EastGroup (EGP) Q1 2026 Earnings Transcript

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DATE

Thursday, April 23, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Marshall A. Loeb
• President — R. Dunbar
• Executive Vice President, Eastern Region — John Coleman
• Investor Relations — Casey Edgecombe

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TAKEAWAYS

• Funds From Operations (FFO) -- 51 consecutive quarters of FFO growth reported, setting up the company to reach 13 years of uninterrupted increases if positive trends persist next quarter.
• Same-Store Net Operating Income (NOI) -- Achieved 51 consecutive quarters of same-store NOI growth, reflecting persistent portfolio performance.
• Leasing Activity -- Signed 166,000 square feet of development leases since early February, including both new leasing and expansion of an existing long-term, manufacturing-linked tenant.
• Portfolio Occupancy -- Reported 96.6% portfolio occupancy as of the most recent update, down from 97% but still characterized as "full" by management.
• Development Leasing Momentum -- More than half of development leasing for 2024 and 2025 was completed in the fourth quarter of the previous year, signaling a shift in leasing velocity.
• Average Tenant and Building Size -- Average tenant size is approximately 35,000 square feet, with average building size just under 100,000 square feet, positioning assets for last-mile distribution.
• Geographic Market Highlights -- 99% occupancy rates reported in both Austin (market vacancy ~20%) and Phoenix (market vacancy ~14%-15%), outpacing local market vacancy levels.
• Debt Metrics -- Debt to EBITDA is "right around 3x," which management stated is the lowest in the sector, and total debt represents about 14% of market capitalization; all debt is fixed-rate and laddered by maturity.
• Tenant Concentration -- Top 10 tenants account for under 7% of revenue, indicating significant tenant diversification.
• Development Yields -- Development yields maintained at "7%, low-7s," which management indicated is about 150 basis points above market cap rates.
• Development Starts Guidance -- $250 million in new starts planned for the current year, with pace dependent on field-level leasing activity.
• Land Inventory -- Over 1,000 acres of entitled land maintained, described as "fully entitled" and ready for phased development starts.
• Cap Rates -- Observed cap rates vary by market: low-5% to upper-4% in strong markets, mid-5% or higher in others; Southern California reported as "mid-5s to upper-5s."
• Construction and Supply Trends -- 60% reduction in new development starts in the Eastern Region from peak levels, and lower construction costs attributed to demand moderation.
• Use of Artificial Intelligence -- Automation via AI has produced efficiency gains in the property accounting function and reduced quarter-end closing times.

SUMMARY

Management introduced a disciplined capital deployment strategy, describing a phased, market-responsive approach to development and acquisitions. Leadership reported ongoing tenant demand for expansions and consolidation, with prelease and build-to-suit conversations accelerating into the current year. The call highlighted the impact of supply constraints—both from permitting delays and competition for land with data centers—as future potential drivers of rent growth. Executives noted that entitlement periods have lengthened and power availability is an increasing constraint in some markets, particularly due to heightened data center demand.

• R. Dunbar stated, "With over 1 thousand acres of land, we are in a prime position to service these tenants that now need to expand or reconfigure some of their distribution networks."
• Marshall A. Loeb remarked that getting industrial permits has gotten materially harder than it was five or six years ago, which is great for the 65 million square feet we own; it is a challenge for the next incremental 5 million we will build.
• John Coleman attributed the reduction in construction costs to softer construction demand, despite some tariff-related impacts, and projected potential upward rental rate pressure as new supply remains low.
• During rapid-fire Q&A, Marshall A. Loeb indicated a 5.5% same-store NOI growth expectation for the industrial REIT group in 2027.

INDUSTRY GLOSSARY

• Shallow Bay: Industrial properties featuring smaller, infill buildings typically designed for last-mile distribution and tenants in the 15,000-70,000 square foot range.
• LOI (Letter of Intent): A non-binding document outlining the key terms of a prospective real estate lease or acquisition prior to execution of a full contract.

Full Conference Call Transcript

Marshall A. Loeb: Good morning, and thanks everyone for your time and interest in EastGroup Properties, Inc. this morning. I will start kind of right to left introducing our team: John Coleman, EVP, runs our Eastern Region from the Carolinas down to Miami; R. Dunbar, who is our president as of January, and runs our Central Region, which is really Texas and Nashville; then Casey Edgecombe, who handles, as many of you know, our investor relations. EastGroup Properties, Inc., if you are not familiar, we call it Shallow Bay industrial REIT, which is really shallow bay, a euphemism for smaller, infill buildings.

One of our peers described this years ago and made the comment, EastGroup Properties, Inc. has always been last mile; you all just were not smart enough to coin the phrase. We try to build a campus setting near businesses, near higher-end residential—ideally, that is where the disposable income is. We are typically in smile states, which is where people are moving, where there is population growth. In terms of reasons why to invest in EastGroup Properties, Inc., two or three facts come to mind. We talk internally a good bit about how to lower our risk without reducing our return. We have now had 51 consecutive quarters of FFO growth versus the same quarter prior year.

Same thing for our same-store NOI. If we hang in there one more month, we will make it to 13 years of positive FFO and positive same-store NOI—just this push for industrial REIT and the growth we have been able to enjoy. We are one of the older REITs here; we have been industrial since the mid-1990s. So a proven management team. I was looking at the screen earlier at all the red on it, and we have been through everything: COVID, the GFC. We have been an industrial REIT and a public company throughout. Thankfully, our team has been through all those cycles.

Our strategy evolves, but we were not housing or office; we have always been a shallow bay industrial REIT during that timeframe. Maybe going through all those economic cycles, one of the other things we have learned is you never know what the next black swan event is, so have a safe balance sheet. We have the lowest debt to EBITDA in our sector, right around 3x. Our debt within our total market cap, as of the close of Friday, was around 14%. That is all laddered, fixed-rate debt in terms of maturity schedule.

We also have the lowest top 10 tenant concentration—our top 10 tenants are a little below 7% of our revenue—so we like the geographic as well as tenant diversity. You never know when you are going to pick up the news of an accounting scandal or some issue at one of our tenants. Thankfully, there are not that many, but we try to be geographically diversified, tenant diversified, and have the lowest G&A as a percentage of revenue in our sector. Hopefully, we can run our company with low overhead for you. On top of all that, we are still trading below our long-term multiple of FFO.

A lot of that is interest rates—I am trying not to blame it on the spokesperson for the company—but you can get all those things: 13 years of better FFO growth, safer balance sheet, we have cut our debt by about half of where it was a handful of years ago, and we are below our historic multiple. Those are the main reasons why we think it is a compelling opportunity.

Craig Allen Mailman: We will now open the call for questions. Perfect. Thanks for the initial comments. You were nice enough to put an operating update out ahead of the conference, and the development leasing, which started to pick up in the fourth quarter, looks like it is continuing. Maybe talk about some of the gestation periods on the 166 thousand square feet that you signed and how the leasing pipeline for development and operating assets looks today. As we focus on that inflection of leasing that investors have been waiting for in industrial that looks like it is here, talk about that trend.

Marshall A. Loeb: I will confess, I love our setup in that supply is at its lowest level since 2018, and in the smaller or shallow bay buildings, vacancy is about half the vacancy rate of the industrial market because so many big-box buildings on the edge of town got built, which we do not compete with either by location and mainly building design. Our average tenancy is about 35 thousand square feet. Our average building size is just under 100 thousand square feet. We will have a small campus for that last-mile service or delivery. Thankfully, our development leasing—R.

Dunbar, I will let you add some color—we signed a little more than half of our development leasing that we signed in 2024 and 2025 in the fourth quarter. It has been an interesting last 18 months where we have had solid activity. You mentioned gestation period—just getting people to the cash register. We had people in the store; it is getting them to the cash register, and that seemed to happen more in the fourth quarter. The 166 thousand square feet you mentioned were since our earnings report—so early February, a little under a month. We got a development lease signed, and then one that is a long-term tenant expanding their building.

It is manufacturing-related, kind of cross border, which we think is another tailwind. Their business is good, and they want to expand the building—we are going to expand their building by about 100 thousand square feet, renew their existing lease, and add 100 thousand square feet. I am pleased with the activity we have. You always breathe a sigh of relief when the lease gets signed, but there is still a fair amount of activity throughout our portfolio that—hopefully, the next time you hear us report, which will be first quarter—I am hopeful we will have a decent chance to build on those 166 thousand square feet. R. Dunbar?

R. Dunbar: As everybody is aware, with Liberation Day last year, April 1, it caused a lot of users to pause and wait to see what would happen. We saw the biggest impact on that through our development leasing. The operating portfolio performed quite well last year as users decided to stay in place and renew.

Craig Allen Mailman: Did you guys look at the tenant pool for your size range? You are a little bit differentiated having, I think, your average tenant size around 35 thousand square feet, which seems to be a stronger part of the market. How deep is the tenant pool for that segment of the market? I know you out-punch the market in some areas in terms of occupancy versus market occupancy. Talk about the resurgence there—markets that might be thinner where if you do not make a deal it may be a couple months until the next tenant comes, versus others where you could hold the line a little bit more on pricing and maybe even push on the margin.

Marshall A. Loeb: Good question. I remember a broker saying to me, every 10 thousand square feet, the number of prospects you have goes up as you come down in size—the smaller the tenant, the more prospects—and the TIs are lower. We focus on tenants that distribute within the metropolitan area. We want growth in Orlando, Dallas, Austin, Phoenix, Las Vegas—that is how we pick markets. In some fast-growing markets, we will have the same tenancy in different parts of the market because when it is a fast-growing city, your traffic is terrible; you have outgrown the freeway system. That helps us. In Dallas, for example, you can compete on your service level.

If you are a hotel and your AC is out, you want the repair person quickly, and if they are coming from cheaper space on the edge of town, they are going to get stuck in traffic. We are not the lowest-cost competitor, but we want to compete on location and our own service level. In smaller markets—Tucson, Greenville, South Carolina—there is less competition; it is a smaller portion of our portfolio. We may be one of the fewer games in town versus a Dallas or Atlanta. There are fewer tenants, but that has not held us back on rents. In some areas, there is always activity in Houston, always activity in Phoenix.

We are in real estate; we do this every day. When you think big buildings, no one was building 800 thousand-square-foot buildings years ago; the vacancy rates—call it 8% to 9%—are in much newer buildings than you think for a 100 thousand-square-foot building. There is obsolescence or the local owner that may not have the CapEx—maybe a partnership that just is not real estate people. So we should, in my mind, always be able to out-punch the market over the long term. There are a couple of markets we watch—for example, Austin, Texas. The vacancy rate because of oversupply in Austin—and that market has gotten really long north to south—is around 20%, but we are 99% leased in Austin.

Phoenix has a pretty high vacancy rate, maybe 14% to 15%, but we are 99% leased in Phoenix. It is a lot of big-box on the edge of town, and there has been a flight to quality in this slowdown too. We see markets like Atlanta that have negative absorption in the Class B and C product in older buildings and pretty strong positive absorption in what we try to own or build, which are the newer buildings.

Craig Allen Mailman: We have a couple questions coming in. First one, on tariffs. What are you hearing from tenants following the SCOTUS IEPA ruling? Does the ruling reduce uncertainty for tenants, or do pivots to alternative tariff statutes keep uncertainty elevated?

Marshall A. Loeb: It is early to get tenant feedback. Starting last year—and I agree with R. Dunbar—first quarter last year was one of our strongest quarters, and then when we had Liberation Day, it put capital decision-making into a bit of paralysis. Our portfolio stayed full; it was development leasing that slowed. We ended the year 97% leased. We are 96.6%, per our update as of Friday. We are still full. About a third of our development leasing is, as you think about it, one of the things we like about a park setting: a tenant in Building 3 has outgrown their space, so we will build Building 8 for them in the park.

It will hurt our same-store numbers, but we usually tell tenants we can accommodate your growth needs. The way the market has worked the last several years, rents have been rising and still are. We can backfill your space in Building 3 at a higher rate. It will take us nine or 10 months to deliver the new building, but we move people around. I think tenants are a little more immune—maybe all of us are. We have said it is going to be a noisy year with a lot of headlines. I am hopeful. I do not think we are done with tariffs.

Do not listen to my political advice, but I do not think the Supreme Court ruling means this is not a topic anymore. At some point, you have to run your business. Usually the local team says we need more space; corporate says, the headlines are messy, sit tight, make do. At some point, people get to where they just need more space. That is what we saw later in the year, and we are seeing it to a degree in first quarter. I am hopeful people are getting a little more used to the shocks to the system.

Craig Allen Mailman: The other question that came in: could you talk about where cap rates are, on a stabilized or market-rent basis, for assets in your markets today?

R. Dunbar: It varies from market to market. Some of the lower cap rate markets, we are seeing low-5s, sometimes upper-4s. Some of the stronger markets—like Nashville, where supply and demand have probably stayed more in check than anywhere else in the country—are there. Dallas cap rates, with the growth rates and strong demand there, are kind of in the low-5s. Depending on the market, you may see a little bit higher, mid-5s. Austin may be a little bit weaker because of the amount of supply. Southern California is more challenged because market rents are more in flux—harder to ascertain today—but still seems to be fairly healthy, mid-5s to upper-5s from what we are hearing and seeing.

Craig Allen Mailman: And on development yield, it feels like you have been sticky in that plus-or-minus 7% range. Despite cap rates moving around—and maybe being lower than people would have thought on a market basis—what is your comfort level? Your start guidance was pretty healthy this year. Your view on incremental starts, build-to-suit versus spec. And in the operating update, you issued some equity—the view of equity versus incremental debt.

Marshall A. Loeb: Thankfully, our development yields have hung in there—7%, low-7s. We typically say, as a rule of thumb, about 150 basis points above the market cap rate, depending on the size of the portfolio and things like that. We have healthy profit margins on our development. I will brag on our team a little. Last year at this time, we had come out with $300 million in starts, and with Liberation Day and things like that, we build parks in phases—one or two buildings at a time. It is a pull system. Most of our peers say, we are going to build a building and hope three people are not doing that.

I will get a call from one of these guys saying, Phase 2 is 50% leased, I have an LOI out or a lease out, or more activity; I need to build the next phase. We only started $175 million a year ago versus the $300 million we had told the Street. It is hard to predict, but we will go as fast or as slow as the market is telling us, and I like that we were disciplined, even though we would rather have done $300 million. This year, at $250 million, which is what we penciled out, the starts will come from the teams in the field.

Usually, we will pull that ticket—we were talking earlier today about a few of the development leases we are working on: if we can get this lease in, that will pull the ticket to put more blue shirts on the shelf. It is like a retail store, or like building out a residential subdivision: as one or two homes sell, we start the next one. We think that is lower risk, and we like the returns we are getting.

One interesting and maybe not surprising thing—you saw it with the expansion we announced—because supply is back to pre-COVID 2020 levels, and many of the people that build shallow bay are local/regional developers with an institutional partner, in this slowdown their balance sheets were not structured to carry land or a construction team. We bought land from people that were not able to close sites where they had done all the work but did not want to carry it for two years until the market normalizes. We think we will have a really good runway in terms of fewer people—it will take them a while to get back in business and up and running.

They will, and we will oversupply again—that is the nature of our business—but there will be a pretty long runway, measured in a couple of years. With that, we have had more prelease opportunities where people have not been able to find space: would you build us a building, or like the one in Arizona we announced, would you expand the building? We have a good relationship with them, but the availability just is not there. We are probably working on more situations now where tenants would take an entire building—or maybe a couple of buildings in a park if we would build it—than in the last three or four years that I can think of.

R. Dunbar: To add to Marshall’s comments on the prelease or build-to-suit activity, we really saw in the last year an uptick in conversations with our existing tenant base and customers that needed to either expand or consolidate operations. That has accelerated into this year. The expansion we signed in Arizona was a good sign, and we continue to have other conversations. That speaks to the power of our platform and portfolio—we have over 70 million square feet of existing product and over 1,400 customers. When they need to expand, we are usually the first call. That is why we like to do things in phases and to have some land inventory.

With over 1 thousand acres of land, we are in a prime position to service these tenants that now need to expand or reconfigure some of their distribution networks. We feel like we are in a good spot. We will not land all the conversations we are having, but we have shown we landed one earlier this year, and hopefully we will pull another one or two in the boat as we continue throughout 2026. I agree with Marshall—hopefully it would give us some upside to the $250 million in starts.

Marshall A. Loeb: It is hard—these are $50 million, $100 million decisions—but if we could land a few of those and the economy can hang in there, I am an optimist. I hope we can hang in there and maybe have some upside to the number of starts. I always say I do not worry about the buildings starting as much as I worry about them finishing. We can start whatever we want to start; we just want to make sure we get it leased. We usually underwrite a year after completion to get the building stabilized and leased. Either way, that is when it rolls into the portfolio.

Last year, we saw where our vacancy dropped; it was more buildings that are achieving our yields, but it was taking 16 to 17 months past completion to lease up rather than, at the peak, six or seven months. That was when we peaked on development as a company, probably just under $400 million. I am glad we have the team and the balance sheet and the land. We want to usually have permit in hand for that next phase, which has gotten much harder within the cities—pulling those permits in fast-growing cities. People want the delivery quickly; they want the service person, but no one wants all the trucks on their road.

Getting industrial permitted has gotten materially harder than it was five or six years ago, which is great for the 65 million square feet we own; it is a challenge for the next incremental 5 million we will build.

John Coleman: I was going to add, if you take a snapshot of where we are in the Eastern Region with new development starts, we are at about a 60% reduction from the peak. That dynamic has worked in our favor. A couple of things: construction costs—although there have been some tariff impacts—are actually lower for new development because of the lack of new demand for construction. As we look forward into 2026, supply will be greatly down, to Marshall’s point, so we think there could actually be some upward pressure on rental rates when that happens. On land, just having the land entitlements in place—to be permit-ready to start—that is key.

We have a very deep land inventory that is fully entitled. When that site is ready for the next phase, we are ready to start construction. On development, we had a question come in on whether you have seen water rights extend entitlement timelines or change site coverage for new development. Nothing, at least in our market shed on water, that I have seen or heard of. The entitlement period is taking longer. Power is more of a constraint than typical. For our users, most of them are not heavy power requirements, so we have not seen a hindrance on our activity regarding power, but it is something we are monitoring.

That is being driven by data center demand—power and water. It is shocking how much is consumed. In Atlanta, for example, there are public hearings now where residents are showing up in opposition to future data center zonings and permitting. It is on the table; I am not sure where it will go. We put our toe in the water and looked at some data center opportunities—probably not a great fit for us. I think you will continue to see pushback on those two utilities moving forward.

Craig Allen Mailman: In the markets you operate in, how much does data center development crimp industrial development? You are not sharing land sites, but you are targeting similar land sites. Where do you see that impact being the greatest on future new supply of industrial?

Marshall A. Loeb: Certainly, they can pay a lot more, and usually with industrial we can only go one story, historically. We are about the first guys to get priced out of land when we chase it. It is one more source of competition, tied into power. We said we are not actively looking at data centers, but we want to understand it. If we do have land that has the power and the water for data centers—we joke that we want to know if there is oil under our land. If it is there, we should capitalize on it. It is another set of competition, but they seem much more limited than what we can do for industrial.

Ours is hard to come by, but theirs is even harder—zoning, permitting, and especially power. They have approached us on some sites at different times. The power requirements they need, and the lead time to get that power, are so long. If we can capitalize and there is an opportunity to do it without us pretending to be a data center developer—which is not why I would buy EastGroup Properties, Inc. stock—there are better opportunities in other rooms here than this one.

Craig Allen Mailman: Shifting to development leasing cadence: how should we think about development leasing cadence throughout the year and, subsequently, development starts?

Marshall A. Loeb: It is hard to predict the cadence. It was odd last year—we do not normally have 52% in one quarter; it is usually not that lumped together. You never know when that tenant finally decides. Rents have risen, and what used to be a director of real estate decision is now often a CFO decision. That takes the gestation period out a little bit. We have local/regional tenants and Fortune 100 tenants. Usually, the bigger the company, the bigger the legal department, the longer the gestation period—even if we have three leases with them in other markets. As those leases get signed, we will move quickly to build the next building, with permits in hand.

Our prospects all have tenant-rep brokers, and if I am a tenant-rep broker, I want to see construction underway because if I promise your space is going to be ready in June, I want that developer building. If you are moving in, you are going to be calling me every day asking where your space is. That is why it is important for us to have a little bit of inventory in the market. You hate to lose a good tenant because you cannot accommodate their growth, but if we do not, somebody will.

That is where, if we land some of these prelease opportunities, I could see upside to the $250 million—or, if the market hangs in there, I hope there is upside. Using last year as an example, you are better served if we are a disciplined allocator of capital. Last year was our lowest new investment year in a while. We did not see the development opportunities, and cap rates were sticky. What we bought was strategic more than opportunistic, whereas a couple years ago we saw things not close because of the capital markets, and we were getting a second look. We had a very active year buying existing, leased but new product. Then that window closed.

We will try to find where the market opportunity is. We have said we are going to end up with well-located, state-of-the-art shallow bay industrial buildings in fast-growing markets. Most of the time, we are better off building it. If everybody wants it, we would rather create it than outbid people for it. Sometimes the market gives you that window to buy it vacant or buy it when it is leased. Usually, the inbound calls tell you where the window is.

Craig Allen Mailman: Pivoting to AI: as it relates to EastGroup Properties, Inc., what initiatives are you looking at? How much time or money have you spent on identifying opportunities for productivity enhancement or revenue enhancement? How have you looked at it internally?

Marshall A. Loeb: Good question. I will compliment our IT team on where we can use it—training and trying to stay safe within a cybersecurity world. We think about making sure we do not get hacked. On AI, we have spent time training all of our team. If you asked where we have seen the reduction to date—we are not a design or creative team, or legal—it has been our accounting. Our quarter-end closing has gotten more automated—our property accounting team has done a really nice job. We would rather reduce the closing time and offset that with analysis time if we can use technology to do that.

They may argue with me on the percentages; it has mostly been what is available out there with us tweaking it to use it. Within our tenant base, you are still delivering goods and service to local tenants. The bigger the space, the more we see tenants’ ability to put in CapEx and equipment. At 35 thousand square feet, it is usually not state-of-the-art where a 1 million-square-foot building would be. We will watch to see how they can use it to be more efficient with their space. We keep seeing more opportunities—onshoring/nearshoring is the latest tailwind, kind of like e-commerce. Our old tenants did not go away; then e-commerce started diving into the pie.

Now it has been suppliers to the Intel plant in Phoenix, to the TI plant outside of Dallas, to Tesla when they come to Austin. We have tenants that supply anything from food to paper products to boxes—people that need to be near that new source of demand in the market.

Craig Allen Mailman: Rapid fire. Same-store NOI growth for the industrial group in 2027?

Marshall A. Loeb: For the group, 5.5%?

Craig Allen Mailman: From an M&A perspective in your property type, more, same, or fewer companies this time next year?

Marshall A. Loeb: Same in the REIT industry? Fewer. So go with the flow.

Craig Allen Mailman: Thank you so much. Everyone, enjoy the conference.

Marshall A. Loeb: Thanks, Craig. Thanks, team.

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