Ronald Kamdem: Great. Hey, two quick ones for me. Just going back sort of the rent growth commentary for the portfolio, I think you said positive. But was curious if you can give a little bit more color around there. And maybe also by market. I think L.A. may be slow. But curious sort of when you go through the markets, what are the ones that are sort of on the higher end on the lower end? That would be helpful. Thanks.
Marshall Loeb: Okay. Hey, Ron. Good morning. I think our expectations, market rent growth and not our re-leasing spreads but market rent growth probably inflationary maybe a hair above for the market. I think for our product type I would add 100 to 200 basis points just because the vacancy rate tradition is lower. So maybe you get to – that may get you to mid-single digits. And I think it will pick up. I think it will be better in 2025 and into 2026 with supply/demand mainly because demand is falling off so much. Our better markets or the Florida markets have been strong. I’d say that Central Florida, Miami, those markets, Las Vegas has been a strong market as well. I know I mentioned Phoenix with oversupply but that was at one of those two were our best embedded growth rent markets last year.
Atlanta is still a good market. So thankfully – a few years ago we would have told you California is really driving our rent growth. And now it’s really spread off throughout the portfolio. And with the falloff in supply I think that’s only going to get better over the next – it may take six to eight months but I think it’s going to be better over the next 24 months following that.
Ronald Kamdem: Got it. And then just to close the thought I think we’ve all sort of touched on that the balance sheet could be pretty unlevered based on how much equity you’re going to be issuing. And I guess trying to figure out opportunistically, are you seeing anything in the acquisition market today that suggests that there may be sort of either distressed or opportunities for EastGroup to come in? Or is it still at the – we’re sort of in the wait-and-see mode? Just curious where you are in that phase.
Marshall Loeb: Maybe not broad brush distress. I mean we’re not seeing banks or things although you read about banks still needing to reduce commercial real estate exposure and that industrial will get pulled into that bucket. And they’re not distressed but we have seen instances. One of the properties we bought the seller had not owned it all that very long at all and they – supposedly they sold it at a loss. But they needed liquidity within their portfolio and what they were able to sell what we were told about the brokers was the industrial versus it’s hard to sell office or maybe some other product types. So I don’t know if I’d call it distress or people in a capital buying where a group had tied up a vacant building gotten it leased and then they were having difficulty sourcing their capital and we were able to let them make a little bit of money but we stepped into their position and assumed the contract and still got what we thought was a very attractive yield on the property.
So yes, I guess it’s a little bit distressed but I don’t know that it’s – I guess I’m kind of trying to without violating our confidentiality agreements on some of those describe them a little bit where it’s a capital squeeze and whether it may not be an entity level to stress it’s a developer who’s having trouble meeting the closing date or someone needs to sell something. And our pitch is we’re – we may not be your highest bid but we’re your surest path to the closing table.
Ronald Kamdem: Right. Okay. So maybe not distressed maybe just motivated or something. All right.
Marshall Loeb: Yes. I like your adjective. Thank you, Ron.
Ronald Kamdem: That’s it for me. Thank you so much.
Marshall Loeb: Thanks, Ron.
Operator: Your next question comes from Vikram Malhotra of Mizuho. Your line is already open.
Unidentified Analyst: Hey, this is Georgi on for Vikram. Just two quick ones from me. When you model credit risk is it a placeholder? Or is it a segment where you anticipate a sector issue? And my second question would be, if you can provide any color on broadening of demand from nearshoring. Thank you.
Staci Tyler: Sure. On the credit tenant credit and the bad debt that we have included in our guidance our actual bad debt in 2023 was $1.5 million, which represented about 27 basis points in terms of percentage of revenue. And for 2024 we have $2 million baked into the guidance which is about 32 basis points of revenue. And that’s really just what an anticipated I guess level. If we look back at our 10-year average, our bad debt has run up 20 basis points of revenue. So last year was a bit higher, but we don’t really have any reason to believe that there would be a major change from last year. Just with the growth of the company, the number grows just a bit. And given some uncertainty in the economy even though we haven’t really felt negative impacts, it just seemed reasonable for us to include $2 million in our bad debt guidance.
But we don’t have any bad debts identified, and really have not seen any particular tenant industry or any particular market where we can detect a trend in any credit deterioration. It’s just been each one has a story, but nothing too significant. And if we look at our watch list of tenants that we have a reserve for out of about 1,600 leases, we’re in the 15% to 20% range on number of tenants that we have on our watch list where we might have a reserve. So still a very small percentage of total overall, and no trends that we’ve been able to detect and no overall deterioration.
Marshall Loeb: And then on nearshoring, what we like about it, it feels like a slow steady long-term build rather than a rush, which may be more temporary. But we’ve seen El Paso has been a strong market now for three years, and we’ve been there 20%, but the best three years in the last three. Phoenix is a strong market on its own and Tucson, but they’ve both been solid markets for us. And a little bit — El Paso is a border market more so where Phoenix and San Diego were their own markets that also benefit from onshoring nearshoring. So, we’re seeing more certainly manufacturing in the southern half of the US whether it’s green energy, that type related and then we’re seeing more nearshoring. I think those are certainly long-term decisions that companies make, but it’s whether it’s a labor strike in LA or the Suez Canal, I have to think all that just volatility will push people — look the border is open every day, the ports have their own challenges and benefits in any given quarter.
It seems to fluctuate at least just — we’re not a port-related portfolio, but you see the issues those have. And I would have to think it pushes manufacturers to if they can make the numbers work go to Juarez, go to Tijuana, go to Nogales Mexico and just cross the border. And that’s where we — I like that we’re not totally dependent on the border in Phoenix and San Diego, but that we all — that’s one more benefit besides growth that those cities offer.
Operator: There are no further questions, at this time. I would hand over the call to Marshall Loeb for closing comments. Please proceed.
Marshall Loeb: Okay. Thank you, everyone for your time today. I know, if we didn’t get your question Staci and I or Brent too, he’s back in the office are certainly available, feel free to e-mail us, call us if there’s anything we didn’t get to. We’ll hopefully, see you all here in a few weeks at our upcoming conference. But I appreciate your time, and I hope to speak to you all soon. Take care.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.
