EastGroup Properties - Q1 2024
April 24, 2024
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to the EastGroup Properties first quarter 2024 earnings conference call and webcast. At this time, all lines are in a 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 Wednesday, April fourteenth, 2024. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.
Marshall Loeb (President and CEO)
Good morning, and thanks for calling in for our first quarter 2024 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call, and since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
Keena Frazier (SVP and Director of Leasing and Operations)
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 included on our most recent annual report on Form 10-K for more detail about these risks.
Marshall Loeb (President and CEO)
Thanks, Keena. Good morning. I'll start by thanking our team for another strong quarter. The team continues performing at a high level and finding opportunities in an evolving market. Our first quarter results demonstrate the quality of the portfolio we've built and the resiliency of the industrial market. Some of the results produced include funds from operation rising 8.8%, excluding a 2023 involuntary conversion. 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 trend. Quarter end leasing was 98%, with occupancy at 97.7%. Average quarterly occupancy was 97.5%, which, although historically strong, is down from first quarter 2023.
Releasing spreads for the quarter were solid at 58% GAAP and 40% cash, with cash same-store NOI rising 7.7% for the quarter. Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 7.8% of rents, down 70 basis points from first quarter 2023 and in more locations. We view our geographic and revenue diversity as strategic paths to stabilize future earnings, regardless of the economic environment. In summary, we're pleased with our performance out of the gate for 2024, while being mindful of the near-term economy. Today, we're focused on value creation via raising rents, acquisitions, and development. This allowed us to end the quarter 98% leased and continue pushing rents throughout the portfolio. On the acquisition front, we continue to patiently search for the right opportunities.
We're excited to acquire Spanish Ridge in Las Vegas, which we announced earlier in the year. This acquisition also allowed us to move to self-management in the market, further raising our returns. In keeping with our strategy of targeting high-growth markets, we're excited near term to enter the Raleigh market, a market we've looked at for years. Similar to a number of our other markets, we're attracted to its economic stability and growth due to the mix of a state capital, large educational presence, technology companies which follow the university presence, topography constraints for new development, and long-term population growth. Our acquisitions will continue to be guided by two criteria. One, to be accretive, and secondly, raising the long-term growth profile of the portfolio, thus creating NAV as well. As we've stated before, our development starts are propelled by market demand within our parks.
Based on our read-through, we're forecasting 2024 starts of $260 million, and though our developments continue leasing with solid prospect interest, we're seeing longer, deliberate decision making. As always, we ultimately follow demand on the ground to dictate pace. Based on the decision-making time frames we're seeing, I expect our starts to be more heavily weighted to the second half of 2024. Within this environment, we're seeing two promising trends. The first, seeing the decline in industrial starts. Starts have fallen 6 consecutive quarters, with first quarter 2024 being over 70% lower than third quarter 2022, when the decline began. Assuming reasonably steady demand, the markets will tighten later in 2024, allowing us to continue pushing rents and create development opportunities.
The second trend is the rise in investment opportunities with developers who've completed significant site prep work prior to closing and need capital to move forward. This allows us to take years off our traditional development timeline and materially reduce site development legal risk. Brent will now speak to several topics, including assumptions within our 2024 guidance. My belief is that when or if interest rates begin to fall and/or global turmoil settles, then confidence and stability within the business community will rise.
Brent Wood (CFO)
Good morning. Our first quarter results reflect the terrific execution of our team, the solid overall performance of our portfolio, and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance range at $1.98 per share, compared to $1.82 for the same quarter last year, an increase of 8.8%, excluding voluntary conversion gains. As a reminder, we typically incur about a third of our annual G&A expense in the first quarter, primarily due to the accelerated expense of newly granted equity-based compensation for retirement-eligible employees, which totaled approximately $1.7 million during the quarter. From a capital perspective, we continued to access the equity market.
During the quarter, we settled shares for gross proceeds of $50 million, and after quarter end, we settled an additional $25 million, all at an average price of $183 per share. We have an additional $52 million in commitments still outstanding at an average share price of $180. Debt maturities are minimal this year, with $50 million in August and $120 million in mid-December. Although capital markets are fluid, our balance sheet remains flexible and strong, with increasingly healthy financial metrics. Our debt to total market capitalization was 16.3%. Unadjusted debt to EBITDA ratio decreased to 4 times, and interest and fixed charge coverage increased to 10.4x.
Looking forward, we estimate FFO guidance for the second quarter to be in the range of $1.99-$2.07 per share, and $8.17-$8.37 for the year, which is unchanged from our prior guidance. Those midpoints represent increases of 7.4% compared to the prior periods, excluding insurance-related gains on involuntary conversion claims. The range midpoints for cash same-store growth and occupancy remain unchanged from prior guidance. We increased our reserves for uncollectible rent by $500,000 to $2.5 million, or 0.39% of revenue. This is the result of our uptick in bad debt in the first quarter that was driven primarily by three tenants in varying industries. Overall, our collections remain healthy. We also increased our G&A guidance by $900,000 to $20.8 million.
Much of the increase relates to less capitalized development costs as a result of lowering our projected development starts for the year. In closing, we were pleased with our first quarter results, especially considering the economic uncertainty and prolonged higher interest rate environment. As we have in both good and uncertain times in the past, we will rely on our financial strength, the experience of our team, and the quality and location of our shallow bay portfolio to lead us into the future. Now Marshall will make final comments.
Marshall Loeb (President and CEO)
Thanks, Brent. In closing, I'm proud of our first quarter results and the value our team is creating. Internally, we continue to grow earnings while strengthening the balance sheet. Externally, the capital markets and the overall environment remain clouded, which has led to continued decline in starts. In the meantime, we're working to maintain high occupancies while pushing rents. In spite of the uncertainty, I like our positioning as our portfolio is benefiting from several long-term positive secular trends, such as population migration, nearshoring and onshoring trends, evolving 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 is improving each quarter. Our balance sheet is stronger than ever, and we're expanding our diversity in both our tenant base as well as our geography.
We would now like to open up the call for questions.
Operator (participant)
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you ask a question, please press star followed by one on your touchtone 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 two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment for your first question. Your first question comes from the line of Jeff Spector from Bank of America. Please go ahead.
Jeffrey Spector (Managing Director)
Thank you. Marshall, in your opening remarks, you talked about the resiliency in the sector. Clearly, the market, there's some angst here, right, on that comment, or on the resiliency, I should say. So I guess I wanted to focus my question a bit more on that and the comments around, you know, leasing decisions taking a bit longer, economic uncertainty, because consumption remains strong, e-commerce has been rising. Like, is it simply because of the Fed and rates? Is it, you know, tenants took too much space? Like, could you just talk about this a little bit more?
Marshall Loeb (President and CEO)
Okay, sure. Hey, good morning, Jeff. Happy to add my color. And on the resiliency, yeah, yes, we, we see it and believe it's there, and maybe if I take a look back, a look at today and kind of a look ahead. So we've had this great run the last handful of years, all the us, as well as our industrial peers. And then I think it, it's we've had kind of this historic run right now. You touched on it. I view it as a combination of interest rates, and earlier in the year, everyone thought they were about to drop in March, and then it was June, and now it's maybe December. That keeps getting pushed out, along with just a lot of troubling global unrest.
And I think, my kind of analysis, I think short-term decisions, more like retail and things like that, the consumer is holding up well. And if you went through our portfolio, what's been interesting for a couple of quarters now, we have prospects and have conversations on our vacant spaces. I think people are really taking a wait and see. They're maybe waiting for a little more business confidence. So we've seen supply coming down, and there's just a lot of people on the sidelines. There's been. We put it in our slide deck. If people have a chance to go to our investor relations on our website, it's slide 14, where renewals have really picked up in our sector. So I think there's a lot of people taking a wait and see. So right now, we're. I'm glad we're still 98% leased.
We're pushing rents. Supplies dropped. What we need is that kind of third leg of the stool is a pickup in business confidence, and then I think you'll see a, we'll have a, probably a several year, if not several quarter, several year growth spurt. Again, where I see that resiliency, as you mentioned, e-commerce isn't slowing down, onshoring, nearshoring, people and companies moving to the Carolinas, Florida, Texas, Arizona, all of our markets. So long, it's been a great few years. Longer term, I'm still really excited about where we fit, kind of, our part of the playground, and I think right now people are pushing off.
If you can put off a 40- to 50,000-foot expansion, which is an awful lot of our development leasing, about a third of it is existing tenants, I think people are saying, "Let's wait a quarter or two and maybe get a little more settled environment.
Jeffrey Spector (Managing Director)
Okay, thank you. Then if I could ask a follow-up. You also commented that you think the markets will tighten later in 2024. Anything more to elaborate on that? Any specific timing? Fourth quarter, third quarter, more into 2025?
Marshall Loeb (President and CEO)
Yeah. I'm hopeful. Look, we've had 6 quarters and counting of a lack, you know, fits and starts. And our product type, thankfully, shallow bay, has had significantly less deliveries and, as a result, availabilities than kind of the bigger box. So I think as people gain this confidence, I'm kind of with our tenants and our prospects. I keep thinking in 90 days, we just need a little bit of economic good news. And so that's why I think when people do, if I use a retail analogy, come back to the store, there won't be much inventory on the shelves.
For our product type, it'll go away pretty quickly, and we'll. That'll pick up another leg of pushing rents and then really development, that I think so much of our development competition is local, regional developers, and they don't have the balance sheet and the teams. As we have the land and the permits, we'll be able to come out of the gate on development a lot earlier than, than our private peers.
Jeffrey Spector (Managing Director)
Thank you.
Marshall Loeb (President and CEO)
Sure. You're welcome.
Operator (participant)
Thank you. As a reminder, ladies and gentlemen, please limit yourself to one question. Your next question comes from the line of Eric Borden from BMO Capital Markets. Your line is now open.
Eric Borden (VP)
Hey, good morning, everyone. I just want to talk a little bit about the acquisition opportunities as they appear to be increasing. I mean, I was hoping you could speak to the cap rate expectations for the remainder of the year and how they compare to your development yields in the current pipeline. Thank you.
Marshall Loeb (President and CEO)
Okay, sure. Good, good question, and really noticing as far back a year ago, that our development leasing, although we're—we are signing development leases, so I don't want to discount that. We signed a good 6 more, you know, kind of, of our projects made movement during the quarter. It's just not moving as rapidly as it was at the peak. But then we noticed acquisitions. We've always been in the market for acquisitions. We were just getting more yeses. So to date, if I roll the Raleigh acquisition that we mentioned in, we'll have... What excites me is we'll have bought 7 projects for about $200 million, a little under $280 million, and those buildings are just over a year old on kind of a weighted average.
So everything we've been buying is new, and it's a, it raises the growth profile going forward of our company, and we've added $0.10, on a kind of matching the quarter, the equity raised versus the going in gap yield, it adds $0.10 to our earnings. So we've viewed this as a nice way. You kind of, to maybe be nimble when the development's slowing, but the acquisition window opens up, let's pivot that way. This year, so we were able to pick up a fair amount, kind of third and fourth quarter last year. This year has been a little more competitive out of the gate. We're still seeing cap rates.
If it's a portfolio, it's really low cap rates, like, you know, sub-5 and things like that, and it doesn't even have to be a large portfolio, but kind of four or five buildings where people can put some dollars out. That's still very competitive. What we've bought has been more one-off and someone needing to close quickly. That's our... Our pitch has been, we have, so especially when I'll with Brent and the team implementing a forward ATM, we have the funds raised, and we can close in roughly about a month, and that wasn't a differentiating factor in the past, but suddenly in the last year, having capital and being able to close quickly has allowed us to kind of move forward.
I think, you know, it's, it's disappointing on the development leasing front, that interest rates look like they're going to be higher for longer, but I do think it will keep the acquisition, especially second half of the year, we were able to be more competitive. I think people get their capital allocation at the beginning of the year. It's been a little more competitive first quarter, although I'm glad we got the Raleigh opportunity, and I'm optimistic on the acquisitions front, that we'll still be able to go find basically new development type properties and at cap yields that are maybe... I think our average has been in the 6.25-6.5. So in our development yields, they've come in above pro forma, have been at around 7.
So the team's done a nice job of sourcing some really good opportunities and that delta between development versus a brand new 100% leased building, where the rents may be slightly below market, we view as a really attractive risk return. And I think that window will slam shut when interest rates start to move. So I think it's a moment in time, and we'll be back to being developers again, but we'll keep trying to buy, but I think it's really what the market's open, and I thought it would be shut by now, but I think it will have another couple of quarters of hopefully finding those opportunities, assuming, you know, the capital's available to us as well in the market.
Eric Borden (VP)
Thank you very much.
Marshall Loeb (President and CEO)
You're welcome, Eric.
Operator (participant)
Your next question comes from the line of Craig Mailman from Citi. Your line is now open.
Craig Mailman (Director and Equity Research Analyst)
Good morning. Marshall, just want to go back to your commentary, clear that things are taking longer. With that in mind, though, from a leasing perspective, you guys had a big first quarter for new leasing volume. Could you talk a little bit about kind of the cadence of that and what the pipeline looks like into 2Q so far, you know, relative to the volume you had in 1Q?
Marshall Loeb (President and CEO)
Yeah, no, thanks. Again, I'm happy to kind of... Good morning, Craig. We actually signed more leases in first quarter this year than we did last year by a few hundred thousand. So that was good news, and it's really flat or roughly flat with fourth quarter of 2023. So we've got good leasing volume, and if it's helpful, I got an email from one of our guys in the field, and I mean, his description was tire kickers abound. So we've got activity, and we've got, in some cases, leases out. And even one of our team members said, "I used to get excited when we sent leases out, and I still do, but you know, they don't. I'm not waiting at the mailbox." That people want space.
I think the dollar commitment has gotten so big, that's what has people hesitating a little more, and there's not a fear of, "If I don't take this, it won't be available tomorrow." So I feel good, and I think it will be kind of like the acquisition window. I'm hopeful it turns pretty quickly, and if it does, we'll see it, and we'll move our development starts back up. But for the time being, look, it's a cyclical long-term business, so we said, "All right, let's be a little more thoughtful." We're always thoughtful, but maybe a little more thoughtful on how we, when do we want to be delivering these buildings. We've said, "Look, I'd rather wait a quarter or two to deliver the buildings than be a quarter or two early and wait." So the prospects are out there.
It's getting them to pull the trigger, but it's not that there's... You know, during the GFC, by comparison, I remember someone making the comment, "I'd offer more free rent, but I don't have anyone to offer it to." There literally weren't prospects. Now, we've got people, we've got leases out in conversations. It's really getting them out of the red zone and leases signed. So that makes me feel a lot better than, "Hey, there's just no tours, and we're holding a broker open house, and no one's showing up," and things like that. And thankfully, again, I think we've got two of the three legs of our stool. We're 98% leased. There's no supply, so the inventory is going to be really low when things do turn here.
And we just need a little bit of momentum on the demand side. And I think that'll either be kind of the global environment feeling a little more secure and/or at least thinking interest rates are finally going to come back down. And look, I guess as a flip side, you raise interest rates as fast as we did as a country in 2022, and now you're moving into mid-2024, it starts to weigh on our tenants. It's got to.
Craig Mailman (Director and Equity Research Analyst)
Apologies if you answered this already, but the quarter, it looked like maybe Orlando and L.A. were partly contributors to that. Is this sort of a one-off kind of hit retention, or is there, you know, something going on, any other known move-outs this year to contend with?
Marshall Loeb (President and CEO)
No. Okay, you broke up just for a moment, Craig, but I think on our, on our L.A. moves, thankfully, this year, we do have two tenants moving around. The, the good news there, knock on wood, we're, we're close, and one hasn't moved. So we've got really kind of two spaces in L.A. It's definitely one of our choppier markets. And as everyone's been talking about, L.A.'s been messy, but thankfully, if we can get two leases signed, we'll backfill both of those spaces. So it's really...
The market's not great, but thankfully, it's, you know, a little under, call it 6% of our NOI, and if we can land these two that we feel, you know, as reasonably confident as you can get before the signed lease comes back, then that puts L.A. to bed for the balance of 2024. And hopefully, the market has, which we think it will, longer term, will heal and normalize a little bit before we, absent a bankruptcy, before we have to deal with anything else in L.A. So we lost two tenants, but I think we're gonna backfill, and one fairly quickly, 'cause one tenant hasn't even moved out yet, and we've got a good solid prospect that we're closer to a deal, knock on wood, closer to a deal with.
Craig Mailman (Director and Equity Research Analyst)
Okay. And then, just if I could sneak one more in. Guidance assumes a pretty good ramp up through kind of the back half of the year. How much of that is kind of already baked, given deliveries and, on the development side and, commencement timing on leases versus kind of speculative activity that you need to hit to get to that guidance?
Brent Wood (CFO)
Yeah, Craig, I'll jump in. I would say, you know, three quarters to go, so it's hard to say it's all baked, but I will say it's not, it's not overly dependent. For example, for development starts, we have that pretty heavily weighted to the back half of the year and even further, really more heavily weighted to fourth quarter. So if that was to go back, say, if market were to be slow and we were to roll development starts back even more, it would have a little less of an impact than we did earlier in the year, just because, again, we've got that weighted toward the back end. You know, we've only got about seven, I think, 7.5% rollover remaining for this year, so we've already put to bed over half of our roll for this year.
So, you know, there's obviously three quarters to go, there's moving parts, but it's not overly dependent, I would say, on, you know, a lot of external factors in terms of a lot of acquisitions or, you know, banking on getting a lot of development starts in the second quarter or anything like that. And, you know, our occupancy, although we're budgeting it to slowly go down through the year, there's no particular lease or large lease or two that you could say is really gonna move those numbers one way or the other.
So, as Marshall said, if demand hangs in there, you know, we feel like that, you know, we basically had a good quarter, maintained our guide, and, you know, feel, you know, optimistic about what we've, you know, what we've got out there as it relates to, again, not being dependent on any one or two big factors to occur.
Craig Mailman (Director and Equity Research Analyst)
Great. Thanks, Brent.
Brent Wood (CFO)
Yep.
Operator (participant)
Your next question comes from the line of Bill Crow from Raymond James. Your line is now open.
Bill Crow (Managing Director)
Yeah, thanks. Good morning, guys. A two-parter on lease economics, if I could. How much you cited the wait and see attitude by, by the tenants, and I'm wondering how much of that is, is maybe encouraged by the tenant reps, who are maybe seeing some weakness in, in, in rent growth, and they're, they're thinking the economics might get a little bit better as, as time goes by. And the second part of that is, have we now seen a peak in annual rent bump rate? We kind of got up to that 4%-4.5%. Is that starting to come down a little bit?
Marshall Loeb (President and CEO)
Hey, good morning, Bill. You know, I don't I think it's kind of plateaued maybe. And again, it maybe it's. I'm a self-professed glass is half full. I think we ran up to 4.
I think we're taking a breather. I've said it's like we're in a construction zone. You're still heading in the right direction. You just got off the freeway, you're in a construction zone. And I'm really optimistic when the economy turns, given where supply and how many private guys that had gotten into the development business have kind of been weeded out or on the sidelines, will have to start again. I think there's gonna be a pretty big space squeeze. So we've not seen so much as... I don't think the tenant rep brokers, my perception isn't saying wait and see. I think it's the tenants themselves, and again, especially, look, I've always said our development leasing is less risky than our peers because it's so much dependent on our existing tenants.
I think people are pushing expansions off until they have to make a decision right now, and that's what we're seeing. And we are still seeing those, but I think it's kind of a wait and see, and let's push off the 50,000-foot expansion another quarter or two. But we're seeing the economics of the leases hold in there pretty firm, other than maybe some free rent here or there. And I'll probably say L.A. is a little bit, is a choppier market, given availability there. And we really aren't seeing a whole lot of sublet. You know, the things you would see during a downturn, we're not seeing a lot of sublease. We've seen some, typically some smaller ones, and our lease term fees are really historically low this year. We're not...
You know, the other thing you see in a downturn is people wanting to buy out of their lease. So I think it's we're in more of a, we're still moving forward. Look, our earnings are projected to grow about 7.5% this year. We beat our internal guidance in first quarter, and even slowing down development starts and raising bad debt, we're happy we were able to maintain, in spite of kind of getting, you know, taking maybe a little more conservative approach towards the balance of the year. And look, I hope we're wrong, and people will say we're conservative historically, and I hope we're proving them right that things get better. And I like that we've got the tenant activity.
I think it's, if you're not worried about the global economy right now, I appreciate that our tenants are a little more thoughtful about it.
Bill Crow (Managing Director)
If I could just... thank you for that. If I could just follow up.
Brent Wood (CFO)
Sure.
Bill Crow (Managing Director)
The increase to the tenant or the bad debt reserves. It's pretty minor. But what's going on with the watchlist? Are you starting to grow increasingly concerned, and is that specific to any industry types?
Brent Wood (CFO)
No, Bill, this is Brent. Yeah, a bit of a frustrating quarter in that 50% of our total bad debt for the quarter was driven by one tenant, a home decor, sort of high-end group out of Southern California, that wound up... A bit surprisingly, wound up filing for bankruptcy. And so their cash balance wasn't even that high, but when you have a tenant you deem uncollectible, they had almost a $300,000 straight-line balance, so that was the bigger hit. So that was 50% of the quarter total amongst one tenant. And then we had a logistics company and a jewelry/beauty supply, a retailer-type company. You add those two to the other one for those three, and that was 83%. So it just, you know, coincidentally, I think, but all three of those were in California.
But we've only got 10 tenants that have a reserve balance that still occupy their space in total, out of over 1,600. So that really hasn't changed, much. Our collections remain strong. So you know, the uptick for the year was really driven more by those sort, you know, those occurrences first quarter, and just in our internal projections, we really didn't increase our second, third, and fourth quarter, you know, budgeted amounts that we had in our initial guide. So the overall up, for the year really is just driven by that, mainly driven by that one particular tenant.
But there's nothing there that's jumping out to us, giving us pause or concern, you know, other than just sort of, you know, being in a capital environment with 1,600 tenants, there's gonna be, you know, somebody with something going on.
Bill Crow (Managing Director)
Understood. Thanks for the time.
Brent Wood (CFO)
Thank you.
Marshall Loeb (President and CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Mike Mueller of JPMorgan. Your line is now open.
Michael Mueller (Managing Director and Senior Analyst)
Yeah, hi. Was wondering, what's the game plan now that you've entered Raleigh? Do you anticipate growth over the next few years coming, you know, primarily from acquisitions or building a development pipeline?
Marshall Loeb (President and CEO)
Yeah. Good morning, Mike. Good, good question. You know, I would say we're, we're excited about going to Raleigh, and, and if, if you think maybe a two-part answer, we... You know, you saw us this quarter, we sold, you know, all but one, and we'll get the last one out the door of our Jackson assets, kind of 40-year-old buildings. And they were all well leased and have performed well over time, but they don't have the growth profile that we view a Raleigh or Nashville, that we entered, you know, a couple of quarters ago as well. And, and kind of as we try to always be pruning our portfolio and kind of moving our capital into better position for growth, we had one suburban office building left in L.A. that we were, was a long sales process, but we were able to get that closed.
Again, it was a 40-year-old but fully leased office building in suburban L.A. We sold some land that we picked up and a portfolio acquisition. So moving all that capital, what I view it, is you're kind of consistently trying to move the median of your portfolio up each quarter, and I think it, that's a slow process, but we're doing it. And, and then I, the way I, we typically talk is just, or think about it, is where are the market opportunities of late? We've, you know, sometimes they find you. We felt like the acquisition market suddenly opened up, and we were getting more yeses than we were historically. So we've said, let's buy things that are accretive, that are, you know, they've all been just over a year old, so they're very, you know, high functionality, the right part of town, near the consumer. We're excited.
Raleigh and Nashville both fit that state capital, large university presence, technology presence. The topography makes it difficult to build there. So hopefully, we'll keep, we wanna grow in both markets, and if the market presents that, usually we go in with an acquisition or two as a lower risk way to learn a market, to kind of learn the rents. And, and this is probably our... I'm trying to guess the number, fifth or sixth building we've bid on in Raleigh and Nashville and not one. So even losing your offers is a good way to kind of learn the submarkets and, and get to know the brokerage community.
So if we can find the right land sites in both markets, and I'll be in Nashville this week, actually, too, we'll turn over a lot of stones and be patient, but we'd like to grow in both markets. They're, you know, they're markets we're in that we'd be underallocated in a little bit, like you saw us last year in Las Vegas, where we were able to acquire some assets. We're still light, probably in our allocation to Las Vegas, but we like that market a lot, and we were able to grow and move to self-management and do some other things. So that's hopefully the same plan that you'll see play out for Raleigh and Nashville.
It's kind of two rapidly growing markets with a lot of promising dynamics, and if we can pull capital, whether it's from accretive uses of equity that we raise or selling really from the bottom end of our portfolio, which continues to get better, but it's, there's always something that's the bottom end of the portfolio. So that's, I hope that's helpful. Sorry for the long-winded, messy response.
Michael Mueller (Managing Director and Senior Analyst)
No, great answer. Thank you.
Marshall Loeb (President and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of Todd Thomas of KeyBanc. Your line is now open.
Todd Thomas (Managing Director and Senior Analyst)
Hi, thanks. Marshall, I just wanted to circle back to the company's capital deployment initiatives, I guess, acquisitions specifically, which I think I heard you comment that, you know, pricing you're seeing is in sort of the low-to-mid 6% range in terms of the cash cap rate that you think you can achieve. Does anything change for the company here as you look at your current cost of capital, just given the pullback in your stock and in industrial REIT shares, you know, in the last few months? And then, you know, have you or would you change your return hurdles at all for new acquisitions? Is that being contemplated?
Marshall Loeb (President and CEO)
Yeah, I mean, we could, probably wouldn't change the return hurdles. I mean, just because I think if you did that, you'd probably, you know, if it were you and I, I'd say we're really, you're trading down in quality. So we'll try to maintain that long-term growth. And look, if the market allowed us, we'll grab it, but we don't wanna lower the quality. We don't and our stock price today isn't very useful in terms of issuing equity or going to find acquisitions, but it's but we've said it's also very, it's been very volatile. So debt's available and equity are available, they're just not at great opportunities. And look, we'll have internal growth, and look, if the capital markets weren't available, I'm glad we have internal growth.
And where we do get that window, that's where we've tried to be more thoughtful about. Before we had, you know, a luxury of an ATM for a long time, and then Brent, the team, layered in a forward ATM late last year, and we've even, you know, just all the different alternatives we've talked about, you know, some we haven't done an overnight offering or a block trade in forever, but it's kind of like looking at new markets. I think we should always be aware of it, and we certainly saw where one of our peers did a convertible debt offering. So there's... You just wanna know what's on the menu and what kind of matches up.
We'd need the uses first and just kind of see where everything shakes out in the market and, and know it's been a pretty volatile market all along the way. Look, we've maintained our guidance in spite of, look, we'll have $100 million less in starts this year than we had last year, and that's a hit to our development fees that we earn each year, but we think that's the right long-term decision, and that's... I'm glad we're maintaining our guidance in spite of, you know, a Pirch going bankrupt in San Diego and some things like that, that we can kind of weather through that. And we'll just see where the windows are, and if we need to sit on our hands on acquisitions for a little bit, we will, although... And we did that last fall.
We pulled away from a handful rather than, I don't wanna worry people, we won't run up the line of credit buying assets and just assume we can issue debt later. That's not an attractive option either.
Todd Thomas (Managing Director and Senior Analyst)
Okay. And then, if I could just follow up, Marshall, you-- I think you mentioned that the accretion from acquisitions was about a dime. I don't know if that was sort of rough, back of the envelope math, but you know, can you clarify which acquisitions that comment corresponded to specifically? And, Brent, can you, you know, discuss or you know, clarify or what amount of accretion is embedded in the guidance from this year's acquisition and equity issuance that's assumed?
Marshall Loeb (President and CEO)
I'll take the first part, and Brent, I'm before... Yeah, and probably I did the calculation, so it probably is back of the envelope or take it. But what I was looking back, the way we did it, was the, I guess, the first acquisition we made, really, probably, right at a year ago, was Craig Corporate Center in Las Vegas. So if you're kind of starting with that one, which is really when it felt like we saw the acquisition and window opening up, and then we bought about another six buildings. We haven't closed on Raleigh yet, but are reasonably close on it.
Those total a little under $280 million, and then our math was to take the GAAP yield, since that's what we'll report, and compare it to the cost, basically, our, our equity cost assigned that quarter when we, when we had closing to match it. So if you take that delta between the GAAP yields, we earn less the equity investment that we raised of that, at that near-term cost, it adds over our, you know, our latest share count. So that's probably understating it a little bit since our share count has grown over the year. And, this is a lot of math to walk you through on the phone, but it adds up $0.10 to recurring FFO, ignoring any, you know, rent bumps and re-leasing and things like that, and the average age is just a little over 1 year on those buildings.
So, I think what we've been—our strategy has been, look, the development window is there, but it's not going blazing the way it was for a few years, where we were really trying to keep up with demand, but the acquisition window is open. So let's go with that. And in terms of accretion, I guess, Brent, I would say, you know, that dime is on a full year run rate, and two of those buildings, Spanish Ridge, that we bought in Las Vegas, we bought in first quarter, and Raleigh, we haven't closed yet. So those are adding, the two of those up, that's a little over $100 million of the $280 million. We don't quite have on a—we won't have on a full year run rate. If that helps, Todd?
Todd Thomas (Managing Director and Senior Analyst)
Yeah, that does. Okay. So it's, it's last year's, all of last year's, you know, acquisitions, plus, plus Spanish Ridge, plus what's under contract. Okay, got it.
Marshall Loeb (President and CEO)
Yeah.
Todd Thomas (Managing Director and Senior Analyst)
It's a $20 million.
Marshall Loeb (President and CEO)
Yeah, and it's really, it felt like to me, maybe I, I, I should have said it earlier. It was kinda going back where we first noticed of, okay, wait a minute, something's changed in the market. When we say we have the ability to close in about a month, you know, 30-40 days, we're getting yeses from buyers and our batting average in terms of acquisition offers, not that we haven't lost out on a bunch, especially on the portfolio side or the bigger dollars, our batting average got a lot better, and we said: Okay, this is, this is a new market. We weren't able to buy new buildings in kind of the mid- to high-5s cash, and maybe the low- to mid-6s on a GAAP basis. Those would all been 4 yields or below, well, you know, back in 2021, early 2022.
Brent Wood (CFO)
Yeah, just to finish the thought up there, Todd, agree with what Marshall said. In terms of budget, obviously, all that prior acquisitions and the budget of these couple acquisitions are dialed into our guidance. The only out of our $160 million in acquisition guidance, there's only $50 million of that that's not earmarked. So we've got we baked in $25 million in the third quarter and $25 million in the fourth quarter, just kind of as acquisition placeholders, if you will. But so again, not overly dependent on that. So if we can do better than that, and that's beyond, you know, Raleigh and the other acquisitions. So we've got a little bit dialed into the back end of the year, but not a lot.
If we were able to hit some opportunities early in the year, that would be, you know, accretive to the way we've got it underwritten.
Todd Thomas (Managing Director and Senior Analyst)
Okay. That, that's helpful. Thank you.
Brent Wood (CFO)
Yep.
Operator (participant)
Your next question comes from the line of Aditi Balachandran of RBC. Your line is now open.
Aditi Balachandran (Senior Associate in Equity Research)
Hi, thank you. Just a question regarding the tenants. So I guess, what exactly are they doing to compensate for delaying decisions on needed space, as you've talked about? And I guess, are they just running higher capacity through existing properties?
Marshall Loeb (President and CEO)
Yeah, I think it's more as they gain business. I imagine that. I think they're trying to, you know, they're making do. They may be crammed in their space, but they're making it work for as long. I wouldn't say as long as they can, but for a little bit longer, at least, rather than saying. You know, it's usually the way it goes. In a lot of the conversations, you know, the local warehouse manager or people like that are ready. They're saying they need more space, but corporate's putting it on hold for a bit.
So I think they make do as best they can and have that pent-up demand for space, and it's really probably get stuck at corporate saying, "You know, we're gonna wait a little bit longer." So that's really the trend and they've been out touring space, you know, some have leases in hand, some were working towards letters of intent. It is just sometimes you have prospects that wanna get in, you know, the first day of the next month, and sometimes it drags out 90 days.
So that's a little bit where it is, and I think a lot of them are just putting their expansion plans on hold until they feel a little better that we really need this space long term, and it's not a short-term need that we need this space, and that we're gonna lose some business 'cause the economy is gonna deteriorate on the back end. So I think that's where it's, they need, and I'm making assumptions, a little more sturdy footing on the economy than where people probably feel right now. And I think they were feeling it until the March interest rate cut went away, and then it sounds like the June interest rates cut gone away and things like that.
Aditi Balachandran (Senior Associate in Equity Research)
Understood. Thanks.
Marshall Loeb (President and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of Jason Belcher of Wells Fargo. Your line is now open.
Jason Belcher (VP and Equity Research Associate Analyst)
Good morning. Marshall, you mentioned nearshoring and onshoring briefly in your prepared remarks. Just wondering if you could give us an update on what you're seeing there, and maybe if you could touch on any leasing activity that you've seen, you know, within your portfolio that's been driven by onshoring or nearshoring.
Marshall Loeb (President and CEO)
Well, I think good morning, and good question. You know, we still see strength with, I think, Arizona, we're 100% leased there, Phoenix. Tucson, El Paso, it's been the best market. We've been there probably 25 years. Brent, I'm looking at Brent, used to have El Paso for us, and probably the last 3 years have been the best 3 years of those 25 years. And, and really even California, where we've seen some struggles, you know, as people talk about, I've mentioned L.A. and, and others, and the Bay Area, you've had some negative absorption there as well. But San Diego has been stronger, at least for us, than L.A. or San Francisco, and the majority of our product in San Diego, and where we're seeing the most strength, is really that Otay Mesa area, which is really right along the border.
So I think those continue to be strong. I read a stat the other day that over the last 5 years, and I think these are long-term decisions, is the percentage of our imports, kind of Mexico and into Central America, are up 130 basis points, while China is down 250 basis points. And then as I was kind of thinking about that, that's from 2019 to 2023, my, my amateur analysis would be post-COVID, that that's when people really got pushed to come up with a China plus one manufacturing, plan. And so I think it's a long-term trend that we're seeing play out. You certainly see a lot of the chip plants and things like that, that we funded.
You know, so much manufacturing has gone to Dallas and Phoenix, where we won't get those manufacturers, but we'll pick up the suppliers to that. So we feel good long term about that kind of San Diego through El Paso, you know, through Arizona to El Paso, have been really strong markets for us and continue to be. We looked at an acquisition recently, even in Tucson, and we're shocked at how aggressive the cap rate. We thought we had a good opportunity, and it lasted. I don't think it's closed. It probably has not closed yet, but it quickly surpassed the pricing we thought we'd see in a market like Tucson.
Jason Belcher (VP and Equity Research Associate Analyst)
That's helpful. Thanks. Thanks very much for the update.
Marshall Loeb (President and CEO)
Sure. You're welcome.
Operator (participant)
Thank you. Your next question comes from the line of Ronald Kamdem of Morgan Stanley. Your line is now open.
Ronald Kamdem (Managing Director and Head of US REITs and CRE Research)
Hey, just a quick one on the guidance on the same store and why. Saw you, you reiterate it, but if you think about sort of the 7.7% in 1Q, there's a decent amount, 230 basis points of decel. I guess, asking the demand question another way, is that, are you guys sort of feeling conservatism? Is it sort of the demand slowdown? Just a little bit more color on sort of the rest of the year on that same store front.
Brent Wood (CFO)
Yeah, we show, Ronald, we basically show, you know, just based on our lease by lease assumptions, and we roll it all up, but we basically show our, our same-store portfolio, you know, basically kind of just meandering down some through the mid part of the year before kind of picking back up for the end of the year. Again, it's, you know, that's just budgeted assumptions. Obviously, we would hope to, you know, outperform that, but when you look year-over-year, you know, we're projecting, at least we're budgeting about 120 basis points or so decline in same-store occupancy. We obviously are projecting to a solid same-store end result, but that lower occupancy, you know, is just offsetting some of the, you know, prolific rent increases that we've enjoyed.
Even first quarter, we were up 58%, so still seeing the strength there. But it's just, you know, the guys, you know, when the guys in the field, they're, you know, they're subconsciously or consciously, you know, influenced with just sort of what they see relative to the, the tenor and the pace at which they're leasing. And so that can ebb and flow a little bit, but we hope that it proves conservative, but that's basically, you know, just how we have it dialed up. And again, I'd repeat, it's not really being driven by one or two known large move-outs that could sway it a lot one way or the other. It's, it's more granular than that. So, yeah, we'll take it quarter at a time. March, so we're still seeing activity, and so would like to think we could beat those.
But we're, you know, we're pleased with showing. You think about it, showing a 120 or 130 basis point projected or budgeted decline potentially in same-store occupancy, yet still showing that good of the same-store strength, which again, I think speaks to the portfolio and the rental rate strength that we've continued to enjoy.
Ronald Kamdem (Managing Director and Head of US REITs and CRE Research)
Just beyond the leasing activity, last year, you did over 8 million sq ft, you know, 40% cash spread, starting the year with 2 million and 40%. Just what's sort of baked into for the rest of the year in terms of, you know, volume and spreads? You could speak high level, if that's easier.
Marshall Loeb (President and CEO)
Yeah, I'm pleased that... Good morning. That the first quarter of this year, actually, I think we're 1.6 million or a little north of that a year ago and up to 2 million. So I think we'll be similar this year, and I'm really not seeing a slowdown in rents. I mean, maybe market, a two-part answer. I think market rent growth has slowed, but I think it's going to pick back up again pretty quickly. But I don't think our re-leasing spreads have hung in there. Look, we've been fortunate to have 6 consecutive quarters where our GAAP rent growth has been north of 50%, which I never really thought. I wouldn't have told you 5 years ago or however many years ago that was possible.
So feel pretty good about the leasing volume, and we're making progress on development leasing. We're about two-thirds leased, or roughly, or moving towards that on what we're delivering this year in our development pipeline and have those prospects. So I think leasing will be similar. It's probably vacancies are sticking around, as Brent talked about on the occupancy, maybe a month or two longer than they were at the peak. But, you know, that said, last year was, was our record for occupancy, so part of our same store challenge this year was you know, it was great setting the record last year. It's not so much fun competing against the record, the balance of this year. So but I think we'll have a, certainly a solid year of leasing. It's just off of record pace a little bit.
But the best news maybe of that is when you look at the construction starts numbers and things like that, and that in our product type, the shallow bay, there's always historically less availability in it, and that will continue to be the trend. So I think it will tighten when it turns fairly quickly.
Ronald Kamdem (Managing Director and Head of US REITs and CRE Research)
Thanks so much.
Marshall Loeb (President and CEO)
Sure. You're welcome.
Operator (participant)
Your next question comes from the line of Jessica Zheng of Green Street. Your line is now open.
Jessica Zheng (Senior Analyst)
Good morning. Could you please touch on the subleasing trends in your portfolio? Are you seeing any elevated levels there?
Marshall Loeb (President and CEO)
Okay. Now, Jessica, good morning. No, really not. I mean, it's been mainly some small spaces here or there, and in most cases, maybe another way to watch for it, the prospect would usually rather have a direct lease, so we'd kind of watch our term fees, which are low. So we're not seeing a lot of subleases. We've got one that I would say is a little bit larger that picked up in Charlotte, but the tenant just did a five-year renewal, and their rents are pretty far below market, and we'll participate in the profits if they do sublet that. So in pending the lease, we either participate or capture those rents, and the prospect would always rather have a direct lease, so in a lot of cases, especially if there's any improvement allowances.
So it feels certainly manageable to not out of any kind of historic norm right now within our portfolio. But we've seen it, but we've got it. It's, it's mainly smaller spaces, absent one that I can think of, and thankfully, that one, rents are pretty materially below market.
Jessica Zheng (Senior Analyst)
Great. Thank you.
Marshall Loeb (President and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of Samir Khanal of Evercore ISI. Your line is now open.
Samir Khanal (Equity Research)
Sorry, it's Evercore ISI. So, hey, Marshall, just on this, when I look at your renewal page in the supplement, the average retention rate came down quite a bit. It was like mid-55%. You know, you look back, 70%, 1Q of last year, sort of in the 90% in 4Q. Maybe just provide a bit of color. Is that just a function of kind of what we've been talking about, tenants not committing? And how do you think that retention rate sort of plays out for the year?
Marshall Loeb (President and CEO)
No, it's interesting. Good morning, and yeah, good. I'm glad you asked, and that a few of your peers mentioned retention, and that was one, you know, at least in the near term, I viewed it as good news. And here's my logic, is that if you're building a model on EastGroup or probably any of our peers, I'd say 70%-75% retention is kind of historic run rate, a normal run rate. Last year, for the year, we were 79%, and that to me, kind of is, people are sitting tight. The last time we saw retention rates as high as we had was really during COVID. So I was... I'm encouraged. You know, look, I wouldn't want to run for the year at 56%.
There'd be more expensive TI and leasing commissions and things like that. But the fact that we could get 2 million, kind of we did more leasing volume than we did a year ago in first quarter, materially, and that retention rate, to me, meant maybe the market might be loosening up a little bit, or maybe at least initially in the year, people felt better thinking there was gonna be a March rate cut or at least a June, some things like that, that things feel like they've gotten a little bit worse at the back end of the quarter than initially. So, you know, we'll look at our retention rate over a trailing four quarters to kind of get a more measured response, and that's still on the high end of our range.
It's probably come down to about 75% or 76%, which is still historically high, but when it was at its lowest was during 2021, things like that, when the market was really booming. So again, I kind of hope it doesn't stay at 80%, that people start... Some of that is people moving into new spaces within our parks and things like that. So I'm pleased with the quarter, and we'll see how the next one shakes out. But a really high retention rate is another way of saying people aren't making leasing decisions.
Again, if you get a chance and you want to look on our website within, I think it's slide 14, roughly, you'll see that renewals, this is a CBRE chart, have run historically high, that they typically are in the mid-20s% of the leasing, and the last four quarters, they've been in the mid-30s%, which again, is kind of another kind of signal to us that people are taking a wait and see. So I was happy with the 56%. I don't want to do it long term, but a little bit of tenant movement is probably what we needed.
Samir Khanal (Equity Research)
If I can just ask one more, this is more of a modeling question, but when I look at your expenses, the property operating expenses in the quarter, they were up sequentially and year over year. I guess, how should we think about that sort of for the balance of the year? Thanks.
Marshall Loeb (President and CEO)
Yeah, we're just a reminder, we're predominantly pretty much everything gets passed through. So we have seen real estate taxes and insurance, you know, go up, so that certainly drives expenses up. But correspondingly with that, we're getting that, you know, reimbursed from tenants. You know, at a 97%-98% occupancy, you're getting that percentage back.
Brent Wood (CFO)
...There was one chart in the supplemental that I think shows the expenses rising 14%-15%, but the income rising less than that, say, 7% or 8%. But a reminder, that income line is rent and CAM. So a very small percent of that line item is, obviously, base rent's not impacted by CAM reimbursements, the CAM portion is. So if we had that income line broken out into two pieces, you would see the CAM reimbursement percentage increase matching up with the expense increase. But yeah, for modeling purposes, it would have de minimis impact, just because if you want to say expenses are gonna increase 8% or 16%, you know, if you're showing a 97% or so occupancy, then you're getting whatever percent that you say there. You're getting that back via CAM reimbursement.
Samir Khanal (Equity Research)
Okay, thank you.
Brent Wood (CFO)
Sure.
Operator (participant)
Your next question comes from the line of Ki Bin Kim of Truist. Your line is now open.
Ki Bin Kim (Managing Director of US REIT Equity Research)
Thanks. Just sticking with that last question. You know, typically, the expense reimbursements don't come back in the same exact quarter. Should we expect a bigger reimbursement rate sometime down the line this year?
Brent Wood (CFO)
No, we, you know, we accrue and match that and adjust on the books to keep that. Whether you're collecting or not, we accrue it pretty evenly. So I think you'll see that be very consistent through the year, and it has been. It tracks... Again, if you break CAM and reimbursable expenses with reimbursable income up, it matches very closely. And again, it, you know, true up in billings a year in and that type thing, just being on accrual basis, ideally, you're keeping that in tandem as you go through the year so that you don't have those big swings.
So, to that, I would say no. The expense on property level is really not gonna have any impact on the bottom line other than the, you know, very small percent you don't collect due to vacancy.
Ki Bin Kim (Managing Director of US REIT Equity Research)
Okay. And on your balance sheet, I mean, it's in great shape, in a very enviable position at 3 times leverage. You that provides you significant dry capital. And you know, typically, we haven't known EastGroup to be, you know, very active in kind of large scale M&A. But just curious about your kind of overall views on your balance sheet, your dry capital, and how over time we should, you know, see that change, whether that be through acquisitions or development or M&A.
Marshall Loeb (President and CEO)
Good morning, Ki Bin. You know what? Look, we've had. The way we view it is, we're, we've probably driven leverage down lower than our target. For a while there, you know, kind of 2017, 2018, 2019, as we stepped up development, we wanted a little bit stronger balance sheet, and the equity markets were there. Last year, we saw our implied cap rate on our equity and attractive long-term uses of it, so, and, and the debt markets have been expensive. So we've leaned into equity while it was there, and we'll probably continue to do so. And, you know, but, but pretty flexible, just pending, again, kind of which window opens.
I, I do like the fact, a little bit longer term or, you know, kind of near term, when the interest rates do come down, given the strength we've put, Brent and the team have put behind our balance sheet, I think we'll be able to add a fair amount of leverage at hopefully attractive rates at that point in time, without needing to go to the equity market. So the fact that we've been able to lean into equity, I think it'll flip to the other side, but we'll be patient on that. And, and I don't know, in terms of M&A and things like that, it's always, it's harder even on the portfolios. I know we bought the Bay Area portfolio a few years ago, and we look at those things, and we'll again, we'll be patient.
There's always, you know, a good portion of what you look at that you like, and then there's another portion that always feels like that we feel like would slow down our growth. So maybe we're being too selective, but we'll be patient, and I'm glad we're able to grow the company as rapidly as we have been without... You know, we try to give our shareholders a solid and certainly attractive industrial rate of return with a whole lot less risk, I believe, through a handful of ways compared to some of our peers. So that's, that would ideally be our goal, unless we saw something that was really attractive, and we needed to move on it. But that's, as you kind of in your question, that's usually not been the case.
Ki Bin Kim (Managing Director of US REIT Equity Research)
Oh, thanks for that. And Brent, just out of curiosity, you guys did a forward, well, you raised equity through a forward offering. You know, how much more expensive is it to do a forward versus just an ATM? And why a forward, if you could just raise equity now and, you know, earn, I would assume, a higher, an accretive return on your money market account or something like that, versus doing a forward?
Brent Wood (CFO)
Yeah, you know, I guess two parts. It's really not that much more expensive. It's very attractive from that standpoint. We only pay about a point. Now, the forward, the final pricing varies a little bit just based on how long you take it down and dividends paid and interest expense, so forth. But the actual cost of issuing is only about a point, the regular way or via forward. The thing we like about forward, and you've got a good point in this environment, if we had money outstanding on the revolver, which variable rate, say, it's somewhere in the low-to-mid sixes right now, we wouldn't do forward. We'd do the regular way and immediately pay it down. We've not gone so far as to...
You know, issue and take down a bunch of cash and hold it in a money market and make, you're right, maybe a very small return there. But, you know, ultimately, we don't feel like we're raising the capital to make that, you know, to make that spread just on the money market. But, you know, the advantage of the forward is it can be sitting out there, and then you don't have the share count counting against you until you take the capital down. And to your point, it's not that punitive, or you could even argue, slightly accretive to do it the other way. But, you know, in this environment, I don't think one way versus the other, that's, there's not a big difference.
And we've there toward the end of the quarter like to just kind of stockpiling it in shares versus just cash. But you certainly could go, certainly could go either way. And we'll. Again, we'll be flexible with that, really more based on what's outstanding on the revolver versus necessarily stockpiling it on the cash side.
Ki Bin Kim (Managing Director of US REIT Equity Research)
Okay, thank you.
Brent Wood (CFO)
Sure.
Operator (participant)
Your next question comes from the line of Nick Thillman of Baird. Your line is now open.
Nick Thillman (Senior Research Analyst)
Hey, good morning. Maybe starting a little bit with, with Brent here on just kind of the bad debt. You guys touched on the three tenants in particular, but was just curious if those tenants were on the watch list prior?
Brent Wood (CFO)
That's a fair question. I don't... I know that a couple of them were. I'm not sure if the Pirch was. Again, they only had under $100,000 cash outstanding. So I can follow up with you offline on that specifically, but I, I don't think they were. It just was more of a sudden, like, you know, if a tenant keeps up with the rent and unbeknownst to us, suddenly files bankruptcy, which does happen occasionally, you know, you really have got no clarity or lens or idea that that's coming necessarily. And it was a bit that way with them. It was a, a bit more abrupt, and not so much just the, you know, over time, they've always been a problem, and catch up, and go back and catch up.
So it was a little more, you know, happened a little more suddenly with that, with them. But again, overall, the watch list is very healthy and not growing at any unusual pace.
Nick Thillman (Senior Research Analyst)
That's helpful. And then maybe, Marshall, just, you kinda touched a little bit about the demand surge in 2021 and 2022 and kind of occupancy levels today being above historical averages. As we kinda get this more normalized demand, do you see, like, longer-term occupancies within the portfolio getting back to, like, that pre-pandemic level of, say, 95%-96%, so that it slowly will come down over time and maybe normalize around that level? Is that kinda what you guys are thinking longer term?
Marshall Loeb (President and CEO)
You know, it's a good question, and we've debated it, and that, you know, some of our longer-tenured board members would always say 95% is as full as you can get in our type product, that there's always just some frictional vacancy from tenants moving around. But we've been, thankfully, north of 95% for over a decade now and counting. So to me, it kind of says at some point, the market's just changed, and, and the last 2022 and 2023 were record years at averaging 98% occupancy. So I don't know that we'll average that high, but it, it feels like, you know, 97's the new 95, that I think we'll stay that. Certainly for the near term, given...
I think it's gonna take a while, with demand's going to move more quickly than supply can address it, and that's where I think it'll be fun, you know, a lot of fun there for a little while. That's the optimist in me. So I think we may not stay at 98, but we won't go back to 95, and then I think there's gonna be a squeeze until all the private developers can kind of raise capital, get sites tied up, get permits in hand, and start moving again. And we have a number of those in hand already and should be able to move more quickly than our private peers.
Brent Wood (CFO)
Then just a quick follow-up to your watch list. Two of the three tenants that I mentioned that drove 83%, two were on the watch list coming into the year and one was not, so one happened within the quarter. Like I say, really not uncommon either way.
Nick Thillman (Senior Research Analyst)
Thanks for the follow-up, Brent. Appreciate it.
Brent Wood (CFO)
Yep.
Operator (participant)
Your next question comes from the line of Vikram Malhotra of Mizuho. Your line is now open. Once again, Vikram, your line is now open.
Vikram Malhotra (Managing Director)
Hi, can you hear me?
Marshall Loeb (President and CEO)
Yes, we have you, Vikram.
Vikram Malhotra (Managing Director)
So, just your first question, you talked about dollar commitments for tenants becoming just very large, and I'm wondering if you can just elaborate upon that, but also just talk about what your prediction for, you know, market rent growth is in your, in your main markets.
Marshall Loeb (President and CEO)
Yeah, good morning. Yeah, I guess the way we've had one of the tenant rep brokers describe it was, you know, real estate decisions used to be a real estate. Again, we've had this great run in rents and even tenant sizes, as they use their spaces, have grown. Our average tenant size is still in the mid-30s, but that's been up, and we've got certainly multi-tenant buildings where a single tenant has come along and taken it. So it's moved from a real estate manager decision to a CFO decision, was the, you know, I thought, a good way one of our brokers described it. And I think market rent growth is probably... It's absent, you know, the L.A. and Bay Area is still more inflationary probably this year.
We'll be, you know, call it, 3%-4% market rent growth, maybe a little bit better in the shallow bay space because there's so much less availability of it. So we've been saying if market rent growth is maybe, call it 3.5%. For example, we're maybe a hundred, a hundred and 125 basis points north of that.
Vikram Malhotra (Managing Director)
Got it. Just on your comment on acquisitions, if this pause or just moderation is a little bit extended, let's say into 25, you talked about relative to your cost of capital, you're seeing deals in the initial 5 stabilizing, you know, maybe 6s, correct me if I'm wrong, but what's the right—what sort of the risk premium you'd need to see if you have a more protracted normalization or a pause in demand?
Marshall Loeb (President and CEO)
You know, what we've acquired, and I'm trying to answer your question. It's been... What we've bought have been, all of them have been one-off buildings, so that's where we're seeing the opportunity rather than in a portfolio. And it's been kind of mid to upper fives, but a going-in cap yield, so not stabilizing, but cap yields in the low end of kind of 6.25-ish kind of range. And we'll look at that, and then we'll look at what the mark to market is. And there have been so new buildings that there's not a lot of embedded growth, but in most of them, there's still embedded rent growth. So what we've liked is, we're buying new buildings. We take the construction and the leasing risk away and getting attractive yields, and they're buildings we really like for the long term.
So if that. To kind of say, what's some of our checklist? That's, that's it, and it's—and those have been higher yields compared to closer to development yields than they've historically been. A couple of years ago, we would say we were developing to 7, and market cap rates were 3.5-3.375. So that's when it really. Okay, if that's what the world wants, we're better off being a developer than an acquirer. And right now, it feels like all of a sudden, on one-off unusual situations, you know, a failed marketing process, someone had tied up a building and couldn't close, it was an over-leveraged owner user. I say over-leveraged owner user. Those have been the kind of things where we've stepped in and bought or a pension fund that needed liquidity, and they...
What we were told, they couldn't sell their office buildings, so they needed to close that quarter on a new industrial building. So those have been the type of opportunities we've found, and I don't know how many are out there, but we'll keep turning over stones, and I think interest rates staying higher means we'll probably keep leaning in on that opportunity as well, and then it'll move away from us and probably in a fairly short order, as soon as people can get cheaper debt and work back to a levered IRR that works for them.
Vikram Malhotra (Managing Director)
Got it. Just one quick one, one more, if I may. Just Amazon's known to be... 3PL demand is percolating into smaller box demand on that market.
Marshall Loeb (President and CEO)
Vikram, I apologize. We lost you on that. I heard Amazon and 3PL, but we lost you. I don't know if you're there, or we lost you on that.
Vikram Malhotra (Managing Director)
Can you hear me okay now?
Marshall Loeb (President and CEO)
Yes.
Vikram Malhotra (Managing Director)
Yeah, I was just wondering, Amazon's known to be taking, you know, larger boxes, million square footers, this first quarter in multiple markets. I'm wondering if, you know, Amazon specifically or just, you know, 3PL, can you just comment on that demand percolating down to the smaller box, shallow bay markets that you're in?
Marshall Loeb (President and CEO)
Yeah, no, it's good to see Amazon back in the market, and you're right, what we've read about in Phoenix and in Inland Empire, taking a number of big boxes and 3PLs. And look, I think they, you know, those are kind of the large boxes to move goods across the country. What we like, we like being as near the consumer as we can, you know, almost like a retail location without the visibility, and I like the long-term trend. I think Amazon will build out around those big boxes, and they're our largest customer. But anything that speeds up the way it's been described from when you hit click or when you hang up the phone to get that service person, that delivery, that order, that's where the world's going.
So you'll need the big boxes to move things, whether it's from Mexico or Asia, throughout the country, and then really you're gonna need that last-mile delivery within Dallas, Phoenix, Atlanta, Orlando, because the traffic's so bad. So I usually think the big boxes kind of are the early innings, and then they'll build out their network almost like a hub and spoke, but that's where we'll really pick up. And most of them have to some degree, but I still think there's a lot of runway on building out quicker and quicker delivery for people and probably rationalizing brick-and-mortar store count and moving to more, depending what the item is, quick delivery.
We've seen it in the bulky items, and I hope that what their SKU count will continue to evolve into more and more distribution or business distribution space and a little bit out of brick and mortar, too.
Vikram Malhotra (Managing Director)
Thank you.
Marshall Loeb (President and CEO)
You're welcome.
Operator (participant)
We don't have any questions at this time. Presenters, please continue.
Marshall Loeb (President and CEO)
Thank you. Thanks, everyone, for your time and for your interest in EastGroup. If we didn't get to your question, Brent and I are certainly available post, if there's any other color you want, and we'll see you. There's a couple of conferences coming up. We hope to see you at those as well. Thanks.
Brent Wood (CFO)
Thank you.
Operator (participant)
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.