Marshall Loeb

Thanks, Keena. Good morning before sifting through quarterly results. I want to express our concern for everyone in our markets affected by the recent hurricanes.
Our team and their families are thankfully safe and I greatly appreciate their quick professional response to help our tenants get back to business as usual, the buildings themselves meanwhile, had limited damages, especially considering the strength of these storms operationally. I want to thank our team for another strong quarter. They continue performing at a high level and finding opportunities in an evolving market.
Our third quarter results demonstrate the quality of the portfolio we've built and the continued resiliency of the industrial markets. Some of the results produced include funds from operations rising 9.2% when excluding involuntary conversions for over a decade. Now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year. Truly a long term trend, quarter end leasing was 96.9% with occupancy at 96.5%.
Average quarterly occupancy was 96.7% which although historically strong is down from third-quarter, 2023 quarterly releasing spreads for 51% GAAP and 35% cash year-to-date results are slightly higher at 56% and 38% GAAP in cash respectively and cash same store PNOI 5.9% for the quarter and 6.3% year-to-date.
Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to 7.5% of rents down 70 basis points from third-quarter 2023.
We view our geographic and revenue diversity as strategic paths to stabilize future earnings regardless of the economic environment.
In summary, we're pleased with our performance year-to-date and are optimistic about the prospects for an improving economy. Along with a lack of new supply.
We're focused on value creation via raising rents acquisitions and development. This allowed us to end the quarter 96.9% leased and continue pushing rents throughout our portfolio. On the acquisition front, we're excited to acquire Hayes Commerce Center consisting of two new 100% leased buildings in South Austin.
The property is near our stone fill development allowing us greater flexibility. Long term, we have a couple of other probable acquisitions we're working on and we'll happily share more detail when timing permits.
Overall, our acquisitions are guided by two criteria, one to be immediately accretive and secondly, raising the long term growth profile of the portfolio. Thus creating nav per share as we've stated before, our development starts are pulled by market demand within our parks based on our read through. We're adjusting our 2024 starts forecast to $230 million while we signed several development leases during the quarter and have promising prospect interest, decision making remains deliberate and prospects are focusing later in the construction process.
In terms of starts, we ultimately follow demand on the ground to dictate face as we always have longer term. The continued decline in the supply pipeline is promising the construction pipeline is at its lowest level since 2017.
Assuming reasonably steady demand, the market should tighten in 2025 allowing us to continue pushing rents and create development opportunities, as demand improves. Our goal is to capitalize earlier than our private peers on development opportunities based on the combination of our team's experience, our balance sheet strength existing tenant expansion needs and the land and permits we have in hand.
Brent will now speak to several topics including assumptions within our updated 2024 guidance.

Brent Wood

Good morning. Our third quarter results reflect the terrific execution of our team, the solid overall performance of our portfolio and the continued success of our time tested strategy FFO per share for the quarter exceeded our guidance range at $2.13 per share compared to a $95 for the same quarter. Last year, an increase of 9.2% excluding involuntary conversion gains.
The outperformance was driven by solid operating results. Successfully negotiating two lease terminations and lower G&A from a capital perspective. We continue to access the equity market during the quarter. We directly issued common shares for gross proceeds of $30 million. Settle forward share agreements for gross proceeds of $50 million with an additional settlement of $50 million after quarter end, currently $204 million in forward agreements are available for funding when needed.
Collectively, the shares in the third-quarter, transactions were initiated at an average price of $185.70, in August, we repaid a $50 million unsecured term loan and have $120 million maturing in mid-December.
Although capital markets are fluid, our balance sheet remains flexible and strong with record financial metrics.
Our unadjusted debt EBITDA ratio decreased to 3.6 times and our interest and fixed charge coverage increased to 11.6 times.
Looking forward, we forecast FFO guidance for the fourth quarter to be in the range of $2.13 to $2.17 per share and $8.33 to $8.37 for the year. A $0.02 per share increase from our prior guidance.
Those midpoints represent increases of 5.9% and 7.9% compared to the prior periods respectively, excluding insurance related gains on involuntary conversion claims.
Our buys guidance includes increased acquisition opportunities and a corresponding increase in capital proceeds of the $780 million of capital proceeds forecasted for the year. Over $500 million has already been executed leaving approximately $275 million for the fourth quarter.
In closing, we were pleased with our third-quarter results and are well positioned to close out the year as we have in both good and uncertain times. In the past, we will rely on our financial strength, the experience of our team and the quality and location of our multi-tenant portfolio to lead us into the future.
Now, Marshall will make final comments.

Marshall Loeb

Thanks Brent. In closing, I'm proud of our quarterly and year-to-date results and the value our team is creating internally. We continue to grow earnings while strengthening the balance sheet and what's been an uncertain climate. Others have described the environment as bottoming which seems about right.
Tenant leasing decisions are deliberate which when combined with tight capital markets has led to a seven year low in the construction pipeline within this backdrop. We're doing three things. First, we're working to maintain high occupancies while pushing rents. Second, we've slowed our overall development pace. We're continuing forward where submarket opportunities allow. And finally, over the past two years, we've sourced several attractive new long term investment opportunities, something which is much more challenging and a steady market.
Stepping back from the near term, I like our positioning as our portfolio is benefiting from several long term positive secular trends such as population migration near shoring and onshoring trends, evolving logistic chains and historically lower shallow bay market vacancies.
We also have a proven management team with a long term public track record. Our portfolio quality in terms of buildings and markets is improving each quarter. Our balance sheet is stronger than ever and we're expanding our diversity in both our tenant base as well as geography.
We now like to open up the call for questions.

Question and Answer Session

Operator

We will now in the question-and-answer session. (Operator Instructions)
Craig Mailman, Citigroup.

Craig Mailman

Hey, good morning. Just want to follow up on the acquisitions, you know, it looks like you guys have close to $240 million implied in the guidance there. I know you said you give a little bit more info as you get closer to closing, but maybe there's just a little bit more than, than what you've already given in terms of timing, kind of, you know, expected yields, whether these are kind of stabilized versus value add, just anything that you can offer.
And I guess, you know, as another part of that, but you said $275 million of expected capital proceeds and the balance, what's the that difference between kind of the acquisition guidance and that's right. Is it just money to pay for continued construction?

Marshall Loeb

Hey, good morning Craig. It's, Marshall, I'll take the first part of the question and then maybe kick it over to Brent on then, on how we pay for this. But yeah, we're excited. It's been a positive and an atypical acquisition market the last couple of years. But what in our guidance, we've got, it's really, it's three projects that we're working towards closing.
They're all existing markets. What I like is there, you know, newer buildings, existing markets really complementary to our portfolio. You're right. They're stabilized assets with below market rents and in terms of yields.
Maybe if I blend them, what's made it an unusual acquisition market over the last couple of years, what we've been able to buy kind of on a one off basis here and there has averaged a, I want to say, 2020 construction and actually north of a six year old, I think these three, I'm not sure if we're quite that high, but we're probably in, well in the higher fives and new product too. So it'll be similar to what you've seen us buy over the last couple of years.
And so we're hopeful we'll get those closed. They're all scheduled to close, knock on wood. We're in due diligence through that by the end of the year, they won't help 2024 a lot. But in terms of FFO but going forward, there'll be, you know, great additions to the portfolio we think. And then that market on acquisitions does feel like it's tightening fairly rapidly.
So I'm glad we found these early before the window closes because the private market has come back to acquisitions and I'll Brent, I'll let you talk.

Brent Wood

Yeah, good morning. And on the capital proceeds. Craig, yes, we've to date, have actually received about $307 million call it and then we still have just over $200 million outstanding on forwards, which would represent about $510 million. And as you noted, or as I noted in my opening comments looking at about $272 million $275 million in the fourth-quarter. The we upped our acquisition guidance by $135 million and up our capital proceeds by about $55 million more than that.
But Craig, that's just the culmination of various factors between development spending and just operating in general for, you know, from quarter-to-quarter as 90 days change. You know, those kind of changes in your cash flow statement can vary a little bit.
So there's nothing in particular there. I mean, the main driver up in the capital proceeds with the acquisitions. But you have, you know, just other general operations flowing through that, can move that number a little bit from quarter-to-quarter.

Craig Mailman

And just to clarify Marshall that higher 5% cap rate, that's if you roll the rents to market, right? That's a stabilized yield.

Marshall Loeb

And no, and I'm glad you asked, that's existing rents. And so these are newer assets with a higher mark to market that, you know, that's kind of down the road. Each one a little bit different weighted average lease term or walt is the brokers phrase it, but I'd say blended initial cash cap rate is in that higher fives.

Craig Mailman

Great. Thank you.

Marshall Loeb

You're welcome. Thanks for clarifying.

Operator

Rich Anderson, Wedbush.

Rich Anderson

Thanks. Good morning everyone. So, last quarter, Marshall, you described the environment is improving slowly. And today, in this one, you said the word choppy. I'm wondering if there was in your mind an any kind of sort of reversal of trend between the second quarter and third-quarter. And then related to that when you, when you mentioned, you know, sort of your optimism for 2025. How are things trending into next year now versus how you viewed them trending three months ago?

Marshall Loeb

Okay. Hey, Rich, good morning. You know, I guess I would say, you know, choppy or slowly improving there. It's not any real reversal there. It's probably the same this year has felt like, two steps forward, maybe one step back on the leasing front, it feels like it's improved. I have heard of late and, and look, there's always a reason, the way one of our brokers described it to me waiting on the election. You know, everyone was waiting on interest rates.
You've got two candidates that have, you know, totally different policies and so people may be putting things on hold waiting on the election turn. So it feels like, you know, you're, there's always a reason why things are moving slower than we would like. And that's the most recent one. The good news is for better or worse.
The election will be behind us in a couple of weeks. So that'll take one more level away. Hopefully, interest rate cuts will pick up steam a little bit, things like that. So that is where this year, look, my timing would have been off. Personally, I thought things would have been more improved than they've been. But if I as Brent and I were talking, his comment was if you step back, there's really not been any positive economic news, whether it's global unrest or interest rate cuts that we're supposed to start in March of this year or one of the most unusual elections, I think any of us have seen in terms of candidates dropping out all kinds of things like that.
So there's hasn't been a real boost of confidence that said, I'm proud of the team. We're 97% lease, we push rents and where I get excited and I'll tie it in maybe to my earlier answer in terms of what we're seeing in the private market on acquisitions. I think the fundamentals are there and that we're full.
Our size product type is about I'll, if people have a moment and want to look on our own investor slide deck page 16, if you look at spaces 100,000 ft and below, there's about a 4% vacancy, there's not much product available out there. So the fundamental setup is really strong in terms of with the delay in recovery. What inventory is out there.
The pipeline continues to shrink. There's not much inventory out there. All we need is a little bit of a lift in business confidence and things will turn pretty quickly. I think it'll be more of a V, than a U shape turn. It's just waiting for that turn has taken maybe a quarter or two longer than I would have told you I expected earlier in the year.

Rich Anderson

Okay, great. Thanks very much.

Marshall Loeb

Sure, you're welcome.

Operator

Andrew Berger, Bank of America.

Andrew Berger

Hey, good morning. Just maybe following up on the last question. I'm curious if you know, the brokers have, have talked at all about excess capacity or slack in the system if that's, you know, feeding into the slower decision making. You know, we've heard this a bit throughout the sector but not sure if it's as big of a factor for some of the smaller spaces. Just curious if you have any thoughts on that.

Marshall Loeb

Hey, Andrew, good morning. It's Marshall. Yeah, I don't think, you know I'm saying, I've heard about that and read about it. I think it on that. I mean, within our size spaces, you know, a 50,000 ft, 35,000 ft, our average tenant size is about 35,000 ft. We really don't have that excess capacity. It's probably, you know where I think it, it predominantly pertains is the bigger box space and the [3PLS] within the bigger box space.
So we've not, we've actually seen sub leasing come down a little bit earlier in the year and I don't think we've got excess capacity. I think what we need is people to feel more confidence about expansions and that'll really ramp up our development pipeline because that's usually where our building, that next building in the park, it's our own tenants expanding. And that's what we keep kind of waiting to hear there is discussion of that, but to hear it a little more confidently.

Andrew Berger

Got it. Thank you very much.

Marshall Loeb

You're welcome.

Operator

Samir Khanal, Evercore.

Samir Khanal

Hey, good morning, Marshall. Just in terms of market rents here, I mean, what's your updated view? You know, I know in the past you've talked about certainly being, I think correct me if I'm wrong, like mid-single digits, is that kind of where you are today or have you sort of revised your views given, what you're seeing on the demand side? Thanks.

Marshall Loeb

I think that's fairly accurate. I mean, and if, if I moved it around at all and that may have been at it at your conference. I'm trying to think when that was August, September. So not long ago, I, I still think this year will be a 4% to 5% kind of rent growth in our product type, you know, 3.5 to 5.
So, so somewhere in that mid-single digit and then I think when I look at the fundamentals and the, the delay in supply coming, there'll be another rent squeeze like there was two years ago where rents will get pushed higher because there's such little supply. Dallas, for example, where the construction pipeline has shrunk from about $76 million to under $111million square feet that there's going to be a supply squeeze if there's any kind of pickup.
So maybe my analogy is it's almost like the ground is really dry. It won't take much of a lightning strike to get a fire started. And when that happens, we'll be building pretty quickly and I think there'll be a push on rents.
But at the moment this year for our product type, you know, and then again, maybe absent LA or Southern California, which had the run up and is going backwards, but we're probably in kind of that 4% range for our portfolio absent Los Angeles.

