EastGroup Properties: Resilient Portfolio That Benefits From Fundamentals

dividendsThe last two decades have been stellar for EastGroup Properties. Established in 1969 and reorganized some twenty years later, the company has seen no drop in dividends since 1996. During the Great Recession, dividends stalled at US$2.08 per share for four years as funds per share from operations decreased. Since 2012, however, dividends have increased steadily and probably will not stop in the coming years. EastGroup is the second fastest-growing industrial REIT company (more than US$ 1 billion market cap), after STAG Industrial, in terms of revenue generation (Q1 2015).

EastGroup’s growth strategy focuses on premier multi-tenant distribution facilities located near major transportation hubs in supply-constrained markets. They emphasize Sunbelt markets, especially Arizona, California, Florida, North Carolina and Texas. Currently, they own more than 35 million square feet.

The company’s capitalization is two-thirds equity to one-third debt, mainly fixed rate. Their debt-to-capitalization rate, though second highest, is close enough to those of its peers not to raise a red flag. Indeed, Moody’s has rated its credit Baa2 with a stable outlook, while Fitch Ratings affirmed its BBB rating thus.

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EastGroup has also benefited from its concern to keep functional, independent corporate governance. The nine board members, of which seven are independent outsiders while the positions of CEO and chairperson are separated, are all elected yearly by shareholders. The Audit, Compensation and Nominating & Corporate Governance Committees are all comprised solely of independent directors.

Since the 2010 decline in FFO, EastGroup has steadily increased its FFO per share. Fortunately, it quickly recovered from last recession, an indication of its portfolio’s resilience. As FFO has improved, so has its dividend payout ratio, which has now been at 66 percent as the company has succeeded in lessening the pressure of distributions. Dividend yield is four percent, the highest among peers except STAG. FFO has been above its historical level but still manageable.

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While EastGroup shows great strength, reasonable growth and a resilient portfolio in itself, it does not stand out impressively among its peers. It is another REIT that has benefited from the good fundamentals of the industrial sub-sector. Share returns followed the S&P 500 and FTSE NAREIT Equity REITs closely between 2009 and 2014. The fundamentals, combined with its four-percent yield and mostly independent board, have been enough to keep it on the watchlist.

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Source: EastGroup Properties, Fast Graphs


Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​