Eastgroup Properties Inc (EGP) 2010 Q3 法說會逐字稿

Good day, everyone. Welcome to the EastGroup Properties third quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note, this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to hand the call over to Mr. David Hoster, President and CEO Please go ahead, sir.

Good morning. And thanks for calling in for our third quarter 2010 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.

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 contents 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 are at the mid-point of our guidance range. This was the 19 consecutive quarter that we either met or exceeded the quarterly guidance mid-point. Funds from operation were $0.70 per share as compared to $0.76 per share for the third quarter of last year, a decrease of 7.9%. This decrease was primarily due to a decrease in the same property operations. It increased interest expense, mainly resulting from lower capitalization of interest this past quarter. For the nine months, FFO was $2.14 per share, as compared to $2.39 per share for the same period of 2009, a decrease of 10.5%.

Same property net operating income for the third quarter declined 4.8% with straight line rent adjustments and 6.5% without. These figures represent a decrease from what was experienced in the first two quarters, due primarily to the fact that there was significantly less termination fees in the third quarter. On a sequential quarter basis, we experienced positive same-property results over the second quarter after the elimination of termination fees.

In the third quarter on a GAAP basis, our best major markets for same-property results, again, after the elimination of termination fees, were San Francisco, which was up 26% and Houston which was flat. The trailing same property markets were Los Angeles down 27%, New Orleans down 18%, and Dallas down 15%. Although, average rents were declining, the difference between quarters is basically due to changes in property occupancies in the individual markets.

EastGroup's occupancy at September 30 was 88.3%, an increase of 110 basis points over our June 30 occupancy and 210 basis points above March 31 results. Looking forward, we continue to project occupancy to increase to at least 89% by the end of the year. Please note that these statistics include our development properties that were moved to the portfolio at the earlier of 80% occupancy or one year after shell completion.

Our Texas markets were the best at 94.6% leased and 92.5% occupied at the end of the quarter. Houston, our largest market with over 4.8 million square feet, was 97.5% leased. Our most challenging major markets continue to be Phoenix at 75.8% occupied and Tampa at 80.4% occupied.

Looking at third quarter leasing statistics, we renewed 90% of the 943,000 square feet that expired in the quarter. And leased another 621,000 that had either terminated or expired during the quarter or was vacant at the beginning of the quarter. Our renewal rate of 90% is a record for us and especially impressive given the generally depressed market environment which we operate.

As shown by our occupancy results, we are achieving progress in leasing but activity is still very shallow. We cannot call it good yet, but it is positive. And we expect to achieve increased occupancy through the end of this year. There is activity in all of our markets, but prospects continue to expect cheap rent with significant concessions and feel a little sense of urgency since they have so many lease alternatives.

As you can see in our supplemental information, GAAP rents in the third quarter decreased 8.5%, and cash rents declined 12.6%, an improvement over the second quarter and about the same as our first quarter results. Our Arizona and Florida markets continue to have the largest rent decreases after having achieved the largest increases several years ago. We expect to report negative rent growth until occupancies recover to the 93% to 94% level.

This was the case coming out of the last recession. Average lease length was 5.2 years, which was above our average for the past year. And improvements were $2.49 per square foot or $0.48 per square foot per year of the lease. The $0.48 represents our average for the last four quarters, but it's higher when compared to the last eight quarters. We did not have any property acquisitions or dispositions during the third quarter.

Also, we do not currently have any properties under contract to either purchase or sell and as a result, have not included any transactions in our guidance for the fourth quarter. The positive news is that we have seen an increase in the acquisition opportunities that meet our business distribution criteria. And currently have a number of purchase offerings outstanding.

During the quarter, we transferred World Houston 30 with 88,000 square feet and a total investment of $6.3 million to the portfolio. It is presently 69% leased. At September 30, our development program consisted of only a 20,000 square foot preleased expansion of Arion 8 in San Antonio which is expected to be completed in January of next year.

We do not have any development starts projected for 2010, but we are working on potential bill to suit opportunities and yet partial prelease of a proposed small building that would allow us to initiate a new development in Houston. Keith will now review a number of our financial topics.

Good morning. As discussed, FFO per share for the third quarter decreased 7.9% compared to the same quarter last year. Lease termination fee income was $378,000 for the quarter compared to $313,000 for the third quarter of 2009. Bad debt expense was $91,000 for the third quarter of 2010 compared to $211,000 in the same quarter last year. This is the lowest quarterly bad debt since 2004. But we did have $194,000 of bad debt recoveries in the quarter that helped with this number.

FFO per share for the nine months decreased 10.5% compared to the same period last year. Lease termination fee income was $2.8 million for the nine months in 2010 compared to $755,000 in the same period last year. Bad debt expense was $833,000 for the nine months of 2010 compared to $1.6 million for last year. Our bank lines totaled $225 million and at September 30, 2010, outstanding bank debt was $134 million. Our lines of credit are primarily used to fund property acquisitions and our development program.

As market conditions permit, we employ fixed rate, nonrecourse, first mortgage debt and/or equity to replace the short-term borrowings. In September, we executed an application for a $74 million nonrecourse first mortgage with a fixed interest rate of 4.39%, a 10-year term and a 20-year amortization schedule. We expect to close the loan in late December and use the proceeds to reduce bank debt. We were pleased with the amount of the loan proceeds and the interest rate on this transaction.

On October 1, we repaid $8.8 million mortgage on Tower Automotive Center. This loan was due January 15, 2011 and the early payoff would save us about $35,000 in costs. We had two loans that mature in 2011. One loan had a balance of $36.5 million at September 30 and interest rate of 7.25%, and is due May 1, 2011. The other loan had a balance of $23.1 million at September 30, an interest rate of 7.92% and is due May 10, 2011. We have already begun talks on refinancing of these loans.

Debt to total market capitalization was 41.7% at September 30. For the quarter, the interest and fixed charge coverage ratios were 3.1 times. The debt to EBITDA ratio was 6.5. Floating rate bank debt amounted to 7.8% of total market capitalization at quarter end.

In September, we paid our 123 consecutive quarterly cash distribution to common stockholders. This dividend is $0.52 per share, equates to an annualized dividend of $2.08 per share. Our FFO payout ratio was 74% for the quarter. FFO guidance for 2010 has been narrowed to a range of $2.84 to $2.86 per share while maintaining the same mid-point of $2.85 per share. Earnings per share is estimated to be in the range of $0.65 to $0.67. Now David will make some final comments.

We believe that EastGroup is well positioned for future growth. Our balance sheet is strong and flexible. We continue to make leasing progress with increasing occupancy. We are actively seeking acquisition opportunities and are ready to begin new development as markets allow. Keith and I will now take your questions.

(Operator Instructions) Looks like our first question will come from the site of Chris Caton with Morgan Stanley. Your line is open.

Good morning. So I think in terms of acquisitions, could you quantify that a little bit for us? I think you've been able to do $24 million in deals this year. What type of probability do you think some of the outlooks are and what scale can we expect for 2011?

First of all, for this year it's a little too early to give you a number. We don't like to talk about those until we have a property under contract. It could easily be more than we bought so far this year. It could be zero. It's just very difficult to tell until properties are tied up, given the number of bidders the capital chasing new investments. As to next year, we are just in the process of rolling up all of our projections from a building by building basis. And we've really not gotten into estimates of acquisitions or new development or any of the details for 2011.

Okay. So is it fair say then with regard to your pipeline it's still fairly -- that you're in an early enough stage that nothing is looking highly likely?

Yes. We don't like to talk about it being likely until we have something under contract. Too much can go wrong. Sounds like I'm dodging your question, but we continue to see investments. We're in negotiations on a number of them. Everything takes longer in this environment than it has historically. And I think that's the nature of trying to acquire properties where generally rents are the contract. The contractual rents are above market rents and trying to come up with what you think's going to happen, two, three, four years out, it seems a lot more tentative on what they're doing today than a couple of years ago.

Sure that's fair. Last question, as you look at 2011, and we think about the releasing spread you talked about that, down $12,600 down straight line this quarter, was much higher last quarter. ow do you see things trending next year? Are you seeing expiring rents rise in your portfolio and so will you need rent growth to keep spreads at a current level? Or is there something else at play?

We're still working on it's easier to project what you think you're going to renew and release a vacancy than it is to guess on the rents since those can change fairly quickly. But one analysis that we have done, I think it's interesting to point out that if GAAP rents on average drop by 10% over a 12-month period, then you need about 1.2%, 120 basis point increase in occupancy to break even on the same property basis. So if we assume that rents are going to go down 10% in 2011, then we need to increase occupancy more than 120 basis points in order to grow same property results. We're very cognizant of that as we go through projections and the people in the field and making leasing decisions. If we jump all the way up and say rents are going to be even lower and you get up to 15% rent down, which we don't think's going to happen, but then in our analysis, you need 180 to 200 basis point increase in occupancy in order to break even. So it shows we need to lease space to grow FFO next year.

Got you. Thanks very much.

Thank you.

And we'll move next to the site of Ki Bin Kim with Macquarie Capital. Your line is open.

Thank you. If you could talk a little bit more about the $74 million of mortgage financing you got. What cap rate did the lenders use and was there anything specific about this transaction or is this the number we can start thinking about going forward?

Are you talking about the number going forward on interest rates?

Yes.

We don't know what the lenders use. We give them a lot of different things and we put it out to various insurance companies. We some use different numbers. Some use different amounts of NOI projections. We have our own internal using different various cap rates that we use and different events whether current in place rents budgeted for this year, budgeted for next year and, loan-to-value that probably range between 65% and 75% using all those variables.

And do you think the 4.4%, 4.5% is something that's sticky and that's what other lenders are probably around that number?

I think the 4.39% was our lowest rate on the best offers, but I think the interest rates are around 4.5% to 4.75% usually on those. So we'll just have to see where the rates go.

Next question. So given let's say low debt costs say 4.5%, and but fundamental's bottoming and starting to improve the past couple quarters, how's that change your thinking about capital deployment and required returns and your own development pipeline?

Well In our development pipeline, Ki Bin, we've always stated that in a normal environment, we would need 150 to 175 basis point spread on the projected yield that we could obtain on that development, the pro forma yield versus what we think that property would sell for in the open market. The second part of that equation though, is there a demand to support leasing at those pro forma rates on really a 12 month lease up projection. And there are few if any markets today where rent, current rent levels and demand for new space justify a viable pro forma. You can always pro forma something that looks good, but you've got to back it up. And so in some markets like Florida, we're probably a lot farther away speculating any prelease development than we are our Texas markets. And this is something we've been saying for a couple of quarters. And so we would expect that it would Houston first then maybe closely followed by San Antonio are two markets where we see the potential sooner rather than later for new development.

I see. Thank you.

Thank you.

And we'll go next to the site of Alex Goldfarb with Sandler O'Neil.

Yes, hi. Good morning.

Good morning.

Just a bigger picture here, you talk about the competition for acquisitions. But if we look at the ProLogic Blackstone deal, do you consider or do the brokers consider that to be a mark for what industrial valuations are or whether enough particulars about it that people aren't necessarily using that as a comp?

A couple ways to answer that. One is, there's a lot of capital chasing industrial. There's not a lot of potential buyers that can pay over $1 billion for a package. So needless to say, we didn't see that package. So I can't tell you about the individual properties.

Secondly, all reach have a wide range of age, quality, location of properties and when you start talking about comparables, I think you have to look at individual assets. There's specific submarket locations, levels of obsolescence and a lot of other variables to say a certain cap rate is representative of where the market is today. So at least from our standpoint, there's not enough information available to say that was a good deal, bad deal, or market deal from what we see on individual property or smaller portfolio transactions. I think all that'll come out in time is people can look at the individual buildings and do their own evaluation. The final factor is without knowing what contractual rents are versus today's market rents, again, is very difficult to say how do you value it.

Okay. And then as far as leasing activity, if you look at the developments that have moved into the operating portfolio, the numbers were pretty constant with the last time you reported. I guess as you think about --

Let me interrupt you. One went up late yesterday after we put out our press release. Beltway 7 is up to about 83% or 84% lease now. So there has been some activity.

Okay.

I don't want to brag about it but I had to get that in.

No, that's good. But as far as what's going to make the tenants sign with you? Is it -- obviously you don't want to just compete if someone's cut offering tremendous free rent or concessions, et cetera. So what makes someone finally say, I'll do a deal with you versus going with some cut rate guy out there?

I think we're starting to get to a point in, I use the term recovery, of the real estate markets. The first step, point where people are willing to just step up a little bit. First reaction of 12, 18 months ago was prospects were saying, I want the cheapest space, I don't care where it is or what its obsolescence might be or anything like that. I'm worried about survival. Overgeneralization, but they're looking for just the lowest rent, the most giveaways. I think we're at a stage now where users are out in the market, and they're seeing an opportunity to trade up in quality of space for the same rent that they're paying trade up to an A-building for the same rent they're paying in a B or C building or very slight increase in that.

And then we're also starting to see, which is encouraging, prospects who are willing to pay a little bit more to be in first generation space in A-building and attractive park with an A location. And so that's why people step up today, and I think the next step is going to be where a prospect says I want to be in your park like the World Houston or Beltway Crossing. And we say, well, we don't have any space available to fit you. They say, I really want to be here. Then you say, well I can have a building ready for you in six to seven months. And you start preleasing space, which allows to you begin new development.

Okay. Just final question, Keith, looking at the AFFO, second quarter and third quarter we're definitely short of the dividend. Should we use the second and third quarter AFFO adjustments going forward? Should we expect the short fall to continue or how should we think about this relative to the dividend?

I think in the second and third quarter, we had a good bit of TI's that I think will decrease and as NOI increases, that will help that number, also. So we hope to see that trending down.

But obviously, how long would the board go with the AFFO below the dividend before they seriously consider altering the dividend?

I think the issue, Alex, is can we show that we will be able to or are able or being able to or being able to earn our way out of that. We have the same situation in recession at the beginning of the decade where I think our AFFO payout ratio was about 110%. The next year it dropped to 100% and then the year after that to about 95% and worked down into the 80's. And as long as we can continue to show leasing occupancy progress, then I think we're in good shape.

Thank you.

Thank you.

And we'll move next to the site of James Feldman with Banc of America. Your line is open.

Thank you. I was hoping we could talk a little bit about the maturities in 2011, the lease maturities in terms of how you're feeling now in terms of the likelihood of renewals versus the likelihood of some occupancy loss?

Well, we are already renewing some of the bigger users that come up next year, and just the activity that we see, have seen over the last couple of quarters, as I mentioned in my prepared remarks, is not great, but it's at least positive. We have a reasonable amount of confidence that we will continue to make certainly not strides but maybe baby steps in increasing occupancy by reducing the move-outs and leasing vacant space. It was encouraging to have 90% renewal rate on the leases that mature during the third quarter. I'm not projecting that that'll happen every quarter going forward, but I think it shows some positive signs for the overall market.

So I guess if you look at the 20% expiring, how many are in discussions now and how many would you think would -- should even be in discussions now based on how early you start talking to your tenants?

Just in the -- since the end of the quarter, we signed 313,000 square feet in renewals and over 100,000 of vacant space leased in the three weeks. And when you look at next year, the rule is about 17% which is only slightly higher than usually what happens to us. And I think it's up a bit simply because we've had so many users go for shorter term renewals over the past 18 months with the one-year leasing, no, excuse me, I was looking at the wrong number it's 14.7% for next year 17.3% for 12. So that's right in line with what we have on an annual basis. So that's not a high number for us.

Okay. I guess the bigger picture as you are thinking about the dividend and follow-up on Alex's question. At this point, at what point do you think you do grow into the dividend coverage? How long does that take?

We're not in a position to project that yet. As I mentioned, we're coming out of the last recession our worst year on an AFFO payout. Everybody calculates that a little differently but was roughly about 110% payout the next year went to 100% then dropped to the mid-90s. I don't know if year going to achieve that or not. But we've worked extra hard to not reduce our dividend. I think we were the only one in our peer group who didn't significantly reduce the dividend through the last recession because we were conservative on what we were paying out before the downturn occurred. So, we'd have to see a downturn in the economy to see our leasing start to head in the wrong direction again, I think before we see a threat there. It's really based on where we think we're going.

Okay. And then just finally, I guess if you think about the change in sentiment amongst your tenant this quarter versus the past, as they're looking forward, what are they optimistic about? What are they concerned about? We're hearing a lot of discussion over the mid-term elections, tax cuts. And do you get the sense these are things that could create a pull back in demand?

I'm not sure we're getting that specific feedback. They just seem to be more confident about the feature than they were 12 or 18 months ago. I think that shows up in longer lease terms. Our average is over five years which is on the average for the Company's over five years but on what comes up for renewal and the new leases. I can't remember when it was over five years before. So I think that's a sign of a certain level of confidence, and each region of the country's a little bit different because each is differently affected by the economics of their individual areas. So it's more of what's happening in their individual business rather than I think any big pictures right now.

Okay. Thank you.

We'll move next to the site of Paul Adornato with BMO Capital Markets. Your line is open.

Hi. Thank you. I was wondering if you would talk about what's happening in the markets you describe as in the weakest LA, New Orleans and Dallas? Are the problems there related to one tenant or is it general market weakness? Can you talk about that a little bit?

Los Angeles is the easy one. We lost as I think you'll recall 300,000 square foot user in Chino in the single-tenant building. So that knocked us way down there. We now released 100,000 of that. We had a long time customer for 80-some thousand square feet after 25 years in the building go broke, and we're just finishing up rehabbing that building. And then we had some vacancy in the city of industry which we've now fully released. So we don't really see Los Angeles as a problem. I think that's more of an aberration on timing of when we lost some customers. New Orleans is just a very static market. We've got less then a million square feet there. So a couple move-outs, small move-outs affect those numbers bigger than they do someplace else. In Dallas we lost a number of tenants and we pretty much re-leased that space. We're not happy with our occupancy level there. But again, that's somewhat stable. Although we think it should be improving.

Phoenix and Tampa are where as longer term vacancy is being experienced. We got knocked down in our portfolio when our new Sky Harbor development moved in to the portfolio a little over a year ago. Back then, about 25% leased. It's now over 50% and we have some good prospects there. But the market's gotten a lot of positive publicity with a quarter of positive absorption. Amazon came to town and leased 1.2 million square feet in a new building that had been vacant for a couple years. So everybody started getting excite. I'm going to give it another quarter before we get excited to show a couple quarters in a row of positive absorption.

Tampa, we have three buildings in our Oak Creek development down in the southeast side of town where we've just struggled with that vacancy. One of them we lost to build a soup 10 at the end of their 10 years. We have prospects for the space but have not signed anything in really the year they've been out. A new building, Oak Creek 9 we've finally executed the lease there for a quarter or 30% of the building. We hope that's a good sign it will do some leasing. Oak Creek 2 where we have good sized vacancy. Not much progress, but the two markets that we worry about as I say the most are Phoenix and Tampa right now.

Okay. And if you were to look at the small tenant traffic, have you noticed any increase there or any other signs that any sort of leading indicators that the economy might be improving as far as you can tell?

The activity that we see in our various spaces tends to be for the 25,000 and under square foot user. I believe it is not picked up as much as it did coming out of the last recession. And I think that's just a reflection of how slow the recovery is. So I mean we watched that as an indicator, and it's been positive. Like all of the rest of our leasing, it hasn't moved as quickly as we saw in 2002, 2003, 2004 recovery.

Okay. Thank you.

Thank you.

And we'll move next to the site of Brendan Maiorana with Wells Fargo. Your line is open.

Thanks. Good morning.

Good morning.

David, you've made the case a couple quarters in a row I think that occupancy is really what's going to move your NOI up even though rent releasing spreads are likely to be negative for the foreseeable future until you can really move the occupancy numbers into the low to mid-90s. But we've seen your occupancy move up quite nicely from Q1 into Q2 and now Q2 into Q3. But when I look at the NOI levels and I adjust for the lease term fees and the bad debt expense, your NOI levels are basically flat over that time period. Can you maybe help me understand why the NOI would be flat if I look out over the past couple of quarters given the occupancy growth and why, if you're able to grow occupancy in 2011 or in Q4 and then into 2011, why you will be able to see NOI growth on a cash basis?

I think it was slightly positive when you look at Q3 to Q2. And there's a certain amount of timing involved. So I think you have to look over a little bit longer period because our occupancy growth in Q2 all occurred during the last 30 days of the quarter. Some of it wasn't even for a full month and was really down below 86% in the first two months of the quarter. I think you have to look overall. So I go back to the comment I made earlier in our calculations if rents are down, GAAP rents are down 10%, then we're going to need 120 basis points of increase in occupancy just to break even on NOI's.

But that's on a GAAP basis. If we look at it on a cash basis, you probably should be, let's say if your rents are down 15%.

Yes, on a cash basis, it's a bigger number, yes. On a cash basis, it's going to be, we're down 15% it's going to take close to 200 basis points and occupancy growth to grow NOI.

Shouldn't it take less because you have in-place bumps? On the, on the 85% of the portfolio that's not rolling over?

That's not right now modeled. But we've been running. We've been looking at what GAAP's going be.

Okay. Maybe we can follow up on that offline.

That's what we report FFO on is the GAAP, and our preliminary numbers for next year have been looking on a GAAP basis.

Okay. Maybe you can follow up offline. Second question is as it relates to the leasing and maybe the strategy or the leasing metrics on when I look at the lease term that you did in Q3 and really for a lot of all of most of 2010, the term seems to have increased and is probably the highest that it's been over the past 10 years. And the CapEx cost or the leasing costs per square foot per year are also at the high end of the normalized average for EastGroup, and that would suggest to me that maybe the outlook for improvement in net rent economics isn't very optimistic for you. Is that a fair characterization? How do you think about improvement many that economics over the next few years?

Well we certainly think that's going to improve if the economy improves because occupancy will go up. There will be less three rent and you will probably have to do less TI's for a prospect. The fact that the length of the lease has gone up and TI's have gone up is a positive. It's the negative is when the TI's go up and the length of the lease goes down. Then you're making improvements that somebody might not use for a very long period of time. So I think that's an important fact to consider.

Another factor in the last quarter really in this last year, we seem to have had a lot of customers downsize. So that when we had -- and the activity has been the smaller spaces so that when you look at the size of the leases so in this last quarter, there are at least three situations, there might be a couple more where the TI's are higher because it was a single user space that we knock down for two or three users, and you have to go in and put in a demising wall, add office space and put in a rest room at least one rest room package in each one. So that makes the TI's higher. Generally those are TI's that are going to stay with the building and not be torn out when the lease turns. So I think that's something to keep in mind also. Obviously in a down market, prospect requires you to do more free rent, lower rent and higher TI's to get the lease done. That's a market fact of life.

I understand. And that makes sense on the TI's, I appreciate the color but would the perspective be if you've got an improving market that you'd look to do some shorter term deals at what are now low rents and then if the market improves over two or three years then when those leases roll again, that you could then find those for higher rents as opposed to doing longer term deals where you're locking in a low rent for a number of years.

I'm going to answer that in a couple ways. One is in a vacuum, absolutely. When you're trying to lease space, the customer is sometimes pretty much always right. If the customer says the potential customer says I want a three-year lease or five-year lease and you'd rather it be three or four, and he says I'm going down the street because your competitor's willing to do that, you have a choice to make. And when that prospect has eight, 10, 12 choices, you have to lean towards what the prospect wants or you don't have a lease unless you think he's gone to such an extreme. We do regularly turn down proposals where it's a very short-term lease with high TI's or it's high TI's and no credit over a longer period. But those are things that you have to evaluate on an individual basis and say what is it worth to me to put a paying company into that vacant space? And you are trying to maximize the return to that building for every lease that you negotiate. And you just have to decide how much you give or don't give in order to either keep the tenant or say this is a noneconomic deal for us.

That makes sense, okay? All right, thanks.

The market's the market. You have to decide are you going to meet that market or not.

Understood. Thank you.

Thank you.

And our next question will come from the site of Sri Nagarajan with FBR Capital Markets. Your line is now open.

All right. Thank you. And David, I think the last quarter you talked about acquisitions in more of a frustrating tone it's obviously a little more positive here with some offers outstanding obviously. Can't go into a lot of details here, but in terms of at least broader color and the opportunities set that you're seeing versus last quarter and the competition, is that the competition is being a little bit lower than last quarter or that the properties that have been marketed the last time have come back a little bit?

We're, as I think we've talked about in the past are very much a selective buyer. We just don't buy because we've got money to put out. We look to very specifically does a building or group of buildings meet our business distribution criteria. They do and the location and everything else fits, we get very involved with a bidding process. Doesn't mean we always win because we've lost a bunch of them so far this year, but if there can be a lot of industrial being offered, but if it's larger single tenant buildings, it doesn't fit geographically, it's a multi-tenant but much larger users 400,000 or 500,000 square foot building there could be, like I say, a lot out there for sale but we can very quickly look at it and say that doesn't meet our criteria so we don't bid. So what we're encouraged by is properties that meet our criteria either just seemed to have been more available to bid on in the last 30 to 60 days then we've seen for maybe for six months.

I see.

And I hope we get some of it. But it's one of those things about trying to buy something and having some discipline on doing it, you can end up with good investments or end up with zero. So we'll get back to you next quarter and give you color on it.

In terms of quickly shifting to, about the leasing. I think you mentioned about 330,000 square feet of renewals, post quarter, 100,000 square feet of new space. I know you went into a lot of detail on the market outlook there. Just wanted to get some color on the individual markets where you are seeing this activity as well as I look at your lease expirations about 14.7% you said in 2011, seems to be less of a Texas concentration and more of a Florida and/California there. Any color on what do you think is going to lease up there would be good.

As I said, we are just now rolling up our projections for next year so I can't give you a lot of color on it. Since Houston is by far our strongest market, San Antonio following and then Los Angeles in its own way pretty strong would love to have more coming up in those markets. Everything cycles.

Right.

So we put pressure on different people in the field to make things happen and everybody's well aware of what they need to do in 2011 because one of the things we do as part of our budgeting is I go through with our asset people leasing assumptions on every single building that we have. And then roll it up, take another look at it and then finally formalize the budget. But yes, no question Houston, San Antonio, even El Paso surprised us this year. Dallas seems to be firming a bit because Texas didn't go through the boom/bust cycle that Florida and Arizona in particular did.

Okay. Fair enough and then one last question, if I may. And the renewal rate of 90% is obviously a record I think you obviously colored it in a positive flavor in terms of customers staying put. Also, would you share with us, the rents on renewals as opposed to new or separated out are you seeing any strength in there over the last quarter sequentially or has pretty much stayed the same in terms of the rent growth or renewals versus let's say the new ones?

Give you a very general answer. You always do better on renewals because you're not trying to steal a customer from somebody else from a competitor, and if somebody is new to a market, which we don't see that much of recently, but if somebody's new to a market, then there are an awful lot of competitors out trying to offer the most attractive package. Obviously the customer it costs them to move. So usually their goal unless they need to expand or for the recent period downsize, unless you can't handle that or somehow you've done a lousy job of serving them, their goal is to stay and so you work to achieve that. It's in everybody's best interest unless you get too greedy and force them out the door.

Okay. Thank you.

And we'll move next to the site of Mitch Germain with JMP Securities. Your line is open.

Good afternoon, David. How are you doing?

Good morning.

The deals that you referenced that you lost out on, what percentage below the purchase price was your final bid?

In some cases, it was very close and some others it was, I would say, 10% to 12%.

That's helpful and you said that the -- obviously the transaction markets are lively. Who specifically is winning these bids? Who are you bidding up against in the assets that you're looking at?

Well, recently in several transactions is the one that's gotten a lot of publicity near the Miami airport AMB was the purchaser and they announced that. It was a multi-tenant building in City of Industry that we liked a lot, and Australian group [Dexas] it was just announced in the last week that they had acquired it. A building we competed for in San Antonio, Weingarten bought a two building complex. One in Denver we bid on fairly aggressively was, I think it was a pension fund advisor out of Los Angeles. So it's a real mix. The REIT's, the pension fund advisors that were back in aggressively and the individual industrial REIT funds that have been around for a while. In the smaller deals individuals but we've not lost a transaction to an individual. It's been one of the other three categories.

Finally with regards to build to suit discussions, any progress, A? And then B, where does your pipeline stand from last quarter? Is it up or down relative to last quarter?

Unchanged in talking to build to suits. And so far the groups that we talked to have been very quiet or put plans on hold. And it's been a little bit discouraging but I think that's just the nature of the economy. And I would hope as companies get more confidence in their own business and the overall economy that we'll see some of those prospects step up and renew discussions.

Great. Congrats on the quarter.

Thank you.

And it appears that we have no further questions at this time.

Again, we appreciate everybody's interest in EastGroup, and if there's anything that you believe needs further clarification, please don't hesitate to call either Keith or me. Again, thank you.

And this does conclude today's teleconference. Thank you for your participation You may disconnect at any time and have a wonderful day.