Eastgroup Properties Inc (EGP) 2006 Q3 法說會逐字稿

Welcome to today's IA conference. At this time, all participants are in listen-only mode. Later, there will be an opportunity for questions during our q-and-a session. I would now turn the call over to Mr. David Hoster, President and CEO of EastGroup Properties. Mr. Hoster, you may begin.

Good morning and thanks for calling in for our third quarter 2006 conference call. We appreciate your interest in EastGroup. Keith McKey, our CFO, will also be participating in the call. As we will be making forward-looking statements today, we ask that you listen to the following disclaimer covering these statements.

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 uncertainty 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's subject to the Safe Harbor Statement included in the news release, is accurate only as of the date of this call.

Thank you. Operating results for the third quarter met the midpoint of our guidance. Funds from operations were $0.70 per share as compared to $0.67 per share for the third quarter of last year, an increase of 4.5%. These results represent EastGroup's ninth consecutive quarter of increased FFO as compared to the previous year's quarter.

For the nine months, FFO was $2.09 per share compared with $1.96 per share for the same period last year, an increase of 6.6%. Please note that we calculate funds from operations based on AREIT's definition of FFO, which excludes gains on depreciable real estate.

We continued to achieve solid same property operating results in the third quarter, with an increase of 7.4% without the straight lining of rents. And with straight lining, same property quarterly results improved by 5.4%. This was the 13th consecutive quarter of positive results for both measures.

On a GAAP basis, our best major markets for same property results in the third quarter after the elimination of termination fees were New Orleans, which was up 18.2%, San Antonio up 17.3%, Orlando up 12.6%, and Phoenix and the San Francisco Bay area both up a little over 10%. The trailing same property markets were El Paso, down 19.7%, and South Florida, down 5.9%. The differences are basically all due to changes in property occupancies in the individual markets.

Occupancy in September 30th was 95.6%, which was our highest occupancy in almost six years. It represents a 160 basis point increase over our June 30 level, with almost all of the increase coming during the month of September. Occupancy in our four core states, Florida, Texas, California, and Arizona was 96.1% as compared to 91.9% in the non-core markets. Although El Paso and Memphis continued to under-perform our averages, both markets showed improved results in the third quarter, which have carried into the beginning of the fourth quarter.

Our leasing statistics for the third quarter illustrate the strength of our markets. Overall, of the 932,000 square feet of leases scheduled to expire, we renewed 68% and released another 29% for a total of 97%. In addition, we leased another 340,000 square feet of vacant space.

As you can see in our supplemental information, we continued to achieve strong rent growth both for cash and GAAP calculations. Increases of 5.1% for cash and 14.1% were straight lining of rents. Our average lease length increased to 4.1 years and our average lease size increased to over 19,000 square feet. Tenant improvements decreased slightly with an average of $1.55 per square foot for the length of the lease or $0.38 per square foot per year of the lease.

At September 30, our development program had increased to 17 properties containing 1.4 million square feet with a total projected investment of $99 million. Eight of the properties were in lease-up and nine under construction. Geographically, the developments are diversified into four states and seven different cities and overall are currently 44% leased.

During the third quarter, we transferred two Orlando properties, Southridge IV and Sunport VI, into the portfolio. They contain 133,000 square feet and are both 100% leased. Also during the quarter, we began construction of Suncoast I and II which were our first two buildings in Fort Myers. Arion 16, a build-to-suit in San Antonio, and World Houston 22, which is 67% pre-leased.

During the fourth quarter, we plan to start construction of six additional buildings, which will bring our development starts for the year to approximately 75 to $80 million. This represents a slight decrease from what we reported last quarter because the permit process has pushed several new starts into the first quarter of next year.

Looking at our land activity, we acquired 17.5 acres in San Antonio for the development of a 280,000 square foot second phase of our Wetmore Business Centre. Also, we expect to close on the purchase of 5.1 acres in World Houston and 20 acres in Fort Myers before the end of the year.

With these acquisitions, our inventory of development land will contain 260 acres with the potential to build approximately 3.4 million square feet of new industrial space. Our development program has been and, we believe, will continue to be both a creator of shareholder value and a major contributor to FFO by adding quality state-of-the-art assets to our portfolio. Including development properties and lease-up and under construction, we have developed 28% of our current portfolio.

EastGroup did not acquire any industrial properties in the third quarter. But we are currently under contract to purchase three buildings with 181,000 square feet in Charlotte, North Carolina for a total price of $9.3 million. Charlotte is a new market for EastGroup that offers an excellent fit with our investment and operating strategies. It is a high-growth Sunbelt metro area and which we feel we can expand to over 1 million square feet during the next 18 to 24 months.

Charlotte will be our third new market in three years. Last year we entered Fort Myers, Florida with a land acquisition and recently started the development of our first two buildings there. Two years ago, we purchased our first properties in San Antonio and we now own 1.1 million square feet including two developments under construction there currently. We anticipate achieving the same success in Charlotte and are continuing to look at other potential new markets.

Although we did not have any property dispositions during the quarter, the 106,000 square foot Crowfarn building in Memphis is now under contract with the sale expected to close before the end of the year. This transaction will decrease our ownership in the Memphis market to 264,000 square feet with a net investment of less than $5 million. We will continue to sell these remaining assets as market conditions permit.

Keith will now review a number of financial topics.

Good morning. As David reported, FFO per share for the quarter increased 4.5% compared to the same quarter last year. Lease termination fee income was 170,000 for the quarter compared to 295,000 for the third quarter of 2005. Bad debt expense was 254,000 for the third quarter of 2006 compared to 320,000 in the same quarter last year.

FFO per share for the nine months increased 6.6% compared to the same period last year. Lease termination fee income was 404,000 for the nine months in ‘06 compared to 795,000 in the same period last year. And bad debt expense was 589,000 for the nine months of ‘06 compared to 651,000 for last year.

Debt to total market capitalization was 25.6% at September 30th, 2006. For the quarter, the interest coverage ratio was 3.6 times and the fixed charge coverage ratio was 3.3 times, in line with the past quarters. Our floating rate bank debt amounted to 3.4% of total market cap at quarter end and was completely paid off in October when we closed a $78 million non-recourse 10-year mortgage loan as we discussed last quarter. Also, in August, we closed a $38 million non-recourse 10-year mortgage as we discussed last quarter also.

In September we sold 1,437,500 common shares for net proceeds of approximately $68.1 million, further strengthening an already good balance sheet. In October, Fitch Ratings upgraded our rating from BBB- to BBB, noting that the increase reflected EastGroup’s quality portfolio of industrial assets in primarily strong markets, experienced and capable senior and regional management teams, solid property fundamentals, and strong debt coverage ratios.

In September, we paid our 107th consecutive quarterly distribution to common shareholders. This quarterly dividend of $0.49 per share equates to an annualized dividend of $1.96 per share. Our dividend to FFO payout ratio was 70% for the quarter. And again, rental income from properties amounts to almost all of our revenues so our dividend is 100% covered by property net operating income. We believe this revenue gives stability to the dividend.

FFO guidance for 2006 was narrowed to a range of $2.81 to $2.83 per share. This change reflects our strong leasing results at the end of the third quarter. Earnings per share is estimated to be in the range of $0.96 to $0.98. Now, David will make some final comments.

As you've just heard, the third quarter was an active and productive one for EastGroup. We reached our highest occupancy in almost six years, while simultaneously achieving excellent rent growth for both quarter and year-to-date. It was our ninth consecutive quarter of increased FFO as compared to the previous year's quarter and our 13th consecutive quarter of positive same property operating results. Our development program continues to expand in both properties under development and land in our pipeline. And with our recent capital transactions, our balance sheet is stronger and more flexible than it has ever been. Keith and I will now take your questions. Thank you.

[OPERATOR INSTRUCTIONS]. And we'll first go to the site of Jonathan Litt with Citigroup. Go ahead, please.

Hi, it's [Greg Mulcher] here with Jon. I just want to touch on Charlotte first. You mentioned that you were looking to get to a million square feet in that market. Is this -- so does that mean you're a little bit more optimistic on the acquisition side over the next year or two or is this going to be also be from development to increase your exposure there?

The former. We are seeing more acquisition opportunities over the last 30 to 45 days that fit our criteria more than, I guess, all the rest of the year together. We bid on a large package in Charlotte and missed out. We've tied up this property. And there are several other packages that are out for sale, industrial properties in that market. So we think also by obtaining a foothold there and starting to be recognized as a player in that market who's in a position to buy, that that should increase our exposure to assets for sale.

Is there -- has there been any change in cap rates that has made more deals look attractive for you or is it just really just more volumes of opportunities out there?

More volume. From a subjective view, what's happening with cap rates is that there is more talk about them going up than actually occurring. The big packages of quality industrial assets seem to be selling at premium rates and we don't see any movement there. And maybe in some of the markets, like, Charlotte, that were previously considered a secondary market, the cap rates are still coming down because there's so much institutional money chasing the good investments.

And what's attractive investments, I guess, the great C or B- properties, the buyers are trying to raise cap rates, but sellers haven't gotten the word yet. So we've seen a number of properties where the seller didn't receive what they wanted, pulled it off the market for a while and then put it back on. So there's high expectations on the seller's part today.

Now, our question is just, what was the cap rate on that, on the deal in Charlotte?

We really don't want to give that out until we close the transaction.

Okay.

Who knows what might happen between now and then? But just on both purchases and sales, we'd rather have it in a situation where it's closed before we announce those specifics.

Thank you.

Thank you.

Next from the site of Ross Nussbaum with Banc of America. Go ahead, please.

Hi, David, good morning.

Good morning.

Couple of questions. You commented that Phoenix was a very good market for you. But we've seen a pickup in construction activity there. Are the comps going to get awfully tough in Phoenix over the next year or so?

There is a tremendous pickup in construction. We believe, though, that most of that is occurring in the bigger box type properties farther out, the western part of [inaudible] and that our smaller tenant, multi-tenant type business distribution assets will have significantly less competition as a percent of all that new construction. An awful lot of people see Phoenix as an alternative for regional or national distribution, an alternative to California, lower cost of doing business. And so that seems to be where most of the activity is.

Have you taken a look at your tenant base there to see what kind of exposure you have to a slow -- slowing housing market? And have you started to feel or hear from any of your tenants that they're thinking about pulling back on current space requirements or future needs?

The answer to the second part, first, no. We've not experienced any reluctance by our tenants that are related to housing. Our type product has a good many of a corporate distributor, that tile and marble fellow, that sort of user. But so far, they've not had any problems. And most of our tenants are related to bigger companies like that.

What we hear about in markets like Phoenix is where the home builders have dropped options for land out on the periphery and are pulling way back in to wait for the market to turn again. So it's -- the first indication is just there is more land for sale than there was a while ago.

Okay. And then sort of a similar question on Florida. Any thoughts on your exposure there, given what's going on in the single-family housing market? And does that cause you to start thinking about acquisition, disposition, development strategies a little differently over the next year or two?

No, we're not seeing -- just like with Arizona, we're not seeing any pullback or financial problems with our customers that are in that business. I think most people in Florida just see this as part of a cycle and that there's not going to be a crash, it's just going to be a slowdown and -- the statistic is that there are, what, almost 1,100 people, net a day, moving into the State of Florida. So construction for single-family homes and condos certainly got ahead of itself. But there are still people who need places to live. So I don't see it coming to a screeching halt.

All right. So it sounds like you're telling us not to be too concerned that 38% of the space that's rolling in your portfolio is in Florida next year.

No, actually, wouldn't rather have it anyplace else. I mean, that's where we're getting our highest occs., rather than Los Angeles, our highest occupancies and some of our best rent growths. So rather be dealing there with a partial slowdown in the economy than the other areas.

I think -- and that's it. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]. And we'll next go to the site of Paul Adornato with BMO Capital Markets. Go ahead, please.

Thanks, good morning.

Good morning.

David, I was wondering if you could comment on what you're seeing in terms of investment capital flows in industrial space and particularly its effect on the development pipeline. How protected do you think your development pipeline is from competition?

Each market's a little bit different. And part of it is land availability for our type of development. And there's -- we're not seeing as much competition in cities like, Orlando, Tampa, or Fort Myers because they're just not the available close-in land for our infill site type buildings and locations.

Houston's another story. And I think we've got very good locations there. But it seems as though almost any undeveloped piece of land on the North Beltway 8 has warehouses going up on it now. So we haven't felt any increased competition yet. But over the next 6 to 18 months I think Houston's going to become a whole lot more competitive market.

In Phoenix, the development that we're seeing is primarily this bigger box, larger distribution type user building rather than our multi-tenant facility. So we're optimistic that we'll do well in that environment.

And did I catch this number correctly that in the fourth quarter you're looking to start 75 to 80 million in new development?

No, that's for the year. I wish we could do that --

Okay.

No, that's for the year.

Okay, thank you.

Thank you.

Our next question from the site of Christopher Pike with Merrill Lynch. Go ahead.

Good morning, David.

Good morning.

Just one market question and just a bigger macro question. In terms of Memphis, is it a mix issue -- I guess, from talking to some of your domestic competitors, I guess, they're a little more bullish on the big box bulk product. And with your moving out of that market, maybe you could just help me better understand the dynamics that's current there.

The vacancy rate, overall, for industrial space in Memphis, and that includes the Metro area with northern Mississippi in it, is still around 19%. So it's the highest vacancy of any market in which we're operating. The --

Is that it? Is that a mix issue? I mean, does --

Well, that's a mix, yes.

Okay.

The big box to the bulk buildings are doing the best.

Yeah.

It is primarily the new buildings. But that's not our product. So that's one of the reason -- the main reason we're deciding to get out of Memphis is our type product doesn't work as well there. And then secondly, we saw in the most recent recession that Memphis was much greater hurt than our Sunbelt markets just because the Memphis economy overall doesn’t have its own vibrancy the way that Florida or Texas cities do.

Okay.

I think another factor in Memphis is, in talking to brokers, although the bigger box is working reasonably well there, most of that's not in Memphis, it's in northern Mississippi. And I’ve been told the cap rates for that type product is a low-to-mid 8, where if you had the same building in southern California, it would be a 5 or less. That was just the general expectation of what’s going on there.

Okay, and that’s helpful. And I guess in terms, just overall, in talking to our transportation folks here at research, it just seems that all the truckers are just being dealt with some pretty soft results this quarter. And I asked this of one of your competitors and they seemed to think that there really was no impact. But are you seeing any impact of weaker trucking volumes in and around the markets in which you operate and does that have any impact moving forward?

Not that we’ve seen, Chris. I mean that -- there is a lot of press about and I guess Merrill Lynch has projected a recession at the end of next year, but our customers haven’t read that yet. So that we're not seeing those kind of worries, the desire for shorter-term leases or more out in a lease or they're unwilling to make commitments because they're worried about their business.

In almost all our markets, the users are pretty darn bullish in terms of growth. And the other thing that's very encouraging, I think, in markets and in particular Texas, Arizona, and Florida, is we're seeing new users to the market, where a company that hasn’t done business in one of our cities before decides it needs to be in that market because of the growth. And so they come in and it's new demand. It's just not shuffling or expansion of current tenants.

Okay, thanks a lot.

Thank you.

Next to the site of Chris Haley with Wachovia. Go ahead please.

Hi, good morning. It's Brendan Maiorana with Chris.

Good morning.

Hi, David. Just to go back to Charlotte, without getting into specifics, could you comment on what the cap rate spread is between the products that you're targeting and the product types you're targeting in Charlotte versus some of the frothier markets that you have in Florida, Texas, and California?

Well, I do not want to get into too much detail on cap rates until we close some of these transactions. But I would say they're slightly more attractive cap rates to most of the other markets, not significantly more attractive. And I think part of that's due to the fact that there’s still so much institutional money looking for industrial real estate and where a couple of years ago, Charlotte, like a lot of other second-tier cities, were viewed as not hot markets and now there is a whole lot more interest in them than there had been in the past. Orlando is a city like that that was viewed as a secondary market and I think now most brokers -- income property brokers would tell you it's a premium market. It certainly doesn’t touch southern California, but it's up with the other big city markets. So we hope to have a little bit better spread, but nothing significant.

Okay, thanks. And then it looks like you guys did a little bit of lease-up in El Paso, which had been a weak market. Is there any notable change there or is that just a one-off deal?

No, we've signed, I think it was eight leases in the last -- well, less than 60 days. And we hope that that’s a sign that the market has turned there. There’s still the type of leases that you see in a market that’s just starting to experience a recovery, where there are a lot of short-term leases, leases without -- short-term leases with little or no TIs. So they're really testing their expansion. But we’ve been pleasantly surprised with the activity that we’ve seen there, as I say, in September, and then we’ve signed a couple of more leases, two more leases in the month of October so far.

Okay, great. And then the last one, just the big rental rate roll-down in San Francisco, was that just a -- what was the story there?

It was a long-term tenant -- a large long-term tenant that we had signed the lease, if not at the peak of the market there, pretty close to it. And the market is stabilized and rents are actually starting back up on a pretty good clip. But they're still not anywhere near where they were when we signed this lease. And so we had expected this to occur and we're just very pleased that we've released space for the long term with no downtime.

We still -- we have two leases in Northern California coming up, I think, in the second half of next year. One of them we're projecting today will have a downturn, still the other one will have a little bit of an uptake. And if the market stays real strong, maybe we'll have little or no downturn on average. But that was just because the rents were so darn high when we signed this lease, I think it was seven years ago.

Okay, great, thanks. That's all I've got.

Thank you.

[OPERATOR INSTRUCTIONS]. And we'll next go to the site of Art Havener with A.G. Edwards. Go ahead, please.

Good morning. David, as your development pipeline continues to ramp up, you're going to probably be transferring more of these development properties into your operating portfolio. Do you consider selling any of these properties? And if you do or you don't, can you kind of give us an idea of what factors go into your decision-making?

As you might guess, we've talked a lot about this internally, given what is happening with most of our peer group in the industrial sector. And we've made the decision that our strategy has worked well for us so far and we're going to continue with it. And that is creating value for the long term by adding new high-quality assets to the portfolio that we think compliment what we already have and have a good bit of upside in rents in the future, given in the quality and in the location that -- of the assets.

And we understand that we're trading that off for some nice short term earning pops if we turned and -- around and sold those assets. And just fooling around with some numbers, and we transferred two Orlando properties into the portfolio in the third quarter. And just with some rough calculations, I guess, that if we sold those two assets rather than include them in the portfolio, we could record $0.14 or $0.15 a share in FFO and that'll look real good on the surface, but then we wouldn't have those assets in the portfolio going forward. So --

Can you quantify what kind of cap rate differential there is between what you think you can build and -- we know that you can build on that, but what can you sell them for?

I would think these asset, looking at, let's say, 100% occupancy, would be a 6 and -- somewhere between a 6-1/2 and a 7 cap rate.

And what --

Which would be a significant capital gain. Now, it would be a wash if we could take the proceeds and forgetting any transaction costs or taxes that we might have to pay. And if we could buy those two similar assets next door and put them on our portfolio, then we have a wash from a portfolio standpoint and could have been able to record $0.14 or $0.15 of FFO. But given the transaction expenses and the difficulty in trying to buy assets that are as good as what we're just building, we have just stuck with our simple straightforward strategy of building for our own portfolio.

Now, I will add that in -- I think we've mentioned this before, in some instances, we're going to build some small buildings to sell to users. And we hope to do two of those on our Oak Creek development in Tampa. But that's not a change in strategy, that's just the size building that fits on the site and it makes more sense to build them for sale than it is to try to build a very small [inaudible] warehouse for investment and collect the rents on it. So we think that over the long term, we're going to have a stronger and more productive portfolio by holding on to what we're building.

Okay, thank you. If my memory serves me correct, your -- about 30% of your portfolio has been developed by EastGroup. Is that --

That's correct.

Okay. And sticking with the development theme for one more question, what is your strategy relating to the land investment? I mean, how much more land do you have an appetite for? And how do you view that in terms of how much capital to tie up in land?

We have some internal guidelines on how much land we're to hold for development and we've got a good way to go to hit those -- the upper limits on those. We are right now trying to buy all the land that we can that fits our strategy, our criteria of development and it’s becoming harder and harder to achieve that. People with industrial land would rather sell it for a higher use till they make more money. And the good close-in sites seem to have been taken in most cases.

So we're working harder and harder to keep that pipeline full. And at this point, we don't feel any capital constraints on either land inventory or certainly on our development program, given our very low debt to total market cap and right now we don't have any bank debt. So we've got tremendous flexibility and potential for both acquisitions and new development.

Okay. Well, one more question for Keith. It looks like your G&A ran up a little bit in the third quarter to around 2 million. Is that a good run rate? And I guess if you can kind of give us insight on what happened this quarter.

As we discussed last quarter, we had the expense about 56% of our long-term incentive programs under the FAS 123 and which ramped that up more and I think that the -- around the 2 million will be a run rate.

Okay. So that program pretty much made up for the difference.

Right.

Okay, thanks.

Thank you.

Next question from the site of Michael Gorman with Credit Suisse. Go ahead, please.

Good morning. Just had a question on the development pipeline --

Sure.

--around the 100 million at this point. How big do you ultimately think that that can get or how big would you like it to get eventually?

Well, right now, we are building based on both the good land that we have and the market conditions where we own that land. I would hope that next year we could increase that 10 or 15% but it’s really all going to be based on the leasing potential in our various development markets.

We don't set a goal to build a specific amount. We build based on what market conditions and our calculations dictate to us. So -- well, we hope to increase it as long as the economy stays strong. If something happens to the economy, prospects pull back and then we would also pull back.

Okay. And then am I to infer from your comments about the land earlier that you haven't seen any back-off in land prices due to the housing slowdown, especially, I guess, in the Florida markets?

Not yet. We'd sure like to see it, but that's not -- an awful lot of the land prices are for big -- that will be backing off are big tracts for residential use and that’s not trickled down to industrial use.

Okay. And then just looking out into ‘07, given some of the comments here that, I guess, releasing accelerated into September, do you think the same-store momentum, the sort of 3 to 5% range is sustainable through next year?

I would -- we've not looked at our ‘07 numbers in any great detail yet. We're in that process and we will probably put out guidance in mid-December like we have in previous years.

But I would certainly hope that we could keep up a reasonable momentum. It's going to be harder, of course, to have same property increases with an occupancy that's now over 95%. It only goes so much higher. But at the same time, we're starting to feel the benefit of the increased rental rates that we've been getting over the last 12 to 18 months. So we're optimistic as long as the markets hold that we can be, if not better than where we are today, at least close to it.

Okay, great. And just one final one for Keith. The lower lease termination fees in this quarter, is that a trend that we're going to see going forward or is that just sort of a one time thing?

I’ll jump back in on that. I think that’s probably a trend. I mean, as the markets improve, we try to take lease termination options out of the leases so that we know we have that customer tied up for a specific period of time. And so I think that we've not looked forward to see what it might be next year, but we're certainly giving less options to terminate. And so I would hope that that would result in less terminations. It's nice to get that pop, but we'd rather have the tenant than space.

Okay, great. Thanks, guys.

Thank you.

I think we'll take our next question from the site of Paul Puryear with Raymond James. Go ahead, please.

Hey, good morning.

Good morning.

David, when you move into a market like Charlotte, what are some of the criteria that you look at to choose a new market?

Well, what we try to do is duplicate what the markets offer where we're currently successful. And some of those are the -- a metropolitan area of over a million people. In Charlotte, it's, I think, roughly 1.6 million. A city where there is a strong economy. Charlotte's certainly a case there. Charlotte has seven or eight Fortune 500 companies that are based there, two of the bigger banks in the country, being there, obviously, continued job growth, and limited risk to the companies that are there in terms of any one industry or going sour or companies pulling out of that marketplace. And it's our determination that a lot of the risk that could happen to Charlotte have either occurred or they're passed. So we see that as a positive.

And our product is, as we describe it, a business distribution building where our customers are distributing their products or their customers are in the greater metropolitan area where the building's located. And that's very much a Charlotte market.

It's not a huge regional distribution center like in Atlanta or in Memphis. It's a big box market. So we think what it offers fits us well. And we would certainly look into the other markets in North Carolina as time goes on. I realize a $9 million investment is not a way to make a big splash when you move into a market, but that was about the size of investment we made in San Antonio a little over two years ago.

I'd say we've been very fortunate there and we're over a million square feet and developing in two locations. So we hope to have the same success and the same opportunities in Charlotte.

So as you look back at Memphis, which hasn't worked out for you, is -- I mean, the market hasn't been that strong, but it's also not your product type. Is that --?

I think it's both. It's both.

But you kind of like what you see in the Carolinas?

There is less competition. Not every industrial developer and their brother is throwing up buildings like somewhat the case in a Memphis or a Phoenix now. So the size of the market, the population growth, job growth, stability of the market, quality of the companies that are there, quality of life in North Carolina, we think all add up to good prospects for North Carolina as a state and Charlotte as a city. And both of those are usually listed in the top 5 or 10 of any list of attractive U.S. cities for quality of life and business growth.

I mean, not to sound like the Charlotte Chamber of Commerce, but Site Selection Magazine ranked Charlotte number 1 in its list of top 10 U.S. cities for foreign investment. For three years running, the magazine has listed North Carolina as home to the best business climate in North America. Charlotte's the fifth most literate city. I mean, there is the whole series of positive statistics about Charlotte and North Carolina as a state.

Yeah, thank you, that helps. One more question. Are you getting any relief in construction costs?

Yes, I guess that in some situations, the best we can say, it's just stabilized. But over the -- really the -- and that started, I don't know, 60-90 days ago. In the last 30 days, we are seeing some actual decreases of the products that are tied to petroleum like PVC pipe and asphalt and roofing materials. And another positive is there are more sub-contractors bidding on transactions. And so they are getting more aggressive as, I guess, some other sectors of construction, particularly home-building, has slowed down. We are not seeing any significant drop in concrete, although we did get a little reduction in Phoenix. But it is -- at least it is not going up and it is stepping back a little bit. Whether that’s long term, they don’t know, but it is helping us with the bids that we have out now for buildings we hope to start the next quarter.

Right. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]. And it would appear at this time, we have no further questions.

Thank you. As always, Keith and I are available for any additional questions or follow-up you’d like to have with either of us. So please don’t hesitate to give us a call. Again, we appreciate your interest in EastGroup.

That concludes today’s audio conference. You may disconnect your line at any time.