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EP

EASTGROUP PROPERTIES INC (EGP)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered resilient operations: FFO per diluted share rose 5.9% year over year to $2.15, while diluted EPS was $1.16; “Income from real estate operations” increased 9.9% YoY to $163.8M, with strong leasing spreads despite lower occupancy .
  • Leasing spreads stayed robust (46.6% GAAP; 29.2% cash in Q4), and Same Property NOI grew 3.6% (straight-line) and 3.4% (cash), underscoring embedded rent growth and portfolio pricing power .
  • Initial 2025 guidance points to continued growth: FFO/share $8.80–$9.00 (+6.6% midpoint); Same PNOI (cash) +5.4–6.4%; average month-end occupancy 95.5–96.5%; $300M development starts and $150M acquisitions planned .
  • Balance sheet strength improved: debt-to-EBITDAre fell to 3.20x in Q4 (12.77x interest coverage); $120M of notes repaid in December; equity raised/forwards settled to fund growth and delever, positioning for potential tightening supply-demand in 2025 .
  • Catalysts: broad-based “green shoots” in prospect activity, materially shrinking industrial construction pipeline, and newly acquired, fully leased assets in Atlanta, Dallas, and Phoenix enhance NAV and support rent mark-to-market opportunity .

What Went Well and What Went Wrong

  • What Went Well

    • FFO/share beat prior year; management highlighted decade-long trend of quarterly FFO exceeding prior-year quarter, with Q4 FFO/share +5.9% YoY to $2.15 .
    • Record leasing activity in Q4 with strong re-leasing spreads (47% GAAP; 29% cash), and Same PNOI growth (3.6% straight-line; 3.4% cash) despite occupancy pressure .
    • Accretive acquisitions: 1.79M sf purchased in Q4 across Atlanta, Dallas-Fort Worth, and Phoenix—100% leased, improving long-term NAV per share and expanding presence in land-constrained submarkets .

  • What Went Wrong

    • Occupancy softness: average occupancy fell ~230 bps YoY to 95.8%, with period-end occupancy at 96.1%; California markets continued to show negative absorption and headwinds in L.A. .
    • Larger tenant bankruptcies created near-term vacancy in Charlotte (300K sf) and L.A., and increased 2024 bad debt; management plans backfills but noted elongated decision timelines .
    • Development leasing timelines lengthened (often 12–16 months to lease-up vs prior cycle’s faster pace), pushing more speculative lease-up into 2H25; Q4 development leasing slower than operating portfolio .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Income from Real Estate Operations ($000s)$149,026 $162,861 $163,767
Diluted EPS ($)$1.35 $1.13 $1.16
FFO per Diluted Share ($)$2.03 $2.13 $2.15
PNOI ($000s)$109,952 $118,990 $120,867

Operating KPIs

KPIQ4 2023Q3 2024Q4 2024
Average Occupancy (Operating Portfolio)98.1% 96.7% 95.8%
Occupied at Period-End98.2% 96.5% 96.1%
Leased at Period-End98.7% 96.9% 97.1%
New+Renewal Leasing Spread (GAAP)—50.9% 46.6%
New+Renewal Leasing Spread (Cash)—35.6% (YTD) 29.2%
Same PNOI Growth (Straight-Line)—5.5% 3.6%
Same PNOI Growth (Cash)—5.9% 3.4%

Transaction Highlights (Q4 2024)

  • Acquisitions: 1,790,000 sf; ~$246.4M, 100% leased (Atlanta Riverpoint 779K sf, DFW Global Logistics 492K sf, Phoenix Akimel Gateway 519K sf) .
  • Development starts: 802K sf; projected total costs ~$124.7M; program 4.143M sf across 21 projects, 22% leased, projected cost $608.7M .
  • Development transfer: Horizon West 10 (357K sf) to operating portfolio, 100% leased .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
FFO per Share (Diluted)FY 2025N/A$8.80 – $9.00 New
EPS (GAAP, Diluted)FY 2025N/A$4.71 – $4.91 New
Same PNOI Growth (Cash)FY 2025N/A5.4% – 6.4% New
Average Month-End OccupancyFY 2025N/A95.5% – 96.5% New
Development StartsFY 2025N/A2.5M sf / $300M New
Operating AcquisitionsFY 2025N/A$150M New
Operating DispositionsFY 2025N/A$15M (gains excluded from projections) New
Capital ProceedsFY 2025N/A$450M New
G&A ExpenseFY 2025N/A~$21.1M (37% in Q1 due to retirement-eligible equity acceleration) New
DividendQ4 2024$1.27 (Q2) $1.40 declared; annualized $5.60; paid 1/15/25 Raised vs Q2 2024

Note: Q3 2024 guidance revised FY 2024 FFO to $8.33–$8.37 (from Q2 $8.28–$8.38), reinforcing trajectory into Q4 .

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
Demand “green shoots” and leasing paceSlow but improving; embedded rent growth; strong spreads; lower construction starts “Choppy” environment; pipeline at 7-year low; expecting tightening in 2025 Broad-based “green shoots” in tours and LOIs; converting to leases is focus Improving sequentially
Development starts & leasing timingBack-half weighted starts; renewals up; conservative lease-up baked Starts adjusted down in 2024; leasing decisions later; 12–16 month lease-up 2025 $300M starts; lease-up weighted to 2H; decisions later in process Starts to rise in 2H25; timelines remain longer
Capital markets & leverageExtended revolver to 2028; equity issuance/forwards; low maturities More equity amid tight markets; debt-to-EBITDAre 3.6x; interest coverage 11.6x Continued equity/forward settlements; debt-to-EBITDAre 3.4x (FY), 3.20x (Q4) Stronger balance sheet; flexibility maintained
Acquisitions & pricingEntered Raleigh; one-off accretive deals 3 probable deals; sub-4–5% cap rates appearing; focus on one-offs Closed Atlanta/DFW/Phoenix; fully leased; NAV accretive Window tightened; accretive clustering executed
Regional markets (CA vs Sunbelt)Sunbelt sturdy; CA slower; headwinds in larger 3PLs CA negative absorption; bad debt mainly CA; L.A. backward rents L.A. rents likely flat-to-negative; San Diego stabilizing; Phoenix/Houston strong CA headwinds persist; core Sunbelt strength

Management Commentary

  • “Our consistent, positive performance continues as evidenced by FFO per share…rising 5.9% for the quarter and 7.9% for the year…The operating landscape is improving with a materially shrinking industrial supply pipeline, while customer demand is showing early signs of recovery.” – CEO Marshall Loeb .
  • “FFO per share for the fourth quarter was $2.15…During the quarter, we directly issued common shares…settled forward shares agreements…our balance sheet remains flexible and strong with record financial metrics.” – CFO Brent Wood .
  • “Green shoots…not limited to any market…activity has picked up broadly…we just need to convert tours and proposals into signed leases.” – CEO Marshall Loeb .
  • “Notable operating assumptions for ’25 guidance include average occupancy midpoint of 96%, cash same-property midpoint of 5.9%, $300M in new development starts and $150M in strategic acquisitions.” – CFO Brent Wood .

Q&A Highlights

  • Demand & leasing: Broad-based uptick in tours/LOIs; aim to convert to leases; decision-making later vs prior cycle (finished buildings preferred) .
  • Tariffs & near-shoring: Tariffs not a major tenant discussion; strategy emphasizes being near the consumer; near-/on-shoring supports Tucson, Phoenix, El Paso, San Diego over time .
  • Development/leasing cadence: Lease-up timelines ~12–16 months; majority of development starts and tenant move-ins weighted to 2H25; incremental development NOI ~$15.8M in 2025 with ~53% already signed .
  • Balance sheet strategy: Equity issuance/forwards used to fund growth and maintain low leverage; no intent to delever for a specific transaction; revolver usage remains tactical .
  • Bad debt: 2025 assumption 30 bps of revenue ($2.2M) with ~$1.1M term fee income; issues concentrated in a few larger tenants in 2024, now resolved; watch list steady .

Estimates Context

  • Wall Street consensus from S&P Global for Q4 2024 and Q1 2025 could not be retrieved due to SPGI daily request limits. Values unavailable; no estimate-based beat/miss analysis provided. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Embedded rent growth remains strong: Q4 leasing spreads (46.6% GAAP, 29.2% cash) and Same PNOI growth (3–4%) illustrate ongoing mark-to-market potential even with lower occupancy .
  • Near-term occupancy headwinds appear manageable: Larger vacancy events in Charlotte/L.A. are being proactively backfilled; management expects occupancy to build through 2H25 as leasing converts .
  • 2025 playbook emphasizes balanced internal/external growth: $300M development starts (late-year weighted) and $150M acquisitions target high-quality, fully leased assets in constrained submarkets .
  • Balance sheet remains a differentiator: Debt-to-EBITDAre at 3.20x (Q4) and strong interest coverage provide capacity to act early as supply tightens and demand improves .
  • Sunbelt focus and asset clustering enhance durability/NAV: Atlanta, DFW, Phoenix additions at 100% occupancy bolster scale in markets with structurally favorable demand drivers .
  • Watch California but lean into core Sunbelt strength: L.A. rents likely flat-to-negative near term; Houston/Phoenix/Tampa/Orlando show better momentum and re-leasing economics .
  • Tactical equity usage supported attractive growth: Forwards and ATM issuance funded deleveraging and accretive investments while maintaining flexibility for 2025 opportunities .