Yahoo Finance EastGroup Properties, Inc. (NYSE:EGP) Q1 2024 Earnings Call Transcript
EastGroup Properties, Inc. (NYSE:EGP) Q1 2024 Earnings Call Transcript April 24, 2024
EastGroup Properties, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen, and welcome to the EastGroup Properties First Quarter 2024 Earnings Conference Call and Webcast. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, April 24, 2024. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.
Marshall Loeb: Good morning, and thanks for calling in for our First Quarter 2024 Conference Call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call, and since we'll make forward-looking statements, we ask that you listen to the following disclaimer.
Keena Frazier: Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the Safe Harbors under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements in the earnings press release, along with our remarks, are made as of today, and reflect our current views about the company's plans, intentions, expectations, strategies and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings included on our most recent Annual Report on Form 10-K for more detail about these risks.
Marshall Loeb: Thanks, Keena. Good morning. I will start by thanking our team for another strong quarter. The team continues performing at a high-level and finding opportunities in an evolving market. Our first quarter results demonstrate the quality of the portfolio we've built and the resiliency of the industrial market. Some of the results produced include Funds From Operations rising 8.8%, excluding a 2023 involuntary conversion. For over a decade now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term trend. Quarter end leasing was 98% with occupancy at 97.7%. Average quarterly occupancy was 97.5% which although historically strong, is down from first quarter 2023.
Re-leasing spreads for the quarter were solid at 58% GAAP and 40% cash with cash same-store NOI rising 7.7% for the quarter. Finally, we have the most diversified rent roll in our sector, with our top 10 tenants falling to 7.8% of rents, down 70 basis points from first quarter 2023 and in more locations. We view our geographic and revenue diversity, as strategic paths to stabilize future earnings regardless of the economic environment. In summary, we are pleased with our performance out of the gate for 2024, while being mindful of the near-term economy. Today, we are focused on value creation via raising rents, acquisitions and development. This allowed us to end the quarter 98% leased and continue pushing rents throughout the portfolio. On the acquisition front, we continue to patiently search for the right opportunities.
We're excited to acquire Spanish Ridge in Las Vegas, which we announced earlier in the year. This acquisition also allowed us to move to self-management in the market, further raising our returns. In keeping with our strategy of targeting high-growth markets, we are excited near term to enter the Raleigh market, a market we've looked at years. And similar to a number of our other markets were attracted to its economic stability and growth, due to the mix of state capital, large educational presence, technology companies which follow the university presence, topography constraints for new development and long-term population growth. Our acquisitions will continue to be guided by two criteria; one, to be accretive; and secondly, raising the long-term growth profile of the portfolio, thus creating NAV as well.
As we've stated before, our development starts are [referred] (ph) by market demand within our products. Based on our REIT through, we are forecasting 2024 starts of $260 million and though our developments continue leasing with solid prospect interest, we're seeing longer deliberate decision-making. As always, we ultimately follow demand on the ground to dictate pace. Based on the decision-making time frames we're seeing, I expect our stocks to be more heavily weighted to the second half of 2024. Within this environment, we are seeing two promising trends. The first thing, the decline in industrial starts. Starts have fallen six consecutive quarters with first quarter 2024 being over 70% lower than third quarter 2022 when the decline began.
Assuming reasonably steady demand, the markets will tighten later in 2024, allowing us to continue pushing rents and create development opportunities. The second trend is the rise in investment opportunities with developers who've completed significant site prep work prior to closing and need capital to move forward. This allows us to take years off our traditional development time line and materially reduce site development legal risk. Brent will now speak to several topics, including assumptions within our 2024 guidance. My belief is that when or if interest rates begin to fall and/or global turmoil settles, then confidence and stability within the business community will rise.
Brent Wood: Good morning. Our first quarter results reflect the terrific execution of our team, the solid overall performance of our portfolio and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the mid-point of our guidance range at $1.98 per share compared to $1.82 for the same quarter last year, an increase of 8.8% excluding voluntary conversion gains. As a reminder, we typically incur about one-third of our annual G&A expense in the first quarter primarily due to the accelerated expense of newly granted equity-based compensation for retirement-eligible employees, which totaled approximately $1.7 million during the quarter. From a capital perspective, we continue to access the equity market.
During the quarter, we settled shares for gross proceeds of $50 million. And after quarter end, we settled an additional $25 million, all at an average price of $183 per share. We have an additional $52 million in commitments still outstanding at an average price -- at an average share price of $180. Debt maturities are minimal this year with $50 million in August and $120 million in mid-December. Although capital markets are fluid, our balance sheet remains flexible and strong with increasingly healthy financial metrics. Our debt to total market capitalization was 16.3%, unadjusted debt-to-EBITDA ratio decreased to 4 times and interest and fixed charge coverage increased to 10.4 times. Looking forward, we estimate FFO guidance for the second quarter to be in the range of $1.99 to $2.07 per share and $8.17 to $8.37 for the year which is unchanged from our prior guidance.
Those midpoints represent increases of 7.4% compared to the prior periods, excluding insurance-related gains on involuntary conversion claims. The range midpoints for cash same-store growth and occupancy remained unchanged from prior guidance. We increased our reserves for uncollectible rent by $500,000 to $2.5 million or 0.39% of revenue. This is the result of our uptick in bad debt in the first quarter that was driven primarily by three tenants in varying industries. Overall, our collections remain healthy. We also increased our G&A guidance by $900,000 to $20.8 million. Much of the increase relates to less capitalized development costs as a result of lowering our projected development starts for the year. In closing, we were pleased with our first quarter results, especially considering the economic uncertainty and prolonged higher interest rate environment.
And as we have in both good and uncertain times in the past, we will rely on our financial strength, the experience of our team and the quality and location of our shallow bay portfolio to lead us into the future. Now Marshall will make final comments.
Marshall Loeb: Thanks Brent. In closing, I'm proud of our first quarter results and the value our team is creating. Internally, we continue to grow earnings while strengthening the balance sheet. Externally, the capital markets and the overall environment remain clouded which has led to continued decline in starts. In the meantime, we are working to maintain high occupancies while pushing rents. And in spite of the uncertainty, I like our positioning as our portfolio is benefiting from several long-term positive secular trends such as population migration, near-shoring and onshoring trends, evolving logistics chains and historically lower shallow bay market vacancies. We also have a proven management team with a long-term public track record.
Our portfolio quality in terms of buildings and markets is improving each quarter. Our balance sheet is stronger than ever, and we're expanding our diversity in both our tenant base, as well as our geography. We would now like to open up the call for questions.
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