EastGroup Properties, Inc. (EGP)

EGP 
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EastGroup Properties, Inc. (EGP)

Q4 2008 Earnings Call

February 12, 2009 11:00 AM ET

Executives

David H. Hoster II - Chief Executive Officer and President

N. Keith McKey, CPA - Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Analysts

Mark Biffert - Oppenheimer & Co.

Paul Adornato - BMO Capital Markets

Justin Mauer - Lord Abbett

Stephanie Krewson - Janney Montgomery Scott LLC

Presentation

Operator

Good day and welcome to today's program the EastGroup Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-answer session. Please note this call may be recorded. I will be standing by if you should need any assistance.

And it is now my pleasure to turn the conference over to President and CEO, David Hoster. Please go ahead.

David H. Hoster II

Good morning and thanks for calling in for our fourth quarter 2008 conference call. We appreciate your interest in EastGroup. 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 may impact the company's future results and may cause the actual results 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.

David H. Hoster II

Thank you.

Operating results for the fourth quarter met the upper end of our guidance range. Funds from operations were $0.85 per share as compared to $0.86 per share for the fourth quarter of last year, a decrease of 1.2%.

If the gains on the sale of land in both years are excluded, FFO per share would have increased to 11.8%. For the year, operating results met the upper end of our original earnings guidance which was issued in January of last year. FFO was $3.30 per share in '08 as compared to $3.12 per share for '07 an increase of 5.8%.

The 2008 results include the expensing of the original issuance cost related to the redemption of our Series D preferred stock in July and a gain from the sale of REIT shares and the sale of a building in our taxable REIT subsidiary.

The 2007 results include the gain on the sale of land of $0.11 per share and an unusually large termination fee of $0.05 per share. Same property net operating income growth for the fourth quarter was 2.1% both with and without straight-line rent adjustments. These calculations have both been negative in the third quarter.

In the fourth quarter on a GAAP basis, our best major markets after the elimination of termination fees were El Paso which was up 22%, San Francisco area up 16.6%, Los Angeles up 7.6% and Charlotte up 5.9%. The trailing same property markets for the quarter were Jacksonville down 9.4% and Tampa down 5.9%.

The differences between quarters are basically all due to changes in property occupancies in the individual markets. Occupancy at December 31 was 93.8%, a 60 basis point decrease from the end of the third quarter, and 160 basis point drop from one year ago.

Our California markets were 97.6% occupied and the Texas markets were second best at 94%. Houston, our largest individual market with 4.2 million square feet, was 97.2% occupied.

Leasing activity generally continues to be anemic. The good news is that there are still prospects looking for space, although there are fewer of them and it takes a lot longer to complete lease negotiations. Prospects understand that they have numerous lease alternatives 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 demonstrate that although our markets are still alive, the level of activity continues to deteriorate. Overall, of the 784,000 square feet of leases will expire in the quarter, we renewed 77% and we leased another 3% for a total of 80%. The renewal rate is above our historical average and we believe reflects the desired tenants not to make major new lease commitments in an uncertain economic environment.

In addition, we have leased another 330,000 square feet that is either terminated during the quarter or was vacant at the beginning of the quarter. An indication that there continues to be at least some users are in the market looking for space.

As you can see in our supplemental information, we again achieved direct growth for GAAP with the straight-lining of rents in the fourth quarter. But the 4.5% increase was below our average for the year. On the other hand cash rents declined for the first time in 11 quarters.

Average lease length declined to 3.2 years, reflecting the unknowns in the market and was well below our overall 2008 average. Average tenant improvements were $1.22 per square foot for the life of the lease, or $0.38 per square foot per year of the lease. This was roughly our average for the year.

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