Eastgroup Properties ((EGP)) has held its Q1 earnings call. Read on for the main highlights of the call.
EastGroup Properties’ recent earnings call painted a picture of robust financial health, underscored by impressive growth in funds from operations (FFO) and leasing metrics. Despite facing challenges such as decreased occupancy and market uncertainties, particularly in Southern California, the company remains optimistic. Their strategic focus on leasing and maintaining financial flexibility was evident throughout the discussion.
Record FFO Growth
EastGroup Properties reported a remarkable 7.1% year-over-year increase in funds from operations (FFO), reaching $2.12 per share. This growth continues a decade-long trend, highlighting the company’s ability to consistently enhance its financial performance.
Strong Leasing Performance
The company achieved a quarter-end leasing rate of 97.3% with an occupancy rate of 96.5%. Despite a slight decrease in average quarterly occupancy to 95.8%, the company reported impressive releasing spreads of 47% on a GAAP basis and 31% in cash.
Diversified Rent Roll
EastGroup Properties has successfully diversified its income sources, with the top ten tenants now accounting for just 7.1% of total rents. This marks a 70 basis point decrease from the previous year, indicating a more balanced rent roll.
Refinancing Savings
The company refinanced a $100 million unsecured term loan, effectively reducing the credit spread by 30 basis points. This strategic move is expected to save $1.5 million over the next five years.
Positive Development Yield
EastGroup Properties reported strong development yields, with recent completions achieving a notable 9% yield, showcasing the company’s effective development strategies.
Decrease in Average Occupancy
The average quarterly occupancy saw a decrease of 170 basis points from the first quarter of 2024, dropping from 97.5% to 95.8%. This decline reflects some of the challenges the company is facing in maintaining high occupancy levels.
Challenges in Southern California
The company is experiencing negative absorption in Los Angeles, marking nine consecutive quarters of negative net absorption. This trend is impacting leasing spreads and presents a significant challenge in the region.
Development Start Delays
Due to economic uncertainties, EastGroup Properties has reduced development starts by $50 million and delayed them, which has reduced capital proceeds by $190 million.
Tariff and Market Uncertainty
Ongoing tariff discussions and broader economic uncertainties are causing delays in leasing decisions, particularly in the Los Angeles market, adding to the company’s challenges.
Forward-Looking Guidance
Looking ahead, EastGroup Properties remains cautiously optimistic. The company projects $250 million in development starts for the year, primarily in the second half, due to economic uncertainties. With a strong balance sheet and a debt-to-total market capitalization ratio of 13.7%, EastGroup is well-positioned for potential opportunistic investments.
In summary, EastGroup Properties’ earnings call highlighted a strong financial performance with continued growth in FFO and leasing metrics. While challenges such as decreased occupancy and regional difficulties in Southern California persist, the company’s strategic focus on leasing and financial flexibility positions it well for future opportunities. Investors should watch for how the company navigates these challenges and capitalizes on its strong financial footing.