Eastgroup Properties Inc (EGP) Q1 2021 Earnings Call Transcript

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Eastgroup Properties Inc (EGP 1.48%)
Q1 2021 Earnings Call
Apr 28, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the EastGroup Properties First Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions]

At this time, I'd like to turn the conference call over to Marshall Loeb, President and CEO. Sir, please go ahead.

Marshall A. Loeb -- President and Chief Executive Officer

Good morning, and thanks for calling in for our first quarter 2021 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also participating on the call. 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 into 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 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. Thanks, Keena. Good morning, and thank you for your time.

We hope everyone and their families are well. I'll start by thanking our team for a great quarter. They continue performing at a high level and reaping the rewards in a very positive environment. Our first quarter results were strong and demonstrate the resiliency of our portfolio and of the industrial market. Some of the results the team posted include funds from operations came in above guidance, up 10.7% compared to first quarter last year, and $0.06 ahead of our own guidance midpoint. This marks 32 consecutive quarters of higher FFO per share as compared to the prior year quarter, truly a long-term trend. Our quarterly occupancy averaged 97%, up 20 basis points from first quarter 2020. And at quarter end, we're ahead of projections at 98.3% leased and 97.2% occupied. Our occupancy is benefiting from a healthy market with accelerating e-commerce and last-mile delivery trends. Quarterly releasing spreads were among the best in our history at 25.8% GAAP and 16.1% cash. Finally, our same-store NOI rose by 5.9% for the quarter. In summary, I'm proud of our team's results, putting up one of the best quarters in our history. Today, we're also responding to the strength in the market and demand for industrial product, both by users and investors by focusing on value creation via development and value-add investments.

I'm grateful we ended the quarter at 98.3% leased, our highest quarter on record to demonstrate the market strength, our last three quarters have produced three of the highest four quarters in our company's history. Then looking at Houston, we're 96.9% leased, with it representing 12.8% of our rents, down 100 basis points from 12 months ago and is further projected to fall into the low 12s later this year. There's still some unknowns about how fast and when the economy truly reopens and recovers. Brent will speak to our budget assumptions, but I'm pleased that in spite of the remaining uncertainty, we finished the quarter at $1.45 per share in FFO and can raise our 2021 forecast by $0.11 to $5.79 per share. Helping balance the uncertainty and achieve these results is, thankfully, having the most diversified rent roll in our sector, with our top 10 tenants only accounting for 7.9% of rents. As we've stated before, our development starts are pulled by market demand. Based on the market strength we're seeing today, our forecast is for $210 million in 2021 starts. To position us following the pandemic, we acquired several new sites during the past two quarters, with more in our pipeline along with value-add investments. More details to follow as we close on each of these acquisitions. And to, perhaps, pre-empt a question, none of the development starts, value-add investments or land purchases are in Houston.

Brent will now review a variety of financial topics, including our 2021 guidance.

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

Good morning. Our first quarter results reflect the terrific execution of our team, strong overall performance of our portfolio and the continued success of our time-tested strategy. FFO per share for the first quarter exceeded our guidance range at $1.45 per share, and compared to first quarter 2020 of $1.31 represented an increase of 10.7%. The outperformance continues to be driven by our operating portfolio performing better than anticipated, particularly the quick releasing of vacated space during the quarter. From a capital perspective, during the first quarter, we issued $45 million of equity at an average price over $1.41 per share, and we closed on a $50 million senior unsecured term loan with a 4-year term at an effective fixed interest rate of 1.55%. Also during the quarter, we agreed to terms on the private placement of $125 million of senior unsecured notes with a fixed interest rate of 2.74% and a 10-year term that we anticipate funding in June. Lastly, we retired a $41 million mortgage loan that had an interest rate of 4.75%. That activity, combined with our already strong and conservative balance sheet, has kept us in a position of financial strength and flexibility. Our debt to total market capitalization is 18%, debt-to-EBITDA ratio dropped below five times, and our interest and fixed charge coverage ratio increased to almost 8 times. Our rent collections have been equally strong. We have collected 99.5% of our first quarter revenue, and we have collected $1.2 million of the $1.7 million of rent deferred last year. Bad debt for the first quarter of a net positive $78,000 was the result of tenants whose balance was previously reserved, but brought current, exceeding new tenant reserves. Looking forward, FFO guidance for the second quarter of 2021 is estimated to be in the range of $1.42 to $1.46 per share and $5.74 to $5.84 for the year, an $0.11 per share increase over our prior guidance. The 2021 FFO per share midpoint represents a 7.6% increase over 2020. Among the notable assumption changes that comprise our revised 2021 guidance include: increasing our average month end occupancy to 96.6%, increasing the cash same-property midpoint from 4% to 4.4% and decreasing bad debt by $700,000 million to $1.1 million, which represents a forecasted year-over-year bad debt decrease of 61%. In summary, we were very pleased with our first 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 through the year.

Now Marshall will make some final comments.

Marshall A. Loeb -- President and Chief Executive Officer

Thanks, Brent. In closing, I'm excited about our start for the year. We're out of the gate ahead of our forecast and are still feeling that momentum in the second quarter. Our company, our team and our strategy are working well as evidenced by our quarterly stats. As the economy further stabilizes, it's the future that makes me most excited for each group. Our strategy has worked well the past few years. Coming out of this pandemic, we foresee an acceleration in 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 and fast-growing Sunbelt markets. These, along with the mix of our team, our operating strategy and our markets has us optimistic about our future.

And we'll now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Elvis Rodriguez from Bank of America. Please go ahead with your question.

Elvis Rodriguez -- Bank of America -- Analyst

Good morning, gentlemen and congratulations on the quarter. Just a couple of questions. One on lease termination income increased by a little over 13th quarter-over-quarter, and it was about a penny and a half of the beat versus your guidance. Anything you can share on that? Is there one specific tenant that drove that or one specific market?

Marshall A. Loeb -- President and Chief Executive Officer

Good catch. I'll tie it in there. There really was one specific tenant and really one specific building. I'll if you remember, last quarter, we had a fairly large straight-line rent write-off on a tenant that had been in and out of bankruptcy. We terminated their lease, and then there was another tenant in that same building. It's in South San Diego, East Lake area. And they had closed down during COVID. We collected roughly a $500,000 termination fee from them in first quarter. And then I'll tie it into different pages in our supplement. You saw Amazon coming into our top 10 tenants. So they took that same East Lake building. Basically, what we were trying to do with kind of those chess moves was clear the building out, and we signed 191,000 foot lease with Amazon, which was the full building, and it's a 10-plus year lease with them. So we're happy about the outcome. It was -- an I'll credit the team for doing it. It was a lot of moving parts to free up the building, but we were able to improve the credit quality and took the write-off in fourth quarter, and then we're able to negotiate a term fee in first quarter and get that done.

Elvis Rodriguez -- Bank of America -- Analyst

Great. And my follow-up question was going to be on Amazon. During our quarterly call with JLL, they noted that Amazon has been more active in sort of the infill/midsized sizes. And I just wondered if your conversations with them are increasing either in any of your existing markets or even any markets that you may potentially expand to in the near future? Anything you can share from that tenant could be really helpful.

Marshall A. Loeb -- President and Chief Executive Officer

Sure. Happy to, and we would agree with JLL. It seems like kind of a -- globally, most people initially make sense on the e-commerce side worked on getting goods through the ports of L.A. and Long Beach or whatever port it's say to you in New York or to Chicago or the other major cities. In the last couple of years, it's really focused more and more on that last-mile, which we're excited about. As one broker described anything that speeds up when someone hits click or hangs up the phone till it gets delivered is where the world is going. So our conversations with Amazon, we were happy to get that transaction across the finish line. We're having other conversations with them and they certainly picked up whether we -- whether they pick us or somebody else's building. We'll see how those play out, but we are seeing them be more active, and I'll say they are -- they seem incredibly busy, and we think they're -- I know people have asked is that is demand going to slow down when Amazon slows down? One, we're not doesn't -- from our sense, which is we're a long way from Seattle, doesn't feel like they're slowing down. And then, two, we think there's a lot of other companies that we'll have to keep up with Amazon to maintain their market share, much less grow it.

Elvis Rodriguez -- Bank of America -- Analyst

Thank you and congratulations again on the quarter.

Marshall A. Loeb -- President and Chief Executive Officer

Sure. Thanks so much.

Operator

And our next question comes from Tom Catherwood from BTIG. Please go ahead with your question.

Tom Catherwood -- BTIG -- Analyst

Thanks, and good morning, everybody. Taking a look at your value-add acquisitions. The recent trends have been toward more recently completed buildings where you're taking on the lease-up risk. But as you look at your portfolio of value add projects, how much is that kind of unstabilized developments as compared to assets that may be new capital improvements or repositioning? And is there a yield difference between those two types of value add?

Marshall A. Loeb -- President and Chief Executive Officer

Good question. And and really, I'll give Brent credit when we started buying these value adds. It was similar in that it was a partially leased new development. And and we like those as a way as -- a competitive and lowest cap rates have gotten for leased products as a way to create that value somewhere along the spectrum between an acquisition and a development internally. Most everything we bought in that value-add bucket has been a vacant building. And then really, the guys in the field have done a nice job where we've acquired things really when the certificate of occupancy has been delivered or -- for the developer or when we get a lease signed. And so you saw that the last two quarters in Atlanta, they were able to get those buildings leased by the time the certificate of occupancy was delivered. So they really came in lease. Greenville, we've out the building, got a couple of leases signed there, have good activity at 70%. And I can really only think of one, and it was a couple of years ago in South Florida that was really in the western area. That was really an older building, and we we did some capital work on it, but we're happy with the yields, and we've been in the 6s to high 6s right now on our development pipeline. So it's harder. I think the market's less and less a freight of vacancy, it feels like each quarter, but we like those looking at our supplement today at a 6.8% yield. And if we can get the leasing done timely as we underwrite them, we think the values are -- depending on the market, but call it, 4. 25, something like that. We -- I will say we did one. I forgot in last year near the Ontario airport Rancho Cucamonga, you're right, that was an owner user that sold the building to us. They were -- they downsized, stayed in the building. We got the balance leased. And so there, we felt like we were probably 75 to 100 basis points above the market cap rate on it. It was a lower yield than in the 6s, but we're in the high 4s and the market for buildings like that are probably high 3s today in Southern California.

Tom Catherwood -- BTIG -- Analyst

Got it. I appreciate that color. And some very significant value creation there, which kind of ties into your ground-up developments as well. Over the course of the past year, there's been maybe 10 basis points of contraction in your yields, so you're still at 7.2%. When we look at kind of the material increase in construction costs, especially recently, how are you mitigating this to maintain your development yields?

Marshall A. Loeb -- President and Chief Executive Officer

Good question. And the short answer would be not easily. But we are seeing, especially steel prices come rise. Thankfully, we don't use much lumber except for out West. So lumber prices are high. PVC costs are up, although we're hearing those will moderate in time. As we step back, I think it all means we've seen land prices increase as more and more people get into industrial, although, thankfully, they still -- when they enter the market, they typically go into big box development. But I think all that, given how tight land is for industrial and a fast-growing Sunbelt market that we struggle to find those sites, I think it's going to all continue to put upward pressure on rents. So I don't know that we'll -- look, I'd love to say we're going to go from 7% to a 7.3% yield on our development yields. But I think, hopefully, with -- our development spreads are as high as they've ever been in our company's history. We would typically historically say 150 basis points above a market cap rate, which would put us about, depending on what cap rate you use, call it, 5.6%, 5.7% today, and we're at 7%. So we've got room to come down, but I hope we don't. And the team continues to figure out ways to get to the 7%. And we underwrite today's rents. And typically, by the time we build the building and get it leased up, we've been able to beat our rents on what we originally underwrote in a rising market the last few years. And I think it will accelerate now with higher land prices and higher components. And I think at least for 12 months, supply is going to be constrained because even if you agree to pay those higher steel prices, it takes a while to get deliveries.

Tom Catherwood -- BTIG -- Analyst

Understood. We've heard the same in multiple areas. And speaking with land, just one last question. One parcel popped up in your prospective development list, 42 in San Diego, California. We didn't see anything come off out of the operating portfolio, nothing you've acquired recently. What is that parcel?

Marshall A. Loeb -- President and Chief Executive Officer

Good and good. Good observation. I think, I'd say it was late 2019. We bought this site. It was a couple of sites in San Diego. And this one is Otis. So really, near the Mexican border, the border with Mexico between the two border entries, the existing one and there's one under construction today that we plan to start construction. It was a salvage yard. And as we've worked through with the county of San Diego to get that ready for development, we -- since it has income coming off, it was an operating property, but as we've -- as we get closer to being able to break ground, we cleared the salvage yard tenants, which were really there month-to-month. And so it really -- a good catch, but it's really us getting ready to, hopefully, break ground this year, and we'll chasing some build-to-suits. That's a strong market or -- and/or spec development there along the border. And similar, there's one other asset that falls in, in San Diego in the Miramar area. We bought what was a car lot along the I5 right across the freeway from La Jolla that's a covered land play. It's parking for the Miramar Navy base today for the VA Hospital. So we have couple of those, which is a great way to kind of carry the land until we're ready to start development, but that's what happened with that 40 acres, and we like the market a lot, and it just takes a bit to get through all the improvements and entitlements in San Diego that we're about there.

Tom Catherwood -- BTIG -- Analyst

That's it from me. Thanks everyone.

Operator

Our next question comes from Daniel Santos from Piper Sandler. Please go ahead with your question.

Daniel Santos -- Piper Sandler -- Analyst

Hey, good morning. Congrats on a great quarter. I was wondering if you could give us a little bit more commentary on Houston and rents and what you think rents will do over the next few quarters?

Marshall A. Loeb -- President and Chief Executive Officer

Okay. Sure. Dan, and thanks for the compliment on the quarter. If it helps -- I'll start with Houston market and then maybe jump in to East Group. But -- and I'll apologize, I'll throw some stats at you. But the vacancy rate, Houston, and this is from CBRE, where I'm quoting is down to 6.5%. So that's -- we think the market overall is improving, or it is improving. Houston continues to grow vacancies 6.5%, and that's fall in the last two quarters. Constructions right at $21 million, and that's thankfully 65% leased, or pre-leased. And JLL is tracking just over 21 million square feet of requirements. So hopefully, those requirements turn into leases, and that continues to stabilize that market. And then within East Group, as you saw, we're 96.9% leased. We -- at quarter end, we had 8.7% rolling. That's down to just over 7% today with a large portion, about 40% of that rolling at year-end. So as we've been saying, Houston is not our best market, but it's certainly a stable market, and it continues to shrink within EastGroup. It was -- it's down 100 basis points from 12 months ago, and will probably do similar to that in the next 12 months. I think I'll credit the team. They got a lot of leasing done during the first quarter. The rents compared to where the prior rents with the annual BOPs roll down where the market is, but the market is improving. I think those -- we believe those negative numbers that you see in first quarter will moderate and improve by the end of the year, but that's a market that's still recovering a little bit. Definitely, with COVID had slowed down, but is improving. And -- but we think we'll be fine. We'll be stable in Houston this year, and it will improve, but it won't be our -- it's not one of our hottest markets, but at 97% with 7% rolling and the activity we've had there, we feel pretty good about Houston going forward long term.

Daniel Santos -- Piper Sandler -- Analyst

Great. That is super helpful. So my next question is on occupancy and maybe it kind of feeds into a larger question on guidance and being conservative. When we kicked off the year, it seemed like the team was fairly cautious on occupancy and was -- that was the case last year and yet both this year and last year have turned out to be better than expected, I would say. So I guess my question is, are you still cautious on occupancy? And was that driven by sort of a general view? Or did you have sort of key leases in mind? And is that sort of driving your conservativeness on the guidance given that you beat us by $0.05, which would imply a better year than the $0.11 guidance increase?

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

Dan, this is Brent. Yes. I think the -- what proves to be conservative maybe doesn't quite feel as conservative when we go out there, I mean, finishing the quarter at 98.3% leased, which, again, was a record high lease percentage on top of the prior quarter, which had been the prior record. So the team continues to do a terrific job. I would say one thing that was real satisfying this quarter is that we had some known vacates, and I'll say, especially in Houston, but we had space roll and then yet it immediately turned and got relet. You see our renewal percentage this quarter was a little bit low at right around 59%, 60%, but would point out that we had released a significant part of that for various reasons, tenant that didn't renew. And so we wound up taking care of 93% of that space within the quarter, and we just didn't anticipate, among other things, but we didn't anticipate taking care of that vacated space so quickly. And so everything from that regard just continues to to hit well. If you look at our midpoint of our average month end occupancy, it's within 10, 20 basis points of what we've averaged the last couple of years. We're certainly off to a strong start to the year, first quarter. We hope you're right. We hope that the midpoint -- we have now proves to be conservative yet again. But when you start getting into these sorts of percentages of figures, it's harder than you think to press yourself to start getting toward forecasting, let's say, we're going to have another record quarter next quarter. And so we have good momentum. We'll keep going with -- the team's executing terrifically. But we feel -- that said, we feel good about the numbers, and April is looking strong coming into the beginning of the second quarter. So we will just continue to execute as best we can.

Daniel Santos -- Piper Sandler -- Analyst

All right. I appreciate that. Congrats again. And that's it from me. Thank you.

Operator

And our next question comes from Manny Korchman from Citi. Please go ahead with your question.

Manny Korchman -- Citi -- Analyst

Marshall, Given the commentary so far on the call about how competitive and industrial markets have become, should we expect -- or have you given your team any new tools or sort of maybe card rails about what they should be out there looking for? Or if not, how do you expect to keep growing the company?

Marshall A. Loeb -- President and Chief Executive Officer

Sure. I mean I think maybe good question. Maybe broadly speaking, we want to keep growing our -- and when we say growth, want to keep growing our earnings, our FFO per share. But in terms of just absolutely growing volume in terms of assets, we try to shy away from that. I mean, we want to have the appropriate amount of float in our shares and things like that for our investors. But we've really never said we've got to grow by X number of millions per year because I think that leads us to be an undisciplined investor. We can meet those goals. Those are usually pretty easy, but there'll be things you may be picking on us about in two or three years when we're struggling with them. But that said, I mean, we do talk about our cost of capital regularly with the team and have tried to staff up and give them the people under our three regionals that they need. And really, our best opportunities, as we said, we've tried to reduce administrative time. We've -- our internal reporting, we've changed the way we've done that, a fair amount over the last, call it, two to four years, have learned the phrase from one of our directors of corrupted sales time.

So we want -- we're telling our team, go right around, go to lunch with brokers, go to happy hour with brokers, host it, do things like that because we think non-listed properties are the best opportunities like the sale-leaseback that we bought at the Ontario airport. By the time one of the brokerage groups gets it, they're all so good in marketing. It does become a bit of a feeding frenzy. And every once in a while, we'll buy one of those strategically. So they're aware that we can go to lower yields than we could a handful of years ago, and we're -- we bid on a lot. We just don't buy a lot. And given where the world is and CBRE's phrase, there's a global wall of capital that wants U.S. industrial. And so we've trying-ed to tell ourselves rather than outbid that global wall of capital, everybody's got a checkbook. If everybody wants it, we're better off creating it than outbidding people. So we like development a lot. We like value add where it makes sense. And we'll pick up some acquisitions here or there. I know we lowered our guidance this year. It's not that we're shying away from acquisitions. We'll chase them just as much, but it -- that represents a property we have under contract in one of our submarkets. We're in our due diligence on it. And I hope that's a number we beat.

We just recognize just when we think it's competitive that next year gets more competitive. The phrase we've heard is that top 20 markets are now the top 40 markets out there. So it's surprising how much competition there is in Tampa and Denver and Las Vegas. We expected in L.A., Atlanta, Dallas, those major markets, but even what people would call kind of our next 10 to 30 markets around the country are incredibly competitive. We were recently in Greenville, South Carolina, which is certainly a smaller market and just a number of players there out bidding for properties and how cap rates have come down. We like the market a lot, but we'll just be -- I think our best serve for our shareholders is to be a patient disciplined, investor, and we'll find our opportunities here and there. And luckily, doing that, the company continues to grow and maybe in spite of our conservatism at times.

Manny Korchman -- Citi -- Analyst

Great. I appreciate that. And maybe the complete opposite of that. You talked about leasing up the building in San Diego to Amazon on what sounds like a whole building basis. What's the thought process between either keeping that in the portfolio long-term and sort of what's the upside in doing that versus selling that to fund some of this more expensive acquisition and development activity?

Marshall A. Loeb -- President and Chief Executive Officer

That's a thought. We -- and I guess we just got the lease sign. So we thought we'd -- a little bit less link to dry before we come up with our plan, but yes...

Manny Korchman -- Citi -- Analyst

Put it right on the market. No time off.

Marshall A. Loeb -- President and Chief Executive Officer

Okay. I hear you. Yes. We just wanted to signature we caned. We were going to order a set of pens and have them delivered with Amazon Prime in Seattle and things like them trying to get the lease signed. And so yes, we -- there was -- I mean, arguably, we could have created as much as $0.50 a share in NAV, I'll credit the team for getting that done in terms of cap rate swing on that building. And it's one we could sell, although it's -- and it's one we've owned for 20 years. I'll take the blame of the credit. It was one I had acquired even way back when I was out [Indecipherable] adding order and we'll prune our weaker assets and -- but there's so little land in San Diego. Well, let's talk about at the next city conference. I would argue on the it's over a 10-year lease that when this Amazon lease burns off and over 10 years, there's going to be that much land left in San Diego between Camp Pendleton, Pacific Ocean and Mexico and mountains that we like that infill Southern California market like San Diego. But that's probably a good discussion we'll have, and we're happy to get the lease signed. And I promise we'll get back to work and not take time off and figure out what do we -- now that we call the bus, what do we do with it?

Manny Korchman -- Citi -- Analyst

Thanks everyone.

Marshall A. Loeb -- President and Chief Executive Officer

Sure. Thank you.

Operator

Out next question comes from Vince Tibone from Green Street Advisors. Please go with your question.

Vince Tibone -- Green Street Advisors -- Analyst

Hi, good morning. I have a question on your full year guidance for the reserves for uncollectible rent. I'm curious if the guidance revision was solely due to the kind of unexpected recoveries in the first quarter of previously written-off rent? Or have your views on overall tenant health changed over the past few months?

Marshall A. Loeb -- President and Chief Executive Officer

Yes, Vince, product combination of both. The first quarter as you see that we actually turn out to be a positive $78,000 as it comes to bad debt. And that was simply -- we had reserved a few tenants that we had deemed and thought would be uncollectible at 12/31. And it turned out those tenants fall and got current. And so we basically reversed what we had previously allowed for and then that just wasn't backfilled with new collection concerns. So for the first quarter, that out to be basically no bad debt. And so we did ratchet back the second quarter -- or the total, we brought down to 1. 1, but we were looking at the second quarter we had put about $225,000 there and then about $500,000 in the third and fourth quarter. And we feel good. Even through April here, we're looking good. Collections have been very, very strong. We collected in the mid-99% of first quarter rents, which is basically the same as we did last year. And so we feel good about collections. We hesitant to bring it down lower. Just -- you get two or three tenants. When you've got 1,600, 1,700 customers, and when you're saying that just a handful could absorb the number you have in there, you're hesitant to take it down even further, but we feel good, obviously, real positive about first quarter. And those aren't tenant specific. Our allowance is just general, again, given that many tenants assuming something will happen. But hopefully, we can continue to unwind that. It's -- at the 1.1, we're already down just over 60% -- or forecast to be down just over 60% from what the prior year was. So again, just a testament that our multi-tenant -- our "smaller tenant base" has held up just fine, and I don't want that to get lost on folks because it all look for us, but the more we can build a track record, hopefully, the more that allays those fears.

Vince Tibone -- Green Street Advisors -- Analyst

Got it. That's really helpful color. One more for me. Are you seeing any material differences in tenant demand or just kind of fundamentals between the markets that are now fully open from a COVID mandate perspective versus those where there's still some restrictions in place?

Marshall A. Loeb -- President and Chief Executive Officer

Trying to understand your question correctly. I would say we're -- it probably feels more like everything shut down, call it, a year ago, almost all of our markets. And then as -- and really, thankfully, the southeastern markets, the Georgia, Florida, Carolinas opened up, Texas a little bit first. We we felt that activity, and now it feels a little more broad-based, or it is. California, we struggled leasing some vacancy in the Bay Area. And the market was always strong. It was just not many people out looking for space, say, compared to Tampa there for a couple of quarters. And we've seen it even -- and we feel better, and we'll get there on a Miami development, where we built the third building and a park. The first two leased up before we could complete them, but Miami was another market where it felt like, with COVID, it had slowed down. So it does feel like more and more of our markets are really fully open or a little more even now, I guess, maybe is another way to say it. We're sending out more proposals than we have traditionally. And that's maybe partly why we saw so much new leasing. I'd say the flip side of that is deals still take a while to get done. So it's a slow process and maybe the best answer to that I've heard is our rents are higher than they were a few years ago and spaces have gotten a little bit larger for our tenants. So the level of approval or the amount of scrutiny is going up. So there's a lot of deals that will happen, but they'll stall out kind of in the red zone until we get signatures. But we've seen more and more pickup in the market in terms of activity. And then -- and you're right, it really depends on when kind of the government let those markets reopen a little bit over the last year and each quarter. Til now, they all feel like they're pretty much open, although some of them feel like they just reopened here in the last 90 days is more shots got in arms.

Vince Tibone -- Green Street Advisors -- Analyst

Great, thank you.

Marshall A. Loeb -- President and Chief Executive Officer

Sure. Thanks.

Operator

Our next question comes from Dave Rogers from Baird. Please go with your question.

Nick Thillman -- Baird -- Analyst

Hey, guys. This is Nick on for Dave. I had a question if you've been hearing anything from tenants about employment shortages and it might be impacting their business?

Marshall A. Loeb -- President and Chief Executive Officer

We're certainly seeing that around the country or it feels like I've heard more about it in service businesses than I have within our tenants as well, but it does feel like people are having a hard time hiring workers, which is crazy right now, but but hiring people, and it probably hits the larger the space, the more people intensive. Some of ours aren't quite as -- an 800,000 foot industrial building is going to have a lot of people in it, and labor is going to be a key decision-maker part of their decision with ours, which really that last-mile quick delivery. I know there's a -- I've read about -- I was watching a shortage of truck drivers and things like that. And I think that was all going to lead companies more and more toward automation. We're already seeing that, but that will pick up. We're not hearing it as directly, but we are glad to see our customers starting to expand. That really had slowed down. That partially led, and Brent commented on our retention rate that, that was one as our tenants are actually starting to expand, but I do worry about the labor shortages that are out there a little bit. It seems more service-oriented than warehouse, but it's got to be a little above.

Nick Thillman -- Baird -- Analyst

And then just one quick follow-up on something you guys said earlier. Land as a percentage of construction costs, where would you guys peg that today?

Marshall A. Loeb -- President and Chief Executive Officer

Land as a percentage of...

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

It's probably around 25% to 30% and maybe slightly growing, although, as Marshall said, there's some component costs like steel that that are increasing. And the question earlier about the yields and the impact and how we're mitigating that, some of that really is going to be the challenge this year. A lot of what's in that pipeline is kind of prebaked with some of these supply chain conundrums. But it generally -- it can vary in different places, but generally going to be in that 25% to 30% range of total all in.

Nick Thillman -- Baird -- Analyst

Great, thanks.

Operator

Our next question comes from Michael Carroll from RBC Capital Markets. Please go with your question.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. I guess, Marshall, over the past several quarters, I mean, you've detailed how prospective tenants is kind of broadening out for you, including a much bigger pool of national players looking at your properties, combined with the smaller local players. I mean -- and obviously, this has changed your top 10 tenant list. I mean, are these national players more active today than the local players? And we should continue to expect that top tenant list to continue to evolve?

Marshall A. Loeb -- President and Chief Executive Officer

I think it will continue to evolve, and you did see, I guess, a couple of new names in it this quarter that we've moved in. I hope we've kidded our own Board. I hope we have the issue of how big is too big for one of our tenants. I like -- and people certainly I'll get on my soapbox for a moment as people focus on Houston for us and concentration there. We're -- I think geographic concentration is important for us to manage risk, but I also think tenant concentration is another great way to manage risk. And we really -- I don't know that people focus on that as much. I like that we're a hair below 8%, but I do see as some of our tenants those national tenants -- what's been interesting to me is we'll see them in Tampa or Orlando or in a market. And next thing we know there we're sending out proposals throughout the portfolio that I hope we have the issue is how much is too much Home Depot or Best Buy or Lowe's or Amazon or Wayfair any of those tenants. So I do -- I think as they all work on their supply chain and logistics, and then they've all been caught without inventory, especially this past year. So we think it will also lead to -- is their logistics move our way and will likely carry more inventory as what we're reading and hearing about over the next few years, we will -- I think it's a good prediction that we'll be managing the size of some of those tenants, and maybe I'll go back to Manny's question. Worst case, we create so much value with Amazon, and they're so concentrated. We need to sell an Amazon building or two, but be a great -- a world-class problem to deal with when and if we get there. First, we need to get the leases signed. But I think you're right. I think we'll end up with a little more tenant concentration over time, although we'd like -- and we'll try to manage that number and keep it low as best we can.

Michael Carroll -- RBC Capital Markets -- Analyst

I mean you have great tenant diversification today. I mean, what is too much? I guess, what's that number is at 5% of rents? Or I mean is there a number that you're thinking about right now?

Marshall A. Loeb -- President and Chief Executive Officer

There's not -- we've talked about it, not a specific number. The other thing is we've -- you're right. Thank you. It's not a problem today, but you don't want to wait until it is a problem. The other thing I thought we should layer in as we look at that is what are the terms of the leases. I mean I'd like, say, [Indecipherable] is one of our top 10 tenants, good company. But their 3PL typically a shorter-term lease. If someone's 5% and everything is a 3-year lease, that's a different model than if we've got someone and how many locations is that, too. I feel better about having multiple locations because you're probably not going to lose all those locations at once. So to me, it would be probably -- and I'm good at over analyzing things, it's a personal therapy comment. But how long are the lease terms, how many locations and who that tenant is? And I think we'll -- that's probably as we get to each one is probably how we should -- that should be the framework we look at.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then, I guess, switching over to developments. I guess, what's the governor of starting new development projects? Is it the ability to find land? Or is it that you're just trying to manage risk, you don't have too much on leased developments in process at any point in time?

Marshall A. Loeb -- President and Chief Executive Officer

It's really what -- good question. What i love about our model is it's not Brent and me saying, go, really, the governor, I would put it back on the market. If our guys can find the right land sites, and we wouldn't build two competing parks within the same submarket, but we could be -- we're active in several submarkets in Dallas, Atlanta. We could be in San Diego, some of our larger markets. It's really how fast did your last phase of that building lease-up and did it kind of meet or exceed our pro forma and as fast as -- we've told the team as fast as you can deliver them and get them leased up, we're ready to go with Phase two. So the market really pulls our supply. So that was how our starts got so far out ahead in 2019 of where they -- we thought they would be. I hope we have that issue as this year as it plays out, although we've got to get the steel for it and all the components and things like that. I could see some delays that way. But it's really -- we'll build Phase four as fast as you can lease Phase three. And I've always kind of thought of almost like a retail store. We're restocking the shelves as fast as you can sell it. And look, it's -- I like our model. We'll build roughly a $12 million building. Where our yields are versus market cap rates? It will come out being worth about $19 million, which is a great net asset value creator. And how many times can we do that before we run out of land or get too far out over our skis? But if we can do that in as many markets where the demand is there, that's why you saw us say, buy a site in Paso where we haven't built in years was that the market strength was there. We had internal tenants who wanted to expand. So the team found a contiguous site to some buildings that we owned, and we'll break ground there later this year. So we'll go -- long, long-winded way of saying, we'll go as fast as the market lets us go.

Michael Carroll -- RBC Capital Markets -- Analyst

Great, thank you.

Marshall A. Loeb -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from Craig Mellman from KeyBanc Capital Markets. Please go ahead with your question.

Craig Mellman -- KeyBanc Capital Markets -- Analyst

Hey guys, Just maybe circling back to the acquisition question, and I appreciate your commentary that you don't want to just got the reckless abandon given a positive cost of capital here. But what we've seen in the last decade almost is, right? Everyone's been conservative on underwriting rent growth and thinking that people that are winning bids are crazy, only to see rents grow faster than expected and cap rates compress, right? And then you have the remorse of not being more aggressive. I'm just kind of curious, as you guys sit there today and underwriting committee, how much that factors in, particularly for well-located product? Where -- how much you're willing to stretch to get the foothold in some of these markets where you want a bigger exposure versus not wanting to be, as you said, lambasted in two years if something goes sour, right? So just kind of curious on your thought process there. And I guess putting something else in the mix, too, is your markets are now seeing more national tenants come in. Those tenants tend to be less price sensitive. So kind of how does all that fit into -- when you guys are saying they're deciding to allocate capital, which I know it's tough when you have 300 to 400 basis points breadth of development, but there's only so much land to buy?

Marshall A. Loeb -- President and Chief Executive Officer

Sure. Good thought progress and Brent and the finance team right now, we're thankfully not -- we don't feel capital constrained. The equity markets are attractive, the debt markets. So we're not really looking at do we build a building or do we buy a building? Thankfully, we have the luxury of -- we can do both as long as that one particular market doesn't get outsized, like you'd manage your stock portfolio. And we do feel like we stretch. I've always thought our best decisions when you're buying something, it's it's half analytical, and we certainly see some people that it's -- they're so focused on the computer and the model that you miss. Really, we have the luxury also of being a long-term owner of what do you think about this location and where do you think it will be in five, 10, 15 years? We're not private equity, where we need to be thinking about exit within just a handful of years. I think that's a lot harder way to buy. And you're right. Thankfully, the market's gone our way all the industrial owners the last handful of years. So we're -- we feel like we're stretching, and we'll keep chasing those assets. And we bid on a lot, and maybe we should stretch more than we do, but we kind of -- we try to come up with a number early on, and we say, all right, at this price, before you get too heavily involved and when you're in the third round of bidding and the buyer interview it, I just -- including me, it becomes more emotional. And we said, all right, how much do we want to pay for this asset early on? And what's our bidding strategy?

And we try to stay pretty pretty self disciplined around that because you can get in the bidding and you want to win it, and we're all competitive. I don't know that winning out of 20 bidders is really winning and just betting on the market, it keeps setting new highs, but I hate to bet -- keep betting that it's going to go to another high. And what in if it does, we've got $47 million square feet that we'll bend today that will benefit, we will benefit from that as well. So we'll buy some things, but we try to not buy based on what our stock price is today, but if it's an asset we like and it strategically fits where we're trying to grow in Jacksonville or Austin, Texas and things like that, we -- look, our company is probably 2.5 times the size it was three or four years ago. So we feel like we are growing. We were under $3 billion. And some of that stock price growth, things like that, we've grown pretty rapidly and our development pipeline used to be $100 million a year. So it's grown as well. We'll grow as fast as we feel like we can, but I don't want to blow up the perfectly good 30-year-old REIT because we wanted to grow too rapidly or things like that. We'd rather find that value for our shareholders, and we'll go as fast as we feel like we can reasonably find those opportunities.

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

Yes. I would just add to that, Craig, that like Marshall said, we view that we're being paid to create value, and we don't necessarily view as our key role is a component, but not a key role of being a roll-up per se. But one thing I think maybe gets lost with these group. You look at our yields relative to, perhaps, the peer group, given our smaller building, multi-tenant approach, which has less competition -- some competition, but less. But in the last four years, we've converted the development value-add $725 million at cost that's worth, if you put a 4.5% cap on it, which I probably conservative there, is worth over $1.2 billion. So we're making a 60%, 65% return on the last four years in those two buckets. So we spend a lot more time on those. Frankly, we look at acquisitions in every market, but we view that as far less accretive to the shareholder. So it's a component, but with today's cap rates, we just don't view it as a key component.

Craig Mellman -- KeyBanc Capital Markets -- Analyst

No, that's fair and helpful on your thought process. Just on -- maybe one quick follow-up to that. When you guys do kind of not end up being the winning bidder, how far off generally are you versus the winter?

Marshall A. Loeb -- President and Chief Executive Officer

It depends. We've have to bat is it better to get -- sometimes we don't make it to the second round. And you realize, OK, we weren't going to be close. The market sees something there. And then it varies. Sometimes, we're right there. We do a -- usually have a first round bid. They narrow it to a second round bid. Then you have a buyer interview, and then you get a call from the brokers saying, you're bidding against yourself this entire time of -- if you can come up $100,000 or depending on the size of the project, $400,000, you can get the property. So those are the ones where you want to be a little more disciplined. But we -- it's a range -- we'll usually -- if it's something we like, we'll usually almost always make it into the second round, and the brokers will guide you through the process a little bit of where you need to be to make that second round or the buyer interview. And sometimes we simply try out uncle. But it's amazing. And last couple of deals we bought, honestly, that even after we were awarded it, people came in with a higher bid. There's one in California in the last year, and we were in the $20 million. And even after we were awarded it, somebody came in with $1 million more within their offer and, thankfully, the seller stuck to their word and honored it. But it's -- I guess the good news is -- or the bad news is it's awfully competitive on acquisitions, and we can get close on them. I guess that's the good news. We can't have a high stock price and have people not want to own industrial. So it really pushes us, as Brent said, rather than be an asset aggregator, we'd rather create that value. Again, you can create value by raising rents, we admit. But we'd rather build it or buy a vacant and/or push rents along the way. So we -- I think we'll buy more than $10 million probably by the end of the year. But as we came up with our guidance issue, we stuck with $10 million because that's what we have under contract. And we'll be patient, and we'll find it. And that's a hard one to predict is the other reason we predicted $10 million because everything gets multiple bids these days.

Craig Mellman -- KeyBanc Capital Markets -- Analyst

That's helpful. Then just, hopefully, a quick one here. Going back to the talk about maintaining development yields. And apologies, we haven't been able to go out and see any new developments lately, but are you guys -- you guys have historically have had more office component in some of your shallow bay than traditional just distribution. Is that mix changing at all, which is kind of supporting the yields a bit? Or are you guys caustic into the same office percentage historically?

Marshall A. Loeb -- President and Chief Executive Officer

Office percentage has stayed similar. We're probably at 10% to 15%, which you're right, would be bigger than a large box building just by its nature. But we're -- office percentage is similar. If there's anything we've seen, and it's probably the nature of where we are in Arizona and Las Vegas, we've seen more air conditioned warehouse uses. If somebody has some kind of light assembly or depending on -- we lease space in Las Vegas. We're near the strip, and it was a candy company that distributes to the strip. So it makes sense. It's -- because it's hard to store chocolate in the desert in July without it being air conditioned, but we are seeing more and more demand for that from tenants. So if you say what -- what we've added more parking. We've added more trailer storage over the last few years. I don't think that's really -- that helps you stand out when people are looking for spaces, but I don't think it helps our yield. If anything, we'll end up same amount of office and maybe a little more air conditioned warehouse space than we had six, seven years ago.

Craig Mellman -- KeyBanc Capital Markets -- Analyst

Great, thank you.

Marshall A. Loeb -- President and Chief Executive Officer

Sure.

Operator

And our next question comes from Bill Crow from Raymond James. Please go ahead with your question.

Bill Crow -- Raymond James -- Analyst

Good morning, guys. Marshall, a couple of questions on the larger national tenants. You talked about the maneuvering you had to do in San Diego to move Amazon. And I assume that Amazon and a bunch of these other bigger national tenants prefer not to be in multi-tenant properties. So do you find yourself contemplating more larger single-tenant buildings to accommodate these larger tenants as you go forward?

Marshall A. Loeb -- President and Chief Executive Officer

Probably not. I mean, a short answer would be that building was 190,000 feet, and that's on the large end of what we own. And we do see Home Depot and they've come that's buying a 40,000-foot in Charlotte, multi-tenant building. So I think most tenants ideally would like their own building, but it's really been more -- last conversation I had, was on a Lowe's project. They were looking in one of our markets about number of.doors and trailer storage. So I don't think we'll really -- we've grown the size of our average building slightly over the years, but we really -- we like where we fit in the food chain. I like our yields at 7% compared to some of the big box yields where I've seen kind of mid- 5s to 6% that people have reported. And so we'll probably keep building the same buildings. It's really getting the location and dop doors and trailer storage and you're right, they've been -- they're less price-sensitive as if you can deliver the right real estate. And for Amazon, it really worked in San Diego. We had the right square footage in the right location for them. But just sticking with them, and you see it on our top 10 that they took 10,000 feet, just using them as an example and Tucson a year or two ago. So that one was kind of interesting and maybe educational for me that to deliver bulky items that they would be willing to go that small, but we have the right location that they needed in Tuson.

Bill Crow -- Raymond James -- Analyst

No. Are you -- a follow-up question here. Are you getting the inbound requests from the tenants to take care of their needs in other markets that -- whether you're in those markets or not? Are they starting to generate more leads?

Marshall A. Loeb -- President and Chief Executive Officer

We work on that. I mean we have had some -- we're -- thankfully, we've developed those relationships, and I'll credit our team in the field. We will go to their corporate office, have those conversations, and companies like Lowe's and Home Depot, where I think they're used to -- and I am -- this is me assuming as much. That's by retail leases that are much longer and lengthier than in a typical industrial lease. So simply having gotten through the lease process. If we can use one of our conforming leases and take what we did in Charlotte and move it to Austin, I think it makes it -- it's easier on the real estate teams because all those companies also seemed to me to be incredibly busy and understaffed right now, broadly speaking. But I think we do have that advantage. And even one tenant was looking at going to a new market. They'd rather leased and owned, but they presented us with that building. In that case, it didn't work out. We really didn't like the building that much, but it was not retail related, but a solid tenant that we have elsewhere. And they approached us on buying the building to lease it back to them. So I love it when things like that happen. And I think if we can kind of keep managing those relationships, Goodman was another company, large AC contractor. When we went to Fort Worth, they were with us in Dallas and kind of made the comment that the traffic was so bad in Dallas, they needed a Fort Worth location. So we were able to accommodate them and take them to Fort worth as well, for example.

Bill Crow -- Raymond James -- Analyst

All right, thanks appreciate it.

Operator

And our final question today comes from Kubin Kim from Temis. Please go ahead with your question.

Kubin Kim -- Temis -- Analyst

Thanks, good afternoon. A lot of good questions have been asked already. So just a quick one here. How would you describe the changes in your overall tenant credit profile in your portfolio? And I don't mean how many more tenants are rated by rate investment-grade by Fitch and Moody's, but talking about a real world credit?

Marshall A. Loeb -- President and Chief Executive Officer

Yes. That's, I guess, an interesting question, Ki Bin. I mean, we've got 1,600, 1,700 customers. I think obviously, we analyze -- especially when you're signing a new lease, we have a process that all our asset team follows in terms of analyzing the credit of a tenant various things go into that. I mean, the credit view on an as-is deal where no TI or capital is required, we may look at slightly different than, say, a build-to-suit, where you're committing lots of dollars and, perhaps, a long-term lease. But we revisit those. We run D&B reports for those tenants and that type thing. But, Ki Bin, I guess what I would point to and I mentioned earlier is I think the greatest testament to our tenant credit profile is how we performed relative to, say, comparison to big box peers and/or how we've performed in economic downturns where you can compare some companies that focus on one size versus the other. And again, what we've seen is that there's not a disconnect between how big tenants perform relative to smaller tenants in those situations.

And as we've said before, being in a smaller space, doesn't necessarily mean that you're lesser credit. We think the focus more is what is the business that the tenant does. I mean there's plenty of very, very large companies publicly traded companies out there in the world today that are struggling for a myriad of reasons. And some of them not of their own doing with the pandemic, but nevertheless, they're struggling. And so we spend a lot of time and focus on that, again, especially in new leasing, but we feel like we've put down a track record to show that within the multi-tenant space, we're the high rent provider. We -- in our markets, we are the Class A multi-tenant. We're not -- as we say, in the field, we're not shading shelter sort of landlords. So along with that comes a better credit profile because they're having to pay up for quality space. So hopefully, that answers it, Ki Bin, but it's -- we feel like we've laid down a track record shows a good credit profile.

Kubin Kim -- Temis -- Analyst

Thank you.

Operator

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Marshall A. Loeb -- President and Chief Executive Officer

Thank you. We appreciate everyone's time this morning. Thanks for your interest and for a number of your ownership as well within East Group. We're happy with the quarter. And we'll get to work on second quarter and look forward to speaking to you in three more months. Take care.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Marshall A. Loeb -- President and Chief Executive Officer

Keena Frazier -- Director of Leasing Statistics

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

Elvis Rodriguez -- Bank of America -- Analyst

Tom Catherwood -- BTIG -- Analyst

Daniel Santos -- Piper Sandler -- Analyst

Manny Korchman -- Citi -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Nick Thillman -- Baird -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Craig Mellman -- KeyBanc Capital Markets -- Analyst

Bill Crow -- Raymond James -- Analyst

Kubin Kim -- Temis -- Analyst

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