EastGroup Properties Announces Second Quarter 2023 Results

Second Quarter 2023 Results

• Net Income Attributable to Common Stockholders of $0.97 Per Diluted Share for Second Quarter 2023 Compared to $1.09 Per Diluted Share for Second Quarter 2022 (There Were No Sales of Real Estate Investments in Second Quarter 2023; Gains on Sales of Real Estate Investments Were $11 Million, or $0.25 Per Diluted Share, in Second Quarter 2022)
• Funds from Operations ("FFO") of $1.91 Per Share for Second Quarter 2023 Compared to $1.72 Per Share for Second Quarter 2022, an Increase of 11.0%
• FFO Excluding Gain on Casualties and Involuntary Conversion ($0.02 Per Share in Second Quarter 2023) of $1.89 Per Share Compared to $1.72 Per Share for the Same Quarter Last Year, an Increase of 9.9%
• Same Property Net Operating Income for the Same Property Pool Excluding Income From Lease Terminations Increased 5.9% on a Straight-Line Basis and 6.4% on a Cash Basis for Second Quarter 2023 Compared to the Same Period in 2022
• Operating Portfolio was 98.5% Leased and 98.2% Occupied as of June 30, 2023; Average Occupancy of Operating Portfolio was 98.1% in Each of the Second Quarters of 2023 and 2022
• Rental Rates on New and Renewal Leases Increased an Average of 52.8% on a Straight-Line Basis
• Acquired an Operating Property Containing 156,000 Square Feet for Approximately $34 Million
• Acquired 116.7 Acres of Development Land for Approximately $18 Million
• Started Construction of Three Development Projects Containing 365,000 Square Feet with Projected Total Costs of Approximately $53 Million
• Transferred Three Development and Value-Add Projects Totaling 391,000 Square Feet to the Operating Portfolio, Which Are Collectively 88% Leased
• Development and Value-Add Program Consisted of 21 Projects in 12 Cities (4.3 Million Square Feet) at June 30, 2023 with a Projected Total Investment of Approximately $537 Million
• Declared 174th Consecutive Quarterly Cash Dividend: $1.25 Per Share
• Sold 972,569 Shares of Common Stock Pursuant to the Company's Continuous Common Equity Offering Program at a Weighted Average Price of $169.72 Per Share for Aggregate Net Proceeds of Approximately $163 Million

JACKSON, Miss., July 25, 2023 /PRNewswire/ -- EastGroup Properties, Inc. (NYSE: EGP) (the "Company", "we", "us" or "EastGroup") announced today the results of its operations for the three and six months ended June 30, 2023.

Commenting on EastGroup's performance, Marshall Loeb, CEO, stated, "Our team's strong performance continues as evidenced by second quarter growth in FFO per share of 11%. The day-to-day industrial market remains solid producing a number of strong metrics, such as our percent leased, percent occupied, quarterly releasing spreads and same store net operating income growth. We're pleased with our operational results, especially given continued global economic unease and capital markets dislocation. We remain judicious with capital allocation and incremental risk, particularly in this uncertain economic climate, which is one of the primary reasons we continually work to strengthen our balance sheet and maintain dry powder. Longer term, I remain bullish on the continued growth prospects for our shallow bay, last mile Sunbelt market portfolio."

EARNINGS PER SHARE

Three Months Ended June 30, 2023
On a diluted per share basis, earnings per common share ("EPS") were $0.97 for the three months ended June 30, 2023, compared to $1.09 for the same period of 2022. The Company's property net operating income ("PNOI") increased by $15,109,000 ($0.34 per share) for the three months ended June 30, 2023, as compared to the same period of 2022. The increase in PNOI was offset by the following:

• EastGroup recognized no gains on sales of real estate investments during the three months ended June 30, 2023, as compared to $10,647,000 ($0.25 per share) during the same period of 2022.
• Depreciation and amortization expense increased by $4,834,000 ($0.11 per share) during the three months ended June 30, 2023, as compared to the same period of 2022.
• Interest expense increased by $3,605,000 ($0.08 per share) during the three months ended June 30, 2023, as compared to the same period of 2022.

Six Months Ended June 30, 2023
Diluted EPS for the six months ended June 30, 2023 was $1.99 compared to $2.62 for the same period of 2022. PNOI increased by $31,003,000 ($0.70 per share) for the six months ended June 30, 2023, as compared to the same period of 2022. The increase in PNOI was offset by the following:

• EastGroup recognized gains on sales of real estate investments of $4,809,000 ($0.11 per share) during the six months ended June 30, 2023, compared to $40,999,000 ($0.98 per share) for the six months ended June 30, 2022.
• Depreciation and amortization expense increased by $9,507,000 ($0.21 per share) during the six months ended June 30, 2023, as compared to the same period of 2022.
• Interest expense increased by $8,520,000 ($0.19 per share) during the six months ended June 30, 2023, as compared to the same period of 2022.

FUNDS FROM OPERATIONS AND PROPERTY NET OPERATING INCOME

Three Months Ended June 30, 2023
For the three months ended June 30, 2023, funds from operations attributable to common stockholders ("FFO") were $1.91 per share compared to $1.72 per share during the same period of 2022, an increase of 11.0%.

FFO Excluding Gain on Casualties and Involuntary Conversion was $1.89 per share for the three months ended June 30, 2023; no Gain on Casualties and Involuntary Conversion was recognized in the same period of 2022.

PNOI increased by $15,109,000, or 17.5%, during the three months ended June 30, 2023, compared to the same period of 2022. PNOI increased $7,735,000 from newly developed and value-add properties, $3,975,000 from same property operations (based on the same property pool), $3,277,000 from 2022 and 2023 acquisitions, and $108,000 from operating properties sold in 2022 and 2023.

Same PNOI Excluding Income from Lease Terminations increased 5.9% on a straight-line basis for the three months ended June 30, 2023, compared to the same period of 2022; on a cash basis (excluding straight-line rent adjustments and amortization of above/below market rent intangibles), Same PNOI increased 6.4%.

On a straight-line basis, rental rates on new and renewal leases (4.1% of total square footage) increased an average of 52.8% during the three months ended June 30, 2023.

Six Months Ended June 30, 2023
FFO for the six months ended June 30, 2023, was $3.75 per share compared to $3.41 per share during the same period of 2022, an increase of 10.0%.

FFO Excluding Gain on Casualties and Involuntary Conversion was $3.71 per share for the six months ended June 30, 2023; no Gain on Casualties and Involuntary Conversion was recognized in the same period of 2022.

PNOI increased by $31,003,000, or 18.4%, during the six months ended June 30, 2023, compared to the same period of 2022. PNOI increased $15,430,000 from newly developed and value-add properties, $8,603,000 from same property operations (based on the same property pool), and $7,316,000 from 2022 and 2023 acquisitions; PNOI decreased $260,000 from operating properties sold in 2022 and 2023.

Same PNOI Excluding Income from Lease Terminations increased 6.8% on a straight-line basis for the six months ended June 30, 2023, compared to the same period of 2022; on a cash basis (excluding straight-line rent adjustments and amortization of above/below market rent intangibles), Same PNOI increased 8.7%.

On a straight-line basis, rental rates on new and renewal leases (7.2% of total square footage) increased an average of 51.0% during the six months ended June 30, 2023.

The same property pool for the six months ended June 30, 2023 includes properties which were included in the operating portfolio for the entire period from January 1, 2022 through June 30, 2023; this pool is comprised of properties containing 46,514,000 square feet.

FFO, FFO Excluding Gain on Casualties and Involuntary Conversion, PNOI and Same PNOI are non-GAAP financial measures, which are defined under Definitions later in this release. Reconciliations of Net Income to PNOI and Same PNOI, and Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to FFO and FFO Excluding Gain on Casualties and Involuntary Conversion are presented in the attached schedule "Reconciliations of GAAP to Non-GAAP Measures."

ACQUISITIONS AND DISPOSITIONS

In April, EastGroup acquired Craig Corporate Center, a 156,000 square foot building, for $34,400,000. The property is located in the North submarket of Las Vegas and is 100% leased. This acquisition increased the Company's ownership in Las Vegas to approximately 910,000 square feet.

During the three months ended June 30, 2023, the Company closed on the acquisition of development land in three different markets:

• Lakeside Station Land - 58.8 acres of development land in the East submarket of Tampa for $6,800,000. This site will accommodate the future development of two buildings containing approximately 450,000 square feet. This development will expand the Company's 4,348,000 square feet of operating properties in this market which are currently 99.5% leased.
• Northeast Trade Center Land - 49.0 acres of development land in San Antonio's Northeast Submarket for $6,200,000. This site will accommodate the future development of five buildings containing approximately 675,000 square feet. This development will expand the Company's 1,444,000 square feet of operating properties in this submarket which are currently 100% leased.
• Gateway Interchange Phase 3 Land - 8.9 acres of development land in Phoenix for $4,700,000. This site, which will accommodate the future development of a 125,000 square foot building, is located next to 50.2 acres acquired by the Company in the first quarter of 2022, known as Gateway Interchange Land.

Subsequent to quarter-end, the Company closed on the acquisition of 20.3 acres of development land in the Northwest Dallas submarket for approximately $5,500,000. The site will accommodate the future development of two buildings containing approximately 245,000 square feet.

In June, the Company sold a 9.9 acre parcel of land in Houston, Texas for $3,200,000. A gain of $365,000 was recognized and is included in Other on the Consolidated Statements of Income and Comprehensive Income; this gain is excluded from FFO.

DEVELOPMENT AND VALUE-ADD PROPERTIES

During the second quarter of 2023, EastGroup began construction of three new development projects in two cities, which will contain a total of 365,000 square feet and have projected total costs of $52,700,000.

The development projects started during the first six months of 2023 are detailed in the table below:

At June 30, 2023, EastGroup's development and value-add program consisted of 21 projects (4,272,000 square feet) in 12 cities. The projects, which were collectively 38% leased as of July 24, 2023, have a projected total cost of $536,600,000, of which $190,771,000 remained to be funded as of June 30, 2023.

During the second quarter of 2023, EastGroup transferred three projects to the operating portfolio (at the earlier of 90% occupancy or one year after completion/value-add acquisition date). The projects, which are located in San Francisco, Dallas, and Orlando, contain 391,000 square feet and were collectively 88% leased as of July 24, 2023.

The development and value-add properties transferred to the operating portfolio during the first six months of 2023 are detailed in the table below:

Subsequent to quarter-end, EastGroup began construction of Braselton 3 in Atlanta, which will contain 115,000 square feet and has a projected total cost of approximately $14,000,000.

DIVIDENDS

EastGroup declared a cash dividend of $1.25 per share in the second quarter of 2023. The second quarter dividend, which was paid on July 14, 2023, was the Company's 174th consecutive quarterly cash distribution to shareholders. The Company has increased or maintained its dividend for 30 consecutive years and has increased it 27 years over that period, including increases in each of the last 11 years. The annualized dividend rate of $5.00 per share yielded 2.7% on the closing stock price of $186.04 on July 24, 2023.

FINANCIAL STRENGTH AND FLEXIBILITY

EastGroup continues to maintain a strong and flexible balance sheet. Debt-to-total market capitalization was 18.0% at June 30, 2023. The Company's interest and fixed charge coverage ratio was 7.79x and 7.50x for the three and six months ended June 30, 2023, respectively. The Company's ratio of debt to earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") was 4.40x and 4.50x for the three and six months ended June 30, 2023, respectively. EBITDAre and the Company's interest and fixed charge coverage ratio are non-GAAP financial measures defined under Definitions later in this release. Refer to the schedule "Reconciliations of GAAP to Non-GAAP Measures" attached for the calculation of the Company's interest and fixed charge coverage ratio, the debt to EBITDAre ratio, and the reconciliation of Net Income to EBITDAre.

During the second quarter, EastGroup sold 972,569 shares of common stock under its continuous common equity offering program at a weighted average price of $169.72 per share, providing aggregate net proceeds to the Company of approximately $163,367,000. During the six months ended June 30, 2023, EastGroup sold 1,793,603 shares of common stock under its continuous common equity offering program at a weighted average price of $166.88 per share, providing aggregate net proceeds to the Company of approximately $295,876,000. Included in the second quarter activity are 75,016 shares sold on June 29 and June 30, 2023, at a weighted average price of $172.42, which were deemed to be issued and outstanding upon settlement in July 2023.

Subsequent to quarter-end, the Company began negotiating terms with a bank to refinance a $100,000,000 senior unsecured term loan with five years remaining. The Company expects to agree to an amendment that would be effective in September 2023. The maturity date of the unsecured term loan is expected to remain September 29, 2028, which is unchanged from the loan's original terms. The amended term loan is expected to provide for interest-only payments at an interest rate of SOFR plus, based on the Company's current credit ratings and consolidated leverage ratio, 85 basis points, which would be a 45 basis point reduction in the credit spread compared to the original term loan. The Company has an interest rate swap agreement which converts the loan's SOFR rate component to a fixed interest rate for the entire term of the loan, which is expected to provide a total effectively fixed interest rate of 2.61%.

OUTLOOK FOR 2023

EPS for 2023 is now estimated to be in the range of $3.84 to $3.94. FFO per share attributable to common stockholders for 2023 is now estimated to be in the range of $7.58 to $7.68. The table below reconciles projected net income attributable to common stockholders to projected FFO. The Company is providing a projection of estimated net income attributable to common stockholders solely to satisfy the disclosure requirements of the U.S. Securities and Exchange Commission.

EastGroup's projections are based on management's current beliefs and assumptions about our business, the industry and the markets in which we operate; there are known and unknown risks and uncertainties associated with these projections. We assume no obligation to update publicly any forward-looking statements, including our outlook for 2023, whether as a result of new information, future events or otherwise. Please refer to the "Forward-Looking Statements" disclosures included in this earnings release and "Risk Factors" disclosed in our annual and quarterly reports filed with the Securities and Exchange Commission for more information.

The following assumptions were used for the mid-point: