EastGroup Properties Announces Third Quarter 2023 Results

Third Quarter 2023 Results

• Net Income Attributable to Common Stockholders of $1.07 Per Diluted Share for Third Quarter 2023 Compared to $0.87 Per Diluted Share for Third Quarter 2022
• Funds from Operations ("FFO") of $2.00 Per Share for Third Quarter 2023 Compared to $1.77 Per Share for Third Quarter 2022, an Increase of 13.0%
• FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims ($0.05 Per Share in Third Quarter 2023) of $1.95 Per Share Compared to $1.77 Per Share for the Same Quarter Last Year, an Increase of 10.2%
• Same Property Net Operating Income for the Same Property Pool Excluding Income From Lease Terminations Increased 6.0% on a Straight-Line Basis and 6.9% on a Cash Basis for Third Quarter 2023 Compared to the Same Period in 2022
• Operating Portfolio was 98.5% Leased and 97.7% Occupied as of September 30, 2023; Average Occupancy of Operating Portfolio was 97.7% for Third Quarter 2023 as Compared to 98.3% for Third Quarter 2022
• Rental Rates on New and Renewal Leases Increased an Average of 55.4% on a Straight-Line Basis
• Acquired an Operating Property Containing 254,000 Square Feet for Approximately $53 Million
• Acquired 93.4 Acres of Development Land for Approximately $27 Million
• Started Construction of Three Development Projects Containing 793,000 Square Feet with Projected Total Costs of Approximately $132 Million
• Transferred Six Development and Value-Add Projects Totaling 1,134,000 Square Feet to the Operating Portfolio, which are Collectively 93% Leased
• Development and Value-Add Program Consisted of 18 Projects in 12 Markets (3.9 Million Square Feet) at September 30, 2023 with a Projected Total Investment of Approximately $548 Million
• Declared 175th Consecutive Quarterly Cash Dividend: $1.27 Per Share. Projected Total Dividends Per Share for 2023 are Expected to Increase 7.2% as Compared to 2022
• Repaid $50 Million of Unsecured Debt at Maturity with a Fixed Interest Rate of 3.8%
• Repaid a Mortgage with a Principal Balance of Approximately $2 Million and a Fixed Interest Rate of 3.9%, Leaving No Remaining Secured Debt in the Portfolio
• Refinanced a $100 Million Senior Unsecured Term Loan with Five Years Remaining, Reducing the Effective Fixed Interest Rate by 45 Basis Points to 2.61%
• Sold 931,418 Shares of Common Stock Pursuant to the Company's Continuous Common Equity Offering Program at a Weighted Average Price of $177.14 Per Share for Aggregate Net Proceeds of Approximately $163 Million

JACKSON, Miss., Oct. 24, 2023 /PRNewswire/ -- EastGroup Properties, Inc. (NYSE: EGP) (the "Company", "we", "us" or "EastGroup") announced today the results of its operations for the three and nine months ended September 30, 2023.

Commenting on EastGroup's performance, Marshall Loeb, CEO, stated, "Our team's strong performance continues as evidenced by third quarter FFO per share rising 13%. The day-to-day industrial market remains resilient, producing a number of strong metrics such as our percent leased, 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. This uncertainty is creating several outcomes such as greater leasing deliberations among our customers along with four consecutive quarters of materially declining market construction starts. We remain judicious with capital allocation and incremental risk, particularly in this continuing uncertain economic climate, which is one of the primary reasons we continually work to strengthen our balance sheet. Longer term, I remain bullish on the continuing external secular trends which benefit our shallow bay, last mile Sunbelt market portfolio."

EARNINGS PER SHARE

Three Months Ended September 30, 2023
On a diluted per share basis, earnings per common share ("EPS") were $1.07 for the three months ended September 30, 2023, compared to $0.87 for the same period of 2022. The increase in EPS was primarily due to the following:

• The Company's property net operating income ("PNOI") increased by $13,134,000 ($0.29 per share) for the three months ended September 30, 2023, as compared to the same period of 2022.
• EastGroup recognized gains on involuntary conversion and business interruption claims of $2,118,000 ($0.05 per share) during the three months ended September 30, 2023, compared to none during the three months ended September 30, 2022.

The increase in EPS was offset primarily due to the following:

• Depreciation and amortization expense increased by $3,244,000 ($0.07 per share) during the three months ended September 30, 2023, as compared to the same period of 2022.
• Interest expense increased by $1,517,000 ($0.03 per share) during the three months ended September 30, 2023, as compared to the same period of 2022.

Nine Months Ended September 30, 2023
Diluted EPS for the nine months ended September 30, 2023 was $3.06 compared to $3.48 for the same period of 2022. The decrease in EPS was primarily due to the following:

• EastGroup recognized gains on sales of real estate investments of $4,809,000 ($0.11 per share) during the nine months ended September 30, 2023, compared to $40,999,000 ($0.97 per share) for the nine months ended September 30, 2022.
• Depreciation and amortization expense increased by $12,751,000 ($0.28 per share) during the nine months ended September 30, 2023, as compared to the same period of 2022.
• Interest expense increased by $10,037,000 ($0.22 per share) during the nine months ended September 30, 2023, as compared to the same period of 2022.

The decrease in EPS was offset primarily due to the following:

• PNOI increased by $44,137,000 ($0.99 per share) for the nine months ended September 30, 2023, as compared to the same period of 2022.
• EastGroup recognized gains on involuntary conversion and business interruption claims of $4,187,000 ($0.09 per share) during the nine months ended September 30, 2023, compared to none during the nine months ended September 30, 2022.

FUNDS FROM OPERATIONS AND PROPERTY NET OPERATING INCOME

Three Months Ended September 30, 2023
For the three months ended September 30, 2023, funds from operations attributable to common stockholders ("FFO") were $2.00 per share compared to $1.77 per share during the same period of 2022, an increase of 13.0%.

FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims was $1.95 per share for the three months ended September 30, 2023 compared to $1.77 per share for the same period of 2022, an increase of 10.2%.

PNOI increased by $13,134,000, or 14.5%, during the three months ended September 30, 2023, compared to the same period of 2022. PNOI increased $7,333,000 from newly developed and value-add properties, $5,061,000 from same property operations (based on the same property pool), $546,000 from 2022 and 2023 acquisitions, and $134,000 from operating properties sold in 2022 and 2023.

Same PNOI Excluding Income from Lease Terminations increased 6.0% on a straight-line basis for the three months ended September 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 6.9%.

On a straight-line basis, rental rates on new and renewal leases (4.2% of total square footage) increased an average of 55.4% during the three months ended September 30, 2023.

Nine Months Ended September 30, 2023
FFO for the nine months ended September 30, 2023, was $5.75 per share compared to $5.18 per share during the same period of 2022, an increase of 11.0%.

FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims was $5.66 per share for the nine months ended September 30, 2023 compared to $5.18 per share for the same period of 2022, an increase of 9.3%.

PNOI increased by $44,137,000, or 17.0%, during the nine months ended September 30, 2023, compared to the same period of 2022. PNOI increased $22,762,000 from newly developed and value-add properties, $13,665,000 from same property operations (based on the same property pool), and $7,862,000 from 2022 and 2023 acquisitions; PNOI decreased $126,000 from operating properties sold in 2022 and 2023.

Same PNOI Excluding Income from Lease Terminations increased 6.5% on a straight-line basis for the nine months ended September 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 8.1%.

On a straight-line basis, rental rates on new and renewal leases (11.3% of total square footage) increased an average of 52.7% during the nine months ended September 30, 2023.

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

FFO, FFO Excluding Gain on Involuntary Conversion and Business Interruption Claims, 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 Involuntary Conversion and Business Interruption Claims are presented in the attached schedule "Reconciliations of GAAP to Non-GAAP Measures."

ACQUISITIONS AND DISPOSITIONS

In September, EastGroup acquired Blue Diamond Business Park, which contains two recently developed buildings totaling 254,000 square feet, for approximately $53,000,000. The buildings are located in the Southwest submarket of Las Vegas and are currently 100% leased. This acquisition increased the Company's ownership in Las Vegas to approximately 1,165,000 square feet, which is currently 94% leased.

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

• Denton 35 Exchange Land - 20.3 acres of development land in the Northwest Dallas submarket for approximately $5,700,000. Subsequent to quarter-end, EastGroup began construction of two buildings which will contain 244,000 square feet and have projected total costs of approximately $34,600,000.
• Crossroads Logistics Park Land - 43.8 acres of development land at the intersection of I-4 and I-75 in the East Tampa submarket for approximately $15,100,000. This site will accommodate the future development of three buildings containing approximately 500,000 square feet.
• Arista 36 Business Park Land - 29.3 acres of development land in the Northwest submarket of Denver for approximately $5,900,000. This site was purchased through a newly formed joint venture, whereby EastGroup holds a 99.5% controlling interest. Also during the quarter, the Company began construction of three buildings which will contain 360,000 square feet and have projected total costs of approximately $80,300,000.

Subsequent to quarter-end, EastGroup acquired McKinney Logistics Center, a recently developed 193,000 square foot business distribution building, for approximately $26,000,000. The building is located in the Northeast submarket of Dallas and is 100% leased. This acquisition increased the Company's ownership in this submarket to approximately 838,000 square feet, which is currently 100% leased.

DEVELOPMENT AND VALUE-ADD PROPERTIES

During the third quarter of 2023, EastGroup began construction of three new development projects in three markets, which will contain a total of 793,000 square feet and have projected total costs of $131,800,000.

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

At September 30, 2023, EastGroup's development and value-add program consisted of 18 projects (3,931,000 square feet) in 12 markets. The projects, which were collectively 18% leased as of October 23, 2023, have a projected total cost of $548,100,000, of which $230,650,000 remained to be funded as of September 30, 2023.

During the third quarter of 2023, EastGroup transferred six 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 six markets, contain 1,134,000 square feet and were collectively 93% leased as of October 23, 2023.

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

DIVIDENDS

EastGroup declared a cash dividend of $1.27 per share in the third quarter of 2023, raising it from $1.25 per share. Projected total dividends per share for 2023 are expected to represent an increase of 7.2% over total dividends declared in 2022. The third quarter dividend, which was paid on October 13, 2023, was the Company's 175th consecutive quarterly cash distribution to shareholders. The Company has increased or maintained its dividend for 31 consecutive years and has increased it 28 years over that period, including increases in each of the last 12 years. The annualized dividend rate of $5.08 per share yielded 3.3% on the closing stock price of $154.98 on October 23, 2023.

FINANCIAL STRENGTH AND FLEXIBILITY

EastGroup continues to maintain a strong and flexible balance sheet. Debt-to-total market capitalization was 17.9% at September 30, 2023. The Company's interest and fixed charge coverage ratio was 9.10x and 7.99x for the three and nine months ended September 30, 2023, respectively. The Company's ratio of debt to earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") was 4.07x and 4.26x for the three and nine months ended September 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 third quarter, EastGroup sold 931,418 shares of common stock under its continuous common equity offering program at a weighted average price of $177.14 per share, providing aggregate net proceeds to the Company of approximately $163,303,000. During the nine months ended September 30, 2023, EastGroup sold 2,725,021 shares of common stock under its continuous common equity offering program at a weighted average price of $170.39 per share, providing aggregate net proceeds to the Company of approximately $459,179,000. Included in the third quarter activity are 53,364 shares sold on September 28 and September 29, 2023, which were deemed to be issued and outstanding upon settlement in October 2023.

In August 2023, the Company made a scheduled $50,000,000 principal repayment on its senior unsecured notes with a fixed interest rate of 3.80%.

In September 2023, EastGroup repaid a mortgage with a principal balance of $1,905,000, an interest rate of 3.85% and an original maturity date of November 30, 2026. With this repayment, the Company's debt portfolio is now 100% unsecured.

In September 2023, the Company closed on the refinance of a $100,000,000 senior unsecured term loan with five years remaining. The maturity date remains September 29, 2028, which is unchanged from the original terms. The amended term loan provides for interest only payments using SOFR plus the applicable margin, based on the Company's current credit ratings and consolidated leverage ratio. This refinance resulted in 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, providing a total effective fixed interest rate of 2.61%.

OUTLOOK FOR 2023

EPS for 2023 is now estimated to be in the range of $4.11 to $4.15. FFO per share attributable to common stockholders for 2023 is now estimated to be in the range of $7.73 to $7.77. 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: