Good day, and welcome to the EastGroup Properties second quarter 2022 earnings conference call and webcast. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.
Good morning, and thanks for calling in for our second quarter 2022 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call this morning. 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 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 about 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 in our most recent annual report on Form 10-K for more detail about these risks.
Good morning, and thank you for your time. I'll start thanking our team for another strong quarter. They continue performing at a high level and capitalizing on opportunities in a positive fluid environment. Our second quarter results were strong and demonstrate the quality of our portfolio and the industrial market strength. Some of the results produced include funds from operations coming in above guidance, up 17% for the quarter, well ahead of our initial forecast. This marks 37 consecutive quarters of higher FFO per share as compared to prior year quarter. Truly a long term trend. Our quarterly occupancy averaged 98.1%, up 130 basis points from second quarter 2021. At quarter end, we're ahead of projections at 99.1% leased and 98.5% occupied. For perspective, each of these represent record levels for the company.
Similarly, quarterly re-leasing spreads were strong at 37% GAAP and over 22% cash. Year to date re-leasing spreads are similar at 35% and 22% GAAP and cash, respectively. Finally, cash same-store NOI also reached a quarterly record at 9.5% and stands at 9% year to date. In summary, I'm excited about our results year to date and the positioning this gives us for the balance of the year. Today, we're responding to strength in the market and user demand for industrial products by focusing on value creation via raising rents and new development. I'm grateful we ended the quarter 99% leased. To demonstrate the market strength, our last seven quarters have each been among the highest quarterly rates in the company's history. Another trend we're seeing is widespread rent growth.
Re-leasing spreads have trended higher than in 2021 and more importantly, across a broader geography. I'm happy to finish the quarter at $72 per share in FFO and raise annual guidance $0.15 at the midpoint to $6.90 per share, up 13.3% from 2021's record level. Helping us achieve these results is thankfully having the most diversified rent roll in our sector, with our top 10 tenants only accounting for 8.8% of rents. As we've stated before, our development starts are pulled by market demand within our parks. Based on the strength we're seeing, we're raising forecast 2022 starts to $350 million. We'll closely monitor leasing results along the way and expect to update our guidance throughout the year.
Given the shift in capital markets early second quarter, we're taking a measured approach on new building investments. We are, however, evaluating new development sites given the level of demand and longer timeframe often required to put sites into production. In the midst of this transition, I'm very pleased for our Tulloch Corporation acquisition. The portfolio consists of 14 properties totaling 1.7 million sq ft, with 85% of the NOI coming from the San Francisco Bay Area and 15% from Sacramento. Strategically, the properties mirror our own portfolio very closely in terms of building size, tenant sizes, and infill locations. Secondarily, it raises our capital allocation to San Francisco up to 7%, within California up to 21%, and further reduces our concentration in Houston, which is down 150 basis points from last year.
Brent will now speak to several topics, including our updated projections within our 2022 guidance.
Good morning. Our second quarter results reflect the terrific execution of our team, strong overall performance of our portfolio, and the continued success of our time-tested strategy. FFO per share for the second quarter exceeded our guidance range at $1.72 per share, and compared to second quarter 2021 of $1.47, represented an increase of 17%. The outperformance continued to be driven by our operating portfolio performing better than anticipated, particularly occupancy and rental rate growth. From a capital perspective, macro concerns of investors have caused the stock market to decline, including our share price, and as a result, we did not issue any equity during the second quarter apart from the Tulloch acquisition. We have been intentionally de-leveraging the balance sheet over the past several years and are in a good position to pivot to debt proceeds for capital sourcing.
During the second quarter, we issued a private placement of $150 million of senior unsecured notes with a fixed interest rate of 3.03% and a 10-year term. We also agreed to terms on a $125 million senior unsecured term loan that has two tranches, one for $75 million with a five-year term and another for $50 million with a two-year term. The tranches have effective fixed interest rates of 4.0% and 4.09% respectively. We expect to fund and close the loan in late August. Subsequent to quarter end, we agreed to terms on the private placement of two senior unsecured notes totaling $150 million.
One note for $75 million has an 11-year term and an interest rate of 4.90%, and the other $75 million note has a 12-year term and an interest rate of 4.95%. The notes are expected to be issued and sold in October. As a reminder, the company does not have any variable rate debt besides the revolver facilities, and our near term maturity schedule is light, with only $115 million scheduled to mature over the next two years. Our balance sheet remains flexible and strong with healthy financial metrics. Our debt to total market capitalization was 19.5%. Unadjusted debt to EBITDA ratio is down to 4.95 times, and our interest and fixed charge coverage ratio has risen to 9.1 times.
Looking forward, FFO guidance for the third quarter of 2022 is estimated to be in the range of $1.71-$1.77 per share, and $6.84-$6.96 for the year, a $0.15 per share increase over our prior guidance. The 2022 FFO per share midpoint represents a 13.3% increase over 2021. A few of the notable assumption changes that comprise our revised guidance include increasing our average month-end occupancy 30 basis points to 97.8%, increasing the cash same property midpoint from 7.4% to 8.5%, removing any additional common stock issuance, and increasing debt issuance by $125 million.
In summary, we were pleased with our second quarter results, and 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 through the remainder of the year. Now Marshall will make final comments.
Thanks, Brent. In closing, I'm proud of the results our team created for the first half of the year and the position it leaves us in for the balance. Portfolio operations remain historically strong as our results indicate. That said, capital markets and the overall environment became fluid during second quarter. While never fun to live through, a couple thoughts that may prove helpful. First, our team has worked together through several downturns and forecast downturns before. Our strategy may shift, but it's not unchartered waters. Secondly, the industrial market has been so red hot the past few years, some level of market concern we view longer term as healthy for a sustained positive environment. Meanwhile, our buildings are as full as they've ever been, and rents are rising throughout the portfolio.
We'll work to keep occupancy high, continue pushing rents, and listen to tenants and prospects to accommodate their demands in the market as we've always done in good and bad markets. While the world may be anticipating a choppy environment, I remain excited for EastGroup's future. There are several long-term positive secular trends occurring within last mile shallow bay distribution space and Sun Belt markets that will play out over years, such as population shifts, evolving logistics chains, et cetera. These trends, along with the mix of our team, our operating strategy, and our markets, keep me optimistic about the future. I will now open up the call for any questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Connor Mitchell with Piper Sandler. Please go ahead with your question.
Hi, good morning. Thanks for taking my question. You guys have touched on it a little bit, with the industrial sector being red hot and widespread rents, but there seems to be no signs of leasing slowdown or any kind of pushback. My question is, do you believe that this is, that the industrial sector as a whole is immune or maybe it's more EastGroup's portfolio that's behaving differently than the market?
Good morning, Connor. I'd like to think you know, maybe like most questions, the answer is yes, and, you know, in variations. I'd like to think last mile, we've said for a few years, is probably an earlier inning versus kind of big box as people work through, you know, supply chains, logistics chains, e-commerce. Hopefully we're a little more immune. Then that said, I don't know that the industrial is immune. We're not feeling the downturn. We certainly don't see it in our numbers. We finished the quarter at a record high percent leased. If you're watching the news, reading headlines, there's certainly enough clouds on the horizon that we're being more, you know, we're being cautious with our capital and with our planning.
I'd like to think we'll weather it better than the average company and even the average industrial rate. The market is, as we've said, has been so hot, we've even kidded a little bit. It's, you know, when you know the stock market's overheated is you get in an Uber and the Uber driver's giving you stock tips. It's felt like the number of new industrial developers or new entrants in the market has really increased over the last handful of years. A little bit of unease and choppiness we think longer term is probably healthy and may present some good opportunities. In those downturns, as competitive as things were, it was hard to find opportunities, but with some unease and maybe financing, whether it's debt or equity, a little bit harder to come by, there may be some opportunities.
That's when we've usually found our best acquisitions longer term is in a downturn as well.
Great. Just kind of following up on that last part there. It does seem that there's a little slowdown in the change or the outlook for the acquisitions and development. Can you just please address how the impact of rising interest rates and the depressed stock price are impacting your future investment decisions?
I'll start, and I'll let Brent touch on. For now, with you know, probably early but the timing early second quarter as the stock market moved, and we were, you know, like everybody, probably expecting interest rates to rise throughout the year and still are. We've really pulled back, and I'd say we've not actively bid more so, called it monitoring a number of kind of core investment acquisitions and value add acquisitions that we have been actively bidding on the prior few years just because our access to capital is more limited more so, and we're still in a price discovery phase on pricing on an awful lot of assets. We you know, to acquire land, especially for a new park, it.
To get through the zoning, entitlements, you know, the mass grading, all the things like that, you could, by the time that's done, you could have entered and exited a recession. We're still active on land, but really pulled back on the others. Maybe Brent, if you wanna touch on the balance sheet side a little bit.
Yeah, sure. Good morning, Connor. Obviously with the quick change through the quarter with the overall market sell off, of course, our stock being impacted by that, and we didn't view it as attractive, so of course you saw zero ATM issuance. You saw in our assumption changes for the remainder of the year where we basically have pivoted from ATM issuance to a little more debt. Our balance sheet was very strong and remains very strong and flexible. When you like your stock price, that's the very reason you put it in that position, because when you don't like it, you want to have that other avenue to go to, which we have, and we have plenty of runway there.
You know, it's not to say certainly we changed our assumption that way, but, you know, if the price were to rebound, when it rebounds in the future, then, you know, we could go the other way. We view that as being fungible, whether it's in the ATM issuance or debt. Yeah, you saw us lock up some debt terms and, you know, carries through the end of the year. We'll continue to go back and forth. As Marshall said, we'll be you know, we're being a little more astute and diligent with exactly how we spend the capital and prioritizing that for our best value add, which is our development pipeline. We'll continue to monitor, but we like our balance sheet position.
Even with the debt we've tied up, we're still in a very strong debt EBITDA position, very strong fixed coverage ratio and other debt metrics. We're in a good position. We'll just take the lane that's, you know, most available to us and just monitor it and be flexible and, you know, move with it as we need to.
Great. Thanks for the color.
Sure.
Welcome.
The next question comes from Jeffrey Spector with Bank of America. Please go ahead with your question.
Great. Thank you. First question, Marshall, just on visibility into 2023. Clearly in a great position. I know sometime this fall you'll start your budgeting process, and sure there's clouds on the horizon, but I guess from where you sit versus, let's say, prior years, like, what's your confidence level on, you know, or thoughts on visibility at least into 2023, at least into the first half of 2023? How are you feeling?
Sure. Good morning, Jeff. Good question. As we... You're right. Later in the year here in a few months, we'll really dig into our budget, you know, in detail. What I like as we head into 2023, as I think about it, and maybe two or three factors. Of last year, our average renewal was on a GAAP basis a little over 30%. Pending the timing, and that we're awfully, you know, we're usually out ahead of lease expirations, we may not have captured a full year run rate on a number of the renewals we did last year. Year-to-date, through midyear, we're at 35%.
Those kind of rent increases, the good news is the agreement's been reached, but in terms of it really getting into our quarterly run rate, an awful lot of those still aren't affecting us. This year we've seen more widespread rent increases. Last year we benefited from it, but we had, just the way our expirations laid out, some larger spaces in California that helped raise that number. This year it's been more widespread. Florida's been 40%, Las Vegas, Austin, any number of markets. With inflation where it is, we're not seeing. Supply as tricky as it is to deliver goods, we feel still pretty confident, you know, absent a bad economic hit on demand more so than supply.
Then maybe the last leg of it, you've seen us move five buildings out of our development pipeline this year. Those all rolled in fully leased, so we'll get a full year impact of those in 2023. Within our pipeline today, there's another 14 buildings that'll deliver by the end, between now and the end of first quarter. 12 of those are 100% leased, and we've got activity on the other two. We feel pretty good. That's a lot of new NOI that's coming our way. I mean, I wish the equity market would, you know. It. We've said internally and to our board, right now it feels a little bit like A Tale of Two Cities.
We've probably had the best couple of three quarters we've ever had as a company in terms of the metrics produced, but the market's looking, and, you know, I guess the answer is the market's looking ahead. Our stock price has moved down pretty low. We're... You know, right now we're projecting a 13% increase this year in FFO, and that's off a record number last year. What I like is with the rent increases and the new developments, I don't know what the increase will be next year, but, and I'm an optimist. I guess I should have prefaced it with that.
I feel, you know, we're pretty optimistic about next year, especially if it's you know, a mild recession, we'll be fine and keep moving, and hopefully we can pick up an opportunity or two from some people that have weaker balance sheets, and we'll be, you know, back and running at full speed again. We're, you know, kind of slowing down a little bit and monitoring the horizon. Internally, things feel really good and we're not sensing it from our tenants or, you know, maybe it's we're not sensing it yet, but we've certainly not seen a slowdown or hesitation from tenants yet. That's what we've been waiting for the last few months. The feet guys in the field just are not seeing that yet, thankfully.
Very helpful. Thank you. My one follow-up then is, I guess if you could tie those comments into, you know, that you increased your development start guidance. You know, I guess how do we tie some of the concerns, but you did increase the development start guidance?
Sure. Really, I think, certainly they tie together and if it, you know, is helpful, really, our developments, what I like about our model, it is, it's like I've used the analogy, you know, stacking shirts in a retail store of where our parks are built out in phases, and it would. Since Brent and I are on the call, it would be Brent and I calling you saying, you know, "Jeff, at phase II, we're 50% leased. We've got another lease out. I've got three proposals out. I'm about to run out of inventory.
We'd like to build that next building or two." Really our starts, rather than someone in corporate saying, "Let's go build a 1 million sq ft building, you know, in the Inland Empire East on the south side of Dallas," it is the teams in the field saying, "I'm about out of inventory." In any number of cases in our parks too, "I've got existing tenants that need more space, and if we don't deliver it to them on a timely basis, someone else is." We're really responding to the market. I'd say corporately, we've certainly gotten a little more cautious. As we look at our development pipeline, especially what's already finished in construction's over 70% leased, and then the balance is moving. You know, it's in the mid-40s% with good activity.
The buildings that are at zero, a number of those we have just started and are moving dirt and haven't finished foundations yet. It's really our response to teams in the field saying, "Hey, we need more space." That's why we... I think we're doing this from memory, which is dangerous, but we started this year at $250 million in starts. One trend we've seen is with the lack of new product, the demand's there and the lack of new product, and it takes us and everyone else longer to deliver that product, the buildings are leasing up earlier and earlier under construction. Usually we would deliver a building and then you'd start leasing it. Now we're seeing pretty good activity during construction.
That's continuing to kind of pull that in a move from phase II to phase III within our parks more quickly than historically. Fort Myers, for example, we built a spec building. It was taken out, we delivered the next one, and we've not finished either of those. A tenant took that building, and so now we're moving on to our third building. As soon as we've been able to really start construction, knock on wood, you know, we've struggled there to keep up with the demand a little bit, which is a great problem to have.
Thank you.
Sure.
Our next question comes from Connor Siversky with Berenberg. Please go ahead with your question.
Hi there. Good morning. Thanks for having me on the call. Just wanna jump back into development capacity briefly. I'm thinking in some of these particular markets where you hold these parcels of land, say Dallas, where you've got about 70 million sq ft under construction. Not you, but in aggregate, 70 million sq ft are under construction. Would you be looking to potentially sell out of some of that exposure in favor of maybe some of the more coastal markets with better future supply growth dynamics?
You know, I guess it's a good question. Good morning, Connor. You know, one thing, Dallas does have a larger number. I was thinking it was, I've seen it in the 60s. Two thoughts. Typically, I guess we would say as a rule of thumb, if you take that $60 million or the $70 million in Dallas-Fort Worth under construction, probably 10%-15% of that is a good rule of thumb. That's really shallow bay product. I guess the short answer would be no. I mean, that really, the construction isn't what would drive us to exit. If we sold something in Dallas, so much of that construction isn't competitive with us.
The numbers I'm kind of looking at in Dallas just briefly are, you know, it's two-thirds of it per CBRE is calling big box, and three-fourths of it that's under construction is in the submarkets of North Fort Worth, East Dallas, South Dallas, and the 287 corridor. I know CBRE added some geography, you know, basically expanded the geography as they covered, as the market continues to push further and further out. Where a lot of our product is in North Dallas, you know, next to the DFW Airport, that area, we're 100% leased in Dallas. We're feeling pretty good and seeing good rent increases in that market as well.
If we did sell something in, you know, in Dallas, which we're not opposed to that, and we're, what, 37% is our cash rent increase year to date in Dallas, that it would be older product. It wouldn't. That's typically not so much driven by new supply, and we like the coastal markets, but, you know, it was interesting talking to brokers in Dallas for the first time, having lunch with some of our brokers. They're saying there's so little land left in Dallas that people are being pushed further south, further north, kidding that, you know, Oklahoma's going to be part of the Dallas market. You get so far out, and the tenants are getting pushed out to Fort Worth as well.
It's hard for me, almost like in L.A., when people initially talked about L.A. being an infill market, and you get pushed so far east, which is certainly the reality of it, but I think Dallas is starting to cross that line, where if you're in an infill location in Dallas, they've repurposed so many of the older industrial buildings. A long-winded way of saying we're pretty bullish on Dallas and that market. I mean, we'll certainly keep the size of our allocation to that market kind of managing it, but we're seeing some good development opportunities, and the team's doing a great job there. You know, we like Dallas, Austin, you know, any number of those Texas markets right now.
Got it. Appreciate the color there and as well as the comparison to L.A. and, say, the Inland Empire as the kind of overflow valve. Just one more quick one. On the dividend, we saw a pretty meaningful hike last year and the positive revisions to guidance may seem like we're trending towards another. Could you offer some color here on the thought process, perhaps as it relates to increasing the debt load over the course of the year and how fielding a higher interest expense would impact your ability to raise the dividend?
Yeah, this is Brent, Connor. Yeah, obviously, next quarter is our traditional period where the board and we evaluate the dividend and make the adjustment. Obviously, I think we started the year at a midpoint guide of 663, and I think now we're up to 690. The year has gone very, very well. I think it's very safe to assume that obviously the dividend's gonna. You know, we really don't have much cushion there to begin with. The dividend's obviously going to increase to exactly the extent, you know, we'll continue to hone in on that to make sure we have adequate coverage. You know, the interest expense increase is really, you know, on the margin. Obviously that the.
All the debt we've tied up is baked into our revised numbers, which still was up $0.15 over the last guide. You know, there's going to be a cost of capital regardless, but you know, we're still plenty clear of that with what we're doing, especially on our development pipeline. You know, obviously, the increased cost of capital eats into that margin a little bit, but it's still historically at a comfortable margin. Yeah, we'll visit, but obviously all the indicators are that it'll be increasing. You know, as far as the debt impact on that, it's you know, baked in, but we've got you know, a commensurate increase in you know, property net operating income coming in over the top of that. So it's.
You know, we're not taking on debt in a vacuum without doing anything with the proceeds. We've got very good. We still, you know, as Marshall said, we're still seeing very, very good opportunities to place capital. Obviously, if that changes, we'll pivot. You know, as of now, we'll continue to do that, but more to come on that next quarter. Yeah, that's gonna be something I think our shareholder. As always, you know, our traditional policy is to keep that dividend as minimal. We wanna grow it just by virtue of earnings growth like we're doing, but you know, we'll try to keep that to a minimum just so we can retain as much capital as possible. At some point, you just get forced to increase it because of earnings growth, which is the situation you wanna be in.
Got it. Thank you for the time.
Yeah, sure.
Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead with your question.
Yeah, thanks. I wanted to see if you guys can talk a little bit more about construction costs and how much they've increased in your underlying markets. Then maybe the three buildings that you broke ground this quarter, I mean, how much higher are the budgets on those projects versus the buildings that you built in those parks, previously?
Oh, good. Good morning, Mike. Yeah, construction prices continue to increase, and it's really evolving too, I guess, is the other interesting thing. We were looking at a project in Florida, and the concrete prices are up pretty materially from the last building within the same park. For a while, steel prices were up. Overall, it feels like maybe a 35-40% number and moving, and it's at different times. I know roofing materials earlier in the year, talking to our construction people, you would get a quote, but they wouldn't hold quotes for very long. Often on roofing material, it was when it got delivered. I know we spend a lot of time, and those guys do bid things out and are managing it as best they can.
The other kind of as an aside comment, if helpful, and this is where the supply numbers, I saw one of our peers commented, which is accurate. The supply numbers are large in a number of our markets just because when you break ground to deliver has gotten to be. We used to could build a building in five or six months. That's probably eight or nine months now. To order electrical panels, the number I've heard was 11 months for delivery. Our rooftop HVAC units is taking longer, and it kind of moves from item to item within the building.
I think as frustrating as that is, I almost have to remind myself for the several, you know, 2-3 million sq ft we have under development, that it takes longer and costs more, and thankfully, rents are rising, so we've been able to maintain those yields. As hard as it is for us to deliver buildings and as expensive as they are, that's got to be great news for the 54 million sq ft that we already own, because that's where you're helping us push rents within our portfolio and with that demand there. I would think with the concerns that in time people will finish up priced projects and construction pricing may come back down and delivery times get a little bit better. I've been predicting that for a while too, and it hasn't come to fruition.
I'd say 35%-40% increases, and it's been a mixed bag. Steel is available now. That was really the first item that became the kind of gotcha number, and it may trend again. It sure sounds like China continues to have shutdowns for COVID on different items and places. You know, the other one I'm waiting as we're in, probably in hurricane season now is usually PVC pipe is something that if you have a lot of hurricane damage, all of a sudden everybody needs PVC pipes, and that pricing jumps up. We're managing it as best we can, but that keeps a lid on supply, and it exaggerates the amount of product that's under construction in any market right now too, because it's not moving through the pipeline as quickly as it would have anyone's project, say, three years ago.
Yeah. That 40% number, is that over, like, roughly the past 12 months? Does that construction cost increase make you second-guess the type of buildings that you wanna break ground on? Or is rents just so strong? Maybe off of that, what about your competitors? Are they unwilling to break ground if construction costs have increased so dramatically?
It's probably not 12 months, but maybe 24, I would say, my 40% number. I mean, it's a little bit. We used to compare pre- and post-COVID numbers and even kind of within, but it's probably a little more elongated than 12 months. I do think in the market there's certainly some economies of scale to building bigger boxes to do that. Although I've heard, you know, where they've had different contractors and things anecdotally to get the amount of concrete they need and things like that, I think it gets more complicated.
You know, I've said, given that it's easier to place more dollars in our type buildings than it used to be and with that cost increase, and the land is some of that cost increase as well, that we've seen such a run-up, which again, maybe this pause will be helpful on where some land pricing goes. You know, our yields are still hanging in there. And again, I think cap rates are moving up, albeit slowly and probably at different rates, depending on the type of building. I think for our type buildings, you know, shallow bay multi-tenant buildings, the cap rates haven't moved up as much as they have on, say, longer term, single tenant, bigger box, more bond-like assets, is what we're hearing as well.
You know, we've changed, we've evolved a little bit with what we build in terms of the amount of glass on the buildings, the architectural features, trailer storage, but really the type buildings. We, you know, we like our model and want to respond to our tenants, but not change it based on construction pricing. Maybe a better way to say it. If we can make our yields work because what we're building is being absorbed in the market, and I'd hate to change it. I'd rather try to manage our cost structure than change our strategy.
Okay, great. Thank you.
You're welcome.
Our next question comes from Craig Mailman with Citi. Please go ahead with your question.
Hey, guys. Just circling back to development, just capital deployment in general. I mean, I don't wanna put words in your mouth, Marshall, but, you know, putting all the commentary together, it seems like the potential for maybe slower starts into next year is more a function of capital availability and pricing and wanting to maintain leverage metrics versus demand. Is that kind of a fair characterization?
Good morning, Craig. You know, I don't know that I would go maybe that extreme. I think we're being a little more cautious with our capital. In that, I guess within that, there's a couple of projects where we were looking at maybe we build three. You know, typically, we'll build one, two buildings within our park. A couple of them, given construction pricing and timing, we were looking at three or four, and we're reconsidering that now. But I think, you know, this year. I was worried this year our starts would be down from last year because last year we had the Steele Distribution, the large $90 million pre-lease in San Diego. But we'll beat last year's numbers.
I think things could slow down certainly at some point if the equity market stays closed. I mean, we've got Brent and his team have us in a great position in terms of ability to access the debt markets for a little while before we feel like that's getting nervous. At some point, if you just don't have access to capital, that would, you know, I guess you'd consider a joint venture or some things like that we haven't really gone down, aren't looking at going down those roads yet if, since the demand's still there. But we feel pretty good about demand, you know, until I turn the television on or pick up a newspaper, and I'm, I'd rather. You know, we've said in good times and bad, there's always something you can get spooked or get too bullish.
I like that our starts are really driven by a phone call or an email from the field. We'll keep going and we'll find a source for that capital. I always think good projects find capital, and right now the development pipeline's going pretty well. If it slows down next year, it won't be because we call it at corporate. It's just gonna be, hey, phase three didn't lease up as quickly as we hoped it would or at a different rental rate, and so we're gonna wait a while on phase four. We've done that in any, you know, number of cities, Atlanta, Phoenix, Miami, different, you know, different markets, Houston at times.
It's probably been pretty seamless and invisible, you know, to the street, but where we've kind of waited for demand to catch up with the last phase within a park. I like that we have that kind of self-monitoring. Really, the only time we've shut it down corporately in recent memory has been early on in COVID. Even in hindsight, I said I didn't have the nerve to do it, but I should have. We should have kept developing through COVID, given how demand and things in hindsight, we would've been able to get some great construction pricing. We did tie up some land, but we should have kept going then. Typically, it's been market by market or even park by park within a market.
Okay. That's helpful. Let's say, you know, your regional guys are clamoring for more inventory next year because everything's leased. Brent, how much debt capacity do you think you have if the equity market still doesn't make sense to tap?
Yeah, Craig, it's. You know, if it's prolonged, obviously, you can't go forever just issuing debt. Keep in mind, as a current environment, our EBITDA is growing at a very rapid rate. You know, the metric at which your, you know, your debt's increasing, but so far, our EBITDA has not been static, so you're not moving one with the other being static. Thankfully, it's increasing, so that's helped offset, you know, any significant increase in the metrics. You know, it's something that we'll just evaluate. The latest, you know, round of debt that we tied up, we think will take us through the end of the year. You know, as we get probably fourth quarter, we continually evaluate. You know, we'll look and see more into 2023 and see what we need there.
You know, as long as the EBITDA continues to grow, you know, again, we've dialed back, as Marshall said, maybe more fringe investing to where, you know, just hardcore development. It just, you know, Craig, we'll have to just be flexible. You know, if it gets prolonged, obviously, that becomes more problematic and something you have to keep an eye on. As it is now, we'll be measured and be smart with the capital, but we still have access to it. If that changes down the line, then we'll obviously react to it. We won't, you know, go beyond where our comfort level is. We've always been pretty conservative on the balance sheet. You know, between EBITDA growing and the good sources of capital and
You know, we've not given up hope that somewhere down the line, you know, market conditions change. You know, obviously, if the stock price became more attractive down the road, then we could pivot to that as well. We'll just have to see. You have to be flexible and prepared, and, you know, we feel like we are. You know, we're glad we've got the runway, so we don't have to make a knee-jerk reaction. That's where you wanna be. We'll just monitor it and be smart about it.
If you had to peg a number, kind of what's the nominal amount of debt capacity? Where does that get you to net on leverage?
You know, I wouldn't put a number to it because it moves. Like I'm saying, you know, if our EBITDA is up next quarter, then that gives you more capacity. You know, we have internally, you know, more talked about wanting to keep our, you know, debt to EBITDA sub six. You know, based on the debt we just took on, if you take the fourth quarter, you know, our internal fourth quarter EBITDA and annualize that still keeps us. We're still, you know, in the low five range. Rather than put a dollar to it, we've really looked more along those lines of a metric and again, more annualizing our current quarter forward and evaluating it. We'll just see. Again, that number's gonna change a little bit as we go.
That would be, I would probably say, just a general rule of thumb that we're keeping an eye on, although we're not close to that at the moment.
You have a bad term of leverage?
Sorry?
It was about term of capacity from Q1 into this quarter to that, you know, higher exit of 6%.
I mean, I guess, Craig, if it helps, I'm here if I'm following you. The other thoughts, you know, as we think about, as Brent said, thankfully, with the rent increases and the new developments coming online, that, you know, one side or the other has to be right. That as long as our rents are going up and we're delivering new buildings, our EBITDA keeps growing. That debt capacity in absolute dollars, we're creating new capacity for it. Eventually, either Wall Street or I guess, I'm gonna sound like I'm on Main Street, but, you know, where we are in the field, will be right. If things turn and we lose tenancy and rents stall, then we would get faster to get to our debt capacity.
At that point, you know, there's not gonna be the need to build new buildings either. That'll be. That will either end it or at some point, you know, we've taken the attitude, you know, we've been there in any number of times of, "Hey, let's just keep making money, and eventually someone will notice." We'll keep. If we can keep doing that, eventually the stock price will get to a point where, and I realize NAV is a pretty fluid number, either, you know, internally and consensus on the street, where the equity markets reopen, and if the market's still solid, we've got spoiled a little bit for so many years having the debt and equity markets available to us.
I appreciate over my two-question limit, but I just wanna get your thoughts on, you know, asset managing the portfolio here, right? There's still a bid for kind of shorter-term leases with some roll versus kind of core assets. If you guys kind of go through the portfolio and see maybe some assets that, you know, have some of those attributes where even, you know, on a going-in, on an exit cap rate are attractive, even when you kind of stabilize it to see what you'd be leaving on the table, if that spread is still kind of attractive relative to roll and then to development, could that be something we see more of as debt costs rise and the stock price is, you know, a little bit advantageous here? You know, I know you guys-
Yeah, no, that's a thought. That's a thought. You know, you did see us. We sold a little bit earlier in the year. We sold an asset in Houston. Really where we... If helpful, where we typically target, you know, it's pretty simple. Like, you know, the people that are in the field responsible, we've said, you know, "Hey, if you came in in the morning and you got a notice that someone went bankrupt, one of your tenants went bankrupt, which building would you wanna get that notice from leased?" That almost tells you your dispositions list. Then it's putting together, you know, by a corporate batting order of what order do we go in. You've seen us sell a number of tenant-intensive service center buildings, and we're about through that process.
We've got another couple buildings in Houston on the market, and we'll keep working through those assets. There's. It's not much. It's probably under $25-$30 million of the new Tulloch acquisition. There's nothing wrong with the assets. There's just a little bit of land in Hercules, California, some smaller assets that are good assets but won't fit us. We've got a couple of those on the market as well. You're right. That, that's also a source. I'd love to trade some of those assets for development land in one of our core markets. We've been doing that, but you know, that could add a little bit of emphasis. You know, right now, the disposition market isn't great because I think everybody, including us, is kind of waiting to see how it plays out. We'll
You know, we've got a few things on the market right, you know, presently as we always do, and we'll kind of keep pushing through those. That's a good way, as you say, more capital allocation to move out of some assets that aren't our future and be able to put it into land and hopefully develop it to a higher yield than what our exit cap rate is.
Great. Thanks, guys.
Sure. You're welcome.
Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead with your question.
Hi. Thanks. Good morning. I just wanted to follow up on the development side and I guess your appetite for land, which seems relatively unchanged, and really, you know, regarding the yields for future projects. Just given your comments about the increase in construction costs you discussed, which of course is offset by the increase in rents you're seeing, you know, are you seeing yield expectations for new projects improve to offset the greater near-term uncertainty and what sounds like a modest increase in market cap rates or exit cap rates? I guess, how's that spread trending for development, for future developments when you sort of put it all together?
No, I think you're right. You know, I still think, as we touched on, I think construction prices will moderate just because more people will pull back on development. I guess it's all not equal, but some of the land we acquire, you know, it's measured, and we'll have it tied up for as long as we can prior to closing, you know, as long as the seller will work with us. Even then, some of it we close, and if it's a new park, it could be a year or a little more before we're in the dirt and really, you know, start going vertical with construction and things like that, getting the kind of infrastructure in place.
That gives us confidence on some land that, let's go ahead and acquire it, because by the time we're ready to build on it. That's always, we've said that's the one item for development we can't order. It's incredibly. I think land is incredibly tight in a number of our most of our markets now. That's one thing that's really changed over the last five years is just how hard it. I mentioned Dallas earlier, Austin, Atlanta, and Tampa, any number of our markets, where how much, how hard it is to find land. Development yields have hung in there, thankfully.
Cap rates probably have come up, but last, you know, I'm using last year, for example, which is, you know, probably feels like 10 years ago, but I think our average development yield was at 7, and probably call it market cap rate's 3.5. We're obviously not a merchant developer, but that's about a hundred or that is 100% profit margin, so we felt like there's room. Even if cap rates come up a little bit and yields come down, if we're making 50, 60% kind of value, that's a lot of NAV creation for our shareholders, and then a lot of just good, solid long-term assets, incremental FFOs. We're still managing through that.
If it helps, as we underwrite on our developments, we also, compared to some of our peers, probably more private than public, we underwrite to current market rents, so we don't forecast rents, which I know some of our. You know, look, we by the time we deliver the buildings and are actually leasing them up, often of late, rents can be 10%-20% higher. But I've always felt like that's a slippery slope, and we don't wanna start projecting rents in the future. So in any number of cases too, what we're actually delivering and leasing up has been a higher yield, thankfully, than where we're using today's construction prices because we'll have that locked in and today's rents. In most cases, we can do a little better than that.
We've always targeted 150 basis points premium for development over current market rents. We've been exceeding that by a wide margin and really looking at return on cost, kind of the second metric. Development yields is still our most attractive use of our capital. Within our parks, oftentimes it's internal demand or it's someone across the street needing that space. You know, if you look back in hindsight, I'm doing this from memory, which is dangerous. I think it's of our last 22 buildings that have rolled into our portfolio, 21 have rolled in at 100%. I would push myself and say, "Hey, we should have done more buildings than that if you're getting those kind of returns." That's yesterday's news.
As long as we're building buildings and they're leasing up and we're getting those kind of profit margins and creations and value, we should kind of keep on that path until the market, you know, slows down or tells us something different than it is today.
Okay. That's helpful. Can you talk a little bit about the change in asset pricing that you're seeing today? I think you commented that you're seeing less movement in cap rates or pricing for your assets relative to, you know, some of the big box assets with, you know, longer term leases. Can you just provide a little bit more color around that comment and what you're seeing in the market currently today?
Yeah. It's gonna be a couple part answer. I've read and heard kind of 10-25 basis points for kind of more multi-tenant, shorter term duration, maybe three-five-year leases. Because of that increase in rents that people are seeing, it probably feels more on the higher end to us than that. More like, you know, maybe 20-35, I'd call it. I think if it's a longer duration, more bond-like asset, I'm repeating, you know, a couple broker comments, more of the 75 basis point increase. It makes sense because there's not that opportunity to go back to market on those assets. Really, you know, the other thing, I think, there's fewer bidders.
I think you're in a price discovery phase where everybody's waiting to see what happens next. Then as we think about our capital and maybe going back to Craig's comment earlier, we said, okay, we wanna make sure we can fund our development. Then if there is some distress in the market, I'd love to have that dry powder. I'm not expecting much distress out there, but given the number of kind of newer local regional developers, and oftentimes they may build our type product more than, say, a large institution because of the capital dollars, we'd like to be able to capitalize on that and maybe step into their land position or some things like that. We're being...
You know, trying to slow down and kind of wait for those opportunities and even have been reaching back out to kind of stay in touch to some of the local regional developers that we've called on and some of which we've acquired assets from, our value add assets the last few years.
Okay. All right. Thank you.
Sure.
Our next question comes from David Rodgers with Baird. Please go ahead with your question.
Hey, guys. It's Nick on for Dave. I guess with the industrial market still so tight, how early are tenants coming to the table to talk about renewals? Has that timeline changed at all, since year-end 2021?
A little bit, it probably has. I mean, there was a couple of instances which was interesting. I get it, tenants are busy running their business, where they waited. I can think of one in, you know, certainly one in California, one in Arizona, where by the time that we had approached the tenants, they put things on hold, and when they pick back up, and as one of the brokers described it's almost like the housing market. We were able to get rents that were 10%-15% higher just because things were put on hold. We've seen, not en masse, but some tenants reach back out and do a little bit earlier renewals. I think that probably smart on their part.
I would say over 99.99% of our tenants, which is probably an underestimate, come to us through a tenant rep broker. We're generally ready to speak whenever they are, because I've always thought if we're not talking to them, somebody else will. They're probably a little bit earlier in the process, and that probably will continue to pick up. We're, you know, we can't force the conversation until they're ready to talk. Then is when they are ready to talk, we'll. You know, we've always looked at it almost like dollar cost averaging in our investing. If we've got 4 million sq ft and someone's doing a 3-5-year renewal, you know, we'll at some points hit a renewal on the bottom of the market and at some points on the top of the market.
We don't try to get too cute and overguess the market in terms of, you know, interest rates, rental rates, things like that. It does seem like when things get bad, they get bad a whole lot faster than they get good. We don't wanna get too cute and wait until the last minute on rents and things like that.
That's helpful. Maybe with, like, rising costs, have you heard any local economic issues related to higher utilities that might be pressuring tenants?
I have not. No, I haven't. I mean, I would believe it, and I do empathize with our tenants between, you know, utility costs, gas prices, wages, you know, and I'll even point the finger at us, rents, things like that. They're probably getting hit from about every side. I've not. You know, we don't have heavy manufacturing in our buildings. We may have some light manufacturing and e-commerce. I've not heard anyone specifically complain about their utility costs, but that probably is coming next.
Thanks. That's it for me.
Sure.
Thank you.
Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead with your question.
Great. Just two quick ones. The first is just, when you're talking to tenants, what sort of commentary you're hearing on their inventory, where they are today? Obviously, there's been some notable announcements out of the retailers. Just curious what you're hearing on the ground in terms of tenant inventories. Do they have the right inventory? They're trying to build more inventory. Just any commentary there would be helpful.
Sure. I think painting with a broad brush, people are still, by and large, short of inventory just because of the supply chain issues. Again, optimistically, I think they'd like to have more inventory, and they'd like to even move inventory, you know, to a higher level because they did get so burned. Yeah, we've heard of kind of a just in case rather than just in time that people have been speaking of. I think there's still the inventory-to-sales ratio and whether it's people where they have excess inventory. You know, some of the retailers, it seems like they've got the, it's not so much more overall inventory as the wrong inventory at different times.
We've seen a case where, you know, a larger tenant we're negotiating with now, they may take a little bit more space than they would currently need today, but part of the conversation is they'd like to move. You know, this is a direct one, and we still need to get this lease signed, that they'd like to carry more inventory longer term. So I'll let you know how that one plays out, but that was an interesting comment by them, is that they may take, and it's about 20% more square footage than they currently wanted. And we also have seen a lot of activity from 3PLs this year. It seems like they have picked up in the market, and that tells me that's probably, you know, just a different mixed bag of companies carrying more inventory.
They're usually pretty quick to respond to the economy too. Given the amount of new tenant activity, Kuehne+Nagel actually made it onto our top 10 tenant list this quarter, you know, any number of those 3PLs, that tells me the economy's moving pretty quick because we may be one of, you know, five spaces they have near DFW Airport, for example.
Great. That's helpful. Then just a quick one. A few months ago, you know, there was all the news of sort of Amazon putting space back on the market. Maybe I know that's maybe less relevant for your spaces and so forth, but just any update there? Have you seen anything there? Just what are you seeing on the ground? Thanks.
Yeah, no, thanks. We did see it. It felt, part of it is you mentioned like an overreaction. You know, certainly we're full, and I wish we had. Still, with that, Amazon is still out there. What EastGroup's specific. We've got four spaces with them, the majority of them in two bigger spaces that 95% of our Amazon lease rents expire in fourth quarter of 2033 or beyond. None of our four spaces are they interested in giving back or terminating. In our conversations with them, the numbers I've heard anecdotally of late was that their give back may be, I've read between 10-30 million sq ft, was closer to the 10 million sq ft number than the 30 million sq ft number. And that they still may take down four.
We're not in active negotiations. I wish we were with them right now, somewhere for the next big block of space, but around 40 million sq ft this year. I think it was they got out ahead of themselves in terms of logistics versus their true growth, and they'll probably grow into a number of these spaces. They just, they're paying rent, but they may not occupy them for a number of months, and so they grow into them, was what we were hearing in the actual give back, maybe closer to the lower end of that range than the higher end. Thankfully, you know, look, they're 2.2% of our rents, and we've got a lot of, you know, as I mentioned, a long-term timeframe before we address it with them.
I'm guessing other landlords like us, the rents we have from Amazon are below market today. If we did get a space or two back, it may be vacant as we relet it, but at 99% leased and below market rents, you know, that compared to the reaction, that's not that bad a news.
Great. Helpful. Thank you.
Sure. You're welcome.
Our next question comes from Vince Tibone with Green Street Advisors. Please go ahead with your question.
Hi, good morning. Could you discuss the key building blocks revised same-store guidance, based on leasing spreads year-to-date and revised occupancy and bad debt guidance? I'm still having trouble getting all the way up to the new range. Is free rent timing a big benefit this year?
That's been pretty consistent. Obviously, that's been more minimal than it has been in the past. Vince, that may be something we could talk through offline. I can tell you that the beats on our end or raises have been consistently in the property net operating income category. I saw some, you know, releases and information where on other analyst models that talk about G&A and interest being a part of our beat this time, and frankly, in our internal model, that was very modest. It was more truly on the operational side. You know, happy to talk to you offline and see about what areas might deviate significantly from kind of what we're seeing or thinking.
No, that sounds good. Probably makes sense to do offline. Maybe just a quick follow-up. Are you able to comment at all in terms of what maybe, you know, cash releasing spreads you've baked in for the back half? Or are you know, expecting something similar to the first half, forecasting an acceleration? Any color you could provide there?
Yeah, basically, in essence, we're especially here the last couple of quarters baking in similar to what you've, you know, what you've seen us now for several quarters lay down. We've not seen any headwinds to that in the near term that cause us to think that would change in the short run. So, that's what we have basically baked in. Our guys in the field probably, you know, tend to be a bit conservative relative to, you know, not necessarily from a budget standpoint, maximizing every percentage and every penny of rent into the assumption, but the actual results we think will fall in line with what you've, with what you've been seeing. Then, you know, 2023, as Marshall said earlier, we'll dig into deeper as we progress in the year.
You know, that'll be something we'll see if we project throughout the year. Like I say, right now, as far as we can see out, it still feels along those positive trends that we've been seeing for several quarters now.
Got it. Thank you. That's helpful. That's all I got.
Yep. Thanks.
Our next question comes from Omotayo Okusanya with Mizuho. Please go ahead with your question.
Thank you. All right. Can you quantify how much 3PL demand has increased? Are you seeing any slowdowns from e-commerce?
Good morning. You know, 3PL, I don't have an exact number. You know, I guess it was that last year or the year before. I do know as we move within our tenant list, we've seen a pretty material. You know, food and beverage, 3PL, you know, just talking to our guys in the field, the home building industry is one. We get questions where I'll say that one's, we don't have a lot of it, but a little more concerned. In e-commerce, it's been a slowdown. Certainly, Amazon has slowed down, and that's a little bit trickier, too. I mean, I'll tie it into 3PL as people or some of our retailers rework logistics change is that, you know, we're talking to Walmart now, and it's like, I'm not sure it's for brick and mortar exactly.
It probably answers a little bit of both, so much as e-commerce sales as well. They blend over. Certainly the smaller e-commerce will be you going through a 3PL. That's the other tricky part. I guess we're seeing the good news, maybe if I take two steps back, pretty broad, you know, demand from across any number of sectors. I'm glad. You know, one of the things we certainly spend time and talk about is our geographic mix within our portfolio. One of the things I don't think people focus on as much is our top 10 tenants, you know, are below 9%, which is about half the industry average. I like that.
You know, to me, the more geographically dispersed and the more tenant diversified we can be, probably the safer our rents are. As our former CFO used to say a lot, our dividends are covered by rents, so there's no joint ventures or funds or all the other things. Not that those don't work for other people, but ours is a pretty simple model, so I like how diversified our rents are. We'll kind of respond to the demand of you know, who's out there tending their credit and where the TIs are is who's next in terms of leasing.
Thanks. Just one more question. Any markets that are a concern to you right now, from a supply perspective?
There's really not. A good question, and the numbers are certainly higher on supply than we've seen historically. Absorption is, and I know it's taking people longer to get products out of the pipeline than it normally did. There's no specific market that really has us concerned right now for our product type. I mean, the numbers are pretty high in the major markets, as you would expect, the Atlantas, the Dallases. I've read about Phoenix as another market people have mentioned, but we're 100% leased in Phoenix. We're 100% leased in Dallas. We bought a vacant building. I'll brag on our team in Phoenix, but we acquired it in second quarter and got it fully leased in second quarter.
We're seeing supply, but it's typically on the edges of town and in big boxes, you know, by and large. There's no specific markets that really worry us, and it really matters more by sub-market and by who's building our type product. But right now, we worry significantly more about demand and a black swan event or a deep recession affecting demand than reduced supply, thankfully.
Got it. Thank you.
Sure. You're welcome.
Again, if you have a question, please press star then one. Our next question comes from Jonathan Petersen with Jefferies. Please go ahead with your question.
Oh, great. Thanks, guys. On escalators, just curious of how those are trending and if there's any inflation component being considered either from your side or from the tenant side.
Good morning, John. That's an interesting one. I would say historically, we would've said, you know, kind of 2.5%-3% escalators. Typically, the bigger the tenant and the longer the lease, makes sense, they would negotiate harder, and you would drift to the lower end of that range. Maybe a year, 18 months ago, those started moving. That's why we like gap re-leasing spreads as well, 'cause you capture that free rent and those annual bumps to 4%. It, you know, probably started in the bigger markets, but it's been pretty consistent, becoming throughout the portfolio, that it's become more a 4% norm on rent escalators. I've not seen CPI.
It wouldn't shock me given where CPI is, but I've not heard of that from our team or from any of our tenant rep brokers and things like that. It's interesting to see if that. You know, if I've read about the Clear Lease and some things like that are out there. We've typically tried. You know, we're not the major player. We'd like to think we're material in our markets, but it's not like we have so much space in Atlanta that we dictate market terms. I've always thought we try to wanna fit within the box or what the tenant rep broker's looking for and not, you know, be outside the box on too many different levels.
We've probably been widely saying we're more of a market follower than a market leader in terms of just some of our lease terms, but we're happy to see the rent escalators rising. I'll stay in touch. If we start to see CPI, I'll let you know, but I've not seen that. 'Cause then other people then you gotta go back and make those calculations and things like that, which is more, probably a little more cumbersome. We used to have some leases 10 years ago that had those, but then it becomes a project for the tenant and the landlord.
Gotcha. I was hoping we could maybe continue the conversation on your cost of capital. You know, you guys have clearly indicated that the equity markets feel close to you, but I realize the stock's down year to date, but I mean, you are up, like, 35% over the last couple years. If I look at your FFO yield on 2023 estimates, it's about 4.5%, and you guys issued debt recently at 4.9%.
I know that's not always, like, an apples to apples comparison, but, you know, with where interest rates have moved to and, you know, your multiples or kind of your FFO yields still being at a discount to, you know, your development yields in the high sixes, I guess, you know, what does that spread need to be, whether between development yields and, like, an FFO yield, or even just the difference between, like, the multiple on your stock and the cost of debt? 'Cause as the cost of debt rises, I would assume your equity becomes more attractive. I don't know if you can maybe help me better understand, like, what hurdles you're looking for for the equity markets to feel open to you.
Yeah. I wouldn't disagree with obviously anything you're saying there. Obviously, the numbers work, and as debt goes up, it certainly you know. You run your pencil just like you did, and you see the equity side could still be more cost-effective. Part of that, frankly, gets into just external perception that if you're viewed at issuing. You know, it depends what anybody's view of NAV is, but you wanna be, I guess, within reach of that or within reason of that from. Obviously, you can get different viewpoints on that number, which makes that a little more challenging.
I would say, you know, as much as spreads or you're obviously looking at spreads and which cost of capital is more affordable or makes our development more accretive, you know, probably what bakes into that as much as anything is kind of keeping an eye on our NAV, which is a bit of a moving target. We would agree with you. We don't feel you know we've rebounded some from the bottom. We don't feel that it's far off. Certainly, you know, as I mentioned earlier, internally, we've removed ATM issuance and issued more in debt in the guidance. That's not to say that if, you know, if the pricing didn't get to a level where we were comfortable with it, that we, you know, we would do that, and then we would just change and revise guidance next time.
I guess I would say I agree with you, and I don't think we're that far off. Again, just wanna be within range of what you know, investors, shareholders and the like would expect for you to issue it. Plus, we've got a long successful track record of putting the capital to work in a very smart manner. Basically, in essence, agree with what you're saying, and it again, it's something we're looking at on a daily basis.
Gotcha. All right. I appreciate that color. Thank you.
Sure.
This concludes our question and answer session. I would now like to turn the conference back over to Marshall Loeb for any closing remarks.
Thanks, everyone, for your time. We appreciate your interest in EastGroup. If there's any follow-up questions, we're certainly available and hope to see many of you soon at the next upcoming conference. Take care.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.