Samir Khanal

Thank you.

Marshall Loeb

Sure.

Operator

Todd Thomas, KeyBanc Capital Markets.

Todd Thomas

Hi, thanks. Good morning. I wanted to ask about development and development leasing. You had a couple of leases signed in the quarter, but activity in the lease up portfolio slowed a little bit relative to prior quarters. And you've generally been ahead of conversions with regard to leasing so far during the cycle.
Do you see that changing as you look to the schedule for, anticipated conversions in '25 which, which really starts to pick up a little bit into the second-quarter. And then I'm also just curious if you could elaborate a little bit on, on development starts as we, you know, think about 2025, a little bit just vis a vis your comments.

Marshall Loeb

Yeah, I mean, I think Good morning, Todd. I will, you know, I guess the good news on our development pipeline. What a couple of things that I like, I like that. What we've rolled in has been averaging fairly high returns that when we, when we are rolling them in, we will average the 741 of the projects that rolled in last quarter wasn't complete the hillside in Greenville, but we were able to get that to 100%. At least what we're really seeing on the ground is tenants, as we said, deliberate aren't in a hurry.
So it feels like at the peak we were getting a lot of and our peers were too a lot of leasing during construction. And now it's more that tenants are looking at you as you're finishing the buildings and have the walls tilted and things like that.
So it's a little bit later, we'll roll them in like we always have 12 months after completion. And in a lot of cases, we'll make it in that 12 months. But in a few, it's more of a 15, 16 month process.
So, and then that's just kind of where we are today. I'm hopeful next year that, you know, again, if there's a little bit of left in the economy, some of the ones that roll in, look, I think long term, we're fine. We're creating a lot of value. It just may take 15 months rather than 12 is where we are today.
But we're, you know, we're developing into the sevens and what we're seeing in terms of private market cap rates is getting pushed into the fours pretty rapidly. So we like the value creation there. It's just right now we were leasing things up within 6 months of starting construction and now it's moved to about 15. But I think it's cyclical. It'll cycle back again and especially given how little product is out there.

Operator

Blaine Heck, Wells Fargo.

Blaine Heck

Great, thanks. Good morning. Marshall, you've alluded to the election a bit, but I think the discussions around the impact to industrial have had been focused on potential impacts from increased tariffs. So just wanted to get your updated thoughts on the subject and whether you have any concerns about the potential impact to your business, your markets or your tenants or on the flip side, maybe even think it could be an additional positive driver related to the near shoring and on shoring impact.

Marshall Loeb

Yeah, I think. Good morning. I mean, it's hard, you know, it's probably any political advice for me or you should run for them, I guess, would be one bit of my advice. I think long term, that uncertainty, what we're, we are seeing in terms of, I think just the certainty for our tenants having certainty about who's in office and, and who control Congress maybe more importantly than the presidency will give them certainty to plan their businesses.
So I think that's positive and we're still bullish in terms of look, I like that. We've got e-commerce population growth onshoring near shoring. We think that long term, maybe a couple of thoughts in terms of onshoring near shoring, you know, when we look at it, it's really San Diego, I mean, Dallas and Austin will benefit. But San Diego, Arizona or Tucson or Phoenix and El Paso, those markets for us have all been well leased. They're releasing spreads are above our portfolio average.
So we're benefiting already from it. And then a couple of other stats when we were looking into on shoring near shoring. If you look at the Chips Act funding kind of at least in terms of on shoring and manufacturing, what the top five states, what's been awarded just going to Texas and Arizona is about 63% of the top five states, those two states.
So, and that's still a working process in terms of getting those plants built the ripple effects throughout the local economies, things like that. And then when we look at border crossings, we, we were working with one of our groups and they went back comparing 2015, to current the border crossings at all of our markets, whether it's Juarez or Tijuana or Nogales, which is right next to Tucson or up over anywhere from a little over 100% up to about 100% and 40%. So it's happening and I believe it will continue to happen regardless of the election.
But, and then what we do like about the election, I'm optimistic is I think just stability and predictability will help our tenants in terms of their space needs and their kind of customer planning and the tariffs will see how those all shake out with Congress and everything else. But you know, in the meantime, we'll, you know, we'll go at least one development at a time regardless of who's in office.

Operator

Michael Carroll, RBC Capital Markets.

Michael Carroll

Yeah, thanks. I want to dive a little bit deeper into the guidance that you provided. I know there is two other updates that the lease termination income increased a decent amount. And then also your reserves for bad debt increased a smaller amount. Can you provide some color on what drove those termination fees higher and, and what's potentially driving bad debt a little bit higher?

Brent Wood

Sure, Michael, and good morning. Yeah, sure. On the term fees and, and happy to add clarity there. Our team there had a couple of what I would describe as successful negotiations we had in both instances, it was green energy type related tenants. There was some, you know, calculated risk upon entering into those leases. In one case on the larger of the 203,000 square feet space that the tenant was never behind in rent.
They just decided what they were doing was not going to be successful and they were winding down that location. The team there had put in a letter of credit to begin with there and the rents that we basically brought forward there represented about nine months of gross rent and they've got lease out for half the space another prospect for a quarter of the space.
So I think in that situation, it's going to be a good win for us in terms of net cash. And then when you look at the other space, that was part of that drove the term fee income. Again, a similar situation where that tenant did get a couple of months behind, but again, just negotiated a termination.
We had a large letter of credit that we could draw on and that represented about 15 months of rent and we've actually verbally agreed to terms with a replacement tenant there.
So I think when the dust settles, that'll be a seven figure win. Meaning by the time we replace the tenants at higher rents and the money we took in subtract a little bit of downtime and we're going to have come out way ahead. Just the oddity of it right now. Is it happening in the fourth-quarter? You know, we have the impact of getting the term fee and that pulls a little bit of base rent out of the fourth quarter because we've got turn the spaces, but then the residual impact of releasing it won't be until 2025. So if that happened early in the year, we probably wouldn't be as much talking about.
You say you got the term fee quickly released and you could point to all the factors at once. But so we feel good about both those instances that obviously the $1.7 million of term fee income obviously drove some of the bottom line here in the third-quarter and then quickly on bad debt. You know, frankly, it's been frustrating.
Our collections have been good, continue to be good. Our active tenants with the Reserves and on the watch list has remained small and pretty constant in terms of numbers. But, you know, we've got our bad debt year-to-date is contained within about four tenants that represent 70% of that year-to-date total. And although it's a slightly different mix of tenants, about 71% of that year-to-date bad debt has been from some of our California based properties.
And if you said, is there a common thread amongst some of the few bad debt tenants? We have about half of those are in kind of regional or local logistics, [3pls] type companies that have just seen contract business slow down, not a lot different than what you've seen in some of the bigger box guys. But obviously when you're a smaller operation has more impact.
So I say it's frustrating. It's just collections have been good. You just got these a handful of sticky situations here, but the guys are in some cases are, you know, we've moved most of those tenants out getting prospects to backfill. But again, it's all-in-all. It's been a good collections.
We've just had had to navigate a little bit of these tenants in California that we've had to deal with. And it's not easy and it takes some time to move tenants out of space in California, relative to other states, for example, in Texas, and so it prolongs the process which prolongs your, your bad debt attached to it because you just can't say in Texas, for example, you can lock a tenant out and terminate the lease much more quickly, cut off the revenue cut off the bad debt and move on and it's a much more arduous process in California. So we just had to negotiate that.

Michael Carroll

Okay, great. Thanks, Brent.

Brent Wood

Sure.

Operator

Alexander Goldfarb, Piper Sandler.

Alexander Goldfarb

Hey, good morning. So just sort of wrapping it all together. Brent sounds like bad debt is really not a big issue and it sounds like it's mostly some California specific tenants that you're dealing with and then overall demand for the portfolio overall sounds pretty good. I didn't hear you guys talk about expectations for rent, you know, declines your ability not to push rent.
So is this really just sort of a macro thing where overall tenant demand is for the most part good? You're a little nervous on development just because tenants aren't there to pre lease, but you're comfortable boosting acquisition.
So really overall, it sounds like the portfolio is performing well. What you need to see is just some increased tenant confidence. It doesn't sound like there's tenant credit issues. It just sounds like people are operating well and you're just looking for them to feel better about expanding. It sounds like that's really the key.

