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Eastgroup Properties Inc (EGP 0.12%)
Q4Â 2018 Earnings Conference Call
Feb. 07, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning and welcome to the EastGroup Properties Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. (Operator Instructions)
It is now my pleasure to turn the call over to Marshall Loeb, President and CEO. Please go ahead.
Marshall A. Loeb -- President & Chief Executive Officer
Thank you. Good morning and thanks for calling in for our fourth quarter 2018 conference call. As always, we appreciate your interest. Brent Wood, our CFO is also participating on the call. And since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
Keena Frazier -- Director of Leasing Statistics
The discussion today involves forward-looking statements. Please refer to the Safe Harbor language included in the Company's news release announcing results for this quarter that describes certain risk factors and uncertainties that may impact the Company's future results and may cause the actual results to differ materially from those projected.
Also, the content of this conference call contains time-sensitive information that's subject to the Safe Harbor statement included in the news release is accurate only as of the date of this call. The Company has disclosed reconciliations of GAAP to non-GAAP measures in its quarterly supplemental information, which can be found on the Company's website at www.eastgroup.net.
Marshall A. Loeb -- President & Chief Executive Officer
Thanks, Keena. Our team performed well this quarter, finishing what was in many ways a record year for EastGroup. Some of the positive trends we saw are, funds from operations came in at guidance, achieving a 3.5% increase compared to fourth quarter last year. This marks 23 consecutive quarters of higher FFO per share, as compared to the prior year quarter. For the full year, FFO rose 9.6%. And we're pleased with the fourth quarter an annual FFO growth, given that equity raised during 2018 far exceeded our original budget. The strength of the industrial market is further demonstrated through a number of metrics such as another solid quarter of occupancy, same-store NOI results and positive releasing spreads.
As the statistics bear out, the current operating environment is allowing us to steadily increase rents and create value through ground-up development and value-add acquisitions. That said, we're mindful of the larger global turbulence and we realize we're not immune to an economic slowdown. We're not seeing that on the ground, but government shutdowns, trade wars and the lack of economic confidence they create could eventually impact our tenants and our markets.
At year-end, we were 97.3% leased and 96.8% occupied. This marks 22 consecutive quarters, or since third quarter 2013, where occupancy has been approximately 95% or better, truly a long-term trend. Several markets exceeded 98%. And Houston, our largest market, was 96.6% leased. And while still our largest market, Houston has fallen from roughly 21% of NOI to slightly below 14% for 2019.
Supply, and specifically shallow bay industrial supply, remains in check in our markets. And this cycle of supply is predominantly institutionally controlled, and as a result, deliveries have remained disciplined, and as a byproduct of institutional control, it's largely focused on big box construction. Our quarterly pool same-property NOI growth was 5.5% cash and 3.4% GAAP. We're also pleased with average quarterly occupancy at 96.5%, up 10 basis points from fourth quarter 2017. Rent spreads continued their positive trend, rising 7.9% cash and 16.6% GAAP respectively. GAAP releasing spreads for the year were 15.8%, and when omitting the Santa Barbara R&D space, were 16.3%.
Given the intensely competitive and expensive acquisition market, we view our development program as an attractive risk-adjusted path to create value. We effectively manage development risk as the majority of our developments are additional phases within an existing park. The average investment for our shallow bay business distribution buildings is $12 million. And while our threshold is 150 basis point projected investment return premium over market cap rates, we've been averaging 200 basis point to 300 basis point premiums. At year-end, the development pipeline's projected return was 7.4%, whereas we estimate an upper 4s (ph) market cap rate.
During fourth quarter, we began construction on two buildings totaling 139,000 square feet. And coming out of the pipeline, we transferred four 100% leased buildings totaling 381,000 square feet. For the year, we transferred 14 properties totaling 1.7 million square feet in 10 different cities into the portfolio, and all but one of these of value-add acquisition transferred over to 100% leased. As of year-end, our development pipeline consisted of 17 projects in 11 cities, containing 2.3 million square feet with a projected cost of $206 million. For 2019, we're projecting $140 million in starts.
As color to commentary, the $140 million in starts from 2018 was a record level, so we're pleased to forecast maintaining that run rate. And while at a record run rate, we're addressing heightened economic volatility in several ways. First, roughly 40% of our 2019 starts will happen in the first quarter. Second quarter accounts for about a third of the annual volume, and so that by midyear, we will have started around three quarters of our projected annual volume. Hopefully, we're being conservative for the second half of the year. And as we gain economic clarity, i.e. lease space, we'll revisit projected starts.
Next, over 80% of our starts are within an existing successful park. What that means is that the next start is being pulled by active prospects rather than an economic forecast, pushing supply out into the market. And finally, we're active in a greater number of markets. This diversity reduces risk and enhances our ability to grow the development pipeline.
Our fourth quarter acquisition was an off market transaction to acquire Greenhill Distribution Center, a 45,000 square foot 100% leased property in Round Rock, Texas, a North Austin suburb, for $4 million. Greenhill is adjacent to our Settlers Crossing Park development. And overall, given the expensive competitive acquisition market, we're being patient, disciplined and chasing more off-market acquisition and development sites. Towards that end, we acquired two land parcels in the fourth quarter, a 29 acre site in San Antonio and a 24 acre parcel in Phoenix. And we hope to begin construction on both of those sites in 2019.
Brent will now review a variety of financial topics, including our 2019 guidance.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Good morning. We continue to see positive results due to the strong overall performance of our portfolio. FFO per share for the fourth quarter met the midpoint of our guidance at $1.18 per share, compared to fourth quarter 2017 of $1.14, an increase of 3.5%. We continue to experience terrific leasing results in both the operating and development programs. Average occupancy for 2018 was 96.1% and FFO per share for 2018 was 467 per share compared to 426 per share last year, an increase of 9.6%.
Our balance sheet is strong and flexible, and our financial ratios continue to trend in a positive direction. Our debt to total market capitalization was 25% at year-end, and our adjusted debt to pro forma EBITDA ratio, which normalizes the impact of acquisitions and active development, was 4.72 for 2018, down from an already healthy 5.44 for 2017. From a capital perspective, we issued $45.5 million of common stock under our continuous equity program at an average price of $98.77 per share during the quarter. That increased our 2018 gross equity raise to a record high of $159 million.
FFO guidance for the first quarter of 2019 is estimated to be in the range of $1.17 to $1.19 per share and $4.79 to $4.89 for the year. Excluding the two non-operating gains in 2018 of a gain on sale of a partnership interest in a private aircraft and gain on casualties and involuntary conversion related to a roof insurance claim that combined for $0.04 of FFO in 2018, the FFO per share midpoint for 2019 represents a 4.5% increase over 2018.
The leasing assumptions that comprise 2019 guidance produce an average occupancy of 96.2% for the year and a cash same-property increase range of 3.5% to 4.5%. Other notable assumptions for 2019 guidance include: $50 million in acquisitions and $47 million in dispositions; $60 million in common stock issuances; $140 million of unsecured debt, which will be offset by $130 million in debt repayment; and $450,000 of bad debt, net of termination fees.
In summary, our financial metrics and operating results continue to be some of the best we have ever experienced, and we anticipate that momentum continuing into 2019.
Now, Marsh will make some final comments.
Marshall A. Loeb -- President & Chief Executive Officer
Thanks Brent. Industrial property fundamentals are solid and continue improving in the vast majority of our markets. Based on this strength, we continue investing in upgrading and geographically diversifying our portfolio. And as we pursue these opportunities, we're also committed to maintaining a strong healthy balance sheet with improving metrics, as demonstrated by the record equity raise last year. We view this combination of pursuing opportunities while continually improving our balance sheet as effective strategy to manage risk, while capitalizing on the strong current operating environment. This mix of our strategy, our team and our market has us optimistic about the future.
And we'll now open up for questions.
Questions and Answers:
Operator
(Operator Instructions) And our first question will come from Joshua Dennerlein with Bank of America Merrill Lynch. Please go ahead.
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
Hey, good morning, guys.
Marshall A. Loeb -- President & Chief Executive Officer
Good morning.
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
Could you walk us through the development pipeline? How much of the $141 million of starts this year is identified projects? And then maybe, what's the timing of when you can get these under way?
Marshall A. Loeb -- President & Chief Executive Officer
Hey, Josh, it's Marshall. Good morning. Good question. Really probably first and second quarter, I would say, are really almost all identified. And again, we will start a little north of 40% first quarter and a little north of 30% second quarter. So by mid-year -- and usually deliveries five to six months will have started three quarters of the $140 million.
What I'd love about our model is, I would -- I have compared it to retail almost in my mind. When we run out of space, which is, say, where we are for the moment at Steele Creek in Charlotte and Creekview in Dallas, it's really active prospects and RFPs that pulls that next inventory into the market. Most of our peers, public and private, would be -- hey, we think if we deliver a 700,000 foot building on the last infill on the edge of town, call it, the demand is there and (inaudible) is really pulled. So that's where the second half of the year gets a little cloudier. It is, we think we'll have some buildings leased up and that we'll be ready to restock inventory. But the first half of the year, three quarters of the $140 million is identified.
We have several more that we hope that would kind of enter our $140 million budget. And then on top of that, we have a shadow development pipeline of another, call it, five to seven properties that we think, with a little bit of luck, could get pulled into this year. We're in the running but chasing a couple of pre-leased opportunities in Texas. And so if those turn into leases and we win those that there's really only one of those in the $140 million. So I hope -- like last year, we didn't come out of the gate projecting $140 million, but that's how the year ended up. And we'll -- if the economy holds in, I'm hoping we can beat that number by year-end.
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
Okay. Yeah. It sounds pretty good on the development side. Those five to six projects, maybe excluding the one that's already in your starts assumption, how big are those, like kind of the shadow inventory of development starts, like another like $70 million or...
Marshall A. Loeb -- President & Chief Executive Officer
It's probably half to two-thirds of annual volume. And those volumes -- again, we're not expecting all those to happen or they'd be in the $140 million, but if you just said, things that could fall your way, there's probably half again to two thirds of the annual volume. And some of our annual volume too, they're always nice place holders. I'm hedging a little bit as you could tell. There's one or two that may -- that we've got in the $140 million may not happen just because we don't get the building that's there now leased up, and so some of them may be replacements. But it does make us feel net-net better about the $140 million.
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
In your high end -- kind of what do you assume to get to the high and low end, what's kind of the base case there?
Marshall A. Loeb -- President & Chief Executive Officer
I'm sorry, I don't know if they're -- high and low end of development or I'm not sure I...
Brent W. Wood -- Executive Vice President and Chief Financial Officer
We lost you for a second, Josh. Can you repeat that?
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
Yeah. Sorry. To get to your high end or your low end of your same-store NOI growth guidance for '19, what are you assuming in there?
Brent W. Wood -- Executive Vice President and Chief Financial Officer
This is Brent. Good morning, Josh. Yeah, if you basically look at the chart in the press release, it's also in the back of the supplemental, that basically reflects -- the individual assumptions there basically reflect the midpoint. So in essence to get to the mid-range of, say, the cash basis same-store pool of 4%, yeah, we're basically at that 96.2% and then all the other assumptions you see there. But -- so, for that, it would be basically occupancy driven and then rental rate driven. Keep in mind on the cash side that most of those leases are in place, so that's driven by existing rent bumps, and then, to a much lesser extent, in a new leasing you do, whatever that run rate, how it may compare. So basically it's -- if we have another solid occupancy year, we feel good about that range.
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
Okay. Awesome. Thank you, guys.
Marshall A. Loeb -- President & Chief Executive Officer
You're welcome.
Operator
Thank you. (Operator Instructions)
Our next question will come from Alexander Goldfarb with Sandler O'Neill. Please go ahead.
Alexander D. Goldfarb -- Sandler O'Neill & Partners -- Analyst
Hey, good morning down there. So two questions. The first, Brent, if I read your guidance correctly, you guys are looking to issue more debt this year than you did last and less equity this year than last. And if I look at the costs, it looks like your debt cost is up and conversely, obviously, your stock is doing quite well. So can you just walk through why you're sort of reversing the sources of capital for this year versus last?
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Yes, good morning, Alex. I wouldn't say we're reversing. We're basically showing a debt neutral year this year, pretty much identical to we had last year. Our debt issuance versus repayments in '17 were basically a breakeven and we're basically projecting the same thing for '19. We're saying we'll issue $140 million and we're repaying $130 million, so basically, we're saying debt is neutral. So we're funding growth via ATM, via property sales, via our operating free cash flow.
So we agree with you. At our current price, we -- last year, we budgeted I think $50 million. We did $159 million. We've got $60 million dialed in this year. If you'd asked me in late December, I would have told you I'm not sure if we could do $60 million. We were trading in the upper 80s. And so there's been some volatility in the price. But certainly where it is now, we like it. The other thing is, having good uses for the capital, and we're already down to -- I think on today's price, we're down into somewhere around 22% debt to total market cap. So at some point, you've got to check up just a little bit because it's not free to issue the ATM. It does -- part of our slower FFO growth this year compared to last year is being driven by heavy record ATM issuance, which we're happy to do and it keeps a very clean balance sheet. But it's not free, it has some impact. So we will be hitting the ATM. And certainly if the guys in the field can unearth more projects, we'll go more aggressively. But we're forecasting debt neutral. We're not looking to issue ATM to pay debt down, but we certainly would use it to fund our operations, which is the way we've got it budgeted.
Alexander D. Goldfarb -- Sandler O'Neill & Partners -- Analyst
Okay. And then second one, Marshall, on successive years of almost double-digit rent growth, how is this impacting the tenants? You mentioned market volatility. Obviously, we had the swoon (ph) at year-end. It seems like things have stabilized now. But are the tenants -- are you sensing any push back from tenants on the rent increases or it just doesn't factor into their equation, they're just taking space and committing to new projects at the same rate that they were the prior years?
Marshall A. Loeb -- President & Chief Executive Officer
I'm sure there's maybe overall a little bit of sticker shock when your lease rolls. The good news is probably, within a rising rental rate market, really like we've been in for a few -- double-digit for the last four years on a GAAP basis, almost all of our tenants, new and renewal -- I had a broker tell me it's a red flag if someone doesn't have the tenant rep broker. So usually, they've had the initial meeting with their own broker, probably gotten through the shock. And our rents are pending, we'll have the tenant -- the space they're in and things -- hopefully, we're slightly above market on a renewal because of the cost and headache of moving. But we're not -- we're keeping pace with market and maybe being a little ahead of it where the situation allows. But they may be in shock, but by time they look around at their other options, they're as expensive and so our retention rate has been good in the last couple of years, 70% or north. I think we were in the low 80s for the quarter. So I -- and it's the low cost overall compared to employees, labor and things like that. There's a little bit of shock over rent, but thankfully from almost all of our tenants, we're a low cost of their overall structure. When I met with tenants -- we were just with one out in California and he was complaining more about hiring than -- and this was one where his rent went basically double and his complaint to us was about finding good workers.
Alexander D. Goldfarb -- Sandler O'Neill & Partners -- Analyst
That's helpful. Okay, thank you.
Marshall A. Loeb -- President & Chief Executive Officer
You're welcome.
Operator
Thank you. And our next question will come from Bill Crow with Raymond James. Please go ahead.
William Crow -- Raymond James & Associates, Inc. -- Analyst
Thanks. Good morning. Hey, Marshall, if you were to separate your user base into, or your tenant base into kind of old economy and new economy -- and I know it's a broad line -- but any change in the proportionate demand shifting one way or the other? And do you anticipate that if the economy does slow down a little bit, there's going to be increased pressure on kind of new economy to carry the day from a leasing perspective?
Marshall A. Loeb -- President & Chief Executive Officer
Good morning, Bill. Good question. We're still predominantly old economy and those tenants have done well, are doing well and continue expanding. And then it's felt to me for the past several years, every quarter, we'll see two or three new names that we hadn't dealt with like a Wayfair or different divisions within Amazon or someone as an Amazon supplier kind of show up there -- or Tesla is one. It wasn't a prospect a few years ago, and now we're chasing a deal with them. And then there -- I guess I'm trying to answer your question -- you have tenants, we've just recently signed a couple of leases with Lowe's that I would call an old economy type tenant, but no one leaves the store with an appliance in the trunk of your car or your back seat. So what they've done with us, and I'm not sure it's this exact, but they've announced several store closures, and in the meantime, are opening up distribution facilities. So if you order -- when you buy a refrigerator or an appliance, they can get it to your home in St. Pete that afternoon rather than having at a higher-rent location. So I would think some of the new economy, because they're building out their distribution networks so rapidly, if the economy bumps, it makes sense to me, like they would slow down a little bit. But we're still seeing even old economy tenants figure out their omni-channel retailing footprint and how that's going to work. The other one we've seen of late, a pickup in and -- we never really -- their tenant mix evolves so much as third party logistics -- we've seen a pickup even this year of 3PLs out needing space. So that's been an interesting one as well.
William Crow -- Raymond James & Associates, Inc. -- Analyst
All right. And then you mentioned store closings. Anybody been added to your watch list? Is it getting more active from a tenant worrying you at all?
Marshall A. Loeb -- President & Chief Executive Officer
There's always a few -- I think just the nature of 1,600 tenants -- so there's always a few that worry us. We had -- for the year, our bad debt came in slightly below where our historical averages had been. And that's how we -- for example, that's how we budgeted this year. It's a multi-year average. At the end of the year, we reserved a furniture company. We've seen printing -- the printing business is, just by its nature, one that we've had some issues, including one there in Tampa, and then a furniture retailer in Phoenix, where we're working with them, but they had a straight line balance, and that was the majority of our bad debt hit in the fourth quarter last year was related to furniture. So it almost seems to be -- or another one that was -- headlines was a mattress firm. It seems more industry-specific than any location or the economy slowing down in Houston or Jacksonville or anything like that.
William Crow -- Raymond James & Associates, Inc. -- Analyst
Right. Appreciate it. That's it from me. Thanks.
Marshall A. Loeb -- President & Chief Executive Officer
Okay. Thank you.
Operator
Our next question will come from Manny Korchman with Citi. Please go ahead.
Emmanuel Korchman -- Citigroup -- Analyst
Hi, good morning, guys. Marshall, maybe staying on the topic of acquisitions which you touched on earlier, given the frothiness in the market, what would it take for you to accelerate the acquisition program? Is it a change in the product type? Is it just a matter of you start paying a little bit more and then growing faster, especially where your cost of capital is? So help us think about that.
Marshall A. Loeb -- President & Chief Executive Officer
Good question. We try to -- given where the market is -- and I was just looking at one of the brokerage groups' pieces of it. It was a couple of pages of logos of groups around -- these were just international groups around the world that want to own US industrial. So every package would pick that we want to own, it's very competitive. I would think for us -- so we try to do more value-add where the building is not quite leased up or pushed us on development -- the good news about everybody trying to buy is, I'm glad, we also create that product.
In terms of us acquiring more, we look at about everything and we get outbid in most cases, so you will end up making the second or third round. And it's trying to be disciplined and patient with our capital. I don't want to -- I guess I -- at least in the back of my mind, I don't want to buy something just because we have cheap capital today if it's something we're not going to want to own or feel like we overpaid for in two to five years. So we're trying to be patient. And probably to really ramp it up, we would just need to offer more than where we've kind of drawn a line in the sand. We typically, when we start bidding on a properties, try to say how much do we -- what's our bottom line, because once you get in the middle of it, you feel like you need to win it or either you get competitive and you want to outbid someone, and that's not always best for our shareholders to get emotional that you want it more.
So good question. And I hope we beat our acquisition goal for this year. It just seems like the cap rates are low and continue trending down, and there's always somebody in every bidding package that's willing to pay a few hundred thousand more than we are, at least.
Emmanuel Korchman -- Citigroup -- Analyst
Thanks. And I thought we're sort of done talking about Houston for a little while, but it sounds we're back to that topic. So give us an update on what you're seeing there and whether the sale you had in 4Q is emblematic of something bigger in Houston or just getting out of World Houston that -- I think your World Houston assets?
Marshall A. Loeb -- President & Chief Executive Officer
Thanks. Yeah, you're right. Houston seems to kind of come up a little bit more in the last month or so. I'm glad where we are, where we drifted down from the low 20s to below 14%. And actually our lowest quarter for the year is projected to be fourth quarter in Houston, meaning if we took out portfolio and everything that's scheduled to roll in. We sold an older building in World Houston last year and then we closed one this year. We'll keep pruning in Houston here and there and like it kind of organically drifting down. We've gotten concerns from Wall Street about Houston, but I would say our guys in the field, we're seeing -- that's where a couple of the RFPs we're pre-leasing.
We've delivered or really started three buildings there. The West Road 5 was a spec building and it quickly got to 100% leased, not long after construction rolled into the portfolio. World Houston 45 that we just broke ground this year as a pre-lease to a third party logistics, so it's 100% leased. And then the third building we started was in -- it's on the west side of town, an expansion of an existing tenant. So they renewed and have taken about 40% of that building that's under construction. So long long winded way of saying, Houston on the ground feels good. It feels like -- a little bit like where we were a couple of years ago. The disconnect -- but this -- the market is 5% vacant. I just saw where Exxon announced a $10 billion liquefied natural gas plant down by the port. We're not down by the port, but that's got to help the economy. So we'll be mindful of our size in Houston, and we're certainly keeping an eye on it. But we are seeing opportunities still in Houston, even with oil prices down a little bit, that it feels like the economy is doing pretty well locally.
Emmanuel Korchman -- Citigroup -- Analyst
Thanks, Marshall.
Marshall A. Loeb -- President & Chief Executive Officer
Sure. You are welcome.
Operator
Thank you. And our next question will come from Brendan Finn with Wells Fargo. Please go ahead.
Brendan Finn -- Wells Fargo Securities, LLC -- Analyst
Hey guys, good morning. I wanted to just follow up quickly on your development expectations. Is there a certain pre-release percentage that you guys are looking to maintain for the development portfolio over the course of the year? And then, I saw this quarter, it looked like the stabilized yield assumption for the pipeline came down a little bit quarter-over-quarter. Was that driven, I guess, by geographic mix or more build-to-suits, or is that something you guys are anticipating seeing throughout the course of the year?
Marshall A. Loeb -- President & Chief Executive Officer
Good question. We really don't have a pre-leasing. Most of our buildings are spec, and it's -- Building 7 in the park leased up rapidly and hit our pro forma. So we'll deliver the next Building 8 on a spec basis. So every once in a while, we'll do a pre-lease opportunity. But for the most part, it is we're running low on space and we're getting RFPs in the market. So -- and it'll ebb and flow, depending what rolls in and out. Now in terms of it dropping this quarter a little bit, probably I'm kind of looking at our schedule, Gateway in Miami, that land is a little more expensive. It's a little bit lower cap rate market too compared to the Texas markets or San -- different markets that we're in. So that probably pulled it down to the 7.1 where we've been, 7.25 to 7.50. So I think it would trend down.
Construction prices have gone up. And then looking at our -- the properties that we transferred out of the pipeline, they actually came in just north of an 8 cap. So we're thrilled with how everything that rolled in last year to be able to achieve that. If we can develop to an 8 and the market is probably a little below 5 and how much can we push through that pipeline -- so we're -- again if it helps, that's kind of how we think about it. And I like, again, that our inventory gets pulled by the market rather than pushed out into it.
Brendan Finn -- Wells Fargo Securities, LLC -- Analyst
Cool. That's helpful guys. And then just real quick, I think Marshall, in your prepared remarks, you talked about the four R&D leases at the Santa Barbara facility last year. Is there -- or are there going to be leases at that facility that you anticipate signing again this year?
Marshall A. Loeb -- President & Chief Executive Officer
Yes. We just signed one this week. I don't think the CapEx -- we don't expect the CapEx hit to kind of be an anomaly. But the building that hit -- I'm going (inaudible), the 7,000 foot lease, which we're happy to get, but got that building back to 100% leased. I don't think we'll have the leasing volume we don't anticipate in Santa Barbara, that it would have as big a ripple effects within the portfolio as last year, maybe a better way to say it.
Brendan Finn -- Wells Fargo Securities, LLC -- Analyst
Yeah. Exactly. Okay. Thanks a lot. That was helpful.
Marshall A. Loeb -- President & Chief Executive Officer
Sure. Thanks, Brendan.
Operator
Thank you. Our next question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
Hey, guys. Marshall, just curious you guys have a little bit of a lighter expiration schedule in '19. I guess what I'm curious about is kind of internally the philosophy here, given what market rents have done, trying to pull forward leases early from 2020 versus kind of bring it out closer to expiration to maybe grab a little bit more potential mark to market there.
Marshall A. Loeb -- President & Chief Executive Officer
Yeah. We've always -- again, a good question. I mentioned earlier, Craig, most people have their own brokers. So a lot of time, especially on a renewal, they will -- they dictate the timing. We'll approach them and sometimes they'll ask us to come back later as it gets a little bit closer to expiration. But we've always wanted to renew tenants without kind of betting on market rents increasing. That may speak more to me being a chicken than I guess on market, that it's -- it's nice to put deals to bed. And I have heard, in California, some owners are waiting to the last minute to renew tenants because the market has gone up so quickly. And they've looked smart so far, but when things turn, they could turn quickly. And usually when a tenant is ready to renew, we're not the only person they're talking to. So they will dictate the timetable as much or more so than we will, but we'll go ahead and pull leases forward and put them to bed as -- usually as quickly as the tenants will allow us kind of in any good or bad market.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
Okay. That's helpful. And then just you mentioned that your development yields have been kind of premium here even though land costs and construction costs have got higher. I guess just drilling into the benefits of building out the park overtime, how are you guys and how are tenants kind of viewing what that rent is on the new build in a market, given -- versus existing availability? And are you -- is part of the reason you've been able to get such good yields is you're putting in whatever premium over market rent for this new product because you just don't have anything left in the park and if a tenant wants to be in your park, they're willing to pay that, or you guys, again talking to your temperament, just more willing to take -- market has just worked out that, yields have kept pace better than what you thought they would?
Marshall A. Loeb -- President & Chief Executive Officer
I think it's a little bit of just -- we'll push rents as hard as we can, whether it's an existing building or a new building. I do think you have an advantage when it's first generation space in a brand new park or especially once that park gets rolling, and you can kind of -- what we love about -- I have compared us to a residential developer where you're building that subdivision. Once you've created that a little bit by a sense of place, it seems like the leasing momentum picks up on the back half of a park compared to the front half, and you can push the rents.
And the other thing with this economy where we've benefited, and I'm sure that's helped us in rent, is how many existing tenants have wanted to expand. So taking someone from an existing building with two or three years of turn left, again if their rents aren't that much of their operating cost and they need more space, it's great to be able to build -- move them from building 2 in a park to building 9 in a park, and we've had a fair amount of that happen over the last 18 months and are still seeing that type activity. So that helps us maintain the yields. And as -- this is -- I think about our yields too. We also have a carry cost built into our yields. And with the 13 higher developments that rolled in last year, all being 100% leased, most of those ended up not using the full year carry that we underwrite. So where we can move it in in five months rather than 12, that sure helps the yield. So that's probably another factor driving our costs -- our yields higher.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Yeah. I would just add to that -- Craig, this is Brent. When you look at our product type, the multi-tenant with maybe a slightly higher office finish, you've got a higher per square foot cost, which you should in turn be getting a higher yield for that little more risk. I think that our buildings are a little less of a commodity than say a billing. So rental rates for a 20,000 square foot or 30,000 square foot, 40,000 square foot guy is a lot different than if we had a 500,000 square foot or 1 million square foot building and we were trying to -- with almost no office finish and there's very little that would differentiate your big 1 million square foot building from the one next door. So it's a little different. I think it exemplifies our different product type as part of that equation as well.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
That's fair too. Marshall, what do you think the shorter carry times kind of -- what do you think that usage yields by?
Marshall A. Loeb -- President & Chief Executive Officer
Brent?
Brent W. Wood -- Executive Vice President and Chief Financial Officer
I think probably 20 basis points or something. When you budget -- we're budgeting for say six, seven month construction period and then a 12 month lease up, so you're baking in 18 months or so of carry. It's interest carry, property taxes, that type thing. So obviously, if you can short circuit that, say, by half, it's not the (inaudible) but it's certainly a line item that when you run the job cost report, it shows a positive variance. And obviously, the more of those you have, at the end of the day, the better your yield. But I would probably say it's been, without scientifically looking at it, probably in the neighborhood of 10 basis points to 20 basis points.
Marshall A. Loeb -- President & Chief Executive Officer
Anyway, it obviously rolls into our FFO much earlier. So that helps, whatever that next quarter is, when it rolls in.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
If I can just sneak one more in, some of our peers, Prologis in particular, kind of took a hatchet to their guidance, given kind of the ever-shifting winds here on the macro front. I know you guys have a very ground-up process. But as you guys kind of gave initial guidance, was that in the back of your head to maybe haircut expectations of your regional guys a little bit just to temper it, or is this kind of your best guess and you didn't kind of take any conservatism at all above and beyond what you normally would?
Marshall A. Loeb -- President & Chief Executive Officer
Probably more of the latter. I think it's really -- again, I kind of -- maybe having Brent and I both have been in the field, I think our guys in the field know more than we do at corporate. So I'll trust their judgment. I mean, we'll challenge them. Some -- everybody wants to beat their budget and things like that. And then we -- but that said, we're certainly mindful of every other month the governments either shut down or threatening to shut down and trade wars and things like that, so we did look at development starts and things. So it's -- everything is always a mix, right? So I guess it's mostly from the field with a little bit of caution here that we should be a little cautious, otherwise you're -- don't want to just be an ostrich and put your head in the sand. If we could hit the repeat button for last year, we absolutely would. And we hope we can, but there's certainly a lot of headlines that scare you to death out there.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Yeah, I'd just add to that, Craig. I would point out, this time last year, we had guided to a 95.2% occupancy for 2018 and the year went much better than we originally had forecasted and we finished the year at 96.1%. But we are guiding, entering 2019, to a 96.2%. So our guidance this year does have 100 basis points higher bake-in than we started last year. Now where will that be as the year goes? I don't know. I hope it's 97 point something, we say we were under again. But I would just point that out -- and all of that is spelled out in our charts and tables and our assumptions. But I would just put that out there that one last comment, I'm sure that the Prologis' $0.05 cut on their guidance had nothing to do with that. That will still put them $0.01 over the consensus amount. I'm sure they would have done that anyway, but good for them that they were in that position.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
Great. Thanks guys.
Operator
Thank you. Our next question will come from Ki Bin Kim with SunTrust Bank. Please go ahead.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Hi, out there. Going back to your development start guidance, if I can paraphrase what you said, it sounds like in the second half, if things get better or you feel better about the macro conditions, you might increase that. Do you get a sense that that's the same way your tenants are thinking?
Marshall A. Loeb -- President & Chief Executive Officer
Probably. I guess then -- and I'm speaking out loud as I say, which is always dangerous -- ours is -- space leases will deliver the next building. So we did -- and maybe I guess kind of going back to Craig's question, we didn't build in a ton of optimism and that it is only about a quarter of our starts, and so that's just the way the calendar lines up really happening in the second half of the year. So we're able to lease buildings and we'll be rushing to deliver that next one or really get that inventory on the shelves, and then I would imagine our tenants too, they all probably got a little nervous in December and early January. And right now, people, for the moment, feel a little better, but the winds can change quickly. But I'm sure as they feel better about their business and things like that -- I'm using a Wayfair for example, they'll probably start rolling out more distribution buildings or kind of working through their network as they feel better about the economy.
So it'll -- we're partners with them on that. I am hopeful if they feel good about the economy, it probably means we'll see more expansions and we'll have upside to our starts this year. And if everybody gets nervous, we -- hopefully there's not a ton of downside, knock on wood do our starts, given how early they are in this year and over 40% will hit this quarter. We've already started a number of them, but we'll just see how the economy plays along. Again last year was much better than we forecast it to be, and I hope that happens again, but we'll see.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
And currently, are you seeing any signs at all of tenants' less traffic or less willingness for a longer term or anything like that?
Marshall A. Loeb -- President & Chief Executive Officer
Not really. I always hate to speak in absolutes or hesitate to, but we're really not -- it felt like the world was a little nervous. But now, people are back post holidays and engaged and we've got good activity. Talking to our guys in the field, they're -- things feel not that much different than they did in November, for example.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Okay. And your development pipeline is roughly around $200 million. About half of it's leased. So if I think about the dollars at risk, it's about $100 million, compared to an asset base of $4.4 billion. Does that come up at all in your internal management meetings or Board meetings, where you think about the dollars at risk in development representing maybe 2%, 2.5% of the total Company size that being the right size long term?
Marshall A. Loeb -- President & Chief Executive Officer
Interesting way to -- I guess much -- short answer is, yes, although we probably look at it a little bit differently. We do keep a chart kind of showing our low earning assets as a percent of assets, and that would include kind of all that development schedule, our inactive land or active land, and then what's under construction. And then we've got a couple of assets that we thought, where you're kind of thinking that they're low yielding, kind of called the value-add. But in time, they're going to work to a stabilized yield. So we do look at it. We probably throw in a few more items in that bucket when we look as to what percentage of our assets are in low earning. And then we do look at our land holdings also as a percentage of our assets.
And then to me even within that, you can be low on land but just picking a market. I wouldn't want it all to be in Atlanta, obviously. You want it to be a pretty mixed bag of where you have land for that next park. It's a little bit of a love-hate relationship with land. I always say I always want room for three or four more buildings and not 10, because the economy might stop by the time you get to that eighth, ninth building, rambling too much.
The other thing I like is with our development yields today on that $200 million projected a little north of 7, and we think -- a blended average -- I'm grabbing a number, call it a 4.7, 4.8 (ph) cap rate. The worst case, if things slow down and we need to drop rent and/or give more free rent or more TI to get those leased, we're still creating value. You're just not creating as much value as we expect today. But if things slow down, there's a lot of margin in there for us to come down on an asset and still create shareholder value.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Right, so with all that said, is there any kind of internal -- I don't want to say pressure, that's not a perfect word -- but to increase capital risk or development?
Marshall A. Loeb -- President & Chief Executive Officer
No. We're trying to develop as much as the market allows, kind of like last year or this year, but that's really driven -- again, I like it's driven by the field, not management or the Board. It is really how fast -- there is a park in Eisenhower Point in San Antonio. We've probably run through it much faster than we ever and knock on wood anticipated, but that thankfully is not corporate, which I think is good for our shareholders. It is every building we've built leased up and we've delivered the next one quickly, if that helps you.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
All right. Thanks guys. Thank you.
Marshall A. Loeb -- President & Chief Executive Officer
Sure.
Operator
Our next question will come from John Guinee from Stifel. Please go ahead.
Aaron Wolf -- Stifel Nicolaus -- Analyst
Hey all, good morning. This is Aaron Wolf on for John Guinee. Quick couple of questions. We were able to visit your Churchill Downs development a few weeks ago. Can you provide any updates on the project and how it's different from your typical industrial park and build-out?
Marshall A. Loeb -- President & Chief Executive Officer
Thanks for taking the time -- good morning -- to visit it. We're excited about the park. We love the location. The first building is, as you all saw, close to wrapping up and we've had good leasing activity on it. Happy that it's full, as you can see, and are fully leased before we can finish it. We're just kicking off the second building there. We like the Miami market and that it is 3% vacant basically at the end of the year. Absorption last year was almost $5 million and new construction is about $3 million. So we like the dynamics and wish we had more in Miami. So we like that park.
It's probably not different. It's different in some ways. Now, the building is 200,000 feet, a little bigger than our typical development. The fact that it was horse stables is a little different although I would say maybe speaking to the scarcity of land. We struggled to find land. So everything we've looked at -- we're talking to a church about some land today. We've looked at ground leases, obviously horse stables, golf courses. It feels like that just greenfield land that's zoned and ready to go is getting awfully hard to find in major cities and infill locations. So every -- I've kind of kidded our Board, I promised we don't try to come up with difficult land acquisitions. But everything now feels like it has a story. We're talking to a water park in a different market and things like that. And I've certainly talked to any number of retailers and/or retail landlords thinking -- my daydream is still a dying mall that we acquire one day. So maybe it's different in that it was horse stables, but that reuse is you'll probably see us do more and more out of necessity.
Aaron Wolf -- Stifel Nicolaus -- Analyst
Great, thank you. Last question, you just talked about land acquisitions. If you look at your last four to five land positions that you acquired, how many are greenfield and how many are change of use?
Marshall A. Loeb -- President & Chief Executive Officer
I'm trying to think. Phoenix was greenfield. The Gilbert land, Flower Mound, greenfield, although it had some issues to work through on development. I'm trying to think of our last three or four. They are almost mostly greenfield but they also had some issues, and that's why they hadn't been developed before. In Phoenix, they had to go through zoning. They're building multi-family adjacent to us, and there's some road work, another parcel we have tied up. It's road work. It's in Texas where they have the municipal utilities district. So all of them kind of have a story of something. They made up -- still greenfield, but issues to work through before you can really get your arms around it.
Aaron Wolf -- Stifel Nicolaus -- Analyst
And then last --
Marshall A. Loeb -- President & Chief Executive Officer
I guess that that helps. Aaron one last comment, just to add for color. Anything we do acquire at this point in the cycle kind of like the one in Phoenix and Dallas I mentioned, our goal is to get it into production as quickly as we can. So the ability to buy cheap land and hold it, we really have not done that in a few years and don't see that opportunity out there, if that helps.
Aaron Wolf -- Stifel Nicolaus -- Analyst
It does, very helpful. Thank you so much.
Marshall A. Loeb -- President & Chief Executive Officer
Sure. You're welcome.
Operator
Our next question will come from Eric Frankel with Green Street Advisors. Please go ahead.
Eric Frankel -- Green Street Advisors -- Analyst
Thank you. I'll try to just keep this short. I just wanted to clarify your overall earning guidance and into how you calculate your same-store numbers. So I guess for Brent, your occupancy in your same-store pool, do you anticipate that increasing or decreasing? How is that embedded in your same-store guidance?
Brent W. Wood -- Executive Vice President and Chief Financial Officer
It's pretty much dead on, Eric. For this -- the guidance pool of those same-store and GAAP numbers you see, that is for the entire annual pool because obviously for '19 at this point, the properties owned at 01/01/18 compared to 01/01/19, that is the static annual pool. And right now, we're showing that that same-store pool would mirror our overall projected occupancy average of right around 96.1%, 96.2%.
Eric Frankel -- Green Street Advisors -- Analyst
Okay. And then releasing spreads, any significant change from last year in terms of what we should expect? How is that embedded in your forecast?
Marshall A. Loeb -- President & Chief Executive Officer
I would -- and I'd let Brent chine in. I would build a model probably the same. In the last couple of years -- and we like GAAP because you can capture the rent bumps and any free rent in there, more than we'd like cash releasing spreads, if I were picking one. But last year was a little over 16, the year before was 17. And if I were building a model, I would probably use those numbers. And that said, I've been thinking rents were going to spike up a little more because of the lack of land, the tight market and construction costs rising. So I keep thinking rents are going to go up and I continue to be wrong. We haven't seen it, but I'll keep predicting it.
Eric Frankel -- Green Street Advisors -- Analyst
It sounds good. And then just a very quick follow-up question for either you, Marshall or Brent or any one is in the room. Just regarding relative value, obviously, cap rates are at all-time lows. In some markets, they keep dipping a little bit lower. Do you have relative opinion on geographic markets where cap rates are more reasonable, and total returns, you think, would be a little bit better or they are that kind of just, say, case by case basis?
Marshall A. Loeb -- President & Chief Executive Officer
I guess where you are -- Orange County, Southern California feels incredibly expensive, but the rent growth has exceeded our expectations there too. So I guess maybe going the other extreme, it's awfully hard and we're being patient to find value in the major California markets. But the rent growth has also been there.
We still like Florida and Texas. We had about 20% rent growth in Florida on a GAAP basis last year and the economies are strong there. But that said, cap rates, because capital can't all go to those major gateway cities, it has spread out and we've seen cap rates come down in markets like Denver and Phoenix where it all can't go to California, and even markets like Charlotte, other kind of tertiary markets or maybe that kind of number 10 to 30 markets where cap rates have really come down and prices per square foot have risen. So I wish there was a great acquisition market out there, but, sure, we haven't found it yet, not within our footprint.
It continues to push us more toward development and value-add opportunities or -- and we've thankfully got three buildings last year. Hopefully we'll get one or two this year where it's -- driving around with a broker and they say, if we make an offer, they may sell. And so we try a lot of off market offers. And every once in a while, you get a seller who is willing to listen. So we'll keep trying at that. But they've been smaller acquisitions by and large like that we saw -- Greenhill in Austin was a $4 million acquisition adjacent to our development. But those are -- feel like more the exception than the rule.
Eric Frankel -- Green Street Advisors -- Analyst
Okay. Thank you.
Marshall A. Loeb -- President & Chief Executive Officer
Sure.
Operator
Our next question will come from Bruce Garrison with Chilton Capital. Please go ahead.
Bruce G. Garrison -- Chilton Capital Management -- Analyst
Hi, Marshall. In terms of land availability, how far removed from the major cities can you go to lesser locations to meet demand? Is there kind of a rule of thumb?
Marshall A. Loeb -- President & Chief Executive Officer
Maybe two -- hey Bruce, good morning. And two part answer...
Bruce G. Garrison -- Chilton Capital Management -- Analyst
How are you doing?
Marshall A. Loeb -- President & Chief Executive Officer
I'm good, thanks. Probably fairly far if we were building a big box kind of logistics chain center, and that's what we'll see in South Dallas, South Atlanta, far Eastern Inland Empire. So what we do, which is -- we want to be as near to the consumer as we can. Given the traffic -- I'll pick Houston where you are. Given the traffic in Houston or Dallas -- we've been successful in Fort Worth, for example. We have some tenants that need an east and west location. It's too hard to drive trucks and vans service from Dallas out to Fort Worth. So our Fort Worth tenancy has moved further west. We see that in Phoenix in East and West Valley tenants. So there's -- it's hard to say -- it probably depends on traffic. And a lot of times where we are, it is someone that's trying to get either a delivery or to their customer in a hurry. HVAC contractors, we've seen that area be active of late. And if you're -- HVAC is out in your building in Houston in the summer, you need to be able to get there fairly quickly. And so that we like that it makes our buildings less of a commodity and they probably need to be a little bit less state-of-the-art so they age better than -- what state-of-the-art now in Inland Empire East won't be state-of-the-art in just a few years.
Bruce G. Garrison -- Chilton Capital Management -- Analyst
Right. Are there any geographic areas notwithstanding the issues in California, for example, in Florida or up the Atlantic Seaboard, are there -- is this land availability an issue everywhere, or is it more acute in some areas versus others?
Marshall A. Loeb -- President & Chief Executive Officer
Maybe, I'll go back (ph). Coming back to EastGroup, I expected it. I remembered it in L.A. and I expected in the Bay Area and I've been surprised all around major markets, it is awfully hard to find land, much harder than I anticipated. It's been a few years now, but coming back to EastGroup -- even markets like Jacksonville and places to find good sites -- and part of it, as you think about it, we would need to be near a freeway entrance, we need the zoning to work, if we only build one story unlike our peers and we're about the first guys to get priced out of land. So when you kind of work through that chain, it gets awfully hard to find good sites. And probably one of the things that helped us get comfortable when we entered Atlanta was meeting with several brokers asking them about sites and we were always in a conference room looking at Google Maps and how far outside the outer belt they were pushing us before they could find an available site.
So the bad news as a developer for us is, it's awfully hard to find sites. Our guys are doing a good job and they keep coming up with things. The good news is, I like how close we are to the consumer and that cities like Dallas and Houston and Phoenix and Orlando, Tampa keep growing. So long term, I like our ability to push rents and the ability to keep supply down.
Bruce G. Garrison -- Chilton Capital Management -- Analyst
Okay. Thanks a lot, Marshall. See you soon.
Marshall A. Loeb -- President & Chief Executive Officer
All right. See you soon. Thanks, Bruce.
Operator
And there are no questions at this time. So I'll turn it back to the speakers for closing remarks.
Marshall A. Loeb -- President & Chief Executive Officer
Thank you for your interest in EastGroup. Everybody, thank you for your time this morning. We're certainly available for any follow-up questions and hopefully, we'll see you soon. Take care.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
This does conclude today's program. Thank you for your participation. You may now disconnect.
Duration: 59 minutes
Call participants:
Marshall A. Loeb -- President & Chief Executive Officer
Keena Frazier -- Director of Leasing Statistics
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst
Alexander D. Goldfarb -- Sandler O'Neill & Partners -- Analyst
William Crow -- Raymond James & Associates, Inc. -- Analyst
Emmanuel Korchman -- Citigroup -- Analyst
Brendan Finn -- Wells Fargo Securities, LLC -- Analyst
Craig Mailman -- KeyBanc Capital Markets -- Analyst
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Aaron Wolf -- Stifel Nicolaus -- Analyst
Eric Frankel -- Green Street Advisors -- Analyst
Bruce G. Garrison -- Chilton Capital Management -- Analyst
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