EastGroup Properties Announces First Quarter 2023 Results
EastGroup Properties reported its Q1 2023 results, showing a net income attributable to common stockholders of $1.02 per diluted share, down from $1.54 in Q1 2022. However, Funds from Operations (FFO) increased by 9.5%, reaching $1.84 per share, compared to $1.68 in the prior year. Gains on sales of real estate investments fell to $5 million (or $0.11 per share) from $30 million (or $0.73 per share) year-over-year. The operating portfolio was 98.7% leased, with rental rates on new leases rising by 48.5%. The company declared its 173rd consecutive dividend of $1.25 per share. Looking ahead, EPS is projected between $3.73 to $3.85, and FFO per share between $7.49 to $7.61 in 2023.
- FFO increased by 9.5%, reaching $1.84 per share.
- Same property net operating income increased 7.6% on a straight-line basis.
- Operating portfolio was 98.7% leased and 97.9% occupied.
- Rental rates on new and renewal leases increased 48.5% on a straight-line basis.
- Declared a cash dividend of $1.25 per share, marking the 173rd consecutive dividend.
- Net income per diluted share decreased from $1.54 to $1.02 year-over-year.
- Gains on sales of real estate investments dropped substantially from $30 million to $5 million.
- Interest expense increased by $4.9 million compared to Q1 2022.
- Depreciation and amortization expenses increased by $4.7 million compared to Q1 2022.
First Quarter 2023 Results
- Net Income Attributable to Common Stockholders of
$1.02 $1.54 $5 Million $0.11 $30 Million $0.73 - Funds from Operations ("FFO") of
$1.84 $1.68 9.5% - FFO Excluding Gain on Casualties and Involuntary Conversion (
$.02 Per Share in First Quarter 2023) of$1.82 $1.68 8.3% - Same Property Net Operating Income for the Same Property Pool Excluding Income From Lease Terminations Increased
7.6% on a Straight-Line Basis and11.0% on a Cash Basis for First Quarter 2023 Compared to the Same Period in 2022 - Operating Portfolio was
98.7% Leased and97.9% Occupied as ofMarch 31, 2023 ; Average Occupancy of Operating Portfolio was98.1% for First Quarter 2023 as Compared to97.3% for First Quarter 2022 - Rental Rates on New and Renewal Leases Increased an Average of
48.5% on a Straight-Line Basis Started Construction of Four Development Projects Containing 1,033,000 Square Feet with Projected Total Costs of Approximately$141 Million Transferred Three Development and Value-Add Projects Totaling 716,000 Square Feet to the Operating Portfolio, Which Are Collectively100% Leased- Development and Value-Add Program Consisted of 21 Projects in 13 Cities (4.3 Million Square Feet) at
March 31, 2023 with a Projected Total Investment of Approximately$553 Million - Sold One Operating Property Containing 125,000 Square Feet for
$10 Million $5 Million - Declared 173rd Consecutive Quarterly Cash Dividend:
$1.25 - Closed a
$100 Million 5.27% - Repaid a
$65 Million 2.31% - Expanded the Borrowing Capacity of the Unsecured Bank Credit Facilities from
$475 Million $675 Million - Sold 821,034 Shares of Common Stock Pursuant to the Company's Continuous Common Equity Offering Program at a Weighted Average Price of
$163.51 $133 Million
Commenting on EastGroup's performance,
EARNINGS PER SHARE
On a diluted per share basis, earnings per common share ("EPS") were
- EastGroup recognized gains on sales of real estate investments of
$4,809,000 $0.11 March 31, 2023 , compared to$30,352,000 $0.73 March 31, 2022 . - Interest expense increased by
$4,915,000 $0.11 March 31, 2023 , as compared to the same period of 2022. - Depreciation and amortization expense increased by
$4,673,000 $0.11 March 31, 2023 , as compared to the same period of 2022.
FUNDS FROM OPERATIONS AND PROPERTY NET OPERATING INCOME
For the three months ended
FFO Excluding Gain on Casualties and Involuntary Conversion was
PNOI increased by
Same PNOI Excluding Income from Lease Terminations increased
On a straight-line basis, rental rates on new and renewal leases (
The same property pool for the three months ended
FFO, FFO Excluding Gain on Casualties and Involuntary Conversion, 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
ACQUISITIONS AND DISPOSITIONS
In March, EastGroup sold World Houston 23, a 125,000 square foot building in
Also during the three months ended
Subsequent to
Also in April, the Company closed on the acquisition of 48.9 acres of development land in
Also subsequent to quarter-end in April, EastGroup acquired
DEVELOPMENT AND VALUE-ADD PROPERTIES
During the first quarter of 2023, EastGroup began construction of four new development projects in four cities, which will contain a total of 1,033,000 square feet and have projected total costs of
The development projects started during 2023 are detailed in the table below:
Development Projects Started in 2023 | Location | Size | Anticipated Conversion Date | Projected Total Costs | ||||||||||||||||||||||
(Square feet) | (In thousands) | |||||||||||||||||||||||||
Horizon West 10 | 357,000 | 10/2024 | $ | 44,600 | ||||||||||||||||||||||
284,000 | 12/2024 | 33,700 | ||||||||||||||||||||||||
223,000 | 01/2025 | 29,400 | ||||||||||||||||||||||||
Gateway | 169,000 | 02/2025 | 33,400 | |||||||||||||||||||||||
Total Development Projects Started | 1,033,000 | $ | 141,100 | |||||||||||||||||||||||
At
During the first quarter of 2023, EastGroup transferred three projects to the operating portfolio (at the earlier of
The development and value-add properties transferred to the operating portfolio during the first three months of 2023 are detailed in the table below:
Transferred to the Operating Portfolio in 2023 | Location | Size | Conversion Date | Cumulative Cost as of | Percent Leased as of | |||||||||||||||||||||||||||
(Square feet) | (In thousands) | |||||||||||||||||||||||||||||||
121,000 | 02/2023 | $ | 13,204 | 100 % | ||||||||||||||||||||||||||||
79,000 | 02/2023 | 9,766 | 100 % | |||||||||||||||||||||||||||||
516,000 | 03/2023 | 54,128 | 100 % | |||||||||||||||||||||||||||||
Total Projects Transferred | 716,000 | $ | 77,098 | 100 % | ||||||||||||||||||||||||||||
Projected Stabilized Yield (2) | 5.8 % | |||||||||||||||||||||||||||||||
(1) | Represents value-add acquisition. |
(2) | Weighted average yield based on projected stabilized annual property net operating income on a straight-line basis at |
DIVIDENDS
EastGroup declared a cash dividend of
FINANCIAL STRENGTH AND FLEXIBILITY
EastGroup continues to maintain a strong and flexible balance sheet. Debt-to-total market capitalization was
During the first quarter, EastGroup issued and sold, and subsequently settled the issuance of, 652,909 shares of common stock under its continuous common equity offering program at a weighted average price of
EastGroup and a group of banks agreed to expand the capacity on its unsecured bank credit facilities from
Also in
On
OUTLOOK FOR 2023
EPS for 2023 is now estimated to be in the range of
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 2023, 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
Q2 2023 | Y/E 2023 | Q2 2023 | Y/E 2023 | |||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||
Net income attributable to common stockholders | $ | 39,074 | 165,698 | 41,742 | 171,030 | |||||||||||||||||||||
Depreciation and amortization | 42,301 | 172,118 | 42,301 | 172,118 | ||||||||||||||||||||||
Gain on sales of real estate investments and non-operating real estate | — | (4,890) | — | (4,890) | ||||||||||||||||||||||
Funds from operations attributable to common stockholders* | $ | 81,375 | 332,926 | 84,043 | 338,258 | |||||||||||||||||||||
Diluted shares | 44,474 | 44,428 | 44,474 | 44,428 | ||||||||||||||||||||||
Per share data (diluted): | ||||||||||||||||||||||||||
Net income attributable to common stockholders | $ | 0.88 | 3.73 | 0.94 | 3.85 | |||||||||||||||||||||
Funds from operations attributable to common stockholders | 1.83 | 7.49 | 1.89 | 7.61 | ||||||||||||||||||||||
*This is a non-GAAP financial measure. Please refer to Definitions. |
The following assumptions were used for the mid-point:
Metrics | Revised Guidance for Year 2023 | Initial Guidance for Year 2023 | Actual for Year 2022 | |||||||||||||||||
FFO per share | ||||||||||||||||||||
FFO per share increase over prior year | 7.9 % | 5.7 % | 14.9 % | |||||||||||||||||
Same PNOI growth: cash basis(1) | 8.9 % | |||||||||||||||||||
Average month-end occupancy - operating portfolio | 98.0 % | |||||||||||||||||||
Lease termination fee income | ||||||||||||||||||||
Reserves of uncollectible rent (Currently no identified bad debt for Q2-Q4) | ||||||||||||||||||||
Development starts: | ||||||||||||||||||||
Square feet | 2.6 million | 2.7 million | 2.7 million | |||||||||||||||||
Projected total investment | ||||||||||||||||||||
Value-add property acquisitions (Projected total investment) | none | none | ||||||||||||||||||
Operating property acquisitions | ||||||||||||||||||||
Operating property dispositions (Potential gains on dispositions are not included in the projections) | ||||||||||||||||||||
Unsecured debt closing in period | weighted | weighted | weighted | |||||||||||||||||
Common stock issuances | ||||||||||||||||||||
General and administrative expense |
(1) | Excludes straight-line rent adjustments, amortization of market rent intangibles for acquired leases and income from lease terminations. |
(2) | Includes properties which have been in the operating portfolio since |
DEFINITIONS
The Company's chief decision makers use two primary measures of operating results in making decisions: (1) funds from operations attributable to common stockholders ("FFO") and (2) property net operating income ("PNOI"), as defined below.
FFO is computed in accordance with standards established by the
FFO Excluding Gain on Casualties and Involuntary Conversion is calculated as FFO (as defined above), adjusted to exclude gain on casualties and involuntary conversion. The Company believes that the exclusion of gain on casualties and involuntary conversion presents a more meaningful comparison of operating performance across periods.
PNOI is defined as Income from real estate operations less Expenses from real estate operations (including market-based internal management fee expense) plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments. EastGroup sometimes refers to PNOI from
FFO and PNOI are supplemental industry reporting measurements used to evaluate the performance of the Company's investments in real estate assets and its operating results. The Company believes that the exclusion of depreciation and amortization in the industry's calculations of PNOI and FFO provides supplemental indicators of the properties' performance since real estate values have historically risen or fallen with market conditions. PNOI and FFO as calculated by the Company may not be comparable to similarly titled but differently calculated measures for other REITs. Investors should be aware that items excluded from or added back to FFO are significant components in understanding and assessing the Company's financial performance.
The Company's chief decision makers also use Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate ("EBITDAre") in making decisions. EBITDAre is computed in accordance with standards established by Nareit and defined as Net Income, adjusted for gains and losses from sales of real estate investments, non-operating real estate and other assets incidental to the Company's business, interest expense, income tax expense, depreciation and amortization. EBITDAre is a non-GAAP financial measure used to measure the Company's operating performance and its ability to meet interest payment obligations and pay quarterly stock dividends on an unleveraged basis.
EastGroup's chief decision makers also use its Debt-to-EBITDAre ratio, a non-GAAP financial measure calculated by dividing the Company's debt by its EBITDAre, in analyzing the financial condition and operating performance of the Company relative to its leverage.
The Company's interest and fixed charge coverage ratio is a non-GAAP financial measure calculated by dividing the Company's EBITDAre by its interest expense. We believe this ratio is useful to investors because it provides a basis for analysis of the Company's leverage, operating performance and its ability to service the interest payments due on its debt.
CONFERENCE CALL
EastGroup will host a conference call and webcast to discuss the results of its first quarter, review the Company's current operations, and present its revised earnings outlook for 2023 on
SUPPLEMENTAL INFORMATION
Supplemental financial information is available under Quarterly Results in the Investor Relations section of the Company's website at www.eastgroup.net or upon request by calling the Company at 601-354-3555.
COMPANY INFORMATION
The Company announces information about the Company and its business to investors and the public using the Company's website (eastgroup.net), including the investor relations website (investor.eastgroup.net), filings with the
FORWARD-LOOKING STATEMENTS
The statements and certain other information contained in this press release, which can be identified by the use of forward-looking terminology such as "may," "will," "seek," "expects," "anticipates," "believes," "targets," "intends," "should," "estimates," "could," "continue," "assume," "projects," "goals," or "plans" and variations of such words or similar expressions or the negative of such words, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. These forward-looking statements reflect the Company's current views about its plans, intentions, expectations, strategies and prospects, which are based on the information currently available to the Company and on assumptions it has made. Although the Company believes that its plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions, expectations or strategies will be attained or achieved. Furthermore, these forward-looking statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected. These uncertainties include, but are not limited to:
- international, national, regional and local economic conditions;
- disruption in supply and delivery chains;
- construction costs could increase as a result of inflation impacting the costs to develop properties;
- the competitive environment in which the Company operates;
- fluctuations of occupancy or rental rates;
- potential defaults (including bankruptcies or insolvency) on or non-renewal of leases by tenants, or our ability to lease space at current or anticipated rents, particularly in light of the impacts of inflation;
- potential changes in the law or governmental regulations and interpretations of those laws and regulations, including changes in real estate laws, REIT or corporate income tax laws, potential changes in zoning laws, or increases in real property tax rates, and any related increased cost of compliance;
- our ability to maintain our qualification as a REIT;
- acquisition and development risks, including failure of such acquisitions and development projects to perform in accordance with projections;
- natural disasters such as fires, floods, tornadoes, hurricanes and earthquakes;
- pandemics, epidemics or other public health emergencies, such as the coronavirus pandemic;
- availability of financing and capital, increase in interest rates, and ability to raise equity capital on attractive terms;
- financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest, and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
- our ability to retain our credit agency ratings;
- our ability to comply with applicable financial covenants;
- credit risk in the event of non-performance by the counterparties to our interest rate swaps;
- lack of or insufficient amounts of insurance;
- litigation, including costs associated with prosecuting or defending claims and any adverse outcomes;
- our ability to attract and retain key personnel;
- risks related to the failure, inadequacy or interruption of our data security systems and processes;
- potentially catastrophic events such as acts of war, civil unrest and terrorism; and
- environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A. Risk Factors within the Company's most recent Annual Report on Form 10-K and in its subsequent Quarterly Reports on Form 10-Q.
The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | ||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||
(UNAUDITED) | ||||||||||||||
Three Months Ended | ||||||||||||||
2023 | 2022 | |||||||||||||
REVENUES | ||||||||||||||
Income from real estate operations | $ | 133,964 | 112,952 | |||||||||||
Other revenue | 1,061 | 22 | ||||||||||||
135,025 | 112,974 | |||||||||||||
EXPENSES | ||||||||||||||
Expenses from real estate operations | 36,186 | 31,064 | ||||||||||||
Depreciation and amortization | 41,014 | 36,341 | ||||||||||||
General and administrative | 5,204 | 4,310 | ||||||||||||
Indirect leasing costs | 140 | 175 | ||||||||||||
82,544 | 71,890 | |||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||
Interest expense | (13,025) | (8,110) | ||||||||||||
Gain on sales of real estate investments | 4,809 | 30,352 | ||||||||||||
Other | 439 | 278 | ||||||||||||
NET INCOME | 44,704 | 63,604 | ||||||||||||
Net income attributable to noncontrolling interest in joint ventures | (14) | (24) | ||||||||||||
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS | 44,690 | 63,580 | ||||||||||||
Other comprehensive income (loss) - interest rate swaps | (10,262) | 15,828 | ||||||||||||
TOTAL COMPREHENSIVE INCOME | $ | 34,428 | 79,408 | |||||||||||
BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS | ||||||||||||||
Net income attributable to common stockholders | $ | 1.02 | 1.54 | |||||||||||
Weighted average shares outstanding | 43,751 | 41,246 | ||||||||||||
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS | ||||||||||||||
Net income attributable to common stockholders | $ | 1.02 | 1.54 | |||||||||||
Weighted average shares outstanding | 43,823 | 41,359 | ||||||||||||
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES | |||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | |||||||||||||
(UNAUDITED) | |||||||||||||
Three Months Ended | |||||||||||||
2023 | 2022 | ||||||||||||
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS | $ | 44,690 | 63,580 | ||||||||||
Depreciation and amortization | 41,014 | 36,341 | |||||||||||
Company's share of depreciation from unconsolidated investment | 31 | 31 | |||||||||||
Depreciation and amortization from noncontrolling interest | (1) | (3) | |||||||||||
Gain on sales of real estate investments | (4,809) | (30,352) | |||||||||||
Gain on sales of non-operating real estate | (81) | — | |||||||||||
FUNDS FROM OPERATIONS ("FFO") ATTRIBUTABLE TO COMMON STOCKHOLDERS* | 80,844 | 69,597 | |||||||||||
Gain on casualties and involuntary conversion | (1,027) | — | |||||||||||
FFO ATTRIBUTABLE TO COMMON STOCKHOLDERS EXCLUDING GAIN ON CASUALTIES AND INVOLUNTARY CONVERSION* | $ | 79,817 | 69,597 | ||||||||||
NET INCOME | $ | 44,704 | 63,604 | ||||||||||
Interest expense (1) | 13,025 | 8,110 | |||||||||||
Depreciation and amortization | 41,014 | 36,341 | |||||||||||
Company's share of depreciation from unconsolidated investment | 31 | 31 | |||||||||||
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA") | 98,774 | 108,086 | |||||||||||
Gain on sales of real estate investments | (4,809) | (30,352) | |||||||||||
Gain on sales of non-operating real estate | (81) | — | |||||||||||
EBITDA FOR REAL ESTATE ("EBITDAre")* | $ | 93,884 | 77,734 | ||||||||||
Debt | $ | 1,797,595 | 1,464,516 | ||||||||||
Debt-to-EBITDAre ratio* | 4.79 | 4.71 | |||||||||||
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS | |||||||||||||
Net income attributable to common stockholders | $ | 1.02 | 1.54 | ||||||||||
FFO attributable to common stockholders | $ | 1.84 | 1.68 | ||||||||||
FFO Excluding Gain on Casualties and Involuntary Conversion attributable to common stockholders | $ | 1.82 | 1.68 | ||||||||||
Weighted average shares outstanding for EPS and FFO purposes | 43,823 | 41,359 | |||||||||||
(1) Net of capitalized interest of |
*This is a non-GAAP financial measure. Please refer to Definitions. |
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES (Continued) | ||||||||||||||
(IN THOUSANDS) | ||||||||||||||
(UNAUDITED) | ||||||||||||||
Three Months Ended | ||||||||||||||
2023 | 2022 | |||||||||||||
NET INCOME | $ | 44,704 | 63,604 | |||||||||||
Gain on sales of real estate investments | (4,809) | (30,352) | ||||||||||||
Gain on sales of non-operating real estate | (81) | — | ||||||||||||
Interest income | (81) | — | ||||||||||||
Other revenue | (1,061) | (22) | ||||||||||||
Indirect leasing costs | 140 | 175 | ||||||||||||
Depreciation and amortization | 41,014 | 36,341 | ||||||||||||
Company's share of depreciation from unconsolidated investment | 31 | 31 | ||||||||||||
Interest expense (1) | 13,025 | 8,110 | ||||||||||||
General and administrative expense (2) | 5,204 | 4,310 | ||||||||||||
Noncontrolling interest in PNOI of consolidated joint ventures | (16) | (21) | ||||||||||||
PROPERTY NET OPERATING INCOME ("PNOI")* | 98,070 | 82,176 | ||||||||||||
PNOI from 2022 acquisitions | (4,039) | — | ||||||||||||
PNOI from 2022 and 2023 development and value-add properties | (9,591) | (1,896) | ||||||||||||
PNOI from 2022 and 2023 operating property dispositions | 94 | (273) | ||||||||||||
Other PNOI | 112 | 11 | ||||||||||||
SAME PNOI (Straight-Line Basis)* | 84,646 | 80,018 | ||||||||||||
Lease termination fee income from same properties | (38) | (1,394) | ||||||||||||
SAME PNOI EXCLUDING INCOME FROM LEASE TERMINATIONS (Straight-Line Basis)* | 84,608 | 78,624 | ||||||||||||
Straight-line rent adjustments for same properties | (245) | (2,075) | ||||||||||||
Acquired leases - market rent adjustment amortization for same properties | (161) | (713) | ||||||||||||
SAME PNOI EXCLUDING INCOME FROM LEASE TERMINATIONS (Cash Basis)* | $ | 84,202 | 75,836 | |||||||||||
(1) Net of capitalized interest of | |||||||||||||||||
(2) Net of capitalized development costs of | |||||||||||||||||
*This is a non-GAAP financial measure. Please refer to Definitions. |
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