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EastGroup Properties Inc (EGP) (Q1 2024) Earnings Call Transcript Highlights: Robust Growth and ...

GuruFocus Research
·4-min read

  • Funds from Operations (FFO) Growth: Increased by 8.8% excluding 2023 involuntary conversion.

  • FFO Per Share: $1.98 for the quarter, up from $1.82 year-over-year.

  • Occupancy Rate: Ended the quarter at 97.7%.

  • Leasing Rate: Reached 98% at quarter end.

  • Re-leasing Spreads: 58% GAAP, 40% cash.

  • Cash Same-Store NOI: Increased by 7.7% for the quarter.

  • Top 10 Tenants: Represent 7.8% of rents, down 70 basis points from first quarter 2023.

  • Debt to Total Market Capitalization: 16.3%.

  • Debt-to-EBITDA Ratio: Decreased to 4x.

  • Interest and Fixed Charge Coverage: Increased to 10.4x.

  • FFO Guidance for Q2: Estimated to be $1.99 to $2.07 per share.

  • Annual FFO Guidance: Projected at $8.17 to $8.37 per share.

  • Uncollectible Rent Reserves: Increased by $500,000 to $2.5 million.

  • G&A Guidance: Increased by $900,000 to $20.8 million.

Release Date: April 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Q & A Highlights

Q: Marshall, in your opening remarks, you talked about the resiliency in the sector. Could you elaborate on the factors affecting leasing decisions and the impact of economic uncertainty on consumption and e-commerce? A: Marshall A. Loeb - EastGroup Properties, Inc. - President, CEO & Director: The resiliency in the industrial sector remains strong, influenced by a combination of interest rates and global unrest. Short-term decisions, like retail, are holding up well due to consumer strength. However, there's a cautious approach in making long-term commitments like expansions, influenced by shifting interest rate expectations and global economic conditions. The decline in industrial starts and the increase in renewals indicate a wait-and-see approach in the market, but the underlying trends like e-commerce and onshoring continue to support sector strength.

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Q: Could you discuss the acquisition opportunities and cap rate expectations for the remainder of the year compared to your development yields? A: Marshall A. Loeb - EastGroup Properties, Inc. - President, CEO & Director: Acquisition opportunities have increased, particularly for properties that can close quickly. Cap rates for acquisitions are competitive, especially for portfolios, with rates below 5%. Our acquisition cap rates have been around 6.25% to 6.5%, compared to development yields around 7%. The ability to close quickly has become a significant advantage in securing acquisitions.

: With the leasing decisions taking longer, can you provide insight into the leasing volume and pipeline for Q2 compared to Q1? A: Marshall A. Loeb - EastGroup Properties, Inc. - President, CEO & Director: The leasing volume in Q1 was robust, slightly higher than the previous year, and we expect this trend to continue into Q2. The decision-making process has slowed, affecting the pace of leasing, but the volume remains healthy. Prospects are abundant, but converting these to signed leases is taking longer due to the cautious economic outlook.

Q: Can you elaborate on the expected market tightening later in 2024 and the impact on your operations? A: Marshall A. Loeb - EastGroup Properties, Inc. - President, CEO & Director: The market is expected to tighten due to a significant drop in industrial starts over the past quarters. This reduction in new supply, assuming steady demand, should lead to tighter market conditions and opportunities to push rents and pursue development. The timing is uncertain but anticipated to occur in the latter part of 2024.

Q: How are tenants compensating for delaying decisions on needed space expansions? A: Marshall A. Loeb - EastGroup Properties, Inc. - President, CEO & Director: Tenants are currently making do with existing spaces, delaying expansions and new space commitments. Decisions are being postponed at the corporate level, leading to a pent-up demand for space. This cautious approach is likely due to uncertainties in the economic environment and interest rate fluctuations.

Q: What are the trends and activities related to onshoring and nearshoring within your portfolio? A: Marshall A. Loeb - EastGroup Properties, Inc. - President, CEO & Director: Onshoring and nearshoring trends continue to benefit markets like Arizona and Southern California, particularly areas close to the Mexican border. These trends are contributing to strong demand in these regions, supporting higher occupancy and leasing activity. The shift in manufacturing from China to Mexico and Central America is a long-term trend that is positively impacting our portfolio.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.