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spk10: Good morning, ladies and gentlemen, and welcome to the East Group Properties First Quarter 2024 Earnings Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, April 14, 2024. I would now like to turn the conference over to Marshall Loeb, President and CEO, please go ahead.
spk17: Good morning, and thanks for calling in for our first quarter 2024 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call, and since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
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 and 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 included on our most recent annual report on Form 10-K for more detail about these risks.
spk17: Thanks, Kena. Good morning. I'll start by thanking our team for another strong quarter. The team continues performing at a high level and finding opportunities in an evolving market. Our first quarter results demonstrate the quality of the portfolio we've built and the resiliency of the industrial market. Some of the results produced include Funds from operation rising 8.8%, excluding a 2023 involuntary conversion. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year. Truly a long-term trend. Quarter-end leasing was 98%, with occupancy at 97.7%. Average quarterly occupancy was 97.5%, which, although historically strong, is down from first quarter 2023. Releasing spreads for the quarter were solid at 58% gap and 40% cash, with cash same-store NOI rising 7.7% for the quarter. Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 7.8% of rents, down 70 basis points from first quarter 2023, and in more locations. We view our geographic and revenue diversity as strategic paths to stabilize future earnings, regardless of the economic environment. In summary, we're pleased with our performance out of the gate for 2024, while being mindful of the near-term economy. Today, we're focused on value creation via raising rents, acquisitions, and development. This allowed us to end the quarter 98% least and continue pushing rents throughout their portfolio. On the acquisition front, we continue to patiently search for the right opportunities. We're excited to acquire Spanish Ridge in Las Vegas, which we announced earlier in the year. This acquisition also allowed us to move to self-management in the market, further raising our returns. In keeping with our strategy of targeting high-growth markets, we're excited near-term to enter the Raleigh market, a market we've looked at for years. And similar to a number of our other markets, we're attracted to its economic stability and growth due to the mix of a state capital, large educational presence, technology companies which follow the university presence, topography constraints for new development, and long-term population growth. Our acquisitions will continue to be guided by two criteria, one, to be accretive, and secondly, raising the long-term growth profile of the portfolio thus creating NAV as well. As we've stated before, our development starts are pulled by market demand within our parks. Based on our read-through, we're forecasting 2024 starts of $260 million, and though our developments continue leasing with solid prospect interest, we're seeing longer, deliberate decision-making. As always, we ultimately follow demand on the ground to dictate pace. Based on the decision-making timeframes we're seeing, I expect our starts to be more heavily weighted to the second half of 2024. Within this environment, we're seeing two promising trends. The first thing, the decline in industrial starts. Starts have fallen six consecutive quarters, with first quarter 2024 being over 70% lower than third quarter 2022 when the decline began. Assuming reasonably steady demand, the markets will tighten later in 2024, allowing us to continue pushing rents and create development opportunities. The second trend is the rise in investment opportunities with developers who've completed significant site prep work prior to closing and need capital to move forward. This allows us to take years off our traditional development timeline and materially reduce site development legal risk. Brent will now speak to several topics, including assumptions within our 2024 guidance. My belief is that when or if interest rates begin to fall and or global turmoil settles, then confidence and stability within the business community will rise.
spk02: Good morning. Our first quarter results reflect the terrific execution of our team, the solid overall performance of our portfolio, and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance range at $1.98 per share compared to $1.82 for the same quarter last year, an increase of 8.8% excluded involuntary conversion gains. As a reminder, we typically incur about a third of our annual G&A expense in the first quarter, primarily due to the accelerated expense of newly granted equity-based compensation for retirement-eligible employees which totaled approximately $1.7 million during the quarter. From a capital perspective, we continued to access the equity market. During the quarter, we settled shares for gross proceeds of $50 million, and after quarter end, we settled an additional $25 million, all at an average price of $183 per share. We have an additional $52 million in commitments still outstanding at an average share price of $180. Debt maturities are minimal this year, with $50 million in August and $120 million in mid-December. Although capital markets are fluid, our balance sheet remains flexible and strong with increasingly healthy financial metrics. Our debt-to-total market capitalization was 16.3%, unadjusted debt-to-EBITDA ratio decreased to four times, and interest and fixed charge coverage increased to 10.4 times. Looking forward, we estimate FFO guidance for the second quarter to be in the range of $1.99 to $2.07 per share and $8.17 to $8.37 for the year, which is unchanged from our prior guidance. Those midpoints represent increases of 7.4% compared to the prior periods, excluding insurance-related gains on involuntary conversion claims. The range midpoints for cash, same-store growth, and occupancy remain unchanged from prior guidance. We increased our reserves for uncollectible rent by $500,000 to $2.5 million, or 0.39% of revenue. This is the result of our uptick in bad debt in the first quarter that was driven primarily by three tenants in varying industries. Overall, our collections remain healthy. We also increased our G&A guidance by $900,000 to $20.8 million. Much of the increase relates to less capitalized development costs as a result of lowering our projected development starts for the year. In closing, we were pleased with our first quarter results, especially considering the economic uncertainty and prolonged higher interest rate environment. And as we have in both good and uncertain times in the past, we will rely on our financial strength the experience of our team, and the quality and location of our Shadow Bay portfolio to lead us into the future.
spk17: Now Marshall will make final comments. Thanks, Brent. In closing, I'm proud of our first quarter results and the value our team is creating. Internally, we continue to grow earnings while strengthening the balance sheet. Externally, the capital markets and the overall environment remain clouded, which has led to continued decline and starts. In the meantime, we're working to maintain high occupancies while pushing rents. And in spite of the uncertainty, I like our positioning as our portfolio is benefiting from several long-term positive secular trends, such as population migration, nearshoring 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 buildings and markets is improving each quarter. Our balance sheet is stronger than ever. And we're expanding our diversity in both our tenant base as well as our geography.
spk11: We would now like to open up the call for questions. Thank you.
spk10: Ladies and gentlemen, we will now begin the question and answer session. Should you need a quick... Should you ask a question, please press star followed by number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by number two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment for your first question. Your first question comes from the line of Jeff Spector from Bank of America. Please go ahead.
spk05: Thank you. Marshall, in your opening remarks, you talked about the resiliency in the sector. Clearly, the market, there's some angst here, right, on that comment, or on the resiliency, I should say. So I guess I wanted to focus my question a bit more on that and the comments around, you know, leasing decisions taking a bit longer. economic uncertainty because consumption remains strong, e-commerce has been rising. Is it simply because of the Fed and rates? Is it, you know, tenants took too much space? Like, could you just talk about this a little bit more?
spk18: Okay, sure. Hey, good morning, Jeff.
spk17: I'm happy to add my color and on the resiliency, yes, I We see it and believe it's there. And maybe if I take a look back, a look at today and kind of a look ahead. So we've had this great run the last handful of years, all of us as well as our industrial peers. And then I think we've had kind of this historic run right now. You touched on it. I view it as a combination of interest rates. And earlier in the year, everyone thought they were about to drop. in March, and then it was June, and now it's a maybe December. That keeps getting pushed out, along with just a lot of troubling global unrest. And I think my kind of analysis, I think short-term decisions, more like retail and things like that, the consumer's holding up well. And if you went through our portfolio, what's been interesting for a couple of quarters now. We have prospects and have conversations on our vacant spaces. I think people are really taking a wait and see. They're maybe waiting for a little more business confidence. So we've seen supply coming down and there's just a lot of people on the sidelines. We put it in our slide deck. If people have a chance to go to the investor relations on our website, it's Slide 14, where renewals have really picked up in our sector. So I think there's a lot of people taking a wait and see. So right now, I'm glad we're still 98% leased. We're pushing rents, supplies dropped. What we need is that kind of third leg of the stool as a pickup in business confidence. And then I think you'll see we'll have probably a several-year, if not several quarter, several-year growth spurt. again, where I see that resiliency, as you mentioned, e-commerce isn't slowing down, on-shoring, near-shoring, people and companies moving to the Carolinas, Florida, Texas, Arizona, all of our markets. So it's been a great few years. Longer term, I'm still really excited about where we fit kind of our part of the playground. And I think right now people are are pushing off. If you can put off a 40,000, 50,000 foot expansion, which is an awful lot of our development leasing, about a third of it is existing tenants, I think people are saying let's wait a quarter or two and maybe get a little more settled environment.
spk05: Okay, thank you. And then if I could ask a follow-up, you also commented that you think the markets will tighten later in 2024. Anything more to elaborate on that? Any specific timing, fourth quarter, third quarter, more into 25?
spk18: I'm hopeful.
spk17: Look, we've had six quarters and counting of a lack, you know, drops and starts. And our product type, thankfully, Shallow Bay has had significantly less deliveries and availability as a result of availabilities than kind of the bigger box. So I think as people gain this confidence, I'm kind of with our tenants and our prospects. I keep thinking in 90 days, we just need a little bit of economic good news. And so that's why I think when people do, if I use a retail analogy, do come back to the store, there won't be much inventory on the shelves. And for our product type, it'll go away pretty quickly. And that'll pick up another leg of pushing rents and then really development that I think So much of our development competition is local regional developers, and they don't have the balance sheet and the teams. And as we have the land and the permits, we'll be able to come out of the gate on development a lot earlier than our private peers.
spk11: Thank you. Sure, you're welcome. Thank you.
spk10: As a reminder, ladies and gentlemen, please limit yourself to one question. Your next question comes from the line of Eric Borden from BMO Capital Markets. Your line is now open.
spk04: Hey, good morning, everyone. I just want to talk a little bit about the acquisition opportunities as they appear to be increasing. I was hoping you could speak to the cap rate expectations for the remainder of the year and how they compare to your development yields in the current pipeline. Thank you.
spk18: Sure. Good question.
spk17: And really, maybe noticing maybe as far back a year ago that our development leasing, although we are signing development leases, so I don't want to discount that. We signed a good half dozen more, you know, kind of our projects made movement during the quarter. It's just not moving as rapidly as it was at the peak. But then we noticed acquisitions. We've always been in the market for acquisitions. We were just getting more yeses. So to date, if I roll the Raleigh acquisition that we mentioned in, what excites me is we'll have bought seven projects for about $200, a little under $280 million, and those buildings are just over a year old on kind of a weighted average. So everything we've been buying is new, and it raises the growth profile going forward of our company, and we've added a dime more. on a kind of matching the quarter, the equity raised versus the going in gap yield that adds a dime to our earnings. So we've viewed this as a nice way to maybe be nimble when the development's slowing, but the acquisition window opens up. Let's pivot that way. This year, so we were able to pick up a fair amount kind of third and fourth quarter last year. This year has been a little more competitive out of the gate. We're still seeing cap rates. If it's a portfolio, it's really low cap rates, like sub five and things like that. And it doesn't even have to be a large portfolio, but kind of four or five buildings where people can put some dollars out. That's still very competitive. What we've bought has been more one-off and someone needing to close quickly. That's our pitch has been, we have, so especially with Brent and the team implementing a Ford ATM, We have the funds raised and we can close in roughly about a month. And that wasn't a differentiating factor in the past. But suddenly in the last year, having capital and being able to close quickly has allowed us to kind of move forward. I think, you know, it's disappointing on the development leasing front that interest rates look like they're going to be higher for longer. But I do think it will keep the acquisition going. especially second half of the year, we were able to be more competitive. I think people get their capital allocation at the beginning of the year. It's been a little more competitive first quarter, although I'm glad we got the Raleigh opportunity. And I'm optimistic on the acquisitions front that we'll still be able to go find basically new development type properties and gap yields that are maybe, I think our average has been in the six and a quarter to six and a half so in our development yields they've come in above pro forma have been at around seven so the team's done a nice job of sourcing some really good opportunities at and that delta between development versing a brand new hundred percent lease building where the rents may be slightly below market we view as a really attractive risk return and i think that window will slam shut when interest rates start to move. So I think it's a moment in time, and we'll be back to being developers again. But we'll keep trying to buy, but I think it's really what the market's open, and I thought it would be shut by now, but I think it will have another couple of quarters of hopefully finding those opportunities, assuming the capital's available to us as well in the market.
spk11: Thank you very much. You're welcome.
spk10: Your next question comes from the line of Craig Mailman from Citi. Your line is now open.
spk03: Good morning. Marshall, I just want to go back to your commentary, clearly that things are taking longer. With that in mind, though, from a leasing perspective, you guys had a big first quarter for new leasing volume. Could you talk a little bit about kind of the cadence of that and what the pipeline looks like into 2Q so far, you know, relative to the volume you had in 1Q?
spk18: Yeah, thanks.
spk17: And again, I'm happy kind of, good morning, Craig. We actually signed more leases in first quarter this year than we did last year by a few hundred thousand. So that was good news. And it's really flat or roughly flat with fourth quarter of 23. So we've got good leasing volume. And if it's helpful, I got an email from one of our guys in the field and his description was tire kickers abound. So we've got activity and we've got, in some cases, leases out. And even one of our team members said, I used to get excited when we sent leases out, and I still do, but I'm not waiting at the mailbox. People want space. I think the dollar commitment has gotten so big, that's what has people hesitating a little more. And there's not a fear of, if I don't take this, it won't be available tomorrow. So I feel good. And I think it will be kind of like the acquisition window. I'm hopeful it turns pretty quickly. And if it does, we'll see it and we'll move our development starts back up. But for the time being, look, it's a cyclical long-term business. So we said, all right, let's be a little more thoughtful. We're always thoughtful, but maybe a little more thoughtful on how we, when do we want to be delivering these buildings? We've said, look, I'd rather wait a quarter or two to deliver the buildings than be a quarter or two early and wait. So the prospects are out there. It's getting them to pull the trigger. But it's not that there's, you know, during the GFC, by comparison, I remember someone making the comment, I'd offer more free rent, but I don't have anyone to offer it to. There literally weren't prospects. Now, we've got people, we've got leases out in conversations. It's really getting them out of the red zone and leases signed. So that makes me feel a lot better than hey, there's just no tours and we're holding a broker open house and no one's showing up and things like that. And thankfully, again, I think we've got two of the three legs of our stool. We're 98% lease. There's no supply. So the inventory is going to be really low when things do turn here. And we just need a little bit of momentum on the demand side. And I think that'll either be Kind of the global environment feeling a little more secure and or at least thinking interest rates are finally going to come back down. And look, I guess as a flip side, you raise interest rates as fast as we did as a country in 2022. And now you're moving into mid 2024. It starts to weigh on our tenants. It's got to.
spk03: And apologies if you answered this already, but the quarter, it looked like maybe Orlando and L.A. were. partly contributes to that. Is this sort of a one-off kind of hit for retention, or is there something going on, any other known move-outs this year to contend with?
spk17: You broke up just for a moment, Craig, but I think on our L.A. moves, thankfully this year we do have two tenants moving around. The good news there, knock on wood, we're close, and one hasn't moved. So we've got really kind of two spaces in L.A. It's a Definitely one of our choppier markets. And as everyone's been talking about, L.A. has been messy. But thankfully, if we can get two leases signed, we'll backfill both of those spaces. So it's really, the market's not great, but thankfully it's a little under, we'll call it 6% of our NOI. And if we can land these two that we feel as reasonably confident as you can get before the signed lease comes back, Then that puts L.A. to bed for the balance of 2024. And hopefully the market has, which we think it will longer term, will heal and normalize a little bit before we, absent a bankruptcy, before we have to deal with anything else in L.A. So we lost two tenants, but I think we're going to backfill and one fairly quickly because one tenant hasn't even moved out yet. And we've got a good solid prospect that we're closer to a deal, knock on wood, closer to a deal with.
spk03: Okay, and then just if I could sneak one more in. Guidance assumes a pretty good ramp up through kind of the back half of the year. How much of that is kind of already baked given deliveries on the development side and commencement timing on leases versus kind of speculative activity that you need to hit to get to that guidance?
spk02: Yeah, Craig, I'll jump in. I would say, you know, three quarters to go, so it's hard to say it's all baked. But I will say it's not overly dependent, for example, for development starts. We have that pretty heavily weighted to the back half of the year and even further, really more heavily weighted to fourth quarter. So if that was to go back, say, if market were to be slow and we were to roll development starts back even more, it would have a little less of an impact than we did earlier in the year just because, again, we've got that weighted toward the back end. you know, we've only got about seven, I think seven and a half percent rollover remaining for this year. So we've already put to bed over half of our role for this year. So, you know, there's obviously three quarters ago, there's moving parts, but it's not overly dependent, I would say on, you know, a lot of external factors in terms of a lot of acquisitions or, you know, banking on getting a lot of development starts in the second quarter or anything like that. And, our occupancy, although we're budgeting it to slowly go down through the year, there's no particular lease or large lease or two that you could say is really going to move those numbers one way or the other. So as Marshall said, if demand hangs in there, we feel like that we basically had a good quarter, maintained our guide, and feel optimistic about what we've got out there as it relates to, again, not being dependent on any one or two big factors to occur.
spk11: Great. Thanks, Brad. Yep.
spk10: Your next question comes from the line of Billy Kroll from Raymond James. Your line is now open.
spk19: Thanks. Good morning, guys. Two-parter on lease economics, if I could. You cited the wait-and-see attitude by the tenants, and I'm wondering how much of that is is maybe encouraged by the tenant reps who are maybe seeing some weakness in rent growth and they're thinking the economics might get a little bit better as time goes by. And the second part of that is, have we now seen a peak in annual rent bump rate? We kind of got up to that four, four and a half percent. Is that starting to come down a little bit?
spk17: Hey, good morning, Bill. You know, I don't, I think it's kind of plateaued maybe. And again, maybe it's, I'm a, Self-professed glass is half full. I think we ran up to four. I think we're taking a breather. I've said it's like we're in a construction zone. You're still heading in the right direction. You just got off the freeway. You're in a construction zone. And I'm really optimistic when the economy turns, given where supply and how many private guys that had gotten into the development business have kind of been weeded out or on the sidelines will have to start again. I think there's going to be a pretty big space squeeze. So we've not seen so much as, I don't think the tenant rep brokers, my perception isn't saying wait and see. I think it's the tenants themselves. And again, especially, look, I've always said our development leasing is less risky than our peers because it's so much dependent on our existing tenants. I think people are pushing expansions off until they have to make a decision right now. and that's what we're seeing, and we are still seeing those, but I think it's kind of a wait and see, and let's push off the 50,000-foot expansion another quarter or two, but we're seeing the economics of the leases hold in there pretty firm, other than maybe some free rent here or there, and I'll probably say L.A. is a choppier market given availability there, and we really aren't seeing a whole lot of The things you would see during a downturn, we're not seeing a lot of sublease. We've seen typically some smaller ones, and our lease term fees are really historically low this year. The other thing you see in a downturn is people wanting to buy out of their lease. So I think we're still moving forward. Look, our earnings are projected to grow about 7.5% this year. We beat our internal guidance in first quarter, and even... slowing down development starts and raising bad debt, I'm happy we were able to maintain in spite of kind of getting, you know, taking maybe a little more conservative approach towards the balance of the year. And look, I hope we're wrong. And people will say we're conservative historically, and I hope we're proving them right that things get better. And I like that we've got the tenant activity. I think it's If you're not worried about the global economy right now, I appreciate that our tenants are a little more thoughtful about it.
spk19: If I could just... And thank you for that. If I could just follow up. The increase to the tenant or the bad debt reserves, it's pretty minor. But what's going on with the watch list? Are you starting to grow increasingly concerned? And is that... specific to any industry types?
spk02: No, Bill, this is Brent. Yeah, it was a little bit of a frustrating quarter in that 50% of our total bad debt for the quarter was driven by one tenant, a home decor sort of high-end group out of Southern California that wound up, a bit surprisingly, wound up filing for bankruptcy. And so their cash balance wasn't even that high. But when you have a tenant you deem uncollectible, they had a almost a $300,000 straight line balance. So that was the bigger hit. So that was 50% of the quarter total amongst one tenant. And then we had a logistics company and a jewelry slash beauty supply, a retailer type company. You add those two to the other one for those three, and that was 83%. So it just, you know, coincidentally, I think, but all three of those were in California, but we've only got 10 tenants. that have a reserve balance that still occupy their space in total out of over 1,600. So that really hasn't changed much. Our collections remain strong. So the uptick for the year was really driven more by those occurrences first quarter. And just in our internal projections, we really didn't increase our second, third, and fourth quarter. budgeted amounts that we had in our initial guide. So the overall up for the year really is just driven by that, mainly driven by that one particular tenant. But there's nothing there that's jumping out to us, giving us pause or concern, you know, other than just sort of, you know, being in a capital environment with 1,600 tenants, there's going to be, you know, somebody with something going on.
spk11: Understood. Thanks for the time. Thank you. Thank you.
spk10: Your next question comes from the line of Mike Buehler of JP Morgan. Your line is now open.
spk16: Yeah, hi. I was wondering, what's the game plan now that you've entered Raleigh? Do you anticipate growth over the next few years coming primarily from acquisitions or building a development pipeline? Good morning, Mike. Good question.
spk17: I would say we're... We're excited about going to Raleigh. And if you think maybe two-part answer, you saw us this quarter. We sold all but one, and we'll get the last one out the door of our Jackson assets, kind of 40-year-old buildings. And they were all well leased and have performed well over time, but they don't have the growth profile that we view a Raleigh or Nashville that we entered a couple of quarters ago as well. And kind of as we try to always be pruning our portfolio and kind of moving our capital into better position for growth, we had one suburban office building left in L.A. that was a long sales process, but we were able to get that closed. Again, it was a 40-year-old but fully leased office building in suburban L.A. We sold some land that we picked up and a portfolio acquisition. So moving all that capital, I view it as you're kind of consistently trying to move the median of your portfolio up each quarter. And I think that's a slow process, but we're doing it. And then the way we typically talk is just, or think about it, is where are the market opportunities of late? Sometimes they find you. We felt like the acquisition market suddenly opened up and we were getting more yeses than we were historically. So we've said, let's buy things that are accretive, that are you know, they've all been just over a year old. So they're very, you know, high functionality, the right part of town near the consumer. We're excited. Raleigh and Nashville both fit that state capital, large university presence, technology presence. The topography makes it difficult to build there. So hopefully we'll keep, we want to grow in both markets. And if the market presents that, usually we go in with an acquisition or two as a lower risk way to learn a market, to kind of learn the rents. And this is probably our, I'm trying to guess, the number fifth or sixth building we've bid on in Raleigh and Nashville and not one. So even losing your offers is a good way to kind of learn the submarkets and get to know the brokerage community. So if we can find the right land sites in both markets, and I'll be in Nashville this week, actually, too, we'll we'll turn over a lot of stones and be patient, but we'd like to grow in both markets. Their markets we're in that we'd be under-allocated in a little bit like you saw us last year in Las Vegas where we were able to acquire some assets. We're still light probably in our allocation to Las Vegas, but we like that market a lot and we were able to grow and move to self-management and do some other things. So that's hopefully the same plan that you'll see play out for Raleigh and Nashville's kind of two rapidly growing markets with a lot of promising dynamics. And if we can pull capital, whether it's from accretive uses of equity that we raise or selling really from the bottom end of our portfolio, which continues to get better, but there's always something that's the bottom end of the portfolio. So I hope that's helpful. Sorry for the long-winded response.
spk11: No, great answer. Thank you. You're welcome.
spk10: Your next question comes from the line of Todd Thomas of KeyBank. Your line is now open.
spk12: Hi, thanks. Marshall, I just wanted to circle back to the company's capital deployment initiatives, I guess acquisitions specifically, which I think I heard you comment that pricing is you're seeing is in sort of the low to mid 6% range in terms of the cash cap rate that you think you can achieve. Does anything change for the company here as you look at your current cost of capital, just given the pullback in your stock and in industrial REIT shares, you know, in the last few months? And then, you know, have you or would you change your return hurdles at all for new acquisitions? Is that being contemplated?
spk17: Yeah, I mean, we could probably wouldn't change the return hurdles. I mean, I think if you did that, you probably, you know, if it were you and I, I'd say we're really, you're trading, you're trading down in quality. So we'll try to maintain that long-term growth and look, if the market allowed us, we'll, we'll grab it, but we don't want to lower the quality. We don't, you know, our stock price today isn't very useful in terms of issuing equity or going to find acquisitions, but it's, But we've said it's also very, it's been very volatile. So debts available and equity are available. They're just not at great opportunities. And look, we'll have internal growth. And look, if the capital markets weren't available, I'm glad we have internal growth. And where we do get that window, that's where we've tried to be more thoughtful about before we had, you know, a luxury of an ATM for a long time. And then Brent and the team layered in a forward ATM late last year, and we've even, you know, just all the different alternatives. We've talked about, you know, we haven't done an overnight offering or a block trade in forever, but it's kind of like looking at new markets. I think we should always be aware of it, and we certainly saw where one of our peers did a convertible debt offering. So you just want to know what's on the menu and what kind of matches up. We need the uses. first and just kind of see where everything shakes out in the market and know it's been a pretty volatile market all along the way. Look, we've maintained our guidance in spite of that we'll have 100 million less in starts this year than we had last year. And that's a hit to our development fees that we earn each year. But we think that's the right long-term decision. And I'm glad we're maintaining our guidance in spite of you know, a perch going bankrupt in San Diego and some things like that, that we can kind of weather through that. And we'll just see where the windows are. And if we need to sit on our hands on acquisitions for a little bit, we will, although, and we did that last fall. We pulled away from a handful rather than, I don't want to worry people, we won't run up the line of credit buying assets and just assume we can issue debt later. That's not an attractive option either.
spk12: Okay. And then if I could just follow up, Marshall, I think you mentioned that the accretion from acquisitions was about a dime. I don't know if that was sort of rough back of the envelope math, but can you clarify which acquisitions that comment corresponded to specifically? And Brent, can you discuss or clarify what amount of accretion is embedded in the guidance from this year's acquisition and equity issuance that's assumed?
spk17: I'll take the first part, and Brent, I did the calculation, so it probably is back of the envelope, but what I was looking back the way we did it was I guess the first acquisition we made really probably right at a year ago was Craig Corporate Center in Las Vegas. So if you're kind of starting with that one, which is really when it felt like we saw the acquisition and window opening up, and then we bought about another six buildings. We haven't closed on Raleigh yet, but are reasonably close on it. Those total a little under 280 million. And then our math was to take the gap yield, since that's what we'll report, and compare it to the cost basically our equity cost assigned that quarter when we had closing to match it. So if you take that delta between the gap yields we earned less, the equity investment that we raised at that near-term cost, it adds over our latest share count. So that's probably understating it a little bit since our share count has grown over the year. And this is a lot of math to walk you through on the phone, but it adds up. a dime to recurring FFO, ignoring any rent bumps and releasing and things like that. And the average age is just a little over one year on those buildings. So I think what we've been, our strategy has been, look, the development window is there, but it's not going blazing the way it was for a few years where we were really trying to keep up with demand, but the acquisition window is open. So let's go with that. And in terms of accretion, I guess, Brent, I would say that dime is on a full year run rate. And two of those buildings, Spanish Ridge that we bought in Las Vegas, we bought in first quarter. And Raleigh, we haven't closed yet. So those are adding the two of those up. That's a little over $100 million of the $280 million we won't have on a full year run rate, if that helps, Todd.
spk12: Yeah, that does. Okay, so it's last year's, all of last year's, you know, acquisitions plus Spanish Ridge plus what's under contract. Okay, got it.
spk17: Yeah, and it's really, it felt like to me, maybe I should have said it earlier. It was kind of going back where we first noticed of, okay, wait a minute, something's changed in the market. when we say we have the ability to close in about a month, you know, 30 days to 40 days, we're getting yeses from buyers and our batting average in terms of acquisition offers, not that we haven't lost out on a bunch, especially on the portfolio side or the bigger dollars, our batting average got a lot better. And we said, okay, this is a new market. We weren't able to buy new buildings in kind of the mid to high fives cash and and maybe the low to mid sixes on a gap basis, those would all have been four yields or below, you know, back in 21, early 22.
spk02: Yeah, and just to finish the thought up there, Todd, I agree with what Marshall said. In terms of budget, obviously all that prior acquisitions and the budget of these couple acquisitions are dialed into our guidance, and the only thing out of our $160 million in acquisition guidance, there's only $50 million of that that's not earmarked. So we've baked in $25 million in the third quarter and $25 million in the fourth quarter, just kind of as acquisition placeholders, if you will. So again, not overly dependent on that. So if we can do better than that, that's beyond Raleigh and the other acquisitions. So We've got a little bit dialed into the back end of the year, but not a lot. So if we were able to hit some opportunities early in the year, that would be, you know, accretive to the way we've got it underwritten.
spk11: Okay. That's helpful. Thank you. Yep.
spk10: Your next question comes from the line of Aditi Bawachandran of RBC. Your line is now open.
spk01: Hi, thank you. Just a question regarding the tenants. So I guess what exactly are they doing to compensate for delaying decisions on needed space, as you've talked about? And I guess are they just running higher capacity through existing properties?
spk18: Yeah, I think it's more as they gain business.
spk17: I think they're trying to, you know, they're making do. They may be crammed in their space, but they're making it work. for as long as they can, but for a little bit longer at least, rather than saying, you know, and it's usually the way it goes is in a lot of the conversations, you know, the local warehouse manager or people like that are ready. They're saying they need more space, but corporate's putting it on hold for a bit. So I think they make do as best they can and have that pent up demand for space. and it's really probably get stuck at corporate saying, you know, we're going to wait a little bit longer. So that's really the trend, and they've been out touring space, have, you know, some have leases in hand, some we're working towards letters of intent. It is just sometimes you have prospects that want to get in, you know, the first day of the next month, and sometimes it drags out a 90 days. So that's a little bit where it is, and I think a lot of them are just putting their expansion plans on hold until they feel a little better that we really need this space long-term, and it's not a short-term need that we need this space, and that we're going to lose some business because the economy is going to deteriorate on the back end. So I think that's where it's, they need a, and I'm making assumptions a little more sturdy footing on the economy than where people probably feel right now, and I think they were feeling it until the March interest rate cut went away and then it sounds like the June interest rates cut went away and things like that.
spk11: Understood. Thanks. You're welcome.
spk10: Your next question comes from the line of Jason Belcher of Wells Fargo. Your line is now open.
spk15: Good morning. Marshall, you mentioned nearshoring and onshoring briefly in your prepared remarks. Just wondering if you could give us an update on what you're seeing there, and maybe if you could touch on any leasing activity that you've seen within your portfolio that's been driven by onshoring or nearshoring.
spk17: Good morning, and good question. We still see strength. Arizona, we're 100% leased there. Tucson, El Paso, it's been the best market. We've been there probably 25 years. I'm looking at Brent used to have El Paso for us. And probably the last three years have been the best three years of those 25 years. And really even California where we've seen some struggles, you know, as people talk about, I've mentioned LA and others and the Bay Area, you've had some negative absorption there as well. But San Diego, has been stronger, at least for us, than L.A. or San Francisco. And the majority of our product in San Diego and where we're seeing the most strength is really that Otay Mesa area, which is really right along the border. So I think those continue to be strong. I read a stat the other day that over the last five years, and I think these are long-term decisions, is the percentage of our imports Mexico and into Central America are up 130 basis points, while China is down 250 basis points. And then as I was kind of thinking about that, that's from 2019 to 2023. My amateur analysis would be post-COVID that that's when people really got pushed to come up with a China plus one manufacturing plan. And so I think it's a long-term thing. trend that we're seeing play out. You certainly see a lot of the chip plants and things like that that we've funded. So much manufacturing's gone to Dallas and Phoenix where we won't get those manufacturers, but we'll pick up the suppliers to that. So we feel good long-term about that we're going to, that kind of San Diego through Arizona to El Paso have been really strong markets for us in continue to be. We looked at an acquisition recently even in Tucson and were shocked at how aggressive the cap rate. We thought we had a good opportunity and it lasted, I don't think it's probably has not closed yet, but it quickly surpassed the pricing we thought we'd see in a market like Tucson.
spk11: That's helpful. Thanks very much for the update. Sure, you're welcome.
spk10: Thank you. Your next question comes from the line of Ronald Condem of Morgan Stanley. Your line is now open.
spk09: Hey, just a quick one on the guidance on the same store and why. I saw you reiterate it, but if you think about sort of the 7.7% in one queue, there's a decent amount, 230 basis points of decel. I guess asking the demand question another way is that are you guys sort of feeling conservatism? Is it sort of the demand slowdown, just a little bit more color? on sort of the rest of the year on that same storefront?
spk02: Yeah, we show, Ronald, we basically show, you know, just based on our lease-by-lease assumptions, and we roll it all up, but we basically show our same store portfolio, you know, basically kind of just meandering down some through the mid part of the year before kind of picking back up before the end of the year. Again, it's, you know, that's just budgeted assumptions. Obviously, we would hope to, you know, outperform that, but When you look year over year, you know, we're projecting, at least we're budgeting, about a 120 point or so decline in same store occupancy. We obviously are projecting to a solid same store end result, but that lower occupancy, you know, is just offsetting some of the, you know, prolific rent increases that we've enjoyed. And even first quarter, we were up 58%, so still seeing the strength there. But it's just, you know, the guys, you know, when the guys in the field, they're you know, they're subconsciously or consciously, you know, influenced with this sort of what they see relative to the, the tenor and the pace at which they're leasing. And so that can ebb and flow a little bit, but we hope that it proves conservative, but that's basically, you know, just have we, as we have it dialed up and again, I'd repeat, it's not really being driven by one or two known large move outs that could sway it a lot one way or the other. It's more granular than that. So, uh, Yeah, we'll take a quarter of the time. Marcia, we're still seeing activity, and so we'd like to think we could beat those, but we're pleased with showing, you think about it, showing 120 or 130 basis point projected or budgeted decline potentially in same-store occupancy, yet still showing that good of the same-store strength, which, again, I think speaks to the portfolio and the rental rate strength that we continue to enjoy.
spk11: Just beyond the leasing activity,
spk09: Last year, you did over 8 million square feet, you know, 40% cash spread, starting the year with 2 million and 40%. Just what sort of baked into for the rest of the year in terms of, you know, volume and spreads? You could speak high level if that's easier.
spk17: You know, I'm pleased that – good morning – that first quarter this year, actually, I think we were a million six or a little north of that a year ago and up to 2 million. Yeah. I think we'll be similar this year, and I'm really not seeing a slowdown in rents. I mean, maybe Mark has a two-part answer. I think market rent growth has slowed. I think it's going to pick back up again pretty quickly. But I don't – I think our releasing spreads have hung in there. Look, we've been fortunate to have six consecutive quarters where our gap rent growth has been north of 50%, which I never – I wouldn't have told you five years ago or however many years ago that was possible. So feel pretty good about the leasing volume, and we're making progress on development leasing. We're about two-thirds leased or roughly are moving towards that on what we're delivering this year in our development pipeline and have those prospects. So I think leasing will be similar. It's probably vacancies are sticking around, as Brent talked about on the occupancy, maybe a month or two longer than than they were at the peak. But that said, last year was our record for occupancy. So part of our same store challenge this year was, it was great setting the record last year. It's not so much fun competing against the record, the balance of this year. But I think we'll have certainly a solid year of leasing. It's just off of record pace a little bit. But the best news maybe of that is when you look at the construction starts numbers, and things like that, and that in our product type, the shallow bay, there's always historically less availability in it, and that will continue to be the trend. So I think it will tighten when it turns fairly quickly.
spk11: Thanks so much. Sure, you're welcome.
spk10: Your next question comes from the line of Jessica Zeng of Green Street. Your line is now open.
spk13: Good morning. Could you please touch on the stop leasing trends in your portfolio? Are you seeing any elevated levels there?
spk18: Okay. Now, Jessica, good morning.
spk17: No, really not. I mean, it's been mainly some small spaces here or there. And in most cases, maybe another way to watch for it, the prospect would usually rather have a direct lease. So it kind of watch our term fees, which are low. So we're not seeing a lot of subleases. We did have, we've got one that I would say is a little bit larger that picked up in Charlotte, but the tenant just did a five-year renewal and their rents are pretty, I say just, their rents are pretty far below market and we'll participate in the profits if they do sublet that. So in pending the lease, we either participate or capture those rents and the Prospect would always rather have a direct lease, so in a lot of cases, especially if there's any improvement allowances. So it feels certainly manageable to not out of any kind of historic norm right now within our portfolio. We've seen it, but we've got it. It's mainly smaller spaces absent one that I can think of, and thankfully that one rents are pretty materially below market.
spk11: Great. Thank you. You're welcome. You're welcome.
spk10: Your next question comes from the line of Samir Cano of Evercore Canada. Your line is now open.
spk08: Sorry, it's Evercore ISI. So, hey, Marshall, just on this, when I look at your renewal page in the supplement, the average retention rate came down quite a bit. It was like mid-55%. And, you know, look back, 70% 1Q of last year, sort of in the 90% and 4Q. maybe just provide a bit of color. Is that just a function of kind of what we've been talking about, tenants not committing? And how do you think that retention rate sort of plays out for the year?
spk17: No, it's interesting. Good morning. And yeah, good. I'm glad you asked. And that a few of your peers mentioned retention and, and that was one, you know, at least in the near term, I viewed it as good news. And here's, here's my logic is that if, If you're building a model on East Group or probably any of our peers, I'd say 70% to 75% retention is kind of historic run rate, a normal run rate. Last year, for the year, we were 79%. And that, to me, kind of is people are sitting tight. The last time we saw retention rates as high as we had was really during COVID. So I'm encouraged... You know, look, I wouldn't want to run for the year at 56%. There'd be more expensive TI and leasing commissions and things like that. But the fact that we could get 2 million, kind of we did more leasing volume than we did a year ago in first quarter materially. And that retention rate mean to me meant maybe the market might be loosening up a little bit or maybe at least initially in the year people felt better. thinking there was going to be a March rate cut or at least a June, some things like that, that things feel like they've gotten a little bit worse at the back end of the quarter than initially. So, you know, we'll look at our retention rate over a trailing four quarters to kind of get a more measured response. And that's still on the high end of our range. It's probably come down to about 75 or 76%, which is still historically high, but when it was at its lowest was during 2021, things like that, when the market was really booming. So again, I kind of hope that it doesn't stay at 80% that people start. Some of that is people moving into new spaces within our parks and things like that. So I'm pleased with the quarter and we'll see how the next one shakes out. But a really high retention rate is another way of saying people aren't making leasing decisions. Again, if you get a chance and you want to look on our website within i think it's a slide 14 roughly you'll see that renewals this is a cbr cbre chart have run historically high that they typically are in the mid 20s as a percentage of the leasing and they've last four quarters they've been in the mid 30s which again is kind of another kind of signal to us that people are taking a wait and see so i was I was happy with the 56%. I don't want to do it long term, but a little bit of tenant movement is probably what we needed.
spk08: And then if I can just ask one more. This is more of a modeling question, but when I look at your expenses, the property operating expenses in the quarter, they were up sequentially and year over year. I guess how should we think about that sort of for the balance of the year? Thanks.
spk02: Yeah, just a reminder, we're predominantly pretty much everything gets passed through. So we have seen real estate taxes and insurance go up. So that certainly drives expenses up. But correspondingly with that, we're getting that reimbursed from tenants. At a 97%, 98% occupancy, you're getting that percentage back. There was one chart in the supplemental that I think shows the expenses rising 14 to 15%, but the income rising less than that, say seven or 8%. But a reminder that income line is rent and CAM. So a very small percent of that line item is obviously base rents not impacted by CAM reimbursements, the CAM portion is. So if we had that income line broken out into two pieces, you would see the CAM reimbursement percentage increase matching up with the expense increase. But, yeah, for modeling purposes, it would have the minimum impact just because if you want to say expenses are going to increase 8% or 16%, you know, if you're showing a 97% or so occupancy, then you're getting whatever percent that you say there, you're getting that back via CAM reimbursement.
spk11: Okay. Thank you. Sure.
spk10: Your next question comes from the line of Ki Bin Kim of Truist. Your line is now open.
spk07: Thanks. Just sticking with that last question, typically the expense reimbursements don't come back in the same exact quarter. Should we expect a bigger reimbursement rate sometime down the line this year?
spk02: No, we accrue and match that and adjust on the books to keep that. Whether you're collecting or not, we accrue it pretty evenly. So I think you'll see that be very consistent through the year, and it has been. It tracks, again, if you break CAM and reimbursable expenses with reimbursable income up, it matches very closely. And Again, true up and billings that you're in and that type thing, just being on an accrual basis, ideally you're keeping that in tandem as you go through the year so that you don't have those big swings. So to that, I would say no. The expense on property level is really not going to have any impact on the bottom line other than the very small percent you don't collect due to vacancy.
spk07: Okay, and On your balance sheet, it's in great shape in a very enviable position at three times leverage. That provides a significant dry capital. Typically, we haven't known East Group to be very active in large-scale M&A, but just curious about your overall views on your balance sheet, your dry capital, and how over time we should see that change. whether that be through acquisitions or development or M&A?
spk18: Good morning, Keeban.
spk17: You know, look, we've had, the way we view it is we've probably driven leverage down lower than our target. For a while there, you know, kind of 2017, 18, 19, as we stepped up development, we wanted a little bit stronger balance sheet and the equity markets were there. Last year, we saw our implied cap rate on our equity and attractive long-term uses of it. So, and the debt markets have been expensive. So we've leaned into equity while it was there and we'll probably continue to do so. And, you know, but pretty flexible just pending, again, kind of which window opens. I do like the fact a little bit longer term or, you know, kind of near term when the interest rates do come down, given the strength Brent and the team have put behind our balance sheet, I think we'll be able to add a fair amount of leverage at hopefully attractive rates at that point in time without needing to go to the equity market. So the fact that we've been able to lean into equity, I think it'll flip to the other side, but we'll be patient on that. And And I don't know, in terms of M&A and things like that, it's harder even on the portfolios. I know we bought the Bay Area portfolio a few years ago, and we look at those things, and again, we'll be patient. There's always a good portion of what you look at that you like, and then there's another portion that always feels like that we feel like would slow down our growth. So maybe we're being too selective, but we'll be patient and I'm glad we were able to grow the company as rapidly as we have been without, you know, we try to give our shareholders a solid and certainly attractive industrial rate of return with a whole lot less risk, I believe, through a handful of ways compared to some of our peers. So that would ideally be our goal unless we saw something that was really attractive and we needed to move on it. But that's, as you kind of in your question, that's usually not been the case.
spk07: Thanks for that. And Brent, just out of curiosity, you guys did a Ford, well, you raised equity through a Ford offering. How much more expensive is it to do a Ford versus just an ATM? And why a Ford if you could just raise equity now and earn, I would assume, a higher accretive return on your money market account or something like that versus doing a Ford?
spk02: Yeah, you know, I guess two parts. It's really not that much more expensive. It's very attractive from that standpoint. We only pay about a point. Now, the forward, the final pricing varies a little bit just based on how long you take it down and dividends paid and interest expense and so forth. But the actual cost of issuing is only about a point the regular way or visa v. forward. The thing we like about forward, and you've got a good point in this environment, if we had money outstanding on the revolver, which variable rate, say it's somewhere in the low to mid-sixes right now, we wouldn't do forward. We'd do the regular way and immediately pay it down. We've not gone so far as to, you know, issue and take down a bunch of cash and hold it in a money market and make, you're right, maybe a very small return there, but you know, ultimately we don't feel like we're raising the capital to make that, you know, to make that spread just on the money market. But, you know, the advantage of the forward is it can be sitting out there and then you don't have the share count counting against you until you take the capital down. And to your point, it's not that punitive, or you could even argue slightly accretive to do it the other way. But, you know, in this environment, I don't think one way versus the other that there's not a big difference. And we've, toward the end of the quarter like to just kind of stockpiling it in shares versus just cash. But you certainly could go either way. And we'll, again, we'll be flexible with that really more based on what's outstanding on the revolver versus necessarily stockpiling it on the cash side.
spk11: Okay, thank you. Sure.
spk10: Your next question comes from the line of Nick Tillman of Baird. Your line is now open.
spk06: Hey, good morning. Maybe starting a little bit with Brent here on just kind of the bad guy. You guys touched on the three tenants in particular, but was just curious if those tenants were on the watch list prior.
spk02: That's a fair question. I know that a couple of them were. I'm not sure. If the perch was, again, they only had under $100,000 cash outstanding. So I can follow up with you offline on that specifically, but I don't think they were. It just was more of a sudden. If a tenant keeps up with the rent and unbeknownst to us suddenly files bankruptcy, which does happen occasionally, you really got no clarity or lens or idea that that's coming necessarily. And it was a bit that way with them. It was a bit more abrupt and not so much just the, you know, over time, they've always been a problem and catch up and go back and catch up. So it was a little more, you know, happened a little more suddenly with that with them. But again, overall, the watch list is very healthy and not growing at any unusual pace.
spk06: That's helpful. And then maybe Marshall, just you kind of touched a little bit about the demand surge in 21 and 22 and kind of occupancy levels today being above historical averages. As we kind of get this more normalized demand, do you see like longer term occupancies within a portfolio getting back to like that pre-pandemic level of say 95, 96% so that it slowly will come down over time and maybe normalize around that level? Is that kind of what you guys are thinking longer term?
spk17: You know, it's a good question that we've debated it and that, you know, some of our longer tenured board members would always say 95% is as full as you can get in our type product, that there's always just some frictional vacancy from tenants moving around. But we've been thankfully north of 95% for over a decade now and counting. So to me, it kind of says at some point, the market's just changed. And the last 22 and 23 were record years at averaging 98% occupancy. So I don't know that we'll average that high, but it, it feels like, you know, 97 is the new 95 that I think we'll stay that certainly for the near term, given, I think it's going to take a while with demand. Demand's going to move more quickly than supply can address it. And that's where I think it'll be, you know, a lot of fun there for a little while. That's the optimist in me. So I think we may, we may not stay at 98, but we won't go back to 95. And then I think there's going to be a, a squeeze until all the private developers can kind of raise capital, get sites tied up, get permits in hand, and start moving again. And we have a number of those in hand already and should be able to move more quickly than our private peers.
spk02: And then just a quick follow-up to your watch list. Two of the three tenants that I mentioned that drove 83%, two were on the watch list coming into the year and one was not. So one happened within the quarter. And like I say, really not... uncommon either way.
spk11: Thanks for the follow-up, Brent. Appreciate it. Yep. Your next question comes from the line of Vikram Malhotra of Mizuho. Your line is now open. Once again, Vikram, your line is now open. Hi, can you hear me?
spk14: Yes, we have you, Vikram. So just your first question, you talked about dollar commitments for tenants becoming just very large. And I'm wondering if you can just elaborate upon that, but also just talk about what your prediction for market rent growth is in your main markets.
spk17: Good morning. Yeah, I guess the way we've had one of the tenant rep brokers describe it was You know, real estate decisions used to be a real estate, again, we've had this great run in rents and even tenant sizes as they use their spaces have grown. Our average tenant size is still in the mid-30s, but that's been up and we've got certainly multi-tenant buildings where a single tenant has come along and taken it. So it's moved from a real estate manager decision to a CFO decision. I thought a good way one of our brokers described it And I think market rent growth is probably absent. You know, the L.A. and Bay Area is still more inflationary probably this year. We'll be, you know, call it three to four percent market rent growth, maybe a little bit better in the shallow bay space because there's so much less availability of it. So we've been saying if market rent growth is maybe call it three and a half percent, for example, where maybe a 100, 125 basis points north of that.
spk14: Got it. Just on your comment on acquisition, if this pause or just moderation is a little bit extended, let's say into 25, you talked about relative to your cost of capital, you're seeing deals in the initial five stabilizing, maybe six is correct me if I'm wrong, but what's the risk premium you'd need to see if you have a more protracted normalization or a pause in demand?
spk17: What we've acquired, and I'm trying to answer your question, it's been what we've bought have been, all of them have been one-off buildings. So that's where we're seeing the opportunity rather than in a portfolio. And it's been kind of mid to upper fives, but a going in gap yield. So not stabilizing the, but gap yields in the low, kind of six and a quarter-ish kind of range. And we'll look at that, and then we'll look at what the mark-to-market is. And there have been such new buildings that there's not a lot of embedded growth, but in most of them, there's still embedded rent growth. So what we've liked is we're buying new buildings. We take the construction and the leasing risk away and getting attractive yields. And they're buildings we really like for the long term. So if you kind of said, what's some of our checklist, that's it. And those have been higher yields compared to closer to development yields than they've historically been. A couple of years ago, we would say we were developing to a seven in market cap rates from more three and a half to three and 375. So that's when it really, okay, if that's what the world wants, we're better off being a developer than an acquirer. And right now, it feels like all of a sudden, on one-off unusual situations, you know, a failed marketing process, someone had tied up a building and couldn't close. It was an over-leveraged owner-user. I say over-leveraged owner-user. Those have been the kind of things where we've stepped in and bought or a pension fund that needed liquidity. And what we were told, they couldn't sell their office buildings, so they needed a to close that quarter on a new industrial building. So those have been the type of opportunities we've found and I don't know how many are out there but we'll keep turning over stones and I think interest rates staying higher means we'll probably keep leaning in on that opportunity and then it'll move away from us and probably in a fairly short order as soon as people can get cheaper debt and work back to a levered IRR that works for them.
spk14: Got it.
spk11: Just one quick one more, if I may. Amazon's known to be... ... ... ... ... ... ... Vikram, I apologize. We lost you on that. I heard Amazon and 3PL, but we lost... I don't know if you're there.
spk17: We lost you on that.
spk14: Can you hear me okay now?
spk18: Yes.
spk14: Yeah, I was just wondering, Amazon's known to be taking, you know, larger boxes, million square footers this first quarter in multiple markets. I'm wondering if, you know, Amazon specifically or just, you know, 3PL, can you just comment on that demand percolating down to the smaller box, shallow bay markets that you're in?
spk17: Yeah, no, it's good to see Amazon back in the market. And you're right, what we've read about in Phoenix and in, Inland Empire taking a number of big boxes and 3PLs. And look, I think those are kind of the large boxes to move goods across the country. What we like, we like being as near the consumer as we can, almost like a retail location without the visibility. And I like the long-term trend. I think Amazon will build out around those big boxes and they're our largest customer. But anything that speeds up the way it's been described from when you hit click or when you hang up the phone to get that service person, that delivery, that order, that's where the world's going. So you'll need the big boxes to move things, whether it's from Mexico or Asia throughout the country, and then really you're going to need that last mile delivery within Dallas, Phoenix, Atlanta, Orlando, because the traffic's so bad. So I usually think the big boxes kind of or the early innings, and then they'll build out their network almost like a hub and spoke. But that's where we'll really pick up. And most of them have to some degree, but I still think there's a lot of runway on building out quicker and quicker delivery for people and probably rationalizing brick and mortar store count and moving to more, depending what the item is, quick delivery. And we've seen it in the bulky items, and I hope that their SKU count will continue to evolve into more and more distribution or business distribution space and a little bit out of brick and mortar too.
spk11: Thank you. You're welcome. We don't have any questions at this time. Presenters, please continue.
spk17: Thank you. Thanks everyone for your time and for your interest in East Group. If we didn't get to your question, Brent and I are certainly available post or if there's any other color you want. And we'll see you. There's a couple of conferences coming up. We hope to see you at those as well. Thanks. Thank you.
spk10: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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