Corporate Headquarters
Regional Offices
400 West Parkway Place
Suite 100
Ridgeland, MS 39157
601.354.3555
3495 Piedmont Road, NE
Building 11, Suite 350
Atlanta, GA 30305
404.301.2670
7301 North State Highway 161
Suite 215
Irving, TX 75039
972.386.8700
10250 Constellation Boulevard
Suite 2300
Los Angeles, CA 90067
323.457.0648
www.eastgroup.net
2019
Total return to shareholders was approximately 48% for 2019.
Officers
(left to right) back row: Kevin Sager, Vice President; John Travis, Vice President; Bruce Corkern, CPA, Senior Vice President and
Chief Accounting Officer; David Hicks, Vice President; Staci Tyler, CPA, Vice President and Controller; Brian Laird, CPA, Vice President;
Michelle Rayner, CPA, Vice President; Mike Sacco, Vice President; Stephanie Shaw, CPA, Vice President; Farrah Kennedy, CPA,
Vice President; Bill Gray, CPA, Vice President; Chris Segrest, Vice President; Reid Dunbar, Senior Vice President; Barry Anderson,
CPA, Vice President; Wes Vaughan, Vice President.
front row: John Coleman, Executive Vice President; Marshall Loeb, Chief Executive Officer; Brent Wood, Chief Financial Officer;
Ryan Collins, Senior Vice President.
Logistics Center, Dallas, Texas
Letter to Shareholders
Thank you for your interest in EastGroup Properties. We’re working on our 2020
chapter and the opportunities and challenges that lie ahead, but before we turn
the page, I’m pleased to share an overview of 2019. This past year was a record year
for the Company from several vantage points — funds from operations per share,
occupancy levels, development starts and acquisitions. The goals in these categories
were achieved while further improving our balance sheet. This mix led to higher
dividends and increased shareholder value. Total return to shareholders (dividends
plus the change in our common stock price) was approximately 48% for 2019.
Southwest Commerce Center, Las Vegas, Nevada
Strategy
As we’ve stated before, our strategy is simple, straightforward,
market-cycle tested and it works. We develop, acquire
and operate multi-tenant business distribution parks for
customers who are location sensitive. Our properties are
designed for users primarily in the 15,000 to 70,000 square
foot range and are clustered around major transportation
features in supply constrained submarkets in the historically
high growth major Sunbelt metropolitan markets and
sub-markets.
EastGroup’s customer base is large and diverse which we
believe increases the stability of our earnings. At year-end,
we had approximately 1,500 customers with an average size
of 28,000 square feet and a weighted average lease term
of almost six years.
It is also important to note that EastGroup’s customers,
whether national or local, primarily distribute to the
metropolitan area in which their space is located rather
than to a much larger region or to the entire country as
part of a supply chain. This means the economic vibrancy
and growth of these metro areas is a major determinant of
our customers’ success and our results. This is the reason
we are investing in the fast-growing major Sunbelt markets.
Additionally, being near the consumer adds stability
and reduces risk. While supply chains evolve over time,
we strive to be near the consumer, ideally located near
well educated, affluent and an ever-growing number
of consumers.
E-commerce and the changing retail model are new,
incremental demand drivers we see continuing and
accelerating. Omnichannel retailing, whereby retailers rely
on fewer stores and rely more heavily on nearby distribution
buildings for rapid deliveries and e-commerce shipments
is increasing the demand for our type of buildings. Some
of the various formats we’ve leased to include online-only
retailers who have no brick and mortar presence, but
merely distribution space and a website; retailers using our
buildings in conjunction with brick and mortar stores with
numerous daily deliveries; and online pharmacy fulfillment,
to name a few. A more recent trend we are watching closely
is the maturation of the e-commerce delivery model. As
e-commerce delivery times shrink and thus become more
critical to their business model, the big box, edge of town
fulfillment centers require accompanying in-fill site business
distribution centers. Simply put, the traffic congestion
within major markets is necessitating close-in, smaller
distribution space to meet accelerated delivery times.
It is within this niche of “last mile, shallow bay
distribution” that EastGroup is uniquely well positioned
among our peers. The majority of our institutional industrial
ownership peers develop large, big box (300,000 square feet
and above) properties, with few in-fill projects. In contrast,
our typical buildings are 80,000–130,000 square feet in
in-fill locations near transportation hubs and in the path
of population growth, making them ideally suited for the
prospective new and growing demand source as well as
our traditional users. At 97.6% leased at year-end, we also
have the luxury of patience as the supply chain evolution
continues trending our way.
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Omnichannel retailing, whereby retailers rely on fewer stores and rely
more heavily on nearby distribution buildings for rapid deliveries and
e-commerce shipments is increasing the demand for our type of buildings.
TOTAL RETURN
PERFORMANCE
NAREIT
EGP
S&P
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
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Results
Funds from Operations (“FFO”) for 2019 were $4.98
per share as compared to $4.66 per share in 2018,
an increase of 6.9%. This represented the ninth year
in a row of growth in FFO per share as compared to
the previous year’s results.
Portfolio leasing and occupancy were 97.6% and
97.1% at year-end, respectively. We experienced
a 17.3% increase in rents for leases (both new and
renewal) executed in 2019 with straight-lining (average
rent over the life of the lease) and a 7.9% increase on
a cash basis. This marked a record annual straight-line
rent increase and was our fifth consecutive year of
double digit straight-line rental rate increases.
This represented the ninth
year in a row of growth in FFO
per share as compared to the
previous year’s results.
Financial Strength
At December 31, 2019, our debt-to-total market capitalization was a record low
18.7%, and our floating rate bank debt was approximately 2% of total market
capitalization. For the year, our interest and fixed charge coverage ratios were
both 6.4 times, our ninth year in a row of improvement over the previous year.
In June, Moody’s Investors Service affirmed EastGroup’s issuer rating of Baa2
with a stable outlook.
We primarily use our lines of credit to fund our development program and
property acquisitions. As market conditions permit, we issue equity and/or
longer term debt to replace the short term bank borrowings.
In addition to raising capital via the debt markets, we actively sold shares
of EastGroup common stock in the public capital markets through our continuous
equity offering program. For the year, we issued 2.4 million shares at an average
price per share of $120.76 providing gross proceeds to the Company of $288 million,
making 2019 a record year for the Company in terms of equity raised, further
strengthening our balance sheet.
In summary, we remain committed to maintaining a healthy balance sheet and to
the value creation our development program produces. The steps we made during
the year improved our balance sheet, further enabling us to achieve both goals.
. . . we remain
committed to
maintaining a healthy
balance sheet and
to the value creation
our development
program produces.
Grand Oaks 75 Business Center, Tampa, Florida
Due to strong industrial
property fundamentals
and our own leasing
success, we began
construction on
18 projects containing
2.7 million square
feet with projected total
costs of $260 million
making 2019 a record
year for development
starts.
Rocky Point Distribution Center, San Diego, California
Development
EastGroup’s development program has a long and successful record
of creating and accumulating value for our shareholders for more than
20 years. We have added over 21 million square feet of quality, state-
of-the-art assets. As a result, we have built roughly 47% of our current
portfolio through our development efforts.
Our early development efforts consisted of just one or two building
projects. As EastGroup grew and the program successfully evolved,
we began to develop parks with the potential for multiple buildings
where we create and control a uniform high-quality environment or
sense of place. This also allows us the flexibility to better serve our
customers by being able to meet their changing space needs over time.
EastGroup is an in-fill site developer. We are comfortable initiating
speculative development in submarkets where we have experience
and an existing successful presence. These development submarkets
generally are supply constrained due to limited land for new industrial
development or have cost or zoning barriers to entry. In addition, the
vast majority of our new developments are subsequent phases of
existing multi-building industrial parks; therefore, we view the risks
to be materially lower versus traditional greenfield developments.
Further reducing our risk is our approach to not bank excessive land
on our balance sheet. In other words, we actively work to minimize the
time between closing and ground-breaking — “just in time delivery” if
we were a manufacturer. Within our business park phase developments,
we typically start construction as leasing within the park dictates.
For example, if we have more prospects than space, we have optimism
about the next building as opposed to relying on a consultant’s market
study. As a result, we basically “restock the shelves” to borrow a retail
vernacular.
Due to strong industrial property fundamentals and our own leasing
success, we began construction on 18 projects containing 2.7 million
square feet with projected total costs of $260 million making 2019 a
record year for development starts. Those projects are in 10 different
cities. During the year, we transferred 13 properties with 1.8 million
square feet, which were 96% leased as of December 31, 2019, into our
operating portfolio.
An important element of a successful development program is
well-located industrial land acquired at the right price. In 2019, we
purchased 188 acres for new development for a combined investment
of $63 million. These parcels are located in four cities.
We believe our development program will continue as a major
creator of shareholder value. We have the right land, permitted
buildings, available capital and an experienced and proven development
team. We expect to continue our development momentum in 2020. As
always, however, any future development will be set by our own leasing
activity as opposed to set targets or simply high level market research.
CreekView 121, Dallas, Texas
Gateway Commerce Park, Miami, Florida
San Francisco
Fresno
Las
Vegas
Denver
Los Angeles
San Diego
Phoenix
PROPERTY LOCATIONS
Charlotte
Atlanta
Greenville
Tucson
Dallas/Ft. Worth
Jackson
El Paso
San Antonio
Austin
Jacksonville
New Orleans
Orlando
Properties
Corporate Headquarters
Regional Offices
Houston
Tampa
Ft. Myers
Broward/
Palm Beach
Miami
EastGroup’s development program has a long and successful record of creating
and accumulating value for our shareholders for more than 20 years.
81%
Shareholders’ Market Equity $5.2 Billion
(common @ $132.67 per share)
17%
Fixed Rate Debt
$1.1 Billion,
Average Rate
of 3.5%
2%
Variable Rate Debt
$113 Million
CAPITALIZATION
as of 12/31/19
Recycling of
capital through
asset sales and
the redeployment
of the proceeds
in acquisitions and
development has
historically been
an integral part of
our strategy.
Capital Recycling
Recycling of capital through asset sales and the
redeployment of the proceeds in acquisitions and
development has historically been an integral part
of our strategy. The process allows us to continually
upgrade the quality, location and growth potential
of our assets. Our 2019 sales were primarily targeted
at exiting older assets or markets.
During the year, EastGroup closed five sales trans-
actions, consisting of 617,000 square feet of operating
properties generating proceeds of $69 million.
Acquiring core quality industrial properties is
an incredibly challenging, competitive exercise given
the global “Wall of Capital” chasing stabilized U.S.
industrial properties. This environment continues
to push us more towards development and value-
add opportunities. That said, we were able to acquire
several operating and value-add properties during
the year in markets such as San Diego, Denver,
Dallas, Tampa, Las Vegas, Phoenix and Greenville,
South Carolina.
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Grand Oaks 75 Business Center, Tampa, Florida
Priorities
Our commitment to corporate
responsibility is evident by the strides
made in our environmental, social
and governance, or ESG, initiatives.
This will be an ongoing process, but
we continue to grow our community
outreach, develop properties to high
sustainability standards and remain
committed to high standards of ethical
conduct. During 2019 we published our
first company-wide ESG report, which
is available on the Company’s website.
During 2019 we published our first company-wide ESG report . . .
To date, our financial success has been well documented, but our efforts to positively
affect the people and environment with whom we interact daily have been less publicized.
That is why our organization is eagerly embracing the transparency initiatives related to
Environmental, Social and Governance (“ESG”) reporting.
E
Environmental: EastGroup strives for efficiency in operating our properties with
innovative solutions that lower operational costs and reduce our environmental
footprint. The Company’s continued commitment to sustainability best practices
creates long-term value for the environment, the Company and shareholders.
S
Social: EastGroup’s commitment to our employees and our communities
is evident in the social policies and practices we have in place. Our culture
supports our employees and creates a positive, professional environment
that encourages longevity for our team members. EastGroup actively
supports community service organizations through employee service
hours and monetary donations.
G
Governance: EastGroup’s Board has long upheld their mission to foster the long-
term success of the Company while maintaining the highest regard for our fiduciary
responsibility to shareholders and employees. The Company is committed to
maintaining the highest standards for policies and practices in place companywide.
We are committed to continuing our focus in all three areas, as demonstrated by the
publication of our 2019 ESG Report and the formation of our ESG Committee.
We have a strong and experienced senior management team with a cycle-proven track record . . .DividendsIn September, EastGroup raised its quarterly dividend to $0.75 per share which represents an annualized dividend rate of $3.00 per share, an increase of 4.2%. The January dividend was our 160th consecutive quarterly cash distribution to shareholders. We have now increased or maintained our dividend for 27 consecutive years and raised it 24 years (including the last eight) over that period.Reflecting EastGroup’s improving operating results, our 2019 FFO dividend payout ratio stood at only 59% in spite of the increase.The FutureIn 2019, we achieved the highest FFO per share in EastGroup’s history. We accomplished this with high occupancy levels and strong rent growth, and successfully bringing new developments online. And, we accomplished these earnings in spite of a record year of new equity issuance further strengthening our balance sheet. I’m proud of our team for the results achieved. I’m also excited about the groundwork laid in 2019 which will pay dividends in 2020 and beyond. Our commitment is to maintain the long-term results, focused strategy and culture you’ve come to expect, while continuing to evolve as our markets dictate and allow. We have a strong and experienced senior management team with a cycle-proven track record, and we believe that we will continue this positive momentum through 2020 and future years.SunCoast Commerce Center, Fort Myers, FloridaSettlers Crossing, Austin, Texas UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER
1-07094
EASTGROUP PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State or other jurisdiction of incorporation or organization)
13-2711135
(I.R.S. Employer Identification No.)
400 W Parkway Place
Suite 100
Ridgeland, Mississippi
(Address of principal executive offices)
39157
(Zip code)
Registrant’s telephone number: (601) 354-3555
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.0001 par value per share
Trading
symbol(s)
EGP
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes
No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 28, 2019,
the last business day of the Registrant's most recently completed second fiscal quarter: $4,258,843,000.
The number of shares of common stock, $0.0001 par value, outstanding as of February 12, 2020 was 38,901,637.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement relating to its 2020 Annual Meeting of Stockholders are incorporated by reference
into Part III. The Registrant intends to file such Proxy Statement with the Securities and Exchange Commission not later than
120 days after the end of the fiscal year ended December 31, 2019.
PART I
Forward-Looking Statements
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
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7
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13
14
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97
3
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking statements” (within the meaning of the federal securities laws,
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act of 1934, as
amended (the “Exchange Act”)) that reflect EastGroup Properties, Inc.'s (the "Company" or "EastGroup") expectations and
projections about the Company’s future results, performance, prospects, plans and opportunities. The Company has attempted to
identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,”
“targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” "goals," “plans” or variations of such words
and similar expressions. These forward-looking statements are based on information currently available to the Company and are
subject to a number of known and unknown assumptions, risks, uncertainties and other factors that may cause the Company’s
actual results, performance, plans or achievements to be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. The
Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements
contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. The Company does
not undertake publicly to update or revise any forward-looking statements, whether as a result of changes in underlying assumptions
or new information, future events or otherwise, except as may be required to satisfy the Company’s obligations under federal
securities laws.
The following are some, but not all, of the risks, uncertainties and other factors that could cause the Company’s actual results to
differ materially from those presented in the Company’s forward-looking statements (the Company refers to itself as "we," "us"
or "our" in the following):
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
international, national, regional and local economic conditions;
the general level of interest rates and ability to raise equity capital on attractive terms;
financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments
of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing
on attractive terms or at all;
the competitive environment in which the Company operates;
fluctuations of occupancy or rental rates;
potential defaults (including bankruptcies or insolvency) on or non-renewal of leases by tenants;
potential changes in the law or governmental regulations and interpretations of those laws and regulations, including
changes in real estate laws or real estate investment trust (“REIT”) or corporate income tax laws, and potential
increases in real property tax rates;
our ability to maintain our qualification as a REIT;
acquisition and development risks, including failure of such acquisitions and development projects to perform in
accordance with projections;
natural disasters such as fires, floods, tornadoes, hurricanes and earthquakes;
the terms of governmental regulations that affect us and interpretations of those regulations, including the costs of
compliance with those regulations, changes in real estate and zoning laws and increases in real property tax rates;
credit risk in the event of non-performance by the counterparties to the interest rate swaps;
lack of or insufficient amounts of insurance;
litigation, including costs associated with prosecuting or defending claims and any adverse outcomes;
our ability to retain key personnel;
the consequences of future terrorist attacks or civil unrest; and
environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of
contamination of properties presently owned or previously owned by us.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A. Risk Factors within this Annual
Report on Form 10-K for the year ended December 31, 2019.
4
PART I
ITEM 1. BUSINESS.
The Company
EastGroup Properties, Inc., which we refer to in this Annual Report as the "Company" or "EastGroup," is an internally-managed
equity real estate investment trust ("REIT") first organized in 1969. EastGroup is focused on the development, acquisition and
operation of industrial properties in major Sunbelt markets throughout the United States, primarily in the states of Florida, Texas,
Arizona, California and North Carolina. EastGroup’s strategy for growth is based on ownership of premier distribution facilities
generally clustered near major transportation features in supply-constrained submarkets. EastGroup is a Maryland corporation,
and its common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “EGP.” The Company
has elected to be taxed and intends to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
Available Information
The Company maintains a website at www.eastgroup.net. The Company posts its annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the
Exchange Act as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange
Commission (the "SEC"). In addition, the Company's website includes items related to corporate governance matters, including,
among other things, the Company's corporate governance guidelines, charters of various committees of the Board of Directors,
and the Company's code of business conduct and ethics applicable to all employees, officers and directors. The Company intends
to disclose on its website any amendment to, or waiver of, any provision of this code of business conduct and ethics applicable to
the Company's directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the
New York Stock Exchange. Copies of these reports and corporate governance documents may be obtained, free of charge, from
the Company's website. Any shareholder also may obtain copies of these documents, free of charge, by sending a request in
writing to: Investor Relations, EastGroup Properties, Inc., 400 W. Parkway Place, Suite 100, Ridgeland, MS 39157.
The SEC also maintains a website that contains reports, proxy and information statements, and other information we file with the
SEC at www.sec.gov.
Administration
EastGroup maintains its principal executive office and headquarters in Ridgeland, Mississippi. The Company also has regional
offices in Atlanta, Dallas and Los Angeles and asset management offices in Orlando, Miami, Houston and Phoenix. EastGroup
has property management offices in Jacksonville, Tampa, Charlotte and San Antonio. Offices at these locations allow the Company
to provide property management services to all of its Florida, Texas (except Austin and El Paso), Arizona and North Carolina
properties, which together account for 78% of the Company’s total portfolio on a square foot basis. In addition, the Company
currently provides property administration (accounting of operations) for its entire portfolio. The regional offices in Georgia,
Texas and California provide oversight of the Company's development and value-add program. As of February 12, 2020, EastGroup
had 75 full-time employees and 2 part-time employees.
Business Overview
EastGroup's goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality
business distribution space for location sensitive customers (primarily in the 15,000 to 70,000 square foot range). The Company
develops, acquires and operates distribution facilities, the majority of which are clustered around major transportation features in
supply-constrained submarkets in major Sunbelt regions. The Company's core markets are in the states of Florida, Texas, Arizona,
California and North Carolina.
As of December 31, 2019, EastGroup owned 399 industrial properties and one office building in 11 states. As of that same date,
the Company's portfolio, including development projects and value-add properties in lease-up and under construction, included
approximately 45.4 million square feet consisting of 361 business distribution buildings containing 40.6 million square feet, 13
bulk distribution buildings containing 3.5 million square feet, and 26 business service buildings containing 1.3 million square feet.
As of December 31, 2019, EastGroup's operating portfolio was 97.6% leased to approximately 1,500 tenants, with no single tenant
accounting for more than approximately 1.0% of the Company's income from real estate operations. As of February 12, 2020,
the properties which were in the development and value-add program at year-end were approximately 41% leased.
During 2019, EastGroup increased its holdings in real estate properties through its acquisition and development programs. The
Company purchased 1,774,000 square feet of operating and value-add properties and 188 acres of land for a total of $269
million. Also during 2019, the Company began construction of 18 development projects containing 2.7 million square feet and
5
transferred 13 projects, which contain 1.8 million square feet and had costs of $156.7 million at the date of transfer, from its
development and value-add program to real estate properties.
During 2019, EastGroup completed dispositions including 617,000 square feet of operating properties and 0.2 acres of land, which
generated gross proceeds of $68.7 million.
The Company typically initially funds its development and acquisition programs through its $395 million unsecured bank credit
facilities (as discussed under the heading Liquidity and Capital Resources in Part II, Item 7 of this Annual Report on Form 10-
K). As market conditions permit, EastGroup issues equity or employs fixed rate debt, including variable rate debt that has been
swapped to an effectively fixed rate through the use of interest rate swaps, to replace short-term bank borrowings. In June 2019,
Moody's Investors Service affirmed the Company's issuer rating of Baa2 with a stable outlook. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating
agency. Each rating should be evaluated independently of any other rating. For future debt issuances, the Company intends to
issue primarily unsecured fixed rate debt, including variable rate debt that has been swapped to an effectively fixed rate through
the use of interest rate swaps. The Company may also access the public debt market in the future as a means to raise capital.
EastGroup holds its properties as long-term investments but may determine to sell certain properties that no longer meet its
investment criteria. The Company may provide financing to a prospective purchaser in connection with such sales of property if
market conditions require. In addition, the Company may provide financing to a partner or co-owner in connection with an
acquisition of real estate in certain situations.
Subject to the requirements necessary to maintain EastGroup’s qualifications as a REIT, the Company may acquire securities of
entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over those
entities.
EastGroup has no present intention of acting as an underwriter of offerings of securities of other issuers. The strategies and policies
set forth above were determined and are subject to review by EastGroup's Board of Directors, which may change such strategies
or policies based upon its evaluation of the state of the real estate market, the performance of EastGroup's assets, capital and credit
market conditions, and other relevant factors. EastGroup provides annual reports to its stockholders, which contain financial
statements audited by the Company’s independent registered public accounting firm.
Competition
The market for the leasing of industrial real estate is competitive. We experience competition for tenants from existing properties
in proximity to our buildings as well as from new development. Institutional investors, other REITs and local real estate operators
generally own such properties; however, no single competitor or small group of competitors is dominant in our current markets.
Even so, as a result of competition, we may have to provide concessions, incur charges for tenant improvements or offer other
inducements, all of which may have an adverse impact on our results of operations. The market for the acquisition of industrial
real estate is also competitive. We compete for real property investments with other REITs and institutional investors such as
pension funds and their advisors, private real estate investment funds, insurance company investment accounts, private investment
companies, individuals and other entities engaged in real estate investment activities.
Environmental Property Matters
Under various federal, state and local laws, ordinances and regulations, an owner of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such property. Many such laws impose liability without
regard to whether the owner knows of, or was responsible for, the presence of such hazardous or toxic substances. The presence
of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent
such property or to use such property as collateral in its borrowings. EastGroup’s properties have generally been subject to Phase
I Environmental Site Assessments ("ESAs") by independent environmental consultants and, as necessary, have been subjected to
Phase II ESAs. These reports have not revealed any potential significant environmental liability. Our management is not aware
of any environmental liability that would have a material adverse effect on EastGroup’s business, assets, financial position or
results of operations. See "Item 1A. Risk Factors" in this Annual Report for additional information.
Environmental, Social and Governance ("ESG") Matters
At EastGroup, protecting the environment is important to the Company's employees, families, customers and communities. The
Company strives to support sustainability through its commitment to build high performance and environmentally responsible
properties. Through EastGroup’s continued efforts, numerous properties have been Leadership in Energy and Environmental
Design ("LEED") and ENERGY STAR certified, and all of the Company's development properties are built to LEED certifiable
standards whether or not the actual certification is pursued. The Company believes its continued commitment to pursue
6
environmentally conscious performance and standards through sustainability best practices creates long-term value for the
environment, the Company and shareholders.
In addition, EastGroup and its employees are committed to social responsibility and participate in various charitable service
organizations in the Company's business communities. EastGroup's employees volunteer for numerous charities, and the Company
coordinates volunteer opportunities for its employees and allows time away from work in order to encourage participation and
increase social engagement in all of the communities in which we operate. The Company offers a comprehensive employee
benefits program and socially-responsible policies and practices in order to attract, develop and advance a qualified and diverse
workforce that will strengthen the Company and its culture.
EastGroup operates on the premise that good corporate governance is fundamental to the Company's business and core values,
and the Company believes its corporate governance policies and practices are well aligned with the interests of shareholders. The
honesty and integrity of the Company's management and Board of Directors are critical assets in maintaining the trust of the
Company's investors, employees, customers, vendors and the communities in which the Company operates.
ITEM 1A. RISK FACTORS.
In addition to the other information contained or incorporated by reference in this document, readers should carefully consider
the following risk factors. Any of these risks or the occurrence of any one or more of the uncertainties described below could
have a material adverse effect on the Company's financial condition and the performance of its business. Additional risks and
uncertainties not presently known to the Company or that the Company currently deems immaterial also may impair its business
operations. The Company refers to itself as "we", "us" or "our" in the following risk factors.
Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where we own properties. We may be adversely affected by
general economic conditions and local real estate conditions. For example, an oversupply of industrial properties in a local area
or a decline in the attractiveness of our properties to tenants would have a negative effect on us. Other factors that may affect
general economic conditions or local real estate conditions include:
•
•
•
•
•
•
•
population and demographic trends;
employment and personal income trends;
income and other tax laws;
changes in interest rates and availability and costs of financing;
increased operating costs, including insurance premiums, utilities and real estate taxes, due to inflation and other
factors which may not necessarily be offset by increased rents;
changes in the price of oil; and
construction costs.
We may be unable to compete for properties and tenants. The real estate business is highly competitive. We compete for interests
in properties with other real estate investors and purchasers, some of whom have greater financial resources, revenues and
geographical diversity than we have. Furthermore, we compete for tenants with other property owners. All of our industrial
properties are subject to significant local competition. We also compete with a wide variety of institutions and other investors for
capital funds necessary to support our investment activities and asset growth.
We are subject to significant regulation that constrains our activities. Local zoning and land use laws, environmental statutes and
other governmental requirements restrict our expansion, rehabilitation and reconstruction activities. These regulations may prevent
us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us to
modify our properties, and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future
legislation may impose additional requirements. We cannot predict what requirements may be enacted or what changes may be
implemented to existing legislation.
Risks Associated with Our Properties
We may be unable to lease space on favorable terms or at all. When a lease expires, a tenant may elect not to renew it. We may
not be able to re-lease the property on favorable terms, if we are able to re-lease the property at all. The terms of renewal or re-
lease (including the cost of required renovations and/or concessions to tenants) may be less favorable to us than the prior lease. We
also routinely develop properties with no pre-leasing. If we are unable to lease all or a substantial portion of our properties, or if
the rental rates upon such leasing are significantly lower than expected rates, our cash generated before debt repayments and
capital expenditures and our ability to make expected distributions to stockholders may be adversely affected.
7
We have been and may continue to be affected negatively by tenant bankruptcies and leasing delays. At any time, a tenant may
experience a downturn in its business that may weaken its financial condition. Similarly, a general decline in the economy may
result in a decline in the demand for space at our industrial properties. As a result, our tenants may delay lease commencement,
fail to make rental payments when due, or declare bankruptcy. Any such event could result in the termination of that tenant’s lease
and losses to us, and funds available for distribution to investors may decrease. We receive a substantial portion of our income
as rents under mid-term and long-term leases. If tenants are unable to comply with the terms of their leases for any reason, including
because of rising costs or falling sales, we may deem it advisable to modify lease terms to allow tenants to pay a lower rent or a
smaller share of taxes, insurance and other operating costs. If a tenant becomes insolvent or bankrupt, we cannot be sure that we
could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding
relating to the tenant. We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with
respect to the premises. If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict
the amount and recoverability of our claims against the tenant. A tenant’s default on its obligations to us could adversely affect
our financial condition and the cash we have available for distribution.
We face risks associated with our property development. We intend to continue to develop properties where we believe market
conditions warrant such investment. Once made, our investments may not produce results in accordance with our
expectations. Risks associated with our current and future development and construction activities include:
•
•
•
•
•
•
•
the availability of favorable financing alternatives;
the risk that we may not be able to obtain land on which to develop or that due to the increased cost of land, our activities
may not be as profitable;
construction costs exceeding original estimates due to rising interest rates and increases in the costs of materials and
labor;
construction and lease-up delays resulting in increased debt service, fixed expenses and construction costs;
expenditure of funds and devotion of management's time to projects that we do not complete;
fluctuations of occupancy and rental rates at newly completed properties, which depend on a number of factors,
including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower
return on our investment; and
complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy
and other governmental permits.
We face risks associated with property acquisitions. We acquire individual properties and portfolios of properties and intend to
continue to do so. Our acquisition activities and their success are subject to the following risks:
• when we are able to locate a desired property, competition from other real estate investors may significantly increase
•
•
•
the purchase price;
acquired properties may fail to perform as we project;
the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or
understanding of the local market, a limited number of established business relationships in the area and a relative
unfamiliarity with local governmental and permitting procedures;
• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of
properties, into our existing operations, and as a result, our results of operations and financial condition could be
adversely affected; and
• we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, to the transferor
with respect to unknown liabilities. As a result, if a claim were asserted against us based upon ownership of those
properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.
Coverage under our existing insurance policies may be inadequate to cover losses. We generally maintain insurance policies
related to our business, including casualty, general liability and other policies, covering our business operations, employees and
assets as appropriate for the markets where our properties and business operations are located. However, we would be required
to bear all losses that are not adequately covered by insurance. In addition, there may be certain losses that are not generally
insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so,
including losses due to floods, wind, earthquakes, acts of war, acts of terrorism or riots. If an uninsured loss or a loss in excess
of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties,
as well as the anticipated future revenue from the properties. In addition, if the damaged properties are subject to recourse
indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.
8
We face risks due to lack of geographic and real estate sector diversity. Substantially all of our properties are located in the Sunbelt
region of the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina. As of
December 31, 2019, our two largest markets were Houston and Tampa. We owned operating properties totaling 5.7 million square
feet in Houston and 4.3 million square feet in Tampa, which represent 13.9% and 10.5%, respectively, of the Company's total Real
estate properties on a square foot basis. A downturn in general economic conditions and local real estate conditions in these
geographic regions, as a result of oversupply of or reduced demand for industrial properties, local business climate, business
layoffs and changing demographics, would have a particularly strong adverse effect on us. In addition, our investments in real
estate assets are concentrated in the industrial distribution sector. This concentration may expose us to the risk of economic
downturns in this sector to a greater extent than if our business activities included other sectors of the real estate industry.
We face risks due to the illiquidity of real estate which may limit our ability to vary our portfolio. Real estate investments are
relatively illiquid. Our ability to vary our portfolio in response to changes in economic and other conditions will therefore be
limited. In addition, because of our status as a REIT, the Internal Revenue Code limits our ability to sell our properties. If we
must sell an investment, we cannot ensure that we will be able to dispose of the investment on terms favorable to the Company.
We are subject to environmental laws and regulations. Current and previous real estate owners and operators may be required
under various federal, state and local laws, ordinances and regulations to investigate and clean up hazardous substances released
at the properties they own or operate. They may also be liable to the government or to third parties for substantial property or
natural resource damage, investigation costs and cleanup costs. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the release or presence of such hazardous substances. In addition, some
environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs
in connection with the contamination. Contamination may adversely affect the owner’s ability to use, sell or lease real estate or
to borrow using the real estate as collateral. We have no way of determining at this time the magnitude of any potential liability
to which we may be subject arising out of environmental conditions or violations with respect to the properties we currently or
formerly owned. Environmental laws today can impose liability on a previous owner or operator of a property that owned or
operated the property at a time when hazardous or toxic substances were disposed of, released from, or present at the property. A
conveyance of the property, therefore, may not relieve the owner or operator from liability. Although ESAs have been conducted
at our properties to identify potential sources of contamination at the properties, such ESAs do not reveal all environmental
liabilities or compliance concerns that could arise from the properties. Moreover, material environmental liabilities or compliance
concerns may exist, of which we are currently unaware, that in the future may have a material adverse effect on our business,
assets or results of operations.
Climate change and its effects, including compliance with new laws or regulations such as “green” building codes, may require
us to make improvements to our existing properties or result in unanticipated losses that could affect our business and financial
condition. To the extent that climate change causes an increase in catastrophic weather events, such as severe storms, fires or
floods, our properties may be susceptible to an increase in weather-related damage. Even in the absence of direct physical damage
to our properties, the occurrence of any natural disasters or a changing climate in the area of any of our properties could have a
material adverse effect on business, supply chains and the economy generally. The potential impacts of future climate change on
our properties could adversely affect our ability to lease, develop or sell our properties or to borrow using our properties as collateral.
In addition, any proposed legislation enacted to address climate change could increase the costs of energy, utilities and overall
development. The resulting costs of any proposed legislation may adversely affect our financial position, results of operations and
cash flows.
Financing Risks
We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk. We are subject
to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required
payments of principal and interest. In addition, certain of our debt will have significant outstanding principal balances on their
maturity dates, commonly known as “balloon payments.” Therefore, we will likely need to refinance at least a portion of our
outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing
will not be as favorable as the terms of the existing debt.
We face risks associated with our dependence on external sources of capital. In order to qualify as a REIT, we are required each
year to distribute to our stockholders at least 90% of our ordinary taxable income, and we are subject to tax on our income to the
extent it is not distributed. Because of this distribution requirement, we may not be able to fund all future capital needs from cash
retained from operations. As a result, to fund capital needs, we rely on third-party sources of capital, which we may not be able
to obtain on favorable terms, if at all. Our access to third-party sources of capital depends upon a number of factors, including
(i) general market conditions; (ii) the market’s perception of our growth potential; (iii) our current and potential future earnings
and cash distributions; and (iv) the market price of our capital stock. Additional debt financing may substantially increase our
debt-to-total market capitalization ratio. Additional equity financing may dilute the holdings of our current stockholders.
9
Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition. The terms of our
various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants,
such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit
our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the
applicable indebtedness even if we had satisfied our payment obligations. If we are unable to refinance our indebtedness at maturity
or meet our payment obligations, the amount of our distributable cash flow and our financial condition would be adversely affected.
Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms,
if at all. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and
other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and
type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be
able to maintain our current credit ratings. In the event our current credit ratings deteriorate, it may be more difficult or expensive
to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would
trigger additional costs or other potentially negative consequences under our current and future credit facilities and debt instruments.
Increases in interest rates would increase our interest expense. At December 31, 2019, we had $112.7 million of variable rate
debt outstanding not protected by interest rate hedge contracts. We may incur additional variable rate debt in the future. If interest
rates increase, then so would the interest expense on our unhedged variable rate debt, which would adversely affect our financial
condition and results of operations. From time to time, we manage our exposure to interest rate risk with interest rate hedge
contracts that effectively fix or cap a portion of our variable rate debt. In addition, we refinance fixed rate debt at times when we
believe rates and terms are appropriate. Our efforts to manage these exposures may not be successful. Our use of interest rate
hedge contracts to manage risk associated with interest rate volatility may expose us to additional risks, including a risk that a
counterparty to a hedge contract may fail to honor its obligations. Developing an effective interest rate risk strategy is complex
and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that
our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of
interest rate hedge contracts typically involves costs, such as transaction fees or breakage costs.
The lack of certain limitations on our debt could result in our becoming more highly leveraged. Our governing documents do not
limit the amount of indebtedness we may incur. Accordingly, we may incur additional debt and would do so, for example, if it
were necessary to maintain our status as a REIT. We might become more highly leveraged as a result, and our financial condition
and cash available for distribution to stockholders might be negatively affected and the risk of default on our indebtedness could
increase.
Other Risks
The market value of our common stock could decrease based on our performance and market perception and conditions. The
market value of our common stock may be affected by the market’s perception of our operating results, growth potential, and
current and future cash dividends and may also be affected by the real estate market value of our underlying assets. The market
price of our common stock may also be influenced by the dividend on our common stock relative to market interest rates. Rising
interest rates may lead potential buyers of our common stock to expect a higher dividend rate, which would adversely affect the
market price of our common stock. In addition, rising interest rates would result in increased expense, thereby adversely affecting
cash flow and our ability to service our indebtedness and pay dividends.
The state of the economy or other adverse changes in general or local economic conditions may adversely affect our operating
results and financial condition. Turmoil in the global financial markets may have an adverse impact on the availability of credit
to businesses generally and could lead to a further weakening of the U.S. and global economies. Currently these conditions have
not impaired our ability to access credit markets and finance our operations. However, our ability to access the capital markets
may be restricted at a time when we would like, or need, to raise financing, which could have an impact on our flexibility to react
to changing economic and business conditions. Furthermore, deteriorating economic conditions including business layoffs,
downsizing, industry slowdowns and other similar factors that affect our customers could continue to negatively impact commercial
real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in
the collateral securing any loan investments we may make. Additionally, an adverse economic situation could have an impact on
our lenders or customers, causing them to fail to meet their obligations to us. No assurances can be given that the effects of an
adverse economic situation will not have a material adverse effect on our business, financial condition and results of operations.
We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will not be allowed to deduct distributions to stockholders
in computing our taxable income and will be subject to federal income tax at regular corporate rates. In addition, we may be
barred from qualification as a REIT for the four years following disqualification. The additional tax incurred at regular corporate
rates would significantly reduce the cash flow available for distribution to stockholders and for debt service. Furthermore, we
10
would no longer be required by the Internal Revenue Code to make any distributions to our stockholders as a condition of REIT
qualification. Any distributions to stockholders would be taxable as ordinary income to the extent of our current and accumulated
earnings and profits. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions,
subject to limitations under the Internal Revenue Code. The REIT qualification requirements are extremely complex, and
interpretation of the U.S. federal income tax laws governing REIT qualification is limited. Although we believe we have operated
and intend to operate in a manner that will continue to qualify us as a REIT, we cannot be certain that we have been or will be
successful in continuing to be taxed as a REIT. In addition, facts and circumstances that may be beyond our control may affect
our ability to qualify as a REIT. We cannot assure you that new legislation, regulations, administrative interpretations or court
decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the federal income
tax consequences of qualification.
Legislative or regulatory action with respect to tax laws and regulations could adversely affect the Company and our stockholders.
We are subject to state and local tax laws and regulations. Changes in state and local tax laws or regulations may result in an
increase in our tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase
in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or
income. These increased tax costs could adversely affect our financial condition, results of operations and the amount of cash
available for the payment of dividends.
In addition, in recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax
laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the
future, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. We
cannot assure you that future changes to tax laws and regulations will not have an adverse effect on an investment in our stock.
To maintain our status as a REIT, we limit the amount of shares any one stockholder can own. The Internal Revenue Code imposes
certain limitations on the ownership of the stock of a REIT. For example, not more than 50% in value of our outstanding shares
of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code) during
the last half of any taxable year. To protect our REIT status, our charter prohibits any holder from acquiring more than 9.8% (in
value or in number, whichever is more restrictive) of our outstanding equity stock (defined as all of our classes of capital stock,
except our excess stock (of which there is none outstanding)) unless our Board of Directors grants a waiver. The ownership limit
may limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an
investor were attempting to assemble a block of shares in excess of 9.8% of the outstanding shares of equity stock or otherwise
effect a change in control.
Certain tax and anti-takeover provisions of our charter and bylaws may inhibit a change of our control. Certain provisions contained
in our charter and bylaws and the Maryland General Corporation Law may discourage a third party from making a tender offer
or acquisition proposal to us. If this were to happen, it could delay, deter or prevent a change in control or the removal of existing
management. These provisions also may delay or prevent our stockholders from receiving a premium for their common shares
over then-prevailing market prices. These provisions include:
•
•
•
•
the REIT ownership limit described above;
special meetings of our stockholders may be called only by the chairman of the board, the chief executive officer,
the president, a majority of the board or by stockholders possessing a majority of all the votes entitled to be cast at
the meeting;
our Board of Directors may authorize and issue securities without stockholder approval; and
advance-notice requirements for proposals to be presented at stockholder meetings.
In addition, Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other
things, the duties of the directors in unsolicited takeover situations and certain "business combinations" and "control share
acquisitions." Our bylaws contain provisions exempting us from the Maryland Control Share Acquisition Act and the Maryland
Business Combination Act. Our bylaws prohibit the repeal, amendment or alteration of our Maryland Control Share Acquisition
opt out without the approval by the Company’s stockholders; however, there can be no assurance that this provision will not be
amended or eliminated at some time in the future.
The Company faces risks in attracting and retaining key personnel. Many of our senior executives have strong industry reputations,
which aid us in identifying acquisition and development opportunities and negotiating with tenants and sellers of properties. The
loss of the services of these key personnel could affect our operations because of diminished relationships with existing and
prospective tenants, property sellers and industry personnel. In addition, attracting new or replacement personnel may be difficult
in a competitive market.
11
We have severance and change in control agreements with certain of our officers that may deter changes in control of the
Company. If, within a certain time period (as set in the officer’s agreement) following a change in control, we terminate the
officer's employment other than for cause, or if the officer elects to terminate his or her employment with us for reasons specified
in the agreement, we will make a severance payment equal to the officer's average annual compensation times an amount specified
in the officer's agreement, together with the officer's base salary and vacation pay that have accrued but are unpaid through the
date of termination. These agreements may deter a change in control because of the increased cost for a third party to acquire
control of us.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that
technology could harm our business. We rely on information technology networks and systems, including the internet, to process,
transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions
and records, and maintaining personal identifying information and customer and lease data. We purchase some of our information
technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring
to provide security for the processing, transmission and storage of confidential customer data, including individually identifiable
information relating to financial accounts. Although we have taken steps to protect the security of our information systems and
the data maintained in those systems, it is possible that our safety and security measures will not prevent the systems' improper
functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-
attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches,
can create system disruptions, shutdowns or unauthorized disclosure of confidential information. In some cases, it may be difficult
to anticipate or immediately detect such incidents and the damage they cause. Any failure to maintain proper function, security
and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or
regulatory penalties and could have a materially adverse effect on our business, financial condition and results of operations.
We may be impacted by changes in U.S. social, political, regulatory and economic conditions or laws and policies. Any changes
to U.S. tax laws, foreign trade, manufacturing, and development and investment in the territories and countries where our customers
operate could adversely affect our operating results and our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
EastGroup owned 399 industrial properties and one office building at December 31, 2019. These properties are located primarily
in the Sunbelt states of Florida, Texas, Arizona, California and North Carolina, and the majority are clustered around major
transportation features in supply constrained submarkets. As of February 12, 2020, EastGroup’s portfolio was 97.4% leased and
97.1% occupied by approximately 1,500 tenants, with no single tenant accounting for more than approximately 1.0% of the
Company's income from real estate operations. The Company has developed approximately 47% of its total portfolio (on a square
foot basis), including real estate properties and development and value-add properties in lease-up and under construction. The
Company’s focus is the ownership of business distribution space (89% of the total portfolio) with the remainder in bulk distribution
space (8%) and business service space (3%). Business distribution space properties are typically multi-tenant buildings with a
building depth of 200 feet or less, clear height of 24-30 feet, office finish of 10-25% and truck courts with a depth of 100-120
feet. See Consolidated Financial Statement Schedule III – Real Estate Properties and Accumulated Depreciation for a detailed
listing of the Company’s properties.
At December 31, 2019, EastGroup did not own any single property with a book value that was 10% or more of total book value
or with gross revenues that were 10% or more of total gross revenues.
12
The Company's lease expirations for the next ten years are detailed below:
Years Ending December 31,
2020 (2)
2021
2022
2023
2024
2025
2026
2027
2028
2029 and beyond
Number of Leases
Expiring
Total Area of Leases Expiring
(in Square Feet)
Annualized Current Base
Rent of Leases Expiring (1)
% of Total Base Rent of
Leases Expiring
329
297
281
197
200
80
51
27
20
24
5,660,000
7,590,000
7,305,000
4,649,000
5,882,000
3,264,000
1,926,000
1,305,000
1,024,000
1,664,000
$
$
$
$
$
$
$
$
$
$
36,530,000
48,814,000
43,535,000
29,694,000
36,426,000
18,555,000
12,793,000
7,676,000
5,899,000
9,467,000
14.6%
19.6%
17.5%
11.9%
14.6%
7.4%
5.1%
3.1%
2.4%
3.8%
(1) Represents the monthly cash rental rates, excluding tenant expense reimbursements, as of December 31, 2019, multiplied by 12 months.
(2) Includes month-to-month leases.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against
the Company or its properties, other than routine litigation arising in the ordinary course and other actions not deemed to be
material, substantially all of which are to be covered by the Company’s liability insurance and which, in the aggregate, are not
expected to have a material adverse effect on the Company's financial condition or results of operations. The Company cannot
predict the outcome of any litigation with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably to
the Company, which could materially affect its financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
13
PART II. OTHER INFORMATION
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The Company’s shares of common stock are listed for trading on the NYSE under the symbol “EGP.” As of February 12, 2020,
there were 414 holders of record of the Company's 38,901,637 outstanding shares of common stock. The Company distributed
all of its 2019 and 2018 taxable income to its stockholders. Accordingly, no significant provisions for income taxes were necessary.
The following table summarizes the federal income tax treatment for all distributions by the Company for the years 2019 and
2018.
Federal Income Tax Treatment of Share Distributions
Common Share Distributions:
Ordinary dividends
Nondividend distributions
Unrecaptured Section 1250 capital gain
Other capital gain
Total Common Distributions
Years Ended December 31,
2019
2018
(Per share)
$
3.14000
2.14305
—
—
—
—
—
—
$
3.14000
2.14305
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No shares of the Company's common stock were purchased by the Company or withheld by the Company to satisfy any tax
withholding obligations during the three-month period ended December 31, 2019.
14
Performance Graph
The following graph compares, over the five years ended December 31, 2019, the cumulative total shareholder return on
EastGroup’s common stock with the cumulative total return of the Standard & Poor’s 500 Total Return Index (S&P 500 Total
Return) and the FTSE Equity REIT index prepared by the National Association of Real Estate Investment Trusts (FTSE Nareit
Equity REITs).
The performance graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the SEC,
nor shall such information be incorporated by reference into any future filing, except to the extent that the Company specifically
incorporates it by reference into such filing.
EastGroup
FTSE Nareit Equity REITs
S&P 500 Total Return
Fiscal years ended December 31,
2014
$ 100.00
100.00
100.00
2015
91.51
103.20
101.38
2016
126.09
111.99
113.51
2017
155.48
117.84
138.29
2018
166.30
112.39
132.23
2019
246.46
141.61
173.86
The information above assumes that the value of the investment in shares of EastGroup’s common stock and each index was $100
on December 31, 2014, and that all dividends were reinvested.
15
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial and operating data on a historical basis for the Company. The following data
should be read in conjunction with the Company’s financial statements and notes thereto and Management’s Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. The Company’s
historical operating results may not be comparable to the Company’s future operating results.
OPERATING DATA
REVENUES
2019
Years Ended December 31,
2017
(In thousands, except per share data)
2018
2016
Income from real estate operations
Other revenue
$ 330,813
574
331,387
299,018
1,374
300,392
Expenses
Expenses from real estate operations
Depreciation and amortization
General and administrative
Indirect leasing costs
Acquisition costs
Other income (expense)
Interest expense
Gain, net of loss, on sales of real estate investments
Other
Net income
Net income attributable to noncontrolling interest in joint ventures
Net income attributable to EastGroup Properties, Inc. common
stockholders
Other comprehensive income (loss) - Cash flow hedges
93,274
104,724
16,406
411
—
214,815
(34,463)
41,068
163
123,340
(1,678)
121,662
(3,894)
TOTAL COMPREHENSIVE INCOME
$ 117,768
86,394
91,704
13,738
—
—
191,836
(35,106)
14,273
913
88,636
(130)
88,506
1,353
89,859
274,031
119
274,150
80,108
83,874
14,972
—
—
178,954
(34,775)
21,855
1,313
83,589
(406)
83,183
3,353
86,536
252,961
86
253,047
74,347
77,935
13,232
—
161
165,675
(35,213)
42,170
1,765
96,094
(585)
95,509
5,451
100,960
2015
234,918
90
235,008
67,402
73,290
15,091
—
164
155,947
(34,666)
2,903
1,101
48,399
(533)
47,866
(1,099)
46,767
BASIC PER COMMON SHARE DATA FOR NET INCOME
ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC.
COMMON STOCKHOLDERS
Net income attributable to common stockholders
Weighted average shares outstanding
DILUTED PER COMMON SHARE DATA FOR NET INCOME
ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC.
COMMON STOCKHOLDERS
Net income attributable to common stockholders
Weighted average shares outstanding
OTHER PER SHARE DATA
Book value, at end of year
Common distributions declared
Common distributions paid
$
$
$
3.25
37,442
2.50
35,439
2.45
33,996
2.93
32,563
1.49
32,091
3.24
37,527
30.84
2.94
2.91
2.49
35,506
2.44
34,047
2.93
32,628
1.49
32,196
24.74
2.72
2.00
21.56
2.52
2.52
19.13
2.44
2.44
17.11
2.34
2.34
BALANCE SHEET DATA (AT END OF YEAR)
Real estate investments, at cost (1)
Real estate investments, net of accumulated depreciation (1)
Total assets
Unsecured bank credit facilities, unsecured debt and secured debt
Total liabilities
Noncontrolling interest in joint ventures
Total stockholders’ equity
$ 3,274,050
2,402,911
2,546,078
1,182,602
1,343,749
1,765
1,200,564
2,827,609
2,012,694
2,131,705
1,105,787
1,227,002
1,644
903,059
2,591,358
1,841,757
1,953,221
1,108,282
1,202,091
1,658
749,472
2,419,461
1,725,211
1,825,764
1,101,333
1,183,898
4,205
637,661
2,232,344
1,574,890
1,661,904
1,027,909
1,102,703
4,339
554,862
(1)
Includes mortgage loans receivable and unconsolidated investment. See Notes 3 and 4 in the Notes to Consolidated Financial Statements.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis of results of operations and financial condition should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.
OVERVIEW
EastGroup’s goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality
business distribution space for location sensitive customers (primarily in the 15,000 to 70,000 square foot range). The Company
develops, acquires and operates distribution facilities, the majority of which are clustered around major transportation features in
supply-constrained submarkets in major Sunbelt regions. The Company’s core markets are in the states of Florida, Texas, Arizona,
California and North Carolina.
The Company believes its current operating cash flow and unsecured bank credit facilities provide the capacity to fund the operations
of the Company, and the Company also believes it can issue common and/or preferred equity and obtain debt financing. During
2019, EastGroup issued 2,388,342 shares of common stock through its continuous common equity offering program, providing
net proceeds to the Company of $284.7 million. Also during 2019, the Company closed on a private placement of $190 million
of senior unsecured notes and a $100 million senior unsecured term loan. EastGroup's financing and equity issuances are further
described in Liquidity and Capital Resources.
The Company’s primary revenue is rental income. During 2019, EastGroup executed leases on 6,922,000 square feet (16.8% of
EastGroup’s total square footage of 41,271,000 as of December 31, 2019). For new and renewal leases signed during 2019, average
rental rates increased by 17.3% as compared to the former leases on the same spaces.
Property Net Operating Income ("PNOI") Excluding Income from Lease Terminations from same properties (defined as operating
properties owned during the entire current and prior year reporting periods – January 1, 2018 through December 31, 2019), increased
3.7% for 2019 compared to 2018.
EastGroup’s portfolio was 97.6% leased at December 31, 2019 compared to 97.3% at December 31, 2018. Leases scheduled to
expire in 2020 were 13.7% of the portfolio on a square foot basis at December 31, 2019, and this percentage was reduced to 11.8%
as of February 12, 2020.
The Company generates new sources of leasing revenue through its development and acquisition programs. The Company
mitigates risks associated with development through a Board-approved maximum level of land held for development and by
adjusting development start dates according to leasing activity.
During 2019, EastGroup acquired 1,774,000 square feet of operating and value-add properties in Tampa, Greenville, Dallas,
Denver, Phoenix, Las Vegas and San Diego and 188 acres of land in Tampa, Dallas, Houston and San Diego for a total of $269
million. The Company began construction of 18 development projects containing 2,696,000 square feet in Miami, Orlando, Fort
Myers, Charlotte, Atlanta, Dallas, San Antonio, Houston, Austin and Phoenix. Also in 2019, the Company transferred 13
development projects and value-add acquisitions (1,763,000 square feet) in Miami, Orlando, Fort Myers, Charlotte, Atlanta, Dallas,
Houston, San Antonio, Phoenix and San Diego from its development and value-add program to real estate properties with costs
of $156.7 million at the date of transfer. As of December 31, 2019, EastGroup's development and value-add program consisted
of 28 projects (4,088,000 square feet) located in 13 cities. The projected total cost for the development and value-add projects,
which were collectively 41% leased as of February 12, 2020, is $420 million, of which $104 million remained to be invested as
of December 31, 2019.
During 2019, EastGroup sold 617,000 square feet of operating properties and 0.2 acres of land, generating gross sales proceeds
of $68.7 million. The Company recognized $41,068,000 in Gain on sales of real estate investments and $83,000 in gains on sales
of non-operating real estate (included in Other on the Consolidated Statements of Income and Comprehensive Income) during
2019.
The Company typically initially funds its development and acquisition programs through its $395 million unsecured bank credit
facilities (as discussed below under Liquidity and Capital Resources). As market conditions permit, EastGroup issues equity and/
or employs fixed rate debt, including variable rate debt that has been swapped to an effectively fixed rate through the use of interest
rate swaps, to replace short-term bank borrowings. In June 2019, Moody's Investors Service affirmed the Company's issuer rating
of Baa2 with a stable outlook. A security rating is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other
rating. For future debt issuances, the Company intends to issue primarily unsecured fixed rate debt, including variable rate debt
17
that has been swapped to an effectively fixed rate through the use of interest rate swaps. The Company may also access the public
debt market in the future as a means to raise capital.
EastGroup has one reportable segment – industrial properties. The Company's properties, primarily located in major Sunbelt
regions of the United States, have similar economic characteristics and as a result, have been aggregated into one reportable
segment.
The Company’s chief decision makers use two primary measures of operating results in making decisions: (1) funds from operations
attributable to common stockholders (“FFO”), and (2) property net operating income (“PNOI”).
FFO is computed in accordance with standards established by the National Association of Real Estate Investment Trusts, Inc.
(“Nareit”). In December 2018, Nareit issued the “Nareit Funds from Operations White Paper - 2018 Restatement” (the “2018
White Paper”), which reaffirmed, and in some cases refined, Nareit's prior determinations concerning FFO. The guidance in the
2018 White Paper allows preparers an option as it pertains to whether gains or losses on sale, or impairment charges, on real estate
assets incidental to a REIT's business are excluded from the calculation of FFO. EastGroup has made the election to exclude
activity related to such assets that are incidental to our business. In 2019, the Company revised prior periods to reflect this guidance.
FFO is calculated as net income (loss) attributable to common stockholders computed in accordance with U.S. generally accepted
accounting principles ("GAAP"), excluding gains and losses from sales of real estate property (including other assets incidental
to the Company’s business) and impairment losses, adjusted for real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. FFO is not considered as an alternative to net income (determined
in accordance with GAAP) as an indication of the Company’s financial performance, nor is it a measure of the Company’s liquidity
or indicative of funds available to provide for the Company’s cash needs, including its ability to make distributions. The Company’s
key drivers affecting FFO are changes in PNOI (as discussed below), interest rates, the amount of leverage the Company employs
and general and administrative expenses.
PNOI is defined as Income from real estate operations less Expenses from real estate operations (including market-based internal
management fee expense) plus the Company’s share of income and property operating expenses from its less-than-wholly-owned
real estate investments.
EastGroup sometimes refers to PNOI from Same Properties as “Same PNOI”; the Company also presents Same PNOI Excluding
Income from Lease Terminations. Same Properties is defined as operating properties owned during the entire current period and
prior year reporting period. Properties developed or acquired are excluded until held in the operating portfolio for both the current
and prior year reporting periods. Properties sold during the current or prior year reporting periods are also excluded. For the year
ended December 31, 2019, Same Properties includes properties which were included in the operating portfolio for the entire period
from January 1, 2018 through December 31, 2019. The Company presents Same PNOI and Same PNOI Excluding Income from
Lease Terminations as a property-level supplemental measure of performance used to evaluate the performance of the Company’s
investments in real estate assets and its operating results on a same property basis. The Company believes it is useful to evaluate
Same PNOI Excluding Income from Lease Terminations on both a straight-line and cash basis. The straight-line basis is calculated
by averaging the customers’ rent payments over the lives of the leases; GAAP requires the recognition of rental income on the
straight-line basis. The cash basis excludes adjustments for straight-line rent and amortization of market rent intangibles for
acquired leases; the cash basis is an indicator of the rents charged to customers by the Company during the periods presented and
is useful in analyzing the embedded rent growth in the Company’s portfolio.
FFO and PNOI are supplemental industry reporting measurements used to evaluate the performance of the Company’s investments
in real estate assets and its operating results. The Company believes that the exclusion of depreciation and amortization in the
industry’s calculations of PNOI and FFO provides supplemental indicators of the properties’ performance since real estate values
have historically risen or fallen with market conditions. PNOI and FFO as calculated by the Company may not be comparable to
similarly titled but differently calculated measures for other real estate investment trusts (“REITs”). Investors should be aware
that items excluded from or added back to FFO are significant components in understanding and assessing the Company’s financial
performance.
18
PNOI was calculated as follows for the three fiscal years ended December 31, 2019, 2018 and 2017.
Years Ended December 31,
2018
2017
2019
(In thousands)
Income from real estate operations
Expenses from real estate operations
Noncontrolling interest in PNOI of consolidated joint ventures
PNOI from 50% owned unconsolidated investment
PROPERTY NET OPERATING INCOME ("PNOI")
299,018
(86,394)
(314)
869
213,179
330,813
(93,274)
(199)
976
238,316
$
$
274,031
(80,108)
(633)
897
194,187
Income from real estate operations is comprised of rental income, expense reimbursement pass-through income and other real
estate income including lease termination fees. Expenses from real estate operations is comprised of property taxes, insurance,
utilities, repair and maintenance expenses, management fees, other operating costs and bad debt expense. Generally, the Company’s
most significant operating expenses are property taxes and insurance. Tenant leases may be net leases in which the total operating
expenses are recoverable, modified gross leases in which some of the operating expenses are recoverable, or gross leases in which
no expenses are recoverable (gross leases represent only a small portion of the Company’s total leases). Increases in property
operating expenses are fully recoverable under net leases and recoverable to a high degree under modified gross leases. Modified
gross leases often include base year amounts, and expense increases over these amounts are recoverable. The Company’s exposure
to property operating expenses is primarily due to vacancies and leases for occupied space that limit the amount of expenses that
can be recovered.
The following table presents reconciliations of Net Income to PNOI, Same PNOI and Same PNOI Excluding Income from Lease
Terminations for the three fiscal years ended December 31, 2019, 2018 and 2017.
Years Ended December 31,
2019
2018
2017
(In thousands)
$
NET INCOME
123,340
88,636
(41,068)
(14,273)
(Gain) on sales of real estate investments
(83)
(86)
(Gain) on sales of non-operating real estate
—
(427)
(Gain) on sales of other assets
884
497
Net loss on other
(129)
(156)
Interest income
(574)
(1,374)
Other revenue
411
Indirect leasing costs
—
104,724
91,704
Depreciation and amortization
141
128
Company's share of depreciation from unconsolidated investment
34,463
35,106
Interest expense
General and administrative expense 16,406
13,738
(199)
(314)
Noncontrolling interest in PNOI of consolidated joint ventures
238,316
PROPERTY NET OPERATING INCOME ("PNOI")
213,179
(6,520)
(1,444)
PNOI from 2018 and 2019 Acquisitions
(20,321)
(7,771)
PNOI from 2018 and 2019 Development and Value-Add Properties
(3,812)
(4,783)
PNOI from 2018 and 2019 Operating Property Dispositions
247
372
Other PNOI
207,910
SAME PNOI
199,553
(1,257)
(294)
Net lease termination fee (income) from same properties
SAME PNOI EXCLUDING INCOME FROM LEASE
TERMINATIONS
199,259
206,653
$
83,589
(21,855)
(293)
—
—
(247)
(119)
—
83,874
124
34,775
14,972
(633)
194,187
*
*
*
*
*
*
*
* Same property metrics are not applicable to the year ended December 31, 2017, as the same property metrics for 2019 and 2018 are based
on operating properties owned during the entire current and prior year reporting periods (January 1, 2018 through December 31, 2019).
19
The following table presents reconciliations of Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to
FFO Attributable to Common Stockholders for the three fiscal years ended December 31, 2019, 2018 and 2017.
2019
Years Ended December 31,
2018
(In thousands, except per share data)
2017
$
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES,
121,662
INC. COMMON STOCKHOLDERS
104,724
Depreciation and amortization
141
Company's share of depreciation from unconsolidated investment
(186)
Depreciation and amortization from noncontrolling interest
(41,068)
Net (gain) on sales of real estate investments
(83)
Net (gain) on sales of non-operating real estate
—
Net (gain) on sales of other assets
Noncontrolling interest in gain on sales of real estate investments of
consolidated joint ventures
FUNDS FROM OPERATIONS ("FFO") ATTRIBUTABLE TO
COMMON STOCKHOLDERS
88,506
91,704
128
(182)
(14,273)
(86)
(427)
186,861
165,370
1,671
—
$
Net income attributable to common stockholders per diluted share
$
3.24
2.49
83,183
83,874
124
(224)
(21,855)
(293)
—
—
144,809
2.44
Funds from operations ("FFO") attributable to common stockholders
per diluted share
Diluted shares for earnings per share and funds from operations
4.98
37,527
4.66 (1)
4.25 (1)
35,506
34,047
(1) The Company initially reported FFO of $4.67 per share and $4.26 per share during the years ended December 31, 2018 and 2017,
respectively. In connection with the Company's adoption of the Nareit Funds from Operations White Paper - 2018 Restatement, the
Company now excludes from FFO the gains and losses on sales of non-operating real estate and assets incidental to the Company’s
business and therefore adjusted the prior year results, including the Company’s FFO for 2018 and 2017, to conform to the updated
definition of FFO.
The Company analyzes the following performance trends in evaluating the revenues and expenses of the Company:
• The change in FFO per share represents the increase or decrease in FFO per share from the current year compared to the
prior year. For 2019, FFO was $4.98 per share compared with $4.66 per share for 2018, an increase of 6.9%.
•
For the year ended December 31, 2019, PNOI increased by $25,137,000, or 11.8%, compared to 2018. PNOI increased
$12,550,000 from newly developed and value-add properties, $8,357,000 from same property operations and $5,076,000
from 2018 and 2019 acquisitions; PNOI decreased $971,000 from operating properties sold in 2018 and 2019.
• The change in Same PNOI represents the PNOI increase or decrease for the same operating properties owned during the
entire current and prior year reporting periods (January 1, 2018 through December 31, 2019). Same PNOI, excluding
income from lease terminations, increased 3.7% for the year ended December 31, 2019, compared to 2018.
•
Same property average occupancy represents the average month-end percentage of leased square footage for which the
lease term has commenced as compared to the total leasable square footage for the same operating properties owned
during the entire current and prior year reporting periods (January 1, 2018 through December 31, 2019). Same property
average occupancy for the year ended December 31, 2019, was 96.9% compared to 96.3% for 2018.
• Occupancy is the percentage of leased square footage for which the lease term has commenced as compared to the total
leasable square footage as of the close of the reporting period. Occupancy at December 31, 2019 was 97.1%. Quarter-
end occupancy ranged from 96.5% to 97.4% over the previous four quarters ended December 31, 2018 to September 30,
2019.
• Rental rate change represents the rental rate increase or decrease on new and renewal leases compared to the prior leases
on the same space. For the year 2019, rental rate increases on new and renewal leases (16.8% of total square footage)
averaged 17.3%.
• Lease termination fee income is included in Income from real estate operations. For the year 2019, lease termination
fee income was $1,336,000 compared to $294,000 for 2018.
20
•
In 2018 and prior years, the Company’s bad debt expense was included in Expenses from real estate operations. In 2019,
the Company began recording reserves for uncollectible rent as reductions to Income from real estate operations. The
Company recorded reserves for uncollectible rent of $448,000 in 2019 compared to $784,000 in 2018.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s management considers the following accounting policies and estimates to be critical to the reported operations
of the Company.
Real Estate Properties
The Financial Accounting Standards Board ("FASB") Codification provides guidance on how to properly determine the allocation
of the purchase price among the individual components of both the tangible and intangible assets based on their respective fair
values. Goodwill for business combinations is recorded when the purchase price exceeds the fair value of the assets and liabilities
acquired. Factors considered by management in allocating the cost of the properties acquired include an estimate of carrying costs
during the expected lease-up periods considering current market conditions and costs to execute similar leases. The allocation to
tangible assets (land, building and improvements) is based upon management’s determination of the value of the property as if it
were vacant using discounted cash flow models. The Company determines whether any financing assumed is above or below
market based upon comparison to similar financing terms for similar properties. The cost of the properties acquired may be
adjusted based on indebtedness assumed from the seller that is determined to be above or below market rates.
The purchase price is also allocated among the following categories of intangible assets: the above or below market component
of in-place leases, the value of in-place leases, and the value of customer relationships. The value allocable to the above or below
market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the
risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease
over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current market rents over the
remaining term of the lease. The amounts allocated to above and below market leases are included in Other assets and Other
liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the
respective leases. The total amount of intangible assets is further allocated to in-place lease values and customer relationship values
based upon management’s assessment of their respective values. These intangible assets are included in Other assets on the
Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer
relationship, as applicable.
For properties under development and value-add properties acquired in the development stage, costs associated with development
(i.e., land, construction costs, interest expense, property taxes and other costs associated with development) are aggregated into
the total capitalized costs of the property. Included in these costs are management’s estimates for the portions of internal costs
(primarily personnel costs) deemed related to such development activities. The internal costs are allocated to specific development
projects based on development activity.
21
FINANCIAL CONDITION
EastGroup’s Total Assets were $2,546,078,000 at December 31, 2019, an increase of $414,373,000 from December 31, 2018. Total
Liabilities increased $116,747,000 to $1,343,749,000, and Total Equity increased $297,626,000 to $1,202,329,000 during the same
period. The following paragraphs explain these changes in detail.
Assets
Real Estate Properties
Real estate properties increased $291,086,000 during the year ended December 31, 2019. The increase was primarily due to: (i)
operating property acquisitions; (ii) the transfer of 13 properties from Development and value-add properties to Real estate
properties (as detailed under Development and Value-Add Properties below); (iii) capital improvements at the Company's
properties; and (iv) right of use assets for the Company's ground leases. These increases were partially offset by the operating
property sales discussed below.
During 2019, EastGroup acquired the following operating properties:
REAL ESTATE PROPERTIES ACQUIRED IN 2019
Location
Size
Airways Business Center
385 Business Park
Grand Oaks 75 Business Center 1
Siempre Viva Distribution Center 2
Rocky Point Distribution Center 1
Total Real Estate Property Acquisitions
Denver, CO
Greenville, SC
Tampa, FL
San Diego, CA
San Diego, CA
(Square feet)
382,000
155,000
169,000
60,000
118,000
884,000
Date
Acquired
Cost (1)
(In thousands)
05/20/2019
$
07/31/2019
09/06/2019
10/04/2019
12/17/2019
45,775
12,138
16,554
8,590
22,244
$
105,301
(1) Total cost of the operating properties acquired was $113,218,000, of which $105,301,000 was allocated to Real estate properties
as indicated above. The Company allocated $22,750,000 of the total purchase price to land using third party land valuations for
the Denver, Greenville, Tampa and San Diego markets. The market values are considered to be Level 3 inputs as defined by FASB
Accounting Standards Codification ("ASC") 820, Fair Value Measurement (see Note 18 in the Notes to Consolidated Financial
Statements for additional information on ASC 820). Intangibles associated with the purchases of real estate were allocated as
follows: $9,597,000 to in-place lease intangibles and $344,000 to above market leases (both included in Other assets on the
Consolidated Balance Sheets), and $2,024,000 to below market leases (included in Other liabilities on the Consolidated Balance
Sheets).
Also during 2019, EastGroup acquired 6.5 acres of operating land in San Diego for $13,386,000. In connection with the acquisition,
the Company allocated value to land and below market leases. EastGroup recorded land of $13,979,000 based on third party land
valuations for the San Diego market. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value
Measurement. This land, which is included in Real estate properties on the Consolidated Balance Sheets, is currently leased to a
tenant that operates a parking lot on the site. The Company recorded $593,000 to below market leases in connection with this
land acquisition. These costs are amortized over the remaining life of the associated lease in place at the time of acquisition.
EastGroup also acquired 41.6 acres of operating land in San Diego for $15,282,000. This land, which is included in Real estate
properties on the Consolidated Balance Sheets, is currently leased (on a month-to-month basis) to various tenants operating outdoor
storage on the site.
During 2019, EastGroup also acquired a small parcel of land (0.5 acres) adjacent to its Yosemite Distribution Center in Milpitas
(San Francisco), California, for $472,000. This land is included in Real estate properties on the Consolidated Balance Sheets.
During the year ended December 31, 2019, the Company made capital improvements of $38,656,000 on existing and acquired
properties (included in the Capital Expenditures table under Results of Operations). Also, the Company incurred costs of
$5,264,000 on development and value-add projects subsequent to transfer to Real estate properties; the Company records these
expenditures as development and value-add costs on the Consolidated Statements of Cash Flows.
EastGroup sold the following operating properties during 2019: World Houston 5 in Houston, Altamonte Commerce Center in
Orlando, Southpointe Distribution Center in Tucson and three of its four University Business Center buildings in Santa Barbara,
22
California. The properties (617,000 square feet combined) were sold for $68.5 million and the Company recognized gains on the
sales of $41.1 million.
During 2019, EastGroup sold (through eminent domain procedures) a small parcel of land (0.2 acres) adjacent to its Siempre Viva
Distribution Center 1 in San Diego for $185,000, and the Company recognized a gain on the sale of $83,000.
In connection with the Company’s January 1, 2019 implementation of the new lease accounting standard, EastGroup recorded
right of use assets for its ground leases (classified as operating leases). The unamortized balance of the Company’s right of use
assets for its ground leases was $11,997,000 as of December 31, 2019. The right of use assets for ground leases are included in
Real estate properties on the Consolidated Balance Sheets.
Development and Value-Add Properties
EastGroup’s investment in Development and value-add properties at December 31, 2019 consisted of properties in lease-up and
under construction of $315,794,000 and prospective development (primarily land) of $104,205,000. The Company’s total
investment in Development and value-add properties at December 31, 2019 was $419,999,000 compared to $263,664,000 at
December 31, 2018. Total capital invested for development and value-add properties during 2019 was $318,288,000, which
primarily consisted of costs of $265,609,000 as detailed in the Development and Value-Add Properties Activity table below,
$47,415,000 as detailed in the Development and Value-Add Properties Transferred to Real Estate Properties During 2019 table
below and costs of $5,264,000 on projects subsequent to transfer to Real estate properties. The capitalized costs incurred on
development and value-add projects subsequent to transfer to Real estate properties include capital improvements at the properties
and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel
costs).
EastGroup capitalized internal development costs of $6,918,000 during the year ended December 31, 2019, compared to $4,696,000
during 2018.
During 2019, EastGroup acquired the following value-add properties:
VALUE-ADD PROPERTIES ACQUIRED IN 2019
Location
Size
(Square feet)
Date
Acquired
Cost (1)
(In thousands)
Logistics Center 6 & 7
Arlington Tech Centre 1 & 2
Grand Oaks 75 Business Center 2
Interstate Commons Distribution Center 2
Southwest Commerce Center
Rocky Point Distribution Center 2
Total Value-Add Property Acquisitions
Dallas, TX
Dallas, TX
Tampa, FL
Phoenix, AZ
Las Vegas, NV
San Diego, CA
142,000
151,000
150,000
142,000
196,000
109,000
890,000
04/23/2019
$
08/16/2019
09/06/2019
10/21/2019
10/30/2019
12/17/2019
$
12,605
12,615
12,815
9,386
25,609
19,238
92,268
(1) Total cost of the value-add properties acquired was $92,623,000, of which $92,268,000 was allocated to Development and value-
add properties as indicated above. The Company allocated $24,028,000 of the total purchase price to land using third party land
valuations for the Dallas, Tampa, Phoenix, Las Vegas and San Diego markets. The market values are considered to be Level 3 inputs
as defined by ASC 820, Fair Value Measurement (see Note 18 in the Notes to Consolidated Financial Statements for additional
information on ASC 820). The Logistics Center acquisition is under a ground lease; therefore, no value was allocated to land for
this transaction. Intangibles associated with the purchases were allocated as follows: $423,000 to in-place lease intangibles
(included in Other assets on the Consolidated Balance Sheets) and $68,000 to below market leases (included in Other liabilities
on the Consolidated Balance Sheets). These costs are amortized over the remaining lives of the associated leases in place at the
time of acquisition. Costs associated with the value-add property acquisitions, except for the amounts allocated to the acquired
lease intangibles, are included in the Development and Value-Add Properties Activity table below.
Also during 2019, EastGroup purchased 140 acres of development land in Houston, Dallas and Tampa for $34,289,000. Costs
associated with these acquisitions are included in the Development and Value-Add Properties Activity table. These increases were
offset by the transfer of 13 development projects to Real estate properties during 2019 with a total investment of $156,689,000
as of the date of transfer.
23
DEVELOPMENT AND
VALUE-ADD PROPERTIES
ACTIVITY
LEASE-UP
Logistics Center 6 & 7, Dallas, TX (3)
Settlers Crossing 1, Austin, TX
Settlers Crossing 2, Austin, TX
Parc North 5, Dallas, TX
Airport Commerce Center 3, Charlotte, NC
Horizon VIII & IX, Orlando, FL
Ten West Crossing 8, Houston, TX
Tri-County Crossing 1 & 2, San Antonio, TX
CreekView 121 5 & 6, Dallas, TX
Parc North 6, Dallas, TX
Arlington Tech Centre 1 & 2, Dallas, TX (3)
Gateway 5, Miami, FL
Grand Oaks 75 2, Tampa, FL (3)
Southwest Commerce Center, Las Vegas, NV (3)
SunCoast 6, Ft. Myers, FL
Rocky Point 2, San Diego, CA (3)
Steele Creek IX, Charlotte, NC
Total Lease-Up
UNDER CONSTRUCTION
SunCoast 8, Ft. Myers, FL
Gilbert Crossroads A & B, Phoenix, AZ
Hurricane Shoals 3, Atlanta, GA
Interstate Commons 2, Phoenix, AZ (3)
Tri-County Crossing 3 & 4, San Antonio, TX
World Houston 44, Houston, TX
Ridgeview 1 & 2, San Antonio, TX
Creekview 121 7 & 8, Dallas, TX
Northwest Crossing 1-3, Houston, TX
Settlers Crossing 3 & 4, Austin, TX
LakePort 1-3, Dallas, TX
Total Under Construction
PROSPECTIVE DEVELOPMENT
(PRIMARILY LAND)
Phoenix, AZ
Ft. Myers, FL
Miami, FL
Orlando, FL
Tampa, FL
Atlanta, GA
Jackson, MS
Charlotte, NC
Austin, TX
Dallas, TX
Houston, TX
San Antonio, TX
Total Prospective Development
Costs Incurred
Costs
Transferred
in 2019 (1)
For the
Year Ended
12/31/19
Cumulative
as of
12/31/19
Projected
Total Costs (2)
Anticipated
Building
Conversion
Date
(In thousands)
16,400
10,200
9,200
9,200
9,100
18,800
10,900
16,700
16,200
10,100
15,100
23,500
13,600
30,100
9,200
20,600
9,800
248,700
9,000
16,000
8,800
11,800
14,700
9,100
18,500
16,300
25,700
18,400
22,500
170,800
01/20
01/20
01/20
02/20
03/20
04/20
04/20
04/20
06/20
07/20
08/20
09/20
09/20
10/20
10/20
12/20
12/20
05/20
01/21
03/21
03/21
05/21
05/21
06/21
07/21
07/21
07/21
09/21
Building Size
(Square feet)
142,000
77,000
83,000
100,000
96,000
216,000
132,000
203,000
139,000
96,000
151,000
187,000
150,000
196,000
81,000
109,000
125,000
2,283,000
77,000
140,000
101,000
142,000
203,000
134,000
226,000
137,000
278,000
173,000
194,000
1,805,000
Estimated
Building Size
(Square feet)
178,000
329,000
463,000
—
349,000
—
28,000
475,000
—
997,000
1,223,000
373,000
4,415,000
8,503,000
$
$
—
—
—
—
—
4,967
—
—
—
2,552
—
11,944
—
—
3,915
—
1,766
25,144
4,361
3,221
3,890
—
2,334
1,546
2,499
5,489
6,109
4,030
3,542
37,021
(3,221)
(8,276)
(11,944)
(4,967)
—
(3,890)
—
(1,766)
(4,030)
(11,583)
(13,126)
(5,987)
(68,790)
(6,625)
15,735
2,999
1,360
1,736
2,763
11,634
3,174
6,491
7,546
5,738
13,277
11,161
13,115
26,613
4,019
19,275
7,354
153,990
123
10,729
2,739
9,882
6,364
3,244
4,032
1,310
5,426
4,059
4,520
52,428
785
2,457
9,798
323
4,241
3,164
—
1,884
288
18,979
16,135
1,137
59,191
265,609
15,735
9,259
8,475
8,689
8,556
16,601
9,764
15,386
13,151
8,290
13,277
23,105
13,115
26,613
7,934
19,275
9,120
226,345
4,484
13,950
6,629
9,882
8,698
4,790
6,531
6,799
11,535
8,089
8,062
89,449
4,373
7,503
34,185
1,075
5,801
—
706
7,327
—
19,588
19,448
4,199
104,205
419,999
The Development and Value-Add Properties Activity table is continued on the following page.
24
DEVELOPMENT AND VALUE-ADD
PROPERTIES TRANSFERRED TO
REAL ESTATE PROPERTIES
DURING 2019
Costs Incurred
Costs
Transferred
in 2019 (1)
For the
Year Ended
12/31/19
Cumulative
as of
12/31/19
(In thousands)
Building Size
(Square feet)
Siempre Viva I, San Diego, CA (3)
CreekView 121 3 & 4, Dallas, TX
Horizon VI, Orlando, FL
Horizon XI, Orlando, FL
Falcon Field, Phoenix, AZ
Gateway 1, Miami, FL
SunCoast 5, Ft. Myers, FL
Steele Creek V, Charlotte, NC
Broadmoor 2, Atlanta, GA
Eisenhauer Point 9, San Antonio, TX
World Houston 43, Houston, TX
Eisenhauer Point 7 & 8, San Antonio, TX
World Houston 45, Houston, TX
$
115,000
158,000
148,000
135,000
97,000
200,000
81,000
54,000
111,000
82,000
86,000
336,000
160,000
Total Transferred to Real Estate Properties
1,763,000
$
—
—
—
—
—
—
—
—
—
1,154
1,041
—
4,430
6,625
—
1,739
3,682
507
181
3,402
1,335
2,223
1,478
5,175
5,381
9,790
12,522
47,415
14,075
15,539
11,907
9,230
8,413
23,643
7,870
5,537
7,892
6,329
6,422
22,880
16,952
156,689
(4)
Building
Conversion
Date
01/19
03/19
03/19
04/19
05/19
05/19
05/19
07/19
11/19
11/19
11/19
12/19
12/19
(1) Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period. Negative amounts represent
land inventory costs transferred to Under Construction.
Included in these costs are development obligations of $59.3 million and tenant improvement obligations of $7.5 million on properties under development.
(2)
(3) Represents value-add projects acquired by EastGroup.
(4) Represents cumulative costs at the date of transfer.
Accumulated Depreciation
Accumulated depreciation on real estate, development and value-add properties increased $56,224,000 during 2019 due primarily
to depreciation expense of $86,590,000, offset by the sale of 617,000 square feet of operating properties during 2019.
25
Other Assets
Other assets increased $23,391,000 during 2019. A summary of Other assets follows:
Leasing costs (principally commissions)
Accumulated amortization of leasing costs
Leasing costs (principally commissions), net of accumulated amortization
$
Acquired in-place lease intangibles
Accumulated amortization of acquired in-place lease intangibles
Acquired in-place lease intangibles, net of accumulated amortization
Acquired above market lease intangibles
Accumulated amortization of acquired above market lease intangibles
Acquired above market lease intangibles, net of accumulated amortization
December 31,
2019
2018
(In thousands)
89,191
(34,963)
54,228
28,834
(11,918)
16,916
1,721
(1,007)
714
78,985
(30,185)
48,800
21,696
(9,833)
11,863
1,465
(902)
563
Straight-line rents receivable
Accounts receivable
Mortgage loans receivable
Interest rate swap assets
Right of use assets – Office leases (operating) (1)
Goodwill
Prepaid expenses and other assets
Total Other assets
40,369
36,022
5,581
1,679
3,485
2,115
990
18,545
5,433
2,594
6,701
—
990
8,265
$
144,622
121,231
(1) See Note 1(o) in the Notes to Consolidated Financial Statements for information regarding the Company’s January 1, 2019,
implementation of FASB ASC 842, Leases, and the Company’s right of use assets for office leases.
Liabilities
Unsecured bank credit facilities decreased $82,532,000 during 2019, mainly due to repayments of $1,015,678,000 and new debt
issuance costs incurred during the period, partially offset by borrowings of $932,658,000 and the amortization of debt issuance
costs during the period. The Company’s credit facilities are described in greater detail below under Liquidity and Capital Resources.
Unsecured debt increased $214,715,000 during 2019, primarily due to the closing of $80 million of senior unsecured private
placement notes in March, the closing of $110 million of senior unsecured private placement notes in August, the closing of a
$100 million senior unsecured term loan in October and the amortization of debt issuance costs. These increases were offset by
the repayment of a $75 million senior unsecured term loan in July and new debt issuance costs incurred during the period. The
borrowings and repayments on Unsecured debt are described in greater detail below under Liquidity and Capital Resources.
Secured debt decreased $55,368,000 during the year ended December 31, 2019. The decrease resulted from the repayment of two
mortgage loans with principal balances of $45,725,000 and $47,000, regularly scheduled principal payments of $9,821,000 and
amortization of premiums on Secured debt, offset by the amortization of debt issuance costs during the period.
26
Accounts payable and accrued expenses increased $5,461,000 during 2019. A summary of the Company’s Accounts payable and
accrued expenses follows:
Property taxes payable
Development costs payable
Real estate improvements and capitalized leasing costs payable
Interest payable
Dividends payable
Book overdraft (1)
Other payables and accrued expenses
Total Accounts payable and accrued expenses
December 31,
2019
2018
(In thousands)
$
$
2,696
11,766
4,636
6,370
30,714
25,771
10,071
92,024
10,718
15,410
3,911
4,067
27,738
15,048
9,671
86,563
(1) Represents checks written before the end of the period which have not cleared the bank; therefore, the bank has not yet advanced cash
to the Company. When the checks clear the bank, they will be funded through the Company's working cash line of credit. See Note
1(p) in the Notes to Consolidated Financial Statements.
Other liabilities increased $34,471,000 during 2019. A summary of the Company’s Other liabilities follows:
Security deposits
Prepaid rent and other deferred income
Operating lease liabilities — Ground leases (1)
Operating lease liabilities — Office leases (1)
Acquired below-market lease intangibles
Accumulated amortization of acquired below-market lease intangibles
Acquired below-market lease intangibles, net of accumulated amortization
Interest rate swap liabilities
Prepaid tenant improvement reimbursements
Other liabilities
Total Other liabilities
December 31,
2019
2018
(In thousands)
$
$
20,351
13,855
12,048
2,141
8,616
(4,494)
4,122
678
56
15,872
69,123
18,432
12,728
—
—
5,891
(3,028)
2,863
—
614
15
34,652
(1) See Note 1(o) in the Notes to Consolidated Financial Statements for information regarding the Company’s January 1, 2019,
implementation of FASB ASC 842, Leases, and the Company’s right of use assets and related liabilities for ground leases and office
leases.
Equity
Additional paid-in capital increased $291,508,000 during 2019 primarily due to the issuance of common stock under the Company's
continuous common equity offering program (as discussed below under Liquidity and Capital Resources) and stock-based
compensation (as discussed in Note 11 in the Notes to Consolidated Financial Statements). EastGroup issued 2,388,342 shares
of common stock under its continuous common equity offering program with net proceeds to the Company of $284,710,000.
During 2019, Distributions in excess of earnings decreased $9,891,000 as a result of Net Income Attributable to EastGroup
Properties, Inc. Common Stockholders of $121,662,000 exceeding dividends on common stock of $111,771,000.
Accumulated other comprehensive income decreased $3,894,000 during 2019. The decrease resulted from the change in fair value
of the Company's interest rate swaps (cash flow hedges) which are further discussed in Notes 12 and 13 in the Notes to Consolidated
Financial Statements.
27
RESULTS OF OPERATIONS
2019 Compared to 2018
Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for 2019 was $121,662,000 ($3.25 per basic and
$3.24 per diluted share) compared to $88,506,000 ($2.50 per basic and $2.49 per diluted share) for 2018. The following paragraphs
explain the change:
•
PNOI increased by $25,137,000 ($0.67 per diluted share) for 2019 as compared to 2018. PNOI increased $12,550,000
from newly developed and value-add properties, $8,357,000 from same property operations and $5,076,000 from 2018
and 2019 acquisitions; PNOI decreased $971,000 from operating properties sold in 2018 and 2019. For the year 2019,
lease termination fee income was $1,336,000 compared to $294,000 for 2018. The Company recorded reserves for
uncollectible rent of $448,000 in 2019 and $784,000 in 2018. Straight-lining of rent increased Income from real estate
operations by $4,985,000 and $5,116,000 in 2019 and 2018, respectively.
• EastGroup recognized gains on sales of real estate investments of $41,068,000 ($1.09 per diluted share) compared to
$14,273,000 ($0.40 per diluted share) during 2018.
• Depreciation and amortization expense increased by $13,020,000 ($0.35 per diluted share) during 2019 compared to
2018.
• During 2019, EastGroup recognized gain on casualties and involuntary conversion of $428,000 ($0.01 per diluted share),
compared to $1,245,000 ($0.04 per diluted share) during 2018.
EastGroup signed 160 leases with certain free rent concessions on 4,281,000 square feet during 2019 with total free rent concessions
of $6,114,000 over the lives of the leases, compared to 132 leases with free rent concessions on 3,800,000 square feet with total
free rent concessions of $5,944,000 over the lives of the leases in 2018.
The Company’s percentage of leased square footage was 97.6% at December 31, 2019, compared to 97.3% at December 31,
2018. Occupancy at the end of 2019 was 97.1% compared to 96.8% at December 31, 2018.
Same property average occupancy represents the average month-end percentage of leased square footage for which the lease term
has commenced as compared to the total leasable square footage for the same operating properties owned during the entire current
and prior year reporting periods (January 1, 2018 through December 31, 2019). Same property average occupancy for the year
ended December 31, 2019, was 96.9% compared to 96.3% for 2018.
The same property average rental rate calculated in accordance with GAAP represents the average annual rental rates of leases in
place for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2018 through
December 31, 2019). The same property average rental rate was $6.10 per square foot for the year ended December 31, 2019,
compared to $5.92 per square foot for 2018.
28
Interest Expense decreased $643,000 for the year ended December 31, 2019 compared to 2018. The following table presents the
components of Interest Expense for 2019 and 2018:
Years Ended December 31,
2019
2018
(In thousands)
Increase
(Decrease)
VARIABLE RATE INTEREST EXPENSE
Unsecured bank credit facilities interest - variable rate
(excluding amortization of facility fees and debt issuance costs)
5,756
2,020
3,736
$
Amortization of facility fees - unsecured bank credit facilities
790
736
556
508
Amortization of debt issuance costs - unsecured bank credit facilities
Total variable rate interest expense 7,102
FIXED RATE INTEREST EXPENSE
Unsecured bank credit facilities interest - fixed rate (1) (2)
4,980
54
48
2,122
(excluding amortization of facility fees and debt issuance costs)
1,001
—
Unsecured debt interest (1) (excluding amortization of debt issuance costs)
Secured debt interest (excluding amortization of debt issuance costs)
539
Amortization of debt issuance costs - unsecured debt
249
Amortization of debt issuance costs - secured debt
Total fixed rate interest expense 35,814
42,916
Total interest
(8,453)
34,463
Less capitalized interest
TOTAL INTEREST EXPENSE
28,039
6,987
$
24,544
10,071
564
280
36,460
41,440
(6,334)
35,106
(1,001)
3,495
(3,084)
(25)
(31)
(646)
1,476
(2,119)
(643)
(1) Includes interest on the Company's unsecured bank credit facilities and unsecured debt with fixed interest rates per the debt agreements
or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements.
(2) The Company had designated an interest rate swap to an $80 million unsecured bank credit facility draw that effectively fixed the
interest rate on the $80 million draw to 2.020% through the interest rate swap's maturity date. This swap matured on August 15, 2018,
and the $80 million draw has reverted to the variable interest rate associated with the Company's unsecured bank credit facilities.
EastGroup's variable rate interest expense increased by $2,122,000 for 2019 as compared to 2018 primarily due to increases in
the Company's weighted average interest rate and average borrowings on its unsecured bank credit facilities as shown in the
following table:
Average borrowings on unsecured bank credit facilities - variable rate
Weighted average variable interest rates
(excluding amortization of facility fees and debt issuance costs)
Years Ended December 31,
2019
2018
Increase
(Decrease)
(In thousands, except rates of interest)
$ 172,175
141,223
30,952
3.34%
2.64%
The Company's fixed rate interest expense decreased by $646,000 for 2019 as compared to 2018 as a result of the secured debt,
unsecured debt and fixed rate unsecured bank credit facilities activity described below.
Secured debt interest decreased by $3,084,000 in 2019 as compared to 2018 as a result of regularly scheduled principal payments
and debt repayments. Regularly scheduled principal payments on secured debt were $9,821,000 during 2019 and $11,289,000 in
2018. The Company did not repay any secured debt in 2018. The details of the secured debt repaid in 2019 are shown in the
following table:
29
SECURED DEBT REPAID IN 2019
Interest Rate
Date Repaid
Payoff Amount
Dominguez, Industry I & III, Kingsview, Shaw, Walnut and Washington
Blue Heron II
Weighted Average/Total Amount for 2019
EastGroup did not obtain any new secured debt during 2018 or 2019.
7.50%
5.39%
7.50%
04/05/2019
12/16/2019
(In thousands)
$
$
45,725
47
45,772
Interest expense from fixed rate unsecured bank credit facilities decreased by $1,001,000 during 2019 as compared to 2018 due
to the August 15, 2018 maturity of an interest rate swap designated to an $80 million draw on the Company's unsecured bank
credit facilities. See footnote (2) in the interest expense summary table above for additional details.
Interest expense from fixed rate unsecured debt increased by $3,495,000 during 2019 as compared to 2018 as a result of the
Company's unsecured debt activity described below. The details of the unsecured debt obtained in 2018 and 2019 are shown in
the following table:
NEW UNSECURED DEBT IN 2018 and 2019
Effective Interest Rate
Date Obtained
Maturity Date
$60 Million Senior Unsecured Notes
$80 Million Senior Unsecured Notes
$35 Million Senior Unsecured Notes
$75 Million Senior Unsecured Notes
$100 Million Senior Unsecured Term Loan (1)
Weighted Average/Total Amount for 2018 and 2019
3.93%
4.27%
3.54%
3.47%
2.75%
3.53%
04/10/2018
03/28/2019
08/15/2019
08/19/2019
10/10/2019
04/10/2028
03/28/2029
08/15/2031
08/19/2029
10/10/2026
Amount
(In thousands)
60,000
$
80,000
35,000
75,000
100,000
$
350,000
(1) The interest rate on this unsecured term loan is comprised of LIBOR plus 150 basis points subject to a pricing grid for changes in the
Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate,
providing the Company a weighted average effective interest rate on the term loan of 2.75% as of December 31, 2019. See Note 13
in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.
The increase in interest expense from the new unsecured debt was partially offset by the repayment of the following unsecured
loans during 2018 and 2019:
UNSECURED DEBT REPAID IN 2018 AND 2019
Interest Rate
Date Repaid
$50 Million Senior Unsecured Term Loan
$75 Million Senior Unsecured Term Loan
Weighted Average/Total Amount for 2018 and 2019
3.91%
2.85%
3.27%
06/21/2018
07/31/2019
Payoff Amount
(In thousands)
$
$
50,000
75,000
125,000
Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized
interest increased by $2,119,000 for 2019 as compared to 2018. The increase is due to changes in development spending and
borrowing rates.
Depreciation and amortization expense increased $13,020,000 for 2019 compared to 2018 primarily due to the operating properties
acquired by the Company during 2018 and 2019 and the properties transferred from Development and value-add properties in
2018 and 2019, partially offset by operating properties sold in 2018 and 2019.
Gain on sales of real estate investments, which includes gains on the sales of operating properties, increased $26,795,000 for 2019
as compared to 2018. The Company's 2018 and 2019 sales transactions are described below in Real Estate Sold and Held for
Sale/Discontinued Operations.
30
Real Estate Improvements
Real estate improvements for EastGroup’s operating properties for the years ended December 31, 2019 and 2018 were as follows:
Upgrade on Acquisitions
40 yrs
$
1,863
294
Estimated
Useful Life
Years Ended December 31,
2019
2018
(In thousands)
Tenant Improvements:
New Tenants
Renewal Tenants
Other:
Building Improvements
Roofs
Parking Lots
Other
Total Real Estate Improvements (1)
Lease Life
Lease Life
5-40 yrs
5-15 yrs
3-5 yrs
5 yrs
13,113
3,908
5,304
12,179
1,455
834
$
38,656
12,896
2,926
9,012
9,053
2,878
861
37,920
(1) Reconciliation of Total Real Estate Improvements to Real Estate Improvements on the Consolidated Statements of Cash Flows:
Total Real Estate Improvements
Change in Real Estate Property Payables
Change in Construction in Progress
Real Estate Improvements on the Consolidated Statements of Cash Flows
Years Ended December 31,
2019
2018
(In thousands)
$
$
38,656
(876)
(5)
37,775
37,920
581
(999)
37,502
Capitalized Leasing Costs
The Company’s leasing costs (principally commissions) are capitalized and included in Other assets. The costs are amortized over
the terms of the associated leases, and the amortization is included in Depreciation and amortization expense. Capitalized leasing
costs for the years ended December 31, 2019 and 2018 were as follows:
Development and Value-Add
New Tenants
Renewal Tenants
Total Capitalized Leasing Costs
Amortization of Leasing Costs
Estimated
Useful Life
Lease Life
Lease Life
Lease Life
Years Ended December 31,
2019
2018
(In thousands)
$
$
$
8,065
5,900
5,069
19,034
13,167
4,843
5,880
5,038
15,761
11,493
Real Estate Sold and Held for Sale/Discontinued Operations
The Company considers a real estate property to be held for sale when it meets the criteria established under ASC 360, Property,
Plant and Equipment, including when it is probable that the property will be sold within a year. Real estate properties held for
sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they
are held for sale.
The Company did not classify any properties as held for sale as of December 31, 2019 and 2018.
In accordance with FASB Accounting Standards Update ("ASU") 2014-08, Presentation of Financial Statements (Topic 205) and
Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of
an Entity, the Company would report a disposal of a component of an entity or a group of components of an entity in discontinued
operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial
results when the component or group of components meets the criteria to be classified as held for sale or when the component or
31
group of components is disposed of by sale or other than by sale. In addition, the Company would provide additional disclosures
about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for
discontinued operations presentation in the financial statements. EastGroup performs an analysis of properties sold to determine
whether the sales qualify for discontinued operations presentation.
The Company does not consider its sales in 2018 and 2019 to be disposals of a component of an entity or a group of components
of an entity representing a strategic shift that has (or will have) a major effect on the entity's operations and financial results.
EastGroup sold the following operating properties during 2019: World Houston 5 in Houston, Altamonte Commerce Center in
Orlando, Southpointe Distribution Center in Tucson and three of its four University Business Center buildings in Santa Barbara,
California. The properties (617,000 square feet combined) were sold for $68.5 million and the Company recognized gains on the
sales of $41.1 million. The Company also sold (through eminent domain procedures) a small parcel of land (0.2 acres) adjacent
to its Siempre Viva Distribution Center 1 in San Diego for $185,000 and the Company recognized a gain on the sale of $83,000.
In 2018, EastGroup sold the following operating properties: World Houston 18 in Houston, 56 Commerce Park in Tampa, and
35th Avenue Distribution Center in Phoenix. The properties contain a combined 339,000 square feet and were sold for $22.9
million. EastGroup recognized gains on the sales of $14.3 million. The Company also sold 11 acres of land in Houston for $2.6
million and recognized a gain on the sale of $86,000.
The gains and losses on the sales of land are included in Other on the Consolidated Statements of Income and Comprehensive
Income, and the gains and losses on the sales of operating properties are included in Gain on sales of real estate investments. See
Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and
gains and losses on sales of real estate investments.
2018 Compared to 2017
Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for 2018 was $88,506,000 ($2.50 per basic and
$2.49 per diluted share) compared to $83,183,000 ($2.45 per basic and $2.44 per diluted share) for 2017.
•
PNOI increased by $18,992,000 ($0.53 per diluted share) for 2018 as compared to 2017. PNOI increased $11,900,000
from newly developed and value-add properties, $6,712,000 from same property operations and $2,134,000 from 2017
and 2018 acquisitions; PNOI decreased $1,831,000 from operating properties sold in 2017 and 2018. For the year 2018,
lease termination fee income was $294,000 compared to $468,000 for 2017. The Company recorded net bad debt expense
of $784,000 in 2018 and $499,000 in 2017. Straight-lining of rent increased Income from real estate operations by
$5,116,000 and $3,723,000 in 2018 and 2017, respectively.
• EastGroup recognized gains on sales of real estate investments of $14,273,000 ($0.40 per diluted share) compared to
$21,855,000 ($0.64 per diluted share) during 2017.
• Depreciation and amortization expense increased by $7,830,000 ($0.22 per diluted share).
• During 2018, EastGroup recognized gain on casualties and involuntary conversion of $1,245,000 ($0.04 per diluted
share), compared to zero during 2017.
The Company signed 132 leases with certain free rent concessions on 3,800,000 square feet during 2018 with total free rent
concessions of $5,944,000 over the lives of the leases, compared to 138 leases with free rent concessions on 3,919,000 square feet
with total free rent concessions of $5,672,000 over the lives of the leases in 2017.
The Company’s percentage of leased square footage was 97.3% at December 31, 2018, compared to 97.0% at December 31,
2017. Occupancy at the end of 2018 was 96.8% compared to 96.4% at the end of 2017.
Same property average occupancy (for the same operating properties owned during the period from January 1, 2017 through
December 31, 2018) for the year ended December 31, 2018, was 96.9% compared to 96.6% for 2017. The same property average
rental rate was $5.94 per square foot for the year ended December 31, 2018, compared to $5.74 per square foot for 2017.
32
Interest expense increased $331,000 in 2018 compared to 2017. The following table presents the components of Interest expense
for 2018 and 2017:
Years Ended December 31,
2018
2017
(In thousands)
Increase
(Decrease)
VARIABLE RATE INTEREST EXPENSE
Unsecured bank credit facilities interest - variable rate
(excluding amortization of facility fees and debt issuance costs)
3,736
1,357
2,379
$
Amortization of facility fees - unsecured bank credit facilities
736
670
451
Amortization of debt issuance costs - unsecured bank credit facilities
508
Total variable rate interest expense 4,980
FIXED RATE INTEREST EXPENSE
Unsecured bank credit facilities interest - fixed rate (1)(2)
3,500
66
57
1,480
(excluding amortization of facility fees and debt issuance costs)
1,001
1,616
Unsecured debt interest (1) (excluding amortization of debt issuance costs)
Secured debt interest (excluding amortization of debt issuance costs)
Amortization of debt issuance costs - unsecured debt
Amortization of debt issuance costs - secured debt
24,544
10,071
564
280
Total fixed rate interest expense 36,460
Total interest
Less capitalized interest
TOTAL INTEREST EXPENSE
$
41,440
(6,334)
35,106
22,425
12,201
479
319
37,040
40,540
(5,765)
34,775
(615)
2,119
(2,130)
85
(39)
(580)
900
(569)
331
(1) Includes interest on the Company's unsecured bank credit facilities and unsecured debt with fixed interest rates per the debt agreements
or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements.
(2) The Company had designated an interest rate swap to an $80 million unsecured bank credit facility draw that effectively fixed the
interest rate on the $80 million draw to 2.020% through the interest rate swap's maturity date. This swap matured on August 15, 2018,
and the $80 million draw has reverted to the variable interest rate associated with the Company's unsecured bank credit facilities.
EastGroup's variable rate interest expense increased by $1,480,000 for 2018 as compared to 2017 primarily due to increases in
the Company's weighted average interest rate and average borrowings on its unsecured bank credit facilities as shown in the
following table:
Average borrowings on unsecured bank credit facilities - variable rate
Weighted average variable interest rates
(excluding amortization of facility fees and debt issuance costs)
Years Ended December 31,
2018
2017
Increase
(Decrease)
(In thousands, except rates of interest)
$
141,223
114,751
26,472
2.64%
2.07%
The Company's fixed rate interest expense decreased by $580,000 for 2018 as compared to 2017 as a result of the secured debt,
fixed rate unsecured bank credit facilities and unsecured debt activity described below.
Secured debt interest decreased by $2,130,000 in 2018 as compared to 2017 as a result of regularly scheduled principal payments
and debt repayments. Regularly scheduled principal payments on secured debt were $11,289,000 during 2018 and $13,139,000
in 2017. The Company did not repay any secured debt in 2018. The details of the secured debt repaid in 2017 are shown in the
following table:
SECURED DEBT REPAID IN 2017
Interest Rate
Date Repaid
Payoff Amount
Arion 16, Broadway VI, Chino, East University I & II, Northpark I-IV,
Santan 10 II, 55th Avenue and World Houston 1 & 2, 21 & 23
5.57%
08/07/2017
$
45,069
(In thousands)
33
EastGroup did not obtain any new secured debt during 2017 or 2018.
The Company's interest expense from fixed rate unsecured bank credit facilities decreased by $615,000 during 2018 as compared
to 2017 due to the August 15, 2018 maturity of an interest rate swap designated to an $80 million draw on the Company's unsecured
bank credit facilities. See footnote (2) in the interest expense summary table above for additional details.
The Company's interest expense from fixed rate unsecured debt increased by $2,119,000 during 2018 as compared to 2017 as a
result of the Company's unsecured debt activity described below. The details of the unsecured debt obtained in 2017 and 2018
are shown in the following table:
NEW UNSECURED DEBT IN 2017 and 2018
Effective Interest Rate
Date Obtained
Maturity Date
$60 Million Senior Unsecured Notes
$60 Million Senior Unsecured Notes
Weighted Average/Total Amount for 2017 and 2018
3.460%
3.930%
3.695%
12/13/2017
04/10/2018
12/13/2024
04/10/2028
Amount
(In thousands)
60,000
$
60,000
$
120,000
The increase in interest expense from the new unsecured debt was partially offset by the refinancing of two unsecured loans and
the repayment of a $50 million unsecured term loan. In December 2017, the Company refinanced a $75 million unsecured term
loan, resulting in a 30 basis point reduction in the loan's interest rate. The loan, which has a maturity date of December 20, 2020,
now has an effectively fixed interest rate of 3.452%. In February 2018, EastGroup refinanced a $65 million unsecured term loan,
resulting in a 55 basis point reduction in the loan's interest rate. The loan, which has a maturity date of April 1, 2023, now has an
effectively fixed interest rate of 2.313%. In June 2018, the Company repaid (with no penalty) a $50 million senior unsecured term
loan with an effective interest rate of 3.91% and an original maturity date of December 21, 2018.
Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized
interest increased by $569,000 for 2018 as compared to 2017. The increase was due to changes in development spending and
borrowing rates.
Depreciation and amortization expense increased $7,830,000 for 2018 compared to 2017 primarily due to the operating properties
acquired by the Company during 2017 and 2018 and the properties transferred from Development and value-add properties in
2017 and 2018, partially offset by operating properties sold in 2017 and 2018.
Gain on sales of real estate investments, which includes gains on the sales of operating properties, decreased $7,582,000 for 2018
as compared to 2017. The Company's 2017 and 2018 sales transactions are described below in Real Estate Sold and Held for
Sale/Discontinued Operations.
34
Real Estate Improvements
Real Estate Improvements for EastGroup’s operating properties for the years ended December 31, 2018 and 2017 were as follows:
Upgrade on Acquisitions
40 yrs
$
294
161
Estimated
Useful Life
Years Ended December 31,
2018
2017
(In thousands)
Tenant Improvements:
New Tenants
Renewal Tenants
Other:
Building Improvements
Roofs
Parking Lots
Other
Total Real Estate Improvements (1)
Lease Life
Lease Life
5-40 yrs
5-15 yrs
3-5 yrs
5 yrs
12,896
2,926
9,012
9,053
2,878
861
$
37,920
11,413
3,357
3,362
6,197
1,880
1,101
27,471
(1) Reconciliation of Total Real Estate Improvements to Real Estate Improvements on the Consolidated Statements of Cash Flows:
Total Real Estate Improvements
Change in Real Estate Property Payables
Change in Construction in Progress
$
Real Estate Improvements on the Consolidated Statements of Cash Flows
$
Years Ended December 31,
2018
2017
(In thousands)
37,920
581
(999)
37,502
27,471
(1,313)
1,227
27,385
Capitalized Leasing Costs
The Company’s leasing costs (principally commissions) are capitalized and included in Other assets. The costs are amortized
over the terms of the associated leases, and the amortization is included in Depreciation and amortization expense. Capitalized
leasing costs for the years ended December 31, 2018 and 2017 were as follows:
Development and Value-Add
New Tenants
Renewal Tenants
Total Capitalized Leasing Costs
Amortization of Leasing Costs
Estimated
Useful Life
Lease Life
Lease Life
Lease Life
Years Ended December 31,
2018
2017
(In thousands)
$
$
$
4,843
5,880
5,038
15,761
11,493
5,571
5,782
4,907
16,260
10,329
Real Estate Held for Sale/Discontinued Operations
The Company did not classify any properties as held for sale as of December 31, 2018 and 2017.
The Company does not consider its sales in 2017 and 2018 to be disposals of a component of an entity or a group of components
of an entity representing a strategic shift that has (or will have) a major effect on the entity's operations and financial results.
In 2018, EastGroup sold the following operating properties: World Houston 18 in Houston, 56 Commerce Park in Tampa, and
35th Avenue Distribution Center in Phoenix. The properties contain a combined 339,000 square feet and were sold for $22.9
million. EastGroup recognized gains on the sales of $14.3 million. The Company also sold 11 acres of land in Houston for $2.6
million and recognized a gain on the sale of $86,000.
35
During 2017, Eastgroup sold Stemmons Circle and Techway Southwest I-IV. The properties, which contain 514,000 square feet
and are located in Houston and Dallas, were sold for $38.0 million and the Company recognized net gains on the sales of $21.9
million. The Company also sold 19 acres of land in El Paso and Dallas for $3,778,000 and recognized net gains of $293,000.
The gains and losses on the sales of land are included in Other on the Consolidated Statements of Income and Comprehensive
Income, and the gains and losses on the sales of operating properties are included in Gain on sales of real estate investments. See
Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and
gains and losses on sales of real estate investments.
RECENT ACCOUNTING PRONOUNCEMENTS
EastGroup has evaluated all ASUs recently released by the FASB through the date the financial statements were issued and
determined that the following ASUs apply to the Company.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and in subsequent periods, issued ASU 2018-10, 2018-11,
and 2018-20, all of which relate to the new lease accounting guidance. The Company adopted the new lease accounting guidance
effective January 1, 2019, and has applied its provisions on a prospective basis. The following changes are applicable to the
Company’s financial condition and results of operations:
• Lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement
date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a
discounted basis; and (2) a right of use asset, which is an asset that represents the lessee’s right to use, or control the use
of, a specified asset for the lease term. The Company is a lessee on a limited number of leases, including office and
ground leases. As of January 1, 2019, the Company recorded its right of use asset and lease liability values for its operating
leases as follows: office leases of $2,376,000 and ground leases of $10,226,000. The combined values of the Company's
right of use assets and lease liabilities for its ground leases and office leases are less than 1% of the Company’s Total
assets as of December 31, 2019.
• Lessor accounting is largely unchanged under ASU 2016-02. The Company’s primary revenue is rental income; as such,
the Company is a lessor on a significant number of leases. The Company is continuing to account for its leases in
substantially the same manner. The most significant changes for the Company related to lessor accounting include:
The new standard’s narrow definition of initial direct costs for leases — The new definition of initial direct costs
results in certain costs (primarily legal costs related to lease negotiations) being expensed rather than capitalized
upon adoption of the new standard. EastGroup recorded Indirect leasing costs of $411,000 on the Consolidated
Statements of Income and Comprehensive Income during 2019.
The guidance applicable to recording uncollectible rents — Upon adoption of the lease accounting guidance,
reserves for uncollectible accounts are recorded as a reduction to revenue. Prior to adoption, reserves for
uncollectible accounts were recorded as bad debt expenses. The standard also provides guidance related to
calculating the reserves; however, those changes did not impact the Company.
• EastGroup has elected the practical expedient permitting lessors and lessees to make an accounting policy election by
class of underlying asset to not separate non-lease components (such as common area maintenance) of a contract from
the lease component to which they relate when specific criteria are met. The Company believes its leases meet the criteria.
The Company has applied the provisions of the new lease accounting standard and provided the required disclosures in this Annual
Report on Form 10-K.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities. The ASU is intended to better align a company’s financial reporting for hedging activities with the economic
objectives of those activities. The transition method is a modified retrospective approach that requires companies to recognize
the cumulative effect of initially applying the ASU as an adjustment to Accumulated other comprehensive income with a
corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year the entity adopts the
ASU. The primary provision in the ASU that will require an adjustment to beginning retained earnings is the change in timing
and income statement presentation for ineffectiveness related to cash flow and net investment hedges. As a result of the transition
guidance in the ASU, cumulative ineffectiveness that has previously been recognized on cash flow and net investment hedges that
are still outstanding and designated as of the date of adoption will be adjusted and removed from beginning retained earnings and
placed in Accumulated other comprehensive income. The Company adopted ASU 2017-12 on January 1, 2019; the adoption of
ASU 2017-12 did not have a material impact on its financial condition, results of operations or disclosures.
36
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight
Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The
ASU applies to all entities that elect to apply hedge accounting to benchmark interest rates under Topic 815 and permits the use
of the OIS rate based on SOFR as a United States (U.S.) benchmark rate for hedge accounting purposes under Topic 815 in addition
to the interest rates on direct Treasury obligations of the U.S. government, the London Inter-bank Offered Rate (“LIBOR”) swap
rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (“SIFMA”)
Municipal Swap Rate. ASU 2018-16 was effective upon adoption of ASU 2017-12. The Company adopted ASU 2017-12 and
ASU 2018-16 on January 1, 2019, and the adoption of both ASUs did not have a material impact on its financial condition, results
of operations or disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, and subsequently issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments
— Credit Losses in November 2018. The ASUs amend guidance on reporting credit losses for assets held at amortized cost basis
and available for sale debt securities. For assets held at amortized cost, Topic 326 eliminates the probable initial recognition
threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available
for sale debt securities (EastGroup does not currently hold any and does not intend to hold any in the future), credit losses should
be measured in a similar manner to current GAAP; however, Topic 326 will require that credit losses be presented as an allowance
rather than a write-down. The ASUs affect entities holding financial assets and are effective for annual periods beginning after
December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2016-13 and ASU 2018-19 on
January 1, 2020, and will provide the necessary disclosures beginning with its Form 10-Q for the period ending March 31, 2020.
EastGroup does not expect the adoption to have a material impact on its financial condition, results of operations or disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement. The ASU is intended to improve the effectiveness of fair value measurement
disclosures. ASU 2018-13 is effective for all entities for annual periods beginning after December 15, 2019, and interim periods
within those fiscal years. The Company adopted ASU 2018-13 on January 1, 2020, and will provide the necessary disclosures
beginning with its Form 10-Q for the period ending March 31, 2020. EastGroup does not expect the adoption to have a material
impact on its financial condition, results of operations or disclosures.
37
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $195,912,000 for the year ended December 31, 2019. The primary other sources
of cash were from borrowings on unsecured bank credit facilities; proceeds from unsecured debt; proceeds from common stock
offerings; and net proceeds from sales of real estate investments and non-operating real estate. The Company distributed
$108,795,000 in common stock dividends during 2019. Other primary uses of cash were for repayments on unsecured bank credit
facilities, unsecured debt and secured debt; the construction and development of properties; purchases of real estate; and capital
improvements at various properties.
Total debt at December 31, 2019 and 2018 is detailed below. The Company’s unsecured bank credit facilities and unsecured debt
instruments have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining
insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2019 and 2018.
Unsecured bank credit facilities - variable rate, carrying amount
$
Unamortized debt issuance costs
Unsecured bank credit facilities
Unsecured debt - fixed rate, carrying amount (1)
Unamortized debt issuance costs
Unsecured debt
Secured debt - fixed rate, carrying amount (1)
Unamortized debt issuance costs
Secured debt
December 31,
2019
2018
(In thousands)
112,710
(1,316)
111,394
940,000
(1,885)
938,115
133,422
(329)
133,093
195,730
(1,804)
193,926
725,000
(1,600)
723,400
189,038
(577)
188,461
Total debt
$
1,182,602
1,105,787
(1) These loans have a fixed interest rate or an effectively fixed interest rate due to interest rate swaps.
Until June 14, 2018, EastGroup had $300 million and $35 million unsecured bank credit facilities with margins over LIBOR of
100 basis points, facility fees of 20 basis points and maturity dates of July 30, 2019. The Company amended and restated these
credit facilities on June 14, 2018, expanding the capacity to $350 million and $45 million, as detailed below.
The $350 million unsecured bank credit facility is with a group of nine banks and has a maturity date of July 30, 2022. The credit
facility contains options for two six-month extensions (at the Company's election) and a $150 million accordion (with agreement
by all parties). The interest rate on each tranche is usually reset on a monthly basis and as of December 31, 2019, was LIBOR
plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the
Company's credit ratings. The Company had designated an interest rate swap to an $80 million unsecured bank credit facility
draw that effectively fixed the interest rate on the $80 million draw to 2.020% through the interest rate swap's maturity date. This
swap matured on August 15, 2018, and the $80 million draw has reverted to the variable interest rate associated with the Company's
unsecured bank credit facilities. As of December 31, 2019, the Company had $105,000,000 of variable rate borrowings outstanding
on this unsecured bank credit facility with a weighted average interest rate of 2.776%. The Company has a standby letter of credit
of $674,000 pledged on this facility.
The Company's $45 million unsecured bank credit facility has a maturity date of July 30, 2022, or such later date as designated
by the bank; the Company also has two six-month extensions available if the extension options in the $350 million facility are
exercised. The interest rate is reset on a daily basis and as of December 31, 2019, was LIBOR plus 100 basis points with an annual
facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings. As of December 31,
2019, the interest rate was 2.763% on a balance of $7,710,000.
As market conditions permit, EastGroup issues equity and/or employs fixed rate debt, including variable rate debt that has been
swapped to an effectively fixed rate through the use of interest rate swaps, to replace the short-term bank borrowings. The Company
believes its current operating cash flow and unsecured bank credit facilities provide the capacity to fund the operations of the
Company. The Company also believes it can obtain debt financing and issue common and/or preferred equity. For future debt
38
issuances, the Company intends to issue primarily unsecured fixed rate debt, including variable rate debt that has been swapped
to an effectively fixed rate through the use of interest rate swaps. The Company may also access the public debt market in the
future as a means to raise capital.
In March 2019, the Company closed on the private placement of $80 million of senior unsecured notes with an insurance company.
The notes have a 10-year term and a fixed interest rate of 4.27% with semi-annual interest payments. In August 2019, the Company
closed on the private placement of $35 million of senior unsecured notes with an insurance company. The notes have a 12-year
term and a fixed interest rate of 3.54% with semi-annual interest payments. Also in August 2019, the Company closed on the
private placement of $75 million of senior unsecured notes with an insurance company. The notes have a 10-year term and a fixed
rate of 3.47% with semi-annual interest payments. None of these senior unsecured notes are or will be registered under the Securities
Act of 1933, as amended, and they may not be offered or sold in the United States absent registration or an applicable exemption
from the registration requirements.
In October 2019, the Company closed a $100 million senior unsecured term loan with a seven-year term and interest only payments.
It bears interest at the annual rate of LIBOR plus an applicable margin (1.50% as of December 31, 2019 and February 12, 2020)
based on the Company’s senior unsecured long-term debt rating. The Company also entered into an interest rate swap agreement
to convert the loan’s LIBOR rate component to a fixed interest rate for the entire term of the loan providing a total effective fixed
interest rate of 2.75%.
In April 2019, EastGroup repaid (with no penalty) a mortgage loan with a balance of $45,725,000, an interest rate of 7.50% and
an original maturity date of May 5, 2019. The loan was collateralized by 1.7 million square feet of operating properties. In
December 2019, the Company repaid (with no penalty) a mortgage loan with a balance of $47,000, an interest rate of 5.39% and
an original maturity date of February 29, 2020.
In July 2019, the Company repaid a $75 million unsecured term loan at maturity with an effectively fixed interest rate of 2.85%.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to
submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of
New York organized the Alternative Reference Rates Committee ("ARRC") which identified the Secured Overnight Financing
Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Company is not able
to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes
adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase
or decrease in reported LIBOR. If that were to occur, interest payments could change. In addition, uncertainty about the extent
and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain
available in its current form.
The Company’s unsecured bank credit facilities, senior unsecured term loans and interest rate swap contracts are indexed to LIBOR.
The Company is continuously monitoring and evaluating the related risks, which include interest on loans and amounts received
and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including
any resulting value transfer that may occur. The value of loans or derivative instruments tied to LIBOR could also be impacted if
LIBOR is limited or discontinued as interest rates may be adversely affected. While we expect LIBOR to be available in substantially
its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for
example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the
transition to an alternative reference rate will be accelerated and magnified.
Each of the Company’s contracts, which are indexed to LIBOR, include provisions for a replacement rate which will be substantially
equivalent to the all-in LIBOR-based interest rate in effect prior to its replacement. Therefore, the Company believes the transition
will not have a material impact on our consolidated financial statements.
EastGroup entered into sales agreements with each of BNY Mellon Capital Markets, LLC; Merrill Lynch, Pierce, Fenner & Smith
Incorporated; Jefferies LLC; and Raymond James & Associates, Inc. on March 6, 2017, and with BTIG, LLC; Robert W. Baird
& Co. Incorporated and Wells Fargo Securities, LLC on February 15, 2018 in connection with the establishment of a continuous
equity offering program pursuant to which the Company would sell up to an aggregate of 10,000,000 shares of its common stock
from time to time (the "Prior Program"). Pursuant to the Prior Program, the shares could be offered and sold in transactions that
are deemed to be "at the market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended, or certain other
transactions. Since its establishment in 2017, the Company sold an aggregate of 7,693,476 shares of common stock under the
Prior Program.
39
During the year ended December 31, 2019, EastGroup issued and sold 2,388,342 shares of common stock under its Prior Program
at an average price of $120.76 per share with gross proceeds to the Company of $288,419,000. The Company incurred offering-
related costs of $3,709,000 during the year, resulting in net proceeds to the Company of $284,710,000.
On December 20, 2019, EastGroup entered into sales agreements with each of BNY Mellon Capital Markets, LLC; BofA Securities,
Inc.; BTIG, LLC; Jefferies LLC; Raymond James & Associates, Inc.; Regions Securities LLC; and Wells Fargo Securities, LLC
in connection with the establishment of a new continuous common equity offering program pursuant to which the Company may
sell shares of its common stock with an aggregate gross sales price of up to $750,000,000 from time to time (the "Current Program").
The Current Program replaced the Prior Program. As of February 13, 2020, the Company has not sold any shares of common
stock under the Current Program; therefore, under the Current Program, EastGroup may offer and sell shares of its common stock
having an aggregate offering price of up to $750,000,000 through the sales agents.
Contractual Obligations
EastGroup’s fixed, non-cancelable obligations as of December 31, 2019 were as follows:
Unsecured Bank Credit Facilities (1) (2)
Interest on Unsecured Bank Credit Facilities (3)
Unsecured Debt (1)
Interest on Unsecured Debt
Secured Debt (1)
Interest on Secured Debt
Dividends Payable (4)
Operating Lease Obligations:
Office Leases
Ground Leases
Real Estate Property Obligations (5)
Development and Value-Add Obligations (6)
Tenant Improvements (7)
Purchase Obligations
Payments Due by Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
(In thousands)
More Than
5 Years
$
112,710
10,221
940,000
183,230
133,422
8,797
29,096
2,277
22,400
8,250
59,268
13,908
10,822
—
3,918
105,000
31,638
9,047
5,710
29,096
495
970
8,250
59,268
13,908
10,522
112,710
6,303
115,000
53,528
122,332
2,809
—
884
1,940
—
—
—
300
—
—
235,000
44,970
241
149
—
850
1,974
—
—
—
—
—
—
485,000
53,094
1,802
129
—
48
17,516
—
—
—
—
Total
$ 1,534,401
277,822
415,806
283,184
557,589
(1) These amounts are included on the Consolidated Balance Sheets net of unamortized debt issuance costs.
(2) The Company’s balances under its unsecured bank credit facilities change depending on the Company’s cash needs and, as such, both the principal
amounts and the interest rates are subject to variability. At December 31, 2019, the weighted average interest rate was 2.775% on the $112,710,000
of variable rate debt that matures in July 2022. The $350 million unsecured credit facility has options for two six-month extensions (at the Company's
election) and a $150 million accordion (with agreement by all parties). The $45 million unsecured credit facility automatically extends for two six-
month terms if the extension options in the $350 million revolving facility are exercised. As of December 31, 2019, the interest rate on the $350
million facility was LIBOR plus 100 basis points (weighted average interest rate of 2.776%) with an annual facility fee of 20 basis points, and the
interest rate on the $45 million facility, which resets on a daily basis, was LIBOR plus 100 basis points (2.763%) with an annual facility fee of 20
basis points. The margin and facility fee are subject to changes in the Company's credit ratings.
(3) Represents an estimate of interest due on the Company's unsecured bank credit facilities based on the outstanding unsecured credit facilities as of
December 31, 2019 and interest rates and maturity dates on the facilities as of December 31, 2019 as discussed in note 2 above.
(4) Represents dividends declared during December 2019, which were paid in January 2020. Dividends Payable excludes dividends payable on unvested
restricted stock of $1,618,000, which are subject to continued service and will be paid upon vesting in future periods.
(5) Represents commitments on real estate properties, except for tenant improvement obligations.
(6) Represents commitments on properties in the Company's development and value-add program, except for tenant improvement obligations.
(7) Represents tenant improvement allowance obligations.
The Company anticipates that its current cash balance, operating cash flows, borrowings under its unsecured bank credit facilities,
proceeds from new debt and/or proceeds from the issuance of equity instruments will be adequate for (i) operating and administrative
expenses, (ii) normal repair and maintenance expenses at its properties, (iii) debt service obligations, (iv) maintaining compliance
with its debt covenants, (v) distributions to stockholders, (vi) capital improvements, (vii) purchases of properties, (viii) development,
and (ix) any other normal business activities of the Company, both in the short-term and long-term.
40
Off-Balance Sheet Arrangements
The Company has no material off-balance sheet arrangements that have had or are reasonably likely to have a material current or
future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
INFLATION AND OTHER ECONOMIC CONSIDERATIONS
Most of the Company's leases include scheduled rent increases. Additionally, most of the Company's leases require the tenants
to pay their pro rata share of operating expenses, including real estate taxes, insurance and common area maintenance, thereby
reducing the Company's exposure to increases in operating expenses resulting from inflation. In the event inflation causes increases
in the Company’s general and administrative expenses or the level of interest rates, such increased costs would not be passed
through to tenants and could adversely affect the Company’s results of operations.
EastGroup's financial results are affected by general economic conditions in the markets in which the Company's properties are
located. The state of the economy, or other adverse changes in general or local economic conditions, could result in the inability
of some of the Company's existing tenants to make lease payments and may therefore increase bad debt expense. It may also
impact the Company’s ability to (i) renew leases or re-lease space as leases expire, or (ii) lease development space. In addition,
an economic downturn or recession could also lead to an increase in overall vacancy rates or a decline in rents the Company can
charge to re-lease properties upon expiration of current leases. In all of these cases, EastGroup’s cash flows would be adversely
affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate changes primarily as a result of its unsecured bank credit facilities and long-term debt
maturities. This debt is used to maintain liquidity and fund capital expenditures and expansion of the Company’s real estate
investment portfolio and operations. The Company’s objective for interest rate risk management is to limit the impact of interest
rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company has two variable rate unsecured
bank credit facilities as discussed under the heading Liquidity and Capital Resources in Part II, Item 7 of this Annual Report on
Form 10-K. As market conditions permit, EastGroup issues equity and/or employs fixed rate debt, including variable rate debt
that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace the short-term bank borrowings.
The Company's interest rate swaps are discussed in Note 13 in the Notes to Consolidated Financial Statements. The table below
presents the principal payments due and weighted average interest rates, which include the impact of interest rate swaps, for both
the fixed rate and variable rate debt as of December 31, 2019.
2020
2021
2022
2023
2024
Thereafter
Total
Fair Value
Unsecured bank credit
facilities - variable
rate (in thousands)
Weighted average
interest rate
Unsecured debt - fixed
rate (in thousands)
Weighted average
interest rate
Secured debt - fixed
rate (in thousands)
Weighted average
interest rate
$
—
—
— 112,710
(1)
—
2.78% (3)
—
—
—
—
— 112,710
113,174 (2)
—
2.78%
$105,000
40,000
75,000
115,000
120,000
485,000
940,000
959,177 (4)
3.55%
2.34%
3.03%
2.96%
3.47%
3.63%
3.42%
$
9,047
89,562
32,770
119
122
1,802
133,422
136,107 (4)
4.42%
4.55%
4.09%
3.85%
3.85%
3.85%
4.42%
(1) The variable rate unsecured bank credit facilities mature in July 2022 and as of December 31, 2019, have balances of $105,000,000 on the $350
million unsecured bank credit facility and $7,710,000 on the $45 million unsecured bank credit facility.
(2) The fair value of the Company’s variable rate debt is estimated by discounting expected cash flows at current market rates, excluding the effects of
debt issuance costs.
(3) Represents the weighted average interest rate for the Company's variable rate unsecured bank credit facilities as of December 31, 2019.
(4) The fair value of the Company’s fixed rate debt, including variable rate debt that has been swapped to an effectively fixed rate through the use of
interest rate swaps, is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining
maturities, as advised by the Company’s bankers, excluding the effects of debt issuance costs.
As the table above incorporates only those exposures that existed as of December 31, 2019, it does not consider those exposures
or positions that could arise after that date. If the weighted average interest rate on the variable rate unsecured bank credit facilities,
as shown above, changes by 10%, or approximately 28 basis points, interest expense and cash flows would increase or decrease
41
by approximately $313,000 annually. This does not include variable rate debt that has been effectively fixed through the use of
interest rate swaps.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is hereby incorporated by reference to the Company’s Consolidated Financial Statements
beginning on page 44 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(i) Disclosure Controls and Procedures.
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2019, the Company’s disclosure controls and
procedures were effective in timely alerting them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company’s periodic SEC filings.
(ii) Internal Control Over Financial Reporting.
(a) Management's annual report on internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). EastGroup’s Management Report on Internal Control Over Financial Reporting is set
forth in Part IV, Item 15 of this Form 10-K on page 48 and is incorporated herein by reference.
(b) Report of the independent registered public accounting firm.
The report of KPMG LLP, the Company's independent registered public accounting firm, on the Company's internal control over
financial reporting is set forth in Part IV, Item 15 of this Form 10-K on page 49 and is incorporated herein by reference.
(c) Changes in internal control over financial reporting.
There was no change in the Company's internal control over financial reporting during the Company's fourth fiscal quarter
ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION.
Not applicable.
42
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 will be included in the Company’s definitive proxy statement to be filed with the SEC relating
to the Company’s 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 will be included in the Company’s definitive proxy statement to be filed with the SEC relating
to the Company’s 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by Item 12 will be included in the Company’s definitive proxy statement to be filed with the SEC relating
to the Company’s 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 13 will be included in the Company’s definitive proxy statement to be filed with the SEC relating
to the Company’s 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 will be included in the Company’s definitive proxy statement to be filed with the SEC relating
to the Company’s 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
43
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements
The following documents are filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2019 and 2018
Consolidated Statements of Income and Comprehensive Income – Years ended December 31, 2019,
2018 and 2017
Consolidated Statements of Changes in Equity – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows – Years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
Schedule III – Real Estate Properties and Accumulated Depreciation
Schedule IV – Mortgage Loans on Real Estate
Page
46
48
49
50
51
52
53
54
Page
81
96
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required
under the related instructions or are inapplicable, and therefore have been omitted, or the required information is
included in the Notes to Consolidated Financial Statements.
44
Exhibits
The following exhibits are included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2019:
Exhibit Number
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5
10.6
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Description
Articles of Incorporation of EastGroup Properties, Inc. (incorporated by reference to Appendix B to the
Company’s Definitive Proxy Statement on Form DEF 14A (File No. 001-07094) filed April 4, 1997).
Amended and Restated Bylaws of EastGroup Properties, Inc. (incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K (File No. 001-07094) filed March 3, 2017).
Description of Securities (filed herewith)
EastGroup Properties, Inc. 2013 Equity Incentive Plan, as amended and restated as of March 3, 2017
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 001-07094) filed March 3,
2017).
Form of Severance and Change in Control Agreement entered into by and between the Company and each
of Marshall A. Loeb, Brent W. Wood and John F. Coleman (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-07094) filed May 18, 2016).
Form of Severance and Change in Control Agreement by and between the Company and each of Ryan M.
Collins, C. Bruce Corkern and R. Reid Dunbar (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K (File No. 001-07094) filed May 18, 2016).
EastGroup Properties, Inc. Director Compensation Program Including the Independent Director
Compensation Policy pursuant to the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10(g)
to the Company’s Annual Report on Form 10-K (File No. 001-07094) filed February 14, 2018).
Note Purchase Agreement, dated as of August 28, 2013, by and among EastGroup Properties, L.P., the
Company and each of the Purchasers of the Notes party thereto (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K (File No. 001-07094) filed August 30, 2013).
Fourth Amended and Restated Credit Agreement, dated as of June 14, 2018, by and among EastGroup
Properties, L.P.; the Company; PNC Bank, National Association, as Administrative Agent; Regions Bank as
Syndication Agent; U.S. Bank National Association, Wells Fargo Bank, National Association and Bank of
America, N.A., as Co-Documentation Agents; PNC Capital Markets LLC and Regions Capital Markets, as
Joint Lead Arrangers and Joint Bookrunners; and the Lenders thereunder (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-07094) filed June 14, 2018).
Subsidiaries of the Company (filed herewith).
Consent of KPMG LLP (filed herewith).
Powers of attorney (included on signature page hereto).
Rule 13a-14(a)/15d-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) of
Marshall A. Loeb, Chief Executive Officer (filed herewith).
Rule 13a-14(a)/15d-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) of
Brent W. Wood, Chief Financial Officer (filed herewith).
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) of Marshall A.
Loeb, Chief Executive Officer (furnished herewith).
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) of Brent W. Wood,
Chief Financial Officer (furnished herewith).
Inline XBRL Taxonomy Extension Schema Document (filed herewith)
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information
contained in Exhibits 101.*) (filed herewith)
*
Indicates a management contract or any compensatory plan, contract or arrangement.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
EASTGROUP PROPERTIES, INC.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries (the Company) as
of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, changes in equity,
and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement
schedules III and IV (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 13, 2020, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on
the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the estimated fair value of certain acquired tangible and intangible assets in an asset acquisition
As discussed in Note 1(j) to the consolidated financial statements, the Company acquired $205,841,000 of real estate properties
and development and value-add properties during 2019 that were accounted for as acquisitions of assets. The purchase price
in an asset acquisition is allocated among the individual components of both the tangible and intangible assets acquired based
on their respective fair values. The fair value of the tangible assets or property (land, building and improvements) assumes
the property to be vacant and is determined using a discounted cash flow model. A portion of the fair value of the property
is allocated to land as determined using comparable land sales. The fair value of in-place lease intangibles is determined using
estimates of carrying costs during the expected lease-up periods considering current market conditions and costs to execute
similar leases, and present value techniques for the above or below market rent component of in-place lease intangibles.
We identified the evaluation of the estimated fair value of certain acquired tangible and intangible assets in an asset acquisition,
as a critical audit matter. Certain acquired tangible and intangible assets include land, buildings, and in-place lease intangibles,
including the above or below market rent component of in-place lease intangibles. Specifically, the assumptions used in the
Company’s determination of the estimated fair value involved subjective auditor judgment in evaluating comparable land
46
sales, current market rents, and terminal capitalization rates used in the discounted cash flow model, especially when
comparable transactions and market data may be limited, or not entirely comparable.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal
controls within the Company’s process to estimate fair value of acquired tangible and intangible assets in an asset acquisition,
including the Company’s development of comparable land sales, current market rents and terminal capitalization rates. We
involved valuation professionals with specialized skills and knowledge who assisted in evaluating the Company’s estimated
fair value of land, current market rents and terminal capitalization rates by comparing the Company’s estimates to our
independently developed ranges of comparable land sales, current market rents and terminal capitalization rates using publicly
available market data.
(Signed) KPMG LLP
We have served as the Company's auditor since 1970.
Jackson, Mississippi
February 13, 2020
47
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
EastGroup’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including
the Chief Executive Officer and Chief Financial Officer, EastGroup conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The design of any system of internal control over financial reporting is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Based on EastGroup’s evaluation under the framework
in Internal Control – Integrated Framework (2013), management concluded that our internal control over financial reporting was
effective as of December 31, 2019.
/s/ EASTGROUP PROPERTIES, INC.
Ridgeland, Mississippi
February 13, 2020
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
EASTGROUP PROPERTIES, INC.:
Opinion on Internal Control Over Financial Reporting
We have audited EastGroup Properties, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements
of income and comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes and financial statement schedules III and IV (collectively, the consolidated financial
statements), and our report dated February 13, 2020, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Jackson, Mississippi
February 13, 2020
(Signed) KPMG LLP
49
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Real estate properties
Development and value-add properties
Less accumulated depreciation
Unconsolidated investment
Cash
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Unsecured bank credit facilities
Unsecured debt
Secured debt
Accounts payable and accrued expenses
Other liabilities
Total Liabilities
EQUITY
Stockholders’ Equity:
Common stock; $0.0001 par value; 70,000,000 shares authorized;
38,925,953 shares issued and outstanding at December 31, 2019 and
36,501,356 at December 31, 2018
Excess shares; $0.0001 par value; 30,000,000 shares authorized;
no shares issued
Additional paid-in capital
Distributions in excess of earnings
Accumulated other comprehensive income
Total Stockholders’ Equity
Noncontrolling interest in joint ventures
Total Equity
December 31,
2019
2018
(In thousands, except share and
per share data)
$
2,844,567
419,999
3,264,566
(871,139)
2,393,427
7,805
224
144,622
$
2,546,078
$
111,394
938,115
133,093
92,024
69,123
2,553,481
263,664
2,817,145
(814,915)
2,002,230
7,870
374
121,231
2,131,705
193,926
723,400
188,461
86,563
34,652
1,343,749
1,227,002
4
—
1,514,055
(316,302)
2,807
1,200,564
1,765
1,202,329
4
—
1,222,547
(326,193)
6,701
903,059
1,644
904,703
TOTAL LIABILITIES AND EQUITY
$
2,546,078
2,131,705
See accompanying Notes to Consolidated Financial Statements.
50
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
REVENUES
Years Ended December 31,
2019
2018
2017
(In thousands, except per share data)
Income from real estate operations
330,813
$
Other revenue
574
331,387
EXPENSES
Expenses from real estate operations 93,274
Depreciation and amortization 104,724
16,406
General and administrative
Indirect leasing costs
411
299,018
1,374
300,392
86,394
91,704
13,738
—
274,031
119
274,150
80,108
83,874
14,972
—
OTHER INCOME (EXPENSE)
214,815
191,836
178,954
Interest expense
(34,463)
41,068
Gain on sales of real estate investments
163
Other
NET INCOME
Net income attributable to noncontrolling interest in joint ventures
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC.
COMMON STOCKHOLDERS
Other comprehensive income (loss) – cash flow hedges
(35,106)
14,273
913
88,636
(130)
88,506
1,353
89,859
123,340
(1,678)
121,662
(3,894)
117,768
TOTAL COMPREHENSIVE INCOME
BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
3.25
Net income attributable to common stockholders
Weighted average shares outstanding 37,442
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE
TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
3.24
Net income attributable to common stockholders
Weighted average shares outstanding 37,527
$
$
$
2.50
35,439
2.49
35,506
(34,775)
21,855
1,313
83,589
(406)
83,183
3,353
86,536
2.45
33,996
2.44
34,047
See accompanying Notes to Consolidated Financial Statements.
51
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common
Stock
Additional
Paid-In
Capital
Distributions
In Excess
Of Earnings
Accumulated
Other
Comprehensive
Income
Noncontrolling
Interest in
Joint Ventures
Total
(In thousands, except share and per share data)
Balance, December 31, 2016
$
Net income
Net unrealized change in fair value of cash flow
hedges
Common dividends declared – $2.52 per share
Stock-based compensation, net of forfeitures
Issuance of 1,370,457 shares of common stock,
common stock offering, net of expenses
Issuance of 2,744 shares of common stock,
dividend reinvestment plan
Withheld 33,695 shares of common stock to satisfy
tax withholding obligations in connection with
the vesting of restricted stock
Purchase of noncontrolling interest in joint venture
Distributions to noncontrolling interest
Contributions from noncontrolling interest
Balance, December 31, 2017
Net income
Net unrealized change in fair value of cash flow
hedges
Common dividends declared – $2.72 per share
Stock-based compensation, net of forfeitures
Issuance of 1,706,474 shares of common stock,
common stock offering, net of expenses
Issuance of 1,844 shares of common stock,
dividend reinvestment plan
Withheld 23,824 shares of common stock to satisfy
tax withholding obligations in connection with
the vesting of restricted stock
Purchase of noncontrolling interest in joint venture
Distributions to noncontrolling interest
Contributions from noncontrolling interest
Balance, December 31, 2018
Net income
Net unrealized change in fair value of cash flow
hedges
Common dividends declared – $2.94 per share
Stock-based compensation, net of forfeitures
Issuance of 2,388,342 shares of common stock,
common stock offering, net of expenses
Issuance of 1,893 shares of common stock,
dividend reinvestment plan
Withheld 28,955 shares of common stock to satisfy
tax withholding obligations in connection with
the vesting of restricted stock
Contributions from noncontrolling interest
Distributions to noncontrolling interest
Balance, December 31, 2019
$
3
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
1
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
4
949,318
(313,655)
—
—
—
7,012
109,207
228
(2,505)
(2,107)
—
—
83,183
—
(86,560)
—
—
—
—
—
—
—
1,061,153
(317,032)
—
—
—
6,103
157,318
164
(2,055)
(136)
—
—
88,506
—
(97,667)
—
—
—
—
—
—
—
1,222,547
(326,193)
121,662
1,995
—
3,353
—
—
—
—
—
—
—
—
5,348
—
1,353
—
—
—
—
—
—
—
—
6,701
—
—
—
—
9,374
284,710
212
(2,788)
—
—
—
(3,894)
(111,771)
—
—
—
—
—
—
—
—
—
—
—
—
—
4,205
406
641,866
83,589
—
—
—
—
—
—
(2,597)
(478)
122
1,658
130
—
—
—
—
—
—
—
(194)
50
1,644
1,678
—
—
—
—
—
3,353
(86,560)
7,012
109,207
228
(2,505)
(4,704)
(478)
122
751,130
88,636
1,353
(97,667)
6,103
157,319
164
(2,055)
(136)
(194)
50
904,703
123,340
(3,894)
(111,771)
9,374
284,710
212
—
821
(2,378)
(2,788)
821
(2,378)
1,514,055
(316,302)
2,807
1,765
1,202,329
See accompanying Notes to Consolidated Financial Statements.
52
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income $
Adjustments to reconcile net income to net cash provided by operating
activities:
Years Ended December 31,
2019
2018
(In thousands)
2017
123,340
88,636
83,589
Depreciation and amortization
104,724
91,704
Stock-based compensation expense
Net gain on sales of real estate investments and non-operating real estate
Gain on casualties and involuntary conversion on real estate assets
Changes in operating assets and liabilities:
5,283
(14,359)
(1,245)
(4,091)
(2,682)
1,485
164,731
(167,667)
(57,152)
(37,502)
24,508
6,838
(41,151)
(180)
(5,558)
6,514
1,385
195,912
(318,288)
(142,712)
(37,775)
66,737
915
(3,644)
(9,293)
(443,337)
Accrued income and other assets
Accounts payable, accrued expenses and prepaid rent
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Development and value-add properties
Purchases of real estate
Real estate improvements
Net proceeds from sales of real estate investments and non-operating real
estate
Proceeds from casualties and involuntary conversion on real estate assets
Repayments on mortgage loans receivable
1,987
1,635
723
Changes in accrued development costs
5,711
(12,955)
Changes in other assets and other liabilities
(241,435)
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Repayments on unsecured bank credit facilities
Proceeds from unsecured debt
Repayments on unsecured debt
Proceeds from unsecured bank credit facilities
448,100
(448,709)
60,000
(50,000)
(11,289)
(1,922)
(71,294)
157,319
932,658
(1,015,678)
290,000
(75,000)
(55,593)
(893)
(108,795)
284,710
Proceeds from common stock offerings
Repayments on secured debt
Debt issuance costs
Proceeds from dividend reinvestment plan
Other
Distributions paid to stockholders (not including dividends accrued)
83,874
5,521
(22,148)
—
(5,034)
8,333
879
155,014
(124,938)
(55,195)
(27,385)
42,710
—
171
(144)
(14,645)
(179,426)
391,617
(387,298)
60,000
—
(58,209)
(380)
(86,725)
109,207
228
(4,534)
23,906
(506)
522
16
NET CASH PROVIDED BY FINANCING ACTIVITIES
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL CASH FLOW INFORMATION
212
(4,346)
247,275
(150)
374
221
(5,364)
77,062
358
16
$
224
374
Cash paid for interest, net of amount capitalized of $8,453, $6,334, and
$5,765 for 2019, 2018 and 2017, respectively
Cash paid for operating lease liabilities
NON-CASH OPERATING ACTIVITY
30,839
1,314
$
Operating lease liabilities arising from obtaining right of use assets
$
15,435
See accompanying Notes to Consolidated Financial Statements.
53
33,458
33,634
—
—
—
—
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 and 2017
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup Properties, Inc. ("EastGroup" or "the Company"), its
wholly owned subsidiaries and its investment in any joint ventures in which the Company has a controlling interest.
During the fourth quarter of 2017, EastGroup closed the acquisition of the 20% noncontrolling interest in two of the four University
Business Center buildings which were owned in a joint venture partnership; the Company then directly owned 100% of University
Business Center 125 and 175. As of December 31, 2018 and 2017, EastGroup had an 80% controlling interest in University
Business Center 120 and 130. During the fourth quarter of 2019, the Company, along with the noncontrolling interest partner, sold
University Business Center 130. As of December 31, 2019, EastGroup had an 80% controlling interest in University Business
Center 120.
Also during 2019, EastGroup entered into two new joint venture arrangements. On May 31, 2019, the Company acquired 6.5 acres
of land in San Diego, known by the Company as the Miramar Land. In the second quarter of 2019, a joint venture was formed
through which EastGroup owns a 95% controlling interest in this property. Also, on December 31, 2019, the Company acquired
41.6 acres of land in San Diego, known by the Company as the Otay Mesa Land, with the same noncontrolling interest partner
with EastGroup owning a 99% controlling interest in the property.
The Company records 100% of the assets, liabilities, revenues and expenses of the buildings held in joint ventures with the
noncontrolling interests provided for in accordance with the joint venture agreements.
The equity method of accounting is used for the Company’s 50% undivided tenant-in-common interest in Industry Distribution
Center II. All significant intercompany transactions and accounts have been eliminated in consolidation.
(b) Income Taxes
EastGroup, a Maryland corporation, has qualified as a real estate investment trust ("REIT") under Sections 856-860 of the Internal
Revenue Code and intends to continue to qualify as such. To maintain its status as a REIT, the Company is required to, among
other things, distribute at least 90% of its ordinary taxable income to its stockholders. If the Company has a capital gain, it has
the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain
dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax
on its net long-term capital gain, with the shareholders reporting their proportional share of the undistributed long-term capital
gain and receiving a credit or refund of their share of the tax paid by the Company. The Company distributed all of its 2019, 2018
and 2017 taxable income to its stockholders. Accordingly, no significant provisions for income taxes were necessary. The
following table summarizes the federal income tax treatment for all distributions by the Company for the years ended 2019, 2018
and 2017.
Federal Income Tax Treatment of Share Distributions
Common Share Distributions:
Ordinary dividends
Nondividend distributions
Unrecaptured Section 1250 capital gain
Other capital gain
Years Ended December 31,
2019
2018
(Per share)
2017
$
3.14000
2.14305
—
—
—
—
—
—
2.49146
0.02686
—
0.00168
2.52000
Total Common Share Distributions
$
3.14000
2.14305
EastGroup applies the principles of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
740, Income Taxes, when evaluating and accounting for uncertainty in income taxes. With few exceptions, the Company’s 2015
and earlier tax years are closed for examination by U.S. federal, state and local tax authorities. In accordance with the provisions
of ASC 740, the Company had no significant uncertain tax positions as of December 31, 2019 and 2018.
The Company’s income may differ for tax and financial reporting purposes principally because of (i) the timing of the deduction
for the provision for possible losses and losses on investments, (ii) the timing of the recognition of gains or losses from the sale
54
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of investments, (iii) different income recognition methods for rental income, (iv) different depreciation methods and lives, (v) real
estate properties having a different basis for tax and financial reporting purposes, (vi) mortgage loans having a different basis for
tax and financial reporting purposes, thereby producing different gains upon collection of these loans, and (vii) differences in book
and tax allowances and timing for stock-based compensation expense.
(c) Income Recognition
The Company’s primary revenue is rental income from business distribution space. Minimum rental income from real estate
operations is recognized on a straight-line basis. The straight-line rent calculation on leases includes the effects of rent concessions
and scheduled rent increases, and the calculated straight-line rent income is recognized over the lives of the individual leases. The
Company maintains allowances for doubtful accounts receivable, including straight-line rents receivable, based upon estimates
determined by management. Management specifically analyzes aged receivables, customer credit-worthiness and current
economic trends when evaluating the adequacy of the allowance for doubtful accounts. Revenue is recognized on payments
received from tenants for early terminations after all criteria have been met in accordance with ASC 840, Leases, prior to January
1, 2019, and in accordance with ASC 842, Leases, subsequently.
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), and in subsequent periods,
issued ASU 2018-10, 2018-11, and 2018-20, all of which relate to the new lease accounting guidance. The Company adopted the
new lease accounting guidance effective January 1, 2019, and has applied its provisions on a prospective basis. Lessor accounting
is largely unchanged under ASU 2016-02. The Company’s primary revenue is rental income; as such, the Company is a lessor
on a significant number of leases. The Company is continuing to account for its leases in substantially the same manner. The most
significant changes for the Company related to lessor accounting include: (i) the new standard’s narrow definition of initial direct
costs for leases, and (ii) the guidance applicable to recording uncollectible rents, as discussed in the following paragraphs.
The new standard’s narrow definition of initial direct costs for leases — The new definition of initial direct costs results in certain
costs (primarily legal costs related to lease negotiations) being expensed rather than capitalized upon adoption of the new standard.
EastGroup recorded Indirect leasing costs of $411,000 on the Consolidated Statements of Income and Comprehensive Income
during 2019.
The guidance applicable to recording uncollectible rents — Upon adoption of the lease accounting guidance, reserves for
uncollectible accounts are recorded as a reduction to revenue. Prior to adoption, reserves for uncollectible accounts were recorded
as bad debt expenses. The standard also provides guidance related to calculating the reserves; however, those changes did not
impact the Company.
EastGroup has elected the practical expedient permitting lessors to make an accounting policy election by class of underlying
asset to not separate non-lease components (such as common area maintenance) of a contract from the lease component to which
they relate when specific criteria are met. The Company believes its leases meet the criteria.
The Company has applied the provisions of the new lease accounting standard and provided the required disclosures in the notes
to the consolidated financial statements.
The table below presents the components of Income from real estate operations for the year ended December 31, 2019:
Lease income — operating leases
Variable lease income (1)
Income from real estate operations
Year Ended
December 31, 2019
(In thousands)
$
$
248,237
82,576
330,813
(1) Primarily includes tenant reimbursements for real estate taxes, insurance and common area maintenance.
Future Minimum Rental Receipts Under Non-Cancelable Leases
The Company’s leases with its customers may include various provisions such as scheduled rent increases, renewal options and
termination options. The majority of the Company’s leases include defined rent increases rather than variable payments based on
an index or unknown rate. In calculating the disclosures presented below, the Company included the fixed, non-cancelable terms
of the leases. The following schedule indicates approximate future minimum rental receipts under non-cancelable leases for real
estate properties by year as of December 31, 2019:
55
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total minimum receipts
$
(In thousands)
252,654
215,820
171,607
132,274
99,183
171,392
$
1,042,930
As noted above, the Company adopted the new lease accounting guidance effective January 1, 2019. Since the Company has
applied the provisions on a prospective basis, the following represents approximate future minimum rental receipts under non-
cancelable leases for real estate properties by year as of December 31, 2018, as applicable under ASC 840, Leases, prior to the
adoption of ASC 842.
Years Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total minimum receipts
(In thousands)
$
$
226,330
195,850
151,564
112,007
82,262
163,499
931,512
The Company recognizes gains on sales of real estate in accordance with the principles set forth in the Codification. For each
transaction, the Company evaluates whether the guidance in ASC 606, Revenue from Contracts with Customers, or ASC 610,
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, is applicable. Upon closing of real estate
transactions, the provisions of the Codification require consideration of whether the seller has a controlling financial interest in
the entity that holds the nonfinancial asset after the transaction. In addition, the seller evaluates whether a contract exists under
ASC 606 and whether the counterparty obtained control of each nonfinancial asset that is sold. If a contract exists and the
counterparty obtained control of each nonfinancial asset, the seller derecognizes the assets at the close of the transaction with
resulting gains or losses reflected on the Consolidated Statements of Income and Comprehensive Income.
The Company recognizes interest income on mortgage loans on the accrual method unless a significant uncertainty of collection
exists. If a significant uncertainty exists, interest income is recognized as collected. If applicable, discounts on mortgage loans
receivable are amortized over the lives of the loans using a method that does not differ materially from the interest method. The
Company evaluates the collectibility of both interest and principal on each of its loans to determine whether the loans are impaired. A
loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable
to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of
loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at
the loan’s effective interest rate or to the fair value of the underlying collateral (if the loan is collateralized) less costs to sell. As
of December 31, 2019 and 2018, there was no significant uncertainty of collection; therefore, interest income was recognized. As
of December 31, 2019 and 2018, the Company determined that no allowance for collectibility of the mortgage loans receivable
was necessary.
(d) Real Estate Properties
EastGroup has one reportable segment–industrial properties. These properties are primarily located in major Sunbelt regions of
the United States. The Company's properties have similar economic characteristics and as a result, have been aggregated into one
reportable segment.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows (including estimated future expenditures necessary to substantially
complete the asset) expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash
56
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the
asset. As of December 31, 2019 and 2018, the Company did not identify any impairment charges which should be recorded.
Depreciation of buildings and other improvements is computed using the straight-line method over estimated useful lives of
generally 40 years for buildings and 3 to 15 years for improvements. Building improvements are capitalized, while maintenance
and repair expenses are charged to expense as incurred. Significant renovations and improvements that improve or extend the
useful life of the assets are capitalized. Depreciation expense was $86,590,000, $76,007,000 and $69,010,000 for 2019, 2018 and
2017, respectively.
(e) Development and Value-Add Properties
For properties under development and value-add properties (defined in Note 2) acquired in the development stage, costs associated
with development (i.e., land, construction costs, interest expense, property taxes and other direct and indirect costs associated with
development) are aggregated into the total capitalized costs of the property. Included in these costs are management’s estimates
for the portions of internal costs (primarily personnel costs) deemed related to such development activities. The internal costs are
allocated to specific development projects based on development activity. As the property becomes occupied, depreciation
commences on the occupied portion of the building, and costs are capitalized only for the portion of the building that remains
vacant. The Company transfers properties from the development and value-add program to Real estate properties as follows: (i)
for development properties, at the earlier of 90% occupancy or one year after completion of the shell construction, and (ii) for
value-add properties, at the earlier of 90% occupancy or one year after acquisition. Upon the earlier of 90% occupancy or one
year after completion of the shell construction, capitalization of development costs, including interest expense, property taxes and
internal personnel costs, ceases and depreciation commences on the entire property (excluding the land).
(f) Real Estate Held for Sale
The Company considers a real estate property to be held for sale when it meets the criteria established under ASC 360, Property,
Plant and Equipment, including when it is probable that the property will be sold within a year. Real estate properties held for
sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they
are held for sale.
In accordance with ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, the Company would report
a disposal of a component of an entity or a group of components of an entity in discontinued operations if the disposal represents
a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group
of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of
by sale or other than by sale. In addition, the Company would provide additional disclosures about both discontinued operations
and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation
in the financial statements. EastGroup performs an analysis of properties sold to determine whether the sales qualify for discontinued
operations presentation.
(g) Derivative Instruments and Hedging Activities
EastGroup applies ASC 815, Derivatives and Hedging, which requires all entities with derivative instruments to disclose
information regarding how and why the entity uses derivative instruments and how derivative instruments and related hedged
items affect the entity’s financial position, financial performance and cash flows. See Note 13 for a discussion of the Company's
derivative instruments and hedging activities.
(h) Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
(i) Amortization
Debt origination costs are deferred and amortized over the term of each loan using the effective interest method. Amortization of
debt issuance costs was $1,344,000, $1,352,000 and $1,250,000 for 2019, 2018 and 2017, respectively. Amortization of facility
fees was $790,000, $736,000 and $670,000 for 2019, 2018 and 2017, respectively.
Leasing costs are deferred and amortized using the straight-line method over the term of the lease. Leasing costs paid during the
period are included in Changes in other assets and other liabilities in the Investing Activities section on the Consolidated Statements
of Cash Flows. Leasing costs amortization expense was $13,167,000, $11,493,000 and $10,329,000 for 2019, 2018 and 2017,
respectively.
Amortization expense for in-place lease intangibles is disclosed below in Real Estate Property Acquisitions and Acquired
Intangibles.
57
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(j) Real Estate Property Acquisitions and Acquired Intangibles
Upon acquisition of real estate properties, EastGroup applies the principles of ASC 805, Business Combinations. The FASB
Codification provides a framework for determining whether transactions should be accounted for as acquisitions (or disposals) of
assets or businesses. Under the guidance, companies are required to utilize an initial screening test to determine whether
substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a
group of similar identifiable assets; if so, the set is not a business. EastGroup determined that its real estate property acquisitions
in 2019, 2018 and 2017 are considered to be acquisitions of groups of similar identifiable assets; therefore, the acquisitions are
not considered to be acquisitions of a business. As a result, the Company has capitalized acquisition costs related to its 2019,
2018 and 2017 acquisitions.
The FASB Codification also provides guidance on how to properly determine the allocation of the purchase price among the
individual components of both the tangible and intangible assets based on their respective fair values. Goodwill for business
combinations is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired. Factors considered
by management in allocating the cost of the properties acquired include an estimate of carrying costs during the expected lease-
up periods considering current market conditions and costs to execute similar leases. The allocation to tangible assets (land,
building and improvements) is based upon management’s determination of the value of the property as if it were vacant using
discounted cash flow models. The Company determines whether any financing assumed is above or below market based upon
comparison to similar financing terms for similar properties. The cost of the properties acquired may be adjusted based on
indebtedness assumed from the seller that is determined to be above or below market rates.
The purchase price is also allocated among the following categories of intangible assets: the above or below market component
of in-place leases, the value of in-place leases, and the value of customer relationships. The value allocable to the above or below
market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the
risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease
over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current market rents over the
remaining term of the lease. The amounts allocated to above and below market leases are included in Other assets and Other
liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the
respective leases. The total amount of intangible assets is further allocated to in-place lease values and customer relationship values
based upon management’s assessment of their respective values. These intangible assets are included in Other assets on the
Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer
relationship, as applicable.
Amortization of above and below market leases increased rental income by $1,229,000, $667,000 and $529,000 in 2019, 2018
and 2017, respectively. Amortization expense for in-place lease intangibles was $4,967,000, $4,204,000 and $4,535,000 for 2019,
2018 and 2017, respectively.
Projected amortization of in-place lease intangibles for the next five years as of December 31, 2019 is as follows:
Years Ending December 31,
2020
$
(In thousands)
4,949
3,719
2,697
2,160
1,593
2021
2022
2023
2024
During 2019, the Company acquired the following operating properties: Airways Business Center in Denver; 385 Business Park
in Greenville; Grand Oaks 75 Business Center 1 in Tampa; and Siempre Viva Distribution Center 2 and Rocky Point Distribution
Center 1 in San Diego. The Company also acquired the following value-add properties: Logistics Center 6 & 7 and Arlington
Tech Centre 1 & 2 in Dallas; Grand Oaks 75 Business Center 2 in Tampa; Interstate Commons Distribution Center 2 in Phoenix;
Southwest Commerce Center in Las Vegas; and Rocky Point Distribution Center 2 in San Diego. At the time of acquisition, these
value-add properties were classified in the lease-up or under construction phase. The total cost for the properties acquired by the
Company was $205,841,000, of which $105,301,000 was allocated to Real estate properties and $92,268,000 was allocated to
Development and value-add properties. EastGroup allocated $46,778,000 of the total purchase price to land using third party land
valuations for the Denver, Greenville, Tampa, Dallas, Phoenix, Las Vegas and San Diego markets. Logistics Center 6 & 7 is
located on land under a ground lease; therefore, no value was allocated to land for this transaction. The market values are considered
58
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to be Level 3 inputs as defined by ASC 820, Fair Value Measurement (see Note 18 for additional information on ASC 820).
Intangibles associated with the purchase of real estate were allocated as follows: $10,020,000 to in-place lease intangibles and
$344,000 to above market leases (both included in Other assets on the Consolidated Balance Sheets) and $2,092,000 to below
market leases (included in Other liabilities on the Consolidated Balance Sheets). These costs are amortized over the remaining
lives of the associated leases in place at the time of acquisition.
Also during 2019, EastGroup acquired 6.5 acres of operating land in San Diego for $13,386,000. In connection with the acquisition,
the Company allocated value to land and below market leases. EastGroup recorded land of $13,979,000 based on third party land
valuations for the San Diego market. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value
Measurement. This land, which is included in Real estate properties on the Consolidated Balance Sheets, is currently leased to a
tenant that operates a parking lot on the site. The Company recorded $593,000 to below market leases in connection with this
land acquisition. These costs are amortized over the remaining life of the associated lease in place at the time of acquisition.
EastGroup also acquired 41.6 acres of operating land in San Diego for $15,282,000. This land, which is included in Real estate
properties on the Consolidated Balance Sheets, is currently leased (on a month-to-month basis) to various tenants operating outdoor
storage on the site.
During 2019, EastGroup also acquired a small parcel of land (0.5 acres) adjacent to its Yosemite Distribution Center in Milpitas
(San Francisco), California, for $472,000. This land is included in Real estate properties on the Consolidated Balance Sheets.
During 2018, the Company acquired the following operating properties: Gwinnett 316 in Atlanta; Eucalyptus Distribution Center
in Chino (Los Angeles); Allen Station I & II in Dallas; and Greenhill Distribution Center in Austin. The Company also acquired
one value-add property, Siempre Viva Distribution Center in San Diego. At the time of acquisition, Siempre Viva was classified
in the lease-up phase. The total cost for the properties acquired by the Company was $71,086,000, of which $54,537,000 was
allocated to Real estate properties and $13,934,000 was allocated to Development and value-add properties. EastGroup allocated
$23,263,000 of the total purchase price to land using third party land valuations for the Atlanta, Dallas, Austin, San Diego and
Chino (Los Angeles) markets. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value
Measurement (see Note 18 for additional information on ASC 820). Intangibles associated with the purchase of real estate were
allocated as follows: $4,350,000 to in-place lease intangibles, $21,000 to above market leases and $1,756,000 to below market
leases. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.
During 2017, the Company acquired the following operating properties: Shiloh 400, Broadmoor Commerce Park and Hurricane
Shoals 1 & 2 in Atlanta and Southpark Corporate Center 5-7 in Austin. The Company also acquired one value-add property,
Progress Center 1 & 2 in Atlanta. At the time of acquisition, Progress Center 1 & 2 was classified in the lease-up phase of
development. The total cost for the properties acquired by the Company was $65,243,000, of which $51,539,000 was allocated
to Real estate properties and $10,312,000 was allocated to Development and value-add properties. EastGroup allocated
$11,281,000 of the total purchase price to land using third party land valuations for the Atlanta and Austin markets. The market
values are considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurement (see Note 18 for additional information
on ASC 820). Intangibles associated with the purchase of real estate were allocated as follows: $3,662,000 to in-place lease
intangibles, $115,000 to above market leases and $385,000 to below market leases.
The Company periodically reviews the recoverability of goodwill (at least annually) and the recoverability of other intangibles
(on a quarterly basis) for possible impairment. In management’s opinion, no impairment of goodwill and other intangibles existed
at December 31, 2019 and 2018.
(k) Stock-Based Compensation
In May 2004, the stockholders of the Company approved the EastGroup Properties, Inc. 2004 Equity Incentive Plan ("the 2004
Plan"), which was further amended by the Board of Directors in September 2005 and December 2006. This plan authorized the
issuance of common stock to employees in the form of options, stock appreciation rights, restricted stock, deferred stock units,
performance shares, bonus stock or stock in lieu of cash compensation.
In April 2013, the Board of Directors adopted the EastGroup Properties, Inc. 2013 Equity Incentive Plan (the “2013 Equity Plan”)
upon the recommendation of the Compensation Committee; the 2013 Equity Plan was approved by the Company's stockholders
and became effective May 29, 2013. The 2013 Equity Plan was further amended by the Board of Directors in March 2017. The
2013 Equity Plan replaced the 2004 Plan. Typically, the Company issues new shares to fulfill stock grants or upon the exercise
of stock options.
EastGroup applies the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation
plans. ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial
59
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements and that the cost be measured on the fair value of the equity or liability instruments issued. The cost for market-based
awards and awards that only require service are expensed on a straight-line basis over the requisite service periods. The cost for
performance-based awards is determined using the graded vesting attribution method which recognizes each separate vesting
portion of the award as a separate award on a straight-line basis over the requisite service period. This method accelerates the
expensing of the award compared to the straight-line method.
The total compensation expense for service and performance based awards is based upon the fair market value of the shares on
the grant date. The grant date fair value for awards that have been granted and are subject to a future market condition (total
shareholder return) are determined using a simulation pricing model developed to specifically accommodate the unique features
of the awards.
During the restricted period for awards no longer subject to contingencies, the Company accrues dividends and holds the certificates
for the shares; however, the employee can vote the shares. Share certificates and dividends are delivered to the employee as they
vest.
(l) Earnings Per Share
The Company applies ASC 260, Earnings Per Share, which requires companies to present basic and diluted earnings per share
("EPS"). Basic EPS represents the amount of earnings for the period attributable to each share of common stock outstanding
during the reporting period. The Company’s basic EPS is calculated by dividing Net Income Attributable to EastGroup Properties,
Inc. Common Stockholders by the weighted average number of common shares outstanding. The weighted average number of
common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock.
These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions
lapse and will not be included in the basic EPS calculation until the shares are vested.
Diluted EPS represents the amount of earnings for the period attributable to each share of common stock outstanding during the
reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period. The Company calculates diluted EPS by dividing Net Income
Attributable to EastGroup Properties, Inc. Common Stockholders by the weighted average number of common shares outstanding
plus the dilutive effect of unvested restricted stock. The dilutive effect of unvested restricted stock is determined using the treasury
stock method.
(m) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses
during the reporting period and to disclose material contingent assets and liabilities at the date of the financial statements. Actual
results could differ from those estimates.
(n) Risks and Uncertainties
The state of the overall economy can significantly impact the Company’s operational performance and thus impact its financial
position. Should EastGroup experience a significant decline in operational performance, it may affect the Company’s ability to
make distributions to its shareholders, service debt, or meet other financial obligations.
(o) Recent Accounting Pronouncements
EastGroup has evaluated all ASUs recently released by the FASB through the date the financial statements were issued and
determined that the following ASUs apply to the Company.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and in subsequent periods, issued ASU 2018-10, 2018-11,
and 2018-20, all of which relate to the new lease accounting guidance. The Company adopted the new lease accounting guidance
effective January 1, 2019, and has applied its provisions on a prospective basis. The following changes are applicable to the
Company’s financial condition and results of operations:
• Lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement
date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a
discounted basis; and (2) a right of use asset, which is an asset that represents the lessee’s right to use, or control the use
of, a specified asset for the lease term. The Company is a lessee on a limited number of leases, including office and
ground leases. As of January 1, 2019, the Company recorded its right of use asset and lease liability values for its operating
leases as follows: office leases of $2,376,000 and ground leases of $10,226,000. The combined values of the Company's
right of use assets and lease liabilities for its ground leases and office leases are less than 1% of the Company’s Total
assets as of December 31, 2019.
60
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Lessor accounting is largely unchanged under ASU 2016-02. The Company’s primary revenue is rental income; as such,
the Company is a lessor on a significant number of leases. The Company is continuing to account for its leases in
substantially the same manner. The most significant changes for the Company related to lessor accounting include:
The new standard’s narrow definition of initial direct costs for leases — The new definition of initial direct costs
results in certain costs (primarily legal costs related to lease negotiations) being expensed rather than capitalized
upon adoption of the new standard. EastGroup recorded Indirect leasing costs of $411,000 on the Consolidated
Statements of Income and Comprehensive Income during 2019.
The guidance applicable to recording uncollectible rents — Upon adoption of the lease accounting guidance,
reserves for uncollectible accounts are recorded as a reduction to revenue. Prior to adoption, reserves for
uncollectible accounts were recorded as bad debt expenses. The standard also provides guidance related to
calculating the reserves; however, those changes did not impact the Company.
• EastGroup has elected the practical expedient permitting lessors and lessees to make an accounting policy election by
class of underlying asset to not separate non-lease components (such as common area maintenance) of a contract from
the lease component to which they relate when specific criteria are met. The Company believes its leases meet the criteria.
The Company has applied the provisions of the new lease accounting standard and provided the required disclosures in this Annual
Report on Form 10-K.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities. The ASU is intended to better align a company’s financial reporting for hedging activities with the economic
objectives of those activities. The transition method is a modified retrospective approach that requires companies to recognize
the cumulative effect of initially applying the ASU as an adjustment to Accumulated other comprehensive income with a
corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year the entity adopts the
ASU. The primary provision in the ASU that will require an adjustment to beginning retained earnings is the change in timing
and income statement presentation for ineffectiveness related to cash flow and net investment hedges. As a result of the transition
guidance in the ASU, cumulative ineffectiveness that has previously been recognized on cash flow and net investment hedges that
are still outstanding and designated as of the date of adoption will be adjusted and removed from beginning retained earnings and
placed in Accumulated other comprehensive income. The Company adopted ASU 2017-12 on January 1, 2019; the adoption of
ASU 2017-12 did not have a material impact on its financial condition, results of operations or disclosures.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight
Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The
ASU applies to all entities that elect to apply hedge accounting to benchmark interest rates under Topic 815 and permits the use
of the OIS rate based on SOFR as a United States (U.S.) benchmark rate for hedge accounting purposes under Topic 815 in addition
to the interest rates on direct Treasury obligations of the U.S. government, the London Inter-bank Offered Rate (“LIBOR”) swap
rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (“SIFMA”)
Municipal Swap Rate. ASU 2018-16 was effective upon adoption of ASU 2017-12. The Company adopted ASU 2017-12 and
ASU 2018-16 on January 1, 2019, and the adoption of both ASUs did not have a material impact on its financial condition, results
of operations or disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, and subsequently issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments
— Credit Losses in November 2018. The ASUs amend guidance on reporting credit losses for assets held at amortized cost basis
and available for sale debt securities. For assets held at amortized cost, Topic 326 eliminates the probable initial recognition
threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available
for sale debt securities (EastGroup does not currently hold any and does not intend to hold any in the future), credit losses should
be measured in a similar manner to current GAAP; however, Topic 326 will require that credit losses be presented as an allowance
rather than a write-down. The ASUs affect entities holding financial assets and are effective for annual periods beginning after
December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2016-13 and ASU 2018-19 on
January 1, 2020, and will provide the necessary disclosures beginning with its Form 10-Q for the period ending March 31, 2020.
EastGroup does not expect the adoption to have a material impact on its financial condition, results of operations or disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement. The ASU is intended to improve the effectiveness of fair value measurement
disclosures. ASU 2018-13 is effective for all entities for annual periods beginning after December 15, 2019, and interim periods
within those fiscal years. The Company adopted ASU 2018-13 on January 1, 2020, and will provide the necessary disclosures
beginning with its Form 10-Q for the period ending March 31, 2020. EastGroup does not expect the adoption to have a material
impact on its financial condition, results of operations or disclosures.
61
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(p) Classification of Book Overdraft on Consolidated Statements of Cash Flows
The Company classifies changes in book overdraft in which the bank has not advanced cash to the Company to cover outstanding
checks as an operating activity. Such amounts are included in Accounts payable, accrued expenses and prepaid rent in the Operating
Activities section on the Consolidated Statements of Cash Flows.
(q) Reclassifications
Certain reclassifications have been made in the 2018 consolidated financial statements to conform to the 2019 presentation.
(2) REAL ESTATE PROPERTIES
The Company’s Real estate properties and Development and value-add properties at December 31, 2019 and 2018 were as follows:
Real estate properties:
Land
Buildings and building improvements
Tenant and other improvements
Right of use assets — Ground leases (operating) (1)
Development and value-add properties (2)
Less accumulated depreciation
December 31,
2019
2018
(In thousands)
$
452,698
1,907,963
471,909
11,997
419,999
3,264,566
(871,139)
2,393,427
$
380,684
1,732,592
440,205
—
263,664
2,817,145
(814,915)
2,002,230
(1) See Ground Leases discussion below and in Note 1(o) for information regarding the Company's right of use assets for ground leases.
(2) Value-add properties are defined as properties that are either acquired but not stabilized or can be converted to a higher and better
use. Acquired properties meeting either of the following two conditions are considered value-add properties: (1) Less than 75%
occupied as of the acquisition date (or will be less than 75% occupied within one year of acquisition date based on near term lease
roll), or (2) 20% or greater of the acquisition cost will be spent to redevelop the property.
EastGroup acquired operating properties during 2019, 2018 and 2017 as discussed in Note 1(j).
The Company sold operating properties during 2019, 2018 and 2017 as shown in the table below. The results of operations and
gains and losses on sales for the properties sold during the periods presented are reported in continuing operations on the
Consolidated Statements of Income and Comprehensive Income. The gains and losses on sales are included in Gain on sales of
real estate investments.
The Company did not classify any properties as held for sale as of December 31, 2019 and 2018.
62
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales of Real Estate
A summary of Gain on sales of real estate investments for the years ended December 31, 2019, 2018 and 2017 follows:
Size
(in Square
Feet)
Date Sold
Net Sales
Price
Recognized
Gain
Basis
(In thousands)
Real Estate Properties
Location
2019
World Houston 5
Altamonte Commerce Center
University Business Center 130 (1)
Southpointe Distribution Center
Houston, TX
Orlando, FL
Santa Barbara, CA
Tucson, AZ
51,000
01/29/2019
$
3,679
186,000
05/20/2019
40,000
207,000
11/07/2019
12/03/2019
University Business Center 125 & 175
Santa Barbara, CA
133,000
12/11/2019
Total for 2019
2018
World Houston 18
56 Commerce Park
Houston, TX
Tampa, FL
35th Avenue Distribution Center
Phoenix, AZ
33,000
01/26/2018
181,000
03/20/2018
125,000
07/26/2018
Total for 2018
2017
Stemmons Circle
Techway Southwest I-IV
Total for 2017
Dallas, TX
Houston, TX
99,000
05/12/2017
415,000
06/19/2017
14,423
11,083
13,699
23,675
66,559
2,289
12,032
7,683
22,004
5,051
32,506
37,557
$
$
$
$
$
1,354
5,342
2,729
2,281
13,785
25,491
1,211
2,888
3,632
7,731
1,329
14,373
15,702
2,325
9,081
8,354
11,418
9,890
41,068
1,078
9,144
4,051
14,273
3,722
18,133
21,855
(1) EastGroup owned 80% of University Business Center 130 through a joint venture. The information shown for this transaction also
includes the 20% attributable to the Company's noncontrolling interest partner.
The table above includes sales of operating properties; the Company also sold parcels of land during the years presented. During
the year ended December 31, 2019, the Company sold (through eminent domain procedures) a small parcel of land (0.2 acres) in
San Diego for $185,000 and recognized a gain on the sale of $83,000. During the year ended December 31, 2018, EastGroup sold
a parcel of land in Houston for $2,577,000 and recognized a gain on the sale of $86,000. During the year ended December 31,
2017, EastGroup sold parcels of land in El Paso and Dallas for $3,778,000 and recognized net gains on the sales of $293,000. The
net gains on sales of land are included in Other on the Consolidated Statements of Income and Comprehensive Income.
Development and Value-Add Properties
The Company’s development and value-add program as of December 31, 2019, was comprised of the properties detailed in the
table below. Costs incurred include capitalization of interest costs during the period of construction. The interest costs capitalized
on development projects for 2019 were $8,453,000 compared to $6,334,000 for 2018 and $5,765,000 for 2017. In addition,
EastGroup capitalized internal development costs of $6,918,000 during the year ended December 31, 2019, compared to $4,696,000
during 2018 and $4,754,000 in 2017.
Total capital invested for development and value-add properties during 2019 was $318,288,000, which primarily consisted of
costs of $265,609,000 as detailed in the Development and Value-Add Properties Activity table below, $47,415,000 as detailed in
the Development and Value-Add Properties Transferred to Real Estate Properties During 2019 table below and costs of $5,264,000
on projects subsequent to transfer to Real estate properties. The capitalized costs incurred on development projects subsequent
to transfer to Real estate properties include capital improvements at the properties and do not include other capitalized costs
associated with development (i.e., interest expense, property taxes and internal personnel costs).
63
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEVELOPMENT AND
VALUE-ADD PROPERTIES
ACTIVITY
LEASE-UP
Logistics Center 6 & 7, Dallas, TX (3)
Settlers Crossing 1, Austin, TX
Settlers Crossing 2, Austin, TX
Parc North 5, Dallas, TX
Airport Commerce Center 3, Charlotte, NC
Horizon VIII & IX, Orlando, FL
Ten West Crossing 8, Houston, TX
Tri-County Crossing 1 & 2, San Antonio, TX
CreekView 121 5 & 6, Dallas, TX
Parc North 6, Dallas, TX
Arlington Tech Centre 1 & 2, Dallas, TX (3)
Gateway 5, Miami, FL
Grand Oaks 75 2, Tampa, FL (3)
Southwest Commerce Center, Las Vegas, NV (3)
SunCoast 6, Ft. Myers, FL
Rocky Point 2, San Diego, CA (3)
Steele Creek IX, Charlotte, NC
Total Lease-Up
UNDER CONSTRUCTION
SunCoast 8, Ft. Myers, FL
Gilbert Crossroads A & B, Phoenix, AZ
Hurricane Shoals 3, Atlanta, GA
Interstate Commons 2, Phoenix, AZ (3)
Tri-County Crossing 3 & 4, San Antonio, TX
World Houston 44, Houston, TX
Ridgeview 1 & 2, San Antonio, TX
Creekview 121 7 & 8, Dallas, TX
Northwest Crossing 1-3, Houston, TX
Settlers Crossing 3 & 4, Austin, TX
LakePort 1-3, Dallas, TX
Total Under Construction
PROSPECTIVE DEVELOPMENT
(PRIMARILY LAND)
Phoenix, AZ
Ft. Myers, FL
Miami, FL
Orlando, FL
Tampa, FL
Atlanta, GA
Jackson, MS
Charlotte, NC
Austin, TX
Dallas, TX
Houston, TX
San Antonio, TX
Total Prospective Development
(Unaudited)
Building Size
(Square feet)
142,000
77,000
83,000
100,000
96,000
216,000
132,000
203,000
139,000
96,000
151,000
187,000
150,000
196,000
81,000
109,000
125,000
2,283,000
77,000
140,000
101,000
142,000
203,000
134,000
226,000
137,000
278,000
173,000
194,000
1,805,000
Estimated
Building Size
(Square feet)
178,000
329,000
463,000
—
349,000
—
28,000
475,000
—
997,000
1,223,000
373,000
4,415,000
8,503,000
Costs Incurred
Costs
Transferred
in 2019 (1)
For the
Year Ended
12/31/19
Cumulative
as of
12/31/19
Projected
Total Costs (2)
(In thousands)
Anticipated
Building
Conversion
Date
(Unaudited)
(Unaudited)
16,400
10,200
9,200
9,200
9,100
18,800
10,900
16,700
16,200
10,100
15,100
23,500
13,600
30,100
9,200
20,600
9,800
248,700
9,000
16,000
8,800
11,800
14,700
9,100
18,500
16,300
25,700
18,400
22,500
170,800
01/20
01/20
01/20
02/20
03/20
04/20
04/20
04/20
06/20
07/20
08/20
09/20
09/20
10/20
10/20
12/20
12/20
05/20
01/21
03/21
03/21
05/21
05/21
06/21
07/21
07/21
07/21
09/21
$
$
—
—
—
—
—
4,967
—
—
—
2,552
—
11,944
—
—
3,915
—
1,766
25,144
4,361
3,221
3,890
—
2,334
1,546
2,499
5,489
6,109
4,030
3,542
37,021
(3,221)
(8,276)
(11,944)
(4,967)
—
(3,890)
—
(1,766)
(4,030)
(11,583)
(13,126)
(5,987)
(68,790)
(6,625)
15,735
2,999
1,360
1,736
2,763
11,634
3,174
6,491
7,546
5,738
13,277
11,161
13,115
26,613
4,019
19,275
7,354
153,990
123
10,729
2,739
9,882
6,364
3,244
4,032
1,310
5,426
4,059
4,520
52,428
785
2,457
9,798
323
4,241
3,164
—
1,884
288
18,979
16,135
1,137
59,191
265,609
15,735
9,259
8,475
8,689
8,556
16,601
9,764
15,386
13,151
8,290
13,277
23,105
13,115
26,613
7,934
19,275
9,120
226,345
4,484
13,950
6,629
9,882
8,698
4,790
6,531
6,799
11,535
8,089
8,062
89,449
4,373
7,503
34,185
1,075
5,801
—
706
7,327
—
19,588
19,448
4,199
104,205
419,999
The Development and Value-Add Properties Activity table is continued on the following page.
64
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEVELOPMENT AND VALUE-ADD
PROPERTIES TRANSFERRED TO
REAL ESTATE PROPERTIES
DURING 2019
Siempre Viva I, San Diego, CA (3)
CreekView 121 3 & 4, Dallas, TX
Horizon VI, Orlando, FL
Horizon XI, Orlando, FL
Falcon Field, Phoenix, AZ
Gateway 1, Miami, FL
SunCoast 5, Ft. Myers, FL
Steele Creek V, Charlotte, NC
Broadmoor 2, Atlanta, GA
Eisenhauer Point 9, San Antonio, TX
World Houston 43, Houston, TX
Eisenhauer Point 7 & 8, San Antonio, TX
World Houston 45, Houston, TX
Total Transferred to Real Estate Properties
Costs
Transferred
in 2019 (1)
Costs Incurred
For the
Year Ended
12/31/19
(In thousands)
Cumulative
as of
12/31/19
(Unaudited)
Building Size
(Square feet)
115,000
158,000
148,000
135,000
97,000
200,000
81,000
54,000
111,000
82,000
86,000
336,000
160,000
1,763,000
$
$
—
—
—
—
—
—
—
—
—
1,154
1,041
—
4,430
6,625
—
1,739
3,682
507
181
3,402
1,335
2,223
1,478
5,175
5,381
9,790
12,522
47,415
14,075
15,539
11,907
9,230
8,413
23,643
7,870
5,537
7,892
6,329
6,422
22,880
16,952
156,689
(4)
(Unaudited)
Building
Conversion
Date
01/19
03/19
03/19
04/19
05/19
05/19
05/19
07/19
11/19
11/19
11/19
12/19
12/19
(1) Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period. Negative amounts represent
land inventory costs transferred to Under Construction.
Included in these costs are development obligations of $59.3 million and tenant improvement obligations of $7.5 million on properties under development.
(2)
(3) Represents value-add projects acquired by EastGroup.
(4) Represents cumulative costs at the date of transfer.
Ground Leases
On January 1, 2019, EastGroup adopted the principles of FASB Accounting Standards Codification (“ASC”) 842, Leases, as
discussed in Note 1(o). In connection with the adoption, the Company recorded right of use assets for its ground leases, which are
classified as operating leases, using the effective date transition option; under this option, prior years are not restated. As of
January 1, 2019, the Company recorded right of use assets for its ground leases of $10,226,000. In April 2019, the Company
acquired Logistics Center 6 & 7 in Dallas, which is located on land under a ground lease. The Company recorded a right of use
asset of $2,679,000 in connection with this acquisition. As of December 31, 2019, the unamortized balance of the Company’s
right of use assets for its ground leases was $11,997,000. The right of use assets for ground leases are included in Real estate
properties on the Consolidated Balance Sheets.
As of December 31, 2019, the Company owned two properties in Florida, three properties in Texas and one property in Arizona
that are subject to ground leases. These leases have terms of 40 to 50 years, expiration dates of August 2031 to October 2058,
and renewal options of 15 to 35 years, except for the one lease in Arizona which is automatically and perpetually renewed
annually. The Company has included renewal options in the lease terms for calculating the ground lease assets and liabilities as
the Company is reasonably certain it will exercise these options. Total ground lease expenditures for the years ended December 31,
2019, 2018 and 2017 were $966,000, $783,000 and $760,000, respectively. Payments are subject to increases at 3 to 10 year
intervals based upon the agreed or appraised fair market value of the leased premises on the adjustment date or the Consumer
Price Index percentage increase since the base rent date. These future changes in payments will be considered variable payments
and will not impact the assessment of the asset or liability unless there is a significant event that triggers reassessment, such as
amendment with a change in the terms of the lease. The weighted-average remaining lease term as of December 31, 2019, for the
ground leases is 43 years. The following schedule indicates approximate future minimum ground lease payments for these properties
by year as of December 31, 2019:
65
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future Minimum Ground Lease Payments as of December 31, 2019
Years Ending December 31,
(In thousands)
2020
2021
2022
2023
2024
Thereafter
Total minimum payments
Imputed interest (1)
Total ground leases
$
$
970
970
970
975
999
38,916
43,800
(31,752)
12,048
(1) As the Company’s leases do not provide an implicit rate, in order to calculate the present value of the remaining ground lease payments,
the Company used its incremental borrowing rate, adjusted for a number of factors, including the long-term nature of the ground
leases, the Company’s estimated borrowing costs, and the estimated fair value of the underlying land, to determine the imputed interest
for its ground leases. The Company elected to use the portfolio approach as all of its ground leases in place as of January 1, 2019,
have similar characteristics and determined 7.3% as the appropriate rate as of January 1, 2019, for all leases in place at that time.
For the ground lease obtained during April 2019, the Company used its incremental borrowing rate, adjusted for the factors discussed
above, which was determined to be 8.0%.
As noted above, the Company adopted the new lease accounting guidance effective January 1, 2019. Since the Company has
applied the provisions on a prospective basis, the following represents approximate future minimum ground lease payments by
year as of December 31, 2018, as applicable under ASC 840, Leases, prior to the adoption of ASC 842.
Future Minimum Ground Lease Payments as of December 31, 2018
Years Ending December 31,
(In thousands)
2019
2020
2021
2022
2023
Thereafter
$
$
791
791
791
791
791
30,751
34,706
At December 31, 2018, the Company had the same ground leases in place as mentioned above, with the exception of the ground
lease associated with Logistics Center 6 & 7 which was obtained in April 2019.
(3) UNCONSOLIDATED INVESTMENT
The Company owns a 50% undivided tenant-in-common interest in Industry Distribution Center II, a 309,000 square foot warehouse
distribution building in the City of Industry (Los Angeles), California. The building was constructed in 1998 and is 100% leased
through December 2021 to a single tenant who owns the other 50% interest in the property. This investment is accounted for
under the equity method of accounting and had a carrying value of $7,805,000 at December 31, 2019, and $7,870,000 at December
31, 2018.
(4) MORTGAGE LOANS RECEIVABLE
As of December 31, 2017, EastGroup had two mortgage loans receivable, both of which were classified as first mortgage loans,
with effective interest rates of 5.15% and maturity dates in December 2022. In March of 2018, one of the notes was repaid in full.
As of December 31, 2018 and 2019, the Company had one mortgage loan receivable which was classified as a first mortgage loan
with an effective interest rate of 5.15% and a maturity date in December 2022. Mortgage loans receivable are included in Other
assets on the Consolidated Balance Sheets. See Note 5 for a summary of Other assets.
66
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) OTHER ASSETS
A summary of the Company’s Other assets follows:
Leasing costs (principally commissions)
$
Accumulated amortization of leasing costs
Leasing costs (principally commissions), net of accumulated amortization
Acquired in-place lease intangibles
Accumulated amortization of acquired in-place lease intangibles
Acquired in-place lease intangibles, net of accumulated amortization
Acquired above market lease intangibles
Accumulated amortization of acquired above market lease intangibles
Acquired above market lease intangibles, net of accumulated amortization
December 31,
2019
2018
(In thousands)
89,191
(34,963)
54,228
28,834
(11,918)
16,916
1,721
(1,007)
714
78,985
(30,185)
48,800
21,696
(9,833)
11,863
1,465
(902)
563
Straight-line rents receivable
40,369
36,022
Accounts receivable
Mortgage loans receivable
Interest rate swap assets
Right of use assets - Office leases (operating) (1)
Goodwill
5,581
1,679
3,485
2,115
990
5,433
2,594
6,701
—
990
Prepaid expenses and other assets
8,265
121,231
(1) See Note 1(o) for information regarding the Company’s January 1, 2019, implementation of FASB ASC 842, Leases, and the Company’s
Total Other assets
144,622
18,545
$
right of use assets for office leases.
(6) UNSECURED BANK CREDIT FACILITIES
Until June 14, 2018, EastGroup had $300 million and $35 million unsecured bank credit facilities with margins over LIBOR of
100 basis points, facility fees of 20 basis points and maturity dates of July 30, 2019. The Company amended and restated these
credit facilities on June 14, 2018, expanding the capacity to $350 million and $45 million, as detailed below.
The $350 million unsecured bank credit facility is with a group of nine banks and has a maturity date of July 30, 2022. The credit
facility contains options for two six-month extensions (at the Company's election) and a $150 million accordion (with agreement
by all parties). The interest rate on each tranche is usually reset on a monthly basis and as of December 31, 2019, was LIBOR
plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the
Company's credit ratings. The Company had designated an interest rate swap to an $80 million unsecured bank credit facility
draw that effectively fixed the interest rate on the $80 million draw to 2.020% through the interest rate swap's maturity date. This
swap matured on August 15, 2018, and the $80 million draw has reverted to the variable interest rate associated with the Company's
unsecured bank credit facilities. As of December 31, 2019, the Company had $105,000,000 of variable rate borrowings outstanding
on this unsecured bank credit facility with a weighted average interest rate of 2.776%. The Company has a standby letter of credit
of $674,000 pledged on this facility.
The Company's $45 million unsecured bank credit facility has a maturity date of July 30, 2022, or such later date as designated
by the bank; the Company also has two six-month extensions available if the extension options in the $350 million facility are
exercised. The interest rate is reset on a daily basis and as of December 31, 2019, was LIBOR plus 100 basis points with an annual
facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings. As of December 31,
2019, the interest rate was 2.763% on a balance of $7,710,000.
67
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Average unsecured bank credit facilities borrowings were $172,175,000 in 2019, $141,223,000 in 2018 and $114,751,000 in 2017,
with weighted average interest rates (excluding amortization of facility fees and debt issuance costs) of 3.34% in 2019, 2.64% in
2018 and 2.07% in 2017. Amortization of facility fees was $790,000, $736,000 and $670,000 for 2019, 2018 and 2017, respectively.
Amortization of debt issuance costs for the Company's unsecured bank credit facilities was $556,000, $508,000 and $451,000 for
2019, 2018 and 2017, respectively.
The Company’s unsecured bank credit facilities have certain restrictive covenants, such as maintaining debt service coverage and
leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its financial debt covenants
at December 31, 2019.
See Note 7 for a detail of the outstanding balances of the Company's Unsecured bank credit facilities as of December 31, 2019
and 2018.
(7) UNSECURED AND SECURED DEBT
The Company's debt is detailed below. EastGroup presents debt issuance costs as reductions of Unsecured bank credit facilities,
Unsecured debt and Secured debt on the Consolidated Balance Sheets as detailed below.
Unsecured bank credit facilities - variable rate, carrying amount
$
December 31,
2019
December 31,
2018
(In thousands)
112,710
(1,316)
111,394
940,000
(1,885)
938,115
133,422
(329)
133,093
195,730
(1,804)
193,926
725,000
(1,600)
723,400
189,038
(577)
188,461
$
1,182,602
1,105,787
Unamortized debt issuance costs
Unsecured bank credit facilities
Unsecured debt - fixed rate, carrying amount (1)
Unamortized debt issuance costs
Unsecured debt
Secured debt - fixed rate, carrying amount (1)
Unamortized debt issuance costs
Secured debt
Total debt
(1) These loans have a fixed interest rate or an effectively fixed interest rate due to interest rate swaps.
68
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the carrying amount of Unsecured debt follows:
Margin Above LIBOR
Interest Rate
Maturity Date
2019
2018
Balance at December 31,
(In thousands)
$75 Million Unsecured Term Loan (1)
$75 Million Unsecured Term Loan (1)
$40 Million Unsecured Term Loan (1)
$75 Million Unsecured Term Loan (1)
$65 Million Unsecured Term Loan (1)
$100 Million Senior Unsecured Notes:
$30 Million Notes
$50 Million Notes
$20 Million Notes
$60 Million Senior Unsecured Notes
$100 Million Senior Unsecured Notes:
$60 Million Notes
$40 Million Notes
$25 Million Senior Unsecured Notes
$50 Million Senior Unsecured Notes
$60 Million Senior Unsecured Notes
$80 Million Senior Unsecured Notes
$35 Million Senior Unsecured Notes
$75 Million Senior Unsecured Notes
$100 Million Unsecured Term Loan (1)
1.15%
1.10%
1.10%
1.40%
1.10%
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
1.50%
2.85%
3.45%
2.34%
3.03%
2.31%
3.80%
3.80%
3.80%
3.46%
3.48%
3.75%
3.97%
3.99%
3.93%
4.27%
3.54%
3.47%
2.75%
07/31/2019
$
12/20/2020
07/30/2021
02/28/2022
04/01/2023
08/28/2020
08/28/2023
08/28/2025
12/13/2024
12/15/2024
12/15/2026
10/01/2025
10/07/2025
04/10/2028
03/28/2029
08/15/2031
08/19/2029
10/10/2026
—
75,000
40,000
75,000
65,000
30,000
50,000
20,000
60,000
60,000
40,000
25,000
50,000
60,000
80,000
35,000
75,000
100,000
75,000
75,000
40,000
75,000
65,000
30,000
50,000
20,000
60,000
60,000
40,000
25,000
50,000
60,000
—
—
—
—
$
940,000
725,000
(1) The interest rates on these unsecured term loans are comprised of LIBOR plus a margin which is subject to a pricing grid for changes
in the Company's coverage ratings. The Company entered into interest rate swap agreements (further described in Note 13) to convert
the loans' LIBOR rates to effectively fixed interest rates. The interest rates in the table above are the effectively fixed interest rates for
the loans, including the effects of the interest rate swaps, as of December 31, 2019.
In March 2019, the Company closed on the private placement of $80 million of senior unsecured notes with an insurance company.
The notes have a 10-year term and a fixed interest rate of 4.27% with semi-annual interest payments. In August 2019, the Company
closed on the private placement of $35 million of senior unsecured notes with an insurance company. The notes have a 12-year
term and a fixed interest rate of 3.54% with semi-annual interest payments. Also in August 2019, the Company closed on the
private placement of $75 million of senior unsecured notes with an insurance company. The notes have a 10-year term and a fixed
rate of 3.47% with semi-annual interest payments. None of these senior unsecured notes are or will be registered under the Securities
Act of 1933, as amended, and they may not be offered or sold in the United States absent registration or an applicable exemption
from the registration requirements.
In July 2019, the Company repaid a $75 million unsecured term loan at maturity with an effectively fixed interest rate of 2.85%.
In October 2019, the Company closed a $100 million senior unsecured term loan with a seven-year term and interest only payments.
It bears interest at the annual rate of LIBOR plus an applicable margin (1.50% as of December 31, 2019 and February 12, 2020)
based on the Company’s senior unsecured long-term debt rating. The Company also entered into an interest rate swap agreement
to convert the loan’s LIBOR rate component to a fixed interest rate for the entire term of the loan providing a total effective fixed
interest rate of 2.75%.
The Company’s unsecured debt instruments have certain restrictive covenants, such as maintaining debt service coverage and
leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its financial debt covenants
at December 31, 2019.
69
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the carrying amount of Secured debt follows:
Property
Dominguez, Industry I & III, Kingsview, Shaw,
Walnut and Washington
Blue Heron II
40th Avenue, Beltway Crossing V, Centennial Park,
Executive Airport, Interchange Park I, Ocean
View, Wetmore 5-8 and World Houston 26, 28,
29 & 30
Colorado Crossing, Interstate I-III, Rojas, Steele
Creek 1 & 2, Venture and World Houston 3-9 (1)
Arion 18, Beltway Crossing VI & VII, Commerce
Park II & III, Concord, Interstate V-VII,
Lakeview, Ridge Creek II, Southridge IV & V
and World Houston 32
Ramona
Interest
Rate
Monthly
P&I
Payment
Maturity
Date
Carrying Amount
of Securing
Real Estate at
December 31, 2019
Balance at December 31,
2019
2018
(In thousands)
7.50%
5.39%
539,747
16,176
Repaid
Repaid
$
—
—
—
—
46,725
233
4.39%
463,778
01/05/2021
66,072
48,772
52,115
4.75%
420,045
06/05/2021
50,002
44,596
47,445
4.09%
3.85%
329,796
01/05/2022
16,287
11/30/2026
53,889
8,794
37,682
2,372
40,046
2,474
$
178,757
133,422
189,038
(1) During 2019, the Company executed a collateral release for World Houston 5; this property was sold during 2019 and is no longer
considered to be collateral securing this loan.
The Company currently intends to repay its debt obligations, both in the short-term and long-term, through its operating cash
flows, borrowings under its unsecured bank credit facilities, proceeds from new debt (primarily unsecured), and/or proceeds from
the issuance of equity instruments.
Scheduled principal payments on long-term debt, including Unsecured debt and Secured debt (not including Unsecured bank
credit facilities), due during the next five years as of December 31, 2019 are as follows:
Years Ending December 31,
2020
2021
2022
2023
2024
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of the Company’s Accounts payable and accrued expenses follows:
Property taxes payable
Development costs payable
Real estate improvements and capitalized leasing costs payable
Interest payable
Dividends payable
Book overdraft (1)
Other payables and accrued expenses
Total Accounts payable and accrued expenses
(In thousands)
$
114,047
129,562
107,770
115,119
120,122
December 31,
2019
2018
(In thousands)
$
$
2,696
11,766
4,636
6,370
30,714
25,771
10,071
92,024
10,718
15,410
3,911
4,067
27,738
15,048
9,671
86,563
(1) Represents checks written before the end of the period which have not cleared the bank; therefore, the bank has not yet advanced
cash to the Company. When the checks clear the bank, they will be funded through the Company's working cash line of credit. See
Note 1(p).
70
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) OTHER LIABILITIES
A summary of the Company’s Other liabilities follows:
Security deposits
Prepaid rent and other deferred income
Operating lease liabilities — Ground leases (1)
Operating lease liabilities — Office leases (1)
Acquired below-market lease intangibles
Accumulated amortization of acquired below-market lease intangibles
Acquired below-market lease intangibles, net of accumulated amortization
Interest rate swap liabilities
Prepaid tenant improvement reimbursements
Other liabilities
Total Other liabilities
December 31,
2019
2018
(In thousands)
$
$
20,351
13,855
12,048
2,141
8,616
(4,494)
4,122
678
56
15,872
69,123
18,432
12,728
—
—
5,891
(3,028)
2,863
—
614
15
34,652
(1) See Note 1(o) for information regarding the Company’s January 1, 2019, implementation of FASB ASC 842, Leases, and the Company’s
right of use assets and related liabilities for office leases.
(10) COMMON STOCK ACTIVITY
The following table presents the common stock activity for the three years ended December 31, 2019:
Shares outstanding at beginning of year
Common stock offerings
Dividend reinvestment plan
Incentive restricted stock granted
Incentive restricted stock forfeited
Director common stock awarded
Director restricted stock granted
Restricted stock withheld for tax obligations
Shares outstanding at end of year
Years Ended December 31,
2019
2018
2017
Common Stock (in shares)
36,501,356
34,758,167
33,332,213
2,388,342
1,706,474
1,370,457
1,893
59,943
(3,010)
6,384
1,844
50,217
—
8,478
2,744
93,285
(16,000)
8,881
—
(28,955)
38,925,953
—
(23,824)
36,501,356
282
(33,695)
34,758,167
Common Stock Issuances
The following table presents the common stock issuance activity for the three years ended December 31, 2019:
Years Ended December 31,
2019
2018
2017
Number of Shares of
Common Stock Issued
Net Proceeds
(In thousands)
2,388,342
$
1,706,474
1,370,457
284,710
157,319
109,207
71
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividend Reinvestment Plan
The Company had a dividend reinvestment plan that allowed stockholders to reinvest cash distributions in new shares of the
Company. On December 12, 2019, the dividend reinvestment plan was terminated and any unsold shares pursuant to the plan were
deregistered.
(11) STOCK-BASED COMPENSATION
EastGroup applies the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation
plans. ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial
statements and that the cost be measured on the fair value of the equity or liability instruments issued.
Equity Incentive Plan
In May 2004, the stockholders of the Company approved the EastGroup Properties, Inc. 2004 Equity Incentive Plan (the “2004
Plan”) that authorized the issuance of up to 1,900,000 shares of common stock to employees in the form of options, stock appreciation
rights, restricted stock, deferred stock units, performance shares, bonus stock or stock in lieu of cash compensation. The 2004
Plan was further amended by the Board of Directors in September 2005 and December 2006.
In April 2013, the Board of Directors adopted the EastGroup Properties, Inc. 2013 Equity Incentive Plan (the “2013 Equity Plan”)
upon the recommendation of the Compensation Committee; the 2013 Equity Plan was approved by the Company's stockholders
and became effective May 29, 2013. The 2013 Equity Plan was further amended by the Board of Directors in March 2017. The
2013 Equity Plan permits the grant of awards to employees and directors with respect to 2,000,000 shares of common stock.
There were 1,583,223, 1,629,281 and 1,671,981 total shares available for grant under the 2013 Equity Plan as of December 31,
2019, 2018 and 2017, respectively. Typically, the Company issues new shares to fulfill stock grants.
Stock-based compensation cost for employees was $8,647,000, $5,322,000 and $6,309,000 for 2019, 2018 and 2017, respectively,
of which $2,536,000, $1,173,000 and $1,458,000 were capitalized as part of the Company’s development costs for the respective
years.
Employee Equity Awards
The Company's restricted stock program is designed to provide incentives for management to achieve goals established by the
Compensation Committee of the Company's Board of Directors (the "Committee"). The awards act as a retention device, as they
vest over time, allowing participants to benefit from dividends on shares as well as potential stock appreciation. Equity awards
align management's interests with the long-term interests of shareholders. The vesting periods of the Company’s restricted stock
plans vary, as determined by the Committee. Restricted stock is granted to executive officers subject to both continued service
and the satisfaction of certain annual performance goals and multi-year market conditions as determined by the
Committee. Restricted stock is granted to non-executive officers subject only to continued service. The cost for market-based
awards and awards that only require service is amortized on a straight-line basis over the requisite service periods. The total
compensation expense for service and performance based awards is based upon the fair market value of the shares on the grant
date.
In the second quarter of 2017, the Committee approved a long-term equity compensation plan for certain of the Company’s
executive officers that includes three components based on total shareholder return and one component based only on continued
service as of the vesting dates.
The three long-term equity compensation plan components based on total shareholder return are subject to bright-line tests that
compare the Company's total shareholder return to the Nareit Equity Index and to the member companies of the Nareit industrial
index. The first plan measured the bright-line tests over the one-year period ended December 31, 2017. During the first quarter
of 2018, the Committee measured the Company's performance for the one-year period against bright-line tests established by the
Committee on the grant date of May 10, 2017. The number of shares determined on the measurement date was 4,257. These
shares vested 100% on March 1, 2018, the date the earned shares were determined. On the grant date of May 10, 2017, the
Company began recognizing expense for this plan based on the grant date fair value of the awards which was determined using
a simulation pricing model developed to specifically accommodate the unique features of the award.
The second plan measured the bright-line tests over the two-year period ended December 31, 2018. During the first quarter of
2019, the Committee measured the Company’s performance for the two-year period against bright-line tests established by the
Committee on the grant date of May 10, 2017. The number of shares determined on the measurement date was 9,460. These
shares vested 100% on February 14, 2019, the date the earned shares were determined. On the grant date of May 10, 2017, the
72
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company began recognizing expense for this plan based on the grant date fair value of the awards which was determined using
a simulation pricing model developed to specifically accommodate the unique features of the award.
The third plan will measure the bright-line tests over the three-year period ended December 31, 2019. During the first quarter of
2020, the Committee will measure the Company’s performance for the three-year period against bright-line tests established by
the Committee on the grant date of May 10, 2017. The number of shares to be earned on the measurement date could range from
zero to 18,917. These shares would vest 75% on the date the earned shares are determined in the first quarter of 2020 and 25%
on January 1, 2021. On the grant date of May 10, 2017, the Company began recognizing expense for this plan based on the grant
date fair value of the awards which was determined using a simulation pricing model developed to specifically accommodate the
unique features of the award.
The component of the long-term equity compensation plan based only on continued service as of the vesting dates was awarded
on May 10, 2017. On that date, 5,406 shares were granted to certain executive officers subject only to continued service as of the
vesting dates. These shares, which have a grant date fair value of $78.18 per share, vested 25% in the first quarter of each of 2018,
2019 and 2020 and will vest 25% on January 1, 2021. The shares are being expensed on a straight-line basis over the remaining
service period.
In the second quarter of 2018, the Committee approved an equity compensation plan for the Company’s executive officers based
upon certain annual performance measures for 2018, including funds from operations (“FFO”) per share, same property net
operating income change, general and administrative costs, and fixed charge coverage. On February 14, 2019, the Committee
measured the Company’s performance for 2018 against bright-line tests established by the Committee on the grant date of June
1, 2018 and determined that 24,690 shares were earned. These shares, which have a grant date fair value of $95.19, vested 20%
on the date shares were determined and will vest 20% per year on each January 1 for the subsequent four years. On the grant date
of June 1, 2018, the Company began recognizing expense for its estimate of the shares that may be earned pursuant to these awards;
the shares are being expensed using the graded vesting attribution method which recognizes each separate vesting portion of the
award as a separate award on a straight-line basis over the requisite service period.
Also in the second quarter of 2018, the Committee approved an equity compensation plan for EastGroup’s executive officers based
upon the achievement of individual goals for each of the officers included in the plan. On February 14, 2019, the Committee
evaluated the performance of the officers and, in its discretion, awarded 5,671 shares with a grant date fair value of $107.37.
These shares vested 20% on the date shares were determined and awarded and will vest 20% per year on each January 1 for the
subsequent four years. The Company began recognizing the expense for the shares awarded on the grant date of February 14,
2019, and the shares will be expensed on a straight-line basis over the remaining service period.
Also in the second quarter of 2018, the Committee approved a long-term equity compensation plan for the Company’s executive
officers that includes one component based on total shareholder return and one component based only on continued service as of
the vesting dates.
The component of the long-term equity compensation plan based on total shareholder return is subject to bright-line tests that will
compare the Company’s total shareholder return to the Nareit Equity Index and to the member companies of the Nareit industrial
index. The plan will measure the bright-line tests over the three-year period ending December 31, 2020. During the first quarter
of 2021, the Committee will measure the Company’s performance for the three-year period against bright-line tests established
by the Committee on the grant date of June 1, 2018. The number of shares to be earned on the measurement date could range
from zero to 27,596. These shares would vest 75% on the date the earned shares are determined in the first quarter of 2021 and
25% on January 1, 2022. On the grant date of June 1, 2018, the Company began recognizing expense for this plan based on the
grant date fair value of the awards which was determined using a simulation pricing model developed to specifically accommodate
the unique features of the award.
The component of the long-term equity compensation plan based only on continued service as of the vesting dates was awarded
on June 1, 2018. On that date, 7,884 shares were granted to the Company’s executive officers subject only to continued service
as of the vesting dates. These shares, which have a grant date fair value of $95.19, vested 25% in the first quarter of 2019 and
will vest 25% on each January 1 for the subsequent four years. The shares are being expensed on a straight-line basis over the
remaining service period.
In the first quarter of 2019, the Committee approved an equity compensation award (the “2019 Annual Grant”) for the Company’s
executive officers based upon certain annual performance measures for 2019; the 2019 Annual Grant is comprised of three
components. The first component of the 2019 Annual Grant is based upon the following Company performance measures for
2019: (i) same property net operating income change, (ii) debt-to EBITDAre ratio, and (iii) fixed charge coverage. During the
first quarter of 2020, the Committee will measure the Company’s performance for 2019 against bright-line tests established by
73
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Committee on the grant date of March 7, 2019. The aggregate number of shares that may be earned for the achievement of
the annual performance measures could range from zero to 9,594. These shares, which have a grant date fair value of $105.97,
would vest 20% on the date shares are determined and 20% per year on each January 1 for the subsequent four years. On the grant
date of March 7, 2019, the Company began recognizing expense for its estimate of the shares that may be earned pursuant to these
awards; the shares are being expensed using the graded vesting attribution method which recognizes each separate vesting portion
of the award as a separate award on a straight-line basis over the requisite service period.
The second component of the 2019 Annual Grant is based upon the Company’s FFO per share for 2019. During the first quarter
of 2020, the Committee will measure the Company’s performance for 2019 against bright-line tests established by the Committee
on the grant date of August 28, 2019. The aggregate number of shares that may be earned for the achievement of the annual
performance measures for FFO could range from zero to 15,992. These shares, which have a grant date fair value of $122.61,
would vest 20% on the date shares are determined and 20% per year on each January 1 for the subsequent four years. On the
grant date of August 28, 2019, the Company began recognizing expense for its estimate of the shares that may be earned pursuant
to these awards; the shares are being expensed using the graded vesting attribution method which recognizes each separate vesting
portion of the award as a separate award on a straight-line basis over the requisite service period.
The third component of the 2019 Annual Grant is based upon the achievement of individual goals for each of the officers to whom
shares were granted. Any shares issued pursuant to the individual goals in this compensation plan will be determined by the
Committee in its discretion and issued in the first quarter of 2020. The number of shares to be issued on the grant date for the
achievement of individual goals could range from zero to 6,394. These shares would vest 20% on the date shares are determined
and awarded and 20% per year on each January 1 for the subsequent four years. The Company will begin recognizing the expense
for any shares awarded on the grant date in the first quarter of 2020, and the shares will be expensed on a straight-line basis over
the remaining service period.
Also in the first quarter of 2019, the Committee approved a long-term equity compensation award for the Company’s executive
officers that includes one component based on total shareholder return and one component based only on continued service as of
the vesting dates.
The component of the long-term equity compensation award based on total shareholder return is subject to bright-line tests that
will compare the Company’s total shareholder return to the Nareit Equity Index and to the member companies of the Nareit
industrial index. The award will measure the bright-line tests over the three-year period ending December 31, 2021. During the
first quarter of 2022, the Committee will measure the Company’s performance for the three-year period against bright-line tests
established by the Committee on the grant date of March 7, 2019. The aggregate number of shares to be earned on the measurement
date could range from zero to 34,812. These shares would vest 75% on the date the earned shares are determined in the first
quarter of 2022 and 25% on January 1, 2023. On the grant date of March 7, 2019, the Company began recognizing expense for
this award based on the grant date fair value of the awards which was determined using a simulation pricing model developed to
specifically accommodate the unique features of the award.
The component of the long-term equity compensation award based only on continued service as of the vesting dates was awarded
on March 7, 2019. On that date, an aggregate of 9,947 shares were granted to the Company’s executive officers subject only to
continued service as of the vesting dates. These shares, which have a grant date fair value of $105.97, will vest 25% in the first
quarter of 2020 and 25% on January 1 in years 2021, 2022 and 2023. The shares are being expensed on a straight-line basis over
the remaining service period.
During the second quarter of 2019, 10,175 shares were granted to certain non-executive officers subject only to continued service
as of the vesting dates. These shares, which have a grant date fair value of $112.14, will vest 20% on January 1 in years 2020,
2021, 2022, 2023 and 2024. The shares are being expensed on a straight-line basis over the remaining service period.
During the fourth quarter of 2019, the Committee adopted the Equity Award Retirement Policy (the "retirement policy") which
allows for accelerated vesting of unvested shares for retirement-eligible employees (defined as employees who meet certain age
and years of service requirements). In order to qualify for accelerated vesting upon retirement, the eligible employees must provide
required notification under the retirement policy and must retire from the Company. The Company has adjusted its stock-based
compensation expense to accelerate the recognition of expense for retirement-eligible employees.
During the restricted period for awards no longer subject to contingencies, the Company accrues dividends and holds the certificates
for the shares; however, the employee can vote the shares. For shares subject to contingencies, dividends are accrued based upon
the number of shares expected to be awarded. Share certificates and dividends are delivered to the employee as they vest. As of
December 31, 2019, there was $4,556,000 of unrecognized compensation cost related to unvested restricted stock compensation
for employees and directors that is expected to be recognized over a weighted average period of 2.7 years.
74
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the total restricted shares granted, forfeited and delivered (vested) to employees with the related
weighted average grant date fair value share prices for 2019, 2018 and 2017. Of the shares that vested in 2019, 2018 and 2017,
28,955 shares, 23,824 shares and 33,695 shares, respectively, were withheld by the Company to satisfy the tax obligations for
those employees who elected this option as permitted under the applicable equity plan. As of the grant date, the fair value of shares
that were granted during 2019, 2018 and 2017 was $5,672,000, $4,223,000 and $7,155,000, respectively. As of the vesting date,
the fair value of shares that vested during 2019, 2018 and 2017 was $6,662,000, $5,142,000 and $6,441,000, respectively.
Restricted Stock Activity:
Unvested at beginning of year
Granted (1)
Forfeited
Vested
Unvested at end of year
Years Ended December 31,
2019
2018
2017
Weighted
Average
Grant Date
Fair Value
70.26
$
94.62
86.19
66.99
82.78
Shares
143,314
59,943
(3,010)
(69,363)
130,884
Weighted
Average
Grant Date
Fair Value
Shares
152,644
$
50,217
—
(59,547)
143,314
63.18
84.09
—
63.77
70.26
Weighted
Average
Grant Date
Fair Value
Shares
162,087
$
93,285
(16,000)
(86,728)
152,644
51.97
76.70
36.98
61.62
63.18
(1) Does not include the restricted shares that may be earned if the performance goals established in 2017 and 2018 for long-term
performance and in 2019 for annual and long-term performance are achieved. Depending on the actual level of achievement of the
goals at the end of the open performance periods, the number of shares earned could range from zero to 113,305.
Following is a vesting schedule of the total unvested shares as of December 31, 2019:
Unvested Shares Vesting Schedule
Number of Shares
2020
2021
2022
2023
2024
Total Unvested Shares
63,931
30,897
21,934
12,152
1,970
130,884
Directors Equity Awards
The Board of Directors has adopted a policy under the 2013 Equity Plan pursuant to which awards will be made to non-employee
Directors. The current policy provides that the Company shall automatically award an annual retainer share award to each non-
employee Director who has been elected or reelected as a member of the Board of Directors at the Annual Meeting. The number
of shares shall be equal to $90,000 divided by the fair market value of a share on the date of such election. If a non-employee
Director is elected or appointed to the Board of Directors other than at an Annual Meeting of the Company, the annual retainer
share award shall be pro rated. The policy also provides that each new non-employee Director appointed or elected will receive
an automatic award of restricted shares of Common Stock on the effective date of election or appointment equal to $25,000 divided
by the fair market value of the Company's Common Stock on such date. These restricted shares will vest over a four-year period
upon the performance of future service as a Director, subject to certain exceptions.
Directors were issued 6,384 shares, 8,478 shares and 8,881 shares of common stock as annual retainer awards for 2019, 2018 and
2017, respectively.
During the third quarter of 2017, 282 shares were granted to a newly elected non-employee Director subject only to continued
service as of the vesting date. The shares, which have a grant date fair value of $88.86 per share, vested 25% on each of September
8, 2018 and 2019, and will vest 25% per year on September 8 in years 2020 and 2021. The shares are being expensed on a straight-
line basis over the remaining service period.
During 2013, 417 shares were granted to a newly elected non-employee Director subject only to continued service as of the vesting
date. The shares, which have a grant date fair value of $59.97 per share, vested 25% on each of December 6, 2014, 2015, 2016
and 2017.
75
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of the vesting date, the fair value of shares that vested during 2019, 2018 and 2017 was $9,000, $7,000 and $9,000,
respectively. Stock-based compensation expense for directors was $727,000, $1,134,000 and $670,000 for 2019, 2018 and 2017,
respectively.
(12) COMPREHENSIVE INCOME
Total Comprehensive Income is comprised of net income plus all other changes in equity from non-owner sources and is presented
on the Consolidated Statements of Income and Comprehensive Income. The components of Accumulated other comprehensive
income for 2019, 2018 and 2017 are presented in the Company’s Consolidated Statements of Changes in Equity and are summarized
below. See Note 13 for information regarding the Company’s interest rate swaps.
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance at beginning of year
Change in fair value of interest rate swaps - cash flow hedges
Balance at end of year
Years Ended December 31,
2019
2018
2017
$
$
6,701
(3,894)
2,807
(In thousands)
5,348
1,353
6,701
1,995
3,353
5,348
(13) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business and operational risks through management of its core business
activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the
amount, sources and duration of its debt funding and, to a limited extent, the use of derivative instruments.
Specifically, the Company has entered into derivative instruments to manage exposures that arise from business activities that
result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The
Company's derivative instruments, described below, are used to manage differences in the amount, timing and duration of the
Company's known or expected cash payments principally related to certain of the Company's borrowings.
The Company's objective in using interest rate derivatives is to change variable interest rates to fixed interest rates by using interest
rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty
in exchange for the Company making fixed rate payments over the life of the agreements without exchange of the underlying
notional amount.
As of December 31, 2019, EastGroup had six interest rate swaps outstanding, all of which are used to hedge the variable cash
flows associated with unsecured loans. All of the Company's interest rate swaps convert the related loans' LIBOR rate components
to effectively fixed interest rates, and the Company has concluded that each of the hedging relationships is highly effective.
The changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Other comprehensive
income and is subsequently reclassified into earnings through interest expense as interest payments are made in the period that
the hedged forecasted transaction affects earnings.
Amounts reported in Other comprehensive income (loss) related to derivatives will be reclassified to Interest expense as interest
payments are made or received on the Company's variable rate debt. The Company estimates that an additional $223,000 will be
reclassified from Other comprehensive income (loss) as a decrease to Interest expense over the next twelve months.
The Company's valuation methodology for over-the-counter ("OTC") derivatives is to discount cash flows based on Overnight
Index Swap ("OIS") rates. Uncollateralized or partially-collateralized trades are discounted at OIS rates, but include appropriate
economic adjustments for funding costs (i.e., a LIBOR-OIS basis adjustment to approximate uncollateralized cost of funds) and
credit risk. The Company calculates its derivative values using mid-market prices.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks
to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee ("ARRC") has proposed that
the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD-LIBOR for use
in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition
plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans
76
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as it relates to derivatives and cash markets exposed to USD-LIBOR. The Company has material contracts that are indexed to
USD-LIBOR and is monitoring this activity and evaluating the related risks.
As of December 31, 2019 and 2018, the Company had the following outstanding interest rate derivatives that are designated as
cash flow hedges of interest rate risk:
Interest Rate Derivative
Notional Amount as of December 31, 2019
Notional Amount as of December 31, 2018
(In thousands)
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
—
$75,000
$65,000
$60,000
$40,000
$15,000
$100,000
$75,000
$75,000
$65,000
$60,000
$40,000
$15,000
—
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the
Consolidated Balance Sheets as of December 31, 2019 and 2018. See Note 18 for additional information on the fair value of the
Company's interest rate swaps.
Derivatives
As of December 31, 2019
Derivatives
As of December 31, 2018
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
(In thousands)
Derivatives designated as cash flow hedges:
Interest rate swap assets
Interest rate swap liabilities
Other assets
Other liabilities
$
3,485
678
Other assets
Other liabilities
$
6,701
—
The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Income
and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017:
Years Ended December 31,
2019
2018
2017
(In thousands)
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Interest Rate Swaps:
Amount of income (loss) recognized in Other comprehensive income (loss)
on derivatives
$
(1,975)
2,757
Amount of (income) loss reclassified from Accumulated other
comprehensive income into Interest expense
(1,919)
(1,404)
1,437
1,916
See Note 12 for additional information on the Company's Accumulated other comprehensive income resulting from its interest
rate swaps.
Derivative financial agreements expose the Company to credit risk in the event of non-performance by the counterparties under
the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with financial
institutions the Company regards as credit-worthy.
The Company has an agreement with its derivative counterparties containing a provision stating that the Company could be declared
in default on its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of
the indebtedness has not been accelerated by the lender. As of December 31, 2019, the fair value of derivatives in a net liability
position related to these agreements was $678,000.
77
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) EARNINGS PER SHARE
The Company applies ASC 260, Earnings Per Share, which requires companies to present basic and diluted EPS. Reconciliation
of the numerators and denominators in the basic and diluted EPS computations is as follows:
BASIC EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
Numerator – net income attributable to common stockholders
Denominator – weighted average shares outstanding
DILUTED EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE
TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
2019
2018
2017
(In thousands)
$
121,662
37,442
88,506
35,439
83,183
33,996
Numerator – net income attributable to common stockholders
$
121,662
88,506
83,183
Denominator:
Weighted average shares outstanding
Unvested restricted stock
Total Shares
(15) QUARTERLY RESULTS OF OPERATIONS – UNAUDITED
37,442
85
37,527
35,439
67
35,506
33,996
51
34,047
Revenues
Expenses
Net income
Net income attributable to
noncontrolling interest in joint
ventures
Net income attributable to EastGroup
Properties, Inc. common
stockholders
BASIC PER SHARE DATA FOR NET
INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC.
COMMON STOCKHOLDERS (1)
Net income attributable to common
stockholders
2019 Quarter Ended
2018 Quarter Ended
Mar 31
Jun 30
Sep 30
Dec 31
Mar 31
Jun 30
Sep 30
Dec 31
(In thousands, except per share data)
$ 81,365
91,425
(58,831)
(64,476)
22,534
26,949
84,180
(61,605)
22,575
116,532
(65,250)
51,282
83,179
(54,431)
28,748
75,107
(56,843)
18,264
79,593
(56,552)
23,041
78,196
(59,613)
18,583
(5)
4
(4)
(1,673)
(35)
(37)
(31)
(27)
$ 22,529
26,953
22,571
49,609
28,713
18,227
23,010
18,556
$
0.62
0.73
0.60
1.29
0.83
0.52
0.64
0.51
Weighted average shares outstanding
36,465
36,944
37,771
38,561
34,689
35,196
35,716
36,135
DILUTED PER SHARE DATA FOR
NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC.
COMMON STOCKHOLDERS (1)
Net income attributable to common
stockholders
$
0.62
0.73
0.60
1.28
0.83
0.52
0.64
0.51
Weighted average shares outstanding
36,526
37,019
37,869
38,687
34,736
35,259
35,798
36,232
(1) The above quarterly earnings per share calculations are based on the weighted average number of shares of common stock outstanding
during each quarter for basic earnings per share and the weighted average number of outstanding shares of common stock and common
stock share equivalents during each quarter for diluted earnings per share. The annual earnings per share calculations in the Consolidated
Statements of Income and Comprehensive Income are based on the weighted average number of shares of common stock outstanding during
each year for basic earnings per share and the weighted average number of outstanding shares of common stock and common stock share
equivalents during each year for diluted earnings per share. The sum of quarterly financial data may vary from the annual data due to
rounding.
78
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) DEFINED CONTRIBUTION PLAN
EastGroup maintains a 401(k) plan for its employees. The Company makes matching contributions of 50% of the employee’s
contribution (limited to 10% of compensation as defined by the plan) and may also make annual discretionary contributions. The
Company’s total expense for this plan was $786,000, $769,000 and $672,000 for 2019, 2018 and 2017, respectively.
(17) LEGAL MATTERS
The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against
the Company or its properties, other than routine litigation arising in the ordinary course of business.
As previously reported in the Company’s annual report on Form 10-K for the year ended December 31, 2018 and the Company’s
quarterly reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2019, the Company had been involved
in pending litigation related to an action against the Company and certain of its officers in connection with the Company’s November
2016 purchase of a land parcel, alleging breach of contract and other claims in law and in equity. The Company asserted numerous
affirmative defenses. In an effort to resolve the litigation, EastGroup made an initial settlement offer for $497,000, which was
reserved in the Company’s financial statements as of December 31, 2018 and March 31, 2019. During the three months ended
June 30, 2019, the parties came to a mediated resolution of the matter; losses related to the matter are included in Other on the
Consolidated Statements of Income and Comprehensive Income. As of June 30, 2019, the matter was resolved. Even though the
matter was settled, the case was dismissed, and releases exchanged among all parties, the Plaintiff filed an appeal of the order
compelling him to comply with the settlement. The Court of Appeal has since dismissed the appeal. All monies due under the
settlement have been paid to the Plaintiff’s lawyers and were accounted for as stated above.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. ASC 820 also provides guidance for using
fair value to measure financial assets and liabilities. The Codification requires disclosure of the level within the fair value hierarchy
in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or
liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments
in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level
3).
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments in accordance
with ASC 820 at December 31, 2019 and 2018.
Financial Assets:
Cash and cash equivalents
Mortgage loans receivable
Interest rate swap assets
Financial Liabilities:
Unsecured bank credit facilities - variable rate (2)
Unsecured debt (2)
Secured debt (2)
Interest rate swap liabilities
December 31,
2019
2018
Carrying
Amount (1)
Fair
Value
Carrying
Amount (1)
Fair
Value
(In thousands)
$
224
1,679
3,485
112,710
940,000
133,422
678
224
1,703
3,485
113,174
959,177
136,107
678
374
2,594
6,701
195,730
725,000
189,038
—
374
2,571
6,701
196,423
718,364
191,742
—
(1) Carrying amounts shown in the table are included in the Consolidated Balance Sheets under the indicated captions, except as indicated
in the notes below.
(2) Carrying amounts and fair values shown in the table exclude debt issuance costs (see Notes 6 and 7 for additional information).
79
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents: The carrying amounts approximate fair value due to the short maturity of those instruments.
Mortgage loans receivable (included in Other assets on the Consolidated Balance Sheets): The fair value is estimated by
discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities (Level 2 input).
Interest rate swap assets (included in Other assets on the Consolidated Balances Sheets): The instruments are recorded at fair
value based on models using inputs, such as interest rate yield curves, LIBOR swap curves and OIS curves, observable for
substantially the full term of the contract (Level 2 input). See Note 13 for additional information on the Company's interest rate
swaps.
Unsecured bank credit facilities: The fair value of the Company’s unsecured bank credit facilities is estimated by discounting
expected cash flows at current market rates (Level 2 input), excluding the effects of debt issuance costs.
Unsecured debt: The fair value of the Company’s unsecured debt is estimated by discounting expected cash flows at the rates
currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input),
excluding the effects of debt issuance costs.
Secured debt: The fair value of the Company’s secured debt is estimated by discounting expected cash flows at the rates currently
offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input), excluding
the effects of debt issuance costs.
Interest rate swap liabilities (included in Other liabilities on the Consolidated Balance Sheets): The instruments are recorded
at fair value based on models using inputs, such as interest rate yield curves, LIBOR swap curves and OIS curves, observable for
substantially the full term of the contract (Level 2 input). See Note 13 for additional information on the Company's interest rate
swaps.
(19) SUBSEQUENT EVENTS
On January 16, 2020, EastGroup acquired 6.7 acres of development land near the Company's Arlington Tech Centre 1 and 2 in
Dallas. The site, which was acquired for $1.7 million, is expected to accommodate the future development of a 77,000 square
foot business distribution building.
80
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(a) Changes in Real Estate Properties follow:
Balance at beginning of year
Purchases of real estate properties
Development of real estate properties and value-add properties
Improvements to real estate properties
Right-of-use assets, net – ground leases
Carrying amount of investments sold
Write-off of improvements
Balance at end of year (1)
Years Ended December 31,
2019
2018
2017
(In thousands)
$
2,817,145
2,578,748
2,407,029
135,033
318,288
37,558
11,997
(51,662)
(3,793)
3,264,566
$
54,537
167,667
36,921
—
(18,372)
(2,356)
2,817,145
51,802
124,938
28,698
—
(32,787)
(932)
2,578,748
(1) Includes noncontrolling interest in joint ventures of $3,148,000 and $3,296,000 at December 31, 2019 and 2018, respectively.
Changes in the accumulated depreciation on real estate properties follow:
Balance at beginning of year
Depreciation expense
Accumulated depreciation on assets sold
Other
Balance at end of year
Years Ended December 31,
2019
2018
2017
$
814,915
86,590
(27,030)
(3,336)
871,139
$
(In thousands)
749,601
76,007
(8,670)
(2,023)
814,915
694,250
69,010
(12,735)
(924)
749,601
(b) The estimated aggregate cost of real estate properties at December 31, 2019 for federal income tax purposes was approximately
$3,179,014,000 before estimated accumulated tax depreciation of $619,405,000. The federal income tax return for the year
ended December 31, 2019, has not been filed and accordingly, this estimate is based on preliminary data.
(c) The Company computes depreciation using the straight-line method over the estimated useful lives of the buildings (generally
40 years) and improvements (generally 3 to 15 years).
(d) The Company transfers properties from the development and value-add program to Real estate properties as follows: (i) for
development properties, at the earlier of 90% occupancy or one year after completion of the shell construction, and (ii) for
value-add properties, at the earlier of 90% occupancy or one year after acquisition. Upon the earlier of 90% occupancy or
one year after completion of the shell construction, capitalization of development costs, including interest expense, property
taxes and internal personnel costs, ceases and depreciation commences on the entire property (excluding the land).
(e) EastGroup has a $48,772,000 non-recourse first mortgage loan with an insurance company secured by 40th Avenue, Beltway
Crossing V, Centennial Park, Executive Airport, Interchange Park I, Ocean View, Wetmore 5-8 and World Houston 26, 28,
29 & 30.
(f) EastGroup has a $44,596,000 non-recourse first mortgage loan with an insurance company secured by Colorado Crossing,
Interstate I-III, Rojas, Steele Creek 1 & 2, Venture and World Houston 3-4 and 6-9.
(g) EastGroup has a $37,682,000 non-recourse first mortgage loan with an insurance company secured by Arion 18, Beltway
Crossing VI & VII, Commerce Park II & III, Concord, Interstate V-VII, Lakeview, Ridge Creek II, Southridge IV & V and
World Houston 32.
95
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 2019
Number of
Loans
Interest
Rate
Maturity Date
Periodic
Payment Terms
1
1
$
$
5.15% December 2022
Principal and interest due monthly
Face Amount
of Mortgages
Dec. 31, 2019
Carrying
Amount of
Mortgages
(In thousands)
Principal
Amount of Loans
Subject to Delinquent
Principal or Interest (b)
1,679
1,679
1,679
1,679 (c)(d)
—
—
First mortgage loan:
JCB Limited - California
Total mortgage loans (a)
First mortgage loans:
JCB Limited - California
Total mortgage loans
(a) Reference is made to allowance for possible losses on mortgage loans receivable in the Notes to Consolidated Financial
Statements.
(b) Interest in arrears for three months or less is disregarded in computing principal amount of loans subject to delinquent
interest.
(c) Changes in mortgage loans follow:
Balance at beginning of year
Payments on mortgage loans receivable
Balance at end of year
Years Ended December 31,
2019
2018
2017
$
$
2,594
(915)
1,679
(In thousands)
4,581
(1,987)
2,594
4,752
(171)
4,581
(d) The aggregate cost for federal income tax purposes is approximately $1.68 million. The federal income tax return for the
year ended December 31, 2019, has not been filed and, accordingly, the income tax basis of mortgage loans as of December 31,
2019, is based on preliminary data.
See accompanying Report of Independent Registered Public Accounting Firm.
96
ITEM 16. FORM 10-K SUMMARY.
None.
97
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
EASTGROUP PROPERTIES, INC.
By: /s/ MARSHALL A. LOEB
Marshall A. Loeb, Chief Executive Officer, President and Director
February 13, 2020
We, the undersigned officers and directors of EastGroup Properties, Inc., hereby severally constitute and appoint Brent W. Wood
as our true and lawful attorney, with full power to sign for us and in our names in the capacities indicated below, any and all
amendments to this Annual Report on Form 10-K and generally to do all such things in our name and behalf in such capacity to
enable EastGroup Properties, Inc. to comply with the applicable provisions of the Securities Exchange Act of 1934, as amended,
and we hereby ratify and confirm our signatures as they may be signed by our said attorney to any and all such amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ D. Pike Aloian
D. Pike Aloian, Director
February 13, 2020
/s/ H. Eric Bolton, Jr.
H. Eric Bolton, Jr., Director
February 13, 2020
/s/ Hayden C. Eaves III
Hayden C. Eaves III, Director
February 13, 2020
/s/ H. C. Bailey, Jr.
H. C. Bailey, Jr., Director
February 13, 2020
/s/ Donald F. Colleran
Donald F. Colleran, Director
February 13, 2020
/s/ Mary Elizabeth McCormick
Mary Elizabeth McCormick, Director
February 13, 2020
/s/ Leland R. Speed
Leland R. Speed, Chairman Emeritus of the Board
February 13, 2020
/s/ David H. Hoster II
David H. Hoster II, Chairman of the Board
February 13, 2020
98
/s/ MARSHALL A. LOEB
Marshall A. Loeb, Chief Executive Officer,
President and Director
(Principal Executive Officer)
February 13, 2020
/s/ BRUCE CORKERN
Bruce Corkern, Senior Vice-President, Chief Accounting Officer
and Secretary
(Principal Accounting Officer)
February 13, 2020
/s/ BRENT W. WOOD
Brent W. Wood, Executive Vice-President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
February 13, 2020
99
[THIS PAGE INTENTIONALLY LEFT BLANK]
Total return to shareholders was approximately 48% for 2019.
Officers
(left to right) back row: Kevin Sager, Vice President; John Travis, Vice President; Bruce Corkern, CPA, Senior Vice President and
Chief Accounting Officer; David Hicks, Vice President; Staci Tyler, CPA, Vice President and Controller; Brian Laird, CPA, Vice President;
Michelle Rayner, CPA, Vice President; Mike Sacco, Vice President; Stephanie Shaw, CPA, Vice President; Farrah Kennedy, CPA,
Vice President; Bill Gray, CPA, Vice President; Chris Segrest, Vice President; Reid Dunbar, Senior Vice President; Barry Anderson,
CPA, Vice President; Wes Vaughan, Vice President.
front row: John Coleman, Executive Vice President; Marshall Loeb, Chief Executive Officer; Brent Wood, Chief Financial Officer;
Ryan Collins, Senior Vice President.
Logistics Center, Dallas, Texas
Corporate Headquarters
Regional Offices
400 West Parkway Place
Suite 100
Ridgeland, MS 39157
601.354.3555
3495 Piedmont Road, NE
Building 11, Suite 350
Atlanta, GA 30305
404.301.2670
7301 North State Highway 161
Suite 215
Irving, TX 75039
972.386.8700
10250 Constellation Boulevard
Suite 2300
Los Angeles, CA 90067
323.457.0648
www.eastgroup.net
2019