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Eastgroup Properties Inc (EGP -4.68%)
Q2Â 2019 Earnings Call
Jul. 25, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the EastGroup Properties Second Quarter 2019 Earnings Conference Call. [Operator Instructions]
It is now my pleasure to turn the -- to introduce Mr. Marshall Loeb, President and CEO. Please go ahead.
Marshall A. Loeb -- President and Chief Executive Officer
Thank you. Good morning, and thanks for calling in for our second quarter 2019 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
Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the Investor page of our website, and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.
Please also note that some statements during this call are forward-looking statements within the Private Securities Litigation Reform Act. Forward-looking statements in the earnings press release along with our remarks are made as of today and we undertake no duty to update them as actual events unfold. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially. We refer that certain of these risks in our SEC filings.
Marshall A. Loeb -- President and Chief Executive Officer
Thanks, Keena. We had a strong team performance this quarter, maintaining the pace set earlier in the year. Some of the positive trends we saw were funds from operations came in above guidance, achieving a 5.2% increase compared to second quarter last year. Normalizing for involuntary gains, our FFO rose 7.1%, marking 25 consecutive quarters of higher FFO per share as compared to the prior year quarter. Based on the quarter and the strength we're seeing in the market, we're raising our annual FFO guidance $0.04 a share.
The vitality 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. At quarter end, we were 97.5% leased and 96.5% occupied, marking 24 consecutive quarters where occupancy has been roughly 95% or better, truly a long term trend. In short, demand continues growing for our infill locations, small bay last mile parks. Several markets exceeded 98% lease and Houston, our largest market, was 97.6% leased. And while still our largest market, Houston is projected to fall from roughly 21% of NOI in 2016 to below 14% in fourth quarter.
Supply and specifically shallow bay industrial supply remains in check in our markets. In this cycle, supply is predominately institutionally controlled, and as a result, deliveries remain disciplined. And as a byproduct of the institutional control, it's been largely focused on big box construction. Our same-property NOI growth was 4.9% cash and 3.5% GAAP. We were also pleased with average quarterly occupancy at 96.6%, up 60 basis points from second quarter of 2018. Rent spreads continued their positive trend, rising 8.2% cash and 17.2% GAAP respectively.
Given the intensely competitive and extensive 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 quarter end, the development pipeline's projected return was 7.4%, whereas we estimate a market cap rate in 4s. During second quarter, we began construction on four developments, totaling 523,000 square feet. While coming out of the pipeline, we transferred four properties totaling 513,000 square feet at 92% leased into the portfolio with an average stabilized yield of 7.4%.
As of quarter end, our development pipeline consists of 20 projects containing 2.6 million square feet with a projected cost of approximately $250 million. For 2019, we're raising our projected starts to $200 million. As color commentary, our $148 million in starts last year was a record for us. So we're excited to again raise the target and exceed last year's results.
Finally, our activity is spread over 10 different cities. This geographic diversity reduces our risk, while enhancing our ability to grow the development pipeline on an ongoing basis. We also had an active quarter in terms of acquisitions, value-add opportunities and dispositions. Our acquisition was the four-building, 382,000 square foot Airways Business Center in Denver for $48 million. Within our value-add component, we closed on the two-building, 142,000 square foot Logistics 6 & 7 in Dallas. These buildings were 19% leased at closing in late April and are now up to 68% leased with good activity remaining.
Next, we have funds at risk and are projecting a third quarter close on the 196,000 square foot Southwest Commerce Center in Las Vegas. These three buildings are under construction and will close upon completion with an expected total investment of $130 million. As we plan for the future, we acquired three land parcels. We purchased a 7-acre site in the Miramar area of San Diego, which will accommodate a 125,000 square foot building. While in Houston, we acquired a 20-acre site in the northwest submarket and a 33-acre site in the west or Katy submarket.
Finally, from a disposition's perspective, we closed on the sale of Altamonte Commerce Center, an eight-building, 186,000 square foot service center property in Orlando for $14.9 million. And finally, we have funds at risk toward the sale of our 80% interest in University Business Center 130, a 39,000 square foot R&D property in Santa Barbara, with a projected third quarter close.
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 experience positive results due to superior execution by our team in the field and the strong overall performance of our portfolio. FFO per share for the second quarter exceeded the upper end of our guidance range at $1.22 per share compared to second quarter 2018 of $1.16, an increase of 5.2%.
Funds from operations, excluding gains on casualties and involuntary conversions, represented an increase of 7.1% and 6.2% for the three months and six months ended June 30, 2019 respectively. Our continued strong performance both operationally and in share price is allowing us to further strengthen our balance sheet. From a capital perspective, during the second quarter, we issued common stock at an average price of $113.91 per share for gross proceeds of $90 million.
During the six months ended June 30, we issued common stock at an average price of $112.49 per share, providing gross proceeds of $115 million. Just six months into the year, that represents the Company's second largest equity issuance, trailing only the $159 million of gross proceeds raised last year. Also during the second quarter, we executed interest rate lock agreements for two senior unsecured private placement notes, a 10-year note for $75 million with a fixed interest rate of 3.47% and a 12-year note for $35 million with a fixed interest rate of 3.54%.
We remain pleased to have access to capital via debt and equity at attractive pricing. Looking forward, FFO guidance for the third quarter of 2019 is estimated to be in the range of $1.23 to $1.27 per share and $4.89 to $4.97 for the year. Those midpoints represent an increase of 6.8% and 5.8% compared to the prior year restated respectively, and an increase of $0.04 per share in the midpoint of our prior guidance.
Our second quarter results combined with the leasing assumptions that comprise updated guidance produce an increase in both average occupancy for the year and an increase in cash and straight-line same-property range. Other notable assumption guidance revisions include increasing development starts by $40 million, increasing operating property acquisitions by $25 million, increasing value-add property acquisitions by $15 million, and increasing termination fee income by $285,000 due to known fees.
With opportunities to invest capital ahead of expectations and an attractive stock price, we increase our estimated issuance of common stock by $120 million and unsecured debt by $30 million. In summary, our financial metrics and operating results continue to be some of the best we have experienced and we anticipate that momentum continuing throughout 2019.
Now Marshall will make some final comments.
Marshall A. Loeb -- President and Chief Executive Officer
Thanks, Brent. Industrial property fundamentals are solid and continuing improving across our markets. Following these fundamentals, we continue investing in, upgrading and geographically diversifying our portfolio. As we pursue opportunities, we're also committed to maintaining a strong, healthy balance sheet with improving metrics, as demonstrated by our equity raised year-to-date. We view this combination of pursuing opportunities while continually improving our balance sheet as an effective strategy to manage risk while capitalizing on the strong current operating environment. The mix of our team, our operating strategy and our markets has us optimistic about the future.
And we'll now open up the call for any questions.
Questions and Answers:
Operator
Thank you. [Operator Instruction] We'll go first to John Guinee with Stifel. Please go ahead.
John Guinee -- Stifel -- Analyst
Great, thank you very much. A couple of questions. When you're leasing up your development deals, what percent do you think you're leasing to existing tenants who are just upgrading in your market? And then the second question is why Greenville, South Carolina?
Marshall A. Loeb -- President and Chief Executive Officer
John, good morning. It's Marshall. Good questions. The percent of existing tenants has increased over the last couple of years. And especially, as we've seen it in -- like in Orlando or where we have existing parks, it's a great opportunity. Charlotte, we had 11 expansions during a 12-month period. I'm estimating a little bit. It's probably -- somewhere between a one-third to 40% of our existing tenants are the ones that kind of take that next build and we may move them. Which is what I like about -- so we kind of create the business park or a neighborhood. Someone moves from building 2 to building 9 within the park. So estimating maybe a one-third and as high as 40% at any given time.
And then Greenville, a good question. It's a market we've been looking at for a few years, a market where we bid and loss on a number of deals. And then I'll give John Coleman and Wes and the team in the Eastern Region credit for finding this building.
What we like about Greenville or what excites us really, the Greenville-Spartanburg area, as you know probably, it's there along I-85, basically halfway between Charlotte and Atlanta. So it fits within our footprint. It's a market -- that corridor from Atlanta to Charlotte continues to grow. Metro area, about 1.3 million people. It's really transitioned. It was a textile driven economy back when and it's moved -- more auto-related with the BMW plant. Michelin is based there. And then they do a lot of -- some of the suppliers with Volvo down in Charleston.
But what also made it interesting and appealing, just the job growth what's driving it. And also technology, that that's been a big driver of their economy of late with Clemson University, Furman, Wofford, some of those. So a lot of tech jobs have really popped up. And then retirement community.
So it fits our footprint. And our property, really it's more -- it's toward the Greenville. The BMW plant is in Spartanburg. It kind of fits our profile. If we -- we were chasing the property. It's a brand new property situated between two freeways up on the hill. So it has great visibility. Good ingress, egress to two different freeways. And John was pursuing it. It was one-third leased to Trane. And before we could tie it up really, they had leased the balance of it. So we ended up buying 100% leased building, where it started as a value-add opportunity.
And we're already seeing some other opportunities to grow some things. We kind of had said to John and the team a little bit, let's walk before we run. Let's get this building tied up under contract and closed. But I guess I was to the -- it's a market that we were pleasantly surprised. About 200 million square feet, which makes it a larger industrial market than Orlando or Tampa or Austin, Texas, for example. And maybe the bad news is once we got there -- and that may go back to being between Atlanta and Charlotte. There's more institutional ownership in Greenville-Spartanburg. There's no undiscovered markets we're learning out there as we turn over stones and kick tires and look for opportunity.
John Guinee -- Stifel -- Analyst
Great, thank you.
Marshall A. Loeb -- President and Chief Executive Officer
You're welcome.
Operator
Thank you. And we'll go next to the line of Alexander Pernokas from Bank of America.
Alexander Pernokas -- Bank of America Merrill Lynch -- Analyst
Great. Hey, guys, good morning. Congrats on another great quarter. I was hoping if you could give me some more detail on the newly acquired land and some updated plans for development starts there.
Marshall A. Loeb -- President and Chief Executive Officer
Okay. Sure. Good question. On the land what we acquired, really comes three different parcels this quarter. I'll start with San Diego. Excited about it and that it's a 7-acre site. Miramar -- we're just on the north side of Miramar Navy base in San Diego. So to the south of us, it's all federal land or the Navy base. And we're just on the east side of the I-85 or the 805 as they would say. And so that puts us right across the freeway from La Jolla. So a great last mile location to distribute to a fairly dense high net worth area liked that. It's a former auto dealership, so it's got great visibility and really good land for industrial land.
The tricky part there -- we've designed 125,000 foot building that will go there. It's currently under a ground lease. There's a user who runs a shuttle service to the nearby VA hospital at the Miramar Navy base. So we'll wait a little bit until that lease expires before we begin our construction. But we're getting an attractive yield until the ground lease burns off. And it's an area where there's literally no land and -- older product with less visibility is what we like there. I wish it were a bigger site.
And then jumping to Houston, I would describe it as -- it's a market obviously we've been in for 20-plus years. Brent was based there for years. And we basically kind of -- if you know Houston, kind of 9 o'clock to 12 o'clock on the map is where we've operated. And with these two properties, we -- Katy is a market where we've developed before. We're building our last building in a park. So buying that site gives us growth opportunity in Katy. The northwest is really the oldest and probably the -- arguably the most preferred submarket, most land constrained. So we acquired the site in the northwest submarket.
And then we're active in our land at World Houston. So to take you through the whole network, I would say within Houston we're pretty full with land. We have land in all three of our desired submarkets. So we have opportunity to create value there going forward.
And then big picture, in Houston, I like that we're developing in the 7% to 7.5% type range. Market cap rates are probably high 4s to 5 for brand new product, especially in the park in Houston. And so there, we'll keep creating value and manage our size. We've also identified a couple of buildings. And we're a ways away from delivering what's under construction now, but what we've been building has been leasing up nicely. We've been happy with that. But we'll also -- we'll keep growing the company elsewhere and you may see us sell some more Houston assets as we look into 2020 as we manage our size in Houston.
So we love creating the value, have a good team there. Don't want to stop that. But we're also mindful of we don't want to get too big in Houston. So I think you'll continue seeing -- our 14% fourth quarter, it's actually projected to drop below 14%. And hopefully, next year we'll keep delivering leased buildings, but let that percent continue to drip down.
Alexander Pernokas -- Bank of America Merrill Lynch -- Analyst
Great, thanks, guys.
Marshall A. Loeb -- President and Chief Executive Officer
Sure, you're welcome. Thanks, Alex.
Operator
Thank you. And we'll go next to Alexander Goldfarb from Sandler O'Neill. Please go ahead.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Hey, good morning down there. Just a question on the sustainability of the yields. Marshall, you had spoken initially that you guys always target 150, but in reality are more in the 200 to 300. If you guys look at like apartments, for example, which have a lot of development, no different than industrial which sees a lot of development, apartment development yields have really compressed to within probably less than 100 basis points, maybe 75 basis points have stabilized. Why do you think that you guys -- and that's even for some of the REITs -- why do you think you guys have been able to sustain such incredibly wide development yields? And do you see that -- the same among your private developer peers or do you think that you guys stand out in sustaining these really wide yields?
Marshall A. Loeb -- President and Chief Executive Officer
Good question. Good morning out there also. I hope we can continue to maintain these yields. Construction prices are rising. I think the benefit of that, with a tight market, it will keep putting pressure on -- an upward pressure on rents. We've been able to maintain the yields even with construction prices rising. And land prices are up pretty high.
On the private side, thankfully what -- I've said I like where we fit in the food chain. Most of our peers are building much larger buildings then what we build. So there's less people building a $12 million shallow bay last mile site. So I think that helps us maintain our yield. And you're right, we certainly see especially in the larger markets the premium -- or the spread over cost is getting tight, certainly Southern California, Atlanta, things like that.
And thankfully where we've seen that and we've chased some -- they're kind of on the margins of -- it's usually the big box and pre-lease type opportunities, that type thing, where the yields really get tight. And if you stumble and something happens to the economy, your profit can disappear. So we've been careful to not chase those too hard and really haven't -- had only 1, 1 or 2, but have been able to maintain our yield where we've gotten a pre-lease.
So it's hard to predict the future. It's not shrinking and I hope we can continue to maintain it. And I'll give the guys in the field credit. They continue to find good land sites as hard as it is to find them out there. So knock on wood, hopefully, we can stay 200 basis points to 300 basis points.
The other thing that's helped us is -- as you've seen on the recent platform or type -- larger transaction, cap rates keep getting pushed down. They're both between GLP and IPT. What we were hearing is in the mid-4 type cap rates. So cap rates continue to be compressed. And talking to one of the national brokers earlier in the week, their comment was that -- it's hard to believe, but there's probably more international capital chasing US industrial than there was 12 months ago.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay, thank you.
Marshall A. Loeb -- President and Chief Executive Officer
Sure, you're welcome.
Operator
Thank you. And we'll go next to the line of Craig Mailman from KeyBanc Capital. Please go ahead.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
Hey, good morning guys. Just another question on development. You guys are still active in markets like Dallas and Houston, which are two of the five most active markets in the country. I fully understand you're not playing in the same size ranges what's being built predominantly. But can you just kind of talk about if you've seen any changes in demand, rent growth potential, kind of any dynamic shifts in those markets given the higher levels of construction?
Marshall A. Loeb -- President and Chief Executive Officer
That's a fair -- good question. And maybe a couple. I'll start with Dallas and move to Houston looking at the numbers. And these are from CBRE. It's roughly 23.5 million square feet under construction in Dallas that's 42% leased. So a pretty good number there. Those are -- that's a big number. But then when we look back, last year Dallas absorbed over 18 million square feet and over 21 million square feet in 2017. And the number I saw that they put out over the last decade, it's been like 158 million square feet absorbed in Dallas.
So as one broker -- it was interesting. We were in a car riding around with a broker in a different market. And they said, if you haven't been in the industrial market in the last five years, it's just a totally different industry with where demand has been and the average size of tenant is growing.
So Dallas is always a market that makes us nervous when we look at the supply numbers, but then it keeps being absorbed. And typically, kind of rule of thumb I would say, if this is helpful, we'll start digging into supply with our team and by the time we sort out the big box buildings and the buildings that are on the edge of town, it's about 10 -- rule of thumb, it always seems to be about 10% to 15% of what's under construction. And any market is truly competitive with what we're trying to do, where we're trying to do it.
In Houston, there's more construction there. It's up to 20 million. And absorption, again, kind of about 3 million square feet year-to-date. The good news up north, the vacancy rate where our World Houston is, is -- it's 6.3%. The overall market is 5.5%. 6.3% in the north submarket, which is the lowest level since 2012.
And then in looking at the numbers I saw on Houston, over 80% of the second quarter deliveries were over 200,000 square feet. So again, that's where -- a big building for us is probably in Houston, probably 140,000 feet. So it's a little bit of a different type tenant. And even up north, there's 5.8 million square feet under construction, which is a good sized number, but 40% of that is in three buildings that are each pre-leased, that are kind of 700,000 to 1 million square feet.
So I would say we are seeing supply go up in our markets. The numbers go up. It's typically been -- and Brent, chime in -- it's typically been on the edge of town bigger box buildings, less competitive. And then we've also seen a pickup -- as strong as demand has been, it feels like it continues to evolve to quick deliveries whether it's e-commerce or non-e-commerce, quicker delivery that people need a regional distribution center, but they also need a neighborhood distribution center to have that quick delivery. And that quick delivery is really where we've seen the pickup in our demand over the last 12 months, I call it.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
And are you seeing any impact on your ability to push rents or set rents on any of your product?
Marshall A. Loeb -- President and Chief Executive Officer
Just looking at the numbers -- good question. We've been -- I'm doing this from memory. I like GAAP rent spreads because it captures the free rent and the bumps. We were 17% in 2018, 16% last year, and about that year-to-date. So looking at the numbers, I'll take those kind of rent spreads, when you're in the mid to high teens are great. I keep thinking there's going to be more upward pressure on rents. And I've been saying that for years. So I'll keep saying it and eventually I may be right.
But again, I keep thinking of what we're seeing in construction prices and the demand side that they'll be more -- that we'll get beyond that kind of high teens that we could see, not -- they're not going to go off the charts. And some -- in any given quarter I would caution you and say it's the mix of what did we have rolled in California versus Jackson or where things rolled. But I keep thinking we'll have more upward pressure on rents in spite of the new supply, because the supply is only peripherally impacting us.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Yeah. Craig, I would just add -- this Brent. You mentioned Dallas, Houston being among the five most active. I'll also just mention they're two of the largest industrial markets in the country and certainly within our footprint. And as we've always talked about, so we're at the micro level. We have the advantage in the multiphase developments of having firsthand knowledge of what our activity is on the existing or prior phase. And one thing that Marshall and I were looking back the other day -- and you kind of step back and say while 28 of our last 29 projects that have rolled into our portfolio have been at 100% leased, we broke that streak with just one small building in the Phoenix area this time. So we're aware of all the factors and take a look at it, but so far the markets are holding up quite nicely.
Craig Mailman -- KeyBanc Capital Markets -- Analyst
No, that's helpful. And just a quick one maybe on the balance sheet. Given where the stock has been, you guys are fully taking advantage of it, but you're still issuing debt. And I'm just curious. I know rates are low, but the trade-off of, let me call, 50-60 basis points on cost for permanent capital versus 10-ish year capital. I don't know how you guys think about that. And maybe de-levering further to get ahead of if there is any economic weakness or other slowdown that would allow you to be acquisitive even if the cost of capital moves slightly against you.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Yeah. I've joked with Marshall we've gone to about 80-20 now debt to market cap. And he's like, where do we want to go? And I promised him we wouldn't go below 0%. So with that -- it's something -- it's a good problem to have. It's a high class problem. We like the cost of each. We certainly have been much more heavy-handed with the equity. So we bumped it up to $265 million, which will be by a lot our largest single year and of course while that's being capital driven with opportunities.
But when you look at the debt issuance this year, what I would encourage you to look at, Craig, is our net debt issuance. What I mean by that is we've had two repayments this year of $120 million. And what we're forecasting to do for the year is issue $190 million. So net-net, we will have about $70 million of additional new debt for the year. So not that much.
So our tendency -- we agree with what you're saying. Our tendency especially at our current price is to continue to be a little more heavy-handed with the equity, but we won't ignore debt altogether. We want to keep the line with plenty of room to cover all our obligations.
So it's a dance, but it's a fun conversation to have because it's a good option either way. But you'll see us I think stay in that 80-20 mix in the near term as long as the price holds in there.
Great, thanks, guys.
Marshall A. Loeb -- President and Chief Executive Officer
You're welcome.
Operator
Thank you. And we'll take our next question from Bill Crow with Raymond James. Please go ahead.
Bill Crow -- Raymond James -- Analyst
Good morning, guys. Marshall, you're probably starting to deal with tenants whose leases are expiring for certainly the second time and maybe the third time during the cycle. And I just -- at some point, there's got to be some sticker shock or some effort to fight back. And I know they have tenant reps and everything else. But are you starting to see a little bit more of a fight on their end? And are any tenants moving out looking for cheaper space? Or is it just -- it's not yet?
Marshall A. Loeb -- President and Chief Executive Officer
I think it's a -- good morning, Bill, and good question. You're right. You grabbed my answer before I could speak. Thankfully, in this cycle -- it probably helps us that -- as one broker said, if someone doesn't have a tenant rep broker, it's a red flag. That they must have bad credit or maybe they're not really serious about looking for space. I guess this pertains more to new tenants than renewals.
And I'm -- we're probably not there and we wouldn't be in that initial meeting, that sticker shock meeting. But once they go out and survey the market, it kind of -- we're -- ideally, if it's a renewal or something, we'll hopefully have the best park and the right space and we can get a little above the market. But we're not going to be able to get too far above market. And the market kind of is what it is.
And thankfully, from their perspective, what we're hearing more and more of is that with the right location -- and they factor in transportation cost and things like that -- that the rent is a smaller component of their cost. We've actually -- maybe two trends we're seeing is tenants -- and obviously Dallas-Fort Worth is our example, where we went to Fort Worth, that, given how bad traffic can be in a growing market like Dallas or Phoenix or Atlanta or Tampa, where you are, that people will need a couple of locations on different sides of town. So we've actually had some of our Dallas tenants, HVAC contractors, things like that, follow us to Fort Worth because their guys were spending so much time stuck in traffic. And so that all sets the rent increase.
And really -- probably the bigger tenants -- this is more of a factor, although it's a factor for our tenants as well -- they're struggling with hiring. Labor shortages is something we continue to hear. I was having lunch with two brokers recently and they said that conversations used to be rent, TI, lease term, things like that. But more and more people are worried on location of where can they find the labor pool. And one tenant we were with recently said, I'd like to expand. My business is that good. We were with him -- but they were unable to find the labor.
So I think that's getting to be a bigger and bigger driver and kind of is one that we are spending more time as we think about locations and making sure how does it impact our tenants.
Bill Crow -- Raymond James -- Analyst
Are the tenants pushing for longer leases to try and protect themselves in an expanding environment?
Marshall A. Loeb -- President and Chief Executive Officer
Really? How that -- I mean we keep our annual kind of trends in a chart. We keep up with what our average lease term is. And every quarter -- I think it's hardcoded. I have kidded -- it keeps our staff -- it comes in about 4 to 4.5 years.
So new developments will get a little more term because the TI. But in the downturn and here, it's still -- it averages -- that kind of 4.5 years is our average term. So it makes sense what you're saying. But I think the other thing: people are worried about outgrowing the space and things like that, which is what I love about our parks, is their ability to, as we mentioned earlier, to kind of move them from building 3 to building 10.
Bill Crow -- Raymond James -- Analyst
No, I appreciate it. I thought it was Keith that had the hardcoded numbers and the spreadsheets, but --
Marshall A. Loeb -- President and Chief Executive Officer
And --
Bill Crow -- Raymond James -- Analyst
Thanks, guys. Appreciate it.
Marshall A. Loeb -- President and Chief Executive Officer
You're welcome.
Operator
Thank you. And we'll go next to the line of Emmanuel Korchman from Citi. Please go ahead.
Emmanuel Korchman -- Citi -- Analyst
Hey, good morning, guys. Marshall, does the cost of capital advantage, does it -- does the significant ramp in your stock price change the criteria of the acquisition plan that you've given your team to go out there and find properties?
Marshall A. Loeb -- President and Chief Executive Officer
Good morning and good question. We say we try to mentally decouple. I guess what I don't want to do is use a good stock price as an excuse to buy something where we regret a few years from now. We want to maintain the quality of our portfolio. That said, where it really does come in -- I mean we will look at our cost of capital. And thankfully, as the tenure has come down and the spreads -- kind of the attractive debt Brent and the team have been able to place, we can -- certainly are more competitive for properties than we could have been maybe 18 months ago.
So whereas we probably would have got knocked out in the first round of some of these opportunities, we're making it into the second or third round. Although I would say -- and it really is we -- so we're -- it does make us more competitive. But if you dig through between our developments and our value-adds and even our acquisitions this year, most of what we're acquiring has been either development or off market kind of value-adds that is still incredibly competitive when something is leased and gets listed and goes to market. That's where we're even with a better cost of capital not that competitive.
But it does give us a green light to maybe chase some things. And I like the idea of kind of the mix of, OK, let's make hay while the sun is shining and the market is strong and continue to geographically diversify and create opportunities above our cost of capital. But as Brent mentioned too, leaning on the equity side. Our balance sheet -- our debt is down probably 40% or little north of that in terms of debt-to-market cap within the last three years.
So I like that mix. It feels like we're hedging -- taking advantage of the opportunities while improving our balance sheet seems like a nice mix to us.
Emmanuel Korchman -- Citi -- Analyst
Thanks. And just -- as we think about the good trends in your portfolio, how much you attribute those to the markets you're in versus the product type that you operate in, the smaller infill shallow bay? And maybe in that same vein, does that sort of open the door to go to other markets if it's less market driven and more asset type or tenant driven?
Marshall A. Loeb -- President and Chief Executive Officer
I'm not sure I'm understanding. So my apologies if I didn't follow you. So really the trends we're seeing within kind of our shallow bay, does that open up new markets for us? Is that --
Emmanuel Korchman -- Citi -- Analyst
I guess the question is, Marshall, like you've been focused on the Sunbelt markets. If you had widened that focus years ago and you had been in other markets but in a similar asset tied to the one you're in now, would the trends be just as good? And if yes, would you consider going into sort of non-Sunbelt markets today?
Marshall A. Loeb -- President and Chief Executive Officer
Okay. No, good question. Hypotheticals I'm guessing. But we could have gone to those markets. What we like about our Sunbelt markets is also the growth. I mean I think we're seeing the opportunities, that a rising tide raises all ships. So just with -- our bet is there's going to be 0.5 million more people in Dallas, Orlando, LA than there are today, where the job growth, where the retirement is.
So we probably would have done well in those markets, but not as well as we've done in Sunbelt markets. I guess big picture what we've been trying to do mainly, rather than go to new markets -- and again, maybe it's a process. First, we wanted to shrink Houston. I guess if you go back just two or three years, we felt like we needed to reduce this -- not that we don't like Houston, but it was just over allocated. Reduce the size of Houston and then opening the office in LA and doing some things. There were some existing markets we were in like -- I know they are uber -- hyper competitive. LA, San Francisco, San Diego, Denver, Las Vegas were -- we said, we've been in those markets. Let's be more active in those markets, have more boots on the ground. So we've been active there. We entered Atlanta, Miami, for example.
So to kind of push that geographic diversity without getting out of our footprint. And then maybe where you're heading would be the next leg of the stool. If we don't enter any new markets in five years, I'd rather be patient about it. I think that would be OK. But I'm sure there are opportunities. And kind of like Greenville this quarter, we're always looking at two or three markets that may or may not make sense. And at some point -- Denver is not exactly a Sunbelt market, but we've been there for 20 years and it's got good growth. It has the attributes of a Sunbelt market other than climate I guess. So we'll get there. It will just be over time. And we'll hopefully do it in a disciplined manner.
Emmanuel Korchman -- Citi -- Analyst
Great. Thank you very much, Marshall.
Marshall A. Loeb -- President and Chief Executive Officer
Sure. Thanks, Emman.
Operator
Thank you. And we'll go next to the line of Vikram Malhotra from Morgan Stanley.
Vikram Malhotra -- Morgan Stanley -- Analyst
Thanks for taking my question. Maybe just first one on just the guidance, same-store NOI guidance. Brent, if you could just talk about kind of how you look at the second half? If we look at the first half, it seems like you're in the high 4s on a cash basis and the full year number would suggest sort of deceleration. But it seems just given where your occupancy is, rent spreads are and escalators, you should be trending to the high end. Is this sort of just conservatism on your part?
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Hi, Vikram, I hope so. As the year's gone, we've performed well. We've been able to raise the same-store guidance as we've gone along. And you're right, for the first six months we're toward the higher end. That does basically say that what we're budgeting for the back half of the year would be slightly lower than that. But again, it's just our budget, not necessarily what we hope to accomplish. I would point out that our -- last six months of the year, we're still budgeting about a 96.5% occupancy. When you're playing in those mid-96 to mid-97 numbers, it's just real challenging to get more aggressive to say, we're going to be 97.2% occupied or -- at some point, you're squeezing in there tight.
So the same-store, I hope it proves conservative. So that's how it rolls up. But bigger picture and as a lot of the conversation this morning is, our development in value-add program really is being, driving a lot of our NAV growth. And we got very solid same-store growth, solid rent growth and certainly think that will continue to pull in the right direction. But want to see how it pans out. We lowered -- we increased the bottom end and kind of kept the top end the same, which raised the midpoint slightly.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay. That's helpful. And then just a bigger picture question on sort of new markets. You entered Greenville. Can you talk about how you see growth from here on in that submarket in terms of mix between acquisitions and development? And if there's a nearer term wish list in terms of other submarkets, can you highlight any that we should sort of be watching for?
Marshall A. Loeb -- President and Chief Executive Officer
Certainly, within Greenville, we'll look at acquisitions, kind of Greenville-Spartanburg. Probably what we've learned given kind of as the world sits today, we're more competitive and are comfortable creating value, whether it be development or value-add, which -- it's not every case, but our value-add has often meant someone else's new building that we acquired before it was completely leased. So we like the state-of-the-art buildings and if we take on the leasing risk, but not the construction risk.
So we like in that submarket that we're near Greenville, and nothing against Spartanburg, but we're kind of where the higher net worth population growth -- serving the metro area, the consumer really fits what our buildings do a little better than serving the BMW plant, for example. So I like how we fit there.
In terms of other markets that we've kind of looked around in -- and we're late to the game on these. And Nashville is another one that's within our footprint that we've looked around in. We passed on some opportunities in Nashville. And if we never get to Nashville, I'm OK with that. But that's one we've toyed around with the idea or talked about places like Salt Lake, which again would be a little bit like Denver. It's not a Sunbelt market, but it's on the periphery. And that one is further out there. If we never get to Salt Lake, that's OK too.
But we're -- I always think at least we owe it to you to always be looking at a market or two. And if we can find the right opportunity, we'll enter it. And in the meantime, let's be active in the markets as best we can find an opportunity, say, in the Bay area, where we're under allocated and it's awfully expensive, but it's a great market. And so let's keep -- we'll just be patient till we can find the right opportunity there or in Orange County, for example.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay, great. Thank you.
Marshall A. Loeb -- President and Chief Executive Officer
You're welcome.
Operator
Thank you. And we'll go next to the line of Jason Green with Evercore. Please go ahead.
Jason Green -- Evercore ISI -- Analyst
Just a quick question on development starts. As this continues to tick up, if the business environment were to stay the same or even get a little bit better, could development starts for fiscal year '19 increase? Or are you pretty much capped out for what you can do this year?
Marshall A. Loeb -- President and Chief Executive Officer
We could -- at some point, you just kind of run out of time. I mean third quarter has more starts -- the balance of what's left I was kind of looking. It's about -- 60% is the first half of the year and 30% third quarter, 10% fourth quarter. In a couple of our markets, not many, but like you run into weather. You could as it gets later in the year pending, and we're not looking at nothing right now in Denver, but Charlotte you could also run into some weather issues.
So we could possibly go north of $200 million and -- but, and a lot of that too would also -- as you would imagine, every city permit department, whether it's industrial, multifamily, hotels, they are all busy. So it's taking longer and longer to get permits pulled and plans approved and things like that. So there's some upside for 2019. We certainly have the capacity to do it.
And what I really like about our model as compared to our peers -- and maybe one thing we don't articulate as well as we could is that we're really up on our development starts because the demand has been there and it's pulled that next building within a park. So if we do it, it will be based on demand versus corporate saying, it's a good idea to go build that next building.
So if you see us beating $200 million, it's a further sign of the market is even stronger. And then hopefully what we don't get started next year -- this year we'll roll right into 2020, and if the economy stays there, we can hopefully maintain the pace that we've set. A few years ago, we would have told you $100 million in starts is kind of our typical year. And I'm pleasantly surprised that we've gotten to $200 million. Well, $140 million was our record last year. And so to get to $200 million -- and maybe we'll beat it. And then hopefully we'll have a good opportunity as we look to -- say, look to 2020 now that we're all the way into July.
Jason Green -- Evercore ISI -- Analyst
Great. Thanks very much.
Marshall A. Loeb -- President and Chief Executive Officer
You're welcome.
Operator
Thank you. And we'll take our next question from Jon Petersen with Jefferies. Please go ahead.
Jon Petersen -- Jefferies -- Analyst
Great, thanks. I have a few questions for some details on some of the acquisitions. There's certainly some more value-add type opportunities here. In Greenville, you mentioned it's 35% occupied, but that's going to 100% in early 2020 after some TIs. So I guess on top of the $14 million of acquisitions, how much additional TIs do you have to spend and what does that turn the return into on that acquisition?
Marshall A. Loeb -- President and Chief Executive Officer
Good question. I guess -- well, we're under a -- I guess there's some confidentiality in our purchase and seller agreements, so I want to be sensitive to the seller. But I would say it's probably a typical TI. It's -- one tenant is in. It's the Trane Air Conditioning. And then there's another tenant that's moving into 100 of the 150,000 square feet. So it's both of them, 7-year leases. And the second one got signed really as we were under an LOI and before we really -- maybe as even as we got in the purchase and sale agreement.
So it will take a little bit to get the TI done. The tenant is also getting some incentives, as I understand it, from the state of South Carolina, the city of Greenville. So that's why it will take a little bit of time to get their build out done and they'll occupy probably late fourth quarter to first part of next year. And TI is probably per year over the term of lease in line with company averages.
Jon Petersen -- Jefferies -- Analyst
Okay. All right. So it's not like some significant redevelopment type thing happening?
Marshall A. Loeb -- President and Chief Executive Officer
No, no, nothing. It's a 100,000 foot tenant getting in. And it's a brand new building, so they've got to add the office, the restrooms, the lighting and all the dock equipment, all that.
Jon Petersen -- Jefferies -- Analyst
Okay. All right. And then in Phoenix, it sounds like you got a transaction here that had a little bit of hair on it over the last few years with eminent domain and then coming out of it. So it's like a total of about $21 million of investment expected there. Just kind of curious if you can walk through maybe the history of this project and then how the yield on something like this stacks up versus normal developments?
Marshall A. Loeb -- President and Chief Executive Officer
Good question. We had -- Interstate Commons is the project. Four buildings we acquired, two of them in the late '90s, and then built two more buildings since then. It was late 2016 I believe. Arizona DOT was doing a freeway widening, so acquired two of our four buildings. And we had kind of stopped, naturally knew it was coming. It didn't happen overnight, but we stopped our CapEx for that before ADOT took it back. And then -- now they finished the freeway widening. So the access is better and the visibility is better. And then they didn't tear our two buildings down.
So the good news is we had an option to reacquire the buildings if they didn't get torn down. We exercised our option. It's taken a little bit of time. We thought we would have closed by now. Just working through the state process. It's a -- we're buying them back for about a little over $9 million, which is a little bit less than we sold them for thankfully. So we have a -- we're buying them back two years later for a little bit lower price. But then we'll take a couple of more million to get them -- it needs a new roof, parking lot. We'll have rehave them and get to about a $12 million investment. And it's just below a development type deal. We're pro forming and it's smaller tenants in this building. So it's the ones today that would be awfully hard to duplicate because the tenant improvement cost would kill your return.
So we're optimistic. And I'm doing it from memory. I think we end up in the high 6's, is about where we pro forma there. And probably completed, it would be southwest side of town, so not the most -- it's a good, stable industrial market. It's not the East Valley that we like better. But Southwest Valley would probably be high 4s to 5 type return. So good yield over value once we can get the buildings back and get to work on them, which we think will be -- hopefully will be late third quarter.
Jon Petersen -- Jefferies -- Analyst
Okay. All right. One more kind of nitpicky question if I could. In Atlanta, I noticed the rent changes on renewals were pretty significantly negative this quarter. I think about 20% there. Give me some more color on what's going on -- what was going on there?
Marshall A. Loeb -- President and Chief Executive Officer
Yeah, good eye on a busy chart. And it's really a small sample size in Atlanta. Most of what we -- it's not a big market. Of course we like the market, not a big market. And most of what we have there was brand new value-add. So in terms of releasing, it was a lease in the first quarter and then a lease in the second quarter that were -- one was a 12-year lease that expired above market and one was I believe the short term lease that went to a long term lease.
And so on both of those we rolled backwards. So it's not -- I would say it's not indicative of the market. It's just an odd -- a uniquely small sample size for us. So hopefully, as we build up our square footage in Atlanta and get -- I'd love to have a handful of numbers in our stats rather than one or two lease as you can end up with some odd looking numbers like what we had.
Jon Petersen -- Jefferies -- Analyst
So I guess maybe on that point of renewals, if we step back high level to your whole portfolio, where would you put the cash mark-to-market today?
Marshall A. Loeb -- President and Chief Executive Officer
We're bad at estimating that. We've tried it and we just aren't very good at it. Because every state -- it depends on the TI and the side yard. I'm not intentionally mumbling other than we just aren't very good at estimating it. We do see rents continuing to grow 4% to 5% in most of our markets and probably even sometimes higher than that in the California markets.
Jon Petersen -- Jefferies -- Analyst
All right. Thank you.
Marshall A. Loeb -- President and Chief Executive Officer
Sure. You're welcome.
Operator
Thank you. And we'll take our next question from the line of Eric Anderson [Phonetic] with Green Street Advisors.
Eric Anderson -- Green Street Advisors -- Analyst
Thank you. That's a new one. Could you comment on some of the portfolio sales that have occurred over the past few months and whether that prices that are reflected those deals are getting reflected in smaller transactions that you're looking at?
Marshall A. Loeb -- President and Chief Executive Officer
Good question there, Frankel. I apologize that -- I think so. And what we -- which I think we should do, what we've been selling, I would describe them as they aren't bad assets, but they're not our future assets. They've performed well for us. We've had nice gains. I'm trying to say we're pruning from the bottom a little bit. But what we've also seen is cap rate compression even in weaker assets that -- I'm kind of bouncing -- and we got attractive pricing on a 30-plus year old service center in Orlando this past quarter. I want to say that was like a low 7s -- I'm doing it from memory -- a low 7 type cap rate.
We're seeing that on -- we've got funds at risk on a 30-year-old R&D/office building in Santa Barbara. Last year, in Phoenix, we sold a 50-plus year old distribution on the southwest side of town in the 5s, which is probably 1/2 the cap rate we bought it for 20 years earlier.
So we -- if I'm answering your question correctly, yes, it feels like -- everybody would rather own the class A product in the top five distribution markets, but given the amount of capital -- and there's even rent growth in these type assets. We've seen it as a -- it gets a little tricky. It's a good time to issue equity, it's an attractive time to issue equity, but it's also an attractive time to dispose and kind of keep pruning from the bottom of our portfolio, which is something I think we should always be doing.
Eric Anderson -- Green Street Advisors -- Analyst
I appreciate that color. Could you actually just comment on the cap rate you expect -- or the yield you expect to receive on the Denver portfolio acquisition?
Marshall A. Loeb -- President and Chief Executive Officer
Kind of I can go within a range without upsetting our seller. It would be -- it's in the -- I'm trying to work from memory. Like a 5.1 to 5.5 type deal. It's 11 tenants, 95% leased, well located, airport, submarket, really between downtown and the airport -- closer to the airport and in the low to mid-5s.
Eric Anderson -- Green Street Advisors -- Analyst
Okay. That's helpful. And a final question. I just noticed the way you guys disclose your leasing spread is by market, which is appreciated. Obviously, the California numbers were quite eye popping. Could you comment on when those leases were originally signed that you rolled over this quarter? Were they signed like three years ago, five years ago, seven years ago?
Marshall A. Loeb -- President and Chief Executive Officer
I guess I need to -- honestly, I need to dig a little bit more. I'm guessing that most of them were probably that three to five year time period. And that's just -- that's the -- the good news is we see great releasing spreads in California, almost hoping -- yes, I hate to hope -- leases expire. But there it's an exception. And they weren't abnormally long in the Bay area and LA and that's why you see such -- those are the lowest cap rates we see within our portfolio as we try to find opportunities, are really where you are in the Bay area.
Eric Anderson -- Green Street Advisors -- Analyst
Okay. That's it. Thank you.
Marshall A. Loeb -- President and Chief Executive Officer
Sure. Welcome.
Operator
Thank you. And we'll take our next question from Rich Anderson with SMBC Nikko.
Rich Anderson -- SMBC Nikko -- Analyst
Thanks. I had a feeling I was next. So just a question on the -- on sort of the performance in -- I might phrase it like the ability to raise guidance and whatnot in the future. When you look at same-store growth -- if you believe is guidance for this year, you're running sort of neck-in-neck with what you produced last year. So I'm wondering if the acceleration opportunity set is less on the same-store pull and more on the non same-store opportunities vis-a-vis the value-add acquisitions, occupying faster than expectations. Is that the new path to future FFO growth in your mind now that you've kind of reached perhaps a quasi ceiling on the same-store growth profile of the company?
Brent W. Wood -- Executive Vice President and Chief Financial Officer
I'll start with that. Rich, good to hear from you. Yeah, I would say on the same-store that there's not as much opportunity there -- I'm losing my train of thought here -- in terms of pushing that going forward, in terms -- yes, I think we probably have run the same rate for a few years now.
I think you're right, development and value-add will be a big contributor. I think it's one of the under -- under evaluated aspects of our growth is that value-add and development. Marshall and I were looking at this earlier. Since 2017 through the current pipeline, we've added $655 million in our cost at a high 7 yield. So if you put that at a mid-4 to a 5, we've had somewhere in -- a 60%-65% return on those assets. So certainly, I think 2020 will be pushed by some internal growth. But I think you're spot on, there will be some -- value-add development will be a big push in that FFO growth up.
Rich Anderson -- SMBC Nikko -- Analyst
Okay. Great. And then second question. Lease termination income up over $1 million for this year now. That will be the high watermark for you guys for at least going back this last five years or so. I imagine you'll say these are company specific events. But company specific, company specific, company specific suddenly becomes an industry. And I'm curious if you're having an eye on that at all as perhaps a foreshadow for things starting to sort of loosen up a little bit?
Marshall A. Loeb -- President and Chief Executive Officer
In our case, it's not really indicative of things loosening up. The good news there is Chris Segrest in Florida performed a good job there on the East Coast. We had -- it really represents two big termination fees this past quarter of $525,000 in Tampa and the $225,000 in Charlotte. And in both those cases, we've relet the space. And in one case in Charlotte, each tenant on each side moved in.
So those were negotiated terminations on our side, just in that we viewed it was good upside for EastGroup, which it turned out that there really was. But that has caused the trend to be heavy this year. We're guiding to just north of $1 million. The last two years that was closer to $300,000 and $450,000 going back to 2017.
So it was just more opportunity driven, not tenant work out type driven. So good execution on the team to put some extra money in our pocket, release the space, and actually do it at higher rents.
Rich Anderson -- SMBC Nikko -- Analyst
All right. Makes sense. Thanks very much. Appreciate it.
Marshall A. Loeb -- President and Chief Executive Officer
You're welcome.
Operator
Thank you. And we'll take our next question from Brendan Finn from Wells Fargo.
Brendan Finn -- Wells Fargo -- Analyst
Hey, guys. Thanks for taking my question. I wanted to follow up on your earlier commentary about expanding in the Denver market. It looks like you guys don't have any land there. So are you going to try and continue expanding there through acquisitions like you did in Q2? Or are you also looking for land parcels there as well?
Marshall A. Loeb -- President and Chief Executive Officer
Good morning and good question. Yes, a little of both. I mean I think I'm glad we got the acquisition we did in Denver. It's probably atypical for us to be competitive. Usually, we make it into the rounds. It's usually three rounds, with the last being a buyer interview, and someone jumps their bed.
So what we're -- we're looking at a couple of opportunities now in Denver. One is on market, one is off market. We probably -- I guess probably look to -- value-add and development would be our two. Where we've built in Denver before, developed there before will probably be where we grow. And knock on wood, as soon as I say that, we'll end up acquiring something. But I would think given like where we are in other markets, value-add and development will probably be our path to grow in Denver and in most of our markets. And if we can find it off market, all the better.
Brendan Finn -- Wells Fargo -- Analyst
Sounds good. Thanks guys.
Marshall A. Loeb -- President and Chief Executive Officer
Sure. You're welcome.
Operator
Thank you. And at this time, we have no further questions. I'd like to turn it back over to our speakers for any closing remarks.
Marshall A. Loeb -- President and Chief Executive Officer
Okay. Thanks, Erica. Thanks, everyone, for your time. Appreciate your interest in EastGroup, your time this morning. If you have any follow up comments or questions, we are available this afternoon. Thanks.
Brent W. Wood -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
[Operator Closing Remarks]
Duration: 63 minutes
Call participants:
Marshall A. Loeb -- President and Chief Executive Officer
Keena Frazier -- Director of Leasing Statistics
Brent W. Wood -- Executive Vice President and Chief Financial Officer
John Guinee -- Stifel -- Analyst
Alexander Pernokas -- Bank of America Merrill Lynch -- Analyst
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Craig Mailman -- KeyBanc Capital Markets -- Analyst
Bill Crow -- Raymond James -- Analyst
Emmanuel Korchman -- Citi -- Analyst
Vikram Malhotra -- Morgan Stanley -- Analyst
Jason Green -- Evercore ISI -- Analyst
Jon Petersen -- Jefferies -- Analyst
Eric Anderson -- Green Street Advisors -- Analyst
Rich Anderson -- SMBC Nikko -- Analyst
Brendan Finn -- Wells Fargo -- Analyst
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