EastGroup Properties, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. EastGroup is an industrial-property REIT focused on distribution facilities, primarily in Sunbelt markets. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2023 | Prior comparable period / change |
|---|---|---|
| Income from real estate operations | $133.964 | $112.952; up 18.6% |
| Total revenue | $135.025 | $112.974; up 19.5% |
| Net income attributable to common stockholders | $44.690 | $63.580; down 29.7% |
| Diluted net income per share | $1.02 | $1.54 |
| FFO attributable to common stockholders per diluted share | $1.84 | $1.68; up 9.5% |
| PNOI | $98.070 | $82.176; up 19.3% |
| Same-property PNOI, excluding lease termination income | $84.608 | $78.624; up 7.6% |
| Net cash provided by operating activities | $93.461 | $82.264 |
Net income fell despite higher property operating performance, principally because the prior-year quarter included substantially larger real-estate sale gains: $4.809 million in Q1 2023 versus $30.352 million in Q1 2022. Interest expense increased $4.915 million to $13.025 million, and depreciation and amortization increased $4.673 million to $41.014 million. FFO per share, which excludes property-sale gains and adds back real-estate depreciation and amortization, increased.
Operating expenses from real estate operations were $36.186 million, up from $31.064 million. A conventional operating margin is not presented as a filing-defined metric; PNOI was $98.070 million. Comprehensive income was $34.428 million, including a $10.262 million other-comprehensive loss from interest-rate swaps.
At March 31, 2023, total assets were $4.080 billion, total liabilities $2.044 billion, and total equity $2.036 billion. Debt, net of issuance costs, was $1.798 billion, down from $1.862 billion at year-end 2022; cash was $9.390 million. Operating cash flow funded dividends and part of investment spending. Investing activities used $64.823 million and financing activities used $19.304 million. The quarterly dividend declared was $1.25 per share, versus $1.10 a year earlier.
Operating trends and material changes
- The operating portfolio was 98.7% leased and 97.9% occupied at quarter-end. New and renewal leases signed during the quarter covered 1.659 million square feet; rental rates averaged 48.5% above the prior leases on the same spaces.
- Same-property average occupancy rose to 98.7% from 97.4%. Same-property average rent was $7.45 per square foot, versus $6.90.
- The company began four development projects totaling 1.033 million square feet and transferred three projects totaling 716,000 square feet, with $76.713 million of costs, into operating real estate. Its development and value-add program comprised 21 projects totaling 4.298 million square feet; projected total investment was $553.1 million, with $231.924 million remaining to invest. The projects were 38% leased as of April 25.
- EastGroup sold one 125,000-square-foot operating property and a two-acre land parcel, generating $11.150 million in gross proceeds. The operating-property sale produced a $4.809 million gain. It also recorded a $1.027 million gain on casualties and involuntary conversion.
- There were no property acquisitions in the quarter. Subsequent to quarter-end, the company reported acquisitions of development land in Tampa and San Antonio and a 155,000-square-foot Las Vegas building.
Debt, liquidity, outlook, and risks
- In January, EastGroup expanded its unsecured bank credit facilities from $475 million to $675 million and transitioned the benchmark from LIBOR to SOFR. The facilities mature July 30, 2025, with extension options. At quarter-end, facility borrowings were $72.027 million; the main facility’s rate was SOFR plus 0.765%, and disclosed rates on outstanding borrowings were approximately 5.68%–5.75%.
- The company closed a $100 million, seven-year unsecured term loan in January, effectively fixed at 5.27% through a swap, and repaid a $65 million term loan on March 31. It reported compliance with all debt covenants and a Moody’s Baa2 rating with stable outlook. Management said operating cash flow, credit facilities, debt financing, and equity issuance should adequately support operations, distributions, capital improvements, acquisitions, and development in the short and long term.
- EastGroup issued 652,909 shares during the quarter for $105.321 million in net proceeds. A further 168,125 shares sold in late March settled in April for approximately $27.188 million in net proceeds. The continuous equity program authorized up to $750 million in aggregate gross sales; as of April 26, $615.755 million of capacity remained.
- No numerical full-year earnings or FFO guidance is provided in the supplied filing text. Management noted that inflation, rising interest rates, supply-chain disruption, and broader economic uncertainty had not significantly harmed results to date but could do so. Risks include tenant defaults or nonrenewals, occupancy and rental-rate declines, construction-cost increases, access to financing, refinancing and covenant compliance, development execution, and natural disasters.
- Most leases pass through a share of property operating costs and include scheduled rent increases, but higher interest and general and administrative costs are not necessarily recoverable from tenants. A 10% change in variable borrowing rates, approximately 57 basis points, was estimated to change annual interest expense and cash flow by about $411,000.
- The company reported no material litigation, no properties held for sale, and no material change to the risk factors in its 2022 Form 10-K. It reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether leasing spreads, occupancy, and same-property PNOI growth persist, and how much growth comes from development versus existing properties.
- How higher interest costs and the maturity/refinancing schedule affect FFO, cash flow, and distributions; review floating-rate exposure and swap terms.
- Development leasing and delivery progress, remaining capital requirements, and whether projected project costs and returns are achieved.
- The impact of share issuance on per-share growth and the company’s remaining equity-program capacity.
- Whether property-sale gains, the casualty gain, rent collectability, and lease concessions materially affect comparisons or recurring earnings.
- Confirm liquidity availability, covenant headroom, and post-quarter acquisitions and equity settlements against subsequent company disclosures.