Eastgroup Properties Inc (EGP) 2011 Q4 法說會逐字稿

Good morning and welcome to EastGroup Properties fourth quarter 2011 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.

(Operator Instructions)

Please note, this call may be recorded.

Now it is my pleasure to introduce David Hoster, President and CEO.

Good morning and thank you for calling in for our fourth quarter 2011 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 the 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 is subject to the Safe Harbor statement included in the news release is accurate only as of the date of this call.

Thank you.

EastGroup had a productive fourth quarter. Funds from operations per share met the midpoint of our guidance when acquisition costs are excluded, and they increased by over 8% compared to the fourth quarter of 2010. Occupancy increased for the seventh consecutive quarter to 93.9% at year end. Same-property operating results were positive for the third consecutive quarter. We completed the acquisitions of over 1.3 million square feet of properties. We started three new developments; and finally, we took advantage of attractive debt and equity markets to fund these and future investment activities.

Looking at earnings, FFO was $0.77 per share for the fourth quarter, as compared to $0.71 per share for the same period of 2010, an increase of 8.5%, and the third consecutive quarter of growth over the previous year's quarter. This was achieved even with the expensing of $0.01 per share of acquisition costs in the fourth quarter of 2011. For the full year, FFO was $2.96 per share, as compared to $2.86 per share for 2010, an increase of 3.5% and $0.05 per share above the mid-point of our original 2011 guidance.

Same-property net operating income for the fourth quarter increased 3.6% with straight line rent adjustments, and 4.5% without these adjustments. For all of 2011, the increase in same-property results was 1.2% with straight line rent adjustments and 1.8% without. In the fourth quarter on a GAAP basis, our best major markets, after the elimination of termination fees, were Phoenix, which was up 21%; Tampa, up 8.4%; Dallas, up 7.6%; and Los Angeles, up 7.0%. The trailing same-property markets were El Paso, down 10.3%; Jacksonville, down 4%; and San Francisco, down 3.6%. The primary differences between quarters are basically due to changes in property occupancies in the individual markets, despite the fact that average rents are continuing to decline.

Occupancy at December 31 was 93.9%, a 90 basis point increase from the end of the third quarter, and ahead of our projections due to a number of short term lease extensions and Christmas-related leases. It also represented a 410 basis point increase over occupancy at the end of the 2010. On a state basis, our Florida markets were the best, at 96.3% leased and 96.1% occupied. Houston, our largest market, with over 4.8 million square feet, was 97.1% leased. At this point, Phoenix continues to be our most challenging major leasing market, although it is showing slow but steady improvement.

In the fourth quarter we renewed 74% of the 1 million square feet that expired in the quarter and signed new leases on another 8% of expiring space, for a total of 82%. We also leased 516,000 square feet that had either terminated early during the quarter or was vacant at the beginning of the quarter. In addition, we have leased and renewed 1.1 million square feet since December 31. We continue to experience negative rent spreads, but the fourth quarter had the smallest decreases of the year. Cap rents were down 4.1% and cash rents decreased 8.4%. Average lease length in the quarter was 3.9 years, which was our average for the year. Tenant improvements were $1.32 per square foot for the life of the lease, or $0.34 per square foot for the year of the lease, which was slightly below our average for the past two years.

In mid-December we acquired two property portfolios in separate transactions in Tampa and San Antonio, containing a total of 1.3 million square feet for a combined investment of $65.1 million. The $57 million Tampa purchase includes 16 buildings, with 1.147 million square feet in two of Tampa's primary infill industrial sub-markets. This portfolio is currently 95% leased. We plan to eventually sell six small non-core buildings containing 69,000 square feet; and two of these, with 10,500 square feet, are already under a sales contract which should close today.

In San Antonio we acquired Rittiman Distribution Center I and II for $8.1 million. The two multi-tenant business distribution buildings contain 172,000 square feet, and are located in the northeast quadrant of the city. They are currently 89% leased to seven customers. We now own 2 million square feet in San Antonio, including our new developments there.

Subsequent to year end, we acquired Madison Distribution Center, with 72,000 square feet and 18 acres of development land, in Tampa for $4.7 million. Located in the port of Tampa sub market, the business distribution building is currently 59% leased to three customers, and we have preliminary plans for the future development of approximately 270,000 square feet on this newly acquired land. The Tampa acquisitions increase our ownership there to almost 4 million square feet, and to 9.2 million square feet in the state of Florida.

For the year, we acquired a total of 1.8 million square feet of industrial properties with a combined investment of $88.6 million. They are located in Charlotte, Phoenix, Tampa, and San Antonio. As part of the 2012 guidance, we have projected the acquisition of $30 million of assets in addition to our January purchase. We did not sell any assets in 2011, but expect to dispose of a number of non-core properties in 2012. We currently do not have any properties under contract to purchase.

During the fourth quarter we began construction of three buildings, all of which are in Houston. Beltway Crossing IX and X, with 123,000 square feet; and World Houston 31B, with 35,000 square feet. They have a total combined projected investment of $10.9 million. It should be completed in the second quarter of this year. For all of 2011, we initiated development of eight projects, containing 527,000 square feet, with a combined expected investment of $39.7 million. Five are in two different locations in Houston, two in San Antonio, and one in Orlando.

In January 2012, we transferred Beltway Crossing VIII and World Houston 32 from the development program into the portfolio, since both were 100% leased and occupied. We also began construction of Southridge XII in Orlando, with 88,000 square feet. From the balance of 2012 we are projecting three additional development starts, a goal we hope to exceed. EastGroup's development program has been and, we believe, will again be, a significant creator of shareholder value in both the short- and longer-term. To date, we have developed almost one-third of our current portfolio, adding over 9.6 million square feet of state of the art warehouse space in our core markets. Since 2010 all our developments are being built to LEED standards, and we are pursuing formal LEED certification for them.

Keith will now review a number of financial topics, including our earnings guidance for 2012.

Good morning.

As discussed, FFO per share for the quarter increased 8.5%, compared to the same quarter last year. Lease termination fee income, net of bad debts, increased FFO by $65,000, comparing the fourth quarter of 2011 to 2010. FFO per share for the year increased 3.5% compared to 2010. Lease termination fee income, net of bad debts, decreased FFO by $1.803 million, or $0.07 a share, compared to 2010. As David discussed, we had an active year in acquisitions and development. And we exceeded $2 billion in total market cap for the first time. We believe that we have raised capital to fund these transactions on an attractive basis.

During the fourth quarter we closed a $50 million unsecured seven-year term loan with a fixed interest rate of 3.91% and interest-only payments; signed an application for a $54 million, non-recourse first mortgage loan with a fixed interest rate of 4.09%, a 10 year term, and a 20-year amortization schedule that closed on January 4, 2012; and sold 571,977 common shares under our continuous equity program, for net proceeds of $24.7 million. Our outstanding bank debt was $154.5 million at year end; and with bank lines of $225 million, we had $70.5 million of capacity at December 31. The closing of the $54 million mortgage in January 2012 increased the capacity to $124.5 million. The bank lines mature in January 2013, and we have begun discussions with our lead bank on a new credit facility. We also comply with all of our bank line covenants.

Net to total market capitalization was 40.9% at December 31, 2011. For the year, the interest in fixed charge coverage ratios were 3.3 times. The debt to EBITDA ratio was 7.2 for the year, compared to 6.5 for last year. This ratio is a little misleading since all of the debt from the fourth quarter acquisitions and development is included in debt, but less than a month of earnings from acquisitions are included in earnings. If the fourth quarter earnings from acquisitions is annualized, the ratio is 6.7. In January, Fitch ratings affirmed EastGroup's issuer default rating of BBB with a stable outlook.

In December, we paid our 128th consecutive quarterly cash distribution to common stockholders. This quarterly dividend of $0.52 per share equates to an annualized dividend of $2.08 per share. This was the Company's 19th consecutive year of increasing or maintaining cash distributions to its shareholders. Our dividend to FFO payout ratio was 70% for the year. Rental income from the properties amassed to almost all of our revenues, so our dividend is 100% covered by property net operating income.

FFO for 2012 is projected to be in the range of $3.02 to $3.14 per share. Earnings per share is estimated to be in the range of $0.97 to $1.09. Occupancy rates are projected to average 92% to 94%. We project acquiring $30 million of properties in addition to the $4.7 million disclosed in the earnings release. We have mortgages totaling $46.7 million at December 31, 2011, that mature during the year, with a weighted average interest rate of 6.97%.

We have been active in selling shares under our continuous equity program. In addition to the 25.2 million sold at 2011, we have also sold 9.9 million in 2012. We project selling 1.250 million shares for 2012, or about 312,500 shares a quarter. We believe we have a strong balance sheet. These times we favor a more conservative approach to financing our acquisition and development program. The shares issued in 2011 and planned in 2012 reduce FFO by about $0.04 a share when compared to using debt. The 2012 FFO per share midpoint is $3.08, which is an increase of 4.1% compared to 2011.

Now David will make some final comments.

The fourth quarter continued the significant progress achieved during the third quarter in all aspects of our business model -- internal operations, development, and acquisitions -- supported by our strong balance sheet. We expect to build on this positive momentum in 2012. Our strategy is simple, straightforward, and it works.

Keith and I will now take your questions.

(Operator Instructions) Craig Mailman, KeyBanc Capital Markets.

I guess I'll start with the equity peace. Keith, it sounds like in guidance it's pretty ratable for the balance of the year. Is that just for the ease of modeling, or does that match up with what you guys think you're going to need for funding development and acquisitions?

I think it's both. We plan on probably finishing out the 312,000 in the first quarter and as always, we look at the stock price and our needs. If they are accelerating or going towards the end of the year, we may adjust that.

Is there any level that you guys get less interest in issuing through the ATM?

Obviously, but we haven't put an exact figure on that. As Keith said, a lot of it is going to depend on the pace of development and acquisitions, tempered by where the stock price is.

Moving to occupancy, it sounded like -- or I guess can you quantify how much of the 90-basis-point pick up in the quarter was related to short term extension holiday leasing and how, obviously, we can think about how it is going to trend in first half or second half, to get to the 93% average occupancy at the midpoint, which is 100 basis points below where you ended the year.

Roughly 250,000 square feet represented those lease extensions and some overflow space rentals in the fourth quarter. And we think we'll stay fairly stable during the first quarter and just giving the timing of roll overs, dips in the second quarter.

We have had tremendous increase in occupancy. You go back two years, we were low 86% range. And started the year at 89% and change. I think we've gotten probably a little bit ahead of our markets and it was pretty hard to project that we were going from high 93%, 95% given the current state of the markets. They're certainly improving, but we're ahead of them in results.

Then just lastly, in guidance, what are you guys assuming for rent spreads? And maybe the trajectory of that throughout the year?

We just show that indirectly in our same property operating result figures. I have to admit that for a while I've been saying that I thought rent spreads would be flat or turn positive in the fourth quarter of 2012. I would say that the markets, although improving, have not improved as much as we would have liked of the seen or expected. And that's probably not going to happen until the midpoint of '13.

But what we're seeing now, instead of rents being either down a lot or down sort of a medium amount, we're getting more extremes, where the leases that were signed four and five years ago are seeing double digit, still 20% rent drops. But actually seeing some rental increases on the leases that were signed in the last two to three years and on average, they'll still be probably single digit downturn for most of 2012, although we think that will mitigate by the end of the year, but we probably won't be reporting positive rents until sometime next year.

Then just one clarification, the negative 0.5% to positive 0.5%, is that cash or GAAP for same store?

That's GAAP.

Do you have that on a cash basis?

Cash basis was a little bit more, we were projecting, but it was not substantially more.

Jamie Feldman, Bank of America.

Can you talk a little bit more about fundamentals in the market and the kind of leasing demand you are seeing. I think on Prologis' call they commented that small and mid-sized users are starting to pick up in the market. Are you getting a sense of a real change?

I wouldn't call it a real change. There is a pick up with smaller users. Of course, each market is a little bit different. A couple of our people in the field when we've discussed this have said yes, there's a pick up. But small users certainly are not showing any real confidence in their businesses or the future. They're almost reluctantly renewing and doing minor expansions.

A number of our smaller spaces have been filled by companies who've downsized with other owners and some with us. We've been leasing space in all sizes across the board. Some of it is smaller companies picking up the slack and bigger space users reducing their needs in our various sub markets. It's not enough of a trend I'd say yet to be excited about.

Then as you think about your development pipeline and the amount of spec space, what gives you comfort that it's time to do spec and that you are not taking too much risk?

Basically on the results that we have seen in the best spec buildings that we've started, and I'll touch on that again in a minute, but secondly on the fact that within the parks where we are building spec, we already have anywhere from 8 to 10 buildings, in World Houston it's 30 some buildings. And we look at the occupancy of similar type space existing in that park, and the demand for that space.

For example, in Southridge in Orlando, we were 100% leased in the park. And we were turning away prospects and thought we could get a little bit higher rent than we were asking for the second generation space, so we started a spec building and before the roof was on we leased roughly 70% of it. We said okay, that seems to be working. Let's start the next building, which we did last month in January.

In our Beltway Crossing Park on the Northwest side of Houston, we started Beltway XIII 100% spec, roughly 88,000 square feet. And just as we were putting in the landscaping, a tenant came along, a prospect came along and took the entire building and are in and operating in that building now. And other than through a bulk type space in that park, we're 100% leased.

So, we started XIV and X which are two small cross stocks next door to each other. And we've designed those, we think, to fit the demands of the market, which, in that submarket anyway, are designed so that a user can put cranes in the building and have more exterior fence storage than we would have done several years ago.

In San Antonio at Thousand Oaks, we had just finished leasing all of Wetmore's four buildings that we had built spec and as the second phase, first phase was 100% leased and Thousand Oaks is right around the corner, so that gave us the confidence to build the two buildings there. In our projection of three buildings -- additional buildings in '12, we're assuming that two of those are probably going to be build to suits and one would be spec, and the spec building would be at World Houston, where we have a need to provide some more front park rear load space, and that building would be on our new -- I guess we refer to it as the golf course land, the expansion land of World Houston.

In Houston, we have build to suit proposals out and hope to have one of those signed in the next week or so. So, that gave us the confidence to project three buildings, and as I said in my comments, that hopefully, that's something that we'll be able to exceed.

Then for Keith, so what is your guidance mean for AFFO? How should we think about that number?

We try to give out all the information. We don't give an adjusted FFO number, but we're comfortable with it now and covering the dividend and it's looking better.

I guess, ask it another way. What should we assume for straight line rent and CapEx?

Straight line rent, we're projecting about $2 million, and what other number did you want?

Maintenance and leasing costs? Maintenance CapEx and leasing CapEx?

It's probably going to be similar to last year, in the $21 million to $23 million range.

Do you have any FAS-141?

We're projecting acquired leases and add back of $451,000, mortgages around $100,000 deduction, stock based compensation expense close to $3.8 million, in that area, amortization and loan costs about $1.1 million.

Chris Caton, Morgan Stanley.

I wanted to follow up on occupancy guidance. We were talking about seeing some dip in the first quarter. David, is it flat from there, or as markets improve do you see your portfolio increasing in occupancy through the year?

As I mentioned before, we've been spoiled with how well we've done over the last two years. We think we've gotten ahead of the various markets where we're operating, where they're still anywhere from, forgetting Los Angeles, anywhere from 7% or 8% vacant, 15% vacant. It's going to be a lot harder to increase from where we are this year. Being conservative, we expect occupancy to range anywhere from possibly all the way down to 92% to 94%.

I guess what I was trying to get at is, does your guidance assume that markets improve? Do you think that market occupancies will also move sideways, and that's why it's a little bit of a tougher comp?

We think markets are going to improve very slowly. We really don't base our occupancy projections on -- that we think a market is going to get better. We look at it where it is when we do the projections, and look at every lease ruling and every vacant space, and say what are the odds of when we can lease this or renew this customer, and go from there. It's very much a bottom up approach to it. I'd like to think we're going to be conservative on these figures. That's what we've come up with, given where we were in early January when we put these numbers together.

Then I just wanted to ask a follow-up on Florida. You've been, obviously, acquiring there, but also it's been an area where the releasing spread and rents have been particularly depressed, although that reversed in the fourth quarter somewhat. Wonder if you could spend a minute talking about what you're seeing in the Florida markets. Do you think the improvements in rents there is sustainable or is that a one time thing, and how you see those markets trending in 2012?

We see, other than Fort Myers, where we used to have a little bit of property, that the markets are -- Jacksonville is going to be our most difficult market in Florida. We have a lot of turnover on the West Side, which is bigger spaces. That's our biggest challenge in Florida.

I think the other markets are showing slow but steady improvement. A large acquisition in Tampa in December, we bought that at 91%, 92% occupancy and it's 95% today. We've already outperformed our projections there. One of the appealing aspects of that acquisition was that the average rents in the portfolio were roughly at market. I think that's going to help our overall Florida statistics as we go through 2012. As I say, Jacksonville is going to be our challenge this year. It has less growth at this point than any of the other Florida markets.

Then just last one for me on development. You said you have a goal that you hope to exceed. I wonder what needs to happen. Would it be quicker lease up in Houston, or are there other markets where CUSPI, can you shed a little more light on how you might outperform your guidance on development?

As I say, we have four build to suits out in Houston. One of which we hope to have signed lease in the next week. We hope to do a spec building there. Then what happens on those other three build to suits will be a big determinant. Then how quickly we lease up our Beltway Crossing spec buildings will affect what we do on that side of town.

In Orlando, the building that we just started we have good prospects for. Depending on how those work out, it will determine whether we start our last Southridge building this year. Then we have several build-to-suit proposals for our new Horizon development, which is just a little bit farther east than Southridge on the Beach Line Expressway. We will just have to see how those shake out.

In San Antonio, depending on how we lease the first two buildings at Thousand Oaks, we have a third building in the back that we will start with good leasing in front, or with some pre-leasing in it. We have other land that we have buildings designed for, more on the west side of San Antonio. We've got a nice site near the airport for a building in Charlotte that will just depend on the market there. We have a site along I-35 in Dallas where the frontage roads have expanded and the building we had was torn down. Depending on the numbers on it, that's a possible start also.

In Phoenix we're still working on the land that we bought last May in Chandler. And the strength of the multi-tenant market in Chandler will determine whether we can get something going before the end of the year, whether it will be early next year. Lots of potential things out there. What gets signed is going to determine how much dirt we move.

Brendan Maiorana, Wells Fargo Securities.

Can you frame up how much if you -- when you kind of tick through all those development projects and the possibilities, what the starts could be if $30 million is the midpoint?

It could be easily two times that. Again, it could be zero beyond that or 2.5 times. We don't like to set a goal out there because sometimes when you set a goal it gets you to do things you shouldn't do just to hit the goal. All our development starts are based on how we see supply and demand.

