EastGroup Properties, Inc. Stock

Maybe on the operational side, I mean, where do you stand today as it relates to the leasing pipeline? Talk about kind of demand that you're seeing out there in the market. Let's compare that to 2Q, for example.

Okay. Yes. So starting with Q2, that was a record quarter for us on leasing overall. We leased 3.9 million square feet. That's about 1.5 million of development leasing through the Q2 period, which, to put in perspective, that was more than what we leased in development all last year. And so if you heard us talk about the business in 2025, we talked a lot about inconsistencies where we'd see a really good quarter followed by a weaker quarter.

What we've now seen really starting in Q4 of last year is some consistent demand. And that consistent demand has really been a big driver for us, both on the development side, where we've -- through Q3 and our update we provided the other day, we've leased 280,000 square feet of additional development leasing. That's allowed us to increase our development starts throughout the year. We're now at $325 million. And it feels like there's probably more upward pressure on that number as we sit today.

Our occupancy numbers have also outpaced in July and August. We're sitting right at 96.1%, which is ahead of our plan that we had in Q1. So the demand trends seem to be there. We're seeing that in a lot of different areas. We've talked a lot today about data center-related uses. If you haven't heard about it, but data centers are hot. The nice thing is that we're a benefit of that because a lot of the users that need to service data centers, be it HVAC, electrical or whatnot have to have warehouse space to provide those services.

So we're enjoying the increased demand in data center-related uses. But then all the other trends that we've been seeing over the years, be it advanced manufacturing, be it the e-commerce, all those tailwinds are still feeding us beyond just the general GDP growth of the metropolitan areas that we service. So I feel like we're in a really good position in all the markets that we serve to continue to provide good growth in our assets, good same-store growth as well as what feels like an improving and more sustainable development business going into the rest of the year and into next year.

How sustainable is that data center demand do you think? And then maybe a second part to that would be how big can that become within sort of your portfolio?

That's a great question, and we've been studying it a lot and trying to understand it, but it does definitely feel very durable. As I mentioned, the users that we're seeing are supporting the data center. So it feels like as long as the data centers are there, they're going to have a need for our space. And then how big can it get?

It's not just like initial setup and they move the chips in, but is it like maintenance.

Maintenance, HVAC equipment, the power generators, they need backup and support and maintenance. The racking systems, we have one group that took some space from us in Houston that supports the racks. And so if you have an issue with a particular rack, they may send it to this facility, have it serviced or spot checked and sent back electrical components. So there's all different elements of the data center that I didn't initially appreciate even a year ago that we're now seeing that's fueling the need for all this space.

[indiscernible]

Not in the data center. No. And so what we're seeing is HVAC is kind of the easiest example. So there's -- we have HVAC companies that have a commercial business. And so with the data centers that are now growing, that's become a bigger part of their business. So they have a core business they've always had, and it's just now expanding more because of the data center. And we're a benefit of that because we're their existing landlord and then they come to us say, "Hey, we need some additional space. What can you do?" And that's where our development pipeline and platform helps provide that growth for them.

So I think the other thing I agree with Reid, I'll add, just as we've studied it, and it's not throughout our portfolio, like we're not seeing this demand in Florida or California. But when we look from, say, the Carolinas, Atlanta, Dallas, Phoenix, it feels like that's where the data centers have been delivered, and we have those suppliers. And then when we looked at what's been delivered versus projected what's coming in the next 5 years, it was a multiple, which surprised me and given as much as we've spent on data centers, it's, call it, 4 or 5x more capacity coming that Dallas is projected to be the same or greater than Northern Virginia.

And so as Phoenix, Atlanta, Charlotte, all these get built out, that's maybe Samir, where you touched on of like, there's a lot of runway left on this because maybe the supply chain has been built out in Northern Virginia, but it really hasn't. I know recent lease we signed in Arizona in the last 2 or 3 weeks, part of their thinking was we have adjacent land. We helped and that they wanted to be in our project and that we've got other buildings and land in the area. Their goal is to outgrow their space as soon as they can. So I hope they're right too on that.

And we've been looking at a lot of different studies from different groups, but one of the most recent ones I read was from Green Street, and they quoted that for every gigawatt, they anticipate there's a need for 2 million to 3 million square feet of supporting warehouse space. So if you feel like we're in the early innings of all this, which it feels that way, there should be a long growth rate and trend for the need for this type of warehouse space and the type of users we've been supporting here the last few quarters.

And I don't -- it didn't seem like there's any changes as it relates to the requirements or the lease terms that this category sort of has, right?

Yes, that's a great point. So we have -- we've been attracting all this data center-related demand, but we haven't changed anything about our strategy. So we haven't changed the location of our buildings, our investments or the building configurations. And even when these users come in, the requirements are pretty much the exact same from what our general users are using.

So if I gave you the term sheets of a deal between the data center-related use and maybe one of our standard tenants, you wouldn't be able to tell the difference between term or our TI amounts or any other special requirements. So what we like about that, too, is long-term investor, long-term developer owner over the years, we never know what trends in the economy are going to be happening in another 5 or 10 years, but we have generic and optionality on our buildings that we'll still be able to track these future uses if the data center users decide to move on or whatnot.

What about -- given all this positivity and momentum in demand, what are you seeing in market rents? Like talk about -- I don't know, talk about nationally in some of your best markets, what you're seeing and maybe some of your relatively kind of weaker markets.

Yes. So for our product type, I think it's important to understand the small bay multi-tenant. That overall has been a tighter market over the years. So I think we've probably sounded more bullish on rent growth and be able to hold rents in the weaker markets than some of our peers. And so throughout this year, it feels like we've been from a rent growth perspective on just a market standpoint, probably a couple of bps above inflation.

I think as you look forward, I think the trend is going to be positive on that. One of the things that we're anticipating is higher construction costs as we go into 2027 and beyond. And that's being driven by several factors. Obviously, you have higher fuel costs, be it diesel or gasoline. We're also hearing from our GCs that steel is increasing both the lead time and the cost of steel as some of these large manufacturing facilities are gobbling up a lot of the steel capacity in the country. So -- and then also, I think there's going to be a higher amount of supply, mostly on the big box side.

And so all that equates to higher construction costs and then you layer on that there's going to be higher interest rate carry that's going to make the cost of projects go up, which then should have the effects of having to push rental rate to justify new development. So I think the trends for rent growth are positive for our sector as we finish out '26 and really looking into the future.

I'll open it to the audience for...

Maybe Marshall, going back to some of your opening comments about having parks where you build one building and then the next.

Do you have a sense of across the EGP portfolio, how much runway there is for development based on existing parks where you still have capacity for more buildings on those parks?

Yes. I'm trying to get -- it's in our supplement right. I won't grab it, but I want to say -- and I'm getting away from parks, but we have capacity at the end of 2Q for about 1 million square feet more to build. That wouldn't all be parks, but a majority of that is. And then in our update would be a new park, but we bought really something Reid worked on for a long time. I think people underestimate how long it takes to get these land sites ready and approved, but 100 acres in Dallas.

And then what was it in Florida, we bought 30 acres, and it was maybe 12 parcels and 10 family members where the guy that bought it said and they didn't all speak to each other, get along. Sometimes I regret making that first call to a family member, but that will allow us to grow that from a 3-building park to a 5 building, and it's right where Tampa very well to East Tampa, where I-4 and I-75 connect. So we're on both sides of that. So great visibility access, but it's just -- it's all difficult. But yes, so we've got a lot of runway, and it's something -- that's what we've got on the balance sheet. And we're also working, especially where we're seeing this demand, other land, and we're in due diligence in Atlanta and Phoenix and a number of markets.

I always think of what you see in our supplements, mainly to me, it's almost like the iceberg. What you're seeing is what we already own. And then there's a bunch of other sites that depending how zoning and permitting and demand, whether we close that or not. But we try to look at that on really a market by market or submarket by submarket so that you've got that capacity because I always go back, I can think of one case in Jacksonville, where we had a tenant we didn't have the land and they needed more space if we can't I'd rather cannibalize our own rents than have someone else. And that's one where we lost a good tenant. They had just outgrown our space. We didn't have the building or the land, but we'd rather -- I may have mentioned about 1/3 of our development leasing is existing tenants moving around from within our park or around the corner. And so that's why we'd like to cluster our assets.

And again, if somebody is shrinking, you can try to move them around and just keep moving the Rubik's cube to find a home for them. And everybody thinks they're going to expand on the way in, not everybody does, but it's nice to say, hey, we've got room for you and the -- we've been fortunate in industrial that by the time you've outgrown your space in Building 3 and we build Building 8 for you, we're coming in mid-lease term. So we -- you're kind of captive. It's hard for you to go to another landowner or another landlord and the rents you signed up for 2 or 3 years ago, so we can backfill you at a higher rate. So we see -- we know when that new building is going to be delivered.

And hopefully, the team can get the new tenant at a higher rate in place to kind of backfill and keep turning that way.

How should we think about cash leasing spreads, right? I mean it feels like that continues to normalize, and we're kind of in this 19%, 20% level. So where does that sort of settle in, you think, in a normalized sort of environment?

Yes. I mean it's been somewhat of a slow deflating balloon on the cash spreads. But it does feel like I mentioned earlier, that rent growth should start reaccelerating. So as we kind of look into the future, that may -- that balloon may deflate a little bit slower than it has been. But this year, it feels fairly sustainable at that kind of 20% level. And if you look at the Q3 update we provided, we were a little north of that on a cash basis and almost 40% on a straight-line basis on the re-leasing spreads.

And the geographic diversity that we have that we talked about a little bit, that -- it's been interesting because some of the markets like in California, those re-leasing spreads have been slower to date, where historically, that's really fueled the growth, whereas a market like Houston kind of reversed and flipped. So Houston now is really above the company average on re-leasing spreads. So we like the diversity geographically because we're never going to guess or one market is never going to be the hottest forever. But if we're enough of the fast-growing markets, we're going to pick right more times than we'll pick wrong.

[indiscernible]

I was just going to correct myself. Andrew, when you ask me, this is why I don't rely on my memory. It's 1,000 acres, I said to 1,000 acres and 11 million square feet. So I think we're about 66 million square feet all in. And so that's -- we won't -- I promise we won't build all that at once, but we'll build it as fast as the market can absorb it. So I was wildly all...

I mean I know you don't have a lot of exposure to SoCal, maybe it's 10% to 12%, something like that. Like what are you seeing there? I mean, are you seeing the market improve at this point? I'm just curious.

Yes, it definitely feels like there are some green shoots in California. There are some submarkets that are feeling it sooner than others. It's been a market where there was -- in the L.A. area, there was 12 quarters of negative absorption, and that now has trended positive the last couple of quarters. So is that a new trend? It kind of feels like it. The aerospace, advanced manufacturing users feel like that's powering some of that market as well as the big box space and kind of everything in between seems like it's going to start filling in. I think the supply picture is going to be even more constrained in California because some of the regulations that they've imparted.

So as long as the growth can pick back up and be positive, I think California could look better in the next couple of years than it has the last several.

You guys talk about where you're seeing the data center demand in your portfolio? And can you quantify how much leasing is coming from that? Just any sort of color you can give us on what you're seeing?

Yes. It's probably the main markets where to date have been Atlanta, Texas, and that's really Houston, Austin, Dallas, San Antonio, even some and then Phoenix. So those -- and then Charlotte is what we hear is coming. So I think it's about to happen there. We're close to knock on wood, a pre-lease opportunity in the Carolinas where an existing customer would take another building. And so again, that's kind of what's helped push pressure from start. So -- and it's been kind of that ongoing service of data center. So it feels like it's...

So some of that development leasing is also data center related.

Yes. It's about 1/4 through the first half of the year is about 1/4 of our development leasing was somebody cabling, racking, cooling equipment, something with a data center.

What about the transaction market? Like what are you seeing out there? Obviously, rates have moved up here. I mean, give us an idea of kind of what you're seeing?

Yes. So from an acquisition standpoint, if you heard us speak earlier in the year, that was a piece that we were thinking maybe we would not make our budget because it felt a lot more competitive than we anticipated. But it really feels like the last 45 days, maybe we've seen a bump up in cap rates. We've been chasing a lot of deals. There's been some good opportunities in the market that we've been pursuing, and it seems like we're winning more now than we're losing.

So we're not pursuing them more aggressively, but our offers are starting to stick. And so that gives us the bullishness that we may have the opportunity to outperform our budget now. So don't call us manic, but sometimes we'll -- we got to play what the market provides us. And right now, it seems like there's some good opportunities where we have a an attractive cost of capital to continue to grow through the acquisition standpoint. And it's somewhat unique for us to have both the acquisition window open and the development window open. So the acquisition window will close at some point, but we'll continue to funnel and grow through development. So if we can't buy it, we'll build it. But right now, it feels pretty good for where we stand.

Where are cap rates today? I know you said it ticked up a little bit, but just give us a general idea.

Yes. On the cash side, for stabilized kind of at market, it feels like you're kind of in that 5.25% to 5.5% range. So that may have jumped up kind of 10 to 20 bps in the last 45 days, as I stated. And it really kind of depends on -- there are some markets that are tighter than that. There are some markets depending on the WALT, the -- some of these deals that have longer WALT are more interest rate sensitive. And so I think that's the feel of the last bit is that the rise in the 10 years kind of pushed cap rates up some.

How are you thinking about the trade-off between acquisition and development opportunities? Like can you just talk about maybe the risk-adjusted incremental return you need on developments versus acquisitions?

Yes. So we naturally lean into the development more. That's where we feel like we create the highest risk-adjusted returns for our shareholders. So to date, we've been achieving right around a 7.5% yield on cost on a straight-line basis for our developments. And that's what we've rolled into the portfolio as well as kind of what's under lease-up. And that feels fairly sticky, if not maybe a little bit of upward pressure on some recent deals that we've been pursuing and looking at.

And then on the acquisition side, that's going to always be for us more opportunistic. And so sometimes it will be a strategic buy where it's close to some existing product, our portfolio that we have and at the right pricing. And I think what makes us really good acquirers and investors on the acquisition side is that we are a seasoned developer. So we can go and tell you, hey, this building should -- if it was to be rebuilt today, should cost what per square foot. And so when the brokers come out and say, "Hey, this is the guidance, this is the pricing," we can quickly say, "Hey, that feels like a good price" or it doesn't on a per square foot basis. And then knowing as a developer, what submarkets are good, also what attributes of a building are important to re-lease we can quickly say this is something we should pursue or not pursue. And so when we're buying something, we're buying it with conviction that we know it's a good building. It's going to perform for the long term at a good price.

How should we think about leverage because it's -- you're kind of -- I don't think it's 3x, right? Sub-3x. Like how are you thinking about your optimal leverage?

Yes. So we certainly appreciate where our balance sheet stands today with the dry powder that we have, so to speak, to be able to take advantage of the opportunities that we see from development and acquisitions. And we're glad. I mean this is a purpose-built balance sheet. We have intentionally lowered our leverage so that we would be able to take advantage of investment opportunities as they arise and fit with our strategy. So we didn't necessarily have the goal of reaching 3x debt to EBITDA, but we're comfortable there. We would be comfortable increasing leverage.

I mean, ideally, in the, say, 4.5 range and below 5 would be our long-term range where we would be comfortable keeping leverage. So we certainly have a lot of capacity to issue debt when interest rates and those investment opportunities are to align. But for now, we're continuing to issue equity via our ATM program. As we recently announced, we have about $320 million available in equity forward agreements that we have from about 12 to 18 months to draw those down. So that provides us with flexibility based on the timing of when the acquisition and development opportunities arise. So we feel good about our leverage where we are, don't necessarily need to be as lowly levered as we are, but comfortable there and certainly comfortable increasing leverage to that 4.5x debt to EBITDA over the longer term.

So you mentioned your strategy is not changing with the data center demand, but do you see that shifting as you have more of those data center tenants coming into play?

Yes, I'm trying to make sure I'm answering it correctly. I wouldn't say it's not changing what we're building or kind of where we're building, but where it probably does make us a little more bullish on land opportunities in those -- in that handful of markets where we look -- we've always liked Dallas. We've been in Phoenix since the mid-'90s. We like Atlanta, Charlotte, we've been at a long time. But in Houston, it probably makes us lean in to kind of go, all right, we've got our traditional users and now we've got these data center suppliers coming on the heels of that.

So it makes you feel like, okay, this demand is going to just be greater in these -- you've got population growth, you've got e-commerce, kind of that steady penetration every year. You've got -- those same markets are the ones that also have the advanced manufacturing. We're near the Intel plant in Southeast Phoenix. So we've got actually Intel and some suppliers to Phoenix. We're near the Texas Instrument plant. We've got Tesla suppliers in Dallas. So it just seems like that -- look, as many tailwinds as we can grab. We're happy to have them.

And when you see those dots, you want to connect them and just try to get out ahead of it with a catcher's net between population, e-commerce, data center demand. We've got like the LG battery plant we're near in Mesa, too, and some other things like that, our Phoenix area.

Any other questions? I know I've got a couple of rapid fire. I think you probably know these.

Slow answers, but yes.

If long-term rates stay higher for longer, which has the biggest impact on your sector, higher refinancing costs, lower transaction activity or less new supply?

I think less new supply.

Second one, over the next 3 years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no?

Yes.

Finally, will your -- will the sector 2027 same-store NOI growth higher, same or lower than '26.

Higher.

Perfect. Thanks, everybody.

Thank you.

Thank you.

Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Second Quarter 2026 Conference Call and Webcast Conference Call. [Operator Instructions] This call is being recorded on Thursday, July 23, 2026.

I would now like to turn the conference over to Marshall Loeb, the CEO. Please go ahead.

Good morning, and thanks for calling in for our second quarter 2026 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our President; Staci Tyler, our CFO; and Brent Wood, our COO. 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 PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and 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 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 is made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more details about these risks.

Good morning. I'll start by congratulating our team. We had a strong quarter as well as first half of the year. I'm proud of the results achieved. Our quarterly results demonstrate our portfolio quality and strength within the industrial markets. Some of the stats produced include funds from operations were $2.36 per share, up $0.02 above our guidance midpoint and up 6.8% quarter-over-quarter. Year-to-date, FFO per share is up 7.6%. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term growth trend.

Quarter end leasing was 96.8% with occupancy at 95.6%. The average quarterly occupancy was 95.6%, which was down 30 basis points from second quarter 2025. Also notable was quarter end same-store occupancy at 96.9%. Quarterly re-leasing spreads were 34% GAAP and 19% cash for leases signed during the quarter. Year-to-date results were similar at 35% and 19% GAAP and cash, respectively. Cash same-store NOI rose a strong 8.3% for the quarter and 8.8% year-to-date.

Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to 6.6% of rents, down 30 basis points from last year. We target geographic and tenant diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we're pleased with our results and excited about the quantity of development leasing signed during the quarter, along with our prospect activity.

Reid will now walk you through more of our quarterly details.

Thank you, Marshall, and good morning. Leasing momentum accelerated during the second quarter with signed leases totaling 3.9 million square feet, a new quarterly record for EastGroup. Activity remains positive across our markets as customers increasingly look beyond geopolitical and macro uncertainty and focus on their longer-term space requirements. As demand continues, we believe our high-quality infill portfolio remains well positioned to outperform the broader market and generate organic growth.

Development and first-generation leasing also reached a quarterly record with almost 1.1 million square feet signed. We transferred 4 development projects in Houston, Austin and Los Angeles to the operating portfolio. The projects totaled 669,000 square feet and are 100% leased. Given the continued strength in leasing, we are increasing our full year guidance for development starts to $325 million. This increase reflects stronger and more consistent demand from our customers expanding within our portfolio.

With our team's market knowledge and customer relationships, our strong balance sheet and our infill land holdings, we remain well positioned to create value through development. Regarding new investments and subsequent to quarter end, we expanded our Phoenix portfolio in the Southeast submarket with the acquisition of 143,000 square foot building. And in Austin, we are under contract to acquire a portfolio of 5 buildings in the Northeast submarket totaling 388,000 square feet.

Staci will now speak to several topics, including assumptions within our updated 2026 guidance.

Thanks, Reid, and good morning, everyone. We are proud of our strong second quarter results, reflecting the outstanding performance of our team and the strength of our portfolio. We are pleased to report that the quarter's FFO exceeded the midpoint of our guidance range at $2.36 per share. This represents a 6.8% increase over second quarter last year. The outperformance in the second quarter was primarily driven by higher-than-projected same-property net operating income, largely due to higher-than-forecasted occupancy, reflecting the continued strength of our portfolio.

Our balance sheet remains strong and flexible. We ended the quarter with no balance drawn on our unsecured bank credit facility, leaving available capacity of $675 million. Our debt to total market capitalization was 12.9% at quarter end. Second quarter annualized debt-to-EBITDA ratio was 3x, and interest and fixed charge coverage was 15.1x. We remain well positioned to pursue growth opportunities with the flexibility to access the debt and equity capital markets depending on market conditions. FFO for the third quarter is estimated to be in the range of $2.37 to $2.45 with a midpoint of $2.41 per share.

Looking ahead to the remainder of the year, we increased the midpoint of our 2026 FFO guidance by $0.03 to $9.59 per share, which represents a 6.8% increase over 2025 actual results. We are projecting strong cash same-property net operating income results to continue, and we raised the midpoint of our guidance assumption by 60 basis points to 6.8% for the year. These strong projections are driven by rental rate increases on in-place and budgeted leases and expected same-property occupancy of 96.7%, which is 30 basis points ahead of our prior guidance.

Average month-end portfolio occupancy is now 95.7%, a 20 basis point increase over prior guidance. We are pleased to increase our projected 2026 development starts by $60 million to $325 million. Year-to-date, we started construction of $123 million of development projects, and we've now assumed another $202 million of starts in the second half of the year. This increase reflects the strength of development leasing we have accomplished year-to-date as well as the current leasing pipeline. We also increased our acquisitions guidance by $55 million to $215 million. Year-to-date, we have closed or are under contract to purchase properties totaling $150 million, and we have assumed a $65 million acquisition late in the fourth quarter.

Our guidance assumption for 2026 gross capital proceeds remains unchanged at $300 million. We issued $70 million in common stock through our common equity offering program during the first quarter, and we currently have an additional $210 million in forward equity sale agreements available for issuance at over $201 per share. We will continue to monitor the capital markets and remain flexible as the year progresses. Our rent collections currently remain healthy and our tenant watch list is steady. We are pleased with our strong performance in the second quarter. And as we look ahead through the remainder of the year 2026, we are confident in our experienced team and well-located, high-quality portfolio to position us for long-term success. Now Marshall will make some final comments.

Thanks, Staci. In closing, we're pleased with our year-to-date. Market demand is gaining momentum, and it's been steady for several consecutive quarters now. Regardless of the environment, our goals are to drive FFO per share growth while raising portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders. And 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, nearshoring and onshoring trends to now include data center suppliers, 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 quality in terms of buildings and markets improves each quarter. Our balance sheet is stronger than it's ever been, and we're upgrading our diversity in both our tenant base as well as our geography. We'd now like to open up the call for questions.

[Operator Instructions] The first question comes from Craig Mailman from Citigroup.

It's Nick Joseph here with Craig. Marshall, you mentioned the data center adjacent demand. I was hoping you could try to quantify that, what you're seeing in terms of leasing, particularly around where you're seeing data center development today.

Sure. Happy to -- Good Morning, Nick and Craig, a little bit maybe just statistically, as we were looking at it in terms of square footage, about 40% of our first quarter development leasing was data center-related tenants and 20% in second quarter. So what we're excited about as we think about it is just it's really a new demand driver that a new SIC code to our portfolio. And then as we look ahead, kind of looking at what the data center capacity is today versus what's been planned as we look through our markets, some markets that have really big multiples of 3 to 4x what's sitting there today, like Dallas, Phoenix, Atlanta, some of our major markets, it feels like we're early innings, not very exact, but maybe early second inning that we're seeing 1/4 of our leasing, which to me feels year-to-date pretty high. I don't know that we'll stay at that run rate.

But there are people out there, and we're leasing to suppliers to the data centers. What we like about it is the trajectory for the demand growth that we see coming in addition to what we've already got. And then as we think about our own kind of downside to it, we've said the good news is we're not building next to data centers. We're not building out space that's tenant-specific use. So if we lose those tenants, we're really in no different shape than we were when we started these projects. So we're not building anything that may be an odd use later, but it feels early in the game, at least for the industrial side or especially for us, maybe in the shallow bay, where we probably benefit more when the data center is completed than under construction.

And it looks like the pipeline for data centers has historically been understated and that it's a whole lot more coming into markets where we have pretty good land presence and things like that. So we're -- look, we're excited about it, and we'll just try to be thoughtful as we capitalize on the opportunities.

And for our next question comes from Samir Khanal from Bank of America.

I guess, Marshall, it's good to see the development leasing side is strong. And -- but when I -- there were some projects that got pushed out a little bit on when as we think about the conversion date. So maybe just provide some color on that?

Yes. I think there's always -- look, as we work through it, and we'll try to deliver projects with spec office and pending permitting, and things like that. So I would say, look, it takes longer -- certainly, one thing we've noticed, and I'm maybe taking 2 steps back, getting sites and projects planned and permitted is much longer and a much more arduous process than it was pre-COVID. I think people want the package or the service, but no one wants industrial in their neighborhood. So as we work through it, it's usually -- look, our goal is to deliver it once we break ground as quickly as we can to minimize that carry and get NOI coming in.

And sometimes you just run into construction delays. I mean, I think we're hearing things probably early on with -- I'll tie it back to the earlier question with data centers, getting steel and getting kind of the steel beams and getting electrical equipment, our team does a great job of ordering those early, but the lead time on some of those is getting pretty long, as you'd imagine, the demand for us to get in line, getting the switchgear and the transformers and things. So you're right. Sometimes it can add a couple of months into our delivery schedule to get those finished up.

And for your next question comes from Blaine Heck from Wells Fargo.

Marshall and Reid, it's encouraging to see the increase in development starts and acquisitions guidance given your relatively conservative ground-up driven methodology. I guess if you had to pick one of those external growth options, where do you think the best risk reward profile is going to be between buying and developing over the next couple of years? And if I can slip this in as well, are you concerned at all about supply ramping up quickly in your markets?

Yes, Blaine, this is Reid. As we view external growth for us, development is where we typically add the most value, especially on a risk-adjusted return. So we like where we sit. We like how the market dynamics are starting to play in our favor in that regard. So if you look at where our starts are projected at $325 million, that takes us back to '21, '22, '23 level numbers, which we're excited about to be assuming that we will be back at that level of development. The other thing I would add is that our development platform and the land holdings is very robust, maybe more so than back in that prior period, and it's very diversified. So we've got land holdings in over 20 different submarkets.

And that will give us the ability to really lean into future development as we look into not just the next couple of quarters, but the next 6 to 8 quarters is this activity continues. And as we talked about previously, consistency has been the biggest piece that had been missing. And the fact that we stacked another really strong quarter on top of what had been good previous quarters really allows us to open up the development pipeline and allow the teams to take advantage of the strong platform that we do have in place today.

Blaine, I'll add. I agree with Reid on the -- maybe a little color on the acquisition market. I think maybe the last time I saw you, we were a little concerned about hitting our original acquisition goals this year. We were pleased to -- in Phoenix, for example, that property is very close to our development site in Mesa as well as 2 other buildings we own. And then in Austin, we've known the project there. It's centrally located, which we really like are excited about. I've been -- I thought we'd have better acquisition opportunities this year given how sticky interest rates have been, but it's been just the opposite in talking to some of our brokers, they're seeing in their comment, a couple of markets, 2x the number of bidders for good industrial buildings than they had a year ago and cap rates at 5 in the upper 4s.

So I think the spread between the 10-year and cap rates has probably never been as I can remember, as close as it feels today and maybe probably 10 takeaways, but one of the takeaways, and look, we believe we'll see it, but then the private buyers are sure betting a lot. My takeaway is the rental rate growth. If you're buying that close to a risk-free rate in your IRR model, you must be really assuming a fair amount of rental rate growth and I hope they're right. I think the theory is there, but the acquisition market, we've been strategic acquirers, but not opportunistic acquirers because that's really all the market has given us this year.

And for our next question comes from Alexander Goldfarb from Piper Sandler.

If I can ask the energy question in 2 respects. First, Marshall, are you -- it doesn't seem like diesel costs, et cetera, is playing a role at all. It doesn't seem like the cost of transportation is impacting leasing. And second, are you guys seeing any uptick in your Houston or Dallas or Texas portfolios from increased production? I got to believe that people are drilling a lot more in the Permian, which I would assume would cause more energy demand for your warehouses in Houston, et cetera.

I guess the first point -- good question. Look, we're really happy. We had a record quarter of leasing, as Reid said, almost 4 million square feet and about half of that is new leasing, whether it's first generation or development or just vacancy, which is a really large percent for us. So I would say in the short term, we've been worried about the consumer but in second quarter, there were no -- in quarter-to-date in third quarter, no impact on decision-making or no slowdown. In fact, it felt like things sped up. So we're happy to get the deals across the finish line we did.

And Dallas and Houston are really strong markets. Dallas really doesn't have much energy there, Reid. You live there. Houston is a strong market, but it's been more advanced manufacturing and just economic growth than -- look, I hope oil and gas helps those markets. I think as we talk internally, the other -- if diesel prices do stay higher for longer, which today it sure looks that way, that I think last mile only becomes more and more valuable and especially last mile buildings in our markets.

And as you would imagine, whether it's Orlando, Charlotte, Nashville, Phoenix, Austin, traffic is terrible in every one of our markets. So the speed of service, whether it's a service delivery or product delivery, over time, it will force people to get better and better with their last mile delivery because you can get cheaper rents on the edge of town, but you're going to lose it on diesel cost and really customer service, too. So I think it makes our locations more valuable, although that will take a while as the logistics chains evolve, but we like to have -- that would be one benefit. We're not wishing for higher, for longer on gas prices, but that will be one longer-term impact of it.

Yes. Alex, this is Reid. I'll just add to that. The Texas markets are much more diverse than they have been in the past from an industry standpoint. And so energy may be another tailwind to Texas, but there's a lot more to that story today than just energy, which is beneficial. And Dallas and Houston, as Marshall mentioned, are probably some of our strongest markets as we have met this halfway point in the year. So data center activity is really strong in Texas right now. Houston has been a hub for that in a lot of different aspects.

Dallas is -- I saw one projection that Dallas would exceed the capacity of Northern Virginia by 2030. So we like all those tailwinds, but there's even more to Texas than just the data center and energy is population growth and corporations relocating and whatnot. So we're bullish on Texas all the way around.

And for our next question comes from Michael Griffin from Evercore ISI.

First, you noted in the release that you've started to see more normalized demand from your customers and I was wondering if you could expand on that a bit. Are you starting to see maybe more newer prospects come into lease space? Is it just pent-up demand from folks that have been on the sidelines? Give us a sense of what your conversations with customers are sitting like here.

I have a concern when we say -- good question, normalizing. Last year, we had prospects and we would even have reached deal terms, economic terms but getting the prospect to sign the lease and really for them to get the internal approval to move forward, it was a very long protracted. And I think because of the headlines in Liberation Day that it wasn't that we didn't have prospects. But if we had dropped the rental rate or offered more free rent, I don't think we would have hurried a decision along. They just weren't getting the approval. And then starting in fourth quarter, it felt like we said maybe people got comfortable being uncomfortable where decision-making became more timeframe normalized. I guess maybe a better way I could phrase it was just the time gestation period of getting deals wrapped up seem to speed up, and it's continued and actually improved during the year.

So we're happy with that. The other thing that just kind of trends and you see it our Tucson development, one of our San Antonio developments talking to our team, we've seen more expansions probably later this year, kind of more recently than we saw last year by a measurable number. So to me, that's the best kind of new leasing, is we had tenants before we were renewing and staying put and seeing companies grow and take on more space, and that fed into a lot of our development start lift this year and things like that. So I'm happy to see people making decisions without being really analysis paralysis and then really pulling the trigger on expansions is great news for us as well.

Yes. That organic growth is really important to our platform as we set things up in different phases on the development side as those tenants and customers need growth opportunities, we can provide that for them. So that's a major benefit for us as we tap into those existing relationships.

And for our next question comes from Brendan Lynch from Barclays.

It sounds like things are really going quite well on a number of fronts, a tightening market, limits to new supplies, customers acting with more urgency. When you think about where weakness could emerge, where would that be? What are the things that are -- might derail what is otherwise a very strong dynamic at present?

We worry about the consumer market. Look, interest rates are staying higher. And I think -- and as I mentioned earlier, higher gas prices, look, it's not good for any business out there, but our goal is to be -- when we think of locations, we want to be near an affluent and rapidly growing population base because that drives demand for the tenants in our building. And if the consumer weakness, we worry a lot more about demand than we do supply for the type buildings we build and where we build them. And so that would be -- and I think with consumer weakness, then that we're not seeing it, but that will bleed into tenant credit issues within our portfolio with slowdown demand, tenant credit, things like that, that almost taking me back to early 2020 when COVID hit, that was what our worry was. But that's that's probably the Achilles heel, or the big one.

Yes, I would just add to that. We would typically -- consumer strength for sure that -- and we would typically say that supply could be a concern but what we really like as of right now is supply is really in check across our markets, especially in the multi-tenant smaller building construction. And we've been saying for several quarters now that when the tide would turn, we have -- as Reid mentioned earlier, we have a deep bench of land and buildings and permits ready to go, which are very time consuming to get to that point.

But we're sitting on go. You saw how quickly we moved, our development starts up. And so supply for a bit. Now look at cyclical, if it stays good for a while, of course, developers will come back and the cycle will take place. But we're hopeful that we can get more than our disproportionate share if things were to continue to turn to the upside. So where you would typically say concerns and what could weaken it, oversupply. But the good news there is we're a bit away from that and hopefully, like I say, we can get -- keep ramping up and pushing to get more than our fair share on that side of things.

And for our next question is from Michael Carroll from RBC Capital Markets.

On the development side, I know you guys let demand pull, development starts through. So can you help me understand the difference between EastGroup signing about 1-plus million square feet of development leasing this quarter? And it looks like the development target was only increased by about 400,000 square feet. I mean is this just a timing difference as it takes time to find new projects and break ground? And as the development leasing continues, we should expect that these development start activity would continue to pick up going forward?

Michael, this is Reid. From a development start standpoint, with the activity we have, which is year-to-date 1.5 million square feet, which exceeds already our full year numbers from last year. So we're very positive and bullish on how that development leasing has occurred, and it has allowed us to drive development growth. So we would anticipate that if that numbers continue, there's potentially some additional upside. But the most important thing from our team and what our platform allows us to do and as we've discussed this some in the past, but our teams are always teeing up the next phase of development with permits and getting pricing and everything set.

So when we do hit a certain threshold with on the leasing side within current phases of development, that allows us to pull the trigger quickly. And so that's part of the reason we were able to bump our numbers this year. And hopefully, that trend continues not just through this year, but into next year, and we can maintain these levels that, again, we haven't seen since kind of the go-go days of '21, '22, '23.

And for our next question, it's from Mike Mueller from JPMorgan Chase.

I guess looking at the quarter-to-date and year-to-date leasing spreads, San Francisco looks like it had the weakest pricing power by a lot, and there is a pretty notable drop off from what you reported for all of last year. I guess, can you give us a little color of what's driving the spreads this year and what the go forward looks like?

Yes. This is Brent. I'll jump in. The Bay Area had good observation, but we continue to see slowness in the market there relative to other parts of the country. I think you could even say at this point with a very strong quarter for L.A., especially in big box, it's showing some sea legs there and showing, again, a surprisingly strong quarter there. We've not seen that yet in the Bay Area. So I think you could even say the Bay Area is probably the slowest of the markets that we're in at the moment. So obviously, in lockstep with that, pushing to get deals into some of our vacant spaces. And it's hard to put exactly a finger why that would be driving or lagging. Obviously, they're a tech-driven market, but it's just been slow.

And so hopefully, some of what we've seen the uptick a good quarter in L.A., hopefully, that in other markets as well that, that could uptick there. But we continue to see across all of our markets, good rental rate strength. And we've been saying Marshall has really been harping on for a while now that it's just a little bit of uptick in activity, and hopefully, we're beginning to see it. But with as tight as vacancies are, the vacancy rate, especially in the multi-tenant that there could be some pricing power on the landlord side, owner side quickly. And so hopefully, we can continue to see the strength and play into that in most of our markets.

But the Bay Area will be one as we get spaces leased, we'll probably continue to lag until it can show a little more strength there. But again, very pleased across the rest of the portfolio and where we stand from a -- we really -- when we're talking to the team in the field in pretty much all of our markets, it's just a matter of demand, and we're seeing an increase in getting the right tenant there, but there are not a lot of options. So capitulation on rental rate has really not been a big part of the equation in terms of the leasing activity. It's been more just demand-driven. And so we're very pleased to see that be a strong second quarter.

And for our next question comes from Todd Thomas from KeyBanc Capital Markets.

I just had 2 questions related to the guidance. First, I was just wondering the same-store growth outlook was revised higher and leasing was strong, but you took up the low end of the range. I was just curious if there was an offset or anything you could point to specifically that acted as an offset to the FFO range? And then also with regards to the spec development leasing, I think you originally had assumed $0.07 contribution at the midpoint that was after the first quarter, you had achieved a few pennies. So I think there were around $0.04 left. And I realize from a timing standpoint, it might be tough to move the needle on '26, but where do you stand with the leasing completed now to date and the amount of development leasing that's still left to do with regard to the updated guidance?

Sure. So I'll start with your second question on the spec development leasing. You're absolutely right. At the beginning of the year, we had $0.07 assumed for spec development leasing in our guidance. That was reduced to $0.04 when we updated guidance in first quarter. And at this point, during the second quarter, we were able to sign leases to basically shore up $0.02 of that $0.04. And then we have $0.01 remaining in speculative development leasing that remains in the guidance. And we essentially removed $0.01 from that $0.04. So starting with $0.04, we took care of $0.02 by signing leases we have $0.01 that we removed and then $0.01 that remains in guidance.

And that's really to your point and your question about the timing. So with these newer spaces, it just takes a bit longer for the tenants to be able to occupy the space. In certain locations, takes a little bit longer for permitting on spaces where we're doing more -- a little more major work to get a tenant into a space. So as the year progresses, we start running out of time for the tenants to really be able to occupy and contribute NOI to '26. And that's exactly what we saw with the record leasing that we experienced in second quarter, 3.9 million square feet total, half of that was for new spaces and much of that for new development spaces.

And it just takes a little while for those tenants to occupy the space. So that's why we haven't seen as much of an increase in FFO projections for '26. We're really looking at that contribution to be more impactful in '27 as we go forward. But the great news is that the leasing demand is there. We're experiencing it. We've not cleared the deck. We saw very strong prospect activity, and we're feeling really good about the leasing environment.

In terms of same-store growth and the range for same-store growth and for FFO for the rest of the year, we really on both of those tightened the ranges. Now that we're 6 months into the year, there's just less likelihood and this is what we typically do, start narrowing the range. You're less likely to meet the low end or the high end of the range as the year progresses because there are just fewer variables with half of the cake baked, so to speak. So in terms of narrowing the ranges, that's just what we typically do as the year progresses. But good news is that we raised the midpoint of our FFO guidance, same property guidance, occupancy and same-property occupancy, along with the other assumptions that we increased for acquisitions and development starts.

So we're feeling great about the current environment and projections for the remainder of the year. We do have some tough comparables when we're looking at the back half of the year in terms of same property growth. So we've been able to achieve almost 9% year-to-date. And in terms of same NOI growth. I look at the back half of the year, we are projecting lower, but that's because we were 97% occupied for the same-store portfolio in the back half of last year. So it's a difficult comp, and we're close. We're now projecting same-store occupancy for the year of 96.7%, which is a 30 basis point increase over our last guidance revision. So we're feeling good about what we've been able to accomplish and about the environment for the rest of the year going forward. It's just hard to continue to project being at 97-plus percent occupied.

Our next question comes from Rich Anderson from Cantor Fitzgerald.

So I wanted to talk about the future of cash re-leasing spreads, Reid and Staci and I had this conversation at NAREIT. And you produced 19% this quarter, understanding that that's a function of what gets signed in a given quarter. So I know it's not purely mathematical, but I would argue that the pull forward of demand that happened during the pandemic maybe condition people to expect 30%, 40%, 50% on that number, but it should trend down as time passes. I assume you agree with that. And I'm wondering where you think the sort of the normalized run rate of cash re-leasing spreads should be for your business specifically in the shallow bay market, which tends to have better market rent growth than the broader market for industrial.

Rich, it's Marshall. I'll take a first run at it and you all chime in. I view it -- look, it's like our business. It's a cyclical business. I never thought we would get, I'm quoting net effective. I know you're talking about cash. Well we got -- for 2 years, we averaged 50% net effective. I just didn't think you'd see that in industrial. And it's -- we had that great ramp-up that you mentioned post-COVID. It feels a little bit like air coming out of a balloon. And so if demand never picked up, you're right, our mark-to-market given our annual -- and annual increases increased in our leases post-COVID. So it's come down from 40%. And yes, we're kind of in the 20s, high teens this quarter. It would continue to level out if we weren't a cyclical business.

And it feels like it's early, but I do think given supply-demand dynamics and a pickup in demand that we've seen, that's where I get excited that by the time we kind of really work our way through our embedded rent growth, there'll be a next leg up. And then it will cycle again. So it's maybe longer term, I'm not quite sure I could answer where it will average depending, but I think we're beyond the inflection point a little bit, and it seems like our peers are thinking that as well and that there'll be a new leg up in rental rate growth. It's been kind of inflationary or inflationary plus, we've called it, and we're not seeing a major change to that, but we have seen a major change where us and one of our peers have a record quarter of leasing at the same time, it tells me there's a lot of industrial demand out there.

And that -- and supply will catch up, but it's going to take longer. And we think this cycle, it will take longer given the municipal pushback. Our zoning is taking much harder and more challenging in finding those sites than it did pre-COVID. And I think that's what's going to slow down developers. We'll find a way to overbuild, but it will take us longer this time than it did in earlier cycles.

And Rich, this is Reid. I would just add the amount of activity that all the markets saw in this quarter was very encouraging. Some markets had some record level absorption numbers in the quarter. So from a demand perspective, that's going to help us hold and push rents into the future. And then we did talk about the development math, how that's actually kind of a higher number that you have to solve to than it was back in the day where interest rates were lower and even construction pricing was lower.

So I think those trends are all going in favor of higher rents longer term. Do we continue to kind of plateau like or bottom out where we have been or does it peak? That will be something that we keep a close eye on and see. But I think the trends are positive that we will see some abilities to continue to push rents in the future.

And for our next question comes from Dave Rogers from Raymond James.

And maybe this is to Staci, but I think also the rest of the team. Can we go back to the development and the spec component? And I guess I just wanted to kind of reconcile back to the square footage leased year-to-date. It seems like the development leasing has been particularly strong, but the guide still kind of includes some spec and then actually removed some, and I don't know if that's timing. So that's the first part of the question.

And then the second one really was around the conversions in the second quarter were at a 9.4% yield into the operating portfolio, which again seems strong and supports the same kind of argument that you guys are ahead on development leasing. So I guess I wanted to kind of reconcile those two and then also reconcile to the mid- to low 7s on what's in lease-up or under construction today, and if there's something unique in these portfolios that kind of make that a 200 basis point delta. Sorry, that was a lot.

Yes. No problem. This is Brent jumping in. Yes, on the conversion yield, I'll take that part first. The increase, you mentioned the properties we transferred in and then year-to-date, 9.4%. The biggest driver in that was our redevelopment, Dominguez, which is a redevelopment in the L.A. market of California. Property we had owned a long time, retrofitted, very pleased to have gotten that lease up during the quarter, but that was a, I would say, " abnormally high yield," just by virtue of redevelopment on our low basis. That was, I think, north of 9%.

That -- looking back at our existing pipeline, the 7.1% in lease-up and the 7.5% yield under construction, that low to mid-7% is a better overall average run rate for the development pipeline, just carving out any redevelopment component to it. So I would say that we continue to be very pleased with, if we continue to be at that or even slightly exceeding that. In terms of your first part of the question about the leasing and how that kind of played into our guide, excited about the leasing, 15 leases that were development or first generation, which basically space that had been development that had converted in, 10 different markets, so very good spread in that. But about half of our leasing for the quarter was new leases in the operating portfolio or development.

As we've touched on earlier, with 5 months to go, it's great to have that leasing. But in terms of moving the needle this year, in any of these cases, you're looking at, on average, maybe 2 to 4 or 5 months, depending if it was a development space with no office space and you've got to permit and build it out. So it takes time to get these tenants into the seat, so to speak, and to immediately get to the needle. So a lot of that will really create building blocks and catapult into next year. But at this point of the year, as you sign new development leasing, it has a more de minimis impact on the immediate year. But yes, I think Staci had mentioned on the $0.04, we accomplished $0.02, still one dialed in. We removed one.

We've got a lot of projects. They're very pleased with the leasing, but there are some that still we're having to push some leasing assumptions back. Our Arista project in Denver has been slower than we had liked, a great project just in a higher growth but shallower submarket. So you have ebb and flows in both directions but net-net, we're very pleased with where it settled out.

I agree with Brent. And just to add to help quantify the magnitude of the delay on some of those because when you do -- I definitely understand your question. When you see the 1.1 million square feet of development and first-generation leasing during the second quarter, it seems like that could have or should have translated into more progress on that $0.04, so to speak. But had all of those leases that we signed in the second quarter occupied in July versus their actual occupancy dates later in the year, we would have $0.03 of additional FFO.

So that just shows you, I mean, the magnitude of the leases that we've signed is pretty incredible, very strong, but that timing just to get those tenants to occupancy is what is causing the delay. So we're not behind. We're actually ahead of where we had projected in terms of signing the leases, but the timing is a little more delayed compared to our regular portfolio leasing.

Our next question comes from Nick Thillman from Baird.

I think I know the answer to this question based on Reid's gung-ho commentary around Texas, but the markets that you're seeing the most rental growth in today, where would you place that? And then if I recall on your development yields, you guys underwrite current rents at the time. So maybe just highlight some of the markets where you've come in ahead of expectations over the last 12 months where you've seen rents run relative to your initial expectations?

Yes, Nick, it's Reid. I would -- you are correct. I would stay on the Texas theme kind of both pieces. Dallas continues to be very strong for our portfolio as has Houston. So between those 2 markets, our 2 recent developments that we moved into the operating portfolio in Houston, both exceeded our anticipated pro forma rents. So that was a very strong indicator of what Houston has and where it's headed. Florida has continued to be a fairly strong market for us as has Atlanta. Atlanta has picked up quite a bit and had a really strong Q2, especially on the development side with some good rent momentum there.

Yes. I would just add to that, your other component about maybe where we've accomplished better rents, pushing the yields up. And I mentioned 15 leases signed in the development first generation this quarter, 10 different markets. The good news is that's been broad-based, and it's been -- we pretty consistently have been a little bit ahead in most all of our development conversions. Again, the only one I would point to that maybe has been slower than the rest, again, the Denver location, that may be one where the yield, maybe not quite we initially penciled out pro forma will still be fine. But the rest of them, again, very pleased with the depth and the width of the activity and where it's occurring.

And the good news is on the development side, there's not been like a project that pushed the numbers, but the rest are lagging. It's been very consistent being slightly ahead. And to your point, we do when we put a pro forma together, we're putting rents at market that date. And so by the time you permit, build the building and get into lease-up, so that can be a 12-, 18-, 20-month period. Ideally, those rents have moved up and you can accomplish a little higher, and we've been doing that, which is nice.

And for our next question comes from John Kim from BMO Capital Markets.

I want to ask on your leasing pipeline, if you could provide any commentary of where that stands today to perhaps last quarter? And any color you can provide on how much of that is new versus renewal and development leasing? And then also if you could tie in that positive commentary you've had on leasing demand with your occupancy guidance, which I know you've raised for the full year, but it does indicate for occupancy to soften in the second half of the year, just given the implications for guidance.

Yes, John, interesting point, and we agree with from the standpoint of the occupancy guide on the back half, you run the numbers and you say, okay, what you've accomplished and what you're guiding to would point to that. And it's really nothing specific that we're trying to dance around or really need to accomplish to push it. Having been in the field, Marshall, Reid, you and I all having been in the field at some point or another, it really is challenging when you're penciling out your budgets to continue to make yourself, show yourself finishing 99%, 100%, 98%. And you really have to have a bunch of those markets to accomplish the 97%.

So I guess roundabout way of saying, I hope some of that proves to be conservative, in terms of what we're projecting in the back half of the year in terms of occupancy. I would point out that our same-store occupancy continues to run about 100 basis points higher than our operating portfolio, and that continues to be driven a little bit from the development lease -- development projects that have converted in that weren't 100% leased. So obviously, they contribute to that lower occupancy rate. But we really view that as opportunity within those spaces.

And we were very pleased that we had removed about 45% of our first-gen space that was -- a quarter ago, we were reporting on this, we were over 700,000 feet. We leased around 400,000 feet of that, only leaving about 365,000 feet of that to go. So we're very pleased to have knocked out 53% of that. So again, the back half of the year, we'll see how it plays out. Hopefully, it proves to be conservative, but some of it is just human element when you're dialing in those spaces one at a time.

And for our next question comes from [ Jessica Zheng ] from EastGroup.

So you've acquired 5 buildings in Austin post-quarter end. I was wondering if you could kind of discuss the market fundamentals in Austin for a little bit. I know more recently, that's the market that's seen good demand, but it is also faced with a lot of supply. So any color there would be great.

Yes. This is Reid. Austin market is one that has been an interesting one to follow. It is oversupplied in some areas. Our portfolio has continued to perform quite well, kind of achieving right around the mid-90s to upper 90% leased over the last several quarters. And that's really because we're focused more on infill locations where supply is hard to add. Where you're seeing the oversupply is further north, further south of the market, and it's become a very linear market, which has driven some of that new product and just trying to find available land.

And so it's a market we watch closely, but we're very bullish on Austin long term. There continues to be a good demand picture there, continues to be good drivers in the market from both the population growth perspective, but also from new manufacturing, advanced manufacturing and and all those elements to it. And then specific to the project that we announced, we're under contract, haven't closed yet, but these are very infill located buildings, strategically fit very well with our portfolio and is a project that we've honestly eyed for several years and fits very well within the EastGroup platform that we have. So excited to get that closed and bring on to the platform where we continue to add value and grow our Austin presence.

And for our next question comes from Ronald Kamdem from Morgan Stanley.

Great. I think you talked about sort of the data center tailwind in the cycle. But historically, I think nearshoring, onshoring as well as e-commerce were some of the big sort of demand drivers. And I was just wondering if you could provide sort of any numbers and what markets those themes are really playing out at, whether it's some of the leasing activity. Just curious if there's any sort of way to quantify how those other themes are impacting demand.

Ron, it's Marshall. Yes, you're right. I guess kind of more topical is data centers, and we've talked about that. It hasn't gone away, but certainly, that advanced manufacturing onshoring, nearshoring. We're seeing that as I think within our portfolio, we have a building in Dallas, Northeast Dallas supplying the TI plant up in Sherman, Texas. We have Tesla suppliers in Austin as well as even down to San Antonio, supplying, I guess, the new-ish Tesla plant in Austin. And then we're near the Intel chip plant in Chandler, Mesa. So we've got suppliers to those plants, maybe a little bit kind of under the radar. Houston is a market that's really picked up a fair amount NVIDIA, making chips and things. So there's been more development there in terms of onshoring maybe than I would have suspected Houston having for advanced manufacturing.

And now it's been in submarkets, but certainly in California, the aerospace and the kind of the beach communities. I won't say South Bay, but maybe just east of that in L.A. has really helped that market or at least the Class A space. And it will improve the overall market over time. And same thing with technology, where a lot of our products are Hayward East Bay. It's been a little bit slower. But as you imagine, as you get down closer to Silicon Valley, those are stronger. So again, I think -- and we'll pick up as that -- we just need economic activity in our markets. That's why we try to pick markets with higher-than-average GDP growth, and we do by and large. And so -- but we're -- that the advanced manufacturing onshoring, nearshoring hasn't gone away. It's just not as new an impact on our portfolio as the data centers, as you pointed out.

And for our next question comes from Vikram Malhotra from Mizuho.

I guess just 2 clarifications. So first on SoCal. There's been a lot of talk whether the market is bottoming. Is it more IE and big box or it's more breadth? So can you maybe just provide your latest thoughts on SoCal and also within that, just clarify the occupancy dip that we saw. I believe it was a tenant that you may have backfilled, but if you just can clarify that?

And then second, just the annualized -- maybe just give us a little bit more color on the development income flowing into this year based on what you've done year-to-date? And like what's the annualized run rate we should think about into '27?

Yes, I'll cover the first part, Vikram, with regards to SoCal. Yes, as Reid mentioned, we've been talking to some of our brokers here recently or just brokers in the market, very -- a surprise upbeat tenor and quick movement in Los Angeles. You're definitely not going to point to a quarter and say it's a trend, but I know that it was welcome there, and there was a record absorption number, not necessarily net absorption, but a record amount of leasing in the month of June. In June alone, I know Inland Empire did 7.5 million square feet, which was an incredible number, a 2.8 million net absorption for the overall market for the quarter, which gives them a string of 2 quarters after a long run the other way.

So to that end, I think certainly, a lot of that's obviously big box driven, Inland Empire driven. We don't play in that. But I think overall, it's healthy for the market. That San Gabriel and South Bay submarkets where -- mainly where our portfolio is, continues to be strong. And as much as we've talked about the slowness in L.A., it's still overall market vacancy rate of just 5%, which I think speaks to how tight that market had gotten that with the slowdown, it's at just 5%. So it feels good there in terms of what's happening. We would want to continue to see it go in that direction.

Again, I would point out as we have in the past, only 5% or 6% exposure for us to L.A., 5% or 6% exposure to the Bay Area. So again, we're very focused on good geographic diversity and watching our concentration levels. So we feel good about where we are there. You had mentioned, Vikram, about the tenant backfill and maybe moving numbers. I'm not sure if I'm really following exactly the tenant you may be or property you're referring to, so maybe -- or maybe Dominguez. We had a redevelopment that we did relet there, an existing tenant expanded. And so we are excited about that. The commencement of that lease will be a little bit as we talked about earlier with the way some of those work. But -- so to that end, we were pleased to backfill that space, if that might have been what you're referring to.

Yes. And in terms of the run rate going forward for the development leasing that we've accomplished, hard to quantify exactly since we have so many different occupancy dates. But as you look forward with that square footage, using a 7% or just above a 7% yield on those development projects has been our average and remains our average, particularly when you exclude the Dominguez project, which had a higher yield being a redevelopment. So as you build those into your models, using just above a 7% yield on development projects and just applying that to the square footage would work.

And for our next question comes from Omotayo Okusanya from Deutsche Bank.

I wanted to go back to Brendan's question. And in terms of just like again, the earnings outlook, given that development itself is not likely to kind of contribute much more for the rest of the year. Could you just talk a little bit about kind of where there are opportunities to possibly maybe raise the high end of guidance? And I ask that in the context of just looking at your peer performance, all those guys, again, were not just narrowing their guidance range, but they were actually increasing their entire range. So just kind of curious why they can do that and maybe again, why maybe you didn't do that this quarter and maybe opportunities to do that going forward?

Tayo, it's Marshall. I think it's -- look, as Staci mentioned, at least as we think about our guidance, we're happy with the quarter. Look, if we can set a record quarter for leasing, we'll -- I'll sign that now and take the rest of the quarter off. So we're happy 3 strong quarters in a row and really what we felt like and maybe if I step back, and this is more my perspective, look, I was generally probably more excited about our quarter, and this isn't but as we read with 21 analysts, I think we were more excited than the knee-jerk reaction from the street was.

And in terms of guidance, what we were really trying to do, and we talked about the high end of our range that do we raise the high end of our range, but we felt like I would maybe pay attention. I can't speak for our peers, but where our midpoint goes and raising -- we started the year at -- our original guidance was $9.50 a share. We were able to move that after first quarter and now after second quarter, we're up to $9.59. So I'm pleased that we've been able to raise kind of the midpoint of our guidance 7 months into the year by $0.09. I hope there's -- look, that's our budget, and we'll try to beat that as our goal. In terms of getting to the higher end of our guidance, I can't speak for our peers, but we purposely raised -- we raised the -- as you saw, the floor of our guidance by $0.06, and we narrowed our range.

So just the way the math worked, we're $0.07 away from the high end of our guidance with 5 months left. So it's hard for us to just mathematically think, look, I think the team will get a lot accomplished like they did in the second quarter. But by the time we get those tenants in, it will take a little bit of time. But I'm -- to me, against a lot of different vantage points and I respect everyone's, I'm glad we -- to me, the bigger takeaway is, hey, the team has moved us from $9.50 to $9.59, and I hope we can keep that trend. And I'm happy that we were able to raise starts, same-store occupancy, occupancy, same-store NOI, all of those. And just the way it ended up, we said, all right, $0.07 above our midpoint is about if everything goes our way, look, if we can get above that, I probably should go buy lottery tickets later today, too, so -- but I appreciate the perspective. We were just trying to keep our guidance within a narrower range because we -- as a company, we should be able to guide our shareholders with more and more accuracy as the year plays out.

Thank you for the questions. And since there are no further questions at this time, I will now turn the call over to Marshall Loeb. Please continue.

Thank you for everyone for your interest and your investment of many of you in EastGroup. If we didn't have a chance to get to your question or you have follow-up questions, we're certainly available and hope to see you in person soon. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

All right. We're around the clock. So this is EastGroup Properties 1:15 meeting. I'm Blaine Heck. I cover office, industrial and cold storage for Wells Fargo. And I'm very happy to have Marshall Loeb, Reid Dunbar, Staci Tyler and Brent Wood with me from EastGroup. I'll turn it over to you, Marshall, to kind of give a layout of the land of your company and how we should think about the industrial marketplace.

Sure. Thanks, everyone, for your time, Blaine. Thanks for agreeing to moderate our panel. Just as we get into Q&A to help you all the context, Reid is to my immediate right is our President, Staci Tyler, our Chief Financial Officer; and Brent is our Chief Operating Officer. So we'll try to I'll try to police traffic cop your questions to the right.

First one, we're a long-standing industrial REIT, kind of where we fit, we're shallow bay. So our typical -- when I say that, it's also another -- maybe I'm using it as a euphemism for last mile as well. So we're -- our average tenant size is a little over 35,000 feet. Our average building is around 100,000 square feet. So we're not the big boxes on the edge of town, we want to -- our idea would be to build a business park a little bit around the corner from you.

We'll say we want to be kind of residential, that last mile area, which we think is really where the world is heading to. And then the other way, when you look at our geographic footprint, kind of going east to west, we run from the Carolinas, Georgia, Florida, Texas, Arizona, Nevada out to California and then Nashville as well within that footprint. And the reason we take those areas is that's where the populations move. population shifts, we'll shift with it. But over a long period of time, those infill locations that we seek out just get to be more and more valuable as a REIT and having that long-term ownership. So that's really where we fit in. We've been in industrial. We've been a REIT for probably 40 years, an industrial REIT for about 30 years. Brent, Staci and I all have been with the company probably longer than we want to calculate on average. For as young as we are, I know you wouldn't believe the number and things like that. So I've been with the company for a while.

What do you think differentiates your story versus the other REITs within industrial?

Good question. I would say, look, we admire and think a lot of our peers, what we spend time talking about, and if you went back over that 30-year period or probably more likely 5, 10, 20 years, we're one of the top performing, if not the top performing industrial REIT over that time period. But within that, we try to think about what can we do to reduce your risk without impacting your return. So as we kind of go through that, what -- I think there's different ways we can structure our company differently from our peers. And in that, I mentioned I mentioned last mile and land is harder to come by. It's harder to get zoned than you think of, say, big land parcels on the edge of Phoenix, on the edge of Atlanta, Dallas. So we do that is one way we address it. We also go to fast-growing markets. If it's a flat market, nothing against -- I lived in Ohio, I'll pick on Cleveland. It's more of a zero-sum game.

One tenant -- hey Joe, one tenant moves from one part of the market to the other where Dallas, you've got population, Houston, you've got population growth, you've got e-commerce penetration. So we'd rather catch as many of those tailwinds as we can. And then we are a developer, but rather than build a big box building on the edge of town and hope 4 other people aren't doing it at the same time, we get sector-leading development yields, but we'll build a park out in phases. And so we'll build 1 or 2 buildings at a time and then I'll get a call from the field saying, I'm 50% leased on Phase 2. I've got some prospects. I have some tenants that may want to expand elsewhere within the portfolio. And so most of our peers, it's a push of demand. We think the market is ready.

We'll build a 750,000, 1 million square foot building on the edge of town. Ours has built 200,000-foot buildings typically, but have that demand pull. So we think that we can get really attractive yields. We've developed around a 7 yields if we sold it upon completion. I'm using round numbers are probably around 5. But having that demand pull and then the other benefit we get from building Phase 2, we know where rents and tenant improvements are in Phase 3. Usually, thankfully, the markets had -- industrial markets had a tailwind. But Phase 3, we're not estimating rents quite as wildly as we would as if we did a one-off, one-off like that. So again, that's where we try to operationally reduce your risk by where we go, where we go into Atlanta, for example, where we go within Atlanta and how we build out those markets. And then from the other side, we believe in geographic diversity.

We're in a little over 20 different markets, the major cities in those states that we talk about. So we -- and then our top 10 tenants are in a little over 30 locations, and that -- those account for a little less than 7%, which is about half our sector average because you never know what day you're going to come in and read about a surprise bankruptcy or something like that happening. So we try to have geographic diversity, tenant diversity. And then I'll complement the other side, Staci and her team and that our debt-to-EBITDA is 3x, which is the lowest in our sector, one of the lowest of the REIT you'll see here. And within that 3, it's all long-term fixed rate laddered debt. So again, I think there's -- and all the different things I could go through, we don't think we sacrificed any returns for you -- but it's ways we try to structure -- look, you can either invest in an equity or in a bond, but we'd like to think, okay, how do we get you bond like safety, but equity-like returns. So whether it's through our balance sheet or what we do, that's what we spend time without being so conservative, we miss opportunities along the way. So again, our peers are good, but if you like safe structure last mile industrial, hard to replicate portfolios because the land is not there. That's really kind of where we -- that's my 20-minute elevator pitch on what we do.

We certainly like that elevator pitch. So [indiscernible] to that point, how do you think about the right leverage for your company and where you can grow into that?

Sure. So as Marshall mentioned, we're currently at about 3x debt to EBITDA, which is obviously, very strong balance sheet condition. We would feel comfortable increasing leverage from there, but we really like the opportunity that we have with leverage as low as it is because we know that if we find more acquisition opportunities, other avenues for growth, we know that we have capacity on the balance sheet to allow for that. So we try to remain flexible and consider equity and debt issuance as options for our capital needs.

Coming into the year, we budgeted the need for $300 million in capital, and we had initially contemplated that, that would be in the form of unsecured debt in the second half of the year. But we said all along that we would remain flexible, and we've done that. And as we've monitored the equity markets, we've issued about $70 million in regular way ATM issuance. And we have about $200 million in forward ATM contracts that we can issue and draw down between now and second quarter of '27.

So it gives us a lot of flexibility in terms of timing. So we've pretty much shored up the capital that we need for this year, but we've also maintained some flexibility so that if we do see interest rates come down, we could take advantage of a window to issue debt. And if not, then we have issued that equity and have the capital to support the growth that we have assumed in guidance and also have plenty of capacity for opportunistic acquisitions or additional development starts if the market allows.

What is the pricing on that forward?

Just over $201 per share.

Very nice. And Reid or Brent, what are you seeing on the acquisition market? Is it opening up or...

Blaine, we've actually been a little surprised this year. We anticipated that or maybe hoped that cap rates would increase some to give us additional buying opportunities as the year progressed. With where we are with interest rates, that seemed like a reasonable assumption. But given the amount of capital flows that still want to be in industrial, we're seeing cap rates actually have compressed some. And so we're finding some deals, but not as many as we have in the last couple of years. That's not necessarily a bad thing. But we'll continue to search and hunt, but cap rates remain fairly tight. But as deals present themselves, as Staci mentioned, we do have the capital to move quickly and take advantage of different situations.

Is development the best use of capital at this point?

Yes, for us, that's where we historically have made the best investments where we see the best yield on those returns. So as the years progressed, we've been happy to see where our development leasing has gone. Q4 was kind of a rebound quarter for us. Q1 is in line with that Q4 number. And then quarter-to-date, it seems like our leasing remains fairly strong. So with that, as Marshall mentioned in his opening remarks, that allows us to pull new developments out of the market. And so as development leasing continues, that will allow us to invest more in new developments and continue to grow the portfolio.

Which markets do you think are most kind of frothy for development and really seeing the rents that justify yields that you guys want to create?

Sure. I like your optimism, the word frothy. It's getting better. I don't know if we're frothy yet. We hope we get there. But the fun thing has been the leasing we've done so far this year, which really 3 quarters in a row where development leasing has really picked up, it's been broad-based. It's been really well dispersed amongst our development platform. I think we're active in something like 13 to 15 different markets or submarkets with our development activity. We're seeing the East Coast. And when I say East Coast for us, that's kind of Raleigh, Greenville, Charlotte, through Atlanta down through Florida, good wins throughout those areas, high-growth areas.

Even a market like Atlanta, which is notorious for being a little bit overbuilt big box, but on the multi-tenant side, we've really seen -- we've signed 3 nice deals, our team there in the last 3 weeks or so, moving toward Texas, Dallas. If you spend any time in DFW at all and right around the city, you see the cranes. And a lot of times you can go to markets and usually get the vibe that things are happening in Dallas is one of those markets. It doesn't take you long sitting in traffic, checking your phone to realize there's a lot of things happening there. And so we've had a lot of luck in many submarkets within Dallas. Houston has been maybe a little bit of a sleeper over the last couple of years.

I think in some of the CBRE and national numbers, Houston is rated as one of the top net absorption markets in all the U.S. And so we continue to have wins there, a good team, a very good track record there. Austin is one of the markets where people like to be a lot. UT grad don't like to go far from Austin, and it appears some of them like to build industrial buildings. So that market has been a little overbuilt. We like it long term, but we're -- it's been a little slower there. Moving out West, Phoenix and Vegas have been good for us. Maybe a little bit of benefactor from some of the California exodus, if you will, of some companies and of some people. And then as you move to California, which for us is only, I think, something 11% to 15% of our NOI, we continue to see Los Angeles be slow and sluggish. Maybe I think I heard the term saying the bottom is forming, which maybe is a way of saying we haven't gotten to the bottom all the way yet, but that feels better having visited that. And then the Bay Area is a bit slow.

The markets are steady. When you look at numbers on paper, the vacancy or nothing like that jumps out at you. But where you kind of feel it more as a company is when you have vacancies in those markets, the foot traffic just isn't what you'd like to see. So a long-winded way of saying we really most of all our markets are performing well. We're seeing activity in those markets. And we're pretty much green light and feeling optimistic across the board, maybe saving except being cautious in some of the California markets.

Okay. Where would you see supply coming back quickest? And does it actually even impact your competitive set?

I think one of the things we'll typically say is we like where we sit kind of on the playground. And by that, it's and we go through it daily, we know how hard it is to get infill sites. It's a dichotomy. Everybody wants the package as one broker described it to me, anytime you hit click or hang up the phone, you want the repair person to service or the package delivered, but nobody wants trucks in their neighborhood. So zoning post-COVID has gotten much harder, not it's ever been easier. It's just gotten measurably harder post-COVID to build.

So with that and sites are available on the edges of the cities where we are, that's where we think. And our shallow bay vacancy rate is roughly -- and there's a page in our investor presentation, we'll kind of break it down by square footage. Our vacancy rate without paying wide margin is about half the industrial national average, and it stayed below it over a long period of time and that we don't put capital out in large increments like large institutions want. So it pushes them. The development fees are smaller. So those local regional players.

So the first developments will come out, we expect them to be on the edge of town where land is more available, the zoning battle won't be as hard. And then when you -- as we think about the vacancy rate, our I'm speaking nationally, it is about -- we're around, call it, 4.5% national big box vacancy is probably 8% to 9%, so roughly around that half that range. But we have more functional obsolescence in that 20 years ago, no one was building 800,000-foot buildings. Where we've got -- there's a lot of older 40,000, 50,000-foot buildings. And what we'd like is just given where the trends are going for that last mile distribution. It's hard to call it good news, but when you think about Phoenix, a Nashville, a Houston, at Greenville, Raleigh, the traffic is terrible in every one of our cities. Again, it's hard to say traffic is terrible. But what we like about that, those cities have grown faster than the cities or the states have been able to keep up with the transportation systems there. And so that last mile and especially now with gas prices higher, it will take a little while to flow through. But that last mile, not only do we help our customers with quicker delivery and better service. If you're in a hotel and your airs out, you want that train air conditioning, Goodman repair person there quickly, and that's where we try to get to. And you could save rents on the edge of town, but what you save in rent, you're going to lose in service and you're going to lose in fuel costs because your repair people, your delivery people are going to be stuck on the freeway in Nashville or Atlanta or wherever. So that's kind of our strategy -- or that is our strategy, and that's where we fit in. And I like that we're more insulated from new supply than our peers are. We built north of 50% of our portfolio over the years. And then what we bought, if you watched us the last decade has been either vacant or leased new buildings. So -- and we've usually tried to keep that flight to quality.

Within our size range, we think our portfolio is one of the best out there in terms of shallow bay, but yet a very modern portfolio. And some of our markets, when you read the stats, you'll see it's negative absorption in the grade see it's all improving now, but it was a flight to quality, which we think helps us as well.

Have you seen oil prices and that kind of transfer into leasing discussions yet?

Not yet. I mean in time. I think, look, we will roll about 14% of our portfolio on an annual basis. And again, new leasing, we've not seen that trend. I guess we'd say with oil prices, what worries us probably like everyone is the impact eventually on the consumer because we're really -- maybe another way to think about EastGroup, we're -- our buildings are built for local consumption. The GDP, if you did kind of a market when we've done this, it's in our slide deck, our -- the GDP in our markets is about 35% higher than the national average over the last 5 or 10 years. So we got to -- we need consumption in Atlanta, in Nashville and Phoenix.

And so it will eventually get to us, but it will make it more impactful. The kind of the trend that we have seen of late really starting in fourth quarter and in first quarter, and it's -- what we like is how flexible and well located our buildings are, but suppliers to the data centers with the amount of capital going into the data center sector, we picked up about half of our development leasing, which is -- it won't stay at that high of a run rate, but it was someone supplying racking, cooling equipment, one related to the construction, but we're an ancillary beneficiary of -- in our markets, it was e-commerce was a new tenant.

Green energy was a new demand a few years ago, pharmaceutical fulfillment where people push you to manage your prescription prices that we have several tenants that do that and then advanced manufacturing a few years ago that onshoring, people are typically going to the Carolinas and Texas and Arizona are getting more than their market share. And then of late, it's been data center development, which we think has a tailwind to it, and it's been a nice [indiscernible].

How sustainable do you think that data center demand is? Is it more driving the development of data centers or maintenance? There's...

One lease is in maintenance. So we think it's more sustainable. One, I think construction will continue, at least as we're not -- or I'm not a data center expert, but just what you read in the amount of just sheer capital that's being put in that space. But then when we look at the type leases we've got the users where it's cooling, racking, delivering things to an ongoing data center rather than -- as I mentioned, one was related to construction, and we have construction contracts that are still ongoing like with the Texas Instrument plant outside Dallas and the Intel chip plant in Phoenix and things like that. So we just need a new use. There's -- come tour anytime and find someone wants to, there's 1 million ways to use our buildings, but we continue to find new uses. And I think the data center, I don't think it will run rate anywhere near 50%, but maybe 10% to 20% feels like it could be on an ongoing basis, kind of like we had similar, we had no e-commerce tenants really 10 years ago, and now Amazon is our largest tenant, that time frame.

I'm going to open it up to the audience. Any questions? Don't be shy.

We usually try to catch people right after lunch presentation.

So acquisitions, it's been a historical growth engine for your company, but it does seem like cap rates are pretty tight at this point. What are you messaging to investors at this point?

I think probably -- I'd say 3 things -- so one, we'll be patient on acquisitions. It's fine. If we miss our acquisition budget this year, we missed our development starts last year, and I'm actually proud of the team. demand was -- leasing was slower and it's okay. So it's all right. If we miss it, we'll be patient and buy what makes sense. The other thing that tells us is if development leasing is going well and people want to own as one broker said, there's a global wall of capital that wants to own U.S. industrial, and I think people appreciate shallow bay more and more.

We'd rather rather than outbid the world, we'd rather be the supplier. So we'd rather build it as fast as we can. And I think when we have -- we're always pruning from the bottom of our portfolio, but it pushes us if people are willing to pay prices that are closer to the 10-year than we would have anticipated, we exited Fresno earlier this year. We sold a building in Jacksonville, although we like that market, and we'll continue to maybe step on the gas on some dispositions while it's a good market to sell things. So look, we can't control the market, but we can kind of get a read on it and try to -- if the market -- if acquisition window is open, we'll go as fast as we can until that window closes, same with development. And we're going to get to the same place. It's just which road do you take to get to a well-located quality infill industrial building. So we bought them vacant, we built them and we bought them leased. So we'll just try to go where that risk return sits in the market at that point in time.

Yes. Maybe for Staci or Brent, where do you think the biggest levers of outperformance relative to guidance could be?

I think just really in terms of our core operations, our occupancy has been trending ahead of projections. So that -- when we think about largest dollars, I mean our operating portfolio, the same-store portfolio is about 60 million square feet. So we can really drive growth there. And then obviously, with our development leasing, we have a lot of opportunity there. We have about $0.04 of spec NOI included in our guidance for the year. And we've made some progress leasing that. And if we continue at the pace that we have been, then we could certainly see some outperformance there. That's an opportunity.

As Marshall mentioned, acquisitions, we hope we can get there, and we hope we find more acquisitions. Those tend to be quiet and then appear suddenly and sometimes in clusters. So that would be a place that we would look for that. But I think our core operations outperforming on occupancy and development starts, those would be the main drivers of potential outperformance.

How about bad debt?

Bad debt is trending around historical averages. And we're not seeing any issue there. We had budgeted at about historical averages. So I don't know how much upside there would really be there, but we're feeling good about tenant credit health. We're not seeing deterioration in -- through conversations, timing of payments. We're not seeing any issues brewing there. And I think Marshall mentioned this, really, most of our tenants are providing goods and services to the local economy where they're located. So they're more in tune with what their customers need. And if their customers are still selling and they need more inventory and if they still need services, then they're less sensitive to the headlines and the macro uncertainty and they're more focused on the local economy and the vibrance of that local economy. So we've not seen any issues brewing. And certainly, if bad debt comes in lower, that's an area potential outperformance as well.

Brent, anything?

Yes. No, I would agree with everything Staci said. And for us, in terms of upside I think when we really shine and can add value the most for you, as shareholders, when our development pipeline is really churning. And we've talked about acquisitions, and it has been -- cap rates have been sticky and those opportunities haven't been quite as to the extent we thought. But where we really add value as a team is our platform, our team in the field, sourcing land inventory in these high-growth metro areas that we're talking about is not easy. It's very time consuming. But the rewards there as you do it, you build the buildings, we're building to a 7% to 7.5% return in a 4.5% or 5% cap environment, that's good, and we want to do that as much as we can.

Last year and probably 4 or 5 quarters running, we were slowly pulling our development starts down, as Marshall said, that's just what the market was dictating. And even though it was minimal, we did tick up our development starts at the end of first quarter. And if anything else, we just really want to show a sign of feeling more optimistic about development starts. And so to do that, if that's something that we could start moving in the upside rather than last year where the downside, it sets the table for future years. We also have in the same year, you can have more capitalization offset and those type things. But to the extent we can up that development platform would be -- is really where we can add the value the fastest.

Are you seeing supply tick up in any of your markets? And I mean, probably more specifically the segment of your markets that you guys play in?

Speaker 3

Yes, supply has started to tick up slightly, but nothing dramatic that would overly concern us. And as Marshall kind of mentioned on where do we see supply heading first, that's going to be in the big box, kind of the 1 million square foot range, and that's going to be on the outside of town, which again is a completely different sandbox than where we play. And then just adding on a little bit to what Brent said about the development business and potential upside, our strategy of having multiple phase developments in the same park gives us the ability to get a great judge on current demand. And so what we also do is every phase that we're under construction, we're permitting and designing the next phase. So as soon as we lease a space or get to a certain point, we can react quicker than most and deliver new space. So with 1,000 acres currently under ownership within our portfolio and with all the current projects that are under construction, having additional phases that have permits ready, we can respond to that demand quicker than our peers at this stage.

Where do you think rent growth is in 2027 in your segment of the market?

I'm not here to forecast -- if I was good, I remember you're welcome to I know my island and things like that. But look, I think we're closer to an inflection point. I think our vacancy is half the sector average. In other slowdowns in the GFC, our occupancy drops down into the upper 80s. This time, we've stayed 96% leased. So that catch-up factor, what I like, and I usually kid say, I don't -- I'm running out of time, but just it's going to take a while for supply to catch up, and I think we'll have better rent growth, 5%, 6% I think...

Yes. Any last minute questions from the audience?

[indiscernible]

We've looked what surprised me that -- so just using L.A. and it had 12 quarters in a row of negative demand, and I'll contrast that with like a Dallas with about 60 quarters in a row of positive demand. So I'm spoiled and we're used to positive demand. First quarter was slightly positive. Inland Empire was negative. It was a few hundred thousand feet. So it wasn't a big bounce back. But in terms of opportunity set, pricing hasn't moved to reflect that negative demand. And so it makes it hard to get excited about placing capital. To me, and I'm out of step with the market, I'd say, but the pricing has held firm even while demand has gone backwards. And I guess we -- I'm not sure we don't know the answer. At what point does cyclical become secular? How many quarters in a row of negative demand do you need? And I'm used to markets getting bad because of oversupply, not just the bottom fell out, which is kind of where L.A. has been.

Thanks, everyone, for your time.

All right. Thank you all. Appreciate it.

Good morning, ladies and gentlemen, and welcome to the EastGroup Properties First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] This call is being recorded on Thursday, April 23, 2026.

I would now like to turn the conference over to Marshall Loeb, CEO. Please go ahead.

Good morning, and thanks for calling in for our first quarter 2026 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our President; Staci Tyler, our CFO; and Brent Wood, our COO. 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 PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and 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 results 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.

Good morning. I'll start by thanking our team. They started the year well, and I'm proud of the results achieved. Our first quarter results demonstrate our portfolio quality and resiliency within the industrial market. Some of the stats produced include funds from operations omitting a voluntary conversions of $2.30 per share, up 8.5% quarter-over-quarter. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term growth trend.

Quarter-end leasing was 96.5%, with occupancy at 95.9%. Average quarterly occupancy was 96.1%, which was up 30 basis points from first quarter 2025 and also notable as quarter end same-store occupancy at 97.4%. This strength demonstrates the trend we've mentioned where the portfolio is well leased, while development leasing has been taking a little longer. Quarterly re-leasing spreads were 37% GAAP and 20% cash for leases signed during the quarter. Quarterly cash same-store NOI rose a strong 9.2% and reflecting this high same-store occupancy.

Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 6.7% of rents down 40 basis points from prior year. We target geographic and tenant diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we're pleased with our results and excited about the quantity of development leasing signed during the quarter along with prospect activity.

Reid will now walk you through more of our quarterly details.

Thank you, Marshall, and good morning. In the first quarter, development leasing continued to follow the same trend we saw in our fourth quarter results. Year-to-date, development leasing has already reached 54% of last year's total. While we are encouraged by the continued demand in our development properties, businesses continue to operate amid headline volatility and decision cycles continue to remain extended.

But as the markets continue to experience positive absorption, and as new development starts remain limited, we anticipate users will be increasingly required to accelerate decision-making. In the meantime, our development pipeline continues to lease at a more measured pace while maintaining our projected yields. The East Group platform and the depth of our team continue to drive strong returns in our development business.

As our development starts are pulled by market demand, we are increasing our guidance for the year to $265 million. This quarter, we commenced construction on 4 projects totaling 586,000 square feet, of which 27% is pre-leased. New development sites in our targeted infill locations remain challenging to source and entitlements and zoning continue to be difficult and time-consuming.

As the supply of competing product continues to tighten and as demand stabilizes, it will place upward pressure on rents. And as demand improves, we believe the company is well positioned to capitalize on continued development opportunities and creating value from our land bank.

Regarding new investments, we continue to modernize our portfolio with the acquisition of 2 Class A buildings in the Jacksonville market totaling 177,000 square feet. And then subsequent to quarter close, we sold a 46,000 square foot building also in Jacksonville, along with our previously announced exit from the Fresno market of 398,000 square feet.

Staci will now speak to several topics, including assumptions within our updated 2026 guidance.

Thanks, Reid, and good morning. We are proud of our first quarter results. They reflect the outstanding performance of our team and the strength of our portfolio. We are pleased to report that FFO exceeded the midpoint of our guidance range at $2.30 per share, excluding gains on the voluntary conversion. This represents an 8.5% increase over first quarter last year.

The outperformance in first quarter was primarily driven by lower-than-anticipated G&A expense and higher-than-projected property net operating income, reflecting the continued strong performance of our 62 million square foot operating portfolio. Our balance sheet remains strong and flexible. We were pleased to announce during the first quarter that Moody's ratings upgraded our issuer rating to Baa1 with a stable outlook. We ended the quarter with no balance drawn on our unsecured bank credit facility, leaving available capacity of $675 million.

Our sector-leading balance sheet metrics include debt to total market capitalization of 14% at quarter end, first quarter annualized debt-to-EBITDA ratio of 3x and interest and fixed charge coverage of 14.8x. We remain well positioned to pursue growth opportunities that align with our time-tested strategy. FFO for second quarter is estimated to be in the range of $2.30 to $2.38 per share.

Looking ahead to the remainder of the year, we increased the midpoint of our 2026 FFO guidance to $9.52 per share, excluding gains on the voluntary conversion. The updated midpoint represents a 6.4% increase over 2025 actual results and is 30 basis points ahead of our initial guidance. We are projecting strong cash same-property net operating income results to continue, and we raised the midpoint of our guidance assumption by 10 basis points to 6.2%. These strong projections are driven by rental rate increases on in place and budgeted leases and expected same-property occupancy of 96.4%, which is also 10 basis points ahead of our initial guidance.

We increased our projected 2026 development starts by $15 million to $265 million. primarily driven by the 100,000 square foot pre-leased building expansion that was not contemplated in our prior guidance figure. We began construction on 4 projects during first quarter and 1 project in April, totaling $105 million, and the remaining starts are projected for the second half of the year. While our guidance assumption for 2026 gross capital proceeds remains unchanged at $300 million. The nature of those proceeds has changed from 100% debt to a mix of debt and equity as we were opportunistic in accessing the equity market during the first quarter.

We issued $70 million in common stock through our common equity offering program at over $1.91 per share. We currently have an additional $50 million in forward equity sale agreements available for issuance at over $1.96 per share. We will continue to evaluate capital sources and remain flexible as the year progresses. Our rent collections currently remain healthy, and our tenant watch list is steady.

We are pleased with our strong performance in first quarter. And as we look ahead through the remainder of the year 2026, we are confident in our experienced team and well-located high-quality portfolio to position us for long-term success.

Now Marshall will make some final comments.

Thanks, Staci. In closing, we're pleased with how the year has begun. Market demand has momentum, and we're hopeful it's sustainable. Regardless of the environment, our goals are to drive FFO per share growth while rating portfolio quality. If we do those, we'll continue creating NAV growth for our shareholders.

Our executive team restructuring is nicely falling into place. I'm excited to welcome Jim Trainer to the team. I also want to express my and the company's appreciation to John Coleman, who is entering a well-earned retirement on June 30. And John, we still have your mobile number. 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 onshoring trends to now include data center suppliers, 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 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 our tenant base as well as our geography.

We'd now like to take your questions.

[Operator Instructions] Your first question comes from Craig Mailman with Citigroup.

I guess, Marshall and Reid, you both kind of pointed to development leasing taking a little bit longer still, but you guys had a significant ramp in kind of the activity since early February. Could you just talk a little bit about the gestation period on the deals that got done? And are you seeing some tenants start to move a little bit quicker now that pipeline is emptying out here?

Craig, this is Reid. Thanks for the question. And we are actually seeing some tenants move a little bit quicker than we have in the past. We had a good example of that in our Atlanta -- one of our Atlanta projects where we had a vacancy in our second gen -- or excuse me, our first gen development portfolio, and we had 2 users that came in both wanted the space, and we were able to create some competition the team did locally and ended up signing 107,000 square feet in that project and that happened quicker than we anticipated, which was a good sign.

And so as we look out in the market, is the demand continues to pick up and supply continues to get a little tighter. We anticipate that, that decision cycle will start to shorten some.

And just if I could sneak a second quick one in. How much availability do you still have left on the projects that you delivered last year that came in a little bit under leased?

Yes. So what we're calling first gen space, we've got about 775,000 square feet.

Next question comes from Blaine Heck with Wells Fargo.

Just respect to guidance, can you talk about how much speculative development leasing is assumed in guidance for the rest of the year? And whether at this point you think that could be a risk or a source of upside?

Blaine, yes, so we have about $0.04 of NOI for speculative development leasing in the second half of the year. We're not assuming anything in the second quarter at this point for spec development leasing, and it ramps up the third and fourth quarter for a total of $0.04 for the year. We see that more as an opportunity. Certainly, we have work to do, and we need to sign some more leases to achieve that $0.04.

But we believe that, that's an opportunity between the projects that we have currently in the development pipeline and the 775,000 that we referred to in first generation. So definitely see that as an opportunity, particularly if the pace of development leasing can remain strong and steady as it has been over the last couple of months.

Your next question comes from Samir Khanal with Bank of America.

I guess, Marshall, it's certainly good to see the development leasing picking up here, but maybe expand on your comments on kind of what you're seeing from the customer as it relates to kind of overall decision-making. Given kind of inflation given macro volatility, I guess what are you seeing on the ground?

Samir, I agree with Reid and that it maybe going back a year ago, after Liberation Day, it felt like later in the second quarter and certainly through third quarter, things were slow. We were getting small development leases signed. We weren't seeing many expansions Fourth quarter picked up. That was by far our biggest development leasing quarter, and then again, then we beat that number this quarter.

So a couple of strong quarters in a row. We're -- some of that development leasing, we picked up a couple of expansions. You saw the building expansion in Arizona. There's one in Texas where it's an expansion. So it feels like in spite of -- and I got the question, the unrest in the Middle East, is it slowing down decision-making and I can give you 2 answers.

The current one is no. It really -- we have not seen people say, I'm not ready to make a decision because of that or not yet. We do worry about gas prices and what impact how that will affect the consumer over time could affect us. But today, I feel better for what it's worth, I feel better about this year. today than when we had our fourth quarter call in spite of all the headlines and things like that.

And maybe I'm over analyzing our customers. It's people are more -- they need to run their businesses and they're getting more used to the volatile headlines that the straight hormones is open. It's closed, it's this and that, and that business is generally good, and we're seeing new leasing and expansions, again, a little more than we did a year ago. I just hope it last.

Your next question comes from Todd Thomas with KeyBanc.

Marshall, you mentioned seeing some tailwinds around demand due to data center suppliers and I was just curious if you could talk about that a little bit, perhaps quantify or characterize that demand a bit in the context of what was -- what's been timed sort of year-to-date whether it's data center suppliers or advanced manufacturing? Any thoughts there?

Todd, I think it started with us with maybe the advanced manufacturing or the chip plants. We've got suppliers in Phoenix and in Dallas for the chip plants that kind of picked up maybe 2 years ago, call it. I'm trying to think the exact time frame has been -- and those are still tenancies we have today.

And then with data centers, we're seeing mostly on the supply side, but a couple that you saw in our -- kind of on our development program, it's more HVAC or racking equipment and things like that were a couple of full building users that were related to data center, basically, they have been built and they're supplying them. We've got another prospect or 2 that are related to data center construction.

So we're -- look, I'm thrilled to have a new source of demand, and we what we love about our buildings is how flexible the use can be that our long-standing tenants are still there. Look, I'd love homebuilding to pick up again one of these days but I'm glad that we picked up more and more advanced manufacturing, and now we seem to be picking up ancillary demand, which has been really helpful last quarter 2 related to all the data centers that are being built around our markets.

Yes. Maybe just to add a stat to help quantify some of the numbers of our 685,000 square feet of development leasing that we've done year-to-date, about half of that was related to data center related type users.

Your next question comes from Nick Thillman with Baird.

Maybe just 2 quick ones. First, on safety on that development [indiscernible] in the $0.04. How does that compare to the $0.07 that you -- in the initial guide? Is it higher? Or is it the same number we should just view that the first quarter leasing is $0.03 contribution?

And then secondly, just on overall development starts and expectations I know you guys try and not be concentrated within individual markets. Are there any guideposts around starts within a market from a risk parameter standpoint that we should be looking at? We look at some strong leasing market per se, like Houston, but just curious on thoughts on distribution of where the starts will be.

Sure. So for our development leasing, you're right, we initially had $0.07 in our initial guidance for the year. We have taking care of some of that. So some of that -- most of that $0.03 that you referred to in the difference has moved from speculative leasing to signed leases with the work that we've done over the last few months.

So yes, I would say generally that the $0.07 of that has moved into actual signed leases for development NOI and the remaining $0.04 is speculative leasing. And again, that's in the second half of the year and really ramps up when we get to fourth quarter.

And then Nick, it's Marshall. On the kind of our development risk. I really like our model and that it is -- as space gets leased, we'll build the next phase in the park, which usually means a building or 2. And then within a market, like I'll stick with Houston, for example, where we're up by George Bush Airport but our Grand West Crossing is out in Katy. So call it, 12:00 and 9:00 on the map. -- you're so far away, you can be so far away in Dallas or Houston or Atlanta, some of our markets that it allows us to be active developers in different submarkets and not those projects don't compete with each other for the same tenancy.

So thankfully, we really don't. I mean, we look at our overall development and kind of low earning assets and how much of that are we willing to feel like as a reasonable amount to take on at any one time. But thankfully, on the market by market, usually, I'll get the call and the team is running out of space. And we'll have the permit in hand and start the next building as quickly as we can. And you saw that this quarter in a couple of our markets, which knock on wood, I'm happy we were able to raise our guidance -- our starts guidance this quarter.

And look, I'd love to keep nudging that along as the year progresses. Last year, we took it down, I think rightfully so because we want to be good stewards of our investors' capital. But I'm hopeful if the market can continue the case it's been on that there's still upside, at least to our starts number and then maybe even in our development revenue number, too. We'll see how late in the year that happens.

And Nick, I would add to some color on our development leasing to date. That's been in 9 different markets. We currently have projects active in 13 different markets. So we have a lot of dots on the map which allow us to continue to shoulder some of the risk throughout the portfolio. So excited to see that the demand has been broad-based in the various markets.

Your next question comes from Brendan Lynch with Barclays.

I wanted to follow up on the Moody's upgrade. I'd imagine that comes with certain commitments related to your balance sheet. So maybe you could quantify what your flexibility is to increase leverage and also what your willingness is to do so and what you'd need to see to be more comfortable operating closer to 4x or 5x like you have in the past?

Sure. Brendan, yes, you're right. So we were very pleased with the Moody's upgrade to Baa1 and we're pleased to see that we are well within the debt parameters that they would have for our balance sheet with that rating. So we have a lot of room, a lot of dry powder, so to speak. So we could increase leverage and not be close to risking being out of range for our current rating, which is really good news. And we had actually been tracking at this lower leverage for quite some time. So we were pleased with the rating upgrade and also feel like we're in a very comfortable position.

We -- the range you mentioned that 4.5x sub 5x debt to EBITDA is the range that we would want to keep our balance sheet in. And we have a lot of runway in terms of raising leverage, and we are remaining flexible. So as we watch the equity and debt markets, what the cost of capital is from the various buckets, and we hope to be able to issue both debt and equity. And it's really more about finding opportunities now. It's very good position for us to be with our sector-leading balance sheet.

So we're pleased with where we are and also acknowledge that we have a lot of room to increase leverage on a measured basis as we fund those opportunities. So we have our full $675 million available capacity on our credit facility. And then just in terms of the outlook for the year, we have $300 million in capital proceeds in guidance for the year. We issued $70 million on the ATM in first quarter at over $1.91 per share, and we have another $50 million forward contracts that are outstanding.

So that leaves about $180 million in proceeds that are yet to be sourced for the remainder of the year. We have $140 million in debt maturities later this year. So we can be flexible with that remaining $180 million, and we'll just keep our eye on the equity and debt markets. But we have plenty of capacity on the balance sheet to increase leverage as we find those opportunities.

Next question comes from Alexander Goldfarb with Piper Sandler.

Marshall, a question on oil, on diesel and gas and all that. Obviously, you've got tenants who are related to the oil business you have other tenants that do a lot of trucking and then you have the consumer. But putting it all together, is higher -- like when we see higher diesel prices and the cost on trucking, does that help you because people more want closer facilities that are closer to their customers does that hinder you because then the customers are more concerned about shipping costs? Or is this one of these, like you said, where people just look at their businesses and whatever the cost of transportation is it is what it is, and that doesn't affect how they think about what rents they're going to pay you or their business.

So I'm just trying to understand how diesel fits into all of the conversations that you're having because it doesn't sound like tenants are really pulling back. And as you said, you feel better today than you did back in February.

Alex, I think maybe tell me as we -- as I think about it, and we discussed it here -- the short answer is maybe yes. and I don't mean that facetiously. I think in the near term, people have to run their business like you described and service their customers. And I do worry about just the customer consumer balance sheet, but that's why we like being in fast-growing markets. We love the steady e-commerce growth. And even I've said, we try to be a little bit like retail locations. We want to be in a high disposable income neighborhood as well because there'll be a lot of goods and services shift there.

And I think you're right. The way I view that in the short term, you've got your leases, you've got your logistics network, you'll operate your business. But longer term, if diesel prices stay higher for longer. I think all these things and being in fast-growing cities, they never can keep up the interstate system with the population growth. So what I like the tailwind is I think last mile gets more and more critical to their business. You can afford to pay more in rent because you're saving it on diesel fuel.

And when you think of your strategy, if you're delivering packages or coming -- repair people or pool supply, whatever it is, you want to be near that end consumer, whether it's an individual or a business. So I think last mile only becomes more and more critical because the traffic -- that's why we see this gets worse in Atlanta and Phoenix and Las Vegas and Orlando, you name it in our markets. And we have started years ago, we didn't have.

Now we have the same customers in 2 different parts of the market because the traffic is terrible in Dallas. And I don't see it -- it's only going to probably get worse over the next decade than it is today, Nashville, but all of them traffic is terrible. The brokers were saying, if we don't get in the car now, there's no point jumping in the car and you go, that's frustrating to tour to the markets, but it's great for our last mile locations.

Your next question comes from Michael Griffin with Evercore.

Marshall, I'm curious, just as it relates to sort of market rents and market rent growth. It seems like you're more constructive than we had the call a couple of months ago, but has your outlook for market rent growth change? It seems like there's still good leasing demand, maybe some of the dev leasing is taking a little bit longer, but any kind of commentaries there and then markets may be standing out to the positive versus those might be a little softer.

Sure. I think I am a little -- you're right, maybe a little more constructive or optimistic. I've been thinking was supply down for a few years. I was probably admittedly too early, thinking lack of supply and, call it, 4% vacant and our product type that it wouldn't take much growth in demand. We've not seen an inflection point in rents. They're absent California still growing inflation, maybe inflation plus a little bit.

But we are seeing the pickup in demand if it continues, than just ECON-101 price supply demand, price has to follow. We're not seeing it yet, but we're certainly closer to it. It feels like we're knock on wood beyond past the bottom and things have been improving the last couple of quarters. And I hope if we can sustain it, eventually, we'll get to that rent growth that I've predicted 4 years ago, eventually I've been right.

In terms of the market strength there, Michael, you had mentioned strength of the markets and retouched on this, but 9 of the 11 leases being in different markets. So it's been widespread, which is good. That ran from East Coast all the way across to Phoenix. We still see that Raleigh, Charlotte, Atlanta, Florida, the East side, still having good activity and results in Texas, you still see Dallas and Houston be very strong Austin, the softest packet there with vibrant market, but just a little bit overbuilt and then -- and Phoenix has been very resilient.

So it's been broad-based. I mean some of the slower end that we still L.A., it feels like maybe it's finding some footing. Who knows you need a few quarters to really show that. But the Bay Area continues to be a bit slow. So the couple of California larger markets continue to be the slower in terms of new activity. But throughout the rest of the portfolio, it's broad-based and the leasing has been broad-based, the starts have coincided with that have been geographically dispersed.

So the good news is we're not overly dependent at the moment on a particular market or 2 to try to continue to pull us along. It's been a pretty equal shared load, which makes -- gives you a little more breathing room, it's nice to have.

Your next question comes from Rich Anderson with Cantor Fitzgerald.

So a question on the comment around data center demand, supplier demand. half of the development leasing, I think I heard Reid say. But I'm wondering if you can sort of talk about the calculus of that a little bit once removed from the direct opportunity. When you think about your primary businesses consumption oriented. You mentioned last mile becomes more critical than the stone age.

But to what degree is demand for data center suppliers and manufacturing suppliers informing the opportunity set for a consumption-oriented platform like yours. In other words, does it matter who's taking the space at the end of the day? And does your product become scarcer because somebody else is -- some other type of user is jumping in and taking space? And does that ultimately benefit you from an indirect point of view rather than just a direct point of view from leasing supplier-oriented space. Just curious if you can comment on that broader view.

Yes. Sure, Rich. I think if I'm following you, I agree and that, look, I think our -- what we've called our traditional or long-standing type tenants are there. And that's maybe that consumption, whether it's business or individual. And I view following kind of the new data center or advanced manufacturing, just crowding the demand field a little bit. It should make because we struggle so hard to find sites that work and now even harder to get sites that can get the zoning and permitting, that hurdle has gotten much higher post-COVID than it was before.

So there's no greenfield sites. You've seen us tear down office buildings, our peers things like that. I think it's going to lead to more incremental demand directly. And then I'm assuming even if we don't get that, just its investment in our communities, whether it's advanced manufacturing, which we're seeing a lot in Houston and in Phoenix and some of those markets or data center development, it will have, obviously, the ripple effects to the economy. So we said even if -- the Port of Houston is gaining market share. We're not near the port, but it still helps our portfolio indirectly.

So I think that's I'm pleased we weren't seeing the data center demand directly, but we've started seeing that in the last few quarters and in a more and more material way this quarter. And then I think it will continue to kind of crowd the demand for our space, which should lead to more development and higher rents if we can keep doing what we're doing and finding those sites, which are harder and harder to come by in these fast-growing cities, too.

Yes. I might add on to that, Rich, I think Marshall is exactly right. And I think it's -- one good thing about industrial it's rare where you have businesses where new uses come in but don't really displace or dilute your existing customer base. It really feels similar to whether you want to say 6 or 8 years going back to online fulfillment and how that continues to mature and emerge, but how that was a new use. And as Marshall saying, kind of began to squeeze its way into the different uses on the pie chart, but the interesting thing, it wasn't displacing really any use.

And it's not as though we have a software that would come out dated, so we made a new one and then ours was relegated irrelevant. So it feels a little bit like this data center support advanced manufacturing support and things we're seeing are, as Mark said, crowding the field, and I think it's a direct benefit. It reminds -- has this early stages feels like another kind of color that you can add to the pie chart that's helpful. And we're seeing that here early this year for sure.

Your next question comes from Mike Mueller with JPMorgan.

I know you have your $265 million development start guidance for the year. But if you forget that time frame, just how large is the pool of I guess, development expansion opportunities that you would think are high probability and that could be started in a relatively short time frame? Is it 2x or 3x that $265 million.

I would -- Mike, I don't know that it's that large. It's certainly probably internally, we would think of -- we've got the $265 million in starts. We'll keep internally with it. This is what we're starting and then we've got kind of our gray sheet, which is what could we start this year. And that's probably equal size or a little bit larger today. And look, if we -- if I [indiscernible] go to $175 million this year, again, I think I don't think they will, based on where we sit today, but I think that's what we should do for our investors, but we could potentially get add another up to $300 million, I think, depending on what you call short term by the end of the year, I don't think it will -- that will go that crazy of a year and we probably have to hire some people to get [indiscernible] day or 2.

But look, we'll go as fast or as slow as the market allows. And I think that's kind of where our model -- one difference we'll try to explain to people, it's the most of our peers will go build a big box building on the edge of town. And in my mind, it's always like you're pushing supply out into the market where ours is a pull where it is, we'll get to call it corporate saying I'm running out of space in Phase II. And it's really our own customers and our own prospects pulling it.

So we're -- right now, our crystal ball says $265 million. We think we could probably add a few hundred million to that, if everything in every market and every submarket fell our way, and we'll just see how the balance of the year plays out.

And Mike to add a little more color to that. As we talk about users pulling demand from the market at what that has done for us this year has allowed us to take some of the starts we had projected for second half of the year and accelerate that into the first half of the year. And a good example is what the team in Houston has done with one of our projects at Grand West, where we're always having the next phase TDA permit-ready to go, and then we also add spec office in our spaces.

And so we had a prospect that came through. The team signed that lease in March. We're able to start the next phase also in March, which was previously anticipated to be a second half of the year start. And because of the spec office in place, we commenced that lease in April. So that kind of checked all the boxes, and that's what the team is always striving to do and a great example of that we're trying to do in every market. And assuming the demand is there, we can pull that off, hopefully, time and time again.

Michael, you'll ask one question, and we'll give you 5 answers where we limit you to 1 question. I think one in a differentiation, we talk about that -- and Reid, that's a great example and really good for our team, this is when we say as a public company by having the land and the construction people and the permits. As things do inflect, our private peers just don't have the land and the team to carry it through this kind of slowdown that we think Houston being a great example, we'll have a really nice head start once the inflection point really takes hold, and it will take a while for our private peers to really ramp back up.

And so we're patiently have been waiting for that, but I think that's a really good example of kind of what we have in our mind's eye of, okay, when the demand is there, we're going to move faster. And I do think at the inflection point, the other place will benefit is, I think big box was what got built in the last cycle in the upturn, and that's what's going to pick up first again because that's where the land is readily available, and that's where people can put large amounts of capital to work. So I like that we'll be a little more insulated than the big box developers.

Next question comes from John Kim with BMO Capital Markets.

On your occupancy, it came in stronger than expected this quarter, and you raised guidance -- same-store guidance for the year. But it still suggests a decline of about 120 basis points from first quarter on average for the remainder of the year. So I'm wondering if you're expecting known move-outs or what kind of retention rate we should be modeling for this year?

Yes. So we build our budgets from the suite sweet basis. And when we roll all of that up, we are projecting occupancy decline. That is no different than what we were anticipating when we initially published guidance for the year. And as you mentioned, we've increase the same-store occupancy guidance by 10 basis points with this budget revision.

As we compare to last year, 2025, began the year lower and occupancy ramped up each quarter as the year progressed. And so we were starting '26 at more of a peak occupancy level with average same-store occupancy in first quarter of 97.3%. So you are correct. To get to that year average projection of 96.4%. It does assume a decline in occupancy as the year progresses. That is not because we have known move-outs that we know we won't be able to backfill. That's simply because we're looking at this our teams are on a fleet-by-fleet basis and saying, what's the probability that this tenant renews, if they move out, what will the downtime be? So that's really just the accumulation of all of the individual assumptions suite-by-suite basis.

We typically run in that 75% customer retention. If we do that and if we have some success leasing, which we believe we will, given the current environment, then hopefully, we'll outperform that same-store projection. But given all of the macro uncertainty, the tensions in the Middle East is just hard to push our leasing assumptions given all of the headlines and everything that's going on.

So this feels like a good baseline for assumptions given what we know at this point or what we knew a few weeks ago when we were putting the budget together. But I will say thus far, a few weeks into second quarter, we're feeling very good about where things are, and we're tracking a bit ahead of where we had projected to be at this point.

Can you remind us where seasonality plays in? Because I seem to recall that it tends to be stronger, occupancy tends to be stronger in the back half of the year?

You're correct. Usually, look, I know one of our peer talks about 1, 2, 3, 4 where occupancy is usually the lowest in builds during the year. And I think that's reasonably accurate. We would agree and that it's -- certainly, fourth quarter is probably you tipped historically our best quarter and third quarter is right there as it builds. So we'll kind of the balloon will let out a little bit of steam as the year starts and then build back up, you're right in the back half of the year.

Next question comes from Michael Carroll with RBC Capital Markets.

Reid, I wanted to follow up on your earlier answer regarding development starts. Mean is it normal for East Group to be able to commence a new project in a market pretty immediately after a lease is signed. And just sticking with your Houston example, it does look like East Group signed about 280,000 square feet in the first quarter and broke ground on about 128,000 square feet.

I mean is there an opportunity to start another building in Houston because of that? Or are you waiting just because of like just the broader market uncertainty, and you don't want to have too much starting in that 1 market at 1 time.

Great question. And in regards to that Houston activity specifically, I would anticipate that we do start something a little earlier than we had originally underwritten when we started off the year. And then part of it was the [indiscernible] team needed to take a breath for at least a week or so to keep because they've been extremely busy. But it is pretty typical, especially where we sit right now we want to have all of our projects when we have multiple phases to have the best we can permit in hand.

And the team has a good idea if a deal is going to make. And so they'll start teeing things up in advance, getting pricing, getting the GCs ready to go, getting the approvals internally, ready to go. And so we always want to keep product coming as demand pulls it out. And yes, that is the case pretty much across all of our projects as is we want to be able to start, if not the same month as quickly as we can after that lease that was needed to fill the current vacancy or give us the confidence to break ground on that next phase is there.

And at times, we'll sign -- we'll get approval internal approval, which is contingent on a lease being signed. And so that gives the team the flexibility to get even quicker if needed.

Your next question comes from Vikram Malhotra with Mizuho.

I guess just I want to clarify 2 things based on all your comments. One, I understand the conservatism the occupancy guide. But do you mind just giving us maybe some of the components like what have you actually baked in for new leasing and maybe additional in-service development leads up to kind of hit that occupancy? It just seems fairly conservative. I would have expected that number to be higher?

And then second, just can clarify based on all the comments, whether it's the data center side, you're feeling better about the economy environment, et cetera? Like where can EastGroup be more opportunistic? Is it time to buy in SoCal, perhaps do more spec to take advantage of the data center side? Where can you be most opportunistic?

In terms of the occupancy guide, Vikram, I hope you're right. I hope this does prove to be conservative. We -- again, we're looking at every lease that's maturing this year and making an assumption on whether that tenant will renew. And we -- our teams typically under promise and over deliver. So we hope that, that's what they're going to do this year when we look at tenant retention, first quarter was higher in the 83% range, so if that were to continue in the rest of the year, then I think we would outperform our occupancy guide.

We did not assume that level of renewal when we were we're rolling up this revision to the budget. So I hope that you're right, we do -- but we do have new and renewal leasing assumptions built in. We're not -- we don't have a headwind from significant move-outs that we're aware of. This is really just a natural role of our portfolio as the year progresses. And every quarter that goes by, every month that goes by, we should be signing leases and hopefully, the occupancy guide is a floor. And again, thus far in April, we're outperforming what our projections were. So hopefully, that continues.

Just one comment that I would add to that is the -- we do have one lease, a tenant in Tampa, 222,000 feet that right around the end of turn second quarter to third quarter that we know is going to vacate such a little bit of it. But I would also say, as we alluded to earlier, the 775,000 square feet of first gen space where previously developed property converted into the portfolio, that's a little trickier for the field to budget from a leasing perspective because where you have existing tenants to states saying you can say, "Hey, got a 75%, 80% renewal probability.

You've got a good chance to keep the tenant. It takes a little bit of risk out of your leasing assumption. But in that 75,000 feet, you go from not having a prospect to having a prospect in leasing the space, and that can be more inconsistent and choppy in terms of the pace at which that goes. And so when we look at some internal occupancy numbers, excluding those -- the impact of those figures, then the number is probably bigger more along the lines what you would anticipate. So I think that adds some volatility to it.

I agree with that. And I think in terms of opportunity, I think as we lean in and things pick up, certainly, the 770,000 square feet that's been delivered. The good news is we've maintained our development yields, even though it may have taken us a few extra months to get there. But certainly, to me, where we have upside is maybe a little bit, which I like, maybe it's 2 or 3 buckets. It's maybe our occupancy is a little bit better than we forecast.

