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Eastgroup Properties Inc (NYSE:EGP)
Q3 2020 Earnings Call
Oct 28, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the EastGroup Properties Third Quarter 2020 Earnings Call. [Operator Instructions]

Now it is my pleasure to introduce Marshall Loeb, President and CEO.

Marshall A. Loeb -- President And Chief Executive Officer

Good morning, and thanks for calling in for our third quarter 2020 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 as defined in and within the safe harbors under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.

Forward-looking statements in the earnings press release, along with our remarks, are made as of today, and we undertake no duty to update them, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors, including those directly and indirectly related to the outbreak of the ongoing coronavirus pandemic that may cause actual results to differ materially. We refer to certain of these risks in our SEC filings.

Marshall A. Loeb -- President And Chief Executive Officer

Thanks, Keena. Good morning, and thank you for your time. We hope everyone and their families remain well and out of harm's way. And I'd like to start by thanking our team that continue performing at a high level, amid a challenging work environment. Our third quarter results were strong and demonstrated the resiliency of our portfolio and of the industrial market. The team produced another solid quarter with statistics such as funds from operations came in above guidance, up 6.3% compared to last quarter -- third quarter last year. This marks 30 consecutive quarters of higher FFO per share as compared to the prior year quarter, truly a long-term trend. Year-to-date FFO per share is up 7.8%. Our quarterly occupancy, while below prior year, was high averaging 96.6% and at quarter end were ahead of projections at 97.8% leased and 96.4% occupied.

Our occupancy is benefiting from a healthy market with accelerating e-commerce and last mile delivery trends, also benefiting occupancy as a high 83% year-to-date retention rate. Re-leasing spreads set a quarterly record at 28% GAAP and 16.1% cash. Year-to-date leasing spreads were solid at 23.1% GAAP and 13.3% cash. And finally, same-store NOI was up 3% for the quarter and 3.6% year-to-date. In summary, during a choppy environment, I'm proud of our team's results. Our strategy is evolving to not only include maintaining occupancy, cash flow and liquidity, as has been the case since March. Today, we're responding to the strength in the market and restarting development. Looking at each of our goals, I'm grateful we ended the quarter generally fall at 97.8% leased, our second highest quarter on record. Houston, our largest market, at 13.5% of rents is 96.2% leased, with an eight-month average collection rate over 99%. Companywide rent collections remain resilient. For October, thus far, we've collected 97.6% of monthly rents. There's still many unknowns about how fast and when the economy truly reopens and recovers.

We all, as a result, simply have less clarity than normal. Brent will speak to our budget assumptions, but I'm pleased that in spite of the uncertainty, we're tracking toward $5.35 per share in FFO. This represents a $0.07 per share increase to our July forecast and $0.05 per share above our pre pandemic expectations. Helping toward this end, thankfully, we have the most diversified rent roll in our sector, with our top 10 tenants only accounting for 8.1% of rents. As we've stated before, our development starts are pulled by market demand. So with the shutdown, we halted new starts. Given the strength we're seeing in select submarkets, we're planning a few fourth quarter starts and pending permitting timing, these will continue into first quarter of 2021. And to position us following the pandemic, we've also been working on several new land sites and park expansion. More details to follow as we close on these investments. Other strategic transitions -- transactions we've worked on include our 162,000 square foot value-add acquisition in Rancho Cucamonga, near the Ontario airport and dispositions, which hopefully continue toward closing in Houston and on our last property in Santa Barbara.

And now Brent will review a variety of financial topics, including our updated 2020 guidance.

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

Thanks, Marshall. Good morning. Our third quarter results reflect the resiliency of our team and strong overall performance of our portfolio amid a very challenging year. FFO per share for the third quarter exceeded our guidance range at $1.36 per share and compared to third quarter 2019 of $1.28 represented an increase of 6.3%. The outperformance continues to be driven by our operating portfolio performing better-than-anticipated namely higher occupancy and strong rent collections. From a capital perspective, during the third quarter, we issued $32 million of equity at an average price of $133 per share and earlier this month we closed on two senior unsecured private placement notes totaling $175 million. The $100 million note was a 10-year -- has a 10-year term with a fixed interest rate of 2.61%. The second note is $75 million on a 12-year term with a fixed interest rate of 2.71%. That activity, combined with our already strong and conservative balance sheet, has kept us in a position of financial strength and flexibility, including the complete availability of our $395 million revolver as of today.

Our debt to total market capitalization is 19%, debt-to-EBITDA ratio is 4.9 times, and our interest and fixed charge coverage ratios are over 7.4 times. Our rent collections have been equally strong. We have collected 99% of our third quarter revenue and entered into deferral agreements for an additional 0.5%, bringing our total collected and deferred to 99.5% for the third quarter. Last April, we reported that 26% of our tenants have requested some form of rent deferment. In the six subsequent months, that only rose to 28% and deferral requests have basically ceased. The agreed-upon rent deferrals thus far totaled $1.7 million, an increase of only $200,000 since our report in July. That represents just 0.5% of our estimated 2020 revenues. We have consistently stated the depth and duration of the pandemic and its impact on the economy is undeterminable.

However, the immediacy and degree of potential tenant financial stress and loss of occupancy we had budgeted for has not materialized. As a result, our actual performance and revised assumptions for the fourth quarter increased our FFO earnings guidance from a midpoint of $5.28 per share to $5.35 per share or a 7.4% increase over 2019. The revised midpoint exceeds our original pre-COVID guidance at the beginning of the year. Among the budget changes were an increase in average occupancy from 96% to 96.5% and a decrease in reserves for uncollectible rent from $3.6 million to $2.3 million. Note that the reserve for potential bad debt for fourth quarter of $600,000 is not attributable to specific tenants. Our continued earnings growth directly contributed to increasing our quarterly dividend by 5.3% to $0.79 per share. Our third quarter dividend was the 163rd consecutive quarterly distribution to EastGroup shareholders and represents an annualized dividend rate of $3.16 per share. In summary, we were very pleased with our third quarter results. We will continue to rely on our financial strength, the experience of our team and the quality and location of our portfolio to carry our momentum into next year.

Now Marshall will make some final comments.

Marshall A. Loeb -- President And Chief Executive Officer

Thanks, Brent. In closing, I'm also proud of our third quarter results. Our company and our team has worked through numerous downturns and, while different, will work through this one, too. As the economy stabilizes, it's the future that makes me the most excited for EastGroup. Our strategy has worked well the past few years. And coming out of this pandemic, we foresee an acceleration and a number of positive trends for our properties and within our markets. Meanwhile, our bread and butter traditional tenants remain and will continue needing last-mile distribution space in fast-growing Sun Belt markets. These, along with 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 your questions.

Questions and Answers:

Operator

[Operator Instructions] And we will take our first question today from James Feldman with Bank of America Securities. Your line is open.

Elvis Rodriguez -- Bank of America Securities -- Analyst

Good morning. This is Elvis Rodriguez on for Jamie. Great quarter, guys. Just a couple of questions. So, Houston occupancy and lease percentage declined 150 basis points quarter-over-quarter. Are there -- were those -- was that expected? Or any specific leases you can discuss?

Marshall A. Loeb -- President And Chief Executive Officer

Yeah. Elvis,. Good morning. Elvis, it's Marshall. In Houston, maybe a little bit of an update. I would say, expected, although -- and not Houston specific. We really had thought our occupancy is kind of, as we thought the last couple of quarters, would dip more than it has, so expected move-outs, kind of some moving parts. I think of our bad debt, they're -- oddly enough, there's really not been oil and gas. We did have one trouble tenant. It's in the airline industry. So it's really more specific than Houston, just with the slowdown in airlines. They refurbish interiors and things like that. So that was one blip in Houston and probably overall expected, although not any specific tenants. Since, I guess, the end of the quarter, we've regained 50 of those basis points. So Houston is back to 96.7%, which thankfully, it's not at our portfolio average, but it kind of rounded just under 97% leased. We're comfortable with Houston.

And then, we've also been pleasantly surprised kind of through the pandemic to be at 99% rent collected, but Houston has been better than our company average at around 99.5% collected, kind of going back to March, really when this started. So we think Houston -- it's probably steady as our team there described it. And that's probably a good answer. It's not our best market. Supply has thankfully slowed down, as you'd imagine, most people have stopped. There's a lot of -- most of what is being built or newly delivered is more big box, so not directly applicable. And we'll be fine in Houston. I think The Street -- and I guess it's all expectations. The Street has been much more worried about Houston than the reality has been today. And we think we'll be kind of at 95% to 97% leased, depending how a couple of things play out between now and year-end.

Elvis Rodriguez -- Bank of America Securities -- Analyst

Great. Thank you. And then just one follow-up. So your development starts, I know you said you're going to continue or increase developments going forward, but it went from one million square feet to 825 million square feet of starts for the year. And I know you mentioned some delays from COVID, but maybe can you give us an outlook on what you're thinking for '21 and supply versus demand in your markets for next year?

Marshall A. Loeb -- President And Chief Executive Officer

Sure. Sure. Good question. We had -- really, as this started, like most of our peers kind of said, let's finish what's in our pipeline, but not start anything new, just to see how this plays out. And thankfully, today, it's been -- you're kind of waiting for the bad news, but it's been much less than anticipated, certainly in March, and then again, maybe when we reported in July, for example. And happy, our 97.8% leased at quarter end, and we're about there today. So really, October, I'd say, looks a lot like third quarter, it is, was our second highest quarter on record. So with that -- and I'll credit some of our brokers saying, we've got some internal tenants that are looking for expansion space. And people out in the market, you really -- can I have -- you really need to give me some inventory to work from. So we'll start -- and Charlotte, Phoenix, or other space, a couple of markets in Northeast, Dallas, Fort Worth, some of those Orlando that we see the opportunity to start delivering.

We're still working on our 2021 budget, but I would say if things not necessarily improved, but just don't deteriorate, reading the same headlines on number of COVID cases, if things don't shut down again, our -- the difference this quarter is really more about timing, and when we get things started, and permitting, and construction crews mobilized. But we feel pretty good about -- at this pace about our '21 starts and that they'll be more like a typical year of starts. If we can hang in there at 97-plus percent leased and starting to see demand either from new tenants. And I think our tenants are getting comfortable enough. Everybody's maybe getting their sea legs through this to expansion plans that they put on hold to start talking about new space and things like that. So I think '21 without getting too specific will be a -- I'm expecting it to be, hopefully, a good year of starts for us.

Elvis Rodriguez -- Bank of America Securities -- Analyst

Thanks, Marshall and congrats again on the quarter.

Marshall A. Loeb -- President And Chief Executive Officer

Thanks, Elvis. You're welcome.

Operator

We will take our next question today from Daniel Santos with Piper Sandler. Your line is open.

Daniel Santos -- Piper Sandler -- Analyst

Hey. Good morning. Thanks for taking my question. Congratulations also on the quarter. Just continuing with the development theme, I was wondering if you could walk us through just what you're seeing as far as development costs and yields at cost at different markets. That would be helpful.

Marshall A. Loeb -- President And Chief Executive Officer

Sure. Good morning, Dan. The good news, what's been interesting to us kind of on a macro level, and as I said, we're just getting some of the construction bids finalized and think then I'll use Charlotte, which is probably the furthest along a couple of others are build and shell costs have come down. Land prices have been fairly sticky. We've acquired some land. You saw Fort Myers and some other land that we have under contract and things kind of predominantly adjacent to or around the corner from parks to kind of keep working on that next phase of a park. Land prices have been sticky, but shell costs have come down, maybe not dramatically, but a couple of bucks a foot, maybe 5% to 7%. Our yields have thankfully hung in there on our product type. Most of our peers are the bigger box, maybe a little more on the edge of town, where we're typically a business park, infill, last mile location.

So I'm pleased to see our yields hanging in there. That 7% to even 7.3%, I think looking back at our supplement between what we're developing and delivering. And the trend we've really seen in the last 90 days is a drop-off in cap rates with what we've been told is -- makes sense, lower interest rate cost and then just the fear of other asset classes, be it office or retail or hotel that there's been a lot of capital flowing toward industrial. So our development profits have really gone up. If we can maintain our yields and maybe our rents are about the same, our cost is coming down slightly. So our yields have been able to hang in there, but we think the value, when we finish, the value creation has increased probably 25 basis points or so or more in the last 90 days.

Daniel Santos -- Piper Sandler -- Analyst

Got it. That's helpful. And then second, I mean, based on your rent collections and your occupancy, it's safe to say, your portfolio has been fairly well insulated from COVID impact. But in places of the markets where there has been at least a spike, could you walk us through maybe some changes in economic activity or tenant behavior that you're seeing in those markets?

Marshall A. Loeb -- President And Chief Executive Officer

Nothing recent so much. I mean, maybe one market that probably kind of comes to mind for me. If you look to Florida, it is a good market. But talking to our team there and what's interesting maybe using -- occupancy is fine in South Florida, but looking at our Gateway project, that's right next to Hard Rock Stadium. We built two buildings. They leased up before we completed them, Lowe's, Peloton, Best Buy. It fits really, I guess, using those as kind of as a last-mile delivery part. But then we delivered the third building, and it's been -- will be fine, but it's been slower to lease up. And talking to the team there, Miami has been more shut down economically than, say, Tampa, Jacksonville, Fort Myers, Orlando, the other markets we're in, in Florida. So I think that's where we've seen it. Las Vegas is another market where we acquired three new buildings, two of them leased up before we can finish. And the third one, we've got activity on both of those, but it's taken a little bit longer to lease. And it's really more about the local economy being shut down in the last few months. Because all of a sudden, what we have done, I would have guessed in Miami, our third building would have leased up, usually easier than your first building in a brand-new park, but it's been a little bit harder. And I think that's really because of COVID and really the market being closed for the most part.

Daniel Santos -- Piper Sandler -- Analyst

Got it. Thank you.

Marshall A. Loeb -- President And Chief Executive Officer

You're welcome.

Operator

Thank you and we will go next to Emmanuel Korchman with Citi. Your line is open.

Chris McCurry -- Citi -- Analyst

Hi, this is Chris McCurry in for Manny. Quick question from us. What are you seeing in the transaction markets now that is giving you confidence in raising guidance for these volumes? And how do you think pricing has changed since pre-COVID levels?

Marshall A. Loeb -- President And Chief Executive Officer

I'm trying to -- good question, make sure I'm understanding it. The pricing, in terms of finished products, probably 25 to 40 basis points lower, certainly lower in the major markets. And then what we've seen of late, even if they're still top 20 markets, but maybe not the top handful being -- we chased a portfolio in Atlanta. That will be in the low fours, are talking to CBRE. At one point, they had three projects under contract that we're waiting to close that were all below the lowest cap rate in Atlanta, for example. They were all kind of in that 4.25% to 4.5% range. Austin, we're seeing 4.5% type cap rates, which we have and prices per square foot nearing $200 a foot in places like Austin. So we were -- just as we were kind of getting used to seeing it in L.A. and San Francisco and Miami, now we're seeing that spread. Charlotte has a portfolio in the market. And I'm trying to not violate confidentiality agreements and things like that, but we'll go at a low cap rate for Charlotte, probably a record there. So those kind of markets where do you want to call it in number six through 25, we're seeing cap rates down. And again, I think that's -- what we're told is people are comfortable with industrial rent growth going forward and just lack of appeal of maybe some other asset classes outside of multifamily and industrial right now being the two that are the most in favor.

Chris McCurry -- Citi -- Analyst

Yes. I think, too, then you may be referencing to our increase in our value-add property acquisitions from none to $30 million, and Marshall might touch on those. Those are a couple of deals that we had planned to close last year and they've leased a little quicker. And so, I mean, those are both under contract and going to close before the end of the year. So those are deals in hand.

Marshall A. Loeb -- President And Chief Executive Officer

Yes. And I guess a little more color. We'll -- I'll probably won't get too far ahead. But one of our acquisitions, it really was a value-add and I'll credit John Coleman and his team in the Eastern region were able to get a tenant in hand before the building was finished. So what was going to be a value add, and thankfully was priced like a value-add will now roll in as an acquisition. And then the other one Brent references, which we have announced, is the Rancho Distribution Center, the one in Rancho Cucamonga. We bought it. It's an owner user leasing the building back for about half a year basically. And we think because of that leasing, certainly, it's very close between two freeways and near the Ontario, California airport, if that felt you. We think we're getting a better pricing by taking that leasing risk on. So again, it's -- and I guess it helps in terms of our confidence talking with the brokers in Southern California. They describe their market almost like a goalpost, and that things were great. First quarter, they really stopped. Second quarter and since, it's been a big pickup in business and a lot of activity in that Inland Empire, especially Inland Empire West, where this property is.

Chris McCurry -- Citi -- Analyst

Got it. Yes. That's helpful color. Just a quick follow-up. How do you think about using asset sales versus equity issuance as a source of funds?

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

Yes. I mean, we're very pleased with the attractiveness of our stock price, and you see we issued some debt this quarter. And we were very pleased that the markets were not only open and available to us, but very attractive. So we're not short of capital. I mean, those will be our primary sources of capital. But I think as we've been for several years now that recycling, being good stewards of recycling, through some of our lesser assets, I think it's more of that more so than doing it for capital, per se. So I think you'll see us continue to chip away at Houston. We're very pleased to get that down into the 13% area and continuing to decline. We've got a property there that we anticipate closing before year-end. But it's more just navigating that aspect rather than capital. We have -- thankfully, we're in a position where our bottlenecks, more opportunities, and opportunities that we like versus capital access, which is a good problem to have.

Chris McCurry -- Citi -- Analyst

Got them. Thank you.

Operator

And we will go next to Eric Frankel from Green Street. Your line is open.

Eric Frankel -- Green Street -- Analyst

Thank you. I was hoping if you can give us a little more color on how market rents are generally trending. So just looking at your rental changes by market, it looks like a few markets, understandably California, but even parts of Texas can be doing really well, while other markets have decelerated a little bit. Maybe you could provide a little more color.

Marshall A. Loeb -- President And Chief Executive Officer

Sure, Eric. Good morning. It's Marshall. Kind of you're right. The California markets are still strong, and that helped our releasing spreads this quarter, which we were happy to oddly, an upset a record during the pandemic. It's kind of one of those where you -- it builds counterintuitive where the headlines aren't matching what we're seeing day-to-day. So the California markets, maybe Fresno is a little slower, certainly than the Bay Area, L.A., San Diego. Probably our bigger markets, Houston, has kind of flattened out. It's steady. As you'll see, at least year-to-date, I'll say any quarter, pending the batch of leases we have, you can get some anomalies or in some of our smaller markets, like Atlanta, have a negative number, but it's really more about which leases have rolled. And we don't have a big enough base there yet to really get a good statistical measure. So Houston is a little bit slower. Their rents have gone backwards earlier in the year, improving now a little bit with activity picking up in Houston.

The rest of them probably were staying and starting to pick back up again. I think with the stop in construction and especially looking at the charts, construction is starting to pick back up. But if you really dig through it kind of one more layer into the onion, the construction that's starting back up is predominantly big box. And that's why we're a little -- we are excited about starting our development pipeline back up where we don't have the activity. By the time we deliver, it will be probably, call it, second quarter of '21, and we typically underwrite a year to lease it back up. So we think we're going to be ahead of the market with some of our deliveries. And that not many people are not keeping it very private, but not many people are looking at developing shallow bay right now.

Eric Frankel -- Green Street -- Analyst

Right. It makes sense. One of your peers kind of mentioned earlier this earnings season that leasing volume might slow up a little bit next year just as the economy opens up and maybe folks change their consuming habits and spend a little bit less on amazon.com and more on vacations or concerts or whatever services. Do you have any views on what the economic recovery would look like and how that might shape demand?

Marshall A. Loeb -- President And Chief Executive Officer

Yeah. I guess I'll preface it by saying we're not economists. As you look as we've beaten our guidance a couple of times, we -- Brent and I clearly aren't good economists, have anything with that. That preface I think -- I'd like to think with the -- we'll get questions. Do you think Amazon is creating a false sense of demand in the market? And I would say that's certainly not true, although we aren't having a number of conversations, not true in the shallow bay space. I can only speak with where we're dealing. And one broker described it more of a disruptor. And then I think other companies will really have to adapt to Amazon's model and more and more to e-commerce and delivery rather than in stores. So the other thing, I do think e-commerce won't grow at the rate. It's -- not at 80% rates, like it's growing currently. But I also think with each quarter that goes by, even in this kind of abnormal economy, tenants or I described our own team as we're kind of getting our sea legs. First quarter was normal. Second quarter was a huge disruption. I think our own tenants are getting used to it or there's a couple of cases where we've had tenants speak to us saying they almost run out of inventory at different times. And what we read about first was safety stock.

Now we're starting to see it a little more and more, I think the other industry that will benefit EastGroup, we've typically -- and we've got the Ferguson plumbings, and the Delta, Kohler homebuilding picking up. I think that's the other thing. Home renovation and homebuilding we're seeing some activity within our portfolio, but I think we'll see more of that as the homebuilders really seem to be ramping up and doing well and population shifts. So I'm more optimistic about '21 than I was '20. I'm grateful that our team and we've been able to hang in here better than we thought, but I'm more optimistic about '21. Assuming there's not -- I guess my danger, I'm assuming there's not another huge curveball we all get on.

Eric Frankel -- Green Street -- Analyst

That's it. Thanks for taking my questions.

Marshall A. Loeb -- President And Chief Executive Officer

Thanks, Eric.

Operator

And we will go next to Craig Mailman with KeyBanc Capital. Your line is open.

Craig Mailman -- KeyBanc Capital -- Analyst

Hey, guys. Maybe I just want to circle back to the balance sheet and maybe from a higher level. Clearly, your cost of equity has made it very conducive to use the ATM to help fund, but the cost of debt is also extremely low for you guys now. But just in the context of lower cap rates for industrial assets, by nature, raise debt to EBITDA, just the way the math works. And just kind of curious, as you guys think about the optimal capital structure to maximize earnings, kind of minimize risk, what are talks internally? Kind of how do you guys balance those two things? And does there need to be some upward trend in debt-to-EBITDA just to be able to kind of maximize everything?

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

Yes, Craig, it's a conversation we have frequently. And thankfully, it's been from the views of two positives. As I mentioned earlier, it's been an attractive cost of equity and also, as you mentioned, an equally attractive cost of debt. We merit on the side this year being, I guess, you would call it a bit conservative as we put in the release. We actually, as of today, it will change fairly quickly, but we're not even carrying a balance on our revolver. Our almost $400 million revolver, which is the first time I can recall, not being drawn in my years with the company. So it's an ongoing discussion. There's times where we feel like maybe we should be a little more levered, and then you have situations that we had earlier in the year and your price goes to -- I don't know, we want to $88 or $90 a share. And then all of a sudden, you feel better about being as conservative as you are. So it ebbs and flows with where things are, but I would point out, our debt-to-EBITDA has trended down over time. Although, as you mentioned, Craig, it's a bit of a challenge when you're growing, especially as we do via development where you're perennially drawn on development costs that aren't yet producing NOI that makes that a bit more of a challenge.

But we did go sub 5% this past quarter debt to EBITDA, which, overall, for us would be a goal, but it's not a goal to the extent where we would -- wouldn't preclude us from continuing to develop -- ramp up development. If that means debt-to-EBITDA goes up just a little bit, that's just inherent with the way that works. So that -- we're in a good spot. So the balance sheet, like I say, it's in good shape, just really more of our time and energy and focus is how do we find those opportunities. Our guys with the boots on the ground do a terrific job looking under rocks and trying to find the things that work for us. So really, the focus continue to be there.

Marshall A. Loeb -- President And Chief Executive Officer

If I -- I agree with Brent, Craig. I guess I would add. Maybe if we went back a couple, three years ago when our debt to market cap was more in the mid-30s and our debt-to-EBITDA was a little bit higher ratios and things like that. Typically, we have targeted 150 basis point spread over market cap rates. And really, the last couple of years, or today, we're probably more around 300 basis points. Meaning if we can build to a seven two, it's probably about a four two count. So as we've talked about our strategy and kind of how do we position ourselves, you're tempted. You don't want to push too much product into the market. You want to see it getting absorbed as we keep kind of reloading the inventory for development. But with the value creation there, it's so attractive, kind of the offset to that, kind of waiting for some disruption. We said, let's have a -- if we're going to be a little bit operationally aggressive to take advantage of the environment, let's be balance sheet safe.

So that's when we really started. And thankfully, the market gave us the opportunity to pull our balance sheet down to where it is today. I don't feel the need to really continue to de-lever. We might if the opportunity presents itself, but we think we can be comfortable stepping on the gas where the market is really asking for those development opportunities. And we love the spreads we're seeing there. They are as wide as they've ever been in our company history, but it also helps to have a safe balance sheet behind that in case something takes a little bit longer to lease-up or several of them do.

Craig Mailman -- KeyBanc Capital -- Analyst

That's helpful. I appreciate the thoughts there. And then just, Brent, relative to the same-store guidance, you guys are at 3.6% year-to-date. Midpoint is 3%. Is this just conservatism? Or it's late in the year, so it's harder to move the numbers. But I mean, does this imply sort of a decel from 3Q levels in 4Q to get to that midpoint? Or should we think more you guys could be at the higher end of that 2.5% to 3.5% range?

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

As we traditionally do, the information we put in that guidance table is just transparency on what equates to that midpoint of FFO. So in that case, it does dial up to that 3%. And as you basically are backing into, that does imply a bit slower fourth quarter than the earlier quarters. And as of right now, from a budget perspective, that is what we've got dialed in now as to what happens there. Each quarter here through the year, we have been ahead of where we've anticipated. So my hope would be that, that proves to err a little bit on the conservative side and improves yet again. But just a reminder, last year, third and fourth quarter were some of our, I think, the highest percentage lease marks we've had in the history of the company. So I don't know so much of the deceleration in markets as much as the measuring stick that you're going up against there is pretty darn strong. And you compare that to just, again, budget assumptions aren't our goal or is an objective every day, so you hope you'd beat that. But -- so we'll see. Like I say, it's just a quarter to go there, and we're only two months to go there. So we like where we are at this point in the fourth quarter, and our focus would pretty quickly here turn to kind of see how that stacks up for next year.

Craig Mailman -- KeyBanc Capital -- Analyst

Right. And then if I could slip one more in. Marshall, the Rancho Cucamonga deal, is that the $28 million, i.e., West deal that you guys did in the quarter?

Marshall A. Loeb -- President And Chief Executive Officer

You're correct. Yes.

Craig Mailman -- KeyBanc Capital -- Analyst

Can you just talk about what kind of initial yield is versus what it could be stabilized when the tenant in place kind of moves out and you guys either put capital in or roll the rent up or down?

Marshall A. Loeb -- President And Chief Executive Officer

Yes. The risk -- the owner leased the building back, so the rents are probably at market today, and I would call that mid- to higher fours. I think if we -- and it's not like we're not going to flip the asset. But if we put a, call it, not a Fortune 1000, five to seven-year tenant, and it were unit and Brent, we could probably sell it in the higher threes today in terms of market -- where market cap rates are. So I think we'll stabilize. I think as we underwrote it, we'll maintain that yield. I'm a little bit optimistic by the time the tenant moves out, given what's going on in Inland Empire West and how land constrained that area is that our rents that we underwrote being, call it, 60 days ago, are going to be below market six months from now. So -- but that said, I think we'll end up a little bit below 5%. We'll end up below 5%. Hopefully, we get any of the tenant, the term, call it, four and three quarters, something like that. So I think we're getting a good 75-plus basis point premium to where market cap rate would be today.

Craig Mailman -- KeyBanc Capital -- Analyst

Nice job. I appreciate it. Thanks.

Marshall A. Loeb -- President And Chief Executive Officer

No, and I like to add maybe a little color, too like -- and none of them are material and a couple of them we have still to close. But if it telegraphs kind of our thinking, we like strategically to grow in Southern California, trying to find an opportunity to be patient, which has been awfully hard to do in LA. And I like that we're lining things up, and fingers crossed to exit Santa Barbara, and sell our last R&D building there and then close on another asset in Houston. So we're down 30 basis points in terms of what Houston is in our portfolio this from second quarter. And then we'll sell something in fourth quarter, hopefully, and just kind of keep turning the dials in the right direction, has been our description. So that helps, at least in terms of kind of how we're thinking of portfolio allocation. They're not big moves, but they're all maybe baby steps in the right direction on all three of them.

Craig Mailman -- KeyBanc Capital -- Analyst

Absolutely. Thanks a lot.

Marshall A. Loeb -- President And Chief Executive Officer

Sure. Yup.

Operator

We will go next to Bill Crow with Raymond James. Your line is open.

Bill Crow -- Raymond James -- Analyst

Hey, good morning. Marshall, you've referenced a couple of times today the inflow of capital into the sector from other places. And I guess that leads to kind of a three-part question. Are you seeing new competitors on acquisitions? Is there an erosion in development discipline, which might be evidenced in extended lease-up periods and new construction? And three, how do you think this thing ends?

Marshall A. Loeb -- President And Chief Executive Officer

And if I can remember all. Good morning, and I hope I can remember all three of those. Yes, we are seeing, which surprised me during a pandemic, but we are seeing new entrants into industrial, probably more, and it makes sense more on the acquisition and development side, although we see both. Some new entrants to development in Dallas and things like that. We're not seeing an oversupply, doesn't mean we won't, but to date, we haven't seen that much development. And typically, like in the case, and I'm trying to remember the specific projects in Dallas, they were more edge of town big boss. You can put more dollars to work. If you're coming into the market, and I've gotten calls where I would call it working acquaintances over the time of your career that aren't in industrial, really to talk about industrial and how do we think about it and view it and things like that. So it does make you nervous about where things are. It's like your Uber driver giving you softails. So I think it does get you nervous. So we tell them it's a horrible sector. Stay out of it. It's oversupply, things like that. But we're not seeing oversupply. We are seeing new entrants. And I am an optimist in that where I think, in terms of where it ends, what surprised us back in 20 -- kind of late 2015, 2016, because everything is so institutionally held, unlike the old days where it was -- the three of us, looking at Brent too, and a bank loan, development shut down rapidly in Houston in late 2015, when oil and gas turned down.

And this time, although the industrial fundamentals have held up and you wouldn't -- as one board member said to me, I wouldn't know there was a pandemic, if I didn't -- just reading through the numbers. But I do think that our industry is much more disciplined and much more institutionally owned. So I think things still have the ability to shut down like they did in Texas in 2016, and like they did earlier this year. So I think it ends well. I'm an optimist. The other thing we're seeing is kind of where Amazon is leading so many retailers and new uses of, I think, the growth rate for e-commerce and how the American public shops, whether it's curbside pickup or delivery or online is just beginning. And we'll see a lot of growth from that. And that's where I look at -- sometimes it's better to be lucky than good, but our shallow bay infill locations have always worked. And I think we'll pick up over -- it will take years, but the next year to five years, a lot of new type customers in our buildings. We're starting to see that and seeing more and more repeat business from customers in our portfolio because of that.

Bill Crow -- Raymond James -- Analyst

All right. Thank you for your time.

Marshall A. Loeb -- President And Chief Executive Officer

Thanks. Bill.

Operator

And we will move next to Michael Carroll from RBC Capital Markets. Your line is open.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. I wanted to talk a little bit about your guidance occupancy trend. Obviously, it's held up fairly well over the past three quarters better than, I guess, expectations. I guess, what's driving that? Is it that due to the strong leasing volumes that you guys have been able to deliver over the past few quarters? Is it just less tenant issues that you thought possibly could have happened? Or is it a little bit of both?

Marshall A. Loeb -- President And Chief Executive Officer

I'll take this out and Brent jump in. I think maybe to -- certainly the last tenant trouble, I guess at the start of this, we -- looking back, I'll say I felt comfortable about each group, given where our balance sheet was, but with 1,600 tenants, I was worried that we all won't make it to the other side of this March, which tenants get kind of taken out by the downturn and the economic really shutdown. And that attrition has been much less than we would have anticipated. So that's helped our occupancy. And then the other thing, I think, with the uncertainty, we typically historically average our retention rates in the low 70% to 75%, is probably high and over time. And year-to-date, I believe it's at 83%. So I think with uncertainty, tenants have put growth plans -- growth plans that they had in late '19, early 2020 has been put on hold. So we've been able to keep a number of our tenants. There were tenants we had earlier in the year where we had a budgeted vacate, where they said, I'm just going to do -- our leasing turn has been consistent a little north of four years where it always is.

But well, they just done renewals rather than move out because they were uncertain of what was going to happen. So I think those have been the two big drivers to me. And then the team as markets reopened, and thankfully, our -- I won't -- not speaking medically, but just in terms of business economics, thankfully, the majority of our markets opened up earlier than the rest of the country, whether it's Atlanta, the Carolina, Texas, Florida, and that's where we've really seen that activity. And some of the guys say it's -- we're back to pre-COVID levels in terms of leasing velocity these days.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then if you're looking at your -- I guess, your tenant roster, I mean, have you done an exercise of how many tenants are in sectors that are overly exposed that are like in leisure or event planning that might have to get back space that could cause some near-term disruptions? Or is it so modest for you that you don't really see too much risk on that front?

Marshall A. Loeb -- President And Chief Executive Officer

We certainly look at those sectors. I mean, maybe two things. I'm glad at -- and ours has moved around a little bit. Our top 10 tenants are about just north of 8% of our revenues. And that's by far the lowest we've seen within the industrial sector. So I -- we like geographic diversity, and we're working on that, and I like landfall diversity. We certainly have those tenants on our watch list and you worry about Orlando and Las Vegas. Those markets have been, again, internally, surprisingly sticky, where we hung on to our tenants and had fewer issues than we would have guessed a handful of months or so ago. I think we watched those, but they hung in there. And then thankfully, our rent relief request really came in, in April. And since then, tenants move around, and we do see those, but our rents are coming in earlier and each of the last three months have improved. We were waiting when the PPP ones kind of ran out, what happens next month in collections.

And thankfully, the last three months, September was better than August, October has been coming in earlier than September. So it feels like it's improving. So our rent relief request, not -- they haven't gone away, but they've gone down materially. And surprisingly, at this point, 50 basis points of our revenue, and we've collected a fair amount of them, were rent that got deferred earlier. We have collected a fair amount of that rent. So it makes us feel better about the portfolio and able to really raise guidance last quarter and again this quarter, OK, we're -- again, you're kind of waiting for that bad news as these things played out. And, knock on wood, it hasn't been as harsh on -- I'm sorry, any of the industrial REITs, as we expect, probably all expected back when.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. Great. I guess, last question, and I'll jump off is, I guess, you did talk a little bit about your watch list. I mean, how big is that watch list right now? And how did it compare, I guess, what, three, six months ago?

Marshall A. Loeb -- President And Chief Executive Officer

Probably, it's less than three or six months ago. I mean it's more not by market or even -- it's really tenants like the -- like I mentioned the one in Houston, where you're doing airplane refurbishments and your whole industry gets hit or we had someone that was in the dental supply business in Atlanta. And when this hit, people stopped going to the dentist for a bit. So those were the tenants that got pulled under. I think with 1,600 tenants, even in a good economy, we have tenants on our watch list, but it's thankfully right now, probably no longer than normal.

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

Yes, I would agree. It's -- our bad debt continues to come in less than we had originally anticipated. And the watch list and receivable ledger really has maintained, been pretty clear. So we continue to be impressed with collections, and extremely impressed with our Houston collections. And our team there, Kevin and his team, have done a terrific job, as Marshall mentioned. For third quarter between collections and rent deferral, we collected 100% of our rents there in Houston for third quarter, which is just a testament to the team there and our tenant base. But -- so the watch list, all things considered, is very manageable.

Operator

We'll go next to Ki Bin Kim with Truist Securities. Your line is open.

Ki Bin Kim -- Truist Securities -- Analyst

Thanks. Good morning. When you look into your tenant rolls for the next 12 months or so, any pockets of concern that we should be aware of? And also, how do you think about your Mattress Firm tenant today?

Marshall A. Loeb -- President And Chief Executive Officer

Good morning. There's always movement within our tenants. It's more about spaces. I can think of one where we know the tenant has multiple locations and consolidating so we'll get that space back. But thankfully, there's one in L.A. There's upside on the rents that they're paying today, and we'll refurbish the building and get that leased. So nobody major that jumps up. Again, I would expect our retention rate as the economy stabilizes to drop back from the low 80s more into the lower 70s where we traditionally are. But hopefully, there's more prospects out there. And in some cases, we're looking at upgrading tenancy and kind of weeding out. Again, I'm happy we've had 99% collection through the pandemic. So I can't -- it's not really fair for me to complain about some of our tenants. But here and there, you do get a chance to upgrade the use and tenancy. And Mattress Firm is -- they've been through everything I guess, their bankruptcy and through this. Their lease is we probably are winding through a number of the Mattress Firm leases in the next couple of years. I'm trying to do it from memory, going through the bankruptcy.

But the good news at the time they're in multiple locations. The average building age, I want to say, when they had their bankruptcy, maybe 18 months ago, was about six years on those buildings. So they're in some new developments in places like Houston and Fort Myers and Tampa, so some markets where there's enough velocity in moving tenants. So they're -- I think they're in a tough industry, but they're current today. And they're certainly ones you watch just because the industry demand. And we're probably closer to the end on some of those leases than we are at the beginning. So we'll take a look at those spaces and really learn what their plans are, too, I guess.

Ki Bin Kim -- Truist Securities -- Analyst

Okay. And do you have any early estimates for Prop 15 and what that can do to your tax base in California?

Marshall A. Loeb -- President And Chief Executive Officer

I mean, I think really, virtually all of our California leases are triple net. So they won't get past through to our tenants, at least what we -- the latest I've read that people did not expect it to pass, but I think who knows on that. And that it would take a couple of years for the tax assessors -- two to three years to really get through and reassess buildings there. Thankfully, for us, it will -- I won't say 100%, but well in the mid- to high 90s, at least, get passed through to our tenants, really where it would then affect on phase two to three years of cess pass through the tenants. It would put a damper on our ability to push rents in California, which has been a strong market. So I won't say -- and that's why we like a diversified portfolio that we're trying to grow in California. That said, it's hard to watch all the headlines in California and not be concerned about the economy in California long term. But that makes me appreciate Texas and Florida and the Carolinas as well.

So we're watching it. It will be a delayed impact if it passes, and it will slow our ability to push rents because as Ki Bin has said once to me, it's a bag of money. I don't care if you call it property tax reimbursements or rents or insurance reimbursement. There's only so many gross rent dollars I can pay. So some of those dollars that would have gone to rents will get pulled into taxes if and when that happens. And we'll manage our size in California, just like we are working on -- have on Houston the last couple of years as well.

Ki Bin Kim -- Truist Securities -- Analyst

Maybe you can just -- I know giving an estimate of the impact might be difficult at this point, but maybe you can provide a couple of ingredients, like what is your average vintage here in California? And if you have the data, like what the tax bill is currently in total for California?

Marshall A. Loeb -- President And Chief Executive Officer

Most -- an awful lot of yet where they are kind of -- a lot of what we've got in San Diego, I mean there's a number of assets that we've acquired, like the one in Rancho Cucamonga, where there's been no impact because we just bought it, and we've been active in San Diego. That said, in L.A. and San Francisco, some of those are legacy assets that we bought in the '90s. So although we've gone up probably 2% year-over-year, we get a bigger hit on some of those assets. We'll be out of Santa Barbara, knock on wood. And so it's a mix of -- there's a fair amount of the Bay Area that's older. There's some older in L.A., older. And there's one project in Fresno that would be an older bank -- not say older late '90s kind of vintage on those. And so those will be a little more exposed, depending on where they get assessed, too, I guess, is the other thing that's hard to estimate how aggressive the assessors are and how our deals work. So I don't have a number for you today on all of that. And then an awful lot in San Diego were probably at market already. They are just in that market.

Ki Bin Kim -- Truist Securities -- Analyst

Okay. Thank you.

Michael Carroll -- RBC Capital Markets -- Analyst

Sure.

Operator

And we will take our final question today as a follow-up from James Feldman with Bank of America Securities. Your line is open.

Elvis Rodriguez -- Bank of America Securities -- Analyst

Thank you. Just one more quick one. Brent, you mentioned $200,000 increases in deferrals from July to now. Anything from those tenants? Are they more tourism related in Houston? Or anything else that you can share from that?

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

No. It's continued to be a pretty diverse, many tenants, thankfully, not just single tenants that drive the number up substantially. But there's nothing alarming among that $200,000. Again, we're very pleased that the total number -- and as Marshall alluded to earlier, that seems to have basically just topped out altogether at the 1.7. We've already collected $200,000 of that through September. Everything that had been deferred that was due, we have collected through the end of the third quarter. So, we've already reduced that figure at 9/30, I guess, to $1.5 million outstanding. And all but about $100,000 of that is due to be paid back by December of 2021. So our team did a good job of not prolonging the duration of which we were deferring and allowing them some room to pay that at a later date. So it wasn't anything specific or alarming there on the $200,000 or for that matter, really, on the total. It was a pretty diverse mix of a little bit of help to a lot of different customers.

Elvis Rodriguez -- Bank of America Securities -- Analyst

Great. Thank you.

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

Yup.

Operator

And this does conclude our Q&A. I'll turn the call back to our presenters for any additional or closing remarks today.

Marshall A. Loeb -- President And Chief Executive Officer

Okay. Thanks, Brucella. Thanks, everyone, for your time this morning and your interest in EastGroup. We are certainly available. I know we limited everyone on their questions, on their Q&A, but Brent and I are both available. If you have any follow-up, please give us a call, shoot us an email, whatever is easiest, and look forward to seeing you virtually at NAREIT, I guess, next. Thanks.

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

Thanks. [Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Marshall A. Loeb -- President And Chief Executive Officer

Keena Frazier -- Director of Leasing Statistics

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

Elvis Rodriguez -- Bank of America Securities -- Analyst

Daniel Santos -- Piper Sandler -- Analyst

Chris McCurry -- Citi -- Analyst

Eric Frankel -- Green Street -- Analyst

Craig Mailman -- KeyBanc Capital -- Analyst

Bill Crow -- Raymond James -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

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