Eastgroup Properties Inc (EGP) 2013 Q1 法說會逐字稿

Good morning and welcome to the EastGroup Properties' first-quarter 2013 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 is being recorded.

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

Good morning and thanks for calling in for our first-quarter 2013 conference call. We appreciate your interest in EastGroup. As usual, Keith McKey, our CFO, will 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 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. Funds from operations per share for the first quarter met the midpoint of our guidance at $0.76 per share, but decreased slightly as compared to the first quarter of last year. The positives for the quarter were increased property operating income from new developments and acquisitions. While the negatives FFO per share were our reduced leverage, actually a positive for the Company, higher overhead and a gain on the sale in the first quarter of 2012. Same-property operations were basically flat. Keith will give you more detail on all of this later in the call.

Our development program continues its positive momentum with the start of construction of five projects during the first quarter. And we have increased our expectation for construction starts for the balance of the year. At March 31, we were 93.6% occupied and 94.4% leased. These figures represent a decrease from our year-end levels, but are ahead of our internal projections. They reflect the improving, but not yet strong, leasing market over the past several quarters; overall good activity, but not much depth, yet. We expect to be back over 94% occupied in the fourth quarter.

As might be expected, our Texas markets were the best at 97.4% leased, followed by our California markets at 96.7% leased. Houston, our largest market was with 9 -- excuse me, with 5.3 million square feet, was 98.9% leased and 98% occupied. Jacksonville, which experienced several large move outs, was our only large core market below 90% leased. The good leasing activity in the fourth quarter has so for carried over into 2013. Improving industrial fundamentals in every one of our major markets has net rents moving well off the recession level lows, but prospects in most markets still have too many available space opportunities for landlords to have real pricing power yet. Houston is becoming an exception to this.

Recently, there has been a lot of questions about the effect of the increase in residential construction on the leasing of industrial space, and in particular, our business distribution type buildings. The answer is that the number of prospects related to residential construction has picked up significantly since the first of the year. Specifically, for EastGroup we have signed eight new leases, one expansion, and four renewals for a total of almost 310,000 square feet with residential related customers.

In the first quarter, we renewed 63% of the 1.9 million square feet that expired in the quarter and signed new leases on another 14% of the expiring space for a total of 77%. We also leased 315,000 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 376,000 square feet since March 31. For the quarter, GAAP rent spreads on renewal leases were up 1.6% but down 7.5% on new leases. Cash rents were negative 5.6% on renewals and 12.6% on new leases. As I've stated before, we believe the statistics on these renewals are the ones to really focus on.

Average lease length was 3.5 years, which was approximately our average for last year. Tenant improvements were $1.36 per square foot for the life of the lease, or $0.39 per square foot per year of the lease, which is below our average for last year. The amount of free rent concessions continues to decline.

During the first quarter, EastGroup did not acquire or sell any operating properties. We do currently have a small business distribution building in Charlotte under a letter of intent to purchase. And we are seeing an increase in industrial assets being marketed for sale and continue to make offers on those that fit our acquisition criteria.

We began construction of five buildings in the first quarter with a total of 377,000 square feet and a combined projected investment of $28.5 million. Two are in Houston, one each in San Antonio, Orlando and Phoenix. At quarter end, our development program consisted of 16 buildings, with a total of over 1.1 million square feet and a combined projected investment of $84.8 million. They were 43% leased as of yesterday morning, but now are 48% leased. During the quarter, we transferred three assets with 324,000 square feet into the portfolio, Southridge IX, Southridge XI and World Houston 33. They are currently 89% leased, with active prospects to lease the remaining two vacancies.

In the first week of April, we acquired 42 acres of land in Southwest Charlotte near the airport for $5.7 million. Our plans call for the future development of 465,000 square feet of industrial space in six business distribution buildings to be named Steele Creek Commerce Park. Late yesterday, we executed a lease for 100% of the first building which will be 70,000 square feet. As a result, we plan to start construction of this distribution building plus another 70,000 square foot building in the next 60 days. They have a total projected cost of approximately $9.3 million.

Our 2013 guidance assumes additional development starts of approximately $38 million, which includes Steele Creek for a total of $66 million for full year. Good development leasing or build-to-suit activity would allow us to further increase this total.

Keith will now review a number of financial topics.

Good morning. FFO per share for the quarter was $0.76 compared to $0.77 for the first quarter last year, a decrease of 1.3%. FFO per share met the midpoint of guidance. Lease termination fee income was $427,000 for the quarter compared to $170,000 for the first quarter of 2012. Bad debt expense was $47,000 for the quarter compared to $223,000 in the same quarter last year. Termination fee income net of bad debt expense was a positive to FFO of $433,000. David mentioned the dilutive effects of reducing leverage, higher G&A and a gain on sale last year that made up the rest of the differences.

Debt to total market capitalization was 31.9% at March 31, 2013. For the quarter, the interest and fixed charge coverage ratios were 3.6 times and the debt to EBITDA ratio was 6.5 times. All these debt metrics are improvements over first quarter 2012. Our bank debt was $92 million at March 31, and with bank lines of $250 million, we had $158 million of borrowing capacity at quarter end.

During the first quarter, the Company entered into an agreement in principle with an insurance company under which the Company plans to issue $100 million of senior unsecured notes at a fixed interest rate of 3.8%. The notes will require semiannual interest payments with principle payments of $30 million on August 30, 2020, that's 7 years; $50 million on August 30, 2023, 10 years; and $20 million on August 30, 2025, 12 years. These maturity dates complement the Company's existing debt maturity schedule. The transaction is expected to close on August 30, 2013 and the issuance of the notes in this private placement is subject to due diligence and completion of final documentation.

We originally planned to borrow less than $100 million, but with the mortgage due in September of $34 million and increased development opportunities, we increased the amount of the notes to $100 million. Also factored into the decision was the ability to delay closing for 5.5 months and our strong balance sheet.

Our continuous equity program continues to be favorable in both the share price and volume. We have sold 245,010 shares since December 31, 2012 with gross proceeds of $14 million on $57.14 per share. In March, we paid our 133rd consecutive quarterly cash distribution to common stockholders. This quarterly dividend of $0.53 per share equates to an annualized rate of $2.12 per share. Our dividend to FFO payout ratio was 70% for the quarter. Rental income from properties amounts to almost all of our revenues, so our dividend is 100% covered by property net operating income. And again we believe this revenue stream gives stability to the dividend.

Although we maintained the midpoint of our FFO guidance for 2013 at $3.15 per share, there were several changes from our previous guidance. Fixed rate debt was increased from $50 million to $100 million, which reduced FFO approximately $0.01 per share. Since our debt and equity metrics are better than our goals, we decided to not project any more stock issuances for the year. This change increased FFO per share by about $0.02 per share. Other changes that, when combined together, reduced FFO per share by approximately $0.01 per share were increased G&A and a decrease in capitalized interest on development due to timing on construction costs. Earnings per share is estimated to be in the range of $1.01 to $1.11.

Now David will make some final comments.

Leasing velocity is good and real pricing power should come soon as a result. Our development program continues to grow and we are seeing more acquisition opportunities. Our balance sheet is the strongest it has ever been and we believe is well structured to take advantage of future opportunities.

Keith and I will now take your questions. Thank you.

(Operator Instructions) Michael Bilerman, Citi.

Great good morning, Kevin Varin is on the phone with me as well. Maybe Keith or David, want to come back to the stock issuance and look I completely recognize the balance sheet is in great shape and I quickly recognize the fact that rates are low and time to take as much debt as you can. But I'm wondering how you're also thinking about the stock, the stock above $60, all-time high is also an attractive source. So, I'm curious why not load up when you can when the market is hot, both on the debt and equity side to effectively take as much capital as you can?

You're right on both instances. And we don't rule out issuing more stock during the year, in particular if we see an increase over what we've projected for development and acquisitions. And our goal is to achieve that. It is very tempting, and as Keith pointed out, it changes your earnings and your projections on that. So we're tiptoeing through it just a little bit on that basis. We think that without issuing any equity, as Keith said, our debt to total market cap should be well below 35% and our other metrics -- our other ratios all are at the most attractive levels even without any equity that we've ever had. So given that thinking, we decided to take that out of guidance and maybe we give too much information.

Right well I'm wondering what's the trigger point now for effectively issuing equity, right? So you always had then the option, I guess you could have left it in guidance and just not [cap debt], so I guess now you've made a conscious decision to say, you know what we're going to hold off, we're going to take the foot off the gas a little bit and not issue off of our ATM. So now what is going to be the trigger that we have to think about for you to issue equity?

Announcement of acquisitions in excess of the $30 million that we have in the guidance, roughly, and additional development. And we are working on all that and our goal is to do more than that, so I guess I'd personally be disappointed if we didn't issue more equity by the end of the year, because we need to. But it didn't seem to make sense to issue more if we didn't need to, given all the other assumptions that are in the guidance.

So when you -- as we go forward in the year, if you see us with announcements on as I say increased development above what we've increased it to already and increased acquisitions, you can assume there would be some additional equity issuance at some point, whether it's in the next couple of quarters or by the end of the year. But that's really how we're judging that.

Good morning, guys, just one last question, this is Kevin with Michael, we wanted to get more color on the housing related tenants, what percentage of the portfolio is exposed to residential and how does that compare to peak? And then maybe go through the markets and types of tenants that you're seeing activity?

Okay, good question, that somebody I figured was going to ask that so why I brought up in my prepared remarks. We -- I'm not comfortable with the statistics we have with of what our exposure is today because there's so many different types of construction and that's how we code it. But I could guarantee that it is well below where we were at the peak and we can go into more detail on that here or we can talk offline later on that.

But we're very encouraged, as I mentioned, by both the leases that we've signed, eight new leases on vacant space of tenants we didn't have before, plus an expansion and four renewals. And our people in the field report that there is a significant increase in prospects of people related to construction, residential and otherwise out in the marketplace today. So we would hope and expect that our share of that would increase as time goes on, because most of those fit very well as they did in the past our business distribution buildings.

When we look at where the leases have been signed, it is where you might expect, Florida -- just in the first 3.5 months of the year, Tampa, Jacksonville, Orlando, Houston, Dallas, San Antonio, and actually a small expansion in Oklahoma City, Phoenix and even Fresno. So, it's very much across the board. As I said we're real encouraged by that. Now it's everything from equipment rental to flooring to swimming pool installation and supplies. So as I said, it includes a lot of different uses. Houston, our Katy development out on I-10, we are really trying to target leasing to residential housing suppliers there because that's where part of the -- a big part of the housing boom in Houston is. So we think that is going to be a fit. Houston has just broken all sorts of records in terms of growth in housing starts and sales. So hopefully that answers, if that didn't, give me a call later.

Okay, thanks, David.

Vance Edelson, Morgan Stanley.

Let me ask the housing question a slightly different way to try to get a feel for how important you think it might be over the next year or two. How much of the development and acquisition activity that you're eyeing right now are you pursuing because you think that housing could be a big driver after so many slow years, or is that one of many factors that's driving your decisions to expand?

It's one of many and we build, develop based on what we see actually happening today in a market what the prospects are rather than what might happen with improvement going forward. So in San Antonio, our third building in Thousand Oaks, we have a couple prospects there that are related to housing, but that wasn't the reason that we started those buildings. It was the fact that the overall market was better. We don't do a lot of that on the come.

Okay, makes sense.

That's really icing on the cake for us and it was so strong for us before, it was a big factor in our drop in occupancy and the recession down to roughly 86% and we've gotten back up to 93%, 94% really without it. So we see that, that's -- it's going to be a nice positive going forward, but it wasn't needed to get back to where we are today.

Okay, that's very helpful. And then speaking of the drop in occupancy, but the more recent one, which was partially caused by the move outs in Jacksonville and Tampa, can you provide an update on how quickly you might be able to re-lease that space?

We've been pleasantly surprised with the activity in Jacksonville. We haven't signed any leases on those vacancies yet, but a lot more activity I'd say than we anticipated. Tampa, the activity is picking up a bit, but it's slower.

Got it. Good luck, guys.

Brendan Maiorana, Wells Fargo.

So David, I wanted to pick up on the move outs, because in Tampa I think you still have Black & Decker that I thought was a summer move out.

They are.

Yes, so that one's not reflected in the occupancy stats, yet. And then I think you've got one or two larger ones in Houston, too. So I was trying to reconcile any of your comments in the prepared remarks about getting above 94% by the end of the year, when it looks like you've probably got maybe 100 basis points of known move outs during the year. So do you feel like there's the amount of tenant activity to pick back that delta which is about 150 BPS, as I'm looking at it, or do you have stuff that's already baked in that you know is going to backfill some of that space?

