EastGroup rents industrial space to businesses, and tenants pay most property costs. Rents are rising, but faster building and buying, paid for with new shares and debt, must keep adding earnings for each share.
Drive past the edge of a city and you will probably see long, low buildings with loading doors. EastGroup Properties owns, develops and buys buildings like these, then rents the space to businesses. What it sells is the use of that space for the length of a lease, so almost all of its revenue is rent. It grows by putting up new buildings, buying finished ones and raising rents on space it already owns.
Most leases include scheduled rent increases, so income from an existing building tends to climb over a lease's life. Under most leases, tenants also pay their share of property taxes, insurance and upkeep of shared areas, or at least usually cover increases above a starting-year amount. Taxes and insurance are the company's largest operating costs. Imagine a building's tax bill goes up. On a leased building the tenant absorbs most of it, but on an empty unit EastGroup pays. So what remains depends less on expenses than on three things: how full the buildings are, how much rent rises when leases roll over, and what the money for new buildings costs. Tenants do not pay the cost of that new money, in interest or in new shares.
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