EastGroup's Data Center Tailwind Fuels Record Leasing and Development Acceleration

Shallow-bay REIT raises starts to $325M as data center suppliers become a new demand engine.

EGP · Earnings Call · 2026-07-23

The Data Center Demand Wave

For a REIT that prides itself on shallow-bay, infill properties and a diversified rent roll, EastGroup's second-quarter call had one unmistakable new theme: data centers are now a meaningful demand driver for its warehouses. Marshall Loeb quantified it directly: "about 40% of our first quarter development leasing was data center-related tenants and 20% in second quarter." “It feels like we're early innings... we're leasing the suppliers to the data centers.” — Marshall Loeb, Chief Executive Officer · 2026-07-23 That is a new SIC code for the portfolio, and it helps explain why the company raised its development-start guidance to $325 million — back to levels last seen in 2021–2023. The company is also benefiting from broader advanced manufacturing and onshoring trends, but the data center angle is clearly the freshest.

A little bit maybe just statistically, as we were looking at it, in terms of square footage, about 40% of our first quarter development leasing was data center-related tenants and 20% in second quarter. So what we're excited about, as we think about it, is just it's really a new demand driver that new SIC code to our portfolio.
Marshall Loeb, Chief Executive Officer · 2026-07-23

Development Acceleration

The headline numbers were strong: a record 3.9 million square feet of leases signed in the quarter, with 1.1 million square feet of development and first-generation leasing. As President Reid Dunbar put it in prepared remarks, "Leasing momentum accelerated during the second quarter with signed leases totaling 3.9 million square feet a new quarterly record." “Activity remains positive across our markets as customers increasingly look beyond geopolitical and macro uncertainty.” — R. Dunbar, President · 2026-07-23 The company also transferred 669,000 square feet of 100%-leased projects into the operating portfolio. This marks a clear shift from the prior two years, when development leasing was notoriously slow. On the February call, Loeb had said, "We got in more than half of our development leasing signed for last year happened to be in fourth quarter." “It finally broke through the ice a little bit.” — Marshall Loeb, CEO · 2026-02-05 Now the ice has broken in a bigger way. The company is also seeing more organic expansion from existing tenants, which feeds the development pipeline and supports higher rental rate growth.

Financial Strength and Balance Sheet

The quarter also showed the earnings benefit of that operating leverage. FFO per share came in at $2.36, up 6.8% year-over-year, and cash same-store NOI rose 8.3%. The balance sheet is "stronger than it's ever been," according to Loeb, with debt to total market capitalization at 12.9% and interest coverage at 15.1x. Funds From Operations reached $140M in the quarter, up 37% from a year ago. The company has no balance drawn on its credit facility and has forward equity sales agreements available at over $201 per share, giving it dry powder for development projects and acquisitions.

Persistent Headwinds

Not everything is rosy. Management flagged consumer weakness as the Achilles heel, and the Bay Area remains a laggard. COO Brent Wood noted, "The Bay Area will be one as we get spaces leased, we'll probably continue lag until it can show a little more strength." “Capitulation on rental rate has really not been a big part of the equation.” — Michael Mueller, Analyst · 2026-07-23 Still, the overall tone was confident: demand is "gaining momentum and has been steady for several consecutive quarters now." “Regardless of the environment, our goals are to drive FFO per share growth while raising portfolio quality.” — Marshall Loeb, Chief Executive Officer · 2026-07-23 The investment case is now pivoting from a defensive, low-leverage story to one that can push development starts higher and capture a new wave of industrial demand tied to data center construction. For a company that prides itself on long-term NAV growth, that is a meaningful change.