Yes, understood. And then, in terms of --

And it can change -- one day you don't think anything is going to happen there and the next day you have a hot prospect that soon signs a lease, so you start building. We try to do a stay ahead in our building designs and construction permitting, so that when we do decide to go ahead it's not a three- to six- or nine-month process to get a building under construction. We can do it very quickly.

When you think about the returns, if we look at your pipeline today, they kind of range from $9.5 milliion stabilized deal down to a little bit below $8 million. When you're looking at where rents are, where construction costs are today, where are most of the expected returns shaking out for new development starts? Do you think about them?

We quote those on 100% occupancy because that's how the buildings end up, basically, when they moved into the portfolio. But depending on the length of the build-to-suit lease and the quality of the credit of the prospect, we would certainly dip down well into the $7 millions on that. It would be probably, I'd say a low $7 milliion to a mid-$8 million. That works given our cost to capital and what we think that we could sell the finished product for. We're always looking for at least 150 basis point spread to justify the risk on a spec building.

Turning to guidance. I just wanted to go into the occupancy outlook a little bit more. I think you mentioned, in responding to Chris' question, that you did these budgets. I think you said early January, if we look at the leasing that you guys have done thus far in February through mid February, there's already been about a million square feet of leasing, which is a lot for 1.5 months out of the year.

Do you feel better now than maybe you did at the beginning part of the year? And might that drive your numbers up a little bit? Even if you take the 90 basis points of gain out in the fourth quarter, you're still looking at flat occupancy for the remainder of the year.

As I said, we think those are -- I shouldn't say we -- I think they're conservative projections. I'm an optimist on the quality of properties and people we have doing it. I'd like to believe we're going to outperform what we've projected. That 1.1 million square feet is a little bit distorted by the fact that our Chino building we terminated, came to an agreement to terminate a lease with a 200,000 square foot tenant and we released the space to the neighbor and extended their lease and the release was at a higher rent.

That will help the numbers. That's about 300,000 square feet that was not coming due normally in 2012. That increased what it looked like we were doing. So far this year, we've renewed about 450,000 square feet and leased about 125,000 square feet of vacant space.

No, that's very helpful. And then, last, point of clarification, do your occupancy numbers include the under-construction pipeline projects that will complete in '12 but not be part of --

It only includes from the point where the property converts or is transferred from development to the portfolio. If we think it's going to transfer at 100%, let's say July 1, it will be in our numbers starting July 1 at that occupancy. If we think it's going to convert July 1 at 50% occupancy, because we've not done well leasing, we put those figures in at the point we think the property will transfer.

Your numbers aren't suppressed by development projects coming online that are in the lease up phase?

No, unless we do a lousy job of leasing them up.

Paul Ardonato, BMO Capital Markets.

Was wondering if the you could comment on what you're seeing in terms of competitive development in your markets. And secondly, how quickly do you think that the competitive development pipeline could ramp up?

We're seeing very little competitive development. I can mention it to you in several markets. For example, as far as I know, nobody else is building today in Orlando. In Houston a number of -- about every other industrial REIT or office industrial REIT there is either building or announcing development, but they're tending to do one or two buildings, and a number of them are bigger bulk type buildings compared to what we build. We don't see a tremendous amount of competition there.

The local developers have not come back into the game yet, except one or two in Houston who tend to be doing lower quality or less quality buildings than the REITs do. And they're generally doing those single tenant and/or for sale. The merchant builders in our markets have not jumped back in. And, of course, a number of those merchant don't exist any more.

And it usually takes the ones who have survived longer to gear up in terms of finding land, designing the building and raising the capital to start building. Miami is another story. We're not in Miami.

The other REITs comment on that, but I've preached for a long time. The industrial REITs in general have a leg up on new development where we all operate because at least most of us kept our development teams in place. We have land. We have capital.

I think a number of others are like us, where we design buildings, have them permitted and can kick them off fairly quickly so that the REITs, over the last couple recessions, have done a good job of skimming off the cream of the new demand as it's created coming out of a recession, while the local developers or merchant builders are just getting geared back up. We're optimistic about how we're doing in these markets.

What is kind of the first move or advantage? Is it six months? Is it a year over the local developers?

Miami is a whole different world, but in our other markets, it's at least a year and probably in some cases two years. That was our experience coming out of the 2000, '01 period. And I think the other industrial REITs probably experienced the same thing.

To follow up, Keith, appreciate you assuming equity issuance. That's a very realistic touch to guidance which is often missing in your peers. The question is what is the range of stock price equity issuance for the remaining million shares to make your guidance range?

I think we put it in at $48, which was bouncing around in that range when we were doing it. As David said, it depends a lot on the acquisitions. If acquisitions ramp up, we'll look at the stock price and maybe go a little lower than that if the market is going below that. If stock price is higher, that may accelerate the issuance of shares.

Paul, I would add that we look at cost to capital when we're issuing the shares and how that matches up. We look at a blended cost to capital with debt and equity on a 60/40 basis. 60% equity. And how that matches up with the yields that we can obtain on investing that capital, whether it's in development or acquisitions. It's a moving target.

Ki Kim, Macquarie.

You had a lot of leasing post the quarter end, 1 million square feet. And given that you only had 1.7 million square feet left to lease in total, I was wondering are there any trends that you've already noticed in the first quarter which are leasing that might hint at if your guidance might have been conservative or not.

As I mentioned before, 300,000 square feet of that was one building that wasn't coming up in '12 anyway. That was a real positive, because we didn't like our -- when you don't them they're a tenant rather than a customer. We didn't like the tenant and we have a better rent with releasing it quickly.

That takes up some of that. We're pretty much on track or very slightly ahead on the projections that we did about a month ago that rolled into this guidance. It's too early to tell whether -- how conservative we've been on this.

So, have lease spreads been slightly better than the fourth quarter leasing spreads. Is that safe to say?

I don't have all those statistics in front of me, since we were worried about other things that's happened so far. As I mentioned earlier, we're still going to have some 20% to 25% roll downs on some Florida, Arizona, and California leases. Leases that are four or five years old. And we're going to have some flat to up 5% or 10% on the leases that were signed two to three years ago.

And looking at what's coming up in '12, about two thirds were signed in the last three plus years. And one-third was signed 2008 and before, which was a peak. The two thirds are going to look a whole lot better, but the one-third is going to be down enough so that the total average is going to be down single digit.

That was actually my next question. I don't know if you heard Dexus yesterday announced -- it's not new news that they were going to try to dispose of $750 million to $1.2 billion of assets in the US of industrial properties. I don't have if you've seen that come to market or if you have any kind of color on what you thought about that portfolio quality.

Three years ago we bought two buildings in Charlotte from a Dexus entity. Most of what they have in the markets where we would like to buy are bigger buildings with bigger tenants. I wouldn't rule it out, but most of what they have doesn't fit what we're looking for.

Michael Bilerman, Citigroup.

You talked about the lease roll from '12, a third of it is pre-2008 and two thirds is post?

Correct.

What would that be if you looked at your entire lease roll today? How much of that signed on those same terms?

You mean if -- in the entire portfolio?

Exactly.

Well, when we look at the turn in '13 we view that it's still going to be roughly two thirds, one-third, but as time -- as we get farther into the year, it's going to be more at -- probably end up being 28% or 30%, and 2013 will be high rents and probably 70%, 75% would be leases signed after 2008. And you have to remember that the rents didn't drop overnight. There were -- it was a steady decline, but it wasn't as though somebody turned the switch. It's not going to happen like if somebody turns the switch coming back up.

If you were to think about it from the perspective of if you looked at your average base rent for the portfolio versus the expirees in '12 and '13, there's still a pretty wide gap. Maybe as a better way -- where do you think the mark-to-market is on the portfolio basis today?

That's something we've never been any good at when people were talking about embedded rent growth seven or eight years ago. All the office companies talk about that. We found nobody ever got all that embedded growth and we found the same thing on the downside. A bit of speculation that it's going to be probably second quarter, maybe third quarter of '13 when our roll statistics start to turn solid positive.

When you're thinking about this year's roll. You talked a little bit about Jacksonville being a difficult market, obviously, you have a disproportionate share space rolling there relative to the size that Jacksonville makes up of the portfolio. Is there any sort open large leases expiring in the 4.8 million square feet, it looks like forward [error] is 230,000. Is there anything else in there of size?

No, well there are a number of size. Any rent change in that is built into our '12 guidance.

From a timing of expirations, is it pretty split during the year?

We seem to have a higher amount in the second quarter right now, which is a switch. It's usually in the first quarter. A larger turn, and I don't have the exact figure in front of me, but a larger turn in the second quarter and that's why we've projected occupancy to dip the most during the year in the second quarter. And we've still got time to mitigate a good bit of that. That's what our current projections show.

This 250,000 square feet of space that you said was included in month-to-month and all came out of occupancy in the beginning of the year. The 93.9% effectively --

It's coming out from the beginning of the year all the way, really, through April.

You still started the year I guess at this 93%, not close to this high 93% level?

We didn't put in the press release, but we finished January at 93.9%. As I say, unusual for us. That was a pleasant surprise.

Then on the Chino termination, is there no -- you said that rents were higher, but did you get any -- will you have to pay out? Will there be any write offs or termination fees?

There's a very small straight line rent write off but if you look at 2012 on a full year basis, we come out ahead.

The spread leased versus occupied, that 80 BPS, just from memory, that's about where you've been historically?

I think we run from about 75 BPS to 110 BPS. And the higher it is, obviously, the more optimistic you can be about the future.

The dispositions, are those on the market today? The $20 million?

In that $20 million, there's $0.75 million of these two buildings that were in the Tampa portfolio that are supposed to close today. There is a bulk warehouse on the west side of Phoenix that is on the market. At some point during the year, we will put our Braniff property, I assume we will, our Braniff property in Tulsa on the market. We wanted to have it 100% leased before we did that.

Then there are a couple others that we're taking a look at. We haven't decided for sure to dispose of them yet. The $20 million is a little bit of a nebulous number from the standpoint of which it could be 5 million or 6 million below that or $5 million or $6 million above.

Walking from fourth quarter to the first quarter, you effectively reported $0.78 when you back out the charge. You're going from $0.78 effectively core down to $0.75 at the midpoint for the first quarter. And I know, obviously, there's a lot of moving pieces. It just seems like a more dramatic decline, especially when occupancy is holding up. You have the acquisitions. You have the developments coming to service. What's taking it down that amount?

We issued the shares in the fourth quarter, which knocked it down some. Then we also had some -- we also issued the mortgage first part of January, which replaced bank debt.

We went from a little -- went from 1% debt to a little over 4%.

3% on $54 million. Those are the two major things.

Then you pick up the accretion though from the acquisitions, don't you?

Correct.

Then we usually have a little bit of a jump on G&A in the first quarter because of the way executive comp is done. A certain amount of that is accrued during the year and then a lot of it is subjective, so there's usually a jump in G&A in the first quarter and that's something that's happened the last couple of years.

We should expect that to pop up probably $300,000 or $400,000 sequentially? Probably $0.01?

That's probably the case.

If you want me to argue for a higher bonus, I can do that also to your board.

I was going to make a wise comment along those lines, but I thought better of it.

$400,000 or $500,000.

John Stewart, Green Street Advisors.

I realize it's just been three months, but when you look at the existing pipeline from the -- on a percentage leased from the last supplemental to today, doesn't look like there's been a lot of movement. Can you please give us an update on the prospects for the existing pipeline?

For development?

Yes.

No, we had a flurry of leasing activity on the development pipeline in the third quarter. Most of those buildings that we did that leasing in, Beltway VIII went to 100%, so we just started Beltway IX and X and it's unusual to do a lot of leasing before you have the walls up and the roof on. Not worried yet, although we do have a prospect for both buildings. But until the building is done and industrial prospect has something to look at, I don't start to get too worried about it.

The two service center buildings at World Houston, those have been a little bit disappointing in slow activity. But then again in Orlando, the tenant for 70% of Southridge IX has an option to take the rest of the building or write a first refusal. Our hope is that happens.

Southridge XI -- we skipped X, because we had to redesign it, but Southridge XI, which we just started in January, again, it doesn't even have the walls up on it yet, and we've got a prospect for all of the building. I think some of it is just the timing of the stage of construction. An awful lot of industrial users, especially ones that go into our multi-tenant buildings, they don't think a year in advance. They also want to see what they're going to move into. We usually don't have a lot of pre-leasing during construction.

That makes sense. Then, for the $30 million of acquisitions baked into the guidance, which markets are you most interested in, or most likely to be active in, in 2012?

We would like to grow just about every one of our Core markets. One in particular would be Dallas. We've opened an office there and have a asset Vice President in that office. And we hope that will lead to some growth in that market.

Looking at the purchases that we had in 2011, they were somewhat secondary markets, which allowed us to get the better yields that we obtained there because those were markets where there are less institutional buyers who set the low cap REIT prices performing. One factor is going to be what the yields are when properties come to market. Another is where assets that fit our criteria are being sold.

And also, in many cases, we see some attractive assets, but they are in a package, a multi-city package and we're not interested in the type of cities or the type of assets in those cities. It's pretty hard to project at this point. And as you saw, we went from no acquisitions in '10 to $100 million when you throw in the land in '11. It can be a big swing.

Can you speak to the fit and your potential interest level on a couple of the REIT portfolios that are on the market, specifically Weingarten and Kilroy?

Both of those are very large. And I think it's hard for us to buy a large portfolio. And this is without speaking directly to both of those. But a large portfolio in a highly marketed package at a yield that works for our strategy. The Weingarten portfolio, there are a couple of buildings we'd love to have in it, but overall it doesn't fit us in terms of total geography, age, and type buildings.

How about Kilroy.

I don't know enough about that one. My guess is it's going to be a surprisingly low cap rate.

Lastly, since it's almost that time of year, you want to give us any kind of preview of the proxy season?

From what standpoint?

Open-ended question.

Not at this point. Are you speaking about me?

Yes.

As you've seen in the last few years, I keep working longer and longer, and we're in a great recovery. The real estate business is fun again. And we've got such a great team that at this point I don't see any reason to stop working.

Bruce Garrison, Chilton.

Is there a strategic plan with respect to bringing down the debt-to-EBITDA ratio to move EastGroup into more of a fortress balance sheet going forward in the event of any unexpected dislocations in the economy down the road?

I think that the ATM issuance that we've achieved so far and the issuance that we've projected in our guidance are important step towards that. If we were a little more liberal about our debt situation, we could have shown $0.04 or $0.05 more a share in guidance by letting our debt get higher. We have always stated that we wanted total debt to market cap to be below 40% give or take and, obviously, stock price affects that somewhat.

We didn't really have to issue all that equity, but we thought we'd err on the conservative side and looking at that ratio, two things, one Keith mentioned that we have the debt at year end without a full year's earnings on $60 million some of acquisitions. And secondly, we think the issuance of the equity that we project is going to help bring that figure down which is already -- if it's not the best in our sector, it's probably close.

Keith, have you considered showing debt-to-EBITDA ratio by taking out the debt related to construction in the development pipeline?

We've thought about that, but have not done that. You think we should?

I just think it would be helpful. Anyone with a development program gets penalized on that ratio, which increasingly is becoming the most important metric for leverage.

I would also argue that looking at I guess it used to be the six ratio number used to be the standard below that you were in good shape. Above that -- and that was back when you were buying 9% yields and 8.5% yields. And now the standard yields are way below that. The interest rates have gone down. Actually, we're getting a little better spread now than we were a few years ago. When you lower the yields on your properties, it makes that ratio go up.

I've argued with the rating agencies that they should maybe look at a little higher ratio than in the past. And I've not been very successful in doing that. I think people ought to consider that also.

[Andrew Schaeffer], Sandler O'Neill.

Looking at your guidance, you said that you're expecting to close on a $50 million mortgage at 5%, which is 100 basis points over the mortgage you closed in October. Wondering where this anticipated increase is coming from, or if it is you guys being conservative?

Just being conservative. I hope I'm very wrong on that.

On unsecured, would you look at doing another unsecured offering or is that off the table for the rest of 2012?

We're still looking at unsecured term loans also. We're not looking to do the public debt route still at this time, but there are a number of people that would do the unsecured term loans, and we will look at those.

Any idea of pricing on relation to the fixed rate?

Right now -- you're talking about the unsecured term loan. The unsecured term loan we did was actually a little lower. It was a seven-year term. And if you're go to the banks, about seven years about all they want to go. Probably it was probably comparable to a seven-year mortgage at that time.

Daniel Donlan, Janney Capital.

Given that EastGroup's Chairman is also on the board of Parkway, are there any properties within the Flagler portfolio that you guys are potentially looking to take from them? I think there's some land kind of near your Southridge development that Flagler has?

I think there are probably more rumors than facts floating around about the Flagler portfolio. What we have looked at are there's the Flagler Station in Miami, which supposedly is under agreement to be sold as an industrial asset, and then they have Jack's Port, I guess that's what it's called, at the Jacksonville airport. And they have a variety of pieces of land.

And it's our understanding they're listing those for sale or attempting to sell those on somewhat of a sequential basis rather than everything up front. There have been no formal announcements about who is doing what yet, just a lot of good rumors. Yes, we're looking.

And then on the land you acquired near the Tampa port. Is that going to be your traditional multi-tenant warehouse type of development? Is there potential for some bulk distribution? And how does that affect your yields?

Our preliminary plan has a series of our typical front park, rear load business distribution buildings, but we don't think the market is ready for construction there. If a user came along and wanted a build-to-suit bigger building, we'd be more than happy to meet their need. At this point, it's too early to say what difference in yield there'd be.

Bill Crow, Raymond James.

Can you quantify, and maybe I missed this. I apologize if I did. Quantify how much of a tailwind you're going to pick up in '12 from the capitalization of your development team, G&A and other costs, that you didn't have last year as you ramped up toward the back half of the year?

We are projecting an increase of about $0.04 a share. And that is with development fees and capitalized interest.

You're gaining $0.04 a share this year relative to last year from the capitalization?

'12 versus '11, correct.

You spent a lot of talk about the external growth on this call and certainly the momentum seems to be picking up. Have we just seen the opening of the acquisition market? Is it a lot more property coming to market, or it just seems like in the last six months, maybe things have changed. Is that fair?

There have been more packages in the second half of '11 than there had been for a couple of years. And in talking to income property brokers, they're optimistic that there's going to be a lot of property coming on in '12. But, it's so hard to tell. It's early in the year so there's not much out there that we're taking a look at now. A lot of institutions decide in January or February, what to sell, list it in March or April and it hits the market late spring or early summer.

And as I said earlier, it's very hard to tell how big a package it's going to be, whether they'll break up the package, whether they will break up the assets within a city. The flexibility of the seller and the bigger the package, the more cities involved, the harder it is the for us to make something happen there. The Tampa package we bought in December was an unusual fit for us.

It appears we have no further questions.

Thank you for your continuing interest in EastGroup. As always, Keith and I are available to clarify anything we didn't on the call. Please give us a ring if you need to. Thanks.

This does conclude today's teleconference. You may now disconnect and have a wonderful day.