Andrew Berger

Andrew Berger of Robert W. Baird & Co. inquired about the impact of macroeconomic uncertainty on leasing, the company's long-term portfolio strategy regarding mixed-use and office assets, and the sustainability of recent strong office leasing spreads.

Answer

CEO Shawn Tibbetts responded that macroeconomic pressures have primarily softened the new construction pipeline, not the core leasing portfolio, which remains strong. He affirmed the company's competency in mixed-use developments for long-term growth but sees no immediate acquisition plans. For the office portfolio, which is 97.5% occupied, Tibbetts explained that the strong leasing spreads are supported by long-term leases of around 10 years with 2-3% annual escalators, providing stability and locking in credit tenants.

Andrew Berger asked for clarity on the earnings trajectory, questioning if 2025 will be a trough year, and sought more detail on the 15% rent premium in mixed-use office assets versus their respective central business districts (CBDs).

Answer

CEO Shawn Tibbetts confirmed the expectation that 2025 will be an earnings trough, with growth resuming in 2026 driven by the stabilization of development projects and organic portfolio growth. He explained the office rent premium is a result of the 'ecosystem' of mixed-use environments, where retail and other amenities attract high-quality tenants willing to pay more. CFO Matthew Barnes-Smith provided specifics for the Baltimore market, noting a 22% vacancy rate in the CBD versus just 2.25% in Armada Hoffler's Harbor Point community, with their rents commanding a significant premium over the CBD average.

Andrew Berger of Bank of America asked why Armada Hoffler is hesitant to build new office space despite its portfolio's strong performance, requested quantification of target development spreads, and inquired about the strategy for upcoming debt maturities.

Answer

President and COO Shawn Tibbetts stated that while their existing office portfolio is strong at 95% occupancy, new development is unappealing because risk-adjusted return spreads are not achievable, noting a historical 20% target is out of reach. CFO Matthew Barnes added that the May term loan has a one-year extension, pushing refinancing needs to mid-2026, and they plan to use the debt private placement market when conditions improve.

Andrew Berger of Bank of America Merrill Lynch inquired about the 'green shoots' mentioned in the prepared remarks, asking if this positive activity was concentrated in specific markets. He also asked if tariff discussions have impacted tenant conversations.

Answer

Marshall Loeb, an executive, responded that the pickup in prospect activity is broad-based across the portfolio and not limited to any single market. He noted that while tariffs haven't been a topic in tenant conversations, the potential for trade volatility affirms EastGroup's strategy of focusing on last-mile properties close to the end consumer, which provides stability regardless of where goods originate.

Andrew Berger asked whether brokers are reporting excess capacity or slack in the system, particularly for smaller spaces, and if this is contributing to slower tenant decision-making.

Answer

President and CEO Marshall Loeb stated that excess capacity is not an issue for their portfolio's smaller spaces (averaging 35,000 sq. ft.), suggesting the issue is more prevalent in the big-box sector. He emphasized that the primary need is for increased tenant confidence to drive expansion demand, which in turn would accelerate their development pipeline.

Andrew Berger of Bank of America asked for management's perspective on whether market rents are approaching a bottom, given the reported 1.5% sequential decline for comparable properties.

Answer

Co-CEO Michael Frankel stated that it is difficult to call a bottom for market rents but emphasized the underlying resilience of Rexford's portfolio. He contrasted the modest 8% year-over-year rent decline for their smaller, infill-focused properties with the much steeper 25% decline seen in the larger-box industrial market, highlighting the stability of their tenant base.

Andrew Berger of Bank of America inquired why leasing concessions remain flat in strong markets like Back Bay Boston and Midtown Manhattan, despite high activity, and what it would take to drive them down.

Answer

President Douglas Linde cited significant inflation in tenant build-out costs, which makes BXP's contribution a smaller part of the total expense. Executive Hilary Spann added that availability outside the core Park Avenue corridor keeps concessions sticky in New York. Executive Bryan Koop noted that while concessions are firming in the Back Bay, the weaker downtown Boston market influences negotiations.