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Operator
Good day. All sites are now on the conference line in a listen-only mode. I would like to turn the program over to your host, Mr. David Hoster.
David Hoster - President, CEO
Thank you. Good afternoon, and thanks for calling in for our fourth-quarter and year-end 2004 conference call. We appreciate your interest in EastGroup. Keith McKey, our CFO, will also be participating in the call. Since we will be making forward-looking statements today, we ask that you listen to the following disclaimer covering these statements.
Unidentified Company Representative
The discussion today involves forward-looking statements. Please refer to the Safe Harbor language included in the Company's news release announcing results for this quarter that describe certain risk factors and uncertainties that may impact the Company's future results, and may cause the actual results to differ materially from those projected. Also, the content of this conference call contains time-sensitive information that subject to the Safe Harbor statement included in the news release is accurate only as of the date of this call.
David Hoster - President, CEO
Thank you. In 2004, EastGroup continued its track record of creating value for its shareholders in both the short and long-term. This past year, our shareholders experienced a 25 percent total return. Our average annual total return over the last three years was 26 percent. Over 5 years, 24 percent; and for 10 years, 22 percent. Operating results for the fourth quarter and the full year met our guidance. Funds from operations for the fourth quarter were 64 cents per share compared with 62 cents per share for the same period last year, an increase of 3.2 percent.
For the year, FFO was $2.49 per share compared with $2.36 per share for 2003, an increase of 5.5 percent. If you adjust the '03 results for several nonrecurring items, the increase in '04 FFO per share was 2.5 cents -- 2.5 percent, excuse me. Please note that we continue to calculate funds from operations based on NAREIT's definition of FFO, which excludes gains on depreciable real estate. In analyzing fourth-quarter operations, we are especially pleased with the strong growth in the same property operating results. We achieved an increase in same property operations of 8.4 percent without the straightlining of rents, and with straightlining, same property quarterly results improved by 6.9 percent. This was the sixth consecutive quarter of positive results for both measures. For the full year, same property results increased 3.6 percent without straightlining of rents, and 3.5 percent including straightline rent adjustments. We see these strong improvements in same property operating results as another clear confirmation that our investment and operating strategies are working.
As a reminder, these strategies include submarket-driven investments where location-sensitive customers want to be, clustering of multitenant business distribution properties around transportation features in infill locations and diversification in Sunbelt growth markets. On a GAAP basis, our best major markets for same property results in the fourth quarter were Memphis, which was up 17 percent; Orlando up 16 percent; Phoenix, up 13 percent; Tampa, up 12 percent; and Houston and Jacksonville both up 8 percent. The trailing markets were Dallas, down 7 percent and the San Francisco Bay Area down 3 percent.
The differences are basically all due to changes in property occupancies in the individual markets. Occupancy at December 31 was 93.2 percent. This represents a 110 basis point increase over September 30th and our highest level of occupancy since the second quarter of 2001. Our strongest leasing results continue to be in our Florida markets, which at the end of the quarter were 98 percent leased overall with Orlando, Jacksonville and Tampa all between 97.5 percent and 99.1 percent leased.
Occupancy at quarter end in our four core states of Florida, Texas, Arizona and California was 94 percent as compared to 88.5 percent in our noncore markets. For the third year in a row we experienced improved occupancy in the fourth quarter and then a decline in the following January, February. This is the result of a number of holiday related short-term leases, approximately 280,000 square feet. And known (ph) moveouts extending leases into 2005, roughly 285,000 square feet.
Looking at fourth quarter leasing statistics, we renewed or re-leased 80 percent of the 1.5 million square feet that expired, at least another 311,000 square feet of vacant space. Combining both renewals and new leases, we experienced the following statistics: average lease length was 3.5 years, which reflected recent quarterly results; average lease size was 19,400 square feet, which was about one-third larger than normal; the average cost of tenant improvements was 94 cents per square foot for the life of the lease or 28 cents per square foot, per year of the lease, which represented a decrease from our recent experience; and there was an average decrease in rents on a cash basis of 3.6 percent. This consisted of 6.5 percent decrease on new leases and a 2.5 percent decrease on renewals. This was the lowest decrease in rents since the first quarter of 2003.
On a GAAP basis it was the second consecutive quarter of positive rent growth, which primarily reflects reduced concessions. At December 31 our development program consisted of seven properties containing 467,000 square feet with a total projected investment of $29.7 million. Three of the properties were in lease up, and four were under construction. Geographically they are diversified in three states in five different cities. During 2004 we transferred seven development properties into the portfolio with 539,000 square feet and a total investment of $29 million. Four are located in Houston, and the other three are in Orlando, Tampa and Fort Lauderdale.
In January of this year two development properties Sunport V in Orlando and Santan 10 in Chandler, Arizona were transferred into the portfolio. Both are 100 percent leased. In December we purchased seven acres for future development in Phoenix for $691,000. For the year we acquired development land of 14.6 acres for a total investment of $2.2 million.
Since the beginning of this year we have acquired two parcels of land for future development in separate transactions in Orlando and Tampa, totaling 98 acres for a combined price of $6.6 million. The Orlando land is adjacent to our new Southridge development and will allow us to increase the eventual buildout of Southridge by 275,000 square feet to a total of over 1 million square feet. In Tampa the 66-acre Oak Creak land represents all the remaining undeveloped industrial land in the Oak Creek Park in which we already own two buildings for 349,000 square feet that are currently 100 percent leased.
This acquisition creates the potential of 525,000 square feet of new industrial development in the I-75 East Tampa submarket where we now own 784,000 square feet and eight buildings. As part of our purchase area of business park in San Antonio in January we acquired 15.5 acres of land, which will support approximately 170,000 square feet of new industrial development and four buildings. These 2005 purchases increased the land inventory in our development pipeline to 262 acres for the total investment of $24.5 million. This land inventory will support new development activity of approximately 3 million square feet, an increase of approximately one-third since the beginning of 2004.
Given the continued strong leasing activity we are experiencing at our development properties, and the generally overall firming of our development markets, we expect to begin construction of 8 new properties over the next six months. They are projected to contain 640,000 square feet and a total investment of approximately $37 million. Depending on leasing success and our multiphase projects, total development starts for 2005 could reach the $45 million level. As we like to repeatedly state, our development program has been and will continue to be a major contributor to FFO by adding quality, state-of-the-art assets to our portfolio.
Over the past three to four months we have experienced a good increase in acquisition activity. In November we acquired a 50 percent interest in Industry Distribution II for $9 million from the city of Industry, which is part of the Los Angeles Metro area. The building, which contains 309,000 square feet was constructed in 1998 and is 100 percent leased to a single tenant who owns the other 50 percent interest in the property. It is a quality asset with an above-average yield and increases our operating property in the city of Industry's submarket by almost 1 million square feet and our total in Los Angeles to 2.1 million square feet.
In January 2005 we continued our acquisition momentum with the purchase of Arion Business Park in San Antonio for a price of $40 million. Arion is a master planned business park containing 524,000 square feet and 14 industrial buildings and 15.5 acres of land for the future development of approximately another 170,000 square feet as previously mentioned. The buildings were constructed between 1988 and 2000 and are currently 91.2 percent leased to 25 tenants. Arion is located one block north of San Antonio International Airport with easy access to both U.S. Highway 281 and interstate loop 410. This acquisition increases EastGroup's ownership to 777,000 square feet in San Antonio, a market we entered just last August. This complex is what EastGroup is all about. Highly functional and flexible business distribution buildings clustered near major transportation features in an infill location. It offers a good mix of different sized spaces and modern buildings in a quality park environment.
Looking ahead, we have a two-building complex with 181,000 square feet in Jacksonville under contract to purchase for approximately $8 million and expect to close this transaction in March. As for dispositions, we sold a small parcel of land in Tampa for $422,000 in the fourth quarter and generated a slight gain. We expect to close on the sale of our 102,000 square foot two-building in Memphis for $2.2 million in the next two weeks and will record a gain of approximately $350,000 in the first quarter.
As previously stated, our goal is to exit the Memphis market as conditions permit. And we hope to accelerate the pace of sales there during 2005. Keith will now review a variety of financial topics.
Keith McKey - CFO
Good afternoon. We are in good shape to accommodate the acquisitions and developments David has discussed. Debt to total market capitalization was 31.7 percent at December 31, 2004 compared to 33.1 percent at September 30, a slight improvement from there. For the quarter the interest coverage ratio was 3.7 times, and the fixed charge coverage ratio was 3.3 times, which was about the same as the previous quarter.
Our floating-rate bank debt amounted to 7 percent of total market capitalization at quarter end. We have four mortgage notes payable totaling 17 million maturing in 2005. One of the notes amounted to 2.4 million with an interest rate of 8 percent can be paid off four months early and another note amounting to 9.8 million with an interest rate of 8.125 percent can be paid off three months early. We plan to pay these before maturity to take advantage of lower rates.
In December we renewed our three-year 175 million unsecured revolving credit facility with a group of 9 banks. The interest rate on the facility is based on the LIBOR index and varies according to debt to total asset value ratios. With an annual facility fee of 20 basis points. The current interest rate is LIBOR plus 0.95 percent. The line of credit which matures in January of 2008 can be expanded by 100 million and has a one-year extension at our option.
FFO per share increased 3.2 percent for the quarter and 5.5 percent for the year compared to the same periods last year. FFO per share for 2003 was reduced by 9 cents per share related to the cost on redemption of the series A preferred stock and was increased by 2 cents per share from gains on securities. As occupancy has increased this year, the real estate operating expense to operating revenue ratio has decreased. The expense to revenue ratio for the fourth quarter was 28.1 percent compared to 29 percent last year.
Bad debt expense is also improved. Bad debt expense was almost zero compared to 1 cent per share in the same quarter last year and for all of 2004 it was 1 cent per share compared to 4 cents per share for the year 2003. Lease termination fee income was 82,000 for the quarter compared to 73,000 for the same quarter of last year, not very much termination fee income. And for the year 2004 it was only 1 cent per share compared to 1.5 cents per share for 2003.
Other income for the quarter increased by $102,000 primarily due to construction and management fees from third parties and interest income on the new notes from our co-owner and Industry II building. The increase in G&A costs continue to result primarily from compensation expense and outside accounting and legal costs due to compliance with the Sarbanes-Oxley requirements.
In December we paid our 100th consecutive regular quarterly dividend. The quarterly dividend of 48 cents per share equates to an annualized dividend of $1.92 per share. Our FFO payout ratio was 75 percent for the quarter. FFO guidance for 2005 was increased 3 cents a share to a range of $2.59 to $2.71 per share, and earnings per share is estimated to be in the range of 86 cents to 98 cents per share.
A few of the assumptions were changed from our previous guidance. Acquisitions net of dispositions was increased from 10 million to 25 to 30 million, and the interest rate on floating-rate bank debt was increased 35 basis points to 4 percent. Now David will make some final comments.
David Hoster - President, CEO
Our strategy is simple and straightforward, and it is working. Six consecutive quarters of increases in same property operating results. 100 regular quarterly dividends with 12 consecutive years of dividend increases, and total return results were 1, 3, 5 and ten-year periods, all averaging over 20 percent per year. We believe that we are well positioned for future growth. Our balance sheet continues to be strong and flexible. Our development program has an increasing pipeline, and we have been able to make a number of attractive recent acquisitions.
We are at a size that allows us to be nimble and have individual transactions make a positive difference. We apologize for being a little more long-winded than we usually are in our presentation, but we had a lot of things going on and wanted to cover all of those for you. Keith and I are now more than happy to answer any questions that you might have.
Operator
(OPERATOR INSTRUCTIONS) (indiscernible) from UBS.
Unidentified Speaker
In terms of you usually run through a reason for tenants vacating your premises. Could you run through these reasons for us today?
David Hoster - President, CEO
For the fourth quarter we had over half that said that they were closing their business or had a bankruptcy. The biggest one of those was just as an interesting sidelight a tomato wholesaler in Los Angeles, actually in Fullerton who supposedly was the only union tomato wholesaler unionized in the Los Angeles area. The Teamsters got too tough with them so he shut his doors and moved to another community to open it nonunion. So that was a big chunk of that. I think the better statistics are looking at the 12 months, in there 34 percent of the square footage was vacated due to the tenant having space needs that we couldn't meet. Twenty-seven percent moved from the submarket, and 25 percent of the space was vacated again due to closed business or financial problems. So it was pretty well spread out with I don't think any one category indicating a trend one way or another.
Unidentified Speaker
Thanks. The next question has to do with your El Paso market. Thirteen percent of your expiring portfolio in '05 is in El Paso. Can you give us some outlook specifically on the El Paso market?
David Hoster - President, CEO
It is better than it was a year ago.
Keith McKey - CFO
I still would not call it strong. A huge chunk of that turnover is with two big tenants that come up this summer, and we are in discussions with them both about renewal. And it's too early to tell what's going to happen.
Unidentified Speaker
My final question has to do with World Houston 20 the supplements states that it was 100 percent leased in 4Q '04 and then zero percent in February 14, I just want to make sure it was a typo --.
Keith McKey - CFO
We thought that one might generate a question, I earlier referred to holiday leases. The Post Office took the entire building for about 60 days that ran into the beginning to January. And so that allowed us to be a 100 building. It is vacant today, but I am happy to report that we have a real good prospect that we are fairly far down the road in negotiations with about a lease. No guarantee it will be done, but that is the strongest activity we've had there since we completed the building.
Unidentified Speaker
All right. Thanks.
Operator
Ross Nussbaum with Banc of America Securities.
Christie McElroy - Analyst
Hi, it is Christie McElroy here with Ross. What portion of your 45 million of planned starts for the year are spec versus build to suit, and how much of that do you see doing at Southridge?
David Hoster - President, CEO
We have two buildings under construction at Southridge right now, 70,000 square foot dock-high rear-load building and a 40,000 square foot service center type building that we are going to move our offices into. We hope to have one more building at Southridge under construction in the next six months there because of the leasing interest that we've seen in the dock-high building. Right now we're not budgeting any of that new construction is build to suit, it is all spec.
Christie McElroy - Analyst
The entire 45 million?
Unidentified Company Representative
Well, what I was saying I would specifically identify 37 million. To get to the 45 there will probably be a build to suit in there.
Christie McElroy - Analyst
Okay. Sorry if I missed this, but.
Unidentified Company Representative
I would just add that with the size buildings that we develop and the locations where we develop them, 95 percent of what we build is spec, but we think that with increased land inventories we have specifically at Southridge, at Oak Creek and what we have at World Houston that as the economy improves we will increase our number of build to suit developments.
Christie McElroy - Analyst
You have seen some good interest at Southridge? They are both still vacant, right?
Unidentified Company Representative
Actually they are both just getting the roof on them now. So they've got a way to go. We've had good activity in the dock-high building, and as I say we will move our office into about a quarter of the smaller building. Usually, and again the type customer we appeal to in our size building we usually don't do much leasing until the building is done. Our Sunport V was an exception to that, but most of the others stay spec until somebody can walk through the space.
Christie McElroy - Analyst
Okay, can you talk about any plans to enter the Atlanta market?
Unidentified Company Representative
We are continually looking at different submarkets in Atlanta (technical difficulty) have nothing to announce on that. We don't want to just be another player in a big market with just about every major industrial owner and developer going up against us. We are looking for a special submarket, economies of scale and become a market player. We are not far enough along in anything to announce anything.
Christie McElroy - Analyst
Can you talk about what you're seeing in terms of supply growth in your markets? You have been ramping up your development pipeline including your land holdings. Have you seen others doing the same?
Unidentified Company Representative
Yes. A number of new construction starts from other industrial developers, but nothing like it was three or four years ago.
Christie McElroy - Analyst
So nothing to worry about there?
Unidentified Company Representative
We will always worry, but I think in most cases our product as we described it is a business distribution, is appealing to the tenants roughly around 25,000 square feet. And a lot of the new construction is for bigger users, bigger box type properties.
Christie McElroy - Analyst
Okay. Thanks, guys.
Operator
Paul Morgan of FBR.
Paul Morgan - Analyst
A question about the occupancy guidance and where you ended the year. I know that you've got the seasonal vacancy that came out and the other vacancy in the first quarter but that seems to take you down to 90, 91. It seems pretty conservative outlook for the rest of the year, is there any other reasons why you expect to stay in that range by the end of the year?
Unidentified Company Representative
We're just being conservative. After three years of a recession we were overly optimistic in making leasing progress last year was a nice change. But I think all our asset people are still being real conservative given what is going on in the market. There is improvement, but -- and we certainly hope to outperform the guidance, but we're just being careful. We would rather raise it than lower it.
Paul Morgan - Analyst
So it's not a reflection of any perception of change in the leasing condition?
Unidentified Company Representative
No.
Paul Morgan - Analyst
Okay. In terms of the drop in the TIs, it seemed to be due to I guess your high renewal rate in the mix there. Is there anything else going on in the market that is leading to lower TIs?
Unidentified Company Representative
We had two big renewals where we didn't have to do any TIs that probably skewed that down just a little bit. When you take those out, they are still down a little bit. I would like to think that is a trend, but I think it is too early to tell. The trend that we are seeing, though, is reduced free rent. It is still out there but the number of months has come down, and I think that is clearly shown by the positive GAAP rent statistics. It is really free rent that knocks you down there.
Paul Morgan - Analyst
And then the acquisition guidance, I assume that reflects San Antonio, so that would imply net dispositions for the rest of the year. Is that accurate, and is that an indication of pricing in the market right now and what you're seeing?
Unidentified Company Representative
A combination. We are about to close, as I mentioned a small transaction in Memphis. And as the market conditions permit we signed a couple more leases we will be putting additional Memphis properties on the market. And then usually there is one someplace else where somebody will offer us a price we can't refuse. In talking to income property brokers in our various markets, most are reporting that they are not seeing or do not expect to see a lot of good industrial assets coming on the market. There will be some very large packages, but that is not the type of thing we compete for. But the smaller package are the individual buildings. There's not much out there now, and we're not getting encouragement that there will be. We'd love to buy all we can that fit our criteria, but again we're just being conservative because we don't have any great pipeline of acquisitions or deals that we are working on today.
Paul Morgan - Analyst
Great. Thank you.
Operator
John Stewart of Smith Barney.
John Stewart - Analyst
It is John Stewart here with John (indiscernible). Keith in terms of your same-store numbers, obviously lease termination fees weren't much of a factor. Was there any kind of onetime items that caused the high result particularly in some of the markets where you posted midteens same-store growth?
Keith McKey - CFO
The only thing that we had was the bad debt expense that we discussed some on that.
David Hoster - President, CEO
And I would add it was also some of the short-term leases gave us a nice pop there also.
John Stewart - Analyst
What would your expectation be for same-store growth in the first quarter if you're going to have some of those short-term leases rolling off?
Unidentified Company Representative
We internally are projecting that every quarter in '05 will be better than its corresponding quarter for same-store in '04. Now some real variations in there, but we intend to keep our positive same-store growth on a year to year or quarter to previous year quarter basis positive.
John Stewart - Analyst
You would be looking for better than 2 percent?
Keith McKey - CFO
Yes.
John Stewart - Analyst
In terms of the prospect for World Houston Center 20, is that for the entire building or for just a portion of the space?
Keith McKey - CFO
Is a current customer we have in another building that would significantly increase the amount of space that they are using, and they would take the entire building and leave us some vacancy in another building, but that is a great building, and a more manageable size of vacancy to deal with. So we are working hard to get that one completed.
John Stewart - Analyst
David you mentioned that you have two buildings under contract in Jacksonville. Can you give us some color on the acquisition pipeline beyond those buildings?
David Hoster - President, CEO
It is a two-building complex. A rear loader and a front loader sharing a truck court, is about a quarter of a mile or less from our biggest investment in Jacksonville, so we think it really fits. Beyond that.
John Stewart - Analyst
That was $8 million, right?
David Hoster - President, CEO
Approximately, yes. There will be some give and take in that number. But beyond that, I wish I could talk about all sorts of activity but we are not seeing little or anything that fits our criteria today. I think a few things will shake loose in the next 60 or 90 days. Every now and then one of the large pension fund advisors announces a huge package, but that is not the sort of thing that we compete on. So we are being real conservative and not expecting really much acquired other than what we have so far. So anything in addition should be a positive. But that is very hard to predict.
John Stewart - Analyst
Lastly, could you comment on your expectation for the mark to market on both your 2005 rollover and across the portfolio where we stand today?
David Hoster - President, CEO
We build that all into our projections with being very general comment would still assume that cash leases on a cash basis, the leases are going to continue to roll down although probably not as much as some of our asset people have projected but they are going to continue to roll down and on a GAAP basis we should stay even or higher. In a normal environment you should have a much higher increase in GAAP rents because what you're doing is (inaudible) 70 percent of our leases of three years and over have bumps in them. So that makes a big difference for straightlining.
But if you take the average rent and the ending lease to the average rent in the new lease, that is going to be a bigger spread or it should be in a perfect world, then the cash rent of the old lease which is the highest rent on the lease to the lowest rent in the new lease. And when our GAAP was below our cash basis numbers, it was because of the free rent. As I said, we are seeing not the elimination of it but certainly a reduction in the free rent that we have to give to sign leases. Especially in the smaller spaces.
John Stewart - Analyst
Thank you.
Operator
Paul Adaranto. (ph)
Paul Adaranto - Analyst
Just a few more questions. Now that the environment seems to be firming a little bit in your markets at least, is there an attempt on your part to extend lease terms?
David Hoster - President, CEO
Yes. In a perfect world when rents are down you do shorter leases, and when they're moving up you do longer leases. We found that the customer tends to dictate what you're going to do. But given that yes, we are trying to lengthen leases, especially for the smaller customers in the under 10,000 square feet, that in many cases one or two year renewal for flexibility and we are pushing hard to get those back to the three to five-year level.
Paul Adaranto - Analyst
Is there a sense in any of your submarkets among tenants that things are heating up and they need to perhaps commit some more space?
David Hoster - President, CEO
Very much on a gut reaction we feel that happening, but not so much yet that you can start to call it in anywhere near a landlord's market. And again, it is the bigger spaces have more competition. As a result, more concessions. And more owners dropping their rent at the last minute not to lose the prospect. So it starts, we feel the improvement first with under 5000 square feet, and now that's moving up to under 10,000 square feet and hopefully will keep that same progress. So it is as one time I described before it is better but it is not good yet.
Paul Adaranto - Analyst
Finally kind of a general question. Do you notice any change in the level of employment among your tenants? Are there more people working in your spaces this cycle as opposed to the last cycle?
David Hoster - President, CEO
That is an interesting question. I would have to talk to all our people in the field. Right now I don't think that is noticeable. What we look at in the warehouse business is walking into the space and is it packed full or is it scary empty? You get nervous about your customer if there is a lot of empty space in the warehouse. If he is starting to put stuff in the parking lot because he doesn't have room in the warehouse then you start to feel real good about him.
Paul Adaranto - Analyst
So they moved out all of those tomatoes from that tenant?
Unidentified Speaker
They did. The dumpster out back smells a lot better, too.
Paul Adaranto - Analyst
All right. Excellent. Thank you.
Operator
Scott Sedlak of A. G. Edwards.
Scott Sedlak - Analyst
David can you comment on any opportunity that there might be to purchase the remaining interest in the city of Industry property?
David Hoster - President, CEO
Not anything in the short term. We were able to acquire that asset because our co-owner, as I say was the 100 percent tenant in the building and when he did his initial lease a number of years ago he obtained an option to buy the building at a prearranged price. And he couldn't do it on his own, and he is a tenant in our building next door. So he came to us and said I like doing business with you fellows. Do you want to go in with me and buy this building. And that's what we did. But I don't see anything happening in for a good many years down the road.
Scott Sedlak - Analyst
Can you comment on your position with regards to pursuing JVs in the future? And can EastGroup continue to grow or do you think EastGroup can continue to grow without the use of JVs?
David Hoster - President, CEO
We have looked very closely at different times at doing JVs from development to acquisitions putting our own properties in a portfolio. And determined that we couldn't find enough good opportunities to fit our own pipeline for acquisitions and development of our type industrial property. So why share it with somebody else just to get some fees? And the fees in the industrial business are not as profitable as they are in multi-family or office for example. We have determined that if the right opportunity came along for us to buy a larger portfolio that we didn't want to take on 100 percent ourselves, that we would quickly work out something on a joint venture.
But I think what you bring up is important. And when people look at our FFO, it is basically rent. There is not acquisition fees, disposition fees, management fees, kicker fees, or all those other things, and there is nothing wrong with all those, but I think everybody needs to understand what that our FFO is rents, and with us what you see is what you get. And I like to think a whole lot more predictable.
Scott Sedlak - Analyst
Okay, and can you comment lastly on the Tower Automotive lease and also some of your top tenants that have leases expiring in the next 12 to 18 months?
David Hoster - President, CEO
Tower I think you're alluding to is filed bankruptcy about two weeks ago. We did a build to suit for Tower related to the Nissan plant just outside of Jackson, Mississippi. Towers people both locally and nationally told us that the bankruptcy was not going to affect their operations related to Nissan, and that was confirmed two days later when the rent was wired on the same basis it had always done it in the past. So we are current with them, and watching it closely but don't expect any problems going forward.
Scott Sedlak - Analyst
With regards to some of your top tenants with leases expiring?
David Hoster - President, CEO
Universal Wilkes (ph) which is our largest tenant because of the building we just bought is also a tenant next door, and that lease comes up we expect our co-owner is going to extend in our own building. We really don't have a lot more coming up of any real size in the near term.
Scott Sedlak - Analyst
Okay. Thank you very much.
Operator
Paul Puryear of Raymond James.
Paul Puryear - Analyst
Thanks. Good afternoon, guys. I think we are pretty well covered here but just a couple of things. You've talked around it David, but is it fair to say is we have turned the corner and started the new year that you feel as good about the leasing environment, or maybe even better than you did in the fourth quarter?
David Hoster - President, CEO
Yes. Not significantly better than the fourth quarter, but yes. We are working on some real good renewals and especially in Florida. The activity there has been very good. We are losing a good-sized tenant in Orlando, and we have three prospects that we are pretty far down the road to take the entire space. So we will have to divide it, but we should have very short downtime there. So feel better than the fourth quarter and especially in Florida.
Paul Puryear - Analyst
Do you see any markets where you think you are still headed south?
David Hoster - President, CEO
Dallas we have had some turnover and some moveouts for reasons that we could not control, and we are just at least in the last 60 days vacancy level is double digit and inching up a little bit. So that has been a disappointment. Memphis double digit (technical difficulty) bit we are seeing more activity. It is not certainly I would even call it good yet but it is at least improved, and I think that is going to allow us to sell some more assets there.
Paul Puryear - Analyst
Relatively weak performance in the Bay Area, that is just a function of your rollover?
David Hoster - President, CEO
Correct. Rents shot up so much there that coming down is much greater than normal. And we have a two-building complex in Milpitas, the only one that is not in Hayward of what we own out there where a tenant pulled out of the market. And that has been real slow.
Paul Puryear - Analyst
Just one more thing on development. Could you just comment on your development costs and the kind of escalation that you are seeing?
David Hoster - President, CEO
Two types of escalation. Of course I think everybody has read about what happened to the price of steel and cement. And we have managed to just through good negotiation and particularly in Florida where we are our own GC, kept those increases down. I guess the only good news with that is everybody else that is building is facing the same types of increase. I think also, though, if the market improves we are seeing more prospects who are willing to pay extra to have new space, to have a little bit better image in the better park, being the better building. We think that is going to overcome some increased costs which are leading to increased rents.
Also, in the Florida markets a lot of the building codes have been tightened up because now no cities viewed as is hurricane free. So in Tampa I guess it was about six or nine months ago actually before the last round of hurricanes. They have tightened up what you have to do to a building to meet code. And so that has run up costs a bit. But again, we are optimistic that the increased overall market activity and the willingness of customers to pay a little extra for quality is going to work.
Our Tampa development, Palm River South, where we finished it in November we have 43 percent signed leases. Have a lease out for signature to take it to 93 percent, 92 percent. And we are going to start the next building within 30 days as soon as we get the final building permit on it. So good leasing in Florida is making up for a lot of other things.
Paul Puryear - Analyst
Year-over-year just that construction costs if you took changes to the code out of it, so what do you think that escalation rate is?
David Hoster - President, CEO
Probably low teens. Let's say 13 to 17 percent, or I should say midteens.
Paul Puryear - Analyst
That will drive the rents up.
David Hoster - President, CEO
Also I would add -- pardon me, Paul -- I would add that as cap rates come down and we are looking at a 150 to 200 basis point spread between a leased up building and development deal that allows you to build a little bit lower cap rate.
Paul Puryear - Analyst
Are you seeing that kind of escalation in Houston for construction?
David Hoster - President, CEO
I would say low teens there, and I'm pulling that off the top of my head. I don't have that exact figure. I can get back to you with that.
Paul Puryear - Analyst
Sure. And just one last question. On the land side of things, is that tracking asset pricing, or is it tracking rents? What do you see in land prices?
David Hoster - President, CEO
They are going up for a couple of reasons. One is real estate development activity in general picks up everybody wants to sell their land for a higher and better use, and industrial tends to be the least attractive use. So the Oak Creek land in East Tampa that I mentioned before, that park was about half again as big, and the developer is selling off the rest of the land for a school and upscale apartments. This is -- some of this is going to be right up to next to some build to suit buildings, industrial buildings. So that we are seeing the west side of Phoenix is another example where what had been industrial land has now been converted to housing and retail. So it is becoming harder and harder to locate and afford to buy good industrial land especially the infill kind of sites that we are looking for.
And that is one of the reasons that we have made some of the bigger purchases of land in the last couple of months that we have just to assure ourselves a well located land inventory. As one of our directors described, industrial doesn't create many jobs. It doesn't get very high real estate tax assessments, and 18 wheelers are noisy and stinky. And so who wants it? So a lot of what was good industrial land is being used for other purposes. And it is harder and harder as I said, to find our type sites.
Paul Puryear - Analyst
Great. Thanks.
Operator
(OPERATOR INSTRUCTIONS) Tony Howard of Hilliard Lyons.
Tony Howard - Analyst
Congratulations on a good quarter earnings per year for shareholders.
David Hoster - President, CEO
Thank you.
Tony Howard - Analyst
A couple clarifications, Keith on the balance sheet, the 50 percent interest in the acquisition in November, was that included in the note receivable?
Keith McKey - CFO
No, we got a separate line item for that. It should be -- yes, it is right under that notes receivable 7,550,000 million.
Tony Howard - Analyst
All right. So that did not include the 50 percent?
Keith McKey - CFO
No, the 50 percent of the building costs $9 million.
David Hoster - President, CEO
And the 7 million is money that we lent our co-owner as part of his purchase of his 50 percent interest.
Keith McKey - CFO
And what we plan to do, Tony, is get a permanent first mortgage on that at a ten-year maturity, 25-year amortization. And it should pay off one of those notes, the 6.7 million note. And may get some extra funds from that but we will see on that.
Tony Howard - Analyst
How does the note receivable flow through the income statement in the fourth quarter?
Keith McKey - CFO
What we did was just loan him the money and set up the note receivable, and then any interest income that we are getting on that we are recording as interest income.
Tony Howard - Analyst
Yes, but where is that on the income statement? I don't see that. Is that under other?
David Hoster - President, CEO
Yes, that is in other. (multiple speakers) other $79,000 number.
Tony Howard - Analyst
Okay, and the 69,000 for unconsolidated investment, that was just for --.
Keith McKey - CFO
Operations of the property.
Tony Howard - Analyst
For a month and a half, I'm assuming.
Keith McKey - CFO
Right.
Tony Howard - Analyst
Okay.
Keith McKey - CFO
That is our 50 percent share.
Tony Howard - Analyst
Okay. G&A was up you mentioned as far as Sarbanes-Oxley, is the 1.8 million is that a good run rate, or how much of that was due to Sarbanes-Oxley, and was that more of a onetime startup cost?
Keith McKey - CFO
We hope that Sarbanes-Oxley costs will go down for next year. What we are projecting in our '05 numbers is about a 5 percent increase in the 2004 final number.
Tony Howard - Analyst
Also you mentioned you may be doing some financing about midyear 2005.
Keith McKey - CFO
Right.
Tony Howard - Analyst
Now will that be like either debt or preferred, or what is your thinking in terms of capital raising?
Keith McKey - CFO
Right now we are looking at just doing a first mortgage of about 50 million, what we do is package about 10 properties together and go out to life insurance companies and hopefully get some bidding on the rates. And we get substitution rights with the properties and put a first mortgage on it.
Tony Howard - Analyst
And you're assuming 6 percent?
Keith McKey - CFO
Yes.
Tony Howard - Analyst
Okay.
David Hoster - President, CEO
Tony, last summer we were able to do a large mortgage that I think was 99 over the ten-year, 99 basis points over the ten-year, so that is, we are leaving some room in there.
Tony Howard - Analyst
Okay. Whatever it is, ten years from where it's at now. Final question is a general question you are seeing a lot of consolidation, David, as far as you expect in the retail region and stuff you talked about some acquisition disposition, the bigger picture as far as consolidation was in the industrial REIT area. What is your thoughts on that?
David Hoster - President, CEO
I think the industrial sector has seen a lot of that to date. So it is a fairly select group of us left, and I think interesting thing in our sector is that each one of the REITs has a fairly distinctive different strategy, on the type of industrial, the geographic concentrations, how they make money, their style. So I think our sector offers a real variety to investors in terms of investment and industrial REITs, and I don't see any additional consolidation in our sector at this point. I could always be surprised, but I think most of the Company or all of the companies that talked about it or act like it before have accomplished their goal and moved on.
Tony Howard - Analyst
Okay. Thank you, and congratulations again.
Operator
Todd Voight of Cliffwood Partners.
Todd Voight - Analyst
I couldn't find the lease termination fees so I was wondering what they were for the quarter.
David Hoster - President, CEO
Keith, lease termination fees.
Keith McKey - CFO
Lease termination fees were 82,000 for the quarter and it compared to 73,000 last year.
Todd Voight - Analyst
Okay, great. Thank you.
Operator
And there are no further questions at this time.
David Hoster - President, CEO
Thank you very much for calling in. And as always, don't hesitate to call Keith or me with any further questions that you might have about EastGroup. Good afternoon.
Operator
This concludes our conference call for today. You may now disconnect your lines, and everyone have a great day.