We averaged 98% for a couple of years, which were company records. We knew it would drift down ultimately, but I'd love to think we're on more of an upswing there. filling up some of the development leasing. And then as that happens, we'll certainly ramp developments back up. We've been as high as $400 million. I'm optimistic that we've got a we're better positioned than a number of our private peers, as I mentioned, to maybe be moving on a lot of developments before they can catch up, and we all overbuild again in the next cycle.

And then kind of the third leg, I think you'll see us, we're starting to think about a little bit when the market was good early on, we were able to build our own buildings, but a lot of times, there was a project around the corner that had some vacancy. And we felt like because of the development demand, new leasing we were seeing to buy vacant buildings. Again, not changing the quality of what we built. It was better higher yields than in a core acquisition because we were taking the leasing on, but not the construction risk. And you'll probably see us if things continue, maybe at least starting to think about those in certain markets we haven't done a value-add project in a few years.

But if development demand picks up, I think that window will be open for a moment in time and then everybody will outbid us again on value adds, and we stopped using that. But it's a cycle. And so we're going to end up with well-located shallow bay last mile buildings. And sometimes we buy them leased. We'll build them most of the time and sometimes buying them vacant. And I think we're turning the cycle. We're buying them vacant, that opportunity set may reopen a little bit or I hope so.

And that's kind of a shadow development pipeline. It's a way for us to increase our development pipeline are really the value creation in an upmarket. But we -- where we've had a longer period of time leasing our own development, we haven't wanted to buy someone else's vacancy either. But it feels like that may be hopefully starting to shift.

Your next question comes from Ronald Kamdem with Morgan Stanley.

Just quick ones. Just there's a -- I saw the -- just on the development side, again, the under construction so forth. I see the cap rate expectations are up, call it, 10, 20 basis points. And I don't know if that's mix or anything like that. But maybe can you just talk about just how CapEx are trending on the development side? And if you can just compare that to sort of acquisition and what you're seeing in the market, that would be helpful.

Yes. So on the development yields, Ron, thank you for pointing that out. We have seen a steady uptick in the development yields within our pipeline. Just as a reminder, Dominguez, that's a redevelopment, and that accounts for about 50 bps of the development yields that we're seeing, but we have seen a steady increase really starting from Q1 to '25 where we sit here today. So that is a positive.

And then on cap rates, it is still a very varied market from market to market to submarket and type of product. But in some markets, we're seeing sub-5 cap rates for good quality, well-located assets. Other markets are kind of that low 5 to maybe mid-5% in cap rates. We have been surprised with a downward pressure in cap rates. The deals that we've chased here year-to-date have been more competitive. And unfortunately, we've been bright made on a couple of them.

So there is a lot more competition. It feels like this year than what we saw last year and that potentially pushes cap rates down, maybe even a nudge further as the year goes on.

Helpful. And I guess I just wanted to follow up on the data center leasing comments. I think you talked about half of the development leasing was, I guess, data center-related I guess I was just curious in terms of from your perspective, can you talk about sort of rate of change, right? Like is this something that your view is that this is going to continue to accelerate? Is this incidental -- is it stable? Just any sort of commentary on that would be helpful.

Ron, I think at least what we read and hear the amount of capital going into data center development is assuming they can get their permits is amazingly incredibly high dollar volume and doesn't seem to be slowing down anytime at all. So I think it's here to stay, will it be 50% of our new leasing, probably not. And I guess I hope not. I hope we stay really diversified on that front. But it sure doesn't seem like the data center capital spend from name it meta or whatever companies are out there. Data centers are is slowing down.

So I think it's -- it's a new source of demand, much like e-commerce was several years ago, and we'll end up -- again, we won't be a data center developer, but it will be somebody delivering something to a data center or somehow that's their customer, like we're seeing. So I'm excited to see that new source of demand, and it can pick up our portfolio, pick up our development leasing pace, all the things like that, and it's probably come on faster than we would have -- maybe I want to speak for the team than I anticipated.

And I would add to that, Ron, the users that we saw signed leases this year-to-date. It was a mix between users that are probably more focused on the data center construction piece. But then also a mix of users that are data center servicing piece. So I would imagine some of it may be determined on how quickly or how much more construction continues, but definitely some of it feels like it's sustained in the fact that you are going to continue to have to service these data centers, and we are seeing users that take our space that need to do that.

Next question comes from Jessica Zheng with Green Street.

Could you help clarify what drove the higher same-store O&I growth in the first quarter relative to what's projected for the rest of the year? Is it mostly occupancy-driven that you talked about?

Yes. Yes. It's mostly occupancy-driven. So first quarter same-store occupancy this year was 97.3% in first quarter, and that compares to a same-store quarter of 96%. We had a 130 basis point increase in occupancy, which really helped drive that 9.2%. And same property growth. And again, as I mentioned earlier, the comps every quarter that progresses this year become harder because in 2025, our occupancy was increasing throughout the year.

So that's why we're not projecting 9% same-store growth for the year. But yes, occupancy definitely drove the majority of the first quarter same-store growth.

Okay. Great. And then just a quick follow-up on the 770,000 square feet first-gen development leasing opportunity. that's still available. Just wondering will all of that be in the 2027 same-store pool? Or some of it in this year's same-store play as well?

Yes, the 775,000 of first-generation development leasing opportunity, all of those projects transferred in 2025. So those will be in the '27 same-store pool because they will have been in the portfolio for all of '26 and all of '27.

Your next question comes from Alexander Goldfarb with Piper Sandler.

Staci, just a quick question on the guidance. looking at second quarter, your range is a bit below where The Street is, but you raised the overall full year range. So it sounds like there's more of an acceleration in the back half than maybe we and The Street are modeling. Is that from this speculative lease up? Is that what's driving it? Or what's driving the sort of implied acceleration ramp in the back half?

Just trying to understand how much is sort of locked in versus how much is dependent on Brent and Reid and everyone performing.

Yes. So there are several building blocks really. It's not just one answer. So definitely, the impact of speculative development leasing Again, we have no impact in second quarter projected. So all of that would be coming in, in third quarter and then at a higher rate in fourth quarter. And same with some of our leasing projections, if we do have spaces rolling second and third quarter, those are projected to be leasing up the end of the year. So I would think about it as truly stair steps.

So from first quarter to second, third and fourth, continuing to ramp as the year progresses. I will note that our G&A are projected to be higher in second quarter than in third and fourth quarter. And some of that is due to the timing and some items related to our management transitions this year. There are still some moving pieces with relocations, new hires starting.

The second quarter is going to be about more in G&A expense than in third and fourth quarter. So that tempers the growth a little bit in second quarter. But we're still projecting 6% FFO growth in second quarter over second quarter of '25 is still a very strong projection for second quarter, but that does ramp up a bit more as third and fourth quarter progress.

Okay. And just -- I know you're not giving '27 guidance, but still, given the pace of this ramp that you're talking about and assuming the world doesn't come to an end, it would seem like '27 is a better number than where we are now or there are things that we should think about that would offset that.

We hope that earnings for '27 is better than '26, yes.

No, no, but better than where we and The Street are thinking based on what you're talking about here and if it comes through on your specialist leasing that you're talking about.

We haven't. We haven't.

Yes. I think it's too early for us to comment on '27. But we do have a lot of opportunity. When we think about the '25 development projects that transferred into the portfolio, that 775,000 of opportunity leasing, we'll call it, that we can do. And then the current development pipeline with starts. I mean '27 could certainly be a very strong year, but I feel like there's too much time between now and there to comment on it at this point.

Your next question comes from AJ Peak with KeyBanc.

Operator, thank you. We may have lost AJ. I certainly appreciate everybody's time and interest in EastGroup. We're available post call if we didn't get to your question, and we'll hopefully see you at upcoming conferences. And again, I appreciate your time this morning. Take care. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good morning, everyone, and welcome to Citi's 2026 Global Property CEO Conference. I'm Craig Mailman with Citi Research. We're pleased to have with us today EastGroup and CEO, Marshall Loeb. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand over the liveqa.com and enter code GPC26 to submit questions.

So Marshall, I'm going to turn it over to you to introduce your company and team, provide any opening remarks and tell the audience the top reasons that investors should buy your stock today, and then we can jump into Q&A.

Good morning, everyone, and thank you, Craig. [indiscernible]

Hit the red button. It's a new...

Okay. I was trying to kill time. But -- thank you, Craig.

Good morning, and thanks, everyone, for your time and interest in EastGroup this morning. I'll start kind of right to left introducing our team. John Coleman, EVP, runs our Eastern region, come from the Carolinas down to here, down to Miami. Reid Dunbar, who is our President, as of January of this year and runs our Central region, which is really Texas and Nashville. And then Casey Edgecombe, who handles many of you know, our Investor Relations.

EastGroup, if you're not familiar, we're -- we call shallow bay industrial REIT, which is really shallow bay euphemism for kind of smaller infill buildings. One of our peers described this years ago and made the comment, EastGroup is always been last mile. You all just didn't -- weren't smart enough to coin the phrase to come up with that. But we try to build a campus setting, near businesses, near higher-end residential, ideally, that's where the disposable income is and we're typically smile states, which is where people are moving where there's population growth, things like that.

In terms of -- as I was thinking about kind of Craig's question of reasons why to invest in EastGroup, two or three facts that come to my mind. And we talk internally a good bit of how do we lower our risk without reducing our return but we've now had 51 consecutive quarters of FFO growth versus the same quarter prior year. Same thing for our same-store NOI. So if we -- if we can hang in there one more month, we'll make it for 13 years of positive FFO and positive same-store NOI just as push for industrial REIT and the growth we've been able to enjoy.

We're one of the older REITs here in terms of we were started. We've been industrial since the mid-'90s. So a proven management team, and I was looking at the screen just a little bit earlier of all the red on it and things like that. So we've been through every -- COVID, GFC. We've been a public company. We've been an industrial REIT and a public company. So thankfully, our team has been through all those cycles.

Our strategy evolves, but we don't -- we weren't housing or we weren't office, things like that. We've always been a shallow bay industrial REIT during that time frame. And maybe going through all those economic cycles, one of the other things we've learned is the, you never know what the next black swan event is, so have a safe balance sheet. So we have the lowest debt to EBITDA in our sector right around 3x. Our debt to total market cap at least as of the close of Friday, was around 14 -- our debt-to-EBITDA is around 3%. Our debt within our total market cap is around 14%. And that's all laddered fixed rate debt, in terms of laddered, in terms of maturity. So we try to have a very safe balance sheet within that as we work through.

We also have the lowest top 10. Our top 10 tenants are a little below 7% of our revenue. So we like the geographic as well as the tenant diversity. You never know when you're going to come in and pick up the news of an accounting scandal or some issue at one of our tenants. So -- and thankfully, there's not that many, but we try to be geographically diversified, tenant diversified, have the lowest G&A as a percentage of revenue in our sector. So hopefully, we're going to have run our company and have low overhead for you.

And then on top of all that, we're actually trading below -- still trading below our long-term multiple of FFO. So again, a lot of that is interest rate. I'm trying to not blame it on the spokesperson for the company, but you can get all those things. 13 years of better FFO growth. Safer balance sheet. We've cut our debt by about half of where it was, a handful of years ago, things like that, and when we're below our historic multiple. So those are our main reasons why we think it's a compelling opportunity.

Perfect. Well thanks for the initial comments. And you guys were nice enough to put an operating update out ahead of the conference. And the development leasing, which started to pick up in the fourth quarter, looks like it's continuing. So maybe just talk a little bit about maybe some of the gestation periods on the 166,000 that you signed and how the leasing pipeline for development and operating assets kind of looks today and as we focus mainly on that inflection of leasing that investors have been waiting for, for industrial that looks like it's here. Maybe just talk about that trend.

Sure. No, good question. And look, I'll confess, I was in -- I love our setup and that supply is at its lowest level since 2018 and in the smaller or shallow bay buildings. The vacancy is about half the vacancy rate of the industrial market because so many big box buildings on the edge of town got built, which we don't compete with those either by location and mainly just building design. Our average tenant fee is about 35,000 feet. Our average building size is just under 100. So again, we'll have a small campus for that last mile service or delivery.

Thankfully, our development leasing and Reid, I'll let you maybe add some color. We signed a little more than half of our development leasing that we signed in 2024 or 2025 in the fourth quarter. So we really -- and it has been an interesting year in the last, call it, 18 months where we've had solid activity, but when you mentioned gestation period, just getting people to the cash register. We had people in the store. It's getting under the cash register and that seemed to happen more in fourth quarter, the 166,000 feet you mentioned were really since our earnings report. So early February, so a little under a month, we got a lease -- a development lease signed. And then one that took a little bit, it's a long-term tenant and they're expanding their building. It's manufacturing-related, kind of cross-border, which we think is another tailwind where their business is good and they want to expand the building. So we're going to expand their building by about 100,000 feet, kind of renew their existing lease and add 100,000 feet.

And on top of that, we -- I'm pleased, again, still with the activity we have. You just -- you always read the sigh of relief when the lease gets signed, but there's still a fair amount of activity throughout our portfolio that hopefully probably the next time we -- you hear us report will be first quarter, but I'm hopeful we'll have a decent chance to build on those 166,000 feet.

Yes. So I think as everybody is aware, with Liberation Day last year, 1st of April, caused a lot of users to pause and wait to see what would happen. So we did see the biggest impact on that through our development leasing. The operating portfolio performed quite well last year is as users decided to stay in place and renew. But the development was a little bit slower. We saw some of that, as Marshall mentioned, fall out in Q4, which is a nice thing to see. And it feels like from the comments we're receiving from the team in the field is that they're seeing more activity, steadier amount of activity. Again, it's a little hard to get people to actually sign and get it over the goal line, but we're optimistic. We're optimistic today than we were, call it, a couple of quarters ago. So some good leasing to start the year. We want to see some more, but the most important thing is just some consistency throughout the year. So -- we'll see how it turns out here in the next few months.

And as you guys look at sort of the tenant pool for your size range, you guys are a little bit differentiated with having, I think, your average tenant size is around 35,000 square feet, which seems to be a stronger part of the market. But how deep is the tenant pool for that segment of the market? And I know that you guys do sort of out-punch the market in some of the areas in terms of occupancy versus market occupancy. And so just talk a little bit about the resurgence there, markets that maybe are thinner than if you don't make a deal, it may be a couple of months until the next tenant comes versus others where you could hold the line a little bit more on pricing and maybe even push on the margin?

Sure. Good question. Yes. Again, what we like, and I remember brokers saying to me, every 10,000 feet, the number of prospects you have goes up -- I guess it drops exponentially, it should come down. So smaller to the tenant, it's more and the TIs are lower. It's -- we focus on tenants that distribute within the metropolitan area. So we want growth in Orlando, growth in Dallas, Austin, Phoenix, Las Vegas. That's where we pick the markets. And then in some cases, when we see these fast-growing markets, we'll have the same tenancy in different parts of the market because when it's a fast-growing city, it's also a euphemism is your traffic is terrible. You've outgrown the freeway system, they don't keep up, things like that. So that helps us like in Dallas, we've got, for example, because you can compete on your service level. If you're a hotel and your AC is out, you want the repair person quickly. And if they're coming from cheaper space on the edge of town, they're going to get stuck in traffic.

So that's really where we've said, we're not the lowest cost competitor, but we want to compete on traffic, our own service level and then you really need that location. It's usually the smaller markets, and they're good. There's -- we're in -- it's a smaller portion of our portfolio, whether it's a Tucson. There's a lot less competition or Greenville, South Carolina, maybe it's one of John's markets where look, we're one of the fewer games in town versus a Dallas/Atlanta things like that, but there's also fewer tenancy, but that really hasn't held us back on rents or things like that. But in some areas, there's always activity in Houston. There's always activity in Phoenix.

And look, and I think we should. We're in real estate. We do this every day. As we think about vacancy, when you think big buildings no one was building 800,000 foot building. So the vacancy rates, and I'm probably off here a little bit, but call it 8% or 9%. But years ago, no one was building. So all those buildings are much newer than you think, 100,000-foot building. The obsolescence factor or the local owner that may not have the CapEx that may be partnership that they just aren't real estate people. So we should, in my mind, always be able to outpunch the market, at least over the long term. And look, there's a couple of markets where we do watch, for example, like I guess, Reid has got Austin, Texas, the vacancy rate because of oversupply in Austin and that market has gotten really long north to south, but it's around 20%, but we're 99% leased in Austin. Phoenix has a pretty high vacancy rate, maybe 14%, 15%, but we're thankfully 99% leased in Phoenix. So again, it's a lot of big box on the edge town and there's been a flight to quality in this slowdown too, which we see markets like Atlanta that have negative absorption in the Class B and C product in the older buildings and pretty strong positive absorption and what we try to own or build, which are the newer buildings.

We have a couple of questions coming in. First one, just on tariffs. What are you hearing from tenants following the Scottish EPA ruling? Does the ruling reduce uncertainty for tenants? Or does it pivot to alternative tariff statutes to keep uncertainty elevated?

Yes. It's one and John or Reid chime in, I would say it's early to get that tenant feedback. I guess my take is starting last and I agree with Reid when we had first quarter last year was one of our strongest quarters. And then when we had Liberation Day, it just put capital decision-making and paralysis a little bit. So our portfolio stayed full. It was development leasing. We ended the year 97% leased. We're 96.6%, I believe, is our update as of Friday. So we're still full. It's just -- about 1/3 of our development leasing is, as you think about one of the things we like about a park setting is a tenant in Building 3 has outgrown their space. So we'll build building 8 for them in the park. And it will hurt our same-store numbers, but what we can tailor we usually tell the tenants we can accommodate your growth needs. And the way the markets work the last several years, rents have been rising and still are that we can backfill your space in Building 3 at a higher rate, and we have -- it will take us probably 9 or 10 months to deliver the new building, but move people around.

I think tenants are maybe a little more immune, maybe all of us are. So we've said it's going to be a noisy year with a lot of headlines. And I'm hopeful -- I don't think we're done with tariffs. One, I don't know -- don't listen to my political advice, but I don't think the Supreme Court ruling is going to mean this isn't a topic anymore. I think at some point, you have to run your business and people. It's usually the local team is saying, we need more space. Corporates saying whether headlines are messy, sit tight, make do. And at some point, people get to a point where they just need to run their business and need more space. And that's what we saw later in the year. So this, to me, is just another kind of dot on the Richter scale of, okay, there's -- now it's Iran and there's tariffs and this and that, and I feel for our tenants. But at some point, your customers -- if your sales are going up and your customers are hanging in there, which seems to be the way the economy you've got to run your business. And I think that's what we saw in fourth quarter and are seeing to a degree in first quarter still. So I'm hopeful people are getting a little more used to the shocks to the system.

And then the other question that came in, could you just talk about where cap rates are kind of on a stabilized basis or market rent basis for assets in your markets today?

Sure. Yes. It obviously varies from market to market. Some of the lower cap rate markets, we're seeing kind of that low 5s, sometimes upper 4s. Some of the stronger markets are like Nashville where supply and demand has probably stayed more in check than anywhere else in the country. Dallas cap rates with the growth rates there that we're seeing in strong demand is kind of that low 5 range. And then kind of depending, you may see a little bit higher than at mid-5. It's kind of depending on the -- like in Austin, maybe a little bit weaker just because of the amount of supply. California, Southern California, is a little bit more challenged because market rates are more in flux, harder to really ascertain today, but that's probably anywhere from -- still seems to be fairly healthy, but kind of mid-5s to upper 5s, what we're hearing and seeing.

And you guys talk a little about development yields. It feels like you guys have been sticky in sort of that plus or minus 7% range despite cap rates moving around, and it feels like maybe being lower than people still would have thought on a market basis. But the comfort level that you guys have, I know your start guidance was pretty healthy this year. So the view there on incremental starts, build-to-suit versus spec. And then I know in the operating update as well, you guys issued some equity. The view of equity versus incremental debt.

Okay.

I doubt those are the question that you want.

On this one, it's not that...

I'll remind you.

It's only because of memory, not avoiding a topic. Thankfully, our development yields have hung in there, like you say 7 -- low 7s. So we'll typically try to say in our rule of thumb is 150 basis points above the market cap rate. And again, kind of depending on the size of the portfolio and things like that. So we have healthy profit margins on our development. And I'll brag on our team a little last year. At this time last year, we had come out with $300 million in starts. And with Liberation Day and things like that, we'll build a part, but as I should have mentioned more, we'll build it in phases. We'll build 1 or 2 buildings at a time, and it's easy. We'll taper. It's a pull system. Most of our peers are we're going to go build a building, and I hope 3 people aren't doing that. But I'll get a call from one of these guys saying, hey, Phase 2 is 50% leased. I've got an LOI out or a lease out or more activity, I need to build the next phase. So we only started $175 million a year ago, where we thought. We had told The Street, we bought $300 million. So it's hard to predict, but we'll say, look, we'll go as fast or as slow as the markets telling us and I like that we were disciplined about it, even though, look, we'd rather have done $300 million. This year, we're at $250 million, which is kind of what we've penciled out.

It will come from the teams in the field. And usually, again, we'll pull that ticket, we were talking earlier today about a few of the development leases we're working on of, okay, if we can get this lease in, that will kind of pull the ticket to put more blue shirts on the shelf. I mean it's like a retail store are like you would build out a subdivision for residential is, one or two home sale will start the next one. And we think that's a lower risk, and we like the returns we're getting. I would say one thing that it's maybe -- it has been interesting and maybe not surprising and you saw it a little bit with the expansion we announced that because of the lack of supply that we're back to '23 COVID levels of supply. And so many of the people that build shallow bay are local regional developers with an institutional partner. So in this slowdown, their balance sheets really weren't structured to carry -- carry land, carry a construction team do all the things like that, we bought land from people that weren't able to close sites where they've done all the work, but I don't want to carry it for 2 years until the market kind of normalizes and goes back. So we think we're going to have a really good runway in terms of fewer people.

It's going to take them a little while to get back in business and up and running, and they will and will oversupply again, that's nature of our business, but there will be a pretty long runway measured in a couple of years. And with that, we've had more pre-lease opportunities where people haven't been able to find the space that would you build us a building or like the one in Arizona, we announced, would you expand the building? And again, the -- we have a good relationship with them, but I think that the availability just isn't there, and we're probably working on more we typically build spec. Maybe we have an existing tenant in hand to take part of that building or part of those 2 buildings, but where tenants would take an entire building or maybe in a couple of buildings in a park if we would build it and things like that, going on now than I'd probably say we have in the last 3, 4 years that I can think of.

And just to add a little bit to Marshall's comments on some of the pre-lease or build-to-suit activity, we really saw into last year, an uptick in the number of conversations we're having with some of our existing tenant base and customers that needed to either expand or consolidate operations. And I'd say that has accelerated into this year. And so that's one example of the expansion we signed in Arizona, which was a good sign, but we continue to have other conversations. And that's also, I think, a point out that the power of our platform and portfolio, and we have over 70 million square feet of existing product and over 1,400 customers when they need to expand. We're usually always the first call, and that's why we like to do things in phases. That's why we always like to have some land inventory with over 1,000 acres of land. We're in a prime position to service these tenants that are now needing to expand or reconfigure some of their distribution networks. So I feel like we're in a good spot. We won't land all the conversations we're having, but we've shown we've landed one earlier this year, and hopefully, we'll pull another one or two in the boat as we continue throughout 2026.

So that -- I agree with Reid. Hopefully, it would give us some upside to the $250 million in starts because it's hard. These are so [ 0 - 100 ]. But if we could land a few of those, and if the economy can hang in there, then I'm an optimist, but I hope we can hang in there and maybe have some upside to the number of starts. But there, again, I think I always say I don't worry about the buildings starting as much as I think about them finishing. We can start whatever we want to start. We just want to make sure we get it leased, and we usually underwrite a year after completion to get the building stabilized and lease. And either way, that's when it rolls in the portfolio. And last year, we saw where a vacancy dropped, it was more buildings that are we're achieving our yields, but it was taking 16, 17 months past completion to lease up rather than at the peak, it was 6 or 7 months. And that was when we kind of peaked on development as a company, probably just under $400 million. But again, I'm glad we have the team and the balance sheet and the land. And these guys will say we always want -- usual have permit in hand for that next space, which that's gotten much harder within the cities, too, of just pulling those permits in fast-growing cities that people want the delivery quickly. They want the service person, but no one wants all the trucks on their road. So getting industrial permitted has gotten materially harder than it was 5 or 6 years ago, which is great for the 65 million square feet we own, it's challenged for the next -- that incremental 5 million we'll build.

I was going to add, just if you take a snapshot of where we are in the Eastern region, with new development starts. We're at about a 60% reduction from the peak. So that dynamic has really worked in our favor. A couple of things, construction costs, although there have been some tariff impacts to construction. We're actually seeing lower construction costs for new development because of the lack of new demand for construction. Also, as we look forward into this year 2026, supply will be greatly down to Marshall's point, so we think there could actually be some upward pressure on rental rates when that happens. And then his point on land, just having the land entitlements in place, ready to be permit ready to start. That's key that we have a very deep land inventory that is fully entitled and really when that site is ready for the next phase, we're ready to start construction.

And on development, we had a question come in. On whether you've seen water rights extend entitlement time lines or change density site coverage for new development?

Yes. Nothing, at least in our markets yet on water that I've seen or heard of. As we mentioned, the entitlement period is taking longer. Power is more of a constraint than typical. But for our users, most of them aren't really heavy power requirements. So we haven't seen a hindrance on any of our activity regarding power, but it is something we're monitoring.

And that's all really being driven by the data center demand, so power and water, shocking how much of that is consumed. And in Atlanta, at least I use as an example, public hearings now where residents are showing up in opposition of future data center zoning and permitting. So it's on the table. I'm not sure where it's going to go from here. We put our toe in the water and looked at some data center opportunities, probably not a great fit for us. But I think that is going to continue to see some pushback on those two utilities moving forward.

In the markets you guys operate on or in rather, how much -- I've gotten this question a few times like data center development, how much does that crimp industrial development, right, because you guys are sharing or not sharing land sites, but targeting similar land sites? Like in your markets, where do you see that impact be sort of the greatest on future new supply of industrial?

Certainly, they can pay a lot more, and usually with industrial, we can only go one story historically. So we've said, we're about the first guys to get priced out of land when we chase it. And so it's one more source of competition. They're so tied into power, where John said, it's not something we're actively looking, but we said, let's understand it. If we do have land that's has the power and the water for data centers, we kind of kid, we want to know if there's oil under our land. If we happen to buy it, we weren't looking for it. But if it's there, we should capitalize on it. And so it's another set of competition, but theirs -- they seem so much more limited than what we can do for industrial. Ours is hard to come by, but theirs is even harder to have the zoning, the permitting and have the power, especially is where we're -- they've approached us on some sites at different times, some of the data center guys but the power requirements they need, and it takes the lead time as I understand it for them to get that power is so long that we've just -- I've said we get a data center question. It's like, look, if we can capitalize and there's an opportunity to do it without us, pretending to be a data center developer, which isn't -- I wouldn't buy EastGroup stock because of the data center opportunities, there's better opportunities in other rooms here than this one.

Shifting to AI. Actually, before I do that, we got one question come in. How should we think about development leasing cadence throughout the year and subsequently development starts?

Look -- and a number of these are -- I guess, it's hard to predict the cadence. Again, it was odd last year. I don't know that we normally have 52% in one quarter. It's usually not that lump together. But you never know when that tenant finally decides and his rents have risen, one broker described it. This used to be a director of real estate decision. Now the dollar commitment has risen to it's a CFO decision to sign the leases. So that's part of what takes that gestation period out a little bit. And I would say look, we've got local regional tenants, and we've got Fortune 100 tenants. And usually, the bigger the company, the bigger the legal department, the longer the gestation period, even if we have 3 releases with them in other markets and things like that.

It just takes longer. So it's hard to predict the cadence and the square footages could throw. And literally, as those leases get signed, we'll move pretty quickly to build that next building these because with the permits in hand and the reason if this helps, is our prospects all have tenant rep brokers, and if I'm Citi's tenant rep broker, I want to see that construction underway because if I promise you, your space is going to be ready in June. I want that developer, we -- maybe if it's a free lease, you could have not broken ground. But if you're moving in because I know come July, you're going to be calling me every day asking where your space is. So that's why it's important for us to have a little bit of inventory out there in the market because you hate to lose, and it's happened to us before you hate to lose a good tenant because you can't accommodate their growth. But if we don't, somebody is. So we're trying to have that ability. So that's where, again, if we land some of these pre-lease opportunities, I could see upside to the 250. Or just if the market hangs in there, look, I hope there's upside to it, but -- that said, using just as recent as last year as an example, I think we're -- you're better served if we're a disciplined allocator of capital.

Last year was our lowest new investment year we've had in a while and that we didn't see the development opportunities and cap rates were sticky last year. So what we bought was strategic, more than opportunistic, where a couple of years ago, we saw things not close because of the capital markets, and we were getting a second look. And so we had a very active year in buying existing lease but new product and then that window closed, and so we'll try to find where that market opportunity. We've said we're going to end up with well-located, state-of-the-art shallow bay industrial buildings and fast growing markets. And sometimes, most of the time, we're better off building it. If everybody wants it, we'd rather create it than outbid people for. But sometimes the market gives you that window to buy it vacant or buy it when it's leased, and it's just kind of -- usually, it's the inbound calls to tell you where the window is.

And then pivoting a bit to AI, I guess, just as it relates to EastGroup to start off, what initiatives are you guys looking at? How much time or money have you kind of spent on identifying opportunities for productivity enhancement or, I guess, revenue enhancement? However you kind of looked at it internally?

Yes. Good question, and we spend or I'll complement our IT team of where it can we use it and training and trying to stay safe too within a cybersecurity world. So we think about all of those things, about one, making sure we don't get hacked and everybody, including the clicked on something or link you shouldn't and things like that. But on AI, we've spent time training all of our team. It's mainly if you said to date, where have we seen the reduction because we're not a design, it's not a creative team. It's not legal or think of different people like that. But -- it's been our accounting. So our quarter end closing has gotten -- that team has done a really nice job of property accounting of automating more and more of that, and they're able to what we've talked about is we'd rather reduce the kind of the closing time but offset that with analysis time. So if we can use technology to do that. And they've -- they may argue with me on the percentages, it's mostly been what's available out there with us tweaking it a little bit to use it and things like that. So -- and I think our -- probably within our tenant base, it's still -- you're still delivering goods and services to local tenants. So they can probably -- the bigger the space, probably the more we see the tenants' ability to put into their CapEx and equipment. But a 35,000 foot, it's usually not state-of-the-art where 1 million square foot building would be. But we'll watch and see how they can use it to maybe be more efficient with their space and if they can. But again, we keep seeing more and more opportunities, again, using like the on-shoring, near-shoring is probably the latest tailwind where we see benefits from kind of like e-commerce, we said our old tenants didn't go away, then e-commerce kind of started diving into the pie. And now it's been -- and we're not manufacturer. I'm watching the time. But it's more suppliers to the Intel plant in Phoenix to the TI plant outside of Dallas to Tesla when they come to Austin. We've got tenants that are -- can supply either food or paper products or boxes or anywhere in there of any kind of range of things to people that need to be near that new source of demand in the market.

Then just rapid fires here. Same-store NOI growth for the Industrial Group in '27.

The group 5.5.

And then from an M&A perspective, in your property type, more, same or fewer companies this time next year?

Sure. It seems in the REIT industry to be fewer. So I'll...

Well, thank you guys so much. Everyone, enjoy the conference.

Thanks, Craig. Thanks, team.

Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions]. This call is being recorded on Thursday, February 5, 2026.

I would now like to turn the conference over to Marshall Loeb, CEO. Please go ahead.

Good morning, and thanks for calling in for our fourth quarter 2025 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our President; Staci Tyler, our CFO; and Brent Wood, our COO. Since we'll make forward-looking statements, we ask you listen to the following disclaimer.

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 our earnings press release, both available on the Investor page of our website into 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 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 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. 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, Staci. Good morning. I'll start by thanking our team. They worked hard through a volatile environment last year, and I'm proud of the results achieved. Our fourth quarter and annual results demonstrate our portfolio quality and resiliency within the industrial market. Some of the stats produced include funds from operations were $2.34 a share, up 8.8% over quarter. And for the year, FFO per share growth was 7.7%.

For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term trend. Quarter end leasing was 97% with occupancy at 96.5%. Average quarterly occupancy was 96.2%, and which was up 40 basis points from fourth quarter 2024 and reverses a downward trend we've experienced for the last several quarters.

Also notable with same-store occupancy at 97.4%. This strength shows the trend we've discussed where the portfolio is well leased while development leasing has been taking long. Quarterly re-leasing spreads were 35% GAAP and 19% cash for leases signed during the quarter. Annual results were higher at 40% and 25% GAAP and cash, respectively and cash same-store NOI rose 8.4% for the quarter and 6.7% for the year.

Finally, we have the most diversified rent roll in our sector, or our top 10 tenants falling to 6.8% of rents, down 40 basis points from last year. We target geographic and tenant diversity and strategic paths to stabilize earnings regardless of the economic environment.

In summary, we're pleased with our results and excited about the quantity of development leasing signed during the quarter, along with our current prospect activity. Reid will now walk you through more of our fourth quarter details.

In terms of leasing, fourth quarter improved materially from slower second and third quarter results, especially in development leasing. Our fourth quarter development leasing accounted for 52% of our annual total square footage, which makes it our best quarter of overall leasing in over 3 years. We're excited to see this pickup in momentum with the key being sustainability.

The headline volatility impacted long-term decision-making last year. We believe businesses are more accustomed to outside noise and simply can only delay expansion decisions so long. We continue seeing a flight to quality which has contributed to EastGroup's portfolio occupancy outperforming the broader markets.

As Class A shallow bay continues to be absorbed and new supply lagging, we anticipate increased decision-making and deal velocity. On the other hand, our development pipeline is leasing and maintaining projected yields but at a slower pace. This, in turn, lower development start projections from earlier in the year.

On our development starts, as we stated before, pool by market demand within our parks. Based on current demand levels, we are forecasting 2026 starts to $250 million. Longer term, the continued decline in the supply pipeline is promising. Starts remain historically low again this quarter. Couple this with the increasing difficulty we're experiencing with attaining zoning and permitting as demand increases supply will be more challenged than historically to catch up. This limited availability in new modern facilities will place upward pressure on rents as demand stabilizes.

And as demand improves, our goal is to capitalize earlier than our 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.

From an investment perspective, we're excited to continuing to be growing our Las Vegas footprint. We are also -- where we also added new land development sites in San Antonio, and in the fast-growing supply-constrained Northeast Dallas submarket. Finally, as an important part of our long-term strategy, we continue modernizing our portfolio with our upcoming Fresno market exit. Staci will now speak to several topics, including our assumptions within our 2026 guidance.

Thanks, Reid, and good morning. We are pleased to report strong results for the fourth quarter and year 2025. These results were achieved by our team through variable market conditions that improved during the last few months of the year. Our FFO results for both the quarter and year at the upper end of our guidance range at $2.34 per share for the fourth quarter and $8.98 per share for the year 2025, which represents 7.7% growth over prior year FFO per share, excluding gains on the voluntary conversion.

The outperformance in fourth quarter was primarily driven by property net operating income and continued strong performance by our 62 million square foot operating portfolio, which ended the year 97% leased and 96.5% occupied. We also achieved net interest expense savings that resulted from lower bank credit facility balances and a lower interest rate than originally projected on our new $250 million unsecured term loan that closed in November at 4.13%.

We ended the year with $19 million drawn on our unsecured bank credit facility, leaving available capacity of over $650 million as of the end of the year. Our debt to total market capitalization was 14.7% at year-end. Our fourth quarter annualized debt-to-EBITDA ratio was 3x, and our interest and fixed charge coverage was over 15x. Our strong and flexible balance sheet positions us well to pursue growth opportunities that align with our time-tested strategy.

Looking forward to 2026, FFO is estimated to be in the range of $2.25 to $2.33 per share for the first quarter and $9.40 and $9.60 per share for the year. Those midpoints represent increases of 8% and 6.1% compared to the prior year periods, excluding gains on the voluntary conversions that result from interest claims. We are projecting strong cash same-property net operating income results for 2026 with a midpoint of 6.1%, driven by rental rate increases on in place and budgeted leases and expected same-property occupancy of 96.3%.

the midpoint of our 2026 guidance assumes $250 million in new development starts and $160 million in operating property acquisitions, which includes an acquisition in Jacksonville that is currently under contract with money at risk. Our rent collections currently remain healthy and in line with historical averages.

So our projections for 2026 uncollectible accounts include a typical run rate in the range of 30 to 35 basis points of revenue. Please note that projected G&A expenses for 2026 are $27 million which includes an estimated $4 million or $0.07 per share in costs related to the executive team transitions that were announced in December.

Also, as a reminder, approximately 32% of the annual G&A expenses are expected to be recognized in first quarter, primarily due to accelerated expense for employees who are retirement eligible under our equity incentive plans. We have $140 million in unsecured debt maturing during fourth quarter 2026. We plan to fund those debt repayments and new investments throughout the year with our bank credit facilities and new debt issuance of $300 million.

While our guidance assumes debt issuance, we will remain flexible and monitor the equity markets and may utilize both debt and equity as sources of capital. We're pleased with our strong performance in 2025. And as we look ahead through the year 2026, we are confident in our high-quality portfolio of well-located, multi-tenant assets and in our team's ability to execute in this steadily improving environment.

Now Marshall will make some final comments.

Thanks, Staci. In closing, we're pleased with our execution for the quarter and year. Market demand is picking up momentum, and we're hopeful it's sustainable. Regardless of the environment, our goals are to drive FFO per share growth and raise portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders. Our executive team restructuring as a reflection of the growth we've achieved and even more so the opportunities we see within our markets.

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 onshoring trends, evolving logistic chains and historically lower shallow bay market vacancies. We also have a proven management team with a long-term public track record, our portfolio quality in terms of buildings and markets improves each quarter, our balance sheet is stronger than ever, and we're upgrading our diversity both in our tenant base as well as our geography.

Well, now I would like to open up the call for any questions.

[Operator Instructions]. The first question comes from Craig Mailman at Citi.

Congrats to Reid, Staci and Brent. I see Brent is already enjoying his promotion by not talking on the call.

Craig, give me a break. I'm here.

I wanted to just dive in a little bit more on the development leasing because that was a big uptick. And I know, Marshall, you had foreshadow that last quarter's call on the NAREIT. Just can you just walk through kind of what the -- a little bit more into what the prospect activity looks like? And any trends you're pulling away from either sectors that are more active than others? And also just give us a little bit of a sense of -- are these all organic growth to the portfolio? Or are some of these existing tenants that could leave some holes in the existing portfolio as they move into new space?

Good question. It was mostly -- it was, I guess, interesting in the great additive, but we had activity at all during the year. And then in fourth quarter, maybe it was long enough beyond tariff day that people started finally making a decision in getting leasing development leases signed. There weren't expansion, a couple were existing tenant relationships where, hey, we have you in Orlando and you need space in Tampa. And that was kind of a full building lease the team was able to get signed there.

So in terms of kind of trends, what I would say is it felt like you finally break through the ICE a little bit, and we got in more than half of our development leasing signed for last year happened to be in fourth quarter. The tricky part is, I sure hope that's sustainable. We have good prospects activity. The other thing a little bit that helped us last quarter with such a high square footage is the -- and I think it's with the construction pipeline being so low we have probably 6 to 8 conversations in varying stages, and they won't all happen but where prospects could take a majority of all of the building, a couple of buildings pre-leased kind of build-to-suit opportunities. So that's -- that gave us a little bit of that confidence to raise development guidance this year, we think, is some of those happen.

And it's a mix of expansions relocation from California is one of the prospects. It's kind of a mixed bag and simply new to the portfolio, things like that. So I'm glad that it's pretty broad-based. And when I was looking at just the markets where we could have these pre-leases, it is probably about 6 different states. So it's pretty spread out. It's not any one market, things like that. So I cautiously optimistic as we turn the page, I'm really proud of the team, a good fourth quarter. We kind of finally got through and got things signed and we have good activity today that's just that conversion rate that will be key.

And I would add to Marshall's comments on some of the specific development leasing in the year. Our average lease size in the quarter actually jumps to a little over 60,000 square feet which was a nice uptick from previous quarters, which obviously helps move the needle. And then geographically, it was very dispersed. We saw great activity really from Florida all the way to California. So all of our development markets, we were fortunate to land some new deals in the quarter.

Next question comes from Samir Khanal from Bank of America.

Marshall, I guess your comments are very encouraging to hear, especially from even listening the last question on development leasing. I guess how is that translating into pricing or market rent growth? I guess where do you see market rent growth going this year at the national level? And maybe talk about markets which are outperforming or even lagging at this point?

Sure. Samir, it feels like -- it's hard to speak for us, maybe a little bit nationally. We're so focused on more of the smile states. But I would say rent growth and we're pleased demands picked up, you're right. I have not really seen that translate into rent growth just yet. I'm optimistic because construction pipeline is a 7-, 8-year low and that it's going to take a while to catch up that there will be rent growth, but we're not seeing it just yet. We're still in all of our markets, maybe absent California, probably inflation plus a little bit. So rents have hung in their construction pricing has come down. So we've been able to maintain our yields a little north of 7 on the developments and things like that. Look, there could be an inflection point. I keep calling for it, and eventually, I'll be right on when rents pick up again because I think there's just not much supply out there and as demand does stabilize it won't take a lot of kind of positive and just stable demand for people to start pushing rents, but we're not -- unfortunately not seeing it quite just yet, but at least we're trending in the right way as we ended the year.

The next question comes from Blaine Heck from Wells Fargo.

Just taking Samir's question a step further. I know you guys are typically hesitant to forecast rent spreads. But just looking at your expirations this year, the average rent is a bit lower than your forward year expirations at this time last year. I guess does that give you any confidence that you can hold spreads somewhat steady year-over-year? Is that lower expiring rent more of a function of the mix of markets and just lower rent markets rolling over this year?

Blaine, It's Marshall. I felt right. I felt better, probably right looking at what has expired, but it is more market by market and even submarket by submarket in some of our markets as to where. But look, it's definitely trending down, but still -- look, I'm happy we ended the year at 40%, although we were lower at the end of the year a net effective than when we started the year. I think it will keep drifting down. Hopefully, we'll hang on to it. We're several years away from having negative rent growth. And I remind myself, look, we're in a cyclical business. It's always underbuilt and then overbuilt and we're underbuilt.

And it's -- as the market shifts, as we were taking the last question, I think you'll have that rent inflection and we'll re-lift our mark-to-market within our portfolio. So we should have good positive re-leasing spreads this year. I think there'll be probably more like the back half of the year than the first half of last year. And then it's just when does that market turn because there's not much vacancy. And even in the shallow bay because we have the older buildings, there's more functional obsolescence in shallow bay than there is big box because no one was building big-box buildings 20 years ago.

Yes. And Blaine, I would add speaking specific to some of the markets, I like our diversity. So as California has maybe slowed some other markets like Houston, which is one of our larger markets has actually picked up some of that steam. So our diversity definitely helps as we go into the future quarters.

The next question comes from Alexander Goldfarb from Piper Sandler.

Congrats all around, and Reid. I'm assuming they told you all about the joys of endless NAREIT. So welcome to Reid -- question for you guys on competitive supply. Industrials are always a big institutional demand area and hard to believe that if things are good to getting better, that competitive supply is going to remain at a diminished level. So what are you seeing for the appetite from lenders, whether it's banks or private credit for development and from the institutional equity side, what do you see as their appetite for existing versus getting back into development?

Yes. Alex, this is Brent. Good to chat with you. Yes, competitive supply, as Marshall alluded to, we feel good about where that is. We spend a lot more time as a team talking about demand relative to supply. It's still tight. When you look at multi-tenant, that vacancy rate is about half of the overall or half of the bigger box space at about 4.5% on a national level.

But the one analogy we've been kind of giving if we could just have a little better uptick in signing and momentum. We have a land bank and land inventory. We have literally plans with permits ready to go. We're obviously still actively developing, but we desire to do more and we're poised to move very quickly, and you see we guided to a little bit of a higher number this year, but we could accelerate from that, and we're poised to do it.

Our competitive set tends to be good regional developers and there are equity guys, partners out there. There's been risk off. I think that will begin to unthaw if the market turns on, you'll certainly see that come back around. But there's going to be a lag time there for them to -- typically, those type groups don't carry land inventory, so they may have to secure a site, which can be very time-consuming, get their equity partner together and get some of those ingredients together.

So much like we did coming out of the great financial crisis, we were sort of first to market, so to speak, and really ramped up and got more of our proportion of the activity -- and we kind of can't see that happening again if we could have a nice uptick, we could lean into it faster and ahead of the competition, maybe play a few innings of the game before the other team gets ready to play.

And so we -- to be fair, we've been saying that for about 24 months running now. But the ingredients are there for that to happen and -- that's going to happen. It's a matter of when could this be the year we hope so. We're poised if it is, we'll lean into it. And if it's kind of like it's been in the last couple of years, we'll paddle with it sideways, if that's what it gives us. But we feel good about where the competitive set is and our ability to lean into it if we're given that opportunity.

The next question comes from Nick Tillman at Baird.

Maybe a question for the COO or President here, I'm continuing on the land bank here. The overall basis here is around $32 a buildable foot I'm sure there's a little bit more permitting and costs going to have to go into that number. But as you just look at these new starts and potential yields, assuming relatively flat just rent growth here, like what type of yields are we talking about on additional starts from here?

Yes. Nick, it's Reid Dunbar. I would say, going forward into 2026, we would anticipate similar yields of what we've achieved in '25. And thanks for pointing out the land bank, a little over 1,000 acres is something that we are bullish on. And as Brent mentioned, that's not easy to come by. The permitting and entitlement periods now take longer and longer and more and more challenging. So the fact that we have the land that we do, the portfolio and the relationships that we have, we feel like we will be able to take advantage when that demand starts to pick up with the team in place and the majority of our or land, especially for second phase developments have permit in hand. So the team is geared up and ready to go, assuming the leasing continues to occur.

The next question comes from Brendan Lynch at Barclays.

Maybe one for Staci, and congrats again on your new position as you suggested that your guidance assumes additional debt issuances, but maybe you would consider issuing equity. Could you talk about the -- what would make you toggle between the two? In terms of capital allocation when looking at the development pipeline and perhaps scaling that beyond what you've guided to and potentially additional acquisitions throughout the year.

Sure. First of all, thanks, Brendan. Appreciate that. Excited for the team. And yes, as we enter the year, our guidance does assume $300 million in debt issuance and we really are constantly monitoring the debt and equity markets remaining flexible. And we'll we assume debt issuance, we're monitoring the cost of that debt versus cost of equity, Ideally, we're in a situation where we can toggle back and forth and have a balanced approach.

But in guidance, we contemplate debt. We have plenty of room on the balance sheet to fund the opportunities that come our way this year between development starts acquisitions. So we could certainly issue debt or debt and equity beyond the $300 million. And we also have plenty of capacity on our bank credit facilities. At year-end, we had less than 20 million drawn. So over $650 million available. So we can immediately fund those opportunities that we think makes strategic sense for the company, and then we can either issue debt or equity beyond that.

But right now, we're around a 3x debt-to-EBITDA so when we think about the strength of our balance sheet, we have a lot of dry powder, sub-5 debt-to-EBITDA would be a long-term range that we would want to stay in. But even with the debt that we have contemplated, we're still in the low as we think through the end of the year.

So plenty of capacity if we were to find additional opportunities. So it's really not that we have capital constraints. It's more of the opportunities that we find and that's what the teams are working hard to find those opportunities that make sense. And with accretive acquisitions on day 1, we can certainly enjoy using that dry powder to continue to grow earnings.

The next question comes from Todd Thomas from KeyBanc Capital Markets.

I appreciate all the commentary around development leasing in the quarter and the prospect pipeline sounds encouraging. What's assumed in guidance in terms of development lease-up both on assets already converted, including Horizon West perhaps? And then what about the 1Q and 2Q scheduled conversions? How are you thinking about the lease up and sort of what's included in the guidance?

Todd, it's Marshall. For the year, we have around $0.07 of spec development leasing kind of assumed in our budget. And that kind of mirrors our starts this year as well and that it's pretty back-end weighted. So we're low the first 2 quarters of the year, and then it picks up in third and fourth quarter. And yes, and so there's -- we've got some time to identify. We've got some leases side, obviously, in fourth quarter that we're getting those tenants in and the build-out finished and things like that. But at least those are signed and it's more construction. But in terms of landing new tenants, getting them in, really, the impact will be in third and fourth quarter, and that's -- if I'm an optimist, that also gives us a chance where we could get ahead of this year's budget.

Okay. The $0.07 is all new incremental leasing or related to new incremental leasing? Or is some of that from the fourth quarter leasing that will come online late in the year.

It would be new -- if you said how much speculative leasing do you have in this year's budget at $0.07 of the [ $9.50 ], and that's back half of the year. Does that make sense?

Yes, sure.

The next question comes from Rich Anderson from Fitzgerald.

Congrats, everybody. So Marshall, every brain has 4 lobes, so I want to get to 1 or 2 of Marshall lobes. And when you're thinking about guidance going forward, last year at this time, it was $8.80 million to $89.0. You did $8.95, so you beat that by $0.10 you did -- you beat same-store NOI by 100 basis points, ultimately versus the initial guidance. So when you're -- and that year last year required hopscotching, hopscotch -- yes, hopscotching through Liberation Day, new politics and so on.

So when you think about the forward view today, I imagine you feel more confident than you did a year ago today. And what's the reality about setting guidance in your mind with perhaps a cleaner sort of runway? Is there an element of conservatism? Do you kind of put yourself in a position to hopefully have a beat and raise type of year? Like how -- what's the reality factor around setting guidance today with hoping to expand upon it as the year progresses?

Rich, it's Marshall. I don't know that I have frontal or a rear lobe actually -- but I appreciate the creativity. On our budgets, we'll -- they bubble up kind of sweep by sweep from the field. So we'll look rather than corporate budgeting. I think I hear is what you need to do that may or may not be realistic. So that's kind of always been our approach. They know what they can do. And then the regionals will challenge them on the budget to try to make sure it's not either. And then you kind of get to no personalities, I could -- one day over a beer, I can tell you who's conservative, who's aggressive and who's usually spot on, on their budget and things like that.

So I think what I'll complement the team, we'll scrub the budget and usually push, and it ends up a little higher than what bubbled up from the field. but they do a great job of finding ways to beat it. Once we said it, we do talk about what's our budget versus what's our goal, and we'll find ways to beat it. In terms of a year ago, we felt. That's why I guess one of the cautionary retail is we felt good. Last year, fourth quarter was our best -- one of our best quarters for leasing. First quarter was really good. It was really a Liberation Day that was kind of starting April where it felt like, I remember that first quarter call where people were thinking, have you stress tested the lower end of your guidance and things like that.

So for what it's worth, if we guess this year, I would say I think people are maybe a little more numb to headlines, but I'm expecting a year where we'll have some tumultuous headlines. And I just hope that doesn't throw long-term capital allocation decisions, meaning development leasing. But I'm expecting it to be, like last year, it was a good year, but it was choppy water for a lot of the time. And I would guess this year until we get closer to midterms or whatever.

But look, at the end of the day, regardless, we got to go lease this space in this building. So it's like simple and straightforward. We know what our task is to go get the vacancies, and especially within our development leasing done, and that will pull the ticket for the next building as well. So I hope we're being conservative and I'll let you be the first one to remind me that we were conservative then, if you're right.

Is guidance versus goal? Like what's the typical spread there? This is not a second question, by the way.

Yes. No, there's no increment. They just look, our comp in the field is that if you can beat your goals, you know there's a little more incentive. And that's where -- but there's no $0.06, $0.05 anything. It's just a is what we've all signed on to, and so it's your job one to deliver it. And then two, if we can help you or find ways to get a little ahead of it, that's what benefits our shareholders. So how do we find that window really depending what the market gives. Sometimes it's leaning into development.

Sometimes it's leaning into acquisitions or buying value-add or being creative and figuring out how to make a lease work that looks like it's about debt or something like that.

Yes. I would just add to that, Rich, having been in the field, it gets I think our midpoint of guidance, just a slight bit lower for '26 and '25. But if you asked us, do we think occupancy would be lower, not necessarily, but when you get in that 96%, 97% range and you're rolling budget up, it becomes challenging to say I'm going to be 100% leased this year and everything is going to go. And it could. But then as you roll that up organically being 20 bps down in that sort of range is really just a deal going here or there one way or the other.

So I hope, as you said, our trends have been to be a bit ahead of where we are, and we feel like we could do that again. But you've got to have a starting point somewhere. And obviously, this is the jump out of the gate and the field is trying to be reasonable with what they're seeing and then we certainly hope to better as we go through the year.

The next question comes from Michael Griffin from Evercore ISI.

I wanted to circle back on supply and maybe dig a little deeper. Obviously, it feels like maybe there are going to be some puts and takes of '26, but the outlook feels better, I guess, relative to 2025. But Marshall, if we do see this inflection point, is there a worry that supply could then follow precipitously pick back up and then we're just kind of in the same state we've been in over the past couple of years of overbuilding? Or are there maybe more onerous, whether it's regulations, cost constraints, kind of governors that would put a meter on that, I guess, forward future shadow supply?

Michael, I think -- and I don't mean to be, but a little bit yes and no. And that I think the no part of my answer, you're right that getting permits and things, and I've usually attribute it to Amazon. Everybody wants the good or service or package delivered quickly, but no one wants the distribution building in your neighborhood. So we've seen zoning get materially harder and more time-consuming when we go through. And so that's what we'll -- and as Brent mentioned earlier, the private developers typically aren't structured balance sheet-wise to carry land, carry a construction team, have a permit in hand. So long term, yes, we're a cyclical business. It will attract capital where people are making money. Other people imitate and jump in and everyone became an industrial developer last cycle and we overbuilt.

So long term, you're right, but I think it's going to be -- I'd say longer term, it's going to be measured in a few years before people can kind of gear back up, get the land, get through permitting. And I know how much we struggle finding good land sites it will take a while for people to find the site and get through the process. And thankfully, we're -- it's something we purposely have but we have the team, the land, the balance sheet and the permits in hand and that will give us several quarters, if not a couple of years, as -- before the like -- start getting land and they get it permitted and then flip the land and all the things. So it will get overheated. That's just what we do.

