FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2002 COMMISSION FILE NUMBER 1-7094
EASTGROUP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-2711135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (601) 354-3555
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 (x) NO ( )
The number of shares of common stock, $.0001 par value, outstanding as of
November 12, 2002 was 16,094,399.
EASTGROUP PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION Pages
Item 1. Consolidated Financial Statements
Consolidated balance sheets, September 30, 2002 (unaudited)
and December 31, 2001 3
Consolidated statements of income for the three and nine
months ended September 30, 2002 and 2001 (unaudited) 4
Consolidated statement of changes in stockholders' equity
for the nine months ended September 30, 2002 (unaudited) 5
Consolidated statements of cash flows for the nine months
ended September 30, 2002 and 2001 (unaudited) 6
Notes to consolidated financial statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 4. Controls and Procedures 20
SIGNATURES
Authorized signatures 21
CERTIFICATIONS 22
EASTGROUP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
September 30, 2002 December 31, 2001
----------------------------------------------------
(Unaudited)
ASSETS
Real estate properties $ 733,429 696,829
Development 36,214 37,504
----------------------------------------------------
769,643 734,333
Less accumulated depreciation (111,118) (92,060)
----------------------------------------------------
658,525 642,273
----------------------------------------------------
Real estate held for sale 9,210 1,907
Less accumulated depreciation (903) (141)
----------------------------------------------------
8,307 1,766
----------------------------------------------------
Mortgage loans 14 5,515
Investment in real estate investment trusts 1,607 6,452
Cash 1,472 1,767
Other assets 23,032 26,009
----------------------------------------------------
TOTAL ASSETS $ 692,957 683,782
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 241,240 205,014
Notes payable to banks 65,073 86,058
Accounts payable & accrued expenses 17,751 12,801
Other liabilities 6,096 7,460
----------------------------------------------------
330,160 311,333
----------------------------------------------------
----------------------------------------------------
Minority interest in joint ventures 1,759 1,739
----------------------------------------------------
STOCKHOLDERS' EQUITY
Series A 9.00% Cumulative Redeemable Preferred
Shares and additional paid-in capital; $.0001 par value;
1,725,000 shares authorized and issued; stated
liquidation preference of $43,125 41,357 41,357
Series B 8.75% Cumulative Convertible Preferred
Shares and additional paid-in capital; $.0001 par value;
2,800,000 shares authorized and issued; stated
liquidation preference of $70,000 67,178 67,178
Series C Preferred Shares; $.0001 par value; 600,000
shares authorized; no shares issued - -
Common shares; $.0001 par value; 64,875,000
shares authorized; 16,093,899 shares issued at
September 30, 2002 and 15,912,060 at December 31, 2001 2 2
Excess shares; $.0001 par value; 30,000,000 shares
authorized; no shares issued - -
Additional paid-in capital on common shares 243,310 240,197
Undistributed earnings 11,763 23,753
Accumulated other comprehensive income 299 1,193
Unearned compensation (2,871) (2,970)
----------------------------------------------------
361,038 370,710
----------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 692,957 683,782
====================================================
See accompanying notes to consolidated financial statements.
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
REVENUES
Income from real estate operations $ 25,670 25,334 75,176 74,234
Interest:
Mortgage loans 14 117 264 361
Other interest 12 60 40 546
Gain on securities 365 1,774 1,836 2,480
Other 54 161 535 549
----------------------------------------------------
26,115 27,446 77,851 78,170
----------------------------------------------------
EXPENSES
Operating expenses from real estate operations 7,598 6,364 21,576 18,326
Interest 4,363 4,458 12,703 13,590
Depreciation and amortization 7,736 6,810 21,958 19,574
General and administrative 1,102 1,207 3,279 3,489
Minority interest in joint ventures 103 86 286 260
----------------------------------------------------
20,902 18,925 59,802 55,239
----------------------------------------------------
INCOME BEFORE GAIN (LOSS) ON SALE OF
REAL ESTATE INVESTMENTS 5,213 8,521 18,049 22,931
Gain (loss) on sale of real estate investments - (35) 93 3,420
----------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 5,213 8,486 18,142 26,351
----------------------------------------------------
DISCONTINUED OPERATIONS
Income from real estate operations 26 89 135 203
Loss on sale of real estate investments (66) - (66) -
----------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (40) 89 69 203
----------------------------------------------------
NET INCOME 5,173 8,575 18,211 26,554
Preferred dividends-Series A 970 970 2,910 2,910
Preferred dividends-Series B 1,532 1,532 4,596 4,596
----------------------------------------------------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 2,671 6,073 10,705 19,048
====================================================
BASIC PER COMMON SHARE DATA
Income from continuing operations $ 0.17 0.38 0.68 1.20
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
----------------------------------------------------
Net income available to common stockholders $ 0.17 0.39 0.68 1.21
====================================================
Weighted average shares outstanding 15,901 15,702 15,856 15,689
====================================================
DILUTED PER COMMON SHARE DATA
Income from continuing operations $ 0.16 0.37 0.66 1.18
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
----------------------------------------------------
Net income available to common stockholders $ 0.16 0.38 0.66 1.19
====================================================
Weighted average shares outstanding 16,264 16,045 16,228 16,033
====================================================
See accompanying notes to consolidated financial statements.
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Accumulated
Additional Other
Preferred Common Paid-In Unearned Undistributed Comprehensive
Stock Stock Capital Compensation Earnings Income Total
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 108,535 2 240,197 (2,970) 23,753 1,193 370,710
Comprehensive income
Net income - - - - 18,211 - 18,211
Net unrealized change in
investment securities - - - - - (894) (894)
--------
Total comprehensive income 17,317
--------
Cash dividends declared-common, $1.41 per share - - - - (22,695) - (22,695)
Preferred stock dividends declared - - - - (7,506) - (7,506)
Issuance of 6,822 shares of common stock,
incentive compensation - - 151 - - - 151
Issuance of 10,848 shares of common stock,
dividend reinvestment plan - - 276 - - - 276
Issuance of 154,819 shares of common stock,
exercise options - - 2,438 - - - 2,438
Issuance of 18,600 shares of common stock,
incentive restricted stock - - 437 (437) - - -
Forfeiture of 9,250 shares of common stock,
incentive restricted stock - - (189) 149 - - (40)
Amortization of unearned compensation,
incentive restricted stock - - - 387 - - 387
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2002 $ 108,535 2 243,310 (2,871) 11,763 299 361,038
================================================================================
See accompanying notes to consolidated financial statements.
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------------------------
2002 2001
--------------------------------------------
OPERATING ACTIVITIES:
Net income $ 18,211 26,554
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization from continuing operations 21,958 19,574
Depreciation and amortization from discontinued operations 363 236
Gain on sale of real estate investments (93) (3,420)
Loss on sale of real estate investments from discontinued operations 66 -
Gain on real estate investment trust shares (1,836) (2,480)
Amortization of unearned compensation 347 332
Minority interest depreciation and amortization (129) (121)
Changes in operating assets and liabilities:
Accrued income and other assets 3,448 (1,696)
Accounts payable, accrued expenses and prepaid rent 3,797 3,546
--------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 46,132 42,525
--------------------------------------------
INVESTING ACTIVITIES:
Payments on mortgage loans receivable 5,501 4,991
Advances on mortgage loans receivable - (926)
Proceeds from sale of real estate investments 2,917 9,260
Real estate improvements (5,811) (5,100)
Real estate development (27,085) (22,797)
Purchases of real estate (12,935) (13,804)
Purchases of real estate investment trust shares (1,308) (5,258)
Proceeds from sale of real estate investment trust shares 7,095 7,444
Changes in other assets and other liabilities (1,172) 206
--------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (32,798) (25,984)
--------------------------------------------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 163,782 101,286
Principal payments on bank borrowings (184,767) (127,963)
Proceeds from mortgage notes payable 48,200 45,000
Principal payments on mortgage notes payable (11,974) (7,050)
Debt issuance costs (1,473) (489)
Distributions paid to stockholders (29,903) (28,699)
Proceeds from exercise of stock options 2,438 511
Proceeds from dividend reinvestment plan 276 268
Other (208) (200)
--------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (13,629) (17,336)
--------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (295) (795)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,767 2,861
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,472 2,066
============================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 12,068 13,063
Debt assumed by buyer of real estate - 378
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements of EastGroup Properties, Inc.
("EastGroup" or "the Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In management's opinion, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. The financial statements should be read in conjunction with the
2001 annual report and the notes thereto.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the 2001 financial statements to
conform to the 2002 presentation.
(3) NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset
Retirement Obligations," effective for financial statements issued for fiscal
years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company plans
to adopt this statement on January 1, 2003 and believes that the effect of
adoption will have no impact on its overall financial position or results of
operation.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities.
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. The provisions
of this statement are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company plans to adopt this statement on
January 1, 2003 and believes that the effect of adoption will have no
significant impact on its overall financial position or results of operations.
(4) REAL ESTATE HELD FOR SALE
The Company applies SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that 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 expected to be generated by the asset. If
the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
The Company's real estate properties that are currently offered for sale or
are under contract to sell have been shown separately on the consolidated
balance sheets as "real estate held for sale." Such assets are carried at the
lower of current carrying amount or fair market value less estimated selling
costs and are not depreciated while they are held for sale. At September 30,
2002, the Company had two properties and three parcels of land held for sale.
There can be no assurances that such properties will be sold. At December 31,
2001, the Company had one property and two parcels of land held for sale.
In accordance with the guidelines established under SFAS No. 144,
operations and gains and losses on sale from the properties placed in the
category "held for sale" subsequent to December 31, 2001 have been classified as
income from discontinued operations for the three and nine months ended
September 30, 2002 and 2001. No interest expense was allocated to the properties
that are held for sale.
