EastGroup Properties, Inc. - 10-Q Summary (Q3 2009)
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2009. EastGroup Properties, Inc. is a real estate investment trust (REIT) focused on developing, acquiring, and operating industrial distribution facilities, primarily in Sunbelt markets including Florida, Texas, Arizona, and California. The company operates a single reportable segment: industrial properties.
Key Financial Metrics
| Metric | Q3 2009 (3 Months) | YTD 2009 (9 Months) | YTD 2008 (9 Months) |
|---|---|---|---|
| Net Income (Common Stockholders) | $6.15 million | $20.98 million | $23.70 million |
| Diluted EPS | $0.24 | $0.82 | $0.97 |
| Property Net Operating Income (PNOI) | $30.43 million | $91.52 million | $89.86 million |
| Funds From Operations (FFO) | $19.72 million | $60.87 million | $60.12 million |
| Total Assets | $1.18 billion | - | - |
| Total Debt | $708.07 million | - | - |
| Cash and Equivalents | $0.12 million | - | - |
| Occupancy Rate | 88.9% | - | 94.4% (Sep 2008) |
Material Changes vs. Prior Period
- Net Income Decline: Net income available to common stockholders decreased 13.6% year-over-year for the nine months ended September 30, 2009. This decline is largely attributed to the absence of significant gains from discontinued operations and sales of real estate investments that occurred in the same period in 2008 ($2.64 million in gains).
- Occupancy and Rents: Occupancy dropped to 88.9% from 94.4% in the prior year. Average rental rates on new and renewal leases decreased by 5.5% for the nine-month period.
- Same Property PNOI: Property Net Operating Income from same properties decreased 3.4% year-over-year due to lower occupancy and rental rates, partially offset by acquisitions and new developments.
- Debt Structure: The company closed a $67 million fixed-rate mortgage in May 2009 to replace variable-rate bank borrowings. Total debt increased slightly to $708.1 million.
Outlook, Risks, and Management Commentary
- Development Pause: Due to the economic slowdown, the company has no plans to start new construction for the remainder of 2009. Development activity has slowed considerably.
- Liquidity: Management believes current lines of credit ($225 million total capacity) and operating cash flows are sufficient to fund operations through 2010. The company continues to utilize a continuous equity program to reduce variable-rate debt.
- Market Risks: The filing highlights risks associated with the general economic recession, including tenant defaults, inability to re-lease space at current rates, and increased difficulty in obtaining financing.
- Subsequent Events: Following the quarter-end, the company issued an additional 20,666 shares under its equity program and is under contract to sell a vacant building in El Paso, Texas, and purchase additional land in Orlando, Florida.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with debt covenants, specifically debt service coverage and leverage ratios, given the decline in occupancy.
- Lease Expirations: Review the schedule of lease expirations for the remainder of 2009 and 2010 to assess re-leasing risks in a soft market.
- Capital Expenditures: Monitor capital expenditure requirements for tenant improvements and building maintenance as leases are renewed at lower rates.
- Equity Dilution: Track the pace of the continuous equity offering program and its impact on share count and per-share metrics.
- Development Pipeline: Assess the status of the $95.2 million in development assets and the timeline for transferring them to stabilized real estate properties.