EastGroup Properties Q4 2024 Earnings Report

EastGroup Properties EPS Results

• Actual EPS: $2.15
• Consensus EPS: $1.16
• Beat/Miss: Beat by +$0.99
• One Year Ago EPS: N/A

EastGroup Properties Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $166.09 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

EastGroup Properties Announcement Details

• Quarter: Q4 2024
• Date: 2/6/2025
• Time: After Market Closes
• Conference Call Date: Friday, February 7, 2025
• Conference Call Time: 11:00AM ET

EastGroup Properties (NYSE:EGP) (NYSE: EGP), a member of the S&P Mid-Cap 400 and Russell 1000 Indexes, is a self-administered equity real estate investment trust focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina. The Company's goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality business distribution space for location sensitive customers (primarily in the 20,000 to 100,000 square foot range). The Company's strategy for growth is based on ownership of premier distribution facilities generally clustered near major transportation features in supply-constrained submarkets. The Company's portfolio, including development projects and value-add acquisitions in lease-up and under construction, currently includes approximately 59 million square feet.

EastGroup Properties Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Inc. Fourth Quarter twenty twenty four Earnings Conference Call and Webcast. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call that require immediate assistance, please press 0 for the operator.

[Operator]

This call is being recorded on Friday, 02/07/2025. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Good morning, and thanks for calling in for our fourth quarter twenty twenty four 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.

[Keena Frazier, Director of Leasing Statistics at EastGroup Properties]

Please note that our conference call today will contain financial measures such as PNOI and FFO that are non GAAP measures as defined in Regulation G. 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. Forward looking statements in the earnings press release along with our remarks are made as of today and reflect our current views of 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.

[Keena Frazier, Director of Leasing Statistics at EastGroup Properties]

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.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Thanks, Keena. Good morning. I'll start by thanking our team. They worked hard throughout 2024 in what wasn't always a consistent cooperative environment. I'm proud of the results they achieved within this backdrop.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Our fourth quarter results demonstrate the quality of the portfolio we've built and the continued resiliency of the industrial market. Some of the results produced include funds from operations rising 5.9% for the quarter and 7.9% for the year, excluding involuntary conversions in each year. For over a decade, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long term trend. Year end leasing was 97.1% with occupancy at 96.1%. Average quarterly occupancy was 95.8%, which although historically strong is down over 200 basis points from fourth quarter twenty twenty three.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Quarterly re leasing spreads were 47% GAAP and 29% cash. Year end results were 5336% GAAP in cash respectively. And cash same store NOI rose 3.4% for the quarter and 5.6% for the year despite occupancy declines in each period. Finally, we have the most diversified rent role in our sector with our top 10 tenants falling to 7.2% of rents, down 70 basis points from year end 2023 and in more locations. We view our geographic and revenue diversity as strategic paths to stabilize future earnings growth regardless of the economic environment.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

In summary, we're pleased with our 2024 performance, including a record amount of square footage leased within the operating portfolio this past quarter. Alongside that, we're seeing an uptick in prospect activity. We need to convert these into signed leases, but are optimistic about the prospects for an improving economy with a lack of new supply. Green shoots may be an overused term, but we're hopeful it continues, which should build into a stronger latter twenty twenty five. We're focused on value creation via raising rents, acquisitions and development.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

This allowed us to end the quarter 97.1% leased and continue pushing rents throughout the portfolio. We're excited about the acquisition opportunities we announced, which closed late fourth quarter. In Dallas, we acquired four fully leased buildings adjacent to the DFW Airport, increasing our ownership in the submarket to roughly 2,700,000 square feet. In late December, we closed on four fully leased buildings, growing our presence in the Southeast Valley Of Phoenix. Overall, our acquisitions are guided by two criteria.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

One, to be immediately accretive and secondly, raising the long term growth profile of the portfolio, thus creating NAV per share. Additionally, in each of these cases, they allowed us to grow our presence within an existing fast growing land constrained submarket. As we've stated before, our development starts are pulled by market demand within our parks. Based on our read through, we forecast twenty twenty five starts of $300,000,000 We're projecting the majority of the starts in the second half of the year. While activity within our development program is improving, decision making remains methodical with prospects focusing later in the construction process.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

In terms of starts, we'll ultimately follow demand on the ground to dictate pace. Longer term, the continued decline in the supply pipeline is promising. The construction pipeline is at its lowest level since early twenty sixteen. Assuming reasonably steady demand, the market should tighten in 2025, allowing us to continue pushing rents and create development opportunities. As demand improves, our goal 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 expansion needs and the land and permits we have in hand.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Brent will now speak to several topics, including assumptions within our 2025 guidance.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Good morning. Our fourth quarter results reflect the terrific execution of our team, the resilient performance of our portfolio and the continued success of our time tested strategy. FFO per share for the fourth quarter was $2.15 per share compared to $2.03 for the same quarter last year, an increase of 5.9%. From a capital perspective, we continue to access the equity market. During the quarter, we directly issued common shares for gross proceeds of $159,000,000 settled forward shares agreements for gross proceeds of $3.00 $8,000,000 with an additional settlement of $37,000,000 after quarter end.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Collectively, the shares issued in the fourth quarter transactions were initiated at an average price of $178 per share. As of today, we have $30,000,000 in outstanding forward agreements and full capacity on our $675,000,000 credit facilities. In December, we repaid two unsecured notes totaling 120,000,000 After quarter end, we refinanced $100,000,000 unsecured term loan, reducing the credit spread by 30 basis points, resulting in savings of approximately $1,500,000 over the remaining five years of term. Although capital markets are fluid, our balance sheet remains flexible and strong with record financial metrics. Our debt to total market capitalization was 15%.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Our debt to EBITDA ratio is down to 3.4 times and our interest and fixed charge coverage ratio is 11.5 times. Looking forward to 2025, FFO guidance for the first quarter is estimated to be in the range of $2.05 to $2.13 per share and $8.8 to $9 for the year. Those midpoints represent increases of 5.67.1% compared to the prior year, excluding involuntary conversion gain as a result of insurance claims. Please note that approximately 37% of the estimated annual G and A expense is expected to occur in the first quarter, primarily due to accelerated expense for employees who are retirement eligible under our equity incentive plans. Our rent collections remain healthy with tenant defaults being contained to a handful of larger customers.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

With our tenant watchlist holding steady, we anticipate a typical run rate of approximately 30 basis points of revenue for uncollectible accounts in 2025. Notable operating assumptions that comprise our 2025 guidance include an average occupancy midpoint of 96%, cash same property midpoint of 5.9%, three hundred million dollars in new development starts and $150,000,000 in strategic acquisitions. Our projected capital proceeds of $450,000,000 are budgeted to be a combination of equity issuance and revolver use. There are four debt instruments scheduled to mature in 2025 for a modest total of $145,000,000 dollars In summary, we are pleased with our solid 2024 results and thank you, EastGroup team members that are listening to the call today. As we turn the page to 2025, we will continue to rely on our financial strength, the experience of our team and the quality and location of our multi tenant portfolio to lead us into the future.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Now Marshall will make final comments.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Thanks, Brent. In closing, I'm proud of our 2024 results and I'm excited about the landscape for 2025. Internally, we continue growing earnings while strengthening the balance sheet. Others have described the environment as turning, which feels about right. Within this backdrop, we're doing three things.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

First, we're working to maintain high occupancies while pushing rents. Second, we're continuing forward with development starts where submarket opportunities allow. And finally, over the past two years, we saw several attractive new long term investment opportunities, something which is much more expensive and a steady market. Stepping back from the near term, 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 change and historically lower shallow bay market vacancies. We also have a proven management team with a long term public track record.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Our portfolio quality in terms of buildings and markets improves each quarter. Our balance sheet is stronger than ever and we're upgrading our diversity in both tenant base as well as geography. Finally, I want to take a moment to congratulate our friend and board member, Eric Bolton on his upcoming retirement from MAA. Not only has Eric made a positive lasting impact on MAA, but in his spare time, he's done the same here at EastGroup. We'll now open up the call for any questions.

[Operator]

Our first question comes from the line of Andrew Berger from Bank of America. Your line is open.

[Andrew Berger, Equity Research Associate at Bank of America]

Hi, good morning. And this is Andrew on for Jeff Spector. Marshall, you mentioned the word green shoots earlier. And just curious if you're seeing this in any particular markets?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Hey, Andrew. Good morning. I wouldn't say, thankfully, no. I mean, yes and no. It's not limited to any market.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

It felt pretty broad based, really kind of late last year where prospect activity and again, it's got to start somewhere, seemed to pick up. And thankfully that's continued into this year. So even in as we've said before, California has had some credit challenges for us and been a slower market and we've got a pretty good sized vacancy that we're making headway on in LA, but even there the activity has picked up. So again, it could turn next week, but we're encouraged by it and we just need to convert those tours and proposals and letters of intent and to sign leases. But I'm encouraged that it's not in just Florida or just Texas or anything like that.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

It's pretty broad based across the portfolio.

[Andrew Berger, Equity Research Associate at Bank of America]

Got it. Appreciate that color. And maybe it's just a follow-up. I know your portfolio is more focused on consumption, but obviously with tariffs being pretty topical over the past several weeks, I'm curious if that's come up in any conversations with your tenants and any themes that are worth calling out?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

No, it's not come up in any tenant conversations that I'm aware of. I do think it's got to affect how people think about them and we can talk a little later in the call as well about it. To us, it really affirms as you mentioned, this is why we want to be near the consumer. Look, if your shoes come made in China or Mexico or in The U. S, we just want to be near where that customer is buying their goods and services.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And that's why we try to historically steered clear of ports. Even though we're in some port cities, we steer clear of the port because that seems much more volatile where that end user last mile consumption is much more sticky. And so we view it as a way to really kind of smooth out or avoid earning shocks by staying there ideally near the consumer and ideally, which in most cases we are growing consumer base.

[Andrew Berger, Equity Research Associate at Bank of America]

Great. Thank you very much.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Sure. Thanks, Andrew.

[Operator]

Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your line is open.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Oh, hey. Good morning down there. And I forget if it's one or two questions, but it sounded like it was two. So just with that in mind, Marshall, on the development side, I think you said it was record leasing for the operating portfolio, but the development leasing was a little bit slower, but then you commented that you want to ramp development. So are you anticipating a return of eventual development demand?

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Or are you seeing it real time where your positive development comments are supported by increased expansion demand by tenants?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Good morning. Yes, our preference just great news is we have a lot of analysts that follow these groups. So we were trying to keep it to one just to keep the train moving.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

I'll keep it to one.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

I'll keep it to one.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

All right. Thanks, Alex. But our thoughts our development, we look last year, we brought our development starts down. That's the first time we've done that in several years, but we didn't see the leasing in the market.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

This year if you looked at our timeline, we started several in fourth quarter. It's really submarket by submarket. Our development starts are projected to pick up kind of from the field this year. Most of those are the back half of the year and it's a combination of supply today is at an eight year low. If anyone wants to in our investor roadshow, there's a slide, I believe it's about page 16 that will show where vacancy is by product size and it really speaks to the lack of supply or the lower supply in Shallow Bay.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So there's not a lot of supply, there's not a lot of vacancy in our sector and starting late this year, again giving it call it, nine, ten months to deliver the building, we'll underwrite a year to lease it up. We think starting later in the year, given the activity we're seeing today, demand is going to tighten and it will be a good time to step on the gas again for a while on developments. And that's really what's modeled in our guidance is probably tenants moving into developments later this year in the second half a lot more frequently and development starts picking up in the second half of the year as well.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Thank you.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Sure. You're welcome.

[Operator]

Our next question comes from the line of Craig Mailman from Citigroup. Your line is open.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Hey, good morning. Just want to touch on the delevering you guys have been doing. When I look at the balance sheet, right, you guys are down to 3.4 times debt to EBITDA and you issued some equity that was relative to us a little bit below NAV. Just kind of trying to get a sense of, are you guys trying to position the balance sheet to do a bigger transaction? Or is the capital deployment on the development side just not pencil with where debt rates are today?

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Just trying to get a sense of where you think the optimal leverage is for you guys? Or is this just kind of building capacity for the future?

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Yes, I'll jump in. Hey, Craig, good morning. Yes, it's not intentional that we're trying to drive the balance sheet down for any particular purpose or delever the balance sheet. We certainly have ceilings, which we're nowhere near, but metrics on the top end that we don't want to be above for a healthy balance sheet. But it's really been the byproduct of an unusual, but an extended period where we have viewed equity as being the best cost benefit spread investment capital opportunity relative to debt or even in past years even compared to something like the revolver even.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

So, yes, our issue at this past quarter on the probably at the lowest end of where we'd ideally want to be, we view it without getting into our NAV, but in and around NAV. That's obviously not an exact science. There's quite a range if you look on FactSet or S and P amongst the groups that follow us. There's probably at least like a $50 per share differential there in thoughts, But we're really more looking at the cost spread. And I guess I'd point out the really the reason we're issuing is thankfully our team has continued to find via acquisitions like the fourth quarter where they three stellar acquisitions and the development.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

So we've had good reason to go raise capital. We're really trying to be able to execute on those opportunities that they're pulling up. So our goal is certainly, Craig, I think this year in our guidance, we're budgeting for the first time in a couple of years more of a mix between using the revolver, which is at a low five right now and equity. I think we'll be more willing to carry a balance on the revolver a little bit more. But look, it's fluid.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

And ideally, when rates and there's not a lot of hope early part of the year, but somewhere down the line, if rates come more into check with what we view the revolver and or equity cost wise, we view that as looking long term in EastGroup as a great opportunity and a great tailwind for us where we can unleash a lot of capital and a lot of opportunity. But summary of that is it's really just been the byproduct of our valuation and not anything intentful.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Okay, that's helpful. Just I'm going to sneak a second one in here. On your comment Marshall around kind of development decision making is later in the process. I know historically that had been the case in this last cycle of pre leasing was happening. Just can you give us a sense on the tenant pool for the available development space you have and even the Starship space and comm space that you guys got back?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Sure. I love the both. I would say the tenant pool, which has felt better, maybe I'm organizing my answer. It makes sense to me when you think about why tenants are taking a little longer, when supply picked up to such a degree, every prospect has a tenant rep broker and they want to make sure the space is ready when they're telling their client it's available. So now with finished options or second generation options, they don't want to their avoidance is we don't want to say your Craig, your space will be ready in June and it's not ready till August.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So they've had the luxury of being able to wait and kind of during the peak, their fear was missing out on space. So it really ramped up our own development because everything we were building was finishing out. We've always underwritten a year to lease up. The good news, unlike say the GFC, we have names and prospects there. As one of our guys said, I would offer more free rent, but I don't have anyone to I don't know who to offer it to.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Here we do have tenants and active negotiations. It just takes decision making has run up. I've seen some graphs from one of the brokerage groups where it was about nine months to make a decision. I think it's first half of the year slowly turning for the first time. I can think of a couple of spaces we've had in the last thirty to forty five days where tenants have lost out on space.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And I always feel for that tenant that didn't make a decision in time and the space is gone, but we've not seen that in a eighteen months, twenty four months. So I think given where supply at an eight year low and vacancy really low that it's going to cause those tenants to feel a little more sense of urgency. And then on our again, that's our opportunity set, if I think of this year is really at one. I think we budgeted what we expect will happen as things get better and signed and move in the back half of the year. We feel good about the activity today.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

If it happens earlier, we'll build more and if it doesn't, we'll do what we did last year and develop a little less. But and even on say the cons, which is I guess for other listeners 300,000 feet in Charlotte and we had Starship, which is 260,000 feet in South Bay, the Ports Of LA and Long Beach that went we had bankruptcy issues both in fourth quarter. So we don't have that many large tenants, but we have 20 tenants over say 200,000 feet and a little bit of a perfect storm where two of them went bankrupt both in fourth quarter, struggled during the year and then went bankrupt. But we've got good activity without getting too far over my skis that we've got. They're good buildings and we've got a really good team on each of them.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And there we have active negotiations on both spaces. And if I cross my fingers, as soon as we get anything signed, you'll hear me yell, we'll put something out. But I feel optimistic cautiously optimistic on both spaces given the activity we have today. And that's kind of how we're viewing the year. Look, I love the tours.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

We just need to get people to the cash register.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Great. Thank you.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

You're welcome.

[Operator]

Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is open.

[Anthony Peak, Equity Research Associate at KeyBanc Capital Markets]

Hi, good morning. This is AJ Peek on for Todd. So just to piggyback real quick off of Craig's question, could you just quantify a little bit the development leasing in regards to I think back in November you said that the decision making is taking fifteen to sixteen months previously had been within that twelve month timeframe. Could you just quantify or is it still kind of that fifteen, sixteen month timeframe?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Good morning, Ajay. Yes, it's more similar. I think it's slowly turning and what's been, I guess telling to us a little bit and our and maybe our development pipeline really is Page eleven and twelve in our supplement. But when I look at what we've finished for the last couple of years, even with kind of elongated completion time where things rather we'll underwrite twelve months, but maybe they went from taking six to fifteen to 16. What we delivered last year came in at a 7.8% yield, which is higher than we underwrote even though it had more carry in it.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So it's not that we're getting so much pushback on rents and TI and kind of economics, it is just getting someone to say we're ready to go. Renewals as a percentage of leases signed are up nationally. They're kind of in the 30 something percent where they were running in the 20s for the last, call it, four to six quarters. So I think that will come down and it feels like it's turning, but we're in early inning on that turn. And I think it'll take people when they start to feel like we need the space and if we don't make a decision, we're going to miss out.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And that's really what happened last time. I don't think we'll get to the frenzy we had last time. It led to some of the challenges I think that we have in Los Angeles today and it was really the outlier on that kind of frenzy and everybody got into industrial development. But hopefully it doesn't get overheated, but it feels like we're in a cyclical business. It slowed down and it feels like this year is turning and we've been seeing that activity in the last couple of call it mid fourth quarter through today.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

We're happy with how the year started. We're a little ahead of where we thought we would be, but and I hope we can keep that momentum up later in the year.

[Anthony Peak, Equity Research Associate at KeyBanc Capital Markets]

Okay. That's helpful. And then just real quick, how are you thinking about rent change in 2025? I guess what sort of range would you expect to

[Anthony Peak, Equity Research Associate at KeyBanc Capital Markets]

Yes. In

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Yes. In terms of I'll let Marsh maybe touch on what he's thinking on rent changes for the year, but I'd point out that our expiration schedule for the year, we've decreased that even since putting the supplemental together. That's down to just 8% turn remaining for the year of 2025 expirations. We report rent change as we sign leases. So a lot of the lifting on the 2025 expirations and renewing those tenants occurred in 2024.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

As we signed those leases, we reported the results. I would just say we've been pretty consistent here. It's plateaued, but it's at a very good level. We still are seeing strength in our rental rates, running that 50% gap increase and we're seeing that beginning the year pretty consistent with that. So we're not feeling headwinds to Marshall's point earlier.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

It's been more once you get somebody that needs the space and you get the foot trapped, somebody committed, getting the rate that you need really hasn't been the obstacle because of the tight supply. It's just getting the traction and the showings increase, which is good to see the signs of that picking up. But so we're seeing what I would describe maybe is on the average at the end of the year, if you tell me it would come in slightly below what we've ran in the last couple of years, that wouldn't surprise me. But it still feels like that's a pretty strong category of rent change that is.

[Anthony Peak, Equity Research Associate at KeyBanc Capital Markets]

Perfect. Thank you guys.

[Operator]

Thank you. Our next question comes from the line of Rich Anderson from Wedbush. Your line is open.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

Okay. Just a five part question here. Just kidding. I'll tow the line. Marshall, I just want to make sure I better understand sort of the cadence of your developments in the $300,000,000 of starts.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

In the past, one development informs the next, just from the on the ground activity that you saw and it gives you the confidence to go forward. Is that sort of motif not exactly happening yet, but what you see is so much less supply. So you want to be in front of it before and prepared for that perhaps to start to come together later this year. So is it sort of like sitting in the abstract a little bit right now in terms of how you typically start developments, but you feel like it's going to come eventually? So you're sort of talking about starts in the $300,000,000 range.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

Do I have that kind of right? Maybe you can sort of fill in the blanks.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Yes. Good morning, Rich. I'll give you a five part answer then. And it's mainly the former. Look, I think one of the beauties of each group, it's a pretty simple model, so people like Brent and I can manage the company.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

But once the building is pretty much finished, we'll build the next one and that's what we stuck with when things are good and last year when things were a little slower, what we started in fourth quarter and you're right, it really is on the ground. It was submarket by submarket. We started several buildings in fourth quarter even though things were slow, but of the five, one was the second building in Tampa because the first building the team got 100% leased. And then the other were markets where and similar in Greenville, South Carolina, Greenville Spartanburg, where we didn't have development and active development. And we certainly don't want to lose and that we've lost within our top 10, we lost one of our spaces with a tenant because they outgrew us and we didn't have the development ready in time to accommodate them.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So it's mainly that pulling the next ticket as inventory starts to decline in that submarket. And then a little bit where maybe you're right, we're back into the year, there's a little bit that's maybe the science where there's a little bit more alchemy to it is that we do think and we don't want to get too far out ahead, but so many of the private developers have been sidelined and still need to go tie up the site zoning and permitting is harder than it's ever been for industrial today. So that will take them time and we think there'll be a period, especially early on in the shallow bay world, where there's not much private competition and we want to be able to one, accommodate our own tenants growth or the tenants that are around the corner and down the street. So there's a little bit where I think the market will give us a nudge on development starts towards the end of the year and our own just in the team and the field feels like we're going to finish Phase two and roll into Phase three and that type of thing. So that's where the $300,000,000 again, it's back end weighted.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

We realize we've got it's pretty easy to see our task at hand looking at our under construction schedule. There's a lot of space there, but that's our opportunity. If we can get out ahead of that and have some leases come in earlier given the activity than what's in the budget, but we'll do our best and the team's on it. But it's we'll follow the field and win the market saying it wants more supply. But I think you're right.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Our sense is there's a squeeze coming and I've been predicting it too early. I would have thought it would have happened last year, so I've been wrong before, but it feels like it's coming a little bit late back half of this year.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

Okay, great. Thanks.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

You're welcome Rich.

[Operator]

Our next question comes from the line of Nick Filman from Baird. Your line is open.

[Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co]

Thank you. Maybe just wanted to touch a little bit on the pickup in leasing costs in the quarter. Obviously, some of it could be related to just mix with the more new leasing, but wanted to get a little bit more color on that. Was there any individual leases that were pulling that number up? And then also Brent, maybe just any comments you have on expectations for retention in 2025?

[Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co]

Thank you.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Yes, I'll jump in. Nick, It really was just the if you look over the last couple of years, we've been pretty consistent looking back at our cost per lease per year of lease being around just under $1.9 or so for 2022, '20 '20 '3. That for the year increased to $1.08 It was pretty equal between the tenant improvement and leasing commission component and really not so much specific leases, Nick, but it's really a combination of inflationary pressure on TI. It's just simply more expensive to build on a per square foot basis office component, repaint carpet. And we've been very thankful.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

We talked about these 50% increase in rents that goes hand in hand with you apply a percentage of leasing commission to that rent. Those have been going up with that as well. So I would say that has been operational, nothing specific there. I think if inflation can settle out and I hope that leasing commission side continues to tick up some, it would basically mean that we're pushing rents and you're applying the same percentage to it and that goes up, but nothing there. We had a good year, a good fourth quarter at 78% retention.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

For the last couple of years now, we've been right at two thirds as an average. We don't have anything at this point that would make us think that that would that's a pretty standard run rate. It wouldn't be uncommon to see that get in the 70s probably, but we don't have any guess I take this time to point this out. We don't have any specific large tenant that we're worried about per se in terms of a known vacate or that type thing. Obviously, we have a couple of the spaces that went vacant in fourth quarter that Marshall talked about.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

But so I would expect similar cadence across the board on all those topics to what we've experienced last couple of years.

[Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co]

Thank you.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Yes. Thanks Nick.

[Operator]

Our next question comes from the line of Eric Borton from BMO Capital Markets. Your line is open.

[Eric Borden, Vice President at BMO Capital Markets]

Hey, good morning everyone. Brent, I just wanted to go back to your comments around the bad debt guidance assumption of 30 basis points. It sounds like that is just general conservatism for the year or correct me if I'm wrong, is there any specific tenant that that is allocated to? And then I was just curious if I get your thoughts on your current thinking for lease termination income for the year? Thank you.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Sure. And we did get some inquiries about I guess I'll just address this here about not having the specific line items of term fee income and bad debt that we've had in the past. We have pulled some specific line items of that back and more to come later in the quarter, but us and some of our key peers are continuing to work on our harmonization efforts. It may predate some of you, but going back to 2017, us and some of our peers synchronized all of our proactively aligned our definitions of how we define things and report things for non GAAP measures. And kind of brushing that up here lately with the group, we began to realize we're the only group that was specifically aligning those out.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

But looking at '25, the 30 basis points and that comes in at around $2,200,000 or so that we have dialed in pretty evenly through the year. It's not tenant specific. That's actually about a third less than what we incurred in '24. A couple of things to note there, Our tenant I would describe '24 as a frustrating year from an uncollectible rent standpoint. Our watch list remain very constant and very low and moderate, but we had four tenants that really drove the Brad debt.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

One specific, the Starship tenant fourth quarter that wound up being about 30% of our bad debt for the year with that one tenant out of a portfolio of over 1,400 different tenants. And then about the top four tenants comprised about 70% of our bad debt. And as Marshall touched on, it's atypical for us, but some of the tenants in the larger spaces contributed to that. I would just note, so we anticipate sort of a similar watch list. We just aren't budgeting or hoping for, not anticipating the stars aligning of some of those bigger tenants coming through there.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

And I would just point out as of today, our twenty seventeen or twenty eighteen tenants that are above 200,000 square feet in our portfolio are all current. And the tenants the four tenants that did drive that last year in one way, shape or form, we've resolved those issues and those aren't lingering and going to drag into uncollectability into this year. So with all that said, yes, so we're about $2,200,000 dialed in for bad debt for the year, about $1,100,000 of term fee income. That's not specific to a tenant either. That's just what we have dialed in.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

And so when you net two, you're really at about $0.02 a share net. Again, another reason that we kind of pull those line items back. But the net between the term fee income and the bad debt we've got dialed in is a couple of cents a share. So we're cautiously optimistic from what we're seeing so far and having cleaned some of those troubled tenants up that we're looking for more of a historical run rate at that 30 basis points this year.

[Eric Borden, Vice President at BMO Capital Markets]

Thank you. Appreciate it. I'll leave it there.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Thanks, Eric.

[Operator]

Our next question comes from the line of Blaine Heck from Wells Fargo. Your line is open.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Great. Thanks. Good morning. We saw some interesting and maybe counterintuitive moves in the operating portfolio lease rate in some of your markets quarter over quarter. So I was hoping you could comment on the decreases in Texas markets, San Antonio and Fort Worth in particular, and then increases in California where San Francisco, LA and San Diego saw a pretty significant positive movement, whether those are driven by specific situations or maybe more indicative of any trends that you're seeing in those markets?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Yes, that's good. Good morning, Blayne. It's Marshall. I'm kind of organizing in San Francisco. The team did a good job of backfilling some vacancies there.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So we're really for the moment, when I think of as I think of California, we've got and we've talked about the 260,000 feet and Dominguez is a vacancy. And then we've got which was another bankruptcy, 68,000 feet in North County San Diego. And those are really our main vacancies are kind of our task at hand this year. We're pretty full at the moment in California. There's a lot of tenants and there'll be some moving parts throughout the year.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So that feels pretty good. Charlotte, I guess, as I think about bankruptcy still, it took a pretty good hit on its occupancy in fourth quarter, but that was really the 300,000 Conn's bankruptcy at the moment where our prospect list for both is they could both be subdivided into really two in LA and maybe three tenants in Charlotte. We're talking to one tenant in each location. So we'll get those backfilled. It's probably more a function of just that space and that market are really in each of those cases, it was a perfect storm.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Two big tenants went bankrupt and pulled our vacancy down. And our deliveries and some of the Texas markets, I'm thinking like in Austin, for example, we delivered Stonefield. It's just South Of Austin and Hays County. Good location, good building. It's near the buildings we acquired last year around the corner from those.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

We like the submarket. It just has a lot there's a lot of if you said what markets have you watched the developments supply more closely, we would say Austin and Phoenix. And so we're kind of caught there and we like Austin a lot long term. That Hays County market has a lot of supply right now. So when we delivered there that pulled that vacancy rate down.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So those are kind of some of the moving parts and then others are just kind of tenants moving backward. We've got some space out in Fort Worth. It's not a big denominator in Fort Worth, but in our Park North project, we'll get at least and we're making headway out there, but that's it's really a space here or maybe a long winded way of saying a space here or space there and the markets kind of jumped back, kind of like they did in San Francisco. One or two tenants can move the needle pretty materially within our portfolio.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Okay, great. Thanks. Sounds like more specific situations, which makes sense. I'll respectfully leave it there.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Okay. Thanks for articulating it much more concise and for leaving it there. Thanks.

[Operator]

Our next question comes from the line of Steve Sakow from Evercore. Your line is open.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Yes, thanks. Good morning. I was wondering if you could just provide a little commentary around the pricing on the acquisitions in the fourth quarter and maybe just the capital flows that you guys are seeing and I know acquisition

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

cap rates can

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

kind of be all over the board, but do you think cap rates can kind of be all over the board, but do you think about unlevered IRRs and where do you think unlevered IRRs are for industrial today? Thanks.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Hey, good morning, Steve. Maybe a couple of thoughts. I'll say that the team did a good job of finding these three acquisitions, all a little bit each was a little bit different and that starting in 2023 and through 2024, a number of the acquisitions we bought were really the second time it came to market that something had happened, it came back to market.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And that's a little bit what happened in the Phoenix or that is what happened in the Phoenix acquisition. It's a good infill site. Mike Sacco, who runs Arizona for us among his markets, really had approached the seller and stayed in touch. And we were able to tie it up kind of sticking within our confidentiality agreement a little bit reminding that on all three. They're all what we liked about Atlanta, Dallas at DFW, it's the same seller we acquired.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

We're right at the cargo terminal. What we like about it at DFW and just to the north of us are Frisco and some pretty strong higher end residential communities. So those buildings can serve either direction. We've got a little over 2,500,000 square feet in that submarket. And strategically, we're able to buy the buildings right across the street from four others we own.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So in terms of accommodating tenant growth, we like that. Blended on a net effective rate, we're probably so maybe on a straight line rent, we averaged a little north of a six shield. I think those were all above market. In hindsight, we saw the acquisition market really tighten up. The second half of last year, surprisingly fast, at least to me.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

I would say we saw cap rates sub 4% and well into the 4% s. So we were happy we got these. That kind of stabilized yield is probably in the mid-7s on the three we bought, which again I think is much better than where the market is. And we started we were able to buy things that were a little bit distressed whether it was land or acquisitions. We're not seeing those opportunities right now.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And as we underwrite, if it helps, we'll look at the cash return immediately, what the straight line or GAAP returns are since that's what we'll report and then what the mark to market is. And ideally that mark to market the first few years because we I respect the people and we do look at an unlevered IRR, but as our founder used to kid, I've never met a pro form a I didn't like. When you get to a ten year IRR, there's so many assumptions. And I think if I had run my best attempt to an IRR in LA, for example, twenty four months ago, I would have missed it terribly. So we'll try to stay just within the headlights.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And I also think one of the other beauties of industrial having worked in other sectors is our capital needs are so much less than say office or retail. And so that helps you not lessens that need. We're not replacing elevators or redoing the lobby or some of the things you run into on retail in terms of CapEx. So it's easier for us. We won't run an IRR because we wouldn't have gotten it right on a lot of our acquisitions, but we will look at that first handful of years and what can go right and what can go wrong.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Thank you. That's it for me.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Okay.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Thanks, Steve.

[Operator]

Next question comes from the line of Nikita Bali from JPMorgan. Your line is open.

[Analyst]

Hi, good afternoon, everyone. Quick one, what is the rough ballpark expectation for 2025 market plan growth in your portfolio? Not the spread, but the actual market plan that you think you may be able to achieve in the properties and for your assets, is it roughly flattish or single digits, low single digits this year?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

I think good morning. This is Marshall. I would almost if I could bifurcate our portfolio between East Of California, which is everything and then California, I think the LA market especially is still stabilizing. San Diego and San Francisco are a little more stable, but those are the markets where the only markets thankfully that we've actually seen negative absorption. And so rents maybe are still finding their footing in those markets.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

That said, all told and certainly Nevada, Arizona, East, I would expect and our expectations are probably inflation a little ahead of the inflationary rate for the first six to eight months of the year. And then I think pending where demand is given the lower such a low supply level and such a low availability rate and our product type, but nationally is at least the vacancy direct vacancy about 4%. So I think there's a chance we could have some higher level rent pickup for the back half of the year heading into 2026 given that it's going to take, especially private peers, a little while to get mobilized and start delivering product again. So I think we'll have a little above inflation for the first half of the year. And then I think if demand keeps at the pace it's currently at, it could get more mid single digits for the back, call it, three to six months of the year.

[Analyst]

But the Southern California is probably still flat to negative for the full year, right?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Yes, I think when I say really LA, I'd say if I could pull San Diego out of that because it's just a little bit different and Orange County is a little bit stronger, but LA still feels like it's it could be moving backwards a little bit. We don't have a lot of data compared to our peers there, but that market really took off at a crazy rate faster than any of our other markets and it seems to be the market that's going backwards pretty dramatically and still has had negative absorption pretty materially for the year and doesn't quite have its footing. So I do think rents are probably still moving in a negative direction in LA. Got it. That's a big market, but that's our sense.

[Operator]

Our next question comes from the line of Michael Carroll from RBC Capital Markets. Your line is open.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Yes, thanks. I guess, Marshall, I wanted to touch back on your prepared remarks that you're seeing an uptick in prospect activity. I mean, can you give us some color on what this means? Is it just that you're seeing increased poor activity? Or are these prospective tenants further along like your trading paper and they're now ready to make decisions where before they weren't?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Hey, Michael, good morning. A little of both. I mean, I think where what we've seen is just the pace first, we saw the pace of touring. The brokers are showing someone through the space and look at that's where it's got to start. But just the number of space tours from the tenant rep brokers started picking up and we're still seeing that.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And then on the back half, there are a number and look, we'll keep you updated as quickly as we can in terms of things turning into signed leases. It was a little unusual quarter in a good way and that we signed more within the portfolio more square footage of leasing that we have

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

in the

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

company's history in fourth quarter. So that was a great sign. It was a little bit kind of sorting through it. It was a slow quarter for development leasing, but a record quarter for the portfolio leasing. But I'm glad in both cases that we've seen the number of tours going up.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And yes, we do have a number of letters of intent that are out that are signed and a number of leases that are out being negotiated. So again, those can change at times pretty quickly that they may not come back signed, but they're out and the terms are agreed to, the attorneys are going back and forth. So that's what we feel better in terms of kind of maybe that activity below the water within looking at an iceberg that that has really picked up in the last, call it, forty five days. And we hope we can two things, continue that and then convert that activity that where we are trading paper today.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Okay, great. Thank you.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

You're welcome.

[Operator]

Our next question comes from the line of Ronald Kamdem from Morgan Stanley. Your line is open.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Great. Just a quick one. Just one of the occupancy guide of '96, just wondering if you could talk about sort of the cadence of the year. Do you have a seasonal dip in 1Q and then you build? And then the second question or the follow-up would just be on the would love to get an update on El Paso, Phoenix and San Diego, which are some of the near storing and onshoreing markets and just what your expectations are for this year and what you're seeing on the grounds there?

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Thanks.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Yes, I'll start and then let Marshall speak to those markets. But the cadence to we a little bit of dip basically to Marshall's commentary and our commentary today of kind of showing some optimism in thinking that way as we go through 2025 and really our leasing assumptions, which are driven by the field on a space by space basis for us in building our model. But it really stays a little dip here to begin the year. We had some known vacates in spaces like the Conn's And Dominguez Building that we knew we had coming back. And then making some progress, kind of staying pretty steady through the first half of the year and then showing that begin to crescendo some and then get up and bring that average up on the back end of the year.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

So I would say that's more back half weighted in terms of the gains, but we're really not showing once we get going into the year, not showing much more deterioration, just kind of a continue to work in those levels have been build up from there. But I'll let Marshall speak to those markets you asked about, Ron.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Yes. Hey, Ron, good morning. And I think in terms of onshoring, near shoring, I think my expectations are that will continue its long term trend, especially some of the negotiations with tariffs with China and things like that. Although obviously, one day this week, Mexico had a 25% tariff, it's on hold. I think that has to make it very difficult for manufacturers to plan on building in Juarez and Tijuana and things like that.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Maybe an order, Phoenix had some the most supply, but it feels like our product type and really our team and then our product type have done a really nice job of keeping us full in Arizona, not just Phoenix. And Phoenix is one of our stronger markets, I think probably surprisingly to people. If I said what markets would we say are strong markets that people reading headlines would I'd say Phoenix and Houston would be two of our better markets that probably would raise eyebrows. And I think Phoenix, just the market itself is good. And then I think there will be development in Nogales and that will help us in Tucson and in Phoenix and that will move there.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

El Paso is doing well. It's not as strong as say Dallas or Houston are compared, but it's we're doing well. We're still seeing good leasing activity. Rents have leveled out after rising pretty quickly in El Paso. They've more leveled out in the last twelve to eighteen months.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

And then San Diego to a lesser degree, although we certainly like the city of San Diego, it's actually another one where I think I read the stat, they were small numbers that have had about 10 quarters of negative absorption in a row or 10 consecutive quarters. So San Diego has been slow. I think it will feels like it's picking up. We've got one vacancy there today. We've got another tenant that will probably vacate later in the first quarter about 60,000 feet and we'll backfill it.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

But in order of those markets, we probably feel the best about Phoenix then El Paso, which is good, not great. And then San Diego, I'd love to see the market move to net absorption. That's been the unique factor for the California markets that we just haven't seen in our other where Dallas and Atlanta have had forty and fifty consecutive quarters of positive absorption. They've had a few quarters of negative absorption in California.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Very helpful. Thank you.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Sure. You're welcome.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Thanks, Ron.

[Operator]

Our next question comes from the line of Omokayo Okusanya from Deutsche Bank. Your line is open.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Operator, if we could move please. I think we've missed Tayo. All right.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Can you hear me?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Yes. Hey Tayo. Yes. How are you? Good.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

How are you?

