EastGroup Properties, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights: - Team effort: Appreciated the team's hard work towards 2025 goals. - FFO and occupancy: FFO per share up, occupancy strong but down from prior year, re-leasing spreads and cash same-store NOI growth. - Diversification: Emphasized geographic and revenue diversity with top 10 tenants at 6.9% of rents. - Tariff impact: Market uncertainty due to tariffs, focusing on leasing and balance sheet strength. - Development: Invested $61 million in 2 new properties in Raleigh; development leasing slower, reforecasting 2025 starts to $215 million. - Balance sheet: Strong balance sheet with debt-to-EBITDA 3.0x and interest/fixed charge coverage 16x.

Segment Performance: Funds from operations (FFO) per share were $2.21, up 7.8% for the quarter over prior year (excluding involuntary conversions). Quarter end occupancy was 96%, average quarterly occupancy 95.9% (down 110 basis points from Q2 2024). Re-leasing spreads were 44% GAAP, 30% cash for the quarter, with YTD results at 46% GAAP and 31% cash. Cash same-store NOI rose 6.4% for the quarter. The top 10 tenants fell to 6.9% of rents, down 90 basis points from last year, showcasing a diversified rent roll.

Guidance: - Third quarter FFO per share expected to be in range $2.22-$2.30, average month-end occupancy 95.3%-96.1%. - Full year FFO per share range $8.89-$9.03, midpoint up $0.02 from prior guidance. - Cash same-store growth midpoint revised up 20 bps to 6.5%. - Occupancy decrease due to development projects not fully occupied. - Starts reduced by $35 million due to slower development leasing.

Risks: - Tariff discussions causing market uncertainty for long-term capital decisions. - Leasing delays: Slower decision-making on larger spaces due to tariff news, some development leases stalled. - Tenant decision-making: Corporate tenants freezing new leases, leading to delays in leasing larger spaces.

Q: Talk about the cadence of leasing through the second quarter and in July.

A: Marshall Loeb states leasing slowed but saw pickup in July, with deals on 30-50k sq ft, spec office allowing quick occupancy, and some projects stalled due to tariff news but gradual improvement.

Q: Blaine Heck asks about third quarter occupancy decline and leasing activity at development projects.

A: Brent Wood explains occupancy decline due to development conversions not fully occupied; Marshall Loeb notes spec office allows quick tenant entry in developments.

Q: Craig Mailman asks about leasing mechanisms and pipeline tranching.

A: Marshall Loeb says leasing not stalling over economics, some stalls in CA/Los Angeles due to negative absorption, and pipeline has various stages with some deals on hold but progress in smaller spaces.

Q: Nick Thillman asks about transaction activity, Raleigh assets, and dispositions.

A: Marshall Loeb discusses Raleigh's low vacancy, dispositions of older markets, and acquisition market dynamics.

Q: Alex Goldfarb asks about re-leasing spreads over next 12-24 months.

A: Marshall Loeb expects rent growth to pick up in 12-24 months due to low vacancy, onshoring/nearshoring trends, and population migration.

Q: John Kim asks about debt-to-EBITDA and comfort level.

A: Brent Wood says company has a policy on max leverage, currently well below 5x, and aims to be opportunistic with capital access.

Q: Michael Mueller asks about land bank and Raleigh expansion.

A: Marshall Loeb discusses land bank challenges, Raleigh expansion as opportunistic, and self-management benefits.

Q: Vikram Malhotra asks about rent growth in key markets and leasing pipeline.

A: Marshall Loeb states key markets have lower vacancy, rent growth around inflation, and leasing pipeline has smaller spaces with slower decision-making but gradual improvement.

Q: Michael Griffin asks about development pipeline lease-up time.

A: Marshall Loeb says lease-up time extended to 16 months from 6, but yields maintained, and prefers buying leased properties over value add.

Q: Vince Tibone asks about value-add opportunities and leasing risk.

A: Marshall Loeb says not seriously considering value add now, prefers buying leased properties with below-market rents.

Q: Ronald Kamdem asks about Southern California activity and development pipeline catalyst.

A: Marshall Loeb notes Southern California activity slow, catalyst likely tariff news resolution leading to market comfort.

Q: Brendan Lynch asks about tenant watch list and bad debt.

A: Brent Wood says tenant watch list steady, bad debt contained, and below prior year levels.

Q: Ki Bin Kim asks about balance sheet considerations and acquisition bid-ask spreads.

A: Brent Wood says balance sheet leveraged near 3x, and acquisition market efficient with tight bid-ask spreads.

Q: Blaine Heck asks about July leasing progress and FFO guidance.

A: Marshall Loeb says July leasing has small deals, FFO guidance has reduced development leasing impact.

Q: Omotayo Okusanya asks about development leasing square feet and tenant watch list.

A: Brent Wood says development leasing square feet not broken down by quarter, tenant watch list steady with no specific retail focus.