Q2 2024 EastGroup Properties Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Eastgroup properties second quarter 2020 core earnings conference call and webcast at this time.

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I would now like to turn the conference over to Marshall Loeb, President and CEO.

Go ahead.

Marshall A. Loeb: Good morning, and thanks for calling in for our second 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.

Please note that our conference call today will contain financial measures such as P and L. A N 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 FCC 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 Harbor under the Securities Act of 1933.

The Securities Exchange Act of 1934 in the private Securities Litigation Reform Act of 1995.

Forward looking statements in the earnings press release, along with our remarks are made as of today and reflect our current views about the company's plans intentions expectations strategies and prospects based on the information currently available to the company and on assumptions.

We undertake no duty to update such statements.

Mark whether as a result of new information future or actual events or otherwise.

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

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

Thanks, 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.

Our second quarter results demonstrate the quality of the portfolio, we built and the continued let's say you have to see if the industrial market. Some of the results produced includes funds from operations rising eight 5%, excluding voluntary conversions for over a decade, our quarterly <unk> per share has exceeded the <unk> per share.

Are reported in the same quarter prior year truly a long term trend.

Quarter end leasing was 97, 4% with occupancy at 97, 1% average.

Average quarterly occupancy was 97%, which although historically strong is down for the second quarter of 2023.

Quarterly re leasing spreads were solid at 60% gas and 42% cash year to date results were similar at 59% and 41% GAAP and cash respectively.

Cash same store NOI rose five 3% for the quarter and six 5% year to date.

Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to seven 8% of rents down 50 basis points from second quarter 2023.

We view, our geographic and revenue diversity is strategic path to stabilize future earnings regardless of the economic environment.

In summary, we're pleased with our performance year to date and I'm optimistic about the combination of an improving economy with a lack of new supply.

We're focused on value creation via raising rats acquisitions and development that's allowed us to end the quarter over 97% leased and continue pushing rents throughout our portfolio.

Marshall A. Loeb: On the acquisition front, we're excited to enter the Raleigh market with 147 exchange.

He is similar to a number of our markets were attracted to offering economic stability and growth due to the mix of the state capital large educational presence technology companies, which followed the university presence topography constraints for new development and long term population growth.

Our acquisitions will continue to be guided by two criteria wanted to be accretive and secondly, raising the long term growth profile of the portfolio, thus, creating N V as well.

We're continuing to patiently find one off acquisition opportunities in the market.

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

Just on I read through and we're maintaining our 2024 starts forecast of $260 million.

We had some strong leasing wins during the quarter and have solid prospects interest.

On the other side decision, making is still deliberate and prospects are focusing later in the construction process.

Yourself.

The ground today.

Thank you Tom.

That's what our starts were more heavily weighted to the last part of 2024.

And this environment, we're seeing two promising trends.

Marshall A. Loeb: The first thing the decline in industrial starch.

Starts have been materially below 2022 peak levels for seven consecutive quarters with the pass for falling below 50 million square feet.

Assuming reasonably steady demand the market should tighten in 2025, allowing us to continue pushing the rats and create development opportunities.

Brent will now speak to several topics, including assumptions within our updated 2024 guidance, which I'm happy to say contains several improved metrics Napoli.

My belief is when when interest rates ultimately began to fall and election passes <unk> global turmoil settles, then confidence and stability within the business community will rise.

Has that demand improves alcohol is to capitalize earlier than our private peers on development opportunities based on the combination of our team's experience our balance sheet strength existing tenant base and the land and permits we have in hand.

Good morning, our second 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.

Marshall A. Loeb: <unk> per share for the quarter exceeded the midpoint of our guidance range at $2.05 per share compared to $1 89 for the same quarter last year, an increase of eight 5% excluding involuntary conversion gains from a capital perspective, we continue to access the equity market.

During the quarter, we directly issued common shares for gross proceeds of $50 million. Several forward chairs agreements for gross proceeds of $77 million and we have an additional $100 million in forward agreements available for funding when needed.

Collectively the shares in these transactions were initiated at an average price and an average share price of $172.25.

Two are these are minimal this year with 50 million in August.

$20 million in mid December.

In June we renewed our 675 million unsecured credit facilities extending the maturity from July 2025 to July 2028, there were no other material changes to the agreements although capital markets are fluid our balance sheet remains flexible and strong with increasingly healthy finance.

Metrics are unadjusted debt to EBITDA ratio decreased to three eight times and our interest in fixed charge coverage increased to 11 three times those representing all time best for the company.

Looking forward, we forecast <unk> guidance for the third quarter to be in the range of $2.06 to $2 12 per share.

At $8.28.

The $8.38 for the year, our six cent per share increase from our prior guidance.

Those mid points represent increases of seven 2% and seven 7% compared to the prior periods, respectively. Excluding insurance related gain on involuntary conversion claims.

We raised the midpoint for cash same store growth and occupancy from our prior guidance. We increased the estimated capital proceeds raised for the year about 100 million is it or is that a direct result of more property acquisition opportunities. We currently anticipate raising that capital via our ATM program.

In closing we were pleased with our second quarter results and are well positioned entering the latter half of the year.

As we have in both good and uncertain times in the past we were allowed our financial strength the experience of our team and the quality and location of our multi tenant portfolio to lead us into the future now Marshal will make final comments.

Thanks, Brent and closing I'm proud of our quarterly and year to date results and the value. Our team is creating internally we continue to grow earnings while strengthening the balance sheet extra.

Externally the capital markets and the overall environment remain unsteady, which has led to the continued low levels of construction starts in the meantime, we're working to make high occupancy 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 onshore and trends evolving logistics chains, and historically lower shallow bay market vacancies.

We also have a proven management team with a long term public track record our portfolio of 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, we'd now like to open up the call for your questions.

Thank you ladies and gentlemen, we will now begin the question and answer session.

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Once again please note when we only ask one question.

Your first question is from Jeff Spector from Bank of America. Please ask your question.

Great. Good morning, Oh, I guess, if I could focus my question on the acquisition market, which.

It seems to have opened up I guess, what has changed since one queue and again how are you. It sounds like you believe with weather.

Speaker Change: Whether it's past the election or again, maybe after the first cut that things will open further thank you.

Hey, Jeff Good morning, it's Marshal.

A good question, it's it's probably a little more micro.

And then that at least in our case that it felt like first quarter acquisitions, where we're getting pretty competitive we've heard people wanted to bring things to market and seeing it a little bit before before the election and I would still describe it that.

Portfolio and our portfolio being three or four buildings. When you get the dollar number up there it gets awfully competitive and cap rates, we've seen it even re as recently as in the last week or so drop into the fours, where what pushed our guidance raise more this quarter, where more specifics that are kind of one off.

If deals are similar to what you've seen us buy newer buildings existing markets, where we're working our way through due diligence and happy to share as much as we can as soon as we can on those but just we were able to up to secure a couple of bids and similar where newer buildings I think at least one had been under.

Contract fallen out of contract because of financing and we represented a more certain path to closing so though.

There's a couple of times, we were able to find pricing that we liked on acquisitions and that drove the guidance range raise we're still out.

Pitching on some other buildings. So maybe we can increase it later in the year for but we'll be patient and see it and again I hope we closed. These two we will see how due diligence and everything shakes out, but we felt like they were more probable whatnot, given where we are in due diligence and raised our guidance as a follow up to that.

Great. Thank you.

Sure you're welcome.

Yeah.

Thank you. Our next question is from Craig Mailman from Citi. Please ask your question.

Hey, good morning Marshal I just wanted to go back to your comment that you know demand for shallow Bay.

Product is good smaller tenants for me, a little bit more robust and you're continuing to push rents throughout the portfolio could you just give a sense of kind of how much you're able to still push when there's concerns about kind of flattening market rent growth or even declining market rents in some markets.

Speaker Change: Also I think you guys are running slightly ahead of your average occupancy guidance is there anything in the back half of the quarter that you know about that brings you down or is that just.

Kind of a placeholder based on you know on.

Uncertain environment.

Good morning, Craig and thanks up.

Try to touch all those points and Brent.

I mean, that's what I would say is yes.

I guess, a little bit of both we have the embedded growth in our portfolio and you've seen us.

Having been in industrial all pleasantly surprised.

How many quarters in a row, our GAAP re leasing spreads have been north of 50% we're probably.

Six seven quarters in a row, we still have that embedded growth you're right the market rents.

It has slowed certainly.

Spike post COVID-19, they've slowed to where we're maybe.

Solid National report and it was showing 7% to 8% that feels a little high to me they and they did admit those were asking rents not effective rents. So maybe more mid single digits. So that's.

Our embedded growth rate has slowed a little bit, although I think where construction spend for going on two years now we could have a pretty sharp turn hopefully next year given the lag in supply catching up and then in terms of occupancy Youre right. We've we've trended ahead of where our bus.

It has been really about every month. This this year things feel like they've been slowly improving kind of those green shoots kind of month to month. This year still have within our budget kind of some some.

Some dips here and there, but there's no major move outs that are known or any anything like that that would really throw us in terms of you know we've just thankfully don't have those big boxes or anything out of 60 million square feet anyone space here or there that will throw at it it's just a little bit more I hope, it's conservatism by the team but that's.

Where our budget shook out ban him and.

And I am glad we didn't move it by a lot but at least it did move positively. So we're up to 97, one for the year and hopefully we can do a lot we'll see how the how the economy shakes out we can do a little better than that.

And I feel like I already broke the one question rule, so I'm going to break it again.

Can you.

Sorry can you guys just talk about bouncing kind of the use of the forward ATM versus just going directly to the market given.

You guys don't want to kind of speculate on your multiple but.

