Good morning and welcome to the EastGroup Properties Second Quarter 2015 Earnings Conference 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] Please note this call maybe recorded. I’ll be standing by, if you should need any assistance. It is now my pleasure to introduce Mr. David Hoster, CEO. Please go ahead.

Good morning. Thanks for calling in for our second quarter 2015 conference call. We appreciate your interest in EastGroup. In addition to Keith McKey, our CFO, Marshall Loeb, President, and Brent Wood, Senior Vice President will also 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 describe 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 this call. The company has disclosed reconciliations of GAAP to non-GAAP measures in its quarterly supplemental information, which can be found on the company’s Web site at www.eastgroup.net.

Thank you. The second quarter saw a continuation in EastGroup's strong earnings momentum. Funds from operations per share exceeded the upper end of our guidance and represented a 9.5% increase as compared to the second quarter last year. These results continued our track record of increases in FFO per share as compared with the prior year's quarter or nine consecutive quarters and in 16 of the last 17 quarters. I think that's important enough to repeat, these results continued our track record of increases in FFO per share as compared to the prior year's quarter for nine consecutive quarters and in 16 of the last 17 quarters. Quarter end occupancy eclipsed 96% for the fourth consecutive quarter, again beating our internal expectations. Same property cash net operating results were positive for the 17th consecutive quarter and we continued expanding our development program which has been a major value creator for us for many years. With that overview, I will turn the call over to Marshall for more operational details.

Thanks, David. At quarter end we were 97.1% leased and 96.2% occupied. Our occupancies exceeded 95% for eight consecutive quarters, a trend we project continuing for the balance of 2015. At June 30, our California markets continue to be our strongest at 99.3% lease followed by North Carolina at 98.2% and Texas at 97.2%. Houston, our largest market with over 6.3 million square feet was 96.6% leased and 95% occupied. In second quarter, we renewed or signed early renewals on a million square feet, signed new leases on another 168,000 square feet of expiring space. We also leased 490,000 square feet that either terminated early during the quarter or was vacant at the beginning of the quarter. In addition, we have leased and renewed 244,000 square feet since June 30. Cumulatively, this translates into over 1.9 million square feet of leasing or 5.7% of our portfolio. For the quarter, GAAP rent spreads were up 10.5% which was a ninth positive quarter while cash spreads rose 2.1%. For renewal leases only, GAAP rent spreads have been positive for 13 straight quarters and cash spreads have been positive for six of the past seven. Our average lease length was 3.9 years in line with recent results. Total leasing cost were $0.64 per lease year for second quarter and $0.56 per square foot per year year-to-date. As a result of continued strong occupancy and rising rents, second quarter same property operating results increased 5% on a cash basis and 4% on GAAP. Year to date property NOI increased for cash and GAAP were 4.7% and 3.5% respectively. We expect same property results to remain positive for both categories each quarter of 2015 but the trends will decline due to large termination fees in 2014 and same property occupancies exceeding 96% during the second half of last year. Simply stated, at over 96% we view ourselves as functionally fully occupied. Overall, leasing activity continues to be strong in each of our major markets and we are especially encouraged by increased demand from small users in the 15,000 to 25,000 square foot range. On a year to date basis we have experienced our biggest improvements in our Florida market. The price of oil and its impact on Houston's industrial real estate remains a major topic of discussion. We thought it appropriate for Brent to again join today's call. For anyone who doesn't know Brent, he is one of our three regional senior vice presidents and is based in our Houston office with responsibility for all of EastGroup's Texas operations. Brent?

Good morning. The operating results for our Houston portfolio continued to exceed our budgeted assumptions. Our operating portfolio finish the quarter at 96.6% leased while reducing our remaining 2015 rollover exposure to less than 1%. We are pleased to have decreased our scheduled expirations from 15.7% originally to this low number while maintaining solid occupancy, especially in light of the known move outs expected entering the year. Rents for the quarter were up 5% on a cash basis and 12.3% on a GAAP basis. As for same property operating results, our original 2015 projections for Houston showed a 2.5% decrease which was revised upward last quarter to a decline of 1.8%. Our updated projections now reflect a same property operating decline of 1.2% for the year and 0.3% positive excluding termination fees. We are encouraged that we are now projecting a 3% same property increase in the fourth quarter excluding termination fees. During the quarter, we completed 11 lease transactions. Three were renewals, six filled existing vacancies and two were for development properties. One brought World Houston 39 to 100% leased and occupied and converted it to the operating portfolio in June. While the other development lease was at West Road I, also bringing it to 100% leased. It will transition into the portfolio when the tenant occupies in September. The Houston industrial market also continues its resilient performance. The vacancy rate decreased another 10 basis points to a record low 4.8%. This was driven by 1.1 million square feet of positive net absorption which marked the 17th consecutive quarter of positive net absorption totaling more than 27 million square feet over that period. Meanwhile the construction pipeline totaled 6.3 million square feet at quarter end which is 35% lower than the post-recession peak and down 29% from last quarter. Overall, it appears that the deceleration in deal velocity has moderated and I anticipate the latter half of the year will look similar to the first half whereby existing operating properties continue to perform steadily while it will be more competitive to lease newly developed space. Our projected development starts for the remainder of the year include just two Houston buildings late in the year, totaling 260,000 square feet, both at World Houston. As always, our direct results and on the ground feedback will dictate the potential for future new project starts. David?

Looking into our development programs, we began construction of five buildings and three business parks during the second quarter which totaled 541,000 square feet for a combined projected investment of $39 million. This included Oak Creek VIII in Tampa at 108,000 square foot, 100% preleased building. Horizon III and IV in Orlando totaling 232,000 square feet, which combined 43% preleased. And Eisenhauer Point 1 and 2 in San Antonio which totaled 201,000 square feet. Meanwhile as Brent just reported, we transferred one property into the portfolio during the quarter. A 94,000 square foot World Houston 39 at 100% leased. Since quarter end we have also transferred World Houston 42 also with 94,000 square feet and 100% leased to the portfolio. As of today, our development program consisted of 21 projects with 2.1 million square feet and total projected cost of $150 million. This compares to 19 projects for 1.75 million square feet with projected cost of $129 million at March 31. This represents a $28% million or approximately 22% increase at our development pipeline. We grew the pipeline in Orlando, San Antonio and Tampa while Houston shrank with the completion of the 100% leased World Houston properties. For the full year 2015, we hope to start a total of 1.6 million square feet of new development with a combined investment of $114 million. These projects include just two additional buildings as Brent mentioned, in Houston at our World Houston Park. We have not acquired any operating properties year-to-date and presently do not have any under contract to purchase. During second quarter we invested $11.8 million in three new land positions within our existing markets. These included the 38 acre Eisenhauer Point parcel in San Antonio, 28 acres we have named CreekView 121 in Dallas, and 5 acres for Ten Sky Harbor in Central Phoenix. In April, as previously reported, we sold the last of our three Ambassador Row Warehouses in Dallas with 185,000 square feet for $5.3 million and recognized a gain of $2.9 million in the second quarter which of course was not included in FFO. During the third quarter we plan to offer an older property in Houston for sale. Keith will now review a variety of financial topics including our updated guidance for 2015.

Good morning. FFO per share for the quarter was $0.92 compared to $0.84 for the same quarter last year, an increase of 9.5%. Operations have benefitted from an increase in property net operating income related to same properties, developments and acquisitions. While lower interest rates have reduced interest expense even as debt has increased. FFO per share for the six months was $1.79 as compared to $1.66 the last year, an increase of 7.8%. Debt to total market capitalization was 34.9% at June 30, 2015. For the quarter, the interest and fixed charge coverage ratios were 4.5 times and debt to EBITDA was 6.4. The adjusted debt to EBITDA ratio was 5.7 for the quarter. Floating rate bank debt amounted to 4.8% of total market capitalization at quarter end. Bank debt was $133 million at June 30 and with bank lines of $250 million we had $117 million of capacity at quarter. In July we negotiated terms to amend our unsecured bank credit facility to extend the maturity date by 2.5 years, from January 5, 2017 to four years from closing and to lower our rates on LIBOR plus 117.5 basis points and facility fees of 22.5 basis points. The LIBOR plus 100 basis points on the facility fee of 20 basis points where net annual savings up 20 basis points. We will also expand the facility by $75 million to $300 million and our working capital line from $25 million to $35 million or a total $335 million up from $250 million. Also in July we entered into an agreement in principle with two insurance companies under which the company plans to issue $75 million of senior unsecured private placement notes which are expected to close in October. The ten year notes will have a weighted average interest rate of 3.98% with semi-annual interest payments. Even though we did not sell any common stock under our continuous equity program in the second quarter, our debt metrics remain good. We project selling $25 million over the reminder of 2015. In June we paid our 142nd 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 62% for the quarter. And rental income from properties amounts to almost all of our revenues, our dividend is 100% covered by property net operating income. And we believe this revenue stream gives stability to the dividend. FFO guidance for 2015 has been narrowed to a range of $3.63 to $3.71 per share. And the midpoint was increased from $3.65 to $3.67 per share. At the midpoint we are projecting a 5.8% increase in FFO per share compared to last year. Now David will make some final comments.

Industrial property fundamentals are solid and further improving in the vast majority of our markets. Based on the strength, we continue investing, diversifying and growing our development pipeline. We are also committed to maintaining a strong healthy balance sheet. We like where we are, where our industrial markets are, what we are doing and the results it creates for our shareholders. We will now take your questions.

[Operator Instructions] And we will take our first question from Blaine Heck with Wells Fargo. Please go ahead.

You guys put up pretty strong operating margins and I think expenses actually went down a little bit sequentially. Was there anything specific there and how sustainable do you think those margins are going forward?

Actually our overhead was up related to our transition of me out of CEO to Chairman of the Board. But actual operating expenses of the properties tend to move a bit with occupancy and with timing on when they are accrued. But all flush out together at the end with our triple net leases. So if that hadn't answered your question, you can give us a call later.

Some items in Tampa that we pushed back that will -- we benefitted in second quarter that will as David said even out in third. So I don’t know, I wouldn’t call it a new run rate so much as a timing aberration.

Okay. Fair enough. And then CapEx was a little bit higher this quarter I think because of roof repairs. Was there anything specific that was just related to and should we expect any elevated spending going forward?

Probably not elevated. You are right, we in City of Industry in Los Angeles we had a large roof we replaced. So that was about 40% of the CapEx. So the good news is that’s out of the way. We have some more roof work coming up in El Paso, I know. But I don’t think, it's not permanently elevated so much as timing and second quarter is always a bigger quarter for us. It's just timing of when everybody finished the annual budget and you get your bids and start your CapEx in second and third quarter.

I would just add on the property operating expenses that last year we had bad debt in the quarter and this year we had none. So it kind of made the percentages go down a little bit.

Okay. That’s helpful. And then last one. The 95.9% average occupancy guidance implies a little bit in the second half of the year. Are there any known move outs you have coming up that might be behind that or is it may be related to under lease developments coming online?

No. We have a big single building user moving out in Phoenix that probably affects that some. It's just our overall projections and we expect occupancy in the third and fourth quarters to range from just over 95.5% to just over 96%. And I would hopefully finish the year right about at the 96% number.

And we will take our next question from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

It looks like you guys took down your total development starts guidance for the full year by about, I think, $10 million. I think that’s one project. Can you talk about what's changed?

That was two additional buildings we have looked at as one project in Tampa that instead of probably a fourth quarter start it will be a first or second quarter start next year. And that was just related to slow overall leasing activity in the general Tampa market.

Okay. And then how do you think about -- I know you have additional equity raises in your guidance for the back half of the year, how do you think about raising equity versus selling assets? What kind of a hurdle rate you guys -- what kind of returns you need to make those capital decisions and what if stock remains under pressure for the back half of the year?

Well that’s something obviously we talk about on a very regular basis. As I have mentioned in the prepared remarks, we are selling an older property, actually the first one we have purchase in Houston way back in '94. That will be going on the market and we will be doing because of the tax consequences with the large gain, hopefully a 1031 exchange as part of that transaction. As to additional stock sales, we will just have to wait and see what happens with the market and if we are selling below on NAV or how far below on NAV. Because if it's just a slight discount, when you look at our blended cost to capital at that point, any potential small dilution we think is way overcome and ends up with accretion if we are able to invest those dollars in new development where we would be making at least, probably a 200 basis point spread over [indiscernible] going in combined cost to capital.

Okay. That’s helpful. And then finally, what kind of mark-to-market on your leases is baked into your same store outlook for the back half of the year?

We don’t add up that total in reported because we have never been very good at doing that. We are just -- these are just the numbers that the people in the field, as we revise our budget each quarter, have identified as potential rents for replacement customer or leasing of vacant space. But we certainly expect that our rent spreads as we report them which are sometimes are different then some other do, but the way we report them will remain positive for the foreseeable future.

