That’s our goal as best we can, but we underwrote a little more vacant — downtime before when that tenant goes to a phase or building six in a park for us to re-lease Building 2 will probably take us a couple of more months. So that hits our occupancy and it especially hits our same store. But we view it someone’s going to — if one of our tenants needs to grow, someone’s going to accommodate that growth. And that’s why we like the parts. And that’s part of our initial sales pitch when they come in, is we can always tailor your space for you up or down, moving you within a park. And so, that’s still happening and as one broker described it, that was a good way with rents being higher and the lease commitments being higher in dollars, it’s moved from a real estate manager decision to a CFO decision at so many of these companies.
And so people are being slower and maybe deliberate because of the environment. And again kind of like acquisitions except on the flip side and I may be tying too much to interest rate moves. I think when interest rates do come down, there’ll be a little bit of a lag effect, but that’s when I’m hoping that pent-up demand will take off that our retention rates are higher. And a lot of tenants have renewed really across the country if you look at some of the stats, but I think people will move back to growth. And what I get excited about is there’s been no starts. And if we can keep our balance sheet safe and we have the right land, we’ll be able to pick up our development pipeline faster than our private peers will.
Alexander Goldfarb: Okay. Thank you.
Brent Wood: You’re welcome.
Operator: Your next question comes from Todd Thomas of KeyBanc Capital Markets. Your line is already open.
Todd Thomas: Hi. Thanks. First, can you talk about the leasing activity that’s embedded in guidance within the lease-up portfolio? You have a few conversions scheduled for 1Q and 2Q, about 1.4 million square feet in total that’s scheduled to transition to the operating portfolio during the year. What’s budgeted and guidance in terms of leasing? And can you just talk about your confidence around getting those buttoned up ahead of the conversion date?
Marshall Loeb: Yes. Todd, if I’m following you, I think what we would say of our kind of looking at our 2024 transfers, we’re — today as we sit, we’re about 60% leased on those. Feel good about the activity. I’d say leasing activity was a little bit slow and the brokers would probably tell me it’s because of holidays. It felt slow in terms of people out kicking tires late last year. It feels like things have picked up or they have in the last 30, 45 days. So we’re — we have activity. We need to convert that into signed leases. Of the transfers this year, the majority of it is the back half of the year. So we still have some — look, we’ve got — that’s really our task this year. We’ve got that budgeted leasing up kind of pieces here.
And then if we’re fortunate like you saw — one there’s one of the Orlando projects, we were able to get that leased this quarter and all of a sudden it jumps from a 2025 stabilization to 2024. So, that one will move up the ladder. The other maybe upside to our budget if I daydream about it is, we get some leasing done on some of the ones that are projected to stabilize next year, just stabilize early. And that’s the other thing that will lead to more starts, because we like having that available inventory within our parks especially to kind of keep moving through. And so we’ve got a — pro rata amount. I think the back half of the year is our portfolio, we think occupancy will probably — it usually does dips a little bit through call it June and then it builds towards the back half of the year.
And that’s probably where the economy will go too. I think as supply dwindles and hopefully confidence picks up, that’s where I think the back half of our year will be better than the first half of the year. Not that the first half will be bad, I think it’ll just be better.
Todd Thomas: Okay. And then, you mentioned that activity picked up I guess in the last 30, 45 days. We’ve heard similar commentary on other calls this quarter. Just curious, if you can characterize demand and touring activity today relative to pre-pandemic levels 2019 for example. How would you compare and contrast?
Marshall Loeb: Probably very similar to pre-pandemic other than the lease — as I mentioned earlier the lease commitment is greater. And so the description I’ve heard from one of the tenants I have more approvals to get their brokers like it takes more approvals to get this done, which adds time. There’s activity I’ll say maybe post-pandemic and I think that’s maybe what happened in Southern California, people had a fear of losing out on space. And so there was — there was a tenant rep broker told me my job is not fun anymore, because as soon as I leave there’s two or three other people looking at this space. I would say tenants don’t have a sense of urgency right now that they had maybe in late 2021 and into early 2022. But they’re out there and they’re looking at it.
And I think people one of the charts we were looking at in terms of renewals, the last several years about one in every four square feet has been a renewal. And then over the last year, it’s moved to one. What I’ll say there’s pent-up demand about one in every three square feet. So renewals have jumped up from call it 25% to one-third of the leasing activity. And I think it — my amateur analysis of that is that people are probably being patient and waiting to see what happens whether it’s interest rates or global unease or an election year, but once they feel like it’s safe to come back in the water I think the gate will be open. And that’s where I hope we have a head start either in maybe two ways pushing rents within our portfolio or we’ve got the land and we’ll try to have the — our goal is to have the permit in hand and the balance sheet too whether it’s through the forward or the ATM to really move several quarters ahead of our private peers, which is really who we compete an awful lot with on our size buildings rather than the bigger groups have more capital they’ve got to put out.
So they lean towards the big box development rather than our $15 million buildings.
Todd Thomas: All right. Great. Thank you.
Marshall Loeb: Sure. You’re welcome.
Operator: Your next question comes from Bill Crow of Raymond James. Your line is already open.
Bill Crow: Great. Thanks. Good morning, Marshall and Staci, and I’ll say good morning to Brent as well. He should be asleep, but I’m sure he’s listening. Marshall just a follow-up question on the guidance on occupancy. I’m just wondering if fourth quarter occupancy was boosted at all by any seasonal demand that you saw.
Marshall Loeb: Hey, Bill good morning. Not really. I mean we kind of — it was within our budget and actually we came out ahead of our budget. Usually at the end of the year what we’ve probably talked about before is the Post Office or someone like that will take space on a 90-day basis. But I can’t really say I don’t think we had any of that this year. It was really just a pickup in demand and thankfully our occupancy picked back up. And we’ve kind of said that’s — if it helps our goal is if we can hang on to our occupancy until all this supply gets absorbed, because there’s nothing coming in the pipeline behind it that will be a really good time to play offense. So it was — thankfully it wasn’t seasonal. I mean I do think our occupancy may drift down like it typically does in the first quarter.
It may not be 98-plus but at least through February we’re pretty much in the same ZIP code as where we ended the year. It’s still — it’s not like there’s been any big movements. I’m sure it’s 20 or 30 basis points one way or the other, but it’s not much movement.
Bill Crow: All right. And the second area of guidance I want to challenge you on a little bit is on the equity issuance assumption. I guess I’m more embed than others about where it’s coming from, which bucket it’s coming from. But maybe Staci it would be helpful if you gave us sources and uses. It just feels like you’re leaning so heavily and maybe unnecessarily, so on the equity portion of funding this year?
Staci Tyler: We’ll certainly monitor the debt markets as well. We — just as we were putting the building lots together for 2024 guidance at the time it just seems more prudent and to make more sense at a lower cost of capital for us to issue equity. We can certainly easily shift that to debt if rates come down or if for whatever reason the equity markets were to get away from us. We have $170 million in debt maturing later in the year. So that’s use. And we’ll need to fund for those repayments. And then, for our development starts and acquisitions that we have included in guidance, we just felt given the cost of capital when we evaluate the options equity is the lower cost of capital and seems to make the most sense today. But we could easily see where that shifts. And if the total stayed $465 million maybe $150 million could shift to debt, but that’s just not an assumption that we wanted to build in given the current cost of that equity versus debt.
Bill Crow: At this point you’re assuming that the overall debt outstanding goes down by $170 million this year. Is that fair?
Staci Tyler: Yes. Yes. That’s fair. With the maturities that we have in August and December, that’s correct.
Bill Crow: Okay.
Marshall Loeb: And it’s not we’re trying to — we like our balance sheet today Bill, if it helps. It’s not that we’re trying to strengthen it so much as Staci said. It’s just — I don’t remember many of any time in my career where our cost of equity has been, materially lower than our cost of short-term debt.
Bill Crow: Yeah.
Marshall Loeb: But I think as that does evolve, it will — and it will shift back to kind of assume the historic norm, that we’ll have a balance sheet in a position where we’ll have a fair amount of debt capacity. And still have a very safe balance sheet.
Bill Crow: Yeah. All right. That’s it for me. Thank you.
