Second Quarter 2021 Results
EastGroup Properties, Inc. announced the results of its operations for the three and six months ended June 30, 2021.
Commenting on EastGroup’s performance, Marshall Loeb, CEO, stated, “Our team and portfolio continue to exceed our projections. Year-to-date we’re pleased with our performance, and given the demand we’re seeing, we don’t foresee a disruption to this momentum. In short, we like where we stand today, and longer term, we remain bullish on the growth prospects of our shallow bay last mile Sunbelt market portfolio.”
EARNINGS PER SHARE
Three Months Ended June 30, 2021
On a diluted per share basis, earnings per common share (“EPS”) were $0.69 for the three months ended June 30, 2021, compared to $0.60 for the same period of 2020. The Company’s property net operating income (“PNOI”) increased by $7,379,000 ($0.18 per share) for the three months ended June 30, 2021, as compared to the same period of 2020. Depreciation and amortization expense increased by $2,779,000 ($0.07 per share) during the three months ended June 30, 2021, as compared to the same period of 2020.
Six Months Ended June 30, 2021
Diluted EPS for the six months ended June 30, 2021 were $1.37 compared to $1.20 for the same period of 2020. PNOI increased by $14,747,000 ($0.37 per share) for the six months ended June 30, 2021, as compared to the same period of 2020. Depreciation and amortization expense increased by $5,200,000 ($0.13 per share) during the six months ended June 30, 2021, as compared to the same period of 2020.
FUNDS FROM OPERATIONS AND PROPERTY NET OPERATING INCOME
Three Months Ended June 30, 2021
For the three months ended June 30, 2021, funds from operations attributable to common stockholders (“FFO”) were $1.47 per share compared to $1.33 per share during the same period of 2020, an increase of 10.5%.
PNOI increased by $7,379,000, or 11.5%, during the three months ended June 30, 2021, compared to the same period of 2020. PNOI increased $3,615,000 from same property operations (based on the same property pool), $3,417,000 from newly developed and value-add properties, and $642,000 from 2020 and 2021 acquisitions; PNOI decreased $310,000 from operating properties sold in 2020.
The same property pool PNOI Excluding Income from Lease Terminations increased 5.9% on a straight-line basis for the three months ended June 30, 2021, compared to the same period of 2020; on a cash basis (excluding straight-line rent adjustments and amortization of above/below market rent intangibles), Same PNOI increased 5.6%.
On a straight-line basis, rental rates on new and renewal leases (5.2% of total square footage) increased an average of 31.2% during the three months ended June 30, 2021.
Six Months Ended June 30, 2021
FFO for the six months ended June 30, 2021, was $2.92 per share compared to $2.65 per share during the same period of 2020, an increase of 10.2%.
PNOI increased by $14,747,000, or 11.6%, during the six months ended June 30, 2021, compared to the same period of 2020. PNOI increased $7,529,000 from same property operations (based on the same property pool), $6,474,000 from newly developed and value-add properties, and $1,285,000 from 2020 and 2021 acquisitions; PNOI decreased $544,000 from operating properties sold in 2020.
The same property pool PNOI Excluding Income from Lease Terminations increased 6.1% on a straight-line basis for the six months ended June 30, 2021, compared to the same period of 2020; on a cash basis (excluding straight-line rent adjustments and amortization of above/below market rent intangibles), Same PNOI increased 5.8%.
On a straight-line basis, rental rates on new and renewal leases (11.0% of total square footage) increased an average of 28.3% during the six months ended June 30, 2021.
The same property pool for the three and six months ended June 30, 2021 includes properties which were included in the operating portfolio for the entire period from January 1, 2020 through June 30, 2021; this pool is comprised of properties containing 41,305,000 square feet.
FFO, 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 are presented in the attached schedule “Reconciliations of GAAP to Non-GAAP Measures.”
As of July 26, 2021, the Company had collected 99.4% of its rental income charges for January through July 2021. Also as of July 26, 2021, the Company had collected 97.7% of amounts due through June 30, 2021 pursuant to deferral agreements with tenants.
ACQUISITIONS
In May, EastGroup purchased Access Point 2, a recently constructed 159,000 square foot building, for $10.7 million. The property, which was 29% leased as of July 26, 2021, is adjacent to the Company’s recently acquired Access Point 1 property in the I-385 South submarket in Greenville, South Carolina and is currently in the lease-up phase of the development and value-add portfolio.
During June, EastGroup acquired Southpark Distribution Center 2 in Phoenix, Arizona for $9.2 million. The 79,000 square foot distribution building is 100% occupied. This acquisition increased the Company’s ownership in the Chandler submarket of Phoenix to 834,000 square feet, all of which are currently 100% leased.
Also in June, EastGroup purchased Cherokee 75 Business Center 2, another recently constructed distribution facility which is 100% leased and contains 105,000 square feet, for $8.8 million. The property is located within the Northwest submarket of Atlanta, where the Company’s recently acquired Cherokee 75 1 and Northpoint 200 properties are located, and is currently in the lease-up phase of the development and value-add portfolio.
In June, the Company acquired 15.1 acres of development land in the I-20 West submarket of Atlanta for $289,000. This site is contiguous to the 11.4 acre parcel known as Blairs Bridge land acquired in December 2020. The two parcels will be combined, and EastGroup has increased the originally planned 120,000 square foot building to a 155,000 square foot building on the site.
DEVELOPMENT AND VALUE-ADD PROPERTIES
During the second quarter of 2021, EastGroup began construction of five new development projects in four different cities. The buildings will contain a total of 972,000 square feet and have projected total costs of $134.0 million.
The development projects started during the first six months of 2021 are detailed in the table below:
Development Projects Started in 2021 |
Location |
Size |
Anticipated Conversion Date |
Projected Total Costs |
|||||||||||||||||||||||||
(Square feet) |
(In thousands) |
||||||||||||||||||||||||||||
Speed Distribution Center |
San Diego, CA |
519,000 |
01/2022 |
$ |
88,600 |
||||||||||||||||||||||||
Grand Oaks 75 3 |
Tampa, FL |
136,000 |
07/2022 |
12,000 |
|||||||||||||||||||||||||
Horizon West 2 & 3 |
Orlando, FL |
210,000 |
09/2022 |
18,200 |
|||||||||||||||||||||||||
CreekView 9 & 10 |
Dallas, TX |
145,000 |
12/2022 |
17,200 |
|||||||||||||||||||||||||
Tri-County Crossing 5 |
San Antonio, TX |
105,000 |
01/2023 |
10,300 |
|||||||||||||||||||||||||
SunCoast 12 |
Fort Myers, FL |
79,000 |
02/2023 |
8,000 |
|||||||||||||||||||||||||
Tri-County Crossing 6 |
San Antonio, TX |
124,000 |
05/2023 |
9,900 |
|||||||||||||||||||||||||
Total Development Projects Started |
1,318,000 |
$ |
164,200 |
At June 30, 2021, EastGroup’s development and value-add program consisted of 16 projects (3,013,000 square feet) in 12 cities. The projects, which were collectively 53% leased as of July 26, 2021, have a projected total cost of $329.0 million, of which $134.0 million remained to be spent as of June 30, 2021.
During the second quarter of 2021, EastGroup transferred six projects to the real estate portfolio (at the earlier of 90% occupancy or one year after completion/value-add acquisition date). The projects, which are located in Austin, San Antonio, Houston, Phoenix, Miami and Fort Myers, contain 926,000 square feet and were 100% leased as of July 26, 2021.
The development and value-add properties transferred to the real estate portfolio during the first six months of 2021 are detailed in the table below:
Development and Value-Add Properties Transferred to |
Location |
Size |
Conversion Date |
Cumulative Cost as of 6/30/21 |
Percent Leased as of 7/26/21 |
|||||||||||||||||||||||||||
(Square feet) |
(In thousands) |
|||||||||||||||||||||||||||||||
Gilbert Crossroads A & B |
Phoenix, AZ |
140,000 |
01/2021 |
$ |
16,969 |
100% |
||||||||||||||||||||||||||
CreekView 7 & 8 |
Dallas, TX |
137,000 |
03/2021 |
17,691 |
100% |
|||||||||||||||||||||||||||
Hurricane Shoals 3 |
Atlanta, GA |
101,000 |
03/2021 |
10,342 |
100% |
|||||||||||||||||||||||||||
Northpoint 200 (1) |
Atlanta, GA |
79,000 |
03/2021 |
6,881 |
100% |
|||||||||||||||||||||||||||
Rancho Distribution Center (1) |
Los Angeles, CA |
162,000 |
03/2021 |
27,375 |
100% |
|||||||||||||||||||||||||||
World Houston 44 |
Houston, TX |
134,000 |
05/2021 |
9,018 |
100% |
|||||||||||||||||||||||||||
Gateway 4 |
Miami, FL |
197,000 |
06/2021 |
23,366 |
100% |
|||||||||||||||||||||||||||
Interstate Commons 2 (1) |
Phoenix, AZ |
142,000 |
06/2021 |
12,299 |
100% |
|||||||||||||||||||||||||||
Settlers Crossing 3 & 4 |
Austin, TX |
173,000 |
06/2021 |
19,982 |
100% |
|||||||||||||||||||||||||||
SunCoast 7 |
Fort Myers, FL |
77,000 |
06/2021 |
7,659 |
100% |
|||||||||||||||||||||||||||
Tri-County Crossing 3 & 4 |
San Antonio, TX |
203,000 |
06/2021 |
15,715 |
100% |
|||||||||||||||||||||||||||
Total Projects Transferred |
1,545,000 |
$ |
167,297 |
100% |
||||||||||||||||||||||||||||
Projected Stabilized Yield (2) |
7.0% |
(1) These value-add projects were acquired by EastGroup. |
(2) Weighted average yield based on estimated annual property net operating income on a straight-line basis at 100% occupancy divided by projected total costs. |
Subsequent to quarter-end, EastGroup began construction of Americas Ten 2 in El Paso, Texas, which will contain 168,000 square feet and has a projected total cost of $14.1 million.
DIVIDENDS
EastGroup declared a cash dividend of $0.79 per share in the second quarter of 2021. The second quarter dividend, which was paid on July 15, 2021, was the Company’s 166th consecutive quarterly cash distribution to shareholders. The Company has increased or maintained its dividend for 28 consecutive years and has increased it 25 years over that period, including increases in each of the last nine years. The annualized dividend rate of $3.16 per share yielded 1.8% on the closing stock price of $175.80 on July 26, 2021.
FINANCIAL STRENGTH AND FLEXIBILITY
EastGroup continues to maintain a strong and flexible balance sheet. Debt-to-total market capitalization was 16.6% at June 30, 2021. The Company’s interest and fixed charge coverage ratio was 8.21x for the second quarter of 2021 and 8.09x for the six months ended June 30, 2021. The Company’s ratio of debt to earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) was 4.90x and 4.94x for the three and six months ended June 30, 2021, respectively. EBITDAre is a non-GAAP financial measure defined under Definitions later in this release. A reconciliation of Net Income to EBITDAre is presented in the attached schedule “Reconciliations of GAAP to Non-GAAP Measures.”
During the second quarter, EastGroup issued and sold 370,177 shares of common stock under its continuous common equity offering program at an average price of $162.08 per share, providing aggregate net proceeds to the Company of approximately $59 million. During the six months ended June 30, 2021, EastGroup issued and sold 687,715 shares of common stock under its continuous common equity program at an average price of $152.68 per share, providing aggregate net proceeds to the Company of approximately $104 million.
As previously announced, the Company and a group of lenders agreed to terms on the private placement of $125 million of senior unsecured notes with a fixed interest rate of 2.74% and a 10-year term. The notes dated April 8, 2021, were issued and sold on June 10, 2021 and require interest-only payments. The notes will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
Also in June, EastGroup amended and restated its unsecured revolving credit facilities which previously were scheduled to mature in July 2022 and now mature in July 2025. The capacity on the Company’s $350 million revolving credit facility was increased to $425 million with a group of nine banks. The capacity on EastGroup’s $45 million working cash line of credit facility was increased to $50 million. The interest rate was reduced from LIBOR plus 100 basis points to an initial rate of LIBOR plus 77.5 basis points, and the annual facility fee was reduced from 20 basis points to an initial rate of 15 basis points on both facilities. The margin and facility fee are subject to changes in the Company’s credit ratings. The facility also includes a sustainability-linked pricing component pursuant to which, if the Company meets certain sustainability performance targets, the applicable interest margin will be reduced by one basis point.
OUTLOOK FOR 2021
EPS for 2021 is now estimated to be in the range of $2.65 to $2.75. Estimated FFO per share attributable to common stockholders for 2021 is now estimated to be in the range of $5.83 to $5.93. 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. The Company assumes no obligation to update publicly any forward-looking statements, including its outlook for 2021, 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.
Low Range |
High Range |
|||||||||||||||||||||||||
Q3 2021 |
Y/E 2021 |
Q3 2021 |
Y/E 2021 |
|||||||||||||||||||||||
(In thousands, except per share data) |
||||||||||||||||||||||||||
Net income attributable to common stockholders |
$ |
26,366 |
106,827 |
27,986 |
110,857 |
|||||||||||||||||||||
Depreciation and amortization |
32,611 |
128,239 |
32,611 |
128,239 |
||||||||||||||||||||||
Funds from operations attributable to common stockholders |
$ |
58,977 |
235,066 |
60,597 |
239,096 |
|||||||||||||||||||||
Diluted shares |
40,521 |
40,308 |
40,521 |
40,308 |
||||||||||||||||||||||
Per share data (diluted): |
||||||||||||||||||||||||||
Net income attributable to common stockholders |
$ |
0.65 |
2.65 |
0.69 |
2.75 |
|||||||||||||||||||||
Funds from operations attributable to common stockholders |
1.46 |
5.83 |
1.50 |
5.93 |
The following assumptions were used for the mid-point:
Metrics |
Revised Guidance for Year 2021 |
April Earnings Release Guidance for Year 2021 |
Actual for Year 2020 |
|||||||||||||||||||
FFO per share |
$5.83 – $5.93 |
$5.74 – $5.84 |
$5.38 |
|||||||||||||||||||
FFO per share increase over prior year |
9.3% |
7.6% |
8.0% |
|||||||||||||||||||
Same PNOI growth: cash basis(1) |
4.7% – 5.7%(2) |
3.9% – 4.9%(2) |
3.2% |
|||||||||||||||||||
Average month-end occupancy |
96.3% – 97.3% |
96.1% – 97.1% |
96.7% |
|||||||||||||||||||
Lease termination fee income |
$850,000 |
$800,000 |
$709,000 |
|||||||||||||||||||
Reserves for uncollectible rent (No identified bad debts for remainder of year) |
$950,000 |
$1.1 million |
$2.8 million |
|||||||||||||||||||
Development starts: |
||||||||||||||||||||||
Square feet |
2.4 million |
2.1 million |
851,000 |
|||||||||||||||||||
Projected total investment |
$275 million |
$210 million |
$91 million |
|||||||||||||||||||
Value-add property acquisitions (Projected total investment) |
$35 million |
$35 million |
$29 million |
|||||||||||||||||||
Operating property acquisitions |
$10 million |
$10 million |
$49 million |
|||||||||||||||||||
Operating property dispositions (Potential gains on dispositions are not included in the projections) |
$60 million |
$60 million |
$21 million |
|||||||||||||||||||
Unsecured debt closing in period |
$250 million at 2.58% weighted average interest rate |
$250 million at 2.58% weighted average interest rate |
$275 million at 2.56% weighted |
|||||||||||||||||||
Common stock issuances |
$185 million |
$140 million |
$94 million |
|||||||||||||||||||
General and administrative expense |
$17.1 million |
$17.8 million |
$14.4 million |
(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 1/1/20 and are projected to be in the operating portfolio through 12/31/21; includes 40,832,000 square feet. |
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 National Association of Real Estate Investment Trusts, Inc. (“Nareit”). Nareit’s guidance allows preparers an option as it pertains to whether gains or losses on sale, or impairment charges, on real estate assets incidental to a real estate investment trust’s (“REIT’s”) business are excluded from the calculation of FFO. EastGroup has made the election to exclude activity related to such assets that are incidental to our business. FFO is calculated as net income (loss) attributable to common stockholders computed in accordance with U.S. generally accepted accounting principles (“GAAP”), excluding gains and losses from sales of real estate property (including other assets incidental to the Company’s business) and impairment losses, adjusted for real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
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 Same Properties as “Same PNOI” in this press release and the accompanying reconciliation; the Company also presents Same PNOI Excluding Income from Lease Terminations. The Company presents Same PNOI and Same PNOI Excluding Income from Lease Terminations as a property-level supplemental measure of performance used to evaluate the performance of the Company’s investments in real estate assets and its operating results on a same property basis. The Company believes it is useful to evaluate Same PNOI Excluding Income from Lease Terminations on both a straight-line and cash basis. The straight-line basis is calculated by averaging the customers’ rent payments over the lives of the leases; GAAP requires the recognition of rental income on a straight-line basis. The cash basis excludes adjustments for straight-line rent and amortization of market rent intangibles for acquired leases; cash basis is an indicator of the rents charged to customers by the Company during the periods presented and is useful in analyzing the embedded rent growth in the Company’s portfolio. “Same Properties” is defined as operating properties owned during the entire current period and prior year reporting period. Operating properties are stabilized real estate properties (land including building and improvements) that make up the Company’s operating portfolio. Properties developed or acquired are excluded from the same property pool until held in the operating portfolio for both the current and prior year reporting periods. Properties sold during the current or prior year reporting periods are also excluded.
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. This ratio 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 second quarter and review the Company’s current operations on Wednesday, July 28, 2021, at 11:00 a.m. Eastern Time. A live broadcast of the conference call is available by dialing 1-877-240-5772 (conference ID: EastGroup) or by webcast through a link on the Company’s website at www.eastgroup.net. If you are unable to listen to the live conference call, a telephone and webcast replay will be available until Wednesday, August 4, 2021. The telephone replay can be accessed by dialing 1-877-344-7529 (access code 10158233), and the webcast replay can be accessed through a link on the Company’s website at www.eastgroup.net.
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.