But that we'll have a pretty long runway before we get to that. And along that way, that's when our mark-to-market should pick up. And when you'll see our development starts go from $180 million last year, which we scaled that to hopefully that wherever the market takes us $400 million in starts or more.

The next question comes from Mike Mueller of JPMorgan.

With the expanded management structure, what aspects of your operations do you think you're going to be better at than before you added the extra depth?

All the things I delegated, I guess, my answer on -- good question. I'm excited for the team and maybe a little bit. I'll go to the if you're in a call, I'll go to the rearview mirror and then the windshield, we had not changed our structure, and it's worked been a little over 20 years, and we were 19 million square feet. And just as the world evolved and has gotten more complicated with corporate responsibility. The company has grown, we pick square footage and property-wise, a lot more analysts and things. And so our team was just -- we've got a really strong team. Now I'll tie that into why we've usually found ways to beat our budget. So I'm excited for all 3 of them.

I always probably -- I'll put it on myself part-time COO for the last few years and Brent's got a great background and just the more I got tied into Zoom calls, non-deal road shows, conferences, it's harder to just go sit in a -- sit in a suburban with the brokers and stared a piece of land in Austin, Texas and all the fun things that we do. So I'm excited about that and excited for Staci, who's been with us for as young as she is, an awful long time and taken on more and more. And then Reid, we've done so well in the central region, we said, okay, let's get Reid involved with.

As you've seen us kind of work through our markets where I'm excited we're talking with one of your peers yesterday when we exited Santa Barbara, we're maybe a few weeks away from exiting Fresno, we've sold 4 of our 5 buildings in Jackson and Reed took us into Nashville and John Coleman and team into Raleigh of -- we spend a lot of time talking about where do we want our capital allocation and research and where are those markets, we can create a lot of value with development.

But then the other way we can create value for our shareholders is where do those rents go over time? And where is population moving and land constraints and things like that. So just as we grow -- it's gotten -- which is -- comes with growth, more complicated. And we said, okay, let's divide this up. And it's just time to do it every 20 years we'll rethink our structure a little bit. So we've got a lot more operating efficiencies in.

Yes. I would just jump in and add to that. like Marshall said, is we've grown as a company, everything we've done kind of -- which is fun, we're very horizontal, it happens organically and the addition of myself and Reid, kind of expanding role. I view it more as just trying to help -- not change the strategy or anything, but help support our team in the field. It'll be a little more communicated from corporate to the team in the field.

And look, when you're on the ground in development leasing and all the things you're doing and our team does a great job of that, the forestry also trying to help think strategically think long term, think runway where do we have more opportunity, communicate capital access or limitations from corporate to the field.

So just better with that, more efficiencies, more perhaps analytical review within our portfolio and looking at trends and those things. So just sort of an exciting time to take the next step and put ourselves in a better position to keep doing what we do, but do it maybe a little better, more efficiently and lean into it just as well as we can.

And apologies, I agree with Brent totally. I should add, I talked about the rearview there. The other reason that led us to this was that, look, we talk about this inflection point. And I think if pick whatever. So if we were in a classroom, you can see it coming. You can see the low supply. You can see demand. You can see the delay in supply coming. One of the goals, as we Reid talked about, is we while we have the land we do and every in the balance sheet, we really want to step in and make a while the sun shines when you're in a cyclical business, we're going to stay disciplined with our new investments, but we really wanted to have the right team in place and the right structure in place, we've grown a lot and growth just for growth's sake is never a goal of ours, but we really think we're going to have a really good opportunity as the market stabilizes to really take advantage of our competition lagging behind us with our skill set, and we needed to restructure our team a little bit so that we can move more quickly on those opportunities.

Next question comes from Vikram Malhotra at Mizuho.

I just wanted to clarify sort of 2 things, and maybe you can expand. I guess, one, you've started new developments. You've talked about like an improving cycle and trying to take advantage of when things turn further. I'm hoping you can give maybe more granular anecdotes either by tenants or from your folks in the field on like what's actually turning kind of this new up cycle? And then related to the list where your thoughts are on absolute rent in the Sunbelt. You've had this fantastic run from an occupancy cost standpoint. I'm wondering is there a chance there's a sticker shock just from the absolute rent levels we've seen?

Maybe a couple of thoughts. I'll try and Vikram -- what makes me more excited it again, what I would say on the development side, it's one, the quantity of development leasing we got, I mentioned over half of our annual total was the fourth quarter the sizes of those leases were larger, as Reid mentioned, and so we're seeing tenants under 50,000 feet, but now we actually got some larger tenants and people being more comfortable with their capital allocation and kind of layering in on top of that, it's abnormal for us or it's atypical for us to have as many large tenants. 92% of our rents come from tenants under 200,000 square feet. For us to have 6 to 8 to 9 conversations going on with we'll take a couple of your buildings? Or can you build me a building and things like that, not all over 200,000 feet, but they're all certainly north of 100,000. And we won't get all of those and some will be put on hold in every other reason, but just the quantity of those decisions and really the diverse tenant base and diverse geography.

If it was all happening in Florida, it might be one thing, but it's really across all 3 of our regions in multiple markets and you kind of go, "Okay, it feels like stalling a little bit. If we got this many finished and we've got this much more dialogue going from the field where there -- when we talk to them and say, hey, I got to call on someone well it's 150,000 foot pre-lease, there's a lot to work through. So that makes us feel a little better. And then we do look each quarter while we lose tenants kind of going on the absolute rent, where we still have that embedded growth, if there's sticker shock, all of our tenants even renewals have a tenet broker. So that's usually where they'll get the sticker shock if it does come before they talk to us, and we don't lose tenants of rent. It's usually a consolidation or leaving the market or every once in a while, a bankruptcy or something like that. we can only charge market rents for maybe a little above market rents if we're doing a good job managing the park and things like that.

But thankfully, the rents or the rents in the market -- and look, we're really cheap alternative as people move to faster and faster service. I think if you don't have that last distribution hub, you may can cut costs, but you're going to cut your service so badly. If you're train air conditioning or Home Depot or one of those, you can have a low-cost structure, but your revenue is going to be falling even faster.

Yes. And I would just add to that, Vikram, as far as absolute rents and certainly, rents have had significant increase, say, even post COVID, but really supply and demand, right? So I mean, demand the options are limited. So if you need the space, you've got to pay to get it. I think one important thing to note about this cycle of sorts is that the vacancy is much tighter than we've seen in some of the other cycles.

If you go back to great financial crisis, you started to see vacancies get into the 12%, 14%, like I think our operating portfolio maybe got down to 88% or something. And certainly, we've not seen anything near that level. But the point being is even when you look right now, I mentioned earlier in multi-tenant vacancy being 4%, 4.5%, if you say things have been slow over the last few years, and you're still running at a 4.5% vacancy. There's not again, we're talking about not a huge pivot or tsunami that we need to kind of turn and get things to where you could push even push on rents because we don't have that wall of vacancy that got dumped into the market and mainly because capital got pulled back and so supply began to come down even when leasing was still strong so we don't have that wall of vacancy to work your way through back to a good stable market. Thankfully, we've kind of maintained a sideways good, stable market of uptick. I think there's even room to push rents versus relative to sticker shock of where they are today. So time will tell, but as Marsall said, much more time spent in our shop talking about demand relative to rents.

Makes sense. And congrats everyone on the new roles, Reid, Brent, Staci. Look forward to working with all of you in your new roles.

The next question comes from Eric Borden from BMO Capital Markets.

Good morning, everyone, and congrats. I just wanted to just circle back to the occupancy. I appreciate your comments on the decline related to a couple of leases in '26. But just curious, how much of the expected decline is in the first quarter is related to move-outs versus development projects being added to the operating portfolio.

Really, in first quarter, there's not much of an impact from development transfers. We are seeing that more as we look throughout the second, third and fourth quarters. And I think some of that, as Marshall alluded to earlier, is opportunity for us. We have some work to do, but that's where we could hopefully see an increase in our occupancy -- actual occupancy compared to projections as the year goes on.

First quarter is pretty flat really from fourth to first quarter. So we start projecting that for later in the year. And again, that's the budget and not the goal, just with the uncertainty in the environment, it's hard to know exactly the timing of when we'll see occupancy there. But that's definitely, as we look at occupancy for the year '26 where we do see a decline in projections from '25 to '26, it really is due to those development transfers. The core portfolio that's in place is not declining. It's the drag. We would be flat, if not for those development transfers.

Eric, I would add the increasing development projections, to some extent, that comes at the decline of same-store sales. So a lot of our leasing comes from our existing tenant base, which typically is consolidation or expansion. So our development business grows, our same-store sales may decline. So we're taking times half a step back to take a full step forward. But net-net, FFO, we anticipate to increase and we see that as a winning strategy.

The next question comes from Omotayo Okusanya from Deutsche Bank.

Good morning, everyone. Just a follow-up question around tariffs. Just kind of curious your thoughts at this point on the Supreme Court and how things may kind of turn out from that end. And even if the Supreme Court does kind of say, current tariff policy is not constitutional or legal, Kind of what happens next? And how do you kind of think your tenant base kind of deals with all that in terms of either kind of pulling back on a wait-and-see basis or they just kind of keep ticking up space because they need to. Just curious how you're thinking about all like that whole iteration around tariff policy?

Good question. And I think, thankfully, I guess, as we think of the tariffs. One, certainly, it's that noise level or headline impact -- tweak impact on our tenants that you'd love to minimize that so that their decision-making goes smoothly. So I hope there's no shocks to the system like that. The only other commented as tariffs hit us last year and we really rippled through it. It did impact us on say, our Dominguez building a little bit were prospects. It's near the ports of L.A. and Long Beach in that South Bay Area, Carson, California.

But by and large, it also reminds us over the years where we've said markets like Houston and Jacksonville, where we've been in since the where we like metro area distribution, we want to be that last mile and a fast-growing higher-income area because that customer base is a lot stickier. And if you're buying a good or service or I'll go with a good, you don't care if it came from China or Mexico, you just are buying the item online and you want to deliver to your home or business really quickly.

So that noise is a good reminder for us why ports are so volatile, and we're not trying to guess which Board is going to gain -- I'm not smart enough to guess which port is going to gain and lose market share that we're just pretty confident that Orlando and Atlanta and Dallas and Phoenix are going to have more people over the next 5 to 10 years, and we want to be in the middle of all that with the best, most convenient locations.

So we try to -- again, I think we try to take as many ways as we can as a company to minimize or eliminate less whether it's how we develop it phases in a park or be near consumers or our balance sheet are all the things we can do, but we also say as we're reducing that risk we don't want to reduce the return at all. So that's just kind of one more way we go about it. And we can't eliminate the headline risk and how people make decisions, but we're working on it. We sure like to.

The next question comes from Jessica Zheng at Green Street.

Just noting on that previous question. Just curious if you're seeing a pickup of offshoring or nearshoring related leases in any of your markets recently?

Yes, this is Reid, Jessica. Activity for nearshoring is definitely at least from what we're hearing from the brokerage community and some of the prospects has definitely picked up markets like Houston and Dallas are actually seeing an uptick in advanced manufacturing and users that need higher power requirements. So I would say that is a driver and will be a tailwind for us going into the future. A lot of our markets that we're in don't specifically cater to those larger users, but a lot of the ancillary uses we may make benefit from going forward.

The next question comes from Ronald Kamden from Morgan Stanley.

Just, I guess, a quick 2-parter. So first, obviously, the development leasing was encouraging. The guide sort of assumes, I think, starts picking up, got some acquisitions. Just can you remind us what the spread is looking like today between sort of cap rates and IRRs on acquisitions versus development, starting. Just curious what that spread is. And then the quick follow-up is just the exit of Fresno, Any other sort of markets where you're paring back to capital recycle.

It's Marshall. I'll go reversal. Yes. The markets we're exiting, as we mentioned, this is -- it goes back a few years. Santa Barbara, excited about Fresno. It's a project Brent bought in the '90s. And so just modernizing and updating our portfolio. And we'll -- hopefully, we'll have that closed in a couple of weeks or so.

Jackson is another market where we had 5 buildings. We're down to 1 building. We'll continue to -- it's leased, but work on an exit there. And then the other one we've done is -- and you've seen us go into Raleigh and Nashville. We've talked about sulfate potential. Again, Capital City has technology university presence, and we may never get to Salt Lake, but I'd rather not surprise anyone. But New Orleans being on another market where we could scale back a little bit there.

And so that's kind of how we're thinking on our markets. And then going back to the first part of your question was on development, leasing and kind of how we're seeing it. But yes, we're encouraged where we're headed with it. I think it's going in our direction and, and look, I think on the development, I guess I remember -- we've been developing to call it a low [ 7, 7.1 to 7.3 ] is probably on average on a ground-up development. And really, the acquisitions we've made have been more strategic than opportunistic. We've said it's been the building around the corner and something in our submarket they're still in the low to mid-5s. So there's still a lot of demand for quality industrial shallow bay buildings, Cap rates have been pretty sticky. And kind of given that we're probably on the high end, maybe 180 basis points better return closer to 200 on a development today than a straight-out acquisition. And that's why we really haven't bought a portfolio or anything. It's usually been one-off buildings here and there and the bigger the portfolio, the lower the operate it attracts more capital and it gets priced with that, but it can certainly drift into the force in some of our better markets as well.

Yes. I would just add to that, Ron, the development leasing. And as Marshall said, but what I did, I like to see is just some consistency. First quarter last year was good. Second and third was challenging, fourth end well. but trying to stack good quarter behind good quarters would be nice. And so hopefully, we can get a little more quiet macro environment, rates continue to down the economy slightly uptick better, again, to kind of get that confidence in executing and moving a little faster would all work in our favor. And so excited about the fourth quarter. We need to stack a couple of those together. And again, we back and weighted our starts that we're hoping for that, but we'll see, but we're in a good position if that happens.

We have no further questions. I will turn the call back over to Marshall Loeb for closing comments.

Thanks, everyone, for your time and interest in EastGroup. If we didn't get to your question or if you have anything to follow up, feel free to reach out to us, and we look forward to seeing you probably here in a few weeks, most of you. Thank you.

Thank you.

Thank you.

Bye-bye.

Ladies and gentlemen, this concludes your conference call today. We thank you for your participation and you may now disconnect.

Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Also note that this call is being recorded on Friday, October 24, 2025.

I would now like to turn the conference over to Marshall Loeb, CEO. Please go ahead, sir.

Good morning, and thanks for calling in for our third quarter 2025 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, I ask you listen to the following disclaimer.

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 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 Act of 1934 and 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 on the company's plans, intentions, expectations, strategies and prospects. Based on the financial information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more detail about these risks.

Thanks, Casey. Good morning, and I'd like to start by thanking our team. They've worked hard this year, and we're making solid progress towards our '25 goals. I'm proud of our results.

Our third quarter results demonstrate our portfolio quality and resiliency within the industrial market. Some of the results produced include funds from operation at $2.27 per share, up 6.6% for the quarter over prior year. And now 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. Quarter end leasing was 96.7% with occupancy at 95.9%. Average quarterly occupancy was 95.7%, which although historically strong, is down 100 basis points from third quarter '24.

Quarterly re-leasing spreads were 36% GAAP and 22% cash for leases signed during the quarter. Year-to-date results were slightly higher at 42% and and 27% GAAP and cash, respectively. Cash same-store rose 6.9% for the quarter and 6.2% year-to-date.

Finally, we have the most diversified rent roll in our sector, with our top 10 tenants, falling to 6.9% of rents, down 60 basis points from last year. We target geographic and tenant diversity as strategic path to stabilize earnings regardless of the economic environment.

In summary, we're pleased with our results and the increase in prospect activity we're seeing, converting that activity and design leases still takes time, but we're pleased to see the growing pipeline.

In terms of leasing, third quarter improved materially from a slower second quarter in both the number of leases signed and square feet. From another angle, those metrics were also markedly improved versus third quarter 2024. Similar to last quarter, the market remains somewhat bifurcated such that we're converting prospects 50,000 square feet and below. Our larger spaces have prospects, and we're cautiously optimistic with improved activity in these spaces. In the meantime, with larger prospects being somewhat deliberate this year, it's impacting us in several ways. First, delaying expansion means the portfolio remains well leased and is ahead of initial forecast. Our quarterly retention rate rising to almost 80% is an indicator of tenant's cautious nature. On the other hand, our development pipeline is leasing and maintaining projected yields, but at a slower pace. This, in turn, lowered development start projections from earlier in the year. And our starts, as we've stated before, are pulled by market demand within our parks. Based on current demand levels, we're reforecasting 2025 starts to $200 million. Longer term, the continued decline in the supply pipeline is promising. Starts were historically low again this quarter. Couple this with the increasing difficulty we're experiencing obtaining zoning and permitting and as demand increases, supply will require longer than it has historically to catch up. This limited availability in new modern facilities will put upward pressure on rents as demand stabilizes. And 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 and balance sheet strength, existing tenant expansion needs and the land and permits we have in hand.

From an investment perspective, we're excited to acquire the previously announced properties in Raleigh, North Carolina, new development land in Orlando, where we'll break ground this quarter, and new buildings and land in the fast-growing supply-constrained Northeast Dallas market.

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

Good morning. Our third quarter results reflect the terrific execution of our team, the solid overall performance of our operating portfolio and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance at $2.27 per share compared to $2.13 for the same quarter last year, an increase of 6.6%. Our outperformance continues to be driven by good fundamentals in our 61 million square foot operating portfolio, which ended the quarter 96.7% leased. From a capital perspective, we took advantage of favorable equity pricing early in the year, which allowed us to enter the quarter with a reserve of outstanding forward shares agreements. During the third quarter, we settled all our outstanding forward shares agreements for gross proceeds of $118 million at an average price of $183 per share. Our guidance for the remainder of the year contemplates that we utilized our credit facilities, which currently have $475 million capacity available and issued $200 million of debt late in the fourth quarter. As we often emphasize our evaluation of potential capital sources is a fluid and continual process that can result in varying outcomes depending upon market conditions.

Our flexible and strong balance sheet with near record financial metrics allows us to be patient when evaluating options. Our debt-to-total market capitalization was 14.1%, unadjusted debt-to-EBITDA ratio of 2.9x and our interest and fixed charge coverage increased to 17x. Looking forward, we estimate FFO guidance for the fourth quarter to be in the range of $2.30 to $2.34 per share and for the year in the range of $8.94 and to $8.98, which represents increases of 7.9% and 7.3% compared to the prior year. Our same-store occupancy for the fourth quarter is projected to be 97%, which would be the highest quarter for the year. As a result, our revised guidance increases the midpoint of our cash same-store growth by 20 basis points to 6.7%. We lowered our average portfolio occupancy by 10 basis points due to the conversion of a few development projects prior to full occupancy. Considering the slower pace of development leasing, we reduced construction starts by $15 million. Our tenant collections remain healthy, and we continue to estimate uncollectible rents to be in the 35 to 40 basis point range as a percentage of revenues, which is in line with our historic run rate.

In closing, we were pleased with our third quarter results and remain hopefully optimistic that signs of macro uncertainty subsiding and consumer and corporate confidence strengthening, setting the stage for next year.

Now Marshall will make final comments.

Thanks, Brent.

We're pleased with our execution this quarter and year-to-date, moving us ahead of original expectations. Market demand seems to be dusting itself off and beginning to move forward again. Regardless of the environment, our goals are to drive FFO per share growth and raise portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders.

Stepping back from the near term, I like our position as our portfolio is benefiting from several long-term positive secular trends such as population migration, near-shoring and onshoring 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 quality in terms of building and markets improved each quarter, our balance sheet is stronger than ever, and we're upgrading our diversity in both our tenant base as well as geography.

We'd now like to open up the call for any questions.

[Operator Instructions] And your first question will be from Samir Khanal at Bank of America.

Marshall, I guess maybe expand on leasing a little bit kind of the color that you provided, especially as it relates to the development pipeline. I know you've got World Houston and other projects in Texas. You also take the conversion to signed leases taking longer for those bigger sort of boxes there. So maybe talk around, maybe expand on your comments a little bit and maybe what these prospects need to see to get to the finish line.

Good morning, Samir. Good question. I'll try to cover it. I think I would say a couple of things. One, we're certainly more encouraged the tenor of those conversations is kind of each month gotten better, maybe starting in May, which really was made was when we felt kind of the tariff impact through today. So better than say when we were asked that question earlier in the week at your conference in September, for example. In our portfolio, and maybe we're a little unique in that so much of our -- about 1/3 of our development leasing is existing tenant expansion and movement within a park. So we've seen -- and you seen it in our numbers, we -- our retention rate, especially in the third quarter, ran pretty high at almost 80%. So the portfolio is benefiting, our same-store numbers are benefiting, and then on the flip side of that, and we've hit the slow button on our development pipeline or starts a few times kind of each quarter, bringing it down like, look, and we do have more prospects than we've had as the years played out. It's giving them, and I don't know, I was hoping, one -- we have one interest rate cuts. According to your economist, we'll get another one coming at least the e-mails I'm seeing this morning and things like that. So hopefully, that may be a little bit of ceasefire in the Middle East, things like whatever it takes to get business sentiment a little bit better. And I would say it is. I think people got beyond the shot factor. But look, we know our task at hand, which is to lease these development projects, the ones that are in lease-up when we finish the construction and the ones that have transferred over. So we're not assuming any spec leasing in the balance of the year budget. So I'm hoping there's potentially upside there. We're running out of time this year, but we also build out spec suites and our vacancy. So if someone needs to move quickly, which they often do in these smaller spaces, we're able to accommodate that. So things are better, but they're not -- it just -- it's been an odd year that you send out leases, and they haven't always come back. I remember that more -- that's been more eventful this year than it's been in the prior 5 years.

Next question will be from Blaine Heck at Wells Fargo.

Following up on development, can you just talk about how construction costs have trended more recently? And whether that's been a constraint on starting more projects and kind of related to that, where do you think market rents are relative to rents that would generate acceptable yields for you guys on those development projects?

Good morning, Brian. We've seen construction pricing come down really with -- a lot of it is we've been watching with everything going. We've not had labor issues. And usually what our construction teams will say is that we get pricing, it may be a little high, but once they realize you're really serious that that's come down maybe 10% to 12%. And because people are so hungry for projects, given just the lack of outside of data centers, no other sectors are really going as quickly. And I guess, thinking of data centers, we do getting transformers in the electrical equipment is challenging, so we can get those, but there's a lot of demand and a long lead time. So the land we acquired this quarter will usually underwrite it on today's rents, not forecasting any growth. I hope it grows, but we're not forecasting that. And today's construction pricing and everything is still kind of penciling out into the 7 or low 7s. It's not easy to find the land, the permitting and zoning these infill sites gets harder and harder. But we're pleasantly pleased with how that's going. It's not construction costs that slowed us down so much as demand, which was really strong in fourth quarter a year ago and first quarter slowing in second quarter, it picked up. In third quarter, we got more leases and more square footage than we did in second quarter or third quarter last year. So we're pleased with that. We just need to keep that momentum and get our -- look at our potential revenue is get leased up what we've already spent the capital on, and we'll -- look, this is -- it's more fun to go as fast as the market tells you to go, but this year, we're trying to go as slow as the market tells us to go as well.

Next question will be from Craig Mailman at Citi.

Not to dwell on the development pipeline, but the incremental leasing there was pretty muted quarter-over-quarter. I saw you did get some leasing done at Dominguez, but you also kind of pushed out the stabilization date there. But I guess, my bigger question here is, you talked about sending leases out, but not hearing back. I mean, if you look at the availability and the development pipeline, how much of that availability has active prospects on it versus just quieter from a tours and interest perspective. And is there -- is it rent related where you can toggle that up or down or concessions, or is it just if people don't want to make a decision because of concerns there just other pricing stuff doesn't matter as much?

Craig, good morning. I would say during the quarter, kind of since the last call, we ended up with about you're at total. I wish it was a bigger number, about 6 leases, 215 -- roughly 215,000 square feet. What's, I guess, being more specific, at least on Dominguez, we oddly enough, we sent out 5 leases on that space and the fifth one is the one that came back. And so as we threw out a bigger net, we said we'd subdivide the building or even consider a sale, which we haven't ruled out that, although we've gotten part of it lease. And in sub-dividing the building, we're adding an office component on the other end of the building. So that's what we decided, again, trying to rather than lease it is one 260 that we would break the building out. So it's delayed the delivery, adding more -- a few thousand more feet of office in L.A. And then kind of broadly speaking, the other thing within our development numbers, and I don't remember us doing this. We got a 97,000 foot development lease signed for full building in Texas. And within a week and they had a broker an attorney, they reach back out to us to tell us they've changed their mind. So it's been a little bit of a madden year in terms of leases sent out that didn't come back or this case, a signed lease that someone, and we're working through the termination and some things like that. But -- and that's not in our counts. So I'm leaving that lease. Even though it was a signed lease, we pulled that one back out. Now I don't think they're going to occupy. So that's odd or atypical for most years. And in terms of kind of looking at our development schedule, I'd say about everything has some degree of activity. We need to get it signed. I'm trying to think -- and some of these are on where to me, it hits me like I'm looking at the list, Horizon West 5, where it's probably our seventh building in a park, same architect, same broker, but that building is a little bit slower than we'd like, although we've got activity in Orlando is a good market. That's just -- it tells me where the market is, where it's the seventh, eighth building in the park, which usually goes faster than the first buildings in the park, but they're taking a little bit longer. So we have activity. The other thing I'll say, and I'll say it carefully, we have, in the last 30 days, more large tenant, more kind of pre-lease, again, given that lack of supply, activity, what 92% of our revenue is from tenants under 200,000 feet. And we have several deals, they'll take a few quarters that we're working on with tenants and/or prospects that would materially move that number where we would be building up a non-shallow bay building that they're out, but they like our land or their existing tenants who need to expand. So that's promising, and I'm hopeful, but I'd rather show you those. But the good news is there's more in the pipeline and about every building has a certain amount of activity. It's just where things shook out between third quarter through today's call. So we just -- we know -- we've got our officer meeting next week. We're all getting together, and we know our task at hand, which is to get science-based collect rent.

Next question will be from Nick Thillman at Baird.

Marshall, you kind of commented on the overall operating portfolio and the leasing volume you have there. As you're kind of looking at the expiration schedule for next year, rents are a little bit lower here. As we look at the mix, it's pretty much in line with your exposures. Could we see another kind of just overall strong year in spreads here in the mid-30s for a gap. Just kind of looking at the mix, and what you guys have been seeing on that activity level?

