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EastGroup Properties (EGP)
Q3 2008 Earnings Call
October 23, 2008 11:00 am
David H. Hoster II - President, Chief Executive Officer, Director
Keith McKey - Chief Financial Officer, Executive Vice President, Secretary, Treasurer
Philip Marin - Cantor Fitzgerald
Christopher Lucas - Robert W. Baird & Co., Inc
Mitchell Germain - Banc of America Securities
Paul Adornato - BMO Capital Markets
Wilkes Graham - Friedman, Billings, Ramsey & Co.
Chris Haley - Wachovia
Chris Pike - Merrill Lynch
Irwin Guzman - Citigroup
Mark Bifferd - Oppenheimer
Justin Mauer - Lord Abbett
Previous Statements by EGP
» EastGroup Properties Q4 2008 Earnings Call Transcript
» EastGroup Properties, Q2 2008 Earnings Call Transcript
» EastGroup Properties, Inc. Q1 2008 Earnings Call Transcript
Please note that this call is being recorded and I would like to turn this call over to the President and CEO, David Hoster. Please go ahead, sir.
Good morning and thanks for calling in for our third quarter 2008 conference call. We appreciate your interest in EastGroup. As usual, Keith McKey our CFO will also be participating in the call. Since we will be making forward-looking statements today, we ask that you listen to the following disclaimer covering these statements.
Unidentified Company Representative
The discussion today involves forward-looking statements. Please refer to the Safe Harbor language included in the company's news release announcing results for this quarter that describe certain risk factors and uncertainties that make impact to the company's future results and may cause the actual result to differ materially from those projected.
Also, the content of this conference call contains time-sensitive information that is subject to the Safe Harbor statements included in the news release is accurate only as of the date of this call.
Thank you. Operating results for the third quarter met the upper end of our guidance range. Funds from operation were $0.82 per share as compared to $0.80 per share for the third quarter of last year, an increase of 2.5%.
The increase over the midpoint of our guidance were due to better property operations and the sale of a building that had been purchased in our taxable REIT subsidiary. In comparing quarter-to-quarter, please note that third quarter of this year included the expensing of $0.03 per share of original issuance cost due to redemption of our Series D perpetual preferred shares in July. Also, the third quarter of last year, an enlarged combination leaves $0.04 per share included in FFO.
For the first nine months of 2008, FFO was $2.45 per share compared to $2.26 per share for the same period last year, an increase of 8.4%. Because of the large termination fee in the third quarter of 2007, same property net operating results were negative for the third quarter of this year excluding termination fee income.
Same property operating results increased by 0.3% with straightlining of rents and by 1.4% before straightlining of rent adjustments. This was the 21st consecutive quarter of positive results for this measure.
For the third quarter on the GAAP basis, our best major markets after the elimination of termination fees were El Paso which was up 14.1%, San Francisco up 12.8%, Charlotte up 12%, Houston up 7.4%. This trailing same property markets were Tampa, down 12.2%, Dallas down 8.5%, and Jacksonville down 6.8%.
Occupancy in September 30 was 94.4%, a 60-basis point decrease from the end of the second quarter, but the same level at the end of first quarter. Our California markets were 97.5% occupied and taxes was 95.3%. Houston, our largest market with 4.1 million square feet was 98.4% occupied.
As we have discussed in our last several conference calls, leasing activity has flowed significantly and with peak in the first half of 2007 reflecting the general economic slowdown. The good news is that there are still prospects looking for space although there are a fewer of them and it takes a lot longer to complete lease negotiations.
Prospects understand that they have numerous lease alternative and as a result do not feel any urgency to act. In addition, they and their brokers expect to receive lease incentives.
Our leasing statistics illustrate that our markets are still alive. Overall, of the 1.4 million square feet of leases that expired in the quarter, we renewed 75% and released another 8% for a total of 83%. This total is above our historical average and we believe reflects the desire of tenant not to make major new lease commitments in uncertain economic environment.
In addition, we leased another 266,000 square feet that was vacant at the beginning of the quarter, a good indication that there continues to be users out there in the market looking for space. As you can see in our supplemental information, we continue to achieve good rent growth in the third quarter with a 15.8% increase for GAAP with the straightlining of rents and 9.1% increase without straightlining.
Four large leases in the Los Angeles and San Francisco areas generated these above-average results. Average lease length increased to 4.8 years, again primarily due to the California leases. Average tenant improvements were $1.68 per square foot for the life of the lease, or $0.35 per square foot per year of lease. These figures are below last quarter's figures and slightly above our historical averages.
At September 30, our development program consisted of 21 properties with 1.9 million square feet and a total projected investment of $129 million. Fourteen of the properties were in lease out and seven under construction. Geographically, these developments are diversified in four states in 10 different cities, and overall, are currently 28% leased, a slight decrease from our second quarter level.