EastGroup Properties, Inc. (EGP) CEO Marshall Loeb on Q1 2020 Results - Earnings Call Transcript

EastGroup Properties, Inc. (NYSE:EGP) Q1 2020 Earnings Conference Call May 1, 2020 12:00 PM ET

Company Participants

Marshall Loeb - President and CEO

Brent Wood - CFO

Keena Frazier - Director, Leasing Statistics

Conference Call Participants

Jamie Feldman - Bank of America

Alexander Goldfarb - Piper Sandler

Manny Korchman - Citi

Bill Crow - Raymond James

Jason Green - Evercore

Craig Mailman - KeyBanc Capital

Eric Frankel - Green Street Advisors

Michael Carroll - RBC Capital Markets

Rich Anderson - SMBC

Blaine Heck - Wells Fargo

Operator

Good morning, and welcome to the EastGroup Properties' First Quarter 2020 Earnings Conference Call. Currently, all phone lines are in a listen-only mode. Later there will be an opportunity to ask questions during the question-and-answer session [Operator Instructions]. Please be advised today's program may be recorded. It is now my pleasure to turn the program over to Marshall Loeb, President and CEO.

Marshall Loeb

Good morning. And thanks for calling in for our first quarter 2020 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also participating on the call. And since we'll make forward-looking statements, we ask that you listen to the following disclaimer.

Keena Frazier

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 to our earnings press release, both available on the Investor page of our Web site 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 and within the safe harbor 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 we undertake no duty to update them whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors, including those directly and indirectly related to the outbreak of the ongoing coronavirus pandemic that may cause actual results to differ materially. We refer to certain of these risk factors in our SEC filings.

Marshall Loeb

Thanks Keena. Good morning, and thank you for your time. We hope everyone and their families are well and out of harm's way. This is the most atypical script I've written as it touches on the past, the present and the future, making it feel a little bit like writing a Christmas Carol. I want to start by thanking our team. They've done a great job transitioning our operating strategy quickly and doing so while working remotely.

I'll touch on first quarter briefly, we have another strong team performance this quarter, producing such stats as funds from operations coming in above guidance of 9.2% compared to first quarter last year. This marks 28th consecutive quarters of higher FFO per share as compared to the prior year quarter. Our quarterly occupancy was strong averaging 96.8%, leaving us 97.3% leased and 96.7% occupied at quarter end. We also set a quarterly record with re-leasing spreads of 24.6% GAAP and 14.1% cash. Our realized first quarter feels years ago today it certainly does to me. But it's a great reminder that in a steady open economy, our strategy works and has served our shareholders well over the years. I'm grateful we ended the quarter, generally fall at 97.3% leased.

During 2020, we'll likely have three different operating strategies. First quarter being the end of the last cycle, one for today during the lockdown and later one during the recovery. As we entered the quarantine, our focus shifted from accommodating expansions and growth, to maintaining occupancy and cash flow. In terms of liquidity, I'll thank Brent and our finance team as of quarter end we have the highest availability on our line and the company's history, and one of the lowest percentages drawn on our line since 2006.

Given the economic uncertainty, we're expecting higher retention rates, tenants needing economic help until the economy reopens and some tenants who simply can't survive the shutdown. Our asset teams have been working long hours with those tenants as asked for help to gain an understanding of each particular situation. We've assisted them in obtaining PPP loans and we're needed with banking relationships. While this won't be an easy task, two things that give me comfort are the quality of our portfolio. Our properties serve as key essential infill locations for our tenants’ businesses, and the experience and trust our team has.

While hard to calculate in terms of the bottom line, our team has a lot of tenure together at EastGroup. For example, at the VP level and above, the average tenure is 15 years. Within accounting, it's 13 years and eight years for property management. That's a lot of teamwork, trust and experience that's been built to weather uncertain times. We know one another. We know our markets, our properties and most importantly, we've built long term tenant relationships. That's not to say the road won't be rocky and have potholes but experience and relationships are most valuable in a downturn.

To-date, we've collected 94% of April rent and we expect for this percent to modestly rise as SBA loan proceeds are received and payments processed. We also expect that economic impact to be cumulative, so later months will also be challenging. The unknown is when the economy reopens and how fast it reopens. We and everyone else simply have less clarity than normal. Brent will speak more about our guidance update but in our revision, we increased bad debt projections by 100 basis points along with an occupancy decline of 110 basis points. As the economy reopens and we collect rents, we'll update these projections accordingly. Our goal and working with tenants and accommodating rent really is to collect those funds as soon as their business allows. Thankfully, we have the most diversified rent role in our sector, with our top 10 tenants only accounting for 7.7% of rents.

As we’ve stated before, our development starts are pulled by market demand. With the shutdown, we reduced projected starts to really reflect first quarter starts and pre-lease conversations that are underway. In other words, we're not forecasting new spec developments. We're also looking at acquisitions, dispositions and value add in that same line. Other than what is in hand, we're not projecting new activity. We view operations working with our tenants and maximizing liquidity as key goals until we reach the next market phase.

And now, Brent, will review a variety of financial topics, including our updated 2020 guidance.

Brent Wood

Thanks, Marshall and good morning. Our first quarter results continue to reflect strong overall performance of our portfolio prior to the pandemic. FFO per share the first quarter met the high end of our guidance range at $1.31 per share, and compared to first quarter of 2019 of $1.20, represented increase of 9.2%. Unfortunately, the current economic turbulence as a result of COVID-19 will interrupt our record setting momentum. I will center my comments around our capital status, rent collections and deferment request and assumption changes that lower the midpoint of our FFO per share estimate.

During the first quarter, we issued $15 million of equity at an average price of $142 per share, and closed on our $100 million seven year unsecured loans with a fixed interest rate of 2.39%. That activity, combined with our already strong and conservative balance sheet, has placed us in a position of strength entering this steady period of economic uncertainty. In fact, at March 31, EastGroup had the most capital available in its revolver in the history of the company, and one of the least strong percentages over the past decade. Our debt to total market capitalization is 23.5%, debt-to-EBITDA ratio is 5.2 times and our interest and fixed charge coverage ratios are over 7 times.

Our rent collections were equally strong at quarter-end. We have less than 1% of March or earlier rent outstanding that wasn't either covered by security deposits or reserved as a doubtful account. As for April, we have collected 94% of rents thus far and to date 26% of our tenants have requested some form of rent deferment. We have only entered into five written deferral arrangements thus far that represent 0.5% of April rents. We have denied over half of the request and are in the stages of consideration on 40%, which represent approximately 11% of monthly rents.

April is the first month that we truly encountered the virus related headwind. And as such there is very little actual data available to draw definitive conclusions for the near term. The depth and duration of this economic event is undeterminable. However, we anticipate some degree of tenant financial distress and decrease in leasing philosophy, which resulted in changing assumptions that lowered our FFO earnings guidance by 2.5% from a midpoint of $5.30 per share to $5.17, or 3.8% increase over 2019.

Among those changes were a decrease in average occupancy from 96.3% to 95.2%, and an increase in reserves for uncollectible rent of $800,000 to $3.8 million. The new reserve represents approximately 120 basis points of income from real estate operations, which is like what we experienced during the great recession on average. Also note, that this reserve for potential bad debt is not specific to any tenant, rather it is a general assumption that there will be some companies who simply aren't able to bridge the gap to the reopening of the economy. Other notable assumption revisions include the removal of unidentified acquisitions, dispositions and equity issuances for the remainder of the year.

In summary, I am optimistic that pre-pandemic trends that were directly beneficial to our Sunbelt market multi-tenant strategy along with potential new trends post-pandemic will benefit us long term. Meanwhile, we were allowed our financial stream, the experience of our team and the quality of our portfolios to navigate us through the near term. Now Marshall will make some final comments.

Marshall Loeb

Thanks, Brent. In closing, I'm proud of our first quarter results. We said the past few years our fear wasn't over supply as much as a black swan economic event. We don't want either but now we have just that. Our company and our teams have worked through these before. And while certainly different we’ll work through this event as well. And as the economy stabilizes, it's the future that makes me most excited for EastGroup.

Our strategy has worked well the past few years. Coming out of this pandemic, the trends we are hearing of are companies carrying additional inventory, increased U. S. manufacturing or near shoring in Mexico, shopping habits that have changed, accelerating the consumer to e-commerce and new industrial users as a result of those shopping habits. Meanwhile, our bread and butter traditional tenants will reopen and continue meeting last mile distribution space and fast growing Sunbelt markets. These along with a mix of our team, our operating strategy and our markets, has us optimistic about the future. And we'll now open up for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Jamie Feldman with Bank of America. Your line is open. Jamie, your line is open. Please check the mute function. Once again, Jamie Feldman.

Jamie Feldman

So I guess can you just talk more about some of the markets? I think we're all a little bit more concerned about here. Houston with energy exposure and then probably Orlando with tourism exposure, even Las Vegas. I know that's a small market for of you around 1% of revenue. But maybe if you could just give a little more color in terms of you're seeing across the different types of markets with different types of economy?

Marshall Loeb

Good question, and I'll try to touch all three without going on too much. And maybe probably the market that’s top of mind for a lot of people is Houston. Kind of throwing a few statistics at you start, I'll start globally on the market and then little bit on our portfolio. But Houston ended first quarter 6.6% vacant, that is roughly 22 million square feet under construction, which is a higher number than typical for Houston. Maybe the good news is we dig into that, likely typically say a lot of that is non-competitive properties in terms of, both buildings for example, five buildings.

If we pull those out, that's about 6.5 million square feet or about 30% of what's under construction. So thankfully, a lot of what's being built are larger big box spaces out in [Katy] or down in southeast markets where we're not. But certainly oil and gas and COVID, Houston is an atypical market and it's getting hit with both impacts. Thankfully our team, we ended the quarter 98.7% leased with just under 6.5% rolling and an update as of today. Thankfully, we're little over 97.1% leased with 4.8% rolling. So we've made some headway in the last month. So we're in good shape there.

Our April rent collections in Houston were 97%. So actually higher than our portfolio today. We have literally it’s about a handful of tenants that are and some are working on the SBA loans and things like that. So we're probably, and Houston is about 13% of our NOI, our earlier projections and this year's a little obviously more uncertain than others had us dropping below 13% in fourth quarter. So we'll keep working on our exposure there kind of work wiggling it down. But Houston's probably, I guess on all three markets what I would say or any of the tourism markets, things are typically never as good as people think they are and they're usually never as bad as people think they are. But Houston I know you all have read it, fourth largest city in the country.

It's had a lot of in migration the last several years. It’s getting hit right now as you mentioned the coronavirus and oil and gas. But it's an awfully resilient market and we think long-term, it's a really strong market. We've got a great team there and we'll manager our size there. But have activity in Houston a little bit the same in Orlando and Las Vegas. Certainly tourism markets but probably Orlando a little more than Las Vegas. It's really become kind of the e-commerce hub for Florida.

We like that market long-term where we don't have that much direct tourism exposure in Orlando where we probably have some, it's really more, I guess that is, it’s convention space, and things like that. It's not as much Disney, Universal Studios, all the things like that. But Orlando, and we just signed a 20,000 foot lease in Orlando. I guess it was Wednesday we got a lease in there. So there's some activity there certainly. And they're talking about, at least now talking about reopening Disney World, Universal Studios, SeaWorld so it may be 50% capacity is what we've heard, I believe the governor was saying and then moving to 75% capacity there.

So hopefully slowly reopening Las Vegas with the strip close. Thankfully, we've got no lease expirations in Las Vegas for the balance of 2020. And we bought three buildings last fall and even early fourth quarter got two of those leased really by the time they completed, have had activity on the balance and that slowed down with the downturn, but are working with a prospect or two on those buildings.

So thankfully, again as you saw, I wish we were bigger in Las Vegas than we are. We like each of those markets long term. But right now they're all a little more -- being a little more hit. But at least through April, they’ve held up well. I'm happy to be over 97% leased in Houston with under 5% rolling. And so we'll keep chipping away at it and working with our customers. Those markets are probably a little more challenged than typical, but so far good and probably -- and this is intuitive. Our sense is the market thinks they're a lot worse than they've actually been today.

Jamie Feldman

I guess just on Huston. Are you able to break out what percentage of your tenant base there is actually impacted by the price of oil versus what percentage is not [Multiple Speakers] the oil prices?

Marshall Loeb

We went through and looked at it and it gets a little tricky with some of the three fields and things like that. But we estimated it's roughly 20% some form or fashion and related to oil and gas industry.

Operator

[Operator Instructions] We will go next to Alexander Goldfarb with Piper Sandler. Your line is open.

Alexander Goldfarb

Just continuing down on Jamie's question on the tenants. Brent, you mentioned that 40% of the people who raised their rent relief, you think are actually will get it and it sounds like are deserving of it. Can you just give a little bit more color as far as the tenants and what's going on? I'm assuming there were a bunch of people that just raised their hand because they could. And then you probably have some tenants who are probably on their last legs anyway, and I'm guessing that those are not part of that 40%. But if the ones who are impacted, do they just merely need their businesses to reopen and then they're good to start paying? Or those are tenants where you think it's going to be longer to get back those rents?

Brent Wood

Yes, maybe to clarify that some. So to date we said 26% of our tenants have requested for some form of relief. Certainly, some of those have just putting their hands up as they felt like they should. We've already denied 58% of those requests. We've executed some form of short term deferral arrangement with 2%, which represented 0.5% of April rents for example. But the remaining 40% of those requests, that doesn't mean that we're -- in fact, we won't grant that many. That just means that 40% is in some stage we've requested additional information, we're doing additional background, we're maybe waiting to hear to see if they got PPP loans.

So that just simply means that 40% is continuing to be monitored and watched. Some of that percentage will be wind up in the denied bucket and some smaller percentage of that perhaps will wind up in the execute agreement bucket. But that 40% as of April only represented about 10.5% of April rents. And again, the 40% is just a monitoring watchlist, talking to group and they will yet to be determined if they will wind up in a denied or executed agreement, but certainly not all of that will be agreed upon. So hopefully that clarifies that a little bit.

Alexander Goldfarb

And then the second question is far as leasing goes, you guys are fortunate that a lot of your exposures in states are just starting to reopen. I'm not sure how much in person leasing is going to happen in the near term. But do you guys need in person transact -- like basically do you need people on the ground to be kick in like looking at space or are transacting on buildings? Or because a lot of warehouse can be done through Google Earth or virtually you could actually resume a lot of leasing and maybe even start due diligence on buildings to buy or sell or land, you could do that virtually? So basically, how much of the resumption of your business depends on in person travel versus how much can you actually do virtually?

Marshall Loeb

And I think really a lot of will be driven by the prospect of the tenant but it's not needed. You can certainly do it. I mean, we have virtual tours and photos and drone aerials and things like that so we can -- and then all the tenants have a broker and that broker is usually local, or at least working with another someone else in their shop in the Orlando and Austin, or whatever market the property has to be in. So it can be done.

I think the other thing I like about our product type each space has its own separate entrance. There's not a common area, say like a office building, or shared restrooms and things like that. So it can be done remotely and virtually. And certainly a lot of the national companies where we've seen a lot of our activity as they roll out kind of their smaller or last mile delivery, they know what they need and how many dock doors, all the things that. So I won't say it’s cookie cutter, but at least it's like opening a new resource so you kind of have your format.

So it can be done virtually. It just depends on how comfortable they are with that. But we’ve certainly been pushing and the brokerage group, so with the third party that we use all realize that. So they ramped up their, basically their technology and virtual abilities to show space. So it's not as ideal as in person and things like that kind of the traditional model, but it certainly can be done and it certainly where the world seems to be evolving the last couple months a lot more so.

Operator

And we will take our next question from Manny Korchman with Citi. Your line is open.

Manny Korchman

Marshall, can you maybe go through any commonalities or sort of just the flavor of both the companies that have requested relief and the companies that you've granted relief? And also just how you're thinking about incorporating the relief of the extensions or new lease terms what is that?

Marshall Loeb

It's been a mix bag so far for the most part. Typically where people have asked for relief, it's usually, can I have the month of April and May and I'll pay you back over the balance of the year. I'm thinking of one in particular we did. And they were near the port of LA and Long Beach. So with the slowdown in China, they needed some help there, and I think we ended up giving them negotiated like two half months rents. And then we'll typically -- again, you don't want to put someone in a payment plan that they can't need, set them up for failure. But our goal is to collect it back as fast as we can.

So it's not been, I need out of my lease. Thankfully, we did not adjust our termination income for the year. It may change, but we really haven't thankfully seen any rush for people saying I'm going out of my lease. It's been I need a month or half a month here or there and we'll make it up later. In some cases, those tenants have been able to get an SBA loan since that original request came in, and they since withdrawn their rent relief request, thankfully. And so that's still in process with some of the tenants.

And it's been a mix bag, I'd those that are related, as I kind of mentioned between Orlando and Las Vegas that are in -- it’s usually the convention type business. We've seen them be impacted fairly quickly. Another tenant is they move people for the military and the military has put moves on hold. So I think there are some that you certainly get and there's a backlog supposedly for military moves. And once that reopens, they're qualified and have done it for years and years.

So I think their business will pick back up but it will be a month or two or a half months or two here and there. And then hopefully, the goal will need to be back to, for us to be back to whole by year-end but a little bit -- we'll also work with them. And again, if they need some more time or if we end up extending the lease term or some things like that, that's kind of where we're going. If we do this for you what can we gain in return. And Brent…

Brent Wood

Yes, just one thing I’d point out. We do look at and segregate our tenants into NAICS codes. And globally, about 22% of our tenants wholesale and retail trade about 18%, transportation and warehousing, construction related around 18%. And our rent relief request today literally almost mirror those percentages identically. So really what it shows us impacting all tenants equally, as Marshall said, there's some individual specific tenants certainly are greater more, maybe quicker impact. But for the portfolio as a whole, really there's been no one large saving or percentage I'd say while that really jumps off the pages, those percentages are eerily similar to make up of our tenant base. So it's been pretty broad from that standpoint.

Operator

And we can take our next question from Bill Crow with Raymond James. Your line is open.

Bill Crow

What percentage of your current portfolio is just closed where they're non-operating?

Brent Wood

I’d have to estimate, it's a very small percentage. I mean I’d say under 2%. We've got some and kind of shows where the market was when those were leased. It may be like a volleyball training facility, or YMCA or something like that. It's small tenants here or there. But for the most part, thankfully, our markets have not been hit by the construction shutdowns and a few of the markets around the country. And I'd say it's probably under 12 tenants out of 1,600 that would be closed at this point.

Marshall Loeb

And just to be clear on that, Bill, all of our buildings are from our perspective are “open”. Meaning we haven't put any restrictions. Thankfully, the way industrial works, we really don't have interior common areas. Each tenant has its own separate accessible space. So it's really our 1,600 or 1,700 customers. It's really each their own as to how many people working if they're open how many are there, steps they're taking. Obviously, we're communicating with them. But thankfully from our standpoint, we haven't had to step in and say we're going to close this or do that. It's really that each tenants kind of make their own judgment calls on that.

Bill Crow

If we go back to 2008 and 2009, one of the challenges was that you had a decent amount of exposure to smaller home builders. And that business had gone down dramatically. Certainly, it looks like construction is going to hit a pause button at least. How is your exposure to local construction companies, contractors, or has changed since then?

Marshall Loeb

Certainly, homebuilding has never really, I guess a good analogy, never come back the way it was back in 2007-08. We have some exposure there. Although, I think a lot of ours and it maybe and maybe that's where the industry is consolidated. Things like HVAC contractors and things like that, which is a pretty essential business. If you're in San Antonio and it's July and August, and it's Baker or Carrier or Train Goodman some of the [HVAC] contractors as things reopen or certainly even residentially that's there. It's high-teens as around 18% related directly in construction categories we've quoted it. But to-date that has not jumped out.

You're right, homebuilders and even markets like, when I think of homebuilding, Fort Myers is a market where we're in which got hit, are during the last downturn. But we're 100% leased in Fort Myers delivering a building that’s pre-leased to Home Depot there and have had good activity just signed the lease. Again, kind of with construction in the last 30 days with Ferguson plumbing and expansion and activity in Fort Myers. And that's the market where we felt like in the last downturn, we really learned it was very much second homes and homebuilding. But today is holding up fairly well. And there'll be some box arrive but knock on wood that that category hasn't been hit really hard just yet, or at least it hasn't rippled its way to us yet.

Bill Crow

One more, if I could and you talked about this earlier and I missed it, just move on. But is there an opportunity here where construction costs could reverse some of the gains over the last few years?

Marshall Loeb

What we're hearing is there's labor is more available. Although, a little bit less efficient, because of the social distancing and that shell costs have come down $1 to $2 per square foot. And again, our construction guys brings the other thing, I think all the industrial developers, I’m not saying all of it, but the large national ones, everyone's pretty much put spec development on hold. And then the other types of construction that was going on the hotels, the retail, the entertainment, all that has really stopped. So I think we leave the demand there, but I think the construction prices have come down a little bit and will probably continue to come down over the next two to three months that everybody seem to have hit the pause button for a little bit. And some other sectors will come back more slowly than industrial. And I hope we'll be able to benefit from that.

Operator

And we will go next to Jason Green with Evercore. Your line is open.

Jason Green

I know a lot of your transactions are locally sourced. I'm curious if you're starting to see any local owners looking for a liquidation event. And do you anticipate starting to see some attractive acquisition opportunities as a result of some of the market distress?

Marshall Loeb

So for the time being, we're still looking but not nearly with the same intensity we had, maybe at the end of the year, the first part of the year. We're kind of, at this points we’ve asked our teams to keep a list of the things that are off market, if you like, or just some deals that were on the market that got pulled or kind of quietly on the market. I think that will be there. Although and talking to one of the national brokerage groups this week, just kind of before the call, I'm getting a sense from what they're seeing. And I don't know that our strategy is that. Their comment was there's a lot of dry powder waiting for distress in the industrial space. And thankfully, maybe or so far no one has seen it.

So we're hopeful but we'll wait until there's a little bit firmer footing. I think the hard part when you think about it. We found the projects in one of our markets early on that we were looking at and we said it was leased. It's awfully hard to know which tenants are going to be there by the time we close or what rent they maybe paying, but it's hard to underwrite the rent roll. And so we've kind of -- what we said let's keep an eye on things. And as we get to maybe a little bit firmer footing and the economy reopens, and tending we have access to debt today we'd like a little bit higher stock price things like that we'll manage our liquidity.

And hopefully they'll be some distress out there but to-date we haven't seen it but we're hopeful everything's institutionally owned and so maybe even so much is. The good news is development stops pretty quickly because of that institutional ownership. The downside of that is there's not the distress there used to be way back when, and Brent and I were earlier in our career when so many things were Jason, Brent, Marshall, the local developer with a bank loan now, it’s the local developer with Clarion, or Heitman or AEW as partner type thing.

Jason Green

And then I guess now that your stock is trading back above $100 again, I realized it's a significant discount from where you were earlier in the year. But would you consider raising equity at these levels or at these prices, are you really just much more focused on debt financing?

Brent Wood

Yes, I would say we're always looking at both avenues. And as you saw, we did do execute some debt in first quarter at 2.39, which was a good spot for us. But we keep an eye on it and we have an internal NAV and that's probably the metric that we look at the most is how we're trading relative to NAV and it certainly doesn't have to get back to where we were. We were fortunate to trade at a at a premium. So you saw from the guidance that we did pull, and it's just given the environment but that's just at this point in time. Obviously, if the price were to show some strength, economy get a little stronger and if the price did at least probably at minimum get what we feel is that be or above NAV, then certainly we would view that lever as available.

We've been more, like Marshall said over the last month or so, we're getting a little more capital conservation mode. We're in great shape for the near term. But yes, it's certainly conceivable but from a guidance standpoint, just given our current pricing, we pulled it. But whichever one's most attractive at that time, we would look to source capital in that way.

Operator

And we will take our next question from Craig Mailman with KeyBanc Capital. Your line is open.

Craig Mailman

Marshall, I know you said you don't want to do spec construction here. But could you give us just a little bit more detail on the $70 million of additional starts you have in guidance and whether those are kind of more built to suit or just a placeholder?

Marshall Loeb

No, it could turn out to be spec development. If it was, it would probably be more realistic. We’ve got nothing planned this quarter no starts, and it's really more of a reflection of a pre-lease, 100% or built, I guess we refer the term on splitting hairs, three lease over built to suit, build to suit sounds like it’s a building that fits just that tenant where you typically will build something, who's the next, the second, third, fourth tenant. But pre-lease opportunities but we have, a good handful of conversations ongoing with tenants that are still active and still seeing demand and really that $70 million balance for the most part between here and end of the year and things really came back, maybe more quickly than we also like today.

I’d love to think we’ve set development but again like our model that it's really pulled by the field. So if the guys are saying I've got three tenants that need expansion space and I've got room in my park, that's where you'd see us do a spec development or maybe have a building. But 50% pre-leased when we break ground, because it's an existing tenant we're moving from one building to the new one.

Craig Mailman

And then you'd mentioned you did a little bit of leasing in April in Houston. Could you just give us maybe an update of kind of the volume you guys have done here quarter-to-date? And historically, you guys have been more of a regional tendency, I would say, but more recently you're getting more of the nationals and e-commerce type tenants. Could you just tell us kind of what's in the pipeline? How that mix has trended over time as well?

Marshall Loeb

I think good question and one a little bit of a misnomer on EastGroup, or maybe I'll put it on myself something I could or should articulate a little better. I think a lot of times people think smaller tenant sizes means mom and pop tenants are more so than it really isn't. In a lot of cases we have, large national global companies that this is just what they need in that market given how their distribution or service model is set up. And I guess as an example we've got Amazon in a space that it’s under 10,000 feet, for example, we've got, we've seen them in 40s and 50s and same with the Best Buys, Homes, the Lowe's -- Home Depot, Lowe's, those type tenants, Palatin, any number of Tesla. So I think our tenants we have more national tenants than we probably have articulated and even the local regional ones have been in business 20, 30 years. So pretty well capitalized for what they do.

So we feel good about that perspective. We do see more and more what's been interesting is the national tenants roll out their model kind of I touched on earlier than it almost seems to go region by region. And we're opening up our local distribution center for what we've heard about white goods, meaning a refrigerator, a washer dryer and it will start in Orlando maybe and then we'll see in Miami. And then the one we're looking in Las Vegas today and things like that. So it seems like the national tenants rolling out their last mile platform. So where we've seen [Wayfair] once, then all of a sudden we're in for conversations with them. And again, we won't land them in four markets, but we will get them there.

So there’s activity. It definitely slowed in the month of April. Renewals have been pretty high. We had good retention rates higher than typical this quarter. And we kind of felt that what tenants would expect to move, I would say long term. If you're building a model and use 70% retention rate for us or any of our peers for the most part, it's always seem to be kind of the average and we were about 86% first quarter and that was really for the most part pre-COVID. So I would expect a lot more renewals than typical this year, because I think people have put their expansion plans on hold that they had last year for the most part. April was slower but it's large, it's e-commerce, it’s kind of large national companies for the most part that have requirements for home goods or home improvement, it’s food and beverage is another category where we've seen some decent activity outside of just kind of the bread and butter renewals.

And then we’ve seen some uses COVID related. Hand sanitizers, one is portable medical testing equipment. We got a lease signed in Atlanta this month. We’ve competed for some space with the State of California was out looking for immediate. So some of those will come out and it'll be basically an immediate requirement. So that, if it helps, that’s kind of the nature of our leasing the last month where it's kind of most people like us kind of shelter in place literally, and do a renewal of some sort or there are companies that are, we think probably benefiting from this shift and are out looking for space now.

Craig Mailman

On the renewals, what has been the conversation around kind of rent? Have you guys been able to push through any bumps or have people push back? Can you kind of just talk about the direction of spreads and the pace of rent growth?

Marshall Loeb

Well, good news is we have embedded rent growth. So I think it will probably -- and this is more -- probably more forward looking than really April. We just don't have enough -- probably enough data points to really draw a good conclusion yet. I think rent growth will obviously slow. But thankfully, we'll be able to push ahead with rent increases, and rent bumps are still there, probably where it's most competitor are new leasing where you've got vacancy. And I think those tenants have pushed for a little more free rent and things like that is what we're hearing.

So probably seeing more competition, makes sense on a new lease. And then in a few cases where the tenants have said, I thought I was going to outgrow in our state something and one in particular where we had been vacating, and they did a one or two year renewal just kind stay in place. And there was no free rents and some rent off some things like that. So it's probably new leasing and you'll see rent growth slow inevitably, but thankfully on us, and I would imagine most of our peers have kind of embedded rent growth given where the markets gone the last few years.

Craig Mailman

So it seems like still just kind of usage of space and size requirements continue to trump a couple of percent increase in terms of the conversation?

Marshall Loeb

If you’ve got the right space and the right number of dock doors and things like that, we're not losing deals over rent. I just think it won’t be the frenzy too strong of a word, but it won't be as heated a market as it was in ‘18 and ‘19. And then I think coming out of it, it's going to pick up with new supply, it's going to pick up and probably be an optimist than in even more demand market coming out than we had in ‘18 and ‘19, depending on not sure when we get to that point in time, but that time I think it will be better for industrial.

Operator

And we can take our next question from Eric Frankel with Green Street Advisors. Your line is now open.

Eric Frankel

So my question, I think you partially answered in some of your replies, kind of an applied basis. But maybe to touch upon just your bad debt allowance, so I guess in 2009 certainly a different portfolio and different time then and different tenant base. I think your actual bad debt experience then was a little bit higher than what your allowance now shows for 2020. So I was hoping maybe you could explain the difference?

Brent Wood

In 2009, we averaged for the year about 122 basis points of total bad debt compared to our income from real estate operation. And that really -- we considered many factors, but that was probably the primary factor that we used in raising our bad debt allowance for the year from 800,000 to 3.8 million. That 3.8 million takes it to right out of 121 basis points, almost the exact same spot. I think a lot of our peer groups have been in and around kind of guided to that same general range relative to their income stream. And so that's really what we used as a guide. I would want to point out that that allowance is not tenant specific. Thankfully, we entered April with very clean receivable balance, I think mentioned in the prepared remarks that March or earlier, we've got less than 1% that was due us at that time that wasn't either collected or covered in some other way.

And so, - based on that and whether it will be better than that or worse than that, we're so early into this. April was really the first month that we experienced any headwinds. By the time March came around and things got more dire. For the most part, March rent collections, thankfully, were done for us. So the only other thing I'd point out on the 3.8 million is that as you see in our guided table, 2 million of that is based on just cash, same-store, anticipated bad debt, or budgeted bad debt. And then 200,000 that is cash but non-same-store property and then 1.6 million of that bad debt total would relate to straight line, write off of potential straight line balances.

But again, those are not tenant specific that’s other than the 500,000 we recorded in the first quarter, the remaining 3.3 million is complete budgeted cover that we just -- we just think it's -- had to put something and assuming that not every tenant unfortunately going to be able to bridge the gap from here to reopening the economy. So we don't know who they're going to be but we anticipate there will be some. And so that was really the impetus behind dialing it up a little bit.

Eric Frankel

[Technical Difficulty] back quickly to Houston. Maybe talk a little bit more just about what local leasing conditions generally look like and just how dependent leasing is on oil and gas specifically at this point? And what the ramifications you think might be, even if your current base is not exposed directly to oil and gas, or what it might look like in the next couple of years, depending on how that industry kind of shakes out?

Marshall Loeb

Sure. I'll take a stab and Brent, given you history the color of comments later. I'm thankful supply is pretty much -- Houston like all markets. So I would expect we'll work our way through the $22 million is under construction. There will be some downward pressure on rents. And Houston, maybe the good news what we like about our portfolio of footprint kind of short term and long term. When you read about markets reopening, it’s Georgia somewhat reopened last Friday. I think Texas will be a market reopens and their economy say a little bit earlier than a New York or probably California.

So I think a lot of our markets will be earlier in the reopening. And then I think coming out of this that we expect the migration to the Sunbelt will probably pick up a whole another topic. But in this short term, we think Houston is oil and gas. Our tenants it's not -- it's a big part of the Houston economy, but it's probably over exaggerated, generally I think kind of like tourism is in Orlando, as we touched on. So I think it'll be a challenge in Houston, particularly compared to our other markets for the next year. And we'll probably be more cautious on site development in Houston than we are in other markets.

And really part of Huston answer is also just we're cognizant of our size there. And so we're going to manage the size we're down from 21% to 13% of our portfolio and we'll keep that we -- our team does a great job of developing buildings under the subs there, but we'll also keep trying to exit buildings and somewhere in the four or five kind of cap rate range. So Brent any color…

Brent Wood

No, I would agree with that. I’d just point out that Houston, during the '14-'15 downturn and this certainly gone a little deeper than that. But through that entire period, Houston still at its population and job growth. The question is can the remaining two thirds of the Houston metropolitan area economy help to some extent offset that other third, and in did in '14 and '15 is to be determined here.

Obviously, it has the COVID mixed in with that, which makes it even more challenging. But if a large city, there are a lot of people there, which does prompt a lot of use for industrial space. And having lived there and been there, I know that the mentality of that area is sort of blue collar and just roll up and get it done. So yes, long term we feel good about the city. Just certainly reopening the economy and having some oil and gas consumption is going to help things. But we've got a good team, good experienced team and we'll just continue to -- very glad that we've lowered our risk there significantly, but we'll just continue to monitor and take it space by space and tenant by tenant.

Operator

And we can take our next question from Michael Carroll with RBC Capital Markets. Your line is open.

Michael Carroll

I just wanted to touch on your comments about what your customers are telling you today. At least in the press release released last night, it sounded like that you're more cautious going into May and June versus April. Is that something that you're hearing from your tenants today, or is that just what's your expectation on how the markets kind of unfolding right now?

Brent Wood

I think it's more of the later. And again as Brent mentioned earlier, none of our bad debt reserve is tenants specific. It's more a thought of no business is really designed for the economy to be shutdown. And so as things did move to businesses close and things like that, it's probably just cash on hand and availability, and your ability to pay April rents probably easier and then that financial burden almost regardless unless you're some of the exceptions your business, it probably gets a little more challenging for them balance sheet wise in May and maybe even in June. And that's why the sooner we can safely reopen the better for all of us and that’s that really says.

There's probably cumulative in terms of caring your employees and paying your rent and things like that, it's probably easiest the first month and a little bit harder the second and a little bit harder still the third. But that that was more intuition, much more so completely than really anything we've heard from any tenants, it’s got to be hard when your revenue source is shutdown and things like that and retaining on which tenant it is just how much revenue they're losing, while the economy is kind of at a standstill.

Michael Carroll

And then can you talk a little bit about I guess the tenant mix. I know that you said that you have more national tenants than people probably expect. So what percentage do you say is national tenants versus the local tenants or regional tenants within the portfolio? I mean, have you looked at that or is that data that you could provide us?

Brent Wood

The data on that's very tricky. Obviously, the publicly traded companies, it's easier to track because you can look them up but there can be very large private companies, for example, that are well heeled that we just don't have a way or access to do that. So we don't have specific metrics. So obviously, we have their trade groups. But in terms of broken down by balance sheet size or that type thing, we really don't have that. Marshall has mentioned a couple times the quality of our portfolio. I would just reiterate where we operate and especially with our development having built half our portfolio. We operate a very high quality Class A portfolio. Obviously, I think a lot of people maybe think small tenants, they begin to think that Class B, Class C.

Obviously, as you go down the food chain and quality of building then you're going down with quality of tenants at the lower price point and they can afford that more. And it's not a lot different than say housing where as you go down, it's just more challenging for people potentially with difficult times. But we're in that Class A, really top end of the of the multi-tenant space. So we fared well through the great recession. I would point out we were one of the leaders coming out of that with regaining occupancy, because that is the broadest base of the potential customers out there, just from a pure population standpoint is that 20,000 to 50,000 square foot tenant. So we feel good long term about where we are. And we've been through as a team several of these downturns and we feel we're in -- we'd rather not have to deal with it, but we feel like we're in a good position to handle it.

Operator

And we will take our next question from Rich Anderson with SMBC. Your line is open.

Rich Anderson

So, Brent, you’ve mentioned that the bad debt of incrementally 3 million, 3.8 million total was not tenant specific, and yet you're able to get to this breakdown between straight line rent, collectability issue or -- and 2 million, I think 2 million in the cash bucket, 1.6 million in the non-cash bucket? So how are you able to get that level of detail if you didn't really kind of get into the weeds within individual tenants on it, just curious how that…

Brent Wood

We got bad debt stats going back for about 20 years. And our average mix of cash, the straight line is 65% 35% and that holds pretty -- it certainly varies quarter to quarter and maybe a little bit year to year. But on average, it's very close to that. And so we just relied upon that, that historical breakdown. I mean obviously if you get to a point where you're pulling the plug on a tenant just determining that accounts uncollectible, you obviously have the cash build up of just the rent they owe you, let's say they owned you 90 days, you've got that to write off.

But then you also have whatever their straight line rent balance at that point in time might be gets written off. If you're lucky and you're toward the end of that lease, it would be a smaller straight line balance. But if you're on the front end of that lease or even toward the midpoint then there likely would be a balance there. So we knew that it wouldn't be 100% cash, because -- and again just relying on our historical average 65-35 that seem like a reasonable way to break that out.

Rich Anderson

And then maybe broader question for Marshall or yourself. You talked about some of the positive elements that may come out of this in terms of onshoring or nearshoring inventory increases, changes in consumer behaviors. But in the near term, would you agree that the sort of last mile sort of component of the business might be a little bit more exposed only because you're still relying upon the activities, the local economies in the markets that you're serving in that sort of infill last mile product. The big problem with larger assets is supply as you say a lot on these calls. And I'm curious if you feel like you're almost sort of hyper exposed to a recession, because there's just people out of work in the market that you're serving. I just like to hear your comment on that?

Marshall Loeb

Interesting perspective and probably a longer conversation over time this morning. We certainly need the consumer pick a market in Tampa, in Phoenix and San Francisco. But I've actually thought the opposite of that and that people are at home now and getting more and more goods delivered or picking up curbside. When you think of how people are shopping, I've actually thought it puts, pressure is not the right word but more and more value to last mile locations, because depending on what you're delivering you're not going to just reopening some of their malls and things like that. But you're not going to the mall and you may not be going and sitting in a restaurant. Your shopping has changed and you need that last mile even more so than you did prior to this. So I think we need the consumer, we need demand to be there. But people are ordering things online and from their home or by phone, and so the last mile is picked up importance. And I think that's a pattern that's going to stick there.

Operator

And we will take our next question from [Elena Travis] with Morgan Stanley. Your line is open.

Unidentified Analyst

This is [Elina] on for Vikram. Thanks for taking the question. Just a quick one. I'm not sure if you can provide or if it's too early. But do you know what percentage of May rents you've collected so far, and is it more or less than normal levels?

Marshall Loeb

It's a fair question and we’re preparing everything else, we've not just deep dive into that. And the percentage at this point probably would be one where we wouldn't want to overly spook someone just because that percentage at this point time isn't necessarily that high. But I would say that our anticipation and just early look at it is similar to April maybe slightly behind normal but nothing that's eye rising. But really our experience has been you really don't get a good read on the month until about 10th or so, because that's when some of the penalties and late fees and things would kick in. And so it's not unusual to have pretty good velocity coming through on the cash receipts, about 10 days before quarter end all the way up to about 10 days after. And so within about that 20-day period, you're going to get a really good idea of who's paid, who hasn't. But we're just sort of midway on that and really no additional color to provide at this time.

Operator

And we could move next to Blaine Heck with Wells Fargo. Your line is open.

Blaine Heck

Just following up on the tenancy questions that you guys have look on and this might be tough to answer to, but given the conversations you're having with tenants. Do you have any idea as to what percentage of your tenant base has received or will receive some sort of government help in the form of a grant or a PPP loan? And is there anyway to know how instrumental that is and their ability to pay rent, or are they using the loans for other expenses?

Marshall Loeb

Good question and you’re right, probably a trickier one to answer, where we’ve gotten involved of that 26% of say the tenants that may come to us and say we need help, our standard form or list of questions and things are have you applied for an SBA loan. And we know that's kind of -- again, we don't want to be the lender of first resort is basically, we'd rather. If you can get the SBA loan and certainly not an expert on it, but my understanding of those loans is it's really -- the amount you end up ultimately needing to pay back. If you can show it was going to pay employees and pay your rent, that part is forgiven. So that's where we've had a number of cases where tenants have asked for rent relief and subsequently withdrawn their request, because they didn't get the SBA loan.

And then the other thing, getting an SBA loan education through this, so many of the banks, as you saw the money ran out so fast and in some cases, it's more of a political comment, it seemed to be large companies with good banking relationships got those loans. And so some of our tenants were having trouble. We actually help them like here is here's the bank, here's the website, let us know we can help you with a banker, specific banker there. So in terms of percentages globally, it's hard to say how many as it does so like those that did get the SBA loans, are using them to pay the rent, because that's what it was designed for. And my understanding is they won't have to pay that portion of the loan back.

And we're trying to work with them as best we can, making it an easier processes as we can as an outsider, not their banker, not their attorney just to obtain those loans. And I think there's some still going from email this morning, going through that process for someone who's just gotten funding and so hopefully, that's where that May, June rent will come in. Maybe they didn't have it in April or maybe they'll just now getting it. So I think it's helpful and it's not the majority of our tenants by far, but they all matter. And so everyone that can kind of get us each month you can’t say, but at least we're closer to the other side of this, because we get excited about the other side of this. And so each month, we collect just the way at our bad debt estimate or our occupancy loss estimate thankfully.

Blaine Heck

Just one quick one, Brent. You guys have some upcoming maturities both this year and next. Can you just talk about what you're seeing in the debt market and how you're thinking about addressing those maturities as it stands today?

Brent Wood

Yes, we do have $40 million coming I think in August and then $75 million it’s not coming till December. So we have some runway there. And then a pretty typical year next year at $125 million maturing. And we've tried to keep a very steady as you see in the supplemental, very steady evenly distributed maturity schedule. Right now, really good timing with the loan we did first quarter. But right now, things spread really widened out right in the midst of all this and that's come back down. And we think we could get 10 year or long term money in the low 3% range, which is not unattractive. And hopefully if things go maybe even that will simmer down even more. But as of the last few days and talking to some of our private placement lenders, we feel like given our size and rating and that type thing that we would be in that ballpark.

So we certainly view that as accessible and available as needed. And as you see in our guidance table, although, we pulled the equity issuance, we went to the other lever and bumped up our anticipated debt access this year. And we've been building ourselves in a position even -- we've even been questioned about the rate at which we were issuing equity. And again, our philosophy has always been when it looks -- do it when it looks attractive and it's available versus having to be reactionary.

So fortunately, we're in a position where we can let the markets calm and cool down. And hopefully, I think maybe third quarter is the first time we dialed going back in. But we certainly feel like that that leverage becoming -- has become more attractive just in the last 30 days, which is nice to see.

Operator

And this does conclude our question and answer session. I'd like to turn the program back over to Marshall Loeb for any closing remarks.

Marshall Loeb

Thanks everyone for your time. Certainly, last and probably most importantly, I want to thank Bruce Corkern. He is our Chief Accounting Officer. He has now survived his last quarter and closeout. He's been with us over 25 years. So Bruce, thanks. Just because you're retired, you're not getting away from us. And meanwhile the audience thank you for everyone. Thanks for your time. We're certainly available for any follow up questions or comment. And we appreciate your interest in EastGroup. Thank you.

Operator

Thank you for your participation. This does conclude today's program. You may disconnect at any time.