Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

EastGroup Properties Inc. (NYSE:EGP)

Q4 2007 Earnings Call

February 14, 2008 10:00 am ET

Executives

David Hoster - President and CEO

Keith McKey - EVP, Treasurer and CFO

Analysts

Michael Bilerman - Citi

Irwin Guzman - Citi

Mitch Germain - Banc of America Securities

Brendan Maiorana - Wachovia

Matt Konrad - FBR

Nap Overton - Morgan, Keegan & Company

Philip Martin - Cantor Fitzgerald

Paul Adornato - BMO Capital Markets

Operator

Welcome to the EastGroup Properties Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity to ask questions during our Q&A session. Please note this call may be recorded.

I will now like to turn the program over to the President and CEO, David Hoster. Go ahead, sir.

David Hoster

Thank you. Good morning and thanks for calling in for our fourth quarter 2007 conference call. We appreciate your interest in EastGroup. Keith McKey, our CFO, will also be participating in the call.

Since we will be making forward-looking statements today, we ask that you listen to the following disclaimer covering these statements.

Operator

The discussion today involves forward-looking statements. Please refer to the Safe Harbor language including 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.

David Hoster

Thank you. Operating results for the fourth quarter met the upper end of our guidance range. Funds from operations were $0.86 per share as compared to $0.72 per share for the fourth quarter of last year, an increase of 19.4%. The $0.01 per share above the mid range of fourth quarter guidance, was due to the combination of a number of small positive factors.

If gains on sales of land are excluded from the results, FFO per share increased 7% in the fourth quarter 2007 as compared to the previous year's fourth quarter. For the year FFO was $3.12 per share compared to $2.81 per share for '06, an increase of 11%.

If you eliminate both termination fees and gains on sales of land from each period, the increase would have been 7.2%. Please note that we calculate funds from operations based on NAREIT definition of FFO, which excludes gains on depreciable real estate. We continue to achieve positive same property net operating results in the fourth quarter, but at a slower pace than the first three quarters of the year.

Same property quarterly results improved by 2.6% without the straight-lining of rents and with straight-lining increased by 1.4%. Without termination fees results were 2.0% and 0.9% respectively. This is was the 18th consecutive quarter of positive results for both measures.

The reduced rate of growth in same property results for the quarter was due to the high level of occupancy in the fourth quarter of '06. Consequently the increases in the fourth quarter of '07 are due primarily to higher rents rather than improved occupancy.

For the year, same property results were up 4.4% for cash and 3.6% for GAAP. In the fourth quarter on a GAAP basis, our best major markets after the elimination and termination fees was Houston, which was up 10.9%, Dallas up 7.3%, San Antonio up 6.8% and Los Angeles up 2%. The trailing same property markets were El Paso down 14.1% and Tampa down 1.8%. The differences between quarters are basically all due to changes in property occupancies in the individual markets.

Occupancy at December 31 was 95.4% a slight decrease from the end of the third quarter. Our California markets were 99.4% occupied and Florida was 95.5%. Houston, our largest single market with 3.9 million square feet was 99.5% occupied.

Over the last 90 to 120 days, we've seen activity slowed from being strong to just good. Prospects are still looking for space, but there are fewer of them, and it now takes longer to complete lease negotiations.

With the slowdown in new industrial construction, most of our markets currently appear to be in equilibrium. That simply means we have to work harder for each prospect as compared to a year ago.

Our leasing statistics for the fourth quarter, illustrates the slower but generally good real estate fundamentals in our markets. But overall, of the 1.2 million square feet of leases that expired in the fourth quarter, we renewed 45% and released another 21% for a total of 66%. This is below our average of 85% for the year. In addition, we leased 202,000 square feet of space, that was vacant at the beginning of the quarter.

As you can see in our supplemental information, we continue to achieve good rent growth in the fourth quarter, with 17.3% increase for GAAP with straight-lining and 7.9% without the straight-lining of rents. These figures are both above our '07 averages.

Our average lease length for the quarter was 3.9 years, which is slightly below the average for the year, and an improvement of $0.52 per square foot, for the life of the lease, or just $0.39 per square foot per year of the lease, which is also below our '07 average.

At December 31, our development program consisted of 22 properties, with 2.3 million square feet and a total projected investment of $154 million. This is approximately the same size that it was at September 30. Tentative properties were in lease-up and 12 under construction. Geographically, these developments are diversified in four states and several different cities, and overall, are currently 42% leased.

During the fourth quarter we transferred four properties with 268,000 square feet that are currently 95% leased into the portfolio. Also in the past quarter, we began construction of three properties with 279,000 square feet. Each of these is an additional phase in an existing successful development.

Overall in '07, we had development starts of $120 million with a total of 1.8 million square feet. We transferred 14 properties with 959,000 square feet and an investment of $74 million into the portfolio. And these transferred properties are currently 99% leased. From a land standpoint, we absorbed 107 acres into development and purchased 102 acres for new development.

At December 31, our land inventory contained 252 acres, with a potential to develop approximately 3.4 million square feet of new industrial space.

Looking at 2008, we see a probable slowdown in new development starts to between $60 million and $70 million. This total could be higher or lower depending on potential build-to-suit opportunities and of course market conditions. We will be sensitive to the economy, and are to adjust this program quickly, if necessary.

As you have heard us state many times, our development program has been and we believe we will continue to be a creator of significant shareholder value. We are not a merchant builder, we are not developing to generate immediate gains through the sale of newly created assets.

Our goal as a developer is to add quality, state-of-the-art investments to our portfolio and thereby increase total returns to our shareholders in both the short and long-term. Including properties and lease-up in under construction, we have developed 32% of our current portfolio.

In December, we acquired a 78,000 square foot Concord Distribution Center in Southeast Denver for $6.1 million. Concord is 100% leased to three customers and is in the Centennial airport submarket, where our other Denver properties are located.

For the full year, we completed seven property acquisitions with the total of 1.1 million square feet and a combined investment of $57.3 million. These purchases are located in Charlotte, San Antonio, Dallas, Tucson and Los Angeles.

Our only building disposition during the year was the previously reported sale of the 152,000 square foot Delp I property in Memphis for $3.275 million. This transaction, which generated a gain of just over $600,000, reduced our ownership in Memphis to a net investment of just barely over $2 million.

In the next two weeks, we are scheduled to close on the acquisition of a portfolio of properties in metropolitan Charlotte, North Carolina, for a total purchase price of $41.9 million. The portfolio consists of five buildings with 669,000 square feet in four different locations and 9.9 acres of developable land. The distribution buildings which were constructed between 1989 and 2006 are currently 86% leased to 14 customers. This acquisition will increase EastGroup's ownership in the Charlotte market to over 1.6 million square feet. And we plan to open an office there later this year.

Keith will now review a number of financial topics.

Keith McKey

Good morning. As David reported FFO per share for the quarter increased 19.4% compared to the same quarter last year. Lease termination fee income was $133,000 for the quarter compared to $6000 for the fourth quarter of 2006. Bad debt expense was $268,000 for the fourth quarter, compared to a $132,000 in the same quarter last year. Gain in the land sales was $2,579,000 million for the fourth quarter of 2007 compared to a $129,000 in the same quarter of last year. The net effect of these items increased FFO per share by $0.05 for the fourth quarter as compared to last year.

FFO per share for the year increased 11% compared to last year. Lease termination fee income was $1.149 million for 2007 compared to $410,000 last year. Bad debt expense was $737,000 for '07 compared to $718,000 for last year, and gain on land sales was $2.602 million for 2007 compared to $791,000 for last year. The net effect of these items increased FFO by $0.20 per share compared to last year.

Debt to total market capitalization was 36.9% at December 31, 2007. For the year, the interest coverage ratio was 3.7 times and the fixed charge coverage ratio was 3.4 times, which is comparable to last year. Our floating rate bank debt amounted to 8.3% of total market cap at year-end.

We are very pleased to have completed two major debt transactions recently. In early January, we renewed our credit facility with an increased capacity, lower interest spreads and improved covenants. We attribute this to our good relationships with our banks and income stream from property rental income and strong debt ratios.

We also executed an application for $78 million non-recourse first mortgage loan at an attractive fixed rate of 5.5%, which is expected to close in March. Both of these transactions were accomplished in a difficult financial market.

In December, we paid our 112 consecutive quarterly distribution to common stockholders. This quarterly dividend of $0.50 per share equates to an annualized dividend of $2 per share. Our dividend to FFO payout ratio improved to 64% for the year compared to 70% in 2006.

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

FFO guidance for 2008, which was announced on January 8th, is expected to be in the range of $3.20 to $3.30 per share. Earnings per share is estimated to be in the range of $1.01 to $1.11.

Now David will make some final comments.

David Hoster

We continue to achieve positive development and operating momentum. But with the slowing economy, we plan to be more defensive in both our development and acquisition activity. Although leasing velocity has slowed from peak levels, it is still relatively good overall. Our same property operating results, rent growth, occupancy levels and development leasing are all good. Our balance sheet remains strong and flexible. Keith and I will now take your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). We will take our first question from Irwin Guzman with Citi. Go ahead please.

Michael Bilerman - Citi

Yeah, it is Michael Bilerman. Irwin Guzman is here with me as well. David, just a question. You talked about the leasing environment slowing a little bit. But it's still good. What are you seeing is there any market specific trends that are giving you some pause, concern?

David Hoster

No. I would say basically every market has slowed a bit. Houston continues to be our strongest market, but there are just less prospects out there today than there were in the fall of last year. Well 12 months ago, it was almost like just taking a orders for space. It's becoming more of a tenant market versus a landlord market and people, competitors that have had space vacant for a long time are starting to get nervous and we're starting to see the first signs of bonus commissions little bit of free rent that sort of thing to attract both brokers and prospects. And it is not to the point where the market is totally turned, it's just more of a market where you have to work harder to nail down the prospects and we were just spoiled for a couple of years.

Michael Bilerman - Citi

Right, I think Irwin has a few questions also.

Irwin Guzman - Citi

Good morning.

David Hoster

Good morning.

Irwin Guzman - Citi

I noticed one of the developments that you brought in this quarter, Castillian Research, the yield dipped from what you were previously expecting of around 9%, 6.5%. As you think about the rest of your development pipeline, you are targeting 9.5% yield. Do you think there are any projects out there where the risk of that yield compressing has increased?

David Hoster

No. Not any significant compression. On Castillian we were doing that with the partner, which is unusual for us. It's a service center type property which is stepping out a little bit for us, that we thought would make sense in Santa Barbara and I think in the long run it will. The city as we went through the approval process, forced us to do a lot more in terms of earthquake work and that sort of things. So, our costs were up and then, in the same period our operating expenses went up. So, we think that was an unusual one and. But we're comfortable with value of the asset.

So in the rest of our development portfolio over the last 60 days, we've had some where projected yield has gone down a little bit, and somewhere it has gone up a little bit. But as I mentioned in my prepared remarks, we plan to be a little more defensive than we have been in the past and if we loose 20 or 30 basis points in order to nail down a good credit tenant, we still think that those developments are going to be successful and good contributors to FFO going forward.

Irwin Guzman - Citi

And in terms of $60 million to $70 million of starts that you mentioned for this year. Can you talk about which markets you are planning to target and whether those intentions have changed over the last three to six months in terms of where you are going to be starting those developments?

David Hoster

Our plans have not really changed because almost all of those developments are in areas where we have large number of properties and we think we have a real feel for what's going on in the marketplace and there are generally the subsequent paces to current buildings that are up and leased or in lease-up today. The only one that comes right to mind, we would be stepping out if we are doing something in Tucson, and we've not done anything there for a while, but it's still a very strong

Irwin Guzman - Citi

In terms of the existing portfolio, you know El Paso has been one of your weaker markets for while. Which markets are you a little bit more concerned about potentially over the 12 months or do you expect any negative things or performances to start creeping in any particular market?

David Hoster

I think, Florida is going to be a tough market for two reasons. One of course everybody is aware of the housing problems there. But also Florida has been such a strong market for us over the last couple of years. It is pretty hard to show improvement over what we have accomplished. So the bar is just set very high there, so that is going to be a tougher one to beat previous year's numbers on. But I think it is more of, we did so well there before rather than we are not going to do as well in the future.

Irwin Guzman - Citi

That's it for me, thank you.

David Hoster

Thanks.

Operator

We will take our next question from Mitch Germain with Banc of America Securities. Your line is open.

Mitch Germain - Banc of America Securities

Good morning.

David Hoster

Good morning.

Mitch Germain - Banc of America Securities

David, specific markets in terms of development. Are you seeing within any specific markets that some of the speculators are departing?

David Hoster

Absolutely. A year to two years ago and particularly local developers would build industrial buildings or little industrial parks. And we are able to flip those quickly to general institutional buyers, right after they were done when they were empty. And then cap rates that were very close to projected lease-up cap rates because there was such a demand for new industrial product in the end markets. And there is little or none of that happening today. Particularly in Houston, a number of developers did that were successful and have not reentered the market with new construction. So I think there is a period of less speculative development and I think that's good for us.

Mitch Germain - Banc of America Securities

Just as a reminder of the $120 million that you started this year. How much of that was build-to-suit?

David Hoster

About $30 million I guess we're doing build-to-suit for United Stationers in Orlando, which is a little over $20 million and we are doing a building for Carrier, where they are going to take two thirds of it in San Antonio. Those are the two primary ones.

Mitch Germain - Banc of America Securities

Okay. And of your 60 to 70, is that all speculative at this point, or any of that committed build-to-suit?

David Hoster

It's speculative.

Mitch Germain - Banc of America Securities

It's all speculative.

David Hoster

Yes.

Mitch Germain - Banc of America Securities

And just a quick modeling question for Keith. Interest income ran a bit higher this quarter, should we expect that to trail back to historical?

Keith McKey

On which category?

Mitch Germain - Banc of America Securities

Interest income.

Keith McKey

Interest income. Yes we've got some interest income on the combination awards, that will not continue. So that was--

Mitch Germain - Banc of America Securities

That's what I figured.

David Hoster

160,000 on that.

Keith McKey

160 on that.

Mitch Germain - Banc of America Securities

Fantastic. Thanks guys.

David Hoster

Thank you.

Operator

We'll take our next question from the side of Brendan Maiorana with Wachovia. Go ahead please.

Brendan Maiorana - Wachovia

Good morning. You gave us a perspective on the pricing of the pending Charlotte acquisition, whether it be yield terms, price per foot terms, versus the deals that you've done a year ago, just like to get a perspective on how pricing has changed in '08 versus '07?

David Hoster

When we report the sale, I will give you some more details on that. But we believe that the cap rate we're getting on this package, is somewhere between 25 and 50 basis points higher than it would have been 12 months ago. High quality group of buildings and strong submarkets, relatively new and we think a real strategic purchase for us.

Brendan Maiorana - Wachovia

Is there a qualitative difference between the packages from this year versus last year?

David Hoster

This package is -- rebuilding is either equal to or better than everything we already in Charlotte. And that's not to downgrade what we already own there, its just the quality of this portfolio.

Brendan Maiorana - Wachovia

Thank you.

Operator

(Operator Instructions). We will take our next question from the side of Matt Konrad with FBR. Go ahead please.

Matt Konrad - FBR

Hi good morning, gentlemen, thanks for taking my call. If you could just maybe anecdotally tell us what you're hearing from your tenants. I understand that leasing velocity is slower. But can you give an idea of their long-term plans? Are they taking a wait and see approach or, can you just let us know what you're hearing, particularly in Florida?

David Hoster

Its more of a wait and see and I think as a result, potential users don't have long-term plans because they are a little nervous about what's going on, and all I got to do listen to the economic news on television or read the big newspaper, especially New York newspapers and it's almost as though recession is going to be self-fulfilling from all the predictions. But everybody is nervous. So they're less quick to make long-term commitments, unless it's something that they've been working on for a while. And in each market it's a little bit different.

Matt Konrad - FBR

Right, and moving back to Florida. It looks like Jacksonville was pretty weak, as far as I could see. Is there any seasonality there?

David Hoster

No, not new. Somehow we always go a little bit lower in occupancy in the first quarter than we were in the fourth quarter. But other than that, there doesn't appear to be any seasonality. We didn't have any holiday related short-term leases this year like we have had sometimes in the past and part of that is because our occupancy was so high, we didn't have that extra space to lease out that way.

Matt Konrad - FBR

Right. And sir, you said that first quarter is usually lower than fourth. Do you expect that trend to continue this year?

David Hoster

Yes.

Matt Konrad - FBR

Okay. Thanks a lot.

David Hoster

Thank you.

Operator

We'll take our next question from the side of Nap Overton with Morgan Keegan. Your line is open.

Nap Overton - Morgan, Keegan & Company

Good morning. Just a couple of things. One, are you in a position that of kind of sitting and licking your chops about potential investments that you are going to be able to make, given the environment? Or is it steady as she goes in terms of making acquisition investments?

David Hoster

I think it's steady as she goes and maybe being just a little more hesitant and looking at properties, there is people who are writing and talking about and there has probably been a little bit of increase in cap rates, which you have to remember that in industrial properties the cap rates never went nearly as low as in big city office buildings and apartment complexes. So there is going to be less movement up. Very few times they were 3% and 4% cap rates in industrial, and that's one of the nice thing about industrial you don't get this big swings in it. But the statistics that I've heard and read on institutional capital coming into real estate, it's still going up. The pension funds are still committing additional dollars to the real estate markets. So while there probably will be some continued increase in cap rates, the A properties in A location A markets are going to have a whole out of movement because there is still tremendous number of dollars chasing them.

Nap Overton - Morgan, Keegan & Company

Okay. And then separate question is just looking through your development summary. There are four projects under constructions that slipped one to three months. Three of them slipped three months. Is that a factual result or is that an intentional slippage on your development?

David Hoster

Unintentional. So much of an industrial building is just poured concrete that if there is a lot of rain that puts us behind, and that particularly happens in Houston. Also we don't show it as complete until the landscaping is in and so that can also be delayed if we don't have a prospect that we're pushing to get into the space. We like to think we can build a building between five and six months and sometimes bigger buildings and bad weather cause that move out just to six or seven months.

Nap Overton - Morgan, Keegan & Company

Okay. And then just one other last qualitative kind of question, to make sure I interpreted right is that is your, reduction in projected development starts in 2008. That does reflect you just pull in your horns given the economic environment. Is that accurate?

David Hoster

Yes, and combined that we don't project doing any build-to-suits or pre-leased deals. And a year ago the markets were very strong, and we were being leased. We always project to 12 month lease up and we were getting leased up in three, four, five months and that allowed us to start subsequent buildings into the development a lot faster than we'd anticipated. So, last year we -- I think we projected about 75 million in starts and ended up at 120. It wasn't us just being more aggressive, but it was a reflection of how good the markets are, and that really determines what we start, not some prearranged schedule.

Nap Overton - Morgan, Keegan & Company

Okay.

David Hoster

Thank you.

Nap Overton - Morgan, Keegan & Company

And then, Keith, your total capital spending budget this year?

Keith McKey

On debt? How much debt we're going --?

Nap Overton - Morgan, Keegan & Company

No, total capital spending.

Keith McKey

Well, acquisitions of properties we were projecting 40 million in the first half and 10 million in the second half. And then on development, the 60 million to 70 million.

Nap Overton - Morgan, Keegan & Company

Okay. Thanks.

Keith McKey

Thank you.

Operator

We'll take our next question from the side of Philip Martin with Cantor Fitzgerald. Go ahead please.

Philip Martin - Cantor Fitzgerald

Yes, good morning all. Question on lease expirations in 2008? Can you talk about pre-leasing there, I know you've said it is slowing, but it is still good, but can you talk about pre leasing work you have done so far?

Keith McKey

Yeah, at 12/31 well it shows 15.28% maturing and we are going to have to deal with. Six weeks in to the year, we have reduced that to 13.5%.

Philip Martin - Cantor Fitzgerald

Okay. I know that leasing has slowed, but given the fact that there is less construction and you have relatively high occupancy. Is this giving you some pricing power in the market?

David Hoster

As you can see from our fourth quarter results, we continue to be successful in raising rents. I would say historically, what happens as market slows is rents are one of the last things to come down. You start with a little bit of free rent which we are seeing in just about all our markets, a just a little bit. Then you start giving bonus, commissions, especially on spaces that have been vacant for an extended period. You start giving a little bit higher TI allowances. We are not seeing that yet, and then finally you start to cut rent. And we are obviously not seeing that either. So, I think as the markets all end up and release it in some form of equilibrium, we will probably see and we project slightly lower rental increases in '08 than '07.

Philip Martin - Cantor Fitzgerald

Well and …

David Hoster

It is still up.

Philip Martin - Cantor Fitzgerald

Exactly. So, they are still up. Given, what seems to be a good sense of your individual markets, what has to happen in your opinion for rents to be cut here? Are we even close to that in your markets?

David Hoster

That's a big question. But the way I describe it, we were at a very high level of activity where the markets were great. It was pretty to lease space with the quality properties that we have in our good locations. We have gone from great to good and we seem to be have done a good for three or four months and the question is do we stay there or does this turn back down and we go into a full blown recession like we were in 2001, where there were just very few prospects out there. And that's when you start to cutting rents.

Philip Martin - Cantor Fitzgerald

Okay.

David Hoster

If I knew the answer to that question.

Philip Martin - Cantor Fitzgerald

No, I know it's a difficult one. But it sounds, I don't want to put words in your mouth, but it sounds generally speaking that the markets are healthy at this point and certainly that could turn for the economic slow down as worse than we think. But right now, they appear pretty healthy and leasing activity is still good. In terms of your FFO guidance for 2008, can you talk about some of the assumptions that went into that?

David Hoster

I think those are up. Keith can talk specifically about them. But we gave some I think good ranges in that January press release.

Keith McKey

We gave average occupancy of 93.5 to 95.5, same property NOI increased from zero to 2.5 and we did not break it down between occupancy and rental increases, its just the same property NOI.

Philip Martin - Cantor Fitzgerald

Are there any land sales in there or anything like that?

Keith McKey

No.

Philip Martin - Cantor Fitzgerald

Okay. And there is no acquisitions?

Keith McKey

Well, we projected the 40 million in the first half of '08, which we -- that's the Charlotte announcement.

Philip Martin - Cantor Fitzgerald

Yes.

Keith McKey

And an additional 10 million in the second half which we don't have right now. We just think we will pick up something else.

Philip Martin - Cantor Fitzgerald

Okay. But other than that, there is nothing other than the 50 in there, roughly? Okay.

Keith McKey

That's correct.

Philip Martin - Cantor Fitzgerald

I just wanted to double check that. Okay. That is all I have, thank you very much.

Keith McKey

Thank you.

Operator

We will take our next question from the side Paul Adornato with BMO Capital Markets. Your line is open.

Paul Adornato - BMO Capital Markets

Hi, good morning guys.

David Hoster

Good morning.

Paul Adornato - BMO Capital Markets

I was wondering if you could comment on construction costs, materials and labor and also land values?

David Hoster

The bad news is that we're starting to again see increases, announced increases in the cost of steel and concrete, which somewhat seems counter intuitive with residential market slowing. But both of those prices are going up. Anything related to petroleum like the roof products or PVC pipe, is fairly stable. And in some areas, labor appears to be down a bit, there are more subcontractors looking for work. So, they are doing more of calling us, rather than us calling them. But we are just recently seeing announcements for higher concrete and steel prices. I think in Houston, concrete is going up, April 1 another $4 a cubic area or something like that.

Paul Adornato - BMO Capital Markets

And land values?

David Hoster

That's awfully hard to tell. Most people with land usually ask in a fat price and they'd rather sell for some use other than industrial because they can get more money for it. We're seeing a little bit more flexibility I guess in land sellers, but we are generally building on infill sites, close-in sites so that we are not benefiting from somebody with residential land looking to get out in a hurry and allowing us to convert it to industrial because of our infill construction. But if you are out on the fringe development, yes the land prices appear to have come down there.

Paul Adornato - BMO Capital Markets

Okay, thank you.

Operator

We'll take our next question from the side of Chris Lucas with Robert Baird. Your line is open.

Chris Lucas - Robert Baird

Good morning guys.

David Hoster

Good morning.

Chris Lucas - Robert Baird

Just a couple of quick macro questions. David, are you guys seeing any change in the flow of properties available for acquisition at this point?

David Hoster

Historically January and February seem to be a slower time with the year. I think a lot of sellers decide in January, February what they want to sell for the year than pick a listing agent and so it usually picks up in March and April. So I think also I just hear and I don't know this is for a fact that there are number of sellers who are worried about the difficulty in a buyer finding financing, so there putting their sale on hold until the financial markets shake out of it. But I think maybe when we are on our first quarter conference call, we will be able to give you better answers to see if it is picked up like it historically does or whether the seller seems to stay on the sidelines.

Chris Lucas - Robert Baird

Okay. And then can you just help me understand what the cap rates or for your type product kind of broadly in your markets?

David Hoster

Everyone is so different and there have been so few transactions over the last 60 days that I heard about a cap rate I can't be real specific, I have talked to a number of brokers and what I have been told is in the Southeast anyway that for your A type properties, core properties, as pension fund people refer to them. The cap rates have come up 0 to 25 basis points and for B properties they are up 50 to 100 plus basis points and if you've got a not so good property in a tertiary location, you are going to have difficulty selling it today because of the financing on it. But cap rates still seem to be for good industrial, pretty sticky.

Chris Lucas - Robert Baird

Okay. Great thank you.

Operator

We have a follow up question from Mitch Germain with Banc of America Securities. Your line is open.

Mitch Germain - Banc of America Securities

Yes, Keith just remind me quickly, we've got a pretty broad range in your occupancy assumption, and you are ending the year toward the top of it. Kind of directionally, what should we assume for the year or is the larger question really just more of a safety net?

Keith McKey

It's more of a safety net, if every one of the assumptions hit the good end of it, we would blow the roof off in or they will hit the bottom of our assumption ranges, we would have some really low occupancy and low FFO. So, there is a lot of give and take in there. Overall, we expect that we would operate at an occupancy level somewhat below what we were able to achieve in '07 simply because of the economy.

Mitch Germain - Banc of America Securities

Great, thanks.

David Hoster

Thank you.

Operator

We appear to have no further questions at this time.

David Hoster

Well, thanks to everybody for their interest in EastGroup. And as always if we've missed something, or not have fully answered a question, don't hesitate to call Keith or me later today. Thank you.

Operator

This concludes today teleconference. Thank you for your participation and you may disconnect at anytime.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: EastGroup Properties Q4 2007 Earnings Call Transcript
This Transcript
All Transcripts