EastGroup Properties Q3 2025 Earnings Call - Resilient Portfolio Navigates Slower Development Leasing and Optimistic Leasing Pipeline

Conference Operator: Good morning, ladies and gentlemen, and welcome to EastGroup Properties Third Quarter twenty twenty five Earnings Conference Call and Webcast. At this time, note that all participant lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Also note that this call is being recorded on Friday, 10/24/2025. I would now like to turn the conference over to Marshall Loeb, CEO.

Please go ahead, sir.

Marshall Loeb, CEO, EastGroup Properties: Good morning, and thanks for calling in for our third quarter twenty twenty five 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 you listen to the following disclaimer.

Casey, Legal/Compliance, EastGroup Properties: Please note that our conference call today will contain financial measures such as PNOI and FFO that are non GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and 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 Harbor under the Securities Act of 1933, the Securities Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward looking statements in the earnings press release, along with our remarks, are made as of today and reflect our current views on the company’s plans, intentions, expectations, strategies and prospects based on the financial information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise.

Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10 ks for more detail about these risks.

Marshall Loeb, CEO, EastGroup Properties: Thanks, Casey. Good morning, and I’d like to start by thanking our team. They’ve worked hard this year, and we’re making solid progress towards our 25 goals. I’m proud of our results. Our third quarter results demonstrate our portfolio quality and resiliency within the industrial market.

Some of the results produced include funds from operation at $2.27 per share, up 6.6% for the quarter over prior year. And now for over a decade, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long term trend. Quarter end leasing was 96.7% with occupancy at 95.9%. Average quarterly occupancy was 95.7%, which although historically strong is down 100 basis points from third quarter twenty four. Quarterly releasing spreads were 36% GAAP and 22% cash for leases signed during the quarter.

Year to date results were slightly higher at 4227% GAAP and cash, respectively. Cash same store rose 6.9% for the quarter and 6.2% year to date. Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to 6.9% of rents, down 60 basis points from last year. We target geographic and tenant diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we’re pleased with our results and the increase in prospect activity we’re seeing.

Converting that activity and to sign leases still takes time, but we’re pleased to see the growing pipeline. In terms of leasing, third quarter improved materially from a slower second quarter in both the number of leases signed and square feet. From another angle, those metrics were also markedly improved versus third quarter twenty twenty four. Similar to last quarter, the market remains somewhat bifurcated, such that we’re converting prospects 50,000 square feet and below. Our larger spaces have prospects, and we’re cautiously optimistic with improved activity in these spaces.

In the meantime, with larger prospects being somewhat deliberate this year, it’s impacting us in several ways. First, delaying expansion means the portfolio remains well leased and is ahead of initial forecast. Our quarterly retention rate rising to almost 80% is an indicator of tenants’ cautious nature. On the other hand, our development pipeline is leasing and maintaining projected yields, but at a slower pace. This in turn lowered development start projections from earlier in the year.

And our starts, as we’ve stated before, are pulled by market demand within our parks. Based on current demand levels, we’re reforecasting twenty twenty five starts to 200,000,000 Longer term, the continued decline in the supply pipeline is promising. Starts were historically low again this quarter. Couple this with the increasing difficulty we’re experiencing obtaining zoning and permitting. And as demand increases, supply will require longer than it has historically to catch up.

This limited availability and new modern facilities will put upward pressure on rents as demand stabilizes. And as demand improves, our goal is to capitalize earlier than our private peers on development opportunities based on the combination of our team’s experience, our balance sheet strength, existing tenant expansion needs and the land and permits we have in hand. From an investment perspective, we’re excited to acquire the previously announced properties in Raleigh, North Carolina, new development land in Orlando, where we’ll break ground this quarter and new buildings and land in the fast growing supply constrained Northeast Dallas market. Brent will now speak to several topics, including assumptions within our updated 2025 guidance.

Brent Wood, CFO, EastGroup Properties: Good morning. Our third quarter results reflect the terrific execution of our team, the solid overall performance of our operating portfolio and the continued success of our time tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance at $2.27 per share compared to $2.13 for the same quarter last year, an increase of 6.6%. Our outperformance continues to be driven by good fundamentals in our 61,000,000 square foot operating portfolio, which ended the quarter 96.7% leased. From a capital perspective, we took advantage of favorable equity pricing early in the year, which allowed us to enter the quarter with a reserve of outstanding forward shares agreements.

During the third quarter, we settled all our outstanding forward shares agreements for gross proceeds of $118,000,000 at an average price of $183 per share. Our guidance for the remainder of the year contemplates that we utilize our credit facilities, which currently have $475,000,000 capacity available and issued $200,000,000 of debt late in the fourth quarter. As we often emphasize, our evaluation of potential capital sources is a fluid and continual process that can result in varying outcomes depending upon market conditions. Our flexible and strong balance sheet with near record financial metrics allows us to be patient when evaluating options. Our debt to total market capitalization was 14.1%, unadjusted debt to EBITDA ratio of 2.9 times and our interest and fixed charge coverage increased to 17 times.

Looking forward, we estimate FFO guidance for the fourth quarter to be in the range of $2.3 to $2.34 per share and for the year in the range of $8.94 to $8.98 which represents increases of 7.97.3% compared to the prior year. Our same store occupancy for the fourth quarter is projected to be 97%, which would be the highest quarter for the year. As a result, our revised guidance increases the midpoint of our cash same store growth by 20 basis points to 6.7%. We lowered our average portfolio occupancy by 10 basis points due to the conversion of a few development projects prior to full occupancy. Considering the slower pace of development leasing, we reduced construction starts by $15,000,000 Our tenant collections remain healthy and we continue to estimate uncollectible rents to be in the 35 to 40 basis point range as a percentage of revenues, which is in line with our historic run rate.

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

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

Stepping back from the near term, I like our 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 building and markets improves each quarter. Our balance sheet is stronger than ever, and we’re upgrading our diversity in both our tenant base as well as geography. We’d now like to open up the call for any questions.

Conference Operator: Thank you, sir. And also note that out of consideration to other callers and time allotted today, we ask that you please limit yourself to one question and get that in the queue should you have any follow ups. And your first question will be from Sameer Kanaal at Bank of America. Please go ahead.

Brent Wood, CFO, EastGroup Properties: Thank you, and good morning, everybody. Marshall, thank you

Marshall Loeb, CEO, EastGroup Properties: for your

Brent Wood, CFO, EastGroup Properties: commentary. I guess maybe expand on leasing a little bit, kind of the color that you provided, especially as it relates to the development pipeline. I know you’ve got World Houston, other projects in Texas. You also said the conversion to sign leases are taking longer for those bigger sort of boxes there. So maybe talk around, maybe expand on your comments a little bit and maybe what these prospects need to see to get to the finish line?

Thanks.

Marshall Loeb, CEO, EastGroup Properties: Okay. Hey, good morning, Sameer. Very good question. I’ll try to cover it. I think I would say a couple of things.

One, we’re certainly more encouraged at the tenor of those conversations is kind of each month gotten better, maybe starting in May, which is really was May was when we felt kind of the tariff impact through today. So better than, say, when we were I got asked that question earlier in the week when were at your conference in September, for example. In our portfolio, and maybe we’re a little unique, that so much of our about a third of our development leasing is existing tenant expansion and movement within a park. So we’ve seen and you’ve seen it in our numbers, our retention rate, especially in third quarter, ran pretty high at almost 80%. So the portfolio is benefiting.

Our same store numbers are benefiting. And then on the flip side of that, and we’ve hit the slow button on our development pipeline or starts a few times kind of each quarter, bringing it down of like, look. And we do have more prospects than we’ve had as the year’s played out. It’s getting them and I don’t know. I was hoping, one, we have one interest rate cut.

According to Your Economist, we’ll get another one coming, at least the emails I’m seeing this morning and things like that. So hopefully that, maybe a little bit of ceasefire in The Middle East, things like whatever it takes to get business sentiment a little bit better. And I would say it is. I think people got beyond the shock factor. But look, we know our task at hand, which is to lease these development projects, the ones that are in lease up where we finish the construction and the ones that have transferred over.

So we’re not assuming any spec leasing in the balance of the year budget. So I’m hoping there’s potentially upside there. We’re running out of time this year. But we also build out spec suites in our vacancy. So if someone needs to move quickly, which they often do in these smaller spaces, we’re able to accommodate that.

So things are better, but they’re not it’s been an odd year that you send out leases and they haven’t always come back. I remember that more that’s been more eventful this year than it’s been in the prior five years.

Blaine Heck, Analyst, Wells Fargo: Thank you.

Marshall Loeb, CEO, EastGroup Properties: Sure.

Conference Operator: Thank you. Next question will be from Blaine Heck at Wells Fargo. Please go ahead.

Blaine Heck, Analyst, Wells Fargo: Great. Thanks. Good morning. Following up on development, can you just talk about how construction costs have trended more recently and whether that’s been a constraint on starting more projects? And kind of related to that, where do you think market rents are relative to rents that would generate acceptable yields for you guys on those development projects?

Marshall Loeb, CEO, EastGroup Properties: Good morning, Blaine. We’ve seen construction pricing come down, really with a lot of it is we’ve been watching with everything going. We’ve not had labor issues. And usually, what our construction teams will say is that we get pricing. It may be a little high, but once they realize you’re really serious, that that’s come down maybe 10% to 12% because people are so hungry for projects given just the lack of outside of data centers.

No other sectors are really going as quickly. And I guess thinking of data centers, we do getting transformers and the electrical equipment is challenging. So we can get those, but there’s a lot of demand and a long lead time. So the land we acquired this quarter, we’ll usually underwrite it on today’s rents, not forecasting any growth. I hope it grows, but we’re not forecasting that in today’s construction pricing.

And everything’s still kind of penciling out into the 7 or low sevens. It’s not easy to find the land, the permitting and zoning on these infill sites gets harder and harder. But we’re pleasantly pleased with how that’s going. It’s not construction costs that have slowed us down so much as demand, which was really strong in fourth quarter a year ago and first quarter slowing in second quarter, it picked up. In third quarter, we got more leases and more square footage than we did in second quarter or third quarter last year.

So we’re pleased with that. We just need to keep that momentum and get our look, it’s our potential revenue is get leased up what we’ve already spent the capital on. And look, this is it’s more fun to go as fast as the market tells you to go. But this year, we’re trying to go as slow as the market tells us to go as well.

Blaine Heck, Analyst, Wells Fargo: Great. Thank you, Marshall.

Marshall Loeb, CEO, EastGroup Properties: You’re welcome.

Conference Operator: Next question will be from Craig Mailman at Citi. Please go ahead.

Craig Mailman, Analyst, Citi: Hey, guys. Not to dwell on the development pipeline, but the incremental leasing there was pretty muted quarter over quarter. I saw you did get some leasing done at Dominguez, but you also kind of pushed out the stabilization date there. But I guess my bigger question here is, you talked about sending leases out but not hearing back. I mean, if you look at the availability in the development pipeline, how much of that availability has active prospects on it versus just quieter from a tours and interest perspective.

And is there a is it rent related where you can toggle that up or down or concessions? Or is it just if people don’t want to make a decision because of concerns, they’re just it other pricing stuff doesn’t matter as much?

Marshall Loeb, CEO, EastGroup Properties: Yes. Hey, Craig, good morning. I would say during the quarter, kind of since the last call, we ended up with about you’re right, total I wish it was a bigger number, about six leases, roughly 215,000 square feet. What’s I guess being more specific, at least on Dominguez, oddly enough, we sent out five leases on that space, and the fifth one is the one that came back. And so as we threw out a bigger net, we said we’d subdivide the building or even consider a sale, which we haven’t ruled out that, although we’ve gotten part of it leased.

And in subdividing the building, we’re adding an office component on the other end of the building. So that’s what we decided, again, trying to rather than lease it as one two sixty that we would break the building up. So it’s delayed the delivery adding more a few thousand more feet of office in LA. And then kind of broadly speaking, the other thing within our development numbers, and I don’t remember us doing this, we got a a 97,000 foot development lease signed for a full building in Texas. And within a week, and they had a broker, an attorney, they reach back out to us to tell us they’ve changed their mind.

So it’s been a little bit of a maddening year in terms of leases sent out that didn’t come back or in this case, a signed lease that someone, and we’re working through the termination and some things like that. And that’s not in our account. So I’m leaving that lease. Even though it was a signed lease, we pulled that one back out. Now I don’t think they’re going to occupy.

So that’s odd or atypical for most years. And in terms of kind of looking at our development schedule, I’d say about everything has some degree of activity. We need to get it signed. I’m trying to think, and some of these are odd, where to me, it it hits me like I’m looking at the list. Horizon West 5, where it’s probably our seventh building in a park, same architect, same broker, but that building’s a little bit slower than we’d like.

Although we’ve got activity and Orlando is a good market, that’s just it tells me where the market is, where it’s the seventh, eighth building in a park, which usually goes faster than the first buildings in a park, but they’re taking a little bit longer. So we have activity. The other thing I’ll say, and I’ll say it carefully, we have in the last thirty days more large tenant, more kind of prelease. Again, given that lack of supply activity, what, 92% of our revenue is from tenants under 200,000 feet, and we have several deals. They’ll take a few quarters that we’re working on with tenants and or prospects that would materially move that number where we would be building up a non shallow bay building that they’re out, that they like our land or their existing tenants who need to expand.

So that’s promising, and I’m hopeful, but I’d rather show you those. But the good news is there’s more in the pipeline and about every building has a certain amount of activity. It’s just where things shook out between third quarter through today’s call. So we just we we know we’ve got our officer meeting next week. We’re all getting together, and we know our task at hand, is to get sign space, collect rent.

Conference Operator: Thank you. Next question will be from Nick Sillman at Baird. Please go ahead.

Nick Sillman, Analyst, Baird: Hey, good morning. Marshall, you kind of commented on the overall operating portfolio and the leasing volume you have there. As you’re kind of looking at the expiration schedule for next year, rents are a little bit lower here. As we look at the mix, it’s pretty much in line with your exposures. Could we see another kind of just overall strong year in spreads here in the mid-30s for a gap?

Just kind of looking at the mix and what you guys have been seeing on that activity level?

Marshall Loeb, CEO, EastGroup Properties: Good morning, Nick. Yes, I believe we’ll and a couple of things. Third quarter was a little lower. One difference and again, maybe offline, welcome for feedback. We’re a little bit of an oddity in the industrial REITs in that we report releasing spreads on leases that got signed during the quarter, where most of our peers report on what commenced.

So our numbers we like think trying to be investor friendly, it’s a little more real time than what may have gotten signed a few quarters ago but commenced in third quarter. But I guess that and then really focusing on your question, yeah, I think we could kind of maintain those third quarter levels. Certainly, next year, end of next year, where I keep waiting. And I know one of our peers made the comment, this is the best setup they’ve seen in forty years. I haven’t done this forty years.

I’ve done it a long time. I’m not that level, but I really like the low supply. I saw the deliveries in third quarter nationally were the lowest level since 2018. So it’s hard to get inventory built and becoming harder, and there’s not much of it out there in the shallow Bay. So look, I think our we have embedded growth.

I think it’ll level out. And then I think when demand turns, it won’t take much because there’s about 4% vacancy in our markets in Shallow Bay, and there’ll be a flight to quality as people expand too. So I think we’ll have another leg up in rents. I think if things stayed where they were, we could keep at that level. But I’m hopeful between maybe now and the end of next year that there’s, in a midterm election year, maybe the headlines will be a little bit less that people will when things turn, they surprise me how quickly they turned at the end of last year and in the first quarter.

It’s gotten to where the headline risk has more impact than probably I thought it would, looking back the last the headline in fourth quarter, the headlines in April, and maybe next year if we can avoid some headlines, I think you could have a kind of a rent squeeze. Someone used the quote, there’s a cost to waiting on leases and things like that in our peer group. I’m not sure we’re there exactly yet, but I could easily see that coming. And again, I’m better at calling things in hindsight than forecasting, I’ll admit.

Nick Sillman, Analyst, Baird: Very helpful. Thank you.

Marshall Loeb, CEO, EastGroup Properties: You’re welcome.

Conference Operator: Next question will be from Conor Mitchell at Piper Sandler. Please go ahead.

Conor Mitchell, Analyst, Piper Sandler: Hey, good morning. Thanks for taking my question. Appreciate all the commentary so far. And Marshall, you’ve given a couple of specific examples on some of your markets. But just wondering if you can kind of provide a bigger picture or even drill down a little bit on just kind of what you’re seeing for the regional breakouts, whether it’s Texas, Florida, California, some of the other markets, where you’re seeing some more of the the strengths in those markets or weaknesses in those markets for, you know, the retention rate that you mentioned, but then also adding some new tenants into the pipeline as well.

Just kinda get a feel for how you’re thinking about each of the markets and almost like a ranking of them in a sense.

Marshall Loeb, CEO, EastGroup Properties: Sure. Guess hey, Conor. Good morning. I would say the Eastern Region, with a broad brush, has been the strongest region or had the strength kind of from mid year on. Florida has been, broadly speaking, a good, really strong market there.

I wish we were bigger in Nashville, but that’s a really good market. And you’ve seen us growing in Raleigh. We like that market a lot. Texas, generally, you know, we’re we like Dallas. You saw us acquiring more land there.

You know, at the moment, we’ve got too many buildings and too many tenants, but I’ll thank our our Texas team. We’re a 100% leased in Dallas, So we need expansion space, that land for tenants to expand. So we’re happy there. The other market, I’ll compliment our team in Arizona. There’s a lot of vacancy in the Arizona market.

There was a lot of supply that came in, but we’re 100% in Phoenix, 100% in Tucson, and have been able to push rents and our development leasing is there. So those would be on the good side. A little bit of a beat the same drum, California markets are still slower than our other markets really with LA. The Inland Empire had positive net absorption, but LA has had, I think it’s 11 consecutive quarters of negative absorption. So I’d love to have just a flat quarter in the city of LA, a little over a million square feet negative in third quarter.

I thought they would turn. I’m glad we got the activity we did on Dominguez and got that signed. And then Denver is another market that’s been a little bit slower for us. We’re not all that big in Denver. But those if you said, what are the markets where you’re kind of thinking a little more?

Denver’s been a little bit slower for us on our development leasing there than we’d like. And California has been a tough market for eighteen months or longer.

Conor Mitchell, Analyst, Piper Sandler: Appreciate all the color. Thank

Marshall Loeb, CEO, EastGroup Properties: you. You’re welcome. Next

Conference Operator: question will be from Rich Anderson at Cantor Fitzgerald. Please go ahead.

Rich Anderson, Analyst, Cantor Fitzgerald: Hey, thanks. Good morning. So back to the releasing spreads, the 22% cash based number for the third quarter. Let’s just say hypothetically that this deliberate tenant thing continues for whatever reason. And it’s two years from now, and we’re still sort of on a treadmill ish type of thing.

How much time do you have for that 22% to sort of close in on a fairly pedestrian single digit type number? I mean, how much more bites of the apple do you have do you think before you need to start to see activity really start to ramp so that starts to reverse the direction starts to reverse again?

Marshall Loeb, CEO, EastGroup Properties: Hey, Rich. Good morning. I’ll take a stab at it and let Brent add color. I think the one, I think I’ve kidded, I don’t remember much about econ 101. But when I just look at supply and it wouldn’t take much demand to kind of tilt the rents.

But hearing your question, if we stayed steady state, we typically next year, I think we’ve got 14% I’m doing this from memory from our supplement rolling. And so it would take several years before we could address those leases. Again, the later the latter you got into that, what that’d be seven years, but some of those there’s a number of leases pending the term of that lease that just got signed in the last couple. So there’s probably not maybe 20% rent growth in there. But it would take a while.

Just I guess when the market’s good, it takes us a while to get to that embedded growth. And as the air goes out of the balloon, which may be kind of your question, it will take a while for the air to go out of the balloon with kind of most of our leases are somewhere between three to ten years. So it would take a while for us to move all those to market. And and I and I can’t yes. If that happened, that’s how it would play out.

I can’t imagine the market seems to net for better or worse, never stays flat like that.

Brent Wood, CFO, EastGroup Properties: Yeah, I would agree, Rich. Hey, this is Brent. Yeah, I mean, you’re rolling 15% to 20%, of course, you can do the math and figure out when you start having flat and how long in terms of rental rates. You could say four to five years and how far are you into that already. And again, I know that’s a hypothetical, but it feels much stronger than that with supply.

Supply, really in my career and time, seeing supply get this tight really kind of excites me. Because it wouldn’t take much shift in sentiment and some execution for, I think, the markets and development starts and those type things to turn very quickly, much quickly, more quickly than I think people are thinking. And kind of along those lines, question of rents and does that impact construction starts. I think the good news there when you kind of think of this as a four legged stool and the cost side, as Marshall said, decreasing generally. Rents have been very sticky because talking about the third leg, supply is very tight.

It really comes down to that last leg being demand. And as we’ve talked about, there’s interested parties there. There’s demand there. We’re getting leases signed and certainly getting very acceptable yields. It’s not a function of cutting rates or trying to increase activity that way.

It’s just strictly confidence gaining to the point where they’re pulling the trigger and then we can move that conveyor belt of new starts along a little more quickly. But yeah, back to your question, how long would it take? I think we would still be a number of years out. But I don’t feel like the table is set for that to play out. Certainly hope we’re not on that treadmill you referred to there, Rich.

Rich Anderson, Analyst, Cantor Fitzgerald: Yes. Okay. Agreed. Second question, while you guys are kind of a consumption oriented story, not so much a supplier manufacturer story, do you agree though that with everything that’s happened during the pandemic in terms of simplifying supply chains and now with tariffs with one result possibly being more in the way of manufacturing on shoring. Is that the leading sort of dynamic to help industrial overall get out of this the current sort of lackluster situation?

Does manufacturing lead it followed by consumption? Is that your way of thinking about it? Or do we have that kind of completely wrong?

Marshall Loeb, CEO, EastGroup Properties: Hey, Rich. It’s Marshall again. You may be right. And one, the consumer is certainly our strategy has been to always be, how close can we get to a growing number of higher disposable income consumers? But that said, the consumers carry the economy a long time.

I don’t know how much upside there is. Hopefully, economy gets better and they continue to push the economy. You’re right, though, that new source of demand is, I think, through our portfolio and especially kind of our markets, we are seeing the manufacturing companies and the relocations a lot into Texas. And we don’t you’re right. That could that will be a driver in that we don’t have.

We have a number of Tesla suppliers in Austin and in San Antonio. The new chip plant with Intel’s building in Phoenix, we have we actually have Intel related to construction there, a supplier to Intel. Same thing with the Texas Instruments Plan as I’m kinda thinking out loud in Northeast Dallas. We have a supplier there. So we do pick up a lot of suppliers.

And as those plants get built, I guess my hesitancy in putting consumer ahead of or manufacturing ahead of consumer, I think you said, and maybe our children’s children, they really get the benefit of that. But we’re certainly seeing onshoring and nearshoring, we’re having those type conversations in Arizona as well of we need more light manufacturing space. We’ve got relocations from California type discussions going on and things like that. So I’d like to think of kind of like e commerce. It was a new additional tenant within our portfolio.

