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spk04: Good day and welcome to the EAST Group Properties second quarter 2022 earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.
spk10: Good morning and thanks for calling in for our second quarter 2022 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call this morning. Since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
spk00: Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the investor page of our website, and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the Safe Harbors under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release along with our remarks are made as of today and reflect our current views about the company's plans, intentions, expectations, strategies, and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future, or actual events or otherwise. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Please see our SEC filings, including in our most recent annual report on Form 10-K, for more detail about these risks.
spk10: Good morning, and thank you for your time. I'll start thanking our team for another strong quarter. They continue performing at a high level and capitalizing on opportunities and a positive, fluid environment. Our second quarter results were strong and demonstrate the quality of our portfolio and the industrial market's strength. Some of the results produced include funds from operations coming in above guidance, up 17% for the quarter, well ahead of our initial forecast. This marks 37 consecutive quarters of higher FFO per share as compared to prior year quarter, truly a long-term trend. Our quarterly occupancy averaged 98.1%, up 130 basis points from second quarter 2021, And at quarter end, we're ahead of projections at 99.1% leads and 98.5% occupied. For perspective, each of these represent record levels for the company. Similarly, quarterly releasing spreads were strong at 37% gap and over 22% cash. Year-to-date releasing spreads are similar at 35% and 22% gap in cash, respectively. Finally, cash same-store NOI also reached a quarterly record at 9.5% and stands at 9% year-to-date. In summary, I'm excited about our results year-to-date and the positioning this gives us for the balance of the year. Today, we're responding to strengthen the market and user demand for industrial product by focusing on value creation via raising rents and new development. I'm grateful we ended the quarter 99% least. And to demonstrate the market strength, our last seven quarters have each been among the highest quarterly rates in the company's history. Another trend we're seeing is widespread rent growth. Releasing spreads have trended higher than in 2021, and more importantly, across a broader geography. I'm happy to finish the quarter at $1.72 per share in FFO and raise annual guidance 15 cents at the midpoint, to $6.90 per share, up 13.3% from 2021's record level. Helping us achieve these results is thankfully having the most diversified rent roll in our sector, with our top 10 tenants only accounting for 8.8% of rents. As we've stated before, our development starts are pulled by market demand within our parks. Based on the strength we're seeing, we're raising forecasts 2022 starts to $350 million. We'll closely monitor leasing results along the way and expect to update our guidance throughout the year. Given the shift in capital markets early second quarter, we're taking a measured approach on new building investments. We are, however, evaluating new development sites given the level of demand and longer timeframe often required to put sites into production. In the midst of this transition, I'm very pleased for our Tulloch Corporation acquisition. The portfolio consists of 14 properties totaling 1.7 million square feet with 85% of the NOI coming from the San Francisco Bay Area and 15% from Sacramento. Strategically, the properties mirror our own portfolio very closely in terms of building size, tenant sizes, and infill locations. Secondarily, it raises our capital allocation to San Francisco up to 7%, within California up to 21%, and further reduces our concentration in Houston, which is down 150 basis points from last year. Brent will now speak to several topics, including our updated projections within our 2022 guidance.
spk11: Good morning. Our second quarter results reflect the terrific execution of our team, strong overall performance of our portfolio, and the continued success of our time-tested strategy. FFO per share for the second quarter exceeded our guidance range at $1.72 per share, and compared to second quarter 2021 of $1.47, represented an increase of 17%. The outperformance continues to be driven by our operating portfolio performing better than anticipated, particularly occupancy and rental rate growth. From a capital perspective, macro concerns of investors have caused the stock market to decline, including our share price, and as a result, we did not issue any equity during the second quarter apart from the TULIC acquisition. We have been intentionally deleveraging the balance sheet over the past several years and are in a good position to pivot to debt proceeds for capital sourcing. During the second quarter, we issued the private placement of $150 million of senior unsecured notes with a fixed interest rate of 3.03% and a 10-year term. We also agreed to terms on a $125 million senior unsecured term loan that has two tranches, one for $75 million with a five-year term and another for $50 million with a two-year term. The tranches have effective fixed interest rates of 4.0% and 4.09% respectively. We expect to fund and close the loan in late August. Subsequent to quarter end, we agreed to terms on the private placement of two senior unsecured notes totaling $150 million. One note for $75 million has an 11-year term and an interest rate of 4.90%, and the other $75 million note has a 12-year term and an interest rate of 4.95%. The notes are expected to be issued and sold in October. As a reminder, the company does not have any variable rate debt besides the revolver facilities, and our near-term maturity schedule is light with only $115 million scheduled to mature over the next two years. Our balance sheet remains flexible and strong with healthy financial metrics. Our debt to total market capitalization was 19.5%. Unadjusted debt to EBITDA ratio is down to 4.95 times. and our interest in fixed charge coverage ratio has risen to 9.1 times. Looking forward, FFO guidance for the third quarter of 2022 is estimated to be in the range of $1.71 to $1.77 per share, and $6.84 to $6.96 for the year, a 15 cent per share increase over our prior guidance. The 2022 FFO per share midpoint represents a 13.3% increase over 2021. A few of the notable assumption changes that comprise our revised guidance include increasing our average month-end occupancy 30 basis points to 97.8%, increasing the cash same property midpoint from 7.4% to 8.5%, removing any additional common stock issuance, and increasing debt issuance by 125 million. In summary, we were pleased with our second quarter results, and we will continue to rely on our financial strength, the experience of our team, and the quality and location of our portfolio to carry our momentum through the remainder of the year. Now, Marshall will make final comments.
spk10: Thanks, Brent. In closing, I'm proud of the results our team created for the first half of the year and the position it leaves us in for the balanced. Portfolio operations remain historically strong, as our results indicate. That said, capital markets and the overall environment became fluid during second quarter. While never fun to live through, a couple of thoughts that may prove helpful. First, our team has worked together through several downturns and forecast downturns before. Our strategy may shift, but it's not uncharted waters. Secondly, the industrial market has been so red hot the past few years, some level of market concern we view longer term is healthy for a sustained positive environment. Meanwhile, our buildings are as full as they've ever been, and rents are rising throughout the portfolio. We'll work to keep occupancy high, continue pushing rents, and listen to tenants and prospects to accommodate their demands in the market as we've always done in good and bad markets. While the world may be anticipating a choppy environment, I remain excited for East Group's future. There are several long-term positive secular trends occurring within last mile shallow bay distribution space and Sunbelt markets that will play out over years, such as population shifts, evolving logistics chains, et cetera. These trends, along with the mix of our team, our operating strategy, and our markets keep me optimistic about the future. I will now open up the call for any questions.
spk04: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Connor Mitchell with Piper Sandler. Please go ahead with your question.
spk02: Hi, good morning. Thanks for taking my question. So you guys have touched on it a little bit with the industrial sector being red hot and widespread rents, but there seems to be no signs of leasing slowed down or tentative pushback. So my question is, do you believe that the industrial sector as a whole is immune, or maybe it's more East Group's portfolio that's behaving differently for the market?
spk10: Good morning, Connor. I'd like to think maybe like most questions, the answer is yes. And in variations, I'd like to think Last mile, we've said for a few years, is probably an earlier inning versus kind of big box as people work through supply chains, logistics chains, e-commerce. So hopefully we're a little more immune. And that said, I don't know that the industrial is immune. We're not feeling the downturn. You certainly don't see it in our numbers. We finished the quarter at a record high percent at least. But if you're watching the news, reading headlines, there's certainly enough clouds on the horizon that we're being more, you know, we're being cautious with our capital and, and with our planning, but I'd like to think we'll weather it better than the average company and even the average industrial rate. And the market is, as we've said, it was, has been so hot. We've even kitted a little bit. It's, you know, when you know the stock market's overheated as you get in an Uber and the Uber driver's giving you stock tips, it's felt like the number of new industrial developers or new entrants in the market has really increased over the last handful of years. So a little bit of unease and choppiness, we think longer term is probably healthy and may present some good opportunities. And those downturns, as competitive as things were, it was hard to find opportunities. But with some unease and maybe financing, whether it's debt or equity, a little bit harder to come by, there may be some opportunities. That's when we've usually found our best acquisitions, longer term as in a downturn as well.
spk02: Great. And then just kind of following up on that last part there, it does seem that there's a little slowdown in the change or the outlook for the acquisitions and development. So can you please address how the impact of rising interest rates and the depressed stock price are impacting your future investment decisions?
spk10: I'll start and I'll let Brent touch on. But for now, with probably early, I guess timing, early second quarter as the stock market moved and we were you know, like everybody probably expecting interest rates to rise throughout the year and still are. We've really pulled back and I'd say we've not actively bid, more so we've called it monitoring number of kind of core investment acquisitions and value-add acquisitions that we were, have been actively bidding on the prior few years just because our access to capital is more limited, more so, and we're still in a price discovery phase. phase on pricing on an awful lot of assets. So we, you know, to acquire land, especially for a new park, to get through the zoning, entitlements, you know, the mass grading, all the things like that, you could, by the time that's done, you could have entered and exited a recession. So we're still active on land, but really pulled back on the others. And maybe Brent, if you want to touch on the balance sheet side a little bit.
spk11: Yeah, sure. Good morning, Connor. And yeah, obviously with the quick change through the quarter with, with, the overall market sell-off, of course, our stock being impacted by that. And we didn't view it as attractive. So, of course, you saw zero ATM issuance. And then you saw in our assumption changes for the remainder of the year where we basically pivoted from ATM issuance to a little more debt. Our balance sheet was very strong and remains very strong and flexible and When times are, when you like your stock price, that's the very reason you put it in that position, because when you don't like it, you want to have that other avenue to go to, which we have, and we have plenty of runway there. So, you know, it's not to say certainly we changed our assumption that way, but, you know, if the price were to rebound, when it rebounds in the future, then, you know, we could go the other way. So we view that as being fungible, whether it's in the ATM issuance or debt. But, yeah, you saw us lock up some debt terms and, you know, carries through the end of the year. We'll continue to go back and forth, and as Marshall said, we're being a little more astute and diligent with exactly how we spend the capital and prioritizing that for our best value add, which is our development pipeline. So we'll continue to monitor, but we like our balance sheet position. Even with the debt we've tied up, we're still in a very strong debt to EBITDA position, very strong fixed coverage ratio and other debt metrics. We're in a good position. We'll just take the lane that's, you know, most available to us and just monitor it and be flexible and, you know, move with it as we need to.
spk02: Great. Thanks for the caller.
spk04: You're welcome. The next question comes from Jeff Spector with Bank of America. Please go ahead with your question.
spk06: Great. Thank you. First question. Marshall, just on visibility into 2023, clearly in a great position. I know sometime this fall, you'll start your budgeting process and sure there's clouds on the horizon, but I guess from where you sit first, let's say prior years, like what's your confidence level on, you know, or thoughts on visibility at least into 23, at least into the first half of 23, how are you feeling?
spk10: Sure. And good morning, Jeff. And good question. As we kind of, you're right, later in the year, here in a few months, we'll really dig into our budget, you know, in detail. But what I like as we head into 2023, as I think about it, and maybe two or three factors. Of last year, our average renewal on a gap basis was a little over 30%. And pending the timing, and that we're awfully, you know, we're usually out ahead of lease expirations. we may not have captured a full year run rate on a number of the renewals we did last year. Year to date, through mid-year, we're at 35%. And so those kind of rent increases, the good news is the agreement's been reached, but in terms of it really getting into our quarterly run rate, an awful lot of those still aren't affecting us. And this year, we've seen more widespread rent increases. Last year, we benefited from it, but we had just the way our expirations laid out some larger spaces and California that helped raise that number this year, it's been more widespread. Florida has been 40%, Las Vegas, Austin, any number of markets. So, and with inflation where it is, we're not seeing and supply as tricky as it is to deliver goods. We feel still pretty confident, you know, absent a bad economic hit on demand more so than supply. And then maybe the last leg of it, you've seen us move five buildings out of our development pipeline this year. Those all rolled in fully leased, so we'll get a full year impact of those in 2023. Within our pipeline today, there's another 14 buildings that will deliver between now and the end of first quarter. 12 of those are 100% leased, and we've got activity on the other two. So we feel pretty good. So that's a lot of new NOI that's coming our way. I mean, I wish the equity market would, you know, we've said internally and to our board right now, it feels a little bit like a tale of two cities. We've probably had the best couple of three quarters we've ever had as a company in terms of the metrics produced. But the market looking at, you know, I guess the answer is the market's looking ahead. our stock prices moved down pretty low. So right now we're projecting a 13% increase this year in FFO, and that's off a record number last year. And what I like is with the rent increases and the new developments, I don't know what the increase will be next year. And I'm an optimist. I guess I should have prefaced it with that. I feel we're pretty optimistic about next year, especially if it's a mild recession. we'll be fine and keep moving, and hopefully we can pick up an opportunity or two from some people that have weaker balance sheets, and we'll be back and running at full speed again. But we're kind of slowing down a little bit and monitoring the horizon, but internally things feel really good, and we're not sensing it from our tenants, or maybe it's we're not sensing it yet, but we've certainly not seen a slowdown or hesitation from tenants yet, and that's what we've been and waiting for the last few months, and the PEEF guys in the field just are not seeing that yet, thankfully.
spk06: Very helpful, thank you. I guess if you could tie those comments into that you increase your development start guidance. I guess, how do we tie some of the concerns, but you did increase the development start guidance?
spk10: Sure, and really, Certainly, they tie together, and if it's helpful, really, our developments, what I like about our model, it's like, I've used the analogy, stacking shirts in a retail store where our parks are built out in phases, and it would, since Brent and I are on the call, it would be Brent and I calling you saying, you know, Jeff, at phase two, we're 50% leased. We've got another lease out. I've got Three proposals out, I'm about to run out of inventory. We'd like to build that next building or two. So really our starts, rather than someone in corporate saying, let's go build a million square foot building in the Inland Empire East or on the south side of Dallas, it is the teams in the field saying, I'm about out of inventory or I've got, in any number of cases in our parks too, I've got existing tenants that need more space. And if we don't deliver it to them on a timely basis, someone else is. So we're really responding to the market. And I'd say corporately, we've certainly gotten a little more cautious. But as we look at our development pipeline, especially what's already finished in constructions over 70% least, and then the balance is moving, you know, it's in the mid 40s with good activity and the buildings that are at zero, a number of those we are just started and are moving dirt and haven't finished foundations yet. So it's really our response to teams in the field saying, hey, we need more space. And that's why I think we're doing this from memory, which is dangerous. But we started this year at $250 million in starts. And one trend we've seen is with the lack of new product demands there and the lack of new product. And it takes us and everyone else longer to deliver that product. The buildings are leasing up earlier and earlier. under the construction. So usually we would deliver a building and then you'd start leasing it. Now we're seeing pretty good activity during construction. So that's continuing to kind of pull that, you know, move from phase two to phase three within our parks more quickly than historically. And Fort Myers, for example, where we built a spec building, it was taken out, we delivered the next one, and we've not finished either of those. A tenant took that building and so now we're moving on to our third building, but as soon as we've been able to really start construction, knock on wood, we've struggled there to keep up with the demand a little bit, which is a great problem to have.
spk07: Thank you.
spk04: Sure. Our next question comes from Connor Siversky with Barenburg. Please go ahead with your question.
spk05: Hi there. Good morning. Thanks for having me on the call. I just want to jump back into development capacity briefly. I'm thinking in some of these particular markets where you hold these parcels of land, say Dallas, where you've got about 70, not you, but in aggregate 70 million square feet are under construction. Would you be looking to potentially sell out of some of that exposure in favor of maybe some of the more coastal markets with better future supply growth dynamics?
spk10: You know, and I guess a good question. Good morning, Connor. You know, and one thing, and Dallas does have a larger number, and I was thinking it was, I've seen in the 60s, two thoughts. Typically, I guess we would say as a rule of thumb, if you take that 60 million or 70 million in Dallas, Dallas-Fort Worth under construction, Probably 10% to 15% of that is a good rule of thumb that's really shallow bay product. I guess the short answer would be no. I mean, really the construction isn't what would drive us to exit if we sold something in Dallas. And so much of that construction isn't competitive with us. The numbers I'm kind of looking at in Dallas just briefly, it's two-thirds of it per CBRE is calling big box and three-fourths of it that's under construction is in the submarkets of North Fort Worth, East Dallas, South Dallas, and then the 287 corridor. I know CBRE added some geography, basically expanded the geography as they covered as the market continues to push further and further out. And where a lot of our product is in North Dallas, next to the DFW airport, that area, we're 100% leased in Dallas. So we're feeling pretty good and seeing good rent increases in that market as well. If we did sell something in Dallas, which we're not opposed to that, and we're, what, 37% as our cash rent increase year-to-date in Dallas, that it would be older product. And that's typically not so much driven by new supply. And we like the coastal markets, but it was interesting talking to brokers in Dallas for the first time having lunch with some of our brokers, they're saying there's so little land left in Dallas that people are being pushed further south, further north, kidding that Oklahoma is going to be part of the Dallas market. You get so far out. And the tenants are getting pushed out to Fort Worth as well. It's hard for me, almost like in L.A. when people initially talked about L.A. being an infill market and you get pushed so far east, which is certainly... the reality of it that I think Dallas is starting to cross that line where if you're in an infill location in Dallas, they've repurposed so many of the older industrial buildings. So a long, long-winded way of saying we're pretty bullish on Dallas and that market. I mean, we'll certainly keep the size of our allocation to that market kind of managing it, but we're seeing some good development opportunities and the team's doing a great job there. So we're, you know, we like Dallas. Dallas, Austin, any number of those Texas markets right now.
spk05: Got it. Appreciate the color there as well as the comparison to LA and say the Inland Empire as the kind of overflow of alpha. Just one more quick one. On the dividend, we saw a pretty meaningful hike last year. The positive revisions to guidance may seem like we're trending towards another, but could you offer some color here on the thought process perhaps as it relates to increasing the debt load over the course of the year and how fielding a higher interest expense would impact your ability to raise the dividend?
spk11: Yeah, this is Brent Conner. Yeah, obviously next quarter is our traditional period where the board and we evaluate the dividend and make the adjustment. And obviously I think we started the year at a midpoint guide of 663, and I think now we're up to 690. So the year has gone very, very well. And so I think it's very safe to assume that obviously the dividend is going to you know, we really don't have much cushion there to begin with. So the dividend is obviously going to increase to exactly the extent, you know, we'll continue to hone in on that to make sure we have adequate coverage. But, you know, the interest expense increases is really on the margin. Obviously, all the debt we've tied up is baked into our revised numbers, which still was up 15 cents over the last guide. So, you know, there's going to be a cost of capital regardless, but we're still plenty clear of that with what we're doing, especially on our development pipeline. You know, obviously the increased cost in capital eats into that margin a little bit, but it's still historically at a comfortable margin. So, yeah, we'll visit, but obviously all the indicators are that it will be increasing. And, you know, as far as the debt impact on that, it's, you know, baked in, but we've got, you know, a commiserate increase in, you know, property net operating income coming in over the top of that. So it's, you know, we're not taking on debt in a vacuum without doing anything with the proceeds. We've got very good, we still, you know, as Marshall said, we're still seeing very, very good opportunities to place capital. Obviously, if that changes, we'll pivot. But, you know, as of now, we'll continue to do that. But more to come on that next quarter. But yeah, that's going to be a something I think our shareholders, as always, our traditional policy is to keep that dividend as minimal. We want to grow it just by virtue of earnings growth like we're doing, but we'll try to keep that to a minimum just so we can retain as much capital as possible. But at some point, you just get forced to increase the cost of earnings growth, which is the situation you want to be in.
spk04: Got it. Thank you for the time. Yep. Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead with your question.
spk03: Yeah, thanks. I wanted to see if you guys can talk a little bit more about construction costs and how much they've increased in your underlying markets. And maybe the three buildings that you broke around this quarter, I mean, how much higher are the budgets on those projects versus the buildings that you built in those parks previously?
spk10: Good. Good morning, Mike. Construction prices continue to increase, and it's really evolving, too, I guess is the other interesting thing. We were looking at a project in Florida, and the concrete prices are up pretty materially from the last building within the same park for a while. Steel prices were up. Overall, it feels like maybe a 35%, 40% number and moving. And it's at different times. I know roofing materials earlier in the year, talking to our construction people, you would get a quote, but they wouldn't, they won't hold quotes for very long. And often on roofing material, it was when it got delivered. So I know we spend a lot of time and those guys do bid things out and are managing it as best they can. The other kind of as an aside comments of helpful, and this is where the supply numbers, I saw one of our peers commented, which is accurate. The The supply numbers are large in a number of our markets just because when you break ground to deliver has gotten to be, we used to could build a building in five or six months. That's probably eight or nine months now. It was to order electrical panels. The number I've heard was 11 months for delivery. Rooftop HVAC units is taking longer and it kind of moves from item to item within the building. And I think it's, frustrating as that is, I almost have to remind myself for the two to three million square feet we have under development, that it takes longer and costs more. And thankfully, rents are rising, so we've been able to maintain those yields. But as hard as it is for us to deliver buildings and as expensive as they are, that's got to be great news for the 54 million square feet that we already own, because that's where you're helping us push rents within our portfolio and with that demand there but I would think with the concerns that in time people will finish up price projects and construction pricing may come back down and delivery times get a little bit better but I've been predicting that for a while too and it hasn't come to fruition but I'd say 35 to 40 percent increases and it's been a mixed bag. Steel is available now. That was really the first item that became the kind of gotcha number. And it may trend again. And it sure sounds like China continues to have shutdowns for COVID and different items and places. And the other one I'm waiting as we are probably in hurricane season now is usually PVC pipe is something that if you have a lot of hurricane damage, all of a sudden everybody needs PVC pipes. And that pricing is jumps up. So we're managing it as best we can, but that keeps a lid on supply, and it exaggerates the amount of product that's under construction in any market right now, too, because it's not moving through the pipeline as quickly as it would have anyone's project, say, three years ago.
spk03: And that 40% number, is that over roughly the past 12 months? And And does that construction cost increase? Does that keep, I mean, does that make you second guess the type of buildings that you want to break ground on or is rents just so strong and maybe off of that, what about your competitors? Are they unwilling to break ground if construction costs have increased so dramatically?
spk10: It's probably not 12 months, but maybe 24, I would say my 40% number. I mean, it's a little bit, we used to compare pre and post COVID numbers and even kind of within, but it's, It's probably a little more elongated than 12 months. I do think in the market, there's certainly some efficiencies of scale to building bigger boxes to do that, although I've heard where they've had different contractors and things, anecdotally, to get the amount of concrete they need and things like that. I think it gets more complicated. I've said, given that it's easier to place more dollars in our type buildings than it used to be, and what that cost increase, and the land is some of that cost increase as well, that we've seen such a run-up, which again, maybe this pause will be helpful on where some land pricing goes. Our yields are still hung in there, and again, I think cap rates are moving up, albeit slowly and probably at different rates, depending on the type of building. I think for our type buildings, shallow bay multi-tenant buildings, the cap rates haven't moved up as much as they have on say longer term, single tenant, bigger box, more bond-like assets is what we're hearing as well. So we've changed, we've evolved a little bit with what we build in terms of the amount of glass on the buildings, the architectural features, trailer storage, but really the type buildings. We like our model and want to respond to our tenants, but not change it based on construction pricing. Maybe a better way to say it. If we can make our yields work, because what we're building is being absorbed in the market, and I'd hate to change it. I'd rather try to manage our cost structure than change our strategy.
spk07: Okay, great. Thank you. You're welcome.
spk04: Our next question comes from Craig Mailman with Citi. Please go ahead with your question.
spk12: Hey, guys. Just circling back to development, just capital deployment in general, I mean, I don't want to put words in your mouth, Marshall, but you know, putting all the commentary together, it seems like the potential for maybe slower starts into next year is more a function of capital availability and pricing and wanting to maintain leverage metrics versus, is that kind of a fair characterization?
spk10: Good morning, Craig. You know, I don't know that I would go maybe that extreme. I think we're being a little more cautious with our capital. And in that, and I guess within that, there was a couple of projects where we were looking at maybe we'd build three, you know, typically we'll build one, two buildings in our park. A couple of them, given construction pricing and timing, we were looking at three or four, and we're reconsidering that now. But I think, you know, this year, I was worried this year our starts would be down from last year because last year we had the speed distribution, the large projects, $90 million pre-lease in San Diego, but we'll beat last year's numbers. And I think things could slow down certainly at some point if the equity market stays closed. I mean, we've got Brent and his team have us in a great position in terms of ability to access the debt markets for a little while before we feel like that's getting nervous. At some point, if you just don't have access to capital, that would, you know, we'd I guess you consider a joint venture or some things like that that we haven't really gone down, aren't looking at going down those roads yet since the demand's still there. But we feel pretty good about demand until I turn the television on or pick up a newspaper. And I'd rather, we've said in good times and bad, there's always something you can get spooked or get too bullish. I like that our starts are really driven by a phone call or an email from the field. So I'm we'll keep going and we'll find a source for that capital. I always think good projects find capital, and right now the development pipeline is going pretty well. So if it slows down next year, it won't be because we call it a corporate. It's just going to be, hey, Phase 3 didn't lease up as quickly as we hoped it would or at a different rental rate, and so we're going to wait a while on Phase 4. And we've done that in any number of cities, Atlanta, Phoenix, Miami, different markets, Houston at times. And it's probably been pretty seamless and invisible to the street, but where we've kind of waited for demand to catch up with the last phase within a park. So I like that we have that kind of self-monitoring. And really the only time we've shut it down corporately in recent memory has been early on in COVID. And even in hindsight, I said, I didn't have the nerve to do it, but I should have we should have kept developing through COVID given how demand and things in hindsight, we would have been able to get some great construction pricing and we did tie up some land, but we should have kept going then. But typically it's been market by market or even park by park within a market.
spk12: That's helpful. So let's say, you know, your regional guys are clamoring for more inventory next year because everything's leased. Brent, how much debt capacity do you think you have if the equity market still doesn't make sense to tap?
spk11: Yeah, Craig, if it's prolonged, obviously you can't go forever just issuing debt, but keep in mind that the current environment, our EBITDA is growing at a very rapid rate. you know, the metric at which your, you know, your debt's increasing, but so far our EBITDA has not been static, so you're not moving one with the other being static. Thankfully, it's increasing, so that's helped offset, you know, any significant increase in the metric. So, you know, it's something that we'll just evaluate the latest, you know, round of debt that we tied up. We think we'll take us through the end of the year, and, you know, as we get probably fourth quarter, we'll continually evaluate, but, you know, we'll look and see, more into 23 and see what we need there. But, you know, as long as the EBITDA continues to grow, you know, again, we've dialed back, as Marshall said, maybe more fringe investing to where, you know, just hardcore development. So it just, you know, Craig, we'll have to just be flexible. You know, if it gets prolonged, obviously that becomes more problematic and something you have to keep an eye on. But as it is now, we'll be measured and be smart with the capital. But, We still have access to it. And if that changes down the line, then we'll obviously react to it. We won't, you know, go beyond where our comfort level is. We've always been pretty conservative on the balance sheet. But, you know, between EBITDA growing and the good sources of capital and, you know, we've not given up hope that somewhere down the line, you know, market conditions change. And obviously if the stock price became more attractive down the road, then we could pivot to that as well. So we'll just have to see. You have to be flexible. and prepared. We feel like we are. It's really hard to... We're glad we've got the runway so we don't have to make a knee-jerk reaction. That's where you want to be. We'll just monitor it and be smart about it.
spk12: If you had to peg a number, what's the nominal amount of debt capacity? Where does that get you on leverage?
spk11: I wouldn't put a number to it because it moves. Like I'm saying, if our EBITDA is up next quarter, then that gives you more capacity. But We have internally more talked about wanting to keep our debt to EBITDA sub-six. And so based on the debt we just took on, if you take the fourth quarter, our internal fourth quarter EBITDA and annualize that, that still keeps us. We're still in the low five range. So rather than put a dollar to it, we've really looked more along those lines of a metric and, again, more annualizing our current quarter forward and evaluating it So we'll just see. Again, that number is going to change a little bit as we go. But that would be, I would probably say, just a general rule of thumb that we're keeping an eye on, although we're not close to that at the moment.
spk12: It's either by term of leverage.
spk11: Sorry?
spk12: It's either by term of capacity from the end of this quarter to that, you know, higher end of the sub-6th.
spk10: I mean, and I guess, Craig, if it helps, I mean, if I'm following you to other thoughts, you know, as we think about, as Brent said, thankfully with the rent increases and the new developments coming online that, you know, one side or the other has to be right. And that, as long as our rents are going up and we're delivering new buildings, our EBITDA keeps growing. So that debt capacity in absolute dollars, we're creating new capacity for it. And eventually either Wall Street or, I guess I'm going to sound like I'm on Main Street, but where we are in the field will be right. If things turn and we lose tenancy and rent stall, then we would get faster to get to our debt capacity. But at that point, there's not going to be the need to build new buildings either. So that will either end it or at some point, we've taken the attitude and we've been there any number of times of, hey, let's just keep making money and eventually someone will notice that So if we can keep doing that, eventually the stock price will get to a point where, and I realize NAV is a pretty fluid number internally and consensus on the street, where the equity markets reopen. And if the market's still solid, then we got spoiled a little bit for so many years having the debt and equity markets available to us.
spk12: And I appreciate it over my two-question limit, but I just want to get your thoughts on... you know, asset managing the portfolio here, right? There's still a bid for kind of shorter-term leases with some role versus kind of core assets. So if you guys kind of go to the portfolio and see maybe some assets that, you know, have some of those attributes where even, you know, on an exit cap rate are attractive and even when you kind of stabilize it to see what you'd be leaving on the table, if that spread is still kind of attractive relative to rolling down to development, could that be something we see more of is debt costs rise and the stock price is, you know, a little bit out of the pages here? You know, I know you guys are doing more of this this year.
spk10: That's a thought, you know, you did see us, we sold a little bit earlier in the year, we sold an asset in Houston and really where we, if helpful, where we typically target, you know, it's pretty simple, like, you know, the The people that are in the field responsible, we've said, you know, hey, if you came in in the morning and you got a notice that someone went bankrupt, one of your tenants went bankrupt, which building would you want to get that notice from least? And that almost tells you your dispositions list. And then it's putting together, you know, probably a corporate abatting order of what order do we go in. And so we've seen us sell a number of tenant-intensive service center buildings, and we're about through that process. We've got another a couple of buildings in Houston on the market, and we'll keep working through those assets. It's not much. It's probably under $25 million, $30 million of the new Tulloch acquisition. And there's nothing wrong with the assets. There's just a little bit of land in Hercules, California, some smaller assets that are good assets but won't fit us. So we've got a couple of those on the market as well. But you're right, that's also a source. I'd love to trade some of those assets for... development land in one of our core markets. And we've been doing that, but that could add a little bit of emphasis. Right now, the disposition market isn't great because I think everybody, including us, is kind of waiting to see how it plays out. But we've got a few things on the market presently, as we always do, and we'll kind of keep pushing through those. But that's a good way, as you say, more capital allocation to move out of some assets that aren't our future and be able to put it into land and hopefully develop it to a higher yield than what our exit cap rate is.
spk12: Great. Thanks, guys.
spk04: Sure. You're welcome. Our next question comes from Todd Thomas with KeyBank Capital Markets. Please go ahead with your question.
spk01: Hi, thanks. Good morning. I just wanted to follow up on the development side and I guess your appetite for land, which seems relatively unchanged, and really, you know, regarding the yields for future projects. Just given your comments about the increase in construction costs you discussed, which of course is offset by the increase in rents, you're saying, you know, are you seeing, you know, yield expectations for new projects improve? to offset the greater near-term uncertainty and what sounds like a modest increase in market cap rates or exit cap rates? I guess, how's that spread trending for development, for future developments when you sort of put it all together?
spk10: Now, I think you're right. I still think, as we touched on, I think construction prices will moderate just because more people will pull back on development. With the land and it I guess it's all not equal, but some of the land we acquire, you know, it's measured and we'll have it tied up for as long as we can prior to closing, you know, as long as the seller will work with us. And then even then, some of it we close and if it's a new park, it could be a year or a little more before we're in the dirt and really, you know, start going vertical with construction and things like that, getting the kind of the infrastructure in place. So that gives us confidence on some land that let's go ahead and acquire it by the time we're ready to build on it. And that's always, we've said, that's the one item for development we can't order. And it's incredibly, I think land is incredibly tight in a number of our, most of our markets now. That's one thing that's really changed over the last five years is just how hard it is. I mentioned Dallas earlier, Austin, Atlanta, Tampa, any number of our markets, how hard it is to find land. Development yields have hung in there, thankfully. Cap rates probably have come up, but I'm using last year, for example, which probably feels like 10 years ago, but I think our average development yield was at 7 and probably call it market cap rates 3.5. So we're obviously not a merchant developer, but that is a 100% profit margin. So we felt like there's room, even if cap rates come up a little bit and yields come down, if we're making 50, 60% kind of value, that's a lot of NAV creation for our shareholders. And then a lot of just good solid long-term assets, incremental FFOs. So we're still managing through that. And then if it helps, as we underwrite on our developments, we We also, compared to some of our peers, probably more private than public, we underwrite to current market rents, so we don't forecast rents, which I know some of our, you know, look, by the time we deliver the buildings and are actually leasing them up, often they're of late, rents can be 10 to 20% higher, but I always felt like that's a slippery slope, and we don't want to start projecting rents in the future, so... In any number of cases, too, what we're actually delivering and leasing up has been a higher yield, thankfully, than where we're using today's construction prices because we'll have that locked in and today's rents. And in most cases, we can do a little better than that. We've always targeted 150 basis point premium for development over current market rents, and we've been exceeding that by a wide margin and really looking at return on cost kind of the second metric. So development yields are still our, it's the most attractive use of our capital and within our parks, oftentimes it's internal demand or it's someone across the street needing that space. So it, you know, if you look back in hindsight, I'm doing this from memory, which is dangerous. I think it's, Of our last 22 buildings that have rolled into our portfolio, 21 have rolled in at 100%. So if I were, I would push myself and say, hey, we should have done more buildings than that if you're making those kind of returns. So that's yesterday's news. But as long as we're building buildings and they're leasing up and we're getting those kind of profit margins and creations in value, we should kind of keep on that path until the market you know, slows down or tells us something different than it is today.
spk01: Okay, that's helpful. And then can you talk a little bit about the change in asset pricing that you're seeing today? I think you commented earlier that you're seeing less movement in cap rates or pricing for your assets relative to some of the boxier assets with longer-term leases. Can you just provide a little bit more color around that comment and what you're seeing in the market currently today?
spk10: Yeah, it's going to be a couple-part answer. I've read and heard kind of 10 to 25 basis points for kind of more multi-tenant, shorter-term duration, maybe three to five-year leases. And because of that increase in rents that people are seeing, it probably feels more on the higher end to us than that more like, you know, maybe 20 to 35, I'd call it. And then I think if it's a longer duration, more bond-like asset, what I'm repeating, you know, a couple of broker comments, more of the 75 and it makes basis point increase and it makes sense because you're there's not that opportunity to go back to market on those assets and and really you know the other thing i think there's fewer bidders i think you're in a price discovery phase where everybody's waiting to see what happens next and then as we think about our capital and and maybe going back to craig's comment earlier we said okay we want to make sure we can fund our development. And then if there is some distress in the market, I'd love to have that dry powder. I'm not expecting much distress out there, but given the number of kind of newer local regional developers, and oftentimes they may build our type product more than say a large institution because of the capital dollars, we'd like to be able to capitalize on that and maybe step into their land position or some things like that. So we're being you know, trying to slow down and kind of wait for those opportunities and even have been reaching back out to kind of stay in touch to some of the local regional developers that we've called on and some of which we've acquired assets from, our value-add assets, the last few years.
spk01: Okay.
spk04: All right. Thank you. Our next question comes from Dave Rogers with Baird. Please go ahead with your question.
spk14: Hey guys, it's Nick on for Dave. I guess with the industrial market still so tight, how early are tenants coming to the table to talk about renewals? Has that timeline changed at all since year end 21?
spk10: A little bit. It probably has. I mean, there was a couple of instances which was interesting where we had, and I get it, tenants are busy running their business where they waited. I can think of one in, certainly one in California, one in Arizona, where by the time that we had approached the tenants, they put things on hold, and when they pick back up, and as one of the brokers described, it's almost like the housing market. We were able to get rents that were 10, 15% higher just because things were put on hold. And we've seen, not in mass, but some tenants reach back out and do a little bit earlier renewals. I think that's probably smart on their part. I would say over 99% of our tenants, which is probably in underestimated come to us through a tenant rep broker. So we're generally ready to speak whenever they are, because I always thought if we're not talking to them, somebody else will. But they're probably a little bit earlier in the process, and that probably will continue to pick up. And we can't force the conversation until they're ready to talk, but then when they are ready to talk, and we've always looked at it almost like dollar cost averaging, you know, investing. If we've got 4 million square feet and someone's doing a three to five year renewal, you know, at some points we'll hit a renewal on the bottom of the market and at some points on the top of the market. So we don't try to get too cute and overguess the market in terms of, you know, interest rates, rental rates, things like that. And it does seem like when things get bad, they get bad a whole lot faster than they get good. So we don't want to get too cute and wait until the last minute on rents and things like that.
spk14: That's helpful. And then maybe with rising costs, have you heard any local economic issues related to higher utilities that might be pressuring tenants?
spk10: No, I haven't. I mean, I would believe it, and I do empathize with our tenants between utility costs, gas prices, wages, and I'll even point the finger at us, rents, things like that. They're probably getting hit from about every side. We don't have heavy manufacturing in our buildings. We may have some light manufacturing and e-commerce. I've not heard anyone specifically complain about their utility costs, but that probably is coming next.
spk04: Thanks. That's it for me.
spk12: Sure. Thank you.
spk04: Our next question comes from Ronald Camden with Morgan Stanley. Please go ahead with your question.
spk09: Great. Just two quick ones. The first is just when you're talking to tenants, what do you sort of, the commentary you're hearing on their inventory, where they are today. Obviously, there's been some notable announcements out of the retailers, but just curious what you're hearing on the ground in terms of tenant inventories, if they have the right inventory, if they're trying to build more inventory, just any commentary there would be helpful.
spk10: Sure. I think a painting with a roller brush, I think People are still, by and large, short of inventory just because of the supply chain issues. And so, again, optimistically, I think they'd like to have more inventory and they'd like to even move inventory, you know, kind of to a higher level because they did get so burned. You know, we've heard of kind of a just in case rather than just in time that people have been speaking of. So I think there's still the inventory to sales ratio and whether it's people where they have excess inventory, you know, some of the retailers, it seems like they've got the, it's not so much more overall inventory as the wrong inventory at different times. So we, you know, and we've seen a case or, you know, a larger tenant we're negotiating with now, they may take a little bit more space than they would currently need today, but part of the conversation is they'd like to move, you know, this is a direct one and we still need to get this lease signed, that they'd like to carry more inventory longer term. So I'll let you know how that one plays out, but that was an interesting comment by them, is that they may take, and it's about 20% more square footage than they currently wanted, and we also have seen a lot of activity from 3PLs this year. It seems like they have picked up in the market, and that tells me that's probably just a different mixed bag of companies carrying more inventory, and they're usually pretty quick to respond to the economy, too. So given the amount of new tenant activity, and Cunanoggle actually made it onto our top 10 tenant list this quarter, you know, any number of those 3PLs, that tells me the economy's moving pretty quick because we may be one of, you know, five spaces they have near DFW Airport, for example.
spk09: Great. That's helpful. And then just a quick one. A few months ago, you know, there was all the news of sort of Amazon putting space back on the market. Maybe I know that's maybe less relevant for your spaces and so forth. But just any update there? Have you seen anything there? Just what are you seeing on the ground? Thanks.
spk10: Yeah, thanks. And we did see it. It felt, probably as you mentioned, like an overreaction. You know, certainly we're We're full, and I wish we had still, and that Amazon is still out there. Each group specific, we've got four spaces with them, the majority, and two bigger spaces that 95% of our Amazon lease rents expire in fourth quarter of 2033 or beyond. None of our four spaces are they interested in giving back or terminating, and our conversation is with them. The numbers... I've heard anecdotally of late was that their give back may be, I've read between 10 to 30 million square feet was closer to the 10 million square foot number than the 30 million square foot number. And that they still may take down, and we're not in active negotiations. I wish we were with them right now somewhere for the next big block of space, but around 40 million square feet this year. So I think it was, They got out ahead of themselves in terms of logistics versus their true growth, and they'll probably grow into a number of these spaces. They're paying rent, but they may not occupy them for a number of months until they grow into them, was what we were hearing. And the actual giveback may be closer to the lower end of that range than the higher end. And thankfully, you know, look, we They're 2.2% of our rents, and we've got a lot of, as I mentioned, a long-term timeframe before we address it with them. And I'm guessing other landlords like us, the rents we have from Amazon are below market today. So if we did get a space or two back, it may be vacant as we re-let it, but at 99% lease and below market rents, compared to the reaction, that's not that bad of news.
spk09: Great.
spk07: Helpful. Thank you. Sure. You're welcome.
spk04: Our next question comes from Vince Tabone with Green Street Advisors. Please go ahead with your question.
spk13: Hi. Good morning. Could you discuss the key building blocks, revised same-store guidance? Based on leasing spread year-to-date, revised occupancy and bad debt guidance, I'm still having trouble getting all the way up. to the new range. Is free rent timing a big benefit this year?
spk11: That's been pretty consistent. Obviously, that's been more minimal than it has been in the past. Vince, that may be something we could talk through offline. I can tell you that the beats on our end or raises have been consistently in the property net operating income category. I saw some releases and information where on other analyst models that talk about GNA and interest being a part of our beat this time. And frankly, in our internal model, that was very modest. It was more truly on the operational side. So, you know, happy to talk to you offline and see about, you know, what areas might deviate significantly from kind of what we're seeing or thinking.
spk13: No, that sounds good. It probably makes sense to do offline, but maybe just a quick follow-up. Are you able to comment at all in terms of what, maybe cash-releasing spreads you've baked in for the back half? Are you expecting something similar to the first half, forecasting an acceleration, any color you could provide there?
spk11: Basically, in essence, we're, especially here the last couple of quarters, baking in similar to what you've seen us now for several quarters lay down. We've not seen any headwinds to that in the near term to cause us to think that would change in the short run. So that's what we have. basically baked in. Our guys in the field probably, you know, tend to be a bit conservative relative to, you know, not necessarily from a budget standpoint, maximizing every percentage and every penny of rent into the assumption. But the actual results, we think, will fall in line with what you've been seeing. And then, you know, 2023, as Marshall said earlier, we'll dig in two deeper as we progress in the year. And, you know, that'll be Something we'll see if we project throughout the year, but like I say, right now, as far as we can see out, it still feels along those positive trends that we've been seeing for several quarters now.
spk13: Got it. Thank you. That's helpful. That's all I got.
spk04: Yep. Thanks. Our next question comes from Amit Nihalani with Mizuho. Please go ahead with your question.
spk08: Thank you. All right. Can you quantify how much 3PL demand has increased? And are you seeing any slowdowns from e-commerce?
spk10: Good morning. 3PL, I don't have an exact number. I guess it was that last year or the year before. I do know as we move within our tenant list, we've seen a pretty material, you know, food and beverage, 3PL, you know, just talking to our guys in the field, the home building industry is one. We get questions where I'll say that one's We don't have a lot of it, but a little more concerned. And in e-commerce, it's been a slowdown. Certainly, Amazon has slowed down, and that's a little bit trickier, too. And I'll tie it into 3PLs of, as people or some of our retailers rework logistics change, is it, you know, we're talking to Walmart now, and it's like, I'm not sure it's for brick and mortar exactly. And probably the answer is a little bit of both, so much as... e-commerce sales as well. So they blend over and certainly the smaller e-commerce could probably be going through a 3PL. So that's the other tricky part. I guess we're seeing the good news, maybe if I take two steps back, pretty broad demand from across any number of sectors. And I'm glad our, you know, one of the things we certainly spend time and talk about is our geographic mix within our portfolio. But then one of the things I don't think people focus on as much as our top 10 tenants, you know, are below 9%, which is about half the industry average. So I like that, you know, to me, the more geographically dispersed and the more tenant dispersed or diversified we can be, probably then the safer our rents are. And as our former CFO used to say a lot, our dividends are covered by rents. So there's no joint ventures or funds or all the other things. And not that those don't work for other people, but ours is a pretty simple model. So I like how diversified our rents are. And we'll kind of respond to the demand of who's out there pending their credit and where the TIs are is who's next in terms of leasing.
spk08: Thanks. And just one more question. Are there any markets that are of concern to you right now from a supply perspective?
spk10: It's really not a good question, and the numbers are certainly higher on supply than we've seen historically. So is absorption, and I know it's taking people longer to get products out of the pipeline than it normally did. There's no specific market that really has us concerned right now for our product type. I mean, the numbers are pretty high in the major markets, as you would expect, the Atlantas, the Dallases. I've read about Phoenix is another market people have mentioned, but we're 100% leased in Phoenix. We're 100% leased in Dallas. We bought a vacant building. I'll brag on our team in Phoenix, but we acquired it in second quarter and got it fully leased in second quarter. So we're seeing supply, but it's typically on the edges of town and in big boxes by and large. So there's no specific markets that really worry us, and it really matters more by sub-market and by who's building our type product. But right now, we're not seeing, we worry significantly more about demand and a black swan event or a deep recession affecting demand than we do supply, thankfully.
spk08: Got it. Thank you.
spk07: Sure. You're welcome.
spk04: Again, if you have a question, please press star, then one. Our next question comes from John Peterson with Jefferies. Please go ahead with your question.
spk15: Oh, great. Thanks, guys. On escalators, just curious of how those are trending and if there's any inflation component being considered either from your side or from the tenant side.
spk10: Good morning, John. That's an interesting one. I would say historically, we would have said, you know, kind of two and a half to three percent escalators and the Typically, the bigger the tenant and the longer the lease makes sense. They would negotiate harder and you would drift to the lower end of that range. And maybe a year, 18 months ago, those started moving. That's why we like gap releasing spreads as well because you capture that free rent and those annual bumps to 4%. And it probably started in the bigger markets, but it's been pretty consistent becoming throughout the portfolio that it's become more of a 4%. norm on rent escalators. I've not seen CPI. It wouldn't shock me given where CPI is, but I've not heard of that from our team or from any of our tenant rep brokers and things like that. So it's interesting to see if that, you know, if I've read about the clear lease and some things like that that are out there. And we've typically tried, you know, we're not the major player. We'd like to think we're material in our markets, but it's not like we... we have so much space in Atlanta that we dictate market terms. I've always thought we try to want to fit within the box or what the tenant rep broker's looking for and not be outside the box on too many different levels. So we've probably been widely saying we're more of a market follower than a market leader in terms of just some of our lease terms, but we're happy to see the rent escalators rising and I'll stay in touch. If we start to see CPI, I'll let you know, but I've not seen Because then you've got to go back and make those calculations and things like that, which is probably a little more cumbersome. We used to have some leases 10 years ago that had those, but then it becomes a project for the tenant and the landlord.
spk15: Gotcha. And then I was hoping we could maybe continue the conversation on your cost of capital. So you guys have clearly indicated that the equity markets feel close to you, but And I realize the stock's down year to date, but I mean, you are up like 35% over the last couple of years. If I look at your FFO yield on 2023 estimates, it's about four and a half percent. And you guys issued debt recently at 4.9%. I know that's not always like an apples to apples comparison, but with where interest rates have moved to and your multiples or kind of your FFO yield still being at a discount to your development yields in the high sixes, I guess, what does that spread need to be, whether between development yields and an FFO yield, or even just the difference between the multiple on your stock and the cost of debt? Because as the cost of debt rises, I would assume your equity becomes more attractive. I don't know if you can maybe help me better understand what hurdles you're looking for for the equity markets to feel open to you.
spk11: Wouldn't disagree with, obviously, anything you're saying there. Obviously, the numbers work, and as debt goes up, it certainly, you know, you run your pencil just like you did, and you see the equity side could still be more cost-effective. Part of that, frankly, gets into just external perception that if you're viewed at issuing, you know, it depends what anybody's view of NAV is, but you want to be, I guess, within reach of that or within reason of that from and obviously you can get different viewpoints on that number, which makes that a little more challenging. So I would say, you know, as much as spreads, or obviously looking at spreads and which cost of capital is more affordable or makes our development more creative, you know, probably what bakes into that as much as anything is kind of keeping an eye on our NAV, which is a bit of a moving target. But we would agree with you. We don't feel, you know, we've rebounded some from the bottom. We don't feel that it's, far off. And certainly, as I mentioned earlier, internally, we've removed ATM issuance and issued more in debt in the guidance. But that's not to say that if, you know, if the pricing didn't get to level where we were comfortable with it, that we would do that and then we would just change your revised guidance next time. So I guess I would say I agree with you and I don't think we're that far off. Again, just want to be within range of what, you know, investors, shareholders, and the like would expect for you to issue. And plus, we've got a long, successful track record of putting the capital to work in a very smart manner. So basically, in essence, agree with what you're saying. And again, it's something we're looking at on a daily basis.
spk15: Gotcha. All right. I appreciate that, Collier. Thank you.
spk04: Sure. This concludes our question and answer session. I would now like to turn the conference back over to Marshall Loeb for any closing remarks.
spk10: Thanks, everyone, for your time. We appreciate your interest in East Group. If there's any follow-up questions, we're certainly available and hope to see many of you soon at the next upcoming conference. Take care.
spk04: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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