EastGroup Properties, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. EastGroup is an industrial-property REIT focused primarily on distribution facilities in major U.S. Sunbelt markets.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Real estate operating revenue | $97.9 million | $88.6 million |
| Net income attributable to common stockholders | $27.3 million; $0.69 per basic and diluted share | $23.3 million; $0.60 per share |
| Funds from operations (FFO), attributable to common stockholders | $57.7 million; $1.45 per diluted share | $51.2 million; $1.31 per diluted share |
| Property net operating income (PNOI) | $70.3 million | $62.9 million |
| Operating cash flow | $78.8 million | $51.4 million |
| Investing cash flow | $(63.9) million | $(98.6) million |
| Financing cash flow | $(14.9) million | $47.6 million |
| Total debt at period-end | $1,286.1 million | $1,310.9 million at Dec. 31, 2020 |
| Cash at period-end | $68,000 | $21,000 at Dec. 31, 2020 |
| Total assets / total equity | $2,756.9 million / $1,316.8 million | $2,720.8 million / $1,270.5 million at Dec. 31, 2020 |
The filing does not provide a conventional operating-profit margin or a debt-to-EBITDA figure in the supplied text. The company reported a $0.79 per-share common dividend declared during the quarter.
Material changes and operating performance
- Revenue rose to $97.9 million from $88.6 million; common-stockholder net income increased to $27.3 million from $23.3 million.
- FFO per diluted share increased 10.7%, from $1.31 to $1.45. PNOI increased 11.7%; same-property PNOI excluding lease-termination income increased 6.3%.
- Portfolio occupancy was 97.2% and leased occupancy was 98.3% at quarter-end, versus 96.7% and 97.3%, respectively, one year earlier. New and renewal leases signed in the quarter averaged rental-rate increases of 25.8% over prior leases on the same space.
- Operating cash flow increased to $78.8 million. The company spent $47.5 million on development and value-add properties and $9.1 million on real estate improvements in investing activities.
- Total debt declined $24.8 million from year-end. The company issued $44.5 million net from its common-stock offering program, closed a $50 million term loan effectively fixed at 1.55%, and repaid a $40.8 million mortgage bearing 4.75% interest.
Outlook, risks and unusual items
- Management said operating cash flow and unsecured bank facilities, together with potential debt and equity financing, are expected to support operations, debt service, distributions, capital improvements, acquisitions and development in both the short and long term. No numerical earnings or FFO guidance is provided in the filing text.
- The development and value-add program comprised 15 projects totaling 2.703 million square feet. Projected total investment was $260 million, with $62 million remaining to be invested at March 31; the projects were 34% leased as of April 28.
- Management reported operations, occupancy and rent collections had remained substantially stable amid COVID-19. By April 28, the company had collected 99.5% of Q1 2021 rental income and 99.7% of 2020 rental income. Of $1.7 million in pandemic-related rent deferrals, all but $24,000 due through March 31 had been collected.
- COVID-19’s future effects remain uncertain and could affect tenant payments, leasing, construction, occupancy and cash flows. Other identified risks include economic conditions, lease renewals and vacancies, financing and interest rates, development execution, insurance, natural disasters, and maintaining REIT qualification.
- USD LIBOR is expected to cease publication after June 30, 2023. The company has LIBOR-linked facilities, loans and swaps; contracts include replacement-rate provisions, and management expects no material financial-statement impact, but continues to assess transition risks.
- A $125 million, 10-year private placement of senior unsecured notes at a fixed 2.74% rate was agreed in March and was expected to be issued in June 2021, subject to customary closing conditions. It was a planned post-quarter financing, not debt issued by March 31.
- No impairment charges or property sales were reported for the quarter, and the company reported no material litigation. Debt covenants were in compliance at quarter-end.
Investor verification priorities
- Track rent collections, tenant credit and any renewed or additional COVID-related deferrals.
- Verify leasing spreads, occupancy, lease expirations and same-property PNOI trends against subsequent filings.
- Monitor development leasing, remaining project costs, completion dates and returns on the $260 million program.
- Review debt maturities, facility availability, the proposed $125 million note issuance, covenant headroom and LIBOR-to-SOFR transition progress.
- Assess cash generation relative to capital spending and dividends; the reported quarter-end cash balance was only $68,000, with funding dependent on operating cash flow and financing sources.