EASTGROUP PROPERTIES, INC. JACKSON, Miss., October 19, 2017 /PRNewswire/ --
-- Net Income Attributable to Common Stockholders of $.46 Per Share
Compared to $.45 Per Share for the Same Quarter of 2016
-- Funds from Operations of $1.08 Per Share Compared to $1.04 Per Share for
the Same Quarter Last Year, an Increase of 3.8%
-- Same Property Net Operating Income (PNOI) Growth of 3.1%
-- 97.4% Leased, 95.6% Occupied as of September 30, 2017; Average Occupancy
of 95.2% for the Quarter
-- Rental Rates on New and Renewal Leases Increased an Average of 20.9%
-- Acquired 40 Acres of Development Land in San Antonio for $5 Million
-- Started Construction of a 104,000 Square Foot Development Project in
Orlando with a Projected Total Cost of $8 Million
-- Transferred Two Development Projects Totaling 278,000 Square Feet to the
Real Estate Portfolio
-- Development Program Consisted of 13 Projects (1.7 Million Square Feet)
at September 30, 2017 with a Projected Total Investment of $138 Million
-- Paid 151st Consecutive Quarterly Cash Dividend - Increased the Dividend
by $.02 Per Share (3.2%) to $.64 Per Share
-- Issued 116,525 Shares of Common Stock During the Quarter with Gross
Proceeds of $10 Million
EastGroup Properties, Inc. (NYSE: EGP) announced today the results of its operations for the three and nine months ended September 30, 2017.
Commenting on EastGroup's performance, Marshall Loeb, CEO, stated, "Our third quarter results confirm the strength and the resilience we continue to see in the industrial market. Our in-fill Sunbelt high growth market strategy is further positioning us to capitalize on this strength. The 3.8% increase in quarterly FFO over the prior year represents the 25th increase in the past 26 quarters, truly a long-term trend. Other strong market indicators were finishing the quarter 97.4% leased, our highest level in over 10 years, along with record quarterly GAAP and cash re-leasing spreads."
EARNINGS PER SHARE
On a diluted per share basis, earnings per common share (EPS) was $.46 for the three months ended September 30, 2017, compared to $.45 for the same period of 2016. The Company's property net operating income (PNOI) increased by $4,015,000 ($.12 per share) for the three months ended September 30, 2017, as compared to the same period of 2016. The increase in PNOI was offset by increases in depreciation and amortization expense of $1,650,000 ($.05 per share) and general and administrative expense of $877,000 ($.03 per share) in the third quarter of 2017 compared to the same period of 2016. EPS for the third quarter of 2016 included net gains on sales of non-operating real estate of $590,000 ($.02 per share); there were no sales in the third quarter of 2017.
Diluted EPS for the nine months ended September 30, 2017, was $1.93 compared to $2.47 for the same period of 2016. PNOI increased by $10,968,000 ($.32 per share) for the nine months ended September 30, 2017, as compared to the same period of 2016. EPS for the nine months ended September 30, 2017, included net gains on sales of real estate investments and non-operating real estate of $21,815,000 ($.64 per share) compared to $43,046,000 ($1.32 per share) during the same period of 2016. In addition, depreciation and amortization expense increased by $4,345,000 ($.13 per share), and general and administrative expense increased by $923,000 ($.03 per share) during the nine months ended September 30, 2017, compared to the same period of 2016.
FUNDS FROM OPERATIONS
For the quarter ended September 30, 2017, funds from operations attributable to common stockholders (FFO) was $1.08 per share compared to $1.04 per share for the same quarter of 2016, an increase of 3.8%. Excluding net gains on sales of non-operating real estate, FFO increased by 5.9% for the quarter. PNOI increased by $4,015,000, or 9.0%, during the quarter ended September 30, 2017, compared to the same period of 2016. PNOI increased $2,483,000 from newly developed and redeveloped properties, $1,342,000 from same property operations, and $917,000 from 2016 and 2017 acquisitions; PNOI decreased $658,000 from operating properties sold in 2016 and 2017.
Same PNOI increased 3.1% for the quarter ended September 30, 2017, compared to the same quarter in 2016; without straight-line rent adjustments, same PNOI increased 2.7%. Rental rates on new and renewal leases (4.6% of total square footage) increased an average of 20.9% for the quarter.
FFO for the nine months ended September 30, 2017, was $3.12 per share compared to $2.94 per share during the same period of 2016, an increase of 6.1%. Excluding net gains on sales of non-operating real estate, FFO increased by 6.8% for the nine months. PNOI increased by $10,968,000, or 8.3%, during the nine months ended September 30, 2017, compared to the same period of 2016. PNOI increased $7,503,000 from newly developed and redeveloped properties, $3,157,000 from same property operations, and $2,628,000 from 2016 and 2017 acquisitions; PNOI decreased $2,157,000 from operating properties sold in 2016 and 2017.
Same PNOI increased 2.5% for the nine months ended September 30, 2017, compared to the same period in 2016; without straight-line rent adjustments, same PNOI increased 3.0%. Rental rates on new and renewal leases (17.6% of total square footage) increased an average of 17.1% for the nine months ended September 30, 2017.
FFO and PNOI are non-GAAP financial measures, which are defined under Definitions later in this release. Reconciliations of Net Income to PNOI and Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to FFO are presented in the attached schedule "Reconciliations of GAAP to Non-GAAP Measures."
DEVELOPMENT
During the third quarter, EastGroup acquired 39.6 acres of land in San Antonio for $5.3 million. The Company's plans for future development of the land include a master-planned, multi-phased project, Tri-County Crossing, consisting of five business distribution buildings totaling approximately 622,000 square feet.
Also during the third quarter, the Company began construction of Horizon X, a 104,000 square foot, multi-tenant business distribution building in Orlando. Horizon X is an addition to the Company's Horizon Commerce Park, which currently includes 853,000 square feet in seven other buildings.
The development projects started in the first nine months of the year are included in the table below.
Development Properties Started in 2017 Location Size Anticipated Projected
Conversion Date Total Costs
--- --------------- -----------
(Square feet) (In thousands)
Steele Creek VII Charlotte, NC 120,000 09/2018 $8,600
Horizon XII Orlando, FL 140,000 11/2018 12,100
Oak Creek VII Tampa, FL 116,000 11/2018 7,200
Kyrene 202 III, IV & V Phoenix, AZ 166,000 01/2019 13,800
CreekView 121 3 & 4 Dallas, TX 158,000 02/2019 14,200
Eisenhauer Point 5 San Antonio, TX 98,000 03/2019 7,500
Eisenhauer Point 6 San Antonio, TX 85,000 03/2019 5,200
Horizon X Orlando, FL 104,000 04/2019 8,000
------- -----
Total Development Properties Started 987,000 $76,600
------- -------
At September 30, 2017, EastGroup's development program consisted of 13 projects (1,682,000 square feet). The projects, which were collectively 43% leased as of October 18, 2017, have a projected total cost of $138 million.
During the first nine months of 2017, EastGroup transferred (at the earlier of 80% occupied or one year after completion) 12 development properties to the real estate portfolio as detailed in the table below.
Development Properties Transferred to Location Size Conversion Cumulative Percent
Real Estate Portfolio in 2017 Date Cost as of Leased as
9/30/17 of 10/18/17
--- ------- -----------
(Square feet) (In thousands)
Eisenhauer Point 1 & 2 San Antonio, TX 201,000 01/2017 $16,511 92%
South 35th Avenue (1) Phoenix, AZ 125,000 01/2017 1,888 100%
Alamo Ridge III San Antonio, TX 135,000 02/2017 11,026 100%
Parc North 1-4 Dallas, TX 446,000 02/2017 33,609 83%
Madison IV & V Tampa, FL 145,000 03/2017 8,732 100%
Jones Corporate Park Las Vegas, NV 416,000 04/2017 40,651 88%
Steele Creek VI Charlotte, NC 137,000 04/2017 7,815 100%
Ten Sky Harbor Phoenix, AZ 64,000 04/2017 5,691 100%
Horizon V Orlando, FL 141,000 05/2017 9,719 100%
Horizon VII Orlando, FL 109,000 06/2017 8,456 100%
Eisenhauer Point 4 San Antonio, TX 85,000 07/2017 5,404 100%
CreekView 121 1& 2 Dallas, TX 193,000 08/2017 17,553 100%
------- ------ ---
Total Properties Transferred 2,197,000 $167,055 94%
--------- -------- ---
(1) Cumulative Cost as of 9/30/17
represents incremental cost for
redevelopment from a manufacturing
building to a multi-tenant
distribution building.
DIVIDENDS
EastGroup increased its quarterly common stock dividend 3.2% to $.64 per share in the third quarter of 2017. This was the Company's 151(st) consecutive quarterly cash distribution to shareholders. EastGroup has increased or maintained its dividend for 25 consecutive years. The Company has increased it 22 years within that period, including increases in each of the last six years. The Company's payout ratio of dividends to FFO was 59% for the quarter. The annualized dividend rate of $2.56 per share yielded 2.8% on the closing stock price of $91.66 on October 18, 2017.
