Good morning, and welcome to the EastGroup Properties Q1 2023 earnings conference call and webcast. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance during that time, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then one on your telephone keypad. To withdraw your question for any reason, please press Star, then two. In advance, we ask that you please limit yourself to one question and one follow-up for today's call. Please also note that this event is being recorded today. I would now like to turn the conference over to Marshall Loeb, President and Chief Executive Officer. Please go ahead, sir. Good morning. Thanks for calling in for our Q1 2023 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. 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 into our earnings press release, both available on the investor page of our website, and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the safe harbors under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release, along with our remarks, are made as of today and reflect our current views about the company's plans, intentions, expectations, strategies, and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events, or otherwise. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Please see our SEC filings included in our most recent annual report on Form 10-K for more detail about these risks. Thanks, Keena. Good morning. I'll start by thanking our team for a strong start to the year. They continue performing at a high level and capitalizing on opportunities in a fluid environment. Our Q1 results were strong and demonstrate the quality of our portfolio and the continued resiliency of the industrial market. Some of the results produced include funds from operations coming in above guidance, up 9.5% for the quarter. Now for 10 consecutive years, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year. Truly a long-term trend. Our quarterly occupancy averaged 98.1%, up 80 basis points from Q1 2022, and at quarter end, we're ahead of projections at 98.7% leased and 97.9% occupied. Quarterly releasing spreads were robust at approximately 48.5% GAAP and 32% cash. Cash same-store NOI set a record at 11% for the quarter. Finally, I'm happy to finish the quarter at $1.84 per share. Helping us achieve these results is thankfully having the most diversified rent roll in our sector with our top 10 tenants falling to 8.5% of rents, down 90 basis points from Q1 2022. In summary, I'm proud of our start to the year. Statistically, it was one of our best quarters on record, all with looming prospects for recession and capital markets dislocation. We continue responding to strengthen the market and user demand for industrial product by focusing on value creation via raising rents and new development. This strength is what allowed us to end the quarter at 98.7% lease, average over 98% occupancy, and push rents throughout a wide geography of our portfolio. As we've stated before, our development starts are pulled by market demand within our parks. Based on this read-through, we're forecasting 2023 starts of $340 million. While our developments continue leasing up, we're closely watching demand with the goal of a balanced fluid response, pending what the economy allows. What's promising is to see the decrease in industrial starts. To quantify, starts, as measured by square footage, fell 25% from Q3 to Q4 in 2022. Comparing Q3 2022 to Q1 2023, starts dropped approximately 45%, I suspect this quarter will be a further decline. Given the capital market's volatility, we've taken a measured approach towards transactions since mid-2022. That said, when we find the right strategic opportunities, we'll pursue them. The disposition of World Houston 23, which further manages market allocation, is an example, as well as our Las Vegas acquisition. In Las Vegas, we were able to invest in a newer, well-located building in an under-allocated, fast-growing market and achieve development-like yields. We're hopeful the choppiness in the capital markets will present other attractive investment opportunities. Brent will now speak to several topics, including assumptions within our updated 2023 guidance. Good morning. Our Q1 results reflect the terrific execution of our team, strong overall performance of our portfolio, and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the upper end of our guidance range at $1.84 per share, compared to $1.68 for the same quarter last year. $0.02 of Q1 FFO was attributable to an involuntary conversion gain, recognized as a result of roof replacements that were damaged in a hurricane. Excluding the gain, FFO per share was near the upper end of our guidance range at $1.82 per share, an increase of 8.3% over the same quarter last year. The outperformance continues to be driven by stellar operating portfolio results and success of our development program. From a capital perspective, we have long stated that we continually analyze all of our potential sources. After a year more weighted towards debt issuances, the stability in our stock price in the Q1 yielded the opportunity to access the equity markets. During the quarter, we sold 133 million of shares at an average price of $163.51 per share. As previously reported, in January, we closed on a $100 million senior unsecured term loan with a seven year term and an effective fixed interest rate of 5.27%. We also successfully expanded the capacity of our unsecured bank credit facilities from $475 million to $675 million. This step was taken simply to provide additional flexibility in a capital-constrained market. We remain conservatively drawn on the revolver. As a reminder, the company does not have any variable rate debt other than the revolver facilities, and our near-term maturity schedule is light, with only $50 million scheduled to mature through July 2024. Although capital markets are fluid, our balance sheet remains flexible and strong with healthy financial metrics. Our debt to total market capitalization was 19.8%. Unadjusted debt to EBITDA ratio is down to 4.8x, and our interest in fixed charge coverage ratio is at 7.2x. Looking forward, FFO guidance for the Q2 of 2023 is estimated to be in the range of $1.83 to $1.89 per share and $7.49 to $7.61 for the year, a $0.15 per share increase over our prior guidance. Those midpoints represent increases of 8.1% and 7.6% compared to the prior year, respectively, excluding the involuntary conversion accounting gain. Revised guidance produces an average quarterly same-store growth midpoint of 7% for the year, an increase of 100 basis points from last quarter's guidance. We also increased the midpoint of our average occupancy by 50 basis points from 97.2% to 97.7%. This is the result of outperforming our budget expectations in the Q1, along with continued optimism for the remainder of the year. In closing, we were pleased with our Q1 results. 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 portfolio to lead us into the future. Now Marshall will make final comments. Thanks, Brent. In closing, I'm proud of the results our team created. We're carrying that momentum forward. Internally, operations remain historically strong and we're constantly working to strengthen the balance sheet. Externally, the capital markets and overall environment remain unstable. While never fun to experience, this is leading to a marked decline in development starts. In the meantime, we'll work to maintain high occupancy while pushing rents. Longer term, I remain excited for EastGroup's future. There are several long-term positive secular trends occurring within last mile shallow- bay distribution space and Sun Belt markets that will play out over several years, such as population migration, evolving logistics chains, on-shoring, et cetera, which we are well positioned for. We'd now like to open up the call for any questions. We will now begin the Q&A session. If you would like to ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. If you would like to withdraw your question, you may press star then two. Again, we ask that you please limit yourself to one question and one follow-up for today's call. At this time, we will take our first question. Our first question will come from Bill Crow with Raymond James. Please go ahead, sir. Good morning, guys. Another great quarter. Marshall, as other people pull back on their construction pipelines and activities, I'm wondering how you're thinking about yours. I know it's a different risk profile and you do it within your existing parks. Has the risks elevated enough to make you pull back? Then maybe talk about the balance, any shift in the balance between acquisitions and developments at this point. Thanks. Okay. Sure. Okay. Happy. Good question. Good morning, Bill. Thank you. You know, I really, what I try to remind myself is let the field tell us as much as You know, Brent and me and the team here at corporate. She would say it's usually within our parks, and it's usually, you know, I'll use our Tampa parks where it's been of late and same in Texas, where it's tenant expansions or relocations within our portfolio. I never wanna be so hesitant to start that we lose a tenant. With really the capital markets, we've been pushing towards higher development yields. That said, last year we came in north of seven. We probably targeting would have dropped into the upper fives, you know, a year ago or maybe just over a year ago, and now we're probably a good 100 basis points higher at kind of our development threshold, where you kinda get in that mid-upper sixes. And I think we've tried to just be flexible. I know we raised our development starts this year slightly from $330 million to $340 million. I've told ourselves I'm perfectly comfortable if the market tells us that should be $200 million or $500 million, we'll go in that direction. I say that if it grows, we need to be smart about how we fund that, we'll react to the market. Really it's the guys in the field calling, saying, "I'm running out of inventory. I've usually got a prospect or two or an existing tenant, and here's how things pencil out." We'll go that way. On the acquisition front, we were happy to find a Las Vegas opportunity. We think given the capital markets, there's going to be better and better acquisitions on the horizon. We like the newer building. We were able to get a development that really looks more like a development yield than an acquisition yield on that. In any given time of late, we've had two or three kind of not very aggressive offers out there. Just saying, if we can find the right opportunity, we'll close on it, and that could also be a substitute a little bit. If we could do both development and some smart acquisitions, we'd like to. If we slow down development because of the market, the acquisition market may give us the opportunity to replace that capital. Yeah, thanks. That's helpful. If I could just ask a follow-up, and that's really on Miami and the performance in that market. It, you know, we sense that it's a really strong market, but the data the last couple of quarters has seems to have been a little bit weaker from your portfolio. Is there anything going on there? It's really one. Good catch. One vacancy. We had a bankruptcy in Broward County, about 100,000 sq ft. It was a tenant lost a lawsuit and filed bankruptcy. We've got 100,000 sq ft there we need to backfill. We just kinda internally have put another, you know, person on it that really runs Florida for us. I think we'll get there. We've just been a little slow getting that space refilled. I don't think it's indicative of the market so much as one space that is subdivisible that we just kinda need to kinda work through our system. Got it. Thank you. Sure. You're welcome. Thanks, Bill. Our next question will come from Craig Mailman with Citi. Please go ahead. Hey, guys. Maybe following up on the development piece from a funding and yield perspective. Clearly, cost of capital has risen. Just trying to figure out how you guys are thinking about this internally, how to price that capital either from a built to suit or speculative nature, to capture the, you know, that phenomenon. You know, are you seeing any pushback on kind of market rent growth in the markets where you're developing? I'll start and Brent jump in on. No pushback on rents where we've lost tenants. It always still seems to be predominantly they're combining locations or exiting a market or have outgrown the space, and we can't accommodate it. That, again, that's why we like the park setting. It's not very regular that we lose a tenant over rents. Our rents are usually at market or hopefully if it's a renewal, you can get a little better, you know, beat market by a little bit. In terms of returns, we've tried to think our kind of historic rule has been try to be 150 basis points over an acquisition cap rate for development yields. Again, all the kind of market yields have been pretty much in flux for a few quarters now, but we feel like we're still achieving that. I've kind of think about it personally, if we can get an attractive yield, say we're 6.5% to 7% type yield going in, one of the advantages you have as a REIT, unlike maybe a merchant developer or private equity, if it's a good location, we're gonna be able to hold that location. We're starting at, say, 6.75%, and it's only going to improve over time as a market like Orlando or Phoenix or Austin continues to grow. We're getting creating some value on the development, which we're excited about, and then hopefully that'll show up later and same store NOI as well. Yeah. I would just add to that, Craig Mailman. This is Brent Wood. I would just add to that, you know, we're continually evaluating our best, you know, capital sources. You know, last year we were, you know, when our stock price initially fell, we were a little heavier on the debt. We issued $525 million last year of debt at an average of 3.8%. We got kind of in front of that and ahead of rate hikes. We're very pleased with that result. You know, what turned out to be a difficult environment. We did about $75 million in equity Q1 last year, pretty much we're not able to or didn't get back in the equity market. As you saw in Q1, we pivoted to equity, you know, viewed that by far as our most attractively priced component. You know, kind of let's call it a mid-four versus even the revolver now, which is a mid-five. You know, as a result, we lowered our debt assumptions a little bit, as you saw in our guidance, and increased equity. And You know, based on current environment pricing, we anticipate that we'd probably lean towards equity, but we're good balance sheet. We can go either direction. I think the important thing to point out is that our guys in the field continue to find via development, or as Marshall said, strategic acquisitions. We continue to find good opportunities to put our capital to work at that, you know, still making a good, you know, risk-reward spread. So, you know, that's really what's driving the need for capital. We appreciate that we even, you know, need to keep a close eye on it because the guys are finding a way to use the money. That's helpful. As we think about, you know, you cited the pullback of construction starts, which, you know, likely contracts further now given the financing environment. As you guys look at the land bank that you have and the competitive landscape across markets where maybe, you know, cities may have been overdeveloped, now that pulls back a little bit. Where do you see the, you know, in that 340 of starts, kind of where's the best opportunity to start to monetize the land bank? Where you guys think you can kind of fill in the gap and fill that void where other developers just are capital constrained and you're not? Yeah, a good question, and I'm not sure I wish I had as good an answer. You know, it'll really play out in parks. I You know, Austin is a market that I mentioned it earlier, seems awfully strong. The population growth there, we feel like there's some opportunities. I like our land bank that we have in Austin today. Atlanta is another market where we're seeing pretty good opportunities. There's a lot of construction in Atlanta, but not a lot of shallow bay construction. There's a lot in the pipeline, but the number of starts is dropping pretty rapidly in Atlanta too. When I think of specific markets, I think of those two. I'm glad we bought the land in Tampa, Florida, in subsequent to quarter end, and that we're wrapping up our last park there, Grand Oaks. It's been a lot of expansions, relocations in Tampa for us. we kind of need the raw materials to kind of keep going in that market as well. probably those would be the three that would come to mind. again, we'll follow the markets where, kind of where the tenant demand is, and I like that it's pretty broad-based within our markets. If I could slip in a third here, because you mentioned the Tampa land. Could you just, it looked like your price per buildable square foot was pretty attractive there than the piece you bought in San Antonio. Can you just kind of talk about the land acquisition market, what you're seeing from a pricing perspective and opportunity set? Good comment. You know, we're excited about both of those acquisitions. The land opportunity, it seems like I would, in my mind, always put land sellers in two categories. There's the generational holders, you know, the farmer, someone like that, those prices are pretty sticky and probably haven't moved a lot. If they hold it for a few more years, they're probably fine with that. Where we found opportunities in one of a couple of the Austin acquisitions we made, where people were acquiring land, getting it permitted, zoned, and then flipping it or selling it on a forward basis. That's where there's probably where the pricing has moved back maybe 25%, 30%, things like that. Just you have people that are running out of time. We've found a couple of those. We've heard of a few more of those, a couple out west that we've looked at and are looking at, where it's you know, basically developers with. Usually, the pattern is they don't have a lot of experience, and they've gotten out over their skis financing-wise, and they can't raise the debt or the equity. Because as a merchant builder, you don't really know where you could sell the building 15, 18 months from now, unlike where you could have the last few years. Both of the acquisitions we acquired, and it seems like that with land, especially the better land sites, there's always a back story. That the San Antonio land, and I'll compliment our team, it's an infill site in San Antonio right along I-35, we've described it as a land-rich, cash-poor church. We helped the church relocate to a corner of the site, and we've probably worked on it for four years now. We like our land bases there. That's, you know, we've looked at churches and water parks and horse stables and golf courses and you name it. That was unusual, and I'll thank Reid and Tara Warren for helping build a church in order to get a good parkland site. In Tampa, odd land sites. We have experience in Fort Myers, where there was an eagle on site, and you have to hire someone to observe the eagle, and there's certain times of year you can build. We've lived through that in Fort Myers, and that helped us on this site just outside Tampa, and that there's an eagle on the site, and we'll, and I'll hope he stays, and we'll try to not disturb him. We have experience kind of building around that. There's always. On the good sites, there's always something kind of atypical. Both of those were where you saw the closing in you know, this month in April, but they started three, four years ago. That's probably what I think most investors don't see, is how long it takes us to get through zoning, permitting, and usually an unusual seller situation. Great. Thanks, Marshall. Sure. Thank you, Craig. Our next question will come from Connor Mitchell with Piper Sandler. Please go ahead with your question. Hey, good morning. Thanks for taking my question. I guess, you guys have touched a good amount on developments transaction markets. I just wanna focus a little bit on any pressure on the tenants. You guys talked previously about a bankruptcy, I guess just one, do you see any other issues with your tenants, with some of the retailer struggles? As a follow-up, I'll include in this is, are you seeing any pressure on your tenants due to banks pulling back on the credit? Hey, Connor. Good morning. This is Brent. We, you know, pleasantly, I guess. You know, our tenants continue to be very strong and not really much payment issues. In the Q1, we did record $370,000 bad debt. About two-thirds of that was from one tenant, from the situation we described, and predominantly most of that was the straight-line rent balance. Currently, we only have 12 active tenants on our allowance list, and that's 12. Just a reminder, we've got about 1,650 or so tenants. That number is historically low. It's very low. All our top 10 tenants are current. You know, our. As far as the budget goes, we had 370 in the Q1. We just maintained that 500 a quarter, second, third, fourth. It came down a little bit to 1.9. you know, hopefully those numbers prove to be conservative. As we saw in Q1, you just get one tenant with a certain balance and that can, you know, that can get to $200,000 fairly quickly. Look, to answer your question, all. We've not seen tenants reach out to us or any banking issues or funding issues. We're not aware of any tenant that might have got called out in California with a couple of banks that had troubles there. From a collections and receivables and tenant stability standpoint, it continues to be very resilient, very strong. Okay. That's all for me. Thank you. Thank you. Thanks, Connor. Our next question will come from Nick Thillman with Baird. Please go ahead with your question. Hey, good morning, guys. Maybe wanted to touch a little bit on same store. Obviously, best performance in company history at 11%, the guide kind of suggests a little bit of a slowdown. Looks like there was some concession burn off in the Q1, but just wondering if there's any lumpiness as we're going through 2023 here on getting down to that 7% range. Nick, good morning. It's Marshall. You're right. We're really happy with our quarter. I think part of our challenge, and it's a great problem to have, is as we, as we move through the year, we're running up against better and better comps. As we finished last year in the 98s, it'll still be moving forward. This quarter, we actually picked up on rents and 80 basis points of occupancy, so that 80 basis points of occupancy gain will drift down lower during the course of the year. Again, we're glad we were able to raise our occupancy guide for the year. I think it's just coming up against harder comps. Hopefully, we can continue to beat it. Look, we're thrilled to be at 11. I think the quarters going ahead will be, you know, a little bit higher mountains to beat, but we still are showing positive beats. If our occupancy can hang in there, it has through the end of April, and so far I've been the nervous one. I've been very nervous, you know, about the economy given all the headlines for several months, but our day-to-day operations don't reflect that, and I hope I'm wrong for just eight more quarters of this year and we'll be good. That's helpful. Maybe one question just on your tenant base. Have you noticed any change in the amount of, like, investment tenants are making into their space recently? It does seem to be trending up. You know, some of it you could say inflation and things like that. I think with hiring, one thing we've noticed in Arizona and some of the Western markets is, and in Florida too, HVAC space, that before you've had fans and things like that, but more air-conditioned space, and I think that's. We've upped amenities at our parks and things like that, given the difficulty hiring. Tenants have probably made it more accommodating for their employees in our spaces. I think they're always working and finding ways to improve the, you know, just the efficiency of our buildings, the racking and things like that. That's where I've always still hope over time we'll pick up more retail distribution space just because our buildings are so much more efficient than a order online pick up at store option. I don't think the retail format has the physical structure we can offer retailers. I think that mix will get, that'll be another source of demand, but I think that's gonna play out over, it started to, but play out over several more years still. That's it for me. Thanks, guys. You're welcome. Thanks, Nick. Our next question will come from Jason Belcher with Wells Fargo. Please go ahead with your question. Yeah. Hi, good morning. wondering if you could talk about any additional demand you're seeing from nearshoring or onshoring of manufacturing and production activity, and which markets are seeing the biggest impact from those trends, and maybe how we should think about that evolving going forward. Okay. Happy to take a stab at it. We do talk about, you know, what we're reading and seeing as kind of the China plus one manufacturing. Where we're seeing those benefits, as you would expect, are really Texas markets. El Paso's been a very strong market for us the past few years, probably the best three or four years in El Paso of the 20 years we've been there. San Diego, we've acquired several opportunities there over the last few years and fill those up quickly. We still like San Diego, and then Arizona has been a good market. We've been active in Phoenix, a little less so in Tucson, but we're 100% in those markets. We like. That's where we're seeing the nearshoring. Central Texas has seen a pickup in manufacturing, some of it with Tesla and the chip plants and things like that have been built in Mesa, out in Phoenix and the same in Austin. I mean, we won't get the manufacturer, although I'm glad they're coming to our areas, where we pick up, and we've even seen it in San Antonio, is picking up the suppliers that are working with the plants that are getting built. It's another source. I think it will play out over a number of years. I can't imagine the process when you think of where do we open another plant and does it, you know, go to India or Vietnam, or do we go to Mexico with it and how that plays out. It's been interesting, some of the tours we've had, especially I'm thinking of a couple in San Diego, where you've had the CEOs come tour the space, and it tells me, you know, to go lease 80,000, 100,000 feet, that's not something I would expect from a large company. I'm thinking I'm overanalyzing. It probably means a bigger supply chain decision and what are they doing in Tijuana or Juarez and how does that roll through their supply chain. We're trying to pick up sites. We're actively looking in El Paso. We're full in San Diego and have some land in Phoenix to keep working on that. Again, as I mentioned, I'm glad that we've got several tailwinds that I think will play out at different velocities over the next few years. Thanks for all that color. That's helpful. Then just one more from me. If you could give us an update on what you're seeing in terms of materials and labor cost inflation. I noticed the price per square foot increase in your development starts guidance. Maybe if you can just comment on the cost inflation front there. Yeah. I would say on our, on our starts, if helpful, those are usually. We'll have those specifically by project. As they get moved around, sometimes you can get kind of a false positive where it's we're gonna build, you know, in Florida rather than Arizona, and the price could be higher or lower. Thankfully, we've seen construction costs come down a little bit. The last couple of projects we've bid out, one in San Antonio, one in Phoenix, where the shell costs have come in a good maybe 5% to 10% where they would have been at the end of the year. I'm hopeful with the drop in the construction starts, although there's a lot of infrastructure spending and things like that we'll see some pickup if the subcontractors get less busy and things like that. I think the other thing that's helping us too is such, like, electrical panels and steel were so problematic to just get deliveries when the market was really hot, that we're seeing delivery times come down, so we can get our buildings to market while it's good more, you know, a few months more quickly. Hopefully, the supply, the pricing drops we're seeing will. At least they've flattened out, thankfully, after a few years of pretty heady increases. We've actually seen a couple of drops and things up, absent concrete. That still seems to be a pretty expensive material, and obviously, we use an awful lot of it in our buildings. Thanks a lot. That's all for me. You're welcome. Our next question will come from Jessica Zhang with Green Street. Please go ahead with your question. Good morning. I'm curious to hear your view on how sensitive do you think the 3PL tenants are to overall import volumes? We've seen the import container volumes decline pretty significantly year-over-year in the Q1. Has that driven any softness in 3PL demand at all? I think it certainly will in time. If you say within our portfolio, we've not really seen, you know, any movement within the 3PLs. Thankfully, the ones we have are like everyone else, are long-term leases and things like that. There's a lot of consolidation within the 3PL world, so far we've not had any issues of them, you know, wanting to buy out of their lease, give space back, things like that. I think over time, I have thought that 3PLs can be You know, they're one of the first tenants to expand rapidly when things are good, and they're also a pretty early tenant to contract. Obviously, it's not like their headquarters location and things like that, and they'll have multiple locations in a sub-market. They're, as you I mean, as you pointed out, they're pretty twitchy tenants. They'll move in one direction one way or the other. Knock on wood, we have not really had any, too many, you know, any abnormal amount of moving parts within our 3PL tenancy. Okay, great. Thanks for the call. You're welcome. Thanks. Our next question will come from Jeff Spector with Bank of America. Please go ahead with your question. Great. Good morning. I just wanted to clarify, Marshall, you know, your concerns over the recession. Is it more tied to kind of the economic forecast, like BofA calling for a recession since last year? You know, have you actually seen anything or heard anything from tenants, anything that really is creating that concern on the recession? Yeah. Good morning, Jeff. You're right. I mean, I wasn't looking to blame it on the BofA economists. Yeah. I mean, I hear him taking full responsibility. It really is more, you know, we typically use the phrase, you know, with our own board at 5,000 feet, things feel pretty good. You know, like, if we're in a recession and we're 99% leased and raising rents 50%, that feels good. When I read the newspaper or watch TV, it feels like there's a lot of, you know, banks failing, and the banks that have come through that are in our line and have called on us, there's a lot of anxiety out there. It's a long-winded way of saying, "No, it's more headline nervousness." You know, paranoid, trying to look around corners, which I think I feel like I should always be doing to some extent, but I don't wanna do it to the point that we miss good opportunities. It's headline anxiety, and then when I talk to the guys in the field, they look at me like I've got two heads because they're trying to find space for tenants and things like that. Thank you. By the way, I blame BofA Econ all the time, so it's all good. Second, I just wanted to confirm on your comments on you know, possible opportunities, merchant builders. You know, are you actually seeing anything today? Again, this is the hope that, you know, maybe down the line, there's some distress and EastGroup could take advantage. There's been a little bit in the sense that with a couple of the land sites specifically that I can think that we bought late last year in Austin, we're moving parts. One was a newer merchant developer where they needed to do something, and we acquired that. There's a couple of sites out west, Arizona, Las Vegas, where we've seen where it's again. I think one we passed on, but just you'll hear the stories from the broker where they had the site, they had ordered, one was the electrical equipment, another was the steel, and now they were scrambling, trying to get their financial house in order. Either do a joint venture or sell it, things like that. That's not something we had seen the last few years. The property we bought in Las Vegas, although there were other bidders, one of the things we really stressed to the tenant was our ability to close using our line of credit, that we could move and close in a little over 30 days. I do think. I don't, you know, without trying to violate our confidentiality agreement, we were told we were not the highest bidder, but we were a certain path to closing, we were awarded the contract that way. We've not seen a lot of distress. If it shows up, it may be more land opportunities, but we. Again, I think on acquisitions, and I know in talking to some of our peers, I know, we have a lot of respect for Blake Baird and the Terreno team. They really think it's gonna be a great acquisition environment. I wanna believe Blake. So we're trying to have some dry powder and be able. When capital is going to be constrained and credit tightening and things like that, if we can have some dry powder, we'll either put it into our development pipeline where the demand is there. If we can find the right acquisitions, it's something we hadn't looked at for a good two or three quarters, but we've really started sticking our toe in the water here the last 60 days a little bit. If we can find some distressed opportunities and pricing. In Las Vegas, we think we were slightly below replacement cost on a newer building and kind of development like yield. We felt like something that would have been sub four cap rate a year ago, that if we can get close to the mid-sixes on a GAAP return, that's a pretty good opportunity. Okay, great. Thank you. You're welcome. Our next question will come from Ki Bin Kim with Truist. Please go ahead with your question. Thanks. Good morning. Want to ask you a question about supply. I realize, new supply out there for shallow bay product or smaller buildings is only a small slice of the 600 million+ sq ft of deliveries. I'm curious, if you look at that supply that's more comparable to your own product, how would you describe that level of supply in a historical context? Just trying to gauge if it's getting tougher or easier, that level of supply relative to your portfolio. I think if I'm answering. Good morning, Kevin. You know, we've seen, and I'll use Atlanta, where I'm picking it really just the CBRE numbers were a little more granular than some of the other markets. They talked about the average starts last year were eight million sq ft a quarter. Q1 was under two million, seven million sq ft. Maybe a couple of other stats they threw out in there, what's under construction. I'm trying. 88% of it is in buildings 200,000 feet and up. 200,000 feet is a pretty good sized building. You're getting near the higher end for us. seven buildings that are over a million sq ft or over. We've always been, which I like, we've usually said 10% to 15% of what's in the pipeline is comparable product. I do think, stepping back, a lot of our competition isn't. It is a local regional developer with an institutional partner, an AEW, Nuveen, Clarion, someone like that. Those merchant developers have been hit harder than the larger institutions. They've. It's just hard to know where your exit is and to raise that capital, be it debt or equity, and the cost of that debt certainly gone up a lot in the last year. I think if, for example, if per CBRE, if starts have fallen from Q3 of last year to Q1 this year, 45%, I would imagine it'll be a pretty material decline from that. Q2, I think there's a bigger decline in Shallow Bay than there is in the overall market. That's where, you know, after I talk about my anxiety and with Jeff Spector, I get excited about 2024. If we can hang on to our own tenancy-Where you're 98%, 99% leased, and you get to the back half of this year and into 2024, our markets are pretty tight. We're full, and there's no new supply that I'm hopeful it gives us some pre-lease development opportunities and abilities to push rents as well. I just hope that the flip side of that bank credit tightening, and Brent spoke about it earlier, is that our own tenants, thankfully, there's over 1,600 of them, I'm hopeful they make it through this credit tightening period as well. Great. You guys reported 48% lease for us this quarter. I'm just curious if you had any thoughts on what we should expect for remainder of the year. You know, that was about where we ran Q4, thankfully as well. Last year, we averaged about 40%. It feels like a pretty good run rate at this point, you know, unless things really slow down. I like, you know, it's pretty spread out throughout our portfolio. The tech before it was California is still a strong market. Unfortunately, fortunately or unfortunately, I think it was you that pointed out, KeyBanc, that's to your credit, there's not a lot rolling, which most years is a good thing. With rents rising like they are, I wish we had a little more roll in California than we do, but thankfully, other markets have offset that. I think that's a pretty good run rate. Hopefully, we can stay in the 40%, and we'll just what I like of putting those quarters back to back to back, you're working your way deeper through the portfolio and rents don't seem to be slowing down yet. That's the other nice thing in the market, with the demand feels normalized, not frenetic like it was, but rents continue to grow in most all of our markets. Okay. Thank you. Sure. You're welcome. Our next question will come from Todd Thomas with KeyBanc Capital Markets. Please go ahead with your question. Hi. Thanks. Good morning. I just wanted to, I guess, follow up on the discussion around leasing and pricing power a bit. Does the pace of development leasing pick up over the next several quarters as we, you know, think about 2024, just given the decrease in starts that you're discussing for Shallow Bay? Should we expect the projected stabilized yields to continue moving higher? I'd like to think our yields will keep moving up. I mean, I'll think dramatically, but they'll keep creeping up. Rents are going up. Hopefully, as we bid out projects, I'm optimistic the construction pricing will be flat to maybe slightly down. We'll see. I would hope our development leasing, we underwrite it, we always have, but it's one year from shell completion to finish. We've been beating that the last several years, and we've had some success with early leasing on projects. If the economy stays where it is today, we'll continue that pattern. Again, if you said, where is your concern? It's not so much on supply. I see supply as upside in two more quarters as the development pipeline empties out. It's really more tenant demand and, if we're in a recession and how deep of a recession. If things can just kinda stay where we're hovering around a recession, we have enough tailwinds to last mile Shallow Bay Sunbelt markets. Our development program, I've always said, we don't need a great economy, we just need an okay economy. If we can stay okay, then probably your thesis will hold up. We should be leasing fairly rapidly or kinda delivering like we did this quarter, 100% leased projects and getting good returns on those, knock on wood. Okay. Second question, back to acquisitions. The deal in Las Vegas for $34 million that you completed in April, sounded like you achieved a premium yield, something in the mid 6% range. Is that right? Are there any portfolios that you're tracking that could transact anything of size? Is there appetite to do something larger to the extent that something, there are dislocations or something becomes available? Good question. You're right. That's an accurate description of Las Vegas, where it was kind of that, you know, a yield in the sixes and a building that was about five years old right off the freeway. We're excited about it, and there's probably higher odds of that. I think there's fewer portfolios in the market just because it's so hard to finance it. I mean, I think there's so much dry powder, but it doesn't feel like there's that many portfolio deals transacting. We've seen a few, and we were excited to buy the Tulloch portfolio last year, and that it fit us well. It always seems like on the portfolios, we just looked at one recently, and although the markets lined up well, the quality of the portfolio, you know, we're biased, but it wasn't nearly what our portfolio is. We passed on it. There's always a couple of things that we're kicking tires. If we can find one, and the big if to that, I think we were happy to transact with the stock price and where that came out on Tulloch a year ago. You know, on a larger transaction, we would need a pretty good equity price to have that make sense as well and have it be accretive to our own FFO. There's a few more hurdles and never say never. If acquisitions are difficult, a portfolio acquisition's an even longer long shot. Look, if we, if we buy a building every once in a while and we develop buildings each quarter, I'm perfectly happy to just kinda grow slow and steady that method without keeping our shareholders up at night. If we, you know, every once in a blue moon, we'll find a portfolio, and if we do, we'll try to move forward with it, but that would be the exception than the rule. All right. Thank you. Sure. Thanks, Todd. Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead with your question. Yeah. Thanks. Marshall, I wanted to touch on your comments about demand. I mean, obviously, I think you've been highlighting that it's still pretty healthy. How big of a pullback has there been compared to last year? I mean, is there a noticeable slowdown in activity just off of those record levels till today, or you've not really noticed it that much? The results are similar, what we hear in the field from our team is, you know, there for a while it was the, you know, I remember a tenant rep broker saying, "This isn't fun being a tenant rep broker. I'll find a space, and there's two or three other prospects for it." That where you would have multiple showings for the same space, and it felt frenetic and almost and it was fun, but in a scary way because it didn't feel sustainable, where rents were going up. Parabolic was one phrase someone used. Now it's more there's one or two prospects, it feels more of a manageable process than a scramble for space or Amazon out, you know, running rapidly, leasing up space and things like that. That this, you know, it was fun, but it didn't feel sustainable. This feels more of a normalized 2019 pre-COVID market. We have prospects, just not multiple. Again, also in those days, everybody was becoming an industrial developer. We've kidded it was like your Uber driver when they're giving you stock tips, it's time to move your money to bonds or cash, I guess. I think the number of active developers is slowing down or has slowed down rapidly in our markets, too. I think that thankfully feels more sustainable. Okay. Also, you talked about your development yields that you thought that they might start ticking higher. Is that just due to construction costs dropping, or is that due to rents improving? I guess how does the whole financing cost kind of get included in that calculation? I mean, with interest rates where they are today, I mean, has that pressured or reflected on your development yields at all? It does. Maybe I'll take the first time, Brent, the second. Yeah, on the first part, I really do. I think we'll have some slight improvements from, again, it's where we underwrote it on our numerator and get a little bit higher rents than where we originally thought. If, I think, construction pricing. We've always done underwriting where we haven't projected rents. We'll use current market rents or ideally last rents on the building we built in that park. Those rents continue rising and maybe a little bit of a drop in construction pricing, too. I think that's where we could pick up, you know, 10 to 30 basis points, hopefully, on our development yields. Although they were strong last year, I think just what we're underwriting seems to creep up. Because of the financing costs, we have raised our target development yields. Brent, I'll let you know how we look at avenues. Yeah. As Marshall mentioned earlier, you know, we had historically said or typically said we wanted that 150 basis point or so spread between our cost of capital and the yield we're getting. That, I think over time, kind of got lost in the shuffle because we kind of got spoiled there. We're building in a low to mid six, call it a mid three to high three cap environment. That, you know, has tightened obviously with the increase in of cost of capital. We're still making what, again, on a historical basis, we'd call a good spread, call our cost of capital, you know, when you blend equity and the debt together, maybe at around a five or somewhere in that area, equity cheaper, debt a little more expensive than that. As Marshall said, you're hitting that upper six to seven range. It's still a good spread, still a good opportunity. We monitor it. It certainly, you know, gives you less wiggle room than you had when you had such a wide gap. You know, we're still in a position where we're, it's, you know, very creative and continues to be a good NAV creator for us. Okay, great. Thanks. Just if I can sneak in one more. That 150 spread, I mean, how close are we to that 150 level right now? I mean, do you just need to get a development yield anywhere near a mid 6%, and that's kinda, you can justify it? That's, I think that's reasonably. You know, every market will be a little different, but I think, you know, brand-new well-leased building, I think you're going to get five or below. There's been, you know, as I said, we've looked at acquisitions, and we've bought a building and some land. There's still people out there transacting, and especially on the smaller assets and things like that. If it were, you know, a building or two that we build, there would be buyers out there. I think we just saw like a four, one transaction and as we underwrote it, cap rate in Phoenix and some things like that. One in San Diego that we bid on is gonna go ultimately priced much higher than we thought that we were hoping. I think a 5 still feels like a safe cap rate in spite of where debt yields are, and it's really, it's based on how much industrial rents are outpacing inflation, probably compared to other property sectors. Okay, great. Thank you. You're welcome. Our next question will come from Ronald Kamdem with Morgan Stanley. Please go ahead with your question. Hey, good morning, guys. This is Tamim for Ronald Kamdem. Just a question on, you know, some of the Heath and dispositions that we've seen, kind of over the past two quarters. I saw that you guys completed one this quarter. I think the pricing was a little under $100 a foot. Just curious if that's kind of the pricing we'd expect going forward for Houston asset sales for the remainder of the year and beyond, or if that's kind of one-off? Just curious how you guys are looking at that? Yeah, I think that was a little more one-off. It was one of our earlier buildings in World Houston. It was a building for the tenant at the time, so there were some unusual features to that building. It had been, you know, as we, as we try to manage our Houston size, we always kind of ask our team, "If a building were vacant, what would you want to exit?" This building had recently gone vacant, and as we were re-leasing it, we said, "All right, we've got a nice gain here. It's worked. We got a good yield on the initial development, and we'd like to keep developing in Houston. If we can, you know, develop to a seven and rounding and sell to a five or below, we'd like that model." It needed a fair amount of work to re-tenant it, and we thought that was a good time to exit that. I think you would expect. I would expect more of our dispositions to still be north of $100 a foot, and this was a little bit of a tenant-specific building that we had built, you know, 15, 20 years ago. Great. Just to follow up. You know, portfolio's obviously around 99% occupied today. Maybe just historically when you see that level of vacancy, you know, where's market rent growth typically been? You know, just layer in that question, you know, like, what do you expect for the remainder of the year for market rent growth? You know, you talked about slowing starts. Just curious about the outlook for that. Yeah. I would think probably a wider range, maybe call it 7% to 12%, 15% rent growth market year over year for the balance of the year. You know, at 99%. I guess Brent and I have both been in industrial probably more years than we both wanna add up just 'cause it would make us feel old, but I never thought you'd see rent growth that we've had in industrial the last several quarters. At 99%, I remember the rule of thumb early on, someone told me any time vacancy's below 10% it's a landlord market, and above 10% it becomes a tenant market. I think I do suspect that vacancies will pick up nationally. It sounds like, again, most of that will be big box, just where deliveries will be this year. I think we'll continue to have rent growth and especially in our product type, I think we'll be hopefully sheltered from a lot of that supply as it comes out of the pipeline. I hope we can continue on the path we're on and where we'll probably every once in a while, each market's a little different, where you'll see some that might drift one way or the other. In a, in a quarter it'll just be more on the mix. I think all in all, we were 40% last year. We're off to a heady start this year at 40. I'm quoting GAAP numbers because that gets the rent, the free rent and the rent bumps in there as well, where we've been able to increase the rent bumps the last few years, kind of where it was a 2.5, 3% market to now a 3.5, 4+ market, depending which market you're in. Great. Thank you guys. Sure. Welcome. Our next question here will come from Vikram Malhotra with Mizuho. Please go ahead with your question. Afternoon. Thanks for taking the questions. I just wanted to clarify some of the comments. You talked about the rent spreads, and maybe I did not hear, so sorry if I'm repeating. Just first on market rent growth, you talked about the GAAP rent spreads, but can you just talk about where you see market rent growth across maybe the top two or three markets, you know, playing out in 2023? Just specifically, I think there were some comments around, you know, Miami. I'm just wondering if you were to sort of. You talked about normalization. If you were to sort of rank, you know, your markets, Miami, parts of Texas, California, where are you seeing the most rapid normalization? Where are you still seeing sort of trends above, you know, The 2022 levels? Thank you. Okay. In rent growth, again, my crystal ball, if it were as accurate as I wish it was, then I'd be happy to take you on my yacht to my island type thing. You know, we're thinking, I don't mean to be too coy, but, you know, high single digits, mid-teens level, I think. You know, we're kind of overall within our markets. I think Miami, we've got a specific vacancy, kind of the western submarket, so southwest Broward County, that will get backfilled, but that market's a strong market, and we feel, you know, we'd love to find some other opportunities in South Florida still. Our best markets, I know I've talked about Austin. The Central Florida markets feel awfully strong. Dallas is a strong market. Phoenix, people talk about supply in Phoenix, and I agree the numbers are big, but we're 100% leased in Phoenix and have had strong rent growth there. The California, you know, Bay Area, L.A., Orange County, San Diego were good markets. I, you know, I like our geographic diversity. That's something we spend a lot of time working on, our tenant diversity and our geographic diversity, to try to make it as much a bulletproof portfolio as you know, can in the real world type thing. Our... Before we would've definitely said California are our best markets, and they're still good, but we're seeing California type growth the last, call it 18, 24 months, and at least in terms of rents, in the major Texas markets, Dallas, Austin, El Paso even, and then in Central Florida, Atlanta, Charlotte, some of those markets as well. Thanks. Just to clarify, you're saying you would have said California is the strongest, but are you saying there's a bit of a reversion where California's strong but maybe normalizing faster? Then just to clarify, if you're saying 10, so on average 10% market rent growth, you know, would your cash rent spreads accelerate through the year from, you know, the Q1 levels? They would. I guess it would depend on the mix of just how old the lease is that's rolling. You're right. You're right overall. They should hopefully pick up. California isn't a bad market. We've seen a little bit of slowdown in the Bay Area, and I think part of that is, you know, every tech company has laid people off. I say that, we've got two vacancies we're working on in the Bay Area, and we'll get those backfilled. The California markets, they used to be more standout markets to us, but some of the other markets have caught up with California. Okay. Thank you. You're welcome. This concludes the Q&A session. I'd like to turn the conference back over to Marshall Loeb for any closing remarks. Thank you. Thank you everyone for your time this morning. We appreciate your interest in EastGroup. If we didn't get to your question or you have some follow-up questions, Brent and I are certainly available, and we look forward to seeing many of you at Nareit here in just over a month. Thank you. Thank you. The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.