Good morning, everyone, and welcome to the EastGroup Properties' fourth quarter 2025 earnings conference call and webcast. This call is being recorded on Thursday, February 5, 2026. I will now hand the call over to Marshall Loeb, CEO. Please proceed.

Good morning, and thanks for calling in for our fourth quarter 2025 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our President; Staci Tyler, our CFO; and Brent Wood, our COO. Since we'll make forward-looking statements, we ask you listen to the following disclaimer.

Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and our earnings press release, both available on the Investor page of our website in 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 in the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release, along with our remarks, are made as of today and reflect our current views of the company's plans, intentions, expectations, strategies and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual 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.

Thanks, Casey. Good morning. I'll start by thanking our team. They worked hard through a volatile environment last year, and I'm proud of the results achieved. Our fourth quarter and annual results demonstrate our portfolio quality and resiliency within the industrial market. Some of the stats produced include funds from operations were $2.34 a share, up 8.8% over quarter. And for the year, FFO per share growth was 7.7%. 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 97% with occupancy at 96.5%. Average quarterly occupancy was 96.2%, which was up 40 basis points from fourth quarter 2024 and reverses a downward trend we've experienced for the last several quarters. Also notable with same-store occupancy at 97.4%. This strength shows the trend we've discussed where the portfolio is well leased while development leasing has been taking long. Quarterly re-leasing spreads were 35% GAAP and 19% cash for leases signed during the quarter. Annual results were higher at 40% and 25% GAAP and cash, respectively, and cash same-store NOI rose 8.4% for the quarter and 6.7% for the year. Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to 6.8% of rents, down 40 basis points from last year. We target geographic and tenant diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we're pleased with our results and excited about the quantity of development leasing signed during the quarter, along with our current prospect activity. Reid will now walk you through more of our fourth quarter details.

In terms of leasing, fourth quarter improved materially from slower second and third quarter results, especially in development leasing. Our fourth quarter development leasing accounted for 52% of our annual total square footage, which makes it our best quarter of overall leasing in over 3 years. We're excited to see this pickup in momentum with the key being sustainability. The headline volatility impacted long-term decision-making last year. We believe businesses are more accustomed to outside noise and simply can only delay expansion decisions so long. We continue seeing a flight to quality which has contributed to EastGroup's portfolio occupancy outperforming the broader markets. As Class A shallow bay continues to be absorbed and new supply lagging, we anticipate increased decision-making and deal velocity. On the other hand, our development pipeline is leasing and maintaining projected yields but at a slower pace. This, in turn, lowered development start projections from earlier in the year. On our development starts, as we stated before, are pulled by market demand within our parks. Based on current demand levels, we are forecasting 2026 starts at $250 million. Longer term, the continued decline in the supply pipeline is promising. Starts remain historically low again this quarter. Couple this with the increasing difficulty we're experiencing with attaining zoning and permitting as demand increases, supply will be more challenged than historically to catch up. This limited availability in new modern facilities will place upward pressure on rents as demand stabilizes. And as demand improves, our goal is to capitalize earlier than our 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. From an investment perspective, we're excited to continue growing our Las Vegas footprint. We are also adding new land development sites in San Antonio and in the fast-growing supply-constrained Northeast Dallas submarket. Finally, as an important part of our long-term strategy, we continue modernizing our portfolio with our upcoming Fresno market exit. Staci will now speak to several topics, including our assumptions within our 2026 guidance.

Thanks, Reid, and good morning. We are pleased to report strong results for the fourth quarter and year 2025. These results were achieved by our team through variable market conditions that improved during the last few months of the year. Our FFO results for both the quarter and year met the upper end of our guidance range at $2.34 per share for the fourth quarter and $8.98 per share for the year 2025, which represents 7.7% growth over prior year FFO per share, excluding gains on the voluntary conversion. The outperformance in fourth quarter was primarily driven by property net operating income and continued strong performance by our 62 million square foot operating portfolio, which ended the year 97% leased and 96.5% occupied. We also achieved net interest expense savings that resulted from lower bank credit facility balances and a lower interest rate than originally projected on our new $250 million unsecured term loan that closed in November at 4.13%. We ended the year with $19 million drawn on our unsecured bank credit facility, leaving available capacity of over $650 million as of the end of the year. Our debt to total market capitalization was 14.7% at year-end. Our fourth quarter annualized debt-to-EBITDA ratio was 3x, and our interest and fixed charge coverage was over 15x. Our strong and flexible balance sheet positions us well to pursue growth opportunities that align with our time-tested strategy. Looking forward to 2026, FFO is estimated to be in the range of $2.25 to $2.33 per share for the first quarter and $9.40 and $9.60 per share for the year. Those midpoints represent increases of 8% and 6.1% compared to the prior year periods, excluding gains on the voluntary conversions that result from insurance claims. We are projecting strong cash same-property net operating income results for 2026, with a midpoint of 6.1%, driven by rental rate increases on in-place and budgeted leases and expected same-property occupancy of 96.3%. The midpoint of our 2026 guidance assumes $250 million in new development starts and $160 million in operating property acquisitions, which includes an acquisition in Jacksonville that is currently under contract with money at risk. Our rent collections currently remain healthy and in line with historical averages. So our projections for 2026 uncollectible accounts include a typical run rate in the range of 30 to 35 basis points of revenue. Please note that projected G&A expenses for 2026 are $27 million, which includes an estimated $4 million or $0.07 per share in costs related to the executive team transitions that were announced in December. Also, as a reminder, approximately 32% of the annual G&A expenses are expected to be recognized in first quarter, primarily due to accelerated expense for employees who are retirement eligible under our equity incentive plans. We have $140 million in unsecured debt maturing during fourth quarter 2026. We plan to fund those debt repayments and new investments throughout the year with our bank credit facilities and new debt issuance of $300 million. While our guidance assumes debt issuance, we will remain flexible and monitor the equity markets and may utilize both debt and equity as sources of capital. We're pleased with our strong performance in 2025. And as we look ahead through the year 2026, we are confident in our high-quality portfolio of well-located, multi-tenant assets and in our team's ability to execute in this steadily improving environment. Now Marshall will make some final comments.

Thanks, Staci. In closing, we're pleased with our execution for the quarter and year. Market demand is picking up momentum, and we're hopeful it's sustainable. Regardless of the environment, our goals are to drive FFO per share growth and raise portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders. Our executive team restructuring reflects the growth we've achieved and even more so the opportunities we see within our markets. Stepping back from the near term, I like our positioning as our portfolio is benefiting from several long-term positive secular trends such as population migration, near-shoring and onshoring trends, evolving logistic chains and historically lower shallow bay market vacancies. We also have a proven management team with a long-term public track record; our portfolio quality in terms of buildings and markets improves each quarter; our balance sheet is stronger than ever; and we're upgrading our diversity both in our tenant base as well as our geography. We now would like to open up the call for any questions.

The first question comes from Craig Mailman at Citi.

Congrats to Reid, Staci and Brent. I see Brent is already enjoying his promotion by not talking on the call.

Craig, give me a break. I'm here.

I wanted to explore the development leasing in more detail because there has been a significant increase. Marshall, you mentioned this during last quarter's call regarding NAREIT. Can you explain the current prospect activity and any trends you're observing among different sectors? Additionally, could you provide some insights on whether this growth is entirely organic or if there are existing tenants planning to leave, creating vacancies in the current portfolio as they transition to new spaces?

Good question. It was interesting throughout the year, and in the fourth quarter, people finally started making decisions and signing development leases. There were not many expansions, just a few with existing tenant relationships where we had a tenant in Orlando needing space in Tampa. That resulted in signing a full building lease. In terms of trends, it felt like we broke through some barriers, and over half of our development leasing for last year was signed in the fourth quarter. The challenge is hoping this trend is sustainable. We have promising prospects, and last quarter's high square footage was partly due to the low construction pipeline. We have about six to eight conversations in various stages of development, not all of which will materialize, but there are potential major agreements and build-to-suit opportunities. This gave us confidence to raise our development guidance for the year as some of these opportunities develop. It’s a mix of expansions and relocations, including some from California, so it’s a diverse portfolio update. I noticed that the pre-leases are spread across about six different states, indicating a broad base rather than being concentrated in one market. I'm cautiously optimistic as we move forward. I’m proud of the team for a solid fourth quarter where we successfully got things signed, and we’re seeing good activity to date. The conversion rate will be crucial.

And I would add to Marshall's comments on some of the specific development leasing in the year. Our average lease size in the quarter actually jumps to a little over 60,000 square feet, which was a nice uptick from previous quarters, which obviously helps move the needle. And then geographically, it was very dispersed. We saw great activity really from Florida all the way to California. So all of our development markets, we were fortunate to land some new deals in the quarter.

Next question comes from Samir Khanal from Bank of America.

Marshall, I guess your comments are very encouraging to hear, especially from even listening to the last question on development leasing. I guess how is that translating into pricing or market rent growth? I guess where do you see market rent growth going this year at the national level? And maybe talk about markets which are outperforming or even lagging at this point?

Sure. It's difficult for us to speak nationally as we are primarily focused on the Smile States. However, I can say that while we are pleased that demand has increased, it hasn't yet translated into rent growth. I am optimistic because the construction pipeline is at a low not seen in 7 to 8 years, and it will take time to catch up, which should eventually lead to rent growth. Currently, our markets, except for California, are showing steady rents, likely due to inflation. Construction pricing has decreased, and we have managed to maintain our yields slightly above 7% on our developments. There may be an inflection point coming, and I continue to anticipate when rents will rise again. There is limited supply, and as demand stabilizes, it won't take much for rents to begin increasing. However, we aren't seeing that momentum just yet. At least we're moving in the right direction as we close out the year.

The next question comes from Blaine Heck from Wells Fargo.

Just taking Samir's question a step further. I know you guys are typically hesitant to forecast rent spreads. But just looking at your expirations this year, the average rent is a bit lower than your forward year expirations at this time last year. I guess does that give you any confidence that you can hold spreads somewhat steady year-over-year? Is that lower expiring rent more of a function of the mix of markets and just lower rent markets rolling over this year?

Blaine, it's Marshall. I agree with you. I feel more optimistic when looking at what has expired, but it's really dependent on the specific market and even the submarkets within some areas. The trend is definitely downward, but I'm pleased we finished the year at 40%, even though our net effective rent at year-end was lower than at the beginning. I believe we will continue to see a decline, but hopefully we can maintain our position. We're still a few years away from experiencing negative rent growth. It's important to remember that we're in a cyclical industry, with cycles of underbuilding and overbuilding, and currently, we are underbuilt. As market conditions evolve, particularly in response to the previous question, I think we will see a rent inflection that will positively impact our portfolio's mark-to-market. This year, we should experience solid positive re-leasing spreads, likely concentrated in the latter half of the year rather than the first half. The question is when the market will shift, as vacancy rates are quite low. Additionally, in the shallow bay segment, our older buildings face more functional obsolescence compared to big box structures, which weren’t being built two decades ago.

Yes. And Blaine, I would add speaking specific to some of the markets, I like our diversity. So as California has maybe slowed some, other markets like Houston, which is one of our larger markets, has actually picked up some of that steam. So our diversity definitely helps as we go into the future quarters.

The next question comes from Alexander Goldfarb from Piper Sandler.

Congrats all around, and Reid, I'm assuming they told you all about the joys of endless NAREIT. So welcome to REIT land. Question for you guys on competitive supply. Industrials are always a big institutional demand area, and hard to believe that if things are good or getting better, that competitive supply is going to remain at a diminished level. So what are you seeing for the appetite from lenders, whether it's banks or private credit for development, and from the institutional equity side, what do you see as their appetite for existing versus getting back into development?

Yes, Alex, this is Brent. It's good to talk with you. We feel positive about the competitive supply, as Marshall mentioned. Our team focuses more on demand compared to supply, which remains tight. The vacancy rate for multi-tenant spaces is about 4.5% nationally, which is roughly half of the overall rate for larger spaces. One analogy we've been using is that if we could see an uptick in signing and momentum, we have a land bank and ready-to-go plans with permits. We're actively developing and want to do more, and we're ready to move quickly. We projected a slightly higher number this year, but we could ramp up further, and we're ready to do so. Our competitors are solid regional developers and equity partners. There has been some hesitance, but I believe that will change if the market improves. However, there will be a lag because these groups typically don't hold land inventory, which means they might need time to secure sites and partner with equity investors. Similar to the recovery after the financial crisis, we were among the first to enter the market and ramped up our activities effectively. We anticipate that could happen again. If we see a nice uptick, we could take action quickly, potentially getting ahead of the competition. We have mentioned this for the last two years, but the conditions are favorable for growth. I'm confident that this will transpire; it's just a matter of timing. Could this be the year? We hope so and are ready to act. If things continue as they have been for the last couple of years, we'll adapt. We feel optimistic about our competitive position and our potential to respond if the opportunity arises.

The next question comes from Nick Thillman at Baird.

Maybe a question for the COO or President here. I'm continuing on the land bank here. The overall basis here is around $32 a buildable foot. I'm sure there's a little bit more permitting and costs that have to go into that number. But as you just look at these new starts and potential yields assuming relatively flat just rent growth here, like what type of yields are we talking about on additional starts from here?

Yes. Nick, it's Reid Dunbar. I would say, going forward into 2026, we would anticipate similar yields of what we've achieved in '25. And thanks for pointing out the land bank; a little over 1,000 acres is something that we are bullish on. And as Brent mentioned, that's not easy to come by. The permitting and entitlement periods now take longer and longer and more and more challenging. So the fact that we have the land that we do, the portfolio and the relationships that we have, we feel like we will be able to take advantage when that demand starts to pick up with the team in place. And the majority of our land, especially for second phase developments, have permit in hand. So the team is geared up and ready to go, assuming the leasing continues to occur.

The next question comes from Brendan Lynch at Barclays.

Congratulations once again on your new role as CFO, Staci. You mentioned that the guidance takes into account additional debt issuances, but have you thought about the possibility of issuing equity? Could you explain what factors would influence your decision to switch between the two options regarding capital allocation, especially when considering the development pipeline and potentially scaling beyond your current guidance as well as possible acquisitions this year?

Sure. First of all, thanks, Brendan. I appreciate that. Excited for the team. And yes, as we enter the year, our guidance does assume $300 million in debt issuance, and we really are constantly monitoring the debt and equity markets, remaining flexible. And while we assume debt issuance, we're monitoring the cost of that debt versus the cost of equity. Ideally, we're in a situation where we can toggle back and forth and have a balanced approach. But in guidance, we contemplate debt. We have plenty of room on the balance sheet to fund the opportunities that come our way this year between development starts and acquisitions. So we could certainly issue debt or debt and equity beyond the $300 million. And we also have plenty of capacity on our bank credit facilities. At year-end, we had less than $20 million drawn. So over $650 million available. So we can immediately fund those opportunities that we think make strategic sense for the company, and then we can either issue debt or equity beyond that. Right now, we're around a 3x debt-to-EBITDA so when we think about the strength of our balance sheet, we have a lot of dry powder; sub-5 debt-to-EBITDA would be a long-term range that we would want to stay in. But even with the debt that we have contemplated, we're still in the low 3s as we think through the end of the year. So plenty of capacity if we were to find additional opportunities. So it's really not that we have capital constraints, it's more of the opportunities that we find and that's what the teams are working hard to find those opportunities that make sense. And with accretive acquisitions on day 1, we can certainly enjoy using that dry powder to continue to grow earnings.

The next question comes from Todd Thomas from KeyBanc Capital Markets.

I appreciate all the commentary around development leasing in the quarter and the prospect pipeline sounds encouraging. What's assumed in guidance in terms of development lease-up both on assets already converted, including Horizon West perhaps? And then what about the 1Q and 2Q scheduled conversions? How are you thinking about the lease-up and sort of what's included in the guidance?

For the year, we have about $0.07 allocated for speculative development leasing in our budget, which corresponds with our project starts this year. It's primarily back-end weighted, meaning we're relatively low in the first two quarters, but we expect a pickup in the third and fourth quarters. We still have time to finalize our plans, and we have already signed some leases in the fourth quarter, so we are working on getting those tenants moved in and completing the build-outs. This means we are focused on construction at the moment. However, the real impact of bringing in new tenants will primarily be seen in the third and fourth quarters. Optimistically, this could also allow us to exceed this year's budget.

Okay. The $0.07 is all new incremental leasing or related to new incremental leasing? Or is some of that from the fourth quarter leasing that will come online late in the year?

It would be new spec. If you said how much speculative leasing do you have in this year's budget, it's $0.07 of the $9.50 and that's back half of the year. Does that make sense?

The next question comes from Rich Anderson from Cantor Fitzgerald.

Congratulations, everyone. Marshall, since every brain has four lobes, I want to focus on one or two of yours. Looking at guidance for the future, last year at this time, it was projected to be between $8.80 and $8.90, and you ended up at $8.95, which was a beat of $0.10. You also exceeded same-store NOI by 100 basis points relative to the initial guidance. That year, you faced challenges like Liberation Day and political changes. Now, considering today's outlook, I'm sure you feel more confident than you did a year ago. Can you share your thoughts on how to establish guidance now, especially with clearer conditions? Is there a sense of conservatism in your approach? Do you aim to set yourself up for a year where you can beat expectations and raise guidance? What's your perspective on setting guidance today while considering the potential for growth throughout the year?

Rich, it's Marshall. I appreciate the creativity, but I don't really know if I have a frontal or rear lobe. Regarding our budgets, they will come together suite by suite from the field rather than being dictated by corporate. This approach ensures realism. The teams understand their capabilities, and the regional managers will challenge them to ensure the budgets are appropriate. Over time, I've gotten to know their personalities; I could share insights over a drink regarding who tends to be conservative or aggressive with their budgets. I want to commend the team; we review the budget thoroughly and often aim for numbers that are a bit higher than what initially comes from the field, as they excel at finding ways to outperform. Once we set a budget, we examine it against our goals and strategize ways to exceed those goals. Reflecting on last year, the fourth quarter was particularly strong for leasing, and the first quarter felt like a turning point around April. In our discussions, there were questions about stress-testing the lower end of our guidance. This year, I sense that people might be more desensitized to headlines, but I anticipate a year filled with some turbulent news. I hope that doesn't negatively impact long-term capital allocation decisions such as development leasing. I expect this year to be similar to last—good overall, but with some fluctuations along the way. This may continue until we approach the midterms or similar events. Ultimately, we need to fill the vacant spaces in our buildings, which is our main focus. We recognize our task is to lease these properties, particularly in regard to development leasing, as that will contribute to the success of future projects. I hope we are being prudent, and I welcome you to remind me of our cautious approach if you’re proved right.

Is guidance versus goal? Like what's the typical spread there? This is not a second question, by the way, but...

Yes, there are no increments. Our approach in the field is that if you can exceed your goals, there’s a bit more incentive. However, there’s no specific amount like $0.06 or $0.05 involved. It’s about what we’ve all agreed to, and your responsibility is to deliver on that. If we can assist you or find ways to get ahead, that ultimately benefits our shareholders. The key is identifying opportunities based on market conditions. Sometimes that means focusing on development, while other times it might involve acquisitions or finding creative solutions to make leases work, even when they seem challenging.

Yes. I would just add to that, Rich, having been in the field, it gets I think our midpoint of guidance just a slight bit lower for '26 than '25. But if you ask us, do we think occupancy would be lower? Not necessarily, but when you get in that 96%, 97% range and you're rolling budgets up, it becomes challenging to say I'm going to be 100% leased this year and everything is going to go. And it could. But then as you roll that up organically being 20 bps down in that sort of range is really just a deal going here or there one way or the other. So I hope, as you said, our trends have been to be a bit ahead of where we are, and we feel like we could do that again. But you've got to have a starting point somewhere. And obviously, this is the jump out of the gate and the field is trying to be reasonable with what they're seeing and then we certainly hope to better it as we go through the year.

The next question comes from Michael Griffin from Evercore ISI.

I wanted to circle back on supply and maybe dig a little deeper. Obviously, it feels like maybe there are going to be some puts and takes of '26, but the outlook feels better, I guess, relative to 2025. But Marshall, if we do see this inflection point, is there a worry that supply could then follow precipitously pick back up and then we're just kind of in the same state we've been in over the past couple of years of overbuilding? Or are there maybe more onerous, whether it's regulations, cost constraints, kind of governors that would put a meter on that, I guess, forward future shadow supply?

Michael, I think there’s a mix of yes and no in my response. On the no side, you're correct that acquiring permits has become more challenging. Many people want fast delivery services, but they don't want distribution centers in their neighborhoods. This has made zoning increasingly difficult and time-consuming for us. As Brent pointed out, private developers are often not financially equipped to hold land, manage construction teams, and secure permits. In the long term, while we operate in a cyclical industry that attracts capital when profits are strong, it will take time before developers can ramp up operations again. Locating suitable land and navigating the permitting process will require patience. Fortunately, we have the necessary team, land, financial resources, and permits ready, which gives us a significant advantage for several quarters, if not years, before local competitors can catch up. Eventually, the market will get saturated again, but we have a substantial lead time before that happens. During this period, we expect our mark-to-market evaluations to improve, and we anticipate increasing our development starts from $180 million last year to potentially $400 million or more, depending on market conditions.

The next question comes from Mike Mueller of JPMorgan.

With the expanded management structure, what aspects of your operations do you think you're going to be better at than before you added the extra depth?

I’ve delegated many tasks, and in response to your question, I’m really excited about the direction we're heading. Our structure has remained unchanged for over 20 years, and that consistency has served us well. We’ve grown significantly, expanding our square footage and adding more analysts as the corporate landscape has become more complex. I'm proud of our strong team, which has consistently exceeded our budget expectations. Personally, I've taken on a part-time role as COO in recent years, and while Brent has a fantastic background, my increased involvement in Zoom calls, non-deal roadshows, and conferences has made it difficult for me to engage in more traditional brokerage activities. I’m thrilled about Staci’s growth within our organization—she's been with us for a long time despite her youth—and Reid's success in the central region has led us to involve him more in our operations. We've made significant progress in our markets, recently exiting Santa Barbara and preparing to exit Fresno, as well as selling four out of five buildings in Jackson. Reid's contributions have also helped us establish a presence in Nashville, while John Coleman and his team have focused on Raleigh. We’re dedicated to strategically allocating our capital and researching market opportunities where we can create value through development. Additionally, it’s important to consider how rent and population trends will evolve and the constraints on land availability. As we grow, the complexities increase, prompting us to re-evaluate our structure every couple of decades to improve operational efficiency.

Yes, I would like to add to that. As Marshall mentioned, our company has grown in a way that feels natural. With my and Reid's expanded roles, I see it as an opportunity to support our field team and improve communication between corporate and the field. Being involved in development and leasing, along with our team's great efforts, allows us to think strategically about long-term opportunities, as well as address capital access and limitations. We're aiming for greater efficiency, increased analytical review of our portfolio, and understanding trends. It's an exciting time for us to take steps to enhance our operations and continue our mission while working more efficiently.

I apologize and completely agree with Brent. I should have mentioned the rearview earlier. The other reason for our stance is that we recognize this inflection point. If we were in a classroom, it would be clear to see the low supply and high demand, as well as the delays in supply. One of our objectives is to leverage the land and balance sheet we have to take advantage of the situation while the market is favorable. We plan to be disciplined with our new investments but want to ensure we have the right team and structure in place. Our growth has been significant, but pursuing growth for its own sake has never been our aim. We believe that as the market stabilizes, we will have a strong opportunity to outpace our competition due to our skill set. Thus, we needed to reorganize our team to respond more quickly to these opportunities.

Next question comes from Vikram Malhotra at Mizuho.

I just wanted to clarify sort of two things, and maybe you can expand. I guess, one, you've started new developments. You've talked about an improving cycle and trying to take advantage of when things turn further. I'm hoping you can give maybe more granular anecdotes either by tenants or from your folks in the field on like what's actually turning kind of this new up cycle? And then related to that, just where your thoughts are on absolute rent in the Sunbelt. You've had this fantastic run and from an occupancy cost standpoint. I'm wondering, is there a chance there's a sticker shock just from the absolute rent levels we've seen?

I have a couple of thoughts to share. Vikram, what excites me is the amount of development leasing we've achieved, particularly in the fourth quarter where over half of our annual total occurred. The sizes of these leases are larger than before; we are seeing tenants of over 50,000 square feet, and we're attracting even larger tenants who are becoming more comfortable with their capital allocation. It's unusual for us to engage with so many large tenants, given that 92% of our rents come from those occupying less than 200,000 square feet. Having 6 to 9 ongoing conversations about taking a couple of our buildings or requests for new buildings is significant. While not all inquiries involve spaces over 200,000 square feet, they are mostly above 100,000 square feet. We may not secure all of these deals, and some may be delayed for various reasons, but the sheer number of options along with our diverse tenant base and geographical spread is encouraging. If all this activity were limited to Florida, it might feel different, but it spans all three of our regions and multiple markets, suggesting that things might be improving. The increased dialogue from the field, particularly regarding pre-lease requests for 150,000 square feet, also gives us optimism. Each quarter, we monitor tenant turnover, especially in relation to market rents. However, we typically do not lose tenants over rental rates; it tends to be due to consolidations, market exits, or occasionally bankruptcies. We can only charge market rates or slightly above when we manage our properties effectively. Fortunately, market rents remain favorable, and we offer a competitive alternative as businesses transition to faster service. Without a last-mile distribution hub, companies might reduce costs, but that would significantly impact service quality. For large retailers like Train or Home Depot, a low-cost structure may exist, but it could result in even quicker revenue declines.

Yes. I would like to add that rents have seen significant increases since COVID, primarily driven by supply and demand. The options for space are limited, so if you need it, you have to pay a premium. It's important to note that current vacancy rates are much tighter compared to previous cycles. During the last financial crisis, vacancies rose to around 12% to 14%, whereas our portfolio has not approached that level. Currently, multi-tenant vacancy rates are about 4% to 4.5%. Even if the market has been slow in recent years, a 4.5% vacancy indicates that we aren't facing a significant oversupply of empty space that could drag down rents. Capital has been retracted, leading to a reduction in supply, even when demand has remained strong. We are not dealing with a large volume of vacancies that would need to be absorbed to stabilize the market. Fortunately, we have maintained a steady market, and there is potential to increase rents without causing major sticker shock. Time will reveal how this plays out, but as Marshall mentioned, we are focusing more on demand than on rents.

The next question comes from Eric Borden from BMO Capital Markets.

Congrats. I just wanted to circle back to the occupancy. I appreciate your comments on the decline related to a couple of leases in '26. But just curious, how much of the expected decline in the first quarter is related to move-outs versus development projects being added to the operating portfolio?

In the first quarter, there hasn't been much impact from development transfers. We expect to see more effects as we progress through the second, third, and fourth quarters. As Marshall mentioned earlier, this presents an opportunity for us. While we have work ahead, we hope to see an increase in actual occupancy compared to projections as the year advances. The first quarter is fairly flat in comparison to the fourth quarter, so we begin to project for later in the year. Again, these are budgets rather than goals, and given the uncertainty in the environment, it's difficult to pinpoint when we will observe occupancy improvements. When considering occupancy for the year 2026, the expected decline in projections from 2025 to 2026 is primarily due to those development transfers. The existing core portfolio is stable and not declining; the decreases are attributed to the transfers. We would remain flat if not for those developments.

Eric, I would add, with increasing development projections, to some extent, that comes at the decline of same-store sales. So a lot of our leasing comes from our existing tenant base, which typically is consolidation or expansion. So as our development business grows, our same-store sales may decline. So we're taking at times half a step back to take a full step forward. But net-net, FFO, we anticipate to increase, and we see that as a winning strategy.

The next question comes from Omotayo Okusanya from Deutsche Bank.

Just a follow-up question around tariffs. Just kind of curious your thoughts at this point on the Supreme Court and how things may kind of turn out from that end. And even if the Supreme Court does kind of say, current tariff policy is not constitutional or legal, kind of what happens next? And how do you kind of think your tenant base kind of deals with all that in terms of either kind of pulling back on a wait-and-see basis or they just kind of keep taking up space because they need to. Just curious how you're thinking about all that whole iteration around tariff policy?

Good question. I think, fortunately, when considering the tariffs, it's important to minimize the noise or the headline impact on our tenants to ensure their decision-making process goes smoothly. I hope there aren't any shocks to the system. Last year, tariffs did affect us, particularly impacting our Dominguez building slightly, which is located near the ports of L.A. and Long Beach in the South Bay Area, Carson, California. Overall, it reminds us of markets like Houston and Jacksonville, where we've been since the 90s, and we prefer to be in metro areas for distribution. We aim for last-mile delivery in rapidly growing, higher-income areas because those customer bases tend to be more loyal. When purchasing a good, consumers typically don't care whether it comes from China or Mexico; they just want the item delivered quickly to their home or business. This volatility at ports emphasizes our strategy, as we're not trying to predict which port will gain or lose market share. However, we are confident that cities like Orlando, Atlanta, Dallas, and Phoenix will have population growth over the next 5 to 10 years, and we want to be strategically located in those areas. Our approach is to take as many measures as possible to mitigate or eliminate risk, whether through phased development, proximity to consumers, or our financial strategies. While we strive to reduce risk, we don't want to compromise on returns. We recognize we can't eliminate headline risks that influence decisions, but we are actively working on it and would certainly like to.

The next question comes from Jessica Zheng at Green Street.

Just noting on that previous question. Just curious if you're seeing a pickup of onshoring or nearshoring related leases in any of your markets recently?

Yes, this is Reid. Activity for nearshoring has definitely at least from what we're hearing from the brokerage community and some of the prospects has definitely picked up. Markets like Houston and Dallas are actually seeing an uptick in advanced manufacturing and users that need higher power requirements. So I would say that is a driver and will be a tailwind for us going into the future. A lot of our markets that we're in don't specifically cater to those larger users, but a lot of the ancillary uses we may make benefit from going forward.

The next question comes from Ronald Kamdem from Morgan Stanley.

Just, I guess, a quick 2-parter. So first, obviously, the development leasing was encouraging. The guide sort of assumes, I think, starts are picking up, got some acquisitions. Just can you remind us what the spread is looking like today between sort of cap rates and IRRs on acquisitions versus development that you're starting? Just curious what that spread is. And then the quick follow-up is just the exit of Fresno; any other sort of markets where you're paring back to recycle?

It's Marshall. I'll go in reverse order. Regarding the markets we're exiting, this has been a process that's developed over a few years. I'm excited about Fresno, which is a project Brent and I acquired in the '90s, and we are in the process of modernizing and updating our portfolio. We hope to have that closed in a few weeks. Jackson is another market where we went from five buildings down to one. Although it’s leased, we will continue to work on an exit there. We've also mentioned our ventures into Raleigh and Nashville, and we’ve considered Salt Lake City; Capital City has a technology university presence, and while we may not make it to Salt Lake, I want to keep everyone informed. New Orleans is another market where we might reduce our presence a bit. That's our current thinking regarding our markets. As for the development leasing, we are encouraged by the direction it's headed. On development, our average return on ground-up development is around 7%, specifically between 7.1% to 7.3%. The acquisitions we've pursued have generally been more strategic than opportunistic, typically focusing on buildings nearby in our submarket, which are still in the low to mid-5% range. There remains significant demand for quality industrial shallow bay buildings, and cap rates have remained relatively stable. Given our position, we see better returns, estimated to be around 180 to 200 basis points higher for developments compared to straightforward acquisitions. This is why we haven't bought a full portfolio; we tend to acquire individual buildings, as larger portfolios attract more capital and are priced lower. However, in some of our stronger markets, prices can drift into the 4% range.

Yes. I would just add to that, Ron. The development leasing, as Marshall said, but what we'd ideally like to see is just some consistency. First quarter last year was good. Second and third were challenging. Fourth ended well, but trying to just stack good quarters behind good quarters would be nice. And so hopefully, we can get a little more quieter macro environment, rates continue to down, the economy slightly uptick better, again, just kind of get that confidence in executing and moving a little faster would all work in our favor. And so excited about the fourth quarter. We need to stack a couple of those together. And again, we back-end weighted our start, so we're hoping for that, but we'll see; we're in a good position if that happens.

We have no further questions. I will turn the call back over to Marshall Loeb for closing comments.

Thanks, everyone, for your time and interest in EastGroup. If we didn't get to your question or if you have anything to follow up, certainly feel free to reach out to us, and we look forward to seeing you probably here in a few weeks, most of you. Thank you.

Thank you.

Thank you.

Bye-bye.

Ladies and gentlemen, this concludes your conference call today. We thank you for your participation and we ask that you may now disconnect.