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Good. So I just wanted to kind of go back to guidance for a quick minute. Some of your comments around just to get rates moving higher in fourth quarter and some tightness in the acquisitions market, I guess that helps to understand acquisition guidance a little bit better versus how much you did in 2024. But I guess from the occupancy perspective, again, you're not really calling for any increase in occupancy in 2025 versus 2024, but there's been a lot of commentary on the call just around green shoes and improved tours and things like that. So I'm just curious why not a better occupancy guidance and maybe there's some offsets towards some of the green shoots in demand that you've been talking about?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Okay. Hey, Tayo, thanks. And I think maybe a little on both of one, acquisitions are if it's not the hardest budget line item, it's one of the hardest for us. Again, we want to we'll acquire things that make sense assuming the capital markets or their debt or equity. And as Brent mentioned, we certainly have the debt capacity on our balance sheet.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

That's one I'll take the blame. Last year at this time, we forecast 130,000,000 in acquisitions and I think we finished at what $390,000,000 So I missed that one. I hope I missed it that widely again. And we can certainly make the goal, but we want to make the goal and make smart investments for our investors. So we'll watch the market again.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

It does feel like the distressed acquisition opportunities have about dried up. We'll find them if we can. And hopefully, we'll stick to our underwriting and our strategy and we'll do our best to beat the $150,000,000 but that's just that's what's dialed into the budget for now and I hope we crush it like we did last year. And then in terms of occupancy, as you think about it, I guess or as I think about it during the year, there's the letter of intent and by the time you get the lease signed and then there's a pending what all is happening in the space, a couple of months of build out and then the tenant moves in and I'll let Brent chime in. But certainly the back half of the year or towards the end of the year, our occupancy, our same store NOI builds during the year as we backfill the space as does our occupancy.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So maybe it kind of meanders around for the first part of the year and then builds in the back half of the year. So the last quarter's occupancy is materially or higher I said materially, it's higher than it is today. It's pretty high today already at 96, but it builds from there, but it all takes a little bit of time. I'm envious of the hotel REITs where it takes us by the time we reach agreement, sometimes it feels like forever before we can for us probably to get the tenant moved in. Yes.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

The only thing I'd add to that Tayo, just a reminder that the con space of 300,000 feet and then the Starship space to me is 260,000 feet and that's a little over 1% of occupancy right there. So that's taking a little bit of the luster off some of the activity, I guess, we're describing. But and then obviously the teams building in leasing that space up later in the year, not coming right out of the gate. So that's putting a little bit of a kind of a governor to the rate at which it moves up beginning the year as well.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Helpful. Thank you.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Thank you.

[Operator]

Our next question comes from the line of Vince Tibone from Green Street. Your line is open.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

Hi, good morning. Could you discuss how much incremental NOI from development projects that are currently unlet is baked into 25 guidance? I'm just trying to get a sense of how much spec leasing volumes and the timing of that and like what's exactly kind of incorporated within guidance?

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Yes. I think, Matt, good morning, it's Marshall. It's kind of consistent. It builds during the year. The vast majority and again, we have probably our most coming in, in fourth quarter, probably a little, call it 40%, maybe not quite that in fourth quarter and around 30% in third quarter.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

So in total dollars, you're probably adding this up as I'm looking, you're probably looking at around $6,000,000 or so in the development pipeline of lease up this year. A little more of that is signed leases today and the other call it 45% is spec leasing and it really kind of falls in line to mostly the back half of the year. And that also mirrors if it helps why our starts are higher in the back half of the year that as those buildings get leases signed and move ins happen that kicks that next level, that next phase of the park. So again, maybe all told about $6,000,000 and the majority of that is the back half of the year. And that's our chance, look, if we I'm sorry, go ahead.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

No, no, go ahead.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

I didn't mean to cut you off, Marshall, sorry.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

But I'm just going to do that's our opportunity. Look, if we can get out ahead of that timing, that's our opportunity in terms of where they this is our budgeted FFO and our goal is to beat it where it comes out. And I'm sorry, you had a comment, Vince.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

No, I just wanted to confirm, because you've got a lot of helpful numbers and I'll have to look at the transcript. But the $6,000,000 that you mentioned, that's like incremental leasing. That's not any leases that were signed in 2024 thus far. I just wanted to confirm that's kind of the

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Yes, Vince, this is Brent. Just to jump in. We've got about $15,800,000 down in for the year and it's roughly about half of that is already signed leases spoken for. And again, we've got to get those tenants in and commence, but about half of that is more speculative leasing to occur. And as Marshall pointed out, that's more heavily weighted in the third and fourth quarter.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

And so just to put exact percentages to it, about 53% of that 15.7% is already signed into the books and then another 47% of that's in the back end of the year to be done, to be executed.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

Perfect. No, that's great detail. Thank you.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Sure. Thank you.

[Operator]

There are no question at this time. Presenter, please continue.

[Marshall Loeb, President and Chief Executive Officer at EastGroup Properties]

Okay. Thanks everyone for your time this morning. Thanks for your interest in EastGroup. If we didn't get to your question, Brent and I and the team are certainly available and we hope to see you in the next month at the next conference. Take care.

[Brent Wood, Executive VP, CFO & Treasurer at EastGroup Properties]

Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Marshall Loeb, President and Chief Executive Officer
• Keena Frazier, Director of Leasing Statistics
• Brent Wood, Executive VP, CFO & Treasurer

Analysts

• Andrew Berger, Equity Research Associate at Bank of America
• Alexander Goldfarb, Managing Director at Piper Sandler Companies
• Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.
• Anthony Peak, Equity Research Associate at KeyBanc Capital Markets
• Richard Anderson, Managing Director - Equity Research at Wedbush Securities
• Nicholas Thillman, Senior Research Analyst at Robert W. Baird & Co
• Eric Borden, Vice President at BMO Capital Markets
• Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities
• Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI
• Analyst
• Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets
• Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley
• Omotayo Okusanya, Managing Director at Deutsche Bank
• Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC