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Eastgroup Properties Inc (NYSE:EGP)
Q4 2019 Earnings Call
Feb 7, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone, and welcome to the EastGroup Properties' Fourth Quarter 2019 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] Please note this call may be recorded.

Now it's my pleasure to turn today's conference over to Marshall Loeb, President and CEO.

Marshall A. Loeb -- President & Chief Executive Officer

Good morning and thanks for calling in for our fourth quarter 2019 conference calls. 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-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 to certain of these risk factors in our SEC filings.

Marshall A. Loeb -- President & Chief Executive Officer

Thanks Keena. We have 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 7.6% increase compared to fourth quarter last year and for the year. FFO also came in above guidance, with an increase of 6.9% over prior year. This marks 27 consecutive quarters of higher FFO per share as compared to the prior year quarter. And we're especially pleased with our fourth quarter and 2019 FFO growth given that the equity raise far exceeded our original budget.

The vitality of the industrial market is further demonstrated through a number of metrics such as occupancy, same-store NOI, and releasing spreads. As these statistics bear out, the operating environment continues to allow us to steadily increase rents and create value through ground up development and value-add acquisitions. At year-end, we were 97.6% leased and 97.1% occupied. Further, our quarterly occupancy has been 95% or better for what is now 26 consecutive quarters. In short, demand continues growing for our in-fill location, small bay last mile parks. We're seeing this growth in terms of tenant expansions as well as a broadening range of tenants. Several markets were 98% leased or better, including Huston, our largest market. And while still our largest market, Huston has fallen from roughly 21% NOI to projected 13.4% for 2020 and even below 13% in fourth quarter of the year.

Supply and specifically shallow bay industrial supply remains in check in our markets. In this cycle, the supply is predominately institutionally controlled, and as a result, deliveries remain disciplined. And as a byproduct of the institutional control, it's largely focused on big box construction. While sourcing development sites within fast growing Sunbelt markets is a growing challenge, it's keeping supply in balance.

Our quarterly same-property NOI growth was 4.5% cash and 3.7% GAAP and our annual same-property NOI growth was 4.7% cash and 3.7% GAAP. We're also pleased with average quarterly occupancy at 97.1%, up a full 60 basis points from fourth quarter 2018. Rent spreads continued their positive trend, rising 9.3% cash and 18.3% GAAP last quarter and for the year GAAP rents grew 17.3%, marking our fifth consecutive year of double digit GAAP increases. 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 a majority of our developments are additional phases within an existing park. The average investment for our shallow bay business distribution buildings is roughly $10 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 a market cap rate to be in the 4s.

During the fourth quarter, we began construction on four developments totaling 593,000 square feet. And as of year-end, our development and value-add pipeline consisted of 28 projects containing 4.1 million square feet with a projected cost of approximately $420 million. Meanwhile, during the quarter, we transferred five buildings into our portfolio totaling 175,000 square feet, each 100% leased. Looking back from 2017 to 2019, we've transferred 34 starts into portfolio, with 33 of those being 100% leased. For 2020, we're projecting starts of 150 million spread over nine cities. This geographic diversity further reduces risk while enhancing our ability to grow the development pipeline on an ongoing basis.

As a reminder, the majority of our starts are based on the performance of the prior phase within the park. In fact, over two-thirds of 2020 starts are projected to be that next building. As a result, market demand dictates new construction rather than us pushing supply into the market. Two outcomes of this approach are one, it allows us to manage risk as in most cases we're simply restocking the shelves. In many cases, the start is driven by expansion needs of an existing tenant in the park, and in most of those cases, we're able to backfill the original space at higher rents.

We've had a busy quarter in terms of new investments and dispositions. We are pleased with the quality of our investments, as well as the geographic diversity. New investments were made in Las Vegas, San Diego, Dallas and Phoenix. From a dispositions perspective, we saw three of our four R&D buildings in Santa Barbara and in Tucson, long-term tenant acquired their building.

In sum, while the market is strong, we're working to find development and value-add opportunities, while also using this environment to shed those assets which are less likely to drive our future growth. The high historical transaction levels we achieved in each of the categories during 2019 are examples of the market strength.

Brent will now review a variety of financial topics, including 2020 annual 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 exceeded the midpoint of our guidance at $1.27 per share, and compared to fourth quarter 2018 of $1.18 represented an increase of 7.6%. We continue to experience terrific leasing results in both operating and development programs.

Average occupancy for 2019 was 96.9% and we transferred 13 development and value-add projects, totaling 1.8 million square feet into the operating portfolio that are currently 96% leased. FFO per share for 2019 was $4.98 per share compared to $4.66 per share last year, an increase of 6.9%. Our continued strong performance both operationally and in share price is allowing us to further strengthen our balance sheet.

From a capital perspective, we issued $68 million of common stock at an average price of $132.52 per share during the quarter, that increased our 2019 gross equity raise to a record high $288 million. Also during the quarter, we closed on seven-year senior unsecured term loan for $100 million, with the addition of an interest rate swap agreement, the total effective fixed interest rate is 2.75%. We remain pleased to have access to capital via equity and debt at attractive pricing.

The company had one milestone that may have been overlooked. So we wanted to mention it on today's call. In December, we declared our 160th consecutive quarterly cash distribution to EastGroup shareholders or 40 consecutive years. EastGroup has increased or maintained its dividend for 27 consecutive years, including increases in 24 years, over that period. The strength stability and growth of the dividend is a testament to the successful implementation of our strategy over an extended period.

Looking forward, FFO guidance for the first quarter of 2020 is estimated to be in the range of $1.27 to $1.31 per share and $5.25 to $5.35 per share for the year. The FFO per share midpoint for 2020 represents a 6.4% increase over 2019. The leasing assumptions that comprised 2020 guidance, produce an average occupancy of 96.3% for the year and the cash same property increase range of 2.5% to 3.5%. Other notable assumption for 2020 guidance include $95 million in acquisitions and $40 million in dispositions, $170 million in common stock issuances, $100 million of unsecured debt, which will be offset by $105 million in debt repayment and $300,000 of bad debt net of termination fees.

In summary, our financial metrics and operating results continue to be some of the best we have experienced and we anticipate that momentum continuing into 2020.

Now Marshall will make some final comments.

Marshall A. Loeb -- President & Chief Executive Officer

Thanks, Brent. Industrial property fundamentals are solid and continue improving across our markets, following the 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 the equity raised last year. 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 be now happy to take any of your questions.

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from Jamie Feldman with Bank of America. Please go ahead, your line is open.

Jamie Feldman -- Bank of America -- Analyst

Great, thank you. I guess just to start, you had mentioned you're seeing tenant expansion and a broadening range of tenants, can you talk more about the broadening range of tenants and just to give a picture of what we might see going forward?

Marshall A. Loeb -- President & Chief Executive Officer

Sure. Good morning, Jamie, it's Marshall. I'll add some of what we've talked about in little bit in the past, and it continues to broaden. What's been interesting maybe, and I'll go back two years or three years, traditional tenants are still doing well and the economy is kind of chugging along. So the granite, tile guy, the flooring, HVAC contractors all are doing well and expanding. And really what's been a new trend for us is more I'd say retail related or along those lines where they rework their supply chain, logistics chain, some of it e-commerce, some of it not necessarily, but maybe the handful that come to mind would be the Home Depot's and Lowe's. And then we'll -- I guess what's interesting, we'll see them in a market and then they'll spread and we'll see them in Florida, Texas, California, Arizona throughout our markets, I'd say Wayfair, Best Buy. Of late probably in the -- maybe in the last couple of quarters, we've seen Peloton, if you are familiar within the exercise equipment, we've gone from no leases to maybe three with them and a couple more conversations going on. And probably two years ago we were having -- we had more leases with Amazon, 3PL groups that were doing deliveries. And the last, call it couple of quarters as well we've seen more activity of signed leases with Amazon and have conversations, we may or may not get them, but they in the market. So they are certainly coming across our radar much more frequently and that's been what's really been interesting, maybe the last 18 months is once someone shows up and it's good, we build that relationship and have a conforming lease. We think it gives us hopefully if we're fair to negotiate with and have a conforming lease, if we do a lease in Tampa like with Tesla for example is another new name, then we have an opportunity to work with them in Dallas or in Las Vegas.

Jamie Feldman -- Bank of America -- Analyst

Okay, that's helpful. And then I guess as you think about your guidance, I mean last year you ended up well above what you initially provided, can you just help us think through kind of the upside and potentially downside movements to your range? What you need to see to move it higher? Both, I guess in development starts and same-store.

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Yeah Jamie, hey it's Brent, Good morning. Yeah the 530, part of the challenges in budgeting this year is you are on the heels of two consecutive quarterly record years. And so the template that we put in the press release with all the assumptions basically that shows directly the factors that we put in place that result in the 530 mid-point. And so we do show occupancy down a little bit, same-store down a little bit from the prior year, but the record levels we are very optimistic about the year, certainly last year we were fortunate enough to be able to raise that throughout the year. So certainly if occupancy were to be slightly better that would be obviously a help to the bottom line and to same-store. You know if we can lease the developments at the same very brisk clip that we enjoyed last year, certainly they would be upside to stores. So if things go positive like they did last year and we've got no reason to think, now that that wouldn't happen, but there could be some room, but when you start getting around those 97% type numbers record highs, it's I guess you've -- learned us over the years, we're a little hesitant to come in and say, hey, we're going to budget to a third consecutive record year.

So I think our occupancy that we budgeted to this year, even if it happened exactly as budgeted it would be our second highest occupancy for the year in the history of the company. So I guess it's a high-class conundrum to be in, but we're very bullish on the year looking -- as it looks today.

Operator

[Operator Instructions] We'll take our next question from Alexander Goldfarb with Piper Sandler. Please go ahead, your line is open.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you and good morning -- good morning down there. Two questions. First, Marshall, you guys are clearly an FFO company, so same-store is not as much of a focus given your development. But that said looking at your same-store guidance for this coming year, obviously it's lower, you guys speak about wanting to push rent more and given -- and maybe trade-off some occupancy, but I would think on those two levers, the bottom line is that you're driving more overall NOI. So can you just talk about how the reduction of occupancy how you wouldn't more than offset that as you push rents?

Marshall A. Loeb -- President & Chief Executive Officer

Good point and probably I guess mathematically, if you push -- again this is just speaking theoretically, mathematically because of that downtime, if you lose a tenant over rents, even though we may get 5%, 10% higher rent from the next tenant, you probably won't have enough time tending when it happens during the year to really catch up and catch it, you may do better over a five-year period, but if it ends up snapshot of 2020, you probably won't catch up. I'd like to thank our guys -- as we said five years of double-digit GAAP rent increases and last year was actually a record GAAP increase for us, a little over 17%. So hopefully we'll see similar numbers, and we're going -- we are at 97.5% leased at year-end, we think it's a good time with rising construction prices to keep pushing and hammering on rents, where we have those opportunities.

But that said, if we think the right thing it's a great time to also improve credit quality. So you could lose some tenants and we may lose some occupancy that way where we -- if someone had trouble paying rents and things like that and then pushing rents. So hopefully we can make the trade-off and maintain or improve our NOI and do it all in one year, but -- but as Brent said last year was such a great year for us, we budgeted a little bit of loss and then if you mathematically work through it, we were saying about call it the 60 basis points, that's about 200,000 square feet for us. So it's not -- that's about six -- on average about six tenants or seven tenants. So it's not a -- it's almost like point [Indecipherable] that many -- that many leases rolling and 200,000 feet, six tenants, seven tenants -- I hope we're guessing wrong and we get those renewals done and we push rents then there could be some upside to the numbers.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. So it sounds like it's just the downtime between the tenants is really the delta, that's helpful. The second question is on development, sort of a two part, one, some recent articles about increased supply, but you mentioned in your comments about sort of less supply, maybe it's a geographic market thing, maybe all the new supply is still out in the corn fields, whereas you guys are closing in, so comment on that? And two, you bought a bunch of land, again just thinking about how costs have accelerated, are you still seeing rent growth in excess of cost and therefore you're 7% plus, the 300 basis point to 400 basis point spread still is applicable today, as it has been over the past few years?

Marshall A. Loeb -- President & Chief Executive Officer

Sure. I guess couple of different thoughts within that. We are seeing -- we are certainly cognizant of supply and the fact that the industrial market has been hot now for a few years. It certainly attracted the world really, in terms of investments and acquisitions and even development, everybody has an industrial platform now, it feels like, whether they're developer or an acquirer. So we see that, but we also know -- we struggle for in-fill sites in fast growing sunbelt markets. So that's helped along with the institutional, but we are watching supply. What makes us feel a little better as we think about it is, as you said, not all supply is equal. A lot of -- a awful lot of it is in the corn fields and it's bigger box, our average tenant size is 30,000 feet, about -- roughly 60% of our tenants are under 50,000 feet. So a lot of the supply isn't -- simply isn't designed for our tenants.

And then with fast growing markets, we're in 13 of the 15 fastest growing cities. So with the growth in our markets there should be more supply and then really with e-commerce and supply chain logistics that's the other thing, even if -- even if Dallas had added 120,000 jobs last year, there'd be more demand, but there was 120,000 jobs and a secular shift away from brick and mortar retail toward our end is really helping us there.

So we feel optimistic about it. And really I guess, I'd also say what I love about our model is it almost doesn't matter what Brent and I feel, it's really how well did the last building lease and if it did well, we'll restock the shelves and if it's -- if it's languishing a little bit or behind on pro forma, we'll hold off. We've said kind of rents are rising, but that our yields would come down maybe at a low to mid-7. That said we -- everything we transferred in last year was at 7.5 and our pipeline for development is penciling out at 7.4 and value-adds at 6.4 and cap rates are staying compressed in the fours. So, even if we -- I've kept thinking it will come down to the lower sevens, just with construction prices, but we've been able to hang in there so far and some of that they leased up like for the starts last year faster than we anticipated or pro forma.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. Thank you, Marshall.

Marshall A. Loeb -- President & Chief Executive Officer

You're welcome.

Operator

From Manny Korchman with Citi. Please go ahead, your line is open.

Manny Korchman -- Citi -- Analyst

Hey, everyone. Good morning. Marshall, you talked about the tenant relationships taking up some of the space. And you mentioned some names like home improvement retailers, Tesla, etc. How many of those conversations are happening because they have a relationship with you and you're utilizing that relationship for new deals versus them wanting to be in the markets you're in?

And then on the flip side of that, how often are they asking you to go or find them opportunities in markets that you're not in but they want to be in?

Marshall A. Loeb -- President & Chief Executive Officer

Good morning and good question. I mean I'd love to evolve to the former and it's probably more of the latter today. What will happen is, it make sense, everybody has a tenant rep broker and with kind of smaller company, we have pretty good, great line within the company, we'll hear that Best Buy is looking for space, we signed a lease with them recently in Miami, is looking in Miami and we signed a lease with them in Charlotte or LA. Ryan had worked with them and so that word of mouth and that it usually follows the initial contract from the tenant that they are out looking for space. And then we will connect those dots and try to get in front of them in and get a leg up. That helped us for example in Las Vegas in our acquisition, we bought three buildings there and one of the full building users, we got it was a tenant rep broker that we knew and he learn we were acquiring the building, and I think that and I won't speak for him, but I think that was helpful for us in landing that tenant. He was out of Dallas and was doing national rep work for that tenant and he has done a handful of deals with us already and he was comfortable with us. So that help -- that helps, but we're more reactive at this point still.

Manny Korchman -- Citi -- Analyst

Got it, thanks. And Brent, maybe one for you, if we think about your guidance going into 2019 versus your guidance going into 2020, if we think about the levels of both acquisitions, dispositions and equity, those moved up quite significantly in '19 versus where you first came out, what is the set up for 2021, what needs to change for you to sort of increase those targets for both acquisitions and dispositions? And then also what would make you raise more equity than $170 million that you have guidance?

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Good morning Manny. I think it would be, just what you're saying our equity issue, it really just a byproduct of what we budget from an acquisition standpoint. So we certainly like the pricing of our stock price and/or debt if we needed to issue it. So we certainly don't view ourselves as capital constraints. So our guys in the field at all the markets are on the ground daily trying to drum up, acquisitions are very difficult value add. We've had some success and then of course the majority of our success in the development program. So as we have success and have those opportunities, we will certainly ratchet those. But given where our balance sheet is, we won't do that just in a vacuum without given where we are today, we're not looking to drive our debt-to-market cap even lower that type thing just arbitrarily so. We're in a good position. I think just in terms of that volume will be a matter of what the guys can come up with. I know Marshall and team got a couple of value adds early in the year, which is a good start to that guide. We have a net category is -- are basically what we hope are known at this point. So we'll go from there, but we -- there is certainly upside on the capital side that will not be limiting us in any way.

Manny Korchman -- Citi -- Analyst

Thank you, guys.

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Welcome.

Operator

Question from Bill Crow with Raymond James. Please go ahead, your line is open.

Bill Crow -- Raymond James -- Analyst

Appreciate it. Good morning, guys. I want to follow that last question with another question on the balance sheet, it just -- it feels like you're over equitizing a little bit given your goals for expansion for 2020 versus the capital that you are raising. At what point when you start to look at the cost of debt, does it -- does it get to the point where you need to add some more -- some more debt?

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Bill, that's -- you know it's a conversation we have quite frequently. And I think Marshall [Indecipherable], we didn't realize we were hoarders until we saw the stock price and income, we become hoarders. I guess you remember, Keith our longtime CFO predecessor, kind of an old statement, you get equity when you can, and this window has certainly been open longer than historical -- historically typical. And so like I said I don't view that we're in a position now that we would issue equity just for the sake of further strengthening. But given those situations Bill, as bright as the sun is today, there will be a time where it's maybe not quite so bright and we would like to -- it serves very well in the last Great Recession to have -- what was viewed as a very conservative balance sheet and it turned out to be -- in hindsight probably where we should have been and we were positioned then to pick up on some other people's weakness. And certainly if that were to happen again, we would want to be in that same boat. So it's a trick one way or the other, but we do keep an eye on debt. Last year we -- when we did the 2.75 it was more of a reaction where the markets were and so we were able to move on that pretty quickly. And that wasn't something that we have said, let's just go do this. It was the market looked attractive at the moment. So we pulled that lever versus the equity lever. So we'll keep an eye both ways.

Marshall A. Loeb -- President & Chief Executive Officer

And Bill, I agree with Brent and I jump in and add, it's been interesting over the last year and a lot of ways to do it, but as we look at our cost of equity versus where the tenure and the spreads are there have been moments in time where that difference really wasn't very great. So given how close they were rolling toward equity, just for the safety for our shareholders of it, but we'll, and so I agree we like where we are balance sheet wise, but it's been interesting to see how close that gap has come at different times.

Bill Crow -- Raymond James -- Analyst

I appreciate that. Marshall, is Houston kind of -- not highest up on the watch list from a supply demand perspective is it closest to the precipice and if not, which market is?

Marshall A. Loeb -- President & Chief Executive Officer

You know it's -- we watch all of them, Houston, Dallas, Atlanta are always big the last few years supply markets. Typically Dallas, Atlanta have been south of town and literally far enough away especially Atlanta, we're north of town and so much of the supply is south. The port area of Houston is pretty far away, but we watch supply creep up in Houston to the point that we're definitely keeping an eye on it. I'd like at least if we look kind of within our own portfolio and you've -- we're -- I'm thankful or grateful that we're 90 -- a little over 98% leased in Houston as we ended the year, with a little under 7% set to roll this year. Kind of another context as we like, and this isn't so much Houston as any market, but last year it was within our pro forma, our budget it was 13.8% of our NOI. This year it's projected to be 13.4%. So we dropped 40 basis points in Houston. And then even at the end of the year it falls below 13% and that's without any dispositions. So we may pull the trigger on an asset or so in Houston we said and the two buildings I guess I'd say that at a high level on Houston and we finished two buildings at World Houston in the fourth quarter and by the time we delivered, the guys had on 100% leased and occupied, so hate to stop that when you're getting that kind of performance, but we'll -- we'll probably build to the sevens and sell in the fives somewhere in the fours wherever the market allows and kind of -- kind of watch it. But you're right, it has crept up 17 million square feet in Houston is a pretty decent size number when they've been absorbing about 11 million square feet. So not all of that's competitive, but it's definitely on our radar.

Bill Crow -- Raymond James -- Analyst

I'm going to violate the rules and just add one more -- ask one more quick question, are you -- are you hearing I assume you've not seen anything, but are you hearing anything from tenants or other owners of any impact from coronavirus from ships coming over empty, from anything related to that?

Marshall A. Loeb -- President & Chief Executive Officer

No. I will let you violate the rule. I will violate it with three answers and short, I'll be brief and is, no. We really have not -- we kind of watch for it and maybe just with the nature of our tenants and portfolio of not no one's used that as an excuse to not sign [Indecipherable] there is always a first, but I haven't heard that one so.

Bill Crow -- Raymond James -- Analyst

Appreciate the time. Thank you.

Marshall A. Loeb -- President & Chief Executive Officer

You are welcome.

Operator

Question from John Guinee with Stifel. Please go ahead, your line is open.

John Guinee -- Stifel -- Analyst

Great, thank you. Another stunningly good quarter and guidance, congratulations. Just out of curiosity and I don't know if John Coleman is on the call or not, but I noticed that your 43-acre site in Miami, 465,000 square feet, you are in it for about 35 million, 34 million, that's about $75 per square foot, is that -- is that because you've got a lot of infrastructure you built out or is that just the cost of value of dirt [Phonetic] down in Miami these days.

Marshall A. Loeb -- President & Chief Executive Officer

Yeah, I'm just trying to -- I don't have the -- can pull the numbers and maybe we can circle back if we need to John, it's Marshall, but we have added the infrastructure for the park, have built and delivered two of the five buildings there and are building the third building so that land we were in it, we bought it for about $10 a foot. And so it's really land prices have really risen in Miami in the last -- you know with the success of industrial a fair amount as well. So we like our basis in the land. I see what you're looking at now. So it's probably does because we really put the roads in and the retention. So everything is in and I'll drag on John since he is not on the call, I'll give him a complement. He let everything set and his goal is to have the permit in hand. So as our third building -- as you saw with our second building leased out with Best Buy, he quickly moved to the third building this quarter and we started it and then as that building leases up or gets full, will pull the trigger fairly quickly on our fourth building there.

John Guinee -- Stifel -- Analyst

I am embarrassed I should already know the answer to this, but if you look at your pretty sizable lease up portfolio 2.3 million square feet, you're obviously capitalizing all your cost during the lease-up period, but a lot of these are generating income, are you capitalizing the income also or are you reporting the income in your top line revenue?

Brent W. Wood -- Executive Vice President and Chief Financial Officer

On the development --?

John Guinee -- Stifel -- Analyst

On your lease-up assets.

Brent W. Wood -- Executive Vice President and Chief Financial Officer

On the lease-up basically the way it works we capitalize on the unoccupied portion. And then of course on the occupied portion as it becomes occupied you collect the rents. And so, as you see the lease percentages based on a little bit of timing, but it basically works in that manner and obviously when you see a property 100% leased, but it still didn't lease up it means we've signed the lease, but the tenant hasn't yet occupied because as soon as they occupy at that level it would transition in. So as long as you are still in that lease-up category window the unoccupied portion expense related to that is capitalized.

John Guinee -- Stifel -- Analyst

Okay. Income is always put into the top line revenue though?

Brent W. Wood -- Executive Vice President and Chief Financial Officer

It is. Even if you have a 25% leased property and that tenant is occupying and paying rent, you are booking that 25% rental income to the bottom line as soon as they start paying rent, yes.

John Guinee -- Stifel -- Analyst

All right, thank you. Great.

Operator

We'll take our next question from Jon Petersen with Jefferies. Please go ahead, your line is open.

Jon Petersen -- Jefferies -- Analyst

Great, thanks. I know you talked about pushing harder on rents this year, I was curious if you could talk about lease term? And if you guys are pushing harder on that with renewals and with new leases and also where you guys are at on annual escalators on new leases, you're signing versus the ones that are rolling off?

Marshall A. Loeb -- President & Chief Executive Officer

We will push the terms usually is construction, good morning Marshall, I should say is TI costs, construction costs have risen, usually again everybody will have a tenant rep broker and you will get an RFP for five-year, seven-year lease, will typically start you -- you don't want to match that with our initial response and as we work through the deal and a lot more recently as the TI cost have escalated, you can end up adding a little more term and/or a little bit higher rent. So that's -- that typically how that conversation goes as they settle in our building and we get the construction bids that will say you can either fund dollars over, call it $12 a foot or whatever if it's new space however, it works out or we'll amortize it, but we need another year of terms. So terms of probably crop up a little bit, but they've always kind of stayed within that 4% to 5% portfolio wise dialing in renewals four-years to five-years and bumps typically 2.5%, 3%, the longer the term of the lease and maybe the higher the rent starts we've seen a little bit of push back on that, but it's typically 2.5%, 3% and almost every lease has some type of escalator in it.

Jon Petersen -- Jefferies -- Analyst

I guess what's the difference though between when you sign a renewal on the escalators on the lease that's rolling off and the new -- the new one that you're signing. Are you still pushing those higher or you kind of holding the line on the same escalator as the old lease?

Marshall A. Loeb -- President & Chief Executive Officer

There may be a little -- pretty close, but they may be a little bit higher on a three-year as it is renewal you probably can get more of the 3% type bumps, if someone signing a brand new 10-year lease and rents climbed up, they are pretty high, they'll push back and get -- you may get 2.5, to 2.75. So it's not night and day difference, but that's where that build. The longer the lease term, and maybe the higher the rent starts out of those bumps, you may get as high as absolute increases, but that percentage gets pretty high.

Jon Petersen -- Jefferies -- Analyst

Okay, thanks. And then on acquisitions. I'm curious, if 2020 going to be a year that we see EastGroup enter any new markets? And if so which markets look appealing to you?

Marshall A. Loeb -- President & Chief Executive Officer

Sure. Good question. We just got to Greenville, South Carolina last year, which is a market we like and we're continued to kind of kick tires and turn over stones there and there's some we've considered like a Nashville and some markets like that. But if I were going to guess and it is that I'll probably say no. I'd rather, if we had our preference, I'd rather us fill-in on the markets where we're under allocated today. You've seen us do a lot out in the Western region, which is friendly like South Florida, we feel like we're still fairly new to Atlanta and have some runway there and that we're active in Dallas. So I'd rather see us grow in our existing markets, but if the right opportunity came along and it probably fit our footprint you won't see us jump to overseas or do anything hopefully surprising. I don't -- we don't think that would be well received by the market. So we'll stick with kind of the markets we know and kind of manage our portfolio allocation within those most likely.

Jon Petersen -- Jefferies -- Analyst

Okay, thank you so much.

Marshall A. Loeb -- President & Chief Executive Officer

Sure. You're welcome.

Operator

We'll take our next question from Eric Frankel with Green Street Advisors. Please go ahead, your line is open.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. I just want to know if there is any known tenant move-outs and which markets we should kind of be focused on just given that a lot of your lease roll it seems to be concentrated in Florida, I guess, to a lesser extent Charlotte next year?

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Yeah. And I'll start and Marshall can fill you with maybe individual transactions, but on the known vacancies there is nothing specific that we're overly focused on. I would even add on our tenant watch list our bad debt that we've got budgeted is a generic bad debt number, we don't have that assigned to specific tenants. I know Tampa is a little high rollover this year, there is a couple of large leases I think, Marshall, you have the details, couple of those are even in the positive category early potentially.

Marshall A. Loeb -- President & Chief Executive Officer

Yeah, the Tampa, we had about 200 -- since year-end about 225,000 foot lease renewal that's been signed so that one's done within Vanity Fair. And then in Charlotte, we had Home Depot was about 200,000 feet has renewed there as well. So good eye to pick-up we'll kind of look and see where we have large lease roll and thankfully we've knocked out a couple of big leases in each of those markets. And then talking to those teams the balance, it's a pretty mixed bag that's remaining. And we typically end up renewing -- if you and I were building a model, Eric, I'd say, let's assume 70% retention rate and we may miss that in a quarter or two, but over four quarters or a little bit longer, we always seem to hover around that ratio. So I think that we'll probably do that in Tampa and Charlotte, plus or minus.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, 70% it is. Final question, obviously you tend to lean, I guess a bit on the conservative side in terms of your guidance and your investment budget for this year, but maybe you could touch upon whether I think last year you bought a fair amount of newly developed assets that were in lease-up and maybe you can talk about that opportunity set this year?

Marshall A. Loeb -- President & Chief Executive Officer

Yeah, definitely thanks. And I hope you're right. I hope we're conservative again we've been accused of what we're saying. So that's a good thing. I hope -- hope again, this is our budget, not our goal, it is kind of one of our internal sayings. And you're right, we like that value add category because core acquisitions are so competitive, I think the last year, we bought one property was all of either acquisitions or value add that was actually a listed property. We came in second and third, a lot and we'll pursue those, with everybody has got a checkbook. So we really have no differentiating factor there and we are turning over a lot of stones. Our value add kind of within our development pipeline, those are averaging about a 6.4% yield and with cap rates where they are, we are getting a good 150 basis point to maybe 200 basis point spread over core asset. So we like that risk return given that someone else as held the land, gotten zoning done, taken the construction risk, and it's usually either all or some portion of leasing risk that we have to take. So they are hard to come by. As Brent mentioned, the $30 million in our budget, as of today is identified and project, specific projects and we'll try to grow that number, it's a little bit of a shadow development pipeline we said as another way to create some NAV. The spreads aren't quite as high as development, but we like the risk return of those and there is -- it's usually a developer with a financial institution as their partner and they can make some money with their IRR promote, maybe not as much as they would have made if they had finished the project, but they are happy to take the promote and kind of build the next building before the cycle ends is more their mentality.

So we keep chasing it. And I guess the risk of that as people have pointed out is you don't want to create false demand, but so far when you look at our yields and when we were looking back at the end of the year the 33 of 34 buildings over the last three years have rolled in at 100% lease, you could be -- feels like we're busy and I know the teams, let's say they're doing a lot more, but you could be critical that we should have done even more the 33 of 34 is too high of a batting average.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, thank you.

Marshall A. Loeb -- President & Chief Executive Officer

Sure.

Operator

[Operator Instructions] We'll take our next question from Rich Anderson with SMBC. Please go ahead, your line is open.

Rich Anderson -- SMBC -- Analyst

Thanks, good morning. So I'd like to -- if you could -- do you have a sense of what percentage of your portfolio is truly in-fill last mile. I know the vast majority is on the smaller side, but like in Atlanta for example, you're a bit far afield from a population center, if memory serves correctly. And so I was just wondering if you could kind of give us some parameters about what is really inside the population center and truly fits into this last mile concept?

Marshall A. Loeb -- President & Chief Executive Officer

Sure. Good question and trickier one to answer. But maybe here's a couple of stats. As I mentioned, I'd say on average tenant size is 30,000 feet. So that's not really logistics chain getting goods from China to New York for example type thing. I'm doing this from memory, 60% of our tenants roughly are under 50,000 feet and 85% of our 15000 [Phonetic] tenants are under 100,000 feet. So we have a lot of smaller tenants that do distribute within their regional area and we said probably a better, really our strategy better indicator of our growth is people moving to Orlando, people moving to Phoenix, people moving to Austin, Texas.

And last mile in Atlanta, it's interesting as we studied it almost maybe having spent some time in retail, it reminded me where you're right, If you look at the map of Atlanta, where we are, is it at the bull's-eye of Atlanta map, but that North quadrant of the City, call it 10 to 12 o'clock or what locals refer to as the golden triangle, if you're with Wayfair for example, that's a pretty good highly educated above average per capita income, that's a good last mile delivery spot or if you're just in HVAC contractor and your -- your restaurant, your service is out and it's July and you need to get your guys to the location quickly that's where the higher end retail is, so a little bit similar it really struck me, Jacksonville where we've been for 20 years, we're on the south side of Jacksonville away from the city, center of the city, but in the path of population growth and that type of population growth that's attractive to tenants as well. So it's a little bit like -- reminds me a little bit of like retail in times, where do you want to be, where is your customer going to be and that's fits well for our tenants.

Rich Anderson -- SMBC -- Analyst

So back of the envelope 85%, you would say is definitionally last mile?

Marshall A. Loeb -- President & Chief Executive Officer

If I stretched, yeah just because they are not small I know and probably even more than that 85%. They really are not in that -- they may be selling off of a website and shipping around the country, but they're not in any type of supply chain or Home Depot or Lowe's, yeah.

Rich Anderson -- SMBC -- Analyst

Understood. And second question from me, how would you describe the price sensitivity of your tenants? In other words, is the rent that you charge sort of low on the [Indecipherable] for them and hence gives you the ability to be a bit more aggressive or is it a little bit more important to them and are they more focused on rent particularly now with past couple of years of the strength in fundamentals?

Marshall A. Loeb -- President & Chief Executive Officer

I think it's certainly matters to them, but in their equation, it's pretty low. So thankfully we've got a low component within their overall cost and that's what I thought too in a rising market it often helps when they have a tenant rep brokers. So by the time we sit down, they know where market is and we'll push as hard as we can. So there is always competition, they always seem to have an option, and you're trying to figure out if they like -- what your advantages are over the competition, but thankfully it's a lower component. So it's -- that's why you've seen us and our peers to be able to probably push rents, the way we have, it's becoming more this is the location. Certainly location specific and labor pool driven, the bigger the tenant, the more the labor pool factors in.

Rich Anderson -- SMBC -- Analyst

Do you have a rent coverage number of any kind that you can share? Like property--.

Marshall A. Loeb -- President & Chief Executive Officer

No, not really, because you get into things like side yards and is it HVAC and I guess I'm equating it. I'm going to go back to retail again where you could say 14% of occupancy cost you could pay as gross rents kind of plus or minus, depending on your sales per square foot, there's really not that kind of same factor or it's not as formulaic as I've seen in office or retail.

Rich Anderson -- SMBC -- Analyst

Yeah, fair enough. Okay, thank you.

Marshall A. Loeb -- President & Chief Executive Officer

Sure.

Operator

We'll take our next question from Craig Mailman with KeyBanc. Please go ahead, your line is open.

Craig Mailman -- KeyBanc -- Analyst

Hey, guys. Marshall, you had mentioned, two-thirds of your 2020 starts are going to be existing parks, what markets are the other one-third in? Can you just describe kind of how that differ? Give some color.

Marshall A. Loeb -- President & Chief Executive Officer

Yeah, sure. Now -- happy to. Good morning. And usually that other third for the most part, I'm kind of looking down our list, it means we ran out of land at a park and the guys have done a good job of and we've compared it to a residential subdivision finding land for the next subdivision. So in Orlando where John and Chris and the team have done a great job with Horizon, we have land tied up, haven't closed yet but for our next park in Orlando. So this would be our third kind of million square foot park if everything tracks and goes well and Fort Worth, you saw us close on some land in fourth quarter. We finished the buildings that were a value add as well as the land we acquired in Fort Worth. So that's next new start there, I'm kind of looking down doing this from memory, from the list, we Ridgeview in San Antonio. I'm trying to think we finished Eisenhauer Point and that's our next new park there. So it's really where we've run out of -- for the most part that other third is where we ran out of land and we need to go start the next three, four or five building parks. I would say, as an aside as hard as land come and you've seen like World Houston and some of our parks, that's one is crazy and that Brent had land for 40 buildings, typically if we can get to 10 or 12 buildings it's a good sized park. As someone described to me, now land is so hard, if we can do a three, four, five building park that's about as big as you can find land parcels anymore. So it probably leads to more churn with the next park just because they're not -- we can't find the land we could 10 years ago.

Craig Mailman -- KeyBanc -- Analyst

That's helpful. Then the operating land you guys bought in San Diego during or subsequent to quarter end, I think it was when does that be put into production?

Marshall A. Loeb -- President & Chief Executive Officer

We are working through, made good headway on zoning and all the compliance to break ground there. Still a little more work to be done. It is a, it's a, it's really, it's leads to I think it's 28 tenants, it's junk yard, storage yard today. I hate to say junk yard, but if you were there, you would call it a junk yard. [Speech Overlap] but as we get the zoning done and we're ready to break ground, it's a nice way to earn, think about a 5.5% yield, while cars are stored there and RVs and things like that. And as soon as we can get through all the zoning and ordinance hurdles in California, which takes a little bit longer than our other markets, there are month to month tenants and we'll terminate their leases and put it into production, and we've actually already had a meeting or two with possible pre-lease there with some tenants that we're excited about. So hopefully, maybe a year and hopefully it's a 2021 start.

Craig Mailman -- KeyBanc -- Analyst

And then just one last one, I know people haven't seen really any impact from supply in a big way, but on the margin are you seeing kind of tenant decisions taking a little bit longer as maybe some people have some other options with new supply or anything that's kind of an early indicator of any potential weakness from supply?

Marshall A. Loeb -- President & Chief Executive Officer

Not, not really I haven't heard it is -- honestly on supply as much although there is certainly a little more out there given everybody success. What we're hearing is it takes a little longer as one of our guys described, it deals good in the red zone and take a little bit longer to close, but their thoughts or what we've heard from a couple of people tenant sizes continue to grow a little bit even within our build -- maybe from 40,000 feet to 60,000 feet, 70,000 feet and with rents as a higher per square foot number that commitment is taking a little bit -- it takes maybe another layer of approval and things like that. So we get deals closed and then they hover for a while and they don't -- most of them knock on wood, don't die, they do get over the finish line, but it takes a little bit longer to get leases done than it used to. And the best explanation I've heard of that, is it's more layers of approval given more square footage and a higher rent per square foot.

Brent W. Wood -- Executive Vice President and Chief Financial Officer

I think Craig, one thing I would add to that is the way we talk about multi-tenant supply versus big box supply and I would just point out that we're still building fortunately in that mid to low seven yield. And if you look really at some of the big box developers, they are building more in an upper five around six yield. And I think that's a direct example of supply demand. I mean obviously you would build at the highest yield you can, if you could. And I think that just goes to show there's a little more competition in the mix there that depress those yields a little bit. So I think if you look at our yield being a true multi-tenant developers versus some of the big box, you'll maybe get a kind of a picture there of how the playing field -- we have competition to, but maybe not quite as rigorous as the others.

Craig Mailman -- KeyBanc -- Analyst

Great, thank you.

Operator

Take our next question from Ki Bin Kim with SunTrust. Please go ahead, your line is open.

Ki Bin Kim -- SunTrust -- Analyst

Hi out there. So going back to development, maybe I can just ask in a different way. If I look at your dollars at risk from development, so after taking into account the percentage leased it's about 3%, a little more than 3% of our gross asset value. And I just want to understand little better your internal motivations, do you look at it that way or do you look at it from a come more practical way of what can we get done and not necessarily base it off the company size and what moves the needle on those things?

And second part of that is, if you want to grow it, where should we expect that? Is that the two-thirds within the park. So maybe you start doing two buildings, instead of one or is it really trying to expand that one-third of portfolio where you're looking for a new business parks?

Marshall A. Loeb -- President & Chief Executive Officer

Good question. Good morning. We don't look at development -- I guess I'd say is direct, quite like that, like the 3%. But we -- we do put that what we view as our low earning bucket and so we'll look at land development and value add and what percentage of our assets is that and then hopefully that pipeline is moving pretty rapidly. It's been a great value creator, NAV creator, and FFO creator for us the last few years, but we don't want to get, as you said too far out over our skis, and things like that. So we'll lump the value adds in as well as just the land, we're carrying waiting for the next development. So we do, definitely do watch that and don't want to get too far out there and again in each component hopefully the value adds, if we can get the leasing done, we can move pretty quickly in and out of that pipeline certainly as compared to where the land sits today. It is just a shorter gestation period.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And the second question, what are your market rent growth forecast for your portfolio and how is it compared to 2019. So I don't mean lease spreads, I'm talking about the spot rates increasing?

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Yeah as far as spot rate, I guess I would first say Ki that our expectation for the overall portfolio, we really three consecutive years now and no reason to think this would be a lot different, where we've had high single-digit cash mid to upper teen. In the case of this past year gap, we feel like that's probably still a good run rate based on our VOD. In terms of spot rates market to market that would vary, probably and Marshall and I look at each other, maybe in that 4% to 5% range. And again, that could be higher in some markets and maybe a little tighter in some other -- in some other markets, but you know it feels like rental trends are still kind of on pace where they've been in the last three years or so.

Ki Bin Kim -- SunTrust -- Analyst

Okay, thank you.

Operator

Take our next question today from Blaine Heck with Wells Fargo. Please go ahead, your line is open.

Blaine Heck -- Wells Fargo -- Analyst

Thanks, good morning. Just a couple of quick ones. Can you remind me, do you guys have any additional properties in the Houston market that you'd identify as non-core and earmarked for sale or have you guys kind of worked through all the non-core product at this point?

Marshall A. Loeb -- President & Chief Executive Officer

Nothing in the held for sale category. That said we will keep pruning away in Houston and we maybe an indirect way we plan two or three assets that we've said -- and really we try to do that in every market, if you could sell two or three assets or if you got a call about a tenant bankruptcy, which building would do you want to get that in the leased or where are we in terms of leasing on that if we maxed out the value. So we've got a couple of three buildings we might sell in Houston. That's probably dialed into our disposition guidance a little bit this year, and I'm -- I'd like -- although I like Houston and our team does a great job there. I like that Houston continues to drift lower as a percentage from over 21% to projected to be under 13% this year, absent any sales.

Blaine Heck -- Wells Fargo -- Analyst

Got it. That's helpful. And then, just on retention obviously 70% is great and a solid target, but I wanted to talk about the 30% or so that aren't expected to renew. Can you just talk about the most common reason for the move-outs that you've seen so far? Is it usually just the tenant that needs to expand and you can't accommodate their needs or is there any push back on rental rates that you're seeing out there?

Marshall A. Loeb -- President & Chief Executive Officer

It's a good question. Not as much rents, it is more expansion. I know we lost -- I was so glad we got the land in Tampa, that we did the back half of last year that we -- we lost Ferguson plumbing and we had a couple of other tenants that want to expand and we were really full and couldn't accommodate them. So a lot of times we couldn't do it, it almost feels like the Rubik's Cube, where you're trying to figure out how we can accommodate our tenants and that's what's great about building these larger parts. What drove Horizon so rapidly was an existing tenant expansion and we can move them from building three to building eight. So it's -- it's expansion, in some cases it's consolidating two or three locations to under one roof. And maybe we are one of those two or three and they're moving around town. So it seems to be more of a logistics type chain or they're just shuttering their business. In some cases relocating to a different state and things like that. That's probably accounts for the majority of them.

Blaine Heck -- Wells Fargo -- Analyst

Great, thank you.

Marshall A. Loeb -- President & Chief Executive Officer

Thank you.

Operator

And there are no further questions on the line at this time, I'll turn the call back to Marshall Loeb for any closing remarks.

Marshall A. Loeb -- President & Chief Executive Officer

Thank you everyone for your time. Again, we appreciate your interest in EastGroup. We're certainly available this afternoon for any questions and thanks for your time.

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Marshall A. Loeb -- President & Chief Executive Officer

Keena Frazier -- Director-Leasing Statistics

Brent W. Wood -- Executive Vice President and Chief Financial Officer

Jamie Feldman -- Bank of America -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Manny Korchman -- Citi -- Analyst

Bill Crow -- Raymond James -- Analyst

John Guinee -- Stifel -- Analyst

Jon Petersen -- Jefferies -- Analyst

Eric Frankel -- Green Street Advisors -- Analyst

Rich Anderson -- SMBC -- Analyst

Craig Mailman -- KeyBanc -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

Blaine Heck -- Wells Fargo -- Analyst

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