Eastgroup Properties Inc (EGP) 2020 Q4 法說會逐字稿

Good day, everyone, and welcome to today's EastGroup Properties' fourth quarter earnings call. (Operator Instructions) Also note, this call may be recorded. And it is now my pleasure to turn the call over to Marshall Loeb, President and CEO. Please go ahead.

Good morning, and thanks for calling in for our fourth quarter 2020 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also participating on the call.

And since we'll make forward-looking statements, we ask that you listen to the following disclaimer.

Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the safe harbors under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.

Forward-looking statements in the earnings press release, along with our remarks, are made as of today, and we undertake no duty to update them whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors, including those directly and indirectly related to the outbreak of the ongoing coronavirus pandemic that may cause actual results to differ materially. We refer to certain of these risk factors in our SEC filings.

Thanks, Keena. Good morning, and thank you for your time. We hope everyone and their families are well. I'll start by thanking our team for a great year. They continue performing at a high level amidst a challenging unique work environment. Our fourth quarter and full year results were strong and demonstrate the resiliency of our portfolio and of the industrial market. Some of the results the team produced include: funds from operations came in above guidance, up 8.7% compared to fourth quarter last year. This marks 31 consecutive quarters of higher FFO per share as compared to the prior year quarter, truly a long-term trend.

And for the year, FFO rose 8% to a record $5.38. This represents an $0.08 per share improvement over our original pre-COVID forecast. Our quarterly occupancy averaged 96.9%. And at quarter end, we were ahead of projections at 98% leased and 97.3% occupied. Our occupancy is benefiting from a healthy market with accelerating e-commerce and last mile delivery trends, also benefiting occupancy with a high retention rate of 80% for the year.

Quarterly re-leasing spreads were strong at 15.4% GAAP and 7.9% cash. Our 2020 re-leasing spread set an annual record at 21.7% GAAP and 12.3% cash. This further marks 6 consecutive years of double-digit GAAP rent growth.

Finally, same-store NOI rose 2.2% for the quarter and 3.2% for the year. In summary, during a prolonged, choppy environment, I'm proud of our team's results.

Today, we're responding to strengthen the market and demand for industrial product by both users and investors by focusing on value creation via development and value-add investments. I'm grateful we ended the year at 98% leased, our highest quarter end on record. Houston, our largest market, is 97.2% leased with a 10-month average rent collection of over 99%. Further, Houston represents 13.1% of rents, down 80 basis points from fourth quarter 2019 and is further projected to fall into the 12s as a percent of our NOI this year.

Company-wide rent collections remain resilient. For January, thus far, we've collected approximately 99% of monthly rents. There's still some unknowns about how fast and when the economy truly reopens and recovers. Brent will speak to our budget assumptions, but I'm pleased that in spite of the uncertainty, we finished 2020 at $5.38 per share in FFO and forecast $5.68 for 2021. Helping balance the uncertainty is thankfully our having the most diversified rent roll in our sector, with our top 10 tenants only accounting for 8.2% of rents.

As we've stated before, our development starts are pulled by market demand. Thus, we halted starts for a few quarters last year then began again in fourth quarter. Based on the market strength we're seeing today, our forecast is for $205 million in development starts for 2021. And to position us following the pandemic, we acquired several new sites during fourth quarter with more in our pipeline along with value-add additions.

More details to follow as we close on each of these investments. And to perhaps preempt a question, none of the development starts, value-add investments or land purchases are in Houston.

Finally, our strategic dispositions during the quarter were to sell the last of our 4 buildings in Santa Barbara, completing our market exit, along with another Houston asset.

Brent will now review a variety of financial topics, including our 2021 guidance.

Good morning. Our fourth quarter results reflect the resiliency of our team and strong overall performance of our portfolio amidst a very challenging year. FFO per share for the fourth quarter exceeded our guidance range of $1.38 per share and compared to fourth quarter 2019 of $1.27, represented an increase of 8.7%. The outperformance continues to be driven by our operating portfolio performing better than anticipated, namely higher occupancy.

From a capital perspective, during the fourth quarter, we issued $17 million of equity at an average price just over $140 per share. And as previously disclosed, we closed on 2 senior unsecured private placement notes, totaling $175 million with a weighted average interest rate of 2.65%. That activity, combined with our already strong and conservative balance sheet, has kept us in a position of financial strength and flexibility.

Our debt to total market capitalization is 19%, debt-to-EBITDA ratio is 5.2x, and our interest and fixed charge coverage ratio increased over 7.2x.

Our rent collections have been equally strong. We have collected 99.6% of our fourth quarter revenue, and we have already collected half of the total rent deferred early in the year of $1.7 million. Bad debt for the fourth quarter of $1.1 million included a single straight-line rent charge of $677,000 as part of an ongoing process of replacing an existing tenant with a better credit tenant at a much higher rental rate at a California property. Although the tenant was current on their cash rent, we were required to write off the remaining straight-line rent balance due to the probability of terminating their lease early to accommodate the new tenant.

As we have consistently stated, the depth and duration of the pandemic and its impact on the economy is indeterminable. However, the degree of potential tenant financial stress and loss of occupancy we had budgeted throughout 2020 never materialized. As a result, our actual FFO per share for the year of $5.38 exceeded our pre-pandemic guidance issued a year ago.

Looking forward, FFO guidance for the first quarter of 2021 is estimated to be in the range of $1.37 to $1.41 per share and $5.63 to $5.73 for the year. The 2021 FFO per share midpoint represents a 5.6% increase over 2020. The leasing assumptions that comprise 2021 guidance produce an average occupancy midpoint of 96.4% for the year and a cash same-property increase range of 3.5% to 4.5%. Other notable assumptions for 2021 guidance include $65 million in acquisitions and $60 million in dispositions, $140 million in common stock issuances, $250 million of unsecured debt, which will be offset by $85 million in debt repayment, and $1.8 million in bad debt, which represents a forecasted year-over-year bad debt decrease of 35%.

In summary, we were very pleased with our fourth quarter results. We will continue to rely on our financial strength, the experience of our team and the quality and location of our portfolio to carry our momentum into 2021.

Now Marshall will make some final comments.

Thanks, Brent. In closing, I'm proud of our 2020 results and excited to pursue our 2021 opportunities. Our company and our team are working well through the pandemic as evidenced by a number of company records set. And as the economy stabilizes, it's the future that makes me most excited for EastGroup. Our strategy has worked well the past few years. Coming out of this pandemic, we foresee an acceleration in a number of positive trends for our properties and within our markets. Meanwhile, our bread and butter, traditional tenants remain and will continue needing last-mile distribution space in fast-growing Sunbelt markets.

These, along with the mix of our team, our operating strategy and our markets has us optimistic about our future. And lastly, I'll speak for Brent, myself and our team, to thank our founder, Leland Speed, for his friendship, mentorship and the opportunity he gave us. Leland recently passed away, and we will miss his eternal optimism.

And with that, we'll open up the floor for any questions.

(Operator Instructions) Our first question comes from Elvis Rodriguez from Bank of America.

Great quarter. Just a quick question on Houston. So the ABR continues to come down for that market. But similarly, other markets are now increasing to the high single digits and low double digits. Where do you feel comfortable longer term on sort of market exposure as you think about acquiring some land parcels and your growth?

Good question. I don't know if there's a -- I'd love to say there's a magic number. We both -- we'll keep pulling Houston down. I think that low double digits probably would be for any market. I'd love to keep runway. We kind of tell our guys in the field, you find the opportunity and it's Brent and my job to kind of have that runway for you, so that we don't get oversized in any market and the good news, the way in kind of managing that, it's much easier to sell a leased asset today than it is to find those opportunities. So we can manage it, but we'll keep shrinking Houston this year. We were down 80 basis points last year. It will fall probably another 80 to 100, and that's without really dispositions dialed into this year's budget, and we'll probably exit another Houston asset or 2 this year.

So I think if we stayed in that low double digit, that's probably -- we value diversity within our tenant base and as well as geographically as well.

Great. And then just a follow-up balance sheet question. So leverage ticked up a little higher quarter-over-quarter, and it's slightly higher than the peer average. How are you thinking about funding your capital needs? I know you're doing some dispositions, but how should we think about the cadence of when you're going to be issuing the equity and how you work through lowering leverage throughout the year?

Sure. Elvis, I'll take that. We like our access to debt and equity, frankly, that we think both avenues are there and available to us. Obviously, a little bit of move in stock price can impact your metrics. But we're very conservative, very lowly levered. We are within a peer group where there are a few peers that are extremely low levered. So that, on a comparison basis, we're, I think, high teens debt to total market cap and some are even less than that. But all in all, we're in a very good position. We're not capital constrained. So we're more opportunity-driven. So if the guys in the field can find those, we have access.

I think you'll see us hang generally, Elvis, where we are with the debt metrics, we're comfortable there. We're not necessarily looking to delever further, but we're not also opposed to going down either path, be that debt or equity. So I think you'll see us do both. Probably a little bit of debt in the early part of the year. And also, given our current price, if it were to stay there, you'd probably see some equity as well. So I think you'll see us pull both levers.

And our next question comes from Tom Catherwood from BTIG.

A couple of questions on acquisitions. So if we go back to the start of 2020 guidance, obviously it was a very different time. But guidance back then was $65 million of acquisitions. You guys ended up closing the year with, I think, something in the $122 million range. And you've obviously done almost another $17 million subsequent to quarter end. And it sounds like from your commentary on the call, Marshall, that the pipeline is looking pretty robust, especially in terms of value-add and in land acquisitions. When you're looking at that $65 million in guidance this year, is that a placeholder because these can be chunky and it's hard to predict timing or are you actually seeing more in your kind of shadow pipeline for acquisitions?

Good question. A mix, I would say, the value adds and 2 of those, we've closed already. One, which we announced and it really reads in our press release like more of an acquisition. But in Atlanta, the 2 buildings we bought one in the fourth quarter and 1 in first quarter, I'll brag on our Atlanta team, they were able to get leased. They're new buildings, and they were able to get them leased by the time we closed. So they really rolled in, never really hit our development pipeline, but rolled in as acquisition. So the $35 million in guidance is identified. So hopefully, fingers crossed, and we'll be patient, we can find the right opportunities to grow that number.

And acquisitions is more of an estimate a little bit. And it's unusual, the building we bought in Northeast Dallas, The Rock, it was developed. It's long-term leases. We like the location. We'll pull the trigger every once in a while on a strategic acquisition, but what we're seeing on terms of cap rates and what we're hearing, I think we're better served for our shareholders if we can really feed our developments into the demand that's out there and find value-add opportunities. And we like that every once a while, if we can find a local regional developer and acquire it without the construction risk and take on that leasing risk.

We were able to get yields in the high 6s in Atlanta and market cap rates are probably mid-to-low 4s today. So again, it's -- and same thing on the Rancho Distribution Center, you saw us buy in fourth quarter in Los Angeles. We -- was an owner user. We bought it with the leasing risk, but the team was able to put a couple of tenants in. And so that building is stabilized long term. And we think we're 80 to 100 basis points above a market cap rate on it as well.

I appreciate that. And just kind of following up, you mentioned value-add in Atlanta. And it's tough. It seems like there's some mixed messages in that market. For the past 2 quarters, and I know 2 quarters does not make a trend by any means, but you've had some negative leasing spreads in the past 2 quarters. Yet you've had a lot of success with value-add there. You've added land there. In the third quarter, you mentioned cap rate compression in Atlanta as well. Can you kind of give us your thoughts on the market there and maybe kind of square up what was happening leasing spread wise with what you're seeing demand wise in the market?

Sure, fair observation. And look it -- we like the Atlanta market and at a little bit higher level than the markets growing, rents are growing there. For example, the market vacancy rate is 6.2%. And then if you really look at what we build, the smaller shallow bay buildings, it's lower at 4.8%. So we've been leasing buildings and doing well there. One of the buildings we bought, and it's probably where it's hit us in that same-store pool when we do it annually. So you've got -- we have to have held it all of 2019 and well as 2020 as we're just now starting to approach 1 million square feet. So it's a newer market.

And as we grew, one of the buildings we bought, and we went in, and I'm doing this from memory, which is dangerous, but north of a 7% yield, and it was a pharmaceutical company that we knew was going to move out at the end of their lease and in re-leasing it, there was some rent roll down. We liked the building, but with a smaller footprint in Atlanta, it can give you some kind of quirky metrics like we saw in third and fourth quarter.

So I think you'll see it normalize and the market rents are growing there. We got back some -- a long-winded way of saying we got back some above market space in a small pool of assets in Atlanta.

And our next question comes from Alexander Goldfarb from Piper Sandler.

So 2 questions. The first one is, just looking at your portfolio, there's talk in other -- from some of the other REITs about how everyone is starting to look at Nashville from a multifamily side. And just sort of curious, is Nashville a market that you would look at? And then also some of your other lighter markets. I know you guys have tried Vegas for a long time. It's been tough. But like Denver -- so some of these other markets that are increasingly on the radar for other people to flock to, are these markets that you guys are considering or is it the same rationale that, hey, these are always markets that we're considering, it's just -- we haven't yet found the right way to make an entry?

Yes. Good question, and maybe answering it in reverse order, I'll come back to Nashville. You're right. We're -- tying to Elvis' question earlier, as we kind of manage our portfolio allocation among cities, there are some markets we're under allocated in and they're incredibly competitive. We did acquire a project near the Denver airport, maybe 1.5 years ago now, Airways Business Center, we've been happy with. And we chased other thing -- projects in Denver. The problem is there's just so much capital after industrial right now. It's a little bit like the Bay Area and L.A., where we're under-allocated. And same in Las Vegas, we have -- we acquired a value-add in Las Vegas about the same, about 1.5 years ago, down near the airport and near the strip, and that's rolled in the portfolio now, too. It's leased. But we're looking for opportunities in those markets and being patient, and our preference would be to the markets we're already in to grow in those markets.

I guess a little bit of color. I was on a -- CBRE's national team had a webinar yesterday and one of their comments about industrial is the top 40 -- the top 20 is now the top 40, with so much capital out there after industrial, they are expecting cap rates in places like Orlando and Charlotte and Phoenix, Las Vegas, to continue to compress, because all of that capital can't go into Northern New Jersey and L.A. and Chicago.

So I think it will only get harder for us to find opportunities, but we'll probably keep doing either land or value-add and things like that. And Nashville is a market that certainly fits our footprint and we like it. It's got a number of our peers already. And certainly not undiscovered. It's probably the hard part. So we'll be patient. And one day, we may -- we may be in Atlanta.

And if we could go back in time, we would have things in Atlanta. And so we'll be patient. We'll keep trying to grow where we are, but Nashville -- as we've kind of identified a few markets and -- and we'll do that, where we go in and at least -- kind of Greenville-Spartanburg, you saw us enter. We had studied it for a couple of years before we actually found the first -- and lost out on some offers we made until we kind of find the first thing that clicked, and now we're adding properties there. So Nashville may get there one day, but you're right, I'd rather see us grow in Denver and Los Angeles and some other markets before we jump in a new market.

And then continuing that, Marshall. So for quite a number of years, you and your peers have mentioned how rents for warehouse users are just really not a big piece of the business, the focus is on transportation and employment as the real cost pressures. Just given all the capital pouring in, obviously, prices are going up, which means rents have to keep pace to make the math work. Do you sense any -- getting anywhere near any sort of pushback on rents or the view is that, look, rents still are a negligible part of the tenants business, and therefore, as values go up, cap rates come down, et cetera, the ability for you and peers to keep pushing rents just remains unabated because of the other pressures that the tenants have?

Sure. I won't -- I'm an optimist, and I don't know that I would go quite to unabated. But I guess, as we mentioned it's been a great run to have -- again, we like GAAP rents, because you capture the free rent and the rent BOPs that we negotiate for. But 6 years in a row of double digits, and really, the back half of those 3 have been higher than the first 3. And I don't foresee that changing. We're seeing some construction cost increases and things like that, and land prices with everybody coming into industrial. It's -- I was surprised to see new entrants into our markets during the pandemic.

People moving -- because it's so hard to underwrite, not that we do it, but I understand it's so hard to underwrite retail and hotel and office right now that we're seeing new entrants come in. And the tenants and talking to our guys in the field, typically, we lose them because of size requirements. They're consolidating locations. They've outgrown their space or their business has turned the other way, and they're leaving the market. It's usually not over rent.

So I'm -- I'm not quite to unabated, but I think we should be able to push rents pretty well this year.

And our next question comes from Emmanuel Korchman from Citi.

This is Chris McCurry on with Manny. Just a quick follow-up on investment activity. So you guys bought a lot of land in 4Q. I was just wondering, could you comment on some of your plans for the use of that land?

Sure. Chris. Yes, really, last year as COVID hit, and our team did a nice job. We -- we said we need -- the land is the one part you can't really order for development. We can order the steel, the concrete, the glass, but we didn't want to -- in the last -- the couple of years prior, we were trying to acquire the land really as quickly as we could and put it into production as quick. So we pushed the land kind of our strategy shifted to let's tie up this land and value adds, but close really later as we were -- I guess we all were hoping the pandemic would be closer to over than it is.

But at least to the end of the year, if not into next year. And so the land we acquired last year, kind of looking down our press release, it's really all first and second quarter development starts. So at 98%, we're happy where we are, happy where we ended the year and really through first week and change in February, we're about the same place in terms of percent leased. The first part of this year doesn't feel much different than fourth quarter did, thankfully.

So our plans are to kind of to start adding those new phases into our parks, as our tenants have started talking about expansion needs and things like that again. And we've seen the leasing activity get a little more broad-based. So what we acquired, it's always been our goal to try to put it into production as quickly as we can. And most everything you saw us looking down our list that we acquired in December, we'll either start on, our plans are first or second quarter, just depending on how quickly we can get through permitting and design and things like that.

Got it. And just a quick follow-up. I was wondering if you could comment on some small tenant trends. Are there any specific industries that are challenged or has the competitive landscape for some of your smaller tenants changed at all?

Yes. I think a couple of things, and I'm glad you brought it up. One interesting thing, I think our collections show it, that I do think, and I won't say people got wrong is maybe I'll take the blame and say I didn't articulate as well. We have smaller spaces, but a lot of our tenants aren't small tenants. We do have some, but our collection is really at 99.5% for the last kind of -- through the length of COVID, show that. So we have national companies that just need 30,000, 40,000 to 50,000 square feet in markets. Industry-wise, nothing jumps out. The bankruptcies we have, have been more specific. There's a dental company that we had. And so during COVID, where people went to the dentist less, I understand that.

A company, they're still there, but they transfer people for the military. It's a moving company and the military put a stop on transfers during COVID. It's been more people servicing the strip in Las Vegas and things like that. Printing has been a business. I don't know that we have many printers left in our portfolio, but we had a few, and that evidently is a pretty tough business. And then one on the flip side that we're benefiting from, and I still think there's more runway to, but homebuilding and home renovation as that has picked up. And really, Sunbelt migration has helped us as well. And we're seeing more and more demand from people within that industry.

And then a lot simply from 3PLs and that may or may not be related to homebuilding, but that industry feels very active right now.

And our next question comes from Vince Tibone from Green Street.

You mentioned bad debt expense should be down about 35% in 2021, but how much did bad debt impact cash same-property NOI for full year '20? And also, if you can just touch on how you think about what is the normalized level of annualized bad debt for your portfolio as a percentage of revenue or percentage of NOI, however you would budget for it?

Yes. This is Brent. Vince, yes, we do forecast bad debt going down. That's a component of a couple of things. One, I feel like it will normalize. We had a very good collection year. As Marshall alluded to, we are 99.5% plus. I'm very pleased, I have already collected 56% of our deferred rent. So there's only $700,000 or $800,000 left in deferred rent to collect, which the majority of that, hopefully, we'll collect this year.

In terms of its impact on same store, it did impact the one write-off I alluded to in the call earlier in our prepared remarks, was a tenant -- a single-tenant in California where we're repositioning it and moving a lesser credit tenant out for a better credit, much higher rent. But they had a straight-line balance of around $680,000. So that had impact. But we generally, in budgeting events, we look at our historical trend of bad debt relative to revenue. Obviously, '20 was an uptick year. But our forecast next year, $1.8 million, basically puts us in the midpoint between what we experienced in '20 and versus what our long-term trend is. So we're basically budgeting that to head back toward a more normal ratio that is between revenue to bad debt.

So again, we're very pleased, especially a shout out to Houston, the collections there have been exceptional. Our team there has really worked hard, Kevin and his team, to keep those numbers up. So we feel that, that coming down by 1/3 is -- for various reasons, is very achievable.

Just to maybe follow-up there, help me frame the 35% decrease a little bit better. I mean, how much is this maybe going to contribute to same-property in '21? Is this a 20 basis point positive impact kind of coming off the easier comp in '20? Is it 50 basis points? Is there -- are you able to possibly frame it that way?

Yes. To cash, it'll have a lesser impact. Most of that will occur. Bad debt will be in same property. I mean, the only -- just by definition, the only part of our portfolio that's not included in same-property would be properties that have rolled into the portfolio since January 1 of '20. So just inherently, that decrease, for the most part, is going to be felt in same store. And I do think that is part of our upward forecast. We finished the year at about 3.2% same-store for '20 and you saw our midpoint guide for next year being 4.0. And some of that is driven by part of that bad debt decrease.

I can't put the exact percentage to that, Vince, but obviously, most of that's baked in just inherent with the portfolio.

Okay. One more for me. Could you discuss any changes you are seeing supply picture in your markets for multi-tenant properties, given all the new capital coming into the space?

Most of it still seems to flow and maybe that's -- if you said long term, we worry about finding good land sites that we can get those -- either have the right zoning or we can get zoned and are at the right price and don't have the topography that makes it impossible. Most of the new entrants that are coming in, it's still, thankfully for us, maybe edge of town, big box development. So if we looked at it that way, it is still South Atlanta, south of Dallas, Inland Empire East, kind of within our markets. It will usually be someone comes in and look, you can put a lot more capital out that way. Our average buildings are about $12 million in terms of an investment. And if you build a 600,000, 800,000 square foot bomber on the edge of town, you can sure put a lot more capital to work as you're trying to place money or up your industrial allocation.

So that's really where we see that. And then maybe like Atlanta, where you have that 140 basis point swing in vacancy rates, that's a lot of what's driving that is the new supply typically comes on, and it's much larger buildings.

And our next question comes from Craig Mailman from KeyBanc Capital.

Marshall, just on the land acquisitions that you guys have closed and ones that you're kind of chasing right now. Can you just give us a sense of kind of where you're able to underwrite yields today? I'm assuming kind of flat rents, kind of versus this north of 7% you've been getting and just does -- I don't know if you guys do this in investment committee or not, but just the layering in sort of the historic rent growth that you've gotten over the last 5 years, kind of what the range is of maybe the underwriting at today's rents versus maybe where you've kind of been coming in as projects have been finished and leased up at these better rents?

Sure. Thanks. And maybe, I think I'll start with the numerator and work my way to the denominator. On rents and you kind of filed that away, at least in the back of your head, but we don't change it. We will underwrite rents, and this is what I like, especially if you're delivering 2 more buildings in an existing park. It is where the rents and the TI came in on our most recent leasing. So we'll look at our peers, and we don't factor in rent growth. That may be, I guess, I could say, in hindsight, that's been too conservative the last few years, but we won't factor in rent growth. And then typically, by the time it gets to investment committee, we'll have the land dialed in and we'll bid it out to 3 different GCs for the construction.

So we'll have firm construction numbers. And then you're really just trying to manage your risk as anything. So where that risk remains is how fast can we lease it up and obviously, the tenant improvements. And typically, if tenant improvements start to get a little above normal, then we'll adjust rents with that, pending the term and the tenant's credit and things like that.

So for now, it feels like we're still in that kind of higher 6s to 7%, thankfully. And what's helped us is cap rates where we used to -- we typically would target 150 basis points for development risk has been our norm. We're getting closer to 300 as cap rates get into the low, if I round and use a 7 and a cap rate of a 4%, you're getting to 250 to 300 basis points. And hopefully, we're delivering at a little bit higher rents than we underwrote. The project in LA that we bought, and we thought that, but we used current rents, and we thought we were going in, in the mid-4s and it finished 90 days later, and we were able to come in at the high 4s, for example. And it was -- that wasn't construction. It was simply able to get better rents than we had underwritten and as that market improved.

That's helpful. And just going back to your earlier comment, too, about 20 markets is now the top 40 markets. And pricing is starting to reflect that even across kind of quality. Just as you guys look at the portfolio, I'm just curious, I haven't asked you this in a while, but are there kind of -- what's the bucket of noncore stuff that may either just be a standalone, not in a park setting that you guys you like or wrong submarket or maybe TIs are going to be higher that you might be able to accelerate given kind of the spread you're getting in development that could offset maybe a slightly higher cap rate. But from a portfolio quality and kind of growth accretion longer term, it might just be the right time to maybe try to offload some of these assets rather than a more deliberate pace?

Yes. When we -- we've done that a fair amount for us really in the kind of '17, '18, '19. Last year, kind of when the pandemic hit, really nothing traded for a little bit. I won't say nothing, but a 15-year lease with Amazon type credit. It was AAA things were about all that traded in third quarter and then the market seemed to open up. So it's not a large bucket. I'm glad we're -- they were good assets, and we had gains. I'm glad we're out of Santa Barbara, and that those were really R&D, 2-story R&D buildings, and not a true distribution market. What you'll probably see this year in our dispositions, and we're still working our way through and getting some broker opinion of values as maybe an asset or 2 in Houston, just as we manage its size and really, partly too, of Wall Street's discomfort with Houston.

We're okay with Houston, but clearly, at 20% our allocation. Brent and the team did a good job and created a lot of value, and we -- we needed to harvest some of that value may be another way to say it. But -- and then everyone here and there, we'll have some older service center buildings, not a lot, but that's what we were selling in Florida. And typically, those are the ones you mentioned. They're single story, and they are smaller tenants, where the vacancy will hang around a little bit longer as compared to industrial and the TI is a little bit higher.

So we've got a few of those where we're getting some broker opinion of values to exit those. But thankfully, for the most part, industrial has -- those have hung in there at least. And I think we should always be selling some things every year. I think if you do that, you can manage it and not let that bucket get too big if you don't want to go to sleep on it. But every year, we'll probably -- whether it's $60 million or $80 million worth of sales, whatever you can kind of afford to sell that year. And now is a good time to be exiting some of those assets, you are right.

If you were to think $60 million to $80 million a year, but if you had to rip the band-aid off today, what do you think the value of that or percentage of that of the portfolio is?

They're leased. So there's probably some -- and I guess if it depends on -- I don't have a number, because you really get into which industrial buildings after that. There's not -- some of our older ones as we started looking at it like in Los Angeles and in the Bay Area, they're older industrial buildings, and they may not have the physical basically dimensions of what we would build today, but they're really irreplaceable assets. Those would be -- I'll go back to our founder that I mentioned earlier, his phrase was crown jewels for some of those assets that you wouldn't want to sell. So it's a handful of service centers, maybe 5 or 6 throughout the portfolio, at most.

And then some of our older industrial, we really have done that in Dallas and Houston and in a number of markets as we scaled back. We've already -- we're basically down to just our parks in Houston. And even then, we've sold a little bit of the older product in World Houston. So it's thankfully not that much, but I think we'll always be pruning. I think that's probably what you pay us to do is always be trying to think of -- I'm thinking in Houston, one of them, it was a good park we had built, but we felt like the neighborhood was moving away from us a little bit. And so we exited that park maybe a couple of years ago now.

And our next question comes from Bill Crow from Raymond James. Can you check your mute function for us?

All right, and we'll just move on. Our next question comes from Michael Carroll from RBC Capital Markets.

I wanted to touch on, I guess, the land purchases, I guess, so far to date that you guys were kind of highlighting earlier on the call. I guess, Marshall, did I hear you correctly in your prepared remarks that you're active looking for more land? Is there more closures that we should expect to get done here over the next several months?

We've got a few -- yes, we've got a few more -- as we're working through our due diligence, but a few more things tied up and all existing markets and really trying to -- ideally, if we have a successful park, and that's maybe the one you saw us buy in CreekView for the next phase, for example, the 11 acres, where the park leased up quickly. We were out of land. And if we can find ideally contiguous land or at least land nearby where we'll keep moving. So we've got a few more parcels under contract. We won't go crazy with land, because it can become a drag on earnings, if things turn bad. But we like the ratios, the value. And one way we think about it, for example, is if I use the, call it, 250 basis points to 300, if we can pull a successful development off on our pipeline, it will carry the -- really the land bank, where interest rates are and the taxes, it will carry our entire land bank for a year. So there's a little more offset in value creation than land carry.

That said, we are mindful of the land carry, and that's why we try to put it into production as quickly as we can. So -- but to kind of keep feeding that development pipeline, we've tied up some other parcels. And as we work through due diligence, hopefully, you'll see us come report back with some closings between first, second and third quarter this year. And there are some markets where we're out of land, if we could find the right site, we'd love to grab it.

And can you talk a little bit about the valuations of land right now? I mean, how much have those prices appreciated? And then I guess, just last one for me off of that. The development starts that you have planned to break ground on this year, is all those projects basically identified on land that you currently own?

Yes. all identified and really we'll get that back from the field and then by quarter, what do you plan to build and what quarter, and then we'll keep a shadow pipeline, which is a decent list of hey, if that phase goes quickly, what else could we deliver this year. So that's a pretty -- as you imagine, a fluid pipeline, but they're all identified, and I feel better of our $205 million in development starts, it's mostly front-end loaded. So I feel better rather than, hey, we've got to do a lot of leasing, and then we'll break ground late third quarter, fourth quarter, although there's some of that in there, over half is fairly early this year. So that certainly feels more certain. And we have the building name and the park and the land and everything lined up, and are working towards getting those starts off with the construction bids and permits and everything else.

And land pricing, it probably held stable, and that's maybe what helped us tie up some of the parcels you saw us close and really in December, most all of them were late in the year and that we tied up this year that there weren't many people out looking for land, and that's probably changed and prices. It's hard to say because we struggle for those. There's just not that many, but maybe up 10% from where they were a year ago, which is pressuring us. That's a little bit of an estimate, but places like Dallas and certainly, Austin, Texas, which is a market we like.

There is a -- with Tesla moving there and some other technology companies, that's a market where we've seen land prices and developers. I'm glad we've got some things tied up and construction underway, but land prices have moved certainly in parts of, as you'd expect, in Austin when Tesla comes to town and builds a huge plant. Same thing we've seen in certain parts of Phoenix in the Southeast Valley with the technology companies growing. The land gets gobbled up pretty quickly by people.

And we will try Bill Crow again from Raymond James.

Appreciate it. Can you hear me?

Yes.

Yes.

Marshall, I want to preface my question by just thanking you for the shout out to Leland, who not only was the founder of EastGroup and Parkway, but really an early pioneer of the REIT space in general. So I appreciate that. And I think a lot of the people on the phone appreciate that. My question really is whether you're seeing any material changes on tenant investment levels into your properties? We all think about automation and being big box. And I'm just wondering if you're seeing anything that any trend changes on your tenants' part? And any changes in trends, longer-term trends on TIs?

Thanks, Bill, and I appreciate the comments on Leland, and I won't dwell on those. I probably shouldn't too much at least with everybody here. And then -- but yes, I think the world of him. And on the TI side, with our smaller spaces, we'll probably see it a little bit later than a 700,000, 800,000 foot building. That said, we are seeing tenants putting more of their money in. We've had more and more HVAC, where it's light manufacturing or pending the type of inventory that they're doing. We've added parkings and glass more -- if you said within our own building design, we've added more glass. Sometimes that's been at the city's request or nudging along with zoning, and -- but we've added more car parks, trailer storage and glass to our buildings than we did probably 10-plus years ago. And we're seeing that HVAC and investing in racking and things like that. So they are getting a little more -- which we like. I think that makes it trickier for them to move and stickier in the space.

So it's not maybe quite as much automation as, say, Amazon would have in a big box building, but we are seeing that trend where some tenants -- it's usually the national tenants where they have the capital to do it, are putting more and more into their space.

And our next question comes from Dave Rodgers from Baird.

It's Nick on for Dave. Just one quick question on the occupancy pickup in the year-end. How much of that is related to like shorter term leases? And then how much, if any, is related to like reverse logistics or inventory return processing for e-commerce firms?

Sure, that's a good question. Not too -- minimal. We did have, at least in terms of seasonal, I can really only think of 2 leases, both with the post office where they jumped up to actually our largest tenant. They had taken some space in San Diego through the holidays. What we had read is they're delivering about 1/3 of the packages for Amazon. So in Orlando and in San Diego they took the space. Thankfully, San Diego, we're underweight with TI, we have the building leased. It was a value add. We acquired it. The post office was kind of a placeholder. We got the leasing done and now the TI work's being done.

And really, reverse logistics, we have not seen that. I'm not aware within our portfolio. I'm sure there's some. There's got to be some within the tenant spaces, but really anyone leasing space from us, it's probably a larger return warehouse than we would typically see. So it's maybe marginal within a tenant's space, but no tenant's specifically set up for reverse logistics, but certainly have read about it and followed it, and I think that will continue to increase new demand within the industrial sector.

Yes. And then just a quick follow-up for like expectations for 2021, are you kind of expecting e-commerce tenants to more normalize this year? Then you've mentioned other tenants, such as like homebuilders and stuff improving in demand, do you think that they'll be able to like backfill any holes there might be?

I hope between the 2 of those, they will. I mean we think with a more stable environment, that's part of our optimism. And one is some things just going on, whether it's e-commerce growth, it won't have a dramatic growth it had last year, but we do expect it to continue growing. And it's been interesting. We've even had some conversations, and these are further down the road, do you end up with some retail-facing distribution buildings. I've said at times, I do think order online, pick up on store is bigger competition for us than some of the other industrial REITs in terms of how -- where our properties are located in our size spaces. So we think we'll continue to see that curbside, last mile delivery, e-commerce be a driver of demand for us.

And I hope -- and again, our traditional tenants, the homebuilding, the home services, the air conditioning, those type guys are not going away and with a predictable economy -- a more predictable economy, we think those expansions. Because there for a while in, call it, 2018, 2019, maybe as much as 1/3 of our new leasing in our part was coming from existing tenants growing and our retention rate was up last year, higher. It's usually about 70, low 70s. It finished the year about 80, but I think a lot of that, which we appreciate, was just people put their plans on hold until the world felt a little bit normal. And so I think -- it's anyone's guess, but maybe by mid-year, you'll see -- we'll start to see more of those expansions by our bread and butter tenants, and our retention rate will normalize back to the low 70s again.

And our next question comes from Vikram Malhotra from Morgan Stanley.

This is Alina on for Morgan -- or for Vikram. My first question is just on modeling. How should we think about the trajectory of same-store just throughout 2020, quarter-by-quarter?

Alina, good to hear your voice. Same-store can fluctuate, as you saw in fourth quarter this year, can fluctuate a little bit just based on individual quarterly metrics over a 3-month period. So there will be some fluctuation. But overall, we're viewing that to be pretty consistent within that range. We don't give a quarter-by-quarter same-store forecast just because it does have those fluctuations. But as you see by our midpoint of guide, we are optimistic that, that projection will be, although it may have some up and down in it, but the overall trajectory of it will be up.

Great. And then my second question, just more bigger picture. Are you starting to see any benefits from those like larger trends like near-shoring or higher inventory levels. I know inventories currently are at all-time lows, and we're going to see those pick up a lot. So just wondering if any of that's manifested in any of your markets?

Good question. And many -- somewhat and then kind of what we hear about is people will move to, I guess, on the near-shoring or on showing a China plus 1 strategy where they may go elsewhere. You saw us -- one of the land parcels we acquired was in El Paso, for example, which is the first time in a while, and we'll develop a building there, we'll have a start in El Paso, but that's a really low vacancy, strong market. And a lot of that, we believe, is just near shoring. Same thing in Southern San Diego, that's another market or submarket we're bullish on. And so we're seeing low vacancy rates. San Diego, the South actually benefits from that. That's about the only industrial land left in that market. But El Paso's a strong market.

And on the inventory carry, we've had more conversations with tenants. And I think we're -- we're probably long-winded answer saying early innings on both. I think the moving manufacturing plants will probably take a couple of years we were guessing and carrying more inventory is probably starting to see it and feel it. And as things stabilize later this year, we'll see more and more of that is what we're expecting.

And our next question comes from Ki Bin Kim from Truist.

So you talked about several demand drivers for industrial, like home building, economy opening back up, e-commerce. But I'm curious, just high level how much does the simple type population migration or corporate migration, how much is that going to make an impact when you look over the horizon for the next couple of years in terms of demand drivers for your company given your [building] locations?

Yes, sure, and look, we're -- that's really always been our long-term strategy is our buildings we would say traditionally serve their local market, and we think an infill location in Orlando, Las Vegas, Atlanta is awfully hard to replace and helps you push rents. It's happened over the years, and we really feel like with COVID, it will accelerate. We've seen the numbers we've read about in Florida, and you see it in our numbers there, 1,000 to 1,100 people moving to the state. And then we're about the 5 major markets in Florida. So I would imagine we're capturing more than our fair share in those cities. And I was just kind of anecdotally thinking our team in Dallas the other day, was showing it was a medical equipment manufacturing, whether we make the deal or not, I'm not sure, but they were relocating from Orange County.

So we've seen relocations in Tucson, in Las Vegas and some of those, but I -- we think long term, that's been one reason we've been successful over the years, and we expect that to pick up as work from home kind of ripples out and people are more remote and may move out of East Coast or out of California. We're seeing people from the Pacific Northwest, hearing stories where they've relocated into Central Florida and things like that as well.

So I think all that helps us, whether it's individuals driving demand from our customers or companies relocating where we've had showings for people looking to move out of California and out of the Northeast, other markets, certainly seeing financial firms talk about or move to South Florida and things like that as well.

Okay. And the second question, when I look at your guidance for capital raises, you have about $250 million at a 2.7% projected rate. I'm guessing you'll probably do better than that, but that's what you have pegged in. And then I look at the debt raising from some of your peers in the industrial sector, obviously, there's differences in the size of the company and how long you been in the unsecured debt market that will drive pricing. But I look at that part, and I just wonder, what are the debt investors looking for -- for you guys to get maybe a little more benefit where you're not raising money at 2.7%, maybe you're under 2, like some of your other peers, is it just bigger size, just more history raising debt? I know you haven't done a lot in unsecured bond markets, but I'm just wondering if there's a second leg to the story where your debt funding costs can go down over time?

Yes, Ki Bin, that's a very fair question. And I can't say that at times, I'm not jealous and again the much larger peers, but you look at some of the spreads they're able to accomplish. I do think -- hopefully, we're being conservative with the 2.7 weighted. We've got budgeted on the front end, having lower rates than that, and then with some debt we had budgeted in the back end, we just showed a little higher rate just out of being what hopefully proves to be conservative. But we've had a long history of dialogue with Moody's since they initiated coverage on us going back 7, 8, 9 years ago now. We've been at basically the same rating.

So we're obviously quite a different company than we were then. And so that would obviously help -- to get a rung up the ladder there would help tighten up some spreads. The unsecured bond market that some of our peers have tapped into, that has basically about a $300 million minimum threshold. And we just haven't been quite that aggressive on the debt side to get bites that large, and we really haven't been of the mind to try to lever up the line and maybe align that with the maturity to try to get to that level.

So we're still growing in that way, Ki Bin, but I do think we'll, hopefully, better than what we have here. But we're looking for every angle we can to get that down. And hopefully, over time, we will continue to benefit from our growth and be awarded that.

I mean, it is interesting because your leverage, excluding development is almost 4x debt post -- debt to EBITDA, which is really low, and your company has grown a lot. It just seems like the debt market hasn't given you the full respect that you guys deserve by now.

We're going to take you to the Moody's -- we're going to take you to our next Moody's meeting in New York, Ki Bin.

We're going to replay that.

And with that, I would like to turn it back to the speakers for any closing remarks today.

Good afternoon, everyone. I appreciate your time. Appreciate everyone's interest in EastGroup. Brent and I are certainly available for any follow-up questions anyone has. And hopefully, we will see you virtually soon at the next conference. Thanks again. Have a good day.

Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.