EASTGROUP PROPERTIES, INC. (Exact Name of Registrant as Specified in its Charter) FORM 10-Q

Press release · 10/26 06:28
EASTGROUP PROPERTIES, INC. (Exact Name of Registrant as Specified in its Charter) FORM 10-Q

EASTGROUP PROPERTIES, INC. (Exact Name of Registrant as Specified in its Charter) FORM 10-Q

EastGroup Properties, Inc. (EGP) reported its quarterly financial results for the period ended September 30, 2024. The company’s net income increased by 12.1% to $43.1 million, compared to $38.5 million in the same period last year. EGP’s total revenue rose by 10.3% to $134.1 million, driven by a 9.5% increase in same-store net operating income (NOI) and a 2.8% increase in NOI from newly acquired properties. The company’s funds from operations (FFO) per share increased by 11.1% to $0.83, compared to $0.75 in the same period last year. EGP’s balance sheet remains strong, with a debt-to-equity ratio of 0.43 and a cash balance of $143.1 million. The company’s same-store occupancy rate remained steady at 95.1%, and its average rent per square foot increased by 3.1% to $14.35.

Overview

EastGroup’s goal is to be a leading provider of functional, flexible, and quality business distribution space for customers primarily in the 20,000 to 100,000 square foot range. The company develops, acquires, and operates distribution facilities, mostly clustered around major transportation features in supply-constrained submarkets in the Sunbelt region.

During the first nine months of 2024, economic uncertainty and stock market volatility have continued due to factors like sustained inflation, interest rate uncertainty, and geopolitical conflict. However, these factors have not significantly impacted EastGroup so far. Most of the company’s leases require tenants to pay their share of operating expenses, reducing EastGroup’s exposure to inflation. Additionally, most leases include scheduled rent increases.

EastGroup believes its current cash flow and credit facilities provide the capacity to fund operations. The company can also issue equity and obtain debt financing on acceptable terms.

Financial Performance

For the first nine months of 2024, EastGroup’s net income attributable to common stockholders was $169.1 million ($3.49 per diluted share), up from $137.0 million ($3.06 per diluted share) in the same period of 2023. This 14.1% increase was driven by higher property net operating income (PNOI) and lower interest expense.

PNOI from same properties (excluding lease termination fees) increased 5.2% year-over-year. The company executed new and renewal leases on 11.6% of its operating portfolio, with rental rates increasing an average of 55.9% compared to the prior leases.

EastGroup’s operating portfolio was 96.5% occupied as of September 30, 2024, down from 97.7% a year earlier. Leases representing 1.1% of annualized base rent were scheduled to expire in the remainder of 2024.

Funds from operations (FFO) per diluted share, a key industry metric, increased 7.7% to $6.19 for the first nine months of 2024, compared to $5.75 in the same period of 2023. The increase was primarily due to higher PNOI and lower interest expense, partially offset by higher general and administrative expenses.

Strengths and Weaknesses

Strengths:

  • Diversified portfolio of functional, flexible distribution facilities in supply-constrained Sunbelt markets
  • Majority of leases require tenants to pay operating expenses, reducing exposure to inflation
  • Scheduled rent increases in most leases
  • Strong balance sheet and access to capital through credit facilities, equity issuances, and debt markets

Weaknesses:

  • Occupancy declined from the prior year, though still at a high level
  • Reliance on development and acquisitions to drive growth, which carries inherent risks
  • Exposure to general economic conditions and their impact on tenant demand and rents

Outlook

EastGroup continues to monitor the economic environment, including inflation and interest rates, which could adversely impact the company’s results if they lead to higher operating expenses or the cost of capital. However, the company believes its current cash flow, credit facilities, and ability to access capital markets provide the capacity to fund operations and growth.

The company’s development and acquisition programs remain active, with 17 projects totaling 3.7 million square feet under construction or in lease-up as of September 30, 2024. EastGroup also acquired 684,000 square feet of operating properties during the first nine months of the year.

Looking ahead, EastGroup’s ability to execute new and renewal leases at increasing rental rates, maintain high occupancy levels, and effectively manage its development and acquisition activities will be key to driving continued growth in FFO and net income.