 7-8%.

Speaker Change: Correspondingly with that we're getting that.

Speaker Change: Reimbursed from tenants.

Speaker Change: At a 97%, 98% occupancy youre getting that percentage back.

Speaker Change: There was one chart in the supplemental debt I think shows the expenses rising 14% to 15%, but the income rising less than that say, 7%, 8%, but a reminder, that income line is rent and cam. So a very small percent of that line item is obviously base rents not impacted by <unk>.

Brent W. Wood: But a reminder, that income line is rent and CAM. A very small percent of that line item is obviously base rents, not impacted by CAM reimbursements; the CAM portion is. So if we had that income line broken out into two pieces, you would see the CAM reimbursement percentage increase matching up with the expense increase. But, yeah, for modeling purposes, it would have a de minimis impact just because if you want to say expenses are going to increase 8% or 16%, you know, if you're showing a 97% or so occupancy, then you're getting whatever percent that you say there. You're getting that Okay, thank you. Your next question comes from the line of Ki-Bin Kim of Truist. Your line is open.

Speaker Change: Cam reimbursements. The Cam portion is so if we had that income line broken out into two pieces you would see the cam reimbursement percentage increase matching up with the expense increase.

But yes for modeling purposes. It it would have de Minimis impact just because if you want to say expenses are going to increase 8% or 16%.

Speaker Change: Youre, showing a 97% or so occupancy then youre getting whatever percent that you say there you are getting that back the a cam reimbursement.

Speaker Change: Okay. Thank you.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of key bin Kim of Chris. Your line is now open.

Speaker Change: Thanks, just sticking with that last question.

Brent W. Wood: Thanks. I'm just sticking with that last question, you know... Typically, the expense reimbursements don't come back in the same exact quarter. Should we expect a bigger reimbursement rate somewhere down the line this year? No, we, you know, we accrue and match that and adjust on the books to keep that whether you're collecting or not, we accrue it pretty evenly. So I think you'll see that be very consistent through the year, and it has been. It tracks again, if you break cam and reimbursable expenses with reimbursable income up, it matches very closely.

Typically.

Speaker Change: Expense reimbursement don't come back into the same exact quarter.

Speaker Change: Should we expect a bigger ramp.

Speaker Change: <unk> sometime down the line this year.

Speaker Change: No.

Speaker Change: We accrue and match that and adjust on the books to keep that whether you're collecting or not we accrue it pretty evenly.

Speaker Change: So I think you'll see that be very consistent through the year and it has been at it tracks again, if you break camp.

Reimbursable expenses with Reimbursable income up it matches very closely and again.

Marshall A. Loeb: And again, you know, true up-and-billings a year and that type thing, just being on a cruel basis. Ideally, you're keeping that in tandem as you go through the year so that you don't have those big swings. So to that, I would say no. The expense on the property level is really not going to have any impact on the bottom line other than the, you know, very small percent you don't collect due to vacancy.

Speaker Change: True up in billings at year end and that type thing just being on accrual basis. Ideally you are keeping that in tandem as you go through the year. So that you don't have those big swing so.

Speaker Change: So to that I would say no. It would the extent expense on property level is really not going to have any impact on the bottom line other than the <unk>.

Speaker Change: Small percent you don't collect due to vacancy.

Speaker Change: Okay and on your balance sheet is in <unk>.

Marshall A. Loeb: Okay, and on your balance sheet, I mean, it's in great shape, in a very enviable position at three times leverage, that provides you significant dry capital. And, you know, typically, we haven't known Eastgroup to be very active in and kind of large-scale M&A, but just curious about your kind of overall views on your balance sheet, your tri-capital, and how, over time, we should see that shift Good morning, Key Ben.

Speaker Change: Great shape in a very enviable position at three times leverage.

That provides us significant dry capital and typically we haven't known eastgroup to be very active in kind of large scale M&A, but just curious about your kind of overall views on you.

Speaker Change: Your balance sheet, your dry capital and how over time, we should.

Speaker Change: See that change whether that be through acquisitions or development or M&A.

