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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2003 COMMISSION FILE NUMBER 1-7094
EASTGROUP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-2711135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (601) 354-3555
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES (x) NO ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). YES (x) NO ( )
The number of shares of common stock, $.0001 par value, outstanding as of August
11, 2003 was 18,353,513.
Page 1
EASTGROUP PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2003
Pages
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated balance sheets, June 30, 2003 (unaudited)
and December 31, 2002 3
Consolidated statements of income for the three and six months
ended June 30, 2003 and 2002 (unaudited) 4
Consolidated statements of changes in stockholders' equity
for the six months ended June 30, 2003 (unaudited) 5
Consolidated statements of cash flows for the six months
ended June 30, 2003 and 2002 (unaudited) 6
Notes to consolidated financial statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES
Authorized signatures 22
Page 2
EASTGROUP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
June 30, 2003 December 31, 2002
------------------------------------------------
(Unaudited)
ASSETS
Real estate properties $ 771,598 750,578
Development 39,311 39,718
------------------------------------------------
810,909 790,296
Less accumulated depreciation (132,745) (118,977)
------------------------------------------------
678,164 671,319
------------------------------------------------
Real estate held for sale 1,375 1,375
Investment in real estate investment trusts 15 1,663
Cash 1,457 1,383
Other assets 26,636 27,997
------------------------------------------------
TOTAL ASSETS $ 707,647 703,737
================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 245,311 248,343
Notes payable to banks 76,946 73,957
Accounts payable & accrued expenses 13,839 15,571
Other liabilities 7,609 7,622
------------------------------------------------
343,705 345,493
------------------------------------------------
------------------------------------------------
Minority interest in joint ventures 1,787 1,759
------------------------------------------------
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; 1,400,000 shares authorized and issued at June
30, 2003 and 2,800,000 at December 31, 2002; stated liquidation preference
of $35,000 at June 30, 2003 and $70,000 at December 31, 2002 33,589 67,178
Series C Preferred Shares; $.0001 par value; 600,000 shares authorized;
no shares issued - -
Common shares; $.0001 par value; 66,275,000 shares authorized; 18,353,013
shares issued and outstanding at June 30, 2003 and 16,104,356 at
December 31, 2002 2 2
Excess shares; $.0001 par value; 30,000,000 shares authorized;
no shares issued - -
Additional paid-in capital on common shares 293,209 243,562
Undistributed earnings (loss) (2,977) 7,109
Accumulated other comprehensive income (loss) (476) 58
Unearned compensation (2,549) (2,781)
------------------------------------------------
362,155 356,485
------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 707,647 703,737
================================================
See accompanying notes to consolidated financial statements.
Page 3
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
REVENUES
Income from real estate operations $ 26,531 25,094 53,018 49,966
Interest 5 142 10 278
Gain on securities 107 1,050 389 1,471
Other 33 337 102 481
----------------------------------------------------
26,676 26,623 53,519 52,196
----------------------------------------------------
EXPENSES
Operating expenses from real estate operations 7,655 7,012 15,615 14,120
Interest 4,643 4,165 9,341 8,340
Depreciation and amortization 7,744 7,322 15,431 14,427
General and administrative 1,261 1,090 2,500 2,177
Minority interest in joint ventures 114 90 213 183
----------------------------------------------------
21,417 19,679 43,100 39,247
----------------------------------------------------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS 5,259 6,944 10,419 12,949
Gain on sale of real estate investments - - - 93
----------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 5,259 6,944 10,419 13,042
----------------------------------------------------
DISCONTINUED OPERATIONS
Loss from real estate operations - (16) (2) (4)
Gain on sale of real estate investments - - 106 -
----------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS - (16) 104 (4)
----------------------------------------------------
NET INCOME 5,259 6,928 10,523 13,038
Preferred dividends-Series A 970 970 1,940 1,940
Preferred dividends-Series B 766 1,532 2,298 3,064
----------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 3,523 4,426 6,285 8,034
====================================================
BASIC PER COMMON SHARE DATA
Income from continuing operations $ 0.21 0.28 0.37 0.51
Income (loss) from discontinued operations 0.00 0.00 0.01 0.00
----------------------------------------------------
Net income available to common stockholders $ 0.21 0.28 0.38 0.51
====================================================
Weighted average shares outstanding 16,864 15,892 16,397 15,833
====================================================
DILUTED PER COMMON SHARE DATA
Income from continuing operations $ 0.20 0.27 0.37 0.50
Income (loss) from discontinued operations 0.00 0.00 0.01 0.00
----------------------------------------------------
Net income available to common stockholders $ 0.20 0.27 0.38 0.50
====================================================
Weighted average shares outstanding 17,225 16,254 16,758 16,210
====================================================
See accompanying notes to consolidated financial statements.
