EastGroup Properties, Inc. (NYSE: EGP) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide separate fourth-quarter results. EastGroup is an internally managed equity REIT focused on industrial distribution properties in Sunbelt markets.
Business and operating context
At year-end, EastGroup owned 510 industrial properties in 12 states, with a portfolio of approximately 59.2 million square feet, including development and value-add properties. Its operating portfolio was 98.7% leased and 98.2% occupied. No tenant represented more than approximately 1.8% of annualized base rent.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Income from real estate operations | $566.2 million | $486.8 million |
| Net income attributable to common stockholders | $200.5 million; $4.42 diluted EPS | $186.2 million; $4.36 diluted EPS |
| FFO attributable to common stockholders | $353.3 million; $7.79 per diluted share | $298.9 million; $7.00 per diluted share |
| FFO excluding involuntary-conversion and business-interruption gains | $349.1 million; $7.70 per diluted share | $298.9 million; $7.00 per diluted share |
| Property net operating income (PNOI) | $413.3 million | $354.0 million |
| Net cash provided by operating activities | $338.2 million | $316.5 million |
| Interest expense | $48.0 million | $38.5 million |
| Total assets | $4.52 billion | $4.04 billion |
| Total liabilities | $1.91 billion | $2.08 billion |
Same-property PNOI excluding lease-termination income grew 6.6%. Average same-property occupancy was 98.4%, versus 98.3%, and same-property average rental rate was $7.58 per square foot, versus $7.08. New and renewal leases signed during 2023 achieved average rental-rate increases of 55.0% on the same spaces.
Investment activity included $165.1 million of operating-property acquisitions, $70.7 million of development land purchases, and $388.2 million of total development and value-add investment. The company began 11 development projects totaling 2.4 million square feet and transferred 13 projects totaling 2.3 million square feet into its operating properties. It sold three operating properties and land for gross proceeds of $43.2 million and recognized $18.0 million of gains on operating-property sales.
Capital, liquidity and distributions
At December 31, 2023, EastGroup had $1.68 billion of fixed or effectively fixed-rate unsecured debt, with a weighted-average interest rate of 3.37%; no secured debt and no borrowings on its bank credit facilities. Cash was $40.3 million, and reported immediate liquidity was approximately $712.6 million, including $672.3 million available on credit facilities. The company reported compliance with all financial debt covenants. Moody’s issuer rating was Baa2 with a stable outlook.
Operating cash flow was $338.2 million, while investing activities used $570.1 million. The company issued 4.1 million shares through ATM programs for $691.5 million net proceeds. It paid $225.6 million in common dividends during the year; declared dividends were $232.1 million. The 2023 tax characterization of common distributions was $5.02083 per share, all ordinary dividends. The board determines future dividends at its discretion.
Fixed-rate debt principal payments include $170 million due in 2024 and $145 million in 2025. The $625 million principal bank facility matures in July 2025, with two six-month extension options; an additional $50 million facility also matures in July 2025. The company had $171.7 million of stated cash requirements due in less than one year for property, development and tenant-improvement obligations.
Material changes, outlook and risks
- Compared with 2022, net income attributable to common stockholders rose 7.7%, FFO per diluted share rose 11.3%, and PNOI rose 16.7%. Higher property income and development contributions supported growth; increased interest expense and lower property-sale gains partly offset it.
- Interest expense increased $9.5 million, primarily reflecting higher fixed-rate debt expense. The company said it had no variable-rate debt outstanding that was not protected by interest-rate hedges at year-end.
- Management expects cash, operating cash flow, credit facilities and access to debt or equity financing to be adequate for operations, debt service, dividends, capital improvements, acquisitions and development. The filing provides no earnings or FFO guidance.
- Management noted economic uncertainty, inflation, higher interest rates and supply-chain disruption; these had not significantly harmed operations to date, but could affect tenants, operating costs, development costs and capital access. Most leases pass through tenants’ pro rata share of property operating expenses, and many include scheduled rent increases.
- Development and value-add projects in lease-up or under construction had projected total costs of $575.7 million, with $200.8 million remaining to invest at year-end. The projects were 24% leased as of February 13, 2024. Risks include construction-cost escalation, delays, permitting, lease-up and lower-than-expected rents.
- Other material risks include tenant defaults or non-renewals, industrial-property competition and local market concentration, refinancing and interest-rate exposure, insurance limits and severe weather, environmental liabilities, cybersecurity, and maintaining REIT qualification. Houston and Dallas were the largest markets.
- Unusual items included $4.2 million of gains on involuntary conversion and business-interruption claims. Net reserves for uncollectible rent rose to $1.5 million from $0.1 million. The company recorded no real-estate impairment charges in 2023.
- After year-end, EastGroup received $49.4 million from partial settlement of forward equity sales and acquired development land in Atlanta and a fully leased, 231,000-square-foot Las Vegas industrial park.
Important facts for investors to verify
- Review the timing and refinancing plan for 2024–2025 debt maturities, credit-facility availability and compliance with covenants.
- Track lease expirations: 10.5% of annualized base rent was scheduled to expire in 2024 and 15.4% in 2025 at year-end; confirm renewal and re-leasing outcomes.
- Monitor whether reported rent increases, occupancy and same-property PNOI growth persist, and assess the effect of higher bad-debt reserves.
- Assess development spending, remaining commitments and lease-up progress against projected costs and returns.
- Consider dilution and capital needs from ATM offerings and forward equity settlements; approximately $440.3 million remained available under the ATM program as of February 14, 2024.
- Distinguish GAAP earnings from FFO and other supplemental measures; the company notes these non-GAAP measures may not be comparable across REITs.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2023.