FINANCIAL STRENGTH AND FLEXIBILITY
EastGroup continues to maintain a strong and flexible balance sheet. Debt-to-total market capitalization was 26.2% at September 30, 2017. For the third quarter, the Company had interest and fixed charge coverage ratios of 5.25x and a debt to adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) ratio of 5.86x.
In August, EastGroup repaid (with no penalty) a mortgage loan with a balance of $45.1 million, an interest rate of 5.57% and an original maturity date of September 5, 2017. The loan was collateralized by 1.4 million square feet of operating properties.
In September, the Company executed a commitment letter for $60 million of senior unsecured private placement notes with an insurance company. The notes, which are expected to close in mid-December, have a seven-year term and a fixed interest rate of 3.46% with semi-annual interest payments. The notes will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
During the third quarter, EastGroup issued and sold 116,525 shares of common stock under its continuous equity program at an average price of $85.82 per share, providing net proceeds to the Company of $9.9 million.
OUTLOOK FOR 2017
EPS for 2017 is now estimated to be in the range of $2.43 to $2.45. Estimated FFO per share attributable to common stockholders for 2017 has been narrowed to a range of $4.22 to $4.24, while maintaining the mid-point of $4.23. The table below reconciles projected net income attributable to common stockholders to projected FFO.
Low Range High Range
Q4 2017 Y/E 2017 Q4 2017 Y/E 2017
------- -------- ------- --------
(In thousands, except per share data)
Net income attributable to common stockholders $16,975 82,568 17,655 83,248
Depreciation and amortization 20,981 83,015 20,981 83,015
Gain on sales of depreciable real estate investments - (21,855) - (21,855)
--- ------- --- -------
Funds from operations attributable to common stockholders $37,956 143,728 38,636 144,408
------- ------- ------ -------
Diluted shares 34,451 34,048 34,451 34,048
Per share data (diluted):
Net income attributable to common stockholders $0.49 2.43 0.51 2.45
Funds from operations attributable to common stockholders 1.10 4.22 1.12 4.24
The following assumptions were used for the mid-point:
Metrics Guidance for Revised July Earnings Actual for Year
Q4 2017 Guidance for Release 2016
Year 2017 Guidance for
Year 2017
--- ---------
FFO per share $1.11 $4.23 $4.23 $4.02
FFO per share increase over prior year period 2.8% 5.2% 5.2% 9.5%
Same Property Net Operating Income (PNOI) growth:
Straight-line rent basis 4.0% 2.5% 2.2% 3.1%
Straight-line rent basis without Houston 4.3% 4.5% 4.4% 4.2%
Without straight-line rent adjustments 4.5% 2.8% 2.6% 3.1%
Without straight-line rent adjustments and Houston 4.8% 5.0% 5.0% 3.9%
Average month-end occupancy 96.0% 95.4% 95.1% 95.8%
Lease termination fee income $75,000 $273,000 $283,000 $812,000
Bad debt expense $250,000 $582,000 $698,000 $992,000
Development starts:
Square feet 350,000 1.3 million 1.3 million 1.2 million
Projected total investment $31 million $108 million $100 million $94 million
Development-stage operating property acquisitions None None None $88 million
Operating property acquisitions None $37 million $52 million $24 million
Operating property dispositions $10 million $50 million $50 million $76 million
(Potential gains on dispositions are not included in
the projections)
Gain (loss) on sales of non-operating real estate None ($40,000) ($40,000) $733,000
Average variable interest rate on unsecured bank 2.3% 2.3% 2.2% 1.5%
credit facilities
Unsecured debt closing in period $60 million at $60 million at $60 million at $205 million at
3.46% 3.46% 4.0% 3.1% weighted
average interest
rate
Common stock issuances $10 million $90 million $70 million $60 million
General and administrative expense $3.2 million $14.8 million $14.5 million $13.2 million
DEFINITIONS
The Company's chief decision makers use two primary measures of operating results in making decisions: (1) property net operating income (PNOI), defined as Income from real estate operations less Expenses from real estate operations (including market-based internal management fee expense) plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments, and (2) funds from operations attributable to common stockholders (FFO). EastGroup defines FFO consistent with the National Association of Real Estate Investment Trusts' definition, as net income (loss) attributable to common stockholders computed in accordance with U.S. generally accepted accounting principles (GAAP), excluding gains or losses from sales of depreciable real estate property and impairment losses, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
PNOI and FFO are supplemental industry reporting measurements used to evaluate the performance of the Company's investments in real estate assets and its operating results. The Company believes that the exclusion of depreciation and amortization in the industry's calculations of PNOI and FFO provides supplemental indicators of the properties' performance since real estate values have historically risen or fallen with market conditions. PNOI and FFO as calculated by the Company may not be comparable to similarly titled but differently calculated measures for other REITs. Investors should be aware that items excluded from or added back to FFO are significant components in understanding and assessing the Company's financial performance.
EastGroup sometimes refers to PNOI from Same Properties as "Same PNOI" in this press release and the accompanying reconciliation. Same Properties is defined as operating properties owned during the entire current period and prior year reporting period. Development properties are excluded until held in the operating portfolio for both the current and prior year reporting periods.
The Company's chief decision makers also use adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) in making decisions. Adjusted EBITDA is defined as Net Income, excluding gains or losses from sales of depreciable real estate property, plus interest, taxes, depreciation and amortization.
CONFERENCE CALL
EastGroup will host a conference call and webcast to discuss the results of its third quarter and review the Company's current operations on Friday, October 20, 2017, at 11:00 a.m. Eastern Daylight Time. A live broadcast of the conference call is available by dialing 1-888-632-3384 (conference ID: EastGroup) or by webcast through a link on the Company's website at eastgroup.net. If you are unable to listen to the live conference call, a telephone and webcast replay will be available until Friday, October 27, 2017. The telephone replay can be accessed by dialing 1-800-757-4768, and the webcast replay can be accessed through a link on the Company's website at eastgroup.net.
SUPPLEMENTAL INFORMATION
Supplemental financial information is available under Quarterly Results in the Investor Relations section of the Company's website at eastgroup.net or upon request by calling the Company at 601-354-3555.
COMPANY INFORMATION
EastGroup Properties, Inc. is a self-administered equity real estate investment trust focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina. The Company's goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality business distribution space for location sensitive customers (primarily in the 10,000 to 50,000 square foot range). The Company's strategy for growth is based on ownership of premier distribution facilities generally clustered near major transportation features in supply-constrained submarkets. EastGroup's portfolio, including development projects in lease-up and under construction, currently includes 38.7 million square feet. EastGroup Properties, Inc. press releases are available on the Company's website at eastgroup.net.
FORWARD-LOOKING STATEMENTS
The Company's assumptions and financial projections in this release are based upon "forward-looking" information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "will," "anticipates," "expects," "believes," "intends," "plans," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to rent and occupancy growth, development activity, the acquisition or sale of properties, general conditions in the geographic areas where the Company operates and the availability of capital, are forward-looking statements. Forward-looking statements are inherently subject to known and unknown risks and uncertainties, many of which the Company cannot predict, including, without limitation:
-- changes in general economic conditions;
-- the extent of customer defaults or of any early lease terminations;
-- the Company's ability to lease or re-lease space at current or
anticipated rents;
-- the availability of financing;
-- failure to maintain credit ratings with rating agencies;
-- changes in the supply of and demand for industrial/warehouse properties;
-- increases in interest rate levels;
-- increases in operating costs;
-- natural disasters, terrorism, riots and acts of war, and the Company's
ability to obtain adequate insurance;
-- changes in governmental regulation, tax rates and similar matters;
-- attracting and retaining key personnel; and
-- other risks associated with the development and acquisition of
properties, including risks that development projects may not be
completed on schedule, development or operating costs may be greater
than anticipated or acquisitions may not close as scheduled.
Although the Company believes that the expectations reflected in the forward-looking statements are based upon reasonable assumptions at the time made, the Company can give no assurance that such expectations will be achieved. The Company assumes no obligation whatsoever to publicly update or revise any forward-looking statements. See also the information contained in the Company's reports filed or to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
REVENUES
Income from real estate operations $68,712 63,178 202,704 186,628
Other revenue 34 12 90 68
68,746 63,190 202,794 186,696
------ ------ ------- -------
EXPENSES
Expenses from real estate operations 20,109 18,552 59,360 54,130
Depreciation and amortization 21,011 19,361 62,101 57,756
General and administrative 3,205 2,328 11,586 10,663
Acquisition costs - 161 - 161
44,325 40,402 133,047 122,710
------ ------ ------- -------
OPERATING INCOME 24,421 22,788 69,747 63,986
OTHER INCOME (EXPENSE)
Interest expense (8,704) (8,841) (26,405) (27,078)
Gain on sales of real estate investments - - 21,855 42,313
Other 255 853 725 1,502
NET INCOME 15,972 14,800 65,922 80,723
Net income attributable to noncontrolling interest in joint ventures (88) (139) (329) (438)
--- ---- ---- ----
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON 15,884 14,661 65,593 80,285
STOCKHOLDERS
Other comprehensive income (loss) - cash flow hedges 224 2,606 650 (6,253)
TOTAL COMPREHENSIVE INCOME $16,108 17,267 66,243 74,032
------- ------ ------ ------
BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
Net income attributable to common stockholders $0.46 0.45 1.94 2.47
----- ---- ---- ----
Weighted average shares outstanding 34,215 32,741 33,857 32,458
------ ------ ------ ------
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
Net income attributable to common stockholders $0.46 0.45 1.93 2.47
----- ---- ---- ----
Weighted average shares outstanding 34,290 32,823 33,905 32,519
------ ------ ------ ------
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
NET INCOME $15,972 14,800 65,922 80,723
Gain on sales of real estate investments - - (21,855) (42,313)
(Gain) loss on sales of non-operating real estate - (590) 40 (733)
Interest income (62) (63) (185) (191)
Other income (34) (12) (90) (68)
Interest rate swap ineffectiveness - - - 5
Depreciation and amortization 21,011 19,361 62,101 57,756
Company's share of depreciation from unconsolidated investment 31 31 93 93
Interest expense (1) 8,704 8,841 26,405 27,078
General and administrative expense (2) 3,205 2,328 11,586 10,663
Acquisition costs - 161 - 161
Noncontrolling interest in PNOI of consolidated 80% joint ventures (145) (190) (493) (618)
---- ---- ---- ----
PROPERTY NET OPERATING INCOME (PNOI) $48,682 44,667 143,524 132,556
------- ------ ------- -------
COMPONENTS OF PNOI:
PNOI from Same Properties (3) $44,735 43,393 131,100 127,943
PNOI from 2016 and 2017 Acquisitions 1,128 211 2,839 211
PNOI from 2016 and 2017 Development and Redevelopment Properties 2,981 498 8,940 1,437
PNOI from 2016 and 2017 Operating Property Dispositions (31) 627 998 3,155
Other PNOI (131) (62) (353) (190)
TOTAL PNOI $48,682 44,667 143,524 132,556
------- ------ ------- -------
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS $15,884 14,661 65,593 80,285
Depreciation and amortization 21,011 19,361 62,101 57,756
Company's share of depreciation from unconsolidated investment 31 31 93 93
Depreciation and amortization from noncontrolling interest (56) (49) (160) (159)
Gain on sales of real estate investments - - (21,855) (42,313)
---
FUNDS FROM OPERATIONS (FFO) ATTRIBUTABLE TO COMMON STOCKHOLDERS $36,870 34,004 105,772 95,662
------- ------ ------- ------
NET INCOME $15,972 14,800 65,922 80,723
Interest expense (1) 8,704 8,841 26,405 27,078
Depreciation and amortization 21,011 19,361 62,101 57,756
Company's share of depreciation from unconsolidated investment 31 31 93 93
--- ---
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) 45,718 43,033 154,521 165,650
Gain on sales of real estate investments - - (21,855) (42,313)
ADJUSTED EBITDA $45,718 43,033 132,666 123,337
------- ------ ------- -------
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP
PROPERTIES, INC. COMMON STOCKHOLDERS
Net income attributable to common stockholders $0.46 0.45 1.93 2.47
----- ---- ---- ----
Funds from operations (FFO) attributable to common stockholders $1.08 1.04 3.12 2.94
----- ---- ---- ----
Weighted average shares outstanding for EPS and FFO purposes 34,290 32,823 33,905 32,519
------ ------ ------ ------
(1) Net of capitalized interest of $1,284 and $1,384 for the three months ended September 30, 2017 and 2016, respectively; and $4,242 and $3,737 for the nine
months ended September 30, 2017 and 2016, respectively
(2) Net of capitalized development costs of $1,056 and $867 for the three months ended September 30, 2017 and 2016, respectively; and $3,650 and $2,660 for the
nine months ended September 30, 2017 and 2016, respectively
(3) Same Properties is defined as operating properties owned during the entire current period and prior year reporting period. Development properties are excluded
until held in the operating portfolio for both the current and prior year reporting periods.
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SOURCE EastGroup Properties, Inc.
