EastGroup Properties - Earnings Call - Q1 2025
April 24, 2025
Executive Summary
- Solid start to 2025 with leasing momentum and balance sheet strength: FFO per share rose to $2.15 (ex-involuntary conversion $2.12), up 8.6% YoY; portfolio 97.3% leased/96.5% occupied; cash same-property NOI +5.2% despite lower average occupancy of 95.8% vs 97.5% LY.
- Q1 results were above Wall Street consensus: EPS $1.14 vs $1.11*; revenue (income from real estate ops) $172.6M vs $169.9M*; FFO/share $2.15 vs $2.10*, with leverage at 3.0x Debt/EBITDAre and 15.0x interest coverage.
- Guidance nudged higher at the midpoint: FY25 FFO/share to $8.84–$9.04 (from $8.80–$9.00), cash same-property NOI growth to 5.8%–6.8% (from 5.4%–6.4%), with development starts reduced from $300M to $250M reflecting macro/tariff uncertainty and a more selective stance on growth.
- Management highlighted near-term trade/tariff uncertainty as a watch item (notably in Southern California) but reiterated long-term secular tailwinds (population migration, near/onshoring, shrinking supply pipeline) and balance sheet optionality as key stock catalysts.
Values with * are from S&P Global consensus estimates.
What Went Well and What Went Wrong
What Went Well
- Leasing and pricing power: New/renewal rental rate increases averaged 46.9% GAAP and 31.1% cash; EGP signed 30% more SQFT of operating portfolio leases vs 1Q24 (two of the last three quarters among the best ever for signed SQFT).
- Same-store NOI growth despite lower occupancy: Same PNOI ex-terminations +5.3% (SL) and +5.2% (cash) YoY in Q1.
- Balance sheet strength and flexibility: Debt/EBITDAre 3.0x; interest coverage 15.0x; minimal revolver usage; refinanced $100M term loan with 30 bps spread reduction and repaid $50M at maturity.
What Went Wrong
- Lower average occupancy vs LY and softness in LA: Avg occupancy 95.8% (down 170 bps YoY); management cited weakness and negative absorption in Los Angeles and paused port-adjacent tenants amid tariff headlines.
- Reduced 2025 development starts: Management lowered planned starts from $300M to $250M and pushed timing later in the year given macro/tariff uncertainty and equity market volatility.
- Slightly elevated bad debt vs long-term run-rate: Q1 bad debt was 0.49% of revenue (company planning ~45 bps for 2025) with California still over-indexing, though improving vs 2024.
Transcript
Operator (participant)
Gentlemen, and welcome to the EastGroup Properties, first quarter 2025 earnings conference call and webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, April 24th, 2025. I would now like to turn the conference over to Marshall Loeb. Please go ahead.
Marshall Loeb (CEO)
Good morning, and thanks for calling in for our first quarter 2025 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call. Since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
Staci Tyler (EVP, Chief Accounting Officer, and Chief Administrative Officer)
Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures, as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the investor page of our website, and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the Safe Harbors under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements in the earnings press release, along with our remarks, are made as of today and reflect our current views about the company's plans, intentions, expectations, strategies, and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future, or actual events, or otherwise. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K, for more detail about these risks.
Marshall Loeb (CEO)
Thanks, Staci. Good morning. I'll start by thanking our team. They've worked hard, and we've made solid progress on several of our 2025 goals. I'm proud of the results achieved. Our first quarter results demonstrate the quality of the portfolio we've built and the resiliency of the industrial market. Some of the results include funds from operations excluding involuntary conversions were $2.12 a share, up 7.1% for the quarter over prior year. For over a decade, 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 97.3%, with occupancy at 96.5%. Average quarterly occupancy was 95.8%, which, although historically strong, is down 170 basis points from first quarter 2024. Quarterly releasing spreads were 47% GAAP and 31% cash. Cash same-store NOI rose 5.2% for the quarter despite lower occupancy.
Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 7.1% of rents, down 70 basis points from a year ago. 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 how 2025 began. The tariff discussions dramatically raised market uncertainty in terms of severity and duration or even likelihood of any downturn. To address the uncertainty, we're focusing on a couple of things. First, we're focused on leasing to maintain occupancy and making the best quick leasing decisions we can. Secondly, we're grateful our balance sheet, including outstanding forward equity agreements, position as well. We've raised our threshold for new investments and development starts until there's better economic visibility. From another perspective, uncertainty typically allows opportunistic investments, making balance sheet flexibility all the more valuable.
In terms of the portfolio square feet leased, the past two quarters were two of our top three historically. That momentum speaks highly in terms of the quality of our team, our properties, and our markets. The leasing market was improving, and then trade talks created uncertainty. It is too early to tell the widespread tenant reaction. As we have stated before, our development starts are pulled by market demand within our parks. Based on economic uncertainty, we are forecasting 2025 starts to $250 million. We are projecting the majority of the starts in the second half of the year. We made solid progress on development leasing year to date. However, expectations are for slower, deliberate decision-making near term. Our emphasis is on expectations as our active prospects, thankfully, remain active prospects. In terms of starts, we will ultimately follow demand on the ground to dictate the pace.
Longer term, the continued decline in the supply pipeline is promising. Starts were historically low again this first quarter. We expect the uncertainty to further delay new planned starts. The combination of limited availability and new modern facilities, along with higher development costs, will put upward pressure on rents as demand strengthens. As demand improves, our goal is to capitalize earlier than our private peers on development opportunities based on the combination of our team's experience, our balance sheet strength, existing tenant expansion needs, and the land and permits we have in hand. Brent will now speak to several topics, including assumptions within our updated 2025 guidance.
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 $2.12 per share compared to $1.98 for the same quarter last year, an increase of 7.1% excluding involuntary 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 $2.5 million during the quarter. From a capital perspective, we were opportunistic in accessing the equity market. During the quarter, we directly issued common shares for gross proceeds of $6 million, settled forward shares agreements for gross proceeds of $67 million, with an additional settlement of $45 million after quarter-end.
Collectively, those shares issued in the first quarter were initiated at an average price of $176 per share. As of today, we have $145 million in outstanding forward agreements at an average weighted price of $183 per share and full capacity of our $675 million credit facilities. In January, we refinanced a $100 million unsecured term loan, reducing the credit spread by 30 basis points, resulting in savings of approximately $1.5 million over the remaining five years of term. In March, we repaid a $50 million unsecured term loan and only have $95 million of debt maturing for the remainder of the year. Although capital markets are fluid, our balance sheet remains flexible and strong with record financial metrics. Our debt-to-total market capitalization was 13.7%. Unadjusted debt-to-EBITDA ratio increased to 3x, and our interest and fixed charge coverage increased to 15x.
Looking forward, we estimate FFO guidance for the second quarter to be in the range of $2.13-$2.21 per share and $8.81-$9.01 for the year, excluding involuntary conversion gains, which is up slightly from our prior guidance. Those midpoints represent increases of 5.9% and 7.2% compared to the prior year. Our revised guidance increases the midpoint for cash same-store growth by 40 basis points and increases average occupancy by 10 basis points. Considering the uncertainty in the markets and the volatility in our share price, we reduced development starts by $50 million and reduced our capital proceeds by $190 million. This assumes that we do not raise any additional external capital and utilize our revolvers facilities. G&A increased due to less overhead capitalization as a result of reducing development starts and increase in accounting for equity-based compensation.
Our tenant collections remain healthy, and bad debt as a percentage of revenue was lower in the first quarter compared to 2024. We continue to estimate uncollectible rents to be in the 40-50 basis point range of revenues, a little ahead of our historic run rate. In closing, we are pleased with the start of the year, especially considering the macro uncertainty related to tariffs 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 multi-tenant portfolio to lead us into the future. Now, Marshall will make final comments.
Marshall Loeb (CEO)
Thanks, Brent. In closing, I'm excited about the start to the year. Our management team has worked through numerous periods of uncertainty before and will navigate our way through this turn as well. Regardless of the environment, our goals are to drive FFO growth per share and raise portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders. Stepping back from the near term, I like our positioning as our portfolio benefits 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 improves each quarter.
Our balance sheet is stronger than it's ever been, and we're upgrading our diversity both in our tenant space as well as our geography. We'd 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 have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. We are limiting this session to one question only per participant. One moment, please, for your first question. Your first question is from Blaine Heck from Wells Fargo. Please go ahead.
Blaine Heck (Executive Director and Senior Equity Research Analyst)
Hey, great. Good morning. Can you just touch a little bit more about the pace of leasing you're seeing thus far in the second quarter, whether you're seeing a notable pullback in activity and whether that's any more apparent in specific markets or if there are any that are more insulated? Related to that, how quickly you think leasing could return to normalized levels or better given pent-up demand once trade agreements start to materialize?
Marshall Loeb (CEO)
Hey, good morning, Blaine. It's Marshall. I'll take a start at that and Brent, jump in with any color. We've been really pleased with our leasing volume, I think, from the industrial. If I go back just a moment, our fourth quarter was our best quarter ever in terms of square footage leased, and our first quarter was our third best quarter ever. Really, as kind of post-election, as some of our peers have talked, things seem to feel like there was maybe at least, for better or worse, you had an election behind you and you had some things like that, and we had a lot of volume. As you said, supply has been falling now for 10 quarters. In certain markets, it's as low as it's been in 8 to 10 years in terms of what's in the construction pipeline.
We're excited about that. Longer term, in terms of leasing volume, I know it's been—it was early this month. It's really been awfully soon to tell. We haven't really seen leasing volume. There's really specific one market and even one building where we've had one, I believe, was just before kind of tariffs were announced at our Dominguez building. It's in Carson, California, near the ports of LA and Long Beach, where we've had two different leases out on that building and both prospects. Neither has gone away, but in both cases, they put things on hold until there was a little more certainty. I get that. They were Asian-related, port-related users. I like that our buildings, by and large, but for the vast majority, serve the consumer. We want to be as near the consumer as we can be and not port-related.
Our leasing volumes have really not shifted. We're happy with where we sit at the end of April, but it's still kind of a wait and see. To date, if you talk to our teams in the field, absent California and specifically LA Orange County, which is not new, that market's been struggling for a little bit. That's where we felt it. The other markets still feel, knock on wood, pretty solid. Probably the further east you go in our portfolio, the better the leasing volume has been. The Carolinas, Atlanta, Florida have been a little bit ahead of some of our other regions, but it's not to say Texas is bad. It's just not quite the pace we've seen in the eastern region of late.
Blaine Heck (Executive Director and Senior Equity Research Analyst)
Great. Thank you.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Samir Khanal from Bank of America. Please go ahead.
Samir Khanal (Director of US REITs)
Hey, good morning, everybody. Marshall, one of the comments you mentioned, even in the press release and even kind of your opening remarks, was that you're working to complete leases as quickly as possible, right, given sort of the macro environment. You talked a little bit about the urgency. Maybe expand on that. I mean, are you willing to be a little bit more flexible with tenants in terms of their demands? I mean, what are you giving up on your end to kind of get the leases through? Just is it lower rents to gain the occupancy? Maybe help us think through that. Thanks.
Marshall Loeb (CEO)
Sure. No, good question. Good morning. It's good to see you with a new business card. Congrats on the new role, Samir. In terms of leasing, maybe a little bit, as I expand on it, the two leases we've been out, for example, in Los Angeles on this building, the terms are pretty similar. Our leasing attorneys that we use are usually pretty prompt, but we've said, "Let's try to move as quickly as we can in responding to their counsel's comments, getting permits, getting everything we can," because it feels like you're one news cycle away from someone saying, "We're going to put things on hold." Thankfully to date, it hasn't been the economics. I think we've always wanted to be fast on leasing, but we've said in this environment, probably there's even more of an emphasis.