And we will take our next question from Brad Burke with Goldman Sachs. Please go ahead.

It looks like you trimmed the supplemental disclosures on development. So just wanted to understand what the thought process was there. And I was also hoping you would give us some color on whether you have seen any meaningful changes in the development yields you would expect with your Texas projects.

Answer that in several different ways. First of all, for a number of years our people in the field have pushed us to not give individual yields, projected yields on each development building for competitive reasons. And you can really back in to what the rents are projected to be which can be an issue when you are looking at 100% preleased buildings or build to suit. So we have finally decided that that made sense and decided to give a cumulative yield totals for the properties that are in lease up in a separate number for those in construction. If you look at what has happened to the yields on a weighted average for the end of the second quarter going forward as compared to what we had at the end of the first quarter, there is a lot of ups and down but overall it's a 10 basis point drop. Nothing significant. And we look particularly in Houston to see if the slowing a bit of that market had affected our projected yields and those yields were just a ten basis point drop. Also some of that is affected by what rolls out at 100% leased and what rolls in generally in the construction with no leasing and the same is rolling into lease up.

Okay. That makes sense. And I guess sticking with the Houston properties that are either in construction or in lease up. It looks of all of those you really only had leasing activity on one of those. So want to know whether that was in line with what you would have expected? And then Brent just get your quick thoughts about how you are thinking about foot traffic on this property and when we ought to be thinking about the timing of the lease up?

The timing of lease up is certainly hard to project. We actually had movement on two of them. The one in lease up that you are probably noting is West Road I which went from 62% to 100%. But then also the World Houston 39 property which has dropped to the bottom of the schedule because it rolled into the portfolio. We moved it from 50% lease last quarter to 100%. So we moved both of those to 100%. The activity overall on the development side, there is still activity. We try to get a little more aggressive with trying to retain the tenants. We seem to be slower out at Katie as mentioned the last time but we are still seeing activity that gives us hopes of making our 12 months lease up periods with the properties in North West which is West Road Business Park and then up north at World Houston. So all in all I am pleased with where we are. You would always like to do more leasing activity in the development pipeline but if we can move a couple of properties out a quarter to 100%, I would take it.

Okay. And then just last one from me on leverage, the debt to cap ticked up to 35% and it certainly seems like you are more inclined to use debt than equity near term. So just updated thoughts, if there are any, on how you are thinking about leverage and what kind of thresholds we might see you be willing to go up to.

If you go back ten years, we said that our goal was to be plus or minus 40% debt to total market cap. And then as we are able to issue a good bit of equity and just had a little different view on leverage, we stated that our goal was give or take 35%, where we are at today. And then because of the extra equity we were able to attractively raise over the last couple of years and high stock price helping that total cap number, we were down 30% or 31%. But 35%, give or take, is where we would like to be. Where we are very comfortable to be and as I said, where we stated was a goal several years ago.

And we will take our next question from Vance Edelson with Morgan Stanley. Please go ahead.

First, just following up on your closing remarks David about the fundamentals. Could you give us some big picture thoughts on how you feel about the remaining duration of this cycle? If we consider that you have 22 projects underway now and Tampa notwithstanding that’s still almost doubled in a year and half. So there is certainly a degree of optimism there. So if you could just describe your level of confidence in the remaining length of this cycle.

I hate to project to far out but stated a different way, right now we do not see any slowdown in leasing activity or market statistics in any of our major markets. And some are just improving faster. Tampa and as you can see from the occupancy numbers in Phoenix, have trailed the Texas markets and the California markets coming out of the recession. And we would like to think they still have a long run of recovery to go. And we are not seeing any real signs of overbuilding from new development in any of our markets. I mean Houston which probably should and everybody expected, the amount of new development had slowed significantly as Brent previously stated, and the absorption is still there. Dallas, the amount of new construction has slowed a bit and the absorption remains strong. So we are not seeing any indications that we are near the end of the recovery cycle for industrial real estate and as I say, some of the markets still haven't fully recovered from the recession. So we are optimistic about where we are going with it.

Okay. That’s really helpful perspective. And then with the land purchases that you have completed and that you are working on now, could you comment on pricing and the competition for the parcels. And related to that, I think you had mentioned a few months ago that you would like to buy more land in South Florida but none of the land purchases during 2Q or subsequent to the quarter were in that region. So was that proving to be a challenge?

Very much so. The pricing from Dade up Broward, Palm Beach County has gotten to per square foot numbers where we haven't been willing to take the step to take it down and start to expect development. One of the ways we have discussed it internally is that land prices are the level today for industrial development where you can't afford to buy it and assume you are not going to build anything for three to five years, which you could do during -- and make that assumption during a recession. We are looking at the prices today and the land that we are acquiring we think that there market rates on the land and as a result we wouldn’t be doing it if we didn’t see development kicking off in the next 12 months.

Okay.

Which is what we are -- including this land in Dallas and Louisville, we hope to be under construction in the next six months there. Land in San Antonio, we are already under construction there with just have gotten zoning permits cleared up. And in Phoenix, the piece we bought there, we should be under construction on the next 30, 60 days. So I mean these are prices that work in our pro forma as long as you start right away.

Okay. That makes sense. And then lastly, you had a healthy gain on the one property sale during the quarter and you mentioned on more I think in Houston that might be on the block. But beyond that, do you see other embedded or unrealized gains across the portfolio that you might be able to capitalize on with additional sales and how much of a priority is that?

We see gains on I guess, I maybe over-generalizing, basically every one of our properties because of the length of time we have held them, the quality of the assets, recovery from the recession. So it's one of those issues that selling a property like the one in Houston is going to create a very high gain and since our dividend is pretty close to taxable income at this point, there is room to absorb a big gain. So we are looking to do 1031 exchanges whether it's into another operating property or into development land. And looking at it from a development land standpoint, it's a nice way to take those proceeds and reinvest them in development through a number of land purchases. So that’s really the goal there. And of course there is delay to actually get the construction underway and get those yields from new development. But it's a big part of our thinking going forward.

So just to clarify, it's more a one off basis versus any type of concerted effort to sell properties into this strength?

Yes. I mean that’s the way we have done it for 20 years of picking out selected assets, trying to time the sales process so that we can maximize the price and have the most dollars to reinvest in and however we do that.

And I would agree with David. I think the only thing if you looked at outside of any themes we have talked in terms of, as we manage the size of Houston, that was part of the reason why we picked this older asset in Houston. And if you fast forward, is we like the Houston market a lot and want to keep growing there and developing there but we made room from the bottom of our portfolio over time. And then there are certain assets like on Memphis where we have got one asset that at the right time and the right price would make sense to exit that market. But the good news, I guess it's good news, is we will have tax gains on almost all of these to manage our way through and those will have dividend implications.

And we will take our next question from Craig Mailman from KeyBanc. Please go ahead.

This is actually Laura Dickson here with Craig. I just had a follow up question on the land site purchase question. What are the expected deals on the land that you are acquiring, first some of these upcoming development projects like Eisenhauer Point.

They will range from, and this is 100% occupancy as we report them in our supplemental, from 7.5 to probably 8 in the quarter which is a little bit lower than what we have been spoiled with over the last couple of years. But this is something that I have been saying for I don’t know, almost two years, that as land prices increase and construction costs increase that our yields are going to drop anywhere from 25 to 50 basis points for new development but still be at least 200 basis points above what we think we could sell those assets for and well above any cost to capital allocation. Dallas is a market now where there's some sales that are being reported at 100% occupancy at sub-5% yields. So if we can build to a 7.5 or a little bit higher, that’s an awful lot of value creation with new development.

Okay. Great. Yes. And then just another question on the, I guess, again on oil prices, but any change tenant sentiment given the recent pull back in oil prices? And just kind of curious what types of tenants are current the most active.

Well the most recent pullback has just been in the last couple of weeks, so things certainly don’t react that quickly. But most companies at this point have now been for the overall decrease and there is some expected volatility whether it's lower 50s, upper 50, if it drops to the upper 40, if it can get over 60. That type movement right now doesn’t, I guess locally is somewhat anticipated so it hasn’t quickly persuaded decisions. We have seen activity, as I mentioned in my comments, the deceleration we have seen it moderate, maybe flat now, and there is still activity in the market. Operating portfolios are doing well. Renewals have been consistent. So vacancy for most high quality portfolios like ours is not an issue. As I mentioned earlier, it's just that little extra competition to backfill either vacant space or newly developed space. So when people are looking at the bottom line that’s the higher rent type property, so that’s where our focus is specially in making those particular deals. And that activity has been at pretty consistent level over the last several months, especially northwest and north.

I would add, there seems to be no effect of the drop in oil prices either from last year or recently in either Dallas or San Antonio. I mean some people have identified San Antonio as an oil related economy. It certainly hasn’t been for industrial space in metropolitan San Antonio. So no affect there.

Okay. Thanks. And then if you could just talk about the types of tenants that are most active right now.

It's across the board and each market is a little bit different, at least different economy. We seem to still have the three PLs, of being good construction. Both commercial and residential is positive and which has been growing coming out of the recession as consumer goods as the economy increases. There is no one single area. Medical have been strong, especially in the Florida where there are more of us that are older and taking more pills and more medicine but there is no one business charge at this point.

And we will take our next question from Alexander Goldfarb from Sandler O'Neill. Please go ahead.

Just few questions. David, just getting back on the capital allocation. How has the stock performance or lack thereof this year impacted the way you guys look at external investment as far as new development sites etcetera. Have you guys ratcheted back materially your external capital thoughts or right now given where your leverage is and conceivably you just view the stocks depression as temporary that you haven't altered any of your external investment thoughts?

I will agree with the second part of your statement, the drop in the stock price that's still less than five or six months old. Although you talk about many alternatives, it certainly hasn’t yet appeared to be a long-term issue. Secondly, it hasn’t slowed our development program at all because we think we are giving above average yields that work even if we issued some stock today. The change has really been in acquisitions and part of that is a slightly higher cost to capital but a big part of it is the continued compression in cap rates in the Sunbelt. And talking to brokers since the first of the year, Class A and B industrial product is selling at anywhere from 15% to 25%-30% lower cap rates, lower yields than it was at the end of last year. And so then when you combine the lower yields, and most of our major markets we have a slightly higher cost to capital, there is just not the opportunity there. So I think if we were able to sell stock, we still would have been reporting that we hadn't bought anything yet this year. That is not -- the stock price has not changed that. But that’s a discussion we have regularly about what's going on and what might happen but fortunately we have such a strong development program it hasn’t affected and we don’t think it's going to affect our growth going forward.

Okay. And then on the taxable, Marshall you mentioned that you guys have made money on your assets so as you sell it would put pressure on the dividend you would have to payout. Should we interpret that that you guys are hesitant to sell more assets or take, use the strong cap rate environment, the sub-5% in Dallas for example, to sell more to fund the development program because you don’t want to pay special dividends? Or are you saying that you are hesitant to really ramp up dispositions because by the time you get the brokers involved to do all the paperwork, actually it's probably easier just to sell equity and the cost difference between the two when you net it out may not be that different even where the stock is today.

We are not believers in special dividends and I can go into long dissertation on that at another time if you would like. Basic answer is though, you don’t get credit for much other than for about a day. And you are shrinking the company and people wonder why your FFO is higher the next quarter or the next year. But what we are doing is and well be going forward, is like with this potential sale in Houston is to 1031 proceeds into evaporating assets or more likely land acquisitions which is a way to recycle it into development. And this is something EastGroup has been doing since the mid-80s. I mean I suppose we have done 35 or 40 1031s in the history of the company. So we are very comfortable doing that. And again, always been a selective seller because usually which you want to sell, it has less upsides, it's going to sell at a higher yield than where you can if you are buying assets put that money. So we do that very selectively.

Okay. And then just finally David, to that point, if you could just refine it to help us. How much pricing discount or spread is there between discount of the stock issuance versus asset pricing. So for example if you can sell an asset, you guys right now in our numbers are trending at like that 6.4 or 6.3, something like that. Does that mean that you could -- you would be willing to take a 25 basis point discount to sell stock versus selling an asset or is it 50 basis point? Can you just help us understand how much of a spread there is where selling assets is preferable to issuing equity at the current level?

Since we don’t publish an NAV, I don’t think this is the place to go into a discussion at what price we would sell stock and how we would view a discount. But at any point in time it's going to be changing so I wouldn’t want to be tied down with an answer that says, well, at this number we do exactly this or that. The opportunities change every day or every week going forward.

We will take our next question from Manny Korchman from Citi. Please go ahead.

Just looking at your land bank at the moment, how much development could that support? And sort of if you look at that on a time basis or a number of months, how much runway do you have from here on the development side?

I think we have enough land in development for the next couple of years. But if you look at the land bank, it's not always exactly where you want it to be. And so that we are everyday thinking about additional land purchases in markets where we would like to be doing more development than we are today. And Dallas I think is a perfect example of that where we had very little land. It didn’t really fit with what we wanted to do with it and actually we are offering some land for sale in Dallas today but we bought land a year ago in the Flower Mound, north of the airport, and are developing that. And then this most recent acquisition of Louisville, it's a little further north and east, that we would be developing that. So the opportunity spectrum changes regularly and always jumping into something. It took us two years to work out the Eisenhauer Point land in San Antonio. And so always trying to find something there and as previously mentioned, we have not done a very good job of finding development land in South Florida no matter how hard we have tried. So we will be continuing to look there. And we are attempting to sell some of the pieces of land that don’t fit our strategy at this point in time or we don’t see the markets appropriate for our type buildings. And so hopefully we will be having some land sales over the next 12 to 24 months.

Great. And then can you just give us an update on the remaining known move outs for the remainder of the year?

Just from a comparative standpoint, we are not going go into a lot of detail but as I mentioned, we have a large single tenant building. It's going to have the tenant vacate in Phoenix. We have a building -- we have large tenant in two buildings in Northern California. They announced they were going to build the suite. We filled over half the space already. We are going to lose them. We are going to lose a tenant in Southern California. So overall those are two markets where if you are going to have a vacancy it's probably pretty good since they are both so strong.

We project ending the year right around 96% occupancy. So as we stated that we got some known move outs, thankfully we are through -- Brent did a nice job managing through the known move outs in Houston, mostly here in second quarter. And it will be touch and go whether we hit 96% for one more quarter at the very end of the year.

And we will take our next question from John Guinee with Stifel. Please go ahead.

Focus a little bit on Southern California, David or Marshall, if you could. That market is doing extraordinarily well from the statistics we've seen. And then second, it's a whole different paradigm in terms of development yields etcetera, but is there anything that would cause you to buy land in Southern California?

The answer to that is simply yes. But we still want to be able to get the development spreads that we are getting in other markets to take that risk. And so, yes, we actively look at land. The problem there is an awful lot of land has a long drawn out expensive process to bring it to the point where you can build on it. But, no, that market is very strong and I said for a number of years, wish we own more in both Southern California and Northern California. There seems to be no real weakness in either of those areas.

And then, Keith, it looks to us like the first half of the year had a very manageable net income of about $0.76 a share. How much is your taxable income for the first half of the year and what's your taxable income projection? I'm just trying to better understand your dividend payout issues.

We are still projecting a low return on capital for this year but we could not absorb some of these gains that David is talking about from the property sales. But we are in pretty good shape right now on dividend, we will revisit it in September at our board meeting and that’s the traditional time that we increase the dividend.

Well, let me be a little more specific. What was your taxable income for the first half of the year and what are you expecting it to be for the full year?

That’s not, John, that’s not something that we report because it bounces all over. And so it obviously goes into our dividend as Keith said, which will be made in about six weeks at our early September board meeting. Taxable numbers are not numbers that we report during the year.

You could.

Sure.

And we will take our next question from Eric Frankel with Green Street Advisors. Please go ahead.

I was wondering if you could help just explain the pretty wide spread between GAAP and cash re-leasing spread this quarter?

On the rent?

Yes, on re-leasing. So it looks like it's well over 800 bps between your GAAP re-leasing spreads and cash re-leasing spreads. So I just want to know if there is any kind of funny onetime items in there that skewed that?

No. Just a little bit of speculation but as the markets continue to strengthen and we move, I guess more towards a landlords market rather than a tenant market, that we are giving less free rent. And as a result the GAAP rents are going to increase because that 80% of our leases have bumps of one sort or another in them. And less free rent is going to generate a bigger spread between the two.

Okay. So are you saying that the free rents on the prior period is probably what is influencing the difference?

Or less free rent in this period.

Okay.

Compared to the prior period, yes.

Okay. Obviously you touched upon the expensive acquisitions market and it doesn't sound like you're fully confident in your acquisitions guidance for this year. Is that fair to say?

