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Strong, conservative balance sheet paying dividends

EastGroup holding its own during recession

For 117 consecutive quarters, holders of EastGroup common stock have received a quarterly dividend.

That is the equivalent of 29 years and one quarter. The Jackson-based real estate investment trust’s latest quarterly dividend, announced by company March 5, is $0.52 per share.

The overall real estate market – commercial and residential – has taken a serious hit with the downturn in the economy. The average time homes stay on the market has soared as prices have dropped. Commercial properties sit empty as the businesses that used to occupy them close their doors.

EastGroup, though, is holding its own.

Its 2008 fourth quarter/year filing with the Securities and Exchange Commission shows some encouraging numbers mixed with evidence of a struggling economy.

Funds from operations (FFO) for 2008 were $81.3 million, which represented a 5.8 percent increase from 2007. The fourth quarter of 2008 did see a decline in FFO when compared with the same period of 2007, down 1.2 percent on a $21.2-million total. The annualized dividend for 2008 was $2.08 per share, marking the 16th consecutive year of dividend growth.

“I think we’ve fared fairly well because we have a strong and conservative balance sheet,” said EastGroup president and CEO David Hoster. “Our debt is low, and we have had a conservative dividend policy over the years.”

EastGroup’s occupancy rate did slip in 2008, particularly in the fourth quarter, and the company “expects it to keep slipping,” Hoster said.

In its latest filing with the SEC, EastGroup occupancy rate is 93.8 percent, with 94.8 percent of its properties leased. The customer retention rate came in at 77 percent.

The customer renewal rate, Hoster said, can be attributed to the company’s willingness to offer its tenants flexibility in their leases. With the large amount of uncertainty surrounding the exact state of the economy and the moving target date for its recovery, tenants are skittish about making a move to a different facility or committing to a long-term lease.

“That’s what most of our tenants tell us — if we can give them a little flexibility with short-term leases, that will help them and increase the chances they’ll stay with us,” Hoster said. “That’s something we’ve embraced, because prospects for vacancies are fewer than they have been (in the past).”

The recession has also shifted who holds the most leverage in the commercial real estate market. Until the economy began to spiral, landlords held sway due to the high demand for their properties. That has changed, Hoster said.

“The market has switched from a landlord market to a tenant market,” Hoster said, drawing a parallel to the shift in the U.S. housing market.

Like most other business people – and economists, to boot – EastGroup officials remain unsure when the economy will turn, making it difficult to project if 2009 will be the bottom-out year for indicators or if the slide will continue into 2010.

Hoster said it was still early yet to make a judgment whether the company will have a 17th consecutive year of dividend growth.

“You never say never, though,” he said. “Our dividend is totally covered by rents from properties. There are no fees or anything of that nature included.”

Contact MBJ staff writer Clay Chandler at clay.chandler@msbusiness.com .


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