Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EastGroup Properties Inc (EGP, Financial) reported a 9.2% increase in funds from operations (FFO) per share, demonstrating strong financial performance.
- The company achieved a high leasing rate of 96.9% with occupancy at 96.5%, indicating robust demand for its properties.
- EastGroup Properties Inc (EGP) has a diversified rent roll, with the top 10 tenants accounting for only 7.5% of rents, reducing risk exposure.
- The company successfully negotiated lease terminations, resulting in financial gains and opportunities for re-leasing at higher rates.
- EastGroup Properties Inc (EGP) is strategically positioned to benefit from long-term trends such as population migration, near-shoring, and evolving logistics chains.
Negative Points
- The average quarterly occupancy, although historically strong, has decreased from the previous year, indicating potential challenges in maintaining tenant retention.
- Development leasing activity has slowed, with tenants being more deliberate in their decision-making, impacting the pace of new project starts.
- The company faces challenges with bad debt, particularly in California, which has affected financial performance.
- There is uncertainty in the market due to macroeconomic factors such as interest rates and political events, impacting tenant confidence and expansion plans.
- EastGroup Properties Inc (EGP) has adjusted its development starts forecast downward, reflecting a cautious approach in response to market conditions.
Q & A Highlights
Q: Can you provide more details on the acquisitions implied in your guidance, including timing, expected yields, and whether these are stabilized or value-add? Also, what accounts for the difference between acquisition guidance and capital proceeds?
A: Marshall Loeb, President and CEO, explained that they are working on closing three projects in existing markets, which are newer buildings with below-market rents. These are stabilized assets with expected yields in the higher fives. Brent Wood, CFO, added that the capital proceeds include various factors like development spending and general operations, with the main driver being acquisitions.
Q: Has there been any reversal of trends between the second and third quarters, and how do you view the prospects for 2025 compared to three months ago?
A: Marshall Loeb noted that the environment remains choppy, with no significant reversal. He mentioned that while leasing has improved, external factors like the upcoming election and interest rates have slowed decision-making. He remains optimistic about 2025, expecting a potential V-shaped recovery due to strong fundamentals and low vacancy rates.
Q: Are there any concerns about excess capacity or slack in the system affecting decision-making, particularly for smaller spaces?
A: Marshall Loeb stated that excess capacity is not a significant issue for their size spaces, which average around 35,000 square feet. He noted that subleasing has decreased and that the bigger box space and 3PLs are more affected by excess capacity.
Q: What is your updated view on market rent growth, and have you revised your views based on current demand?
A: Marshall Loeb indicated that they expect rent growth to be in the mid-single digits, around 4% to 5% for their product type. He anticipates another rent squeeze due to limited supply, particularly in markets like Dallas, where the construction pipeline has significantly decreased.
Q: Can you elaborate on development leasing activity and expectations for 2025?
A: Marshall Loeb mentioned that tenants are more deliberate, with leasing occurring later in the construction process. He expects development leasing to take about 15 months rather than 12. Despite this, they are developing into the sevens, with private market cap rates pushing into the fours, indicating strong value creation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
