EastGroup Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results; financial amounts below are in U.S. dollars. EastGroup is an industrial-property REIT focused primarily on Sunbelt distribution facilities.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Real estate operating revenue | $99.6 million | $89.5 million | $197.5 million | $178.1 million |
| Net income attributable to common stockholders | $27.6 million | $23.5 million | $54.9 million | $46.8 million |
| Diluted GAAP EPS | $0.69 | $0.60 | $1.37 | $1.20 |
| FFO per diluted share | $1.47 | $1.33 | $2.92 | $2.65 |
| Property net operating income (PNOI) | $71.7 million | $64.4 million | $142.0 million | $127.3 million |
| Net cash provided by operating activities | — | — | $137.7 million | $116.7 million |
Q2 revenue rose 11.2% and common-stockholder net income rose 17.3% year over year. For the first half, revenue increased 10.7%, net income increased 17.3%, and FFO per diluted share grew 10.2%. First-half Same PNOI excluding lease termination income increased 6.1%; overall PNOI increased 11.6%.
Q2 real estate operating expenses were $28.1 million and depreciation and amortization was $31.3 million. Interest expense was $8.2 million, down from $8.3 million. The filing does not present a conventional operating-profit margin; PNOI was about 72.0% of real estate operating revenue in Q2, compared with about 71.9% a year earlier.
Balance sheet, debt and liquidity
- At June 30, total assets were $2.86 billion, total liabilities $1.48 billion, and total equity $1.37 billion. Cash was $38.6 million.
- Total debt, net of issuance costs, was $1.316 billion, compared with $1.311 billion at year-end 2020. The reported debt mix included $1.282 billion of unsecured debt and $36.1 million of secured debt. No amounts were drawn on the bank credit facilities at quarter-end.
- Operating cash flow of $137.7 million was below investing cash use of $141.8 million. Financing provided $42.7 million, including $105.7 million of common-stock offering proceeds and $175 million of new unsecured debt proceeds; the company paid $63.4 million in stockholder distributions.
- The company issued $125 million of 10-year senior unsecured notes at 2.74% and closed a $50 million four-year term loan effectively fixed at 1.55%. It repaid a $40.8 million mortgage carrying a 4.75% rate.
- Credit facilities were expanded to $425 million and $50 million, with maturities in July 2025 and extension options. The company reported compliance with debt covenants. Its stated credit rating was Baa2.
Operating changes and management commentary
- Portfolio occupancy was 96.8% and leased occupancy 98.3% at June 30; the comparable year-earlier figures were 97.0% and 97.5%. Same-property average occupancy improved to 97.3% in Q2 from 96.8%.
- New and renewal leases signed in the first half covered 5.01 million square feet, with average rental rates 28.3% above the former leases on the same spaces. Q2 lease rate increases averaged 31.2%.
- The company started seven development projects totaling 1.318 million square feet and transferred 11 projects totaling 1.545 million square feet into operating properties. Its development and value-add program comprised 16 projects totaling 3.013 million square feet, projected at $329 million total investment; $134 million remained to be invested at June 30. The portfolio was 53% leased as of July 27.
- Management said operations, occupancy and rent collections remained substantially stable amid COVID-19. By July 27, 99.4% of rental charges for January–July 2021 had been collected. Rent deferrals totaled $1.7 million, all related to 2020, and $1.5 million had been collected by July 27.
- Management expects cash, operating cash flow, credit facilities, debt and equity access to be adequate for operating needs, distributions and investment programs. The filing gives no specific earnings or FFO guidance.
Risks, contingencies and unusual items
- COVID-19’s future effects remain uncertain; tenant financial deterioration, rent collection, leasing, development delays and economic conditions could adversely affect results and cash flows.
- USD LIBOR is expected to cease publication after June 30, 2023. Some debt and derivatives are LIBOR-linked; the company is monitoring the transition and says contracts include replacement-rate provisions. Interest payments could nevertheless vary with transition outcomes.
- Interest-rate swaps had a $3.9 million liability at quarter-end; $3.6 million of accumulated losses was expected to be reclassified as increased interest expense over the following 12 months.
- No impairment charges or property sales were reported for the first half. The company reported no material litigation and no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether rent collections, occupancy and strong leasing spreads persist, and how much of rental growth reflects same-property performance versus acquisitions and developments.
- Development project leasing, completion timing, cost-to-complete and returns on the $134 million remaining investment.
- Debt maturities, covenant headroom, fixed-versus-variable exposure, and the LIBOR-to-replacement-rate transition.
- Cash conversion and funding needs: operating cash flow did not cover investing outflows in the first half, while financing relied partly on debt and share issuance.
- FFO is a supplemental non-GAAP REIT measure, not a substitute for GAAP earnings or liquidity; compare its definition and adjustments when evaluating performance.