EastGroup Properties, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. EastGroup is an industrial REIT focused on developing, acquiring and operating business-distribution properties, primarily in Sunbelt markets. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Amounts below are in millions except per-share data, percentages and where stated.
Key financial and operating metrics
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Real estate operating revenue | $154.1 | $134.0 |
| Total revenue | $154.2 | $135.0 |
| Net income attributable to common stockholders | $58.6 | $44.7 |
| Diluted GAAP EPS | $1.22 | $1.02 |
| FFO per diluted share (non-GAAP) | $1.98 | $1.84 |
| Net cash from operating activities | $116.9 | $93.5 |
| Cash and cash equivalents, March 31 | $15.6 | $40.3 at Dec. 31, 2023 |
| Total assets, March 31 | $4,577.0 | $4,519.2 at Dec. 31, 2023 |
| Total liabilities, March 31 | $1,917.6 | $1,910.6 at Dec. 31, 2023 |
| Total equity, March 31 | $2,659.4 | $2,608.6 at Dec. 31, 2023 |
- Income from real estate operations rose 15.0%; real estate operating expenses increased to $43.0 million from $36.2 million, while depreciation and amortization increased to $45.2 million from $41.0 million. The filing does not present a conventional operating-profit margin.
- Property net operating income (PNOI), a supplemental non-GAAP measure, increased 13.6% to $111.4 million. Same-property PNOI excluding lease-termination income grew 4.9%; same-property average occupancy was 97.5%, down from 98.4%.
- Interest expense declined to $10.1 million from $13.0 million. The decrease reflected lower average bank-facility borrowings and prior-year debt repayment/refinancing, partly offset by higher rates; capitalized interest rose to $4.9 million from $3.7 million.
- Investing cash use was $123.2 million, including $57.8 million for development and value-add properties and $54.9 million for an operating-property acquisition. Financing cash use was $18.3 million. Cash declined by $24.6 million during the quarter.
- Common dividends declared were $1.27 per share, versus $1.25 a year earlier. Dividends declared totaled $61.1 million; cash distributions paid to stockholders were $61.4 million.
Material changes and notable activity
- GAAP diluted EPS increased 19.6%; FFO per diluted share increased 7.6%. Management attributed FFO growth mainly to higher PNOI and lower interest expense. GAAP net income also benefited from $8.8 million of gains on real estate investment sales, compared with $4.8 million in Q1 2023.
- New and renewal leases covering 1.998 million square feet had average rental-rate increases of 57.8% over prior leases on the same spaces. The operating portfolio was 98.0% leased and 97.7% occupied at quarter-end, compared with 98.7% and 97.9% a year earlier.
- The company acquired a 231,000-square-foot Las Vegas operating property for $54.9 million and 34.3 acres of Atlanta development land for $3.3 million; it began two development projects totaling 388,000 square feet and transferred a 133,000-square-foot Miami project into the operating portfolio.
- At March 31, development and value-add properties totaled $670.3 million. The development program included 19 projects totaling 4.332 million square feet, with projected total investment of $611.2 million and $203.8 million remaining to be invested. These projects were 29.3% leased as of April 23.
- Sales of Jackson, Mississippi operating properties and San Francisco land generated $18.1 million in gross proceeds. The company recognized $8.8 million in operating-property sale gains and $0.2 million in gains on non-operating land sales.
Debt, liquidity, outlook and risks
- Unsecured debt principal was $1.680 billion, with a 3.37% weighted-average interest rate; the debt was fixed-rate or effectively fixed through swaps. Fair value was $1.572 billion. Scheduled principal payments include $170 million for the remainder of 2024 and $145 million in 2025.
- The company had no borrowings outstanding under its $625 million and $50 million unsecured bank facilities at quarter-end. Reported immediate liquidity was approximately $764.1 million: $15.6 million cash, $672.3 million available facility capacity and $76.1 million of net proceeds available under outstanding forward equity agreements. The facilities mature in July 2025, subject to extension options; the company was in compliance with financial covenants.
- Management said operating cash flow, credit facilities, debt and equity financing are expected to be adequate for operating needs, debt service, distributions, acquisitions and development in both the short and long term. It expects coming-year liquidity sources and needs to be consistent in nature with Q1. No specific earnings or FFO guidance was provided in the supplied filing text.
- Economic uncertainty, inflation, interest rates, construction costs, tenant defaults or non-renewals, occupancy and rent changes, development execution, financing availability, covenant compliance, natural disasters and insurance adequacy are among the disclosed risks. Management said economic uncertainty had not significantly harmed operations to date but could do so in the future. Most leases pass through operating expenses, though higher G&A and financing costs may not be recoverable from tenants.
- Seven interest-rate swaps had $575 million aggregate notional value. The company estimated that a 10% rate change (about 62 basis points) on a hypothetical $100 million facility balance would change annual interest expense and cash flows by about $0.6 million. It expects $15.6 million of swap-related accumulated other comprehensive income to be reclassified as a reduction of interest expense over the next 12 months.
- Subsequent to quarter-end, the company settled forward equity agreements by issuing 133,699 shares for approximately $24.5 million net proceeds. No material litigation, material off-balance-sheet arrangements or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether strong lease spreads persist alongside slightly lower occupancy, and whether the 4.9% same-property PNOI growth is maintained.
- Development leasing, project costs and timing: the program had $203.8 million still to invest and was 29.3% leased as of April 23.
- Near-term refinancing and liquidity needs, particularly the $170 million of debt due in the remainder of 2024 and bank facilities maturing in July 2025.
- How much reported earnings growth reflects recurring property operations versus property-sale gains; assess GAAP results alongside non-GAAP FFO and PNOI reconciliations.
- Future equity issuance and dilution under the ATM and forward-sale programs, including settlement prices and the remaining authorized capacity.
- Changes in rent-collection reserves, which increased to $0.8 million from $0.4 million year over year, and the potential effects of economic conditions on tenants.