David Hoster - President & Chief Executive Officer Keith McKey - Chief Financial Officer.

Kevin Varin - Citi Ross Nussbaum - UBS Securities Jeff Peel - Goldman Sachs Jamie Feldman - Bank of America Merrill Lynch Vance Edelson - Morgan Stanley Ki Bin Kim - SunTrust Robinson Humphrey Brendan Maiorana - Wells Fargo Alexander Goldfarb - Sandler O'Neill Craig Mailman - KeyBanc Capital Eric Frankel Green - Street Advisor Bill Crow - Raymond James.

Good morning and welcome to the EastGroup Properties Third Quarter 2014 Earnings Call. At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. (Operator Instructions) It is now my pleasure to turn the conference over to Mr. David Hoster, President and CEO.

Go ahead, sir..

Good morning and thanks for calling in for our third quarter 2014 conference call. We appreciate your interest in EastGroup. As usual, Keith McKey, our CFO, will be participating on the call. Since we will be making forward-looking statements today, we ask that you listen to the following disclaimer covering these statements..

The discussion today involves forward-looking statements. Please refer to the Safe Harbor language included in the company's news release announcing results for this quarter that describes certain risk factors and uncertainties that may impact the company's future results and may cause the actual results to differ materially from those projected.

Also, the content of this conference call contains time-sensitive information that's subject to the Safe Harbor statement included in the news release is accurate only as of the date of the call..

West Road III and Ten West Crossing 7 in Houston; Thousand Oaks 4 in San Antonio; and Madison II & III in Tampa. They total 339,000 square feet with a total projected investment of $23 million. Also during the quarter we transferred six properties with a combined 584,000 square feet and a projected total investment of $3.9 million into the portfolio.

They’re located in Houston and San Antonio and are currently 99% leased. In the fourth quarter, we expect to begin construction of three more projects with 430,000 square feet and a projected combined investment of 32.2 million, two in Phoenix and one in Dallas.

These will increase our development starts in 2014 to almost 1.7 million square feet and a projected investment of approximately $121 million. This is our second highest level ever.

We did not have any operating, property or land acquisitions during the third quarter, but we do currently have a 100,000 square foot building in Chino, California under contract to purchase, which should close in the fourth quarter. We did complete three operating property sales during the quarter.

In July we sold a small building, Tampa West 6, with 9,000 square feet in Tampa for $743,000. And at the end of the September, we closed the sale of Clay Campbell with 118,000 square feet and Kirby with 125,000 square feet, both in Houston, for $13.4 million. The gains for all three total $7.4 million.

We also sold a small parcel of land in Orlando as part of an eminent domain transaction for $141,000 and a gain of $98,000. In the fourth quarter we hope to sell two old Dallas buildings which were mentioned in our last call. Keith will now cover a number of financial topics..

Good morning. FFO per share for the third quarter was $0.89 compared to $0.83 for the same quarter last year. Accretive acquisitions and development along with an increase in same property net operating income were all contributors to the increase.

Termination fees net of bad debts increased 771,000, about $0.02 per share, from the same quarter last year. FFO per share for the quarter was $0.01 higher than our projected net borrowing primarily due to strong same property NOI results.

FFO per share for the nine months was $2.55 as compared to $2.39 per share for the same period of 2013, an increase of 6.7%. And as always, we calculate FFO based on the NAREIT definition. Debt to total market capitalization was 32.3% at September 30th.

For the quarter, the interest in fixed charge coverage ratios were 4.2 times and debt to EBITDA was 6.2 times. Adjusted debt to EBITDA was 5.5 times. All of these measures were improvements compared to the same quarter of last year.

During the third quarter we repaid a $26.6 million mortgage loan with an interest rate of 5.68% and closed on the funding of a $75 million unsecured term loan. The term loan has a five-year term, interest-only payments and an effective interest rate of 2.846%.

We have a 50% undivided tenant in common interest in Industry Distribution Center II and this investment is accounted for under the equity method of accounting. Each EastGroup and the property co-owner have a non-recourse first mortgage loan secured by the property. The loan has an interest rate of 5.31% and was scheduled to mature in 2030.

However the lender exercised his option to call a note on June 30, 2015. EastGroup's share of the mortgage was 5.1 million at September 30, 2014. Also, now we can prepay the loan with no penalty. We continue to sell shares under our continuous equity program to keep our debt ratios in line as we acquire and develop properties.