Italy versus where you guys did the forward versus where the stocks trading today.

That's like 15% on the table. So just the thought there of pulling those two levers.

Yeah, I tried to tell marshal that the whole time, Craig that we were probably leaving that on the table, but I'll jump in and Marshall can fill in the holes, but you know it's obviously at that point, we I mean, we're very pleased to have gained what we have since we went into blackout, but we were $1 70, a share at June 30. So.

Certainly the news about potential rate cuts and all of that got more positive incrementally quicker more positive post quarter end, but you know as a reminder, our revolver is still running six to six in the quarter on an interest rate variable interest rate and we just we've had some great acquisition opportunities the team and we continue to find good.

Opportunities to invest capital. So we were trying to derisk that a little bit with the board and taking some of that down as a reminder, just a couple of weeks after quarter close we always know we have our dividend payment coming which is in the mid 60 million range. So theyre looking staring at a low six interest rate versus.

Kind of stockpiling or putting taking some risk off the table. Yeah. We were pleased to do it you just you make a decision at that time and if you like it you roll with it and look I hope that we issue something you know in the next coming days at 190, and we look back and we say why don't you do it at 190 when you could have 200, so it is kind of like and dislike.

401, K you would you would like to always invest right at the at the peak, but you're really over time. When you were issuing equity like we've been you're you're to some extent you're always looking at the dynamics of it but you are.

You're averaging your way and to some extent and so will blend some of that in the third quarter hopefully if the price holds up but you know you're evaluating in the moment and it it was attractive and made sense, then and we like having the forward component. It does allow us to take some risk off the table you know certain things could have gone another way and then maybe youre looking.

Speaker Change: And yet you were down 15% and you're glad you have it so a lot of that goes into the equation, but as we always do you do it in bite size pieces and so you know, we're not making we didn't make any big bets or anything else, it's pretty normal course of business in terms of just getting capital together.

Perfect. Thank you.

Yep Okay.

Yeah.

So what are your next question is from Alexandra Goldberg from Piper Sandler. Please ask a question.

Hey, good morning.

We'll stick to the one question rule.

So if we look at.

You know the sort of softness and tenants that you guys spoke about six to 12 months ago, and then now nothing's really changed in the economy jobs are still pretty good.

Economy is humming along.

Interest rates, everyone expected generically year, and that's still the case. So it's not like we suddenly have lower interest rates, it's not like the election has gotten more certain and it's not like the global macro has improved.

So in your view, what cause tenants to sort of slow down.

Late last year earlier this year versus now picking back up given when you look at what's going on and nothing has really changed I mean, obviously, it's good to hear Youre seeing increased demand.

Potential for further improvement in the back half of this year, but from a tenant perspective.

It doesn't really seem to be anything different. So can you just sort of parse through that.

Yeah. Good morning, Alex I'll, I'll I'll try and again, it's more theory, what I would say is you know maybe if you. If you went back a year ago, we really felt like development leasing it was probably the second half of third quarter and a lot and at the end of the year. It felt like leasing decisions were noticeably slowing.

Speaker Change: And I wouldn't say no and kind of end of this year as Rob mentioned earlier, it's improving it's not gotten dramatically better, but its better and heading in the right direction. So it's not dramatically better and then maybe a year ago. I think people were still you know I don't hear as much about a hard landing everybody seems.

To think it's a soft landing and interest rates, even though maybe every quarter on interest rate cut gets kicked down the road eventually will get there people seem to think it's always 90 days away I. Just don't know 90 days from when and I think at some point people have put off their expansion plans.

And you just kind of get used to the new norm and so maybe they were waiting for the other shoe to drop late last year and now we're rolling into August next week and people are starting to go right. We're operating in this environment, where we're at.

<unk> used the political chaos and used to interest rates being about to drop sometime in the next few months and people are just starting to feel like okay. We need to wait where our sales are still there we need to make decisions and we need to expand our space in our make a decision and that's what we're saying in that.

I also think the other thing that helps us as I mentioned earlier, we're going on two years now of <unk>.

Lower supply I mean, a lot has delivered certainly to the market, but on the back end the construction pipelines alright.

Today in our markets, probably 70% to 80% of what they held at the peak. So theres just no inventory coming in it will take a while for that inventory to get there I don't know that that's hit tenants, yet, but that will be a reality as the supply gets taken off the shelves theres not theres not going to be much restocking the shelves for awhile.

Okay.

Operator.

Yes. Thank you. Our next question is from John Kim from BMO capital markets. Please ask your question.

Thank you I realize EPS is not a top 10 tenant of yours they might be in your portfolio overall wanted to ask about that but.

Specifically.

To the extent that you paid attention to their results yesterday I'm not really asking you to comment on their results, but I was wondering if you thought that.

It could be reflective of maybe some other tenants of yours as far as you know struggling with profitability high labor costs and if this is in any.

This is of any concern with you as far as the leasing.

Leasing demand.

Sure I mean, we watched it and if you wish.

