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EastGroup Properties, Inc. announced the results of its operations for the three and six months ended June 30, 2020.<\/p>\n
Commenting on EastGroup’s performance, Marshall Loeb<\/span>, CEO, stated, “Our team and our portfolio’s performance during second quarter surpassed expectations. It was a solid quarter for ‘normal economic’ times and a great quarter during the economic shutdown. It’s difficult to know when the markets will return to a sense of normalcy, but to date our portfolio is weathering the crisis well. And on the other side of the pandemic, we believe our last mile, shallow bay portfolio will be well-positioned to benefit from the anticipated shift towards carrying more inventory, incremental manufacturing growth in the U.S. or near-shoring in Mexico<\/span>, faster population growth in the Sunbelt markets and a change in shopping patterns leading to increased e-commerce demand.”<\/p>\n EARNINGS PER SHARE<\/strong><\/p>\n Three Months Ended June 30, 2020<\/span> Six Months Ended June 30, 2020<\/span> FUNDS FROM OPERATIONS AND PROPERTY NET OPERATING INCOME<\/strong><\/p>\n Three Months Ended June 30, 2020<\/span> PNOI increased by $5,288,000<\/span>, or 9.0%, during the three months ended June 30, 2020, compared to the same period of 2019. PNOI increased $3,827,000<\/span> from newly developed and value-add properties, $1,767,000<\/span> from 2019 and 2020 acquisitions and $636,000<\/span> from same property operations (based on the same property pool); PNOI decreased $1,004,000<\/span> from operating properties sold in 2019.<\/p>\n The same property pool PNOI Excluding Income from Lease Terminations increased 2.5% on a straight-line basis for the three months ended June 30, 2020, compared to the same quarter in 2019; on a cash basis (excluding straight-line rent adjustments and amortization of above\/below market rent intangibles), Same PNOI increased 4.1%. The Company has included deferred rent charges for executed deferral agreements that qualify for the modified COVID-19-related guidance provided by the Financial Accounting Standards Board (“FASB”) in its same property metrics. Additional information on the Company’s deferred rent agreements may be found in the Impact of the COVID-19 Pandemic<\/em> section below. <\/p>\n On a straight-line basis, rental rates on new and renewal leases (4.0% of total square footage) increased an average of 13.8% during the three months ended June 30, 2020<\/span>.<\/p>\n Six Months Ended June 30, 2020<\/span> PNOI increased by $11,709,000<\/span>, or 10.1%, during the six months ended June 30, 2020, compared to the same period of 2019. PNOI increased $8,192,000<\/span> from newly developed and value-add properties, $3,804,000<\/span> from 2019 and 2020 acquisitions and $1,884,000<\/span> from same property operations (based on the same property pool); PNOI decreased $2,192,000<\/span> from operating properties sold in 2019.<\/p>\n The same property pool PNOI Excluding Income from Lease Terminations increased 2.1% on a straight-line basis for the six months ended June 30, 2020, compared to the same period of 2019; on a cash basis, Same PNOI increased 3.9%. The Company has included deferred rent charges for executed deferral agreements that qualify for the modified COVID-19-related guidance provided by the FASB in its same property metrics. Additional information on the Company’s deferred rent agreements may be found in the Impact of the COVID-19 Pandemic<\/em> section below. <\/p>\n On a straight-line basis, rental rates on new and renewal leases (9.8% of total square footage) increased an average of 20.1% during the six months ended June 30, 2020.<\/p>\n The same property pool for the three and six months ended June 30, 2020 includes properties which were included in the operating portfolio for the entire period from January 1, 2019<\/span> through June 30, 2020<\/span>; this pool is comprised of properties containing 38,737,000 square feet.<\/p>\n FFO, FFO Excluding Gain on Casualties and Involuntary Conversion, PNOI and Same PNOI are non-GAAP financial measures, which are defined under Definitions<\/em> 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.”<\/p>\n IMPACT OF THE COVID-19 PANDEMIC During the three months ended March 31, 2020<\/span>, COVID-19 did not have a material adverse impact on the Company’s revenues as monthly rent payments generally were due by early March, prior to the beginning of the more significant economic impacts in the United States<\/span>.<\/p>\n During the three months ended June 30, 2020<\/span>, the United States<\/span> experienced significant health, social and economic impacts from COVID-19. EastGroup’s operations, occupancy and rent collections remained stable during this period. As of July 27, 2020<\/span>, the Company has received rent relief requests, primarily in the form of payment deferral requests, from approximately 29% of its customers. To date, approximately 14% of these requests have been granted some form of relief, which represents approximately 4% of the Company’s customers on a square foot basis. The Company has executed rent deferral agreements totaling $1.5 million<\/span>, which represents approximately 0.4% of the Company’s estimated 2020 revenue. The deferrals include approximately $900,000<\/span> that was applicable to periods through June 30, 2020<\/span> and approximately $600,000<\/span> for future periods. Under modified COVID-19-related guidance provided by the FASB, rent charges for the majority of these deferral agreements ($1.2 million<\/span> of the $1.5 million<\/span>) qualify to be recognized as rental income in the charge periods under the original terms of the leases. These requests are being handled on a case-by-case basis, and the Company’s responses are largely dependent on its understanding of the financial strength of the customer, the operational and earnings impacts being experienced by the customer, and the customer’s ability or inability to obtain capital through debt or equity issuances, government assistance programs or by other means. As of July 27, 2020<\/span>, rent payment deferrals and other forms of rent relief have not been material; the Company is continuing to actively monitor the evolving situation and its impact on the Company’s cash flows and operations.<\/p>\n As of July 27, 2020<\/span>, the Company’s rent collection and rent payment deferral status was as follows:<\/p>\n Month in Year 2020 <\/strong>(1)<\/sup><\/strong><\/span><\/p>\n<\/td>\n % of Rent Collected<\/strong><\/span><\/p>\n<\/td>\n % of Rent Deferred to % of Rent Uncollected With No March<\/span><\/p>\n<\/td>\n 99.7%<\/span><\/p>\n<\/td>\n —%<\/span><\/p>\n<\/td>\n 0.3%<\/span><\/p>\n<\/td>\n<\/tr>\n April<\/span><\/p>\n<\/td>\n 98.9%<\/span><\/p>\n<\/td>\n 0.5%<\/span><\/p>\n<\/td>\n 0.6%<\/span><\/p>\n<\/td>\n<\/tr>\n May<\/span><\/p>\n<\/td>\n 98.1%<\/span><\/p>\n<\/td>\n 0.9%<\/span><\/p>\n<\/td>\n 1.0%<\/span><\/p>\n<\/td>\n<\/tr>\n June<\/span><\/p>\n<\/td>\n 97.4%<\/span><\/p>\n<\/td>\n 1.2%<\/span><\/p>\n<\/td>\n 1.4%<\/span><\/p>\n<\/td>\n<\/tr>\n July (2)<\/sup><\/span><\/p>\n<\/td>\n 95.5%<\/span><\/p>\n<\/td>\n 0.7%<\/span><\/p>\n<\/td>\n 3.8%<\/span><\/p>\n<\/td>\n<\/tr>\n (1) <\/sup>Customer payments are received daily. The collection information presented is current through July 27, 2020, and the Company anticipates continuing to receive rental payments which will increase the % of Rent Collected.<\/em><\/span><\/p>\n<\/td>\n<\/tr>\n (2) <\/sup>To date, rental payments received for July rent charges are slightly higher than the June rental payments that had been received as of the same time of the applicable month, June 27, 2020.<\/em><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n<\/div>\n As of June 30, 2020<\/span>, Houston<\/span>, EastGroup’s largest market, represented approximately 13.8% of the Company’s total portfolio on an annualized base rent basis. As of June 30, 2020<\/span>, the Company’s Houston<\/span> portfolio was 97.9% leased and occupied. As of July 27, 2020<\/span>, EastGroup had collected the following percentages of its monthly rent for its Houston<\/span> properties: 99.9% for March, 99.9% for April, 99.9% for May, 99.4% for June and 97.1% for July.<\/p>\n We believe EastGroup’s financial condition and balance sheet remain strong. As of June 30, 2020<\/span>, the outstanding balance on the Company’s $395 million<\/span> unsecured revolving credit facilities was $67 million<\/span>, providing $328 million<\/span> of available capacity. EastGroup has not drawn amounts on its unsecured revolving credit facilities, except for general corporate purposes in the ordinary course of business. The Company is in compliance with its debt covenants and anticipates remaining in compliance during the foreseeable future. The Company’s recent debt and equity activity is described below under Financial Strength and Flexibility<\/em>.<\/p>\n As of July 27, 2020<\/span>, the Company’s lease expirations for the remainder of 2020 represent 4.7% of its total operating portfolio square footage. As shown in the Outlook for 2020<\/em> section of this release, the Company anticipates a decline in occupancy during the remainder of 2020. EastGroup’s ability or inability to continue leasing space will impact its occupancy for the remainder of the year.<\/p>\n The Company has been continuing construction on already-active development and value-add projects. During the second quarter, EastGroup did not begin construction on any new development projects. During the third quarter, the Company does not anticipate starting construction on any new speculative development projects. Management will continue to monitor the economic conditions of the Company’s markets to determine whether to begin construction on future development projects.<\/p>\n The future impacts of COVID-19 on the Company are largely dependent on the severity and duration of the economic uncertainty and its effect on EastGroup’s customers and cannot be predicted with certainty at this time.<\/p>\n DEVELOPMENT AND VALUE-ADD PROPERTIES Development Projects Started in 2020<\/strong><\/span><\/p>\n<\/td>\n Location<\/strong><\/span><\/p>\n<\/td>\n Size<\/strong><\/span><\/p>\n<\/td>\n Anticipated Conversion Projected Total (Square feet)<\/em><\/span><\/p>\n<\/td>\n (In thousands)<\/em><\/span><\/p>\n<\/td>\n Gateway 4<\/span><\/p>\n<\/td>\n Miami, FL<\/span><\/p>\n<\/td>\n 197,000<\/span><\/p>\n<\/td>\n 06\/2021<\/span><\/p>\n<\/td>\n $<\/span><\/p>\n<\/td>\n 23,800<\/span><\/p>\n<\/td>\n SunCoast 7<\/span><\/p>\n<\/td>\n Ft. Myers, FL<\/span><\/p>\n<\/td>\n 77,000<\/span><\/p>\n<\/td>\n 10\/2021<\/span><\/p>\n<\/td>\n 8,400<\/span><\/p>\n<\/td>\n Total Development Projects Started<\/span><\/p>\n<\/td>\n 274,000<\/span><\/p>\n<\/td>\n $<\/span><\/p>\n<\/td>\n 32,200<\/span><\/p>\n<\/td>\n At June 30, 2020, EastGroup’s development and value-add program consisted of 20 projects (3,097,000 square feet) in 12 cities. The projects, which were collectively 30% leased as of July 27, 2020<\/span>, have a projected total cost of $334.1 million<\/span>, of which $43.8 million<\/span> remained to be spent as of June 30, 2020<\/span>.<\/p>\n During the second quarter of 2020, EastGroup transferred (at the earlier of 90% occupied or one year after shell completion\/value-add acquisition date) five development and value-add projects to the real estate portfolio. The projects, which are located in Orlando<\/span>, Ft. Myers, Dallas<\/span>, Houston<\/span> and San Antonio<\/span>, contain a total of 767,000 square feet and are 95% leased as of July 27, 2020<\/span>.<\/p>\n The development and value-add properties transferred to the real estate portfolio during the first six months of 2020 are detailed in the table below.<\/p>\n Development and Value-Add Properties Location<\/strong><\/span><\/p>\n<\/td>\n Size<\/strong><\/span><\/p>\n<\/td>\n Conversion Date<\/strong><\/span><\/p>\n<\/td>\n Cumulative Cost as Percent Leased (Square feet)<\/em><\/span><\/p>\n<\/td>\n (In thousands)<\/em><\/span><\/p>\n<\/td>\n Logistics Center 6 & 7 (1)<\/sup><\/span><\/p>\n<\/td>\n
<\/strong>On a diluted per share basis, earnings per common share (“EPS”) were $0.60<\/span> for the three months ended June 30, 2020, compared to $0.73<\/span> for the same period of 2019. The Company’s property net operating income (“PNOI”) increased by $5,288,000<\/span> ($0.14<\/span> per share) for the three months ended June 30, 2020, as compared to the same period of 2019. Depreciation and amortization expense increased by $1,279,000<\/span> ($0.03<\/span> per diluted share) during the three months ended June 30, 2020, as compared to the same period of 2019. EastGroup recognized gains on sales of real estate investments of $9,081,000<\/span> ($0.25<\/span> per share) during the three months ended June 30, 2019<\/span>; there were no sales during the three months ended June 30, 2020.<\/p>\n
<\/strong>Diluted EPS for the six months ended June 30, 2020, was $1.20<\/span> compared to $1.35<\/span> for the same period of 2019. PNOI increased by $11,709,000<\/span> ($0.30<\/span> per share) for the six months ended June 30, 2020, as compared to the same period of 2019. Depreciation and amortization expense increased by $5,425,000<\/span> ($0.14<\/span> per share) during the six months ended June 30, 2020, as compared to the same period of 2019. EastGroup recognized gains on sales of real estate investments of $11,406,000<\/span> ($0.31<\/span> per share) during the six months ended June 30, 2019; there were no sales during the six months ended June 30, 2020.<\/p>\n
<\/strong>For the three months ended June 30, 2020, funds from operations attributable to common stockholders (“FFO”) were $1.33<\/span> per share compared to $1.22<\/span> per share for the same quarter of 2019, an increase of 9.0%.<\/p>\n
<\/strong>FFO for the six months ended June 30, 2020 was $2.65<\/span> per share compared to $2.42<\/span> per share during the same period of 2019, an increase of 9.5%.<\/p>\n
<\/strong>On March 11, 2020<\/span>, the World Health Organization characterized COVID-19 as a pandemic. Global, national and local economies continue to be impacted by the pandemic and the mitigation efforts to combat the spread of COVID-19.<\/p>\n\n\n\n\n\n
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Future Period<\/strong><\/span><\/p>\n<\/td>\n <\/td>\n \n
Deferral Agreement<\/strong><\/span><\/p>\n<\/td>\n<\/tr>\n\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n \n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n \n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n \n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n \n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n \n \n <\/td>\n<\/tr>\n \n \n \n \n
<\/strong>During the second quarter of 2020, EastGroup did not begin construction of any new development projects. The development projects started during the first quarter of 2020 are detailed in the table below:<\/p>\n\n\n\n\n\n
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Date<\/strong><\/span><\/p>\n<\/td>\n <\/td>\n \n
Costs<\/strong><\/span><\/p>\n<\/td>\n <\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n <\/td>\n <\/td>\n \n <\/td>\n <\/td>\n <\/td>\n \n <\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n <\/td>\n \n <\/td>\n \n \n <\/td>\n <\/td>\n<\/tr>\n \n \n <\/td>\n \n <\/td>\n \n <\/td>\n <\/td>\n \n <\/td>\n \n <\/td>\n <\/td>\n<\/tr>\n \n \n <\/td>\n <\/td>\n <\/td>\n \n <\/td>\n <\/td>\n <\/td>\n <\/td>\n \n \n <\/td>\n <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n<\/div>\n \n\n\n\n\n
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Transferred to Real Estate Properties in 2020<\/strong><\/span><\/p>\n<\/td>\n <\/td>\n \n <\/td>\n \n <\/td>\n \n <\/td>\n \n
of 6\/30\/20<\/strong><\/span><\/p>\n<\/td>\n <\/td>\n \n
as of 7\/27\/20<\/strong><\/span><\/p>\n<\/td>\n<\/tr>\n\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n \n <\/td>\n <\/td>\n <\/td>\n \n <\/td>\n <\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n \n <\/td>\n \n