EGP's high projected AFO per share growth (7-10%) justifies its current premium valuation and makes it a reasonable investment.

Now we come to a large dividend hike from a real estate investment trust. It's incredibly rare we see this large of a dividend hike from a REIT. Well, we have Eastgroup properties with a 12.9% dividend increase.

Now, if we look at this REIT over the last year, it's a very different story from the majority of REITs. They're up by 18.8. 8%. However, take a close look here. We've seen quite a bit of a sell-off since midsummer.

At one point, they were trading at $223 a share, now down to about 198. So, really in the last month now, down by about 3.28%.

Now, rates going higher certainly play a role strictly from an opportunity cost perspective for these types of REITs. However, what a lot of people don't seem to understand is projected AFO per share growth for this rate is incredibly high, at least relative to the overall market.

Take a look at this. Yes, they're easily covering their dividend payments right now, which is something we obviously always want to see. The yield is about 3.53%. So, it's a decent starting yield, but the rate at which they're projected to grow adjusted funds from operations on a per share basis moving forward is roughly 7 to 10% over the next 3 to 4 to 5 years.

That's a strong AFO per share growth rate projection.

Of course, as a result, the REIT does trade at a premium. Although the valuation multiples come down considerably, we can see they're currently trading at roughly a 25.28 price to AFO per share multiple.

That's considerably higher than the rate Vichi we just looked at. It's higher than realy income. And of course, part of that is due to the fact they're growing their earnings at a high rate.

So why is that the case? Well, there's a couple of different reasons. Keep in mind, they have large embedded rent increases. EGP's existing leases were generally signed when industrial rents were much lower, which again, for reference, this is an industrial rate.

We're talking about a self-managed industrial REIT that focuses on high growth markets across the US like Texas, Florida, California, Arizona, as well as North Carolina. On top of this, they also develop properties instead of relying entirely on acquisitions.

So why is that important? Well, they can build these industrial properties in these states listed here. And the development usually creates more value than buying stabilized properties because EGP can build at a higher yield than it could through acquisitions. So they clearly do have some advantages.

Now from a dividend discount model perspective, one of the more effective things we can do for this REIT is look at them through the lens of what is the market actually pricing in?

Because obviously there's a lot of growth priced in because at 0% dividend growth, they're worth about $6941 per share. But if we back into this, we can see the market's pricing in about 5.25% dividend growth. That's very close to the current share price.

So obviously long-term AFO share growth will come down substantially. they won't be able to maintain 10% growth. That's nearly impossible for a rate to do for the long term. So, I think this is a somewhat reasonable valuation with that level of dividend growth priced in.

Dividend growth could easily be higher over the next few years, but it'll start to level off in the coming years.