Again, that's why I say the economy is doing better and certainly not.

An expert.

A real insight on EPS versus the you know we read what's public like everybody else.

I would say you know I think you know it.

Speaker Change: It's been a tough environment with labor and.

I'll say insurance costs for businesses utility cost everything up so I've said I'll felt for our tenants at times with rents up labor cost up and utility cost up it's hard to get inflation in line.

Does feel like the economy is improving and look that's why.

As we kind of mentioned in our prepared remarks, I'm glad our top 10 are under 8% because it.

I like that diversity cause even large companies.

Have issues during the times when interest rates have been high for this long and debts are rolling to higher levels and things like that so we like the tenant diversity and it does feel like things are getting better although our bad debts run ahead of where we thought it would be year to date on what we budget and we still got about we keep bumping our reserve.

In our watch list and things like that it'll feel better when the economy is on a little firmer footing, so yeah, I hate that for them and.

I am appreciative of the geographic and tenant diversity, we've got.

As the U P S a major tenant of yours or.

They're not a major tenant I don't know exactly what percentage. They are I don't even think there top 20, which would put them less than 4% of our revenue.

It's not a name that our team has really brought up but.

They've been a tenant in the past and again they are not a major tenant side of our 13% to 1400 tenants.

We likely have a space or two with them, but theyre not.

Any large scale, we have fedex, but not as much UBS.

Okay.

I appreciate it thank you.

Sure welcome.

Yeah.

Thank you. Our next question is from Todd Thomas from Keybanc Capital markets. Please ask your question.

Yeah, Hi, good morning, I, just wanted to go back to investments and capital raising activity, where there has been a lot of uncertainty and volatility in the capital markets.

<unk> talked a little bit about.

The issuance in the quarter, both on the regular ATM and the forward.

Relative to where the stocks trading today at almost $190 how much does that drive your thought process on capital deployment and does this.

Provide you with a window to be more aggressive and afford you an ability to maybe change your underwriting threshold to little bit on on new acquisitions and also maybe new starts later in the year and into 25 yeah.

Hey, Todd Good morning, its marshal good question Ann.

For right or wrong, I've always tried to decouple those a little bit certainly as we're bidding.

We don't if it were the other way around we don't want to run off our line of credit and not have that capital. So we will kind of as Brent mentioned as we got towards the end of the quarter. We knew we were running into a blackout.

And we were.

Couple of acquisitions that I mentioned earlier that we were awarded a couple of more things that we were that we're pursuing and still pursuing sama with them a $50 million mortgage maturing in August it felt like Okay. We know we've got uses NR.

Equity cost was right you know kind of in the ZIP code of N. A V which was around $1 70, a share at least last 170 171 consensus.

So that that felt like a green light today is we certainly like it a lot better at 190 <unk>.

But I like keeping a disciplined on our acquisitions and really I know you don't want to buy something you regret later, just because your equity cost was low at the moment, it really really well.

It's about bubbles up from the field. So the guys that are responsible for operating it.

Purposely have never had a chief investment officer, so that really what you buy and Brett and I were both in the regionals at one point.

You kind of need to live with so we like that discipline that lets the only buy things, we really like long term and that are going to create N. A V for us long term and on starts we've always said too again driven by the field as fast as your last building leased up we'll all go to the next one as long as the.

World's not shutting down for COVID-19 or something unusual circumstances and things like that so we will typically follow the field and as leasing goes on development leasing will go as fast and we know the way to <unk>.

The phase three issue isn't to start phase four or anything like that so it's a like our model for our simplicity.

Speaker Change: Okay. Thank you.

Sure Youre welcome.

Thank you. Your next question is from Rich Anderson from Wedbush. Please ask your question.

Good morning, and I guess, apparently the mailman always rings twice I'll stick to one question myself.

So on the same store guidance, just up a hair 10 basis points and I'm curious about that.

Your system, so so sophisticated that it spit it out at 10% a 10 basis point increase from last quarter.

And if so.

As you know kudos, but or is it or is the is it really a more of an art than science, meaning you wanted to sort of sending a signal that things are getting better you don't really necessarily see an increase in your same store growth profile, but you. You also felt like it would send the right signal to it just nudge.

It up a little I'm just curious how you came to a 10%.

Very subtle increased your same store outlook. Thanks.

Speaker Change: Rich thanks, it's.

We really would say it's more we rely really more just straight mathematical meaning it just from the field. Obviously at this point you've got six months of actual then you plug in the assumptions at the other and it bubbles up from the other six months you combine it.

It did happen to result in that 10 basis points, but but to your point it really fits with our narrative and that we are seeing you know that continual steady slight better improvement we've done better first quarter, we beat our midpoint of same store guidance by 50 basis points from what we had originally projected.

This quarter, we were pleased to beat by 40 basis points.

We pretty much had been maintaining the back end of the year as we go pretty pretty steady without a lot of movement, so where you've seen that midpoint move has been more picking up what we actually accomplished to the positive versus building it and so we're hopeful that we can continue to pick that up.

Speaker Change: If the market allows the guys execute.

That we can pick up additional growth through the back end of the year and I would just point out in our last six months were projecting a little lower occupancy than say a year ago, but we were running the bar that we're comparing against for the last six months of last year was 98, 1% and were project in the back half of this year following.

We're around 97, so it's a it's just a high bar so.

We've been able to do better than we've been projecting and pick up some of some of those little bits to the positive but it really when you look at our guidance table pretty much. We say here are the ingredients that that produces our midpoint of guidance and from there you can toggle either way, but we do like that our occupancies up slightly the same stores up.

And I think that fits with what we're feeling you know as far as our momentum as well.

Okay fair enough thanks very much.

Thanks Rich.

Thank you. Our next question is from Michael Carroll from RBC. Please ask your question.

Hi, Thanks, I just wanted to touch on your development start guidance I know Marshall you highlighted earlier in the call that you think that your starts will be more backend weighted this year I guess, what's what are you really waiting for on those I mean do you need to see leasing activity within your current portfolio to break ground on those projects.

And if that doesn't occur as when.

When do you expect is there a chance that some of these starts kind of get pushed out a quarter or so into 2025.

Yeah. Good morning, Yeah, a little both and that typically I would say, it's when the last phase gets pretty well leased we will start the next I mean, that's that's kind of our bread and butter given the amount of supply that really kind of hit the market in 'twenty. Three there is a few <unk>.

That's like Austin like Phoenix for example, and and even Greenville, South Carolina, where we're where we're ready to getting close or ready to start that next building its really waiting for some of our competition to fill up and kind of create that entry point on where they stand. So we do look at that but we've probably looked at a little more.

Of late given the amount of supply.

So there's and then in terms of our $260 million and starts I would say kind of traditionally if you ask our field that number is.

100 million more than we're telling the street and I loved their optimism over that.

Dress bran out of how do we find that at the beginning of each year, and then theres, usually a little bit of give and take of all right. What is it and when does it start and then and then sometimes it can get delayed.

It seems like getting permits and approval takes longer and longer in each of the cities oriented so sometimes.

Usually not that they go away. It just can make one slip from one quarter to the next and things like that so we feel pretty good about our $260 million in starts the field is higher than that and that's usually been the case and we'll we'll go as fast as our leasing goes or as fast as kind of the I won't say the market.

But maybe the submarket leasing as well.

Which area are all center, which area of Phoenix and in what type of supply in that thankfully, it's usually been big box supply that doesn't.

Some we can sneak another phase in here and there.

Thank you. Your next question is from Nick <unk> from Baird. Please ask your question.

Hey, good morning, guys, maybe touching a little bit on our leasing activity and lease economics relative to your peers, a little bit stronger here in <unk> I guess any noteworthy trends that you're seeing in your markets or just like from tenant behavior over the last 90 days and seem a little bit more positive on that and then Brad maybe just on development lease up assumptions for the second half of.

The year, what kind of baked in where it's speculative lease up in the second half that'd be helpful. Thank you.

Okay.

In the first half that's no. Good morning, the first half and that it does feel like again things, we got some nice wins within development leasing and then even with them some of our portfolio leasing that it still feels like people are taking their time in terms of development leasing one of the guys recently I think there's so many options.

At the frenzy, we were signing leases while you are still fairly early under construction and their comment to me was now you really need to have the building about finished and painted the tenant rep brokers don't have to take the risk that the space gets delayed today, but they needed to take maybe in 'twenty. Two so they are waiting on.

Only looking looking at finished buildings and things like that so the economics are still pretty positive positive rent growth I would say the one.

Really markets that are an anomaly for us if you.

Reading through the brokerage reports any market.

To the East of California, you would see positive absorption.

Certainly every year, most every quarter going back years, and it's just a matter of how much did supply and get out ahead of absorption, but then supply shut off so the market's working its way to equilibrium.

The markets really that have been historically some of our best markets would be L, a and San Francisco until.

Materially lesser extent, San Diego, but they've actually had negative absorption for the last.

Five to six quarters. So that's.

We're waiting for that to stabilize those are the markets where rents are.

Speaker Change: I had a great run up but are certainly coming back now and they are unlike our other markets and that they do have negative net absorption where every other market has positive net absorption is just a matter of how much supply is hitting and clearing the market in any given quarter there.

Yes, just following up on the on the development lease up assumptions, we have we've seen our lease up period kind of get really tight, but then widen back out to more traditional 12 month lease up time.

Frankly, we've been pretty conservative with our leasing assumptions in the development portfolio, we have very little and I continue exact number we have very little in terms of speculative NOI baked into the back half of the year in terms of contribution to the numbers or anything there could be incrementally positive in terms of.

You know as you get to this point in the year. The time, you sign leases get to the build out done for the tenants and get them occupying.

As you know theres not a lot of time left for them to contribute but.

So there's not a lot baked in very little in terms of <unk> impact.

For the back half of the year for the existing leases I would say that's what we budgeted not our goal. It's we tend to be again, a little bit conservative with the one thing that can slip in your budget more than anything is if you get real aggressive with the lease up and the development that starts going away from you.

It gets hard to catch back up out in front of that so history has told us to take a pretty conservative approach, even when you sign leases as Marshall said earlier windup.

Maybe it takes 30 or 60 days longer to get the build out and gets turned it in so there is not much of anything in terms of contribution baked into the back half of the year in terms of of the actual NOI impact.

Okay.

Well thanks, everybody.

Yes.

Yeah.

Okay.

Your next question is from Mike Mueller from <unk>.

J P. Morgan please ask your question.

Yeah, Hi.

All of your completed developments that were in lease up as of June 30 were in Florida, Texas, but if you look at what's under construction. The mix also includes it looks like Georgia, North Carolina, and Colorado, I guess as you're thinking out to what you could start in 2025.

Do you think this starts could be more geographically diverse or do you think there'll be more concentrated like what you've recently completed.

Good morning, I think we'll certainly have a lot.

Like Texas, and Florida and.

The good news about those are such big states in such diverse economies you know when you kind of run from Orlando, Tampa or so different our Jacksonville in Miami, and then, Texas, Dallas, Houston, Austin, San Antonio and El Paso, So different so we'll remain active and kind of monitor our portfolio allocation to those.

Markets, but yes next.

Next year and really maybe maybe even late this year, but probably next year Greenville, South Carolina, where end development in Colorado.

No.

Timing in Phoenix, we've got.

Good land site in Mesa near the airport down there that will break ground, probably late this year or first quarter next year. So I think well, we like the geographic mix long term and then and then really tired and it maybe the acquisition question earlier kind of Argos.

<unk> is to ultimately own well located.

Shallow bay.

Multi tenant industrial buildings, and sometimes the market seems to open the window better for acquisitions than development and will really toggle back and forth or even value add between where the risk return looks attractive I think next year, if interest rates do come down in the economy picks up.

I've been waiting for the acquisition window to slam shot and it probably will and won't be back to being a developer again and cap rates will fall a good bet.

But we should have a good kind of geographic mix and we will go where we can find land sites that make sense within our markets, we'd like to develop in Nashville, and Raleigh, a couple of new markets for us. So we're looking at it sites in those as well.

Got it okay. Thank you.

Sure. Thanks, Mike.

Thank you. Our next question is from Brendan Lynch from Barclays. Please ask your question.

Great. Thanks for taking my question.

Mentioned earlier in the call that there is no investment officer, so it sounds like acquisitions and.

Operations are managed by the same team on the ground. If you could just walk through what informs that structure that philosophy, a better arrangement.

Okay sure good good question, yes.

Kind of always done it that way and I've worked at REIT, and there's pros and cons, obviously to every structure.

We've been structured as you know.

If you had Texas for example.

Every renewal new lease acquisition development, you're responsible for so it's really not so much an assembly line and really the thoughts are you're living in Phoenix or Youre living in Dallas, Orlando, Youll know that market better than someone from corporate can and.

And that you really are responsible.

I enjoyed it I was in our Western region I enjoyed it that you can go find things acquire them and see it all the way from eight eight is easy to see that see it through to fruition and I'd like that and then the only negative I have seen in every structure has its pros and cons, sometimes when you have a chief investment officer and an.

<unk> person.

Usually the push and pull as the investment officer as underwriting rents that are higher than the operations person thinks they can get and things like that so you'll have a little better you can have tension there.

We kind of like Hey, it's your area and you can grow it as fast as you can find opportunities there and and then you also know our dispositions of.

Speaker Change: Well typically say if you got a call and a tenant went bankrupt what building do not want to.

Have that call from and that really starts to set our dispositions kind of batting order as well so.

Admittedly a different model than our peers, but it's worked well for us.

I'll put words in brents mouth too.

Since we were both brand had Texas I had the western region, I I love that job, where you're kind of responsible for everything and you got to touch all the real estate that was in your area and come up with a new ideas.

Yeah, I would just add to that Brendan I think it's a good point and as Mark said does set us apart a little bit, but we are very vertical organization, a very team oriented and you you're basically they all built ourselves quote you get to you get to eat some of the growth you get to pick the groceries and eat and you have to eat what you Cook sort of thing as you bring it in but you know obviously the guys in the field still have an approval.

Speaker Change: Process, we have an internal investment committee, depending on size of board level investment Committee. So it's obviously some approvals, but but you know if if marshal has a question about what's happening in Texas. He called it the the regional head there and he's got one point of contact and that got it.

Our Lady has to know the answer so I think it's really we're fortunate to be a size of an organization, where it can still do that and it I think it helps our culture a lot as well.

Great. Thank you that's helpful color.

Youre welcome.

Your next question is from Samir Khanal Evercore ISI. Please ask your question.

Hey, Marshall good morning.

Maybe you can provide some color on supply and the pace of new construction starts and some of your major markets reason I ask is we thought we were sort of calculating.

So one broker report where the patient starts were up in <unk> over <unk> at the national level.

I'm, just wondering what you're kind of you're seeing in the sunbelt markets that you've identified some of these stronger margins as Florida Austin.

Just give us an idea of kind of what you're saying.

Yeah, No I think.

If I am picturing the same report good morning.

Speaker Change: I.

I think I remember the report that you all put out that and even asking one of the other brokerage peers about the numbers.

We were seeing for second quarter, and maybe I'm doing this from memory I'll say we've got.

If any investors or any other listeners I think that's just had made some notes page 13 of our investor presentation. It's one of the brokerage firms start so they were up a little bit in second quarter from first quarter, but by their calculations. We've been we've probably gone from a peak in late 'twenty two of about 100.

20 million square feet nationally to.

Speaker Change: Now we've been below 50 million square feet for the last four consecutive quarters, and if I were going to gas.

With emphasis on gas I don't think we'll get over 50 million this quarter, the other metric and speaking with them.

Speaker Change: Usually build to suits and maybe that's the lack of starts are kind of in the teens call. It mid teens as a percentage of starch. They did it peaked up and the kind of 25 I'm trying to remember that number 25 or 28%. So there were more build to suits started in second quarter and that pushed the number up a little bit more but.

It was probably large larger build to suit.

<unk> driving that so we still see supply really low nationally.

It's typically been big box that the two markets that we're in.

In that have had more supply and they've got the growth or Austin, and Phoenix, where we would say usually it's there's a lot of supply in Dallas, but in looking at Dallas. For example, the peak there was about 70 million into our little north of $70 million in the construction pipeline and reading through some of the reports its down about 80.

Percent to 14 million square feet and a lot of that given what lands available that.

No Dallas, specifically, but are using it as an example, it's gotten further and further out so it's big boxes and given this last run in supply it's getting pushed further and further out like in Charlotte, where you just get further out in a row and county and things like that so we're not.

Speaker Change: Absent Phoenix and Austin, we felt good about supply and that is clearing the markets and those in and we're really kind of watching each submarket in those cities because the great news is there's a lot of positive absorption of a lot of economic growth in Phoenix and Austin, So it'll work its way through without much behind it.

I hope that helps and I did notice your supply numbers were a little bit more than cbre's and thats really the conversation we had with them of what they were saying.

No that helps marshal our thanks for the color.

Speaker Change: Sure Youre welcome.

Thank you. Our next question is from Vincent de Boning Green Street. Please ask your question.

Hi, good morning.

Are you seeing increased competition from new players for shallow Bay acquisitions, we've heard about more private funds that are now targeting this strategy just given some of the strength and fundamentals. So curious what you're seeing on the ground.

Speaker Change: And also just wanted to follow up on a cap rate comment you made earlier about cap rates starting to creep back into before so just wanted to confirm on that comment specifically whether that.

Representative of a building at market rents or does that building with a large lease mark to market.

Yes, good morning Vance.

<unk> seen more competition and again I think.

Acquisition market is probably of all the things we kind of track can move the most rapidly with the quickest.

Speaker Change: On a one off basis.

We compete fairly well and we've been able to buy things, where it's either fallen out of contract or something someone needs a quick closing and where a certain path I mean, that's where the forward contract.

Foreign ATM has helped us out to have that we can point someone and say we have this dry powder, where certainty of closing we can close and probably a little over a month type thing between due diligence to closing.

Where we've seen more competition as if the dollar size of the investment grows.

There are more funds that have been raised I don't think last mile kind of shallow bay as though it's hard to be public and have well kept secrets I guess, we've kitted kind of during the Corona already have.

Speaker Change: 15 page press release, and a 25 page supplement theres not many secrets within that that development at seven and cap rates in the threes works pretty well.

So there is more competition out there and in the fours as we were underwriting it.

Those would be existing in place NOI is in the fours they were little bit larger portfolios. Some things we were looking at pursuing and I say larger it wasn't a 10 building portfolio. So much as three fours and fives within our markets and.

And kind of a variety of I guess as I say, Walt or weighted average lease term. So it wasn't all rolling next year, but you had a little bit of time in and that was a little bit.

I guess cold water to us or maybe we're better off are our opportunities are probably going to be better off one off acquisitions that when the dollar size gets up there.

It certainly seems to draw more attention in the and the cap rates get compressed.

Thank you that's really helpful color.

Youre welcome.

Okay.

Thank you. Your next question is from Ronald Camden.

Morgan Stanley. Please ask your question.

Hey, Good morning, guys to me on for Ronald just wanted to get back to some of the comments on equity issuance and how it looks like you are and perhaps some of that debt in the back half of this year with equity issuance.

Looking forward to 'twenty five.

Yes, it looks like there are some debt maturities that come up.

Should we sort of take that that commentary around paying off debt with equity issuance kind of play it forward or how are you guys thinking about that and then just where do you guys see leverage.

Ticking down to you.

That's continuing just to get pay down with equity here.

Speaker Change: Yeah I appreciate the question and I would just say it's been more just a byproduct of the environment than any goal.

We haven't necessarily said, hey, let's get our debt to EBITDA is to sub four into the mid threes, which where we are and even headed lower than that it's just been a component of continually evaluating our most attractively priced source of capital where we can create the most long term value for the shareholder and that's been equity we are seeing interest rates.

Back up some.

Our 10 year potential 10 year cost of money is probably receded 60, or so basis points from its peak and is headed in the right direction I would say it still has a bit of a ways to go before we would view it as an attractive maybe alternative or comparative alternative to <unk>.

Equity at the moment, but we're continually watching it so.

If you asked me to project now I would say, yes, it, especially in the first half of 'twenty five I would think that would be a little continue again hope to price.

All subject to the equity price hanging in there for us, but I would think that it will continue the first half, but if rates continue to come down. The good news is thinking glass half full long term if our team in the field continue to find investment opportunities. If we can Reaccelerate for example development pipeline next year, we haven't.

Emits runway ability to add debt.

Obviously with the balance sheet, it's incredibly flexible and low levers lowest leverage we've had in the history of the company, but that won't be just predicated in where we are in the moment. So you know over the past.

Two years Marshal Stacy and I've had more daily conversations about.

Financing and best sources than we probably had in the four years prior to that when you're trading at a nice large premium to niv and interest rates are in threes, you're just a matter of just kind of running some known which bucket do you want to dip into.

It's been much more.

Cash management and daily intensive and a valuable a lot of evaluation, but so yes to summarize I think it would be safe to assume into early 'twenty five I would expect that's probably look more toward equity, but frankly look forward to having another good viable alternative in terms of debt and its headed in the right direction.

Hopefully the economy is strong and it's headed there for good reason and then we can tap into it when it looks more attractive.

Alright, Thank you guys.

Yes.

Thank you. Our next question is from Blaine Heck from Wells Fargo. Please ask your question.

Great. Thanks, Good morning, guys just to follow up on the leasing metrics spreads improved during the quarter, which was good to see but it did look like.

<unk> second quarter rent spreads came in lower than they were at your June NAREIT update when they were 49% quarter to date on a cash basis.

Potentially indicating that leasing in the back half of the second quarter came with lower spreads can you just comment on whether that was kind of a mix issue or you think maybe we should expect to see some moderation from the peak rent spread levels that <unk> seen recently.

Hey, good morning, Blaine, It's marshal now good good catch and.

A couple of thoughts on volume I will touch on the spreads and then volume.

It was more of a mix than an indication of the market that one of the larger leases that happened kind of post arne hitting.

Heading into NAREIT update and ended the quarter was we have one building with with one tenant left here in Jackson, Mississippi. So we got that renewal done it was positive, but it's probably on a GAAP basis about half our run rate.

Which again, that's that's and we will put we're putting that property on the market. So that will take Jackson off our math that will still be our headquarters, but in terms of we like moving our capital Tau, Austin, and Raleigh, and Nashville, Phoenix and moving it out of Jackson, So as we kind of manage our portfolio.

And that was one that given the size of that lease and just the timing of all within one quarter brought us back a little bit, but I'm glad we got that renewal done and that will position us well to take that property in the market and if we can close it a little bit later this year that was our bump and dispositions guidance with <unk>.

A couple of assets in Jackson earlier in the year. This last one and we'll just kind of I think we owe it to our shareholders to kind of always be pruning our portfolio from the bottom best we can and then on the leasing happy though as we were kind of looking through some of the numbers are.

This is more year to date, we've signed about 11% more square feet year to date than we did last year, Although we said things that slowed down. It's it's actually maybe it feels that way, but we've signed about 11% more square feet year to date, and then quarter over quarter. It was about a 14% pickup so again those kind of.

I've used the phrase green shoots it hasn't been a U turn but kind of month by month slowly improving and I think with our embedded rent omics and I think we can keep similar rent spreads knock on wood and really the drop in May and June was really the one large lease in Jackson, but that.

That set us up well for a disposition here in the next few months.

Very helpful. Thanks Marshall.

Youre welcome.

Thank you there are no.

Further questions at this time I will now hand, the call back to Marshall Loeb for any closing remarks.

Okay. Thanks, everyone for your time, thanks for your interest in Eastgroup.

I know, we tried to keep it on time and apologize for lending you to one question that said Brent and I are certainly available for your second third fourth and eighth question. Following the call. So just give us a call drop us an email and again I. Appreciate everybody's time. This morning. Thank you.

Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect your lines.

Okay.