We were already pretty full, but we’ve seen a pick with e commerce. It was one more demand source. And I think now, you’re right, we’re seeing it for supplier source for these big plants. And a lot of them were getting built in the Carolinas and in Texas and Arizona and markets like that. They probably have an outsized market share.

Rich Anderson, Analyst, Cantor Fitzgerald: Great color. Thanks, Marshall. Thanks, Brent.

Marshall Loeb, CEO, EastGroup Properties: You’re welcome.

Conference Operator: Next question will be from John Peterson at Jefferies. Please go ahead.

John Peterson, Analyst, Jefferies: Great. Thank you. Good morning, guys.

Marshall Loeb, CEO, EastGroup Properties0: So I actually wanted to

John Peterson, Analyst, Jefferies: ask you, is there any change or can you give us the level of bad debt in the quarter and then related any change in the tenant watch list?

Brent Wood, CFO, EastGroup Properties: Yes. Good morning, John. The bad debt continues to be thankfully a non factor. We’re still in that 30% range or something like that. And really the last two quarters have been at a run rate about half of the prior five quarters.

And again, it tends to be contained amongst just a small number of tenants. Our watch list has been very consistent this year in terms of the number of tenants, nothing really growing there. So that has felt good and testament to portfolio and the credit and the groups, the tenants we have in place. But yes, we’re still seeing that 30% or so, 30%, 35 basis points relative to total revenue as being pretty consistent here over the last couple of quarters.

John Peterson, Analyst, Jefferies: Okay. All right. That’s helpful. And then, you know, as we’re seeing interest rates come down, the ten years just a touch below 4% right now. You guys have allowed your your debt levels to come down.

You’ve leaned more on equity. I guess, what’s the right interest rate where we would expect your leverage levels to kind of start to tick back up to your long term targets?

Brent Wood, CFO, EastGroup Properties: Well, I think that’s a component of a few things. I mean, it would be the interest rate, but relative to say what’s our equity opportunity and what are other opportunities. So we’re constantly weighing those out. And yeah, in the guidance, we showed bumping some capital proceeds, was and I think I said in my prepared remarks, we’re looking here in the fourth quarter doing $200,000,000 $250,000,000 maybe in the way of unsecured term loan. I think that could price in the low three, four, four type range, which we view as very attractive.

I was just backing up for a moment. The two and a half, three years we’re into these higher interest rates now, we take a lot of pride that we haven’t, not that we’d be anything wrong with it, but we haven’t issued debt even with a five handle at this point. And yet, we’ve continued to fund our growth and we’ve, as you point out, delevered the balance sheet now to a 2.9 times debt to EBITDA. So very, very low. We have a lot of dry powder there.

So I think you’re going see us in the fourth quarter begin to dip into that. We continually are monitoring public bonds. The public debt markets certainly at some point in the future, whether it’s near term, long term, whatever it is, we’ll be there. But you weigh all that, you weigh your equity, cost of equity and the balance of that where you are. And so it’s all kind of a fluid moving situation.

But the other thing I would point out, John, is that our over time the revolver balance or the revolver rate now, though it’s variable, it’s much more tied a little more to how the Fed fund rate moves. And that’s now moved into like a 4.7 ish sort of range. So we’ll probably begin to keep a little bit of balance on our $675,000,000 revolver there. And that gives us time and availability to be patient and look for our different opportunities there. So we feel real good about our capital position, our ability to tap into that debt.

Thankfully, our team, three good acquisitions this quarter, continue to make a way through our development pipeline. And so they continue to we continue to have a need for capital because they’re finding good way to put it to work and accretive for the shareholders. But we’re in a good spot and feel like things are turning the right way and giving us more options. We’re excited about that.

Blaine Heck, Analyst, Wells Fargo: All right. Thank you very much. Appreciate it. Next

Conference Operator: question will be from John Kim at BMO Capital Markets. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties1: Hey, good morning. I was wondering if you could provide the average rent per square foot signed year to date and how we should compare that to the 2026 expiring rents, which at the beginning of the year were at $8.42 I know there might be a mix or timing discrepancy between the two, but just trying to see some of the building blocks for the GAAP same store NOI next year.

Brent Wood, CFO, EastGroup Properties: Yes, good question. We could dive into that. I could go offline and see if we can get some numbers for that. I would give you the standard answer that across all of our markets, average rent per square foot can move around quite a bit. California is certainly very high rates relative to some other areas of the country, even though there’s been softness there.

But looking at our average roll next year in terms of where that square footage is rolling, what I would say, John, maybe give you some color backing up for a moment is, even though we’ve seen rental rates come down off their peak or highs, they still, as I alluded to earlier, they’re still very sticky. And certainly, they’ve moderated a little bit from the highs. But getting the again, getting rental rate out of deals hasn’t been the big part of the equation. It’s just been more the sentiment and the demand pace more than anything else. But we’re not sensing a lot of headwind to still having, as Marshall alluded to earlier in the call, having strong rental rate growth numbers.

So I guess what I’m trying to say there is we don’t see anything there that’s going to change that in a material manner. But in terms of actual numbers on an average per square foot, we could circle offline and give you some color there. We’d have to run a few numbers there.

Marshall Loeb, CEO, EastGroup Properties1: Then maybe as a follow-up, can you comment on the acceleration you saw in the GAAP same store NOI this quarter and whether or not that’s a good run rate going forward?

Brent Wood, CFO, EastGroup Properties: Well, the gap yes, we’re having really, I think, kind of an untold story here is we’re having a terrific operating year in our existing portfolio. I mean, obviously, there’s been a little more slowness in the pace of which we’ve moved our development leasing than we would like. But I would point out that our same store guide up into the approaching 7% and you could do the math and work backwards, to get to our midpoint cash same store for the year guide, we’re looking at like eight point two percent fourth quarter cash same store number. And that’s based off of, as I said in my comments, 97%, exactly 97% same store occupancy number. So the operating portfolio, when you look back, we we hit the low point in fourth quarter last year at 95.6% in our same store occupancy.

Then that moved in first quarter to 96%, then to 96.3% and then the third quarter 96.6%, we’re projecting 97% for fourth quarter. So a very good steady stable growth story in the operating portfolio at an 80% retention. So all of that feels very good. That momentum feels very good going into next year. Hats off and compliments to our team for putting that together.

But yes, in terms of your run rate, we feel good about where we are, where the numbers are trending throughout this year has been pretty consistent stabilization in operating portfolio as we lead into next year.

Marshall Loeb, CEO, EastGroup Properties: Thank you. Thank

Casey, Legal/Compliance, EastGroup Properties: you.

Conference Operator: Next question will be from Brandon Lynch at Barclays. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties2: Great. Thank you for taking my question. Historically, I think you focused more on stabilized acquisitions and you had a few this quarter as well. When you think and the rationale was that you want to limit lease up risk to the development pipeline. As you kind of bring down the development pipeline now, does that change your perspective on acquiring vacancy going forward?

Marshall Loeb, CEO, EastGroup Properties: Good morning. A good question. And this is Marshall. I’d say the way we think about it is try to at the end of the day, we want to own well located kind of shallow bay near consumer buildings. And at different points in the cycle, the risk reward shifts.

Therefore, while, thought with the tariffs cap rates might go up, but they really those have been sticky. And so what we’ve bought has been pretty strategic. And usually, what we’ve liked is it and we’ve got a couple of things we’re working on. They’re in submarkets where we’re strong and have we’ve been for years, and they’re immediately accretive is another way we look at them. Probably and and they’ve all been one off.

The portfolio deals get more expensive, but broad brush, we’re usually about a we’ve been around a six or just north of a 6% net effective return, new buildings. And so I would put them in the top third of our portfolio. So maybe in a kind of a flatter market where we’ve been a little bit acquisitions, you’re right, are more attractive. I think what will turn, you’ll see us be a more active developer. And then in that and it’s been maybe another interesting trend that I think is a good sign.

We’ve had more inbound calls to us looking for us to to be the equity partner or get involved with a local regional developer. I’m not sure the market’s quite there yet. You’re seeing it in our own development numbers, but it’s telling me there’s not a lot of capital for development starts. But as the market kind of heats up, we did a number of that or the leasing market where we bought vacant buildings or partnered with people to help them build buildings. So we’ll try to step on the gas, and that’s why we like having a safe balance sheet when things are good to create that value.

And sometimes you’re better off, again, trying to be patient and find the right quality and kind of build our cluster, our buildings that we try to do in the right parts of the markets we like. But that’s and again, it will I think the trick is being nimble enough to turn the dial, kind of figuring out where the market is. And it’s usually based on inbound calls of where the best risk return is right now.

Marshall Loeb, CEO, EastGroup Properties1: Great. Thank you.

Conference Operator: You’re welcome. Next question will be from Todd Thomas at KeyBanc Capital Markets. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties3: Hi, thanks. Good morning. I wanted to follow-up on some of that commentary a little bit and also around the pace of development leasing and how you’re seeing conditions start a little bit. It sounded like some of your peers may be leaning in a little bit to develop and your comments were constructive around the broader environment for starts, was you mentioned that a low dating back to 2018. And I’m just curious if some of the delays on your side push into 2026 and you ramp back up with a higher amount of starts or if you think the slower pace could sort of persist a little bit further and put a little more pressure on starts in the near term as you think about 2026?

Marshall Loeb, CEO, EastGroup Properties: Hey, Todd. Good morning. I guess it’s hard to look, I’ve been calling the recovery. I’ve missed it by several quarters. I keep thinking we’re about there.

It feels like you’re at the starter’s block, and it keeps getting delayed. I’m hopeful next year, and it wouldn’t take a lot. When I look at our development pipeline or our transfers, it’s a huge amount of square footage that’s not if I take out what’s under construction, we don’t need a lot of quantity of leases. And like the one where the lease, as I think about it, where it flipped. Where we had a signed lease, which meant we were out of inventory.

We were getting ready to break ground on the next building, and the tenant changed their mind on it. So it can kind of just flip that quickly. I’d like to think next year, I’d to think we’ll be north of $200,000,000 in starts. That may be back. Depends on when things pick up.

If the market’s not there, I think we owe it to our investors to come down from $200,000,000 But if the market picks up, the beauty of having the parks and the team we do and the balance sheet is our team will say part of their job is to have the permit at hand, and we can build the building and call it eight to ten months. So as things turn and we feel pretty confident about the last project leasing up or running out of space or tenants needing expansion, we’ll go ahead and break ground. So it’ll be fun when we reach that point, and we’re just trying to be patient and see the demand maybe rather than call the demand on it. Because I think I don’t think that we really will get punished too badly in any market for I’d rather be slightly late than too early. And right now, we’re seeing the activity.

We just need some signed leases, and that’ll pull that next round to start.

Conference Operator: Thank you. Next question will be from Omotayo Okusanya at Deutsche Bank. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties4: Yes. Good morning. Sorry to beat a dead horse about the mark to market this quarter, but I just wanted to understand or clarify the deceleration this quarter. Was that mainly a mix related issue? Or was there also some pricing pressure?

Brent Wood, CFO, EastGroup Properties: I think this is Brent. I think it’s more just a mix. Like I say, certainly, if you look back a few quarters and look at our peak and high, we’re certainly off that a little bit. But it’s within reason and modestly. And as Marshall alluded to, we report leases signed, which we think is obviously gives you direct information about what we did this quarter.

If you were to look at just a leases commenced for the third quarter as opposed to a thirty five percent GAAP number, which is what we reported, we would have been 45%. So, look, but that being said, can be a different mix. But again, as we talked about that mid thirty, thirty range of gap leasing increases feels very sticky. Like I

Craig Mailman, Analyst, Citi: say,

Brent Wood, CFO, EastGroup Properties: vacancy continues to be tight. When you look at vacancy in the less than 100,000 square foot space range, which is where we live, work, and play, I mean, that’s looking at like 4.5%. So again, part of our challenge isn’t that potential prospects compare us to eight other options in the market. You’re trying to figure out a way to whittle your rate down to make the deal. It’s more so just having someone that’s really committed to moving their business into occupied new space.

And once you do that, you have pretty good leverage on the rent side because there aren’t many options. So certainly from a quarter to quarter, it could move five percent one way or the other just based on the mix. But by and large, it feels like that area that we’re in, that 30% gap sort of range is, as I keep saying, pretty sticky.

Marshall Loeb, CEO, EastGroup Properties4: Thank you.

Brent Wood, CFO, EastGroup Properties: Yes. Thank you.

Conference Operator: Next question will be from Mike Mueller at JPMorgan. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties0: Yes. Hi. You kind of touched on this before, but going to development, you started the project in Dallas. But out of curiosity, when you look at the overall pipeline at kind of 9% pre leasing based on what’s under construction and recently completed, does that come into play at all? Like when you’re thinking about what to start or not?

Is there some sort of a cap on spec development lease up space that you want to have? Or is it really the opportunity you’re looking at is going to dictate whether or not you put a shovel in the ground?

Marshall Loeb, CEO, EastGroup Properties: Yeah, I guess hey, Mike. Good morning. It’s Marshall. And I’m trying to be cute. Your answer is probably yes.

I think it’s a little of both. And that we do look at, call it risk at the entity level. Yes, there’s a level we should have. I’m not sure what we’ve got a calculation. We’ve usually looked at it as a percent of assets, kind of valuing it.

It may have been doing like maybe 6% and things like that, and we haven’t been close to that. And that could be a combination of land value add, meaning unleased buildings and what’s under development. So we do track that on a quarterly basis. We’ve thankfully been below that. And then really more day to day, it is park by park, submarket by submarket of what’s the activity do we have there, and you try to stay ahead of it, but maybe only a little bit ahead of it of, you know, it would be Brent and I calling you saying, hey.

We’re 50% leased. I’ve got good activity on the balance and a couple of tenants say they want more space. And so that’s when we’ll we’ll break ground and build the next building or two. So it’s I’ve I’ve always said, what like about our model versus a lot of the traditional developer model, it’s not us pushing supply into the market. It’s really getting pulled by our teams in the field saying, I need more inventory.

And so that’s where look, we’ve we’ve pulled back and slowed the manufacturing line where we said, okay, you’ve got the inventory. You don’t need any more. Let’s get that accounted for. And then we’ll we’ll try to keep the factory going as fast or as slow as the market tells us it wants it. But right now, again, it’s yep.

I’m happy, as Brent mentioned earlier, happy where the portfolio is. It’s exceeding our expectations this year. I like our same store numbers. I’d like to think our occupancy has more upside. We were coming off record highs, and so we’ve been battling occupancy declines on same store for several quarters at that.

We have a chance to pick it up on rent and occupancy. And then development is really, look, the capital’s been spent. The office space has been built out, and a large amount of these spaces that we’ve either transferred over and lease up. And so we just need to kind of get those prospects to convert next. That’s what we need to show you.

Sure. Got it. Okay. Thank you. Welcome.

Conference Operator: Next question will be from Ronald Camden at Morgan Stanley. Please go ahead.

Blaine Heck, Analyst, Wells Fargo: Hey, just I guess a quick one. Just on the DEF starts coming down, just can you talk through just which markets did you think could pencil or did you want to

Brent Wood, CFO, EastGroup Properties: do stuff at the beginning of

Blaine Heck, Analyst, Wells Fargo: the year that you maybe have pulled back on currently as part one? And then just if I could just ask a quick follow-up on I think you talked about next year maybe getting a chance of occupancy gains and you have the rent escalators and so forth. So is the spreads really going to be the big sort of delta for you guys as you’re thinking about same store for next year? Thanks.

Marshall Loeb, CEO, EastGroup Properties: Well, I’ll maybe touch on the hey, Ron. Good morning. And I’ll touch on developments and maybe Brent or between us will on the same store. Look, we always have kind of a list of starts that you feel comfortable about and then potential starts based on if a leasing falls one way or the other. So it’s not any one market, although I will say one of the Texas markets where we had the signed lease, we were out of space in the park and we were starting the next building.

That was probably $20,000,000 $25,000,000 swing. That you know, and again, it’s it’s okay. We’ll work our way through it long term. It’s not an issue. It just, you know, based on what we knew at one point in time, we thought we needed to build another building and and today, we’ve got inventory we need to backfill.

So that’s probably the swing there. And and again, there’s still I think there’s only couple of three starts this quarter that we’ve got programmed in. We feel pretty good about those. But but again, that’s some of that’s based on leases that are out for signature that would pull that next ticket. So

Brent Wood, CFO, EastGroup Properties: Yeah. And in terms Ron, good morning. In terms of the same store, certainly, on the rent side, as I mentioned earlier, it still feels although off the highs, it’s still from the cash standpoint that 20% range still feels sticky. So if you figure you’re rolling, I don’t know, 20% of your portfolio in any given year, maybe you’ve got 4% to 5% there in terms of potential growth. And then as I mentioned earlier, we began this year ’25 at about a 96% same store occupancy and we’re projecting to finish the year closer to 97%.

So as you flip the calendar, if we can maintain that or even incrementally build on that, for the first few quarters of early next year, ideally that should stack up favorably. Now, we obviously haven’t looked at numbers or looked into specifics on that. But certainly, we feel like the ingredients are there for a solid same store run rate going into next year. And it’s kind of tag along with what Marshall says. It excites me that we’ve been in the top of our peer group, really in the top one or two in FFO growth.

Last year, we grow our earnings at about 7.9%. This year, we’re forecasted about 7.3%. So 15% combined. And we’ve done that despite slower development leasing, which can be at times a really big catalyst to our growth. And so to have this space poised and ready to go as Marshall said, money spent, office space ready to go, just a incremental increase in activity and signings and confidence.

And then that would be an entire cylinder that could fire more strongly than it has been that could even give us more lift. So again, that could be a lift to us going into next year. Helpful. Thank you.

Marshall Loeb, CEO, EastGroup Properties: Yes.

Conference Operator: Next question will be from Michael Griffin at Evercore ISI. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties0: Great, thanks. Wonder if you

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

Marshall Loeb, CEO, EastGroup Properties: I think and I’ll say California, we’ve seen in terms of lease true dollars out of pocket or maybe on the construction costs, those have been pretty sticky and really lease by lease. The increase in rents, we’ll spend, I’m just looking at, usually, dollars 1.1, dollars 1.2 a square foot. And it’s gotten to where more of that is the commissions than the actual cost per pocket. One advantage we have as a larger entity, and in some cases, the smaller developers who usually, they have a bank loan or this or that, they can be more limited on the TI. They can offer tenants.

Whereas if the credit’s there and we can protect ourselves on the credit side, we can certainly fund more TIs than some of our smaller peers can, thankfully. So and it’s it’s not that I would say it’s not that good questions. But it’s not that companies don’t like the rent. They don’t like the TI package or this or that. It is it usually comes back.

It was one where they took they wanted a full building, then they took the space down and we got a lease signed. This is all this year or in the last few months, and now we’re talking to them about an expansion, which I’m glad we are. But it’s really people trying to predict their businesses more than the economics we’re offering. And I think as they get more comfortable, which they seem to slowly be doing or kind of mentioned dusting themselves off and ready to kinda look at I’ve gotta run my business in spite of whatever headlines are out there, then we we’re making market deals and those make sense. I don’t think near term, I think given the lack of construction going on nationally, I would think our commissions will probably continue trending up just because they’re a percent of rents.

And our TI should hold pretty steady. And look, those are those certainly at at I call it a dollar 20 a foot per year lease term. Thankfully, for industrial compared to other property types, we’re we’re getting off line from that front. It’s easier to do the credit risk. It’s lower.

Marshall Loeb, CEO, EastGroup Properties0: Great. That’s it for me. Thanks for the time.

Marshall Loeb, CEO, EastGroup Properties: Okay. Thanks, Michael. Thank you.

Conference Operator: Next question will be from Jessica Zhang at Green Street. Please go ahead.

Casey, Legal/Compliance, EastGroup Properties: Hi. Good morning. It like the smaller tenants have been more active on new leases. Just wondering if you’re seeing any changes in overall tenant credit quality or lease term preferences on these leases.

Brent Wood, CFO, EastGroup Properties: Yeah. No, this is Brent. It’s really been same type tenancy that we’ve seen. As we talked about earlier, our bad debt being good. We’re always betting credit depending on the deal, but we’ve seen nothing really changing there.

And as Marshall alluded to, really the TI packages and that type of thing, it’s all been thankfully for us, we’re still in that 12%, 15% office finished rest warehouse. Any particular deal might have some nuance to it. But all of that continues to be pretty consistent. So really no changes in terms of the specific type of credit of tenant that we’re seeing or evaluating relative to any other time really.

Casey, Legal/Compliance, EastGroup Properties: Okay, great. Thanks for the color.

Marshall Loeb, CEO, EastGroup Properties: Sure.

Conference Operator: Next question will be from Michael Carroll at RBC Capital Markets. Please go ahead.

Marshall Loeb, CEO, EastGroup Properties5: Yeah, thanks. Marshall and Brent, I wanted to tie and try and tie together some of your comments you made throughout this call. I know that you seemed encouraged about the improving leasing prospects, but the company also reduced its occupancy guide, I mean, modestly, the development start guide and pushed out a few development stabilization. So I mean, is both true that you’re seeing better prospects, but your expectations were a little bit too aggressive last quarter, so you needed to right size those? Or are we just seeing this temporary law right now and things should bounce back as you kind of get into 2026?

Marshall Loeb, CEO, EastGroup Properties: Yeah. Good morning. I think on our occupancy, it’s really the portfolio is more full than we the same store portfolio occupancy has gone up. It’s the first time I can remember the last two quarters, we’ve raised our same store guidance, as you said, slightly lowered our occupancy. And that’s a reflection of developments rolling in a little bit more slowly.

So development leasing as a whole has certainly, over the course of the year, the portfolio has outperformed. The revenue from developments has not we were aggressive in our underwriting on that. That’s come in light. Glass half full or half empty, that’s our, as Brent touched on, that’s our potential for next year to go from zero to whatever those rents are there. So that’s the opportunity ahead of us.

But that’s probably where it’s and developments really, I guess, if I’m tying the comments together, you know, look, the best way to lease up Phase 2 within our park isn’t to deliver Phase 3. So we’ve slowed down our development starts simply as a fact a function of we have the inventory available. It’s still on the shelf. We don’t need to create more inventory. So we’ve slowed the developments.

And I think with our retention rate of 80%, things like that, that tenants have been sitting still given kind of some of the headlines. I’m more encouraged if I go back, call it sixty, ninety days, our prospect conversations materially, in terms of just number of prospects and then the size range of a few of those conversations. Give us a couple of quarters and we’ll we need to get those turned into signed leases, but I’m more encouraged by the prospect activity. Certainly, it’s much better than we saw in June. But until it turns into a signed lease, it’s just that.

It’s prospect activity. So that’s if that helps, I’m trying to be consistent or kind of paint, but that’s how that’s where we’ve had it direction wise. And we’ll just kind of go as fast as the market allows us to.

Blaine Heck, Analyst, Wells Fargo: Great. Perfect. Thanks.

Marshall Loeb, CEO, EastGroup Properties: You’re welcome.

Conference Operator: And at this time, Mr. Marshall, we have no other questions registered. I’m sorry, Mr. Loeb. We have no other questions registered.

Please proceed.

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

Brent Wood, CFO, EastGroup Properties: Thank you.

Conference Operator: Thank you, gentlemen. This does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect.