Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Second Quarter 2025 Earnings Conference Call and Webcast Conference Call. [Operator Instructions] This call is being recorded on Thursday, July 24, 2025. I will now hand over the call to Marshall Loeb, President and CEO, to begin the conference. Please go ahead. Marshall

Good morning, and thanks for calling in for our second quarter 2025 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call. Since we'll make forward-looking statements, we ask 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 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 a 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 reflect our current views of the company's plans, intentions, expectations, strategies and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more detail about these risks.

Thanks, Casey. Good morning. I'll start by thanking our team. They've worked hard this year, and we've made solid progress towards our 2025 goals, and I'm proud of the results we've achieved. Our second quarter results demonstrate the quality of the portfolio and resiliency within the industrial market. Some of the results produced include funds from operations were $2.21 per share, up 7.8% for the quarter over prior year, excluding involuntary conversions. Now for over a decade, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term trend. Quarter end leasing was 97.1% with occupancy at 96%. Average quarterly occupancy was 95.9%, which although historically strong, is down 110 basis points from second quarter 2024. Quarterly re-leasing spreads were 44% GAAP, 30% cash and year-to-date results were similar at 46% and 31% GAAP and cash, respectively. Cash same-store NOI rose 6.4% for the quarter despite the lower occupancy. Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to 6.9% of rents, down 90 basis points from last year. We target geographic and revenue diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we're pleased with our midyear results. The tariff discussions raised market uncertainty towards long-term capital decisions. To address the uncertainty, we're focusing on a couple of things. The first is leasing to maintain occupancy, and we're making the best quick leasing decisions we can. Today's environment likely won't be tomorrow's environment, literally. Secondly, we're grateful our balance sheet positions us well during volatile moments. This strength allowed us to invest $61 million in 2 new properties, raising our market ownership in Raleigh to roughly 600,000 square feet, all near the growing Research Triangle Park. In terms of leasing, second quarter square footage slowed compared to the record-setting prior 2 quarters. In terms of total leases, however, the actual signed was greater during the quarter. As it played out, the market bifurcated such that we're continuing to convert prospects roughly 50,000 square feet and below and our larger spaces have prospects, but decision-making time is elongated, much like we experienced last year. That's impacting us in several ways. First, delaying expansions means the portfolio remains well leased and is ahead of initial forecast. On the other hand, our development pipeline is leasing and maintaining projected yields, but at a slower pace. This, in turn, lowered development start projections from earlier in the year. And our starts, as we've stated before, are pulled by market demand within the park. Based on current demand levels, we're reforecasting 2025 starts to $215 million with a lean towards the back end of the year. We're making solid progress on development leasing. However, larger square footage decision-making is slower. Our emphasis is on forecasted expectations as our active prospects thankfully remain active and things can swing rapidly like they did late last year. In terms of starts, we ultimately follow demand on the ground to dictate pace. Longer term, the continued decline in the supply pipeline is promising. Starts were historically low again this quarter. We expect the uncertainty to further dampen new starts near term. The limited availability and modern facilities will put upward pressure on rents as demand stabilizes. And as demand improves, our goal is to capitalize earlier than our private peers on development opportunities based on the combination of our team's experience, our balance sheet strength, existing tenant expansion needs and the land and permits we have in hand. Brent will now speak to several topics, including assumptions within our updated 2025 guidance.

Good morning. Our second quarter results reflect the terrific execution of our team, the solid overall performance of our operating portfolio and the continued success of our time-tested strategy. FFO per share for the quarter met the high end of our guidance range at $2.21 per share compared to $2.05 for the same quarter last year, an increase of 7.8%, excluding involuntary conversion gains. From a capital perspective, we took advantage of favorable equity pricing early in the year, which allowed us to enter the quarter with a reserve of outstanding forward shares agreements. During the quarter and after quarter end, we settled all of our outstanding forward shares agreements for gross proceeds of $194 million at an average price of $182 per share. Our guidance for the remainder of the year contemplates that we utilize our credit facilities, which currently have the full $675 million capacity available. Although capital markets are fluid, our balance sheet remains flexible and strong with near-record financial metrics. Our debt to total market capitalization was 14.2%, unadjusted debt-to-EBITDA ratio 3.0x and our interest and fixed charge coverage increased to 16x. Looking forward, we estimate FFO guidance for the third quarter to be in the range of $2.22 to $2.30 per share, with an average month-end occupancy range of 95.3% to 96.1%. For the year, we estimate FFO per share in a range of $8.89 to $9.03, with the midpoint up $0.02 per share from our prior guidance. Those midpoints represent increases of 6.1% and 7.3% compared to the prior year. Our revised guidance increases the midpoint for cash same-store growth by 20 basis points to 6.5% and decreases average occupancy by 10 basis points. The decrease is primarily due to the conversion of a few development projects prior to full occupancy. Considering the slower pace of development leasing, we reduced starts by $35 million. Our tenant collections remain healthy, and we continue to estimate uncollectible rents to be in the 35 to 45 basis point range as a percentage of revenues, slightly ahead of our historic run rate. In closing, we are pleased with the first half of the year, especially considering the continual macroeconomic uncertainty. And as we have in both good and uncertain times in the past, we will rely on our financial strength, the experience of our team and the quality and location of our multi-tenant portfolio to lead us into the future. Now Marshall will make final comments.

Thanks, Brent. We're pleased with our execution year-to-date, putting us ahead of original expectations. Our management team has worked through periods of uncertainty before, and we're navigating our way through this turn as well. Regardless of the environment, our goals are to drive FFO per share growth and raise portfolio quality. If we do those, we'll continue creating NAV growth for our shareholders. And stepping back from the near term, I like our positioning as our portfolio is benefiting from several long-term positive secular trends such as population migration, nearshoring and onshoring trends, evolving logistic chains and historically lower shallow bay market vacancies. We also have a proven management team with a long-term public track record. Our portfolio quality in terms of buildings and markets improves each quarter. Our balance sheet is stronger than ever, and we're upgrading our diversity in both our tenant base as well as our geography. We'd now like to open up the call for your questions.

[Operator Instructions] Your first question comes from Samir Khanal from BoA.

I guess, Marshall, thank you for the opening commentary. Maybe you can talk about the cadence of leasing through the second quarter. And any color you can provide kind of in July as well, the first few weeks here, whether it's in your core portfolio or sort of the leasing on the development side?

Okay. Sure. Samir, happy to be helpful. I think really, the first quarter and kind of the tail end of last year were really strong, where a market pickup from where a lot most of 2024 was. I think the tariff news shocked people. People seem to be -- maybe you get pushed back on your heels a little bit and maybe once the shock -- combination of the shock going away or more and more tariff agreements like we saw in Japan this week. And every day, there's a new rumor about a next tariff agreement or a new deadline. I think people are becoming a little bit more numb to it or realizing they have to operate their business. So the good news during second quarter, we continued signing -- our portfolio has stayed full. It's development leasing, as we mentioned, it's taken a little bit longer, a little bit slower. And then even if you dug through our development kind of the leases that are getting signed, it's the 50,000 feet and below. We've signed several development leases month to date. We have seen pickup like a number of -- a couple of our peers have mentioned a little bit, June got a little better. July, maybe a little bit better still. But it's been that 30,000 to 50,000 square feet that are coming across the finish line and throughout it, we've got a full pipeline. We have prospects for bigger spaces. It is just the decision-making time. And I will add, we've been -- I guess the other thing that's been interesting in a negative way this year, I can think about close to a handful of times where we've had development leases out for signature where the tenants change their minds. So that's -- that happens, but it's happened more frequently this year. I guess the good news if I pull back, where those prospects haven't -- it's not like we changed our mind and we went to another building. They put decision-making on hold. We recently had another development lease where -- they haven't gone anywhere. We were close to lease signing. And corporately, it's a national tenant. They put things on hold. They put a freeze on new leases. So it's been a little bit frustrating with the tariff news. I think people are working there -- I'm blaming it all on tariffs, are working their way through it, and it seems to be the market is falling, and we're kind of watching it, and we'll go as fast as the market lets us go. The other kind of thing as we prepare, maybe one thing to note on our developments, we'll go in and build out, we call it spec office. So all of our vacancy has spec office. If things move or people are ready to move quickly other than a demising wall potentially, we can have tenants in very -- as quickly as they want to be in. And so we -- and not all of our competition does that. A lot of the private peers and things like that, they'll tailor the office. So a lot of times, you'll get especially a 3PL or someone that wants to move in quickly. So it can turn quickly, which -- more quickly than I expected late last year. I was pleasantly surprised. And it feels like things are getting better, not dramatically, but gradually better now.

Your next question comes from Blaine Heck from Wells Fargo.

Just along those same lines, it looks as though you're expecting a bit more downside to average month-end occupancy in the third quarter. Can you just talk about whether that's driven mainly by additional under lease development properties coming online during the quarter? Or whether there are any other significant factors? And maybe touch on the leasing activity at those projects that are coming into the portfolio with vacancy and maybe how much of that vacancy is in spaces over 50,000 square feet, which you noted to be a little slower?

This is Brent. I'll kind of take the first part of that and then let Marshall speak to leasing at the projects. But just to add some clarity, we had a few questions post release about a little bit of decrease in occupancy yet your same-store increase. Help us kind of sync that together. And I just want to point out, as Marshall, as we mentioned in our prepared comments, development conversions that aren't full occupancy are factored into that overall portfolio occupancy. So for example, third quarter, we put a footnote this time at the bottom of our guidance table showing a guide of 95.7% for the entire portfolio. But in the third quarter for same-store only, that's -- we're projecting 96.7%. So that's a 100 basis point difference. And again, that's being impacted. And we had a couple of projects second quarter. There are 3 that converted July 1. That's in that July figure and a few of those aren't even occupied to the extent they're leased, we're still getting tenants in. So that had the biggest impact. For the last 6 months. We're showing same-store occupancy running about 90 basis points higher than the portfolio. So you saw our midpoint same-store increase. That's a direct attribution to the 60 million square-foot operating portfolio doing very, very well. And that's just being mitigated a little bit by the slower development leasing, which I'll just let Marshall touch kind of on how that's going at the project level.

Yes. And thanks, Brent. Blaine, the only color I would add, if it helps, it's -- typically, we'll say we build, I'll pick a 120,000-foot building, we may put spec office certainly in one corner of it and maybe on both ends. And so if someone wants to move in, you're ready, and it really just depends on how many bays in that building you want, and then we'll put the demising walls. So we'll build a 120,000-foot building that can probably accommodate up to typically 4 different tenants. But it's not -- in a stronger market, it's not uncommon for one tenant to take the full building, and then we're scrambling to deliver and build the next building. So they really aren't designed unless you get to the very end of what space is left. We can tailor it for whatever you need. It's -- remember someone describing it to me once it's a salami and we can cut it as thick or as thin as you want it, we're kind of waiting for that demand. And as the building plays out, you kind of work your way towards the middle of it.

Your next question comes from Craig Mailman from Citi.

Marshall, maybe just sticking on the topic of leasing. Just kind of a 2-parter here. Just, I guess, number one, earlier in your prepared remarks, you had mentioned focusing more on occupancy and just getting deals done. Could you talk about how the mechanisms you're doing there, is it rent? Is it concessions? And in what markets maybe are you seeing some elasticity to moving some of the economics around to spur demand? And then the other part of the question is just you had mentioned at the end of last year, you were surprised at how quickly the demand could turn on. And earlier to some of the other questions, you had said that you've been frustrated that some deals are kind of stalling at the finish line. So I'm just curious, as you look at your leasing pipeline, maybe if you could kind of tranche it, like how much of your leasing pipeline is in that really advanced stage to where if people just decide tomorrow to make that decision, how quickly those deals, like what magnitude could start to cross the finish line versus some deals that are kind of earlier in the life cycle?

Sure. Craig, happy, I guess, and make sure I cover all your points, if I missed one. But on -- in terms of leasing response, maybe as I think about it, as I mentioned earlier, we've had a couple of deals really get to the finish line and get put on hold by corporate or someone in the C-suite at the tenant. It's not that we're -- the good news is in our developments. When we look at them, if you look at what's transferred over, we're getting mid-7s in terms of yields on what we're building and what we've transferred over. It's not that we're having to drop -- we're not -- things aren't stalling over economics, broadly speaking. So we're maintaining or really beating our investment committee yields on projects as they do wrap up. Rents have been a little higher, and it's just taking longer to lease. But thankfully, it's not concessions. Maybe the exception, I would say to that is in California and especially in Los Angeles, where we've just had reading 10 consecutive negative quarters of absorption. So that market, people are getting pretty aggressive on rent and free rent and things like that. And that is one of the buildings where we've had leases out a couple of times or more and things kind of -- things stall there. It's really more in -- I think what we try to focus on is before the next political cycle headline comes out and someone at corporate puts the expansion on hold, let's get comfortable and know kind of where our TI rents work through the legal process. Let's don't get hung up on an imminent domain clause or things that rarely ever come up and have it be legal difficulties. And every deal has a shelf life. You can kill it. Let's go ahead and try to get things done quickly. But it's not so much. Look, our teams and our brokers that work with us know where the market is, and if something is market, let's try to get it signed quickly. In an upmarket, we heard about people waiting that 60, 90 days later, rents were going to be higher. So we're not going to lease up our development, and I'll take the blame, maybe I was just too chicken. We want to get the bird in hand because things can turn pretty quickly. And in terms of turning -- I was surprised, I kept hearing post election, people were waiting for the election and the brokers always have a reason why it's not leased, but it turned out fourth quarter was our record quarter for leasing square footage. And then Prologis made the same comment. First quarter was our third best quarter in terms of our company's history in terms of leasing square footage. So I thought there would be more of a lag effect that people would feel comfortable and then leases would get signed. But really, fourth quarter, especially the end of fourth quarter, everybody's on the elections a weekend of November and the second half of December, whether it's the broker, the attorney, someone at the client is away for the holidays understandably that that's usually a little bit slower. So it's hard to say. I think our pipeline has stayed full last year. It's pretty full again. We have a number of -- a few larger deals that are close -- I hate to jinx us closer to the finish line that I'm hopeful of, but we've had -- we -- I thought we're in the eighth inning and we were back to the first inning. That's where it probably got overheated after COVID, and now it feels like the pendulum has swung a little bit too far on the corporate concern. Again, I think tariffs were shocked to people. They wanted to see what was going to happen. Is inflation going to take off? If you think back to last quarter, a lot of the concern was have you stress tested your guidance for the low end. And that does -- 90 days later, that's at least listening to our peers and our call so far, that's not what's on people's minds. So I think people are kind of absorbed it, and that's maybe where that June and July has been a little better, and I'm optimistic that maybe August and September are a little better still. And we'll try to -- again, on development starts, we have the land, and we'll have the permit in hand and really have the same construction groups that we've worked with. We can move really quickly or as quickly as the market will let us to break ground on something and/or by having the space built out if -- and we've had a few of those, where somebody wants to be in 30, 45 days, we can get you in. We may or may not have a demising wall, but we can, a lot of cases, put that in around you. So I think our pipeline is pretty well spaced out normally where some are -- we've got -- we're trading paper, some are lease out, some of the leases are pretty far advanced. And really where it's gotten -- if you talk to our teams, when you get in the red zone is where things seem to move a little bit more elongated. It's hey, we have a letter of intent, the attorneys are working through the agreement. And that's where I get paranoid, if you're just waiting for that news that corporates put things on hold, and we're back to square one again.

Your next question comes from Nick Thillman from Baird.

Maybe just wanted to touch a little bit on the transaction activity and maybe some of the yields you're seeing and characteristics of the Raleigh assets in particular, but then also maybe touch a little bit on the increase in disposition guidance and kind of the assets you're looking to sell here in the second half of the year?

Sure. Nick, it's Marshall. Yes, we're excited. We entered Raleigh last year, and we bought that Research Triangle really between Raleigh, Chapel Hill, Durham. It's a pretty unique feature within that area in terms of the companies that are investing really hundreds of millions and billions of dollars into that research project. There's very low vacancy in that submarket. So we like it. And maybe as we think about where we're kind of moving our capital, I'll tie our dispositions into this, what we -- one trait we like is if you can get a state capital that has a large university presence, that university presence usually leads to technology jobs and higher income. And when things turn bad in a market like that, they usually -- those are great stabilizers. They're not -- the lows aren't as low in a market with a state capital and understandably in a university presence, the technology and then you get into topography challenges in a number of those markets. And when I say that you've seen us grow in Austin, in our Nashville and now Raleigh, they all end up that way. And because of topography, those markets also end up being pretty elongated. They usually end up going -- wherever you can grow, those markets really get stretched out. So we like those attributes and are excited about -- and we've got some older markets that have really, I'd say, almost outgrown those traits like Phoenix and Atlanta, where you also have those, but those cities have gotten to be so large. So we like that in terms of dispositions and really the capital markets where -- on the Raleigh assets, I'll be -- I'll blend it and try to be a little bit careful because of our confidentiality agreements, but we're kind of, call it, low to mid-5s going in cash and then upper 5s in terms of net effective and really mark-to-market. So -- and they were brand-new assets, one delivered in '23, one in '24. So we we've not seen cap rates move. We saw development leasing slow a little bit in the second quarter because of the tariff news. We thought the acquisition market may get thrown a little bit sideways to date. The competition has held in there. So it's not a completely green light on acquisitions, but we're kind of working our way through. We're always looking at things more strategically or within existing submarkets and things like that. And maybe because of our stock price and the impact and the cap rates were holding up, you saw us last year, we've got some service center buildings that are our last ones, kind of flex buildings in Houston on the market, under contract, fingers crossed. Those will close. They're leased. There's nothing wrong with them. They're just service centers, not distribution buildings. We sold a small building. You saw in the Bay Area that we've gotten in a portfolio a few years ago, 12,000 feet. And we've talked about as we add kind of dots within our map like Raleigh and Nashville, some of the older, slower growth markets like a Jackson, New Orleans and a Fresno, California that I think as we move our investors' capital around, we'd like to get it in places where we think, one, our acquisitions are immediately accretive, and they're well positioned for long-term NAV growth. And not that it's not there in Jackson, New Orleans and Fresno, but it will grow faster. And it's a good source of capital when the equity market is a little bit closed. We viewed that as an attractive source of capital. It's probably not accretive. What we're selling is older, we'll sell it at a slightly higher cap rate than what we're buying. But I think we should always be kind of pruning from the bottom of our portfolio and putting it where that capital has a better opportunity to grow.

Your next question comes from Alex Goldfarb from Piper Sandler.

Marshall, and as you look over the next sort of 12 to sort of 24 months, obviously, you guys have benefited as the industry has from the sharp COVID rent run-ups and you're still clipping, I think you said 30% cash rent re-leasing spreads. Over the next sort of 12 months, do you see those -- most of your markets still remaining pretty healthy on the re-leasing spreads? Or are we sort of getting to the tail end of that? And over that time period, we should start seeing like a dramatic slowdown in the re-leasing spreads? And maybe it breaks up geographically. So maybe certain markets are -- you're more concerned about those spreads coming in tightening sooner versus some of the other markets. But just looking for some color as we look over the next 12 months.

Alex, a good question. And again, you're right, probably each market will be a little bit different on timing. But essence of time, broadly speaking, you're right. We are -- 2 ways to think about. Yes, we're working our way through. We've still got at about 14%, 15% of our leases rolling per year. That COVID run-up, we've still got a fair amount of embedded rent growth that we're working through with thankfully, within our portfolio, just by the nature of when our leases roll. If I look out over the next -- and this is where you get into -- where I get danger of economic forecasting, 12 to 24 months, what I'm excited about for EastGroup and really for the industrial space, but especially where we fit in, in the shallow bay, we're -- if I use our quarter end numbers, and it's about where we are today, we're roughly 3% vacant, if you look, and it's in -- it's on our investor presentation about Page 10 or 12, there's about 4% vacancy and 200,000 square feet and below. The vacancy that's out there in industrial is in the bigger box on the edge of town, not the infill shallow bay. So we're generally full. Our peers are generally full. Construction at a 10-, 11-year low. It's going to take a while. We see how hard zoning is. So it wouldn't take much of a pickup in demand. I would anticipate in the next 12 to 24 months, there's going to be another period of pretty decent rent growth, where as things pick up, construction pricing, we're not there yet, but it should pick up as well as the economy improves, and it's going to be a scramble for people to add new product that I'm anticipating demand to pick up much more quickly than supply. We'll overbuild again, but demand is going to arrive much earlier than supply does. So as we work our way through our embedded growth, I'm more of an optimist. I don't see any secular reasons why I think industrial has just slowed down a little bit because of the headlines, but I don't see any secular reason why people onshoring, near-shoring, population migration, e-commerce, you name it, traffic in any of the cities we're in is bad and getting worse. Why our infill locations shouldn't be more valuable. We just need a little bit better headlines for a couple of months, and I think we'll be -- I think rent growth will pick up pretty quickly. So short term, we still have embedded growth. We're working our way through and then a little bit longer term, and I've been calling it too early for the last 12 months. But I think there's not much inventory out there when people come back to the store and are ready to transact. And so we'll be able to push rents and our development pipeline will -- which we really tailored to what the market is telling us. We've been as high as $400 million. Right now, we're closer to that $200 million level. But I think I would anticipate us getting back to $400 million fairly quickly, and that will stress Brent and his team out of how we fund all that, but we'll deal with that when it comes to.

Your next question comes from John Kim from BMO Capital Markets.

Maybe a question for Brent. You discussed using the credit facility more and that certainly makes sense. Your debt-to-EBITDA is below 3x now. But can you discuss how you view that -- the cost of that line in the back half of the year versus your cost of equity given they seem to be right on top of each other right now?

John, yes, that's a good observation. It's something that we really continuously monitor. The -- we've monitored more frequently over the last 24 months, are different various opportunities to acquire capital in various ways than we have in all the years prior. It's just been -- it's a fluid -- the markets are fluid, the 10-year up and down. We were very pleased to enter the second quarter. We had stockpiled what we viewed as an attractive price in the first quarter, and it turned out to be that. We virtually liquidated all our outstanding forwards for that $194 million at $182 a share, which we feel like was really good execution. Yes, you're right that what we projected in the back half of the year at this point is utilizing that revolver, which is around that -- it's variable, but it's based off SOFR, and it's pretty stable. It doesn't move a lot, and it moves more in lockstep with rates or rate cuts. But we're around the low 5s, like 5.2-ish. I won't get too detailed on how we view equity. But obviously, we look at that commensurate with consensus and relative to our earnings growth and our earnings per share. And it's been priced below. You saw we just did a dab this quarter. The pricing pretty immediately went away from us in our view, and we had the forward stockpile, so we didn't need that immediate access. So yes, we've factored in utilizing our revolver for the first time in a while. We have the full capacity available. But look, that can change as soon as we've got a ton of capacity for debt. I mean, we've gone sub-3 now on our debt-to-EBITDA, and we've had the good fortune of being patient, but as that -- as anything comes in line with what we feel like is a better opportunity, we will pull that lever and pivot as needed, but it's good to have all that cushion. And it's good that Marshall and the team continue to find value-creative opportunities for us to need capital. I mean they continue to fund strategic acquisitions. We continue to spend development dollars, albeit at a slower pace than we'd like. So we're pleased that we continue to be able to access funds that are accretive to our shareholders right out of the gate.

Where do you feel comfortable as far as net debt to EBITDA? I mean, is the lower the better?

I think it's important as a company to have a policy on the top side, where are you comfortable with sort of your max leverage. We've always said on a maximum basis, we wanted to maintain a 5 handle and ideally be sub-5. We're obviously well below that. There isn't necessarily a floor as such. I mean for us, it's been about being opportunistic. And our shareholders have what I would view as kind of rewarded our good stewardship of our capital investment over the last couple of years, and we've had -- we kind of get lost forest for the trees, but we've had good access to equity for the most part of the past couple of years in this higher interest rate environment. And so by virtue of having that, we've driven our debt-to-EBITDA down more as a byproduct of that function rather than that being goal. That being said, it would be terrific to unleash that runway in the future as we -- when we have better pricing on the debt side, and we can push that back up. So I guess, John, I'd say it's important. I think really important to have a ceiling of where your max leverage would be. But on the downside, it's -- when you have that opportunity to create that flexibility, it's nice to do it, and we certainly put ourselves in that position. And look, if equity rebounds and we can tap into it, we'll push it lower if that's the best opportunity. But at some point, debt is going to come. This inversion has been way more elongated than I would have anticipated. But at some point, they're going to -- as you mentioned earlier, kind of getting on top of each other. At some point, maybe it will go the other way, and then we'll cost match or we'll just select what's best for us, and we've got a lot of flexibility to go either way.

Your next question comes from the line of Mike Mueller from JPMorgan.

It looks like you controlled about 1,000 acres of land for development at quarter end, and you've definitely been adding to that. I guess, 2 questions tied to that. One, are you still expecting to be fairly active over the near term and kind of further supplementing that? And then are there any parts of the land bank that are more likely to be sitting for a while compared to some other parts of the bank?

There might be some -- Mike, it's Marshall. Good question. Some may be a little -- we kind of look -- really, the reality is look at it when you think it's kind of market-by-market and then especially within our land bank, we can have -- if you look at a market like Atlanta, we can have land on different sides or different parts of Atlanta. So you try to always -- about 1/3 historically of our development leasing is existing tenants. So we try to have that inventory handy. We lost a tenant or 2 in Florida earlier in the year. We really did not have the development where we needed it to be. We backfilled the space thankfully, but that's where you end up with someone in a couple of different buildings and things like that, and that's not optimal for them. So we'll look -- and it's always -- it's incredibly hard to find the land. You've seen us this year by land. We've looked at all kinds of different -- one was an office building in Florida that we're going to demo. It's usually second-generation different type use. So it's a struggle to find land. Zoning has gotten harder. We've kind of called it the Amazon effect, where everybody wants the package delivered quickly, but no one wants it to originate in their neighborhood. So we've been -- it's harder to find good land sites in our markets than I think people realize. And we kind of go through what submarkets in -- I'll stick with Atlanta and Atlanta. Where in Atlanta do you want to be? And how do we have enough land available that we can keep accommodating either our neighbors' growth or our own tenants growth. And so that's kind of how we look at it. I'm sure there will be some markets like I pick like a San Antonio, we've got a good land bank there. It's not as fast-growing market. It's just not as deep as, say, a Dallas or Atlanta or a Phoenix or things like that, where it will take a little bit longer to work our way through it. But that said, we'll mix in different types of buildings, and you can work your way through the land fairly quickly, and then we get stressed of where are we going to find the next land in that market.

Your next question comes from the line of Michael Carroll from RBC Capital Markets.

Marshall, I want to ask a similar question, I guess, related to the Raleigh acquisitions. I mean, how aggressive do you want to expand in Raleigh? And should we think about these recent acquisitions, more of a strategic way for EastGroup to kind of get their foot in the market and you kind of needed to do that before you can start buying land and building new assets kind of in that Raleigh area?

No, we like the market. Look, if -- and we'll be -- I've always thought we don't have any set goals for anybody in our team to buy anything in Raleigh, none of their comp. And purposely, we don't do those things. If we find the right opportunity, we'll grow there, and it just worked out oddly enough that we had 2 opportunities and 2 opportunities, all kind of -- we picked that Research Triangle area. It's not only area, but things kind of turned out our way, and we were able to pick up a couple of acquisitions. I think some of it once you are active in a market, people take you more seriously and they know you're willing to commit. So maybe if things are close with the balance sheet status, thankfully, that we've got, people know we're a legitimate buyer, and so you might get an award. But if we were the same size in Raleigh in 2 years, that would be okay. We certainly would look for development or even buying vacant buildings pending where we are in the cycle. I will say, typically, we'll enter a market, usually, we'll miss out on the first few bids, and we did in Raleigh, as well, and then we were able to get our first one last year. And it's a good way to learn the market. And then when you've got a building or 2 that you've acquired, you've got some tenants rolling. You're building those broker relationships, you certainly feel more comfortable bidding on the next new investment, whether that's a building or land. So certainly, we'll look for land, but we don't -- and typically, once we're in a market, I will say, and we're there in Raleigh with the proximity to be self-managed. So typically, the numbers are about 1 million square feet. We can go to self-management, which is our preference in terms of managing our own customers there. And you just don't want to go to a market and only have 150,000 feet 5 years later, but we really don't set a time line and it felt like these more just could fortune fell into place more than I don't think we should stretch to say just because we're there, we need to justify the next acquisition or 2 because you could end up -- we can do it. I just don't want to overpay for them just to pay a newcomer tax.

Your next question comes from the line of Vikram Malhotra from Mizuho.

Just I guess, Marshall, 2 clarifications. So one, I guess, your peer -- one of your larger peers suggested that at current U.S. 7.5% vacancy, you probably don't see market rent growth for another year or so, maybe 2 years. And I'm wondering, specifically, can you give us some numbers like what sort of rent growth are you observing in your key markets? And then second, they also sort of suggested that tenants are ready to go, ready to sign. They're much more comfortable with sort of the current degree of uncertainty. They highlighted a very active build-to-suit pipeline. And so I'm just trying to get a sense of that versus what you're observing in your markets that sort of midsized box, 100,000 seeing slower decision-making. If you can just square those 2 things.

Yes. No, I can. To speak for them, I would say we're -- nationally, maybe that's about right, vacancy is 7.5%. We think it seems to have peaked and certainly construction and the starts have been down for about 10 quarters now, and -- but within our type space, and from memory, about -- I think the number is 88% of our revenue comes from tenants 200,000 feet and below. So that vacancy rate is closer to 4% than 7.5%. It historically runs lower. And we -- that's why we like kind of where we fit on the playground that there's not as much competition. The starts were a whole lot less. So we think our current rent growth is probably somewhere around inflation, 0% to 5%, depending on the market. It's hard to pick this year. And I think our rents will -- we should benefit in an economic recovery earlier than our peers because our vacancy rate is so much lower. I also have heard people say, you want to market to be 5% vacant or lower for it to become a landlord market. Well, we're already there today, and we're seeing good steady activity. It's just smaller spaces. We're seeing good conversion in smaller spaces, and we're seeing good activity kind of in all size spaces. It's just the conversion rate on some of those or the gestation period has gotten a little bit longer like it did last year. So that's where -- and on the build-to-suit, we delivered one earlier this year. We'll do some of that. If we built the bigger buildings, look, it's a business where you can make money and things that's really not -- usually people that want -- our average tenant size is 35,000 square feet in our portfolio. Our average building size is a little under 100,000 feet. We'll do a pre-lease building every once in a while, but it's really not our bread and butter. And so I'm glad for them that they have that opportunity, but those are typically bigger buildings and larger capital decisions. I do agree that I think kind of moving from April 3 through today, people are getting more comfortable being uncomfortable. That's probably what some of the comments that June was a little bit better than maybe April and May and July is holding up. And we think people kind of will get numb to all the volatility and hopefully just get back to running their business. That's what we -- internally, we'll typically try to do that. Look, we can't control the political settings and things like that. We just need to go lease SunCoast building #9, regardless of what's going on. And that's really what our teams and our company is trying to do. So I think things will settle out. And I think in a recovery, knock on wood, I think, we'll benefit more quickly than our peers because the vacancy rates and the starts are low, and those are simply just really -- it's easier to find a big box site on the west side of Phoenix than it is a shallow bay infill site in the East Valley of Phoenix.

Your next question comes from the line of Michael Griffin from Evercore.

Maybe just going back to the development pipeline for a bit. It seems with your commentary that expectations are for probably a longer lease-up time just given the uncertainty in decision-making there. Can you give us a sense when these projects were initially underwritten, was it under the premise of getting some of those larger 50,000 square foot tenants that just aren't back yet? Could you try to maybe find more of those 20,000 to 40,000 square foot tenants to make up the difference? Or do you really need those larger space takers to come back to start that development pipeline engine rolling?

Yes. Michael, it's Marshall. We'll -- even we'll always underwrite the project and assume a 12-month lease-up, and that's when they'll roll into the portfolio, is the sooner of 90% occupancy or 12 months after completion. And at the peak of the market, the early kind of 2020s, that was about a 6- or 7-month period we were running through. And those bigger tenants were taking space, and that was really what was pulling the next land site off the shelf, and we were rolling through it pretty quickly. And the good news, even though kind of last year and this kind of recent time period of this year, we've kidded, we said we've gone from 6 to 16 months of lease-up. The good news is we've been able to maintain or even improve our yields over that time period. And it's just the buildings aren't -- they're not -- they're designed to be multi-tenant, and we're -- you're filling them up with 30,000-foot tenants, which is -- which works. It just takes longer to get that done than if somebody had taken 90,000 feet. I don't think it's any kind of permanent change. It's just -- those are -- when you think about it, bigger capital decisions for a company, and it's not just with the 90,000 feet you're taking. You're probably also either you're starting a new business or a lot of them expanding your business maybe from 50,000 feet. So that's a lot more equipment they're buying and hiring and things like that. So that's where people are being maybe a little bit cautious in this environment given the headlines. It's taking on those bigger spaces. You could take on 30,000 or 40,000 square feet, and it's not as big a capital investment is taking on the bigger spaces. And I expect that to shift back to a more -- the pendulum will swing, it will be a more normalized environment. But until it does, that's what's -- that slowed our development leasing and look, I'll complement the team. That's why you've seen us bring our starts down both quarters this -- each time we've reported each quarter this year, look, we'll go fast or slow, and it's really listening to what the market will tell you. You've seen us buy vacant buildings when our own development pipeline was moving quickly, and that's not something we've been looking at of late just because we're not seeing people, at least on a bigger scale make that -- be comfortable making those big decisions quite now quite yet, and that's why build-to-suit is such a high percentage of the starts right now, too, is people can't find that inventory and are having to build it.

Your next question comes from the line of Vince Tibone from Green Street.

You mentioned earlier that you potentially consider taking on leasing risk with acquisitions. Are there many value-add opportunities on the market today? And curious to hear how leasing risk is being priced in the private market versus a more stabilized asset? Like what kind of yield premium can you get to lease a vacant building versus like a Raleigh where there's durable income on day 1?

Vince, it's Marshall. Yes, I'm not -- I apologize if I misspoke earlier. We've really shied away from, I guess, what we call leasing risk or value add. We'll shift back to it when kind of the new leasing is -- as expansions are happening a little more rapidly. So we've -- actually, even earlier this week, we looked at something that was in an existing submarket, and we know the seller. There's really -- like I said, there's really only one thing wrong with the building. Before we really even gotten to pricing, it's just not what we're looking. You see us scaling our own development pipeline back to take on someone else's development pipeline right now. So we've not seriously gotten into those questions, but -- so it's a little bit alchemy. I don't know where we would shift to where that would look attractive. It's probably a good -- we usually say 150 basis points over a market cap rate to justify new development. So to maybe take on a value add where the building is built, and we're taking the leasing on 75, 100 basis points, something like that, and we really have not seriously looked at anything. We've seen locations we like and buildings we like. But right now, it just -- because it's taking that 16-month period rather than 6, we'd rather go buy what we're able to buy in the market with its lease, that's new with below-market rents. We think that's a better risk-reward proposition. And that will change in a couple of months, but that's kind of how we see it today.

Your next question is from the line of Ronald Kamdem from Morgan Stanley.

Just really quickly a 2-parter. Just one, starting with Southern California. I know you guys don't have as much exposure as your peers, but would just sort of love to hear what you're hearing on the ground in terms of activity, in terms of 3PL. And when you think about sort of that cash re-leasing spread, is this a market where we should be sort of bracing for things to slow down pretty quickly? And then my quick follow-up to the opening comments, which were that the development pipeline leasing has slowed, which makes sense. I guess my question is, what's going to sort of -- is there a specific catalyst? Is it an election? Is it the last trade deal announced, that's going to get that to unlock? Or is this just time needs to go by and we need to see how it goes?

Yes. Ron, I think on Southern California, it's more unique than markets I've seen after having done this for a while. And usually, what slows the market down is oversupply, and it's not oversupply. It's -- maybe in COVID, all the 3PLs took really -- created some false demand and that bubbles popped. But for 10 consecutive quarters of negative absorption, and it was over 1 million square feet, L.A., Inland Empire was also negative absorption. We just need something to turn there. And until it turns, it's -- from our perspective, it's hard to predict market rents until you have at least kind of flat absorption. I think when there's negative demand in the market, we're spoiled and just not used to that. I mean I think Dallas has had close to 60 consecutive quarters of positive absorption. I just read where Austin had its -- it wasn't a big number, but it's 44th month -- yes, 44th quarter, consecutive quarter of positive absorption. So for the Bay Area has been negative 7 of the last 9 quarters. L.A. is 10 and counting. We'll see what this quarter holds. I know port demand is down and things like that. So we're working hard to re-lease the building that's in -- that we're redeveloping there that we've owned, but we've also trying throwing out a bigger net of saying, look, we're willing to lease it or at the right price, we'll sell the building, too. If a user comes along or someone wants to. It's just been -- it's a more tricky market there, especially to see. And then in terms of what turns -- I guess, to me, I thought this kind of period of uncertainty was all man-made with tariffs. And I'm assuming it's kind of some numbness to tariff news, which I think is where we're getting to and/or kind of each week, there's maybe a new trade agreement reached, and I think China seems to be the big one. Once you get there and people kind of know what that certainty is, as Brent mentioned, at least you know the big beautiful bill is done. So at least there's some tax certainty for people to plan. There's Japan certainty now. And I think at some point, you'll reach more of a tipping point where people cumulatively decide it's safe to get in the water again. And when that happens, that's where I get excited about our low vacancy and the low vacancy. And I think given how long this downturn has taken, not all, but a number of our private developer peers, it's going to take them a while to accumulate the land, get their capital stack ready, get their construction teams either rehired or reengaged that we'll have a good head start on a number of our peers because we already have those elements in place. And you're just -- I'm estimating what that catalyst is. And I'll admit, I've been -- I've called it -- I've been an economist calling for the economy to go up the wrong way for a while now, but I'll -- eventually, I'll be right, and I'll stick with it. And I think it will be as people get comfortable with tariff news.

Your next question is from the line of Brendan Lynch from Barclays.

It sounds like most of your tenants are working through the macro challenges reasonably well. But can you give us an update on your watch list and how you're tracking versus your bad debt assumptions for the year?

Yes. Sure, Brendan. Yes, we continue -- our tenancy continues to be in good health. We've seen basically quarter-over-quarter, the same number of tenants kind of on the active watch list. We were about 30 basis points of bad debt in second quarter to revenue. We're still trending lower than last year. We were a bit ahead of budget for the quarter relative to just the bad debt number, a spot number for second quarter. So we're still looking at that 35 to 45 basis points of revenue kind of being the run rate we're using in the last 6-month guide. But I think the key number there is we didn't see -- like I said, we didn't see our number of tenant watch grow quarter-over-quarter, and you're talking maybe somewhere in the range of 30 out of over 1500 tenants or so. The common thread that we've been talking about for a while, it's down a little bit from last year, but California is still pretty much through 6 months of the year, California-based tenants representing about half of the bad debt so far. And it's still -- the actual bad debt is still being contained to a pretty small number of tenants. I mean, the bad debt of what was it, $509,000 for the second quarter, 93% of that was just contained within 5 tenants. So few tenants having the impact. But all in all, we're very pleased with where that is and nothing outside the norms really jumping out at us there, thankfully.

Next question is from the line of Ki Bin Kim from Truist.

Just a couple of follow-ups here. On the balance sheet, with your leverage where it is, I was curious, Brent, besides the math working out such that the cost of equity is not too far off near term versus the cost of debt. Are there any other kind of major considerations that would kind of make you lean towards maintaining a 3x levered balance sheet?

Ki Bin, it's something we just have to weigh. I mean, we certainly -- if all things being equal, if debt is more attractive to us, in our evaluation at any given moment relative to equity, we're certainly willing to have that number come up. And in fact, we look forward to that coming up, meaning we're raising capital for the team to put to work. So we're just continuing to monitor, Ki Bin. I mean, they -- I'm pleased that they're tracking closer to one another. It's good to have more options than fewer. And so seeing that come in line, more in line. It's something we're doing. And we look at all different avenues. We were looking at private placement, public debt, unsecured term loans, equity, the revolver, all different facets that we can keep track of. We do keep track of. But like I say, there's no magic in being near around that 3. We certainly would grow, be comfortable raising that if given the opportunity. If all things being equal, kind of -- we've had a rule of thumb that's worked well that when equity is available, and if you like it, you get it. You'd rather get it when you -- when it's available and not put yourself in a situation where you've got to do something. And so we're very, very pleased that operating the balance sheet that way has given us a lot of flexibility. So we'll still kind of continue to look at it through those lens.

Okay. And just last one for Marshall. I guess, any just high-level views, broad question on the bid-ask spreads for acquisitions. Do you feel like overall, you're getting paid for risk? And are those spreads -- bid-ask spread tightening to a reasonable level?

Ki Bin, I think we said there was a period of time where we felt like acquisitions were favorable in terms of the buyer versus the seller where we were getting the call where something didn't close and are you still interested. And that's what led us to implement Brent and the team, the forward equity and things like that, we were pretty active. It feels like the acquisition market now has gotten pretty efficient, and there's a number of bidders. I think the private bidders, certainly, when you're running an IRR, they probably look through the tariff news and cap rates have not really moved since April and, in fact, may have even gone down a little bit. It's hard to say exactly, but it feels a little bit tighter. That was part of our comfort level of raising our disposition guidance. And also, we've said -- I mentioned earlier, we would consider selling our Dominguez building in L.A. that's under development. That's not in our guidance. So if we sold it, it would be on top of that. But because the acquisition -- or the disposition market has been pretty attractive, we view that and we like where our balance sheet is, but it's also a good source of capital if we can find the right strategic investments, whether they be an acquisition or development today.

[Operator Instructions] Your next question comes from the line of Blaine Heck from Wells Fargo.

Early on in the call, you kind of mentioned a few development leases being signed in July. Just wondering if there's any way you can quantify that leasing progress you've made after the quarter or even put it in the context of how much of your FFO guidance is dependent on additional leasing at this point? I think last quarter, you mentioned $0.05 to $0.06.

Yes, thankfully, we're down, and Brent chime in. I think we're down -- look, we've got a lot of development leasing we're working on currently, in terms of that $0.05, maybe when we were together in Charleston, that's down to about $0.01 at this point. So within our, call it, our $8.96 of FFO, we've got about $0.01 of development leasing still to go. So thankfully, that numbers come down and look, we could -- depending on how the rest of the year plays out, we could end up having upside to that, I hope. In terms of leasing since quarter end, it's around -- there are probably 3 leases and probably around -- they're all again kind of smaller, that 100,000 feet in total.

Your last question is from the line of Omotayo Okusanya from Deutsche Bank.

Just curious in terms of the full year occupancy guidance and back half of '25, if there's any significant move out built into guidance? And along those lines, if you could talk a little bit just about the overall tenant loss list, especially maybe some of the retail distribution tenant.

Yes, I'll take that. Omotayo, good to talk to you. Yes, there's not thankfully any significant moves out -- move-outs dialed into the back half of the year. As I mentioned earlier, the actual same-store portfolio is running about anywhere from 80 to 100 basis points higher than the overall portfolio forecasted average for the last 6 months. And again, that's being driven by the conversion of developments prior to being fully occupied, weighing down on the overall portfolio average. So there's no known move-outs. We've got our remaining rollover for the year down to a pretty de minimis amount. I think we're down in the 4% range or something like that for the year. So that part of it feels good. The operating portfolio, we upped the midpoint. All of that feels well. And then I'm trying to remember what was your second part or second part of the question, Omotayo?

And then your tenant watch list, especially maybe anything on the retail front?

The watch list has remained steady. And if there's any common theme within it, it would be a bit 3PL oriented, a bit California- oriented. But again, we're running below the run rate last year, and we're still using that -- we're only 30 basis points second quarter. We're using about a 35 to 45 basis point run rate for the last 6 months of the year, and we hope that proves to be conservative but time will tell. But no specific retail type tenants or anything like that, that have jumped out to us. It's been more broader based than that other than just maybe the California-based tenancy. Yes, so I hope that's helpful.

That's helpful. Okay. Then one quick one. What was total leasing development in square feet in 2Q? I can't seem to find that number in the press release or the sub relative to the 414,000 from last quarter?

Yes. We had 5 leases signed during the quarter. I'm looking at the numbers, but I don't have it by quarter total breakdown. So we can e-mail that to you offline.

I think it was around 180,000 feet and just in 2Q -- we can -- let's confirm that. But tell you, it's right around that range, I believe. So again, smaller deals coming across larger deals, floating. You're welcome.

There are no further questions at this time. I'd like to turn the call over to Mr. Marshall Loeb for closing comments. Sir, please go ahead.

Everyone, thank you for your time and your interest in EastGroup this morning. I hope we got to your question. If not, or if there's follow-up questions, Brent and I are certainly available and look forward to speaking with you again soon. Take care.

Thank you.

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.