Well, we did lower it from $50 million to $25 million. I guess we would choose less confidence in what we think we are going to do. The difficult thing is projecting acquisitions because you can nothing one day and then the next day you see a great offering and be looking at a $50 million or $75 million package or property. So there are some interesting packages out there today that we are planning to bid on and fairly aggressively I guess. But, yes, that’s a tough number to nail down because it can be zero or it can be 100.

Yes, that's certainly true. You were referencing the really competitive development, the development market for land in various markets. Obviously South Florida, you highlighted. What do you think a merchant builder is willing to accept on doing spec development today? So you said they can't carry it for a long period of time. What do you think they are building to -- compared to what you think is relative?

I mean most merchant builders are in it for the fees and the quick flip so they are not land banking. They are ready to build and flip. And we saw a lot of that in Houston a year, 18 months ago. And everyone is different. We saw in Houston where people were announcing a building and it went on the market before construction ever started and they were selling, let's say probably the [low six] to a buyer, institutional buyer, who is willing to take a leasing risk. So it's across the board but I think if they can't build in good fees and a kicker participation when they are looking at their pro forma, they are not going to proceed. And certainly in Houston that seems to have come to a screeching halt.

So it sounds like, well yes, no, so Houston is obviously the exception. I don't see that the development is going to slow down there but in other markets it sounds like you're saying to even the low 100 basis point range on spreads? Obviously fees have to be factored into that?

We don’t do enough of that to give you a -- it would just be pure speculation to give you an answer on that because everything we tell you would be third or fourth hand information. What we do see is continuing, and we have mentioned in a number of calls before, is that institutional money can't buy enough industrial to fit what they would like to have. And so as a result they will go into partnership or presale, pre-purchase with a merchant builder in order to get that exposure to industrial. And so that’s what we are seeing is more of a competition in different markets across REITs. There is somebody who is building it on a bank line and trying to flip it.

And we will take our next question from Bill Crow with Raymond James. Please go ahead.

Just everything you've said about development and the yields on cost, on acquisitions, point to construction that should be ramping up even faster than it is. You talked about Dallas has actually slowed down. I understand Houston. Why are we not seeing greater development today?

I still think in many cases it is availability of land and availability of capital for financing. So the local developer maybe other than in couple of Texas markets, has not come back into the picture yet. And as I just mentioned before, it's REITs and it's institutional investors who are doing that with merchant building partners. So that other spec development is using the institutional money or using institutional banking -- institutional money to obtain loans to proceed. And I think there is also still a certain level of caution. Like Houston showed us where the caution was starting to get thrown to the wind where people were building and trying to flip it before they even moved the dirt. So that was an extreme and we are just not seeing that yet in other markets. As I then touch back on land, it's hard especially in Florida to find land where you have got all the kinds of permits you need to proceed with. I think our land in Orlando took us two years from the time we put it under contract to where we could start actually building on it. And I always like to point out, most sellers in the hot market don’t want to sell for industrial use because there is the low rent. You are talking $5, $6, $7 a foot where if they do some sort of sale to a commercial user, office or retail, it can be two or three times that. A quick example, in Louisville and Dallas, it took us a while to work out a transaction because the seller wanted to sell the land for retail, we convinced him to sell us the back half of the land with a quick close and then they could do the expensive retail on the front half. So long winded answer to why we are not seeing more development.

And, David, just to isolate two items. What's going on -- can you generalize the construction cost increase on an annualized basis across your portfolio or your markets? And then number two, do you think the financing for development is getting easier? It's unchanged, is it getting harder? I mean how would you classify that for all those folks out there that might want to build?

I don’t think it's probably somewhat unchanged over the last 12 months. Lenders require a lot of equity and personal guarantee still. So that stops a certain amount of it. I will let Brent comment on construction costs.

Yes, construction cost I would say are up 3% to 5%, Bill, on the Texas markets. And I would assume that John would probably say about the same thing in Florida. And that’s been running 3% or 5%, so it's been up post-recession a fair amount. But that’s been offset with our yields we have been able to attain. So I would put it in that range somewhere. In terms of what the developers can get from lenders, most of the developers are cash in some form or fashion, whether it's REIT or an institutional group. There is just not that many guys that are beholding to strict banker construction loan to build. That’s generally the smaller portion of the subset that’s out there developing.

And it appears we have no further questions at this time.

Thanks everybody for your interest in EastGroup and at least for a while all of us will be available to answer any questions we didn’t cover on the call. So don’t hesitate to try to contact us. Thank you.