Marshall A. Loeb: You know, look, the way we view it is we're probably driving leverage down lower than our target for a while there, you know, kind of 2017, 18, 19, as we stepped up development, we wanted a little bit stronger balance sheet, and the equity markets were there. Last year, we saw our implied cap rate on our equity and attractive long-term uses of it. And the debt markets have been expensive. So, we've leaned into equity while it was there, and we'll probably continue to do so. And, you know, but pretty flexible just pending, again, kind of which window opens.

Speaker Change: Good morning Keybanc.

Speaker Change: Look we've had.

Speaker Change: We view it as where we've probably driven leverage down lower than our target for a while there kind of 2017 18 19, as we stepped up development, we wanted a little bit stronger balance sheet and the equity markets were there last year, we saw our.

Speaker Change: Implied cap rate on our equity and attractive long term uses of it so in the debt markets have been expensive. So we've leaned into equity wallet was there and we will probably continue to do so.

Speaker Change: But pretty flexible just pending again kind of which window opens I do like the fact, a little bit longer term kind of near term when the interest rates do come down given the strength, we've put Brent and the team have put behind our balance sheet. I think we will be able to add a fair amount of leverage.

Marshall A. Loeb: I do like the fact a little bit longer term or, you know, kind of near term when the interest rates do come down given the strength we've put, Brent and the team have put behind our balance sheet, I think we'll be able to add a fair amount of leverage at hopefully attractive rates at that point in time without needing to go to the equity market. So, the fact that we've been able to lean into equity, I think it'll flip to the other side, but we'll be patient on that. And.

Speaker Change: And hopefully attractive rates at that point in time without needing to go to the equity market. So the fact that we've been able to lean into equity I think it will flip to the other side, but we will be patient on that end.

Marshall A. Loeb: And I don't know, in terms of M&A and things like that, it's harder even on the portfolios. I know we bought the Bay Area portfolio a few years ago, and we look at those things, and again, we'll be patient. There's always... you know, a good portion of what you look at that you like.

Speaker Change: And I don't know in terms of M&A and things like that but it's always it's harder even on the portfolio as I know, we bought the bay area portfolio, a few years ago, and we look at those things and we'll again, we'll be patient there as always.

Speaker Change: And a good portion of what you look at July and then there is another portion of it always feels like that.

Marshall A. Loeb: And then there's another portion that always feels like that would slow down our growth. So maybe we're being too selective, but we'll be patient. And I'm glad we were able to grow the company as rapidly as we have without, you know, we try to give our shareholders a solid and certainly attractive rate of return with a whole lot less risk, I believe, in a handful of ways compared to some of our peers.

Speaker Change: Phil like would slow down our growth so maybe we're being too selective, but we will be.

Speaker Change: <unk> and I'm glad we were able to grow the company as rapidly as we have been without.

Speaker Change: We try to give our shareholders a solid certainly attractive industrial rate of return with a whole lot less risk I believe through a handful of ways compared to some of our peers. So that's that would ideally be our goal unless we saw something that was really attractive and we we needed to move on it but thats.

Marshall A. Loeb: So that would ideally be our goal, unless we saw something that was really attractive and we needed to move on it. But that's, kind of, in your question, that's usually not been the case. Thanks for that. And Brent, just out of curiosity, you guys did a Ford. Well, you should raise equity through a Ford offering. You know, how much more expensive is it to do a Ford versus just an ATM?

Speaker Change: Kind of in your question, that's usually not been the case.

Speaker Change: Thanks for that and Brent just out of curiosity you guys did a ford.

Speaker Change: <unk> equity to afford offering.

Brent W. Wood: You know how much more expensive is it to do a forward versus just the ATM and why afford if you could just raise equity now and.

Brent W. Wood: And why a Ford if you could just raise equity now and, you know, earn, I would assume, a higher, a creative return on your money market account or something like that versus doing a Ford? Yeah, you know, I guess two parts. It's really not that much more expensive. It's very attractive from that standpoint.

Brent W. Wood: I would assume a higher accretive return on your money market account or something like that versus doing a forward.

Speaker Change: Yeah, I guess two parts, it's really not that much more expensive. It is very attractive from that standpoint, we only pay about a point.

Brent W. Wood: We only pay about a point. Now, the forward, the final pricing varies a little bit just based on how long you take it down and dividends paid and interest expense and so forth, but the actual cost of issuing is only about a point the regular way or the forward. The thing we like about forwards, and you've got a good point in this environment, if we had money outstanding on the revolver, which variable rate, say it's somewhere in the low to mid-sixes right now, we wouldn't do FOIA.

Speaker Change: Now the forward the final pricing varies a little bit just based on how long you take it down in dividends paid and interest expense so forth, but the actual cost of issuing is only about a point the regular way or visa the forward.

Speaker Change: We like about <unk> and you've got a good point in this environment. If we had money outstanding on the revolver, which variable rate say, it's somewhere in the low to mid six is right now.

Speaker Change: We wouldn't do forward, we'd do the regular way and immediately pay it down we've not gone so far as to.

Brent W. Wood: We'd do it the regular way and immediately pay it down. We've not gone so far as to... you know, issue and take down a bunch of cash and hold it in a money market and make, you're right, maybe, maybe a very small return there, but ultimately, we don't feel like we're raising the capital to make that spread just on the money market. But the advantage of the forward is it can be sitting out there, and then you don't have the share count counting against you until you take the capital down. To your point, it's not that punitive, or you could even argue it's slightly accretive to do it the other way.

Speaker Change: Issue and take down a bunch of cash and hold it in our money market and make you are right may be it may be.

Speaker Change: A very small return there, but ultimately we don't feel like we're raising the capital to make that make that spreads on the money market but.

The advantage of the forward as it can be sitting out. There then you don't have the share count counting against TNT, you take the capital down and to your point, it's not that punitive or you could even argue slightly accretive to do it the other way but.

Brent W. Wood: But in this environment, I don't think one way versus the other there's not a big difference. We here toward the end of the quarter like to just kind of stockpile it in shares versus just cash. But you certainly could go either way.

Speaker Change: Yeah in this environment I don't think one way versus the other that there's not a big difference and we there toward the end of the quarter like to just kind of stockpiling it in shares versus just cash.

Speaker Change: But you certainly could go certainly could go either way.

Marshall A. Loeb: And again, we'll be flexible with that really more based on what's outstanding on the revolver versus... necessarily stockpiling it on the cash side. Okay, thank you. Sure. Your next question comes from the line of Nick Tillman of Baird. Good morning, maybe starting a little bit with Brent here on just kind of the bad that you guys touched on the three tenants in particular, but I was just curious if those tenants were on the watch list prior.

Speaker Change: And we will again, we will be flexible with that really more based on what's outstanding on the revolver versus.

Speaker Change: Necessarily stockpiling it on the cash side.

Speaker Change: Okay. Thank you.

Speaker Change: Sure.

Speaker Change: Your next question comes from the line of sneak Tillman of Baird. Your line is now open.

Nicholas Patrick Thillman: Hey, good morning, maybe starting a little bit with with Brent here on just kind of the bad debt you guys touched on the three tenants in particular, but was just curious if those tenants were on the watch list prior.

Marshall A. Loeb: That's a fair question. I know that a couple of them were. I'm not sure if the PERTS were. Again, they only had under $100,000 cash outstanding, so I can follow up with you all flying on that specifically. But I don't think they were.

Nicholas Patrick Thillman: Yes.

Speaker Change: That's a fair question.

Speaker Change: Why don't I know that a couple of them more I'm not sure if <unk>.

Brent W. Wood: <unk> was again, they only had 90, they only had under 100000 cash outstanding.

Brent W. Wood: So I can follow up with you offline on that specifically, but I don't think they were it just was more of a sudden they yes.

Brent W. Wood: It just was more of a sudden. If a tenant keeps up with the rent and, unbeknownst to us, suddenly files bankruptcy, which does happen occasionally, you've really got no clarity or lens or idea that that's coming necessarily. It was a bit that way with them. It was a bit more abrupt and not so much just over time. They've always been a problem and have to catch up and go back and catch up.

