EastGroup Properties, Inc. Q4 FY2025 earnings call

• Leasing: Fourth quarter development leasing improved, with 52% of annual total square footage signed, marking the best quarter in over 3 years. Flight to quality contributed to portfolio occupancy outperforming broader markets.
• Development: 2026 development starts forecasted at $250 million. Challenges with zoning and permitting limit new supply, which will pressure rents. Investments include growing Las Vegas footprint, adding land in San Antonio and Northeast Dallas, and modernizing the portfolio with Fresno market exit.
• Financials: FFO for Q4 2025 and year 2025 met the upper end of guidance. Net interest expense savings from lower credit facility balances and a lower interest rate on a term loan. Strong balance sheet with debt to total market capitalization 14.7%, debt-to-EBITDA 3x, and interest/fixed charge coverage over 15x.

For the fourth quarter of 2025, funds from operations (FFO) were $2.34 per share, up 8.8% quarter-over-quarter. Annual FFO per share growth was 7.7%. Quarter-end leasing was 97% with occupancy at 96.5%, and average quarterly occupancy was 96.2% (up 40 basis points from Q4 2024) with same-store occupancy at 97.4%. Quarterly re-leasing spreads were 35% GAAP and 19% cash for leases signed during the quarter; annual results were 40% and 25% GAAP and cash, respectively. Cash same-store NOI rose 8.4% for the quarter and 6.7% for the year. The top 10 tenants fell to 6.8% of rents, down 40 basis points from the previous year.

• 2026 FFO: Estimated $2.25-$2.33 per share for Q1 and $9.40-$9.60 per share for the year (midpoints up 8% and 6.1% vs prior year).
• Cash same-property NOI: Midpoint 6.1% for 2026, driven by rental rate increases and 96.3% occupancy.
• Development/Acquisitions: Forecasts $250 million in development starts and $160 million in operating property acquisitions. G&A expenses projected at $27 million, including $4 million for executive team transitions.
• Debt: $140 million in unsecured debt maturing in Q4 2026 to be funded with bank credit facilities and $300 million in new debt issuance.

• Volatile market conditions impacting long-term tenant decision-making.
• Difficulty in attaining zoning and permitting, limiting new supply.
• Headline risks (e.g., tariffs) affecting tenant behavior.
• Uncertain economic environment affecting rent growth and occupancy.

Q: Dive in more on development leasing and prospect activity?

A: Activity picked up in Q4, with over half of annual development leasing signed. It's a mix of expansions, relocations, and new to the portfolio, spread across 6 states.

Q: Thoughts on market rent growth?

A: Not seeing immediate rent growth, but low construction pipeline will likely lead to rent growth eventually.

Q: Competitive supply and lender/institutional appetite?

A: Competitive supply is tight, demand outpaces supply. Lenders/private credit are cautious, and institutional equity appetite depends on market conditions.

Q: Land bank and yields on new starts?

A: Land bank around $32 per buildable foot. Anticipates similar yields to 2025, with land and permits in hand for second phase developments.

Q: Capital allocation between debt and equity?

A: Monitoring debt and equity markets, guidance assumes $300 million debt issuance, but flexible to use both as needed.

Q: Development lease-up and guidance?

A: $0.07 of FFO assumed from new spec development leasing, back-end weighted.

Q: Confidence in guidance and beat-and-raise?

A: Budget bubbles up from the field, team aims to beat guidance, being conservative but hopeful for a beat and raise.

Q: Supply inflection and overbuilding risk?

A: Zoning/permitting delays slow new supply, providing a long runway before overbuilding, with mark-to-market expected to pick up.

Q: Expanded management structure benefits?

A: Better operational efficiencies, clearer communication, and ability to move faster on opportunities.

Q: Onshoring/nearshoring leases and absolute rents?

A: Nearshoring activity picked up, especially in Houston/Dallas. Absolute rents sticky due to tight supply, but potential for rent growth as demand stabilizes.

Q: Occupancy decline and development transfers?

A: First quarter occupancy flat, decline in later quarters due to development transfers, but FFO expected to increase.

Q: Tariffs and Supreme Court impact?

A: Headline impact on tenants, with markets like Houston/Jacksonville preferred for stable growth.

Q: Development vs acquisition cap rates/IRRs and market exits?

A: Development IRRs around 7%, acquisitions in low to mid-5s. Exiting markets like Fresno, Santa Barbara, Jackson to modernize the portfolio