In the third quarter we sold 310,410 shares for gross proceeds of $20 million, $64.41 per share, and have sold 944,548 shares or $60 million or an average of $63.52 per share for the year. Our guidance for the fourth quarter assumes the issuance of an additional $17.5 million through the ATM before the end of the year.

In September we increased our quarterly dividend by $0.03 per share, 5.6%, and paid our 139th consecutive quarterly cash distribution to common stockholders. This dividend of $0.57 per share equates to an annualized dividend of $2.28 per share.

Our FFO payout ratio was 64% for the quarter and we have maintained or increased our dividend for 22 consecutive years and have increased it for 19 of those years.

Rental income from properties amounts to almost all of our revenues, so our dividend is 100% covered by property net operating income and we believe this revenue stream gives stability to the dividend.

FFO guidance for 2014 has been increased and narrowed to a range of $3.45 to $3.47 per share and the midpoint was increased from $3.45 to $3.46 per share. This is the third time we have increased the midpoint of our guidance fiscal for 2015. Earnings per share is estimated to be in the range of $1.53 to $1.55. Now, David will make some final comments..

As I've been saying for a number of quarters, this is a good time to be in the industrial real estate business. Fundamentals continue to improve. Our pricing power is strengthening. Occupancies remain good and we continue to see new development opportunities.

Our conservative and flexible balance sheet allows us to take advantage of this attractive industrial property environment. Keith and I will now take your questions..

(Operator Instructions) And we’ll take the first question from Kevin Varin from Citi..

I just wanted to ask you on the build-to-suite side of the business; it seems to be slowing down a bit.

Can you just talk about what you’re seeing on that side of the development discussions?.

After doing a number of build-to-suites in late '12 and '13, we have not done any -- did not have any build-to-suite starter announcements in '14, which is a little bit of a surprise.

We would like to – we do expect that we will have one or two next year where we have primarily our build-to-suites which were Houston, there is enough new development that we feel that prospects now have enough choices to be able to obtain space that fits their needs when they need it and are not worried about having something building built especially for them.

So I think that’s the reason that we’ve seen the slowdown in Houston. In several other markets, in particular Orlando, we’re putting out actually more proposals today than we have over the last couple of years put together. So that’s what gives me the optimism that we will be doing some in the future.

The other thing I would add is that given the size buildings that we develop, our build-to-suites tend to run from around 100,000 square feet to 200,000 square feet.

And at least in Texas, the build-to-suites that we’re hearing about or see announced tend to be at least two or three or five times that size and we don’t compete or try to compete in that category..

Thanks. And just one last question.

You’ve been able to maintain pretty attractive development yields on the pipeline and I just wanted to get a sense as you kind of think into the next 12 months or so just based on the rising construction cost and just overall increasing competition from developers in the market, do you see any of kind of pressures on those yields at all? And I just kind of wanted to get sense of your thoughts on that..

Yes. We’re starting to see some of the pressures and I think we may have even said in the last quarter’s call and certainly reported to our Board that over the next 12 to 18 months, we would expect to see some development yields drop anywhere from 25 to maybe even up to 50 basis points on new announced developments.

Some of it is related to, as you say, construction costs, some of it where we need to add land, the cost of the land is going to be higher than what we have today and then I think maybe a smaller portion will be related to competition. But yes, they should go down a bit, but not dramatically.

And if our yields are 7.75% to a little bit over 8%, that’s still very attractive given our cost to capital and what we feel that we could possibly sell buildings for given the current markets in which we're developing, although we obviously have no plans to sell anything we're building..

And our next question is from Ross Nussbaum, UBS..

I've got a couple of things here. Let’s see where we’re going to start. Do you have a sense of what your same-store occupancy did from Q2 to Q3? Because it looks like putting those newly leased delivery developments into the numbers sort of skewed the number up..

I have to admit, that’s not something that we've compared same-store occupancy. I am sure it’s probably a little bit higher, but that’s just a guess. We always seem to be comparing current quarter to a year ago’s quarter rather than previous quarters the same year. But we can look into that and let you know. But that’s not something we’ve calculated..

Yeah, I can follow up with you on that. All these years of covering you, it just dawned on me that that wasn't the same-store number. If I think about your lease role next year, I think we look at the quarter and say, everything looked great, the only thing you can pick on a little bit might be the cash leasing spreads.

So as we go forward into next year, if my math is right, your leases are expiring at about $5.45 a square foot.

Do you have a sense of where that is against the market?.

No. That’s not something that we calculate for a whole variety of reasons. We really take a look at what our actual budgeting is for each space every quarter as we're looking at what's going to roll and we’re just now in the process of putting together our 2015 numbers.

One comment – since you mentioned that the small drop in cash on the lease spreads -- I think it's important to note that when you look at the leases that were down on a GAAP, I am looking at a sample that's over 90% of leases are over 8,000 or 9,000 square feet.

On a GAAP basis, only three leases are less than 10% have negative; and on a cash basis, over 80% were positive.

And then one of the things that I think skews our numbers a little bit is that most of the leases that were negative were on spaces that had been vacant a year or more so that we were comparing something that was not like ended yesterday and a new lease signed today, we were comparing new leases quarter compared to a year up to, in one case, almost three years of vacancy so it's old rent.

But the positive obviously was it was a vacant space that's been leased. So even more than the announced rent goes to the bottom line. So, we think the trend is clearly in the right direction..

Okay. Last question for me. You sold a couple of assets in Houston in the quarter.

Was there anything specific about those properties or are you trying to manage your exposure to that market since you’ve just delivered some more product into it?.

A little bit of both. And those two assets where both built in the early 80s, so that they're older. We think we've maximized most of the upside in them. One of them is down on the south side of town that we went down for specific reasons that didn’t work out. We weren’t able to add other buildings down there, so it really didn’t fit.

Good news on the sales was we were pleasantly surprised with the cap rates here 30, 34 year old buildings and I recall everybody grazing their buildings differently.

But these are -- one is probably a B or B minus and the other is a C or C plus and one we sold basically a 6% cap rate and the other it was 95% occupancy and the other it was 6.75% cap rate for the buyer, again 95% occupancy. So, I think when people look at NAVs in particular over what we have in Houston, that should say a lot.

If two of our oldest assets there sell in that range, it says a lot about what else we have there given approximately 80% of what we have there we built.

As I mentioned in the prepared remarks, there are two older buildings are even older than these two that we are working on selling in Dallas and would hope to sell before the end of the year, but a few details have to be worked out..

And we’ll take our next question from Jeff Peel from Goldman Sachs..

Just first I'd like to start off for Florida. It looks like you had a strong quarter there, which hasn’t been the case for a little while.

So, just wanted to know what’s driving this strength and whether it's just one really good quarter or whether you’re seeing real momentum in these markets?.

We’re seeing increased leasing activity, particularly in Tampa, which, coming out of the recession, had been very strong for us and then seemed to go quiet for four or six quarters and that starting to pick up. The negative in Florida is that we’re still seeing some of the bigger roll down in leases.

And as I had mentioned earlier, it's primarily leases where we’ve had some vacancy for a while. So, we’re pleased with the pickup in activity, but we’re still probably going to experience negative lease spreads there in the fourth quarter and probably some into '15 next year..

And then just turning to your balance sheet, just wanted to get a sense of how you are thinking about that. You did – adjusted a loan at under 3%. I'd imagine you can get even lower today, but you’re still building to 8% or better yield on development.

So just wanted to get a sense of whether you'd be willing to layer in a little more debt going forward or should we think about the capital structure staying the way it is currently?.

We plan to keep the capital structure where it is today. We think that our attractive debt ratios -- debt to total market cap have helped us in our multiple on the stock because of that conservatism and we’re always looking into what a new loan might be today.

And just anecdotally we found out just in the last week is rates have had a precipitous drop that some lenders won't even quote you today and the spreads that were there when the 10-year was higher, those spreads have increased because lenders are waiting for a shake out of what's actually going to happen over the next few weeks with interest rates.

So, we’re looking into. And as always, the amount of debt we take on is going to be determined by what debt matures and what new acquisition and development opportunities we see that we’ll be funding..

And then just I want to also just turn to Texas for a moment.

Are you starting to see weaker energy prices dampen any of the acceleration or enthusiasm in your Texas markets?.

No. I can say clearly no. We’ve been talking to our Texas people for the last couple of days. I think it’s way too early to determine whether the drop in oil prices is going to be permanent, whether it’s going to bounce back up, go lower. And what we’ve seen to date is prospect.

We just signed two leases this week with oilfield related companies and they expressed no hesitation or worry about what was happening there.

I think something else that needs to be kept in mind on what’s going on in Texas and Houston in particular is that the price of oil is only one factor and drilling oil could slow down a bit if the prices stay down. But there seems to be no change in the demand or activity on petroleum.

When you look at midstream and downstream, the pipelines are continually being built. There are plans to put out a whole lot more money there.

And then need you step back and with the historically low price of natural gas, there have been announcements that add up to somewhere between $70 billion and $90 billion in Texas for expansion and creation of liquid natural gas facilities to export it, tremendous expansion with the chemical industry, fertilizers, resins, plastics.

And so I think even with low oil, none of that should slow down. Houston has just become the number one port in the country for exports. And of course you’d expect from the oil companies, but they still put out -- they strongly believe that the long term demand for energy is going to continue to grow.

So, we'll talk again on that topic next quarter to see if we felt any effect. But so far, nothing at all..

And you wouldn’t expect the weak energy prices to dampen any of the new developments as well during the quarter?.

I would hope some of our competitors would feel that way, but we have not sensed that yet..

Okay, great. Thank you so much..

I would add one other thing that and I am sure it has nothing to do with the drop in the oil prices. But the amount of industrial under construction dropped about 25% from the second quarter to the third quarter and there could be a lot of other reasons for that. But at least that’s trending in the right direction from our standpoint..

And we’re going to take our next question from Jamie Feldman from Bank of America Merrill Lynch..

So I guess just sticking with the Houston oil question. When you were talking to your team in Texas in the last couple of days, historically has there been a price point where the economy starts to feel pain? And I know, I agree with you on everything you're saying about natural gas.

But just if you look back in history, is there a number that makes them nervous?.

Again, I am certainly no expert on the oil and gas business. But what they say out in Texas and you read is that the threshold for oil is around $70 to $75 a barrel and that probably if this stays at that level or lower for any period of time, the peripheral companies, i.e. some of the independents, will probably cut back on oil drilling.

But the national companies look on a much longer term horizon. I think the other thing that it’s hard to look at historically is so much of the drilling today is the hydraulic fracking and that has not been going on so long that there has been any slowdown. I mean, the real issue before was on the pricing of natural gas.

But only time will tell on this. I’d say not only is there enough history with the hydraulic fracking, but to come up with a price yet that will really slow things down..

And your comments on Florida and kind of Tampa getting better, if you even look out over the next year or so, what are the markets you do think you will see acceleration in demand, maybe rent growth and more development opportunities?.

We see Florida picking up. And as mentioned earlier, we’re starting two small buildings in Tampa partially because our land basis is so low we can come in at today's rents and have a good yield. But we would expect that to increase and be able to do more building there.

In Orlando, we are seeing a pickup and we had two new buildings at Horizon that have seen good activity. And as I mentioned earlier, we really have some good proposals for additional building users in that Horizon Park. So we are optimistic from that standpoint.

We are looking for land in Broward and Palm Beach Counties, but don't have anything there to announce. Jacksonville, we don't see rents anywhere near a level to do development. And although for buyers rents are moving up because there's so little product, we think we are way off from building there.

But I am not very good at predicting where rents are going to go. So we just base it on what we are experiencing at the point we are ready to analyze a new development..

And then I think you said you are buying a building in Chino. Can you just provide some color on how you are thinking about Southern California right now? I think it is showing up as one of the markets that may start to see vacancy to rise I think when it comes online.

Just what's your big picture on that area?.

Well the small picture to start with is this building is 100% leased and is for a number of years. So we are not too worried from that standpoint. The second factor is that Chino, as you know, is really the far western inland empire and is a whole lot less affected by all the new development out in Ontario and East of Ontario.

So we are seeing strong leasing activity closer in and that's where our properties are in. So at this point, as you see from our data, we're 100% leased in Los Angeles. And certainly while we have a little bit of turnover there, but we are optimistic in keeping above average occupancies because of the infill type locations.

Chino used to be infill, but what's happened part of the reason it's clearly infill today and there is very little laying for new development there. So that shouldn't affect us..

And I guess just one housekeeping question. The assets that you built in the quarter, are those reflected in discontinued operations? Probably not there.

I mean it looks like there is something there in the income statement?.

No, it’s up about now. They changed the rules on that, so we don't have to put it down there now..

And we will take our next question from Vance Edelson from Morgan Stanley..

So back to Texas, could you provide an update on Austin and what you've seen so far or any incremental thoughts the past quarter, and then whether you are getting comfortable enough to start thinking about future expansion?.

As you know, the four-building complex that we acquired in the second quarter is 100% leased and we have no leases turning this year or next year. So we are very comfortable with what we are doing there. We'd very much like to have additional acquisitions and we've looked at a little bit of land.

But development is difficult in Austin and might even in some ways be more difficult in California because of all the regulations. But our goal is to grow to at least over $1 million square feet there.

And traditionally we’ve gone into a new market, had a number of purchases, gotten comfortable with that market and then begun development and that worked very well for us in San Antonio and Charlotte. Las Vegas has been much harder and so we haven't been able to grow there.

But our long-term goal is to own and operate and develop so that we're well over 1 million square feet in Austin..

And then shifting gears, in terms of it being a good time to sell some non-core assets, it sounds like you have some lined up in Dallas.

Can you talk about the demand for these types of buildings where the value has already been maximized and how that relates to the strength of the private money flows? Do you feel like demand is still on the rise and who are the typical buyers?.

I think the demand is probably still on the rise a little bit. And everybody looks at an asset differently in terms of what the upside is. And we've always been a [clusterer] (sic) of assets or at least attempted to do that. And when it hasn't worked overtime, we sold off the outliers geographically and that really included the two projects in Houston.

On the bidding on those assets with two other public companies, they were institutions or private REITs.

And they have lots of money and they need to put it out and in many cases the numbers don't work with the low 5% or sub-5% cap rate and the B assets are what are available, although at higher yield, and so that seems to be where – that we see today more activity that in pure A assets..

And then last one from me.

Could you just update us on competitive new supply? Which of your markets are seeing the most new builds and how well are they being absorbed?.

Well, in our markets, it's primarily Dallas and Houston and so far it’s been well absorbed and the vacancy rates are still at historic lows. And in Houston, they haven’t – the vacancy rates have not moved up at all yet, so continues to be good. Also in Dallas in particular, a number of the buildings are the big box.

Over 80% of what's under construction there is 300,000 square feet and above and I think there is six buildings that are 1 million square feet and above. So, big total numbers, but none of that competes with what we own or with what we're starting or we hope to start building in the fourth quarter.

But given all the construction, we’re always looking over our shoulders just to make sure we know what’s going on and we’re not stepping too far out..

And we’ll take our next call from Ki Bin Kim, SunTrust Robinson Humphrey..

Just a couple of quick questions. First on San Francisco, if I compare your numbers from the third quarter and second quarter, it looks like nothing has really changed in terms of occupancy or the percent of annualized base rent for the total portfolio. But at least in the third quarter you have this very large 42% increase in same property NOI.

Just curious on what are the details behind that..

We have, and it used to show up on our list of 10 largest tenants, is two buildings in Hayward that are almost next door to each other that International Paper lease. They are moving into a consolidation and a build-to-suite and that was announced a while ago. So they have been trying to sublet and we have been working on leasing space.

And so that we found the user for one of the buildings International Paper as the most big companies will do, pay a termination fee that saves them some money, gets them out from under a lease when they're not using space and that is the big jump in same property operating results in San Francisco.

The new tenant moved in without a without a day of downtime. So we were very pleased with how that transaction worked out..

But does that number include a lease termination fee?.

Yes..

So what would your overall same property NOI be without the lease termination fee?.

In San Francisco?.

Portfolio..

GAAP numbers in the third quarter, it was 3.7% with termination fees and 2% without a termination fee..

Okay.

And I guess a similar thing for cash, right, I just have to do the math?.

Cash was 5.9% with termination fees and 3.9% without termination fees..

Okay. And then the second question for me, even with that adjusted for a lease termination fee income, the GAAP versus cash, I mean you’re enjoying a pretty nice benefit from the cash -- from the straight line adjustment helping your cash NOI numbers.

Just curious, is that just from free rent burning off? Or on a portfolio level, are we past like the midpoint of kind of the lease trajectory where we are not getting the benefit of cash income? And I guess my question really leans to, like when does that merge to a similar number of cash and GAAP?.

I don’t think that ever comes together because almost 100% of our leases have built in bumps, increases in most markets -- we get annual increases of 3% or close to that. In Texas it tends to be every 18 or 30 months lease and so that the straight lining includes those bumps.

And so basically what we’re doing is we want to compare that on rent spreads, it's the average rent from the previous lease to the average rent on the new lease. So those numbers are always changing and GAAP should go up as we do less free rent tied into the straight line numbers and I think that trend is going to continue..

And our next call is from Brendan Maiorana from Wells Fargo..

David, so I think that you mentioned last quarter, and I think it was included guidance that you thought there were likely to be a little bit of occupancy pressure in Q3, but your occupancy moved up from 95% over 96%.

So was that just driven by better activity in Tampa and then it looked like you leased out a bunch of space in Charlotte or was there some other areas where you gained that you didn’t expect to?.

You touched on where the biggest gains were. What happened is we expected to really drop below 95% for a quarter or two and then come back up to 95% or a little higher in September. And we did not drop below in July and August and then did some good leasing in September.

So really our operating numbers for the third quarter don’t reflect 96.2% occupancy because that was the September quarter end number. As to Charlotte, if you recall back in May we bought a building that sits between two of our other buildings Ridge Creek III, that's what we call it. We bought it with 55% occupancy and 122,000 square foot vacancy.

And in September we lease that and the tenant took occupancy in the second half of September. So that also helped our occupancy numbers at quarter end. But like I said, it didn’t do a lot for FFO for the quarter..

So at the end of the quarter at 96.2%, your guidance for Q4 is 95.8% average I think for the quarter.

Are you sort of suggesting that the 95.8% for the fourth quarter, that average occupancy is higher than what your average was during Q3?.

I think I understand what you’re saying. But the average occupancy is going to be higher in Q4, but we know of some move-outs in Q4 that, unless we're pleasantly surprised, we’ll end the quarter below 96%, which is a nice thing to have to be talking about, whether it’s going to be mid 95% or 96%..

Yeah, it’s a pretty good neighborhood to be in. So I guess the real question is, kind of as we think about next year, doesn’t look like, at least out of your major top tenants, that you’ve got expirations next year. I think maybe Tower Automotive and Mississippi is one and I think that's it..

That’s at the end of the year too..

Yeah, right. Yeah, it's December 31st. So do you feel like you can keep operating in this 95.5%, 96% occupancy zone for an extended period of time? You’ve been there in the past, but it hasn’t been for that long of a period.

But do you feel like you can if the economy holds up next year?.

Well, it’s pretty hard to budget at 96%, because then the only way you have to go if something trips you up is below that. We’re doing, as I mentioned, our budgeting for '15 right now and I sit down with each of the asset people and go over every lease that's coming up of roughly 15,000 square feet and above and we’re just starting that process.

My guess is that, and with a little bit of luck, we should average 95% as a stabilized number..

Okay, that’s helpful..

That's just the gut feel. That’s not anything from running any numbers at this point..

We won't hold you to it.

Any big guys out there that we should be thinking about for next year that the big expiration that you have on the watch list?.

I’d rather not go into all that now and name them just from a competitive standpoint..

Sure, fair enough..

You and I can talk maybe later about a couple of specific ones that we have. I mean upfront we'd point it out that we have more square feet maturing in '15 than we historically have. But we’ve already gotten a good start on renewing those, working on spaces that we think will be vacated.

The good news on that, the mitigation to that risk is that we’re having that much roll into improving markets..

Yeah. So that's just kind of my next and last question and maybe touches on the question earlier. I know you sort of don't forecast out what the rent spread numbers are going to be because who knows where the expiring rents are going to be.

But just from an overall perspective, if the portfolio is 96% occupied now, how are you guys pushing rents now versus may be six, 12 months ago given that the portfolio overall is still unoccupied?.

We’re not really looking at how we’re doing in the individual markets. You have to look at the sub-market and see what the vacancy is around you. And the example I always give is if a prospect has five or six or eight good alternatives, it's a lot harder to push rent than if they have zero or one or two alternatives.

And what we ask our asset people in the field to do is to understand the alternatives, the rents being asked, the quality of that space compared to ours and then given that information, figure out how hard they can push rents.

And because we're generally almost all the time having an occupancy higher than the overall market and in most cases higher than the other institutional owners. So, it’s what's going on in that individual sub-market and that side of the space rather than more general statistics..

Yeah, and I understand that.

So I guess what I was trying to drive at it is does it feel like the market dynamics and your individual dynamics are in more of a competitive advantage situation now than they were maybe at the early part of the year, just on balance?.

Yes. Fundamentals are better and so we should do better. But anyway, I am not in a position to give you a number on how much, but we should better, no question..

Okay, that’s helpful. And then just, Keith, do you have a stat -- I think you guys have provided it on past calls.

How many pre-'09 leases are rolling over the next several quarters?.

I think it’s about....

We've got 6.6% left at September 30th..

But Brendan, I would add that I am not sure how meaningful that number is when most of our negative rent spreads that we experience are on leases that have been vacant for a while -- are on spaces that have been vacant for a while.

And as a result, it does make for a really valid comparison and that’s why I’ve been pushing for a long time -- and look at what we do on renewals, because that’s really apples-to-apples comparison, both renewals on cash and GAAP.

Because as I mentioned earlier, if there is space that's been vacant for three years, we release it and there is a negative rent spread, it shows up in the statistics but in fact it’s a real bonus for the bottom line because we’re collecting rent on space we weren’t before, plus collecting the camp charge..

And we’ll take our next question from Alexander Goldfarb from Sandler O'Neill..

Just want to follow up that line of question on the leasing and the occupancy.

Do you find that -- are you telling the field to go out and try and generate more vacancy, like try and go after tenants who you think aren't likely to renew or may have more space than they would need in some of your sub-markets that are tighter where you’d like to take their space and where you let it to higher paying tenants?.

Seldom have we ever chased out a tenant that’s paying rent. You tend to lose one if you can’t meet their needs, whether it’s expansion or contraction, and we usually do a pretty good job of that because of our parks where we’ve got a number of buildings where we can move them into a bigger or a smaller space.

Where we run off tenants is where they signed a lease, particularly in Florida, where they signed a lease at the depth of the recession and we or the previous owner of the building was buying occupancy with a bottom of the market rent and we’re now coming in and seeking anywhere from 100% to 200% rental increase and those lower rent payers tend to move under those circumstances because whether it’s in an up or down market, they’re looking for the cheapest space possible.

So we lose them that way..

Okay.

But as far as like actively manage -- like if we look in other sectors, whether it’s office or retail, we’ll see a number of landlords seeming increasingly going after tenants either to lock them in so that they don't go elsewhere or because they just have tenants who either have too much space or they really need too much space and aren't really paying for what it's worth where the landlord is able to get it done.

It doesn’t sound like in your portfolio that something that’s really an option.

Is that correct?.

We go to them with the market rent and either they pay or they don't pay it and you go from there..

Okay.

And then as far as the buyers of the B assets, whether it’s a Houston or the Dallas stuff that you’re marketing, whether it’s the private REITs or private buyers, are these all industrial buyers or these more pools of yield-oriented people where they’re, as long as it's a certain year yield, they’re agnostic of product type?.

In the different properties that we have sold or are selling, they have either been tenants in the space who want to own their own facility or dedicated industrial buyers..

Okay. And then just the final question for Keith. G&A was higher in the quarter than we expected. Obviously you guys have had a good year this year. So I am assuming that the field is getting excited for year end.

Should we expect elevated G&A through the balance of the year or was the third quarter just a one time?.

I think the third quarter is a little higher. It should go down in the fourth quarter. And it’s kind of been a little lumpy this year. First quarter is usually highest because that’s when bonuses from the previous year are calculated and then it drops right down the second quarter.

Third quarter it would increase because we had increase for some cash bonuses that we are meeting some projections. The fourth quarter should be down and then we should end at 5.8% of revenue which is the same thing as last year, although it's increased from last year. So we are projecting about 12.8 million of G&A..

Okay. And we will take our next question from Craig Mailman of KeyBanc Capital..

Hey guys, couple of quick ones.

What is, as you look into '15, the average bump that you guys are going to get next year?.

Well, historically we did individual leases, as I mentioned, and we get 3% or close to on an annual basis in most of our markets. Texas you get a higher bump in the middle or two-thirds of the way through a lease. And so our average is probably high 2% built into the leases..

And then as we look at -- I know a lot of people have asked about rents spreads earlier. Just curious, as you look at Houston this quarter relative to last quarter, there is a big drop. It looks like you guys pulled ahead 300,000 square feet of expirations from '15. Maybe just give a little bit more color there.

Was there one lease and that number that skewed down or is the mark-to-market in that segment kind of waning for you guys here?.

I wouldn't get too wrapped up in any one quarter, because that certainly doesn’t really mean a trend. But I don’t recall that there was any specific lease that kept it down. And there is more competition for the bigger customers than there was before. But we don’t feel any more competition for the medium to smaller users.

There is not anything specifically or any specific lease that I would point to that brought that down. That’s just statistics for the third quarter..

And then could you guys just give us a sense of what average occupancy in the same store pool was for the quarter versus the same period last year?.

That’s not something that we have figured. We are going to look at it and maybe talk to you later. Those change so dramatically each quarter because of what comes in and out of that pool, because it has to – those properties have to have been in for the entire quarter in both years. So that swings back and forth.

And we have not, as I say, calculated those two different occupancy numbers..

And we will take our next question from Eric Frankel, Green Street Advisor..

Thank you. Obviously there is been a lot of questions that have been answered already. But Dave, I was hoping you can comment on the Chino acquisition a bit further. From what I understand, you've avoided the coastal market just because the cap rates have tended in a little bit lower than where you have been developing and buying in the last few years.

So I just want to get your rationale on that acquisition..

Well we don’t give a purchase price or a yield number until after the transaction closes, because different things could happen between the time it's under contract to when you actually close. So that information we'll report to you next quarter or in a press release if we do that on the purchase..

Okay. And the follow-up question I had is just regarding the unsecured buy market. I would assume that you have your unsecured credit ratings ready to go. I mean it seems like you have roughly a little over $80 million of mortgage debt coming to you next year as well as a pretty big, a sizable balance on your line of credit.

So Keith or David, wanted to just get your thoughts if possible and also next year..

Well I think we'd still probably do either a bank term loan. We are looking at maybe a seven-year. We have got a whole in our schedule in 2022. So a seven-year would work fine there and also a private placement for the 10-year market. The rates are really good right now in both of those areas and we are looking at that right now.

But I think we can pre-pay that first mortgage just due in April 30 days earlier or so maybe March. We would like to begin something in January-February or something like that. But it still appears a little far off to get to $250 million bond index. So probably wait on that..

And we’ll take our next question form Bill Crow from Raymond James..

David, what’s going up faster, cost to construct all in or market rents?.

That’s a good question.

I would say off the top of my head that it's cost to construct and I think that’s going to have two things happen; one, some of the yields might come down a bit especially when you throw in higher land cost if you’re having to buy land today; and the other factor is rents will need to go up if people were to maintain yield or stay close to what was originally pro forma when they started talking about a transaction.

But it’s a little difficult to point a figure exactly on what the increase is, but in talking to different markets, it’s somewhere between 10% to 15% increase over the last 12 to 18 months and I don’t expect that to slow down too much..

All right.

And then, from a supply perspective, are you seeing new players enter the field especially in Texas? The one-off guys that are building one facility, they're back now is that fair?.

To some extent, yes. In Houston, you're starting to see some local developers who have lots of equity with bank financing buildings.

Those buildings tend to be, as you’ve mentioned, one-off, tend not to have as quite as attractive locations or they’re not built the way with a lot of the extras that we put on our buildings to try to be right up there in all the lease presentations..

Right, okay, and then final for me. David, we’re all focused on Texas from a supply perspective.

But if we were going to say look out four quarters from now, what market outside of Texas would be street be focused on from purely a supply concern basis?.

We’re not building in Miami. But, if in fact that has its supply issues and we’re right next door, so we stay on top of that. I don’t see any of the market right now that it could have overbuilding. Orlando, a number of developers have announced future developments that haven’t started.

But the vast majority of those now are in larger buildings that shouldn’t compete with us too much. So we’re always looking over our shoulder, but the real markets with lots of new development are the two in Texas..

And we have no future questions at this time..

As always, we appreciate everybody’s interest in EastGroup. And if we didn’t cover what you want us to, please don’t hesitate to give us a call. You better call Keith quickly because he’ll be heading up for the Ole Miss game, but I’ll be here for a little bit longer. Thanks..

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