Eastgroup Properties Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Blaine Heck - Wells Fargo Securities - Analyst : Can you just touch a little bit more about the pace of leasing you're seeing thus far in the second quarter, whether you're seeing a notable pullback in activity and whether that's any more apparent in specific markets or if there are any that are more insulated? And related to that, how quickly you think leasing could return to normalized levels or better given pent-up demand once trade agreements start to materialize?

Question: Samir Khanal - Bank of America - Analyst : Marshall, one of the comments you mentioned even in the press release and even kind of your opening remarks was that you're working to complete leases as quickly as possible, right, given sort of the macro environment. You talked a little bit about the urgency. Maybe expand on that. Just -- I mean, are you willing to be a little bit more flexible with tenants in terms of their demand? I mean are you -- what are you giving up on your end to kind of get the leases through? Just is it lower rents to gain the occupancy? Maybe help us think through that.

Question: Craig Mailman - Citigroup Inc - Analyst : Dominguez building. I know you guys put that into redevelopment this quarter. Just kind of curious, was that always the plan to put in redevelopment after Starship left? Or was that because of some of the kind of commentary you were getting from some potential tenants there? And just what's embedded in guidance for the backfill of that building? I know you guys came in a couple of quarters ahead on Conn's. Just kind of curious what is embedded from a timing perspective for Starship? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:00PM, EGP.N - Q1 2025 Eastgroup Properties Inc Earnings Call

Question: Alexander Goldfarb - Piper Sandler & Co - Analyst : So a question for you, Marshall. You guys talked about delaying the development starts until later in the year, which obviously reduces the overall amount you plan to start. But your comments on the leasing environment apart from LA seem pretty healthy. So my question is, what's really going on that's causing you to pull back on development starts? And from a tenant perspective, it doesn't sound like there's any real fear about tariffs. It sounds like the businesses are just sort of operating and whatever tariffs are going to happen, people just feel like they're going to manage it okay. Is that sort of the general takeaway? Or is this people want to see actual tariffs in place before they start adjusting their plans? I'm just trying to understand your comments on the overall healthy leasing environment apart from LA versus your pulling back on development when it would seem that your hand is strengthening there as your merchant builders have pulled back dramatically.

Question: John Kim - BMO Capital Markets - Analyst : You talked about LA being weak. I wanted to ask about leasing spreads you had this quarter, which were 5% on a GAAP basis. I realize it might be a small sample size, but it does seem low in light of market rents that have increased around 30% over the last five years. So I was wondering if you're just being defensive, ultra-defensive in that market and if this will be representative of lease spreads going forward in this market?

Question: Vikram Malhotra - Mizuho House Securities - Analyst : So I just wanted to follow up on development. A couple of parts to it. Just one, can you give us a sense of like what you actually need to lease up this year to kind of hit the middle of the guide or even maybe the low end of the guide? Related to development, one of your peers talked a lot about build-to-suit activity picking up versus last year. And I'm wondering kind of what you're seeing in your markets on build-to-suit. And then just finally, on that development, you mentioned higher yields or higher -- or changing underwriting. Do you mind just giving us more color there?

Question: Ronald Camden - Morgan Stanley - Analyst : Great. Just two -- quick two parter. Just staying on the development, just any sort of quick indication of how much construction costs have gone up and which parts and which pieces of it and what magnitude? And then the follow-up is just we've heard more utilization of space from 3PLs. Curious if you're seeing that as well? And any other sort of tenant bases that are utilizing their space more in this environment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:00PM, EGP.N - Q1 2025 Eastgroup Properties Inc Earnings Call

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Marshall, you mentioned in your prepared remarks that you raised your threshold for new investments. And Brent, you touched on some of the changes you made to the outlook related to development starts, but curious if you can talk about acquisitions and provide an update around how you're thinking about return thresholds for acquisitions? And can you comment on whether you've seen any change in sellers' willingness to transact or any deals pulled from the market or any fallout related to some of the uncertainty here over the last few weeks?

Question: Omotayo Okusanya - Deutsche Bank - Analyst : So I just wanted to stick on this topic of tariffs and the belief that maybe that kind of drives more manufacturing and things like that to happen within the US. Just kind of curious, just the whole idea of onshoring, how you kind of think about that? Whether you think that can actually be a reality this time around versus the last Trump administration where it was also potentially discussed, but we just didn't see a lot of onshoring activity?