Brent Wood

Yeah, I'll let Marshall talk about activity but you know, any time you got bad debt, I wouldn't describe his quote, say not a big issue, but what I would say is, there's not been a rise in, there's not been a what we've been pleased to see it throughout the year.
There's not been a rise in, well, we have this number of tenants that we're watching and then it's moved up to this and it's moved up to this. That's been pretty consistent, in a very low range and, and the overall number of tenants there hasn't been like a lot of additions to that.
It's just been, yeah, a handful of situations, like, say, predominantly California base where tenants just, you know, haven't made it through the slowdown out there and really related to the California economy in certain markets.
So would never describe it as, not a big issue, but I would say it's not been widespread, not something that we've seen as growing and ideally don't see it as growing. But, like I said, it's been frustrating because it's been driven by, you know, when you look at a portfolio of over 1,300 tenants and you've got four or five that are kind of have driven it over the last few quarters. It's a little frustrating, but you know, we just deal with it and release the spaces.
But I'll let Marshall talk about this sort of demand overall.

Marshall Loeb

Thank you, and yeah, Alex, I think you're right. I agree with Brent's comment bad that it's been a, a handful and it's made it a heavier year this year and he's right and without getting into the details. It is harder, you know, the regulations are harder in California than they are in the balance of our portfolio.
But that's why we're diversified tenant wise and geographically and then the fundamentals are setting up. They're better than what we've seen in a number of years.
You're right, an increase in demand. I love where supply is. I love where vacancy is. It's better than it's been in a handful of years. And I think the private markets seeing that so that we're excited about and on developments, we have names and prospects and proposals out. They're just not filling it quite the rate. But that's why you've seen us pull back on development.
We've tried to be as nimble as we can be if developments aren't leasing, you know, look building the next phase of the part, doesn't solve it if they're leasing more slowly, we've pulled our developments down. Our starts down about $130 million this year from last year. But the flip side of while businesses and capital has been a little more constrained or certainly expensive. It's open the acquisition window.
So at the end of the day, we're going to own well located shallow bay multi-tenant product. We've just had a better opportunities to buy it. And we'll still build it just where our submarket window opens up. And I think that market will be much. I'm expecting it to be much more there and readily available into '25 than it's been in '24.
That's why a lot of our starts this year, fourth quarter. So thanks, Alex.

Alexander Goldfarb

Okay, thanks and hopefully get some chicken soup for your throat.

Marshall Loeb

You noticed? Thank you.

Alexander Goldfarb

Sorry.

Operator

Nick Thillman, Baird.

Nick Thillman

Hey, good morning guys just wanted to touch on development because fourth-quarter still implies almost $125 million of starts. Should we just view this as like where, where the field kind of seeing the demand is that in your traditional Florida and Texas markets where the current pipeline is? Are you starting to see a little bit broadening out of the opportunity set?

Marshall Loeb

It's certainly Florida Tech Houston's been a good market, you know, Arizona where we've got some assigned there near the Mesa airport. So it's a little bit, it's spread out a little bit and, but it's, I'm trying to look with Greenville where we moved the building and I'm trying to think of what else we've got scheduled in fourth-quarter. We know now we're 100% leased in South Carolina.
So we'll kick off the next phase of a park there. So it's a little bit of a nice mix and those economies have all done well. And right now there's not much availability. So by the time we start these buildings in fourth quarter and deliver, we feel pretty good about the environment when you think call it 10 months of construction, plus another 12 months is what we'll underwrite to lease it up that there'll be some pretty good opportunities there.
So that's those are kind of the markets we're looking at where our starts just kind of chronologically will hit at the end of this year.

Operator

Michael Mueller, J.P. Morgan.

Michael Mueller

Yeah, Hi, speaking with development, it, it looks like your lease up developments have about a 68 yield expectation. What's under construction is about a 7.5%? I guess how much of the pickup there is being driven by the movement in the 10 year versus kind of what you're perceiving for market risks. And as a follow up to that is as you're thinking about new projects, you may go on the ground on is 7.5% more in the zip code of what you're expecting there.

Marshall Loeb

Oh, good. Hey, Michael, good morning. Good question. I think probably not as much 10 year driven on a yield, but it would be really what thankfully we've seen is with the construction pipeline really for all product types slowing down like it has the cost have come down.
So we still had some positive rent growth and cost have come down. So that's what's happened and then really that's why, you know, may and maybe the mix to a little bit what's under construction and what we've delivered both have are kind of are in that well into the mid sevens, mid sevens. And then the other way, we'll underwrite it and we'll approve a project to start construction.
They probably started at about a 7% yield because we'll all, we won't project rents, we'll underwrite to current market rents because it gets pretty dangerous if you let us project rents, you know what? We will be wrong as often as we're right, at least so.
And those market rents have grown by the time we deliver and lease up, we actually, typically, if you look back the last couple of years, our development yields have been 80 basis points to 90 basis points above what we initially thought they were because thankfully sometimes construction costs can come in a little bit lower and the bigger drivers rents come in a little bit higher than we had underwritten at that time.
And that, and look, we like that incremental yield and nav creation because over time as a long term owner and then those rents are just going to keep growing from there. So if everybody's out buying industrial, we'd like to try to take the approach, let's create it rather than outbid the world has just been this rare kind of two year window when we've been able to pick up some things at attractive yields. But we think that window will, is gone away or is going away. We've seen any number of trades kind of in the mid to low fours here of late, which is not as much less attractive to us.

Michael Mueller

Got it. Okay. Thank you.

Marshall Loeb

Thank you.

Operator

Jessica Zheng, Green Street.

Jessica Zheng

Good morning. So you guys have done a few acquisitions and developments in Austin this year and you also have a pretty large land bank there as well. Just knowing it's been a market with relatively higher supply deliveries lately. Could you please just share some color around what you guys are seeing there?

Marshall Loeb

Yeah, good question. You know, we've watched Austin. It's like, I think it's a great market long term. We're really excited between the and again, it's like Raleigh and a number and in Nashville and in a bigger way, Phoenix and some of our other markets where you've got a state capital education presence and that educational presence usually liens kind of creates technology jobs. And then because of the topography in those markets, it's really, it limits development.
So Austin is more of a kind of a linear and then out East market, it had more development. You know, every developer in Texas went to the University of Texas, it feels like. So they all go to Austin to build things. We picked up some land sites and the downturn.
So we're excited about what we were able to pick up at discounted prices there. But long term and we've got a good team there.
So long term, we're really excited about our presence in Austin and what we've started on development. We've got a project south of town when we bought Hayes crossing. They're both at Hayes County just south of Austin.
Couple of tenants that may need expansion space. So we like that clustering of assets and the flexibility it gives us there. And then north of town up in Round Rock, there's kind of timing of where our competition is and where it's leasing up.
So two markets where we've watched development and kind of let the market absorb it, but they have great growth long term and then Austin and Phoenix. So you're smart, you're right to pick up on those two really good fast growing markets.
They've had a little more construction or development than we'd like for our product type. But we're kind of trying to pick our windows where we can kind of sneak in a development within our submarket compared to what, what else is out there and what's available.
But that like them both long term. Very much.

Jessica Zheng

Great. Thank you.

Marshall Loeb

You're welcome.

Operator

John Kim, BMO Capital Markets.

John Kim

Thank you. Just wanted to get back to bad debt which looks like it's about 65 basis points of APR this year. Where does that compare to your historical average? How do you see that trending next year? And do you have any exposure to some of the bankers, bankers that have been out there including [cons].

Brent Wood

Yeah. So on our bad debt, as far as historical trends, it's we're running the third quarter is around 68. If you look for the year and include what we budgeted for the fourth quarter for the year, we're running about 50% or 50 basis points of revenue. That's slightly above. If you look at our longer term average, it's been in that 30 basis points to 40 basis points.
So it's of course, factored into that was two or three years post pandemic where we virtually had zero. So I would describe it as a fairly at this stage. It's somewhat at or slightly above average. But again, it's been, it's been amongst a handful of tenants and hasn't been, you know, again, pervasive at this point. So in terms of I'm trying to think of the second part of that question, John, that you had--

John Kim

Some of the second part of bankruptcies.

Brent Wood

Yeah, on the bankruptcy side, the cons, yeah. So they were in two spaces, the smaller space 26,000 ft. At first, we start with saying cons is current through October. So it was a bit, you know, their retailer, not a surprise, they're struggling, but it was a bit of a surprise when they filed their, their bankruptcy paperwork. They work with us in current spaces through October.
We do, they have rejected the small lease of 26,000 ft, but to date, they're still in and occupying the much larger space which is 300,000 square feet in Charlotte. So they're current through October, the November and December rent remaining for the year represents about [$300] call it $40,000 for those last two months.
And so, you know, it's just something we'll keep an eye on and, and keep an ear out to in terms of what they anticipate doing there. But all in all they're good that space is divisible and could be rein it is as, you know, more than one user if we needed to in that building at a higher rent. So we'll just see what happens there. But that's, that's kind of the status there with cons.

