EastGroup Properties (NYSE: EGP) is in a sweet spot these days. The real estate investment trust (REIT) is benefitting from two megatrends: the Sun Belt migration and rapidly rising demand for industrial real estate. Those tailwinds are driving significant growth for the company.
Here's a closer look at the company and how it's capitalizing on those trends.
EastGroup Properties company profile
EastGroup Properties is an industrial REIT focused on owning multi-tenant urban distribution properties in major Sun Belt markets. As of mid-2021, the company is focused on the following states:
- Texas: The REIT owns nearly 16.6 million square feet of space across Texas, which supplies 35.2% of its annualized base rent (ABR). Its markets include Houston (12.3% of ABR), Dallas (7.9%), San Antonio (8.7%), El Paso (1.6%), Austin (3.2%), and Fort Worth (1.5%).
- Florida: EastGroup has more than 12.7 million square feet of space in Florida, which contributes 27.4% of its ABR. Its markets are Tampa (9.3%), Orlando (8.5%), Jacksonville (4.1%), Miami/Fort Lauderdale (4%), and Fort Myers (1.5%).
- California: The company has almost 4.8 million square feet of space in California, which supplies 13.5% of its ABR. Its markets are Los Angeles (7.4%), San Francisco (3.4%), San Diego (2.1%), and Fresno (0.6%).
- Arizona: The REIT owns more than 3.7 million square feet of space in Arizona, which supplies 8.1% of its ABR. Markets include Phoenix (6.3%) and Tucson (1.8%).
- Other core markets: EastGroup owns more than 6.2 million square feet in other core markets, which combine to contribute 13.1% of its ABR. These core markets include Charlotte, North Carolina (6.5%), Atlanta (2.3%), Denver (2.4%), and Las Vegas (1.9%).
- Other markets: The company has an additional 1.5 million square feet in other markets, contributing 2.7% of its ABR.
Overall, EastGroup has nearly 45.5 million square feet of space in operation. Also of note, it operates in 13 of the 15 fastest-growing real estate markets, according to Cushman and Wakefield's research.
In addition to that operating portfolio, EastGroup has several properties under development or in the pipeline:
- Lease-up: EastGroup has more than 1.1 million square feet of recently completed projects in the lease-up phase across Atlanta, Houston, San Antonio, Dallas, and Greenville, SC.
- Under construction: The REIT has almost 1.9 million square feet of space under construction, including ground-up developments and value-add projects. These projects were in Phoenix, San Diego, Tampa, Charlotte, Orlando, Dallas, San Antonio, Fort Worth, and Fort Myers.
- Prospective development: The company owns 469 acres across various markets, suitable for nearly 5.7 million square feet of development projects. In addition, it has several value-add properties that could push its total expansion potential to more than 8.6 million square feet.
EastGroup owns three types of industrial buildings:
- Business distribution: 90% of its portfolio, with an average building size of 110,000 square feet.
- Bulk distribution: 7% of its portfolio, with an average building size of 270,000 square feet.
- Business service: 3% of its portfolio, with an average building size of 40,000 square feet.
The REIT leases this space to various companies. Overall, its top 10 tenants -- which included notable names like Amazon and FedEx -- accounted for 7.9% of its ABR, giving it a very diversified tenant base.
EastGroup Properties news
EastGroup Properties benefited from strong demand for warehouse space during 2021. Through the first six months, property net operating income (NOI) rose 11.6%, driven by recently completed development and value-add projects, acquisitions, and higher rental rates on new and renewal contracts. Overall, rental rates increased by an average of 28.3% during the first half of 2021.
The REIT continued to expand its portfolio in 2021. It made $46 million of acquisitions through the first half, including purchasing 578,000 square feet of operating and value-add space in Greenville, Atlanta, and Phoenix and 15.1 acres of land in Atlanta. In the second quarter, the company also started five new development projects that will comprise 972,000 feet and have a projected cost of $134 million.
That brought the company's total development and value-add program to 16 projects with more than 3 million square feet of space across 12 markets.
EastGroup continued making growth-focused investments in the second half of the year. In August, the company announced the acquisition of the DFW Global Logistics Center -- a four-building distribution facility with 611,000 square feet in the Dallas market -- for $89.7 million.
The REIT also bought 27 acres in Austin and started building a 176,500 square foot distribution facility that will cost $26.2 million. Finally, it purchased 59 acres of undeveloped land in Greenville for $1.4 million. This site will accommodate the future development of three buildings with 400,000 square feet.
EastGroup Properties stock price
EastGroup Properties' Sun Belt-focused logistics real estate strategy has paid big dividends for its investors in recent years: