Eastgroup Properties Inc (EGP) 2013 Q2 法說會逐字稿

Good morning and welcome to the EastGroup Properties second 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.

(Operator Instructions)

Please note, today's call is being recorded. Now it is my pleasure to introduce David Hoster, President and CEO. Please go ahead.

Good morning, and thanks for calling in for our second 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 as accurate only as of the date of this call.

Thank you. The past quarter was productive for EastGroup. Funds from operations of $0.80 per share exceeded the upper end of our guidance range and represented an increase of 3.9% as compared to the same period last year. We have achieved FFO per share growth as compared to the previous years quarter in eight of the last nine quarters. Strong leasing and an 85% renewal rate increased occupancy to 94.2%.

Same property cash net operating results were positive for the ninth consecutive quarter. We continued to expand our development program and we acquired an eight building complex in Dallas. As of June 30, we were 94.2% occupied and 95.5% leased. Both figures represent increases over the end of the first quarter and were well ahead of our internal projections. These results reflect both the improving industrial leasing fundamentals in every one of our markets and the quality of our assets. Activity continues to be good but still lacks significant depth. Prospects are becoming more decisive and moving to lease more quickly. We have moved past the stage of just a flight to quality and are now experiencing a real increase in both expansions and new users to the marketplace.

As might be expected, our Texas markets were the best at 98.4% leased, followed by our California markets and 97.3% leased. Houston, our largest market with 5.4 million square feet, was 99.2% leased and 98.4% occupied. Jacksonville, which experienced several large move-outs, was our only larger core market below 90% leased but it is expected to be above that level by the end of the third quarter. In all of our major markets, rents for the higher quality assets are increasing and should continue to improve as market vacancies continue to decline. It is too early to say that we are in a landlords market or that we have real pricing power but we are certainly heading in that direction. Looking forward we expect occupancy to remain in the 94% range for the balance of the year.

In the second quarter we renewed 85% of the 1.4 million square feet that expired in the quarter which is a major accomplishment, and signed new leases on another 2% of the expiring space for a total of 87%. We also leased 707,000 square feet that either terminated early during the quarter or was vacant at the beginning of the quarter. In addition, we have leased and renewed 377,000 square feet since June 30.

For the quarter GAAP rent spreads on renewal leases were up 3.8% and up 5.5% on new leases. Cash rent spreads were negative 3.7% on renewals and up 1.1% on new leases. Average lease length was 4.7 years which was well above our averages for the past several years and probably reflects prospects growing confidence in the economy. Tenant improvements were $2.06 per square foot for the life of the lease, or $0.44 per square foot premier of the lease, which is significantly above our recent average. The average amount of free rent concessions continues to decline. As a result of our strong leasing, second quarter same property operating results increased 3.2% on a cash basis and 1.8% with straight line rent adjustments.

As previously reported in May, we acquired Northfield Distribution Center in Dallas for approximately $70 million. Northfield, which was developed from 1999 to 2008, contains 788,000 square feet and eight business distribution buildings. Located immediately North of DFW International Airport it is 100% leased to 31 customers and increases our ownership in the Dallas metro market to over 2.9 million square feet.

In early July we purchased Interchange Park II in Charlotte for $2.4 billion. This business distribution building, which was constructed in 2000, contains 49,000 square feet and is 100% occupied by a single user. It is located adjacent to our Interchange Park I in the city's North submarket. Also this month we sold a 2.2-acre parcel in our new Horizon Commerce Park development for $1.4 million and will record a small gain in the third quarter. We currently do not have any properties under contract to purchase but do have a small building in Tampa under contract to sell and plan to dispose of approximately $10 million of buildings before the end of the year.

In the beginning of the second quarter we acquired 43.3-acres of development land in Southwest Charlotte for $5.8 million with plans for the development of 467,000 square feet and six business distribution buildings to be named Steele Creek Commerce Park. In June, we began construction of the first two buildings of 71,000 square feet each with a projected combined total investment of $10.2 million. One is 100% pre-leased and the other will offer multi-tenant space.

At quarter end, our development program included 13 buildings with a total of 1 million square feet and a combined projected investment of $72 million. These buildings are currently 51% leased. During the quarter we transferred five buildings with 253,000 square feet into the portfolio. World Houston 31B, Ten West Crossing 1, Thousand Oaks 1 & 2, and Beltway Crossing X. They are collectively 91% leased.

Since the end of the quarter we have started two additional developments, Horizon I with 109,000 square feet and a projected cost of $7.7 million is the first building in our new Horizon Commerce Park in Orlando. The Southridge Commerce Park now fully built out, Horizon is the continuation of our Orlando development activity. The second is Ten West Crossing 4 in Houston which will contain 68,000 square feet and has a projected investment of $4.8 million. Year-to-date, we've started nine developments of 696,000 square feet and an expected investment of $51 million. Our 2013 guidance assumes additional development starts of approximately $40 million for a total of over $90 million for the full year. Keith will now review a number of financial topics.

Good morning. FFO per share for the quarter was $0.80 per share, compared to $0.77 per share for the same quarter last year, an increase of 3.9%. Operations have benefited from lower interest rates on refinancing mortgage debt and a increase in property operated income related to developments, acquisitions and higher occupancy. Acquisition cost reduced FFO by $138,000 for the quarter.

Bad debt expense net of lease termination fee income was $49,000 for the quarter, compared to $74,000 for the second quarter of 2012. FFO per share for the six months was $1.56 per share, as compared to $1.53 per share for last year, an increase of 2%. Lease termination fee income exceeded bad debt expense by $331,000 for the six months in 2013 and bad debt expense exceeded lease termination fee income by $127,000 in the same period last year. Debt to total market capitalization was 34.6% at June 30, 2013. For the quarter the interest and fixed charge coverage ratio was 3.75 times and debt to EBITDA was 6.85. We have included a new schedule in the supplemental information, adjusted debt to adjusted EBITDA.

The debt to EBITDA ratio sometimes does not match the net operating income associated with the debt that is borrowed. In our case, we made two adjustments. One is for acquisitions during a period where you may have only a partial period of income recorded but the full amount of debt is borrowed and the other is for developments with little or no income recorded because properties are under construction or in lease-up, but the debt is included in the ratio. The adjusted debt to adjusted EBITDA ratio was 6.39 for the quarter. Our floating rate bank debt amounted to 6.8% of total market capitalization at quarter end. Our bank debt was $177 million at June 30 and with bank lines of $250 million, we had $73 million of capacity at quarter end.

During the quarter we entered into an agreement -- during the first quarter we entered an agreement in principle with an insurance company under which we plan to issue $100 million of senior unsecured notes at a fixed interest rate of 3.8%. The notes will require semiannual interest payments with principal payments of $30 million on August 30, 2020, $50 million on August 30, 2023, and $20 million on August 30, 2025. These maturity dates complement our 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 plan to pay off two mortgages in the remaining months of 2013. A $34 million mortgage due on September 5, 2013 with an interest rate of 4.75% can be prepaid on August 5 with no penalty, and a $51 million mortgage due on January 5, 2014 with an interest rate of 5.75% can be prepaid on December 5, 2013 with no penalty. We also plan to close an unsecured fixed rate debt financing of approximately $60 million in December. We continue to convert to unsecured debt as we fund the development program and acquisitions with unsecured debt and also pay off mortgage debt with unsecured debt.

In the second quarter we sold $2.1 million of common stock and so far in July we sold another $7.9 million through our ATM program. We plan to sell an additional $27 million for the remainder of 2013. In June we paid our 134th consecutive quarterly cash distribution of common stock holders. This dividend of $0.53 per share equates to an annualized dividend of $2.12 per share. Our FFO pay out ratio was 66% in the fourth quarter. Rental income from properties amounts to almost all of our revenues, so our dividend is 100% covered by property net operating income. We believe this revenue stream gives stability to the dividend.

FFO guidance for 2013 has been narrowed to a range of $3.17 to $3.23 per share and the mid point was increased from $3.15 to $3.20 per share. Increase is due to the 3% per share increase in the second quarter as we discussed and another $0.02 per share in the second half of the year due to acquisitions, developments and continued momentum and leasing. Now David will make some final comments.

We had a strong second quarter. Good leasing ahead of expectations, continued momentum in our development program, and an attractive acquisition in our core market where we want to grow. 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.

(Operator Instructions)

Craig Mailman, KeyBanc.

Good morning guys. Just curious, Florida looks like you guys saw some good improvement there and was just wondering outside of Black & Decker move out in August, is the move there sustainable or are you guys seeing that demand really come back?

Yes. We had projected much slower leasing in both Jacksonville and Tampa, and have been pleasantly surprised with the activity in both markets. In Jacksonville, I'd mentioned previously. In Tampa, we have the Black & Decker move out in a month or so but we've already released over 50% of that space and the prospect of the user will be moving in, in the third quarter, so we're pleased with the activity.

Is it pretty broad based demand? I know early in your comments you're saying the activity lacks depth. Is that projected towards any one market?

No, to me the definition of depth is when you have either a prospect for every vacancy that you have and then the next step is two prospects competing or three prospects competing at each vacancy, and that's where you really start to develop your pricing power with rents other than just a general move up in the market. So we're not at the stage yet where we can say that we have a good prospect for every vacancy in the portfolio but from the standpoint of users, I would say it's been more broad base over the last three or four months than it has been in the past and housing certainly has been a contributor to some of that. And that ranges everywhere from construction equipment to the custom doors and windows, flooring, HVAC, and one that's somewhat new that we hadn't talked about before is furniture. So it would categorize under housing. Three PLs have been increasing their space usage, electronics companies, medical, especially in Florida. In Florida we're seeing increased interest from a convention center and entertainment and in Texas, it's a variety of all of those but in Houston obviously energy seems to be leading the way. So it seems to be a broader number of prospects than maybe we had a lot earlier in the year.

That's helpful. And then just lastly, on the acquisition front, how does the pipeline look there and could there be any bigger deals similar to Dallas in '13?

We would love that to happen but we're such a disciplined, picky buyer that you just never know. We don't have any additional acquisitions in our guidance but hopefully we will find some attractive properties between now and the end of the year. But as I mentioned before, we don't have anything under contract and don't have anything with the offers outstanding. It's just -- but that changes every week. So hopefully we'll find something more.

Great, thank you.

Thank you.

Michael Bilerman, Citigroup.

Good morning. This is [Kevin Varon] with Michael. You mentioned in your opening comments that there's an additional 40 million starts expected for the remainder of the year. Could you walk us through what markets you expect to see these new projects coming online? And then also what are the expected yields on the incremental projects versus the existing pipeline?

We see additional construction starts in a building in Denver that I think we've mentioned previously that we're not starting quite as quickly as we would have liked but it would probably be a third or early fourth quarter start. San Antonio, and some more in Houston, because the demand we're experiencing there. Our yields in which we define as 100% occupancy was fully loaded costs in the investment are still running from a low to mid eight. We've been able to maintain that so far.

Okay thanks and then just one more general question. Just with the ramp in development activity in the industrial markets across the US. Are there any markets where the new supply is a concern or maybe could be a concern over the next 12 months?

The only market where we're seeing significant and some of these any new supply to compete with us is in Houston. Other industrial REITs are building there and some private developers now have institutional money backing them as partners and are building. Some of that will be competitive with us but a lot of it is in different sub markets and in many cases larger buildings where we're not going to compete for the same users. So in our portfolio, Houston is the one that we're watching most closely from that standpoint.

Okay, thanks a lot.

Thank you.

Vance Edelson, Morgan Stanley.

Good morning guys. Thanks for taking the questions. Could you provide an update on the percentage of the higher rate leases from the last cycle that you've burned through? When will we be able to say that's all behind us and related to that, could you just provide some color on the cadence of rent spread improvement over the next 6 to 12 months, when do you think we'll be hitting positive territory?

I wish I could give you the exact answer on when we're going to be 100% positive and really have some pricing power but that's still a little bit of a gray area. When we look at the leases that were signed before 2008, we've got about 10% of our square footage that still fits that category and that is going to be terminating and maturing over the next four or five years, so it's not happening all at one point. So from that standpoint, we're going to see improvements and I think I've said many times in the past, they really look at the renewal rates and the renewal results as that's much more apples-to-apples because as I like to remind people, if we've had a space vacant for two or three years and a tenant moves in today, we compare today's rent with what the previous tenant no matter how long ago it was paid. So I think we sometimes overstate the roll down in rents because when we've rented a space that's been vacant for over a year, that rent plus the cam charge all go to the bottom line and obviously a big plus to FFO.

Okay that's helpful and related to that the rents that you're commanding versus the competition based on the location, the quality of your space, do you feel like you're getting a significant premium now and would you expect that premium to typically grow more pronounced as the cycle improves and vacancies decline further?

Well, sometimes it's very hard to compare rents because it's different sub markets or the size of the spaces or the office build outs in the spaces. So we think we are generally outperforming on a leasing standpoint simply because of the great locations of most of our properties and the quality to begin with. And one of the things we are experiencing rather than seeing a direct comparison to competitors is that overall, higher quality spaces are experiencing better rent growth than the B minus or C spaces. There still is somewhat of a flight to quality when the opportunity is there, as companies get more confident in their own futures.

Okay, and just final quick question, you talk about housing becoming more of a driver. How about the interactions with FedEx and UPS? I think you've indicated from time to time there's been an uptick in negotiations. How do you feel about those types of relationships right now?

We feel good about them and we've signed in a number of markets new leases and expansions with FedEx and continue to enjoy being a provider for services or space for them in many markets. That's still a positive.

Okay, that's great, thanks.

Thank you.

Alex Goldfarb, Sandler O'Neill.

Just quickly, just a few questions here. First, the NOI and releasing seem to be much better this quarter than prior quarters but just given that, that can be influenced quarter to quarter depending on what's rolling, what should we expect for the balance of the year? Should we expect third and fourth quarter to be similar to second quarter or was this just unusually strong just because of the leases that happen to be rolling this period?

I think it's some markets it will be the same and I think some of our rents in Florida were better from as you say the leases that we're rolling, so I've always been a believer that one quarter isn't a trend. So we'll talk to you again in October and see how we did. From a same property operating standpoint, we're not -- we're going to have lower growth of the third and fourth quarter as we have in our guidance than we did in the second quarter with the main reason being that last year, we had occupancies of over 94% in both third and fourth quarter, so the comparisons are more difficult from that standpoint, but we still believe they will be positive.

Okay, and then you guys have ramped up -- as you outlined before, you ramped up your development starts and assuming that this trend continues of just improving fundamentals, it would seem reasonable that you guys would continue to ramp up developments even more as the year progresses, wouldn't it or is there some sort of capital restriction, maybe Keith has locked the money box that you can't start anything new? How should we think about the balance of the year as things continue as they are?

I would say we'd go with our guidance which shows a good many additional starts and those are all projects that we are working on today in terms of either pre-leasing or permits or confirming that we think the market will accept those assets with open arms. So that I think the issue is can we continue that pace next year and the answer to that is all based on the leasing of we're doing now.

Okay and just finally and specific in Orlando on Horizon, maybe you said it earlier. Is that project pre-leased or you are doing that speck?

That will be a speck development.

Okay, thank you.

One of the reasons that we're comfortable doing that is the last building in Southridge that was started I think in January, we pre-leased all of that building to a single user before it was done, so we believe that shows the demand for high quality, first generation space in an attractive park.

Okay, thank you.

Thank you.

Brendan Maiorana, Wells Fargo.

I'm not sure if this is Keith or David but looking at your guidance for Q3 and then for Q4, the mid point of your guidance for Q3 is $0.81 which suggests $0.83 in Q4. Is that ramp between Q3 and Q4 because you've got some financing tail winds in the fourth quarter from the pay off of those high interest mortgages or is it more that you think that the overall NOI level and fundamental performance gets better as we move sequentially throughout the year?

In the fourth quarter we're projecting more NOI, so it's mainly geared to more property NOI.

Okay that's helpful and then, Keith, so if I think about the balance sheet with the pay off of those mortgages and the other capital sources that you've got, a little ATM issuance, some asset sales but you also have some development spending, your line balance, your credit facility balance will still be probably $65 million, $70 million sort of towards the end of the year. Is that kind of a rough target level that you think is about right for the size of the Company and the balance sheet?

We usually try to keep it around $100 million. We'll drop it when we do financing and it will go below and then we'll run it up about the $175 million mark we are on now is about as high as we want to go. We've got $100 million that we intentionally put off until August 30 to ride our bank line a little longer to close on and get benefit from that, but as we go above $100 million we start trying to line up financing and then take it back down.

Sure and last one for me, so if I look at the term loan I think the $60 million that you've got assumed in the back half of the year at 4.5%. Is that an apples-to-apples rate today versus the 3.8 that you locked in early in the year? So is it up 70 basis points or is that not a fair comparison?

I think it's up 70 basis points, and the $60 million is not a done deal. That's just a projection and what we did was take hold of a few people and see what today's rates were and looked at the public debt market and it was around 4.5% so that's just a guess. We don't have anything locked in for that.

Yes, okay but 70 basis points is your projection of the change. Okay that's helpful, thanks.

Thank you.

John Guinee, Stifel Nicolaus.

Guys, very impressive quarter. Just a couple of more curiosity questions than anything. If you look at your development over the last couple of years which is all filled up fairly nicely, how much of the tenants are existing tenants were moving and how many of the tenants just on a percentage basis are new tenants who aren't exiting your existing space and moving into new product, is one question? And then the second question is you've done a good job of keeping your tenant improvement costs low. How much of your tenant improvement costs are what I would call basic costs versus special purpose and the way I'd define special purposes is tenant specific which you'd want to be paid handsomely to build out to them?

Let me try to do the first part first. I would have not calculate a number, it's a good question, we'll have to go back and look at it, but I would say probably two thirds of our tenants -- maybe just back off, 50-50, that 50% are -- well each cities different but 50% to two thirds are new users for development and the other third, 40% are existing customers. But we're not going to do a new building for an existing customer unless, of course, it's an expansion. So everyone I can think of is a really good size expansion. For example, the last Southridge building that's just being finished now, that user I think is going up about three times in size, their existing customer in Southridge is side light they provide services for users at the convention center.

So in Houston, we have done at World Houston three build to suits or pre-leases for freight forwarders. Two of those we had no relationship with before. The third, we had done one build to suit and they had bought some other companies and came to us and said that they wanted to do a second build to suit. So it wasn't an expansion of an existing facility but an expansion for them, so we did the build to suit. The pre-lease building in Charlotte is a little over a doubling of freight forward space and in most of those cases, if we hadn't been able to provide that additional space we would have lost them as a customer.

Your answer to your question on tenant improvements, one of the things that it's hard to break out is many times when our figure is higher than average, it's because we're taking a larger space and splitting it for two or three customers and so you put in the dividing wall, add new office pods and those really are building improvements over time but they will show up in our statistics as tenant improvements. We obviously tried to avoid special TIs unless it is a long term lease with a credit user. Interesting one where we didn't have to do that is in Tampa. We signed a lease with Norwegian Cruise Lines for 40,000 some feet. They are spending all the TIs themselves and they are going to use the warehouse to train their entertainers that will be on the cruise ships. That's an unusual use for a warehouse but as I say they are doing all of the tenant improvements themselves. So we try to keep it that way if we don't think we'll be able to reuse them.

An example in a new building, you want the office space in the front, you don't want it down the side of the building, you don't want it in the back near the dock doors. You want it so that the next potential user is going to a little change to it as possible. Hopefully I answered your question.

That was just great color on how sausage is actually made in the business, thank you.

Thank you.

I'd also comment that you probably don't need to go any further on training for entertainment on cruise ships. Thanks.

Thank you.

John Stewart, Green Street Advisors.

Thank you. David, are you going to call for a seasonal summer slowdown this year?

So far we have not been told that from the field other than possibly in Phoenix. The first quarter, first four months of the year in Phoenix were very strong, especially for the big boxes and maybe just used up a lot of pent-up demand and a bunch of new big boxes were started and were under construction and that seems to -- it was still positive I think in the second quarter but it slowed way down and maybe as Phoenix gets the hottest summers. But, that's the only one where we've been told by our people in the field that they're seeing a slowdown.

How about the small acquisition you did in Charlotte in July? What was the cap rate on that deal?

That's a high seven, and as I say, it's next door to our Interchange I which has been a very successful building because it's a major two interstates coming together in Charlotte, it's a longer term lease with the user and there's the potential to add I think about 16,000 square feet to the building. So that combination of factors gave it some extra appeal for a building that size.

Sure, and then what cap rate or yield do you expect on the $10 million that you've got teed up to sell in the second half and then maybe if you could speak more broadly to the investment market given the 70 basis point back up that Keith mentioned?

We're assuming about a 7% cap rate on the sales and we have a mix of assets that we're talking about selling or about to put on the market or where in one case a tenant has an option to buy and say that they want to, and that's just an average for all those together. So probably end up a little different than that. I don't think enough time has passed for there to be any significant statistical change in cap rates but in talking to brokers, and my own opinion, is that if there's going to be effect on cap rates it will be the B minus and C assets where there are less well capitalized buyers or local buyers who are going to -- who are always looking to finance the acquisition at as high leverage as possible. And that the institutional type buyers, REITs, pension fund advisors, private REITs already have their capital and are doing little or no debt on it. So not heard of any of the quality assets so far suffering in any cap rate deterioration, but it's going to take another three, four, five months I think to get some real feedback on that.

Sure, and then lastly, one for Keith on the $60 million unsecured that you have targeted for the fourth quarter, what format is that going to take? Is that going to be another private placement or will it be a term loan?

Right now it looks like a private placement. We're talking to a number of people directly so we hope to have something lined up pretty soon.

Okay thank you.

Thank you.

Aaron Aslakson, Stifel.

Hi good morning, thank you for taking the question. You mentioned that you think concessions are actually in decline now in many of your markets, free rent is actually coming in but when you look at the CapEx actually spent this quarter versus last quarter in the previous quarter, continues to go up. When do you think that trend actually changes?

We look at the TIs and that's what you're referring to, two different ways. If you look at it on just the TIs per lease, they're up significantly this quarter and I think that's a combination in looking at the individual leases, a combination of say splitting some spaces, redoing some older spaces like a couple of buildings in Jacksonville and some service center spaces that are closer to have higher office finishes. If you divide the average length of leases into a little over $2 per square foot, it is more in line where we've been over the last four quarters. Now do we expect that to come down over the next year, year and a half? Yes, but not significantly but it will come down because there's still I think I would say Phoenix and some of the Florida markets. There's still, although improving, still soft enough where we do a little more in TIs than we would like to do but are still pleased with the economics of the overall lease. You generally if we're doing higher TIs we're getting a little higher rent.

Right, and then just going back to the cap rate question and adjustments for increasing or expected to or increasing interest rates. Have you made any adjustments in your underwriting in terms of exit cap rates for the assets you are looking to acquire?

We don't have a specific hurdle rate for each market. What we look at is our I'll call it rightful approach, cost to capital today and what's our cost to equity, what's our cost to 10 year money, blend that on a 35-65 basis and so that is pretty much where our minimum would be, and then have a sense of what properties should sell for different qualities and different markets. And each one is different but with interest 10 year rates up a bit, our cost to capital is up some but not so much that it's affected our approach on any acquisitions or development.

Okay, well thank you very much.

Thank you.

James Feldman, Banc of America.

I was hoping you guys could put your macro hat on for a little bit and talk a little bit more about what tenants were saying. We're seeing rate rents rising and people are trying to figure out if the economy is really holding up here. What's your thought about the markets going forward, property markets going forward and maybe talk about some of your weaker markets, what your sense is of the recovery there as the recovery spreads?

We think that the demand has become more broad based than it was 6 to 12 months ago and each one is a little different, as I say Houston is certainly energy, but Houston now is starting because of the strong employment and population growth is starting to see more housing related users. Orlando, which economy is based on a lot of tourism, as I mentioned we're seeing convention center, we're seeing cruise ship tenant in Tampa, we're seeing growth in medical across Florida and actually, a growth in Charlotte also there. So its becoming -- the fundamentals continue to improve in terms of demand and the type of demand so that builds some confidence for us. Also as I mentioned in my remarks, users prospects are moving a little bit faster and they don't feel real urgency yet but a whole lot more than they did 6 or 12 months ago so that's positive. You don't put out a proposal and wait three months to get a response. It comes back pretty quickly and they're making their decisions more quickly. And I think that reflects a confidence in those users businesses. So they are willing to make longer term commitments and start to pay for expansion of space so it's positive.

You look at the population and all the job growth statistics in our individual markets and they are very positive. I don't know if you heard me mention statistic in Texas if you look at the trailing 12 months you combine Dallas and Houston, it's 700 net residents a day and something like 545 new jobs a day. Another example I've used that's office but it's certainly going to affect Houston, Chevron announced a brand new tower in downtown Houston that's going to be 1.7 million square feet and 50 stories and they're going to move some employees from California but they are talking about, and they didn't give the time horizon, but they are talking about adding almost 1,800 new employees. So all that, all those people need a place to live and shop and consume goods, so that's very positive for cities like that, both shorter and longer term.

Very helpful, and then as you think about what's in your guidance for leasing spreads in the back half of the year?

About where we are today. We tried not to be too specific because they bounce all over the place but the real effect on our same property operating results tend to be more occupancy than leasing spreads right now.

So if your year-to-date you're at minus 5.1% on cash leasing spreads you'd think that's about right to the back half of the year?

I hate to get pinned down but probably on average.

Okay and then I know it's a little early but just thinking about your largest expirations next year, it looks like you're weighted in Tampa, Houston, and those are the big ones. Do you have a sense of where the market -- those seem to be some of your better markets, some of your better markets on leasing spreads and fundamentals. Do you have a sense of where you are versus market in those leases?

I have somewhat of a gut feel on it but no, I can't really give you a specific number on it at this point. I think you have to look at the broader results.

Okay, and then just thinking about rising rates. Do you get a sense since you do focus on some of the smaller tenants, do you get a sense that some of those tenants might be impacted by rising rates, as their cost of borrowing rises and what impact that might have or drag that might have on their business conditions?

We don't have any feedback from people in the field as that is a reason for somebody not expanding or renewing or shrinking anything like that and so far, the rising rates are 10 years. The short-term rates still haven't moved much so if somebody is borrowing based on a LIBOR or a prime I don't think it's really affected them yet. So, no, we've not heard anything negative from users related to that, really of any size.

Yes, I was thinking more about as I was thinking about the next couple years.

I don't think out that far right now in terms of our planning. So it's more what we think our prospects and our current customers are going to do over the next 12 to 18 months and so far, everybody we're talking to seems pretty positive and I think some of that's related just to the markets we're in, the sunbelt markets.

Okay, great, thank you.

Thank you.

And we have no additional questions.

Okay. Well thank you for your continuing interest in EastGroup and as always, Keith and I will be available to give any additional information or question and answering that you'd like so please don't hesitate to give us a call. Thank you.

This does conclude today's conference. You may disconnect at any time.