EastGroup Properties, Earnings Call INSIGHTS: Occupancy Outlook, San Diego Roll Down
On Friday, EastGroup Properties, Inc. (NYSE:EGP) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Craig Mailman – KeyBanc Capital: Jordan Sadler is on the line with me as well. David maybe we can start with occupancy. It sounds like you expected to be flat and rebound closer to 94% by yearend. I was just looking at what you guys have in terms of time, commenced and the new leases that you signed since quarter end. There is something going on with a bigger lease exploration in 3Q that maybe keeps the occupancy flat, or is it just the timing of those commencements in the backlog?
David H. Hoster II – CEO, President: We are going to lose a large tenant in Charlotte. I think in September, late September, mid-September that is going to keep it down in the third quarter and as I mentioned in the prepared remarks. We have seen over the last 60 days a slowdown in leasing activity. We are still putting out proposals, we are still signing leases nothing’s reversed, we are not going back quarters. But basically all of our markets have seen a bit of slow down except for Texas which continues to be strong.
Craig Mailman – KeyBanc Capital: That’s before their lease in Charlotte in correct?
David H. Hoster II – CEO, President: Then kind of what’s the occupancy outlook in sort of the marginal benefit of those gains rolling through the same store, but you guys are seeing some uptick or some improvement I should say in the rent roll downs. I mean as you guys are looking I know it’s early do you think that you guys are going to see the turn early enough in ’13 to kind of keep same-store growth positive for the next couple of quarters, or do you think there is a potential for you guys to dip flat to negative then kind of bounce back in early ’13?
David H. Hoster II – CEO, President: When you look at the third and fourth quarters we have some pretty strong operations from last year to compare against. So, since same-store is looking quarter-to-quarter, that’s why we are projecting or showing a range that is less than what we have achieved to-date just because of the more difficult comparisons with above average occupancy gains in the third and fourth quarters of ’11. As you look into ’13, a whole lots going to depend on what happens in the economy and if you tell us what you think is going to happen there, we would probably give you response based on where we think occupancy and rents are going to be, but one of the positives we are seeing certainly on rents more so than we had originally assumed was a number of the leases that were signed as we went into the recession at very low rents in order to lease vacant space or maintain occupancy, those are rolling and those increases are offsetting more than we expected the remaining roll down from ’07 and ’08 leases that were at the top of the market.
Craig Mailman – KeyBanc Capital: Just to circle back quickly to you comment about last 60 days lease slowdown. Is there any particular trend in tenant type or size range that you guys are seeing in it, or is it just a bit of a summer slowdown?
David H. Hoster II – CEO, President: I’m generalizing.
San Diego Roll Down
Evan Smith – Cantor Fitzgerald: Could you give some color on the 42% roll down in San Diego in the quarter?
David H. Hoster II – CEO, President: We have a single building we’ve owned a long time and just one small cost free building complex there. So, any rollover is magnified because it’s not really statistically significant, but we brought Ocean View in the depth of the recession and what we thought was a very and still believe is a very attractive price and understood at the time that the face rents on leases were well above market and build that into our calculations and what you’re seeing are those leases above market leases rolling to market which was no surprise for us I mean that was say build into our cash flow analysis when we bought the asset.
Evan Smith – Cantor Fitzgerald: Are there any other similar anomalies like that in the back half of the year?
David H. Hoster II – CEO, President: In San Diego?
Evan Smith – Cantor Fitzgerald: Or just in portfolio in general with which rolling?
David H. Hoster II – CEO, President: Yeah, there is no question that we still have leases rolling that were signed at the peak of the market in ’07 and the first half of ’08. So, we’re still going to see individual lease roll downs that in some cases could still be 20%, 25%.
Evan Smith – Cantor Fitzgerald: Then could you give a little bit more color on the planned acquisitions and dispositions through the rest of the year that are baked in the guidance?
David H. Hoster II – CEO, President: As I reported we sold our Australia bldg in Phoenix as planned at the end of the second quarter and in the next 30 days we will put our brand of asset building complex in Tulsa on the market and we just assume that, that will alone – it will be an $8 million to $10 million sales range and that that will close near the end of the year.