Morning, ladies and gentlemen, and welcome to the EastGroup Properties first quarter 2026 earnings conference call and webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question- and- answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, April 23rd, 2026. I would now like to turn the conference over to Marshall Loeb, CEO. Please go ahead.
Good morning, and thanks for calling in for our first quarter 2026 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our President; Staci Tyler, our CFO; and Brent Wood, our COO. 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 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 results, 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.
Good morning. I'll start by thanking our team. They started the year well, and I'm proud of the results achieved. Our first quarter results demonstrate our portfolio quality and resiliency within the industrial market. Some of the stats produced include funds from operations, omitting of involuntary conversions, of $2.30 per share, up 8.5% quarter-over-quarter. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term growth trend. Quarter-end leasing was 96.5%, with occupancy at 95.9%. Average quarterly occupancy was 96.1%, which was up 30 basis points from first quarter 2025. Also notable was quarter-end same-store occupancy at 97.4%. This strength demonstrates the trend we've mentioned, where the portfolio is well leased while development leasing has been taking a little longer.
Quarterly re-leasing spreads were 37% GAAP and 20% cash for leases signed during the quarter. Quarterly cash same-store NOI rose a strong 9.2%, reflecting this high same-store occupancy. Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 6.7% of rents, down 40 basis points from prior year. We target geographic and tenant diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we're pleased with our results and excited about the quantity of development leasing signed during the quarter along with prospect activity. Reid will now walk you through more of our quarterly details.
Thank you, Marshall, and good morning. In the first quarter, development leasing continued to follow the same trend we saw in our fourth quarter results. Year to date, development leasing has already reached 54% of last year's total. While we are encouraged by the continued demand in our development properties, businesses continue to operate amid headline volatility, and decision cycles continue to remain extended. As the markets continue to experience positive absorption, and as new development starts to remain limited, we anticipate users will be increasingly required to accelerate decision making. In the meantime, our development pipeline continues to lease at a more measured pace while maintaining our projected yields. The EastGroup platform and the depth of our team continue to drive strong returns in our development business. As our development starts are pulled by market demand, we are increasing our guidance for the year to $265 million.
This quarter, we commenced construction on four projects totaling 586,000 sq ft, of which 27% is pre-leased. New development sites in our targeted infill locations remain challenging to source, and entitlements and zoning continue to be difficult and time-consuming. As the supply of competing product continues to tighten and as demand stabilizes, it will place upward pressure on rents. As demand improves, we believe the company is well positioned to capitalize on continued development opportunities in creating value from our land bank. Regarding new investments, we continue to modernize our portfolio with the acquisition of two Class A buildings in the Jacksonville market.
Totaling 177,000 sq ft. Subsequent to quarter close, we sold a 46,000 sq ft building also in Jacksonville, along with our previously announced exit from the Fresno market of 398,000 sq ft. Staci will now speak to several topics, including assumptions within our updated 2026 guidance.
Thanks, Reid, and good morning. We are proud of our first quarter results. They reflect the outstanding performance of our team and the strength of our portfolio. We are pleased to report that FFO exceeded the midpoint of our guidance range at $2.30 per share, excluding gains on involuntary conversion. This represents an 8.5% increase over first quarter last year. The outperformance in first quarter was primarily driven by lower than anticipated G&A expense and higher than projected property net operating income, reflecting the continued strong performance of our 62 million sq ft operating portfolio. Our balance sheet remains strong and flexible. We were pleased to announce during first quarter that Moody's Ratings upgraded our issuer rating to Baa1 with a stable outlook. We ended the quarter with no balance drawn on our unsecured bank credit facility, leaving available capacity of $675 million.
Our sector-leading balance sheet metrics include debt to total market capitalization of 14% at quarter end, first quarter annualized debt to EBITDA ratio of 3x , and interest and fixed charge coverage of 14.8x . We remain well-positioned to pursue growth opportunities that align with our time-tested strategy. FFO for second quarter is estimated to be in the range of $2.30-$2.38 per share. Looking ahead to the remainder of the year, we increased the midpoint of our 2026 FFO guidance to $9.52 per share, excluding gains on involuntary conversion. The updated midpoint represents a 6.4% increase over 2025 actual results and is 30 basis points ahead of our initial guidance. We are projecting strong cash same property net operating income results to continue, and we raised the midpoint of our guidance assumption by 10 basis points to 6.2%.
These strong projections are driven by rental rate increases on in-place and budgeted leases and expected same property occupancy of 96.4%, which is also 10 basis points ahead of our initial guidance. We increased our projected 2026 development starts by $15 million to $265 million, primarily driven by the 100,000 sq ft pre-leased building expansion that was not contemplated in our prior guidance figure. We began construction on four projects during the first quarter and one project in April, totaling $105 million, and the remaining starts are projected for the second half of the year. While our guidance assumption for 2026 gross capital proceeds remains unchanged at $300 million, the nature of those proceeds has changed from 100% debt to a mix of debt and equity, as we were opportunistic in accessing the equity market during the first quarter.