Question: Mick Mueller - JP Morgan - Analyst : Quick question on development. Are there any specific characteristics of the developments that you essentially took out of your start guidance versus the ones where you think you'll move ahead with sooner?

Question: Mick Mueller - JP Morgan - Analyst : Got it. So a high-level change as opposed to just on the ground project changes basically?

Question: Rich Anderson - Wedbush Securities - Analyst : So Marshall, you said at the outset, active prospects remain active, which is good, but perhaps hesitant. I'm wondering if you guys can draw any similarities to times in the past about how to manage the current situation? Because it seems to me if the concern is a recession, it doesn't appear like there is a building block for a deep recession to take place. So if there is this pull forward of demand scenario that like you've seen in the past during the early stages of the pandemic, are there similarities in terms of the cadence of how things might go from here that are guiding your decision tree? You mentioned reducing development, but you could turn that on pretty quickly in this space and in your world. So I'm just wondering how much you're looking at past periods to guide you in the future? That would be my question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:00PM, EGP.N - Q1 2025 Eastgroup Properties Inc Earnings Call

Question: Michael Carroll - RBC Capital Markets - Analyst : Marshall, I wanted to follow up on your comments regarding the acquisition market and how you changed your underwriting or looked at an asset differently that caused you to increase the cap rates by 50 basis points. I mean can you provide us some details on how are you looking at that acquisition differently? I mean, did you change your cash flow assumptions? Or did you just increase your return hurdles just given the market uncertainty? I guess, how specifically are you looking at that differently now?

Question: Michael Griffin - Evercore ISI - Analyst : Just kind of curious your thoughts on sort of the tenant health environment. And I realize that you have a very diversified tenant base, but I imagine that if there are cost pressures on some of those maybe small and medium businesses that could be occupants of your facility, they could really feel maybe more of a squeeze on margins. So can you give us a sense, are you monitoring anything there? Is there anything we should kind of keep in mind from that tenant health perspective, particularly for that cohort of tenancy?

Question: Vince Tibone - Green Street - Analyst : Can you discuss just how much additional development leasing that has not yet occurred is included within FFO guidance? Like how many cents is kind of speculative, if you will, from just additional stabilization of the lease-up pipeline?

Question: Nick Thillman - Robert W. Baird & Co - Analyst : Maybe just two quick ones. Brett, first on bad debt as a percentage of revenue for the first quarter, what's the exact number on that?

Question: Nick Thillman - Robert W. Baird & Co - Analyst : That's helpful. And then just last one, kind of on development yields. Obviously, in the supplemental numbers kind of went up. You commented a little bit on construction costs in certain markets coming down a little bit, but maybe talk about market rent growth dynamics you're kind of seeing in each of the markets, and what's driving sort of the yields between the cost versus just rate growth?

Question: Brendan Lynch - Barclays - Analyst : Marshall, you talked a bit about tenant diversity and low correlation of rent from individual tenants. How should we think about the correlation between customers serving similar end markets and how they will perform if we enter a recession?

Question: Alexander Goldfarb - Piper Sandler & Co - Analyst : Just -- Marshall, just not necessarily your real-time leasing discussions, but just tenant conversations in general. As people contemplate all the different tariff headlines and reports that we're all reading, what are the tenants really saying about how they're thinking about their business? Meaning, are they concerned about simply costs going up? Or are tenants more concerned that their actual business may close or cut down? I'm just trying to understand, obviously, there's nervousness over is there a recession or not. But as your tenants think through about the ramifications, what is really their biggest concern? Is it more the cost of operating or that their actual business may be diminished? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:00PM, EGP.N - Q1 2025 Eastgroup Properties Inc Earnings Call

Question: Blaine Heck - Wells Fargo Securities - Analyst : Several of your peers ran a stress test analysis on their operating metrics to indicate whether a significant deterioration in fundamentals could still result in earnings within the guidance range. It does seem like you guys are in a more stable position than peers thus far. But I'm curious as to whether you went through a similar exercise. And if so, which metrics were stressed and by how much and kind of what the end result was?