EastGroup Properties Announces Third Quarter 2024 Results
Third Quarter 2024 Highlights
Net Income Attributable to Common Stockholders of $1.13 Per Diluted Share for Third Quarter 2024 Compared to $1.07 Per Diluted Share for Third Quarter 2023
Funds from Operations ("FFO") Excluding Gain on Involuntary Conversion and Business Interruption Claims of $2.13 Per Share for Third Quarter 2024 Compared to $1.95 Per Share for Third Quarter 2023, an Increase of 9.2%
Same Property Net Operating Income for the Same Property Pool Excluding Income From Lease Terminations Increased 5.5% on a Straight-Line Basis and 5.9% on a Cash Basis for Third Quarter 2024 Compared to the Same Period in 2023
Operating Portfolio was 96.9% Leased and 96.5% Occupied as of September 30, 2024; Average Occupancy of Operating Portfolio was 96.7% for Third Quarter 2024 as Compared to 97.7% for Third Quarter 2023
Rental Rates on New and Renewal Leases Increased an Average of 50.9% on a Straight-Line Basis
Acquired an Operating Property Containing 179,000 Square Feet for Approximately $36 Million
Started Construction of Two Development Projects Totaling 310,000 Square Feet with Projected Total Costs of Approximately $40 Million
Transferred Three Development Projects, which Contain 735,000 Square Feet to the Operating Portfolio
JACKSON, Miss., Oct. 23, 2024 /PRNewswire/ -- EastGroup Properties, Inc. (NYSE:EGP) (the "Company", "we", "us" or "EastGroup") announced today the results of its operations for the three and nine months ended September 30, 2024.
Commenting on EastGroup's performance, Marshall Loeb, CEO, stated, "Our solid performance continued this quarter as evidenced by FFO per share excluding gain on involuntary conversions and business interruption claims rising 9.2%. Our portfolio remains resilient, producing a number of other strong metrics such as our percent leased, year to date releasing spreads and same store net operating income. With a choppy leasing environment matched against a materially shrinking construction pipeline, we are well positioned to benefit within our portfolio as well as fund external growth opportunities. I remain optimistic on the continuing secular tailwinds which benefit our shallow bay, last mile Sunbelt market portfolio."
EARNINGS PER SHARE
Three Months Ended September 30, 2024On a diluted per share basis, earnings per common share ("EPS") were $1.13 for the three months ended September 30, 2024, compared to $1.07 for the same period of 2023. The increase in EPS was primarily due to the following:
The Company's property net operating income ("PNOI") increased by $15,029,000 ($0.31 per share) for the three months ended September 30, 2024, as compared to the same period of 2023.
The increase in EPS was partially offset by the following:
Depreciation and amortization expense increased by $6,396,000 ($0.13 per share) during the three months ended September 30, 2024, as compared to the same period of 2023.
Weighted average shares increased by 3,211,000 on a diluted basis during the three months ended September 30, 2024, as compared to the same period of 2023.
Nine Months Ended September 30, 2024Diluted EPS for the nine months ended September 30, 2024 was $3.49 compared to $3.06 for the same period of 2023. The increase in EPS was primarily due to the following:
PNOI increased by $40,759,000 ($0.84 per share) for the nine months ended September 30, 2024, as compared to the same period of 2023.
EastGroup recognized gains on sales of real estate investments of $8,751,000 ($0.18 per share) during the nine months ended September 30, 2024, compared to $4,809,000 ($0.11 per share) during the nine months ended September 30, 2023.
Interest expense decreased by $7,124,000 ($0.15 per share) during the nine months ended September 30, 2024, as compared to the same period of 2023.
The increase in EPS was partially offset by the following:
Depreciation and amortization expense increased by $13,919,000 ($0.29 per share) during the nine months ended September 30, 2024, as compared to the same period of 2023.
Weighted average shares increased by 3,653,000 on a diluted basis during the nine months ended September 30, 2024, as compared to the same period of 2023.
FUNDS FROM OPERATIONS AND PROPERTY NET OPERATING INCOME
Three Months Ended September 30, 2024For the three months ended September 30, 2024, funds from operations attributable to common stockholders ("FFO") were $2.13 per share compared to $2.00 per share during the same period of 2023, an increase of 6.5%.
FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims was $2.13 per share for the three months ended September 30, 2024, compared to $1.95 per share for the same period of 2023, an increase of 9.2%.
PNOI increased by $15,029,000, or 14.5%, during the three months ended September 30, 2024, compared to the same period of 2023. PNOI increased $6,917,000 from same property operations (based on the same property pool), $4,897,000 from newly developed and value-add properties, and $3,978,000 from 2023 and 2024 acquisitions, and decreased $792,000 from operating properties sold in 2023 and 2024.
Same PNOI Excluding Income from Lease Terminations increased 5.5% on a straight-line basis for the three months ended September 30, 2024, compared to the same period of 2023; on a cash basis (excluding straight-line rent adjustments and amortization of above/below market rent intangibles), Same PNOI increased 5.9%.
On a straight-line basis, rental rates on new and renewal leases (representing 4.1% of our total square footage) increased an average of 50.9% during the three months ended September 30, 2024.
Nine Months Ended September 30, 2024FFO for the nine months ended September 30, 2024, was $6.19 per share compared to $5.75 per share during the same period of 2023, an increase of 7.7%.
FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims was $6.16 per share for the nine months ended September 30, 2024, compared to $5.66 per share for the same period of 2023, an increase of 8.8%.
PNOI increased by $40,759,000, or 13.4%, during the nine months ended September 30, 2024, compared to the same period of 2023. PNOI increased $16,692,000 from same property operations (based on the same property pool), $14,799,000 from newly developed and value-add properties and $11,099,000 from 2023 and 2024 acquisitions, and decreased $1,956,000 from operating properties sold in 2023 and 2024.
Same PNOI Excluding Income from Lease Terminations increased 5.2% on a straight-line basis for the nine months ended September 30, 2024, compared to the same period of 2023; on a cash basis (excluding straight-line rent adjustments and amortization of above/below market rent intangibles), Same PNOI increased 6.3%.
On a straight-line basis, rental rates on new and renewal leases (representing 11.6% of our total square footage) increased an average of 55.9% during the nine months ended September 30, 2024.
The same property pool for the three and nine months ended September 30, 2024 includes properties which were included in the operating portfolio for the entire period from January 1, 2023 through September 30, 2024; this pool is comprised of properties containing 51,668,000 square feet.
FFO, FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims, PNOI and Same PNOI are non-GAAP financial measures, which are defined under Definitions later in this release. Reconciliations of Net Income to PNOI and Same PNOI, and Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to FFO and FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims are presented in the attached schedule "Reconciliations of GAAP to Non-GAAP Measures."
ACQUISITIONS
As previously announced, in August, EastGroup acquired two industrial buildings, known as Hays Commerce Center 3 & 4, totaling 179,000 square feet, in Austin for approximately $35,781,000. This property, which was developed in 2022, is 100% leased to five tenants, increasing the Company's ownership in Austin to approximately 1,756,000 square feet.
Subsequent to quarter-end, the Company acquired approximately 26 acres of development land in the Nashville market for approximately $10,100,000. The site is expected to accommodate the future development of four buildings totaling approximately 350,000 square feet.
DEVELOPMENT AND VALUE-ADD PROPERTIES
During the third quarter of 2024, EastGroup began construction of two new development projects in Austin and Houston, which will contain a total of 310,000 square feet and have projected total costs of $40,400,000.
The development projects started during the first nine months of 2024 are detailed in the table below:
Development Projects Started in 2024
Location
Size
Anticipated ConversionDate
Projected TotalCosts
(Square feet)
(In thousands)
Northeast Trade Center 1
San Antonio, TX
264,000
04/2025
$
32,100
Crossroads 1
Tampa, FL
124,000
06/2025
20,000
Horizon West 5
Orlando, FL
85,000
11/2025
12,800
Texas Avenue 1 & 2
Austin, TX
129,000
05/2026
22,500
World Houston 46
Houston, TX
181,000
06/2026
17,900
Total Development Projects Started
783,000
$
105,300
At September 30, 2024, EastGroup's development and value-add program consisted of 17 projects (3,698,000 square feet) in 12 markets. The projects, which were collectively 31% leased as of October 22, 2024, have a projected total cost of $527,700,000, of which $135,309,000 remained to be funded as of September 30, 2024.
During the third quarter of 2024, EastGroup transferred three projects to the operating portfolio (at the earlier of 90% occupancy or one year after completion). The projects, which are located in Orlando, Austin, and Houston, contain 735,000 square feet and were collectively 81% leased as of October 22, 2024.
The development projects transferred to the operating portfolio during the first nine months of 2024 are detailed in the table below:
Development and Value-Add Properties Transferred to the Operating Portfolio in 2024
Location
Size
Conversion Date
Cumulative Cost asof 9/30/24
Percent Leased as of 10/22/24
(Square feet)
(In thousands)
Gateway 2
Miami, FL
133,000
02/2024
$
22,421
100 %
Hillside 1
Greenville, SC
122,000
04/2024
12,908
100 %
McKinney 1 & 2
Dallas, TX
172,000
06/2024
27,501
100 %
MCO Logistics Center
Orlando, FL
167,000
07/2024
24,499
100 %
Stonefield 35 1-3
Austin, TX
276,000
08/2024
36,933
56 %
Springwood 1 & 2
Houston, TX
292,000
09/2024
34,513
93 %
Total Projects Transferred
1,162,000
$
158,775
88 %
Projected Stabilized Yield(1)
7.4 %
(1) Weighted average yield based on projected stabilized annual property net operating income on a straight-line basis at 100% occupancy divided by projected total costs.
Subsequent to quarter-end, the Company transferred a project, known as Horizon West 10, to the operating portfolio. The project, which is 100% leased, is located in Orlando, contains 357,000 square feet, and has a projected total cost of approximately $45,200,000.
DIVIDENDS
EastGroup declared a cash dividend of $1.40 per share in the third quarter of 2024, which represented a 10.2% increase over the previous quarter's dividend. The third quarter dividend, which was paid on October 15, 2024, was the Company's 179th consecutive quarterly cash distribution to shareholders. The Company has increased or maintained its dividend for 32 consecutive years and has increased it 29 years over that period, including increases in each of the last 13 years. The annualized dividend rate of $5.60 per share yielded 3.1% on the closing stock price of $180.23 on October 22, 2024.
FINANCIAL STRENGTH AND FLEXIBILITY
EastGroup continues to maintain a strong and flexible balance sheet. Debt-to-total market capitalization was 15.1% at September 30, 2024. The Company's interest and fixed charge coverage ratio was 11.55x and 11.08x for the three and nine months ended September 30, 2024, respectively. The Company's ratio of debt to earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") was 3.56x and 3.69x for the three and nine months ended September 30, 2024, respectively. EBITDAre and the Company's interest and fixed charge coverage ratio are non-GAAP financial measures defined under Definitions later in this release. Refer to the schedule "Reconciliations of GAAP to Non-GAAP Measures" attached for the calculation of the Company's interest and fixed charge coverage ratio, the debt to EBITDAre ratio, and the reconciliation of Net Income to EBITDAre.
In August, EastGroup repaid a $50,000,000 senior unsecured term loan at maturity with an effectively fixed interest rate of 4.08%, with no penalty.
During the third quarter, EastGroup sold 162,100 shares of common stock directly through its sales agents under its continuous common equity offering program at a weighted average price of $185.07 per share, providing aggregate net proceeds to the Company of approximately $29,700,000. During the nine months ended September 30, 2024, the Company sold 458,679 shares of common stock directly through its sales agents under its continuous common equity offering program at a weighted average price of $174.43 per share, providing aggregate net proceeds to the Company of approximately $79,210,000.
During the third quarter, EastGroup settled outstanding forward equity sale agreements that were previously entered into under its continuous common equity offering program by issuing 300,502 shares of common stock in exchange for net proceeds of approximately $49,582,000. Subsequent to quarter-end, the Company settled additional outstanding forward equity sale agreements by issuing 299,551 shares of common stock in exchange for approximate net proceeds of $49,385,000.
During the three months ended September 30, 2024, the Company entered into forward equity sale agreements with respect to 1,099,612 shares of common stock with an initial weighted average forward price of $185.80 per share and approximate gross sales proceeds of $204,306,000 based on the initial forward price. The Company did not receive any proceeds from the sale of common shares by the forward purchasers at the time it entered into forward equity sale agreements. As of October 22, 2024, EastGroup has 1,099,612 shares of common stock available for settlement prior to the expiration of the applicable settlement periods ranging from August 2025 through September 2025, for approximate net proceeds of $202,329,000, based on a weighted average forward price of $184.00 per share.
OUTLOOK FOR 2024
We now estimate EPS for 2024 to be in the range of $4.64 to $4.68 and FFO per share attributable to common stockholders for 2024 to be in the range of $8.33 to $8.37. The table below reconciles projected net income attributable to common stockholders to projected FFO. The Company is providing a projection of estimated net income attributable to common stockholders solely to satisfy the disclosure requirements of the U.S. Securities and Exchange Commission.
EastGroup's projections are based on management's current beliefs and assumptions about our business, the industry and the markets in which we operate; there are known and unknown risks and uncertainties associated with these projections. We assume no obligation to update publicly any forward-looking statements, including our Outlook for 2024, whether as a result of new information, future events or otherwise. Please refer to the "Forward-Looking Statements" disclosures included in this earnings release and "Risk Factors" disclosed in our annual and quarterly reports filed with the Securities and Exchange Commission for more information.
The following table presents the guidance range for 2024:
Low Range
High Range
Q4 2024
Y/E 2024
Q4 2024
Y/E 2024
(In thousands, except per share data)
Net income attributable to common stockholders
$
58,591
227,702
60,553
229,664
Depreciation and amortization
49,641
189,480
49,641
189,480
Gain on sales of real estate investments and non-operating real estate
—
(8,973)
—
(8,973)
Funds from operations attributable to common stockholders*
$
108,232
408,209
110,194
410,171