Let's try to turn the lease comments as quickly. Let's get proposals out as quickly as we can because things were going great through March, and they certainly haven't turned, but there's a lot of reasons where people could put things on hold. That's what we've said. Okay, let's take the burden hand. Let's get the deal done as quickly as we can. I think in terms of credit and things like that, we've held our standard. We haven't really thrown in more tenant improvements and things like that. That said, I would say you always have to realize, I won't even say just your market, but your sub-market and what your competition is. I think in Los Angeles, we would probably stretch a little more. Just that market still has negative absorption compared to Dallas, Houston, Orlando, Charlotte.
There, we would probably stretch a little more to make a deal. We do not want to make a bad deal. The beauty of the industrial product, unlike some other sectors, is our tenant improvements really usually average about $1 per sq ft per year of term, and the majority of that, 60% of that, is commission. That is where I like that our TI numbers are so much lower than other product types, and we are trying to be careful and get letters of credit and things like that. So far, we have not—it has been more about timing than terms, a long-winded way of saying.
Samir Khanal (Director of US REITs)
Thank you, Marshall. Thank you for the comments as well.
Marshall Loeb (CEO)
Oh, you're welcome.
Operator (participant)
Your next question is from Craig Mailman from Citi. Please go ahead.
Craig Mailman (Director and Equity Research Analyst of Real Estate and Lodging Team)
The Dominguez building. I know you guys put that in the redevelopment this quarter. Just kind of curious, was that always the plan to put it in redevelopment after Starship left, or was that because of some of the kind of commentary you were getting from some potential tenants there? Just what's embedded in guidance for the backfill of that building? I know you guys came in a couple quarters ahead on cons. Just kind of curious what is embedded from a timing perspective for Starship.
Marshall Loeb (CEO)
Sure. Good morning, Craig. I guess a little bit just the history on that building, and that'll kind of lead me into the redevelopment. We acquired this building, and it was in 1996, and we were fortunate enough to have the same tenant in it through the end of 2020. It got dated because it was a customs warehouse, port-related, heavy tenant, active tenant use, maybe a better way to say it. We had it scheduled for a redevelopment in 2021. If you remember, that was kind of when LA went bonkers, right, several months into COVID. Before we could start the redevelopment, Starship said, "We'll take it as is," and we were able to negotiate minimal tenant improvements and a pretty big rent bump. When they went bankrupt or really got into trouble kind of starting mid-last year and into bankruptcy.
We're putting in the sprinkler systems, more than you want to know, not ESFR, where it's, again, an active use, but we've had an asphalt truck court, so we're replacing that with concrete, really modernizing the building, motion sensor lighting, building a second office component, which really all of our buildings have, so that it can be a multi-tenant building. I would describe it as really 30 years of deferred TI that we're kind of now we have a chance to do. The good problem is it's always been leased. Really our definition, which you may have seen the press release, us and some of our peers in terms of redevelopment, all that, call it rounding $8 million that we're putting into the building is thankfully more than 20%, well in excess of 20% of our basis in it after 30 years.
That threw it into the redevelopment. Hopefully we can look, we've got several prospects. The activity has been good on this building. It's actually been better in the last, call it 90 days, than it's been kind of at any point in terms of releasing it. We've just probably, I won't say celebrated too early, but when you think when you have a lease out and you're going back and forth with attorneys' comments, that's where both of the tenants, and I get it, they're both importing from Asia, have said, "We're going to wait two or three months." I guess I'm hoping they're waiting for headlines, and as soon as they're comfortable with the environment, we've got several active prospects on the space that we can get at least. That said, we won't be able to finish the improvements to the building.
We don't have a truck court today. It'll be probably July timeframe when we think we can finish all the improvements. I think in our budget, we've got it being leased several months after that. We've kind of like cons, the big con space. We thought we were getting ahead of this year's budget, but it's too early to tell on this one. I think since it's in redevelopment, it's usually 12 months after we finish development, or this is the first redevelopment we've done in about a decade that we were talking earlier internally. Hopefully we can beat that year and we'll pull it back in the operating portfolio. That's been contemplated in our original budget that we've had this pent-up need to really modernize this building. In our original budget, we had it planned as a redevelopment. We had it planned in 2021, and then we planned it again in 2025.
Brent Wood (CFO)
Just to be clear, Craig, we got this question some. In our original first guidance back in February, the Dominguez was not—we did not have that included in the same store. It was not something we changed from last guide to this guide in terms of how we were looking at that. It did not have a—we had a 40 basis point increase in our same store guide this time, but that was not any part of it in terms of how we are handling that. As Marshall said, from a guidance standpoint, we are showing a tenant maybe occupy that building in fourth quarter. We are not showing anything imminent there. Although we are marketing the space and they have got prospects, from a budget standpoint, we are not showing anything happening there till late in the year.
Operator (participant)
Your next question is from Alexander Goldfarb from Piper Sandler. Please go ahead.
Alexander Goldfarb (Managing Director)
Hey, good morning down there. A question for you, Marshall. You guys talked about delaying the development starts until later in the year, which obviously reduces the overall amount you plan to start. Your comments on the leasing environment apart from LA seem pretty healthy. My question is, what's really going on that's causing you to pull back on development starts? From a tenant perspective, it doesn't sound like there's any real fear about tariffs. It sounds like the businesses are just sort of operating in whatever tariffs are going to happen. People just feel like they're going to manage it okay. Is that sort of the general takeaway, or is this people want to see actual tariffs in place before they start adjusting their plans?
I'm just trying to understand your comments on the overall healthy leasing environment apart from LA versus your pulling back on development when it would seem that your hand is strengthening there as your merchant builders have pulled back dramatically.
Marshall Loeb (CEO)
Good morning, Alex. Fair question. I would say expectations. You're right. Four months into the year, things have gone as budgeted or a little ahead. We're better off than we thought we would be. Ultimately, on our starts this year, I hope our kind of our new number, $250 million, turns out to be low. We'll go as fast as prospects lease space, kind of in good or bad markets. We'll go as quickly as we can get the next building going. It was more with the uncertainty of tariffs, uncertainty of has the likelihood of a recession increased and things like that that you see in the news.
We thought, "Okay, our starts are probably could be one or two buildings to get that to that $50 million, one or two, two, three projects." There is more chance that some of those get delayed than there was with our original budget. In the field, we have not seen the pullback, and we may not. Either it could get resolved, it may not happen, but kind of expectations are that I think a number of prospects will—the corporate will say, "Let's put decisions on hold for 30-90 days," kind of like what happened to us in Los Angeles. That could end up more likely than not that with nothing specific identified that, say, three of our developments get pushed into maybe first quarter of next year, then fourth quarter this year. Ultimately, we will go as fast as the market allows.
It was really more just expectations than anything factual to date.
Alexander Goldfarb (Managing Director)
Thank you.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from John Kim from BMO Capital Markets. Please go ahead.
John Kim (Managing Director of US Real Estate)
Thank you. You talked about LA being weak. I wanted to ask about leasing spreads you had this quarter, which were 5% on a GAAP basis. I realize it might be a small sample size, but it does seem low in light of market lengths that have increased around 30% over the last five years. I was wondering if you're just being defensive, ultra defensive in that market, and if this will be representative of lease spreads going forward in this market.
Marshall Loeb (CEO)
Good morning, John. I do not think it is representative. I think of certainly Los Angeles. You are right. We are about 5% of our NOI in LA and just did not have many leases roll first quarter. There is more embedded growth in our portfolio than that shows. That said, I would say Los Angeles is one of the few markets we are in where we have seen rents go backwards and where absorption is still negative. I think the numbers I saw were about for LA, not Inland Empire, but LA, -2 million sq ft of absorption, and that was the ninth consecutive quarter. That is really an aberration to us where Dallas and Atlanta have multiple years of positive net absorption. That market, to me, does not feel like it has found its footing yet.
5% is abnormally low, and I would expect as the year plays out, that number will grow more in line with what you said, kind of depending on how recent the lease is that rolls that will do a little bit better on our releasing spreads in Los Angeles than first quarter. It is really just kind of a statistically odd sample set.
John Kim (Managing Director of US Real Estate)
Great. Thank you.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Vikram Malhotra from Mizuho Securities. Please go ahead.
Vikram Malhotra (Managing Director)
Good morning. Thanks for the question. Just wanted to follow up on development. A couple of parts to it. Just one, can you give us a sense of what you actually need to lease up this year to kind of hit the middle of the guide or even maybe the low end of the guide? Related to development, one of your peers talked a lot about build-to-suit activity picking up versus last year. I'm wondering kind of what you're seeing in your markets on build-to-suit. Just finally on that development, you mentioned higher heels or changing underwriting. Do you mind just giving us more color there? Thanks.
Brent Wood (CFO)
Yeah. Hey, I'll jump in. Vikram, with the first part, from a guide standpoint of development, really, as Marshall mentioned, not only did we take the development start number down a little bit, we also pushed the starts back in the year. Really, more just from a point of being conservative, more so, as Marshall said, if we can do it faster, we will. We're not making an arbitrary assessment of we're just going to delay. It was just more of the uncertainty of just pushing that back some. To that vein, our lease-up of projects too, we pulled that back and pushed that back a little later in the year as well. We have de minimis, almost no FFO or leasing income projected second and third quarter. What we do have projected in the year is embedded in fourth quarter.
To your point of what would kind of have to take for that to have impact and to lower us from the midpoint, it would have to be something that would drag through the year and prevent us from getting tenants in a few spaces by fourth quarter. We hope that proves to be a conservative approach, but that's just where we stand at the moment. We did soften both of those. I'll maybe let Marshall talk about the build-to-suit activity from that standpoint. Really, for us, as we always have, Vikram, with our buildings and multi-tenant style development parks, build-to-suits are great when you can get them. When you're building a 100,000 sq ft, 150,000 sq ft building designed for two to four or five tenants, build-to-suits for us are less frequent. Certainly, we can have those opportunities.
You'd like to remove the leasing risk. For us, it's not something we're seeing an increase in interest in relative to the product type we offer.
Operator (participant)
Your next question is from Ronald Kamdem from Morgan Stanley. Please go ahead.
Ronald Kamdem (Managing Director, Head of US REITs, and CRE Research)
Great. Just a quick two-parter. Just staying on the development, just any sort of quick indication of how much construction costs have gone up and which parts and which pieces of it and what magnitude. The follow-up is just we've heard more utilization of space from 3PLs. Curious if you're seeing that as well and any other sort of tenant bases that are utilizing their space more in this environment. Thanks.
Marshall Loeb (CEO)
Hey, Ron. Good morning. It's Marshall. Yeah. We're much more concerned about development demand than, thankfully, construction costs have come down about 10%-12% in the last year. Speaking with our construction team, so far, their anticipations, we don't really use lumber, so that won't be a factor. That's one of the items that could potentially go up. What we've heard is rebar, which obviously we'll use that in the concrete, maybe up about 10%, and storefronts where we'll have the aluminum storefront. I think the flip side of that, which will help industrial developers, is the construction pipeline is so low, and that's really across all product types. What we're hearing is the general contractors and the subs are so hungry for business, and there's labor availability that there wasn't at the peak.
I think what impact we'll get from tariffs will be, knock on wood, pretty minimal is the feedback we're hearing. Roofing materials are largely U.S.-based, things like that. I think our concerns are much more about the numerator, the demand side than the denominator side in terms of the impacts. I think in terms of utilization, probably the bigger the space, the more the tenants can invest in, ultimately invest in the space and utilize it. Ours is oftentimes just such a fast throughput, kind of that last-mile delivery. I don't know that our tenants specifically are utilizing their space much more.
I think if anything, where it has been, it's been a pent-up demand that because of the economic uncertainty, a lot of our conversations over the last 12 to 18 months have been, "We'd like to expand, and I'm trying to get corporate to give me approval." That's probably in itself led to more intense utilization of their space. What we're excited about, if we can get that kind of clear runway like we had in fourth quarter and first quarter, you saw the leasing volume or how well our type buildings were kind of leasing, the 10 development leases that we've gotten signed year to date, including several of those were after April 2nd. We're happy to see that volume. I think it's there. We just need a little bit of a stable economy.
Our model works really well is what the last two quarters have shown us.
Ronald Kamdem (Managing Director, Head of US REITs, and CRE Research)
Helpful. Thank you.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Todd Thomas from KeyBanc Capital Markets. Please go ahead.
Todd Thomas (Managing Director and Senior Equity Research Analyst)
Yeah. Hi. Thanks. Marshall, you mentioned in your prepared remarks that you raised your threshold for new investments. Brent, you touched on some of the changes you made to the outlook related to development starts, but curious if you can talk about acquisitions and provide an update around how you're thinking about return thresholds for acquisitions. Can you comment on whether you've seen any change in sellers' willingness to transact or any deals pulled from the market or any fallout related to some of the uncertainty here over the last few weeks?
Marshall Loeb (CEO)
Yeah. Good morning, Todd. On acquisitions, kind of I guess, again, it's only been a few weeks, but what we've done, there were a couple of projects. One, we were kind of in the last rounding third on an acquisition. We hadn't been awarded it, but we were one of, I think, two or three. We were very open with the seller that, given the change in capital markets, that we were valuing it differently. So we ultimately, which we never do, resubmitted our third offer at probably a 50-75, I'm trying to do it from memory, 50 or so basis points higher yield. That went ahead and went through. We were the only public bidder at that point. I don't want to violate our confidentiality agreement, but that one didn't retrade. But we've pulled back on a couple of acquisitions.
We maintained our acquisition guidance in terms of volume at $150 million for the year, but we moved it to later in the year, really. Our thoughts were our own cost of capital has moved higher and our ability to issue equity, that window closed. We want to be very careful with our own capital. I'm glad we have the Brent and the team had the equity forwards raised, and our line of credit has nothing on it, but our access to capital suddenly changed in early April, and we want to be very prudent in how we use it. We backed away from a couple of acquisitions. I hope I do not regret them later in the year, but at the time, we thought it was the right thing to do.
One acquisition, I just heard that the seller's expectations, the two things we've heard, one was a 25 basis point increase in the cap rate they were expecting, which we didn't view that as enough to really pull us back into the bidding process on it. We'll see where it ultimately. Both of these were new and multi-tenant leased, kind of EastGroup type properties, projects in existing markets. I have heard from the brokers that there are several sellers that may shelve their listing and come back to market later. Look, uncertainty is usually when we found our best opportunities, and it may not help this year's budget, but patience is usually rewarded.
We've just said, "Let's wait for both of these were good investments, but they weren't compelling enough given the environment." That's what we've kind of said, "Let's be a little more comfortable before we break ground on the next development and be a little more enthusiastic about our net" not that we weren't enthusiastic, but we didn't think either of these were steals. We were just paying market for good properties long term. We've backed away from a couple of things, and I've not really seen in the market it play out. One went through as priced. One I'm hearing is moving back up 25 basis points. We'll see if the brokers call us back at an even better price next week. We'll see.
Operator (participant)
Your next question is from Omotayo Okusanya from Deutsche Bank. Please go ahead.
Omotayo Okusanya (Managing Director and Head of US REIT Research)
Yes. Good morning, everyone. I just wanted to stick on this topic of tariffs and the belief that maybe that kind of drives more manufacturing and things like that to happen within the U.S. Just kind of curious, just the whole idea of onshoring, how you kind of think about that, whether you think that could actually be a reality this time around versus in the last Trump administration where it was also potentially discussed, but we just did not see a lot of onshoring activity.
Marshall Loeb (CEO)
Good morning, Tayo. One, the questions I'm qualified to answer and questions I'm not. Look, I think the administration's goal is clearly to have more U.S.-based manufacturing. I hope that happens. If it does, it's good news for EastGroup in a couple of ways. One, it'll be a slow-moving train to build the factory and get the production in. We've certainly seen it in places like Austin with Tesla, a lot of the green energy. Some of the we're servicing in Dallas, one of the semiconductor plants that are new. Where I say it'll help us probably in twofold, there's a good chance those manufacturing plants will be in a Sunbelt market. They'll probably be in the Carolinas and Georgia, Texas, Arizona. It'll probably have more likelihood than in New England typically, or they haven't gone to California, things like that. We'll pick up the supplier.
We won't have the plant, but there's a good chance we'll have the supplier to the plant. I hope that's true. The other thing that may be more likely than potentially onshoring, it seems like, and again, this is well outside my expertise, but if you think who will be the trading partner that ultimately stands to lose the most would be China. That's been the trend, the China plus one manufacturing. I think Mexico will be a net winner of that. We're certainly running from San Diego through Arizona and Texas. I like those markets in and of themselves. Phoenix is a good market that also happens to be near Mexico. Same with Dallas and Austin. I like that we're, I think if we have nearshoring, we'll be a beneficiary in those markets, and they'll be fine with or without it.
I think, look, I think it's coming. I think it'll just be it's been coming. It's just been a slower play. We've seen El Paso there for several years where we were experiencing doubling of rents on our releasing. El Paso slowed down a little bit, but we were doubling rents in El Paso for two or three years for the first time in 15 or 20 years ever, as Brent just said.
Omotayo Okusanya (Managing Director and Head of US REIT Research)
Gotcha. Thank you very much.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Mike Mueller from JPMorgan. Please go ahead.
Mike Mueller (Senior Equity Research Analyst)
Oh, hey. Quick question on development. Are there any specific characteristics of the developments that you essentially took out of your start guidance versus the ones where you think you'll move ahead with sooner?
Marshall Loeb (CEO)
Hey, Mike. Good morning. No, nothing. It was more of nothing specific. It was, if you ask the field, probably development starts will be pretty similar to what they thought in our original budget. It was more, look, especially if it's wrong, I won't pull Brent in. It was more our own unease over where the economy was heading and that we said, "All right, look, it's probably going to it's probably not going to this cloudiness won't speed up development. It'll slow it down." Without any specific markets, we said, "All right, maybe I could see maybe three projects around $50 million getting kicked down the can time-wise a little bit." It's not that they won't happen. They just may happen in 2026 rather than 2025. If the tariff discussions get resolved more quickly, I could easily see us moving back to $300 million.
The optimist in me could see us easily moving back to 300 or above, wherever the market kind of as much as it lets us do.
Mike Mueller (Senior Equity Research Analyst)
Got it. So a high-level change as opposed to just on-the-ground project changes, basically.
Marshall Loeb (CEO)
Yeah. Nervous people at corporate, yes.
Mike Mueller (Senior Equity Research Analyst)
Okay. Okay. Thanks.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Rich Anderson from Wedbush. Please go ahead.
Rich Anderson (Managing Director)
Thanks. Good morning. Marshall, you said at the outset, active prospects remain active, which is good, but perhaps hesitant. I'm wondering if you guys can draw any similarities to times of the past about how to manage the current situation because it seems to me if the concern is a recession, it doesn't appear like there's a building blocks for a deep recession to take place. If there's this pull forward of demand scenario that, like you've seen in the past during the early stages of the pandemic, are there similarities in terms of the cadence of how things might go from here that are guiding your decision tree? You mentioned reducing development, but you could turn that on pretty quickly in this space and in your world. I'm just wondering how much you're looking at past periods to guide you in the future.
That would be my question. Thanks.
Marshall Loeb (CEO)
Good morning, Rich. Thanks. I think this one is a little different to me. When I think of COVID and the GFC or even way back when the tech bubble and some things, those were, to me, years in the making and were not very quick fixes. This one feels suddenly hit and man-made. It could maybe go away just as quickly. If they announce trade agreements with a number of countries, this could dissipate more quickly than the subprime mortgage crisis or some things like that. I am grateful we are very tenant diversified and close to the consumer in that we have, in other meetings, reminded people, "Look, we have been in markets like Houston and Jacksonville for 30 years, but we are not near the port." We may have missed some opportunities not being at the port, but we have always wanted to be near the consumer.
If it does affect us, it'll affect us more than global trade. It'll be a recession. I like your optimism that the fundamentals aren't there. You're right. Our active prospects, when I talk to the teams in the field, tariffs don't often come up in our conversations unless they've been watching our stock price or reading the Wall Street Journal, thankfully, today. There's that dichotomy. This one does feel a little different, but we've said really this year, we've talked to our own board about capital markets. It's going to be the world seems so much more volatile. When the window's there, let's either raise the equity or let's make sure we get the lease signed before the next tweet comes out or something.
It does feel like when things get bad, they get bad in a hurry, and they improve gradually and get bad in a hurry. We have said, "Let's get the lease signed. If you're comfortable with it, we do not have to negotiate to the nth degree of everything. Done is better than perfect sometimes." That is kind of where we typically are, but that is what we have really emphasized with the team here in the last since April 2nd. Done is better than perfect.
Brent Wood (CFO)
Yeah. I would just add to that, Rich, it's kind of like, to use an analogy, kind of like a good recipe. In markets like this, you don't doctor it. If you have a good recipe, you just execute it. And we've had a long track record of doing that. As Marshall said, in this, you're just heightened awareness of executing what you do. Again, a long track record of doing what we do. As Marshall mentioned earlier, a lot of times in uncertainty, it can create maybe even opportunity. You get something disjointed and something breaks loose from someone else. You keep your eyes open for those opportunities as well. Yeah, we've got a long track record and a great balance sheet to handle whatever comes our way.
I think it's just heightened awareness of executing and kind of sticking to the blocking and tackling of your core business, which we've had a long track record of doing.
Rich Anderson (Managing Director)
Great. Thanks, everyone. Appreciate it.
Marshall Loeb (CEO)
Thank you.
Operator (participant)
Your next question is from Michael Carroll from RBC Capital Markets. Please go ahead.
Michael Carroll (Managing Director)
Thanks. Marshall, I wanted to follow up on your comments regarding the acquisition market and how you changed your underwriting or looked at an asset differently that caused you to increase the cap rates by 50 basis points. Can you provide us some details on how are you looking at that acquisition differently? I mean, did you change your cash flow assumptions, or did you just increase your return hurdles just given the market uncertainty? I guess, how specifically are you looking at that differently now?
Marshall Loeb (CEO)
Yeah. Again, right or wrong, it was a newer asset, existing market, leased. I'll credit the sellers. They had a good project on the market. It was more our own access to capital. We've been able to use Brent and the team, our ATM, fairly regularly. We knew that window was closed. We thought uncertainty, as Brent just mentioned, leads to opportunities. We felt like this was a good but not a great investment. We said, "All right, what makes it a great investment?" Maybe not very creative. We thought 50-60 basis points, a little bit lower price per square foot, long-term, and a little better yield mark-to-market going forward. Again, the market, we blinked maybe, but the market did not. It has not closed yet, but the market went forward.
It was really thinking, "Let's be, not that we're not always mindful of how we use our capital, but when that window's closed and also closed for the world for a little bit, let's have that flexibility. There may be some opportunities coming." This was a good but not great opportunity. We kind of backed into, in a quick manner, "Where do we think, where do you feel like this becomes a compelling investment, not just a good investment?
Operator (participant)
Your next question comes from Michael Griffin from Evercore ISI. Please go ahead.
Michael Griffin (Director)
Great. Thanks. Just kind of curious your thoughts on sort of the tenant health environment. I realize that you have a very diversified tenant base, but I imagine that if there are cost pressures on some of those maybe small and medium businesses that could be occupants of your facility, they could really feel maybe more of a squeeze on margins. Can you give us a sense? Are you monitoring anything there? Is there anything we should kind of keep in mind from that tenant health perspective, particularly for that cohort of tenancy?
Brent Wood (CFO)
Yeah. And Griff, welcome aboard. Good to have you. Good to have you following us. We appreciate it. Our tenant collections, as I mentioned sort of in the prepared remarks to begin, remains healthy. That said, we're still looking to be in that, I think, as I mentioned in the comments, that 40-50 basis points of uncollectible rent relative to our overall revenues. That's just slightly ahead of sort of our historical average, a little bit below where we were for 2024. First quarter was kind of running the way it has been lately. As of now, we're not projecting much of a change in that. Someone asked me the other day about tenant health since April 2nd. We haven't even had another rent check come due yet. Literally, May's rent did not even due yet. It is early.
To the extent that it might impact, we'll see. Our portfolio and our tenant base, us being in the high-growth markets near the rooftops, we've tended to move more with the overall economy of the local metropolitan area and less with if container traffic slows coming in and out of Asia or somewhere else. That would be to say, I think it would take more of a trickle-through process and for the consumer ultimately to get hurt for it then to feel more into our portfolio if that were to happen. The tenant health's good. California last year was about 80% of our bad debt. In first quarter, that was 50%. Still a more proportionate share relative to the group. That said, just seven tenants comprised almost 90% of the bad debt in first quarter. It still is a manageable figure.
Just maybe slight uptick from historical averages, but first quarter was kind of the same cadence that we had experienced last year. As of now, that's until we see something different on the ground, that's what we've dialed in and that's what we're anticipating.
Michael Griffin (Director)
Great. Thanks so much.
Brent Wood (CFO)
Yep. Thanks, Griff.
Operator (participant)
Your next question is from Vince Tibone from Green Street. Please go ahead.
Vince Tibone (Managing Director, Head of US Industrial, and Mall Research)
Hi. Thanks for taking the question. Can you discuss just how much additional development leasing that has not yet occurred is included within FFO guidance? How many cents is kind of speculative, if you will, from just additional stabilization of the lease-up pipeline?
Brent Wood (CFO)
Yeah. As I mentioned earlier, we've not put an exact number out there because, again, the leasing's fluid. One of the reasons Marshall mentioned, we've signed three leases since we even prepared the budget. Obviously, the budget gets prepared in advance of the documents going out. Some of that has already made its way through. It is more fourth quarter weighted. I hesitate to give a range, but it is more in that, I would say, $0.05-$0.06 range total for the year in terms of spec amount that we would need to accomplish, again, back-end weighted. Some of that has taken place. That is, like I say, literally a spot number that can move week to week depending on leasing and what the assumptions are.
We did take that number down relative to what it was our last original guide in February. We pushed it back and took it down. Just to put that in context, that is a pretty low figure for this time of year for us, given that we typically do just strictly spec development. That figure is lower than it would be in a typical year for us if we were ginning along at a little higher development pace.
Vince Tibone (Managing Director, Head of US Industrial, and Mall Research)
No, that's really helpful. I appreciate the color. Thank you.
Brent Wood (CFO)
Yep.
Operator (participant)
Your next question is from Nick Thillman from Baird. Please go ahead.
Nick Thillman (Senior Research Analyst)
Hey, good morning out there. Maybe just two quick ones. Brent, first, on bad debt, its percentage revenue for the first quarter. What's the exact number on that?
Brent Wood (CFO)
The exact number for those sitting on the edge of their seats here, let's see. I've got it. It was 0.49%. And we're showing about 0.4%. And we've got dialed in for the year about 0.45%. As I mentioned, we're kind of depending on quarter. The first quarter was obviously actual. The other three quarters are more not tenant-specific, but just placeholders. Like I say, I think we're showing I said 40-50 basis points. Literally, I think 45 is what we're showing for the average for the year, so.
Nick Thillman (Senior Research Analyst)
No, that's helpful. Just last one, kind of development yields, obviously, in the supplemental numbers kind of went up. You commented a little bit on construction costs in certain markets coming down a little bit, but maybe talk about market rent growth dynamics you're kind of seeing in each of the markets and what's driving sort of the yields between the cost versus just rate growth.
Marshall Loeb (CEO)
Yeah. We were happy, I guess, with the good morning, Michael. The developments that we delivered, we were actually at a 9%, which was a good bit above what we had underwritten. One of those, the larger of the two, was a pre-lease in San Antonio. We were happy. We had a good land purchase. We had no carry because it got leased. It was not one of a pre-lease or build-to-suit for that tenant. Happy to get those yields. They went up. It has really been more rent growth. I would say we were feeling pretty good about rent growth. It is awfully new now, but I would say absent Southern California, probably inflationary. The optimist in me, when I look at how low the vacancy rate is, we are about 3% vacant within EastGroups' portfolio.
Our market, usually where there is kind of a rule of thumb, where there is vacancy in a market, the bigger the space, the higher the vacancy rate. 92% of our rents come from tenants under, well, maybe a couple of stats. 92% of our rents come from tenants 200,000 sq ft and below. 75% of our revenues come from tenants under 100,000 sq ft. That is where there is just such a low vacancy rate. It will not take a lot of stable demand to work through, call it the 4% market vacancy. There is just an empty pipeline that we think will have a real jump, especially on our private peers, to get back in the development game. We can deliver a building in eight or nine months. That is where we really get excited, is when things do turn.
I have been predicting the turn way too early so far, but I think we will have a good runway of development coming out. That will push rents and ramp up our development pretty quickly when and if we get there. We were certainly moving there the last six months. We will just see how this plays out in this near term. So far, still so good so far.
Nick Thillman (Senior Research Analyst)
Very helpful. Appreciate it.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Brendan Lynch from Barclays. Please go ahead.
Brendan Lynch (Director)
Great. Thanks for taking my question. Marshall, you talked a bit about tenant diversity and low correlation of rent from individual tenants. How should we think about the correlation between customers serving similar end markets and how they will perform if we enter a recession?
Marshall Loeb (CEO)
Yeah. I mean, I think that's our, Brendan, good morning. That's our fear is really not just as a recession and where it shakes out. I think that things that make me feel better, what we said, I like our kind of defensive positioning that, thankfully, in a growing market with a growing e-commerce component, that just those two in themselves are going to lead to more demand. And we also see within our tenant base, kind of our tenants or that customer, part of their strategy is the faster and faster you can deliver, whether it's goods or services. That's where the market's going. It is pushing all of our tenants to have that kind of hub-and-spoke last-mile delivery. We like that in terms of just being a little more insulated than, say, port-related and things like that.
I do think I like that we're down below 6% of our leases rolling for the balance of the year. We're 90 surrounded. We're around where we ended the quarter, still around 97% leased. We feel pretty good about that. As Brent mentioned earlier, bankruptcies, but it is that if we're really consumer-dependent, and if the consumer starts to really falter, our balance sheet's safe, but I worry out of 1,400 tenants, how many of them get pulled under that?
Brendan Lynch (Director)
Great. Thank you for the color.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Alexander Goldfarb from Piper Sandler. Please go ahead.
Alexander Goldfarb (Managing Director)
Hey, thanks for taking the follow-up. Marshall, just not necessarily your real-time leasing discussions, but just tenant conversations in general. As people contemplate all the different tariff headlines and reports that we're all reading, what are the tenants really saying about how they're thinking about their business? Meaning, are they concerned about simply costs going up, or are tenants more concerned that their actual business may close or cut down? I'm just trying to understand. Obviously, there's nervousness over is there a recession or not. If your tenants think through about the ramifications, what is really their biggest concern? Is it more the cost of operating or that their actual business may be diminished?
Marshall Loeb (CEO)
I don't think it's as much. So far, thankfully, not. The tariff discussions are much more related. I've kidded. I said the closer to New York you are, the more tariffs are in a conversation. That it's been much more capital markets, Wall Street, than in our tenant conversations. It's been more about does the space work, what tenant improvements, negotiating terms. I was reading a list. A couple of your peers mentioned our Tampa, for example. Our Tampa occupancy went down, and it's a handful of tenants. When you look at what happened, nothing was tariff-related. It was one company got bought, one shut down US operations, things like that. It really was not tariff-related. It's really making sure their business model works. Sometimes it's getting the right amount of square footage where they're debating how much square footage do we need.
In this environment, that's what I've heard some of the brokers say, that the tenant brokers, every time we meet, the tenant tells me they need 20,000, 50,000. It's a moving target, finding the right space. It's been more that related than my costs are going to go up as a result of tariffs, if that's helpful.
Alexander Goldfarb (Managing Director)
Thank you.
Marshall Loeb (CEO)
You're welcome.
Operator (participant)
Your next question is from Blaine Heck from Wells Fargo. Please go ahead.
Blaine Heck (Executive Director and Senior Equity Research Analyst)
Great. Thanks for taking the follow-up. Several of your peers ran a stress test analysis on their operating metrics to indicate whether a significant deterioration in fundamentals could still result in earnings within the guidance range. It does seem like you guys are in a more stable position than peers thus far. I am curious as to whether you went through a similar exercise. If so, which metrics were stressed and by how much and kind of what the end result was?
Brent Wood (CFO)
Yeah. Blaine, we looked at that. We looked at occupancy. We looked at what if no more development leasing happens during the year? What if we do not have any more development starts? What if bad debt were to double? You get into, does that happen today? Does that happen August 1? Does that happen? As we were doing that, it kind of reminded us why we are not big on IRR models. The more you played with the different components, the more you played with them in dire situations, the worse the results were. We looked at it. Again, we feel good about where we are. Obviously, we not only reiterated guidance, but we actually bumped it a cent after a strong first quarter. I do not really want to put numbers to it because it is so many variables.
Obviously, like I say, even looking at something like bad debt or occupancy, not only do you lose 200 basis points, but at what point do you begin to lose it? As we sit here in April, we're one-third of the year, and we haven't lost it. We looked at it, and it would take some serious stress to push us out of the low end of the range. Let's just put it that way. A third into the year, we're not seeing or feeling that at the moment. As you mentioned, we're, I think, a little bit more slightly insulated from that with our business type. Reminder to our balance sheet, we're in a position where we hope to do things as we've talked about today, but we don't have to do anything. We're in a very good position.
We stress tested it and more for our own internal. I would also mention that we continually stress test our cash flow as well. It is not just happenstance that we had a good draw on the forward and our revolver available. We have always been looking at our needs for capital. We have always looked 12 months out to make sure even in good times, if the world stopped tomorrow and we could not raise another external dollar, we want to make sure that we have our immediate cash needs taken care of for an extended period. We have always stress tested. We have not always from an operation standpoint, but we did this quarter and feel good about where we are.
Operator (participant)
There are no further questions at this time. Please proceed with closing remarks.
Marshall Loeb (CEO)
Thank you, everyone, for your time and your interest in EastGroup. We hope we got to your questions. If not, we are certainly a phone call or an email away. We look forward to hopefully, there is a couple of conferences coming up here in the next month, six weeks. We see you there. Thanks for your time. Have a great day.
Brent Wood (CFO)
Thank you.
Operator (participant)
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.