Page 4
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
Accumulated
Additional Other
Preferred Common Paid-In Unearned Undistributed Comprehensive
Stock Stock Capital Compensation Earnings Income (Loss) Total
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 $108,535 2 243,562 (2,781) 7,109 58 356,485
Comprehensive income
Net income - - - - 10,523 - 10,523
Net change in investment securities - - - - - (340) (340)
Net unrealized change in cash flow hedge - - - - - (194) (194)
---------
Total comprehensive income 9,989
---------
Cash dividends declared-common, $.95 per share - - - - (16,371) - (16,371)
Preferred stock dividends declared - - - - (4,238) - (4,238)
Conversion of 1,400,000 shares of cumulative
convertible preferred stock into
1,590,960 shares of common stock (33,589) - 33,589 - - - -
Issuance of 571,429 shares of common stock,
common stock offering - - 14,573 - - - 14,573
Issuance of 2,108 shares of common stock,
incentive compensation - - 53 - - - 53
Issuance of 6,833 shares of common stock,
dividend reinvestment plan - - 179 - - - 179
Issuance of 79,827 shares of common stock,
exercise options - - 1,297 - - - 1,297
Forfeiture of 2,500 shares of common stock,
incentive restricted stock - - (52) 37 - - (15)
Amortization of unearned compensation,
incentive restricted stock - - - 195 - - 195
Issuance of common stock options - - 8 - - - 8
------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2003 $ 74,946 2 293,209 (2,549) (2,977) (476) 362,155
====================================================================================
See accompanying notes to consolidated financial statements.
Page 5
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
----------------------------------
2003 2002
----------------------------------
OPERATING ACTIVITIES:
Net income $ 10,523 13,038
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization from continuing operations 15,431 14,427
Depreciation and amortization from discontinued operations - 42
Gain on sale of real estate investments - (93)
Gain on sale of real estate investments from discontinued operations (106) -
Gain on real estate investment trust (REIT) shares (389) (1,471)
Amortization of unearned compensation 180 243
Stock option compensation 8 -
Minority interest depreciation and amortization (76) (93)
Changes in operating assets and liabilities:
Accrued income and other assets 145 1,438
Accounts payable, accrued expenses and prepaid rent 1,778 1,656
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,494 29,187
-----------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of real estate investments 445 1,111
Real estate improvements (5,081) (3,381)
Real estate development (9,557) (19,157)
Purchases of real estate (4,980) (3,962)
Proceeds from sale and liquidation of REIT shares 1,697 6,730
Changes in other assets and other liabilities (2,069) 56
------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (19,545) (18,603)
------------------------------------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 55,746 139,631
Principal payments on bank borrowings (52,757) (129,164)
Proceeds from mortgage notes payable - 8,200
Principal payments on mortgage notes payable (4,510) (10,591)
Debt issuance costs (91) (1,137)
Distributions paid to stockholders (21,211) (19,928)
Proceeds from common stock offering 14,573 -
Proceeds from exercise of stock options 1,297 2,390
Proceeds from dividend reinvestment plan 179 184
Other (1,101) (528)
------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,875) (10,943)
------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 74 (359)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,383 1,767
------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,457 1,408
====================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 8,953 7,608
Conversion of cumulative preferred stock into common stock 33,589 -
Debt assumed by the Company in purchase of real estate 1,478 -
Issuance of incentive restricted stock - 420
Forfeiture of incentive restricted stock (52) (189)
See accompanying notes to consolidated financial statements.
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements of EastGroup Properties, Inc.
("EastGroup" or "the Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In management's opinion, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. The financial statements should be read in conjunction with the
2002 annual report and the notes thereto.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the 2002 financial statements to
conform to the 2003 presentation.
(3) 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 Statement of Financial Accounting
Standards (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 estimated costs
to sell and are not depreciated while they are held for sale.
At June 30, 2003 and December 31, 2002, the Company had three parcels of
land held for sale. Subsequent to June 30, 2003, the Company sold one parcel of
land in Florida for $405,000. The transaction generated a small gain for
financial reporting purposes. There can be no assurances that the remaining
properties that are held for sale will be sold.
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 the three and six months ended
June 30, 2003 and 2002. No interest expense was allocated to the properties that
are held for sale.
(4) BUSINESS COMBINATIONS AND GOODWILL
The Company applies SFAS No. 141, "Business Combinations," which 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. The Company also applies SFAS No. 142, "Goodwill
and Other Intangible Assets," which addresses financial accounting and reporting
for the impairment of goodwill and other intangibles and is effective for fiscal
years beginning after December 15, 2001. Upon the acquisition of real estate
properties, the Company applies the principles of SFAS No. 141 to determine the
allocation of the purchase price among the individual components of both the
tangible and intangible assets (including in-place leases). At June 30, 2003 and
December 31, 2002, the Company had unamortized goodwill of $990,000 resulting
from the acquisition of Ensign Properties in 1998. 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 June 30, 2003 and
December 31, 2002.
Page 7
(5) OTHER ASSETS
A summary of the Company's other assets follows:
June 30, 2003 December 31, 2002
---------------------------------------------
(In thousands)
Leasing costs, net of accumulated amortization $ 10,968 10,841
Receivables, net of allowance for doubtful accounts 8,551 9,363
Prepaid expenses and other assets 7,117 7,793
---------------------------------------------
$ 26,636 27,997
=============================================
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of the Company's accounts payable and accrued expenses follows:
June 30, 2003 December 31, 2002
---------------------------------------------
(In thousands)
Property taxes payable $ 6,196 5,814
Dividends payable 2,744 3,346
Other payables and accrued expenses 4,899 6,411
---------------------------------------------
$ 13,839 15,571
=============================================
(7) COMPREHENSIVE INCOME
Comprehensive income is comprised of net income plus all other changes in equity
from nonowner sources. The components of accumulated other comprehensive income
(loss) for the six months ended June 30, 2003 and 2002 are summarized below:
Accumulated Other Comprehensive Income (Loss)
Six Months Ended
June 30,
---------------------------------
2003 2002
---------------------------------
(In thousands)
Balance at beginning of period $ 58 1,193
Unrealized holding gains on REIT securities during
the period 49 765
Less reclassification adjustment for realized gains on
REIT securities included in net income (389) (1,471)
Change in fair value of interest rate swap (194) -
---------------------------------
Balance at end of period $ (476) 487
=================================
(8) 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 period available to
each share of common stock outstanding during the reporting period. The
Company's basic EPS is calculated by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted EPS represents the amount of earnings for the period available to
each share of common stock outstanding during the reporting period and to each
share that would have been outstanding assuming the issuance of common shares
for all dilutive potential common shares outstanding during the reporting
period. The Company calculates diluted EPS by totaling net income available to
common stockholders plus dividends on dilutive convertible preferred shares and
dividing this numerator by the weighted average number of common
Page 8
shares outstanding plus the dilutive effect of stock options related to
outstanding employee stock options, nonvested restricted stock and convertible
preferred stock, had the options or conversions been exercised. The dilutive
effect of stock options and nonvested restricted stock was determined using the
treasury stock method which assumes exercise of the options as of the beginning
of the period or when issued, if later, and 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. Reconciliation of the numerators and denominators in
the basic and diluted EPS computations is as follows:
Reconciliation of Numerators and Denominators
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2003 2002 2003 2002
-----------------------------------------------
(In thousands)
Basic EPS Computation
Numerator-net income available to common stockholders $ 3,523 4,426 6,285 8,034
Denominator-weighted average shares outstanding 16,864 15,892 16,397 15,833
Diluted EPS Computation
Numerator-net income available to common stockholders $ 3,523 4,426 6,285 8,034
Denominator:
Weighted average shares outstanding 16,864 15,892 16,397 15,833
Common stock options 174 175 173 192
Nonvested restricted stock 187 187 188 185
-----------------------------------------------
Total shares 17,225 16,254 16,758 16,210
===============================================
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.
(9) 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.
Page 9
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 following table presents on a
comparative basis for the three and six months ended June 30, 2003 and 2002
reported PNOI by operating segment, followed by reconciliations of PNOI to FFO
and FFO to Net Income.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
(In thousands)
PROPERTY REVENUES:
Industrial $ 26,084 24,704 52,152 49,158
Other 447 390 866 808
----------------------------------------------------
26,531 25,094 53,018 49,966
----------------------------------------------------
PROPERTY EXPENSES:
Industrial (7,501) (6,889) (15,336) (13,860)
Other (154) (123) (279) (260)
----------------------------------------------------
(7,655) (7,012) (15,615) (14,120)
----------------------------------------------------
PROPERTY NET OPERATING INCOME:
Industrial 18,583 17,815 36,816 35,298
Other 293 267 587 548
----------------------------------------------------
TOTAL PROPERTY NET OPERATING INCOME 18,876 18,082 37,403 35,846
----------------------------------------------------
Income (loss) from discontinued operations (before depreciation
and amortization) - 6 (2) 38
Gain on securities 107 1,050 389 1,471
Other income 38 479 112 759
Interest expense (4,643) (4,165) (9,341) (8,340)
General and administrative expense (1,261) (1,090) (2,500) (2,177)
Minority interest in earnings (before depreciation and amortization) (150) (140) (289) (276)
Dividends on Series A preferred shares (970) (970) (1,940) (1,940)
----------------------------------------------------
FUNDS FROM OPERATIONS 11,997 13,252 23,832 25,381
Depreciation and amortization from continuing operations (7,744) (7,322) (15,431) (14,427)
Depreciation and amortization from discontinued operations - (22) - (42)
Share of joint venture depreciation and amortization 36 50 76 93
Gain on sale of depreciable real estate investments - - 106 93
Dividends on Series B convertible preferred shares (766) (1,532) (2,298) (3,064)
----------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS 3,523 4,426 6,285 8,034
Dividends on preferred shares 1,736 2,502 4,238 5,004
----------------------------------------------------
NET INCOME $ 5,259 6,928 10,523 13,038
====================================================
Page 10
(10) STOCK-BASED COMPENSATION
In December 2002, the Financial Accounting Standards Board 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.
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. Stock-based compensation expense was
immaterial for both the three and six months ended June 30, 2003 and 2002. There
was an immaterial effect to pro forma net income available to common
stockholders for all periods and no effect to basic or diluted earnings per
share for either period.
The Company accounts for restricted stock in accordance with Accounting
Principles Board No. 25, and accordingly, compensation expense is recognized
over the expected vesting period using the straight-line method.
(11) NEW ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. SFAS No. 150 requires certain financial instruments with characteristics
of both liabilities and equity to be classified as liabilities. The Company will
adopt this statement July 1, 2003 and believes that the effect of adoption will
have no impact on its overall financial position or results of operations.
(12) SUBSEQUENT EVENTS
On July 2, 2003, EastGroup closed a public offering of 1,320,000 shares of 7.95%
Series D Cumulative Redeemable Preferred Stock with a liquidation preference of
$25 per share. The offering resulted in approximately $32.3 million of net
proceeds.
On July 7, 2003, EastGroup redeemed all of its outstanding 9.00% Series A
Cumulative Redeemable Preferred Stock. The redemption price of these shares
(excluding accrued dividends) was $43,125,000. Costs of $1,768,000 related to
the original issuance of the Series A stock in 1998 will be recorded in the
third quarter as a preferred issuance cost and treated in a manner similar to a
preferred dividend.
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION
(Comments are for the balance sheet dated June 30, 2003 compared to December 31,
2002.)
Assets of EastGroup were $707,647,000 at June 30, 2003, an increase of
$3,910,000 from December 31, 2002. Liabilities (excluding minority interests)
decreased $1,788,000 to $343,705,000 and stockholders' equity increased
$5,670,000 to $362,155,000 during the same period. Book value per common share
increased from $15.11 at December 31, 2002 to $15.48 at June 30, 2003. The
paragraphs that follow explain these changes in detail.
Real estate properties increased $21,020,000 during the six months ended
June 30, 2003. This increase was due to the transfer of three properties and two
parcels of land from development with total costs of $8,389,000, the purchase of
two properties for $6,369,000, capital improvements of $5,081,000, and
improvements on development properties transferred to real estate properties in
the 12-month period following transfer of $1,575,000. These increases were
offset by the transfer of one property to real estate held for sale with costs
of $394,000.
Real Estate Properties
Real Estate Properties
Acquired in 2003 Location Size Date Aquired Cost (1)
- ------------------------------- ----------------- ----------------- ----------------- -------------------
(In thousands)
Altamonte Commerce Center II Orlando, Florida 62,000 sq. ft. 05-20-03 $ 3,756
Airport Commons Phoenix, Arizona 63,000 sq. ft. 05-28-03 2,613
-------------------
Total Acquisitions $ 6,369
===================
(1) Total costs of the properties acquired was $6,458,000, of which $6,369,000
was allocated to the real estate properties as indicated above and $89,000
was allocated to in-place leases. The Company paid cash of $4,980,000 for
the properties acquired and assumed a mortgage of $1,478,000, which is
included in Mortgage Notes Payable on the balance sheet. The amount
assigned to in-place leases, which is included in Other Assets on the
balance sheet, will be amortized over the remaining lives of the associated
leases in place at the time of acquisition in accordance with SFAS No. 141,
"Business Combinations."
Development decreased $407,000 during the six months ended June 30, 2003.
This decrease was due to the transfer of three development properties with total
costs of $7,755,000 and the transfer of two parcels of land with costs of
$634,000 to real estate properties. These decreases were offset by development
costs of $7,982,000 on existing and completed development, as detailed in the
table below.
Total cash outflows for development for the six months ended June 30, 2003
were $9,557,000. In addition to the costs incurred for the six months ended June
30, 2003 as detailed in the table below, development costs
Page 12
included $1,575,000 for improvements on properties transferred to real estate
properties during the 12-month period following transfer. These costs are
included in Real Estate Properties on the balance sheet.
Development
Costs Incurred
-------------------------------------
For the 6 Months Cumulative as Estimated
Size Ended 6/30/03 of 6/30/03 Total Costs (1)
------------------------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
Metro Airport Commerce Center I, Jackson, MS 32,000 $ 57 1,784 2,000
World Houston 19, Houston, TX 66,000 150 2,131 3,100
World Houston 20, Houston, TX 62,000 153 2,111 2,800
Executive Airport CC I & III, Fort Lauderdale, FL 85,000 627 5,378 6,000
Expressway Commerce Center, Tampa, FL 108,000 1,568 5,189 6,000
------------------------------------------------------------------------
Total Lease-up 353,000 2,555 16,593 19,900
------------------------------------------------------------------------
Under Construction:
Sunport Center IV, Orlando, FL 63,000 1,934 2,960 3,500
Techway Southwest II, Houston, TX 94,000 1,814 2,783 4,800
------------------------------------------------------------------------
Total Under Construction 157,000 3,748 5,743 8,300
------------------------------------------------------------------------
Prospective Development (Principally Land):
Phoenix, Arizona 103,000 38 1,414 6,000
Tucson, Arizona 70,000 - 326 3,500
Tampa, Florida 140,000 50 1,878 7,700
Orlando, Florida 142,000 71 1,956 8,600
Fort Lauderdale, Florida 55,000 121 1,724 3,800
El Paso, Texas 251,000 87 2,311 7,600
Houston, Texas 858,000 1,248 6,820 41,500
Jackson, Mississippi 32,000 15 546 1,700
------------------------------------------------------------------------
Total Prospective Development 1,651,000 1,630 16,975 80,400
------------------------------------------------------------------------
2,161,000 $ 7,933 39,311 108,600
========================================================================
Completed Development and Transferred
To Real Estate Properties During the
Six Months Ended June 30, 2003:
World Houston 14, Houston, TX 77,000 $ 32 3,106
Americas 10 Business Center I, El Paso, TX 98,000 17 3,304
Chamberlain Expansion, Tucson, AZ 34,000 - 1,345
--------------------------------------------------
Total Transferred to Real Estate Properties 209,000 $ 49 7,755
==================================================
(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 was $1,375,000 at June 30, 2003 and December 31,
2002; however, one property with costs of $394,000 was transferred from real
estate properties and was subsequently sold.
Accumulated depreciation on real estate properties and real estate held for
sale increased $13,768,000 due to depreciation expense of $13,823,000 on real
estate properties, offset by the sale of one property with accumulated
depreciation of $55,000.
Page 13
Investment in REITs decreased from $1,663,000 at December 31, 2002 to
$15,000 at June 30, 2003 primarily as a result of the sale of REIT shares with a
cost of $1,308,000. Unrealized gains decreased $340,000 as a result of realized
gains of $389,000 on REIT shares, offset by unrealized gains of $49,000 during
the period.
Mortgage notes payable decreased $3,032,000 during the six months ended
June 30, 2003 due to the repayment of a $1,346,000 mortgage and regularly
scheduled principal payments of $3,164,000, offset by a $1,478,000 mortgage that
the Company assumed on the purchase of Airport Commons.
Notes payable to banks increased $2,989,000 as a result of advances of
$55,746,000 exceeding payments of $52,757,000. The Company's credit facilities
are described in greater detail under Liquidity and Capital Resources.
During the second quarter of 2003, the holder of the 8.75% Series B
Cumulative Convertible Preferred Stock elected to convert 1,400,000 shares into
1,590,960 shares of common stock.
On May 20, 2003, EastGroup closed on the sale of 571,429 shares of its
common stock at $26.25 per share. The shares were sold to an institutional buyer
and EastGroup received proceeds of $14.6 million, net of related issuance costs.
Accumulated other comprehensive income (loss) decreased $534,000 as a
result of realized gains of $389,000 on the sale of REIT shares offset by
unrealized gains of $49,000 on REIT shares during the period and an unrealized
loss of $194,000 due to the fair value adjustment of the Company's interest rate
swap.
Undistributed earnings (loss) decreased $10,086,000 as a result of
dividends on common and preferred stock of $20,609,000 exceeding net income for
financial reporting purposes of $10,523,000.
RESULTS OF OPERATIONS
(Comments are for the three and six months ended June 30, 2003, compared to the
three and six months ended June 30, 2002).
Net income available to common stockholders for the three and six months ended
June 30, 2003 was $3,523,000 ($.21 per basic share and $.20 per diluted share)
and $6,285,000 ($.38 per basic and diluted share) compared to net income
available to common stockholders for the three and six months ended June 30,
2002 of $4,426,000 ($.28 per basic share and $.27 per diluted share) and
$8,034,000 ($.51 per basic share and $.50 per diluted share). Income before gain
on sale of real estate investments was $5,259,000 and $10,419,000 for the three
and six months ended June 30, 2003 compared to $6,944,000 and $12,949,000 for
the three and six months ended June 30, 2002. The Company had a gain of $93,000
on the sale of real estate investments from continuing operations for the six
months ended June 30, 2002. In accordance with the guidelines under 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 no gain from discontinued operations for the three months ended June
30, 2003 and a gain of $106,000 for the six months ended June 30, 2003 compared
to no gain for the three months and six months ended June 30, 2002. The
paragraphs that follow describe the results of operations in detail.
PNOI from continuing operations, as defined and discussed in Note 9 in the
Notes to the Consolidated Financial Statements, increased by $794,000 or 4.4%
for the three months ended June 30, 2003 compared to the three months ended June
30, 2002. For the six months ended June 30, 2003, PNOI increased by $1,557,000
or 4.3% compared to the six months ended June 30, 2002. PNOI by property type
and percentage leased for industrial were as follows:
Page 14
Property Net Operating Income
Three Months Ended Six Months Ended Percent
June 30, June 30, Leased
----------------------------------------------------------------------------
2003 2002 2003 2002 6-30-03 6-30-02
----------------------------------------------------------------------------
(In thousands)
Industrial $ 18,583 17,815 36,816 35,298 92.4% 91.0%
Other 293 267 587 548
--------------------------------------------------
Total PNOI $ 18,876 18,082 37,403 35,846
==================================================
PNOI from industrial properties increased $768,000 (4.3%) and $1,518,000
(4.3%) for the three and six months ended June 30, 2003, compared to June 30,
2002. Industrial properties held throughout the three and six months ended June
30, 2003 compared to the same periods in 2002 showed a decrease in PNOI of 1.0%
and .9%, respectively.
Bank interest expense before amortization of loan costs and capitalized
interest was $491,000 for the three months ended June 30, 2003, a decrease of
$235,000 from the three months ended June 30, 2002. Bank interest expense before
amortization of loan costs and capitalized interest was $982,000 for the six
months ended June 30, 2003, a decrease of $410,000 from the six months ended
June 30, 2002. Average bank borrowings were $75,919,000 and $75,598,000 for the
three and six months ended June 30, 2003 compared to $89,624,000 and $88,203,000
for the same periods in 2002 with average bank interest rates of 2.59% and 2.62%
for the three and six months ended June 30, 2003 compared to 3.25% and 3.18% for
the same periods in 2002. Interest costs incurred during the period of
construction of real estate properties are capitalized and offset against the
bank interest expense. The interest costs capitalized on real estate properties
for the three and six months ended June 30, 2003 were $516,000 and $1,002,000
compared to $556,000 and $1,088,000 for the same periods in 2002. Amortization
of bank loan costs was $102,000 and $205,000 for the three and six months ended
June 30, 2003 compared to $103,000 and $209,000 for the same periods in 2002.
Mortgage interest expense on real estate properties was $4,472,000 for the
three months ended June 30, 2003, an increase of $624,000 from the three months
ended June 30, 2002. Mortgage interest expense on real estate properties was
$8,968,000 for the six months ended June 30, 2003, an increase of $1,238,000
from the six months ended June 30, 2002. The increase in interest for the three
and six months was primarily due to two new mortgage loans totaling $51,000,000
obtained in the second half of 2002 and one loan assumption of $1,478,000 in
2003, offset by the payoff of one loan for $2,342,000 in the fourth quarter of
2002 and the payoff of one loan for $1,346,000 in 2003. Amortization of mortgage
loan costs was $94,000 and $188,000 for the three and six months ended June 30,
2003 compared to $44,000 and $97,000 for the same period in 2002.
No properties were sold during the three months ended June 30, 2003 or
2002. During the six months ended June 30, 2003, the Company sold Air Park
Distribution Center II and recognized a gain of $106,000, which is recorded
under Discontinued Operations in accordance with SFAS No. 144 (see Note 3 in the
Notes to Consolidated Financial Statements). In the same period of 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. A summary
of gains on real estate investments for the six months ended June 30, 2003 and
June 30, 2002 follows.
Gains on Real Estate Investments
Net Recognized
Sales Price Basis Gain
-----------------------------------------------
(In thousands)
2003
Real estate properties:
Air Park Distribution Center II, Memphis, TN $ 445 339 106
===============================================
2002
Real estate properties:
Carpenter Duplex, Dallas, TX $ 1,111 1,018 93
===============================================
Page 15
The increase in general and administrative expenses of $171,000 and
$323,000 for the three and six months ended June 30, 2003 compared to the same
periods in 2002 is primarily due to increased employee costs.
NAREIT has recommended supplemental disclosures concerning straight-line
rent, capital expenditures and leasing costs. Straight-lining of rent increased
income by $464,000 and $903,000 for the three and six months ended June 30, 2003
compared to $283,000 and $508,000 for the same periods in 2002. Capital
expenditures for the three and six months ended June 30, 2003 and 2002 were as
follows:
Capital Expenditures
Three Months Ended Six Months Ended
June 30, June 30,
Estimated ------------------------------------------------------
Useful Life 2003 2002 2003 2002
------------------------------------------------------------------------
(In thousands)
Upgrade on Acquisitions 40 yrs $ 21 - 41 -
Major Renovation/Redevelopment 40 yrs - 3 - 53
Tenant Improvements:
New Tenants Lease Life 746 679 1,800 1,467
New Tenants - First Generation(1) Lease Life 230 350 672 413
Renewal Tenants Lease Life 455 63 1,265 421
Other:
Building Improvements 5-40 yrs 279 145 436 466
Roofs 5-15 yrs 681 316 728 510
Parking Lots 5 yrs 46 15 85 20
Other 5 yrs 29 21 54 31
------------------------------------------------------
Total Capital Expenditures $ 2,487 1,592 5,081 3,381
======================================================
(1) First generation refers to space that has never been occupied.
The Company's leasing costs are capitalized and included in other assets.
The costs are amortized over the terms of the associated leases and are included
in depreciation and amortization expense. Capitalized leasing costs for the
three months and six months ended June 30, 2003 and 2002 were as follows:
Capitalized Leasing Costs
Three Months Ended Six Months Ended
June 30, June 30,
Estimated ------------------------------------------------------
Useful Life 2003 2002 2003 2002
------------------------------------------------------------------------
(In thousands)
Acquisitions - In-place Leases Lease Life $ 89 - 89 -
Development Lease Life 94 290 328 930
New Tenants Lease Life 514 330 725 486
New Tenants - First Generation(1) Lease Life 6 65 88 133
Renewal Tenants Lease Life 229 371 504 467
------------------------------------------------------
Total Capitalized Leasing Costs $ 932 1,056 1,734 2,016
======================================================
Amortization of Leasing Costs $ 770 716 1,608 1,333
======================================================
(1) First generation refers to space that has never been occupied.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $27,494,000 for the six months
ended June 30, 2003. Other sources of cash were primarily from bank borrowings,
a common stock offering, sales and liquidation of REIT shares and proceeds from
exercise of stock options. The Company distributed $16,207,000 in common and
$5,004,000 in preferred stock dividends during the six months ended June 30,
2003. Other primary uses of cash
Page 16
were for bank debt payments, construction and development of properties, capital
improvements at the various properties, purchases of real estate properties and
mortgage note payments.
Total debt at June 30, 2003 and December 31, 2002 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 June 30, 2003 and
December 31, 2002.
June 30, 2003 December 31, 2002
---------------------------------------------
(In thousands)
Mortgage notes payable - fixed rate $ 245,311 248,343
Bank notes payable - floating rate 76,946 73,957
---------------------------------------------
Total debt $ 322,257 322,300
=============================================
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 June 30, 2003, the interest rate
was 2.362% on $71,000,000. The interest rate on each tranche is currently reset
on a monthly basis and was last reset on August 11, 2003 at 2.36% on
$38,000,000. 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 has a one-year $12,500,000 unsecured revolving credit facility
with PNC Bank, N.A. that matures in January 2004. The interest rate on this
facility is based on LIBOR and varies according to debt-to-total asset value
ratios. At June 30, 2003, the interest rate was 2.295% on $5,946,000.
EastGroup's current interest rate for this facility is LIBOR plus 1.175%.
In August 2003, as part of its financial management activities and in order
to reduce exposure to floating rate bank debt, EastGroup obtained a $45.5
million nonrecourse mortgage secured by ten properties. The note has an interest
rate of 4.75%, a maturity date of 10 years, and an amortization period of 25
years.
On July 2, 2003, EastGroup closed a public offering of 1,320,000 shares of
7.95% Series D Cumulative Redeemable Preferred Stock with a liquidation
preference of $25 per share. The offering resulted in approximately $32.3
million of net proceeds.
On July 7, 2003, EastGroup redeemed all of its outstanding 9.00% Series A
Cumulative Redeemable Preferred Stock. The redemption price of these shares
(excluding accrued dividends) was $43,125,000. Costs of $1,768,000 related to
the original issuance of the Series A stock in 1998 will be recorded in the
third quarter as a preferred issuance cost and treated in a manner similar to a
preferred dividend.
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, and (viii) 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.
Page 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate changes primarily as a result of its
lines of credit and long-term debt maturities. This debt is used to maintain
liquidity and fund capital expenditures and expansion of the Company's real
estate investment portfolio and operations. The Company's interest rate risk
management objective is to limit the impact of interest rate changes on earnings
and cash flows and to lower its overall borrowing costs. To achieve its
objectives, the Company borrows at fixed rates but also has several variable
rate bank lines as discussed under Liquidity and Capital Resources. The table
below presents the principal payments due and weighted average interest rates
for both the fixed rate and variable rate debt.
Jul-Dec Fair
2003 2004 2005 2006 2007 Thereafter Total Value
----------- --------- -------- --------- --------- ------------ ----------- -------------
Fixed rate debt (in thousands) $ 3,382 11,262 25,184 21,748 20,426 163,309 245,311 275,397(1)
Weighted average interest rate 7.47% 7.90% 7.96% 7.76% 7.72% 7.09% 7.34%
Variable rate debt (in thousands) - 5,946 71,000 - - - 76,946 76,946
Weighted average interest rate - 2.30% 2.36% - - - 2.36%
(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 June
30, 2003, it does not consider those exposures or positions that could arise
after that date. The ultimate impact on the Company of 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 24 basis points, interest
expense and cash flows would increase or decrease by approximately $182,000
annually.
The Company has 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, which is summarized in the table below. 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.
Type of Notional Maturity Fixed Fair Market Value Fair Market Value
Hedge Amount Date Reference Rate Rate at 6/30/03 at 12/31/02
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
Swap $11,000 12/31/10 1 month LIBOR 4.03% ($491) ($297)
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain sections of this Form 10-Q
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's hopes, expectations, intentions,
beliefs, strategies regarding the future, the anticipated performance of
development and acquisition properties, capital resources, profitability and
portfolio performance. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others discussed herein, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or nonrenewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, environmental
uncertainties, risks related to disasters and the costs of insurance to protect
from such disasters, financial market fluctuations, changes in real estate and
zoning laws and increases in real property tax rates. The success of the Company
also depends upon the trends of the economy, including interest rates and the
effects to the economy from possible terrorism and related world events, income
tax laws, governmental
Page 18
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 4. CONTROLS AND PROCEDURES.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that as of the end of
the Company's most recent fiscal quarter 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.
Page 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 2003, the Registrant held its Annual Meeting of Shareholders. At
the Annual Meeting, D. Pike Aloian, Alexander G. Anagnos, H.C. Bailey, Jr.,
Hayden C. Eaves III, Fredric H. Gould, David H. Hoster II, David M. Osnos and
Leland R. Speed were elected directors of the Registrant, each to serve until
the 2004 Annual Meeting. The following is a summary of the voting for directors:
Common Stock Series B Convertible
Nominee Vote For Vote Withheld Vote For Vote Withheld
-----------------------------------------------------------------------------------------------
D. Pike Aloian 14,337,855 113,839 3,181,817 -
Alexander G. Anagnos 14,395,960 55,734 3,181,817 -
H.C. Bailey, Jr. 14,406,757 44,937 3,181,817 -
Hayden C. Eaves III 14,410,405 41,289 3,181,817 -
Fredric H. Gould 14,383,185 68,509 3,181,817 -
David H. Hoster II 14,409,182 42,512 3,181,817 -
David M. Osnos 14,379,979 71,715 3,181,817 -
Leland R. Speed 14,402,877 48,817 3,181,817 -
Page 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Form 10-Q Exhibits:
3(a) Articles of Incorporation (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated
April 24, 1997).
3(b) Bylaws of the Registrant (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated
April 24, 1997).
3(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).
3(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).
3(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).
3(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).
3(g) Articles Supplementary of the Company relating to the
7.95% Series D Cumulative Redeemable Preferred Stock
(incorporated by reference to the Company's Form 8-A
filed June 6, 2003).
31(a)Certification of David H. Hoster II, Chief Executive
Officer.
31(b)Certification of N. Keith McKey, Chief Financial
Officer.
32(a)Certification of David H. Hoster II, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350.
32(b)Certification of N. Keith McKey, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350.
(b) Reports on Form 8-K during the quarter ended June 30, 2003:
1. A Form 8-K was filed on April 23, 2003 under Item 12,
incorporating by reference EastGroup's April 22, 2003
press release, setting forth our first-quarter 2003
earnings.
2. A Form 8-K was filed on May 14, 2003 under Item 12,
incorporating by reference EastGroup's May 13, 2003
press release, setting forth our corrected
first-quarter 2003 financial results.
3. A Form 8-K was filed on May 22, 2003 (a) reporting
under Item 5 thereof that on May 16, 2003 we entered
into a Placement Agency Agreement covering the issuance
of 571,429 shares of common stock, and (b) filing as
exhibits under Item 7 thereof, the Placement Agency
Agreement, dated May 16, 2003 and opinions of counsel.
4. A Form 8-K was filed on June 2, 2003 reporting under
Item 5 certain historical ratios of earnings to
combined fixed charges and preferred stock dividends.
5. A Form 8-K was filed on June 4, 2003 under Item 5,
incorporating by reference EastGroup's press releases
dated June 3 and June 4, 2003, reporting the pricing of
our Series D preferred stock offering and the
redemption of our Series A preferred stock.
Page 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: August 13, 2003
EASTGROUP PROPERTIES, INC.
/s/ BRUCE CORKERN
-----------------------------
Bruce Corkern, CPA
Senior Vice President and Controller
/s/ N. KEITH MCKEY
-----------------------------
N. Keith McKey, CPA
Executive Vice President, Chief
Financial Officer and Secretary
Page 22