EastGroup Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. EastGroup is an industrial-property REIT focused on distribution facilities, primarily in major U.S. Sunbelt markets. Amounts below are in millions unless stated otherwise.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $104.6 | $92.0 | $302.1 | $270.4 |
| Net income attributable to common stockholders | $30.8 | $24.4 | $85.7 | $71.2 |
| Diluted GAAP EPS | $0.76 | $0.62 | $2.13 | $1.82 |
| FFO per diluted share | $1.55 | $1.36 | $4.47 | $4.00 |
| Property net operating income (PNOI) | $75.2 | $65.9 | $217.2 | $193.2 |
| Same-property PNOI, excluding lease termination income | — | — | $195.0 | $183.3 |
- Year-over-year revenue grew 13.7% in Q3 and 11.7% for the nine-month period. Common-stockholder net income rose 26.1% and 20.4%, respectively; diluted EPS rose 22.6% and 17.0%.
- FFO per diluted share increased 14.0% in Q3 and 11.8% year to date. Same-property PNOI excluding lease termination income increased 6.9% in Q3 and 6.4% year to date.
- Operating cash flow was $241.2 million, versus $179.6 million in the prior-year period. Investing used $320.5 million, mainly for development, acquisitions, property improvements and leasing costs. Financing provided $79.6 million; ending cash was $0.247 million.
- Total debt, net of issuance costs, was $1,336.6 million, compared with $1,310.9 million at year-end 2020. Total liabilities were $1,565.3 million and total equity $1,419.7 million at September 30. The filing reports compliance with debt covenants.
- Quarter-end portfolio occupancy was 97.6% and leased occupancy 98.8%, compared with 96.4% and 97.8% a year earlier. New and renewal leases signed during the first nine months covered 7.311 million square feet; average rental rates increased 31.1% versus prior leases on those spaces.
Material changes and capital allocation
- EastGroup issued 966,608 shares through its continuous equity offering program in the first nine months, generating $152.4 million net proceeds. Outstanding common shares were 40.684 million at September 30.
- Development and value-add activity remained substantial: 16 projects totaling 2.629 million square feet began construction; 13 projects totaling 1.928 million square feet transferred to the operating portfolio. The remaining program comprised 23 projects totaling 3.941 million square feet, projected to require $447 million total investment, with $197 million still to fund. These projects were 41% leased as of October 26.
- The company acquired 740,000 square feet of operating properties for $104.0 million and 499,000 square feet of value-add properties for $36.6 million during the nine months. It reported no property sales.
- The quarterly dividend declared was $0.90 per share, up from $0.79 in Q3 2020.
- Credit-facility capacity increased from $395 million to $475 million, with maturities extended to July 2025. At quarter-end, borrowings on the facilities were $61.0 million; the variable rate was approximately 0.86%.
Outlook, risks and notable items
- Management said operating cash flow and credit facilities, together with potential debt and equity financing, should be adequate for operations, debt service, distributions, acquisitions and development in the short and long term. No specific earnings or FFO guidance was provided in the supplied filing text.
- Management reported that COVID-19 had not substantially disrupted operations, occupancy or rent collections through the period. Rent-relief requests had not, in management’s view, materially affected rental revenue; future effects remain uncertain.
- Interest-rate and refinancing risks remain relevant. The company had five interest-rate swaps; material contracts referenced LIBOR, scheduled to cease publication after June 30, 2023. The company was evaluating the transition to replacement rates and said contracts include replacement-rate provisions.
- Other cited risks include economic and tenant-credit conditions, occupancy and rents, access to financing and equity, debt covenants and ratings, development and acquisition execution, inflation, property taxes, natural disasters, insurance and environmental liabilities. The filing reported no material change to previously disclosed risk factors and no material litigation.
- Subsequent events: in October, the company repaid a $33.1 million mortgage and acquired development land in Charlotte for $11.5 million and Austin for $4.0 million, with planned projects at both sites.
Investor verification priorities
- Review the composition and sustainability of reported growth, including same-property results, lease spreads, occupancy and rent collections.
- Track the development pipeline’s leasing progress, remaining funding needs, completion timing and returns on invested capital.
- Assess debt maturities, refinancing needs, covenant headroom, interest-rate exposure and the LIBOR transition; the filing does not provide a clear leverage ratio in the supplied text.
- Evaluate dilution and capital needs from continued equity issuance alongside dividend payments and development spending.
- Distinguish GAAP earnings and operating cash flow from non-GAAP FFO and PNOI; these supplemental measures are not substitutes for GAAP results or liquidity measures.