EastGroup Properties, Inc. (NYSE:EGP) Q2 2024 Earnings Conference Call July 24, 2024 11:00 AM ET
Company Participants
Marshall Loeb – President and Chief Executive Officer
Keena Frazier – Director-Leasing Statistics
Brent Wood – Chief Financial Officer
Conference Call Participants
Jeff Spector – Bank of America
Craig Mailman – Citi
Alexander Goldfarb – Piper Sandler
John Kim – BMO Capital Markets
Todd Thomas – KeyBanc Capital Markets
Rich Anderson – Wedbush
Michael Carroll – RBC
Nick Thillman – Baird
Mike Mueller – JPMorgan
Brendan Lynch – Barclays
Samir Khanal – Evercore ISI
Vince Tibone – Green Street
Blaine Heck – Wells Fargo
Operator
Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Second 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. Instructions will be provided at that time for you to queue up for a question. [Operator Instructions]
I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.
Marshall Loeb
Good morning, and thanks for calling in for our second quarter 2024 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call, and since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
Keena Frazier
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 is made.
We undertake no duty to update such statements or remark whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more detail about these risks.
Marshall Loeb
Thanks, Keena. Good morning. I'll start by thanking our team for another strong quarter. The team continues performing at a high level in finding opportunities in an evolving market. Our second quarter results demonstrate the quality of the portfolio we've built and the continued resiliency of the industrial market. Some of the results produced includes funds from operations rising 8.5%, excluding voluntary conversions. For over a decade, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term trend.
Quarter end leasing was 97.4% with occupancy at 97.1%. Average quarterly occupancy was 97%, which although historically strong, is down from second quarter 2023. Quarterly re-leasing spreads were solid at 60% GAAP and 42% cash. Year-to-date results were similar at 59% and 41%, GAAP and cash, respectively, and cash same-store NOI rose 5.3% for the quarter and 6.5% year-to-date. Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 7.8% of rents, down 50 basis points from second quarter 2023.
We view our geographic and revenue diversity as strategic path to stabilize future earnings regardless of the economic environment. In summary, we're pleased with our performance year-to-date, and I'm optimistic about the combination of an improving economy with a lack of new supply. We're focused on value creation via raising rents, acquisitions and development. This allowed us to end the quarter over 97% leased and continue pushing rents throughout our portfolio. On the acquisition front, we're excited to enter the Raleigh market with 147 Exchange.
Raleigh is similar to a number of markets we're attracted to offering economic stability and growth due to the mix of 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.
We're continuing to patiently find one-off acquisition opportunities in the market. As we've stated before, our development starts are pulled by market demand within our parks. Based on our read through, we're maintaining our 2024 starts forecast of $260 million. We had some strong leasing wins during the quarter and have solid prospect interest. On the other side, decision-making is still deliberate and prospects are focusing later in the construction process.
In terms of starts, we ultimately follow demand on the ground to dictate pace. Based on the decision-making time frames we're seeing, our starts are more heavily weighted to the last part of 2024. In this environment, we're seeing two promising trends. The first thing, the decline in industrial starts. Starts have been materially below 2022 peak levels for seven consecutive quarters, with the past four falling below 50 million square feet. Assuming reasonably steady demand, the market should tighten in 2025, allowing us to continue pushing rents and create development opportunities.
Brent will now speak to several topics, including assumptions within our updated 2024 guidance, which I'm happy to say contains several improved metrics. My belief is when interest rates ultimately begin to fall and election passes and/or global turmoil settles and confidence and stability within the business community will rise. As that demand improves, our goal is to capitalize earlier than our private peers on development opportunities based on the combination of our team's experience, our balance sheet strength, existing tenant base and the land and permits we have in hand.
Brent Wood
Good morning. Our second quarter results reflect the terrific execution of our team, the solid overall performance of our portfolio and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance range at $2.05 per share compared to $1.89 for the same quarter last year, an increase of 8.5%, excluding involuntary conversion gains.
From a capital perspective, we continue to access the equity market. During the quarter, we directly issued common shares for gross proceeds of $50 million, settled forward shares agreements for gross proceeds of $77 million, and we have an additional $100 million in forward agreements available for funding when needed. Collectively, the shares in these transactions were initiated at an average price – at an average share price of $172.25. Debt maturities are minimal this year with $50 million in August and $120 million in mid-December.
In June, we renewed our $675 million unsecured credit facilities extending the maturity from July 2025 to July 2028. There were no other material changes to the agreements. Although capital markets are fluid, our balance sheet remains flexible and strong with increasingly healthy financial metrics. Our unadjusted debt-to-EBITDA ratio decreased to 3.8x and our interest and fixed charge coverage increased to 11.3x, both representing all-time best for the company.
Looking forward, we forecast FFO guidance for the third quarter to be in the range of $2.06 to $2.12 per share and $8.28 to $8.38 for the year, a $0.06 per share increase from our prior guidance. Those midpoints represent increases of 7.2% and 7.7% compared to the prior periods, respectively, excluding insurance-related gains on involuntary conversion claims. We raised the midpoints for cash same-store growth and occupancy from our prior guidance. We increased the estimated capital proceeds raised for the year by $100 million as a direct result of more property acquisition opportunities. We currently anticipate raising that capital via our ATM program.
In closing, we were pleased with our second quarter results and are well positioned entering the latter half of the year. As we have in both good and uncertain times in the past, we will rely on our financial strength, the experience of our team and the quality and location of our multi-tenant portfolio to lead us into the future.
Now Marshall will make final comments.
Marshall Loeb
Thanks, Brent. In closing, I'm proud of our quarterly and year-to-date results and the value our team is creating. Internally, we continue to grow earnings while strengthening the balance sheet. Externally, the capital markets and the overall environment remain unsteady, which has led to the continued low levels of construction starts. In the meantime, we're working main 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, near-shoring and onshoring trends, evolving logistics chains and historically lower shallow bay market vacancies.
We also have a proven management team with a long-term public track record, our portfolio quality in terms of 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.
We'd now like to open up the call for your questions.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from Jeff Spector from Bank of America. Please ask your question.
Jeff Spector
Good morning. I guess if I could focus my question on the acquisition market, which seems to have opened up, I guess, what has changed since 1Q? And again, how are you – it sounds like you believe with whether it’s past the election or again, maybe after the first cut that things will open further? Thank you.
Marshall Loeb
Hey Jeff, good morning. It’s Marshall. Good question. It’s probably a little more micro than that, at least in our case. It felt like first quarter acquisitions were getting pretty competitive. We’ve heard people wanted to bring things to market and seeing it a little bit before the election. And I would still describe it that a portfolio and a portfolio of being three or four buildings. When you get the dollar number up there, it gets awfully competitive.
And cap rates, we’ve seen it even as recently as in the last week or so dropped into the 4s. What pushed our guidance raise more this quarter were more specific than kind of one-off deals are similar to what you’ve seen us buy newer buildings, existing markets where we’re working our way through due diligence and happy to share as much as we can as soon as we can on those. But just we were able to secure a couple of bids and similar, we’re newer buildings, I think at least one had been under contract, falling out of contracts because of financing, and we represented a more certain path to closing.
So a couple of times, we were able to find pricing that we liked on acquisitions and that drove the guidance raise. We’re still out pitching on some other buildings. So maybe we can increase it later in the year [indiscernible] see. And again, I hope we close these two. We’ll see how due diligence and everything shakes out, but we felt like they were more probable at not, given where we are in due diligence and raised our guidance as a follow-up to that.
Jeff Spector
Great. Thank you.
Marshall Loeb
Sure. You’re welcome.
Operator
Thank you. Your next question is from Craig Mailman from Citi. Please ask your question.
Craig Mailman
Hey, good morning. Marshall, I just wanted to go back to your comment that demand for your shallow bay product is good, smaller tenants were a little bit more robust. And you’re continuing to push rents throughout the portfolio. Could you just give a sense of kind of how much you’re able to still push when there’s concerns about kind of flattening market rent growth or even declining market rents in some markets?
And just also, I think you guys are running slightly ahead of your average occupancy guidance. Is there anything in the back half of the quarter that you know about that brings you down? Or is that just kind of a placeholder based on an uncertain environment?
Marshall Loeb
Good morning, Craig, and thanks. I’ll try to touch all those points and Brent, catch me for the ones I miss. What I would say is, I guess, a little bit of both. We have the embedded growth in our portfolio. And you’ve seen us – I’m having been an industrial, I pleasantly surprised how many quarters in a row, our GAAP re-leasing spreads have been north of 50%.
We’re probably six, seven quarters in a row. We still have that embedded growth. You’re right, the market rents have slowed certainly kind of – they spiked post-COVID. They’ve slowed to where we’re maybe – I saw a national report and it was showing 7% to 8%. That feels a little high to me, and they did admit those were asking rents, not effective rents, so maybe more mid-single digits.
So that’s our embedded growth rate has slowed a little bit, although I think we’re – construction has been for going on two years now. We could have a pretty sharp turn hopefully next year, given the lag and supply catching up. And then in terms of occupancy, you’re right, we’ve trended ahead of where our budget has been really about every month. This year, things feel like they’ve been slowly improving kind of those green shoots kind of month-to-month this year, still have within our budget kind of some dips here and there, but there’s no major move-outs that are known or anything like that, that would really throw us in terms of – we just thankfully don’t have those big boxes or anything out of 60 million square feet, any one space here or there that will throw it. It’s just a little bit more, I hope, it’s conservatism by the team, but that’s kind of where our budget shook out.
And I am glad we didn’t move it by a lot, but at least it did move positively. So we’re up to 97, one for the year. And hopefully, we can do a little – we’ll see how the economy shakes out, we can do a little better than that.
Craig Mailman
And I feel like I already broke your one question rule, so I’m going to break it again. Can you – sorry. Can you guys just talk about balancing kind of the use of the forward ATM versus just going directly to the market given, I know you guys don’t want to kind of speculate on your multiple, but clearly versus where you guys did the forward versus where the stock is trading today, you left like 15% on the table, so just the thought there of pulling those two levers?
Brent Wood
Yes. I tried to tell Marshall that the whole time, Craig, that we were probably leaving that on the table. But I’ll jump in and Marshall can fill in the holes. But obviously, at that point, we – I mean we’re very pleased to have gained what we have since we went into black. We were $170 a share at June 30. So certainly, the news about potential rate cuts and all of that got more positive incrementally and quicker, more positive post quarter end.
But as a reminder, our revolver is still running 6% to 6.25% on an interest rate – variable interest rate. And we just – we’ve had some great acquisition opportunities, the team – we continue to find good opportunities to invest capital. So we were trying to de-risk that a little bit with the forward and taking some of that down.
As a reminder, just a couple of weeks after quarter close, we always know we have our dividend payment coming, which is in the mid-$60 million range. So looking staring at a low 6 interest rate versus kind of stockpiling or putting – taking some risk off the table, we were pleased to do it. You just – you make a decision at that time. And if you like it, you roll with it. Look, I hope that we issue something in the next coming days at 190 and we look back and we say, why did you do it at 190 when you could have done it at 200.
So it’s – I’ve kind of likened it like a 401(k). You would like to always invest right at the peak, but you really – over time, when you’re issuing equity like we’ve been, you’re – to some extent, you’re always looking at the dynamics of it, but you’re averaging your way into some extent. And so we’ll blend some of that in the third quarter, hopefully, if the price holds up. But you’re evaluating in the moment, and it was attractive and made sense then. And we like having the forward component. It does allow us to take some risk off the table.
Certain things could go in another way, and then maybe you’re looking at – you were down 15%, and you’re glad you have it. So a lot of that goes into the equation. But as we always do, you do it in bite-size pieces. And so we’re not making – we didn’t make any big bets or anything else. It’s a pretty normal course of business in terms of just getting capital together.
Craig Mailman
Perfect. Thank you.
Brent Wood
Yes.
Marshall Loeb
You’re welcome.
Operator
Your next question is from Alexander Goldfarb from Piper Sandler. Please ask your question.
Alexander Goldfarb
Hey, good morning. And I will stick to the one question rule. So if we look at the sort of softness in tenants that you guys spoke about 6 months to 12 months ago and then now nothing’s really changed in the economy. Jobs are still pretty good. The economy is humming along. Interest rates, everyone expected generically year-end, that’s still the case. So it’s not like we suddenly have lower interest rates. It’s not like the election has gotten more certain, and it’s not like the global macro has improved.
So in your view, what caused tenants to sort of slowdown late last year, earlier this year versus now picking back up, given when you look at what’s going on, nothing has really changed? I mean, obviously, it’s good to hear you’re seeing increased demand and potential for improvement in the back half of this year. But from a tenant perspective, there doesn’t really seem to be anything different. So can you just sort of parse through that?
Marshall Loeb
Yes. Good morning, Alex. I’ll try, and again, it’s more theory. What I would say is maybe if you went back a year ago, we really felt like development leasing. It was probably the second half, third quarter and the end of the year, it felt like leasing decisions were noticeably slowing. And I wouldn’t say – and kind of end of this year, as I mentioned earlier, it’s improving, it’s not gotten dramatically better, but it’s better and heading in the right direction.
So it’s not dramatically better. And then maybe a year ago, I think people were still – I don’t hear as much about a hot landing. Everybody seems to think it’s a soft landing and interest rates even – maybe every quarter an interest rate cut gets kicked down the road, eventually, we’ll get their people seem to think it’s always 90 days away. I just don’t know 90 days from when.
And I think at some point, people have put off their expansion plans and you just kind of get used to the new norm. And so maybe they were waiting for the other shoe to drop late last year, and now we’re rolling into August next week and people are starting to go, all right, we’re operating in this environment, we’re kind of used to political chaos and used to interest rates being about to drop sometime in the next few months and people are just starting to feel like, okay, we need to – our sales are still there, we need to make decisions, and we need to expand our space and make a decision and that’s what we’re seeing.
And now I also think the other thing that helps us, as I mentioned earlier, we’re going on two years now of lower supply. I mean a lot has delivered certainly to the market. But on the back end, the construction pipelines are at today in our market is probably 70% to 80% of what they held at the peak.
So there’s just no inventory coming, and it will take a while for that inventory to get there. I don’t know that hit tenants yet, but that will be a reality as the supply gets taken off the shelves, there’s not going to be much restocking the shelves for a while. Operator?
Operator
Yes. Thank you. Your next question is from John Kim from BMO Capital Markets. Please ask your question.
John Kim
Thank you. I realized UPS is not a top 10 tenant of yours. That might be in your portfolio overall, I wanted to ask about that. But specifically, to the extent that you paid attention to the results yesterday, I’m not really asking you to comment on their results, but I was wondering if you had thought that it could be reflective of maybe some other tenants of yours as far as struggling with profitability, high labor cost. And if this is in any – if this is of any concern with you as far as leasing demand?
Marshall Loeb
Sure. I mean, we watched it and you wish – again, that's why I say the economy is doing better. Certainly not an expert or any real insight on UPS versus the – we read what's public like everybody else. I would say, I think it's been a tough environment with labor and I'll say, insurance cost for businesses, utility cost, everything, I felt – I've said I felt for our tenants at times with rents up, labor cost up, utility cost up, it's hard to get inflation in line. It does feel like the economy is improving. And look, that's why, as we kind of mentioned in our prepared remarks, I'm glad our top 10 are under 8% because it – I like that diversity because even large companies have issues during times when interest rates have been high for this long and debts are rolling to higher levels and things like that.
So we like the tenant diversity, and it does feel like things are getting better. Although our bad debts run ahead of where we thought it would be year-to-date or what we budget, we still got – we keep bumping our reserve, but we're – our watch list and things like that. It will feel better when the economy is on a little firmer footing. So yes, I hate that for them, and I'm appreciative of the geographic and the tenant diversity we've got.
John Kim
Is UPS a major tenant of yours or…
Brent Wood
They are not a major tenant. I don't know exactly what percentage they are. I don't even think they're top 20, which would put them less than 0.4% of our revenue. It's not a name that our team has really brought up. But they've been a tenant in the past. And again, they're not a major tenant side of our 1,300 or 1,400 tenants. We likely have a space or two with them, but they're not on any large scale.
Marshall Loeb
Yes. We have FedEx, but not as much UPS.
John Kim
Got it. Appreciate it. Thank you.
Operator
Thank you. Your next question is from Todd Thomas from KeyBanc Capital Markets. Please ask your question.
Todd Thomas
Yes, hi. Good morning. I just wanted to go back to investments and capital raising activity where there has been a lot of uncertainty and volatility in the capital markets. And you talked a little bit about the issuance in the quarter, both on the regular ATM and the forward just relative to where the stock is trading today at almost $190. How much does that drive your thought process on capital deployment? And does this provide you with a window to be more aggressive and afford you an ability to maybe change your underwriting thresholds a little bit on new acquisitions and also maybe new starts later in the year and into 2025 ?
Marshall Loeb
Hey, Todd. Good morning, it's Marshall. Good question. And for right or wrong, I've always tried to decouple those a little bit. Certainly, as we're bidding, we don't – if it were the other way around, we don't want to run up our line of credit and not have that capital. So we will kind of, as Brent mentioned, as we got towards the end of the quarter, we knew we were running into a blackout. And we were – a couple of acquisitions that I mentioned earlier that we were awarded, a couple of more things that we were pursuing and still pursuing some with a $50 million mortgage maturing in August.
It felt like, okay, we know we've got uses, and our equity cost was right kind of in the ZIP code of NAV, which is around $170 a share, at least last $170, $171 consensus. So that felt like a green light today. We certainly like it a lot better at $190. But I like keeping a discipline on our acquisitions. And really, you don't want to buy something. You regret later just because your equity cost was low at the moment. We really – it bubbles up from the field. So the guys that are responsible for operating it, we purposely have never had a Chief Investment Officer so that really what buy and Brent and I were both in the regionals at one point, you kind of need to live with.
So we like that discipline that let's only buy, things we really like long-term and that are going to create NAV for us long-term. And on starts, we've always said, too, again, driven by the field as fast as your last building lease stop, we'll go to the next one as long as the world is not shutting down for COVID or some unusual circumstances and things like that. So we'll typically follow the field. And as leasing goes on development leasing, we'll go as fast, and we know the way to solve a Phase 3 issue isn't to start Phase 4 or anything like that. So it's – I like our model for our simplicity.
Todd Thomas
Okay, thank you.
Marshall Loeb
Sure. You're welcome.
Operator
Thank you. Your next question is from Rich Anderson from Wedbush. Please ask your question.
Rich Anderson
Thank you. Good morning. I guess, apparently, the mailman always rings twice. I'll stick to one question myself. So on the same-store guidance, just up a hair 10 basis points. And I'm curious about that. Are your systems so sophisticated that it spit it out a 10% – or 10 basis point increase from last quarter? And if so, impressive, kudos. But – or is the – is it really more of an art than science, meaning you wanted to sort of set in the signal that things are getting better, you don't really necessarily see an increase in your same-store growth profile, but you also felt like it would send the right signal to just nudge it up a little. I'm just curious how you came to a 10% very subtle increase to your same-store outlook? Thanks.
Brent Wood
Rich, thanks. It's – we really would say, it's more – we rely really more just straight mathematical, meaning it just from the field, obviously, at this point, you've got six months of actual, then you plug in the assumptions of the other, and it bubbles up from the other six months, you combine it. It did happen to result in that 10 basis points. But to your point, it really fits with our narrative and that we are seeing that continual steady, slight better improvement. We've done better.
First quarter, we beat our midpoint of same-store guidance by 50 basis points from what we had originally projected. This quarter, we were pleased to beat by 40 basis points. We pretty much have been maintaining the back end of the year as we go pretty steady without a lot of movement. So where you've seen that midpoint move has been more picking up what we actually accomplished to the positive versus building it in. So we're hopeful that we can continue to pick that up. If the market allows and the guys execute that we can pick up additional growth through the back end of the year.
I would just point out that our last six months, we're projecting a little lower occupancy than, say, a year ago, but we were running the bar that we're comparing against for the last six months of last year was 98.1%, and we're projecting the back half of this year falling somewhere around 97%. So it's just a high bar.
So we've been able to do better than we've been projecting and pick up some of those little bits to the positive. But it really – when you look at our guidance table, pretty much, we say, here are the ingredients that produces our midpoint of guidance. And from there, you can toggle either way. But we do like that our occupancy is up slightly, the same store is up. And I think that fits with what we're feeling as far as our momentum as well.
Rich Anderson
Okay, fair enough. Thanks very much.
Brent Wood
Thanks, Rich.
Operator
Thank you. Your next question is from Michael Carroll from RBC. Please ask your question.
Michael Carroll
Hi, thanks. I just wanted to touch on your development start guidance. I know, Marshall, you highlighted earlier in the call that you think that your starts will be more back-end weighted this year. I guess, what's – what are you really waiting for on those? I mean, do you need to see leasing activity within your current portfolio to break ground on those projects? And if that doesn't occur as when you expect, is there a chance that some of these starts kind of get pushed out a quarter or so into 2025?
Marshall Loeb
Good morning, Mike. Yes, a little both. And that – typically, I would say it's when – the last phase gets pretty well leased, we'll start the next. I mean, that's kind of our bread and butter. Given the amount of supply that really kind of hit the market in 2023, there's a few spots like Austin, like Phoenix, for example, and even Greenville, South Carolina, where we're already getting closer, ready to start that next building. It's really waiting for some of our competition to fill up and kind of create that entry point and where they stand.
So we do look at that, but we probably look at it a little more of late given the amount of supply. So there's – and then in terms of our $260 million in starts, I would say kind of traditionally, if you ask our field, that number is $100 million more than we're telling the Street, and I love their optimism over that. It stresses Brent out of how do we fund that at the beginning of each year. And then there's usually a little bit of give and take of, all right, what is it and when does it start? And then sometimes it can get delayed.
It seems like getting permits and approval takes longer and longer in each of the cities we're in. So sometimes, it's usually not that they go away. It just can make one slip from one quarter to the next and things like that. So we feel pretty good about our $260 million in starts. The field is higher than that, and that's usually been the case. And we'll go as fast as our leasing goes or as fast as kind of the – I won't say the market, but maybe the submarket leasing is and which area of Austin or which area of Phoenix and what type of supply and that. Thankfully, it's usually been big box supply that doesn't affect us and we can sneak another phase in here and there.
Operator
Thank you. Your next question is from Nick Thillman from Baird. Please ask your question.
Nick Thillman
Hey, good morning, guys. Maybe touching a little bit on leasing activity and lease economics. Relative to your peers, a little bit stronger here in 2Q. I guess any noteworthy trends are you seeing in your markets? Or just like from tenant behavior over the last 90 days, you seem a little bit more positive on that front? And then, Brent, maybe just on development lease-up assumptions for the second half of the year, what timing you're baked in for executive lease-up in the second half? That would be helpful. Thank you.
Marshall Loeb
Okay. I'll take the first half – good morning, Nick, the first half and it does feel like, again, things – we got some nice wins within development leasing and then even within some of our portfolio leasing that it still feels like people are taking their time in terms of development, leasing. One of the guys recently – I think there's so many options – at the frenzy, we were signing leases while you're still fairly early under construction and their comment to me was now you really need to have the building about finished and painted that the tenant rep brokers don't have to take the risk that the space gets delayed today that they needed to take maybe in 2022. So they're waiting and only looking at finished buildings and things like that. So the economics are still pretty positive.
Positive rent growth, I would say the one really markets that are an anomaly for us, if you reading through the brokerage reports, any market to the east of California, you would see positive absorption every – certainly, every year, most every quarter going back years, and it’s just a matter of how much did supply get out ahead of absorption that then supply shut off, so the markets working its way to equilibrium.
The markets really that have been historically, some of our best markets would be L.A. and San Francisco and to materially lesser extent, San Diego, but they’ve actually had negative absorption for the last five to six quarters. So that’s – we’re waiting for that to stabilize. Those are the markets where rents had a great run-up, but are certainly coming back now. And there, unlike our other markets and that they do have negative net absorption where every other market has positive net absorption. It’s just a matter of how much supply is hitting and clearing the market in any given quarter there. Brent?
Brent Wood
Yes, just following-up on the development lease-up assumptions, we have – we’ve seen our lease-up period kind of get really tight, but then widen back out to more traditional 12-month lease-up time. Frankly, we’ve been pretty conservative with our leasing assumptions in the development portfolio. We have very little, and I can send you exact number. We have very little in terms of speculative NOI baked into the back half of the year in terms of contribution to the numbers. So anything there could be incrementally positive in terms of – as you get to this point in the year, the time you sign leases, get the build-out done for the tenants and get them occupying, there’s not a lot of time left for them to contribute.
So there’s not a lot baked in very little in terms of FFO impact for the back half of the year for the existing leases. I would say that’s what we budgeted, not our goal. We tend to be, again, a little bit conservative with the – one thing that can slip in your budget more than anything is if you get really aggressive with the lease-up and the development, it starts going away from you, it gets hard to catch back up out in front of that. So history has told us to take a pretty conservative approach.
Even when you sign leases, as Marshall said earlier, wind up maybe takes 30 or 60 days longer to get the build-out and get the tenant in. So there’s not much of anything in terms of contribution baked into the back half of the year in terms of the actual NOI impact.
Nick Thillman
Helpful. Thanks everybody.
Marshall Loeb
You’re welcome.
Operator
Thank you. Your next question is from Mike Mueller from JPMorgan. Please ask your question.
Mike Mueller
Yes. Hi. All of your completed developments that were in lease-up as of June 30 were in Florida or Texas. But if you look at what’s under construction, the mix also includes it looks like Georgia, North Carolina and Colorado. I guess as you’re thinking out to what you could start in 2025, do you think the starts could be more geographically diverse? Or do you think they’ll be more concentrated like what you’ve recently completed?
Marshall Loeb
Good morning. I think we certainly have a lot – we like Texas and Florida. And the good news about those, they’re such big states in such diverse economies. When you kind of run from Orlando, Tampa are so different – Jacksonville and Miami and then Texas, Dallas, Houston, Austin, San Antonio, El Paso is so different. So we’ll remain active and kind of monitor our portfolio allocation to those markets. But next year and really maybe even late this year, but probably next year, Greenville, South Carolina. We’re in development in Colorado. We’re timing in Phoenix. We’ve got a really good land site in Mesa near the airport down there. That will break ground probably late this year or first quarter next year. So I think we’ll – we like the geographic mix long-term.
And then, really, I’ll tie it into maybe the acquisition question earlier, kind of our goal is to ultimately own well-located, shallow bay, multi-tenant industrial buildings, and sometimes the market seems to open the window better for acquisitions than development. And we’ll really toggle back and forth or even value-add between where the risk return looks attractive.
I think next year, if interest rates do come down and the economy picks up, I’ve been waiting for the acquisition window to slam shut and it probably will and we’ll be back to being a developer again and cap rates will fall a good bit. But we’ll – we should have a good kind of geographic mix, and we’ll go where we can find land sites that make sense within our markets. We’d like to develop in Nashville and Raleigh, a couple of new markets for us. So we’re looking at sites and those as well.
Mike Mueller
Got it. Okay. Thank you.
Marshall Loeb
Sure. Thanks, Mike.
Operator
Thank you. Your next question is from Brendan Lynch from Barclays. Please ask your question.
Brendan Lynch
Great. Thanks for taking my question. You mentioned earlier in the call that there’s no investment officer. So it sounds like acquisitions and operations are managed by the same team on the ground. Maybe you could just walk through what informs that structure or the philosophy of that arrangement?
Marshall Loeb
Okay. Sure. Good question. Yes, we kind of always done it that way, and I’ve worked at REITs. And there’s pros and cons, obviously, to every structure. But the way we’ve been structured is, if you had Texas, for example, every renewal, new lease, acquisition development, you’re responsible for – so it’s really not so much an assembly line. And really, the thoughts are you’re living in Phoenix or you’re living in Dallas or Orlando, you’ll know that market better than someone from corporate can and that you really are responsible – I enjoyed it – I was in our Western region, I enjoyed it that you could find things, acquire them and see it all the way from A to Z to see it through to fruition.
And I like that. And then the only negative I’ve seen in every structure has its pros and cons. Sometimes when you have a Chief Investment Officer and an operations person, kind of usually the push and pull is the investment officer is underwriting rents that are higher than the operations person thinks they can get and things like that. So you’ll have a little bit of – you can have tension there. We kind of like, hey, it’s your area, and you can grow it as fast as you can find opportunities there.
And then you also know our dispositions of we’ll typically say if you got a call and a tenant went bankrupt, what building do you not want to have that call from, and that really starts to set our dispositions kind of batting order as well. So we’re admittedly a different model than our peers, but it’s worked well for us. And I’ll put words in Brent’s mouth, too, since we were both – Brent had, Texas, I had the Western region, I love that job where you’re kind of responsible for everything and you got to touch all the real estate that was in your area and come up with the new ideas.
Brent Wood
Yes. I would just add to that, Brendan, I think it’s a good point. And as Marshall said, it does set us apart a little bit, but we are a very vertical organization, a very team-oriented. And you basically – the old Bill Parcells "you get to eat some of the growth – you get to pick the groceries and you have to eat what you cook sort of thing as you bring it in." But obviously, the guys in the field still have an approval process, we have an internal investment committee depending on size of Board level investment committee.
So it’s, obviously, some approvals. But if Marshall has a question about what’s happening in Texas, he calls the regional head there, and he’s got one point of contact, and that guy or lady to know the answer. So I think it’s really – we’re fortunate to be a seismic organization where we can still do that, and I think it helps our culture a lot as well.
Brendan Lynch
Great. Thank you. That’s helpful color.
Marshall Loeb
You’re welcome.
Operator
Thank you. Your next question is from Samir Khanal from Evercore ISI. Please ask your question.
Samir Khanal
Hey, Marshall, good morning. Maybe you can provide some color on supply and the pace of new construction starts in some of your major markets. The reason I asked is, we saw – we were sort of calculating – we saw one broker report where the pace of starts were up in 2Q over 1Q at the national level. I’m just wondering what kind of you’re seeing in some of your Sunbelt markets. You’ve identified some of these stronger markets in Florida, Austin. Just give us an idea kind of what you’re seeing. Thanks.
Marshall Loeb
Yes. No, I think if I’m picturing the same report – good morning. I think I remember the report that you all put out and even asking one of the other brokerage peers about it. The numbers we were seeing for second quarter or maybe – and I’m doing this from memory, I’ll say we’ve got – any investors or any other listeners, I think I just made some notes, Page 13 of our investor presentation. It’s one of the brokerage firm starts. So they were up a little bit in second quarter from first quarter. But by their calculations, we’ve been – we’ve probably gone from a peak in late 2022 of about 120 million square feet nationally to now we’ve been below 50 million square feet for the last four consecutive quarters.
And if I were going to guess, I guess, probably with the emphasis on guess, I don’t think we’ll get over 50 million this quarter. The other metric in speaking with them usually build the suits and maybe that’s the lack of starts or kind of in the teens, call it, mid-teens as a percentage of starts that it had peaked up into kind of 25%. I’m trying to remember that number 25% or 28%. So there were more build-to-suit started in second quarter and that pushed the number up a little bit more. But it was probably larger build-to-suit projects driving that.
So we still see supply really low nationally. It’s typically been a big box. The two markets that we’re in that have had more supply and they’ve got the growth are Austin and Phoenix where we would say usually, it’s there’s a lot of supply in Dallas. But looking at Dallas, for example, the peak there was about 70 million – a little north of 70 million in the construction pipeline. And reading through some of the reports, it’s down about 80% to 14 million square feet. And a lot of that, given what land is available that I don’t know, Dallas specifically, but using it as an example, it’s gotten further and further out.
So it’s big boxes. And given this last run in supply, it’s getting pushed further and further out, like in Charlotte, where you just get further out into Rowan County and things like that. So we’re not – absent Phoenix and Austin, we feel good about supply and it’s clearing the markets in those. And we’re really kind of watching each submarket in those cities because the great news is there’s a lot of positive absorption and a lot of economic growth in Phoenix and Austin. So it will work its way through without much behind it. But I hope that helps. And I did notice your supply numbers were a little bit more than CBREs and that’s really the conversation we have with them of what they were seeing.
Samir Khanal
No. That helps, Marshall. Thanks for the color.
Marshall Loeb
Sure. You’re welcome.
Operator
Thank you. Your next question is from Vince Tibone from Green Street. Please ask your question.
Vince Tibone
Hi. Good morning. Are you seeing increased competition from new players for shallow bay acquisitions? We have heard about more private funds that are now targeting this strategy just given some of the strength in fundamentals. So I’m curious what you’re seeing on the ground? And also just wanted to follow up on the cap rate comment you made earlier about cap rates starting to creep back into the four. Just wanted to confirm on that comment specifically whether that’s a representative of a building at market rents or does that building with a large lease mark-to-market?
Marshall Loeb
Yes. Good morning, Vince. Yes, we are seeing more competition. I mean – and again, I think the acquisition market is probably of all the things we kind of track can move the most rapidly or the quickest. On a one-off basis, we compete fairly well, and we’ve been able to buy things where it’s either falling out of contract or something, someone needs a quick closing and we’re certain path. I mean, that’s where the forward contract and forward ATM has helped us out to have that. We can point someone and say we have this dry powder. We’re certainty of closing. We can close in probably a little over a month type thing between due diligence to closing.
Where we’ve seen more competition is if the dollar size of the investment grows, there are more funds that have been raised. I don’t think last mile kind of shallow bay is a – it’s hard to be public and have well-kept secrets. I guess we’ve kidded kind of during the runup where you have a 15-page press release and a 25-page supplement, there’s not many secrets within that, that development at seven and cap rates in the 3s works pretty well.
So there is more competition out there. And in the 4s, as we were underwriting it, those would be existing in-place NOIs in the 4s, they were little bit larger portfolios, some things. We were looking at pursuing, and I say larger. It was in a 10-building portfolio, so much as three, 4s and 5s within our markets. And kind of a variety of, I guess, as they say, WALT or weighted average lease term. So it wasn’t all rolling next year, but you had a little bit of time and that was a little bit, I guess, cold water to us or maybe we’re better off. Our opportunities are probably going to be better off – one off acquisitions that when the dollar size gets up there. It certainly seems to draw more attention and the cap rates get compressed.
Vince Tibone
Thank you. That’s really helpful color.
Marshall Loeb
You’re welcome.
Operator
Thank you. Your next question is from Ronald Kamdem from Morgan Stanley. Please ask your question.
Unidentified Analyst
Hey, good morning, guys. This is Tamim on for Ronald. Just wanted to get back to some of the comments on equity issuance and how it looks like. You guys are going to pay off some of that debt in the back half of this year with equity issuance. Just looking forward to 2025, it looks like there are some debt maturities that come up. Should we sort of take that commentary around paying off debt with equity issuance and kind of play it forward? Or how are you guys thinking about that? And then just where do you guys see leverage ticking down to if that’s continuing just to get paydown with equity here?
Brent Wood
Yes. I appreciate the question. And I would just say it’s been more just a byproduct of the environment than any goal. We haven’t necessarily said, hey, let’s get our debt-to-EBITDA to sub four into the mid 3s, which where we are and even headed lower than that. It’s just been a component of continually evaluating our most attractively priced source of capital, where we can create the most long-term value for the shareholder and that’s been equity. We are seeing interest rates back up some. Our 10-year – potential 10-year cost of money is probably receded 60 or so basis points from its peak and is headed in the right direction. I would say it still has a bit of a ways to go before we would view it as an attractive, maybe alternative or comparative alternative to equity at the moment. But we’re continually watching it.
So if you ask me to project now, I would say, yes, especially in the first half of 2025, I would think that we would be a little continue, again, hope the price all subject to the equity price hanging in there for us. But I would think that it would continue in the first half. But if rates continue to come down, the good news is, thinking glass [ph] have full long term, if our team in the field continue to find investment opportunities, if we can reaccelerate, for example, development pipeline next year, we have an immense runway ability to add debt.
Obviously, with the balance sheet, it’s incredibly flexible and low leverage – lowest leverage we’ve had in the history of the company. But that will be just predicated in where we are in the moment. So over the past two years, Marshall, Staci and I have had more daily conversations about financing and best sources than we probably had in the four years prior to that when you’re trading at a nice large premium to NAV and interest rates are in the three, you’re just a matter of just kind of running some which bucket do you want to dip into. It’s been much more cash management and daily intensive and a lot of evaluation.
But so yes, to summarize, I think it would be safe to assume into early 2025, I would expect that to probably look more toward equity. But frankly, look forward to having another good viable alternative in terms of debt, and it’s headed in the right direction. And hopefully, the economy is strong, and it’s headed there for a good reason, and then we can tap into it when it looks more attractive.
Unidentified Analyst
Great. Thank you guys.
Brent Wood
Yes.
Operator
Thank you. Your next question is from Blaine Heck from Wells Fargo. Please ask your question.
Blaine Heck
Great, thanks. Good morning guys. Just a follow-up on the leasing metrics. Spreads improved during the quarter, which was good to see, but it did look like full second quarter rent spreads came in lower than they were at your June NAREIT update when they were 49% quarter-to-date on a cash basis. Potentially indicating that leasing in the back half of the second quarter came with lower spreads. Can you just comment on whether that was kind of a mix issue? Or you think maybe we should expect to see some moderation from the peak rent spread levels that you’ve seen recently?
Marshall Loeb
Hey, good morning, Blaine. It’s Marshall. Now good catch. And a couple of thoughts on volume. I’ll touch on spreads and then volume. It was more of a mix than an indication of the market that one of the larger leases that happened kind of post hitting in the NAREIT update and into the quarter was, we have one building with one tenant left here in Jackson, Mississippi. So we got that renewal done. It was positive, but it’s probably on a GAAP basis, about half our run rate which again, that’s – and we’ll put – we are putting that property on the market. So that will take Jackson off our math. It will still be our headquarters.
But in terms of we like moving our capital to Austin and Raleigh, and Nashville, Phoenix and moving it out of Jackson. So as we kind of manage our portfolio, and that was one that given the size of that lease and just the timing of all within one quarter brought us back a little bit, but I’m glad we got that renewal done, and that will position us well to take that property in the market. And if we can close it a little bit later this year, that was our bump in dispositions guidance.
We sold a couple of assets in Jackson earlier in the year. This will be our last one. And we’ll just kind of – I think we owe it to our shareholders to kind of always be pruning our portfolio from the bottom best we can. And then on the leasing, happy to – as we were kind of looking through some of the numbers, this is more year-to-date. We’ve signed about 11% more square feet year-to-date than we did last year, although we said things had slowed down. It’s actually – maybe it feels that way, but we’ve signed about 11% more square feet year-to-date.
And then quarter-over-quarter, it was about a 14% pickup. So again, those kind of – I’ve used the phrase green shoots. It hasn’t been a U-turn, but kind of month by month slowly improving. And I think with our embedded rent and I think we can keep similar rent spreads, knock on wood. And really, the drop in May or in June was really the one large lease in Jackson, but that set us up well for a disposition here in the next few months.
Blaine Heck
Very helpful. Thanks, Marshall.
Marshall Loeb
Sure You are welcome.
Operator
Thank you. There are no further questions at this time. I will now hand the call back to Marshall Loeb for the closing remarks.
Marshall Loeb
Thanks, everyone, for your time. Thanks for your interest in EastGroup. I know we tried to keep it on time, and I apologize for allowing you to one question. That said, Brent and I are certainly available for your second, third, fourth and eighth question following the call. So just give us a call, drop us an e-mail. And again, I appreciate everybody’s time this morning.
Brent Wood
Thank you.
Operator
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.