Eastgroup Properties (EGP) Q2 2026 earnings call transcript

Good morning, and thanks for calling in for our second quarter 2026 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our president, Stacey Tyler, our CFO, and Brent Wood, our COO. 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 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 Harvors 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 of the company's plans, intentions, expectations, strategies, and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events, or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.

Please see our SEC filings, including our most recent annual report on Form 10-K for more details about these risks. Good morning. I'll start by congratulating our team. We had a strong quarter as well as first half of the year. I'm proud of the results achieved. Our quarterly results demonstrate our portfolio quality and strength within the industrial markets. Some of the stats produced include funds from operation, we're $2.36 per share, up $0.02 above our guidance midpoint, and up 6.8% quarter over quarter. Year-to-date, FFO per share is up 7.6%. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term growth trend.

Quarter-end leasing was 96.8%, with occupancy at 95.6%. Average quarterly occupancy was 95.6%, which was down 30 basis points from second quarter 2025. Also notable was quarter-end same-store occupancy at 96.9%. Quarterly releasing sprints were 34% gap and 19% cash for leases signed during the quarter. Year-to-date results were similar at 35% and 19% gap in cash, respectively. Cash same-store NOI rose as strong 8.3% for the quarter and 8.8% year-to-date.

Finally, we have the most diversified rent roll in our sector, with our top ten tenants falling to 6.6% of rents, down 30 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 excited about the quantity of development leasing signed during the quarter, along with our prospect activity. Reid will now walk you through more of our quarterly details.

Thank you, Marshall, and good morning. Leasing momentum accelerated during the second quarter, with signed leases tolling 3.9 million square feet, a new quarterly record for EASTGROUP. Activity remains positive across our markets as customers increasingly look beyond geopolitical and macro uncertainty and focus on their longer-term space requirements. As demand continues, we believe our high-quality infill portfolio remains well-positioned to outperform the broader market and generate organic growth.

Development and first-generation leasing also reached a quarterly record with almost 1.1 million square feet signed. We transferred four development projects in Houston, Austin, and Los Angeles to the operating portfolio. The projects total 669,000 square feet and are 100% leased. Given the continued strength in leasing, we are increasing our full-year guidance for development starts at $325 million. This increase reflects stronger and more consistent demand from our customers expanding within our portfolio. With our team's market knowledge and customer relationships, our strong balance sheet, and our infill land holdings, we remain well positioned to create value through development.

Regarding new investments, and subsequent to quarter end, we expanded our Phoenix portfolio in the southeast submarket with the acquisition of a 143,000 square foot building. And in Austin, we were under contract to acquire a portfolio of five buildings in the Northeast sub-market tolling 388,000 square feet.

Stacey will now speak to several topics, including assumptions within our updated 2026 guidance.

Thanks, Reed, and good morning, everyone. We are proud of our strong second quarter results, reflecting the outstanding performance of our team and the strength of our portfolio. We are pleased to report that the quarter's FFO exceeded the midpoint of our guidance range at $236 per share. This represents a 6.8% increase over second quarter last year. The outperformance in second quarter was primarily driven by higher-than-projected same-property net operating income, largely due to higher-than-forecasted occupancy, reflecting the continued strength of our portfolio. Our balance sheet remains strong and flexible. We ended the quarter with no balance drawn on our own secured bank credit facility, leaving available capacity of $675 million. Our debt-to-total market capitalization was 12.9% at quarter end.

Second quarter annualized debt-to-EBITDA ratio was three times, and interest in fixed charge coverage was 15.1 times. We remain well positioned to pursue growth opportunities with the flexibility to access the debt and equity capital markets depending on market conditions.

FFO for the third quarter is estimated to be in the range of $237 to $245, with a midpoint of $241 per share. Looking ahead to the remainder of the year, we increased the midpoint of our 2026 FFO guidance by $0.03 to $9.59 per share, which represents a 6.8% increase over 2025 actual results. We are projecting strong cash same property net operating income results to continue, and we raised the midpoint of our guidance assumption by 60 basis points to 6.8% for the year. These strong projections are driven by rental rate increases on in-place and budgeted leases and expected same-property occupancy of 96.7%, which is 30 basis points ahead of our prior guidance.

Average month-end portfolio occupancy is now 95.7%, a 20 basis point increase over prior guidance. We are pleased to increase our projected 2026 development starts by $60 million to $325 million. Year-to-date, we've started construction of $123 million of development projects, and we've now assumed another $202 million of starts in the second half of the year. This increase reflects the strength of development leasing we have accomplished year-to-date, as well as the current leasing pipeline. We also increased our acquisitions guidance by $55 million to $215 million. Year-to-date, we have closed or are under contract to purchase properties totaling $150 million, and we have assumed a $65 million acquisition late in the fourth quarter. Our guidance assumption for 2026 gross capital proceeds remains unchanged at $300 million.

We issued $70 million in common stock through our common equity offering program during first quarter, and we currently have an additional $210 million in forward equity sale agreements available for issuance at over $201 per share. We will continue to monitor the capital markets and remain flexible as the year progresses. Our rent collections currently remain healthy, and our tenant watch list is steady. We are pleased with our strong performance in second quarter, and as we look ahead through the remainder of the year 2026, we are confident in our experienced team and well-located, high-quality portfolio to position us for long-term success. Now, Marshall will make some final comments.

Thanks, Stacy. In closing, we're pleased with our year to date. Market demand is gaining momentum, and it's been steady for several consecutive quarters now. Regardless of the environment, our goals are to drive FFO per share growth while raising portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders. And 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 on-shoring trends to now include data center suppliers, evolving logistics chains, and historically lower shallow bay market vacancies. We also have a proven management team with a long-term public track record. Our portfolio quality in terms of buildings and markets improves each quarter.

Our balance sheet is stronger than it's ever been, and we're upgrading our diversity in both our tenant base as well as our geography. We'd now like to open up the call for questions.

Sure. Good morning, Nick and Craig. A little bit, maybe just statistically, as we were looking at it, in terms of square footage, about 40% of our first quarter development leasing was data center-related tenants and 20% in second quarter. So what we're excited about as we think about it is just it's really a new demand driver that, you know, new SIC code to our portfolio.

And then as we look ahead, kind of looking at what the data center capacity is today versus what's been planned as we look through our markets, Some markets that have really big multiples of three to four times what's sitting there today, like Dallas, Phoenix, Atlanta, some of our major markets. It feels like we're early innings. I'm not very exact, but maybe early second inning that we're seeing a quarter of our leasing, which to me feels year to date pretty high. I don't know that we'll stay at that run rate, but there are people out there, and we're leasing to suppliers to the data centers. What we like about it is the trajectory for the demand growth that we see coming in addition to what we've already got.

And then as we think about our own kind of downside to it, we've said the good news is we're not building next to data centers. We're not building out space that's tenant-specific use, so if we lose those tenants, we're really in no different shape than we were when we started these projects. So we're not building anything that may be an odd use later, but it feels early in the game, at least for the industrial side, or especially for us, maybe in the shallow bay, where we probably benefit more when the data center's completed than under construction, And it looks like the pipeline for data centers has historically been understated and that it's a whole lot more coming into markets where we have pretty good land presence and things like that.

So we're excited about it, and we'll just try to be thoughtful as we capitalize on the opportunities.

Yeah, good morning, Samir. I think there's always, you know, look, as we work through it, and we'll try to deliver projects with stack office and pending permitting and things like that. So I would say, look, it takes longer. Certainly one thing we've noticed, and I'm maybe taking two steps back, getting sites and projects planned and permitted is much longer and a much more arduous process than it was pre-COVID. I think people want the package or the service that no one wants industrial in their neighborhood. So as we work through it, you know, it's usually, look, our goal is to deliver it once we break ground as quickly as we can to minimize that carry and get NOI coming in.

And sometimes you just run into construction delays. I mean, I think we're hearing things probably early on with, I'll tie it back to the earlier question with data centers, getting steel and getting kind of the steel beams and getting electrical equipment. Our team does a great job of ordering those early, but the lead time on some of those is getting pretty long, as you'd imagine, the demand for us to get in line, getting the switchgear and the transformers and things. So you're right, sometimes it can add a couple of months into our delivery schedule to get those finished up.

This is Reed. As we view external growth, for us, development is where we typically add the most value, especially on a risk-adjusted return. So we like where we sit. We like how the market dynamics are starting to play in our favor in that regard. So if you look at where our starts are projected at 325 million, that takes us back to 21, 22, 23 level numbers, which we're excited about to be assuming that we will be back at that level of development. The other thing I would add is that our development platform in the land holdings is very robust, maybe more so than back in that prior period, and it's very diversified. So we've got land holdings in over 20 different submarkets, and that will give us the ability to really lean into future development as we look into not just the next couple quarters, but the next, you know, six to eight quarters as this activity continues.

As we talked about previously, consistency has been the biggest piece that had been missing, and the fact that we stacked another really strong quarter on top of what had been good previous quarters really allows us to open up the development pipeline and allow the teams to take advantage of the strong platform that we do have in place today.

Blaine, I'll add, I agree with Reed on the, maybe a little color on the acquisition market. I'm trying to, maybe the last time I saw you, we were a little concerned about hitting our original acquisition goals this year. We were pleased to, in Phoenix, for example, that property is very close to our development site in Mesa, as well as two other buildings we own. And then in Austin, we've known the project there. It's centrally located, which we really like or excited about. I've been, I thought we'd have better acquisition opportunities this year, given how sticky interest rates have been. But it's been just the opposite. And talking to some of our brokers, they're seeing really, and they're coming a couple of markets, two times the number of bidders for good industrial buildings than they had a year ago.

And cap rates at five and the upper fours. So I think the spread between the 10-year and cap rates has probably never been, as I can remember, as close as it feels today. And maybe one, probably 10 takeaways, but one of the takeaways, and look, we believe we'll see it, but the private buyers are sure betting a lot. My takeaway is on rental rate growth. If you're buying that close to a risk-free rate in your IRR model, you must be really assuming a fair amount of rental rate growth, and I hope they're right. I think the theory is there, but the acquisition market, we've been strategic acquirers, but not opportunistic acquirers, because that's really all the market's given us this year.

Good morning, Alex. I guess the first point, good question. Look, we're really happy. We had a record quarter of leasing, as Reed said, almost 4 million square feet, and about half of that is new leasing, whether it's first generation or development or just vacancy, which is a really large percent for us. So I would say in the short term, we've been worried about the consumer, but in second quarter, there were no, in quarter to date, third quarter, no impact on decision making or no slowdown. In fact, it felt like things sped up. So we're happy to get the deals across the finish line we did. And Dallas and Houston are really strong markets. Dallas really doesn't have much energy there.

Reed, you live there. Houston is a strong market, but it's been more advanced manufacturing and just economic growth than, look, I hope oil and gas helps those markets. I think, you know, as we talk internally, the other, if diesel prices do stay higher for longer, which today it sure looks that way, that I think last mile only becomes more and more valuable, and especially last mile buildings in our markets. As you would imagine, whether it's Orlando, Charlotte, Nashville, Phoenix, Austin, traffic's terrible in every one of our markets.

So the speed of service, whether it's a service delivery or product delivery, over time, it will force people to get better and better with their last mile delivery because you can get cheaper rents on the edge of town, but you're going to lose it on diesel cost and really customer service too. I think it makes our locations more valuable, although that will take a while as the logistics chains evolve. But we like the – that would be one benefit. We're not wishing for higher, for longer on gas prices, but that will be one longer-term impact of it.

Yeah, and morning, Alice. This is Reid. I'll just add to that, you know, the Texas markets are much more diverse than they have been in the past from an industry standpoint. And so energy may be another tailwind to Texas, but there's a lot more to that story today than just energy, which is beneficial. And Dallas and Houston, as Marshall mentioned, are probably some of our strongest markets as we have met this halfway point in the year.

So data center activity is really strong in Texas right now. Houston has been a hub for that in a lot of different aspects. Dallas is, I saw one projection that Dallas would exceed the capacity of Northern Virginia by 2030. So we like all those tailwinds, but there's even more to Texas than just the data center and energy. It's population growth and corporations relocating and whatnot. So we're bullish on Texas all the way around.

I would say when we say good question, normalizing and good morning, last year we had prospects, and we would even have reached deal terms, economic terms. But getting the prospect to sign the lease and really for them to get the internal approval to move forward, it was a very long protracted. I think because of the headlines in Liberation Day that it wasn't that we didn't have prospects, but if we had dropped the rental rate or offered more free rent, I don't think we would have hurried a decision along. They just weren't getting the approval. And then starting in fourth quarter, it felt like maybe people got comfortable being uncomfortable where decision-making became more time-frame normalized.

I guess maybe a better way I could phrase it was just the time gestation period of getting deals wrapped up seemed to speed up, and it's continued and actually improved during the year. So we're happy with that. The other thing that just kind of trends and you see it, like in our Tucson development, one of our San Antonio developments, talking to our team, we've seen more expansions probably later this year, kind of more recently, than we saw last year by a measurable number. So to me, that's the best kind of new leasing is tenants before we're renewing and staying put and seeing companies grow and take on more space. And that's fed into a lot of our development start lift this year and things like that.

So I'm happy to see people making decisions without being really analysis paralysis and then really pulling the trigger on expansions is great news for us as well.

Yeah, that organic growth is really important to our platform as we set things up in different phases on the development side. As those tenants and customers need growth opportunities, we can provide that for them. So that's a major benefit for us as we tap into those existing relationships.

We worry about the consumer market. You know, look, interest rates are staying higher. Good morning, Brendan. And I think, and as I mentioned earlier, you know, higher gas prices. Look, it's not good for any business out there, but our goal is to be, when we think of locations, we want to be near an affluent and rapidly growing population base because that drives demand for the tenants in our building. And if the consumer weakness, we worry a lot more about demand than we do supply for the type buildings we build and where we build them.

And so that would be, you know, and I think with consumer weakness in that, we're not seeing it, but that will bleed into tenant credit issues within our portfolio. But slow down demand, tenant credit, things like that, that, you know, you're taking me back to early 2020 when COVID hit. That was what our worry was. But that's probably the Achilles heel, or the big one.

Yeah, I would just add to that, you know, we would typically have consumer strength for sure, and we would typically say that supply, you know, could be a concern. But, you know, what we really like as of right now is supply is really in check across our markets, especially in the multi-tenant smaller building construction. And we've been saying for several quarters now that when the tide would turn, we have, as Reid mentioned earlier, We have a deep bench of land and buildings and permits ready to go, which are very time-consuming to get to that point. But we're sitting on go. You saw how quickly we moved our development starts up.

And so, you know, supply for a bit. Now, look at cyclical. If it stays good for a while, of course, developers will come back and the cycle will take place. But, you know, we're hopeful that we can get more than our disproportionate share if things were to continue to turn to the upside. So where you would typically say concerns is what could weaken at oversupply, but the good news there is we're a bit away from that, and hopefully, like I say, we can keep ramping up and pushing to get more than our fair share on that side of things.

Hey, Michael, this is Reed. Good morning. From a development start standpoint, you know, with the activity we have, which is year-to-date 1.5 million square feet, which exceeds already our full-year numbers from last year. So we're very positive and bullish on how that development leasing has occurred, and it has allowed us to drive development growth. So we would anticipate that if that numbers continue, that there's potentially some additional upside. But the most important thing from our team and what our platform allows us to do, and as we discussed this some in the past, But our teams are always teeing up the next phase of development with permits and getting pricing and everything set. So when we do hit a certain threshold on the leasing side within current phases of development, that allows us to pull the trigger quickly.

And so that's part of the reason we were able to bump our numbers this year, and hopefully that trend continues not just through this year but into next year, and we can maintain these levels that, again, we haven't seen since kind of the go-go days of 21, 22, 23.

Yeah, this is Brent. I'll jump in. The Bay Area, good observation, but we continue to see slowness in the market there relative to other parts of the country. I think you could even say at this point, with the very strong quarter for LA, especially in big box, it's showing some sea legs there and showing, again, a surprisingly strong quarter there. We've not seen that yet in the Bay Area, so I think you could even say the Bay Area is probably the slowest of the markets that we're in at the moment. So obviously in lockstep with that, you know, pushing to get deals into some of our vacant spaces, and it's hard to put exactly a finger why that would be driving or lagging.

Obviously they're a tech-driven market, but it's just been slow. And so hopefully some of what we've seen, the uptick a good quarter in L. A. , Hopefully that and other markets as well that that could uptick there But we continue to see across all of our markets good rental rate strength And we been saying Marshall really been harping on for a while now that with just a little bit of uptick in activity and hopefully we beginning to see it but with as tight as vacancies are the vacancy rate especially in the multi that there could be some pricing power on the landlord side owner side quickly and so hopefully we can continue to see the strength and play into that in most of our markets but the Bay Area will be one as we get spaces released we probably We continue to lag until it can show a little more strength there, but again, very pleased across the rest of the portfolio with where we stand.

When we're talking to the team in the field and pretty much all of our markets, it's just a matter of demand, and we're seeing an increase in getting the right tenant there, but there are not a lot of options. So capitulation on rental rate has really not been a big part of the equation in terms of the leasing activity. It's been more just demand-driven. And so we're very pleased to see that be a strong second quarter.

Sure. Good morning, Todd. I'll start with your second question on the spec development leasing. You're absolutely right. At the beginning of the year, we had $0.07 assumed for spec development leasing in our guidance. That was reduced to four cents when we updated guidance in first quarter. And at this point, during the second quarter, we were able to sign leases to basically shore up two cents of that four cents.

And then we have one cent remaining in speculative development leasing that remains in the guidance. And we essentially removed one cent from that four. So starting with four cents, we took care of two cents by signing leases. We have one penny that we removed and then one penny that remains in guidance. And that's really to your point in your question about the timing. So with these newer spaces, it just takes a bit longer for the tenants to be able to occupy the space. In certain locations, it takes a little bit longer for permitting on spaces where we're doing a little more major work to get a tenant into a space. So as the year progresses, we start running out of time for the tenants to really be able to occupy and contribute NOI to 26.

And that's exactly what we saw with the record leasing that we experienced in second quarter. We're 3.9 million square feet total. Half of that was for new spaces, much of that for new development spaces. And it just takes a little while for those tenants to occupy the space. So that's why we haven't seen as much of an increase in FFO4 projections for 26. We're really looking at that contribution to be more impactful in 27 as we go forward. But the great news is that the leasing demand is there. We're experiencing it. We've not cleared the deck. We've had very strong prospect activity, and we're feeling really good about the leasing environment.

In terms of same-store growth and the range for same-store growth and for FFO for the rest of the year, we really, on both of those, tightened the ranges. Now that we're six months into the year, there's just less likelihood, and this is what we typically do, is start narrowing the range. You're less likely to meet the low end or the high end of the range as the year progresses because there are just fewer variables with half of the cake baked, so to speak.

So in terms of narrowing the ranges, that's just what we typically do as the year progresses. But good news is that we raised the midpoint of our FFO guidance, same property guidance, occupancy, and same property occupancy, along with the other assumptions that we increased for acquisitions and development starts. So we're feeling great about the current environment and projections for the remainder of the year. We do have some tough comparables when we're looking at the back half of the year in terms of same property growth. So we've been able to achieve almost 9% year to date. And in terms of same P&OI growth, I look at the back half of the year, we are projecting lower, but that's because we were 97% occupied for the same store portfolio in the back half of last year.

So it's a difficult comp, and we're close. We're now projecting same-store occupancy for the year of 96.7%, which is a 30 basis point increase over our last guidance revision. So we're feeling good about what we've been able to accomplish and about the environment for the rest of the year going forward. It's just hard to continue to project being at 97 plus percent occupied.

Hey, Rich. Good morning. How are you? It's Marshall. I'll take a first run at it, and you all chime in. And I view it, you know, look, it's like our business. It's a cyclical business. I never thought we would get, I'm quoting net effective. I know you're talking about cash. Well, we got for two years, we averaged 50% net effective. I just didn't think you'd see that in industrial. And it's, you know, we had that great ramp up that you mentioned post-COVID. It feels a little bit like air coming out of a balloon. And so if demand never picked up, you're right. Our mark to market, given our annual, and the annual increases increased in our leases post-COVID.

So it's come down from 40%. And yeah, we were, you know, kind of in the 20s, high teens this quarter. It would continue to level out if we weren't a cyclical business, and it feels like it's early, but I do think given supply-demand dynamics and a pickup in demand that we've seen, that's where I get excited that by the time we kind of really work our way through our embedded rent growth, there'll be a next leg up, and then it'll cycle again. So it's maybe longer term. I'm not quite sure I can answer where it will average depending, but I think we're beyond the inflection point a little bit, and it seems like our peers are thinking that as well, and that there'll be a new leg up in rental rate growth.

It's been kind of inflationary or inflationary plus, we've called it, and we're not seeing a major change to that, but we have seen a major change where us and one of our peers have a record quarter of leasing at the same time. It tells me there's a lot of industrial demand out there, and supply will catch up, but it's going to take longer, and we think this cycle it will take longer, However, given the municipal pushback, our zoning is taking much harder and more challenging in finding those sites than it did pre-COVID, and I think that's what's going to slow down developers. We'll find a way to overbuild, but it'll take us longer this time than it did in earlier cycles.

And, Rich, this is Reid. I would just add the amount of activity that all the markets saw in this quarter was very encouraging. Some markets had some record-level absorption numbers in the quarter. So from a demand perspective, that's going to help us hold and push rents into the future. And then we did talk about the development math, how that's actually kind of a higher number that you have to solve to than it was back in the day where interest rates were lower and even construction pricing was lower. So I think those trends are all going in favor of higher rents longer term.

Do we continue to kind of plateau like our bottom out where we have been, or does it peak? You know, that'll be something that we keep a close eye on and see. But I think the trends are positive that we will see some abilities to continue to push rents in the future.

Yeah, no problem. This is Brent jumping in. Yeah, on the conversion yield, I'll take that part first. The increase, you mentioned the properties we transferred in and the year-to-date 9.4%. The biggest driver in that was our redevelopment, Dominguez, which was a redevelopment in the LA market of California. Yeah. Property we had owned a long time. Retrofit is very pleased to have gotten that leased up during the quarter, but that was a, I would say, quote, abnormally high yield just by virtue of redevelopment in our low basis. That was, I think, north of a 9%. So, you know, that, looking back at our existing pipeline, the 7.1 in lease up and the 7.5% yield under construction, that low to mid-7 is a better overall average run rate for the development pipeline, just carving out any redevelopment component to it.

So I would say, you know, that we continue to be very pleased with, and we continue to be at that or even slightly exceeding that. In terms of your first part of the question about the leasing and how that kind of played into our guides, you know, excited about the leasing, 15 leases that were development or first generation, which basically space that had been development that had converted in, 10 different markets, so very good spread in that. But about half of our leasing for the quarter was new leases in the operating portfolio or development. As we touched on earlier with five months to go, it's great to have that leasing, but in terms of moving the needle this year, in any of these cases, you're looking at, on average, maybe two to four or five months, depending if it was a development space with no office space and you've got a permit and build it out.

So it takes time to get these tenants into the seats, so to speak, and to immediately get to the needle. So a lot of that will really great building blocks and catapult for, you know, into next year. But at this point in the year, as you sign new development leasing, it has a more de minimis impact on the immediate year. But, yeah, I think Stacy had mentioned on the four cents, we accomplished two. Still one dialed in. We removed one. We've got a lot of projects. They're very pleased with the leasing, but there are some that still we're having to push some leasing assumptions back. Our RISTA project, Denver, has been slower than we'd like.

Great project, just in a higher growth but shallower sub-market. So you have ebb and flows in both directions, but net-net we're very pleased with where it settled out.

I agree with Brent, and just to add to help quantify the magnitude of the delay on some of those, because when you do, I definitely understand your question. When you see the 1.1 million square feet of development and first-generation leasing during second quarter, it seems like that could have or should have translated into more progress on that four cents, so to speak. But had all of those leases that we signed in second quarter occupied in July versus their actual occupancy dates later in the year, we would have three cents of additional FFO. So that just shows you, I mean, the magnitude of the leases that we've signed is pretty incredible, very strong, but that timing just to get those tenants to occupancy is what is causing the delay.

So we're not behind. We're actually ahead of where we had projected in terms of signing the leases, but the timing is a little more delayed compared to our regular portfolio leasing.

Yeah, Nick, good morning. It's Reed. I would, you are correct, I would stay on the Texas theme, kind of on both pieces.

You know, Dallas continues to be very strong for our portfolio, as has Houston. So between those two markets, our two recent developments that we moved into the operating portfolio in Houston both exceeded our anticipated pro forma rents. So that was a very strong indicator of what Houston has and where it's headed.

I will now turn the call over to management for the EASTGROUP PROPERTIES INC Especially on the development side with some good rent momentum there Yeah I would just add to that your other component about maybe where we accomplished better rents pushing the yields up And I mentioned 15 leases signed in the development first generation's quarter, 10 different markets. The good news is that's been broad-based, and we've pretty consistently been a little bit ahead in most all of our development conversions. Again, the only one I would point to that maybe has been slower than the rest, again, the Denver location, that may be one where the yield, maybe not quite we initially penciled out pro forma, will still be fine.

But the rest of them, again, very pleased at the depth and the width of the activity and where it's occurring. And the good news is on the development side, there's not been like a project that pushed the numbers, but the rest are lagging. It's been very consistent, being slightly ahead. And to your point, we do when we put a pro forma together, we're putting rents at market that date. And so by the time you permit, build the building, and get into lease up, so that can be a 12-, 18-, 20-month period, ideally those rents have moved up and you can accomplish a little higher, and we've been doing that, which is nice.

Yeah, John, interesting point. We agree from the standpoint of the occupancy guide on the back half. You run the numbers, and you can say, okay, what you've accomplished and what you're guiding to would point to that. And it's really nothing specific that we're trying to dance around or really need to accomplish to push it. Having been in the field, Marshall Reed and I all having been in the field at some point or another, It really is challenging when you're penciling out your budgets to continue to make yourself, show yourself, finish 99%, 100%, 98%. You really have to have a bunch of those markets to accomplish the 97%. So I guess a roundabout way of saying I hope some of that proves to be conservative in terms of what we're projecting the back half of the year in terms of occupancy.

I would point out that our same-story occupancy continues to run about 100 basis points higher than our operating portfolio, and that continues to be driven a little bit from the development projects that have converted in that weren't 100% leased, so obviously they contribute to that lower occupancy rate, but we really view that as opportunity within those spaces. We were very pleased that we had removed about 45% of our first-gen space that was, you know, a quarter ago when we were reporting on this, we were over 700,000 feet. We've leased around 400,000 feet of that, only leaving about 365,000 feet of that to go. So we're very pleased to have knocked out 53% of that. So, again, the back half of the year, we'll see how it plays out.

Hopefully it proves to be conservative, but some of it is just human element when you're dialing in those spaces one at a time.

Yes, good morning. This is Reed. Austin Market is one that has been an interesting one to follow. It is oversupplied in some areas. Our portfolio has continued to perform quite well, kind of achieving right around the mid-90s to upper 90s percent least over the last several quarters. And that's really because we're focused more on infill locations where supply is hard to add, where you're seeing the oversupply is further north, further south of the market, and it's become a very linear market, which has driven some of that new product and just trying to find available land. And so it's a market we've watched closely, but we're very bullish on Austin long-term. There continues to be a good demand picture there, continues to be good drivers in the market from both a population growth perspective, but also from new manufacturing, advanced manufacturing, and all those elements to it.

And then specific to the project that we announced, we're under contract, haven't closed yet, but these are very infill-located buildings, strategically fit very well with our portfolio, and is a project that we've honestly eyed for several years and fits very well within the EASTGROUP platform that we have. So excited to get that closed and bring on to the platform where we continue to add value and grow our Austin presence.

Hey, good morning, Ron. It's Marshall. Yeah, you're right. I guess the kind of more topical is data centers, and we've talked about that. It hasn't gone away, but certainly that advanced manufacturing, on-shoring, near-shoring, we're seeing that as I think within our portfolio, we have a building in Dallas, northeast Dallas, supplying the TI plant up in Sherman, Texas. We have Tesla suppliers in Austin as well as even down to San Antonio supplying, I guess, the new-ish Tesla plant in Austin.

And then we're near the Intel chip plant in Chandler Mesa, so we've got suppliers to those plants. Maybe a little bit kind of under the radar, Houston is a market that's really picked up a fair amount. We're talking about NVIDIA making chips and things, so there's been more development there in terms of on-shoring than maybe I would have suspected Houston having for advanced manufacturing. And now it's been in sub-markets, but certainly in California, the aerospace and kind of the beach communities, I won't say South Bay, but maybe just east of that in L. A. has really helped that market, or at least the Class A space. And it will improve the overall market over time.

And same thing with technology, where a lot of our products are Hayward, East Bay. It's been a little bit slower, but as you'd imagine, as you get down closer to Silicon Valley, those are stronger. So, again, I think, and we'll pick up as that, we just need economic activity in our markets. That's why we try to pick markets with higher than average GDP growth, and we do by and large. And so, but we're, you know, the advanced manufacturing, onshoring, nearshoring hasn't gone away. It's just not as new an impact on our portfolio as the data centers, as you pointed out.

Yeah, I'll cover the first part, Vikram. Good morning. With regards to SoCal, yeah, as Reid mentioned, we've been talking to some of our brokers here recently, or just brokers in the markets. It's a surprise, upbeat tenor and quick movement in Los Angeles. You're definitely not going to point to a quarter and say it's a trend, but I know that it was welcome there. There was a record absorption number, not necessarily net absorption, but a record amount of leasing in the month of June. In June alone, I know Inland Empire did 7.5 million square feet, which was an incredible number. You know, a $2.8 million net absorption for the overall market for the quarter, which gives them a string of two quarters after a long run the other way.

So, you know, to that end, I think certainly a lot of that's obviously big box driven, Inland Empire driven. We don't play in that, but I think overall it's healthy for the market. That San Gabriel and South Bay submarkets, mainly where our portfolio is, continues to be strong. And as much as, you know, we've talked about the slowness in L. A. , it's still overall market vacancy rate of just 5%, which I think speaks to how tight that market had gotten, that with the slowdown, it's at just 5%. So it feels good there in terms of what's happening. You know, we would want to continue to see it go in that direction. Again, I would point out, as we have in the past, only 5% or 6% exposure for us to LA, 5% or 6% exposure to the Bay Area.

So, again, we're very focused on good geographic diversity and watching our concentration levels so we feel good about where we are there. You had mentioned, Vikram, about a tenant backfill and maybe moving numbers. I'm not sure if I'm really following exactly the tenant you may be or property you're referring to, so maybe. We had a redevelopment that we did relet there. An existing tenant expanded, and so we are excited about that. The commencement of that lease will be a little bit, as we talked about earlier, with the way some of those work. But to that end, we were pleased to backfill that space, if that might have been what you're referring to.

Yes, and in terms of the run rate going forward for the development leasing that we've accomplished, you know, hard to quantify exactly since we have so many different occupancy dates, but as you look forward with that square footage, using a 7 or just above a 7% yield on those development projects has been our average and remains our average, particularly when you exclude the Dominguez project, which had a higher yield being a redevelopment. So, as you build those into your models, I think using just above a 7% yield on development projects and just applying that to the square footage would work.

T. O. , good morning. It's Marshall. You know, I think it's, look, as Stacy mentioned, at least as we think about our guidance, we're happy with the quarter. Look, if we can set a record quarter for leasing, I'll sign that now and take the rest of the quarter off. So we're happy three strong quarters in a row and really what we felt like. And maybe if I step back, and this is more my perspective, look, I was generally probably more excited about our quarter, and this isn't. But as we read with 21 analysts, I think we were more excited than the knee-jerk reaction from the street was. And in terms of guidance, what we were really trying to do, and we talked about the high end of our range, that do we raise the high end of our range?

But we felt like, you know, I would maybe pay attention. I can't speak for our peers, but where our midpoint goes and raising, we started the year at nine, our original guidance was $9.50 a share. We were able to move that after first quarter, and now after second quarter, we're up to $9.59. So I'm pleased that we've been able to raise kind of the midpoint of our guidance seven months into the year by $0.09. I hope there's – look, that's our budget, and we'll try to beat that as our goal. In terms of getting to the higher end of our guidance, I can't speak for our peers, but we purposely raised, as you saw, the floor of our guidance by six cents, and we narrowed our range.

So just the way the math worked, we're seven cents away from the high end of our guidance with five months left. So it's hard for us to just mathematically think, look, I think the team will get a lot accomplished like they did in second quarter, but by the time we get those tenants in, it will take a little bit of time. But to me, a lot of different vantage points, and I respect everyone's. I'm glad we, to me, the bigger takeaway is, hey, the team's moved us from 950 to 959, and I hope we can keep that trend. And I'm happy that we were able to raise starts, same-store occupancy, occupancy, same-store NOI, all of those.

And just the way it ended up, we said, all right, seven cents above our midpoint is about if everything goes our way. Look, if we can get above that, I probably should go buy lottery tickets later today, too. But I appreciate the perspective. We were just trying to keep our guidance within a narrower range because we, as a company, we should be able to guide our shareholders with more and more accuracy as the year plays out.

Thank you for everyone for your interest and your investment, and many of you in EASTGROUP. If we didn't have a chance to get your question or you have follow-up questions, we're certainly available and hope to see you in person soon. Take care.