Overall goal, which we're proud of our track record over time, we got to keep that going. We would like to get you the as good or better returns in the industrial space at lower risk. We try to think of, okay, how can we protect ourselves risk-wise? What we like about the when you think of supply and demand, fast-growing markets, just with another 100,000-150,000 people a year moving to Austin, Texas, to Orlando, to Phoenix, to Dallas, that pushes that demand. We want to be where people are moving, Nashville, Raleigh, those markets. By building last mile, there's usually when you think there's land on the edge of town, and by being last mile, everybody wants the good or service, especially since COVID, but no one wants the trucks tearing up their streets, starting in their neighborhood.
When you look at the GDP of the markets we're in, because of that growth, it's rounded about 40% greater GDP growth, and our tenants are usually servicing the metro area, or maybe even they're part of the metro area. Our demand is 40% greater than the U.S. average historically. By what we build, we could go to fast-growing markets, but if we're building big box on the edge of town, that's more susceptible. We want that demand with a little bit of supply hedge to it, because it takes us a couple of years to put production in. With last mile, we do that. Staci. Other ways as we think about the risk, our debt to EBITDA is right at the lowest in the sector.
It's 3 x and falling, and within our debt, it's fixed rate and it's laddered maturity. We want to have a safe balance sheet. We're geographically diversified, so we value that. Our top 10 tenants are 6.5% of our revenues, and that's probably half or a little below half our sector average. We want the balance sheet safe, we want the geographic, the tenant diversity. When we build, we'll build a business park, we'll build a campus as a developer, but we won't build the campus all at once. Again, what we'll do is kind of manage that risk. We'll build two buildings in maybe an eight-building park.
As those lease up, I'll compare it to our peers, where we could go build an 800,000 ft building on the edge of Charlotte, but you're hoping three or four people aren't doing that at the same time. Where we'll build two buildings, and as those lease up, we may give you a call and say, "Hey, I'm 50% leased. I've got prospects for the balance of the space. I want to get on the schedule for our own internal investment committee and build phase II, III, IV of the park." We use the analogy, it's like a retail store, where as inventory runs low, we restock the shelves. By the same token, if inventory is not running low and we're not getting those calls from the field, then the calls are going the other way of, "Hey, what's going on with phase III?
What can we do to get some leasing activity?" The market is pulling new supply, whereas most of our peers, public and private, are pushing supply into the market of, "Hey, the last building worked. Let's go build one interchange away," or where there's land readily available, and you're just hoping four people aren't doing the same thing at about the same time. There's cheaper space than what we would have available. But the other thing of being in fast-growing cities, when you think about it, the traffic, some of it's good or bad, traffic's terrible in all of our cities. It really makes that last mile more and more valuable because everybody wants the good or service delivered quickly.
You may have less expensive rents, but your delivery people or your customer service, you can't afford to be stuck in traffic in Nashville and in Orlando and in Arizona at the wrong time of day if your air's out or whatever that good or service is. There's a value where we can push rents and kind of work from that. We like the way as we kind of think, whether it's what we own or how we build it or how we're financing it, what we're leaning into or the geographic, the tenant diversity. I'll layer on kind of the last, and I'll let Samir and others have a word. Our G&A is the lowest in our sector as a percentage of revenues. We've purposely would rather put more of that, how do we get the returns out and at the lowest?
Again, we want to spend money in G&A where it's worthwhile, but we think we can do it with a We probably have the simplest balance sheet in our sector as well and things like that. How do we get you the return without adding complexity, without adding risk? That's our goal. We constantly are tweaking the model without changing it over our Someone kidded me at a conference recently. It's like, "I sat through your presentation and it could have been eight years ago and you were saying the same thing." Which is probably true. It's like, look, it's kind of worked. We've had a good return, our good FFO growth.
Yeah, we change and we tweak what we build, but there's no need for us to get into medical office or whatever the next new thing or jump around and do what we do. Usually in our markets, inherently, people get pushed to big box, whether it's the fees or the capital you're placing. I like where we fit on the playground. It's less competitive.
Maybe on the operational side, where do you stand today as it relates to the leasing pipeline?
Talk about demand that you are seeing out there in the market. Let's compare that to 2Q, for example.
Okay. So, maybe starting with Q2. That was a record quarter for us on leasing overall. We leased 3.9 million square feet. That's about 1.5 million of development leasing through the Q2 period, which, to put in perspective, that was more than what we leased in development all of last year. If you heard us talk about the business in 2025, we talked a lot about inconsistencies, where we would see a really good quarter followed by a weaker quarter. What we have now seen, really starting in Q4 of last year, is some consistent demand. That consistent demand has really been a big driver for us, both on the development side, where through Q3, in our update we provided the other day, we have leased 280,000 sq ft of additional development leasing. That has allowed us to increase our development starts throughout the year.
We are now at $325 million. It feels like there is probably more upward pressure on that number as we sit today. Our occupancy numbers have also outpaced in July and August. We are sitting right at 96.1%, which is ahead of our plan that we had in Q1. The demand trends seem to be there. We are seeing that in a lot of different areas. We have talked a lot today about data center related uses. If you have not heard about it, but data centers are hot. The nice thing is that we are a benefit of that because a lot of the users that need to service data centers, be it HVAC, electrical or whatnot, have to have warehouse space to provide those services. So we are enjoying the increased demand in data center related uses.
All the other trends that we've been seeing over the years, be it advanced manufacturing, be it the e-commerce, all those tailwinds are still feeding us beyond just the general GDP growth in the metropolitan areas that we service. I feel like we're in a really good position in all the markets that we serve to continue to provide big growth in our assets, good same store growth, as well as what feels like an improving and more sustainable development business going into the rest of the year and into next year.
How sustainable is that data center demand, you think? Then maybe a second part to that would be, how big can that become within your portfolio?
That's a great question, and we've been studying it a lot and trying to understand it, but it does definitely feel very durable. As I mentioned, the users that we're seeing are supporting the data center. It feels like as long as the data centers are there, they're going to have a need for our space. Then how big can it get?
It's not just initial set up and then they've been shipped in, but is it maintenance?
Maintenance, HVAC equipment, the power generators, they need backup and support and maintenance. The racking systems. We have one group that takes a space from us in Houston that supports the racks. If you have an issue with a particular rack, they may send it to this facility, have it serviced or spot checked and sent back. Electrical components. There are all different elements of the data center that I did not initially appreciate even a year ago that we are now seeing that is fueling the need for all this space.
That is on site.
Not in the data center, no. What we are seeing is, HVAC is kind of the easiest example. We have HVAC companies that have a commercial business. With the data centers that are now growing, that has become a bigger part of their business. They have a core business they have always had, and it is just now expanding more because of the data center. We are a benefit of that because we are their existing landlord, and then they come to us say, "Hey, we need some additional space. What can you do?" That is where our development pipeline and platform helps provide that growth for them.
I think the other thing, I will agree with Reid. I will add, just as we have studied it, and it is not throughout our portfolio, we are not seeing this demand in Florida or California, but when we look from, say, the Carolinas, Atlanta, Dallas, Phoenix, it feels like that is where the data centers have been delivered, and we have those suppliers. When we looked at what has been delivered versus projected, what is coming in the next five years, it was a multiple, which surprised me. Given as much as we have spent on data centers, it is, call it four or five times more capacity coming that Dallas is projected to be the same or greater than Northern Virginia.
As Phoenix, Atlanta, Charlotte, all these get built out, that's maybe, Samir, where you touched on of like, look, there's a lot of runway left on this because maybe the supply chain's been built out in Northern Virginia, but it really hasn't. I know a recent lease we signed in Arizona in the last two or three weeks, part of their thinking was we have adjacent land, we're developing, that they wanted to be in our projects and that we've got other buildings and land in the area. Their goal is to outgrow their space as soon as they can. I hope they're right to all that.
We've been looking at a lot of different studies from different groups, but one of the most recent ones I read was from Green Street, and they quoted that for every gigawatt they anticipate there's a need for 2 million square feet- 3 million square feet of supporting warehouse space. So if you feel like we're in the early innings of all this, which it feels that way, there should be a long growth rate and trend for the need for this type of warehouse space and the type of users we've been supporting here this last few quarters.
It didn't seem like there's any changes as it relates to the requirements or the lease terms that this category sort of passed, right?
Yeah. That's a great point. So we've been attracting all this data center related demand, but we haven't changed anything about our strategy. We haven't changed the location of our buildings, our investments, or the building configurations. Even when these users come in, the requirements are pretty much the exact same from what our general users are using. So if I gave you the term sheets of a deal between a data center related use and maybe one of our standard tenants, you wouldn't be able to tell the difference between term or our TI amounts or any other special requirements. So what we like about that too is long-term investor, long-term developer, owner. Over the years, we never know what trends in the economy are going to be happening in another five or 10 years.
We have generic and optionality on our buildings that we will still be able to attract these future uses if the data center users decide to move on or whatnot.
What about given all this positivity and momentum and demand, what are you seeing in market rents? Talk about nationally and some of your best markets, what you are seeing and maybe some of your relatively weaker markets.
Yeah. So, for our product type, I think it is important to understand the small bay multi-tenant.
Yeah.
That overall has been a tighter market over the years. I think we have probably sounded more bullish on rent growth and be able to hold rents in the weaker markets than some of our peers. So throughout this year, it feels like we have been, from a rent growth perspective on just market standpoint, probably a couple dips above inflation. I think as you look forward, I think the trend is going to be positive on that. One of the things that we are anticipating is higher construction costs as we go into 2027 and beyond, and that is being driven by several factors. Obviously, you have higher fuel costs, be it diesel or gasoline.
We're also hearing from our GCs that steel is increasing, both the lead time and the cost of steel, and some of these large manufacturing facilities are gobbling up a lot of the steel capacity in the country. Also, I think there's going to be a higher amount of supply, mostly on the big box side. All that equates to higher construction costs, and then you layer on that there's going to be higher interest rate carry. That's going to make the cost of projects go up, which then should have the effects of having to push rental rates to justify new development. I think the trends for rent growth are positive for our sector as we finish out 2026 and really looking into the future.
Open it up to the audience for questions.
Maybe, Marshall, going back to some of your opening comments about having parks where you build one building and then the next. Do you have a sense of across the EGP portfolio, how much runway there is for development based on existing parks where you still have capacity for more buildings on those parks?
Yeah. I'm trying to get to It's in our supplement right behind. I won't grab it, but I want to say, and I'm getting away from parks, but we have capacity at the end of the 2Q for about 1 million square feet more to build. That wouldn't all be parks, but a majority of that is. In our update would be a new park, but we bought, really something Reid worked on for a long time. I think people underestimate how long it takes to get these land sites ready and approved, but 100 acres in Dallas and then, what was it? In Florida, we bought 30 acres, and it was maybe 12 parcels and 10 family members where the guy that bought it said, and they didn't all speak to each other or get along.
Sometimes I regret making that first call to a family member, but that will allow us to grow that from a three-building park to a five building, and it is right where you know Tampa very well. It is East Tampa, where I-4 and I-75 connect. We are on both sides of that. Great visibility access, but it is all difficult. We have got a lot of runway, and that is what we have got on the balance sheet, and then we are also working, especially where we are seeing this demand, other land, and we are in due diligence in Atlanta and Phoenix and a number of markets. Always think of what you see in our supplements. Mentally, I mean, it is almost like the iceberg.
What you are seeing is what we already own, and then there is a bunch of other sites that pending how zoning and permitting and demand, whether we close that or not.
We try to look at that on really a market by market or sub-market by sub-market, so that you have got that capacity. Because I always go back, I can think of one case in Jacksonville where we had a tenant, we did not have the land, and they needed more space. If we cannot, I would rather cannibalize our own rents than have someone else, and that is one where we lost a good tenant. They had just outgrown our space. We did not have the building or the land, but we would rather May have mentioned about a third of our development leasing is existing tenants moving around from within our park or around the corner. That is why we like to cluster our assets.
Again, if somebody is shrinking, you can try to move them around and just keep moving the Rubik's Cube to find a home for them.
Everybody thinks they are going to expand on the way in. Not everybody does, but it is nice to say, "Hey, we have got room for you," and they will-
We have been fortunate in industrial that by the time you have outgrown your space in building three and we build building eight for you, we are coming in mid-lease term, so you are kind of captive. It is hard for you to go to another landowner or another landlord, and the rents you signed up for two or three years ago, so we can backfill you at a higher rate. We see, we know when that new building is going to be delivered, and hopefully the team can get the new tenant at a higher rate in place to backfill and keep turning that way.
How should we think about cash leasing spreads? It feels like that continues to normalize, and we're kind of in this 19%-20% level. Where does that sort of settle in, or you think in a normalized sort of environment?
Yeah. It's been somewhat of a slow deflating balloon on the cash spreads. It does feel, like I mentioned earlier, that rent growth should start re-accelerating. As we kind of look into the future, that balloon may deflate a little bit slower than it has been. This year, it feels fairly sustainable at that 20% level. If you look at the Q3 update we provided, we were a little north of that on a cash basis and almost 40% on a straight line basis on the re-leasing spreads. The geographic diversity that we have, that we talked about a little bit, it's been interesting because some of the markets, like in California, those re-leasing spreads have been slower to date, where historically that's really fueled the growth. Whereas a market like Houston kind of reversed and flipped.
Houston now is really above the company average on re-leasing spreads. We like the diversity geographically because we're never going to guess, or one market's never going to be the hottest forever. If we're in enough of the fast-growing markets, we're going to pick right more times than we'll pick wrong.
[inaudible], you stick to it.
I was going to find those.
Yeah.
Just correct myself. Andrew, when you asked me, this is why I don't rely on my memory. It's 1,000 acres. I said to him, "Hey, 1,000 acres and 11 million square feet." You think we're about 66 million square feet all in. I promise we won't build all that at once, but we'll build it as fast as the market can absorb it. That was wildly off.
I know you don't have a lot of exposure to SoCal. Maybe it's 10%-12%, something like that. What are you seeing there? Are you seeing the market improve at this point? I'm just curious.
Yeah. It definitely feels like there are some green shoots in California. There's some sub-markets that are feeling it sooner than others. It's been a market where in the L.A. area, there was 12 quarters of negative absorption, and that now has turned positive the last couple of quarters. Is that a new trend? It kind of feels like it. The aerospace advanced manufacturing users feel like that's powering some of that market, as well as the big box space, and then kind of everything in between seems like it's going to start filling in. I think the supply picture is going to be even more constrained in California because some of the regulations that they've imparted. As long as the growth can pick back up and be positive, I think California could look better in the next couple of years than it has the last several.
Can you guys talk to us a bit about where you are seeing the data center demand in your portfolio? Can you quantify how much leasing is coming from that? Just any sort of color you can give us on what you are seeing.
Yeah. It is probably the main markets for today have been Atlanta, Texas, and that is really Houston, Austin, Dallas, San Antonio even some.
Yeah.
Phoenix. Charlotte is what we hear is coming. I think it is about to happen there. We are close to a, knock on wood, a pre-lease opportunity in the Carolinas where an existing customer would take another building. Again, that is kind of what has helped push pressure from [Stard]. It has been kind of that ongoing service of data centers. It feels like it is-
A lot of that development leasing is also data center-
Yeah.
Right?
It's about a quarter. Through the first half of the year, it's about a quarter of our development leasing was somebody cabling, racking, cooling equipment, something with a data center.
What about the transaction market? What are you seeing out there? Obviously, rates have moved up here. Give us an idea of what you're seeing.
Yeah.
Yeah. From an acquisition standpoint, if you heard us speak earlier in the year, that was a piece that we were thinking maybe we would not make our budget because it felt a lot more competitive than we anticipated. But it really feels like the last 45 days, maybe we've seen a bump up in cap rates. We've been chasing a lot of deals. There's been some good opportunities in the market that we've been pursuing, and it seems like we're winning more now than we're losing. We're not pursuing them more aggressively, but our offers are starting to stick, and that gives us the bullishness that we may have the opportunity to outperform our budget now. Don't call us manic, but sometimes we got to play what the market provides us.
Right now it seems like there's some good opportunities where we have an attractive cost of capital to continue to grow from the acquisition standpoint. It's somewhat unique for us to have both the acquisition window open and the development window open. The acquisition window will close at some point, but we'll continue to funnel and grow through development. If we can't buy it, we'll build it. But right now it feels pretty good for where we stand.
Where are cap rates today? I know you said it ticked up a little bit, but just give us a general idea.
On the cap side, for stabilized kind of half market, it feels like you are kind of in that 5.25%-5.5% range. That may have jumped up kind of 10 basis points-20 basis points in the last 45 days as stated. It really kind of depends on. There are some markets that are tighter than that. There are some markets, depending on the WALT. Some of these deals that have longer WALT are more interest rate sensitive. I think that is the feel of the last bit, is that the rise in the 10 years kind of pushed cap rates up some.
How are you thinking about the trade-off between acquisition and development opportunities? Can you just talk about maybe the risk-adjusted incremental return you need on developments versus acquisitions?
We actually lean into the development more. That is where we feel like we create the highest risk-adjusted returns for our shareholders. To date, we have been achieving right around a 7.5% yield on cost on a straight line basis for our developments. That is what we have rolled into the portfolio as well as kind of what is under lease up. That feels fairly sticky, if not maybe a little bit of upward pressure on some recent deals that we have been pursuing and looking at. On the acquisition side, that is going to always be for us, more opportunistic. Sometimes it will be a strategic buy where it is close to some existing product or portfolio that we have, and at the right pricing.
I think what makes us really good acquirers and investors on the acquisition side is that we are a seasoned developer. We can go and tell you, "Hey, this building, if it was to be rebuilt today, should cost what per square foot." When the brokers come out and say, "Hey, this is the guidance, this is the pricing," we can quickly say, "Hey, that feels like a good price, or it doesn't on a per square foot basis." Then knowing as a developer what some markets are good also, what attributes of a building are important to re-lease. We can quickly say, "This is something we should pursue or not pursue." When we're buying something, we're buying it with conviction that we know it's a good building, it's going to perform in the long term at a good price.
How should we think about leverage? Because you're kind of I think it's 3x , right? It's up 3x . How are you thinking about your optimal leverage?
Yes. We certainly appreciate where our balance sheet stands today with the gunpowder that we have, so to speak, to be able to take advantage of the opportunities that we see from development and acquisitions. We're glad. This is a purpose-built balance sheet. We have intentionally lowered our leverage so that we would be able to take advantage of investment opportunities as they arise, and fit with our strategy. We didn't necessarily have the goal of reaching 3x debt to EBITDA, but we're comfortable there. We would be comfortable increasing leverage. Ideally in the, say, 4.5x range, and below 5x would be our long term range where we would be comfortable keeping leverage. We certainly have a lot of capacity to issue debt when interest rates and those investment opportunities are to align.
For now, we're continuing to issue equity via our ATM program. As we recently announced, we have about $320 million available in equity forward agreements that we have from about 12 - 18 months to draw those down. So that provides us the flexibility based on the timing of when the acquisition and development opportunities arise. We feel good about our leverage where we are. Don't necessarily need to be as lowly levered as we are, but comfortable there and certainly comfortable increasing leverage to that 4.5x debt to EBITDA but longer term.
You mentioned your strategy is not changing with the data center demand, but do you see that shifting as you have more of those data center tenants come into play?
Yeah. I'm trying to make sure I'm answering correctly. I wouldn't say it's not changing what we're building or kind of where we're building, but where it probably does make us a little more bullish on land opportunities and in that handful of markets where we look. We've always liked Dallas. We've been in Phoenix since the mid-1990s. We like Atlanta. Charlotte, we've been at a long time. But in Houston, it probably makes us lean in to kind of go, all right, we've got our traditional users, and now we've got these data center suppliers coming on the heels of that. So it makes you feel like, okay, this demand is going to just be greater in these. You've got population growth, you've got e-commerce, kind of that steady penetration every year. You've got those same markets are the ones that also have the advanced manufacturing.
In fact, we're near the Intel plant in southeast Phoenix, so we've got actually Intel and some suppliers to Phoenix. We're near the Texas Instruments plant, and we've got Tesla suppliers in Dallas. It just seems like as many tailwinds as we can grab, we're happy to have them. And when you see those dots, you want to connect them and just try to get out ahead of it with a catcher's net between population, e-commerce, data center demand. We've got the LG Energy Solution battery plant we're near in Mesa too, and some other things like that, our Phoenix area.
Any other questions? I know I've got a couple of rapid fire. I think you probably know these.
Short answers.
If long term rates stay higher for longer, which has the biggest impact on your sector? Higher refinancing costs, lower transaction activity, or less new supply?
Less new supply.
Second one. Over the next three years, will third party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no?
Yes.
Finally, will the sector 2027 same store NOI growth, higher, same, or lower than 2026?
Higher.
Perfect. Thanks everybody.