U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (601) 354-3555
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
SHARES OF COMMON STOCK, $.0001 PAR VALUE,
SHARES OF SERIES A 9.00% CUMULATIVE REDEEMABLE PREFERRED, $.0001 PAR VALUE
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. YES (x) NO ( )
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 14, 2003 was $419,982,000.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES (x) 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 the last business day of the registrant's most recently completed second
fiscal quarter: $411,836,000.
The number of shares of common stock, $.0001 par value, outstanding as of
March 14, 2003 was 16,115,964.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2003 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
Organization
EastGroup Properties, Inc. (the "Company" or "EastGroup") is an equity real
estate investment trust ("REIT") organized in 1969. The Company has elected to
be taxed as a real estate investment trust under Sections 856-860 of the
Internal Revenue Code (the Code), as amended, and intends to continue to qualify
to be so taxed. The Company maintains a website at www.eastgroup.net.
EastGroup's press releases, Securities and Exchange Commission filings,
financial information and additional information about the Company are available
at our website.
Administration
The Company is self-administered (i.e., it provides its own investment and
administrative services internally through its employees) and maintains its
principal executive offices in Jackson, Mississippi. As of March 14, 2003,
EastGroup had 54 full-time and three part-time employees.
Current Operations
EastGroup is an equity REIT focused on the acquisition, operation and
development of industrial properties in major Sunbelt markets throughout the
United States. Its strategy for growth is based on its ownership of premier
distribution facilities clustered near major transportation centers. EastGroup's
portfolio currently includes 18.5 million square feet with an additional 624,000
square feet of properties under development.
During 2002, EastGroup expanded its portfolio by the transfer of seven
properties (662,000 square feet) from development to the portfolio with costs of
$30,529,000, through acquisition of six properties (355,000 square feet) with
total costs of $13,667,000 and 9.15 acres of land for $916,000, and through
capital improvements of $13,121,000 on existing and transferred development
properties. In addition to direct property acquisitions and developments,
EastGroup seeks to grow its portfolio through the acquisition of other public
and private real estate companies and REITs. In 2002, the Company invested
$1,308,000 in the stock of REITs.
The recycling of capital has been an important element of EastGroup's
growth strategy. Through recycling, EastGroup seeks to continually improve the
physical quality and location of its properties and increase the clustering of
assets in core submarkets. During 2002, the Company sold two properties for net
proceeds of $2,917,000 with total gains for financial reporting purposes of
$27,000. In addition, the Company realized gains of $1,836,000 on its
investments in Pacific Gulf Properties (PAG) and other REITs as the result of
the sale and liquidation of these REIT shares.
EastGroup's portfolio square footage leased for 2002 increased from 91.6%
to 93.1%. In 2002, leases for 18.3% of the portfolio's square footage expired
and EastGroup renewed or re-leased 75% of that space. The expiring leases for
2003 were 10.8% of the portfolio as of March 14, 2003.
The Company intends to continue to qualify as a REIT under the Code.
Ordinary taxable income will continue to be paid to the stockholders. The
Company has the option of (i) paying out capital gains to the stockholders with
no tax to the Company, or (ii) treating the capital gains as having been
distributed to the stockholders, paying the tax on the gain deemed distributed
and allocating the tax paid as a credit to the stockholders. The book value of
the property sold and the retained portion of capital gains, if any, are
generally reinvested by the Company.
EastGroup incurs short-term floating rate debt in connection with the
acquisition of real estate and payment of costs of development projects, and
attempts to replace floating rate debt with fixed-rate term loans secured by
real property or to repay the debt with the proceeds of sales of equity
securities as market conditions permit. EastGroup also may, in appropriate
circumstances, acquire one or more properties in exchange for EastGroup's equity
securities.
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 in connection with such sales of property if
market conditions so require, but it does not presently intend to make loans
other than in connection with such transactions.
EastGroup has no present intentions of underwriting 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 public accountants.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such 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. All of
EastGroup's properties have been subjected to environmental audits by
independent environmental consultants. These reports have not revealed any
potential significant environmental liability. Management of EastGroup 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.
ITEM 2. PROPERTIES.
The Company conducts its primary operations from approximately 12,000
square feet of rented office space located at 300 One Jackson Place, 188 East
Capitol Street, Jackson, Mississippi. EastGroup also has regional offices in
Phoenix and Orlando and property management offices in Jacksonville, Tampa, Fort
Lauderdale and Houston. Offices at these locations allow the Company to
self-manage (i.e., provide management services through its employees) all of its
Arizona, Florida and Houston properties, which together account for 52% of the
Company's total portfolio. The Florida and Arizona operations also provide
significant increased development capability in both of these states.
At December 31, 2002, the Company did not own any single property that is
10% or more of total book value or 10% or more of total gross revenues and thus
is not subject to the requirements of Items 14 and 15 of Form S-11.
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 of
business or which is expected to be covered by the Company's liability
insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II. OTHER INFORMATION
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
SHARES OF COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's shares of Common Stock are presently listed for trading on the New
York Stock Exchange under the symbol "EGP." The following table shows the high
and low share prices for each quarter reported by the New York Stock Exchange
during the past two years and per share distributions paid for each quarter.
Calendar 2002 Calendar 2001
- --------------------------------------------------------------------------------
Quarter High Low Distributions High Low Distributions
- --------------------------------------------------------------------------------
First $26.30 22.09 $.47 $23.56 21.69 $.45
Second 26.30 23.48 .47 23.55 20.80 .45
Third 26.50 22.10 .47 23.65 20.00 .45
Fourth 25.99 22.55 .47 24.25 20.50 .45
-------------- -------------
$1.88 $1.80
============== =============
As of March 14, 2003, there were approximately 1,200 holders of record of
the Company's 16,115,964 outstanding shares of common stock. Of the $1.88 per
common share total distributions paid in 2002, $1.8348 per share was taxable as
ordinary income for federal income tax purposes and $.0452 per share represented
a long-term 20% capital gain. Of the $1.80 per share distributions paid in 2001,
$1.7044 per share was taxable as ordinary income for federal income tax purposes
and $.0956 per share represented a long-term 20% capital gain.
SHARES OF SERIES A PREFERRED STOCK MARKET PRICES AND DIVIDENDS
The Company's shares of Series A 9.00% Cumulative Redeemable Preferred Stock are
also listed for trading on the New York Stock Exchange and trade under the
symbol "EGP PrA." The following table shows the high and low preferred share
prices for each quarter reported by the New York Stock Exchange during the past
two years and per share distributions paid for each quarter.
Calendar 2002 Calendar 2001
- --------------------------------------------------------------------------------
Quarter High Low Distributions High Low Distributions
- --------------------------------------------------------------------------------
First $26.18 22.41 $.5625 $24.49 21.75 $.5625
Second 26.30 23.48 .5625 24.80 23.75 .5625
Third 26.35 22.40 .5625 25.35 24.25 .5625
Fourth 25.81 22.98 .5625 25.15 24.51 .5625
------------- -------------
$2.2500 $2.2500
============= =============
As of March 14, 2003, there were 72 holders of record of the Company's
1,725,000 outstanding shares of Series A preferred stock. Of the $2.25 per
Series A preferred share total distributions paid in 2002, $2.1960 per share was
taxable as ordinary income for federal income tax purposes and $.0540 per share
represented a long-term 20% capital gain. Of the $2.25 per share distributions
paid in 2001, $2.1308 per share was taxable as ordinary income for federal
income tax purposes and $.1192 per share represented a long-term 20% capital
gain.
SHARES OF SERIES B PREFERRED STOCK MARKET PRICES AND DIVIDENDS
EastGroup has issued 2,800,000 shares of Series B 8.75% Cumulative Convertible
Preferred Stock to Five Arrows Realty Securities II, L.L.C., an investment fund
managed by Rothschild Realty, Inc., a member of the Rothschild Group. The Series
B Preferred Stock, which is convertible into common stock at a conversion price
of $22.00 per share (3,182,000 common shares), is entitled to quarterly
dividends in arrears equal to the greater of $0.547 per share or the dividend on
the number of shares of common stock into which a share of Series B Preferred
Stock is convertible. Of the $2.188 per Series B preferred share total
distributions paid in 2002, $2.1355 per share was taxable as ordinary income for
federal income tax purposes and $.0525 per share represented a long-term 20%
capital gain. Of the $2.188 per share distributions paid in 2001, $2.0721 per
share was taxable as ordinary income for federal income tax purposes and $.1159
per share represented a long-term 20% capital gain.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.
Years Ended December 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------------------------------------------------------------------
(In thousands, except per share data)
OPERATING DATA:
Revenues
Income from real estate operations $ 103,048 100,377 93,707 83,026 74,168
Interest 309 1,041 975 1,367 1,868
Gain on securities 1,836 2,967 2,154 30 -
Other 617 727 1,068 1,519 548
-------------------------------------------------------------------------
105,810 105,112 97,904 85,942 76,584
-------------------------------------------------------------------------
Expenses
Operating expenses from real estate
operations 29,924 25,535 22,213 19,809 19,279
Interest 17,387 17,823 18,570 17,688 16,948
Depreciation and amortization 30,333 26,977 23,384 20,181 16,595
General and administrative 4,179 4,573 5,607 4,519 3,771
Minority interest in joint ventures 375 350 377 433 433
-------------------------------------------------------------------------
82,198 75,258 70,151 62,630 57,026
-------------------------------------------------------------------------
Income before gain on sale of real estate
investments 23,612 29,854 27,753 23,312 19,558
Gain on sale of real estate investments 93 4,311 8,771 15,357 9,713
-------------------------------------------------------------------------
Income before cumulative effect of
change in accounting principle 23,705 34,165 36,524 38,669 29,271
Cumulative effect of change in
accounting principle (1) - - - (418) -
------------------------------------------------------------------------
Income from continuing operations 23,705 34,165 36,524 38,251 29,271
------------------------------------------------------------------------
Discontinued operations
Income (loss) from real estate operations (13) 17 (12) 104 65
Loss on sale of real estate investments (66) - - - -
------------------------------------------------------------------------
Income (loss) from discontinued operations (79) 17 (12) 104 65
------------------------------------------------------------------------
Net income 23,626 34,182 36,512 38,355 29,336
Preferred dividends-Series A 3,880 3,880 3,880 3,880 2,070
Preferred dividends-Series B 6,128 6,128 6,128 2,246 -
------------------------------------------------------------------------
Net income available to common stockholders $ 13,618 24,174 26,504 32,229 27,266
========================================================================
BASIC PER SHARE DATA:
Income from continuing operations $ 0.86 1.54 1.70 2.00 1.67
Income (loss) from discontinued operations 0.00 0.00 0.00 0.01 0.00
------------------------------------------------------------------------
Net income available to common stockholders $ 0.86 1.54 1.70 2.01 1.67
========================================================================
Weighted average shares outstanding 15,868 15,697 15,623 16,046 16,283
DILUTED PER SHARE DATA:
Income from continuing operations $ 0.84 1.51 1.68 1.98 1.66
Income (loss) from discontinued operations 0.00 0.00 0.00 0.01 0.00
------------------------------------------------------------------------
Net income available to common stockholders $ 0.84 1.51 1.68 1.99 1.66
========================================================================
Weighted average shares outstanding 16,237 16,046 15,798 17,362 16,432
OTHER PER SHARE DATA:
Book value (at end of year) $ 15.11 16.19 16.55 16.47 16.12
Common distributions declared 1.88 1.80 1.58 1.48 1.40
Common distributions paid 1.88 1.80 1.58 1.48 1.40
BALANCE SHEET DATA (AT END OF YEAR):
Real estate investments, at cost (2) $ 791,684 741,755 703,846 649,754 582,565
Real estate investments, net of accumulated
depreciation and allowance for losses (2) 672,707 649,554 633,726 598,175 539,729
Total assets 702,341 683,782 666,205 632,151 567,548
Mortgage, bond and bank loans payable 322,300 291,072 270,709 243,665 236,816
Total liabilities 345,856 313,072 290,813 262,839 251,524
Total stockholders' equity 356,485 370,710 375,392 369,312 316,024
(1) Represents previously capitalized start-up and organizational costs that
were expensed on January 1, 1999 in accordance with the requirements of
Statement of Position 98-5.
(2) Does not include the $500,000 land purchase-leaseback sold in 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CRITICAL ACCOUNTING POLICIES
The Company's management considers the following accounting policies to be
critical to the reported operations of the Company.
Real Estate Properties
During the industrial development stage, costs associated with development
(i.e., land, construction costs, interest expense during construction, property
taxes and indirect costs associated with development) are aggregated into the
total capitalization of the property. Included in these costs are management's
estimates for the portions of internal costs (primarily personnel costs) that
are deemed directly or indirectly related to such development activities.
Because the estimation of capitalizable internal costs requires management's
judgment, the Company believes internal cost capitalization is a critical
accounting estimate.
The Company reviews its real estate investments to be held and used for
impairment of value whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If any real estate
investment is considered permanently impaired, a loss is recorded to reduce the
carrying value of the property to its estimated fair value. Real estate assets
to be sold are reported at the lower of the carrying amount or fair value less
selling costs. The evaluation of real estate investments involves many
subjective assumptions dependent upon future economic events that affect the
ultimate value of the property. Currently, the Company's management is not aware
of any impairment issues nor has it experienced any significant impairment
issues in recent years.
Valuation of Receivables
The Company is subject to tenant defaults and bankruptcies that could affect the
collection of outstanding receivables. In order to mitigate these risks, the
Company performs credit review and analysis on prospective tenants before
significant leases are executed. The Company evaluates outstanding receivables
and estimates the allowance for uncollectible accounts. Management specifically
analyzes historical bad debts, aged receivables, customer credit-worthiness and
current economic trends when evaluating the adequacy of the allowance for
doubtful accounts. The Company believes that its allowance for uncollectible
accounts is adequate for its outstanding receivables at December 31, 2002 and
2001.
Tax Status
EastGroup, a Maryland corporation, has qualified as a real estate investment
trust 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 distribute 90% of its ordinary taxable income to its stockholders.
The Company has the option of (i) paying out capital gains to the stockholders
with no tax to the Company, or (ii) treating the capital gains as having been
distributed to the stockholders, paying the tax on the gain deemed distributed
and allocating the tax paid as a credit to the stockholders. The Company
distributed all of its 2002, 2001 and 2000 taxable income to its stockholders.
Accordingly, no provision for income taxes was necessary.
FINANCIAL CONDITION
Assets of EastGroup were $702,341,000 at December 31, 2002, an increase of
$18,559,000 from December 31, 2001. Liabilities (excluding minority interests)
increased $32,764,000 to $344,097,000 and stockholders' equity decreased
$14,225,000 to $356,485,000 during the same period. Book value per common share
decreased from $16.19 at December 31, 2001 to $15.11 at December 31, 2002. The
paragraphs that follow explain these changes in detail.
Real estate properties increased $53,749,000 during the year ended December
31, 2002. This increase was due to the transfer of seven properties from
development with total costs of $30,529,000; acquisition of six properties for a
total of $13,363,000, as detailed below; capital improvements of $9,625,000 and
improvements on development properties transferred to the portfolio in the
12-month period following transfer of $3,435,000. These increases were offset by
the transfer of one property to the category "held for sale" with costs of
$2,022,000 and the transfer of land into development with costs of $1,181,000.
During 2002, three additional properties were transferred to "held for sale;"
however, these properties were 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 these properties, depreciation was adjusted to reflect the
carrying amount of these properties as if they had never been classified as
"held for sale."
Real Estate Properties
Real Estate Properties
Acquired in 2002 Location Size Date Acquired Cost (1)
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
Broadway Industrial Park V and VI Tempe, Arizona 79,000 sq. ft. 06-07-02 $ 3,898
Freeport Tech Center Houston, Texas 188,000 sq. ft. 07-11-02 6,170
Exchange Distribution Center II and III Orlando, Florida 62,000 sq. ft. 08-14-02 2,563
North Stemmons II Dallas, Texas 26,000 sq. ft. 10-10-02 732
---------------
Total Industrial Acquisitions $ 13,363
===============
(1) Total cash paid for properties acquired was $13,667,000, of which
$13,363,000 was allocated to the real estate properties as indicated above and
$304,000 was allocated to leasing origination costs. The leasing origination
costs, which are included in Other Assets on the balance sheet, will be
amortized over the remaining lives of the leases in place at the time of
acquisition in accordance with Statement of Financial Accounting Standards No.
141, "Business Combinations."
Development increased $2,214,000 during the year ended December 31, 2002.
This increase was due to development costs of $32,165,000 on existing and
completed development properties and the transfer of land from the portfolio to
development with costs of $1,181,000. These increases were offset by the
transfer of seven development properties to real estate properties with total
costs of $30,529,000, as detailed in the table below, and land transferred to
"held for sale" with costs of $603,000.
