East Properties(US:EGP)2024-07-24 20:13PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the quarterly and six-month periods ended June 30, 2024, including balance sheets, income statements, equity changes, cash flows, and notes Consolidated Balance Sheets Total assets increased to $4.71 billion as of June 30, 2024, from $4.52 billion at year-end 2023, driven by growth in real estate properties, while total liabilities and equity also saw increases Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $4,714,693 | $4,519,213 | | Real estate properties, net | $4,395,736 | $4,219,472 | | Cash and cash equivalents | $39,400 | $40,263 | | Total Liabilities | $1,947,746 | $1,910,579 | | Unsecured debt, net | $1,676,799 | $1,676,347 | | Total Equity | $2,766,947 | $2,608,634 | Consolidated Statements of Income and Comprehensive Income For the six months ended June 30, 2024, net income significantly increased to $113.9 million from $88.2 million in the prior-year period, driven by a 14% rise in total revenues and decreased interest expense Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $159,090 | $139,887 | $313,314 | $274,912 | | Net Income | $55,301 | $43,465 | $113,959 | $88,169 | | Net Income Attributable to Common Stockholders | $55,287 | $43,450 | $113,931 | $88,140 | | Diluted EPS | $1.14 | $0.97 | $2.37 | $1.99 | Consolidated Statements of Changes in Equity Total equity grew from $2.61 billion at year-end 2023 to $2.77 billion by June 30, 2024, primarily due to net income and common stock offerings, partially offset by dividends - For the six months ended June 30, 2024, total equity increased by $158.3 million. Key changes include net income of $114.0 million, common stock issuance proceeds of $162.0 million, and common dividends declared of $123.0 million ($2.54 per share)16 Consolidated Statements of Cash Flows For the first six months of 2024, net cash from operating activities increased to $239.8 million, while investing activities used $271.0 million, and financing activities provided $30.4 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $239,761 | $178,779 | | Net Cash Used in Investing Activities | ($270,980) | ($208,803) | | Net Cash Provided by Financing Activities | $30,356 | $31,050 | | Net (Decrease) Increase in Cash | ($863) | $1,026 | Notes to Consolidated Financial Statements The notes detail accounting policies, including the acquisition of two properties for $107.8 million, the extension of unsecured bank credit facilities to 2028, and significant equity raising through ATM programs - During the first six months of 2024, the company acquired two operating properties totaling 505,000 square feet for a total cost of $107.8 million41 - On June 13, 2024, the company amended its unsecured bank credit facilities ($625 million and $50 million) to extend the maturity dates to July 31, 202864 - The company utilizes an at-the-market (ATM) common stock offering program. In H1 2024, it settled forward agreements by issuing 692,712 shares for net proceeds of approximately $125.6 million and entered into new forward agreements for 886,724 shares94129 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong H1 2024 performance, including a 19.1% increase in diluted EPS, 8.5% rise in FFO per share, and 58.8% rental rate growth, supported by strategic property investments and strong liquidity Key Performance Indicators - H1 2024 vs H1 2023 | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Diluted EPS | $2.37 | $1.99 | +19.1% | | FFO per Diluted Share | $4.07 | $3.75 | +8.5% | | Same PNOI Growth (excl. lease termination) | 5.1% | N/A | N/A | | Rental Rate Change (New/Renewal) | +58.8% | N/A | N/A | - The operating portfolio was 97.4% leased and 97.1% occupied as of June 30, 2024133 - In H1 2024, the company acquired two operating properties for $107.8 million and began construction on three development projects totaling 473,000 square feet135136 Financial Condition As of June 30, 2024, total assets grew by $195.5 million since year-end 2023, primarily due to $107.8 million in property acquisitions and $122.9 million in development investments, funded by equity offerings Change in Financial Position (H1 2024) | Account | Change ($ thousands) | Key Drivers | | :--- | :--- | :--- | | Total Assets | +$195,480 | Property acquisitions & development | | Total Liabilities | +$37,167 | Increase in accounts payable & accrued expenses | | Total Equity | +$158,313 | Common stock offerings, net of dividends | - Investment in Development and value-add properties increased to $693.1 million from $639.6 million at year-end 2023, with $122.9 million invested in H1 2024162 Results of Operations Net income for H1 2024 increased to $113.9 million from $88.1 million in H1 2023, driven by a $25.7 million (12.9%) increase in Property Net Operating Income (PNOI) and a $5.7 million decrease in interest expense PNOI Change - H1 2024 vs H1 2023 (in thousands) | PNOI Source | Change | | :--- | :--- | | Newly developed & value-add properties | +$9,902 | | Same property operations | +$9,775 | | 2023 & 2024 acquisitions | +$7,121 | | Properties sold | -$1,164 | | Total PNOI Increase | +$25,730 | - Interest expense decreased by $5.7 million in H1 2024 compared to H1 2023, mainly due to a significant reduction in average borrowings on unsecured bank credit facilities from $76.8 million to $2.1 million176181 Liquidity and Capital Resources The company maintains strong liquidity with approximately $811.7 million available as of June 30, 2024, having extended credit facility maturities to 2028 and actively utilized its ATM program for equity raising - Total immediate liquidity as of June 30, 2024, was approximately $811.7 million, consisting of $39.4 million cash, $672.3 million credit facility availability, and $100 million in available forward equity proceeds191 - In June 2024, the maturity dates for the $625 million and $50 million unsecured bank credit facilities were extended to July 31, 2028195 Unsecured Fixed-Rate Debt Maturities (in thousands) | Period | Principal Maturing ($ thousands) | | :--- | :--- | | Remainder of 2024 | $170,000 | | 2025 | $145,000 | | 2026 | $140,000 | | 2027 | $175,000 | | 2028 | $160,000 | | 2029 and beyond | $890,000 | | Total | $1,680,000 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes on variable-rate unsecured bank credit facilities, managed by fixed-rate debt and swaps, with a hypothetical $100 million balance showing a $0.62 million annual interest expense change for every 10% rate shift - The company's main market risk is interest rate volatility on its variable-rate debt. This is mitigated through fixed-rate debt and interest rate swaps214 - A sensitivity analysis indicates that if there were a $100 million balance on the unsecured credit facilities, a 10% change in interest rates (approx. 62 basis points) would change annual interest expense by about $0.62 million219 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting during Q2 - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective222 - No changes in internal control over financial reporting occurred during the second fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls222 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material litigation, nor is any material litigation threatened, beyond routine matters arising in the ordinary course of business - The Company is not presently involved in any material litigation outside of routine matters arising in the ordinary course of business223 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors disclosed in the 2023 Form 10-K have occurred224 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, the company withheld 57 shares of common stock at an average price of $161.86 per share to satisfy tax withholding obligations related to its equity compensation plan Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | April 2024 | 0 | $— | | May 2024 | 14 | $159.47 | | June 2024 | 43 | $162.64 | | Total | 57 | $161.86 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None226 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable227 Item 5. Other Information During Q2 2024, no directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the three months ended June 30, 2024229 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the amended Director Compensation Program, the Sixth Amended and Restated Credit Agreement, and CEO/CFO certifications - The report includes several exhibits, notably the Sixth Amended and Restated Credit Agreement dated June 13, 2024, and CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act230