(5) GOODWILL
The Company applies SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business
combinations initiated after June 30, 2001 be accounted for by using the
purchase method of accounting and addresses accounting for purchased goodwill
and other intangibles. SFAS No. 142 addresses financial accounting and reporting
for the impairment of goodwill and other intangibles and is effective for fiscal
years beginning after December 15, 2001. The Company had no business
combinations after June 30, 2001. At September 30, 2002 and December 31, 2001,
the Company had unamortized goodwill of $990,000 resulting from the acquisition
of Ensign Properties in 1998. Amortization of goodwill expense for 2001 was
$61,000. Upon adoption of SFAS No. 142 on January 1, 2002, amortization of
goodwill ceased. The Company periodically reviews the recoverability of goodwill
for possible impairment and will continue to do so under the new statement. In
management's opinion, no material impairment of goodwill existed at September
30, 2002.
(6) OTHER ASSETS
A summary of the Company's other assets follows:
September 30, 2002 December 31, 2001
----------------------------------------------
(In thousands)
Leasing commissions, net of accumulated amortization $ 10,235 9,313
Receivables, net of allowance for doubtful accounts 7,158 8,473
Section 1031 tax deferred exchange cash escrows - 2,074
Prepaid expenses and other assets 5,639 6,149
----------------------------------------------
$ 23,032 26,009
==============================================
(7) ACCOUNTS PAYABLE & ACCRUED EXPENSES
A summary of the Company's accounts payable and accrued expenses follows:
September 30, 2002 December 31, 2001
----------------------------------------------
(In thousands)
Property taxes payable $ 8,972 5,170
Dividends payable 3,254 2,957
Other payables and accrued expenses 5,525 4,674
----------------------------------------------
$ 17,751 12,801
==============================================
(8) COMPREHENSIVE INCOME
Comprehensive income is comprised of net income plus all other changes in equity
from nonowner sources. The components of comprehensive income for the nine
months ended September 30, 2002 are presented in the Company's Consolidated
Statement of Changes in Stockholders' Equity. The unrealized change in
investment securities is net of realized gains on real estate investment trust
securities included in net income as shown below:
September 20, 2002
----------------------
(In thousands)
Other comprehensive income:
Unrealized holding gains during the period $ 942
Less reclassification adjustment for gains included in net income (1,836)
----------------------
Net unrealized change in investment securities $ (894)
======================
(9) EARNINGS PER SHARE
Basic earnings per share (EPS) represents the amount of earnings for the period
available to each share of common stock outstanding during the reporting period.
The Company's basic EPS is calculated by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted EPS represents the amount of earnings for the period available 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 totaling net income available to
common stockholders plus dividends on dilutive convertible preferred shares and
dividing it by the weighted average number of common shares outstanding plus the
dilutive effect of stock options related to outstanding employee stock options,
nonvested restricted stock and convertible preferred stock, had the options or
conversions been exercised. The dilutive effect of stock options and nonvested
restricted stock was determined using the treasury stock method which assumes
exercise of the options as of the beginning of the period or when issued, if
later, and assuming proceeds from the exercise of options are used to purchase
common stock at the average market price during the period. The dilutive effect
of convertible securities was determined using the if-converted method.
Reconciliation of the numerators and denominators in the basic and diluted EPS
computations is as follows:
Reconciliation of Numerators and Denominators
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------
2002 2001 2002 2001
-----------------------------------------------
(In thousands)
Basic EPS Computation
Numerator-net income available to common stockholders $ 2,671 6,073 10,705 19,048
Denominator-weighted average shares outstanding 15,901 15,702 15,856 15,689
Diluted EPS Computation
Numerator-net income available to common stockholders $ 2,671 6,073 10,705 19,048
Denominator:
Weighted average shares outstanding 15,901 15,702 15,856 15,689
Common stock options 176 159 187 162
Nonvested restricted stock 187 184 185 182
------------------------------------------------
Total shares 16,264 16,045 16,228 16,033
================================================
The Company's Series B Preferred Stock, which is convertible into common
stock at a conversion price of $22.00 per share, was not included in the
computation of diluted earnings per share for the periods presented due to its
antidilutive effect.
(10) SEGMENT REPORTING
The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement establishes standards for the reporting
of information about operating segments in annual and interim financial
statements. Operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly by
the chief operating decision makers in deciding how to allocate resources and in
assessing performance.
EastGroup has one reportable segment--industrial properties. These
properties are concentrated in major Sunbelt regions of the United States, have
similar economic characteristics and also meet the other criteria that permit
the properties to be aggregated into one reportable segment. The Company's chief
decision makers use two primary measures of operating results in making
decisions, such as allocating resources: property net operating income (PNOI),
defined as income from real estate operations (REO) less property operating
expenses (before interest expense and depreciation and amortization), and funds
from operations (FFO), defined as net income (loss) (computed in accordance with
accounting principles generally accepted in the United States of America
(GAAP)), excluding gains or losses from sales of depreciable real estate
property, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
PNOI is a supplemental industry reporting measurement used to evaluate the
performance of the Company's investments in real estate assets. The Company
believes that the exclusion of depreciation and amortization in the industry's
calculation of PNOI provides a supplemental indicator of the property's
performance since real estate values have historically risen or fallen with
market conditions. PNOI as calculated by the Company may not be comparable to
similarly titled but differently calculated measures for other REITs.
The major factors that influence PNOI are occupancy levels, acquisitions
and sales, development properties that achieve stabilized operations, rental
rate increases or decreases, and the recoverability of operating expenses. The
Company's success depends largely upon its ability to lease warehouse space and
to recover from tenants the operating costs associated with those leases. REO
income is comprised of rental income including straight-line rent adjustments,
pass-through income and other REO income, which includes termination fees.
Property operating expenses are comprised of insurance, property taxes, repair
and maintenance expenses, management fees and other operating costs. Generally,
the Company's most significant operating expenses are insurance and property
taxes. 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 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
recoverable.
The Company believes FFO is an appropriate measure of performance for
equity real estate investment trusts. FFO is not considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance, or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions.
The table below presents on a comparative basis for the three and nine
months ended September 30, 2002 and 2001 reported PNOI by operating segment,
followed by reconciliations of PNOI to FFO and FFO to net income.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------
(In thousands)
Property Revenues:
Industrial $ 25,290 24,955 73,988 73,113
Other 380 379 1,188 1,121
---------------------------------------------------
25,670 25,334 75,176 74,234
---------------------------------------------------
Property Expenses:
Industrial (7,455) (6,248) (21,149) (18,010)
Other (143) (116) (427) (316)
---------------------------------------------------
(7,598) (6,364) (21,576) (18,326)
---------------------------------------------------
Property Net Operating Income:
Industrial 17,835 18,707 52,839 55,103
Other 237 263 761 805
---------------------------------------------------
Total Property Net Operating Income 18,072 18,970 53,600 55,908
---------------------------------------------------
Income from real estate operations - discontinued (before
depreciation and amortization) 143 169 498 439
Gain on securities 365 1,774 1,836 2,480
Other income 80 338 839 1,456
Interest expense (4,363) (4,458) (12,703) (13,590)
General and administrative expense (1,102) (1,207) (3,279) (3,489)
Minority interest in earnings (140) (127) (415) (381)
Dividends on Series A preferred shares (970) (970) (2,910) (2,910)
--------------------------------------------------
Funds From Operations 12,085 14,489 37,466 39,913
Depreciation and amortization from continuing operations (7,736) (6,810) (21,958) (19,574)
Depreciation and amortization from discontinued operations (117) (80) (363) (236)
Share of joint venture depreciation and amortization 37 41 129 121
Gain (loss) on sale of depreciable real estate investments (66) (35) 27 3,420
Dividends on Series B convertible preferred shares (1,532) (1,532) (4,596) (4,596)
--------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS 2,671 6,073 10,705 19,048
Dividends on preferred shares 2,502 2,502 7,506 7,506
--------------------------------------------------
NET INCOME $ 5,173 8,575 18,211 26,554
==================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
(Comments are for the balance sheet dated September 30, 2002 compared to
December 31, 2001.)
Assets of EastGroup were $692,957,000 at September 30, 2002, an increase of
$9,175,000 from December 31, 2001. Liabilities (excluding minority interests)
increased $18,827,000 to $330,160,000 and stockholders' equity decreased
$9,672,000 to $361,038,000 during the same period. Book value per common share
decreased from $16.19 at December 31, 2001 to $15.40 at September 30, 2002. The
paragraphs that follow explain these changes in detail.
Real estate properties increased $36,600,000 during the nine months ended
September 30, 2002. This increase was due to the acquisition of five properties
for a total of $12,935,000, as detailed below; the transfer of six properties
from development with total costs of $26,766,000; capital improvements of
$5,749,000; improvements on development properties transferred to the portfolio
in the 12-month period following transfer of $2,187,000 and the transfer of land
from development with costs of $372,000. These increases were offset by the
transfer of three properties to the category "held for sale" with costs of
$10,228,000 and the transfer of land into development with costs of $1,181,000.
Real Estate Properties
Real Estate Properties Date Cost
Acquired in 2002 Location Size Acquired (In thousands)
- -------------------------------------- --------------------- ----------------- ----------------- -------------------
Broadway Industrial Park V and VI Tempe, Arizona 79,000 sq. ft. 06-07-02 $ 3,962
Freeport Tech Center I Houston, Texas 188,000 sq. ft. 07-11-02 6,357
Exchange Distribution Centers II and III Orlando, Florida 62,000 sq. ft. 08-14-02 2,616
-------------------
Total Industrial Acquisitions $12,935
===================
During the nine months ended September 30, 2002, another property was
transferred to "held for sale;" however, this property was subsequently
transferred back to the portfolio as a result of a change in plans by the
Company due to market conditions. Upon the reclassification of this property,
depreciation was adjusted to reflect the carrying amount of this property as if
it had never been classified as "held for sale."
Development decreased $1,290,000 during the nine months ended September 30,
2002. This decrease was due to the transfer of six development properties to
real estate properties with total costs of $26,766,000, as detailed in the table
below; land transferred from development to the portfolio with costs of $372,000
and land transferred to "held for sale" with costs of $231,000. These decreases
were offset by year-to-date development costs of $24,898,000 on existing and
completed development properties and the transfer of land from the portfolio to
development with costs of $1,181,000.
Total cash outflows for development for the nine months ended September 30,
2002 were $27,085,000. In addition to the costs incurred for the nine months
ended September 30, 2002 as detailed in the table below, development costs
included $2,187,000 for improvements on properties transferred to the portfolio
during the 12-month period following transfer. These costs are included in Real
Estate Properties on the balance sheet.
Development
Costs Incurred
--------------------------------------
Size at For the 9 Months Cumulative as Estimated
Completion Ended 9/30/02 of 9/30/02 Total Costs (1)
- ------------------------------------------- ---------------- --------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
Sunport Center III
Orlando, Florida 66,000 $ 532 3,757 4,000
World Houston XIV
Houston, Texas 77,000 719 3,052 3,600
Americas 10 Business Center I
El Paso, Texas 97,000 903 3,190 3,300
Metro Airport Commerce Center I
Jackson, Mississippi 32,000 1,303 1,629 1,700
-------------------------------------------------------------------------
Total Lease-up 272,000 3,457 11,628 12,600
-------------------------------------------------------------------------
Under Construction:
Executive Airport Commerce Center I & III
Fort Lauderdale, Florida 85,000 2,204 3,650 6,000
World Houston XIX
Houston, Texas 66,000 1,086 1,086 3,100
World Houston XX
Houston, Texas 62,000 934 934 2,800
Chamberlain Expansion
Tucson, Arizona 34,000 250 250 1,600
Expressway Commerce Center
Tampa, Florida 108,000 1,657 1,657 4,300
-------------------------------------------------------------------------
Total Under Construction 355,000 6,131 7,577 17,800
-------------------------------------------------------------------------
Prospective Development:
Phoenix, Arizona 103,000 88 1,342 6,000
Tucson, Arizona 70,000 - 326 3,500
Tampa, Florida 140,000 108 1,776 5,600
Orlando, Florida 249,000 386 3,210 14,900
Fort Lauderdale, Florida 55,000 482 1,410 3,300
El Paso, Texas 251,000 284 2,207 7,600
Houston, Texas 915,000 9 6,234 46,200
Jackson, Mississippi 32,000 201 504 1,700
-------------------------------------------------------------------------
Total Prospective Development 1,815,000 1,558 17,009 88,800
-------------------------------------------------------------------------
2,442,000 $ 11,146 36,214 119,200
=========================================================================
Completed Development and Transferred
To Real Estate Properties During the
Nine Months Ended September 30, 2002:
Tower Automotive
Jackson, Mississippi 200,000 $ 9,574 9,958
Walden Distribution Center I
Tampa, Florida 90,000 115 3,655
Techway Southwest I
Houston, Texas 126,000 284 4,494
World Houston XII
Houston, Texas 59,000 2,227 2,759
Kyrene II
Tempe, Arizona 60,000 - 3,049
World Houston XIII
Houston, Texas 51,000 1,552 2,851
---------------------------------------------------------
Total Transferred to Real Estate Properties 586,000 $ 13,752 26,766
=========================================================
(1) The information provided above includes forward-looking data based on
current construction schedules, the status of lease negotiations with
potential tenants and other relevant factors currently available to the
Company. There can be no assurance that any of these factors will not
change or that any change will not affect the accuracy of such
forward-looking data. Among the factors that could affect the accuracy of
the forward-looking statements are weather or other natural occurrence,
default or other failure of performance by contractors, increases in the
price of construction materials or the unavailability of such materials,
failure to obtain necessary permits or approvals from government entities,
changes in local and/or national economic conditions, increased competition
for tenants or other occurrences that could depress rental rates, and other
factors not within the control of the Company.
Real estate held for sale increased $7,303,000 due to the transfer of four
properties from the portfolio with total costs of $16,805,000, the transfer of
land from development with costs of $231,000, and capital improvements of
$62,000. These increases were offset by the sale of two properties with costs of
$3,218,000 and the transfer of one property from held for sale back to the
portfolio with costs of $6,577,000.
Accumulated depreciation on real estate properties and real estate held for
sale increased $19,820,000 primarily due to depreciation expense of $20,093,000
on real estate properties, offset by the sale of two properties with accumulated
depreciation of $372,000.
Mortgage loans receivable decreased $5,501,000 during 2002 primarily as a
result of the repayment of a construction loan the Company made during 2000 and
2001 for the development of Freeport Tech Center I in Houston. The terms of this
loan included a related option for EastGroup to purchase the property after
completion. As part of the Company's purchase of Freeport in July 2002, the
seller repaid the principal amount of $5,500,000 and all accrued interest on the
outstanding mortgage loan receivable.
Investment in real estate investment trusts (REITs) decreased from
$6,452,000 at December 31, 2001 to $1,607,000 at September 30, 2002 as a result
of the sale of REIT shares with a carrying value of $5,259,000 and the purchase
of REIT shares for $1,308,000. Unrealized gains decreased $894,000 as a result
of realized gains of $1,836,000 on REIT shares, offset by unrealized gains of
$942,000.
Mortgage notes payable increased $36,226,000 during the nine months ended
September 30, 2002 due to two new mortgages of $48,200,000, offset by the
repayment of an $8,008,000 mortgage and regularly scheduled principal payments
of $3,966,000.
Notes payable to banks decreased $20,985,000 as a result of payments of
$184,767,000 exceeding borrowings of $163,782,000. The Company's credit
facilities are described in greater detail under Liquidity and Capital
Resources.
Accumulated other comprehensive income decreased $894,000 as a result of
realized gains of $1,836,000 on REIT shares, offset by unrealized gains of
$942,000.
Undistributed earnings decreased from $23,753,000 at December 31, 2001 to
$11,763,000 at September 30, 2002, as a result of dividends on common and
preferred stock of $30,201,000 exceeding net income for financial reporting
purposes of $18,211,000.
RESULTS OF OPERATIONS
(Comments are for the three months and nine months ended September 30, 2002,
compared to the three months and nine months ended September 30, 2001.)
Net income available to common stockholders for the three months and nine months
ended September 30, 2002 was $2,671,000 ($.17 per basic share and $.16 per
diluted share) and $10,705,000 ($.68 per basic share and $.66 per diluted
share), compared to net income available to common stockholders for the three
months and nine months ended September 30, 2001 of $6,073,000 ($.39 per basic
share and $.38 per diluted share) and $19,048,000 ($1.21 per basic share and
$1.19 per diluted share). Income before gain (loss) on sale of real estate
investments was $5,213,000 and $18,049,000 for the three months and nine months
ended September 30, 2002, compared to $8,521,000 and $22,931,000 for the three
months and nine months ended September 30, 2001. There was no gain or loss on
sale of real estate investments from continuing operations for the three months
ended September 30, 2002 and a gain of $93,000 for the nine months ended
September 30, 2002, compared to a loss of $35,000 and a gain of $3,420,000 for
the three months and nine months ended September 30, 2001, respectively. In
accordance with the guidelines under SFAS No. 144, gains or losses on the sale
of properties placed in the category "held for sale" subsequent to December 31,
2001 are included in Discontinued Operations. There was a loss of $66,000 for
the three months and nine months ended September 30, 2002 and none for 2001. The
paragraphs that follow describe the results of operations in detail.
Property net operating income (PNOI), as defined and discussed in Note 10
in the Notes to the Consolidated Financial Statements, decreased by $898,000 or
4.7% for the three months ended September 30, 2002 compared to the three months
ended September 30, 2001. For the nine months ended September 30, 2002, PNOI
decreased by $2,308,000 or 4.1% compared to the nine months ended September 30,
2001. PNOI by property type and percentage leased for industrial were as
follows:
Property Net Operating Income
Three Months Ended Nine Months Ended Percent
September 30, September 30, Leased
---------------------------------------------------------------------------
2002 2001 2002 2001 9-30-02 9-30-01
---------------------------------------------------------------------------
(In thousands)
Industrial $ 17,835 18,707 52,839 55,103 91.7% 93.2%
Other 237 263 761 805
----------------------------------------------------
Total PNOI $ 18,072 18,970 53,600 55,908
====================================================
PNOI from industrial properties decreased $872,000 (4.7%) and $2,264,000
(4.1%) for the three months and nine months ended September 30, 2002, compared
to September 30, 2001. Industrial properties held throughout the three months
and nine months ended September 30, 2002 compared to the same periods in 2001
showed a decrease in PNOI of 8.6% and 5.7%, respectively. The decrease in PNOI
results primarily from a decrease in the Company's portfolio occupancy level
from 93.1% at September 30, 2001 to 90.7% at September 30, 2002. This decrease
is primarily due to a continued slowing in the economy and the unusually high
percentage of leases that expired last year (over 20%). Also, lease termination
fees were $119,000 and $286,000 for the three months and nine months ended
September 30, 2002 compared to $894,000 and $1,118,000 for the same periods in
2001. In addition, real estate operating expenses increased $1,234,000 (19.4%)
and $3,250,000 (17.7%) for the three months and nine months ended September 30,
2002. This increase was primarily due to increases in insurance and property
taxes. Because of the lower occupancy, the Company had to absorb a greater
percentage of operating expenses in 2002.
Gain on REIT securities was $365,000 for the three months and $1,836,000
for the nine months ended September 30, 2002. Gain on REIT securities was
$1,774,000 for the three months and $2,480,000 for the nine months ended
September 30, 2001.
Bank interest expense before amortization of loan costs and capitalized
interest was $685,000 for the three months ended September 30, 2002, a decrease
of $255,000 from the three months ended September 30, 2001. Bank interest
expense before amortization of loan costs and capitalized interest was
$2,088,000 for the nine months ended September 30, 2002, a decrease of
$1,945,000 from the nine months ended September 30, 2001. Average bank
borrowings were $85,301,000 and $87,225,000 for the three months and nine months
ended September 30, 2002 compared to $72,297,000 and $85,296,000 for the same
periods in 2001. Average bank interest rates were 3.14% and 3.16% for the three
months and nine months ended September 30, 2002 compared to 5.20% and 6.30% for
the same periods in 2001. Interest costs incurred during the period of
construction of real estate properties are capitalized and offset against the
bank interest expense. The interest costs capitalized on real estate properties
for the three months and nine months ended September 30, 2002 were $532,000 and
$1,620,000 compared to $524,000 and $1,808,000 for the same periods in 2001.
Amortization of bank loan costs was $89,000 and $287,000 for the three months
and nine months ended September 30, 2002 compared to $66,000 and $198,000 for
the same periods in 2001.
Mortgage interest expense on real estate properties was $4,074,000 for the
three months ended September 30, 2002, an increase of $149,000 from the three
months ended September 30, 2001. Mortgage interest expense on real estate
properties was $11,804,000 for the nine months ended September 30, 2002, an
increase of $773,000 from the nine months ended September 30, 2001. The increase
in interest for the nine months was primarily due to a $40,000,000 mortgage loan
obtained in August 2002 and a $45,000,000 mortgage loan obtained in April 2001.
Amortization of mortgage loan costs was $47,000 and $144,000 for the three
months and nine months ended September 30, 2002 compared to $51,000 and $136,000
for the same periods in 2001.
Depreciation and amortization increased $926,000 and $2,384,000 for the
three months and nine months ended September 30, 2002 compared to the same
periods in 2001. These increases were primarily due to the industrial properties
acquired and development properties that achieved stabilized operations in both
2001 and 2002. These increases were offset by the sale of several properties in
2001 and 2002 and the transfer of several properties to real estate held for
sale (depreciation is not taken on those properties in the category "real estate
held for sale").
A summary of the gains and losses on real estate investments for the nine
months ended September 30, 2002 and 2001 follows. The loss on 7th Street is
recorded under Discontinued Operations in accordance with SFAS No. 144 (see Note
4 in the Notes to Consolidated Financial Statements).
Gain on Real Estate Investments
Net Recognized
Basis Sales Price Gain (Loss)
-----------------------------------------------------
(In thousands)
2002
Real estate properties:
Carpenter Duplex, Dallas, Texas $ 1,018 1,111 93
7th Street Service Center, Phoenix, AZ 1,872 1,806 (66)
-----------------------------------------------------
$ 2,890 2,917 27
=====================================================
2001
Real estate properties:
Nobel Business Center, Hercules, CA $ 2,113 5,250 3,137
West Palm II, West Palm Beach, FL 1,274 1,350 76
109th Street Distribution Center, Dallas, TX 990 1,232 242
West Palm I, West Palm Beach, FL 1,463 1,428 (35)
-----------------------------------------------------
$ 5,840 9,260 3,420
=====================================================
NAREIT has recommended supplemental disclosures concerning straight-line
rent, capital expenditures and leasing costs. Straight-lining of rent increased
rent income $473,000 and $1,006,000 for the three months and nine months ended
September 30, 2002 compared to $389,000 and $1,355,000 for the same periods in
2001. The decrease for the nine months ended September 30, 2002 is primarily due
to lease terminations, lease amendments and vacancies. Capital expenditures for
the three months and nine months ended September 30, 2002 and 2001 were as
follows:
Capital Expenditures
Three Months Ended Nine Months Ended
September 30, September 30,
Estimated ----------------------------------------------------------
Useful Life 2002 2001 2002 2001
-------------------------------------------------------------------------
(In thousands)
Upgrade on Acquisitions 40 yrs $ 8 (181) 8 257
Major Renovation/Redevelopment 40 yrs - - 53 -
Tenant Improvements:
New Tenants Lease Life 1,384 1,727 3,264 2,862
Renewal Tenants Lease Life 103 125 524 483
Other:
Building Improvements 5-40 yrs 155 197 621 835
Roofs 5-15 yrs 765 56 1,275 399
Parking Lots 5 yrs 10 157 30 166
Other 5 yrs 5 8 36 98
----------------------------------------------------------
Total capital expenditures $ 2,430 2,089 5,811 5,100
==========================================================
The Company's leasing costs are capitalized and included in other assets.
The costs are amortized over the terms of the leases and are included in
depreciation and amortization expense. Capitalized leasing costs for the three
months and nine months ended September 30, 2002 and 2001 were as follows:
Capitalized Leasing Costs
Three Months Ended Nine Months Ended
September 30, September 30,
Estimated ----------------------------------------------------------
Useful Life 2002 2001 2002 2001
-------------------------------------------------------------------------
(In thousands)
Development Lease Life $ 56 595 986 1,306
New Tenants Lease Life 825 356 1,444 795
Renewal Tenants Lease Life 282 141 749 763
----------------------------------------------------------
Total capitalized leasing costs $ 1,163 1,092 3,179 2,864
==========================================================
Amortization of leasing costs $ 895 733 2,228 1,905
==========================================================
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $46,132,000 for the nine months
ended September 30, 2002. Other sources of cash were primarily from bank
borrowings, proceeds from mortgage notes payable, sales of REIT shares,
collections on mortgage loans receivable, sales of real estate investments and
proceeds from exercise of stock options. The Company distributed $22,397,000 in
common and $7,506,000 in preferred stock dividends. Other primary uses of cash
were for bank debt payments, construction and development of properties,
purchases of real estate investments, mortgage note payments, capital
improvements at the various properties, debt issuance costs and purchases of
REIT shares.
Total debt at September 30, 2002 and December 31, 2001 is detailed below. The
Company's bank credit facilities have certain restrictive covenants, and the
Company was in compliance with all of its debt covenants at September 30, 2002.
September 30, 2002 December 31, 2001
---------------------------------------------------
(In thousands)
Mortgage notes payable - fixed rate $ 241,240 205,014
Bank notes payable - floating rate 65,073 86,058
---------------------------------------------------
Total debt $ 306,313 291,072
===================================================
The Company has a three-year $175,000,000 unsecured revolving credit
facility with a group of ten banks that matures in January 2005. The interest
rate on the facility is based on the Eurodollar rate and varies according to
debt-to-total asset value ratios. At September 30, 2002, the interest rate was
3.06% on $62,000,000. The interest rate on each tranche is currently reset on a
monthly basis.
The Company has a one-year $12,500,000 unsecured revolving credit facility
with PNC Bank, N.A. that matures in January 2003. The interest rate on this
facility is based on the LIBOR rate and varies according to debt-to-total asset
value ratios. The interest rate was 2.9862% on a balance of $3,073,000 at
September 30, 2002.
In August 2002, EastGroup obtained a $40,000,000 nonrecourse mortgage
secured by 15 properties. The note has an interest rate of 6.86%, a term of 10
years, and an amortization period of 25 years. The closing of this loan was
consistent with the Company's financial management goal to maintain floating
rate bank debt at below 10% of total market capitalization.
The Company anticipates that its current cash balance, operating cash
flows, and borrowings under its lines of credit will be adequate for the
Company's (i) operating and administrative expenses, (ii) normal repair and
maintenance expenses at its properties, (iii) debt service obligations, (iv)
distributions to stockholders, (v) capital improvements, (vi) purchases of
properties, (vii) development, and (viii) common stock repurchases.
INFLATION
In the last five years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate in the Company's geographic
areas of operation. Most of the leases require the tenants to pay their pro rata
share of operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing the Company's exposure to increases in
operating expenses resulting from inflation. In addition, the Company's leases
typically have three to five year terms, which may enable the Company to replace
existing leases with new leases at a higher base if rents on the existing leases
are below the then-existing market rate.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate changes primarily as a result of its
lines of credit 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 interest rate risk
management objective is to limit the impact of interest rate changes on earnings
and cash flows and to lower its overall borrowing costs. To achieve its
objectives, the Company borrows at fixed rates but also has several variable
rate bank lines as discussed under Liquidity and Capital Resources. The table
below presents the principal payments due and weighted average interest rates
for both the fixed rate and variable rate debt.
Oct-Dec Fair
2002 2003 2004 2005 2006 Thereafter Total Value
---------------------------------------------------------------------------------------
Fixed rate debt (in thousands) $ 1,556 10,098 10,974 24,878 21,410 172,324 241,240 255,382
Weighted average interest rate 7.58% 8.05% 7.96% 7.99% 7.79% 7.23% 7.43%
Variable rate debt (in thousands) - 3,073 - 62,000 - - 65,073 65,073
Weighted average interest rate - 2.99% - 3.06% - - 3.06%
As the table above incorporates only those exposures that exist as of
September 30, 2002, it does not consider those exposures or positions that could
arise after that date. The Company's ultimate economic impact with respect to
interest rate fluctuations will depend on the exposures that arise during the
period and interest rates. If the weighted average interest rate on the variable
rate bank debt as shown above changes by 10% or approximately 31 basis points,
interest expense and cash flows would increase or decrease by approximately
$199,000 annually.
FORWARD LOOKING STATEMENTS
In addition to historical information, certain sections of this Form 10-Q
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's hopes, expectations, intentions,
beliefs, strategies regarding the future, the anticipated performance of
development and acquisition properties, capital resources, profitability and
portfolio performance. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others discussed herein, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or nonrenewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, environmental
uncertainties, risks related to disasters and the costs of insurance to protect
from such disasters, financial market fluctuations, changes in real estate and
zoning laws and increases in real property tax rates. The success of the Company
also depends upon the trends of the economy, including interest rates, income
tax laws, governmental regulation, legislation, population changes and those
risk factors discussed elsewhere in this Form. Readers are cautioned not to
place undue reliance on forward-looking statements, which reflect management's
analysis only as the date hereof. The Company assumes no obligation to update
forward-looking statements. See also the Company's reports to be filed from time
to time with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
PART II. OTHER INFORMATION
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, 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-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are 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.
In addition, the Company reviewed its internal controls, and there have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last evaluation.
SIGNATURES
Pursuant to the requirements 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.
DATED: November 14, 2002
EASTGROUP PROPERTIES, INC.
/s/ BRUCE CORKERN
Bruce Corkern, CPA
Senior Vice President and Controller
/s/ N. KEITH MCKEY
N. Keith McKey, CPA
Executive Vice President, Chief
Financial Officer and Secretary
CERTIFICATIONS
I, David H. Hoster II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EastGroup Properties,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATED: November 14, 2002 /s/ DAVID H. HOSTER II
David H. Hoster II
Chief Executive Officer
I, N. Keith McKey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EastGroup Properties,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATED: November 14, 2002 /s/ N. KEITH MCKEY
N. Keith McKey
Chief Financial Officer