Total cash outflows for development for the year ended December 31, 2002
were $35,600,000. In addition to the costs incurred for the year ended December
31, 2002 as detailed in the table below, development costs included $3,435,000
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
---------------------------------------
For the Year Cumulative as Estimated
Size Ended 12/31/02 of 12/31/02 Total Costs (1)
----------------------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
World Houston XIV
Houston, Texas 77,000 $ 741 3,074 3,600
Americas 10 Business Center I
El Paso, Texas 97,000 1,000 3,287 3,300
Metro Airport Commerce Center I
Jackson, Mississippi 32,000 1,401 1,727 1,900
----------------------------------------------------------------------
Total Lease-up 206,000 3,142 8,088 8,800
----------------------------------------------------------------------
Under Construction:
World Houston XIX
Houston, Texas 66,000 1,981 1,981 3,100
World Houston XX
Houston, Texas 62,000 1,958 1,958 2,800
Chamberlain Expansion
Tucson, Arizona 34,000 1,345 1,345 1,600
Executive Airport Commerce Center I & III
Fort Lauderdale, Florida 85,000 3,305 4,751 6,000
Expressway Commerce Center
Tampa, Florida 108,000 3,621 3,621 4,300
----------------------------------------------------------------------
Total Under Construction 355,000 12,210 13,656 17,800
----------------------------------------------------------------------
Prospective Development
(Principally Land):
Phoenix, Arizona 103,000 122 1,376 6,000
Tucson, Arizona 70,000 - 326 3,500
Tampa, Florida 140,000 160 1,828 5,600
Orlando, Florida 249,000 476 3,300 14,900
Fort Lauderdale, Florida 55,000 675 1,603 3,300
El Paso, Texas 251,000 301 2,224 7,600
Houston, Texas 915,000 561 6,786 46,200
Jackson, Mississippi 32,000 228 531 1,700
----------------------------------------------------------------------
Total Prospective Development 1,815,000 2,523 17,974 88,800
----------------------------------------------------------------------
2,376,000 $ 17,875 39,718 115,400
======================================================================
Completed Development and Transferred
To Real Estate Properties During the
Year Ended December 31, 2002:
Sunport Center III
Orlando, Florida 66,000 $ 538 3,763
Tower Automotive
Madison, Mississippi 210,000 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 662,000 $ 14,290 30,529
=====================================================
(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 decreased $532,000 due to the sale of two
properties with costs of $3,218,000, offset by the transfer of one property from
the portfolio with total costs of $2,022,000, the transfer of land from
development with costs of $603,000, and capital improvements of $61,000.
Accumulated depreciation on real estate properties and real estate held for
sale increased $26,776,000 primarily due to depreciation expense of $27,050,000
on real estate properties, offset by the sale of two properties with accumulated
depreciation of $372,000.
Mortgage loans receivable decreased $5,502,000 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 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 $1,663,000 at December 31, 2002 as a result
of the sale of REIT shares with a cost of $5,259,000 and the purchase of REIT
shares for $1,308,000. Unrealized gains decreased $838,000 as a result of
realized gains of $1,836,000 on REIT shares, offset by unrealized gains of
$998,000.
Mortgage notes payable increased $43,329,000 during the year ended December
31, 2002 due to three new mortgages totaling $59,200,000, offset by the
repayment of two mortgages for $10,350,000 and regularly scheduled principal
payments of $5,521,000. A detail of the Company's mortgages is provided in Note
7 in the Notes to the Consolidated Financial Statements.
Notes payable to banks decreased $12,101,000 as a result of payments of
$207,687,000 exceeding borrowings of $195,586,000. The Company's credit
facilities are described in greater detail under Liquidity and Capital
Resources.
Accumulated other comprehensive income decreased $1,135,000 as a result of
realized gains of $1,836,000 on REIT shares, offset by unrealized gains of
$998,000 on REIT shares, and an unrealized loss of $297,000 due to the fair
value adjustment of the Company's interest rate swap (see Note 6 in the Notes to
the Consolidated Financial Statements).
Undistributed earnings decreased from $23,753,000 at December 31, 2001 to
$7,109,000 at December 31, 2002, as a result of dividends on common and
preferred stock of $40,270,000 exceeding net income for financial reporting
purposes of $23,626,000.
RESULTS OF OPERATIONS
2002 Compared to 2001
Net income available to common stockholders for 2002 was $13,618,000 ($.86 per
basic share and $.84 per diluted share) compared to net income available to
common stockholders in 2001 of $24,174,000 ($1.54 per basic share and $1.51 per
diluted share). Income before gain on sale of real estate investments was
$23,612,000 in 2002 compared to $29,854,000 in 2001. Gain on sale of real estate
investments from continuing operations for 2002 was $93,000 compared to
$4,311,000 in 2001. In accordance with the guidelines under Statement of
Financial Accounting Standards (SFAS) No. 144, gains and 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 from
discontinued operations for 2002 and none for 2001. The paragraphs that follow
describe the results of operations in detail.
Property net operating income (PNOI) from real estate properties, defined
as income from real estate operations (REO) less property operating expenses
(before interest expense and depreciation and amortization) 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 properties' 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.
PNOI from continuing operations decreased by $1,718,000 or 2.3% for 2002
compared to 2001. PNOI by property type and percentage leased for industrial
were as follows:
Property Net Operating Income
Years Ended Percent
December 31, Leased
-------------------------------------------------------
2002 2001 12-31-02 12-31-01
-------------------------------------------------------
(In thousands)
Industrial $ 72,048 73,783 93.1% 91.6%
Other 1,076 1,059
----------------------
Total PNOI $ 73,124 74,842
======================
PNOI from industrial properties decreased $1,735,000 (2.4%) for 2002
compared to 2001. Industrial properties held throughout 2002 and 2001 showed a
decrease in PNOI of 5.5%. The decrease in PNOI results mainly from a decrease in
the Company's portfolio average occupancy during the year primarily due to a
continued slowing of the economy and the unusually high percentage of leases
that expired in the last two years. Also, lease termination fees were only
$345,000 in 2002 compared to $1,341,000 in 2001. In addition, real estate
operating expenses increased $4,389,000 (17.2%) in 2002 compared to 2001. This
increase was primarily due to increases in insurance, property taxes and bad
debt expense. Because of the lower occupancy, the Company had to absorb a
greater percentage of operating expenses in 2002.
Gain on REIT securities was $1,836,000 for 2002 compared to $2,967,000 in
2001. In 2002, the Company received liquidating distributions of $365,000 from
Pacific Gulf Properties (PAG) compared to $2,569,000 in 2001. Gain on sales of
other REIT securities was $1,471,000 in 2002 compared to $398,000 in 2001.
Bank interest expense before amortization of loan costs and capitalized
interest was $2,585,000 for 2002, a decrease of $2,165,000 from 2001. Average
bank borrowings were $83,039,000 in 2002 compared to $82,898,000 in 2001 with
average bank interest rates of 3.11% in 2002 compared to 5.72% 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 2002 were $2,061,000 compared to
$2,329,000 in 2001. Amortization of bank loan costs was $407,000 in 2002
compared to $264,000 in 2001. See Note 6 in the Notes to the Consolidated
Financial Statements for disclosure relating to the Company's notes payable to
banks.
Mortgage interest expense on real estate properties was $16,253,000 for
2002, an increase of $1,303,000 from 2001. The increase in 2002 was primarily
due to an increase in mortgage loans payable of $43,329,000 from 2001. The
Company obtained three new mortgage loans totaling $59,200,000 in 2002 while
paying off maturing loans of $10,350,000 and regularly scheduled principal
payments of $5,521,000. Amortization of mortgage loan costs was $203,000 in 2002
compared to $188,000 in 2001. See Note 7 in the Notes to the Consolidated
Financial Statements for disclosure relating to the Company's mortgage notes
payable.
Depreciation and amortization increased $3,356,000 in 2002 compared to
2001. This increase was primarily due to the industrial properties acquired and
development properties that achieved stabilized operations in both 2001 and
2002. The increase was 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").
The decrease in general and administrative expenses of $394,000 for the
year ended December 31, 2002 compared to 2001 is primarily due to lower
compensation expense. The reduction in compensation expense was mainly
attributable to lower bonuses paid to senior management since the Company did
not meet the funds from operations goals projected for the year.
In 2002, the Company recognized a gain of $93,000 from the sale of
Carpenter Duplex, which is reported in Income from Continuing Operations on the
income statement. The Company recognized a loss of $66,000 on the sale of 7th
Street Service Center, which is recorded under Discontinued Operations in
accordance with SFAS No. 144. (SFAS No. 144 requires that the operations and
gain (loss) on disposal for properties classified to the category "held for
sale" subsequent to December 31, 2001 be recorded in Discontinued Operations.)In
2001, the Company recognized gains of $4,311,000 primarily from the sale of five
properties. See Note 2 in the Notes to the Consolidated Financial Statements for
a summary of these transactions.
NAREIT has recommended supplemental disclosures concerning straight-line
rent, capital expenditures and leasing costs. Straight-lining of rent increased
income by $1,953,000 for 2002 compared to $1,741,000 in 2001. Capital
expenditures for the years ended December 31, 2002 and 2001 were as follows:
Capital Expenditures
Years Ended
December 31,
Estimated ----------------------
Useful Life 2002 2001
-------------------------------------------
(In thousands)
Upgrade on Acquisitions 40 yrs $ 61 270
Major Renovation/Redevelopment 40 yrs 53 63
Tenant Improvements:
New Tenants Lease Life 5,748 3,787
Renewal Tenants Lease Life 1,150 581
Other:
Building Improvements 5-40 yrs 853 1,188
Roofs 5-15 yrs 1,588 412
Parking Lots 5 yrs 179 219
Other 5 yrs 54 102
----------------------
Total capital expenditures $ 9,686 6,622
======================
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 years
ended December 31, 2002 and 2001 were as follows:
Capitalized Leasing Costs
Years Ended
December 31,
Estimated ----------------------
Useful Life 2002 2001
-------------------------------------------
(In thousands)
Development Lease Life $ 1,290 1,605
New Tenants Lease Life 1,850 1,113
Renewal Tenants Lease Life 1,431 1,042
----------------------
Total capitalized leasing costs $ 4,571 3,760
======================
Amortization of leasing costs $ 3,319 2,541
======================
2001 Compared to 2000
Net income available to common stockholders for 2001 was $24,174,000 ($1.54 per
basic share and $1.51 per diluted share) compared to net income available to
common stockholders in 2000 of $26,504,000 ($1.70 per basic share and $1.68 per
diluted share). Income before gain on sale of real estate investments was
$29,854,000 in 2001 compared to $27,753,000 in 2000. Gain on sale of real estate
investments from continuing operations was $4,311,000 in 2001 compared to
$8,771,000 in 2000. The paragraphs that follow describe the results of
operations in detail.
PNOI from continuing operations increased by $3,348,000 or 4.7% for 2001
compared to 2000. PNOI by property type and percentage leased for industrial
were as follows:
Property Net Operating Income
Years Ended Percent
December 31, Leased
-------------------------------------------
2001 2000 12-31-01 12-31-00
-------------------------------------------
(In thousands)
Industrial $ 73,783 69,068 91.6% 96.4%
Other 1,059 2,426
-------------------
Total PNOI $ 74,842 71,494
===================
PNOI from industrial properties increased $4,715,000 (6.8%) for 2001
compared to 2000 primarily due to acquisitions, rental rate increases and
development properties that achieved stabilized operations in 2000 and 2001.
Also, lease termination fees were $1,341,000 in 2001 compared to $220,000 in
2000. Industrial properties held throughout 2001 and 2000 showed a decrease in
PNOI of 1.9% for 2001. The Company experienced greater vacancies during 2001
primarily due to a slowing of the economy and higher than average lease
terminations.
PNOI from other properties decreased $1,367,000 (56.3%) for 2001 compared
to 2000. These decreases were primarily the result of the sale of the La Vista
Crossing Apartments in December 2000.
Mortgage loan interest income decreased $358,000 for 2001 compared to 2000
primarily due to the payoff of the World Houston 10 loan in early January 2001.
Other interest income increased $424,000 for 2001 compared to 2000. This
increase was primarily the result of interest received from the final accounting
of an escrow account established for the redemption of shares in the Company's
1998 acquisition of Meridian Point Realty Trust VIII.
Gain on REIT securities was $2,967,000 for 2001 compared to $2,154,000 for
2000. In 2001, the Company received liquidating distributions of $2,569,000 from
PAG and recorded gains on sale of other REIT securities of $398,000. In 2000,
the Company recorded gains of $807,000 from liquidating distributions received
from PAG and $1,347,000 from Franklin Select Realty Trust.
Bank interest expense before amortization of loan costs and capitalized
interest was $4,750,000 for 2001, a decrease of $3,643,000 from 2000. Average
bank borrowings were $82,898,000 in 2001 compared to $107,221,000 in 2000 with
average bank interest rates of 5.72% in 2001 compared to 7.83% in 2000. 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 2001 were $2,329,000 compared to
$2,060,000 in 2000. Amortization of bank loan costs was $264,000 for both 2001
and 2000. See Note 6 in the Notes to the Consolidated Financial Statements for
disclosure relating to the Company's notes payable to banks.
Mortgage interest expense on real estate properties was $14,950,000 for
2001, an increase of $3,146,000 from 2000. These increases were primarily the
result of the issuance of two mortgage loans in 2000 and one mortgage loan in
2001, offset by the payoff of several smaller loans in 2000 and 2001.
Amortization of mortgage loan costs was $188,000 in 2001 compared to $169,000 in
2000. See Note 7 in the Notes to the Consolidated Financial Statements for
disclosure relating to the Company's mortgage notes payable.
Depreciation and amortization increased $3,593,000 in 2001 compared to
2000. This increase was primarily due to the industrial properties acquired and
development properties that achieved stabilized operations in both 2000 and 2001
and to the write-off of leasing commissions for lease buyouts. The increase was
offset by the sale of several properties in 2000 and 2001 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"). Three properties
that were in the category "held for sale" at December 31, 2000 were reclassified
back to the portfolio in 2001. Upon reclassification, depreciation was adjusted
to reflect the carrying amount of these properties as if they had never been
classified as "held for sale."
The decrease in general and administrative expenses of $1,034,000 for the
year ended December 31, 2001 compared to 2000 is due to several items. Incentive
restricted stock expense was lower in 2001 by $410,000 due to a one-time charge
in 2000. Also, taxes were $574,000 lower primarily due to the reversal of
accrued taxes for Tennessee franchise taxes. The tax was repealed by the State
of Tennessee.
In 2001, the Company recognized gains of $4,311,000 primarily from the sale
of five properties. In 2000, the Company recognized gains of $8,771,000
consisting of the sale of two properties and one parcel of land and the
recognition of a deferred gain. See Note 2 in the Notes to the Consolidated
Financial Statements for a summary of these transactions.
NAREIT has recommended supplemental disclosures concerning straight-line
rent, capital expenditures and leasing costs. Straight-lining of rent increased
income $1,741,000 for 2001 compared to $1,654,000 in 2000. Capital expenditures
for the years ended December 31, 2001 and 2000 by category were as follows:
Capital Expenditures
Years Ended
December 31,
Estimated ---------------------------
Useful Life 2001 2000
---------------------------------------------
(In thousands)
Upgrade on Acquisitions 40 yrs $ 270 2,754
Major Renovation/Redevelopment 40 yrs 63 41
Tenant Improvements:
New Tenants Lease Life 3,787 4,534
Renewal Tenants Lease Life 581 901
Other:
Building Improvements 5-40 yrs 1,188 1,148
Roofs 5-15 yrs 412 913
Parking Lots 5 yrs 219 230
Other 5 yrs 102 90
---------------------------
Total capital expenditures $ 6,622 10,611
===========================
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 years
ended December 31, 2001 and 2000 were as follows:
Capitalized Leasing Costs
Years Ended
December 31,
Estimated ---------------------------
Useful Life 2001 2000
---------------------------------------------
(In thousands)
Development Lease Life $ 1,605 1,743
New Tenants Lease Life 1,113 1,236
Renewal Tenants Lease Life 1,042 949
---------------------------
Total capitalized leasing costs $ 3,760 3,928
===========================
Amortization of leasing costs $ 2,541 2,034
===========================
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued 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 will adopt this Statement on January 1, 2003 and believes
that the effect of adoption will have little or no impact on its overall
financial position or results of operation.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the gain
or loss as extraordinary, as the use of such extinguishments have become part of
the risk management strategy of many companies. SFAS No. 145 also amends SFAS
No. 13 to require sale-leaseback accounting for certain lease modifications that
have economic effects similar to sale-leaseback transactions. The provisions of
the Statement related to the rescission of SFAS No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to SFAS No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The Company adopted the provisions of this Statement relating to
SFAS No. 13 after May 15, 2002. The adoption did not have a material effect on
the Company's consolidated financial statements. The Company will adopt the
other provisions of this Statement effective January 1, 2003 and believes that
the effect of adoption will have little or 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." 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 will 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 operation.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial statements of
interim and annual periods ending after December 15, 2002. The Company adopted
the disclosure provision of this Statement in 2002 and will adopt the
measurement provision on January 1, 2003. The application of this Interpretation
relating to disclosure did not impact the Company's consolidated financial
statements in 2002 and adoption of the measurement provision of this Statement
in 2003 is not expected to have a material effect on the Company's consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, and interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created or
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created after February 1, 2003, the Interpretation
applies to that enterprise no later than the beginning of the first interim or
annual reporting period beginning after June 15, 2003. The Interpretation
requires certain disclosures in financial statements issued after January 31,
2003 if it is reasonably possible that the Company will consolidate or disclose
information about variable interest entities when the Interpretation becomes
effective. The application of this Interpretation is not expected to have a
material effect on the Company's consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $53,786,000 for the year ended
December 31, 2002. Other sources of cash were primarily from bank borrowings,
proceeds from mortgage notes payable, sales and liquidation of REIT shares and
collections on mortgage loans receivable. The Company distributed $29,873,000 in
common and $10,008,000 in preferred stock dividends. Other primary uses of cash
were for bank debt payments, construction and development of properties,
mortgage note payments, purchases of real estate investments and capital
improvements at the various properties.
Total debt at December 31, 2002 and 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 December 31, 2002 and 2001.
December 31,
--------------------------------
2002 2001
--------------------------------
(In thousands)
Mortgage notes payable - fixed rate $ 248,343 205,014
Bank notes payable - floating rate 73,957 86,058
--------------------------------
Total debt $ 322,300 291,072
================================
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. EastGroup's current interest rate for this
facility is the Eurodollar rate plus 1.25%. At December 31, 2002, the interest
rate was 2.67% on $70,000,000. The interest rate on each tranche is currently
reset on a monthly basis and was last reset on February 26, 2003 at 2.59% on
$71,000,000. An unused facility fee is also assessed on this loan. This fee
varies according to debt-to-total asset value ratios and is currently .20%.
The Company had a one-year $12,500,000 unsecured revolving credit facility
with PNC Bank, N.A. that matured in January 2003. The loan was amended in
January 2003 to reflect a new maturity date of January 2004. The interest rate
on this facility is based on the LIBOR rate and varies according to
debt-to-total asset value ratios. At December 31, 2002, the interest rate was
2.555% on $3,957,000. EastGroup's current interest rate for this facility is the
LIBOR rate plus 1.175%.
The Company anticipates that its current cash balance, operating cash
flows, and borrowings under its lines of credit will be adequate for (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, (viii) common stock repurchases, and (ix) any other normal business
activities of the Company.
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 7A. 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.
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
---------------------------------------------------------------------------------
Fixed rate debt (in thousands) $ 7,876 11,234 25,153 21,715 20,390 161,975 248,343 263,971 (1)
Weighted average interest rate 7.66% 7.90% 7.96% 7.76% 7.71% 7.08% 7.34%
Variable rate debt (in thousands) - 3,957 70,000 - - - 73,957 73,957
Weighted average interest rate - 2.56% 2.67% - - - 2.66%
(1) The fair value of the Company's fixed rate debt is estimated based on the
quoted market prices for similar issues or 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.
As the table above incorporates only those exposures that exist as of
December 31, 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 27 basis points,
interest expense and cash flows would increase or decrease by approximately
$197,000 annually.
In November 2002, the Company entered into an interest rate swap agreement
to hedge its exposure to the variable interest rate on the Company's $11,000,000
Tower Automotive Center recourse mortgage. Under the swap agreement, the Company
effectively pays a fixed rate of interest over the term of the agreement without
the exchange of the underlying notional amount. This swap is designated as a
cash flow hedge and is considered to be fully effective in hedging the variable
rate risk associated with the Tower mortgage loan. Changes in the fair value of
the swap are recognized in accumulated other comprehensive income. The Company
does not hold or issue this type of derivative contract for trading or
speculative purposes.
Forward-Looking Statements
In addition to historical information, certain sections of this Form 10-K
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 and the
effects to the economy from possible terrorism and related world events, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Consolidated Balance Sheets as of December 31, 2002 and 2001,
and its Consolidated Statements of Income, Changes in Stockholders' Equity and
Cash Flows and Notes to Consolidated Financial Statements for the years ended
December 31, 2002, 2001 and 2000 and the independent auditors' report thereon
are included under Item 15 of this report and are incorporated herein by
reference. Unaudited quarterly results of operations included in the notes to
the consolidated financial statements are also incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's definitive proxy statement which will be filed with the
Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A
within 120 days of the end of Registrant's calendar year is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Registrant's
calendar year is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN COMMON STOCK OWNERS AND MANAGEMENT.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Registrant's
calendar year is incorporated herein by reference. The following table provides
information required by Item 201(d) of Regulation S-K.
Equity Compensation Plan Information
(a) (b) (c)
Plan category Number of securities to be Weighted-average Number of securities remaining
issued upon exercise of exercise price of available for future issuance
outstanding options, outstanding options, under equity compensation plans
warrants and rights warrants and rights (excluding securities reflected in
column (a))
Equity compensation
plans approved by
security holders 672,954 $18.639 273,110
Equity compensation
plans not approved by
security holders - - -
------------------------------------------------------------------------------------------
Total 672,954 $18.639 273,110
==========================================================================================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Registrant's
calendar year is incorporated herein by reference.
ITEM 14. 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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Index to Financial Statements:
Page
(a) (1) Consolidated Financial Statements:
Independent Auditors' Report 23
Consolidated Balance Sheets - December 31, 2002 and 2001 24
Consolidated Statements of Income - Years ended
December 31, 2002, 2001 and 2000 25
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 2002, 2001 and 2000 26
Consolidated Statements of Cash Flows - Years ended
December 31, 2002, 2001 and 2000 27
Notes to Consolidated Financial Statements 28
(2) Consolidated Financial Statement Schedules:
Schedule III - Real Estate Properties and Accumulated Depreciation 50
Schedule IV - Mortgage Loans on Real Estate 56
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission 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 the
consolidated financial statements.
(3) Form 10-K Exhibits:
(a) Articles of Incorporation (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated April
24, 1997).
(b) Bylaws of the Registrant (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated April
24, 1997).
(c) Articles Supplementary of the Company relating to the 9.00%
Series A Cumulative Redeemable Preferred Stock of the
Company (incorporated by reference to the Company's Form 8-A
filed June 15, 1998).
(d) Articles Supplementary of the Company relating to the Series
B Cumulative Convertible Preferred Stock (incorporated by
reference to the Company's Form 8-K filed on October 1,
1998).
(e) Articles Supplementary of the Company relating to the Series
C Preferred Stock (incorporated by reference to the
Company's Form 8-A filed December 9, 1998).
(f) Certificate of Correction to Articles Supplementary with
respect to Series B Cumulative Convertible Preferred Stock
(incorporated by reference to the Registrant's Form 10-K for
the year ended December 31, 1998).
(10) Material Contracts:
(a) EastGroup Properties 1994 Management Incentive Plan, As
Amended (incorporated by reference to Appendix A of the
Registrant's Proxy Statement for its Annual Meeting of
Shareholders held on June 2, 1999).*
(b) EastGroup Properties 1991 Directors Stock Option Plan, As
Amended (incorporated by reference to Exhibit B of the
Registrant's Proxy Statement dated April 26, 1994).*
(c) EastGroup Properties 2000 Directors Stock Option Plan
(incorporated by reference to Appendix A to the Registrant's
Proxy Statement for its Annual Meeting of Shareholders held
on June 1, 2000).*
(d) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Leland R.
Speed, David H. Hoster II and N. Keith McKey) (incorporated
by reference to the Registrant's 1996 Annual Report on Form
10-K).*
(e) Form of Amendment to Change in Control Agreement that
Registrant has entered into with certain executive officers
(filed herewith).*
(f) Investment Agreement dated as of September 25, 1998 between
the Company and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to the Company's Form 8-K filed
October 1, 1998).
(g) Operating Agreement dated September 25, 1998 between the
Company and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to the Company's Form 8-K filed
October 1, 1998).
(h) Agreement and Waiver between the Company and Five Arrows
Realty Securities II, L.L.C. (incorporated by reference to
the Company's Form 8-K filed October 1, 1998).
(i) Credit Agreement dated January 8, 2002 among EastGroup
Properties, L.P.; EastGroup Properties, Inc.; PNC Bank,
National Association, as Administrative Agent; Commerzbank
Aktiengesellschaft, New York Branch, as Syndication Agent;
SouthTrust Bank, as Co-Syndication Agent; U.S. Bank,
National Association, as Documentation Agent; Wells Fargo
Bank, National Association, as Co-Documentation Agent;
AmSouth Bank, as Managing Agent; PNC Capital Market, Inc.,
as Lead Arranger and Lead Agent; and the Lenders
(incorporated by reference to the Registrant's Form 10-K for
the year ended December 31, 2001).
(21) Subsidiaries of Registrant (filed herewith).
(23) Consent of KPMG LLP (filed herewith).
(24) Powers of attorney (filed herewith).
(28) Agreement of Registrant to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of the Registrant's
1986 Annual Report on Form 10-K).
(99) Rights Agreement dated as of December 3, 1998 between the Company
and EquiServe Trust Company, N.A., which replaced Harris Trust
and Savings Bank, as Rights Agent (incorporated by reference to
the Company's Form 8-A filed December 9, 1998).
(b) None
*Indicates management or compensatory agreement.
INDEPENDENT AUDITORS' REPORT
THE DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:
We have audited the accompanying consolidated balance sheets of EastGroup
Properties, Inc. and subsidiaries, as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2002. 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 conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EastGroup
Properties, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its methods of accounting for the
impairment or disposal of long-lived assets and stock-based compensation.
Jackson, Mississippi KPMG LLP
March 7, 2003
EASTGROUP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
December 31, 2002 December 31, 2001
----------------------------------------------------
ASSETS
Real estate properties $ 750,578 696,829
Development 39,718 37,504
----------------------------------------------------
790,296 734,333
Less accumulated depreciation (118,977) (92,060)
----------------------------------------------------
671,319 642,273
----------------------------------------------------
Real estate held for sale 1,375 1,907
Less accumulated depreciation - (141)
----------------------------------------------------
1,375 1,766
----------------------------------------------------
Mortgage loans 13 5,515
Investment in real estate investment trusts 1,663 6,452
Cash 1,383 1,767
Other assets 26,588 26,009
----------------------------------------------------
TOTAL ASSETS $ 702,341 683,782
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 248,343 205,014
Notes payable to banks 73,957 86,058
Accounts payable & accrued expenses 15,571 12,801
Other liabilities 6,226 7,460
----------------------------------------------------
344,097 311,333
----------------------------------------------------
----------------------------------------------------
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; 16,104,356 shares issued at
December 31, 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 243,562 240,197
Undistributed earnings 7,109 23,753
Accumulated other comprehensive income 58 1,193
Unearned compensation (2,781) (2,970)
----------------------------------------------------
356,485 370,710
----------------------------------------------------
TOTAL LIABILITES AND STOCKHOLDERS' EQUITY $ 702,341 683,782
====================================================
See accompanying notes to consolidated financial statements.
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
----------------------------------------------------
2002 2001 2000
----------------------------------------------------
REVENUES
Income from real estate operations $ 103,048 100,377 93,707
Interest:
Mortgage loans 264 481 839
Other interest 45 560 136
Gain on securities 1,836 2,967 2,154
Other 617 727 1,068
----------------------------------------------------
105,810 105,112 97,904
----------------------------------------------------
EXPENSES
Operating expenses from real estate operations 29,924 25,535 22,213
Interest 17,387 17,823 18,570
Depreciation and amortization 30,333 26,977 23,384
General and administrative 4,179 4,573 5,607
Minority interest in joint ventures 375 350 377
----------------------------------------------------
82,198 75,258 70,151
----------------------------------------------------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS 23,612 29,854 27,753
Gain on sale of real estate investments 93 4,311 8,771
----------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 23,705 34,165 36,524
----------------------------------------------------
DISCONTINUTED OPERATIONS
Income (loss) from real estate operations (13) 17 (12)
Loss on sale of real estate investments (66) - -
----------------------------------------------------
INCOME (LOSS) FROM DISCONTINUTED OPERATIONS (79) 17 (12)
----------------------------------------------------
NET INCOME 23,626 34,182 36,512
Preferred dividends-Series A 3,880 3,880 3,880
Preferred dividends-Series B 6,128 6,128 6,128
----------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 13,618 24,174 26,504
====================================================
BASIC PER COMMON SHARE DATA
Income from continuing operations $ 0.86 1.54 1.70
Income (loss) from discontinued operations 0.00 0.00 0.00
----------------------------------------------------
Net income available to common stockholders $ 0.86 1.54 1.70
====================================================
Weighted average shares outstanding 15,868 15,697 15,623
====================================================
DILUTED PER COMMON SHARE DATA
Income from continuing operations $ 0.84 1.51 1.68
Income (loss) from discontinued operations 0.00 0.00 0.00
----------------------------------------------------
Net income available to common stockholders $ 0.84 1.51 1.68
====================================================
Weighted average shares outstanding 16,237 16,046 15,798
====================================================
See accompanying notes to consolidated financial statements.
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(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, 1999 $108,535 2 233,453 - 26,654 668 369,312
Comprehensive income
Net income - - - - 36,512 - 36,512
Net unrealized change
in investment securities - - - - - 2,436 2,436
-----------
Total comprehensive income 38,948
-----------
Cash dividends declared-common,
$1.58 per share - - - - (24,973) - (24,973)
Preferred stock dividends declared - - - - (10,008) - (10,008)
Issuance of 9,638 shares of common stock,
incentive compensation - - 174 - - - 174
Issuance of 14,175 shares of common stock,
dividend reinvestment plan - - 312 - - - 312
Issuance of 122,250 shares of common stock,
exercise options - - 1,957 - - - 1,957
Issuance of 181,250 shares of common stock,
incentive restricted stock - - 3,716 (3,716) - - -
Amortization of unearned compensation,
incentive restricted stock - - - 372 - - 372
Repurchase limited partnership units - - (55) - - - (55)
Purchase of 23,500 common shares - - (457) - - - (457)
Purchase of 10,000 common shares,
stock repurchase plan - - (190) - - - (190)
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 108,535 2 238,910 (3,344) 28,185 3,104 375,392
Comprehensive income
Net income - - - - 34,182 - 34,182
Net unrealized change in
investment securities - - - - - (1,911) (1,911)
-----------
Total comprehensive income 32,271
-----------
Cash dividends declared-common,
$1.80 per share - - - - (28,606) - (28,606)
Preferred stock dividends declared - - - - (10,008) - (10,008)
Issuance of 8,204 shares of common stock,
incentive compensation - - 179 - - - 179
Issuance of 15,788 shares of common stock,
dividend reinvestment plan - - 357 - - - 357
Issuance of 40,750 shares of common stock,
exercise options - - 753 - - - 753
Issuance of 15,000 shares of common stock,
incentive restricted stock - - 346 (346) - - -
Forfeiture of 17,000 shares of common stock,
incentive restricted stock - - (348) 281 - - (67)
Amortization of unearned compensation,
incentive restricted stock - - - 439 - - 439
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 108,535 2 240,197 (2,970) 23,753 1,193 370,710
Comprehensive income
Net income - - - - 23,626 - 23,626
Net unrealized change in
investment securities - - - - - (838) (838)
Net unrealized change in cash flow hedge - - - - - (297) (297)
-----------
Total comprehensive income 22,491
-----------
Cash dividends declared-common,
$1.88 per share - - - - (30,262) - (30,262)
Preferred stock dividends declared - - - - (10,008) - (10,008)
Issuance of common stock options - - 6 - - - 6
Issuance of 6,822 shares of common stock,
incentive compensation - - 153 - - - 153
Issuance of 14,305 shares of common stock,
dividend reinvestment plan - - 364 - - - 364
Issuance of 161,319 shares of common stock,
exercise options - - 2,582 - - - 2,582
Issuance of 19,100 shares of common stock,
incentive restricted stock - - 449 (449) - - -
Forfeiture of 9,250 shares of common stock,
incentive restricted stock - - (189) 149 - - (40)
Amortization of unearned compensation,
incentive restricted stock - - - 489 - - 489
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 $108,535 2 243,562 (2,781) 7,109 58 356,485
====================================================================================
See accompanying notes to consolidated financial statements.
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended December 31,
----------------------------------------------------
2002 2001 2000
----------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 23,626 34,182 36,512
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization from continuing operations 30,333 26,977 23,384
Depreciation and amortization from discontinued operations 36 64 65
Gain on sale of real estate investments (93) (4,311) (8,771)
Loss on sale of real estate investments from discontinued operations 66 - -
Gain on real estate investment trust (REIT) shares (1,836) (2,967) (2,154)
Amortization of unearned compensation 449 372 372
Stock option compensation 6 - -
Minority interest depreciation and amortization (170) (161) (158)
Changes in operating assets and liabilities:
Accrued income and other assets 971 (5,004) (568)
Accounts payable, accrued expenses and prepaid rent 398 1,596 4,334
----------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 53,786 50,748 53,016
----------------------------------------------------
INVESTING ACTIVITIES:
Payments on mortgage loans receivable 5,502 4,740 4,124
Advances on mortgage loans receivable - (1,064) (4,609)
Proceeds from sale of real estate investments 2,917 11,316 17,170
Real estate improvements (9,686) (6,622) (10,611)
Real estate development (35,600) (30,735) (40,661)
Purchases of real estate (13,667) (13,804) (13,628)
Purchases of REIT shares (1,308) (5,258) (4,964)
Proceeds from sale and liquidation of REIT shares 7,095 7,931 17,334
Changes in other assets and other liabilities (2,667) (1,675) (7,302)
----------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (47,414) (35,171) (43,147)
----------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 195,586 144,776 182,519
Principal payments on bank borrowings (207,687) (160,718) (175,519)
Proceeds from mortgage notes payable 59,200 45,000 37,800
Principal payments on mortgage notes payable (15,871) (8,317) (17,756)
Debt issuance costs (1,842) (486) (316)
Distributions paid to stockholders (39,881) (38,279) (34,710)
Purchases of limited partnership units - - (705)
Purchases of shares of common stock - - (647)
Proceeds from exercise of stock options 2,582 753 1,957
Proceeds from dividend reinvestment plan 364 357 312
Other 793 243 (2,600)
----------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (6,756) (16,671) (9,665)
----------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (384) (1,094) 204
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,767 2,861 2,657
----------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,383 1,767 2,861
====================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 16,571 17,222 17,919
Debt assumed by buyer of real estate - 378 -
Issuance of incentive restricted stock 449 346 3,716
Forfeiture of incentive restricted stock (189) (348) -
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup
Properties, Inc. (the Company or EastGroup), its wholly-owned subsidiaries and
its investment in any joint ventures in which the Company has a controlling
interest. At December 31, 2002 and 2001, the Company had a controlling interest
in one joint venture: the 80% owned University Business Center. At December 31,
2000, the Company had controlling interests in two joint ventures: the 80% owned
University Business Center and the 80% owned IBG Wiegman Road Associates. The
Company records 100% of the joint ventures' assets, liabilities, revenues and
expenses with minority interests provided for in accordance with the joint
venture agreements. 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 distribute 90% of its ordinary taxable income to its stockholders.
The Company has the option of (i) paying out capital gains to the stockholders
with no tax to the Company, or (ii) treating the capital gains as having been
distributed to the stockholders, paying the tax on the gain deemed distributed
and allocating the tax paid as a credit to the stockholders. The Company
distributed all of its 2002, 2001 and 2000 taxable income to its stockholders.
Accordingly, no provision for income taxes was necessary. The following table
summarizes the federal income tax treatment for all distributions paid by the
Company during the years 2002, 2001 and 2000.
Federal Income Tax Treatment of Share Distributions
Years Ended December 31,
----------------------------------------
2002 2001 2000
----------------------------------------
Common Share Distributions:
Ordinary Income $1.8348 1.7044 1.5800
Long-term 20% capital gain .0452 .0956 -
-----------------------------------------
Total Common Distributions $1.8800 1.8000 1.5800
=========================================
Series A Preferred Share Distributions:
Ordinary Income $2.1960 2.1308 2.2500
Long-term 20% capital gain .0540 .1192 -
-----------------------------------------
Total Preferred A Distributions $2.2500 2.2500 2.2500
=========================================
Series B Preferred Share Distributions:
Ordinary Income $2.1355 2.0721 2.1880
Long-term 20% capital gain .0525 .1159 -
-----------------------------------------
Total Preferred B Distributions $2.1880 2.1880 2.1880
=========================================
The Company's income differs for tax and financial reporting purposes
principally because of (1) the timing of the deduction for the provision for
possible losses and losses on investments, (2) the timing of the recognition of
gains or losses from the sale of investments, (3) different depreciation methods
and lives, and (4) real estate properties having a different basis for tax and
financial reporting purposes.
(c) Income Recognition
Minimum rental income from real estate operations is recognized on a
straight-line basis.
Interest income on mortgage loans is recognized based on the accrual method
unless a significant uncertainty of collection exists. If a significant
uncertainty exists, interest income is recognized as collected.
The Company recognizes gains on sales of real estate in accordance with the
principles set forth in Statement of Financial Accounting Standards (SFAS) No.
66, "Accounting for Sales of Real Estate." Upon closing of real estate
transactions, the provisions of SFAS No. 66 require consideration for the
transfer of rights of ownership to the purchaser, receipt of an adequate cash
down payment from the purchaser and adequate continuing investment by the
purchaser. If the requirements for recognizing gains have not been met, the sale
and related costs are recorded, but the gain is deferred and recognized by the
installment method as collections are received.
(d) Real Estate Properties
Real estate properties are carried at cost less accumulated depreciation. Cost
includes the carrying amount of the Company's investment plus any additional
consideration paid, liabilities assumed, costs of securing title (not to exceed
fair market value in the aggregate) and improvements made subsequent to
acquisition. Depreciation of buildings and other improvements, including
personal property, is computed using the straight-line method over estimated
useful lives of generally 40 years for buildings and 5 to 15 years for
improvements and personal property. Building improvements are capitalized, while
maintenance and repair expenses are charged to expense as incurred. Significant
renovations and improvements that extend the useful life of or improve the
assets are capitalized. Geographically, the Company's investments are
concentrated in the major Sunbelt market areas of the southeastern and
southwestern United States, primarily in the states of California, Florida,
Texas and Arizona.
(e) Capitalized Development Costs
During the industrial development stage, costs associated with development
(i.e., land, construction costs, interest expense during construction, property
taxes, etc.) are aggregated into the total capitalization of the property. As
the property becomes occupied, interest, depreciation and property taxes for the
percentage occupied only is expensed as incurred. When the property becomes 80%
occupied or one year after completion of the shell construction, whichever comes
first, the property is no longer considered a development property and becomes
an industrial property. When the property becomes classified as an industrial
property, the entire property is depreciated accordingly, and all interest and
property taxes are expensed.
(f) Asset Impairment
Prior to January 1, 2002, the Company applied SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Both of these pronouncements
require 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.
(g) Real Estate Held for Sale
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." The Company applies SFAS No. 144, which 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. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell and are not depreciated while they are
held for sale.
At December 31, 2002, the Company had 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 improved property and two parcels of land held for
sale.
During 2002, three properties were transferred to "held for sale;" however,
these properties were subsequently transferred back to the portfolio as a result
of a change in plans by the Company due to market conditions. Also, in 2001,
three properties that were held for sale at December 31, 2000 were subsequently
transferred back to the portfolio. As noted above, depreciation is not recorded
for those properties while held for sale. As such, upon the reclassification of
these properties, depreciation was adjusted to reflect the carrying amount of
these properties as if they had never been classified as "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 (loss) from discontinued operations for 2002, 2001 and 2000. No interest
expense was allocated to the properties that are held for sale.
(h) Investment in Real Estate Investment Trusts
Marketable equity securities owned by the Company are categorized as
available-for-sale securities, as defined by SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Unrealized holding gains and
losses are reflected as a net amount in a separate component of stockholders'
equity until realized. Since the Company did not exercise significant influence
over any of its investments in REITs, these investments were accounted for under
the cost method. The costs of these investments were adjusted to fair market
value with an equity adjustment to account for unrealized gains/losses as
indicated above.
(i) Derivative Instruments and Hedging Activities
The Company applies SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires that all derivatives be recognized as
either assets or liabilities in the balance sheet and measured at fair value.
Changes in fair value are to be reported either in earnings or outside of
earnings depending on the intended use of the derivative and the resulting
designation. Entities applying hedge accounting are required to establish at the
inception of the hedge the method used to assess the effectiveness of the
hedging derivative and the measurement approach for determining the ineffective
aspect of the hedge. The Company entered into an interest rate swap agreement in
November 2002, which is summarized in Note 6.
(j) Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
(k) Amortization
Debt origination costs are deferred and amortized using the straight-line method
over the term of the loan. Leasing costs are deferred and amortized using the
straight-line method over the term of the lease.
(l) Business Combinations and 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 December 31, 2002 and 2001, the Company had
unamortized goodwill of $990,000 resulting from the acquisition of Ensign
Properties in 1998. Amortization expense for goodwill was $61,000 for each of
the years ended December 31, 2001 and 2000. Upon adoption of SFAS No. 142 on
January 1, 2002, amortization of goodwill ceased. The Company periodically
reviews, at least annually, 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 December 31, 2002 and
2001.
(m) Earnings Per Share
The Company applies SFAS No. 128, "Earnings Per Share," which requires companies
to present basic earnings per share (EPS) and diluted EPS.
Basic EPS represents the amount of earnings for the year 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 year 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
limited partnership (LP) distributions 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, LP units, 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 assumes
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.
(n) Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure, an
amendment of SFAS No. 123, 'Accounting for Stock-Based Compensation' " to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements. Certain
of the disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated financial
statements.
The Company has a management incentive plan, which was adopted in 1994 and
is described more fully in Note 9, under which employees and directors of the
Company are granted stock option awards. Prior to 2002, the Company applied SFAS
No. 123, "Accounting for Stock-Based Compensation." This standard defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. Companies are given the choice of either recognizing related
compensation cost by adopting the fair value method, or continuing to use the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees," while supplementally
disclosing the pro forma effect on net income and net income per share using the
new measurement criteria. The Company elected to continue to follow the
requirements of APB No. 25 during all years prior to 2002 and, accordingly,
there was no effect on the results of operations.
Effective January 1, 2002, the Company adopted the fair value recognition
provisions of SFAS No. 148, prospectively to all employee awards granted,
modified, or settled after January 1, 2002. The following table illustrates the
effect on net income and earnings per share if the fair value based method had
been applied to all outstanding and unvested awards in each period.
-------------------------------------------
2002 2001 2000
-------------------------------------------
(In thousands, except per share data)
Net income available to common stockholders as reported $13,618 24,174 26,504
Add: Stock-based employee compensation expense
included in reported net income 6 - -
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards (20) (67) (90)
-------------------------------------------
Net income available to common stockholders pro forma $13,604 24,107 26,414
===========================================
Earnings per share:
Basic - as reported $ .86 1.54 1.70
Basic - pro forma .86 1.54 1.69
Diluted - as reported .84 1.51 1.68
Diluted - pro forma .84 1.50 1.67
In accordance with SFAS No. 123, the following additional disclosures are
required related to options granted after January 1, 1995. The fair value of
each option grant is estimated on the grant date using the Black-Scholes option
pricing model with the following weighted-average assumptions used for 2002,
2001 and 2000, respectively: risk-free interest rates of 3.60%, 4.31%, and
5.04%; dividend yields of 11.97%, 11.42% and 12.13%; volatility factors of
19.0%, 20.0%, and 19.3%. Expected option lives for employees were five years for
all years presented. For directors, expected option lives were eight years for
2002 and five years for 2001 and 2000. The weighted average fair value of the
options granted for 2002, 2001 and 2000 was $.35, $.68 and $.55, respectively.
The Company accounts for restricted stock in accordance with APB No. 25,
and accordingly, compensation expense is recognized over the expected vesting
period using the straight-line method.
(o) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
(p) New Accounting Pronouncements
In June 2001, the FASB issued 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 will adopt this
Statement on January 1, 2003 and believes that the effect of adoption will have
little or no impact on its overall financial position or results of operation.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the gain
or loss as extraordinary, as the use of such extinguishments have become part of
the risk management strategy of many companies. SFAS No. 145 also amends SFAS
No. 13 to require sale-leaseback accounting for certain lease modifications that
have economic effects similar to sale-leaseback transactions. The provisions of
the Statement related to the rescission of SFAS No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to SFAS No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The Company adopted the provisions of this Statement relating to
SFAS No. 13 after May 15, 2002. The adoption did not have a material effect on
the Company's consolidated financial statements. The Company will adopt the
other provisions of the Statement effective January 1, 2003 and believes that
the effect of adoption will have little or 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." 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 will 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 operation.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial statements of
interim and annual periods ending after December 15, 2002. The Company adopted
the disclosure provision of this Statement in 2002 and will adopt the
measurement provision on January 1, 2003. The application of this Interpretation
relating to disclosure did not impact the Company's consolidated financial
statements in 2002 and adoption of the measurement provision of this Statement
in 2003 is not expected to have a material effect on the Company's consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, and interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created or
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created after February 1, 2003, the Interpretation
applies to that enterprise no later than the beginning of the first interim or
annual reporting period beginning after June 15, 2003. The Interpretation
requires certain disclosures in financial statements issued after January 31,
2003 if it is reasonably possible that the Company will consolidate or disclose
information about variable interest entities when the Interpretation becomes
effective. The application of this Interpretation is not expected to have a
material effect on the Company's consolidated financial statements.
(q) Reclassifications
Certain reclassifications have been made in the 2001 and 2000 financial
statements to conform to the 2002 presentation.
(2) REAL ESTATE OWNED
At December 31, 2002, the Company was offering 11.3 acres of land in Houston,
Texas and Tampa, Florida for sale with a carrying amount of $1,375,000. No loss
is anticipated on the sale of these parcels of land. These properties are
investment properties, not operating properties, thus a comparative for results
of operations is not presented. The results of operations (after depreciation)
for real estate held for sale at December 31, 2001, amounted to $73,000 and
$62,000, respectively, for the years ended December 31, 2001 and 2000.
The Company is currently developing the properties detailed below. Costs
incurred include capitalization of interest costs during the period of
construction. The interest costs capitalized on real estate properties for 2002
were $2,061,000 compared to $2,329,000 for 2001 and $2,060,000 for 2000.
Total cash outflows for development for the year ended December 31, 2002
were $35,600,000. In addition to the costs incurred for the year ended December
31, 2002 as detailed in the table below, development costs included $3,435,000
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
------------------------------------
For the Year Cumulative as Estimated
Size Ended 12/31/02 of 12/31/02 Total Costs
---------------------------------------------------------------------
(Unaudited) (Unaudited)
---------------------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
World Houston XIV
Houston, Texas 77,000 $ 741 3,074 3,600
Americas 10 Business Center I
El Paso, Texas 97,000 1,000 3,287 3,300
Metro Airport Commerce Center I
Jackson, Mississippi 32,000 1,401 1,727 1,900
---------------------------------------------------------------------
Total Lease-up 206,000 3,142 8,088 8,800
---------------------------------------------------------------------
Under Construction:
World Houston XIX
Houston, Texas 66,000 1,981 1,981 3,100
World Houston XX
Houston, Texas 62,000 1,958 1,958 2,800
Chamberlain Expansion
Tucson, Arizona 34,000 1,345 1,345 1,600
Executive Airport Commerce Center I & III
Fort Lauderdale, Florida 85,000 3,305 4,751 6,000
Expressway Commerce Center
Tampa, Florida 108,000 3,621 3,621 4,300
------------------------------------ ----------------- --------------
Total Under Construction 355,000 12,210 13,656 17,800
---------------------------------------------------------------------
Prospective Development
(Principally Land):
Phoenix, Arizona 103,000 122 1,376 6,000
Tucson, Arizona 70,000 - 326 3,500
Tampa, Florida 140,000 160 1,828 5,600
Orlando, Florida 249,000 476 3,300 14,900
Fort Lauderdale, Florida 55,000 675 1,603 3,300
El Paso, Texas 251,000 301 2,224 7,600
Houston, Texas 915,000 561 6,786 46,200
Jackson, Mississippi 32,000 228 531 1,700
---------------------------------------------------------------------
Total Prospective Development 1,815,000 2,523 17,974 88,800
---------------------------------------------------------------------
2,376,000 $ 17,875 39,718 115,400
=====================================================================
Completed Development and Transferred
To Real Estate Properties During the
Year Ended December 31, 2002:
Sunport Center III
Orlando, Florida 66,000 $ 538 3,763
Tower Automotive
Madison, Mississippi 210,000 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 662,000 $ 14,290 30,529
=====================================================
A summary of gains (losses) on real estate investments for the years ended
December 31, 2002, 2001 and 2000 follows:
Gains (Losses) on Real Estate Investments
Net Recognized
Basis Sales Price Gain (Loss)
-----------------------------------------------
(In thousands)
2002
Real estate properties:
Carpenter Duplex, Dallas, TX $ 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)
Lakeside Distribution Center, Oklahoma City, OK 1,165 2,079 914
Other - (23) (23)
-----------------------------------------------
$ 7,005 11,316 4,311
===============================================
2000
Real estate properties:
LeTourneau Center of Commerce, Tampa, FL $ 1,592 1,593 1
8150 Leesburg Pike-deferred gain, Tyson's Corner, VA (94) - 94
La Vista Crossing Apartments, Atlanta, GA 6,472 14,528 8,056
Estelle land, Jefferson County, LA 429 1,049 620
-----------------------------------------------
$ 8,399 17,170 8,771
===============================================
The following schedule indicates approximate future minimum rental receipts
under noncancelable leases for real estate properties by year as of December 31,
2002:
Future Minimum Rental Receipts Under Noncancelable Leases
Years Ended December 31,
--------------------------- (in thousands)
2003 $ 74,911
2004 64,727
2005 52,601
2006 42,290
2007 32,052
Thereafter 59,145
-------------
Total minimum receipts $ 325,726
=============
Ground Leases
As of December 31, 2002, the Company owned two properties in Florida, two
properties in Texas, and one property in Mississippi that are subject to ground
leases. These leases have terms of 40 to 75 years, expiration dates of August
2031 to November 2076, and renewal options of 15 to 35 years. Total lease
expenditures for the years ended December 31, 2002, 2001 and 2000 were $610,000,
$594,000 and $567,000, respectively. Payments on four of the properties 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. The following
schedule indicates approximate future minimum lease payments for these
properties by year as of December 31, 2002:
Future Minimum Ground Lease Payments
Years Ended December 31,
-------------------------- (in thousands)
2003 $ 677
2004 677
2005 677
2006 677
2007 677
Thereafter 18,762
-------------
Total minimum payments $ 22,147
=============
(3) MORTGAGE LOANS RECEIVABLE
A summary of mortgage loans follows:
December 31,
----------------------------
2002 2001
----------------------------
(In thousands)
First mortgage loans:
Industrial (1 loan in 2001) $ - 5,500
Other (1 loan) 13 15
----------------------------
$ 13 5,515
============================
The weighted average interest rate on the Company's mortgage loans for both
periods was approximately 9%.
(4) INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS
The investment in REITs consists of the following:
December 31, 2002 December 31, 2001
----------------------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
----------------------------------------------------
(In thousands)
Pacific Gulf Properties $ - 122 - 487
Other 1,308 1,541 5,259 5,965
----------------------------------------------------
$ 1,308 1,663 5,259 6,452
====================================================
During 2000, the Company received initial liquidating distributions from
Pacific Gulf Properties (PAG). The liquidating distributions received reduced
the basis in these investments to zero with the remainder recorded as gain on
securities in 2000. During 2002 and 2001, the Company received additional
liquidating distributions from PAG, which were recorded as realized gains when
received. The Company recorded $365,000, $2,569,000 and $807,000 as gains from
PAG for 2002, 2001 and 2000, respectively. Final distributions, if any, will
also be recorded as realized gains when received.
Gains on the sale of other REIT securities were $1,471,000 in 2002 and
$398,000 in 2001. In 2000, the Company recorded gains of $1,347,000 from
liquidating distributions received from Franklin Select Realty Trust.
(5) OTHER ASSETS
A summary of the Company's other assets follows:
December 31,
----------------------------
2002 2001
----------------------------
(In thousands)
Leasing costs, net of accumulated amortization $ 10,537 9,313
Receivables, net of allowance for doubtful accounts 7,967 7,641
Section 1031 tax deferred exchange cash escrows - 2,074
Prepaid expenses and other assets 8,084 6,981
----------------------------
$ 26,588 26,009
============================
(6) NOTES PAYABLE TO BANKS
The Company had a three-year $150,000,000 unsecured revolving credit facility
with a group of ten banks that matured in January 2002 and was refinanced as
specified below. The interest rate was based on the Eurodollar rate plus 1.25%
and was 3.1875% on $74,000,000 at December 31, 2001. An unused facility fee of
..25% was also assessed on this loan.
The Company had a one-year $10,000,000 unsecured revolving credit facility
with Chase Bank of Texas that matured in January 2002 and was refinanced as
specified below. The interest rate was based on Chase Bank of Texas, National
Association's prime rate less .75% and was 4.00% on $558,000 at December 31,
2001.
The Company had a $15,000,000 unsecured discretionary line of credit with
Chase Bank of Texas. The interest rate for the line was negotiated at the time
of any advances. At December 31, 2001, the rate for this loan was 3.00% on
$11,500,000, payable on demand.
The foregoing three credit facilities matured and were repaid in January
2002. In January 2002, the Company obtained a new 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. EastGroup's current
interest rate for this facility is the Eurodollar rate plus 1.25%. At December
31, 2002, the interest rate was 2.67% on $70,000,000. The interest rate on each
tranche is currently reset on a monthly basis and was last reset on February 26,
2003 at 2.59% on $71,000,000. An unused facility fee is also assessed on this
loan. This fee varies according to debt-to-total asset value ratios and is
currently .20%.
In January 2002, the Company also secured a one-year $12,500,000 unsecured
revolving credit facility with PNC Bank, N.A. that matured in January 2003. The
loan was amended in January 2003 to reflect a new maturity date of January 2004.
The interest rate on this facility is based on the LIBOR rate and varies
according to debt-to-total asset value ratios. At December 31, 2002, the
interest rate was 2.555% on $3,957,000. EastGroup's current interest rate for
this facility is the LIBOR rate plus 1.175%.
Loan commitment fees were $43,000 in 2002 and $37,500 per year in both 2001
and 2000.
Average bank borrowings were $83,039,000 in 2002 compared to $82,898,000 in
2001 with average interest rates of 3.11% in 2002 compared to 5.72% in 2001.
Amortization of bank loan costs was $407,000 in 2002 and $264,000 in 2001.
Average interest rates including amortization of loan costs were 3.60% for 2002
and 6.05% for 2001.
The Company's bank credit facilities have certain restrictive covenants,
and the Company was in compliance with all of its debt covenants at December 31,
2002 and 2001.
The Company entered into an interest rate swap agreement in November 2002,
which is summarized in the table below . The Company designated the swap as a
cash flow hedge of the variable interest rate on the Company's $11,000,000 Tower
Automotive Center recourse mortgage. Under the swap agreement, the Company pays
a fixed rate of interest and receives a floating rate of interest over the term
of the agreement without the exchange of the underlying notional amount. Changes
in the fair value of the swap are recognized in accumulated other comprehensive
income. The Company does not hold or issue this type of derivative contract for
trading or speculative purposes. At December 31, 2002 and 2001, the Company did
not have any other derivative instruments.
Fair Market
Type of Notional Maturity Fixed Value at
Hedge Amount Date Reference Rate Rate 12/31/02
- ------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
Swap $11,000 12/31/10 1 month LIBOR 4.03% ($297)
(7) MORTGAGE NOTES PAYABLE
A summary of mortgage notes payable follows:
Carrying Amount
Monthly Of Securing Balance at December 31,
P&I Maturity Real Estate at -----------------------
Property Rate Payment Date December 31, 2002 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
University Business Center (120 & 130 Cremona) 7.450% $ 74,235 Repaid 04/02 $ - - 8,105
Estrella Distribution Center 9.250% 23,979 Repaid 11/02 - - 2,404
Deerwood Distribution Center 8.375% 16,339 07/01/03 3,189 1,373 1,451
Eastlake Distribution Center (recourse) 8.500% 57,115 07/05/04 8,833 3,444 3,819
56th Street Commerce Park 8.875% 21,816 08/01/04 4,256 1,801 1,898
Chamberlain Distribution Center 8.750% 21,376 01/01/05 3,526 2,270 2,326
Exchange Distribution Center 8.375% 21,498 08/01/05 2,944 2,010 2,096
Westport Commerce Center 8.000% 28,021 08/01/05 5,072 2,672 2,790
LakePointe Business Park 8.125% 81,675 10/01/05 9,117 10,164 10,312
Jetport Commerce Park 8.125% 33,769 10/01/05 4,991 3,223 3,360
Huntwood Associates 7.990% 100,250 08/22/06 16,076 11,674 11,933
Wiegman Associates 7.990% 46,269 08/22/06 8,604 5,388 5,507
World Houston I & II 7.770% 33,019 04/15/07 5,291 4,325 4,383
E. University I & II, Broadway VI,
55th Avenue and Ethan Allen 8.060% 96,974 06/26/07 22,861 11,463 11,693
Lamar II Distribution Center 6.900% 16,925 12/01/08 6,045 1,964 2,030
Dominguez, Kingsview, Walnut, Washington,
Industry and Shaw 6.800% 358,770 03/01/09 58,296 42,277 43,655
Auburn Facility 8.875% 64,885 09/01/09 14,293 3,706 4,307
Tower Automotive Center (recourse) 5.300%(1) Semiannual 01/15/11 10,922 11,000 -
Interstate Warehouse I & II, Venture,
Stemmons, Glenmont I & II,
West Loop I & II, Butterfield,
Founders and Rojas 7.250% 325,263 05/01/11 47,602 43,929 44,619
America Plaza, Central Green and
World Houston III-IX 7.920% 191,519 05/10/11 28,924 25,814 26,057
University Business Center (120 & 130 Cremona) 6.430% 81,856 05/15/12 10,191 7,930 -
University Business Center (125 & 175 Cremona) 7.980% 88,607 06/01/12 13,985 11,099 11,255
Airport Distribution, Southpointe, Broadway I,
III & IV, Southpark, 51st Avenue, Chestnut,
Main Street, Interchange Business Park,
North Stemmons I, and World Houston XII & XIII 6.860% 279,149 09/01/12 47,736 39,848 -
Kyrene Distribution Center 9.000% 11,246 07/01/14 2,644 969 1,014
-------------------------------------------
$ 335,398 248,343 205,014
===========================================
(1) The Tower Automotive mortgage has a variable interest rate based on the
one-month LIBOR. EastGroup entered into an interest rate swap agreement to fix
the rate at 4.03% for the 8-year term. Interest and related fees result in an
annual effective interest rate of 5.3%.
Principal payments due during the next five years as of December 31, 2002 are as
follows:
(In thousands)
2003 $ 7,876
2004 11,234
2005 25,153
2006 21,715
2007 20,390
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of the Company's accounts payable and accrued expenses follows:
December 31,
-----------------------------
2002 2001
-----------------------------
(In thousands)
Property taxes payable $ 5,814 5,170
Dividends payable 3,346 2,957
Other payables and accrued expenses 6,411 4,674
-----------------------------
$ 15,571 12,801
=============================
(9) STOCKHOLDERS' EQUITY
Management Incentive Plan-Stock Options/Incentive Awards
In 1994, the Company adopted the 1994 Management Incentive Plan, and the Plan
was amended in 1999. As amended, the Plan includes stock options (50% vested
after one year and the other 50% after two years), an annual incentive award and
restricted stock awards.
Stock option activity for the 1994 plan is as follows:
Years Ended December 31,
-------------------------------------------------------------------------------
2002 2001 2000
-------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------
Outstanding at beginning of year 696,423 $17.921 714,923 $17.801 861,423 $17.680
Granted 11,350 24.651 24,500 22.591 50,750 20.766
Exercised (138,069) 15.966 (40,750) 18.487 (108,000) 16.578
Expired (4,000) 22.078 (2,250) 20.542 (89,250) 19.809
------------ ------------- ------------
Outstanding at end of year 565,704 18.503 696,423 17.921 714,923 17.801
============ ============= ============
Exercisable at end of year 543,104 $18.287 647,923 $17.634 575,798 $17.156
Available for grant at end of year 164,360 - 187,095 - 222,378 -
Following is a summary of the status of the officers and employees options at
December 31, 2002:
Outstanding Options Exercisable Options
--------------------------------------------------- --------------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Exercise Price Range Number Contractual Life Exercise Price Number Exercise Price
---------------------------------------------------------------------------- --------------------------------
$12.670-19.000 245,404 3.021 years $14.804 245,404 $14.804
19.313-26.350 320,300 6.151 years 21.338 297,700 21.157
The annual incentive award program began in 1995 and the Compensation
Committee determines awards based on actual funds from operations per share
compared to goals set for the year. The 2002, 2001 and 2000 awards were expensed
in these years and approximated $133,000, $382,000 and $448,000, respectively.
The awards for each year were payable 60% in cash and 40% in stock of the
Company.
On December 5, 2000, under the 1994 Management Incentive Plan, the
Compensation Committee granted a total of 181,250 shares of restricted stock to
all employees, effective January 1, 2000. The purpose of the plan is to act as a
retention device since it allows participants to benefit from dividends as well
as potential stock appreciation. The stock price on the grant date was $20.50.
The restricted period for the stock is 10 years and vesting is 20% at the end of
the sixth year through the tenth year or, if certain performance goals are
achieved, vesting could reach up to 40% at the end of the fourth year with 10%
at the end of the fifth year through the tenth year. The Company recorded
$3,716,000 as additional paid-in capital when the shares were granted, offset by
unearned compensation of the same amount. The unearned compensation was deducted
from stockholders' equity and is being amortized 10% each year over the
restricted period. In 2001, 15,000 additional shares were granted and 17,000
shares were forfeited. In 2002, 19,100 additional shares were granted and 9,250
shares were forfeited. Compensation expense for the restricted stock was
$449,000 for 2002 and $372,000 each year for both 2001 and 2000. During the
restricted period, the Company accrues dividends and holds the certificates for
the shares; however, the employee can vote the shares. Share certificates and
dividends will be delivered to the employee as they vest.
Directors Stock Option Plan
The Company has a Directors Stock Option Plan, as amended in 1994, under which
an aggregate of 150,000 shares of common stock were reserved for issuance upon
exercise of any options granted. An additional 150,000 shares were reserved in
2000. Under the Directors plan, each Non-Employee Director is granted an initial
7,500 options and 2,250 additional options on the date of any Annual Meeting at
which the Director is reelected to the Board.
Stock option activity for the Director plan is as follows:
Years Ended December 31,
-----------------------------------------------------------------------------
2002 2001 2000
-----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------------
Outstanding at beginning of year 109,500 $17.744 96,000 $17.231 96,750 $15.780
Granted 21,000 24.331 13,500 21.400 13,500 21.750
Exercised (23,250) 16.273 - - (14,250) 11.695
Expired - - - - - -
----------- ----------- -----------
Outstanding at end of year 107,250 19.354 109,500 17.744 96,000 17.231
=========== =========== ===========
Exercisable at end of year 107,250 $19.354 109,500 $17.744 96,000 $17.231
Available for grant at end of year 108,750 - 129,750 - 143,250 -
Following is a summary of the status of the director's options at December 31,
2002:
Outstanding Options Exercisable Options
--------------------------------------------------- --------------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Exercise Price Range Number Contractual Life Exercise Price Number Exercise Price
---------------------------------------------------------------------------- --------------------------------
$11.250-14.580 26,250 1.863 years $12.207 26,250 $12.207
19.375-24.890 81,000 7.255 years 21.669 81,000 21.669
Series A 9.00% Cumulative Redeemable Preferred Stock
In June 1998, EastGroup sold 1,725,000 shares of Series A 9.00% Cumulative
Redeemable Preferred Stock at $25.00 per share in a public offering. The
preferred stock, which may be redeemed by the Company at $25.00 per share, plus
accrued and unpaid dividends, on or after June 19, 2003, has no stated maturity,
sinking fund or mandatory redemption and is not convertible into any other
securities of the Company.
The Company declared dividends of $2.25 per share of Series A Preferred for
each year in 2002, 2001 and 2000.
Series B 8.75% Cumulative Convertible Preferred Stock
In September 1998, EastGroup entered into an agreement with Five Arrows Realty
Securities II, L.L.C. (Five Arrows), an investment fund managed by Rothschild
Realty, Inc., a member of the Rothschild Group, providing for the sale of
2,800,000 shares of Series B 8.75% Cumulative Convertible Preferred Stock at a
net price of $24.50 per share. In December 1998, EastGroup sold $10,000,000 of
the Series B Preferred Stock to Five Arrows. The Company sold the remaining
$60,000,000 to Five Arrows in September 1999. In connection with this offering,
EastGroup has entered into certain related agreements with Five Arrows,
providing, among other things, for certain registration rights with respect to
the Series B Preferred Stock.
The Series B Preferred Stock, which is convertible into common stock at a
conversion price of $22.00 per share (3,182,000 common shares), is entitled to
quarterly dividends in arrears equal to the greater of $0.547 per share or the
dividend on the number of shares of common stock into which a share of Series B
Preferred Stock is convertible.
The Series B Preferred Stock is not redeemable by the Company at its option
prior to the fifth anniversary of the original date of issuance of the Series B
Preferred Stock. On and after January 1, 2004, the Series B Preferred Stock is
redeemable by the Company at its option. Beginning in 2004, the Series B
Preferred Stock is redeemable at 104% of par, plus accrued and unpaid dividends,
declining to 103%, 102% and 101% of par in each subsequent year. Beginning
January 1, 2008 and thereafter, the Series B Preferred Stock is redeemable at
par. Holders of shares of the Series B Preferred Stock have 30 days following
the Company's written notice of redemption to exercise their conversion rights.
The Series B Preferred Stock may be redeemed in part so long as the initial
redemption is for not less than 50% of the outstanding shares.
The Company declared dividends of $2.188 per share of Series B Preferred
for each year in 2002, 2001 and 2000.
Common Stock Repurchase Plan
EastGroup's Board of Directors has authorized the repurchase of up to 1,500,000
shares of its outstanding common stock. The shares may be purchased from time to
time in the open market or in privately negotiated transactions. The Company did
not repurchase any shares during 2002 or 2001. Since September 30, 1998, a total
of 827,700 shares have been repurchased for $14,170,000 (an average of $17.12
per share) with 672,300 shares still available for repurchase.
Shareholder Rights Plan
In December 1998, EastGroup adopted a Shareholder Rights Plan (the Plan)
designed to enhance the ability of all of the Company's stockholders to realize
the long-term value of their investment. Under the Plan, Rights were distributed
as a dividend on each share of Common Stock (one Right for each share of Common
Stock) held as of the close of business on December 28, 1998. A Right was also
delivered with all shares of Common Stock issued after December 28, 1998 and
1.1364 Rights were delivered with all shares of EastGroup's Series B Cumulative
Convertible Preferred Stock issued after December 28, 1998. The Rights will
expire at the close of business on December 3, 2008.
Each whole Right will entitle the holder to buy one one-thousandth (1/1000)
of a newly issued share of EastGroup's Series C Preferred Stock at an exercise
price of $70.00. The Rights attach to and trade with the shares of the Company's
Common Stock and Series B Preferred Stock. No separate Rights Certificates will
be issued unless an event triggering the Rights occurs. The Rights will detach
from the Common Stock and Series B Preferred Stock and will initially become
exercisable for shares of Series C Preferred Stock if a person or group acquires
beneficial ownership of, or commences a tender or exchange offer which would
result in such person or group beneficially owning 15% or more of EastGroup's
Common Stock, except through a tender or exchange offer for all shares which the
Board determines to be fair and otherwise in the best interests of EastGroup and
its shareholders. The Rights will also detach from the Common Stock and Series B
Preferred Stock if the Board determines that a person holding at least 9.8% of
EastGroup's Common Stock intends to cause EastGroup to take certain actions
adverse to it and its shareholders or that such holder's ownership would have a
material adverse effect on EastGroup.
If any person becomes the beneficial owner of 15% or more of EastGroup's
Common Stock (except for Five Arrows either as a result of the ownership of the
Series B Preferred Stock or in the event of conversion of the Series B Preferred
Stock into common) and the Board of Directors does not within 10 days thereafter
redeem the Rights, or a 9.8% holder is determined by the Board to be an adverse
person, each Right not owned by such person or related parties will then enable
its holder to purchase, at the Right's then-current exercise price, EastGroup
Common Stock (or, in certain circumstances as determined by the Board, a
combination of cash, property, common stock or other securities) having a value
of twice the Right's exercise price.
Under certain circumstances, if EastGroup is acquired in a merger or
similar transaction with another person, or sells more than 50% of its assets,
earning power or cash flow to another entity, each Right that has not previously
been exercised will entitle its holder to purchase, at the Right's then-current
exercise price, common stock of such other entity having a value of twice the
Right's exercise price.
EastGroup will generally be entitled to redeem the Rights at $0.0001 per
Right at any time until the 10th day following public announcement that a 15%
position has been acquired, or until the Board has determined a 9.8% holder to
be an adverse person. Prior to such time, the Board of Directors may extend the
redemption period.
Dividend Reinvestment Plan
The Company has a dividend reinvestment plan that allows stockholders to
reinvest cash distributions in new shares of the Company.
Earnings Per Share
The Company applies SFAS No. 128, "Earnings Per Share," which requires companies
to present basic EPS and diluted EPS. Reconciliation of the numerators and
denominators in the basic and diluted EPS computations is as follows:
Reconciliation of Numerators and Denominators
-------------------------------------
2002 2001 2000
-------------------------------------
(In thousands)
Basic EPS Computation
Numerator-net income available to common stockholders $ 13,618 24,174 26,504
Denominator-weighted average shares outstanding 15,868 15,697 15,623
Diluted EPS Computation
Numerator-net income available to common stockholders
plus limited partnership distributions ($18 in 2000) $ 13,618 24,174 26,522
Denominator:
Weighted average shares outstanding 15,868 15,697 15,623
Common stock options 182 164 147
Nonvested restricted stock 187 185 13
Limited partnership units - - 15
--------------------------------------
Total Shares 16,237 16,046 15,798
======================================
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.
Comprehensive Income
Comprehensive income comprises net income plus all other changes in equity from
nonowner sources. The components of comprehensive income for 2002, 2001 and 2000
are presented in the Company's Consolidated Statements of Changes in
Stockholders' Equity and are summarized below.
2002 2001 2000
-----------------------------------------
(In thousands)
Accumulated Other Comprehensive Income:
Balance at beginning of year $ 1,193 3,104 668
Unrealized holding gains on REIT securities during the period 998 1,056 4,590
Less reclassification adjustment for gains on REIT
securities included in net income (1,836) (2,967) (2,154)
Change in fair value of interest rate swap (297) - -
-----------------------------------------
Balance at end of year $ 58 1,193 3,104
=========================================
(10) QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
2002 Quarter Ended 2001 Quarter Ended
--------------------------------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
(In thousands, except per share data)
Revenues $ 25,589 26,623 26,352 27,246 24,723 26,314 27,652 26,423
Expenses (19,575) (19,689) (21,112) (21,822) (17,919) (18,606) (19,040) (19,693)
--------------------------------------------------------------------------
Income before gain (loss) on
sale of real estate investments 6,014 6,934 5,240 5,424 6,804 7,708 8,612 6,730
Gain (loss) on sale of real estate investments 93 - - - - 3,455 (35) 891
--------------------------------------------------------------------------
Income from continuing operations 6,107 6,934 5,240 5,424 6,804 11,163 8,577 7,621
Income (loss) from discontinued operations 3 (6) (67) (9) 9 3 (2) 7
--------------------------------------------------------------------------
Net income 6,110 6,928 5,173 5,415 6,813 11,166 8,575 7,628
Preferred dividends (2,502) (2,502) (2,502) (2,502) (2,502) (2,502) (2,502) (2,502)
--------------------------------------------------------------------------
Net income available to
common stockholders $ 3,608 4,426 2,671 2,913 4,311 8,664 6,073 5,126
==========================================================================
BASIC PER SHARE DATA
Net income available to
common stockholders $ 0.23 0.28 0.17 0.18 0.28 0.55 0.39 0.33
==========================================================================
Weighted average shares outstanding 15,772 15,892 15,901 15,906 15,673 15,692 15,702 15,719
==========================================================================
DILUTED PER SHARE DATA
Net income available to
common stockholders $ 0.22 0.27 0.16 0.18 0.27 0.53 0.38 0.32
==========================================================================
Weighted average shares outstanding 16,166 16,254 16,264 16,264 16,029 19,208 16,045 16,084
==========================================================================
The above quarterly earnings per share calculations are based on the weighted
average number of common shares outstanding during each quarter for basic
earnings per share and the weighted average number of outstanding common shares
and common share equivalents during each quarter for diluted earnings per share.
The annual earnings per share calculations in the Consolidated Statements of
Income are based on the weighted average number of common shares outstanding
during each year for basic earnings per share and the weighted average number of
outstanding common shares and common share equivalents during each year for
diluted earnings per share.
The Series B Preferred Stock, which is convertible into common stock, was
included in the computation of diluted earnings per share for the quarter ended
June 30, 2001 due to its dilutive effect in such quarter.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 2002 and 2001. SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
--------------------------------------------------
2002 2001
--------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------
(In thousands)
Financial Assets
Cash and cash equivalents $ 1,383 1,383 1,767 1,767
Investment in real estate
investment trusts 1,663 1,663 6,452 6,452
Mortgage loans receivable 13 13 5,515 5,517
Financial Liabilities
Mortgage notes payable 248,343 263,971 205,014 210,514
Notes payable to banks 73,957 73,957 86,058 86,058
Interest rate swap 297 297 - -
Carrying amounts shown in the table are included in the balance sheet under the
indicated captions.
The following methods and assumptions were used to estimate fair value of
each class of financial instruments:
Cash and Cash Equivalents: The carrying amounts approximate fair value
because of the short maturity of those instruments.
Investment in Real Estate Investment Trusts: The carrying amount is the
fair value of this equity investment based on quoted market prices.
Mortgage Loans Receivable: The fair value of performing mortgage loans is
either estimated using discounted cash flows at current interest rates for loans
with similar terms and maturities or based on the estimated value of the
underlying collateral adjusted for the borrower's payment history and financial
strength. The Company has no nonperforming loans for the periods presented.
Mortgage Notes Payable: The fair value of the Company's mortgage notes
payable is estimated based on the quoted market prices for similar issues or 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.
Notes Payable to Banks: The carrying amounts approximate fair value because
of the variable rates of interest on the debt.
Interest Rate Swap: The fair value of the interest rate swap is the amount
at which it could be settled, based on estimates obtained from the counterparty.
The interest rate swap is shown under Other Liabilities on the balance sheet.
(12) 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 provide for the Company's cash needs,
including its ability to make distributions. The table below presents on a
comparative basis for the three fiscal years reported PNOI by operating segment,
followed by reconciliations of PNOI to FFO and FFO to net income.
--------------------------------------
2002 2001 2000
--------------------------------------
(In thousands)
PROPERTY REVENUES:
Industrial $101,472 98,864 89,977
Other 1,576 1,513 3,730
--------------------------------------
103,048 100,377 93,707
--------------------------------------
PROPERTY EXPENSES:
Industrial (29,424) (25,081) (20,909)
Other (500) (454) (1,304)
--------------------------------------
(29,924) (25,535) (22,213)
--------------------------------------
PROPERTY NET OPERATING INCOME:
Industrial 72,048 73,783 69,068
Other 1,076 1,059 2,426
--------------------------------------
TOTOAL PROPERTY NET OPERATING INCOME 73,124 74,842 71,494
--------------------------------------
Income from real estate operations - discontinued (before
depreciation and amortization) 23 81 53
Gain on securities 1,836 2,967 2,154
Gain on sale of nondepreciable real estate investments - - 620
Other income 926 1,768 2,043
Interest expense (17,387) (17,823) (18,570)
General and administrative expense (4,179) (4,573) (5,607)
Minority interest in earnings (545) (511) (535)
Dividends on Series A preferred shares (3,880) (3,880) (3,880)
Limited partnership unit distributions - - 18
--------------------------------------
FUNDS FROM OPERATIONS 49,918 52,871 47,790
Depreciation and amortization from continuing operations (30,333) (26,977) (23,384)
Depreciation and amortization from discontinued operations (36) (64) (65)
Share of joint venture depreciation and amortization 170 161 158
Gain on sale of depreciable real estate investments 27 4,311 8,151
Limited partnership unit distributions - - (18)
Dividends on Series B convertible preferred shares (6,128) (6,128) (6,128)
--------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS 13,618 24,174 26,504
Dividends on preferred shares 10,008 10,008 10,008
--------------------------------------
NET INCOME $ 23,626 34,182 36,512
======================================
ASSETS:
Industrial $782,807 727,264 668,053
Other 7,489 7,069 -
--------------------------------------
790,296 734,333 668,053
Less accumulated depreciation (118,977) (92,060) (66,492)
--------------------------------------
671,319 642,273 601,561
--------------------------------------
Real estate held for sale 1,375 1,907 26,602
Less accumulated depreciation - (141) (3,628)
--------------------------------------
1,375 1,766 22,974
--------------------------------------
Mortgage loans 13 5,515 9,191
Investment in real estate investment trusts 1,663 6,452 8,068
Cash 1,383 1,767 2,861
Other assets 26,588 26,009 21,550
--------------------------------------
TOTAL ASSETS $702,341 683,782 666,205
======================================
REAL ESTATE INVESTMENT CAPITAL EXPENDITURES
Acquisitions $ 13,667 13,804 13,628
Developments 35,600 30,735 40,661
(13) RELATED PARTY TRANSACTIONS
EastGroup and Parkway Properties, Inc. currently share the services and expenses
of the Company's Chairman of the Board and his administrative assistant.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
THE DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:
Under date of March 7, 2003 we reported on the consolidated balance sheets
of EastGroup Properties, Inc., and subsidiaries, as of December 31, 2002 and
2001, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2002, which are included in the 2002 Annual Report on
Form 10-K. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related consolidated financial
statement schedules as listed in Item 15 (a)(2) of Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Jackson, Mississippi KPMG LLP
March 7, 2003
SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002 (In thousands)
Costs Capitalized
Initial Cost to Subsequent to Gross Amount at which
the Company Acquisition Carried at Close of Period
------------------- ------------------ --------------------------
Accumulated
Buildings and Capitalized Buildings and Depreciation Year Year
Description Encumbrances Land Improvements Costs Other Land Improvements Total Dec. 31, 2002 Acquired Constructed
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate
Properties (c):
Industrial:
FLORIDA
Jacksonville
Deerwood $ 1,373 1,147 1,799 1,183 - 1,147 2,982 4,129 940 1989 1978
Phillips - 1,375 2,961 2,261 - 1,375 5,222 6,597 1,598 1994 1984/95
Lake Pointe 10,164 3,442 6,450 2,700 - 3,442 9,150 12,592 3,475 1993 1986/87
Ellis - 540 7,513 451 - 540 7,964 8,504 1,307 1997 1977
Westside - 1,170 12,400 2,067 - 1,170 14,467 15,637 2,407 1997 1984
Beach - 476 1,899 289 - 476 2,188 2,664 100 2000 2000
Orlando
Chancellor - 291 1,711 55 - 291 1,766 2,057 464 1996/97 1996/97
Exchange I 2,010 603 2,414 913 - 603 3,327 3,930 986 1994 1975
Exchange II - 300 945 18 - 300 963 1,263 28 2002 1976
Exchange III - 320 997 4 - 320 1,001 1,321 29 2002 1980
Sunbelt I - 1,034 5,056 736 - 1,034 5,792 6,826 2,199 1989 1987
Sunbelt II - 249 114 2,014 - 249 2,128 2,377 419 1997/98 1997/98
Sunbelt III - 191 575 198 - 191 773 964 365 1989 1974
John Young I - 497 2,444 290 - 497 2,734 3,231 490 1997/98 1997/98
John Young II - 512 3,613 (267) - 512 3,346 3,858 748 1998 1999
Altamonte - 1,518 2,661 470 - 1,518 3,131 4,649 741 1999 1980/82
Sunport I - 555 1,977 474 - 555 2,451 3,006 230 1999 1999
Sunport II - 597 3,271 452 - 597 3,723 4,320 489 1999 2001
Sunport III - 642 3,121 - - 642 3,121 3,763 54 1999 2002
Tampa
56th Street 1,801 843 3,567 1,630 - 843 5,197 6,040 1,784 1993 1981/86/97
Jetport 3,223 1,034 4,416 1,709 - 1,034 6,125 7,159 2,168 1993/94/95 1974/79/85
Jetport 517 & 518 - 541 2,175 213 - 541 2,388 2,929 520 1999 1981/82
Westport 2,672 980 3,800 1,706 - 980 5,506 6,486 1,414 1994 1983/87
Benjamin I & II - 843 3,963 54 40 883 4,017 4,900 898 1997 1996
Benjamin III - 407 1,503 106 - 407 1,609 2,016 561 1999 1988
Palm River I - 540 2,131 299 - 540 2,430 2,970 475 1997 1990
Palm River II - 650 2,494 201 - 650 2,695 3,345 933 1997/98 1997/98
Palm River North
I & III - 1,005 4,688 1,126 - 1,005 5,814 6,819 316 1998 2000
Palm River North II - 724 4,418 62 (90) 634 4,480 5,114 461 1997/98 1999
Walden I - 337 3,318 53 - 337 3,371 3,708 240 1997/98 2001
Walden II - 465 3,738 305 - 465 4,043 4,508 766 1998 1998
Premier - 1,110 6,126 137 (1) 1,109 6,263 7,372 859 1998 1998
Airport Commerce - 1,257 4,012 483 - 1,257 4,495 5,752 681 1998 1998
Westlake I - 613 4,223 110 - 613 4,333 4,946 926 1998 1999
Westlake II - 720 2,775 505 - 720 3,280 4,000 289 1998 1998
Fort Lauderdale/
Pompano Beach area
Linpro - 613 2,243 661 3 616 2,904 3,520 714 1996 1986
Cypress Creek - - 2,465 643 - - 3,108 3,108 643 1997 1986
Lockhart - - 3,489 924 - - 4,413 4,413 878 1997 1986
Interstate - 485 2,652 314 - 485 2,966 3,451 769 1998 1988
Sample 95 I - 1,565 6,262 404 - 1,565 6,666 8,231 1,640 1996 1990
Sample 95 II - 815 3,242 (122) - 815 3,120 3,935 593 1998 1999
Blue Heron - 975 3,626 787 - 975 4,413 5,388 695 1999 1986
CALIFORNIA
San Francisco area
Wiegman 5,388 2,197 8,788 757 111 2,308 9,545 11,853 1,698 1996 1986/87
Huntwood 11,674 3,842 15,368 213 - 3,842 15,581 19,423 3,347 1996 1988
San Clemente - 893 2,004 - - 893 2,004 2,897 268 1997 1978
Yosemite - 259 7,058 115 - 259 7,173 7,432 1,072 1999 1974/87
Los Angeles area
Kingsview (e) 2,026 643 2,573 - - 643 2,573 3,216 481 1996 1980
Dominguez (e) 6,910 2,006 8,025 935 - 2,006 8,960 10,966 1,765 1996 1977
Main Street (i) 4,288 1,606 4,103 138 - 1,606 4,241 5,847 550 1999 1999
Walnut (e) 5,260 2,885 5,274 189 - 2,885 5,463 8,348 1,175 1996 1966/90
Washington (e) 4,265 1,636 4,900 232 - 1,636 5,132 6,768 902 1997 1996/97
Ethan Allen (f) 5,692 2,544 10,175 95 - 2,544 10,270 12,814 1,565 1998 1980
Industry (e) 14,587 10,230 12,373 547 - 10,230 12,920 23,150 2,302 1998 1959
Chestnut (i) 3,791 1,674 3,465 30 - 1,674 3,495 5,169 395 1998 1999
Santa Barbara
University Bus.
Center 19,029 5,517 22,067 1,421 3 5,520 23,488 29,008 4,832 1996 1987/88
Fresno
Shaw (e) 9,229 2,465 11,627 554 - 2,465 12,181 14,646 2,173 1998 1978/81/87
San Diego
Eastlake 3,444 3,046 6,888 197 - 3,046 7,085 10,131 1,298 1997 1989
TEXAS
Dallas
Interstate
I & II (h) 5,806 1,757 4,941 1,351 - 1,757 6,292 8,049 2,770 1988 1978
Interstate III - 520 2,008 53 - 520 2,061 2,581 235 2000 1979
Venture (h) 4,473 1,452 3,762 987 - 1,452 4,749 6,201 2,140 1988 1979
Stemmons
Circle (h) 1,820 363 2,014 147 - 363 2,161 2,524 690 1998 1977
Ambassador Row - 1,156 4,625 1,251 - 1,156 5,876 7,032 1,337 1998 1958/65
Viscount Row - 395 1,578 521 - 395 2,099 2,494 396 1998 1965
North
Stemmons I (i) 2,882 619 3,264 47 - 619 3,311 3,930 280 2001 1979
North Stemmons II - 150 583 33 - 150 616 766 7 2002 1971
Houston
Northwest Point - 1,243 5,640 1,439 - 1,243 7,079 8,322 1,631 1994 1984/85
Lockwood - 749 5,444 298 - 749 5,742 6,491 895 1997 1968/69
West Loop I (h) 1,891 465 1,872 285 - 465 2,157 2,622 280 2000 1980
West Loop II (h) 2,480 440 2,511 488 - 440 2,999 3,439 581 1997 1980
World Houston
I & II 4,325 660 5,893 243 - 660 6,136 6,796 1,505 1998 1996
World Houston
III, IV & V (g) 5,203 1,025 6,413 138 - 1,025 6,551 7,576 1,625 1998 1998
World Houston
VI (g) 2,356 425 2,423 38 - 425 2,461 2,886 561 1998 1998
World Houston
VII & VIII (g) 5,987 680 4,584 3,035 - 680 7,619 8,299 1,797 1998 1998
World Houston
IX (g) 5,202 800 4,355 1,422 - 800 5,777 6,577 583 1998 1998
World Houston X - 933 4,779 7 - 933 4,786 5,719 370 2001 1999
World Houston XI - 638 3,764 515 - 638 4,279 4,917 289 1999 1999
World Houston
XII (i) 2,155 340 2,419 180 - 340 2,599 2,939 72 2000 2002
World Houston
XIII (i) 2,103 282 2,569 16 - 282 2,585 2,867 195 2000 2002
America Plaza (g) 3,729 662 4,660 - - 662 4,660 5,322 954 1998 1996
Central Green (g) 3,337 566 4,031 13 - 566 4,044 4,610 826 1999 1998
Glenmont I (h) 3,001 496 3,735 (70) - 496 3,665 4,161 439 1998 1999
Glenmont II (h) 2,817 440 2,426 1,040 - 440 3,466 3,906 435 1998 2000
Techway S.W. I - 729 3,765 133 - 729 3,898 4,627 49 2000 2001
Freeport - 458 5,712 - - 458 5,712 6,170 98 2002 2001
El Paso
Butterfield
Trail (h) 15,626 - 19,842 1,821 - - 21,663 21,663 4,484 1997 1995
Founders (h) 1,998 - 2,302 468 - - 2,770 2,770 231 2000 1987
Rojas (h) 4,017 900 3,659 1,010 - 900 4,669 5,569 1,252 1999 1986
ARIZONA
Phoenix area
Broadway I (i) 3,362 837 3,349 398 - 837 3,747 4,584 1,005 1996 1971
Broadway II - 455 482 125 - 455 607 1,062 121 1999 1971
Broadway III (i) 1,866 775 1,742 27 - 775 1,769 2,544 329 2000 1983
Broadway IV (i) 1,604 380 1,652 155 - 380 1,807 2,187 191 2000 1986
Broadway V - 353 1,090 4 - 353 1,094 1,447 40 2002 1980
Broadway VI (f) 1,092 599 1,855 5 - 599 1,860 2,459 68 2002 1979
Kyrene I 969 850 2,044 172 - 850 2,216 3,066 422 1999 1981
Kyrene II - 640 2,409 262 - 640 2,671 3,311 204 1999 2001
Metro Bus. - 1,927 7,708 807 - 1,927 8,515 10,442 1,846 1996 1977/79
35th Avenue - 418 2,381 90 - 418 2,471 2,889 387 1997 1967
Estrella - 628 4,694 100 - 628 4,794 5,422 747 1998 1988
51st Avenue (i) 1,778 300 2,029 95 - 300 2,124 2,424 431 1998 1987
E. University
I and II (f) 2,533 1,120 4,482 101 - 1,120 4,583 5,703 728 1998 1989/87
55th Avenue (f) 2,146 912 3,717 198 5 917 3,915 4,832 586 1998 1987
Interstate
Commons I - 798 3,632 184 - 798 3,816 4,614 629 1999 1988
Interstate
Commons II - 320 2,448 79 - 320 2,527 2,847 117 1999 2000
Southpark (i) 3,099 918 2,738 570 - 918 3,308 4,226 116 2001 2000
Tucson
Chamberlain 2,270 506 3,564 13 - 506 3,577 4,083 557 1997 1994
Airport Dist. I (i) 4,241 1,103 4,672 8 - 1,103 4,680 5,783 664 1998 1995
Southpointe (i) 4,207 - 3,982 1,754 - - 5,736 5,736 1,025 1999 1989
TENNESSEE
Memphis
Senator Street I - 540 2,187 327 - 540 2,514 3,054 433 1997 1982
Senator Street II - 435 1,742 142 - 435 1,884 2,319 267 1998 1968
Air Park I - 250 1,916 136 - 250 2,052 2,302 322 1998 1975
Air Park II - 66 263 65 - 66 328 394 55 1998 1975
Lamar I & II 1,964 1,332 5,398 258 - 1,332 5,656 6,988 943 1998 1978/80
Delp I, II, & III - 1,049 4,197 391 - 1,049 4,588 5,637 828 1998 1977
Penney - 486 1,946 1 - 486 1,947 2,433 294 1998 1972
Getwell - 151 603 109 - 151 712 863 129 1998 1972
Southeast Crossing - 1,802 10,267 896 - 1,802 11,163 12,965 2,067 1999 1987/97
LOUISIANA
New Orleans
Elmwood - 2,861 6,337 1,468 - 2,861 7,805 10,666 2,309 1997 1979
Riverbend - 2,592 17,623 909 - 2,592 18,532 21,124 4,369 1997 1984
COLORADO
Denver
Rampart I - 1,023 3,861 511 - 1,023 4,372 5,395 1,755 1988 1987
Rampart II - 230 2,977 647 - 230 3,624 3,854 923 1996/97 1996/97
Rampart III - 1,098 3,884 1,169 - 1,098 5,053 6,151 624 1997/98 1999
OKLAHOMA
Oklahoma City
Northpointe - 777 3,113 2 - 777 3,115 3,892 370 1998 1996/97
Tulsa
Braniff - 1,066 4,641 1,011 - 1,066 5,652 6,718 1,420 1996 1974
MISSISSIPPI
Interchange (i) 4,472 343 5,007 748 - 343 5,755 6,098 1,345 1997 1981
Tower Automotive 11,000 - 9,958 1,043 - - 11,001 11,001 79 2001 2002
MICHIGAN
Auburn 3,706 3,230 12,922 130 - 3,230 13,052 16,282 1,989 1998 1986
---------------------------------------------------------------------------------------
$ 248,343 125,937 553,020 64,060 71 126,008 617,080 743,088 117,856
---------------------------------------------------------------------------------------
Industrial Development:
FLORIDA
OCP - Lot 60 - 310 - 80 - 310 80 390 - 2000 n/a
Expressway A - 380 - 1,154 - 380 1,154 1,534 - 2002 n/a
Expressway B - 535 - 1,552 - 535 1,552 2,087 - 2002 n/a
Palm River South - 1,310 - 518 - 1,310 518 1,828 - 2000 n/a
Executive Airport I - 695 - 2,015 - 695 2,015 2,710 - 2001 n/a
Executive Airport II - 781 - 822 - 781 822 1,603 - 2001 n/a
Executive Airport III - 515 - 1,526 - 515 1,526 2,041 - 2001 n/a
Sunport IV - 642 - 383 - 642 383 1,025 - 1999 n/a
Sunport V - 772 - 246 - 772 246 1,018 - 2001 n/a
Sunport VI - 650 - 217 - 650 217 867 - 2001 n/a
TEXAS
Techway S.W. II - 550 - 420 - 550 420 970 - 2000 n/a
Techway S.W. III - 535 - 315 - 535 315 850 - 1999 n/a
Techway S.W. IV - 597 - 351 - 597 351 948 - 1999 n/a
World Houston Land - 2,126 - 573 - 2,332 367 2,699 - 2000 n/a
World Houston Land - 1,147 - 173 - 1,181 139 1,320 - 2000 n/a
Americas Ten I - 526 - 2,761 - 526 2,761 3,287 9 2001 n/a
Americas Ten II - 708 - 447 - 708 447 1,155 - 2001 n/a
Americas Ten III - 656 - 412 - 656 412 1,068 - 2001 n/a
World Houston XIV - 477 - 2,597 - 477 2,597 3,074 86 2000 n/a
World Houston XIX - 211 - 1,770 - 373 1,608 1,981 - 2000 n/a
World Houston XX - 197 - 1,761 - 346 1,612 1,958 - 2000 n/a
ARIZONA
Airport Dist. II - 299 - 27 - 300 26 326 - 2000 n/a
Interstate Commons III - 237 - 115 - 242 110 352 - 2000 n/a
SanTan 10 - 820 - 204 - 846 178 1,024 - 2001 n/a
Chamberlain Expansion - - - 1,345 - - 1,345 1,345 - 1997 n/a
MISSISSIPPI
Metro Airport I - 303 - 1,424 - 303 1,424 1,727 - 2001 n/a
Metro Airport II - 280 - 251 - 280 251 531 - 2001 n/a
---------------------------------------------------------------------------------------
$ - 16,259 - 23,459 - 16,842 22,876 39,718 95
---------------------------------------------------------------------------------------
Office Buildings:
CALIFORNIA
Los Angeles
Corporate Center - 1,363 5,453 674 - 1,363 6,127 7,490 1,026 1996 1986
---------------------------------------------------------------------------------------
$ - 1,363 5,453 674 - 1,363 6,127 7,490 1,026
---------------------------------------------------------------------------------------
Real Estate Properties Held For Sale:
TEXAS
World Houston Land (d) - 765 - 8 - 773 - 773 - 2000 n/a
FLORIDA
Sabal Park Land (d) - 351 - 251 - 602 - 602 - 1998 n/a
----------------------------------------------------------------------------------------
$ - 1,116 - 259 - 1,375 - 1,375 -
----------------------------------------------------------------------------------------
Total real estate
owned (a)(b) $ 248,343 144,675 558,473 88,452 71 145,588 646,083 791,671 118,977
=========================================================================================
(a) Changes in Real Estate Properties follow:
Years Ended December 31,
-----------------------------
2002 2001 2000
---------------------------------
(In thousands)
Balance at beginning of year $736,240 694,655 641,048
Improvements 45,286 37,357 51,272
Purchase of real estate properties 13,363 13,804 13,628
Carrying amount of investments sold (3,218) (9,576) (11,293)
---------------------------------
Balance at end of year (1) $791,671 736,240 694,655
=================================
(1) Includes 20% minority interest in University Business Center totaling
$5,802,000 at December 31, 2002 and $5,752,000 at December 31, 2001, and 20%
minority interest in University Business Center and IBG Wiegman Road Associates
totaling $7,998,000 at December 31, 2000.
Changes in the accumulated depreciation on real estate properties follow:
Years Ended December 31,
-----------------------------
2002 2001 2000
---------------------------------
(In thousands)
Balance at beginning of year $ 92,201 70,120 51,579
Depreciation expense 27,050 24,439 21,354
Accumulated depreciation on assets sold (371) (2,352) (2,813)
Other 97 (6) -
---------------------------------
Balance at end of year $118,977 92,201 70,120
=================================
(b) The aggregate cost for federal income tax purposes is approximately
$608,850,000. The federal income tax return for the year ended December 31, 2002
has not been filed and, accordingly, the income tax basis of real estate
properties as of December 31, 2002 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 5 to 15 years).
(d) The investment is not producing income to the Company as of December 31,
2002 and 2001.
(e) EastGroup has a $42,277,000 nonrecourse first mortgage loan with
Metropolitan Life secured by Dominguez, Kingsview, Walnut, Washington, Industry
and Shaw.
(f) EastGroup has an $11,463,000 nonrecourse first mortgage loan with Prudential
Life secured by East University I & II, Broadway VI, 55th Avenue and Ethan
Allen.
(g) EastGroup has a $25,814,000 nonrecourse first mortgage loan with New York
Life secured by America Plaza, Central Green and World Houston III-IX.
(h) EastGroup has a $43,929,000 nonrecourse first mortgage loan with
Metropolitan Life secured by Interstate Warehouse I & II, Venture, Stemmons,
Glenmont I & II, West Loop I & II, Butterfield, Founders and Rojas.
(i) EastGroup has a $39,848,000 nonrecourse first mortgage loan with
Metropolitan Life secured by Airport Distribution, Southpointe, Broadway I, III
& IV, Southpark, 51st Avenue, Chestnut, Main Street, Interchange Business Park,
North Stemmons I and World Houston XII & XIII.
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2002
(In thousands)
Number of Interest Final Periodic
Loans Rate Maturity Date Payment Terms
------------ -------------- --------------- -----------------
First mortgage loans: 1 8.5% 01/08 P&I monthly
============
Principal
Face Amount Carrying Amount of Loans
of Mortgages Amount of Subject to Delinquent
Dec. 31, 2002 Mortgages Principal or Interest(c)
---------------- ---------------- -------------------------
First mortgage loans: $ 13 $ 13 (a)(b) -
================ ================ =======================
Notes:
(a) Changes in mortgage loans follow:
Years Ended December 31,
------------------------------
2002 2001 2000
-------------------------------------
(In thousands)
Balance at beginning of year $ 5,515 9,191 8,706
Advances on mortgage notes receivable - 1,064 4,609
Payments on mortgage notes receivable (5,502) (4,740) (4,124)
-------------------------------------
Balance at end of year $ 13 5,515 9,191
=====================================
(b) The aggregate cost for federal income tax purposes is approximately $13,000.
(c) Interest or principal in arrears for three months or less is disregarded in
computing principal amount of loans subject to delinquent principal or interest.
SIGNATURES
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.
EASTGROUP PROPERTIES, INC.
By: /s/ David H. Hoster II
David H. Hoster II, Chief Executive
Officer, President & Director
March 20, 2003
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.
* *
D. Pike Aloian, Director Alexander G. Anagnos, Director
March 19, 2003 March 19, 2003
* *
H. C. Bailey, Jr., Director Hayden C. Eaves III, Director
March 19, 2003 March 19, 2003
* *
Fredric H. Gould, Director David M. Osnos, Director
March 19, 2003 March 19, 2003
* * /s/ N. Keith McKey
Leland R. Speed, Chairman of the Board By: N. Keith McKey, Attorney-in-fact
(Principal Executive Officer) March 20, 2003
March 19, 2003
/s/ Bruce Corkern
Bruce Corkern, Sr. Vice President & Controller
(Principal Accounting Officer)
March 20, 2003
/s/ N. Keith McKey
N. Keith McKey, Executive Vice-President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)
March 20, 2003
CERTIFICATIONS
I, David H. Hoster II, certify that:
1. I have reviewed this annual report on Form 10-K of EastGroup Properties,
Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual
report (the "Evaluation Date"); and
(c) presented in this annual 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
annual 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: March 20, 2003 /s/ DAVID H. HOSTER II
David H. Hoster II
Chief Executive Officer
I, N. Keith McKey, certify that:
1. I have reviewed this annual report on Form 10-K of EastGroup Properties,
Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual
report (the "Evaluation Date"); and
(c) presented in this annual 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
annual 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: March 20, 2003 /s/ N. KEITH MCKEY
N. Keith McKey
Chief Financial Officer
EXHIBIT INDEX
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
(3) Form 10-K Exhibits:
(a) Articles of Incorporation (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated April
24, 1997).
(b) Bylaws of the Registrant (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated April
24, 1997).
(c) Articles Supplementary of the Company relating to the 9.00%
Series A Cumulative Redeemable Preferred Stock of the
Company (incorporated by reference to the Company's Form 8-A
filed June 15, 1998).
(d) Articles Supplementary of the Company relating to the Series
B Cumulative Convertible Preferred Stock (incorporated by
reference to the Company's Form 8-K filed on October 1,
1998).
(e) Articles Supplementary of the Company relating to the Series
C Preferred Stock (incorporated by reference to the
Company's Form 8-A filed December 9, 1998).
(f) Certificate of Correction to Articles Supplementary with
respect to Series B Cumulative Convertible Preferred Stock
(incorporated by reference to the Registrant's Form 10-K for
the year ended December 31, 1998).
(10) Material Contracts:
(a) EastGroup Properties 1994 Management Incentive Plan, As
Amended (incorporated by reference to Appendix A of the
Registrant's Proxy Statement for its Annual Meeting of
Shareholders held on June 2, 1999).*
(b) EastGroup Properties 1991 Directors Stock Option Plan, As
Amended (incorporated by reference to Exhibit B of the
Registrant's Proxy Statement dated April 26, 1994).*
(c) EastGroup Properties 2000 Directors Stock Option Plan
(incorporated by reference to Appendix A to the Registrant's
Proxy Statement for its Annual Meeting of Shareholders held
on June 1, 2000).*
(d) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Leland R.
Speed, David H. Hoster II and N. Keith McKey) (incorporated
by reference to the Registrant's 1996 Annual Report on Form
10-K).*
(e) Form of Amendment to Change in Control Agreement that
Registrant has entered into with certain executive officers
(filed herewith).*
(f) Investment Agreement dated as of September 25, 1998 between
the Company and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to the Company's Form 8-K filed
October 1, 1998).
(g) Operating Agreement dated September 25, 1998 between the
Company and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to the Company's Form 8-K filed
October 1, 1998).
(h) Agreement and Waiver between the Company and Five Arrows
Realty Securities II, L.L.C. (incorporated by reference to
the Company's Form 8-K filed October 1, 1998).
(i) Credit Agreement dated January 8, 2002 among EastGroup
Properties, L.P.; EastGroup Properties, Inc.; PNC Bank,
National Association, as Administrative Agent; Commerzbank
Aktiengesellschaft, New York Branch, as Syndication Agent;
SouthTrust Bank, as Co-Syndication Agent; U.S. Bank,
National Association, as Documentation Agent; Wells Fargo
Bank, National Association, as Co-Documentation Agent;
AmSouth Bank, as Managing Agent; PNC Capital Market, Inc.,
as Lead Arranger and Lead Agent; and the Lenders
(incorporated by reference to the Registrant's Form 10-K for
the year ended December 31, 2001).
(21) Subsidiaries of Registrant (filed herewith).
(23) Consent of KPMG LLP (filed herewith).
(24) Powers of attorney (filed herewith).
(28) Agreement of Registrant to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of the Registrant's
1986 Annual Report on Form 10-K).
(99) Rights Agreement dated as of December 3, 1998 between the Company
and EquiServe Trust Company, N.A., which replaced Harris Trust
and Savings Bank, as Rights Agent (incorporated by reference to
the Company's Form 8-A filed December 9, 1998).
(b) None
*Indicates management or compensatory agreement.
Exhibit (10)(e)
AMENDMENT TO CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between EASTGROUP PROPERTIES, INC., a Maryland corporation
(the "Company"), with offices at 300 One Jackson Place, 188 East Capitol Street,
Jackson, Mississippi 39201-2195, and ________________ (the "Executive"), an
individual residing at_______________________________, dated as of the ____ day
of March, 2003.
WHEREAS, the Company entered into an agreement designated the Change in
Control Agreement with the Executive, dated as of the 5th day of December, 1996;
and
WHEREAS, the intent of the Change in Control Agreement is to provide the
Executive with compensation arrangements upon a Change in Control (as defined in
the Change in Control Agreement) that provide the Executive with individual
financial security and that are competitive with those of other corporations;
and
WHEREAS, the Change in Control Agreement limits the compensation otherwise
payable to the Executive to the greatest amount that will not result in any
payment being non-deductible under section 280G of the Internal Revenue Code of
1986, as amended; and
WHEREAS, the Board of Directors of the Company (the "Board") believes that
the section 280G limit has an unpredictable impact on the compensation
arrangements for its executives and may result in unintended discrepancies
between the amounts of compensation payable to various executives upon a Change
in Control, and that the excise tax penalties imposed by section 4999 of the
Code would similarly distort executives' net after-tax benefits if the section
280G limit were taken out of the Company's change in control agreements; and
WHEREAS, the Board believes it is essential to provide the Executive with
compensation arrangements upon a Change in Control that will produce the
financial results intended for the Executive, when evaluated net of any excise
tax imposed under section 4999 of the Code.
NOW THEREFORE, the parties, for good and valuable consideration and
intending to be legally bound, agree as follows:
1. Section 7 of the Change in Control Agreement (entitled "Cut Back in
Benefits") is deleted in its entirety.
2. A new Section 7 is added to the Change in Control Agreement, to read as
follows:
7. Certain Additional Payments by the Company.
7.1 Payment Subject to Excise Tax. If it shall be determined that any
payment or distribution made, or benefit provided, by the Company to or for
the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 7) (a "Payment") would be subject to the excise tax imposed by
section 4999 of the Code (or any similar excise tax) or any interest or
penalties are incurred by Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are referred to
collectively as the "Excise Tax"), then Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Executive of all taxes (including any Excise Tax, income
tax, or payroll tax) imposed upon the Gross-Up Payment and any interest or
penalties imposed with respect to the taxes imposed upon the Gross-Up
Payment, Executive retains from the Gross-Up Payment an amount equal to the
Excise Tax imposed upon the Payments.
7.2 Determination of Gross-Up Payment. Subject to the provisions of
Section 7.3, all determinations required to be made under this Section 7,
including the determination of whether a Gross-Up Payment is required and
of the amount of any such Gross-Up Payment, shall be made by tax counsel
selected by the independent public accounting firm then retained by the
Company to audit its financial statements and acceptable to the Company
("Tax Counsel"), which shall provide detailed supporting calculations to
both the Company and Executive within 15 business days of the date of
termination, if applicable, or such earlier time as is requested by the
Company, provided that any determination that an Excise Tax is payable by
Executive shall be made on the basis of substantial authority. The Company
shall pay the initial Gross-Up Payment, if any, as determined pursuant to
this Section 7.2, to Executive within five business days of the receipt of
Tax Counsel's determination, provided, however, that, if any Payment to
which an Excise Tax relates was not payable or distributable before that
date, then the part of the Gross-Up Payment attributable to such Payment
shall be paid to Executive at the time such Payment is due. In either case,
the Gross-Up Payment shall be subject to any withholding tax obligation
determined by Tax Counsel to be applicable. If Tax Counsel determines that
no Excise Tax is payable by Executive, it shall furnish Executive with a
written opinion that he has substantial authority not to report any Excise
Tax on his Federal income tax return. Any determination by Tax Counsel
meeting the requirements of this Section 7.2 shall be binding upon the
Company and Executive; subject only to payments pursuant to the following
sentence based on a determination that additional Gross-Up Payments should
have been made, consistent with the calculations required to be made under
this Section 7 (the amount of such additional payments, including any
interest and penalties, are referred as the "Gross-Up Underpayment"). If
the Company exhausts its remedies pursuant to Section 7.3, and Executive is
required to make a payment of any Excise Tax, Tax Counsel shall determine
the amount of the Gross-Up Underpayment that has occurred and the Company
shall promptly pay any such Gross-Up Underpayment to or for the benefit of
Executive, subject to any withholding tax obligation determined by Tax
Counsel to be applicable. The Company shall pay the fees and disbursements
of Tax Counsel.
7.3 Company Remedies with Respect to IRS Claim. Executive shall notify
the Company in writing of any claim by the Internal Revenue Service that,
if successful, would require the payment by the Company of a Gross-Up
Underpayment. Such notification shall be given as soon as practicable but
not later than ten business days after Executive receives written notice of
such claim and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. Executive shall not
pay such claim before the last day of the 30-day period following the date
on which he gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Executive in writing before the last day of such
period that it desires to contest such claim and that it will bear the
costs and provide the indemnification as required by this sentence,
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by counsel reasonably selected by the Company
and reasonably satisfactory to Executive,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv)permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax, income tax, or payroll
tax, including interest and penalties, imposed as a result of such
representation and payment of costs and expenses. Without limitation of the
foregoing provisions of this Section 7.3, the Company shall control all
proceedings taken in connection with such contest and, at its sole option,
may pursue or forgo any and all administrative appeals, proceedings,
hearings, and conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction, and
in one or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax, income tax,
or payroll tax, including interest or penalties, imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to the payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due
shall be limited solely to such contested amount, unless Executive agrees
otherwise. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
and Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority. If the Company has notified Executive that it desires to contest
such an IRS claim but fails to pursue the contest in good faith, or fails
to pay the costs and expenses of the contest, or, in the case the Company
has directed Executive to pay the tax claimed and sue for a refund, fails
to advance the amount of such payment to Executive, then the Company shall
forfeit its right to control the proceedings taken in connection with such
contest and Executive may, in his discretion, assume control of such
proceedings, provided, however, that Executive's assumption or failure to
assume control of such proceedings shall not negate the Company's
obligation to make a Gross-Up Underpayment; to bear and pay all costs and
expenses (including additional interest and penalties) incurred in
connection with such contest; and to indemnify Executive, on an after-tax
basis, for any Excise Tax, income tax, or payroll tax, including interest
and penalties, imposed as a result of such payment of costs and expenses.
7.4 Repayment of Advance from Refund. If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section 7.3,
Executive becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to the Company's complying with the
requirements of Section 7.3) promptly pay to the Company the amount of such
refund (together with any interest paid or credited on the amount of the
refund after taxes applicable to such interest). If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section 7.3 a
determination is made that Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify Executive in
writing within 30 days after such determination of its intent to contest
such denial of refund, then any obligation of Executive to repay such
advance shall be forgiven and the amount of such advance shall offset the
amount of Gross-Up Underpayment required to be paid.
7.5 Treatment of Certain Interest and Penalties. Notwithstanding any
contrary provision of this Section 7, the amounts referred to in this
Section 7 as "Excise Tax," "Gross-Up Payment," and "Gross-Up Underpayment"
shall not include, and the Company shall not be obliged to pay or reimburse
Executive for, any interest or penalties incurred by Executive to the
extent the Executive would not have incurred the interest or penalties had
the Executive, upon the Company's payment of a Gross-Up Payment or Gross-Up
Underpayment, promptly filed tax returns or amended returns, or reported a
tax liability, or made a payment of taxes, interest, and penalties, that
would, in any case, have been consistent with the premise of the Gross-Up
Payment or Gross-Up Underpayment.
3. The changes to the Change in Control Agreement described in paragraphs 1
and 2 are effective January 1, 2003.
IN WITNESS WHEREOF, the Executive has set his hand to this Agreement and,
pursuant to authorization from the Board, the Company has caused this Agreement
to be executed as of the day and year first above written.
EASTGROUP PROPERTIES, INC.
By________________________________
EXECUTIVE
__________________________________
Exhibit (21)
LIST OF SUBSIDIARIES
100% Owned Subsidiaries of EastGroup Properties, Inc.
EastGroup Properties General Partners, Inc.
EastGroup Properties Holdings, Inc.
Nash IND Corporation
EastGroup TRS, Inc.
Partnerships and LLC's with Partners and Members Indented:
EastGroup Properties, LP
99% EastGroup Properties Holdings, Inc.
1% EastGroup Properties General Partners, Inc.
M.O.R. XXXVI Associates Limited
99% EastGroup Properties, Inc.
1% EastGroup Properties LP
Sample I-95 Associates
99% EastGroup Properties LP
1% EastGroup Properties General Partners, Inc.
University Business Center Associates
80% Profit interest EastGroup Properties, LP
49% Capital interest EastGroup Properties, LP
31% Capital interest EastGroup Properties, Inc.
20% JCB Limited
EastGroup Southbay, LLC
100% EastGroup Properties, LP
EastGroup Property Services, LLC
100% EastGroup Properties, LP
EastGroup Property Services of Florida, LLC
100% EastGroup Property Services, LLC
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
EastGroup Properties, Inc.
We consent to incorporation by reference in the registration statement (No.
333-29193) on Form S-3 and the registration statement (No. 33-60909) on Form S-8
of EastGroup Properties, Inc. of our reports dated March 7, 2003, relating to
the consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries
as of December 31, 2002 and 2001, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 2002, and all related schedules, which
reports appear in the December 31, 2002 Annual Report on Form 10-K of EastGroup
Properties, Inc. Our report refers to a change in the methods of accounting for
the impairment or disposal of long-lived assets and stock-based compensation.
Jackson, Mississippi KPMG LLP
March 18, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of Maryland
corporation, hereby constitutes and appoints N. Keith McKey as the true and
lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the
undersigned: (a) the Annual Report of the Company on Form 10-K (or such other
form as may be required) for the year ended December 31, 2002 to be filed with
the Securities and Exchange Commission ("SEC"); and (b) any and all amendments
to such Report as may be required to be filed with the SEC.
/s/ D. Pike Aloian
D. Pike Aloian
Director
March 19, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of Maryland
corporation, hereby constitutes and appoints N. Keith McKey as the true and
lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the
undersigned: (a) the Annual Report of the Company on Form 10-K (or such other
form as may be required) for the year ended December 31, 2002 to be filed with
the Securities and Exchange Commission ("SEC"); and (b) any and all amendments
to such Report as may be required to be filed with the SEC.
/s/ Alexander G. Anagnos
Alexander G. Anagnos
Director
March 19, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of Maryland
corporation, hereby constitutes and appoints N. Keith McKey as the true and
lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the
undersigned: (a) the Annual Report of the Company on Form 10-K (or such other
form as may be required) for the year ended December 31, 2002 to be filed with
the Securities and Exchange Commission ("SEC"); and (b) any and all amendments
to such Report as may be required to be filed with the SEC.
/s/ H. C. Bailey, Jr.
H. C. Bailey, Jr.
Director
March 19, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of Maryland
corporation, hereby constitutes and appoints N. Keith McKey as the true and
lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the
undersigned: (a) the Annual Report of the Company on Form 10-K (or such other
form as may be required) for the year ended December 31, 2002 to be filed with
the Securities and Exchange Commission ("SEC"); and (b) any and all amendments
to such Report as may be required to be filed with the SEC.
/s/ Hayden C. Eaves III
Hayden C. Eaves III
Director
March 19, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of Maryland
corporation, hereby constitutes and appoints N. Keith McKey as the true and
lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the
undersigned: (a) the Annual Report of the Company on Form 10-K (or such other
form as may be required) for the year ended December 31, 2002 to be filed with
the Securities and Exchange Commission ("SEC"); and (b) any and all amendments
to such Report as may be required to be filed with the SEC.
/s/ Fredric H. Gould
Fredric H. Gould
Director
March 19, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of Maryland
corporation, hereby constitutes and appoints N. Keith McKey as the true and
lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the
undersigned: (a) the Annual Report of the Company on Form 10-K (or such other
form as may be required) for the year ended December 31, 2002 to be filed with
the Securities and Exchange Commission ("SEC"); and (b) any and all amendments
to such Report as may be required to be filed with the SEC.
/s/ David M. Osnos
David M. Osnos
Director
March 19, 2003
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland corporation, hereby constitutes and appoints N. Keith McKey as the true
and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of
the undersigned: (a) the Annual Report of the Company on Form 10-K (or such
other form as may be required) for the year ended December 31, 2002 to be filed
with the Securities and Exchange Commission ("SEC"); and (b) any and all
amendments to such Report as may be required to be filed with the SEC.
/s/ Leland R. Speed
Leland R. Speed
Chairman of the Board
March 19, 2003