Guess the simple answer is yes. We think we can backfill it and the activity that we've had since the first of the year has encouraged us in being able to divest.

Okay, and then I think I heard you right in your prepared remarks you said your development pipeline is now 48% versus 43% which you reported last night, so it sounds like you got a 50,000-square foot lease. Can you share --

We signed two -- we received two signed leases in Houston, one late yesterday and actually one first thing this morning. And we also just received as I mentioned a 70,000-square foot lease on a proposed one of two buildings in Charlotte. So some of our deadlines for these conference calls are somewhat artificial, but they tend to work. Gets people to push to get things done by a specific time, we just cut it a little closer this quarter.

Yes, just think if you guys ever reported on Monday, have a bit more.

Exactly.

And then -- so two ones for Keith. One is the lease terms fee that you guys have detailed last quarter, was that in your same-store guidance so it effectively boosted that same-store number a little bit?

Correct, yes.

Okay. So was that expected, I guess if I strip that number out I think you guys are maybe negative 60 basis points or 65 basis points of same-store on a cash basis, was that in line with the expectations? Because I know the overall number was plus 100 basis points or 150 basis points for the year.

I think you're correct.

Okay. And then --

I think like I said we -- in our last call we've been criticized for letting people ask too many questions and cutting off people at the end. So if we're missing any questions with you or anybody else, please just call Keith or me after the call.

Sure, I'll jump out. Thanks.

Alex Goldfarb, Sandler O'Neill.

Good morning, and I'm sure a nice plug for Brett's leasing activity there.

Exactly.

Keith, on the balance sheet side, two questions on the mortgage and on the new delayed draw unsecured loan. First, given the increased appetite and your access to the unsecured market, especially if you're going after the life companies, do you see more -- do you see refinancing more mortgages with private placement unsecured debt?

Yes.

So on a go-forward basis, are the life companies agnostic, whether they lend to a sponsor on a mortgage basis or unsecured or they view it as two different loans? Or they just say, hey, we want this much exposure to a sponsor, we don't care how it's broken down?

In some cases, it's even two different departments. Some insurance companies use the same -- you would have the same person that does the mortgage and the private placement, the unsecured. And as far as New York Life, they had a different department and different needs. And we did not want it as soon as we got it, but we got a great rate and able to delay funding for 5.5 months and we thought it was just too good a deal to turn down. But we plan to continue to go directly to insurance companies and we'll also look at other means, too, but doing unsecured debt.

Okay and then second question is can you give some more color, the 3.8% is the all-in but how does that break up on the 7-year, 10-year and 12-year?

It is 3.8% across the board and it's about a 9.5 average and so it's 3.8% on everything.

Okay, so each tranche is 3.8%?

Correct.

Okay, great thank you.

Craig Mailman, KeyBanc Capital Markets.

David, drilling down to your comments on acquisitions, it sounds like there's definitely more product out there but curious, is it more portfolios you guys are looking at or one-offs? And then maybe your expectations on pricing, especially given your [fallen] cost of capital here.

It's both and if it's a portfolio in one city, we work on that. If it's a portfolio with multiple cities, that generally doesn't fit us and if we like what's in one of our cities, we will go ahead and bid on that city. And sometimes that works and sometimes it doesn't, so it's a mix. We think there are more A quality properties coming to market this year maybe than last year. Although there's still a mix, but they tend not to mix in a portfolio, which makes it easier to be selective.

As to cap rates, I think they're still coming down in most -- probably in all of our markets and that's something that we look at on an individual bid basis. And an awful lot of what a cap rate is obviously is your opinions of what's going to happen in the future in terms of the location and potential rent and NOI growth. But I think overall, though, it's safe to say the cap rates are coming down.

Are you getting more aggressive on what you're willing to pay just as a function of your cost of capital coming down or your outlook on industrial fundamentals and potential growth? Or are you guys drawing the line in the sand and staying firm on what you're willing to pay?

Yes to the first two. I mean we look at upside and where our cost of capital is and where we think it's going to be, and where property is going to be operating over the next few years and is it a property that we're going to be proud to own 5 years from now or 10 years from now, and determine in our mind it's value to date based on that. We don't draw lines in the sand unless we think that something is way out of whack.

Okay and then one quick follow up. What markets are you seeing the best availability in versus what markets you want to get bigger in?

It's a little early to tell you on that. Right now we're seeing more properties being offered in Texas than in Florida. Arizona has had -- when I say Arizona, Phoenix has had a good many offerings. The offerings are where the institutional investors have been and want to be and that's where the most activity is. And also I think in markets that have had certain amount of recovery, so that the seller can be comfortable, that they're getting a good price and they're not selling too soon or too late.

Great, thank you.

(Operator Instructions)

Erin Aslakson, Stifel.

I wanted to ask about in which markets you're seeing the strongest rental rate growth or concessions declining the quickest currently?

Texas, Houston, San Antonio, Dallas, I guess in that order. We're even seeing some good activity in El Paso because of the pick up in manufacturing in Mexico. So as I mentioned in my remarks, I think when you look at statistics going forward -- and I hate to focus on what's happened in just one quarter, because that never really is a trend, but we will see the better statistics out of Texas. And then I think Northern and Southern California probably -- well no excuse me, Charlotte is showing some really good strength and that's allowing us to develop there. And Florida and Phoenix, but particularly Florida are trailing.

They're trailing, okay. And those were areas the Texas, Houston, San Antonio, Dallas, that's where you're actually seeing rental rate growth or just quickly --

Well again it's how you define growth, is it growth off the bottom and what the market is or growth compared to what's in our leases. Those markets all certainly have rental rate growth from a market standpoint.

And when do you think your leases overall are probably going to turn positive mark-to-market wise?

Well I think on a GAAP basis, they're turning positive. They're positive right now overall. I gave some examples I think on our last call of -- we give the statistics on both renewals and leasing vacant space and I'm not sure anybody else actually does it that way or even defines it the way we do. And so I've been tempted, but nobody will let me stop giving the statistics on rates on vacant space because I think they're somewhat misleading. I mean to give an extreme example is, let's say all our vacant space has been vacant for three years and the rent is 20% higher on what the previous tenants were than what we get today. We lease on that, we're going to show a 20% decline in rent adjustment, when in fact the bottom line is going to see 110% of the rent that's being paid. So those numbers can be a little bit deceptive.

One, I think important statistic and you didn't ask this exactly, but I was all prepared to give it. So, I'll answer your question is if you look, and this is in our portfolio, if you look at the peak years, and I'd define that as, and this is extending it a bit, '05, '06, '07 and '08 and look at what leases are going to be turning next year that were signed in those four years, it represents about 14% of the portfolio that's scheduled to turn in '14. So a little over 600,000 square feet. So you say, okay, when are you going to start really reporting the rent growth and it says to me that '14 -- and of course I've been saying it's going to be a couple years every year, but I'm showing a whole lot more confidence in what's going to happen in '14 in our portfolio given how few of the existing tenants signed leases in those four peak years.

Yes, that makes a lot of sense. And then turning to Houston, obviously you guys have a lot of development going on there. Would you be able to discuss a little bit of your competitors development, the total supply coming online in Houston?

I should have, but I don't have the figure of other industrial space actually under construction, but in terms of the overall market, it's not very big yet. And a majority of it, maybe two-thirds to 75% is not competitive to our front park rear load buildings. A number of our peers are building cross stocks of over 200,000 square feet that are looking for much larger tenants then we are seeking in our three different development locations. So although development has picked up, it's certainly not a point yet where -- we've seen extensive over building and it's not in any way slowed down our leasing progress as shown by the two leases that we've gotten in the last 24 hours.

Sure, yes, definitely. Thank you very much.

John Stewart, Green Street Advisors.

David, looking at least judging from the numbers in the supplemental, Florida looked soft across the board and I know we had the known move outs in Jacksonville and Tampa and perhaps your conservative methodology is influencing some of the minus signs in front of the re-leasing spreads. But specifically, can you help us understand both the decision to go ahead with the new spec project in Orlando and reconcile your comments on the housing market with this statistics that we're seeing reported here?

Okay. First one, that's easier to answer is on the development. We started, gosh two years ago now, Southridge IX and immediately leased roughly 75% of it to a pharmaceutical fulfillment company that we assumed in the next couple of months is going to take the balance of it although it's not full today. That gave us the confidence to build Southridge XI. We've signed already, although it's just been completed a couple of months ago, two customers in that building that took us to over 80% occupancy. And when we go over 80%, we move it into the portfolio and we have a good prospect as I mentioned to take it to 100%. So given the success we had in those two buildings, we built the building in between, Southridge X, and they've -- it's on the -- pretty picture of it's on our supplemental data, we just finished tilting the walls there and we have several good prospects.

It sounds self-serving to say this, but I think it's been a fact of the leasing in Southridge, it's the best located multi-tenant complex in Central Florida. It's the most attractive, and as we have lost customers in the existing buildings, we've managed to backfill those pretty successfully many times at lower rent then what the previous tenant was paying, but we've been signing leases anywhere at $1.50 to $2 a square foot above what people would consider I think market rent because of the quality. It stayed full, or close to it, because of a flight to quality that I think is still somewhat going on in Orlando.

As to the housing, there is a pick up, the problem is when you look at the market vacancies in the various Florida cities, other than Jacksonville right now, they trail our existing occupancies. And so until they catch up a bit, and there's less A space available, landlords are not going to have pricing power. And so that's why we continue to have the negative or above average negative spreads on both renewals and leasing vacant space. Did that answer your question?

It does, so in other words you're digging out of a much deeper hole?

Right, and we got ahead of the markets which was great, because of the flight to quality in terms of occupancy in those markets that were hard hit. But just because we're 93%, 94%, 95% occupied that doesn't give us pricing power except maybe in a Southridge. The rest of the market has to at least get to single-digit vacancy and maybe to 7% or 8% vacancy before the market has real pricing power. Although the rents have all bounced off the bottom as I said.

Got it, okay. And on the projects that you started in the first quarter, the cost at $75 a foot looks high relative to where you've historically been building, is that a function of any of those specific projects or a comment on construction cost more broadly speaking?

It's both. Our Southridge buildings tend to have a higher office finish by the nature of the park. Ten West Crossing II, which is a $5 million building is a service center. We've already leased a little over 50% of that and they just tilted the walls, but it's a service center. So it'll have probably anywhere from a 40% to 100% office build out. And in Phoenix, the land tends to be more expensive than in some other markets. So -- and all those are front park buildings which again makes them a little more expensive than a front load building or a [cross stock] like some of the recent ones we've built in Houston.

As to construction costs, they're going up and almost to a surprising level. In talking to both our construction people in Houston and in Orlando, we've seen over the last six to nine months about a 0.5% a month increase in construction costs. That's both materials, concrete, steel, fuel surcharges on delivering things. As particular in Houston, the GCs and the subs who have been doing work -- because they were in dire need of it, at little or no profit and a small reimbursement for overhead -- are now able to get back to their old profit margins and overhead margins because there's a backlog and they're doing it because they can. And so I don't -- I'd like to think that, that 0.5% a month increase is not going to continue for too long, but it's there now and it could affect some of our yields a little bit and hopefully it'll affect our competitors.

Right. Helpful, thank you. Last one for me, I wanted to come back to the re-leasing spreads. I was surprised to hear you say that 14% of next year's roll is leases that were signed from '05 to '08 especially when you consider that I guess the average term of leases you're signing today are 3.5 years. The deals that are really next year have got to be at least 6-year terms on average. So my question is, beyond that 14% of next year's roll, how much do we have left of that '05 to '08 vintage?

Well I think when we look at that 14%, a good bit of that is probably development leases. I don't have that identified in front of me, and our average development property leased on the new development is well over 5 years. The 3.5 years average is when leases roll and they tend not to extend for the amount of time as the original lease. So I think that's the reason that we're still looking at some leases that, like I say, were '05 through '08.

Yes, that makes sense. But then still the question remains, how much of that '05 to '08 vintage do we have left?

Okay if you look at '05, let me see, probably a little over 1 million square feet, maybe 1.5 million. I'm counting on rents going up enough that, that isn't going to be -- that's not going to hit it as much when they come up and some of those don't come up for quite a while.

Yes, okay thanks a lot.

Jamie Feldman, BofA Merrill Lynch.

I'm hoping you can talk -- I may have missed it on the call because I had a bad connection, but did you guys talk about what you think your occupancy dip will be in the second quarter to get to your guidance? I know when you initially gave '13 guidance you talked about losing occupancy in the first half and then gaining it back.

Yes, I didn't give specifically because they always seem to change so much. But we're looking at a little further dip to about 93%, give or take, at the end of June. End of September would be a little higher than that and then moving to over 94% at the end of the year.

Okay, thanks.

If you ask me tomorrow, the number would probably be a little different but that's where it is right now.

Right. And then back to the supply question, I know you talk about Houston, are there other markets where you're getting more concerned about supply coming online both for your product and maybe for more for big bulk distribution and maybe already starting to put some pressure on rents?

Pressure on rents, no, that I'm aware of. We're the only developer doing anything spec in San Antonio at this point. And I don't even think anybody else has even talked about in there that I have heard. Orlando, there's a local developer with a money partner whose doing a build-to-suit and has announced a small building that would be competitive to us, but that's not been started. In Phoenix, all the development that's been announced is out on the west side, the bigger boxes. Our building is in Chandler, which is really a high tech part of Phoenix and nobody else is building there at this point. And Houston, all of the REITs are building, DCT, Duke, Prologis, as I say, most of what that is will not compete with us either -- a lot of it is for bigger tenants and some of it is not in a location that we'll go up against anything that we've been building.

Several private groups have started building there that will be competitive, but we did real well when there was competition seven or eight years ago. So you'd rather not have any competition, but we think we have better located product and build a little bit higher quality building. So, far it's not worried us and it's too early to see if there is any pressure on rents. One of our private competitors has an asking rent for stuff under construction that is a good bit above our pro forma rent. So like I say so far, it's not been an issue. Ask us again in a quarter or two.

Right. And then there's a lot of talk about same and next-day delivery and tenants building out their infrastructure for that. How should we think about how your product type specifically fits into that versus the big bulk?

We do not have very many customers related to e-commerce, just some smaller ones. We're never going to be dealing with an Amazon or a Best Buy or one of those. The thing that I think maybe is helping us already is, FedEx seems to have really picked up their business or you can even read that their air business is down because of the cost and their various ground delivery businesses are up. And we seem to see a pick up in activity with them in a number of markets. And I don't know if it's directly related to the same-day delivery or not, but I think it certainly has to help. Meaning, if you can deliver same-day, you can't -- it'd be very difficult to send something from Atlanta to Orlando or Tampa, they're going to need facilities in those cities to be able to do that.

All right, great. Thank you.

(Operator Instructions)

Bill Crow, Raymond James & Associates.

Two questions. First of all, are you seeing a different type of buyer out there competing in the acquisitions more private equity, more private money? Second question is, the ramp up in new supply that you've discussed, that we've all discussed here, is that prompting you to get more aggressive with your spec building program and maybe try and front run it a little bit more than you would otherwise?

The answer to the second question first, no, I don't think so. We just look at the market and what's happening and in most of these cases you're in a park that's existing and we think there's a demand for another building either through our existing tenants or the prospects that we're turning away because we don't have enough space for them.

Once we start construction, we push very hard to try to get ahead of people where it's going to come online about the same time. And you certainly don't want to come online later and lose the prospect because they needed the space sooner and went to your competition. So we -- in a stronger market like a Houston or Orlando, San Antonio, we try and stay ahead of it and not wish we'd started a building six months earlier, but I don't think that's really because of competition. Excuse me, I started talking, what's the first part of your question?

The first part was any change in the competitive landscape on acquisitions?

No, not from last year. Except that there's more money I think in the marketplace and everything I've read says that some of the institutions and their funds seem to be rotating some out of multi family to office and industrial. And our biggest competitors tend not to be the other REITs because most of our competitors don't target our type of multi-tenant business distribution buildings. The competitors are either the private REITs or funds and I don't -- some of them are pension fund advised that have all names that you recognize all the time, that are point at different markets and submarkets. And so we tend to be bidding against the same people, in many cases losing to the same people in various major markets. So it's -- there's more money coming to industrial, but it's pretty much the same type buyer.

As to private equity, sometimes it's hard to tell where some of these funds are impossible to tell where their money comes from, but I don't hear about us losing out to somebody that's clearly been identified as a private equity buyer. Industrial can be a little bit boring for those types, they're looking maybe for a higher yield.

Okay, thank you very much.

Thank you and we have no further questions at this time.

Thank you, everybody, for your interest in EastGroup. And as always Keith and I will be around for a while to answer any questions that have come up that we didn't cover enough or cut you off on, so please give us a call. Thank you.

This does conclude today's conference. You may disconnect at any time. Thank you and have a great day.