John Kim

If I could just follow up, do you have like a watch list that you could share with us and how that's trended?

Brent Wood

Yeah, the watch list. You know, which I would say the combination of tenants that we have actual active reserves with and then tenants that we don't reserve, but we're watching for whatever reason, you know, due to slow pay or maybe comments from the field, but that's been very consistent within a range of 4 to 5 tenants in total numbers.
You know, you're looking at somewhere in the 16 to 20 tenant kind of category and that's been steady, you know, I keep referencing, but that's been steady for consecutive quarters now. And so that hasn't been something that's been growing in number.
It's just that some of the tenants that you watch, you know, actually, again, more related to California based tenants, you know, have gotten more into that area to where there, you know, far enough behind that you just deem them uncollectible and we try to re tenant the spaces and that's what our team is doing there.
And we, again, I would describe collections as good. You just have to, in this environment, you just have to be with this. Many tenants have to, you know, to deal with these few instances as they arise and, and try to get about it as quick as you can, as we mentioned earlier.
It's just a little, it's a much slower process doing that when you, when it's based on a California type tenant, just because of the process that you have to go through and the timing of that.

Marshall Loeb

And I guess I would add, if it's helpful, I agree with, with Brent's comments, it's, you know, it's really as much about timing of, of where in the year it's been a noisier quarter, I think it was a so a good quarter with the bad debt and some of the terminations. And I'm proud of the team with the letters of credit. If these had happened earlier in the year, as Brent mentioned earlier, it'd be fine. It's noise, the rent, the spaces will get back or good spaces. There was no atypical build out and the rents are below market.
But because of the timing it right at the end of the year, those created some downdrafts on our occupancy as we forecast 10 basis points drop there and a little bit on our same store in Hawaii.
So it's not a systemic problem as much as if we, if we had six or nine more months of the year, we probably could have averaged out and gotten it back and it'll be upside to 2025 because we'll, we'll release those spaces at market rents that are typically probably 30% higher on average than what we got back.
It just created some noise within our numbers and on a short term being mainly one quarter, it created some noise in the system, but it's not a long term systemic problem by any means.

John Kim

Sorry, I just wanted to follow up. So I just wanted to clarify what you mentioned earlier, Brent, but is cons included in the bad debt reserve for the year.

Brent Wood

They are not, I mean, they're current as of October. So there's, there's literally nothing to reserve.

John Kim

Right? Okay. Thank you.

Brent Wood

Sure.

Operator

Brendan Lynch, Barclays.

Brendan Lynch

Great. Thanks for taking my question. This has been a topic with some of your peers and I was wondering if you could talk about the potential for converting some of your land bank into data center assets. What markets that makes sense and what are the considerations you're balancing when thinking about these opportunities?

Marshall Loeb

Yeah, good question. And it's something we've looked at and we've actually engaged with a coup, a few different data center brokers. I mean, we work with a lot of industrial brokers but and talk to directly with a couple of the data center companies as well. Kind of how we viewed it is look at the land we own, we like it for industrial development.
But if there's an opportunity to sell the land or do you know open if we could structure it right? Without putting each group at risk to get, you know, outsized returns, we could look into that. It's been markets. I'm trying to think of, you know, Dallas Austin, Phoenix, Charlotte, but things like that.
And so you need the power there, you need, there's clear height issues and things like that that we've run into so nothing imminent. I mean, I wouldn't, we'll stick to our key business which is industrial space.
But maybe my bad analogy, if we found out there was oil under our land. We're willing to flip the land to a data center development and we'll find another value add or acquisition or land site to work with. But that said we're exploring the opportunities out there and, and 1 may turn up and what I don't want us to do is or what we don't want to do is build a big data center and learn the hard way.
Some things that you know, that's a business we're not in today that look our shareholders, if we can, however, we can create net asset value and grow earnings. We're all about that and I don't want to take risk and things that we kid ourselves that we know what we're doing on.
But that said we're going to, we're trying to see, you know, what all opportunities are there out there are, you know, maximize the value of our land, whether it's a data center or a Shallow Bay industrial development.

Brendan Lynch

Great. Thank you.

Marshall Loeb

You're welcome.

Operator

I'll return the call back over to Marshall Loeb for closing remarks, please go ahead.

Marshall Loeb

Thank you everyone for your time and your interest in EastGroup . I hope we got to everyone's questions, if not Brent and I are certainly available after the call and we look forward to seeing most of you at nearly coming up here in just a couple of weeks. So thanks again. Thanks, everybody.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.