Good morning, Nick. Yes, I believe we'll -- a couple of things. Third quarter was a little lower. One difference, and again, maybe off-line, welcome for feedback. We're a little bit of an audit in the industrial REITs and that we report re-leasing spreads on leases that got signed during the quarter, where most of our peers report on what commenced. So our numbers -- we like -- I think trying to be investor friendly. It's a little more real time than what may have gotten signed a few quarters ago that commenced in third quarter. But I guess -- and then really focusing on your question, yes, I think we could kind of maintain those third quarter levels. Certainly, next year -- in the next year where I I keep waiting, and I know one of our peers made the comment. This is the best setup they've seen in 40 years. I haven't done this 40 years. I've done a long time. I'm not that level, but I really like the low supply. I saw the deliveries in third quarter nationally were the lowest level since first quarter of 2018. So it's hard to get inventory built and becoming harder and there's not much of it out there in the shallow bay. So look, I think our -- we have embedded growth, I think it will level out. And then I think when demand turns, it won't take much because there's about 4% vacancy in our markets in shallow bay and there'll be a flight to quality as people expand to. So I think we'll have another leg up in rents. I think if things stayed where they were, we could keep at that level, but I'm hopeful between maybe now in the end of next year that there's in a midterm election year, maybe the headlines will be a little bit less that people will -- when things turn, they surprised me how quickly they turned at the end of last year, and in the first quarter. It's gotten to where the headline risk has more impact than probably I thought it would, looking back to last the headline in fourth quarter, the headlines in April and maybe next year, if we can avoid some headlines, I think you could have a kind of a rent squeeze, someone used the [ quota. ] There's a cost to waiting on leases and things like that in our peer group. I'm not sure we're there exactly yet, but I could easily see that coming. And again, I'd rather -- I'm better at calling things in hindsight than forecasting on it.

Next question will be from Connor Mitchell at Piper Sandler.

I appreciate all the commentary so far. And Marshall, you've given a couple of specific examples on some of your markets. But just wondering if you can kind of provide a bigger picture or even drill down a little bit on just kind of what you're seeing for the regional breakouts, whether it's Texas, Florida, California, some of the other markets, where you're seeing some more of the strength in those markets or weaknesses in those markets for the retention rate that you mentioned, but then also adding some new tenants into the pipeline as well. Just kind of get a feel for how you're thinking about each of the markets and almost like a ranking of them in a sense?

Sure. I guess -- hi, Connor, good morning. I would say, the Eastern region with a broad brush has been the strongest region had the strength kind of from midyear on Florida has been broadly speaking, a good, really strong market there. I wish we were bigger in Nashville, but that's a really good market. And you've seen us growing in Raleigh. We like that market a lot. Texas generally, we like Dallas, you saw us acquiring more land there. At the moment, we've got too many buildings and too many tenants, but I'll thank our Texas team, we're 100% leased in Dallas, so we need expansion space that land for tenants to expand. So we're happy there. The other market -- I'll complement our team in Arizona, there's a lot of vacancy in the Arizona market. There was a lot of supply that came in, but we're 100% in Phoenix, 100% in Tucson and have been able to push rents and our development leasing is there. So those would be on the good side, on the a little bit of a beat the same drum up the California markets are still slower than our other markets, really with L.A. The Inland Empire had positive net absorption, but L.A. has had, I think, it's 11 consecutive quarters of negative absorption. So I'd love to have just a flat quarter in the city of L.A., a little over 1 million square feet negative in third quarter. I thought they would turn. I'm glad we got the activity we did on Dominguez and got that signed. And then Denver is another market that's been a little bit slower for us. We're not all that big in Denver, but those, if you said, what are the markets where you're kind of thinking a little more. Denver has been a little bit slower for us on our development leasing there than we'd like. And California has been a tough market for 18 months or longer.

Next question will be from Rich Anderson at Cantor Fitzgerald.

So back to the re-leasing spreads, the 22% cash based number for the third quarter. Let's just say, hypothetically, that this deliberate tenant thing continues for whatever reason. And it's 2 years from now, and we're still sort of on a treadmill is type of thing. How much time do you have for that that 22% to sort of close in on a fairly pedestrian single-digit type number? I mean how much more bites of the apple do you have, do you think before you need to start to see activity really start to ramp so that starts to revert the direction starts to reverse again.

Hi, Rich, good morning. I'll take a stab at it and then let Brent add color. I think the; one, I think, I've kidded I don't remember much about ECON 101. But when I just look at supply and it wouldn't take much demand to kind of tilt the rents. But hearing your question, if we stayed steady state, we typically -- next year, I think we've got 14% doing this from memory from our supplement, rolling. And so it would take several years before we could address those leases. Again, the later -- the latter you got into that, what's that be 7 years, but some of those -- there's a number of leases pending the term of that lease that just got signed in the last couple. So there's probably not maybe 20% rent growth in there. But it would take a while, just I guess on when market's good, it takes us a while to get to that embedded growth. And as the air goes out of the balloon, which may be kind of your question, it will take a while for the year to go out of the balloon with kind of -- most of our leases are somewhere between 3 to 10 years. So it would take a while for us to move all those to market. And -- so if that happened, [indiscernible], would play out, I can't imagine the market seems to net for better or worse, never stays flat like that.

Yes, I'd agree, Rich, this is Brent. Yes, I mean, when you're rolling 15% to 20%, of course, you can do the math to figure out when you start having flat and how long in terms of rental rates, you could say 4 to 5 years and how far are you into that already. But -- and again, I know that's hypothetical, but it feels much stronger than that with supply really in career in time seeing supply get this type really kind of excites me because it wouldn't take much shift in sentiment and some execution for, I think, the markets and development starts and those type of things to turn very quickly, much quickly, more quickly that I think people are thinking and kind of along those lines, the question of rents and does that impact construction starts. I think the good news there, when you kind of think of this as a as a 4-legged stool. And the cost side, as Marshall said, decreasing generally. Rents have been very sticky because the third leg, supply is very tight, it really comes down to that less leg being demand. And as we've talked about, there's there's intent parties there. There's demand there. We're getting leases signed and certainly getting very acceptable yield. It's not a function of cutting rates or trying to increase activity that way. It's just strictly confidence gaining to the point where they're pulling the trigger and then we can move that conveyor belt of new starts along a little more quickly. But yes, back to your question how long would it take? I think we would still be a number of years out, but I don't feel like the table set for that to play out. Certainly, hope we're not on that treadmill you referred to there, Rich.

Yes. Okay. Agreed. Second question, while you guys are kind of a consumption-oriented story, not so much a supplier manufacturer story. Do you agree, though, that with everything that's happened during the pandemic in terms of simplifying supply chains, and now with tariffs with one result possibly being more in the way of manufacturing, onshoring. Is that the leading sort of dynamic to help industrial overall get out of this -- the current sort of lackluster situation? Does manufacturing lead followed by consumption. Is that your way of thinking about it, or do we have that kind of completely wrong?

It's -- Rich, it's Marshall again. You may be right. And one the consumer is certainly -- our strategy has been to always be how close can we get to a growing number of kind of higher disposable income consumers. But that said, the consumers carried the economy a long time. I don't know how much upside there is. Hopefully, the economy gets better and they continue to push the economy. You're right, though, that new source of demand is, I think, through our portfolio and especially kind of our markets, we are seeing the manufacturing companies in the relocations, a lot into Texas. And we don't -- you're right, that will be a driver, and that we don't have -- we have a number of Tesla suppliers in Austin and in San Antonio, the new chip plant with that Intel's building in Phoenix. We have -- we actually have Intel related to construction there, a supplier to Intel. Same thing with the Texas Instruments plan, as I'm kind of thinking out loud in Northeast Dallas, we have a supplier there. So we do pick up a lot of suppliers. And as those plants get built, it's -- I guess my hesitancy in putting consumer ahead of our manufacturing ahead of consumer, I think it -- I think you said maybe our children's children did really get the benefit of that, but we're certainly seeing on-shoring and near-shoring we're having those type conversations in Arizona as well of we need more light manufacturing space. We've got relocations from California-type discussions going on and things like that. So I'd like to think of kind of like e-commerce. It was a new additional tenant within our portfolio. We were already pretty full, but we've seen a pick with e-commerce. It was one more demand source. And I think now we -- you're right, we're seeing it for supplier source for these big plants, and a lot of them were getting built in the Carolinas and in Texas and Arizona in markets like that. They probably have an outsized market share.

Next question will be from Jon Petersen at Jefferies.

So I actually I wanted to ask you, is there any change or can you give us the level of bad debt in the quarter? And then related, any change in the tenant watch list?

Yes, the bad debt continues to be thankfully, a nonfactor. We're still in that 30% range or something like that. And really, the last 2 quarters have been at a run rate of about half of the prior 5 quarters. And again, it tends to be contained amongst just a small number of tenants. What list has been very consistent this year in terms of the number of tenants, nothing really growing there. So that has felt good and testament to the portfolio and the credit and the groups, the tenants we have in place. But yes, we're still seeing that 30% or so, 30, 35 basis points relative to total revenue as being pretty consistent here over the last couple of quarters.

Okay. All right. That's helpful. And then as we're seeing interest rates come down, the 10 years just a touch below 4% right now. You guys have allowed your debt levels to come down. You've leaned more on equity. I guess, what's the right interest rate where we would expect your leverage levels to kind of start to tick back up to your long-term targets?

Well, I think that's a component of a few things. I mean, it would be the interest rate, but relative to, say, what's our equity opportunity and what are other opportunities. So we're constantly weighing those out. And yes, we -- in the guidance, we showed bumping some capital proceeds, which was -- and I think I said in my prepared remarks, we're looking here in the fourth quarter, doing $200 million, $250 million, maybe in the way of an unsecured term loan. I think that could price in the low [ 4344-type ] range, which we view as very attractive. I was just backing up for a moment, the 2.5, 3 years we're into these higher interest rates now. We take a lot of pride that we haven't -- not that we'd be anything wrong with it, but we haven't issued debt even with a 5 handle at this point. And we've continued to fund our growth. And we, as you point out, delevered the balance sheet now to 2.9 debt-to-EBITDA. So very, very low. We have a lot of dry powder there. So I think you're going to see it in the fourth quarter and begin to dip into that. We continually are monitoring public bonds, the public debt markets. Certainly, at some point in the future, whether it's near term, long term, whatever it is, we'll be there. But you weigh all that and you weigh your equity, cost of equity and the balance of that, where you are. And so it's all kind of a fluid moving situation. But the other thing I would point out, John, is that our -- over time, the revolver balance or the revolver rate now, though it's variable, it's much more tie a little more to how the Fed fund rate moves, and that's now moved into like a [ 47-ish ] sort of range. So we'll probably begin to keep a little bit of balance on our [ $675 million ] revolver there, and that gives us time and availability to be patient and look for are different opportunities there. So we feel real good about our capital position, our ability to to tap into that debt. And thankfully, our team, 3 good acquisitions this quarter continue to make a way through our development pipeline. And so they continue to -- we continue to have a need for capital because they're finding good ways to put it work and accretive for the shareholders. But we're in a good spot and feel like things are turning the right way and giving us more options. So we're excited about that.

Next question will be from John Kim at BMO Capital Markets.

I was wondering if you could provide the average rent per square foot signed year-to-date? And how we should compare that to the 2026 expiring rents which at the beginning of the year, we're at $8.42, I know there might be a mix or timing to scrap between the 2, but just trying to see some of the building blocks for the GAAP same-store NOI next year.

Yes, good -- we can dive into that. I could go offline and see if we can get some numbers for that. I would give you the standard answer that across all of our markets, the average rent per square foot can move around quite a bit California, certainly very high rates relative to some other areas of the country, even though there's been softness there. But looking at our average role next year in terms of where that square footage is rolling. What I would say, John, maybe give you some color backing up for a moment is, even though we've seen rental rates come down off the peak or highs, they still, as I alluded to earlier, they're still very sticky. And certainly, they've moderated a little bit from the highs, but getting the -- again, getting rental rate out of deals hasn't been the big part of the equation. It's just more of the the sentiment and the demand pace more than anything else. But we're not sensing a lot of headwind to still having, as Marshall alluded to earlier in the call, to having strong rental rate growth numbers. So I guess what I'm trying to say there is we don't see anything there that's going to change that in a material manner. But in terms of actual numbers on an average per square foot, we could circle off-line and give you some color there. I would have to run a few numbers there.

Then maybe as a follow-up, can you comment on the acceleration you saw in the GAAP same-store NOI this quarter and whether or not that's a good run rate going forward?

Well, the gap -- yes, we're having -- really, I think, kind of an untold story here is, we're having a terrific operating year in our existing portfolio. I mean, obviously, there's been a little more slowness in the pace of which we've moved our development leasing than we would like. But I would point out that our same-store guide up into the -- approaching 7%, and you can do the math and work backwards, but to get to our midpoint cash same-store for the year guide, we're looking at like a 8.2% fourth quarter cash same-store number. And that's based off of, as I said in my comments, a 97%, exactly 97.0% same-store occupancy number. So the operating portfolio, when you look back, we really -- we hit the low point in the fourth quarter last year at 95.6% and our same-store occupancy then that moved in the first quarter to 96% and to 96.3%. And then the third quarter 96.6%, we're projecting 97% for fourth quarter. So a very good, steady, stable growth story, and the operating portfolio had an 80% retention. So all of that feels very good. That momentum feels very good going into next year and hats off and compliments to our team for putting that together. But yes, in terms of your run rate, we feel good about where we are, where the numbers are trending throughout this year has been pretty consistent stabilization and operating portfolio as we lead into next year.

[Operator Instructions] Next question will be from Brandon Lynch at Barclays.

Historically, I think you focused more on stabilized acquisitions and you had a few this quarter as well. When you think the rationale, it was that you want to limit lease-up risk to the development pipeline. As you kind of bring down the development pipeline now, does that change your perspective on acquiring vacancy going forward?

Good morning, a good question, and -- this is Marshall. I'll say the way we think about it is trying to -- at the end of the day, we want to own well-located kind of shallow bay near-consumer buildings. And at different points in the cycle, the risk/reward shifts there for a while, I thought that the tariff cap rates might go up, but they really -- those have been sticky. And so what we've bought has been pretty strategic. And usually, what we've liked it, and we've got a couple of things we're working on. They're in submarkets where we're strong and have -- we've been for years, and they're immediately accretive is another way we look at them probably. And they've all been one-off. The portfolio deals get more expensive. But broad brush, we're usually about up -- we've been around up 6% or just north of net effective return, new buildings. And so I would put them in the top 1/3 of our portfolio. So maybe in a kind of a flatter market where we've been a little bit, acquisitions or rigor more attractive. I think we will turn, you'll see us be a more active developer. And then in that, and it's been maybe another interesting trend that I think is a good sign. We've had more inbound calls to us looking for us to be the equity partner or get involved with a local regional developer. I'm not sure the market is quite there yet. You're seeing it in our own development numbers, but it's telling me there's not a lot of capital for development starts. But as the market kind of heats up, we did a number of that -- or the leasing market where we bought vacant buildings are partnered with people to help them build buildings. So we'll try to step on the gas, and that's why we like having a safe balance sheet when things are good to create that value and sometimes you're better off, again, trying to be patient and find the right quality and kind of build our cluster our buildings that we try to do in the right parts of the markets we like. But that's -- and again, I think the trick is being nimble enough to turn the dial, kind of figuring out where the market is. And it's usually based on inbound calls of where the best risk return is right now.

Next question will be from Thomas at KeyBanc Capital Markets.

I wanted to follow up on some of that commentary a little bit and then also around the pace of development leasing, and how you're seeing conditions stall out a little bit. It sounded like some of your peers may be leaning in a little bit to development. Your comments were constructive around the broader environment for starts, which was -- you mentioned that a low dating back to 2018. And I'm just curious if some of the delays on your side push into '26 and you ramp back up with a higher amount of starts, or if you think the slower pace could sort of persist a little bit further and put a little more pressure on starts in the near term as you think about 2026?

Todd, good morning. I guess it's hard to Look, I've been calling the recovery. I've missed it by several quarters. I keep thinking we're about there. It feels like you're at the starter's block, and it keeps getting delayed. I'm hopeful next year, and it wouldn't take a lot. When I look at our development pipeline or our transfers, it's not a huge amount of square footage that's not -- if I take out what's under construction, we don't need a lot of quantity of leases. And like the 1 where the lease -- as I think about it, where it flipped where we had a signed lease, which meant we were out of inventory, we were getting ready to break ground on the next building and the tenant changed their mind on it. So we can kind of just flip that quickly. I'd like to think next year we'll think we'll be north of $200 million in starts, that may be back, depends on when things pick up. If the market is not there, I think we should -- we owe it to our investors to come down from $200 million. But if the market picks up, the beauty of having the parks and the team we do and the balance sheet is, our team will say part of their job is to have the permit in hand, and we can build the building and, call it, 8 to 10 months. So as things turn, and we feel pretty confident about the last project leasing up or running out of space or tenants needing expansion, we'll go ahead and break ground. So it will be fun when we reach that point, and we're just trying to be patient and see the demand maybe rather than call the demand on it because I think -- I don't think that we really will get punished too badly in any market for -- I'd rather be slightly late than too early. And right now, we're seeing the activity, we just need to sign leases, and that will pull that next round of starts.

Thank you. Next question will be from Omotayo Okusanya at Deutsche Bank.

Sorry to beat a dead horse about the mark-to-market this quarter, but I just wanted to understand or clarify the deceleration this quarter, was that really a mix-related issue, or was there also some pricing pressure?

I think -- this is Brent. I think it's more just a mix. Like I say, the certainly, if you look back a few quarters and look at our peak at high, we're certainly off that a little bit, but it's within reason and modestly. And as Marshall alluded to, we report leases signed, which we think is obviously gives you direct information about what we did this quarter. If you were to look at just a leases commenced for the third quarter as opposed to a 35% GAAP number, which is what we reported, we would have been 45%. So look, but that being said, it can be a different mix. But again, as we talked about, that mid-30 range of GAAP leasing increases, feels very sticky. I like to say, the vacancy continues to be tight when you look at vacancy in the less than 100,000 square foot space range, which is where we live, work and play. I mean that's looking at like 4.5%. So again, part of our challenge isn't that potential prospects compare us to ate other options in the market, and you're trying to figure out a way to we your rate down to make the deal. It's more so just having someone that's really committed to moving their business into an occupied new space. And once you do that, you have pretty good leverage on the rent side because there aren't many options. So certainly, from a quarter-to-quarter, it could move 5%, one way or the other, just based on the mix. But by and large, it feels like that area that we're in, that 30% GAAP sort of range, as I keep saying, pretty sticky.

Next question will be from Mike Mueller at JPMorgan.

You kind of touched on this before, but going to development, you started the project in Dallas, but out of curiosity, when you look at the overall pipeline at kind of 9% pre-leasing, based on what's under construction recently completed. Does that come into play at all like when you're thinking about what to start or not? Is there some sort of a cap on spec development lease-up space that you want to have, or is it really the opportunity you're looking at going to dictate whether or not you put a shovel in the ground.

Yes, I guess -- hi, Mike, good morning, it's Marshall. And trying to be cute the answer is probably yes. I mean it's a little of both. And that we do look at kind of, call it, risk at the entity level, yes, there's a level we should have I'm not sure what we've got a calculation. We usually looked at it as a percent of assets kind of valuing it. It may have -- doing like maybe 6% and things like that, and we haven't been close to that, and that could be a combination of land, value-add remaining unleased buildings, and what's under development. So we do track that on a quarterly basis. We've thankfully been below that. And then really more day to day, it is park-by-park, submarket by submarket of what's the activity do we have there, and you try to stay ahead of it, but maybe only a little bit ahead of it, of would be Brent and I calling you saying, "Hey, we're 50% leased. I've got good activity on the balance," and a couple of tenants say they want more space. And so that's when we'll break ground and build the next building or 2. So it's -- I've always said, what I like about our model versus a lot of the traditional developer model, it's not us pushing supply into the market. It's really getting pulled by our teams in the field saying I need more inventory. And so that's where -- look, we pulled back and slowed the manufacturing line where we said, okay, you've got the inventory. You don't need anymore. Let's get that accounted for. And then we'll try to keep the factory going as faster as slow as the market tells us it wants it. But right now, again, I'm happy, as Brent mentioned earlier, happy where the portfolio is, it's exceeding our expectations this year. I like our same-store numbers. I'd like to think our occupancy has more upside. We were coming off record highs. And so we've been battling occupancy declines on same-store for several quarters that, that we have a chance to pick it up on rent and occupancy. And then development is really, look, the capital has been spent, the office space has been built out and a large amount of these spaces that we've delivered either transferred over and lease-up. And so we just need to kind of get those prospects to convert next, and that's what we need to show you.

Next question will be from Ronald Kamdem of Morgan Stanley.

Just -- I guess the quick one. Just on the dev starts coming down. Just can you talk through just which markets did you think to pencil, or did you want to do stuff at the beginning of the year that you maybe have pulled back on currently as part 1? And then just if I could just ask a quick follow-up on I think you talked about next year, maybe getting a chance of occupancy gains, and you have the rent escalators and so forth. So as the spread is really going to be the big sort of delta for you guys as you're thinking about same-store for next year?

Well, I'll maybe touch on -- hi, Ron, good morning. And I'll touch on developments and maybe Brent between us well on the same store. Look, we always have kind of a list of starts that we feel comfortable on in potential starts based on if the leasing is 1 way or the other. So it's not any one market, although I will say one of the Texas markets where we had signed lease we were out of space in the park, and we were starting the next building. That was probably $20 million, $25 million swing that -- and again, it's okay. We'll work our way through it long term. It's not an issue. It just based on what we knew at 1 point in time, we thought we needed to build another building. And today, we've got inventory we need to backfill. So that's probably the swing there. And again, there's still -- I think there's only couple of 3 starts this quarter that we've got programmed in, we feel pretty good about those. But again, that's -- some of that's based on leases that are out for signature that would pull that next ticket. And Brent?

Yes. And in terms -- Ron, in terms of the same-store certainly, on the rent side, as I mentioned earlier, it still feels, although off the highs, it's still from the cash standpoint, that 20% range still feels sticky. So if you figure you're rolling, I don't know, 20% of your portfolio in a given year, maybe you've got 4% to 5% there in terms of potential growth. And then as I mentioned earlier, we began this year '25 at about a 96% same-store occupancy, and we're projecting to finish the year closer to 97%. So as you flip the calendar if we can maintain that or even incrementally build on that, then for the first few quarters of early next year, ideally, that should stack up favorably. Now we obviously haven't looked at numbers and looked into specifics on that. But certainly, we feel like the ingredients are there for a solid same-store run rate going into next year and kind of tag along with what Marshall says, it excites me that we've been in the top of our peer group really in the top 1 or 2 in FFO growth. Last year, we grew our earnings at about 7.9%. This year, we're forecasted about 7.3%, so 15% combined. And we've done that despite slower development leasing, which is -- can be at times a really big catalyst to our growth. And so to have this space poised and ready to go, as Marshall said, money spent, office space ready to go, just an incremental increase in activity and signings and confidence, and then that would be an entire cylinder that could fire more strongly than it has been that could even give us more lift. So again, feeling that could be a lift to us going into next year.

Next question will be from Michael Griffin of Evercore ISI.

Wondering if you can give some color around leasing costs and how you expect those to trend maybe over the next couple of quarters? And Marshall, maybe specifically as it relates to the development pipeline, could you look to get more aggressive, whether it's TIs or other aspects to kind of get these deals over the finish line, or are you expecting to remain pretty judicious in the leasing cost perspective?

I think -- I'll take that. And I'll say California, we've seen -- in terms of lease, true dollars out of pocket are maybe on the construction costs, those have been pretty sticky and really lease by lease. We've -- with the increase in rents, we'll spend just like usually $1.10, $1.20 a square foot. And then it's got anywhere more of that is the commissions than the actual cost per pocket. One advantage we have in -- as a as a larger entity and in some cases, the smaller developers who usually them, they have a bank loan or this or that they can be more limited on the TI. They can offer tenants. Whereas if the credits there, and we can protect ourselves on the credit side, we can certainly fund more TIs than some of our smaller peers can, thankfully. So it's not that I would say it's not -- good questions, but it's not that companies don't like the rent. They don't like the TI package or this or that. It is -- it usually comes back one where they took -- they wanted a full building, then they took the space down, and we got a lease signed. This is all this year or in the last few months and now we're talking to them about an expansion, which I'm glad we are, but it's really people trying to predict their business is more than the economics we're offering. And I think as they get more comfortable, which they seem to slowly be doing or kind of I mentioned, dusting themselves off and ready to kind of look, I've got to run my business in spite of whatever headlines are out there. Then we're making market deals, and those make sense. I don't think near term, I think given the lack of construction going on nationally, I would think our commissions will probably continue trending up just because they are a percent of rents and [ RTI ] should hold pretty steady. And look, those are -- those certainly call it $1.20 a foot per year of lease term. thankfully for industrial compared to other property types, we're getting off life from that front. It's easier to do the credit risk, it's lower.

Next question will be from Jessica Zheng at Green Street.

It sounds like the smaller tenants have been more active on new leases. Just wondering if you're seeing any changes in overall tenant credit quality or lease term preferences on these leases?

Yes. This is Brent. It's really been same type tenancy that we've seen as we talked about earlier, our bad debt being good. Our we're always vetting credit spending on the deal, but we've seen nothing really changing there. And as Marshall alluded to, really, the TI packages and that type of thing, it's all been thankfully for us, we're still in that 12%, 15% office finished risk warehouse, any particular deal might have some nuance to it. But all of that continues to be pretty consistent. So really no changes in terms of the specific type of credit tenant that we're seeing or evaluating relative to any other time really.

Next question will be from Michael Carroll at IBC Capital Markets.

Marshall and Brent, I wanted to tie and try and tie together some of your comments that you made throughout this call. I know that you seemed encouraged the improving leasing prospects, but the company also reduced its occupancy guide, I mean, albeit modestly, the development start guide and pushed out a few development stabilization. So I mean, is both true that you're seeing better prospects, but your expectations were a little bit too aggressive last quarter, so you needed to rightsize those, or are we just seeing this temporary lull right now and things should bounce back as you kind of get into 2026?

Yes, good morning. I think on our occupancy, it's really the -- the portfolio is more full than we -- the same-store portfolio occupancy has gone up. It's the first time I can remember, the last 2 quarters, we've raised our same-store guidance, but as you said, slightly lowered our occupancy. And that's a reflection of developments rolling in a little bit more slowly. So development leasing as a whole has certainly over the course of the year, the portfolio has outperformed, the revenue from development has -- we were aggressive in our underwriting on that. That's come in light. Glass half full or half empty, that's our -- as Brent touched on, that's our potential for next year to go from 0 to whatever those rents are there. So that's the opportunity ahead of us. But that's probably where it's -- and developments really -- I guess if I'm tying the comments together, look, the best way to lease up Phase II and within our park isn't to deliver Phase III. So we've slowed down our development starts simply as a function of we have the inventory available. It's still on the shelf. We don't need to create more inventory. So we've slowed the developments. And I think with our retention rate of 80%, things like that, that tenants have been sitting still, given kind of some of the headlines. I'm more encouraged, if I go back, call it, 60, 90 days, our prospect conversations materially in terms of just number of prospects and then the size range of a few of those conversations. Give us a couple of quarters, and we'll -- we need to get those turned into signed leases. But I'm more encouraged by the prospect activity certainly is much better than we saw in June of this year. But until it turns into a signed lease, it's just that, it's prospect activity. So that's if that helps, I'm trying to be consistent kind of paint, but that's that's where we've headed direction-wise. And we'll just kind of go as fast as the market allows us to.

And at this time, Mr. Marshall, we have no other questions registered -- I'm sorry, Mr. Loeb, we have no other questions registered. Please proceed.

Okay. Thanks, everyone, for your time. We appreciate your interest in EastGroup. If there's any follow-up questions or thoughts, feel free to reach out to us, and we hope to see you soon. Thank you.

Thank you, gentlemen. This does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.