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An Approaching Presence: EastGroup 7th among U.S. REIT money makers

By TED CARTER
mbj@msbusiness.com

Marshall Loeb

Sustained success leasing 42 million square-feet of warehouse distribution space in fast-growing Sun Belt markets has made Jackson real estate investment trust EastGroup Properties one of the nation’s best bets for a strong return on a REIT investment, rankings show.

The enterprise that Jackson real estate investor Leland Speed established nearly 30 years ago has reached $4.15 billion market capitalization and cracked the top 4 percent of all U.S. REITs based on money it is making for investors.

“We looked at our dividend and raised it 12.5 percent this past year because our income is up,” said Marshall Loeb, who returned to EastGroup as president and CEO in summer 2015 after several years away, taking over for David H. Hoster II, who retired to Wyoming but serves as chairman.

Loeb’s board ended the first three months of 2019 by declaring a quarterly cash dividend of 72 cents a share. The increase represents an annualized dividend rate of $2.88 per share. (REITs must pay out 90 percent of all taxable income as dividends.)

The eight analysts who cover EastGroup expect earnings-per-share from operations, already closing in on $1.20, will pick up another nickel by the end of the year, growing to $1.24.

For EastGroup, March 2014 to March 2016 came with a fairly straight-line share-price of just above $60 to right at $60. But from there, through the end of this past March, shares of EastGroup Properties (NYSE: EGP) climbed past $113.

Sales revenue started a steady rise in 2015 at $300 million and increased to around $500 million at the close of last year. The revenue came from leasing strategically placed warehouse distribution space of 15,000 square feet to 75,000 square feet.

Today’s $5 billion-plus market capitalization represents a $2 billion increase since 2014, when the cap came in just below $3 billion. In the meantime, EGP’s debt-to-total market capitalization dropped to 24.9 percent in March from 38 percent in 2014. Its floating rate bank debt was about 4 percent of total market, EGP said in its 2018 annual report.

EGP has 36 million shares outstanding. For the last year, the industrial REIT issued 1.7 million shares at an average price per share of $93.26 to gain $159 million in equity. Never in EastGroup’s history has it raised that much equity in a single year, the company said.

Meanwhile, it’s been a gratifying ride into the Top 10 of REITs in the return-for-the-dollar category for Loeb.

“There are over 170 REITs of all types – hotels, apartments, office, billboards, data centers, malls… so we are proud that EastGroup came in 7th over the past three years, putting us in the top 4 percent of all REITs of all varieties,” he said in an email that followed an interview.

That also means this, he said:

“If you’d bought our shares at that time, then between the share price appreciation and the dividend payments, you would have a little more than doubled your money.

“So, our shareholders fared well over that timeframe relative to other choices,” he added.

That includes out-running the S&P and the REIT-focused FTSE Nareit U.S. Real Estate Index Series. It’s something EastGroup has done since January 2017, the company says.

Nasdaq.com reports that over the next five years, analysts who follow EastGroup expect it to grow earnings at an average annual rate of 4.91 percent. This year, reported Nasdaq.com, analysts are forecasting earnings increase of 3.85 percent over last year.

Further, said Nasdaq.com, analysts expect earnings growth next year of 5.13 percent.

Here’s why: EGP’s 98 percent occupancy for its properties positions it to raise rents on renewals up to 17 percent.  Leases of 6.2 million square feet expire next year and ones of 7.3 million and 5.6 million square feet expire in the two years afterward.

Loeb just wants EGP to sustain its momentum.  “I keep saying we need just one more good quarter,” the president & CEO said.

EastGroup has around 70 employees, half of whom are in Ridgeland at its Parkway Place headquarters and the rest at a scattering of offices around the SunBelt. More than half of all EGP employees are CPAs, said Loeb, himself a one-time CPA.

The company moved from its longtime home at One Jackson Place in downtown Jackson last year. A sister real estate investment trust also headquartered at One Jackson, Parkway Properties, left town for Orlando several years ago.

Besides finding land to build on or existing warehouse buildings to buy, Loeb’s priority is to keep his staff intact, he said.

“You always want to hang on to a good team,” Loeb added, and noted he tries to make sure “they don’t get bored and want to walk away. Those are the kinds of things that keep you up at night.”

Yes, growth has its headaches, Loeb said, but suggested that perhaps that’s a positive by helping you keep an eye on the ball. “When things are going well it is easy to get complacent. You hope you don’t get complacent.”

Those lease-rate hikes of 17 percent EGP is placing on new renewals follow four consecutive years of double-digit rate increases on renewals, according to Loeb. You can do that when you’re close to putting up a “No Vacancy” sign.

At the same time, Loeb conceded, any ride can suddenly go in reverse. “When you’re 98 percent leased,” the message is “let’s not get sloppy. At some point, we’ll struggle to get back to 90 percent.”

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About Ted Carter