We issued $70 million in common stock through our common equity offering program at over $191 per share. We currently have an additional $50 million in forward equity sale agreements available for issuance at over $196 per share. We will continue to evaluate capital sources and remain flexible as the year progresses. Our rent collections currently remain healthy, and our tenant watch list is steady. We are pleased with our strong performance in the first quarter, and as we look ahead through the remainder of the year 2026, we are confident in our experienced team and well-located, high-quality portfolio to position us for long-term success. Now Marshall will make some final comments.
Thanks, Staci. In closing, we're pleased with how the year's begun. Market demand has momentum, and we're hopeful it's sustainable. Regardless of the environment, our goals are to drive FFO per share growth while rating portfolio quality. If we do those, we'll continue creating NAV growth for our shareholders. Our executive team restructuring is nicely falling into place. I'm excited to welcome Jim Trainor to the team. I also want to express my and the company's appreciation to John Coleman, who is entering a well-earned retirement on June 30th. John, we still have your mobile number. 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 to now include data center suppliers, evolving logistics 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 take your questions.
Thank you. Ladies and gentlemen, we will now begin the question- and- answer session. If you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We kindly ask that callers limit themselves to one question at a time. If you have a follow-up question, please rejoin the queue. One moment please for your first question. Your first question comes from Craig Mailman with Citigroup. Your line is now open.
Hey, good morning. I guess Marshall and Reid, you both kind of pointed to development leasing taking a little bit longer still, but you guys had a significant ramp in the activity since early February. Could you just talk a little bit about the gestation period on the deals that got done, and are you seeing some tenants start to move a little bit quicker now that the supply pipeline is emptying out here?
Yeah. Morning, Craig. This is Reid. Thanks for the question. We are actually seeing some tenants move a little bit quicker than we have in the past. We had a good example of that in one of our Atlanta projects where we had a vacancy in our first-gen development portfolio, and we had two users that came, and both wanted the space. We were able to create some competition, the team did locally, and ended up signing 107,000 sq ft in that project. That happened quicker than we anticipated, which was a good sign. As we look out in the market, as the demand continues to pick up and supply continues to get a little tighter, we anticipate that decision cycle will start to shorten some.
Just if I could sneak a second quick one in. How much availability do you still have left of the projects that you delivered last year that came in a little bit under leased?
Yeah. What we're calling first-gen space, we've got about 775,000 sq ft.
Great. Thank you.
Your next question comes from Blaine Heck with Wells Fargo. Your line is now open.
Great. Thanks, and good morning. Just with respect to guidance, can you talk about how much speculative development leasing is assumed in guidance for the rest of the year, and whether at this point you think that could be a risk or a source of upside?
Hey, Blaine. Good morning. Yes. We have about $0.04 of NOI for speculative development leasing in the second half of the year. We're not assuming anything in second quarter at this point for spec development leasing. It ramps up through third and fourth quarter for a total of $0.04 for the year. We see that more as an opportunity. Certainly, we have work to do, and we need to sign some more leases to achieve that $0.04. We believe that that's an opportunity between the projects that we have currently in the development pipeline and the 775,000 that Reid referred to in first generation. Definitely see that as an opportunity, particularly if the pace of development leasing can remain strong and steady as it has been over the last couple of months.
Your next question comes from Samir Khanal with Bank of America. Your line is now open.
Good morning, everybody. I guess, Marshall, it's certainly good to see the development leasing picking up here, but maybe expand on your comments on kind of what you're seeing from the customer as it relates to kind of overall decision-making. Given kind of inflation, given macro volatility, I guess, what are you seeing on the ground? Thanks.
You're welcome. Good morning, Samir. I agree with Reid. Maybe going back a year ago after Liberation Day, it felt like later into second quarter and certainly through third quarter, things were slow. We were getting small development leases signed. We weren't seeing many expansions. Fourth quarter, it picked up. That was by far our biggest development leasing quarter. We beat that number this quarter. A couple of strong quarters in a row where some of that development leasing, we picked up a couple of expansions. You saw the building expansion in Arizona. There's one in Texas where it's an expansion. It feels like in spite of. I got the question, the unrest in the Middle East, is it slowing down decision-making? I could give you two answers. The current one is no.
We have not seen people say, "I'm not ready to make a decision because of that," or not yet. We do worry about gas prices and what impact, how that will affect the consumer over time could affect us. Today, I feel better. For what it's worth, I feel better about this year today than when we had our fourth quarter call, in spite of all the headlines and things like that. Maybe, I'm overanalyzing our customers. It's people are more. They need to run their businesses, and they're getting more used to the volatile headlines that the Strait of Hormuz is open, it's closed, it's this and that, and that business is generally good, and we're seeing new leasing and expansions again a little more than we did a year ago. I just hope it lasts.
Thank you, Marshall.
Sure. You're welcome.
Your next question comes from Todd Thomas with KeyBanc. Your line is now open.
Yeah. Hi, thanks. Marshall, you mentioned seeing some tailwinds around demand due to data center suppliers, and I was just curious if you could talk about that a little bit, perhaps quantify or characterize that demand a bit in the context of what's been signed sort of year to date, whether it's data center suppliers or advanced manufacturing. Any thoughts there?
Yeah. Hey, good morning, Todd. I think it started with us. Maybe the advanced manufacturing or the chip plants. We've got suppliers in Phoenix and in Dallas for the chip plants that kind of picked up maybe 2 years ago, call it. I'm trying to think of the exact time frame it's been. Those are still tenancies we have today. With data centers, we're seeing mostly on the supply side, but a couple that you saw in our development program. It's more HVAC or racking equipment and things like that, or a couple of full building users that were related to data center. Basically, they have been built, and they're supplying them. We've got another prospect or two that are related to data center construction.
Look, I'm thrilled to have a new source of demand, and what we love about our buildings is how flexible the use can be that our long-standing tenants are still there. Look, I'd love home building to pick up again one of these days, but I'm glad that we've picked up more and more advanced manufacturing, and now we seem to be picking up ancillary demand, which has been really helpful this last quarter, too, related to all the data centers that are being built around our markets.
Yeah. Maybe just to add a stat to help quantify some of the numbers. Of our 685,000 sq ft of development leasing that we've done year to date, about half of that was related to data center-related type users.
That's helpful. All right, thank you.
Sure.
Your next question comes from Nick Thillman with Baird. Your line is now open.
Good morning. Maybe just two quick ones. First on, Staci, on that development leasing, the $0.04, how does that compare to the $0.07 in the initial guide? Is it higher, or is it the same number? We should just view that the first quarter leasing's $0.03 contribution. Then, secondly, just on overall development starts and expectations, I know you guys try and not be concentrated within individual markets. Are there any guideposts around starts within a market from a risk parameter standpoint that we should be looking at? We look at some strong leasing in a market per se, like Houston, but just curious on thoughts on distribution of where the starts will be. Thanks.
Sure. Good morning, Nick. For our development leasing, you're right. We initially had $0.07 in our initial guidance for the year. We have taken care of some of that. Most of that $0.03 that you referred to, and the difference has moved from speculative leasing to signed leases with the work that we've done over the last few months. Yes, I would say generally that the $0.07, $0.03 of that, has moved into actual signed leases for development NOI, and the remaining $0.04 is speculative leasing. Again, that's in the second half of the year and really ramps up when we get to fourth quarter.
Nick, hey, it's good morning. It's Marshall. On the kind of our development risk, I really like our model and that it is as space gets leased, we'll build the next phase in the park, which usually means a building or two. Within a market, I'll stick with Houston, for example, where we're up by George Bush Airport, but our Grand West Crossing is out in Katy, so call it 12 o'clock and nine o'clock on the map. You're so far away. You can be so far away in Dallas or Houston or Atlanta, some of our markets, that it allows us to be active developers in different submarkets and those projects don't compete with each other for the same tenancy. Thankfully, we really don't.
We look at our overall development and kind of non-earning assets and how much of that are we willing to feel like is a reasonable amount to take on at any one time. Thankfully, on a market by market, usually, I'll get the call and the team is running out of space, and we'll have the permit in hand and start the next building as quickly as we can. You saw that this quarter in a couple of our markets, which knock on wood, I'm happy we were able to raise our starts guidance this quarter. Look, I'd love to keep nudging that along as the year progresses. Last year, we took it down, I think rightfully so, because we want to be good stewards of our investors' capital.
I'm hopeful if the market can continue the pace it's been on, that there's still upside, at least to our starts number and then maybe even in our development revenue number too. We'll see how late in the year that happens.
Yeah. Nick, I would add just some color on our development leasing to date. That's been in nine different markets, and we currently have projects active in 13 different markets. We have a lot of dots on the map which allow us to continue to shoulder some of the risk throughout the portfolio. Excited to see that the demand has been broad-based in the various markets.
Great. That's it for me. Thank you all.
You're welcome.
Your next question comes from Brendan Lynch with Barclays. Your line is now open.
Great. Good morning. Thanks for taking the question. I wanted to follow up on the Moody's upgrade. I'd imagine that comes with certain commitments related to your balance sheet. Maybe you could quantify what your flexibility is to increase leverage and also what your willingness is to do so, and what you'd need to see to be more comfortable operating closer to 4x or 5x like you have in the past.
Sure. Brendan, yes, you're right. We were very pleased with the Moody's upgrade to Baa1, and we're pleased to see that. We are well within the debt parameters that they would have for our balance sheet with that rating. We have a lot of room, a lot of dry powder, so to speak. We could increase leverage and not be close to risking being out of range for our current rating, which is really good news. We had actually been tracking at this lower leverage
For quite some time. We were pleased with the rating upgrade and also feel like we're in a very comfortable position. The range you mentioned, and that 4.5x sub-5x debt to EBITDA is the range that we would want to keep our balance sheet in. We have a lot of runway in terms of raising leverage, and we are remaining flexible. As we watch the equity and debt markets, what the cost of capital is from the various buckets, and we hope to be able to issue both debt and equity. It's really more about finding opportunities now. It's a very good position for us to be with our sector-leading balance sheet. We're pleased with where we are and also acknowledge that we have a lot of room to increase leverage on a measured basis as we find those opportunities.
We have our full $675 million available capacity on our credit facility. Just in terms of the outlook for the year, we have $300 million in capital proceeds in guidance for the year. We issued $70 million on the ATM in first quarter at over $191 per share, and we have another $50 million in forward contracts that are outstanding. That leaves about $180 million in proceeds that are yet to be sourced for the remainder of the year. We have $140 million in debt maturities later this year. We can be flexible with that remaining $180 million, and we'll just keep our eye on the equity and debt markets. We have plenty of capacity on the balance sheet to increase leverage as we find those opportunities.
Great. Thank you, Staci.
Thank you.
Your next question comes from Alexander Goldfarb with Piper Sandler. Your line is now open.
Hey. Good morning down there. Marshall, a question on oil, on diesel and gas and all that. Obviously, you've got tenants who are related to the oil business. You have other tenants that do a lot of trucking, and then you have the consumer. Putting it all together, when we see higher diesel prices and the cost on trucking, does that help you because people more want closer facilities that are closer to their customers? Does that hinder you because then the customers are more concerned about shipping costs? Is this one of these, like you said, where people just look at their businesses and whatever the cost of transportation is, it is what it is, and that doesn't affect how they think about what rents they're going to pay you or their business?
I'm just trying to understand how diesel fits into all of the conversations that you're having, because it doesn't sound like tenants are really pulling back. As you said, you feel better today than you did back in February.
Yeah. Good morning, Alex. Maybe tell me, as I think about it and we discuss it here, the short answer is maybe yes, and I don't mean that facetiously. I think in the near term, people have to run their business like you described and service their customers. I do worry about just the consumer balance sheet, but that's why we like being in fast-growing markets. We love the steady e-commerce growth, and even I've said we try to be a little bit like retail locations. We want to be in a high disposable income neighborhood as well because there'll be a lot of goods and services shipped there. I think you're right the way I view that. In the short term, you've got your leases, you've got your logistics network, you'll operate your business.
Longer term, if diesel prices stay higher for longer, I think all these things, and being in fast-growing cities, they never can keep up the interstate system with the population growth. What I like the tailwind is I think last mile gets more and more critical to their business. You can afford to pay more in rent because you're saving it on diesel fuel. When you think of your strategy, if you're delivering packages or repair people or pool supply, whatever it is, you want to be near that end consumer, whether it's an individual or a business. I think last mile only becomes more and more critical because the traffic. That's why we see this gets worse in Atlanta and Phoenix and Las Vegas and Orlando, you name it, in our markets. Years ago, we didn't have.
Now we have the same customers in two different parts of the market because the traffic's terrible in Dallas, and I don't see it. It's only going to probably get worse over the next decade than it is today. In Nashville, all of them, traffic's terrible. The brokers were saying, "If we don't get in the car now, there's no point in jumping in the car." You go, "That's frustrating to tour the markets, but it's great for our last-mile locations.
Thank you.
Sure. You're welcome.
Your next question comes from Michael Griffin with Evercore. Your line is now open.
Great, thanks. Marshall, I'm curious, just as it relates to sort of market rents and market rent growth, it seems like you're more constructive than when we had the call a couple of months ago. Has your outlook for market rent growth changed? It seems like there's still good leasing demand. Maybe some of the dev leasing is taking a little bit longer, but any kind of commentaries there, and then markets may be standing out to the positive versus those that might be a little softer. Thank you.
Sure. Good morning. I am a little, you're right, maybe a little more constructive or optimistic. I've been thinking with supply down for a few years, I was probably, admittedly, too early, thinking lack of supply and call it 4% vacant. Our product type, that it wouldn't take much growth and demand. We've not seen an inflection point in rents. They're, absent California, still growing inflation, maybe inflation plus a little bit. We are seeing the pickup in demand, if it continues, then just Econ 101, supply and demand, price has to follow. We're not seeing it yet, but we're certainly closer to it. It feels like we're, knock on wood, past the bottom, and things have been improving the last couple of quarters, and I hope if we can sustain it, eventually we'll get to that rent growth that I predicted 4 years ago. Eventually, I'll be right.
In terms of the market strength there, Michael, you had mentioned strength of markets, and Reid touched on this, but 9 of the 11 leases being in different markets. It's been widespread, which is good. That ran from East Coast all the way across to Phoenix. We still see that Raleigh, Charlotte, Atlanta, Florida, the East Side still having good activity and results. In Texas, you still see Dallas and Houston be very strong. Austin, the softest market there with vibrant market, but just a little bit overbuilt. Phoenix has been very strong. It's been broad-based. Some of the slower end, and we still L.A., it feels like maybe it's finding some footing. Who knows? You need a few quarters to really show that. The Bay Area continues to be a bit slow.
The couple of California larger markets continue to be the slower in terms of new activity. Throughout the rest of the portfolio, it's broad-based and the leasing's been broad-based. The starts have coincided with that, have been geographically dispersed. The good news is we're not overly dependent at the moment on a particular market or two to try to continue to pull us along. It's been a pretty equal shared load, which gives you a little more breathing room. It's nice to have.
Great. Thanks so much.
Sure.
Your next question comes from Rich Anderson with Cantor Fitzgerald. Your line is now open.
Thanks. Good morning, team. A question on the comment around data center demand, supplier demand, half of the development leasing, I think I heard Reid say. I'm wondering if you can sort of talk about the calculus of that a little bit once removed from the direct opportunity. When you think about your primary business is consumption-oriented, you mentioned last mile becomes more critical in this day and age. To what degree is demand for data center suppliers and manufacturing suppliers informing the opportunity set for a consumption-oriented platform like yours? In other words, does it matter who's taking the space at the end of the day, and does your product become scarcer because some other type of user is jumping in and taking space?
Does that ultimately benefit you from an indirect point of view rather than just a direct point of view from leasing supplier-oriented space? Just curious if you can comment on that broader view. Thanks.
Yeah, sure, Rich. Good morning. If I'm following you, I agree in that, look, I think what we've called our traditional or long-standing type tenants are there, and that's maybe that consumption, whether it's business or individual. I view, if I'm following, kind of the new data center or advanced manufacturing, just crowding the demand field a little bit. Because we struggle so hard to find sites that work, and now even harder to get sites that can get the zoning and permitting. That hurdle has gotten much higher post-COVID than it was before. There's no greenfield sites. You've seen us tear down office buildings, our peers, things like that.
I think it's going to lead to more incremental demand directly, and then I'm assuming even if we don't get that, just its investment in our communities, whether it's advanced manufacturing, which we're seeing a lot in Houston and in Phoenix and some of those markets, or data center development, it will have, obviously, the ripple effects to the economy. We've said, even if the Port of Houston is gaining market share, we're not near the port, but it still helps our portfolio indirectly. I'm pleased we weren't seeing the data center demand directly, but we've started seeing that in the last few quarters and in a more and more material way this quarter.
I think it will continue to kind of crowd the demand for our space, which should lead to more development and higher rents if we can keep doing what we're doing and finding those sites, which are harder and harder to come by in these fast-growing cities, too.
Yeah. I might add on to that, Rich. I think Marshall's exactly right. I think one good thing about industrial, it's rare where you have businesses where new uses come in but don't really displace or dilute your existing customer base. It really feels similar to, whether you want to say 6 or 8 years, going back to online fulfillment, how that continues to mature and emerge, but how that was a new use. as Marshall was saying, kind of began to squeeze its way into the different uses on the pie chart. The interesting thing, it wasn't displacing really any use. it's not as though we had a software that become outdated, and somebody had a new one, and then ours was relegated irrelevant. It feels a little bit like this
Data center support, advanced manufacturing support, and things we're seeing are, as Marshall said, crowding the field, and I think it's a direct benefit. This early stages feels like another kind of color that you can add to the pie chart that's helpful. We're seeing that here early this year for sure.
Great. Thank you very much.
You're welcome.
Your next question comes from Mike Mueller with JP Morgan. Your line is now open.
Yeah, hi. I know you have your $265 million development start guidance for the year. If you forget that timeframe, just how large is the pool of, I guess, development expansion opportunities that you would think are high probability and that could be started in a relatively short timeframe? Is it 2x or 3x that 265?
Hey, Mike, good morning. I don't know that it's that large. Probably internally, we would think of it, we've got the $265 million in starts. We'll keep internally with it. This is what we're starting, and then we've got kind of our gray sheet, which is, what could we start this year? That's probably equal size or a little bit larger today. Look, if our starts go to $175 million this year, again, I don't think they will based on where we sit today, but I think that's what we should do for our investors. We could potentially add another up to $300 million, I think, depending on what you call short-term, by the end of the year. I don't think it will go that crazy of a year, and we'd probably have to hire some people to get to there too.
Look, we'll go as fast or as slow as the market allows, and I think that's kind of where our model. One difference we'll try to explain to people, it's that most of our peers will go build a big box building on the edge of town, and in my mind, it's always like you're pushing supply out into the market. Where ours is a pull, where it is, we'll get a call at corporate saying, "I'm running out of space in phase III," and it's really our own customers and our own prospects pulling it. Right now, our crystal ball says $265 million. We think we could probably add a few hundred million to that if everything and every market and every sub-market fell our way. We'll just see how the balance of the year plays out. Yeah.
Mike, to add a little bit more color to that. As we talk about users pulling demand from the market, what that has done for us this year is allowed us to take some of the starts we had projected for second half of the year and accelerate that into the first half of the year. A good example is what the team in Houston has done with one of our projects at Grand West, where we're always having the next phase teed up, permit ready to go, and then we also add spec office in our spaces. We had a prospect that came through. The team signed that lease in March. We were able to start the next phase also in March, which was previously anticipated to be a second half of the year start.
Because of the spec office in place, we commenced that lease in April. That kind of checked all the boxes, and that's what the team is always striving to do, and a great example of what we're trying to do in every market. Assuming the demand is there, we can pull that off hopefully time and time again.
Thank you.
You'll ask one question, and we'll give you five answers. We'll limit you to one question. I think one differentiation when we talk about that, and Reid, that's a great example and really good for our team. This is when we say, as a public company, by having the land and the construction people and the permits. As things do inflect, our private peers just don't have the land and the team to carry it through this kind of slowdown that we think, Houston being a great example, will have a really nice head start once the inflection point really takes hold, and it will take a while for our private peers to really ramp back up.
We patiently have been waiting for that, but I think that's a really good example of kind of what we have in our mind's eye of, okay, when the demand's there, we're going to move faster. I do think at the inflection point, the other place we'll benefit is, I think, big box was what got built in the last cycle in the upturn, and that's what's going to pick up first again, because that's where the land's readily available, and that's where people can put large amounts of capital to work. I'd like that we'll be a little more insulated than the big box developers.
Thank you.
Sure. You're welcome.
Your next question comes from John Kim with BMO Capital Markets. Your line is now open.
Thank you. On your occupancy, it came in stronger than expected this quarter, and you raised same store guidance for the year. It still suggests a decline of about 120 basis points from first quarter on average for the remainder of the year. I'm wondering if you're expecting no move-outs or what kind of retention rate we should be modeling for this year.
Yeah. We build our budgets from the lease suite basis up. When we roll all of that up, we are projecting occupancy decline. That is no different than what we were anticipating when we initially published guidance for the year. As you mentioned, we've increased the same-store occupancy guidance by 10 basis points with this budget revision. As we compare to last year, 2025 began the year lower. Occupancy ramped up each quarter as the year progressed. We were starting 2026 at more of a peak occupancy level with average same-store occupancy in first quarter of 97.3%. You are correct. To get to that year average projection of a 96.4%, it does assume a decline in occupancy as the year progresses. That is not because we have known move-outs that we know we won't be able to backfill.
That's simply because we're looking at this, our teams are, on a suite-by-suite basis and saying, what's the probability that this tenant renews? If they move out, what will the downtime be? That's really just the accumulation of all of the individual assumptions, the suite-by-suite basis. We typically run in that 75% customer retention. If we do that and if we have some success leasing, which we believe we will, given the current environment, then hopefully we'll outperform that same-store projection. Given all of the macro uncertainty, the tensions in the Middle East, it's just hard to push our leasing assumptions, given all of the headlines and everything that's going on. This feels like a good baseline for assumptions, given what we know at this point or what we knew a few weeks ago when we were putting the budget together.
I will say thus far, a few weeks into second quarter, we're feeling very good about where things are, and we're tracking a bit ahead of where we had projected to be at this point.
Can you remind us where seasonality plays in? Because I seem to recall that it tends to be stronger, occupancy tends to be stronger in the back half of the year.
You're correct. Usually, I know one of our peers talks about one, two, three, four, where occupancy is usually the lowest and builds during the year, and I think that's reasonably accurate. We would agree in that it's certainly fourth quarter is probably our what you'd call it historically our best quarter, and third quarter's right there as it builds. The balloon will let out a little bit of steam as the year starts and then build back up. You're right in the back half of the year.
Okay, great. Thank you.
You're welcome.
Your next question comes from Michael Carroll with RBC Capital Markets. Your line is now open.
Yeah, thanks. Reid, I wanted to follow up on your earlier answer regarding development starts. Is it normal for EastGroup to be able to commence a new project in a market pretty immediately after a lease is signed? Just sticking with your Houston example, it does look like EastGroup signed about 280,000 sq ft in the first quarter and broke ground on about 128,000 sq ft. Is there an opportunity to start another building in Houston because of that? Or are you waiting just because of the broader market uncertainty, and you don't want to have too much starting in that one market at one time?
No, great question. In regards to that Houston activity specifically, I would anticipate that we do start something a little earlier than we had originally underwritten when we started off the year. Part of it was the Houston team needed to take a breath for at least a week or so to keep, because they've been extremely busy. It is pretty typical, especially where we sit right now, where we want to have all of our projects when we have multiple phases to have the best we can permit in hand. The team has a good idea if a deal is going to make, and so they'll start teeing things up in advance, getting pricing, getting the GCs ready to go, getting the approvals internally ready to go. We always want to keep product coming as demand pulls it out.
Yeah, that is the case pretty much across all of our projects. We want to be able to start, if not the same month, as quickly as we can after that lease that was needed to fill the current vacancy or give us the confidence to break ground on that next phase is there. At times, we'll get approval, internal approval, which is contingent on a lease being signed. That gives the team the flexibility to go even quicker if needed.
Your next question comes from Vikram Malhotra with Mizuho. Your line is now open.
Morning. Thanks for taking the question. I guess just, I wanted to clarify two things based on all your comments. One, I understand the conservatism/the occupancy guide, but do you mind just giving us maybe some of the components, like what have you actually baked in for new leasing and maybe additional in-service development leads up to kind of hit that occupancy? It just seems fairly conservative. I would've expected that number to be higher. Second, just if you can clarify based on all the comments, whether it's the data centers side, you're feeling better about the economy, environment, et cetera. Where can EastGroup be more opportunistic? Is it time to buy in SoCal? Perhaps do more spec to take advantage of the data center side? Where can you be most opportunistic? Thanks.
In terms of the occupancy guide, Vikram, I hope you're right. I hope this does prove to be conservative. Again, we're looking at every lease that's maturing this year and making an assumption on whether that tenant will renew. Our teams typically underpromise and overdeliver, so we hope that that's what they're going to do this year. When we look at tenant retention, first quarter was higher in the 83% range. If that were to continue in the rest of the year, then I think we would outperform our occupancy guide. We did not assume that level of renewal when we were rolling up this revision to the budget. I hope that you're right. We do have new and renewal leasing assumptions built in. We don't have a headwind from significant move-outs that we're aware of.
This is really just the natural role of our portfolio as the year progresses and every quarter that goes by, every month that goes by, we should be signing leases and hopefully the occupancy guide is a floor. Again, thus far in April, we're outperforming what our projections were. Hopefully that continues.
Just one comment that I would add to that is that we do have one lease, a tenant in Tampa, 222,000 sq ft, that's right around the end of the term from second quarter into third quarter that we know is going to vacate, so that's a little bit of it. I would also say, as Reid alluded to earlier, the 775,000 sq ft of first gen space [on] previously developed property that's converted into the portfolio. That's a little trickier for the field to budget from a leasing perspective, because where you have existing tenants, as Staci's saying, you can say, "Hey, I've got a 75%-80% renewal probability." You've got a good chance to keep the tenant. It takes a little bit of the risk out of your leasing assumption.
In that 775,000 sq ft, you go from not having a prospect to having a prospect and leasing the space, and that can be more inconsistent and choppy in terms of the pace at which that goes. When we look at some internal occupancy numbers, excluding the impact of those figures, then the number is probably, Vikram, more along the lines of what you would anticipate. I think that adds some volatility to it.
I agree with that. I think in terms of opportunity, I think as we lean in and things pick up, certainly the 770,000 sq ft that's been delivered. The good news is we've maintained our development yields, even though it may have taken us a few extra months to get there. Certainly, to me, where we have upside is maybe a little bit, which I like, maybe it's two or three buckets. It's maybe our occupancy is a little bit better than we forecast. We averaged 98% for a couple of years, which were company records. We knew it would drift down ultimately, but I'd love to think we're on more of an upswing there, filling up some of the development leasing. Then as that happens, we'll certainly ramp developments back up. We've been as high as $400 million.
I'm optimistic that we're better positioned than a number of our private peers, as I mentioned, to maybe be moving on a lot of developments before they can catch up and we all overbuild again in the next cycle. Then kind of the third leg, I think you'll see us, we're starting to think about a little bit. When the market was good early on, we were able to build our own buildings, but a lot of times there was a project around the corner that had some vacancy. We felt like because of the development demand, new leasing, we were seeking to buy vacant buildings. Again, not changing the quality of what we built. It was higher yields than in a core acquisition because we were taking the leasing on, but not the construction risk.
You'll probably see us, if things continue, maybe kick at least starting to think about those in certain markets where we haven't done a value add project in a few years. If development demand picks up, I think that window will be open for a moment in time, and then everybody will outbid us again on value adds, and we stop using that. It's a cycle, and so we're going to end up with well-located Shallow-bay last mile buildings, and sometimes we buy them leased, we'll build them most of the time, and sometimes buying them vacant. I think we're turning the cycle, we're buying them vacant. That opportunity set may reopen a little better. I hope so. That's kind of a shadow development pipeline. It's a way for us to increase our development pipeline or really the value creation in an upmarket.
where we've had that a longer period of time leasing our own development, we haven't wanted to buy someone else's vacancy either. It feels like that may be hopefully starting to shift.
Your next question comes from Ronald Kamdem with Morgan Stanley. Your line is now open.
Hey, just quick ones. I saw just on the development side, again, the under construction so forth. I see the cap rate expectations are up, call it 10, 20 basis points. I don't know if that's mix or anything like that. Maybe can you just talk about just how cap rates are trending on the development side? If you can just compare that to sort of acquisition and what you're seeing in the market, that'd be helpful.
Yeah. On the development yields, Ron, thank you for pointing that out. We have seen a steady uptick in the development yields within our pipeline. Just as a reminder, Dominguez, that's a redevelopment, and that accounts for about 50 basis points of the development yields that we're seeing. We have seen a steady increase really starting from Q1 of 2025, where we sit here today. That is a positive. Then on cap rates, it is still a very varied market from market to market to sub-market and type of product. In some markets we're seeing sub-5 cap rates for good quality, well-located assets. Other markets are kind of that low-5 to maybe mid-5 in cap rates. We have been surprised with the downward pressure in cap rates. The deals that we've chased here year to date have been more competitive.
Unfortunately, we've been bridesmaids on a couple of them. There is a lot more competition it feels like this year than what we saw last year, and that potentially pushes cap rates down maybe even a nudge further as the year goes on.
Helpful. I just wanted to follow up on the data center leasing comments. I think you talked about half of the development leasing was, I guess, data center related. I was just curious in terms of, from your perspective, can you talk about sort of rate of change, right? Is this something that your view is that this is going to continue to accelerate? Is this incidental? Is this stable? Just any sort of commentary on that would be helpful.
Hey, Ron. Good morning. I think at least what we read and hear, the amount of capital going into data center development is, assuming they can get their permits, is amazingly, incredibly high dollar volume and doesn't seem to be slowing down any time at all. I think it's here to stay. Will it be 50% of our new leasing? Probably not, and I guess I hope not. I hope we stay really diversified on that front, but it sure doesn't seem like the data center capital spend from, name it, Meta or whatever companies are out there, data centers, is slowing down. I think it's a new source of demand, much like e-commerce was several years ago, and we'll end up. Again, we won't be a data center developer, but it'll be somebody delivering something to a data center or somehow that's their customer, like we're seeing.
I'm excited to see that new source of demand, and it can pick up our portfolio, pick up our development, leasing pace, all the things like that, and it's probably come on faster than we would've, and maybe I won't speak for the team, than I anticipated.
I would add to that, Ron, of the users that we saw sign leases this year to date, it was a mix between users that are probably more focused on the data center construction piece, but then also a mix of users that are data center servicing piece. I would imagine some of it may be determined on how quickly or how much more construction continues, but definitely some of it feels like it's sustained in the fact that you are going to continue to have to service these data centers, and we are seeing users that take our space that need to do that.
Helpful. Thanks so much.
You're welcome.
Your next question comes from Jessica Zheng with Green Street. Your line is now open.
Hi. Good morning. Could you help clarify what drove the higher same-store NOI growth in the first quarter relative to what's projected for the rest of the year? Is it mostly occupancy driven, like you talked about?
Yes. It's mostly occupancy driven. First quarter same-store occupancy this year was 97.3% in first quarter, and that compares to a same-store quarter of 96%. We had a 130 basis point increase in occupancy, which really helped drive that 9.2% same-property growth. Again, as I mentioned earlier, the comps every quarter that progresses this year become harder because in 2025, our occupancy was increasing steadily throughout the year. That's why we're not projecting 9% same-store growth for the year. Yes, occupancy definitely drove the majority of the first quarter, 9.2% same-store growth.
Okay, great. Just a quick follow-up on the 770,000 sq ft first gen development leasing opportunity. That's still available. Just wondering, will all of that be in the 2027 same-store pool, or are some of it in this year's same-store pool as well?
Yes. The 775,000 of first generation development leasing opportunity. All of those projects transferred in 2025, so those will be in the 2027 same-store pool because they will have been in the portfolio for all of 2026 and all of 2027.
Okay, great. That's very helpful. Thank you.
Sure. Thank you.
Your next question comes from Alexander Goldfarb with Piper Sandler. Your line is now open.
Thank you for taking the follow-up. Staci, just a quick question on the guidance. Looking at second quarter, your range is a bit below where The Street is, but you raised the overall full year range. Sounds like there's more of an acceleration in the back half than maybe we in The Street are modeling. Is that from this speculative lease-up? Is that what's driving it? Or what's driving the sort of implied acceleration ramp in the back half? Just trying to understand how much is sort of locked in versus how much is dependent on Brent and Reid and everyone performing.
Yes. There's several building blocks really. It's not just one answer. Definitely the impact of speculative development leasing. Again, we have no impact in second quarter projected, so all of that would be coming in in third quarter and then at a higher rate in fourth quarter. Same with some of our leasing projections. If we do have spaces rolling second, third quarter, those are projected to be leasing up by the end of the year. I would think about it as truly stairsteps. From first quarter to second, third and fourth, continuing to ramp as the year progresses. I will note that our G&A expenses are projected to be higher in second quarter than in third and fourth quarter, and some of that is due to the timing and some items related to our management transitions this year.
There are still some moving pieces with relocations and new hires starting. Second quarter is going to be about $0.01 more in G&A expense than in third and fourth quarters. That tempers the growth a little bit in second quarter. We're still projecting 6% FFO growth in second quarter over second quarter of 2025. Still a very strong projection for second quarter, but that does ramp up a bit more as third and fourth quarter progress.
Okay. I know you're not giving 2027 guidance, but still, given the pace of this ramp that you're talking about, and assuming the world doesn't come to an end, it would seem like 2027 is a better number than where we are now, or there are things that we should think about that would offset that?
We hope that earnings for 2027 is better than 2026. Yes.
No, better than where we on the Street are thinking based on what you're talking about here, and if it comes through on your speculative leasing that you're talking about.
Yeah. I think it's too early for us to comment on 2027. We do have a lot of opportunity when we think about the 2025 development projects that transferred into the portfolio. That's 775,000 of opportunity leasing, we'll call it, that we can do. And then the current development pipeline with starts. I mean, 2027 could certainly be a very strong year, but I feel like there's too much time between now and there to comment on it at this point.
Okay. Thank you.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from AJ Peak with KeyBanc. Your line is now open. AJ Peak?
Operator, thank you. We may have lost AJ. I certainly appreciate everybody's time and interest in EastGroup. We're available post-call if we didn't get to your question, and we'll hopefully see you at a couple upcoming conferences. Again, appreciate your time this morning. Take care.
Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.