Initiated 2026-09-25 · Price $201.52 (close 2026-09-25, stockanalysis.com) · Mkt cap $10.82bn · Real estate / industrial REIT · Model: verified

Rating: Hold — Conviction: Low

EastGroup is running well:

The problem is the price. At $201.52 the market capitalizes the portfolio at ~4.7% of forward NOI, while the 10-year Treasury is at 5.18%. The model's base case lands a little below the price, the bull case only 14% above it, and the bear case a third below it. That skew keeps this a Hold rather than a Buy, and the quality of the operator keeps it from being a Sell.

Model value range vs price
Bear $133.96Base $188.59Bull $230.08Price $201.52

Business overview

EastGroup owns 61.6mm sq ft of shallow-bay (multi-tenant, smaller-suite) distribution buildings across the Sunbelt. By square footage, 34.8% is in Texas, 24.9% in Florida, 14.9% in California and 7.5% in Arizona. Tenants are mostly small and mid-sized regional distributors and service businesses on 3–5 year leases.

It also develops, adding ~$250–325mm of new buildings a year; 17 projects ($486.8mm) are under way. Property NOI was $528.3mm in FY2025 (+13.6%) and grew 10.8% in H1 2026.

Three variables drive earnings:

Competition

Bull case

  1. Mark-to-market runway. GAAP spreads of +34% mean in-place rents sit well below market. Rolling ~15–20% of leases a year keeps same-property NOI growing 5–7% for several more years. Plays out if Sunbelt population and corporate-relocation demand holds, and if occupancy stays ≥96%. Model: ss_noi_growth
  2. The development engine. Guided 2026 starts rose to $325mm and acquisitions to $215mm, and four projects transferred 100% leased in Q2. New buildings stabilize at yields above the cap rate the market applies to the portfolio. Plays out if development leasing keeps pace with starts. Model: acq_noi
  3. Scarcity holds private pricing. Infill small-bay product is hard to build. CBRE's H1 2026 survey showed industrial cap rates flat to lower despite rate volatility. Plays out if private buyers keep bidding below 5%. Model: cap_rate, terminal_p_affo

Bear case

  1. Tenant demand cracks. Small distributors are the most rate- and fuel-sensitive tenants, and the CEO named this as the main risk. A flat-to-down 2027 in occupancy and spreads would take same-property growth to 1–2%. Plays out if consumer spending slows and new supply in Dallas, Houston and Phoenix is still leasing up. Model: ss_noi_growth
  2. Rates reprice both sides. $315mm of 1.98–3.75% debt matures by end-2027 and refinances near 5%. A 10Y above 5% also pressures private cap rates toward 5.5–6%. Plays out if S3 or S4 persists. Model: cost_of_debt, cap_rate
  3. A premium multiple compresses. EGP carries a ~2-turn FFO premium to First Industrial and Prologis. If growth normalizes toward peers, the premium goes. Plays out if 2027 FFO growth guides below ~5%. Model: terminal_p_affo

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
P/FFO (TTM, aggregator) 21.7x · 21.0x 2026 guide ($9.59) n/a (unverified) Terreno 23.0x · First Industrial 20.3x · Prologis 19.7x stockanalysis.com, 2026-09-25; Q2 release
Implied cap rate (TTM PNOI / EV; EV = market cap + $1,615mm debt − cash) 4.5% (4.7% on model Y1 NOI) n/a (unverified) n/a (not on one source) model-inputs basis
Dividend yield ($7.00 annualized) 3.5% n/a (unverified) Terreno 3.45% · First Industrial 3.27% · Prologis 3.22% stockanalysis.com, 2026-09-25
EV/EBITDA (TTM, aggregator) 25.3x n/a (unverified) Terreno 26.7x · First Industrial 21.0x · Prologis 24.4x stockanalysis.com, 2026-09-25

Model-implied value range (from model-summary.json; reit module, NAV at a cap rate and AFFO/share DCF with a terminal P/AFFO, midpoints): Bear $133.96 · Base $188.59 · Bull $230.08 per share, i.e. implied returns of −33.5% / −6.4% / +14.2% vs $201.52. These ranges show how the bull and bear drivers translate into value; they are not price targets.

Balance sheet:

Model note: tier full, status built, verification verified (1,988 formula cells matched in LibreOffice). No assumptions without basis. Scenario consistency is OK on all 14 rows; S6 was reconciled to ± after the model showed a small positive.

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − REITs de-rate with equities; private cap rates barely move Med −$14.41
S2 Slow bear / recession − Distribution tenants shed space, and occupancy and spreads fall. Milder than Base − Bear ($54.63) because it lasts two years with no refinancing shock, whereas the bear case also reprices debt and the exit multiple High −$24.40
S3 Rapid rate shock − Cap rates track real yields and refinancing costs jump; the most direct channel High −$25.50
S4 Slow rate grind − Multi-year repricing of low-coupon debt; cap rates drift up Med −$14.48
S5 Soft-landing cuts + Lower yields compress cap rates while demand holds Med +$13.06
S6 Recession-driven cuts ± Lower cap rates roughly offset weaker tenant demand Low +$1.15
S7a Credit liquidity shock − Forced selling de-rates REITs; only $140mm is due in 2026 Med −$11.35
S7b Slow default cycle − Small-tenant defaults in shallow-bay space Low −$7.78
S8 Stagflation − Higher rates outweigh inflation-linked rent resets Med −$16.46
S9a Dollar spike 0 No material effect, not modeled — domestic rents — $0.00
S9b Dollar slide 0 No material effect, not modeled — as S9a — $0.00
S10 Melt-up + Risk appetite lifts REIT multiples and private bids Med +$11.91
S11 Energy supply shock − Fuel costs squeeze distribution tenants (a CEO-flagged risk) Low −$2.74
S12 Mega-cap/AI derating − Data-center-related tenants were 20–40% of 2026 development leasing Low −$0.89

Currently active/on watch per the playbook:

Model value change vs Base, by scenario
S3 Rapid rate shock−$25.50S2 Slow bear / recession−$24.40S8 Stagflation−$16.46S4 Slow rate grind−$14.48S1 Fast equity crash−$14.41S7a Credit liquidity shock−$11.35S7b Slow default cycle−$7.78S11 Energy supply shock−$2.74S12 Mega-cap/AI derating−$0.89S9a Dollar spike$0.00S9b Dollar slide$0.00S6 Recession-driven cuts+$1.15S10 Melt-up+$11.91S5 Soft-landing cuts+$13.06

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