EastGroup Properties, Inc. (NYSE:EGP) Q4 2023 Earnings Call Transcript February 8, 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' Fourth Quarter 2023 Earnings Conference Call and Webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded. 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 fourth quarter 2023 conference call. As always, we appreciate your interest. Brent Wood, our CFO is also on the call. 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 reflects 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 mark 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 including our most recent annual report on Form 10-K for more detail about these risks.
Marshall Loeb: Thanks Keena. Good morning. I'll start by thanking our team for a strong quarter and year in which we delivered record FFO per share and record re-leasing spreads. Our team continues performing at a high level and finding opportunities in an evolving market. Our fourth quarter and full year results demonstrate the quality of the portfolio we've built and the continued resiliency of the industrial market. Some of the results produced include; funds from operations coming in above guidance up 11.5% for the quarter and 11.3% for the year. For over a decade, 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 occupancy rose 50 basis points from prior quarter to 98.2%.
Occupancy would have been 30 basis points higher, but for a leased and occupied late December acquisition. Our percent lease rose 20 basis points from prior quarter to 98.7%. Average occupancy was 98.1%, which although historically strong, was down 30 basis points from 2022. Quarterly re-leasing spreads reached a record at 62% GAAP and 43% cash. These results broke the previous record set last quarter and pushed year-to-date spreads to 55% GAAP and 38% cash. Cash same-store NOI was strong up 7.5% for the quarter and 8% year-to-date. And finally, I'm happy to finish the quarter with FFO rising to $2.03 per share. Helping us to achieve these results is thankfully having the most diversified rent roll in our sector with our top 10 tenants falling to 7.9% of rents, down 70 basis points from fourth quarter 2022 and in more locations.
We view our geographic and tenant diversity as ways to stabilize future earnings regardless of the economic environment. In summary, I'm proud of the performance last year, especially given the larger economic backdrop. We continue responding to strengthen the market end user demand for industrial product by focusing on value creation via raising rents, development, and more recently acquisitions. This strength allowed us to end the quarter 98.7% leased and push rents throughout the portfolio. Due to current capital markets, we're seeing broader strategic acquisition opportunities. It's hard to accurately gauge how large the opportunity may be or when the window may close, but we're pleased with our ability to acquire newer, fully leased properties with below market rents at accretive yields.
Aerial view of large industrial park with multiple buildings and supply-constrained submarkets.
As stated before, our development starts are pulled by market demand within our parks. Based on our read-through, we're forecasting 2024 starts of $300 million. And though our developments continue leasing with solid prospect interest, we're seeing longer deliberate decision-making. While we forecast $300 million in starts, we'll ultimately follow demand on the ground to dictate the pace. Based on the decision-making time frames we're seeing, I expect starts to be more heavily weighted to the second half of 2024. Further in this environment, we're seeing two promising trends. The first thing, the decline in industrial starts. Starts have fallen five consecutive quarters with fourth quarter 2023 being roughly 60% lower than third quarter 2022 when the decline began.
Assuming reasonably steady demand, the markets will tighten in 2024, allowing us to continue pushing rents and create development opportunities. The second trend is the rise in investment opportunities with developers who have completed significant site 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 the site development legal risk. Brent will now speak to several topics including assumptions, within our initial 2024 guidance. As always, we'll update our forecast as the year unfolds. My belief is that when or if interest rates begin to follow confidence and stability within the business community will rise.
Brent Wood: Good morning. Our fourth quarter results reflect the terrific execution of our team, the resilient performance of our portfolio and the continued success of our time-tested strategy. FFO per share for the fourth quarter was $2.03 per share, compared to $1.82 for the same quarter last year, an increase of 11.5%. The outperformance continues to be driven by stellar operating portfolio results and the success of our development and acquisition programs. From a capital perspective, the strength in our stock price continued to provide the opportunity to access the equity markets. During the quarter, we sold shares for gross proceeds of $235 million at an average price of $171.55 per share. Additionally, we executed on our forward equity program for the first time, securing gross proceeds of $75 million at an average initial price of $183.92 per share.
Subsequent to year-end we settled $50 million with $25 million in commitments still outstanding. Although capital markets are fluid, our balance sheet remains flexible and strong with solid financial metrics. Our debt to total market capitalization was 16%. And for the quarter, our unadjusted debt-to-EBITDA ratio is down to 3.9 times and our interest and fixed charge coverage ratio was 9.6 times. Looking forward to 2024, FFO guidance for the first quarter is estimated to be in the range of $1.93 to $2.01 per share and $8.17 to $8.37 for the year. Those midpoints represent increases of 8.2% and 7.4% compared to the prior year, excluding involuntary conversion gain as a result of insurance claims respectively. Notable operating assumptions that comprise our 2024 guidance include, an average occupancy midpoint of 97.0%, cash same property midpoint of 6.0%, bad debt of $2 million, $300 million in new development starts and $130 million in strategic acquisitions, $55 million of which has already been executed.
During this period of elevated interest rates, we continue to view equity proceeds as our most attractive capital source. In our guidance for the year, we are projecting $465 million in common stock issuances, $75 million of which has already been secured via the forward equity program as mentioned earlier. 2024 has minimal debt maturing with $50 million in August and the remaining $120 million not until December. In summary, we are pleased with our solid 2023 results. Thank you, EastGroup team members that are listening to the call. As we turn the page to 2024, we will continue to rely on our financial strength, the experience of our team and the quality and location of our portfolio to maintain our momentum. Now Marshall will make final comments.
Marshall Loeb : Thanks, Brent. In closing, I'm proud of the results and the value our team is generating. Internally, operations remain strong, and we continue to strengthen the balance sheet. Externally, the capital markets and overall environment remain clouded. This is leading to the continued decline in starts. So, in the meantime, we're 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, nearshoring and onshoring trends, and evolving logistics chains for example. We also have a proven management team with a long-term public track record. Our portfolio quality in terms of buildings and markets is continually 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.
With that, we'd like to open up the call for your questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Craig Mailman from Citibank. Your line is already open.
