Prepared remarks
Good morning, ladies and gentlemen, and welcome to the EastGroup Properties Second Quarter 2026 Conference Call and Webcast. Operator instructions were provided. This call is being recorded on Thursday, July 23, 2026. I would now like to turn the conference over to Marshall Loeb, the CEO. Please go ahead.
Good morning, and thanks for calling in for our second quarter 2026 conference call. As always, we appreciate your interest. I'm happy to say that joining me on this morning's call are Reid Dunbar, our President; Staci Tyler, our CFO; and Brent Wood, our COO. Since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the safe harbors under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release along with our remarks are made as of today and reflect our current views of the company's plans, intentions, expectations, strategies and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more details about these risks.
Good morning. I'll start by congratulating our team. We had a strong quarter as well as first half of the year. I'm proud of the results achieved. Our quarterly results demonstrate our portfolio quality and strength within the industrial markets. Some of the stats produced include, funds from operation were $2.36 per share, up $0.02 above our guidance midpoint and up 6.8% quarter-over-quarter. Year-to-date FFO per share is up 7.6%. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter of prior year, truly a long-term growth trend. Quarter-end leasing was 96.8%, with occupancy at 95.6%. Average quarterly occupancy was 95.6%, which was down 30 basis points from second quarter 2025. Also notable was quarter-end same-store occupancy at 96.9%. Quarterly re-leasing spreads were 34% GAAP and 19% cash for leases signed during the quarter. Year-to-date results were similar at 35% and 19% GAAP and cash, respectively. Cash same-store NOI rose a strong 8.3% for the quarter and 8.8% year-to-date. Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 6.6% of rents, down 30 basis points from last year. We target geographic and tenant diversity as strategic patterns to stabilize earnings regardless of the economic environment. In summary, we're pleased with our results and excited about the quantity of development leasing signed during the quarter, along with our prospect activity. Reid will now walk you through more of our quarterly details.
Thank you, Marshall, and good morning. Leasing momentum accelerated during the second quarter with signed leases totaling 3.9 million square feet, a new quarterly record for EastGroup. Activity remains positive across our markets as customers increasingly look beyond geopolitical and macro uncertainty and focus on their longer-term space requirements. As demand continues, we believe our high-quality infill portfolio remains well positioned to outperform the broader market and generate organic growth. Development and first-generation leasing also reached a quarterly record with almost 1.1 million square feet signed. We transferred 4 development projects in Houston, Austin and Los Angeles to the operating portfolio. The projects totaled 669,000 square feet and are 100% leased. Given the continued strength in leasing, we are increasing our full year guidance for development starts to $325 million. This increase reflects stronger and more consistent demand from our customers, expanding within our portfolio. With our team's market knowledge and customer relationships, our strong balance sheet and our infill land holdings, we remain well positioned to create value through development. Regarding new investments and subsequent to quarter end, we expanded our Phoenix portfolio in the Southeast submarket with the acquisition of a 143,000 square foot building. And in Austin, we are under contract to acquire a portfolio of 5 buildings in the Northeast submarket totaling 388,000 square feet. Staci will now speak to several topics, including assumptions within our updated 2026 guidance.
Thanks, Reid, and good morning, everyone. We are proud of our strong second quarter results, reflecting the outstanding performance of our team and the strength of our portfolio. We are pleased to report that the quarter's FFO exceeded the midpoint of our guidance range at $2.36 per share. This represents a 6.8% increase over second quarter last year. The outperformance in the second quarter was primarily driven by higher-than-projected same property net operating income, largely due to higher-than-forecasted occupancy, reflecting the continued strength of our portfolio. Our balance sheet remains strong and flexible. We ended the quarter with no balance drawn on our unsecured bank credit facility, leaving available capacity of $675 million. Our debt to total market capitalization was 12.9% at quarter end, second quarter annualized debt-to-EBITDA ratio was 3x, and interest and fixed charge coverage was 15.1x. We remain well positioned to pursue growth opportunities with the flexibility to access the debt and equity capital markets, depending on market conditions. FFO for the third quarter is estimated to be in the range of $2.37 to $2.45, with a midpoint of $2.41 per share. Looking ahead to the remainder of the year, we increased the midpoint of our 2026 FFO guidance by $0.03 to $9.59 per share, which represents a 6.8% increase over 2025 actual results. We are projecting strong cash same-property net operating income results to continue, and we raised the midpoint of our guidance assumption by 60 basis points to 6.8% for the year. These strong projections are driven by rental rate increases on in-place and budgeted leases and expected same-property occupancy of 96.7%, which is 30 basis points ahead of our prior guidance. Average month-end portfolio occupancy is now 95.7%, a 20 basis point increase over prior guidance. We are pleased to increase our projected 2026 development starts by $60 million to $325 million. Year-to-date, we've started construction of $123 million of development projects, and we've now assumed another $202 million of starts in the second half of the year. This increase reflects the strength of development leasing we have accomplished year-to-date as well as the current leasing pipeline. We also increased our acquisition guidance by $55 million to $215 million. Year-to-date, we have closed or are under contract to purchase properties totaling $150 million, and we have assumed a $65 million acquisition late in the fourth quarter. Our guidance assumption for 2026 gross capital proceeds remains unchanged at $300 million. We assumed $70 million in common stock through our common equity offering program during the first quarter, and we currently have an additional $210 million in forward equity sale agreements available for issuance at over $201 per share. We will continue to monitor the capital markets and remain flexible as the year progresses. Our rent collections currently remain healthy, and our tenant watch list is steady. We are pleased with our strong performance in the second quarter. And as we look ahead through the remainder of the year 2026, we are confident in our experienced team and well-located, high-quality portfolio to position us for long-term success. Now Marshall will make some final comments.
Thanks, Staci. In closing, we're pleased with our year-to-date. Market demand is gaining momentum and has been steady for several consecutive quarters now. Regardless of the environment, our goals are to drive FFO per share growth while raising portfolio quality. If we can do those, we'll continue creating NAV growth for our shareholders. And stepping back from the near term, I like our positioning as our portfolio is benefiting from several long-term positive secular trends such as population migration, nearshoring and onshoring trends to now include data center suppliers, evolving logistics chains and historically lower shallow bay market vacancies. We also have a proven management team with a long-term public track record, our portfolio quality in terms of buildings and markets improves each quarter, our balance sheet is stronger than it's ever been, and we're upgrading our diversity in both our tenant base as well as our geography. We'd now like to open up the call for questions.
Questions and answers
The first question comes from Craig Mailman from Citigroup.
It's Nick Joseph here with Craig. Marshall, you mentioned the data center adjacent demand. I was hoping you could try to quantify that, what you're seeing in terms of leasing, particularly around where you're seeing data center development today.
Sure. Happy to. Nick and Craig, a little bit maybe just statistically, as we were looking at it, in terms of square footage, about 40% of our first quarter development leasing was data center-related tenants and 20% in second quarter. So what we're excited about, as we think about it, is just it's really a new demand driver, a new SIC code to our portfolio. And then as we look ahead, kind of looking at what the data center capacity is today versus what's been planned as we look through our markets, some markets that have really big multiples of 3 to 4x what's sitting there today, like Dallas, Phoenix, Atlanta, some of our major markets, it feels like we're early innings. I'm not very exact, but maybe early second inning that we're seeing 1/4 of our leasing, which, to me, feels year-to-date pretty high. I don't know that we'll stay at that run rate, but there are people out there and we're leasing the suppliers to the data centers. What we like about it is the trajectory for the demand growth that we see coming in addition to what we've already got. And then as we think about our own downside to it, we've said, but the good news is we're not building next to data centers. We're not building out space that's tenant-specific use. So if we lose those tenants, we're really in no different shape than we were when we started these projects. So we're not building anything that may be an odd use later, but it feels early in the game, at least for the industrial side or especially for us, maybe in the shallow bay where we probably benefit more when the data center is completed than under construction. And it looks like the pipeline for data centers has historically been understated and that it's a whole lot more coming into markets where we have pretty good land presence and things like that. So we're — look, we're excited about it, and we'll just try to be thoughtful as we capitalize on the opportunities.
And for our next question comes from Samir Khanal from Bank of America.
I guess, Marshall, it's good to see the development leasing side is strong and — but when I — there were some projects that got pushed out a little bit on when you think about the conversion date. So maybe just provide some color on that.
Yes, Samir. Yes, I think there's always — look, as we work through it, and we'll try to deliver projects with spec offering and pending permitting and things like that. So I would say, look, it takes longer — certainly, one thing we've noticed is getting sites and projects planned and permitted is much longer and a much more arduous process than it was pre-COVID. I think people want the package or the service, but no one wants industrial in their neighborhood. So as we work through it. It's usually — our goal is to deliver it once we break ground as quickly as we can to minimize that carry and get NOI coming in. And sometimes, you just run into construction delays. I mean, I think we're hearing things probably early on with — I'll tie it back to the earlier question on the data centers, getting steel and getting the steel beams and getting electrical equipment. Our team does a great job of ordering those early, but the lead time on some of those is getting pretty long, as you would imagine, given the demand for us to get in line, getting the switchgear and the transformers and things. So you're right. Sometimes it can add a couple of months into our delivery schedule to get those finished.
And for your next question comes from Blaine Heck from Wells Fargo.
Marshall and Reid, it's encouraging to see the increase in development starts and acquisitions guidance given your relatively conservative ground-up driven methodology. I guess if you had to take one of those external growth options, where do you think the best risk/reward profile is going to be between buying and developing over the next couple of years? And if I can flip this in as well, are you concerned at all about supply ramping up quickly in your markets?
Yes, Blaine, this is Reid. As we view external growth for us, development is where we typically add the most value, especially on a risk-adjusted return. So we like where we sit. We like how the market dynamics are starting to play in our favor in that regard. So if you look at where our starts are projected at $325 million, that takes us back to '21, '22, '23 level of numbers, which we're excited about to be assuming that we will be back at that level of development. The other thing I would add is that our development platform and the land holdings is very robust, maybe more so than back in that prior period, and it's very diversified. So we've got land holdings in over 20 different submarkets that will give us the ability to really lean into future development as we look into not just next couple of quarters, but the next 6 to 8 quarters, if this activity continues. And as we talked about previously, consistency has been the biggest piece that had been missing. And the fact that we stacked another really strong quarter on top of what had been good previous quarters really allows us to open up the development pipeline and allow the teams to take advantage of the strong platform that we do have in place today.
I agree with Reid on the — maybe a little color on the acquisition market. Trying maybe the last time I saw you, we were a little concerned about hitting our original acquisition goals this year. We were pleased to — in Phoenix, for example, that property is very close to our development site in Mesa as well as two other buildings we own. And then in Austin, we've known the project there. It's centrally located, which we really like and are excited about. I've been — I thought we'd have better acquisition opportunities this year given how sticky interest rates have been. But it's been just the opposite and talking to some of our brokers they're seeing really — in a couple of markets, 2x the number of bidders for good industrial buildings than they had a year ago and cap rates at 5 in the upper 4s. So I think the spread between the 10-year and cap rates has probably never been as close as I can remember, and maybe that's one takeaway, but one of the takeaways is the private buyers are sure betting a lot. My takeaway is the rental rate growth. If you're buying that close to a risk-free rate, in your IRR model, you must be really assuming a fair amount of rental rate growth. And I hope they're right. I think the theory is there, but the acquisition market, we've been strategic acquirers, but not opportunistic acquirers because that's really all the markets giving us this year.
And for our next question comes from Alexander Goldfarb from Piper Sandler.
If I can ask the energy question in two respects. First, Marshall, are you — it doesn't seem like diesel costs, et cetera, is playing a role at all. It doesn't seem like the cost of transportation is impacting leasing. And second, are you guys seeing any uptick in your Houston or Dallas or Texas portfolios from increased production? I got to believe that people are drilling a lot more in the Permian, which I would assume would cause more energy demand for your warehouses in Houston, et cetera.
Alex, I guess the first point — good question — that — look, we're really happy. We had a record quarter of leasing, as Reid said, almost 4 million square feet and about half of that is new leasing, whether it's first generation or development or just vacancy, which is a really large percent for us. So I would say in the short term, we've been worried about the consumer. But in second quarter, there were no impacts on decision-making or no slowdown. In fact, it felt like things sped up. So we're happy to get the deals across the finish line we did. And Dallas and Houston are really strong markets. Dallas really doesn't have much energy there; Reid, you live there. Houston is a strong market, but it's been more advanced manufacturing and just economic growth. Look, I hope oil and gas helps those markets. I think as we talk internally, the other, if diesel prices do stay higher for longer, which today it sure looks that way, I think last mile only becomes more and more valuable and especially last mile buildings in our markets. And as you would imagine, whether it's Orlando, Charlotte, Nashville, Phoenix, Austin, traffic is terrible in every one of our markets. So the speed of service, whether it's a service delivery or product delivery, over time, it will force people to get better and better with their last mile delivery because you can get cheaper rents on the edge of town, but you're going to lose it on diesel cost and really customer service, too. So I think it makes our locations more valuable, although that will take a while as the logistics change evolve, but we like the — that would be one benefit. We're not wishing for higher fuel prices for longer, but that will be one longer-term impact of it.
Yes. Alex, this is Reid. I'll just add to that. The Texas markets are much more diverse than they have been in the past from an industry standpoint. And so energy may be another tailwind to Texas, but there's a lot more to that story today than just energy, which is beneficial. And Dallas and Houston, as Marshall mentioned, are probably some of our strongest markets as we have met this halfway point in the year. So data center activity is really strong in Texas right now. Houston has been a hub for that in a lot of different aspects. Dallas is, I saw one projection that Dallas would exceed the capacity of Northern Virginia by 2030. So we like all those tailwinds, but there's even more: taxes and just the data center and energy is population growth and corporations relocating and whatnot. So we're bullish on Texas all the way around.
And for our next question comes from Michael Griffin from Evercore ISI.
As you noted in the release that you've started to see more normalized demand from your customers. And I was wondering if you could expand on that a bit. Are you starting to see maybe more newer prospects coming to lease space? Is it just pent-up demand from folks that have been on the sidelines? Can you give us a sense of what your conversations with customers are sitting like here.
I would say when we say — good question — normalizing. Last year, we had prospects, and we would even have reached deal terms, economic terms, but getting the prospect to sign the lease and really for them to get the internal approval to move forward, it was a very long, protracted process and I think because of the headlines and inflation that — it wasn't that we didn't have prospects, but if we had dropped the rental rate or offered more free rent, I don't think we would have hurried a decision along. They just weren't getting the approval. And then starting in fourth quarter, it felt like we said maybe people got comfortable being uncomfortable where decision-making became more normalized. The time gestation period of getting deals wrapped up seemed to speed up, and it's continued and actually improved during the year. So we're happy with that. The other thing that just kind of trends and you see it in our Tucson development, one of our San Antonio developments talking to our team, we've seen more expansions probably later this year, more recently than we saw last year by a measurable number. So to me, that's the best kind of new leasing as tenants before are renewing and staying put and seeing companies grow and take on more space and that that's fed into a lot of our development start lift this year and things like that. So I'm happy to see people making decisions without being really in analysis paralysis and then really pulling the trigger on expansions is great news for us as well.
Yes. That organic growth is really important to our platform. As we set things up in different phases on the development side, those tenants and customers need growth opportunities; we can provide that for them. So that's a major benefit for us as we tap into those existing relationships.
And for our next question comes from Brendan Lynch from Barclays.
Great. It sounds like things are really going quite well on a number of fronts, a tightening market limits to new supplies, customers acting with more urgency. When you think about where weakness could emerge, where would that be? What are the things that might derail what is otherwise a very strong dynamic at present?
We worry about the consumer market. Look, interest rates are staying higher, Brendan, and I think — and as I mentioned earlier, higher gas prices, look, it's not good for any business out there. But our goal is when we think of locations, we want to be near an affluent and rapidly growing population base because that drives demand for the tenants in our building. And if the consumer weakens, we worry a lot more about demand than we do supply for the type of buildings we build and where we build them. And so that would be — and I think with consumer weakness, then that will bleed into tenant credit issues within our portfolio. But slow down demand, tenant credit, things like that, that's almost the Achilles heel. The big one.
Yes. I would just add to that, we would typically point to consumer strength for sure and we would typically say that supply could be a concern. But what we really like as of right now, supply is really in check across our markets, especially in the multi-tenant, smaller building construction. And we've been saying for several quarters now that when the time would turn, we have, as Reid mentioned earlier, we have a deep bench of land and buildings and permits ready to go, which are very time consuming to get to that point. But we're sitting on go. You saw quickly, we moved our development starts up. And so supply for a bit — I look at cyclical, if it stays good for a while, of course, developers will come back and the cycle will take place. But we're hopeful that we can get more than our disproportionate share if things were to continue to turn to the upside. So where you would typically say concerns and what could derail us is oversupply. But the good news there is we're a bit away from that. And hopefully, like I say, we can keep ramping up and pushing to get more than our fair share on that side of things.
And for our next question is from Michael Carroll from RBC Capital Markets.
On the development side, I know you guys led demand-pull development starts through. So can you help me understand the difference between EastGroup signing about 1-plus million square feet of development leasing this quarter? And it looks like the development target was only increased by about 400,000 square feet. I mean is this just a timing difference as it takes time to find new projects and break ground? And as this development leasing continues, we should expect that development start activity would continue to pick up going forward?
Michael, from a development start standpoint, with the activity we have, which is year-to-date 1.5 million square feet, which exceeds already our full year numbers from last year. So we're very positive and bullish on how that development leasing has occurred and it has allowed us to drive development growth. So we would anticipate that if those numbers continue, there are potentially some additional upside. But the most important thing from our team and what our platform allows us to do — and as we discussed some in the past — our teams are always teeing up the next phase of development with permits and getting pricing and everything set. So when we do hit a certain threshold on the leasing side within current phases of development, that allows us to pull the trigger quickly. And so that's part of the reason we were able to bump our numbers this year. And hopefully, that trend continues not just through this year but into next year, and we can maintain these levels that, again, we haven't seen since kind of the go-go days of '21, '22, '23.
And for our next question, it's from Mike Mueller from JPMorgan Chase.
I guess looking at the quarter-to-date technical difficulty. What's driving the spreads this year and what the go-forward looks like?
Yes. I'll jump in. The Bay Area continues to show some slowness relative to other parts of the country. I think you could even say at this point, with the very strong quarter for L.A., especially in big box, particularly pushing to get deals into some of our vacant spaces. And it's hard to put exactly a finger on why that would be driving or lagging; obviously, they're a tech-driven market, but it's just been slow. And so hopefully some of what we've seen is an uptick, a good quarter in rental rate strength. And we've been saying — Marshall's really been harping on for a while now — that it's just a little bit of uptick in activity and hopefully, we're beginning to see it. But the tightest vacancies are the vacancy rate, especially in the multi-tenant sector, that there could be some pricing power on the landlord side, owner side quickly. And so hopefully, we can continue to see the strength and play into that in most of our markets. But the Bay Area will be one that, until we show a little more strength, will probably continue to lag. But again, very pleased across the rest of the portfolio and where we stand. When we're talking to the team in the field — it's just a matter of demand, and we're seeing an increase in getting the right tenant there, but there are not a lot of options. So capitulation on rental rate has really not been a big part of the equation in terms of the leasing activity. It's been more just demand driven. And so we're very pleased to see that be a strong quarter.
And for our next question comes from Todd Thomas from KeyBanc Capital Markets.
I just had two questions related to the guidance. First, I was just wondering, the same-store growth outlook was revised higher and leasing was strong, but you took up the low end of the range. I was just curious if there was an offset or anything you could point to specifically that acted as an offset to the FFO range? And then also with regards to the spec development leasing, I think you originally had assumed a $0.07 contribution at the midpoint. That was after the first quarter, you had achieved a few pennies. So I think they were around $0.04 left. And I realize from a timing standpoint, it might be tough to move the needle on '26, but where do you stand with the leasing completed now to date and the amount of development leasing that's still left to do with regard to the updated guidance?
Sure. Todd, I'll start with your second question on the spec development leasing. You're absolutely right. At the beginning of the year, we had $0.07 assumed for spec development leasing in our guidance; that was reduced to $0.04 when we updated guidance in first quarter. And at this point, during the second quarter, we were able to sign leases to basically shore up $0.02 of about $0.04. And then we have $0.01 remaining in speculative development leasing that remains in the guidance. And we essentially removed $0.01 from that $0.04. So starting with $0.04, we took care of $0.02 by signing leases. We have $0.01 that we removed and then $0.01 that remains in guidance. And that's really to your point in your question about the timing. So with these newer spaces, it just takes a bit longer for the tenants to be able to occupy the space in certain locations; it takes a little bit longer for permitting on spaces where we're doing a little more major work to get a tenant into a space. So as the year progresses, we start running out of time for the tenants to really be able to occupy and contribute NOI to '26. And that's exactly what we saw with the record leasing that we experienced in second quarter. 3.9 million square feet total, half of that was for new spaces, and much of that for new development spaces. And it just takes a little while for those tenants to occupy the space. So that's why we haven't seen as much of an increase in FFO projections for '26. We're really looking at that contribution to be more impactful in '27 as we go forward. But the great news is that the leasing demand is there. We're experiencing it. We've not cleared the deck. We saw very strong prospect activity, and we're feeling really good about the leasing environment. In terms of same-store growth and the range for same-store growth and for FFO for the rest of the year, we really on both of those tightened the ranges — we're 6 months into the year, there's just less likelihood and this is what we typically do is start narrowing the range. You're less likely to meet the low end or the high end of the range as the year progresses because there are fewer variables with half of the cake baked, so to speak. So in terms of narrowing the ranges, that's just what we typically do as the year progresses. But good news is that we raised the midpoint of our FFO guidance, same property guidance, occupancy and same-property occupancy along with the other assumptions that we increased for acquisitions and development starts. So we're feeling great about the current environment and projections for the remainder of the year. We do have some tough comparables when we're looking at the back half of the year in terms of same property growth. So we've been able to achieve almost 9% year-to-date in terms of same PNOI growth, and when I look at the back half of the year, we are projecting lower, but that's because we were 97% occupied for the same-store portfolio in the back half of last year. So it's a difficult comp, and we're close. We're now projecting same-store occupancy for the year of 96.7%, which is a 30 basis point increase over our last guidance revision. So we're feeling good about what we've been able to accomplish and about the environment for the rest of the year going forward. It's just hard to continue to project being at 97-plus percent occupied.
Our next question comes from Rich Anderson from Cantor Fitzgerald.
So I wanted to talk about the future of cash releasing spreads. Reid and Staci and I had this conversation at NAREIT and you produced 19% this quarter, understanding that that's a function of what in a given quarter. So I know it's not purely mathematical, but I would argue that the pull forward of demand that happened during the pandemic maybe conditioned people to expect 30%, 40%, 50% on that number, but it should trend down as time passes. I assume you agree with that. And I'm wondering where you think the normalized run rate of cash releasing spreads should be for your business specifically in the shallow bay market, which tends to have better market rent growth than the broader market for industrial?
Rich, I'll take a first run at it and Reid will chime in. I view it — look, it's like our business. It's a cyclical business. I never thought we would get — I'm talking net effective. I know you're talking about cash. For two years, we averaged 50% net effective. I just didn't think you'd see that in industrial. And we had that great ramp-up that you mentioned post-COVID. It feels a little bit like air coming out of a balloon. And so if demand never picked up, you're right. Our mark-to-market, given our annual increases and our leases post-COVID, so it's come down from 40%. And yes, we're kind of in the 20s, high teens this quarter. It would continue to level out if we were in a cyclical business, and it feels like it's early. But I do think given supply-demand dynamics and a pickup in demand that we've seen, that's where I get excited that by the time we kind of really work our way through our embedded rent growth there'll be a next leg up. And then it will cycle again. So it's — maybe longer term, I'm not quite sure I could answer where it will average depending. But I think we're beyond the inflection point a little bit, and it seems like our peers are thinking that as well, and that there'll be a new leg up in rental rate growth. It's been kind of inflationary or inflationary plus we've called it. And we're not seeing a major change to that, but we have seen a major change where us and one of our peers have a record quarter of leasing at the same time, it tells me there's a lot of industrial demand out there. Supply will catch up, but it's going to take longer. And we think this cycle, it will take longer given the municipal pushback. Zoning is much more challenging and finding those sites than it did pre-COVID. And I think that's what's going to slow down developers. We'll find a way to overbuild, but it will take us longer this time than it did in earlier cycles.
Rich, I'll just add, the amount of activity that all the markets saw in this quarter was very encouraging. Some markets had some record-level absorption numbers in the quarter. So from a demand perspective, that's going to help us hold and push rents into the future. And then we did talk about the development math, how that's actually a higher number that you have to solve to than it was back in the day where interest rates were lower and even construction pricing was lower. So I think those trends are all going in favor of higher rents longer term. Do we continue to kind of plateau like or bottom out where we have been? Or does it peak? That will be something that we keep a close eye on and see. But I think the trends are positive that we will see some ability to continue to push rents in the future.
And for our next question comes from Dave Rodgers from Raymond James.
Maybe this is to Staci, but I think also the rest of the team. Can we go back to the development of the spec component. And I guess I just wanted to kind of reconcile back to the square footage leased year-to-date. It seems like the development leasing has been particularly strong, but the guide still kind of includes some spec and then actually remove some. I don't know if that's timing. So that's the first part of the question. And then the second one really was around the conversions in the second quarter were at a 9.4% yield into the operating portfolio, which again seems strong and supports the same kind of argument that you guys are ahead on development leasing. So I guess I wanted to kind of reconcile those two and then also reconcile to the mid- to low 7 on what's in lease-up or under construction today and if there's something unique in these portfolios that kind of make that 200 basis point delta. Sorry, there was a lot.
Yes, on the conversion yield, I'll take that part first. The increase — you mentioned the properties we transferred in and then year-to-date, 9.4%. The biggest driver in that was our redevelopment, Dominguez, which is a redevelopment in the L.A. market of California. A property we had owned a long time, retrofit, and we were very pleased to have gotten that leased up during the quarter, but that was, I would say, abnormally high yield, just by virtue of redevelopment on a low basis. That was, I think, north of 9%. Looking back at our existing pipeline, the 7.1% in lease-up and the 7.5% yield under construction — that low to mid-7 is a better overall average run rate for the development pipeline, just carving out any redevelopment component to it. So I would say that we continue to be very pleased with that; we continue to be at that or even slightly exceeding that. In terms of your first part of the question about the leasing and how that played into our guides: excited about the leasing, 15 leases that were development or first generation, which basically spaces that had been development that converted in different markets, so very good spread in that. But about half of our leasing for the quarter was new leases in the operating portfolio development. As we've touched on earlier with 5 months to go, it's great to have that leasing, but in terms of moving the needle this year, any of these cases, you're looking at on average maybe 2 to 4 or 5 months, depending if it was a development space with no office space and you've got to permit and build it out. So it takes time to get these tenants into the seat, so to speak, and to immediately get to the needle. So a lot of that will really be great building blocks and catapult for into next year. At this point of the year, as you sign new development leasing, it has a more de minimis impact on the immediate year. We did accomplish some of the spec assumptions; as Staci mentioned, we accomplished $0.02 of the $0.04 and removed $0.01, leaving $0.01 remaining in guidance. We have a lot of projects and we're very pleased with the leasing, but there are some that still require pushing some leasing assumptions back. Our Arista project in Denver has been slower than we had liked. A great project just in a higher growth but shallower submarket. So you have ebb and flows in both directions, but net-net, we're very pleased with where it settled out.
I agree with Brent. And just to add to help quantify the magnitude of the delay on some of those because when you do — I definitely understand your question. When you look at the 1.1 million square feet of development and first-generation leasing during the second quarter, it seems like that could have or should have translated into more progress on that $0.04, so to speak. But had all of those leases that we signed in the second quarter occupied in July versus their actual occupancy date later in the year, we would have $0.03 of additional FFO. So that just shows you the magnitude of the leases that we've signed is pretty incredible, very strong, but that timing — just to get those tenants to occupancy — is what is causing the delay. So we're not behind — we're actually ahead of where we had projected in terms of signing the leases; the timing is a little more delayed compared to our regular portfolio leasing.
Our next question comes from Nick Thillman from Baird.
I think I know the answer to this question based on Reid's commentary around Texas, but the markets that you're seeing the most rental growth in today, where do you place that? And then if I recall on your development yields, you guys underwrite current rents at the time. So maybe just highlight some of the markets where you've come in ahead of expectations over the last 12 months where you're seeing rents run relative to your initial expectations?
Yes, Nick. You are correct. I would stay on the Texas theme on both pieces. Dallas continues to be very strong for our portfolio as has Houston. So between those two markets, our two recent developments that we moved into the operating portfolio in Houston, both exceeded our anticipated pro forma rents. So that was a very strong indicator of what Houston has and where it's headed. Florida has continued to be a fairly strong market for us, as has Atlanta. Atlanta has picked up quite a bit and had a really strong Q2, especially on the development side with some good rent momentum there.
I would just add to that: your other component about maybe where we've accomplished better rents, pushing the yields up — I mentioned 15 leases signed in the development/first-generation quarter across 10 different markets. The good news is that's been broad-based. We've pretty consistently been a little bit ahead in most all of our development conversions. Again, the only one I would point to that maybe has been slower than the rest is the Denver location, that may be one where the yield may not quite be what we initially penciled out pro forma, but the rest of them are very consistent. The good news is on the development side, there's not been one project that pushed the numbers while the rest are lacking. It's been very consistent being slightly ahead. And to your point, when we put a pro forma together, we're putting rents market at that date, and by the time you permit, build the building and get into lease-up — that can be a 12-, 18-, 20-month period — ideally, those rents have moved up and you can accomplish a little higher, and we've been doing that, which is nice.
And for our next question comes from John Kim from BMO Capital Markets.
I wanted to ask on your leasing pipeline, if you could provide any commentary of where that stands today to perhaps last quarter? And any color you could provide on how much of that is new versus renewal and development leasing? And then also if you could tie in that positive commentary you've had on leasing demand with your occupancy guidance, which I know you've raised for the full year, but it does indicate for occupancy to soften in the second half of the year, just given the implications and guidance.
John, interesting point. From the standpoint of the occupancy guide on the back half, you run the numbers and you say, okay, what you've accomplished and what you're guiding to would point to that. And it's really nothing specific that we're trying to dance around. Having been in the field, Marshall, Reid and I all having been in the field at some point or another, it really is challenging when you're penciling out your budgets to continue to make yourself show finishing 99%, 100%, 98%; you really have to have a bunch of those markets to accomplish the 97%. So I guess a roundabout way of saying I hope some of that proves to be conservative in terms of what we're projecting in the back half of the year in terms of occupancy. I would point out that our same-store occupancy continues to run about 100 basis points higher than our operating portfolio, and that continued to be driven a little bit from the development projects that have converted that weren't 100% leased. So obviously they contribute to that lower occupancy rate. But we really view that as opportunity within those spaces. We were very pleased that we had removed about 45% of our first-generation space that was a quarter ago when we were reporting on this. We were over 700,000 feet and we released around 400,000 feet of that, only leaving about 365,000 feet of that to go. So we're very pleased to have knocked out 53% of that. So again, the back half of the year, we'll see how it plays out. Hopefully, it proves to be conservative, but some of it is just the human element when you're dialing in those spaces one at a time.
And for our next question comes from Jessica Zheng.
So you've acquired 5 buildings in Austin at quarter end. I was wondering if you could kind of discuss the market fundamentals in Austin for a little bit. I know more recently that's a market that's seen good demand but is also faced with a lot of supply. So any color there would be great.
Yes. Austin market is one that has been interesting to follow. It is oversupplied in some areas. Our portfolio has continued to perform quite well, achieving right around the mid-90s to upper 90s percent leased over the last several quarters. That's really because we're focused more on infill locations where supply is hard to add; the oversupply is further north and further south of the market, and it's become a very linear market driven by that new product and just trying to find available land. It's a market we watch closely, but we're very bullish on Austin long term. There continues to be a good demand picture there, continued drivers in the market from both the population growth perspective and new manufacturing, advanced manufacturing and all those elements. Specific to the project that we announced, we're under contract and haven't closed yet. But these are very infill-located buildings that strategically fit very well with our portfolio. It's a project that we've honestly eyed for several years and fits very well within the EastGroup platform that we have. So excited to get that closed and bring it onto the platform where we continue to add value and grow our Austin presence.
And for our next question comes from Ronald Kamdem from Morgan Stanley.
Great. I think you talked about sort of the data center tailwind in the cycle. But historically, I think nearshoring, onshoring as well as e-commerce were some of the big demand drivers. I was just wondering if you could provide any numbers and what markets those themes are really playing out at, whether it's some of the leasing activity. Just curious if there's any sort of way to quantify how those other themes are impacting demand?
Ron, you're right. The more topical is data centers, and we've talked about that. It hasn't gone away, but certainly advanced manufacturing onshoring and nearshoring — we're seeing that. Within our portfolio, we have buildings in Dallas/Northeast Dallas supplying the TI plant up in Sherman, Texas. We have Tesla suppliers in Austin as well as even down to San Antonio supplying the new Tesla plant. We're near the Intel chip plant in Chandler and in Mesa. So we've got suppliers to those plants. Houston is a market that's picked up a fair amount. NVIDIA making chips and things — so there's been more development there in terms of onshoring than I would have expected for advanced manufacturing. And in California, aerospace and the beach communities east of the South Bay in L.A. have helped that market, at least the Class A space. It will improve the overall market over time. So the advanced manufacturing onshoring and nearshoring hasn't gone away. It's just not as new an impact on our portfolio as the data centers, as you pointed out.
And for our next question comes from Vikram Malhotra from Mizuho.
I guess just two clarifications. First on SoCal, there's been a lot of talk whether the market is bottoming. Is it more in big box or is there more breadth? So can you maybe provide your latest thoughts on SoCal? And also within that, just clarify the occupancy dip that we saw? I believe it was a tenant that you may backfill, but can you clarify that? And then second, just the annualized — maybe give us a little bit more color on the development income flowing into this year based on what you've done year-to-date and what's the annualized run rate we should think about into '27?
Yes, on SoCal: as Reid mentioned, we've been talking to brokers recently and there's a surprise upbeat tenor and quick movement in Los Angeles. You're definitely not going to point to a quarter and say it's a trend, but it was welcome, and there was a record absorption number — not necessarily net absorption, but a record amount of leasing in June alone. Inland Empire did 7.5 million square feet in the quarter, which was an incredible number, with net absorption positive for the market for the quarter. So that gives them a string of two quarters after a long run the other way. A lot of that is obviously big box driven and Inland Empire driven; we don't play in that. But overall, it's healthy for the market. The San Gabriel and South Bay submarkets where our portfolio is continue to be strong. Even with the slowdown, overall market vacancy is just 5%, which speaks to how tight that market had gotten. So it feels good there in terms of what's happening. We would want to continue to see it go in that direction. I would point out we only have 5% or 6% exposure to L.A. and 5% or 6% exposure to the Bay Area, so we feel good about geographic diversity. You mentioned tenant backfill; we had a redevelopment that we relet and an existing tenant expanded. We are excited about that; the commencement of that lease will be a little later, as we discussed, given timing and permitting.
And in terms of the run rate going forward for the development leasing that we've accomplished, it's hard to quantify exactly since we have so many different occupancy dates. But as you look forward with that square footage using a just-above-7% yield on those development projects — that depends on our average and remains our average, particularly when you exclude the Dominguez redevelopment project, which had a higher yield being a redevelopment. So as you build those into your models, think of it as just above a 7% yield on development projects to approximate annualized run rate going into '27.
And for our next question comes from Omotayo Okusanya from Deutsche Bank.
I wanted to go back to Brendan's question. In terms of the earnings outlook, given that development itself is not likely to contribute much more for the rest of the year, can you just talk a little bit about where there are opportunities to possibly raise the high end of guidance? I ask that in the context of looking at your peer performance — many peers were not just narrowing guidance but actually increasing the entire range. Why didn't you do that this quarter or what opportunities are there to do that going forward?
Omotayo, I think as Staci mentioned, we are pleased with the quarter. We started the year at $9.00. Our original guidance was $9.50. We were able to move that after first quarter and now after second quarter we're up to $9.59. So I'm pleased that we've been able to raise the midpoint of our guidance in seven months into the year by $0.09. The question of raising the high end of our range: we purposely raised the floor of our guidance and narrowed the range. The math works such that we're $0.07 away from the high end of our guidance with five months left, so it's harder for us to be comfortable raising the high end given timing and the fact that some of the development leasing won't contribute to NOI until tenants occupy. We prefer to be accurate and conservative with guidance rather than over-promise. That said, our goal is to beat the guidance as a company, and we'll continue to monitor progress and update guidance if the trajectory allows.
Since there are no further questions at this time, I will now turn the call over to Marshall Loeb. Please continue.
Thank you everyone for your interest and your investment and many of you in EastGroup. If we didn't have a chance to get to your question or you have follow-up questions, we're certainly available and hope to see you in person soon. Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.