Brent W. Wood: If the tenant keeps up with the red and Unbeknownst to us suddenly files bankruptcy, which does happen occasionally.

Brent W. Wood: You really got no clear tier lens or idea that thats coming necessarily and it was a bit that way with them. It was a bit more abrupt.

Brent W. Wood: And not so much just the.

Brent W. Wood: Over time, they have always been a problem in catch up and go back and catch up.

Brent W. Wood: So it was a little more happened a little more suddenly with that with them, but again overall the watch list is very healthy and not growing at any unusual pace.

Brent W. Wood: It happened a little more suddenly with them. But again, overall, the watch list is very healthy and is not growing at any unusual pace. That's helpful.

Speaker Change: That's helpful and then maybe Marshall.

Marshall A. Loeb: And then maybe, Marshall, just, you kind of touched on the demand surge in 21 and 22, and kind of occupancy levels today being above historical averages. As we kind of get this more normalized demand, do you see, like, longer-term occupancies within a portfolio getting back to, like, that pre-pandemic level of, say, 95 or 96% so that it slowly will come down over time and maybe normalize around that level?

Marshall A. Loeb: You kind of touched a little bit about the demand surge in 'twenty, one and 'twenty, two and kind of occupancy levels today being.

Marshall A. Loeb: Historical averages as we kind of get this more normalized demand do you see like longer term occupancy within our portfolio of getting back to like that pre pandemic level of say, 95%, 96% of it is slowly it will come down over time, and maybe normalize around that level. So that kind of what you guys are thinking longer term.

Marshall A. Loeb: Is that kind of what you guys are thinking, longer term? You know, it's a good question that we've debated it and that, you know, some of our longer tenured board members would always say 95% is as full as you can get in our type of product, that there's always just some frictional vacancy from tenants moving around. But we've been Thankfully north of 95% for over a decade now and counting. So to me, it kind of says that at some point, the market just changed. And the last 22 and 23 were record years at averaging 98% occupancy. So I don't know that we'll average that high, but it feels like it.

Speaker Change: It's a good question that we've debated it ended.

Speaker Change: Some of our longer tenured board members would always say, 95% is as full as you can get in our type product that theres always just some frictional vacancy from tenants moving around but we've been thankfully north of 95% for over a decade now and counting so to me it kind of said at some point the market has just changed.

Speaker Change: And the last 22% and 23 were record years at averaging 98% occupancy. So I don't know that we'll average that high but it.

Speaker Change: It feels like.

Marshall A. Loeb: You know, 97 is the new 95 that I think will stay that certainly for the near term. Given, I think it's going to take a while with demand. Demand is going to move more quickly than supply can address it. And that's where I think it'll be. You know, a lot of fun there for a little while. That's the optimist in me. So I think we may not stay at 98, but we won't go back to 95.

Speaker Change: <unk> 97, the new 95, I think it will stay that certainly for the near term given I think it's going to take a while with demand and demand is going to move more quickly than supply can address it and thats, where I think a little bit.

Speaker Change: And a lot of fun there for a little while that's the optimist in May. So I think we may we may not stay at 98, but we won't go back to 95, and then I think theres going to be.

Brent W. Wood: And then I think there's gonna be a squeeze until all the private developers can kind of raise capital, get sites tied up, get permits in hand, and start moving again. And we have a number of those in hand already and should be able to move more quickly than our private peers. And then just a quick follow-up to your watch list; two of the three tenants that I mentioned that drove 83%, two were on the watch list coming into the year, and one was not, so one happened within the quarter. And, like I say, really not uncommon either way.

Speaker Change: Squeeze until all the private developers can cannot raise capital get sites tied up get permits in hand, and start moving again and we have a number of those in hand already and should be able to move more quickly than our private peers.

Speaker Change: And then just a quick follow up to your watch list two of the three tenants mentioned that drove 83% two were on the watch list coming into the year and one was not someone happened within the quarter and like I say really not.

Speaker Change: Comment either way.

Brent W. Wood: Thanks for the follow up, Brent. I appreciate it. Your next question comes from the line of Bikram Malhotra of Mizuho. Once again, Vikram, your line is... Hi, can you hear me? Yes, we have you Vikram. So just your first question, you talked about dollar commitments for tenants becoming just very large, and I'm wondering if you can elaborate on that, but also just talk about what your prediction for, you know, market rent growth is in your main market. Good morning.

Speaker Change: Thanks for the follow up front I appreciate it.

Speaker Change: Your next question comes from the line of Vikram Malhotra of Mizuho. Your line is now open.

Speaker Change: Okay.

Vikram Malhotra: Once again the Crum your line is now open.

Vikram Malhotra: Yeah, Hi can you hear me.

Vikram Malhotra: Yes, we have he vikram.

So just my first question.

Vikram Malhotra: You talked about dollar commitments, where tenants, becoming just very large and I'm wondering if you can just elaborate upon that but also just talk about what your prediction for market rent growth is in Europe and European markets.

Marshall A. Loeb: Yeah, I guess the way we've had one of the tenant rent brokers describe it was, you know, real estate decisions used to be a real estate decision. Again, we've had this great run in rents, and even tenant sizes as they use their spaces have grown. Our average tenant size is still in the mid-30s, but that's been up, and we've got, certainly multi-tenant buildings where a single tenant has come along and taken them.

Speaker Change: Yeah. Good morning, Yeah, I guess the way we've had one of the tenant rep brokers describe it was real estate decisions used to be a realistic again.

We've had this great run in rents and even tenant sizes as they use their spaces have grown our average tenant size is still in the mid thirty's.

Speaker Change: But that's been up and we've got <unk>.

Speaker Change: Certainly multi tenant buildings were up single tenant has come along and taken it. So it has moved from a real estate manager decision to a CFO decision.

Marshall A. Loeb: So it's moved from a real estate manager decision to a CFO decision, a good way one of our brokers described it. And I think market rent growth is absent, the LA and Bay Area is still more inflationary probably this year; we'll call it 3% to 4% market rent growth, maybe a little bit better for the shallow bay space because there's so much less availability of it.

Speaker Change: I thought a good way one of our brokers described it.

And I think market rent growth is.

Speaker Change: Absent.

Speaker Change: <unk>.

Speaker Change: And Bay area is still more inflationary probably this year will be in a call it 3% to 4% market rent growth, maybe a little bit better in the shallow bay space because there's so much less availability of it. So we've been saying of market rent growth is maybe call. It three 5% for <unk>.

Marshall A. Loeb: So we've been saying if market rent growth is maybe call it 3.5%, for example, we're maybe 100, 125 basis points north of that. Got it. Just on your comment about acquisition. If this pause or just moderation is a little bit extended, let's say into 2025, you talked about relative to your cost of capital, you're seeing deals in the initial five stabilizing, you know, maybe six is right if I'm wrong, but what's the right, what sort of the risk premium you'd need to see if you had a more protracted normalization or a pause in demand?

Speaker Change: Ample where maybe.

Speaker Change: 100, 125 basis points north of that.

Speaker Change: Oh God.

Got it.

Speaker Change: On your comment on an acquisition.

Speaker Change: If this pause or just moderation is little bit extended lets say into 2005.

Speaker Change: You talked about relative to your cost of capital Youre seeing deals in the in the initial five stabilizing maybe six is correct me if I'm wrong, but what's the right. What's the are there.

Speaker Change: The risk premium you would need to see if you have a more protracted normalization or a pause.

Speaker Change: In demand.

Marshall A. Loeb: Yeah, what we've acquired and I'm trying to, To answer your question, it's been What we've bought have been, all of them have been one-off buildings, so that's where we're seeing the opportunity rather than in a portfolio, and it's been kind of mid-to-upper fives, but a going-in gap yield, so not stabilizing, but gap yields in the low to kind of six-and-a-quarter-ish kind of range, and we'll look at that, and then we'll look at what the mark-to-market is, and there have been, such new buildings that there's not a lot of embedded growth, but in most of them, there's still embedded rent growth. So what we've liked is we're buying new buildings, we take the construction and the leasing risk away and getting attractive yields, and they're buildings we really like for the long term. So if you kind of said, what's some of our checklist, that's it.

Speaker Change: Yes.

Speaker Change: What we've acquired and I'm trying to.

Speaker Change #100: Answer your question, it's been what.

Speaker Change #100: We bought has been all of them have been one off buildings. So that's where we're seeing the opportunity rather than in our portfolio and its been kind of mid to upper fives, but our going in GAAP yield so not stabilizing but GAAP yields.

Speaker Change #100: And our load kind of six and a quarter ish kind of range.

Speaker Change #100: And we will look at that and then we'll look at what the Mark to market is and there have been.

Speaker Change #100: Such new buildings that theres, not a lot of embedded growth, but in most of them. They are still embedded rent growth. So what we've liked his whereabouts and.

Speaker Change #100: Newbuild and you take the construction and the leasing risk away and getting attractive yields and their buildings, we really like for the long term. So if that if you kind of said what some of our checklist that that's it and it's and those have been higher yields compared to the closer to development yields than they've historically.

Marshall A. Loeb: And those have been higher yields compared to, closer to development yields than they've historically been. A couple of years ago, we would say we were developing to a seven in market cap rates for more 3.5 to 3.75. So that's when it really, okay, if that's what the world wants, we're better off being a developer than an acquirer. And right now, it feels like all of a sudden, on one-off, unusual situations, you know, a failed marketing process, someone had tied up a building and couldn't close, it was an over-leveraged owner-user. I say over-leveraged owner-user.

Speaker Change #100: <unk> been a couple of years ago.

Speaker Change #100: We would say we were developing to a seven and market cap rates for three and a half to three and $3 75. So that's when it really okay. If that's what the world wants we're better off being a developer than an acquirer and right now it feels like all of a sudden on one off unusual situations.

Speaker Change #100: Our sales marketing process somewhat tied up a building and couldnt close it was.

Speaker Change #100: Over leveraged owner user I'll say over our leveraged owner user those have been the kind of things, where we stepped in and bought our pension fund that needed liquidity and what we were told they couldn't sell their office buildings. So they needed to close that quarter on a new industrial buildings. So those have been the type of opportunities we feel.

Marshall A. Loeb: Those have been the kind of things where we've stepped in and bought, or a pension fund that needed liquidity, and what we were told they couldn't sell their office buildings, so they needed to close that quarter on a new industrial building. So those have been the type of opportunities we've found, and I don't know how many are out there, but we'll keep turning over stones, and I think interest rates staying higher means we'll probably keep leaning in on that opportunity, and then it'll move away from us, probably in fairly short order, as soon as people can get cheaper debt and work back to a levered IRR that works for them.

Speaker Change #100: Round in and I don't know how many are out there, but we'll keep turning over stones and I think interest rates staying higher mains will we will probably keep leaning in on that opportunity and then it'll it'll move away from us.

Speaker Change #100: And probably in a fairly short order as soon as people can get cheaper debt and work back to a levered IRR that works for them.

Marshall A. Loeb: Got it. Just one quick one if I, one more if I may, just Amazon's known to be... Our CPL demand is percolating into smaller boxes. I apologize, we lost you on that. I heard about Amazon and 3PL, but we lost... I don't know if you're there. We lost you on that.

Got it just one quick one if I can one more if I may just Amazon is known to be.

Speaker Change #100: Okay.

Speaker Change #100: Okay.

Okay.

Speaker Change #100: So.

Speaker Change #100: Okay.

Speaker Change #100: The demand is percolating into smaller box demand.

Speaker Change #100: Sunbelt market.

Vikram Malhotra: Vikram I apologize.

Vikram Malhotra: We lost you on that I heard Amazon and <unk>, but we lost on a fear today or we will execute on that can.

Marshall A. Loeb: Can you hear me okay now? Yes. Yeah, I was just wondering if Amazon's known to be taking, you know, larger boxes, million square footers, this first quarter in multiple markets. I'm wondering if, you know, Amazon specifically, or just, you know, 3PL, can you just comment on that demand percolating down to the smaller box, shallow bay markets? Yeah, no, it's good to see Amazon back in the market, and you're right about what we've read about in Phoenix and in the Inland Empire, taking a number of big boxes and 3PLs, and look, I think they, you know, those are kind of the large boxes to move goods across the country.

Can you hear me Okay now.

Vikram Malhotra: Yes.

Vikram Malhotra: Yeah, I was just wondering Amazon known to be taken larger boxes million square footers. This past quarter in multiple end markets.

Vikram Malhotra: I'm wondering if Amazon, specifically or just <unk>.

Vikram Malhotra: Can you just comment on that demand.

Vikram Malhotra: The smaller bulk shallow bay markets that you're in.

Speaker Change #101: Yeah, it's good to see Amazon back in the market and you're right, what we've read about but in Phoenix, and then inland Empire, taking a number of big boxes in.

Speaker Change #101: And three pls.

Speaker Change #102: Thank <unk>.

Speaker Change #102: Those are kind of the large boxes to move goods across the country.

Marshall A. Loeb: What we like, we like being as near the consumer as we can, you know, almost like a retail location without the visibility, and I like the long-term trend. I think Amazon will build out around those big boxes, and they're our largest customer, but anything that speeds up the way it's been described from when you hit click or when you hang up the phone to get that service person, that delivery, that order, that's where the world's going, so you'll need the big boxes to move things, whether it's from Mexico or Asia throughout the country, and then really you're gonna need that last-mile delivery within Dallas, Phoenix, Atlanta, Orlando, because the traffic's so bad, so I usually think the big boxes kind of, are the early innings, and then they'll build out their network almost like a hub-and-spoke, but that's where we'll really pick up.

Speaker Change #102: We like we like being near that is near the consumers. We can almost like a retail location without the visibility and I like the long term trend I think Amazon will build out around those big boxes, and there are our largest customer but anything that speeds up the way. It has been described.

Speaker Change #102: From when you hit click or when you hang up the phone to get that service first sun that delivery that order, that's where the world's going so youll need the big boxes to move things, whether it's from <unk>.

Speaker Change #102: In Mexico or Asia throughout the country, and then really youre going to need that last mile delivery within Dallas, Phoenix, Atlanta, Orlando, because the traffic so bad so I, usually think the big boxes kind of.

Speaker Change #102: Are the early innings, and then they'll build out their network almost like a hub and spoke but that's what will really pick up and most of them have to some degree, but I still think theres a lot of runway on building out quicker and quicker delivery for people in and probably rationalizing brick and mortar store count and moving to more pending what the item.

Marshall A. Loeb: And most of them have, to some degree, but I still think there's a lot of runway for building out quicker and quicker delivery for people and probably rationalizing the brick-and-mortar store count and moving to more, depending on what the item is, quick delivery.

Speaker Change #102: <unk> quick delivery and we've seen it in the bulky items and I hope it can that.

Marshall A. Loeb: And we've seen it in the bulky items, and I hope that their SKU count will continue to evolve into more and more distribution or business distribution space and a little bit out of brick and mortar too. Thank you. You're welcome. We don't have any questions at this time.

Speaker Change #102: That what their SKU count will continue to evolve into more and more.

Speaker Change #102: Distribution of our business distribution space in a little bit out of brick and mortar too.

Speaker Change #103: Thank you.

Speaker Change #104: Youre welcome.

Speaker Change #105: We don't have any questions at this time presenters. Please continue.

Marshall A. Loeb: Presenters, please. Thank you. Thanks, everyone, for your time and for your interest in Eastgroup. If we didn't get to your question, Brent and I are certainly available post-session if there's any other color you want, and we'll see you.

Speaker Change #106: Thank you thanks, everyone for your time and for your interest in Eastgroup, if we didn't get to your question Brent and I are certainly available.

Speaker Change #107: Sure if theres any other color you want and we will see you Theres a couple of conferences coming up we hope to see with those as well. Thanks. Thank you.

Marshall A. Loeb: There's a couple of conferences coming up. We hope to see you at those as well. Thanks. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now go.

Speaker Change #108: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.