EastGroup Properties, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. EastGroup is an internally managed industrial REIT focused on distribution properties in Sunbelt markets.
Business context and operating performance
- At year-end, the portfolio included approximately 56.0 million square feet across 487 industrial properties and one office building. The operating portfolio was 98.7% leased and 98.3% occupied; no tenant represented more than approximately 2.1% of real estate operating income.
- New and renewal leases signed during 2022 covered 9.22 million square feet and achieved average rent increases of 39.0% versus prior leases on the same spaces.
- EastGroup acquired 2.75 million square feet of operating and value-add properties and 456.3 acres of land for a total of approximately $605.8 million. It started 14 development projects totaling 2.7 million square feet and transferred 19 projects totaling 3.6 million square feet into the operating portfolio.
Financial results and liquidity
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Income from real estate operations | $486.8 million | $409.4 million | Up 18.9% |
| Net income attributable to common stockholders | $186.2 million | $157.6 million | Up 18.2%; diluted EPS was $4.36 versus $3.90 |
| Funds from operations (FFO), attributable to common stockholders | $298.9 million; $7.00 per diluted share | $245.9 million; $6.09 per diluted share | Per-share FFO up 14.9%; non-GAAP measure |
| Property net operating income (PNOI) | $354.0 million | $295.2 million | Up 19.9%; same-property PNOI excluding lease termination income up 7.2% |
| Net cash provided by operating activities | $316.5 million | $256.5 million | Investing activities used $521.1 million; financing activities provided $200.3 million |
| Total assets | $4.04 billion | $3.22 billion | Up $820.5 million |
| Total debt, net of debt issuance costs | $1.86 billion | $1.45 billion | Debt increased approximately $410.0 million |
Interest expense increased to $38.5 million from $32.9 million. The company reported $40.999 million of gains on property sales. Cash at year-end was $56,000. Total equity was $1.95 billion. EastGroup paid $193.9 million in common dividends during the year; dividends declared were $4.70 per share.
At December 31, 2022, variable-rate bank borrowings were $170 million, while most other debt was fixed-rate or effectively fixed through swaps. The company reported compliance with all debt covenants. In January 2023, it increased total unsecured credit-facility capacity from $475 million to $675 million and replaced LIBOR with SOFR. Management stated that cash, operating cash flows, credit facilities and access to debt or equity markets should be adequate for anticipated operating, debt-service, distribution and investment needs.
Material changes, outlook and risks
- Growth reflected acquisitions, development completions and same-property performance. Same-property average occupancy improved to 98.2% from 97.5%; year-end operating occupancy increased to 98.3% from 97.4%.
- Development and value-add projects had projected total costs of $494.1 million, with $169.3 million remaining to invest at year-end; the projects were 38% leased as of February 14, 2023. Management did not provide quantified earnings or revenue guidance.
- Management said inflation, supply-chain disruption and rising interest rates had not significantly harmed operations to date, but could affect tenants, construction costs, financing costs and future results. Most leases pass through operating expenses and include scheduled rent increases, though these protections may not fully offset inflation.
- Principal risks include leasing demand and tenant credit, development and construction cost or timing overruns, concentration in industrial real estate and Sunbelt markets, refinancing and interest-rate exposure, access to external capital, insurance and climate-related losses, environmental liabilities, cybersecurity, and continued REIT qualification.
- Unusual or significant items included the Tulloch portfolio acquisition, funded partly with 1,868,809 common shares; $525 million of unsecured debt issued during 2022; $75.4 million of net proceeds from common-stock offerings; and $41.0 million in property-sale gains. Interest-rate swap fair-value changes added $35.1 million to other comprehensive income.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified estimated land fair values in asset acquisitions as a critical audit matter; no material litigation or property impairment charges were reported.
Important facts for investors to verify
- Confirm debt maturities, refinancing plans and the sensitivity of interest expense to rates, including the $170 million of year-end unhedged variable-rate borrowings.
- Track lease expirations, renewal spreads, tenant credit and occupancy; 2023 expirations represented 10.3% of year-end base rent, reduced to 8.5% by February 14, 2023.
- Assess development project costs, remaining funding needs and lease-up against the reported 38% pre-leasing level.
- Distinguish recurring operating performance from property-sale gains, and review FFO alongside GAAP earnings and cash flows.
- Review the effects of share issuance and dividend payments on per-share growth, capital needs and distribution coverage.