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EASTGROUP PROPERTIES INC - Annual Report: 2012 (Form 10-K)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012                COMMISSION FILE NUMBER 1-07094
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.)
 
 
190 EAST CAPITOL STREET
 
SUITE 400
 
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,
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES (x) NO ( )
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  YES ( ) NO (x)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES (x)   NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.  (x)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   (Check one):
Large Accelerated Filer (x)     Accelerated Filer ( )      Non-accelerated Filer ( )      Smaller Reporting Company ( )
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ( ) NO (x)
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2012, the last business day of the Registrant's most recently completed second fiscal quarter:  $1,494,036,000.
The number of shares of common stock, $.0001 par value, outstanding as of February 15, 2013 was 29,925,693.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III.

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Page
PART I
 
  
PART II
 
 
PART III
 
 
PART IV
 
 



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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 and intends to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code (the Code), as amended.

Available Information
The Company maintains a website at eastgroup.net.  The Company posts its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange Commission (SEC).  In addition, the Company's website includes items related to corporate governance matters, including, among other things, the Company's corporate governance guidelines, charters of various committees of the Board of Directors, and the Company's code of business conduct and ethics applicable to all employees, officers and directors.  The Company intends to disclose on its website any amendment to, or waiver of, any provision of this code of business conduct and ethics applicable to the Company's directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the New York Stock Exchange.  Copies of these reports and corporate governance documents may be obtained, free of charge, from the Company's website.  Any shareholder also may obtain copies of these documents, free of charge, by sending a request in writing to: Investor Relations, EastGroup Properties, Inc., 190 East Capitol Street, Suite 400, Jackson, MS 39201-2152.

Administration
EastGroup maintains its principal executive office and headquarters in Jackson, Mississippi.  The Company also has regional offices in Orlando, Houston and Phoenix and asset management offices in Charlotte and Dallas.  EastGroup has property management offices in Jacksonville, Tampa, Fort Lauderdale and San Antonio.  Offices at these locations allow the Company to provide property management services to all of its Florida (except Fort Myers), Texas (except El Paso), Arizona, Mississippi and North Carolina properties, which together account for 77% of the Company’s total portfolio on a square foot basis.  In addition, the Company currently provides property administration (accounting of operations) for its entire portfolio.  The regional offices in Florida, Texas and Arizona provide oversight of the Company's development program.  As of February 15, 2013, EastGroup had 65 full-time employees and 3 part-time employees.

Operations
EastGroup is focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina.  The Company’s goal is to maximize shareholder value by being a leading provider of functional, flexible and quality business distribution space for location sensitive tenants primarily in the 5,000 to 50,000 square foot range.  EastGroup’s strategy for growth is based on the ownership of premier distribution facilities generally clustered near major transportation features in supply constrained submarkets.  Over 99% of the Company’s revenue consists of rental income from real estate properties.

During 2012, EastGroup increased its holdings in real estate properties through its acquisition and development programs.  The Company purchased three warehouse distribution complexes (878,000 square feet) and 109.8 acres of development land for a total of $64.7 million.  Also during 2012, the Company began construction of nine development projects containing 757,000 square feet in Houston and Orlando and transferred four properties (273,000 square feet) in Houston from its development program to real estate properties with costs of $18.0 million at the date of transfer.   

EastGroup incurs short-term floating rate bank debt in connection with the acquisition and development of real estate and, as market conditions permit, replaces floating rate debt with equity and/or fixed-rate term loans. In prior years, EastGroup primarily obtained secured debt. In January 2013, Fitch affirmed the Company's credit rating of BBB, and Moody's assigned the Company a credit rating of Baa2. The Company intends to obtain primarily unsecured fixed rate debt in the future. The Company may also access the public debt market in the future as a means to raise capital. EastGroup also may, in appropriate circumstances, acquire one or more properties in exchange for EastGroup 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 require.  In addition, the Company may provide financing to a partner or co-owner in connection with an acquisition of real estate in certain situations.


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Subject to the requirements necessary to maintain EastGroup’s qualifications as a REIT, the Company may acquire securities of entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over those entities.

The Company intends to continue to qualify as a REIT under the Code.  To maintain its status as a REIT, the Company is required to distribute at least 90% of its ordinary taxable income to its stockholders.  If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company.
 
EastGroup has no present intention of acting as an underwriter of offerings of securities of other issuers.  The strategies and policies set forth above were determined and are subject to review by EastGroup's Board of Directors, which may change such strategies or policies based upon its evaluation of the state of the real estate market, the performance of EastGroup's assets, capital and credit market conditions, and other relevant factors.  EastGroup provides annual reports to its stockholders, which contain financial statements audited by the Company’s independent registered public accounting firm.

Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an owner of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property.  Many such laws impose liability without regard to whether the owner knows of, or was responsible for, the presence of such hazardous or toxic substances.  The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to use such property as collateral in its borrowings.  EastGroup’s properties have been subjected to Phase I Environmental Site Assessments (ESAs) by independent environmental consultants and as necessary, have been subjected to Phase II ESAs.  These reports have not revealed any potential significant environmental liability.  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 1A.  RISK FACTORS.

In addition to the other information contained or incorporated by reference in this document, readers should carefully consider the following risk factors.  Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company's financial condition and the performance of its business.  The Company refers to itself as "we", "us" or "our" in the following risk factors.

Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where we own properties.  We may be adversely affected by general economic conditions and local real estate conditions.  For example, an oversupply of industrial properties in a local area or a decline in the attractiveness of our properties to tenants would have a negative effect on us.  Other factors that may affect general economic conditions or local real estate conditions include:

population and demographic trends;
employment and personal income trends;
income tax laws;
changes in interest rates and availability and costs of financing;
increased operating costs, including insurance premiums, utilities and real estate taxes, due to inflation and other factors which may not necessarily be offset by increased rents; and
construction costs.

We may be unable to compete for properties and tenants.  The real estate business is highly competitive.  We compete for interests in properties with other real estate investors and purchasers, some of whom have greater financial resources, revenues and geographical diversity than we have.  Furthermore, we compete for tenants with other property owners.  All of our industrial properties are subject to significant local competition.  We also compete with a wide variety of institutions and other investors for capital funds necessary to support our investment activities and asset growth.

We are subject to significant regulation that constrains our activities.  Local zoning and land use laws, environmental statutes and other governmental requirements restrict our expansion, rehabilitation and reconstruction activities.  These regulations may prevent us from taking advantage of economic opportunities.  Legislation such as the Americans with Disabilities Act may require us to modify our properties, and noncompliance could result in the imposition of fines or an award of damages to private litigants.  Future

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legislation may impose additional requirements.  We cannot predict what requirements may be enacted or what changes may be implemented to existing legislation.

Risks Associated with Our Properties
We may be unable to lease space.  When a lease expires, a tenant may elect not to renew it.  We may not be able to re-lease the property on similar terms, if we are able to re-lease the property at all.  The terms of renewal or re-lease (including the cost of required renovations and/or concessions to tenants) may be less favorable to us than the prior lease.  We also develop some properties with no pre-leasing.  If we are unable to lease all or a substantial portion of our properties, or if the rental rates upon such leasing are significantly lower than expected rates, our cash generated before debt repayments and capital expenditures and our ability to make expected distributions to stockholders may be adversely affected.

We have been and may continue to be affected negatively by tenant bankruptcies and leasing delays.  At any time, a tenant may experience a downturn in its business that may weaken its financial condition.  Similarly, a general decline in the economy may result in a decline in the demand for space at our industrial properties.  As a result, our tenants may delay lease commencement, fail to make rental payments when due, or declare bankruptcy.  Any such event could result in the termination of that tenant’s lease and losses to us, and distributions to investors may decrease.  We receive a substantial portion of our income as rents under long-term leases.  If tenants are unable to comply with the terms of their leases because of rising costs or falling sales, we may deem it advisable to modify lease terms to allow tenants to pay a lower rent or a smaller share of taxes, insurance and other operating costs.  If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to the tenant.  We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with respect to the premises.  If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict the amount and recoverability of our claims against the tenant.  A tenant’s default on its obligations to us could adversely affect our financial condition and the cash we have available for distribution.

We face risks associated with our property development.  We intend to continue to develop properties where market conditions warrant such investment.  Once made, our investments may not produce results in accordance with our expectations.  Risks associated with our current and future development and construction activities include:

the availability of favorable financing alternatives;
the risk that we may not be able to obtain land on which to develop or that due to the increased cost of land, our activities may not be as profitable;
construction costs exceeding original estimates due to rising interest rates and increases in the costs of materials and labor;
construction and lease-up delays resulting in increased debt service, fixed expenses and construction costs;
expenditure of funds and devotion of management's time to projects that we do not complete;
fluctuations of occupancy and rental rates at newly completed properties, which depend on a number of factors, including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower return on our investment; and
complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy and other governmental permits.

We face risks associated with property acquisitions.  We acquire individual properties and portfolios of properties and intend to continue to do so.  Our acquisition activities and their success are subject to the following risks:

when we are able to locate a desired property, competition from other real estate investors may significantly increase the purchase price;
acquired properties may fail to perform as expected;
the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result, our results of operations and financial condition could be adversely affected; and
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, to the transferor with respect to unknown liabilities. As a result, if a claim were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.


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Coverage under our existing insurance policies may be inadequate to cover losses.  We generally maintain insurance policies related to our business, including casualty, general liability and other policies, covering our business operations, employees and assets as appropriate for the markets where our properties and business operations are located.  However, we would be required to bear all losses that are not adequately covered by insurance.  In addition, there may be certain losses that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so, including losses due to floods, wind, earthquakes, acts of war, acts of terrorism or riots.  If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated future revenue from the properties.  In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

We face risks due to lack of geographic and real estate sector diversity.  Substantially all of our properties are located in the Sunbelt region of the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina.  A downturn in general economic conditions and local real estate conditions in these geographic regions, as a result of oversupply of or reduced demand for industrial properties, local business climate, business layoffs and changing demographics, would have a particularly strong adverse effect on us.  Our investments in real estate assets are concentrated in the industrial distribution sector.  This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities included other sectors of the real estate industry.

We face risks due to the illiquidity of real estate which may limit our ability to vary our portfolio.  Real estate investments are relatively illiquid.  Our ability to vary our portfolio in response to changes in economic and other conditions will therefore be limited.  In addition, because of our status as a REIT, the Internal Revenue Code limits our ability to sell our properties.  If we must sell an investment, we cannot ensure that we will be able to dispose of the investment on terms favorable to the Company.

We are subject to environmental laws and regulations.  Current and previous real estate owners and operators may be required under various federal, state and local laws, ordinances and regulations to investigate and clean up hazardous substances released at the properties they own or operate.  They may also be liable to the government or to third parties for substantial property or natural resource damage, investigation costs and cleanup costs.  Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous substances.  In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination.  Contamination may adversely affect the owner’s ability to use, sell or lease real estate or to borrow using the real estate as collateral.  We have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we currently or formerly owned.  Environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed of, released from, or present at the property.  A conveyance of the property, therefore, may not relieve the owner or operator from liability.  Although ESAs have been conducted at our properties to identify potential sources of contamination at the properties, such ESAs do not reveal all environmental liabilities or compliance concerns that could arise from the properties.  Moreover, material environmental liabilities or compliance concerns may exist, of which we are currently unaware, that in the future may have a material adverse effect on our business, assets or results of operations.

Compliance with new laws or regulations related to climate change, including compliance with “green” building codes, may require us to make improvements to our existing properties.  Proposed legislation could also increase the costs of energy and utilities.  The cost of the proposed legislation may adversely affect our financial position, results of operations and cash flows.  We may be adversely affected by floods, hurricanes and other climate related events.

Financing Risks
We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk.  We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest.  In addition, certain of our mortgages will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.”  Therefore, we will likely need to refinance at least a portion of our outstanding debt as it matures.  There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt.

We face risks associated with our dependence on external sources of capital.  In order to qualify as a REIT, we are required each year to distribute to our stockholders at least 90% of our ordinary taxable income, and we are subject to tax on our income to the extent it is not distributed.  Because of this distribution requirement, we may not be able to fund all future capital needs from cash retained from operations.  As a result, to fund capital needs, we rely on third-party sources of capital, which we may not be able to obtain on favorable terms, if at all.  Our access to third-party sources of capital depends upon a number of factors, including (i) general market conditions; (ii) the market’s perception of our growth potential; (iii) our current and potential future earnings

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and cash distributions; and (iv) the market price of our capital stock.  Additional debt financing may substantially increase our debt-to-total market capitalization ratio.  Additional equity financing may dilute the holdings of our current stockholders.

Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition.  The terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage.  These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations.  If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flow and our financial condition would be adversely affected.

Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings deteriorate, it may be more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other potentially negative consequences under our current and future credit facilities and debt instruments.

Fluctuations in interest rates may adversely affect our operations and value of our stock.  As of December 31, 2012, we had approximately $76.2 million of variable interest rate debt.  As of December 31, 2012, the weighted average interest rate on our variable rate debt was 1.12%.  We may incur additional indebtedness in the future that bears interest at a variable rate or we may be required to refinance our existing debt at higher rates.  Accordingly, increases in interest rates could adversely affect our financial condition, our ability to pay expected distributions to stockholders and the value of our stock.

A lack of any limitation on our debt could result in our becoming more highly leveraged.  Our governing documents do not limit the amount of indebtedness we may incur.  Accordingly, our Board of Directors may incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT.  We might become more highly leveraged as a result, and our financial condition and cash available for distribution to stockholders might be negatively affected and the risk of default on our indebtedness could increase.

Other Risks
The market value of our common stock could decrease based on our performance and market perception and conditions.  The market value of our common stock may be based primarily upon the market’s perception of our growth potential and current and future cash dividends and may be secondarily based upon the real estate market value of our underlying assets.  The market price of our common stock is influenced by the dividend on our common stock relative to market interest rates.  Rising interest rates may lead potential buyers of our common stock to expect a higher dividend rate, which would adversely affect the market price of our common stock.  In addition, rising interest rates would result in increased expense, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.

The current economic situation may adversely affect our operating results and financial condition. Turmoil in the global financial markets may have an adverse impact on the availability of credit to businesses generally and could lead to a further weakening of the U.S. and global economies.  Currently these conditions have not impaired our ability to access credit markets and finance our operations.  However, our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have an impact on our flexibility to react to changing economic and business conditions.  Furthermore, deteriorating economic conditions including business layoffs, downsizing, industry slowdowns and other similar factors that affect our customers could continue to negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in the collateral securing any loan investments we may make.  Additionally, the economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us.  No assurances can be given that the effects of the current economic situation will not have a material adverse effect on our business, financial condition and results of operations.

We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will not be allowed to deduct distributions to stockholders in computing our taxable income and will be subject to federal income tax, including any applicable alternative minimum tax, at regular corporate rates.  In addition, we may be barred from qualification as a REIT for the four years following disqualification.  The additional tax incurred at regular corporate rates would significantly reduce the cash flow available for distribution to stockholders and for debt service.  Furthermore, we would no longer be required by the Internal Revenue Code to make any distributions to our stockholders as a condition of REIT qualification.  Any distributions to stockholders would be taxable as ordinary income to the extent of our current and accumulated earnings and profits. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions, subject to limitations under the Internal Revenue Code.  To

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qualify as a REIT, we must comply with certain highly technical and complex requirements.  We cannot be certain we have complied with these requirements because there are few judicial and administrative interpretations of these provisions.  In addition, facts and circumstances that may be beyond our control may affect our ability to qualify as a REIT.  We cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the federal income tax consequences of qualification.  We cannot assure you that we will remain qualified as a REIT.

There is a risk of changes in the tax law applicable to real estate investment trusts.  Since the Internal Revenue Service, the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted.  Any such legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our investors.

We face possible adverse changes in tax laws.  From time to time, changes in state and local tax laws or regulations are enacted which may result in an increase in our tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition, results of operations and the amount of cash available for the payment of dividends.

Our Charter contains provisions that may adversely affect the value of EastGroup stock.  Our charter prohibits any holder from acquiring more than 9.8% (in value or in number, whichever is more restrictive) of our outstanding equity stock (defined as all of our classes of capital stock, except our excess stock (of which there is none outstanding)) unless our Board of Directors grants a waiver.  The ownership limit may limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an investor were attempting to assemble a block of shares in excess of 9.8% of the outstanding shares of equity stock or otherwise effect a change in control.  Also, the request of the holders of a majority or more of our common stock is necessary for stockholders to call a special meeting.  We also require advance notice by stockholders for the nomination of directors or the proposal of business to be considered at a meeting of stockholders.

The Company faces risks in attracting and retaining key personnel.  Many of our senior executives have strong industry reputations, which aid us in identifying acquisition and development opportunities and negotiating with tenants and sellers of properties.  The loss of the services of these key personnel could affect our operations because of diminished relationships with existing and prospective tenants, property sellers and industry personnel.  In addition, attracting new or replacement personnel may be difficult in a competitive market.
 
We have severance and change in control agreements with certain of our officers that may deter changes in control of the Company.  If, within a certain time period (as set in the officer’s agreement) following a change in control, we terminate the officer's employment other than for cause, or if the officer elects to terminate his or her employment with us for reasons specified in the agreement, we will make a severance payment equal to the officer's average annual compensation times an amount specified in the officer's agreement, together with the officer's base salary and vacation pay that have accrued but are unpaid through the date of termination.  These agreements may deter a change in control because of the increased cost for a third party to acquire control of us.

Our Board of Directors may authorize and issue securities without stockholder approval.  Under our Charter, the Board has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the Board of Directors may determine.  The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests.

Maryland business statutes may limit the ability of a third party to acquire control of us.  Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other things, the duties of the directors in unsolicited takeover situations.  The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholders rights plan, (c) make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act, or (d) act or fail to act solely because of the effect of the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.  Moreover, under Maryland law the act of a director of a Maryland corporation relating to or affecting an acquisition or potential acquisition of control is not subject to any higher duty or greater scrutiny than is applied to any other act of a director.  Maryland law also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under Maryland law.


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The Maryland Business Combination Act provides that unless exempted, a Maryland corporation may not engage in business combinations, including mergers, dispositions of 10 percent or more of its assets, certain issuances of shares of stock and other specified transactions, with an "interested stockholder" or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met.  An interested stockholder is generally a person owning or controlling, directly or indirectly, 10 percent or more of the voting power of the outstanding stock of the Maryland corporation.

The Maryland Control Share Acquisition Act provides that "control shares" of a corporation acquired in a "control share acquisition" shall have no voting rights except to the extent approved by a vote of two-thirds of the votes eligible to cast on the matter.  "Control Shares" means shares of stock that, if aggregated with all other shares of stock previously acquired by the acquirer, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of the voting power:  one-tenth or more but less than one-third, one-third or more but less than a majority, or a majority or more of all voting power.  A "control share acquisition" means the acquisition of control shares, subject to certain exceptions.

If voting rights of control shares acquired in a control share acquisition are not approved at a stockholders' meeting, then subject to certain conditions and limitations, the issuer may redeem any or all of the control shares for fair value.  If voting rights of such control shares are approved at a stockholders' meeting and the acquirer becomes entitled to vote a majority of the shares of stock entitled to vote, all other stockholders may exercise appraisal rights.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

EastGroup owned 275 industrial properties and one office building at December 31, 2012.  These properties are located primarily in the Sunbelt states of Florida, Texas, Arizona, California and North Carolina, and the majority are clustered around major transportation features in supply constrained submarkets.  As of February 15, 2013, EastGroup’s portfolio was 93.9% leased and 93.2% occupied.  The Company has developed approximately 33% of its total portfolio, including real estate properties and development properties in lease-up and under construction.  The Company’s focus is the ownership of business distribution space (78% of the total portfolio) with the remainder in bulk distribution space (17%) and business service space (5%).  Business distribution space properties are typically multi-tenant buildings with a building depth of 200 feet or less, clear height of 20-24 feet, office finish of 10-25% and truck courts with a depth of 100-120 feet.  See Consolidated Financial Statement Schedule III – Real Estate Properties and Accumulated Depreciation for a detailed listing of the Company’s properties.

At December 31, 2012, EastGroup did not own any single property with a book value that was 10% or more of total book value or with gross revenues that were 10% or more of total gross revenues.

The Company's lease expirations, excluding month-to-month leases of 245,000 square feet, for the next ten years are detailed below:
Years Ending December 31,
 
Number of Leases Expiring
 
Total Area of Leases Expiring
(in Square Feet)
 
Annualized Current Base Rent of Leases Expiring (1)
 
% of Total Base Rent of Leases Expiring
2013
 
304
 
5,252,000

 
$
30,387,000

 
20.6%
2014
 
251
 
4,046,000

 
$
21,493,000

 
14.5%
2015
 
282
 
6,165,000

 
$
31,151,000

 
21.1%
2016
 
183
 
4,183,000

 
$
18,687,000

 
12.6%
2017
 
126
 
3,910,000

 
$
20,928,000

 
14.2%
2018
 
69
 
2,228,000

 
$
9,636,000

 
6.5%
2019
 
20
 
761,000

 
$
3,898,000

 
2.6%
2020
 
17
 
969,000

 
$
5,348,000

 
3.6%
2021
 
6
 
404,000

 
$
1,623,000

 
1.1%
2022 and beyond
 
21
 
990,000

 
$
3,672,000

 
2.5%
(1)
Represents the monthly cash rental rates, excluding tenant expense reimbursements, as of December 31, 2012, multiplied by twelve months.



9



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.  MINE SAFETY DISCLOSURES.

Not applicable.

PART II.  OTHER INFORMATION

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s shares of common stock are listed for trading on the 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 the per share distributions paid for each quarter.

Shares of Common Stock Market Prices and Dividends

Quarter
 
Calendar Year 2012
 
Calendar Year 2011
 
High
 
Low
 
Distributions
 
High
 
Low
 
Distributions
First
 
$
50.56

 
43.83

 
$
0.52

 
$
45.53

 
40.79

 
$
0.52

Second
 
53.30

 
47.20

 
0.52

 
46.91

 
41.36

 
0.52

Third
 
55.55

 
51.60

 
0.53

 
46.32

 
34.76

 
0.52

Fourth
 
54.03

 
50.23

 
0.53

 
44.71

 
36.01

 
0.52

 
 
 

 
 

 
$
2.10

 
 

 
 

 
$
2.08


As of February 15, 2013, there were 621 holders of record of the Company’s 29,925,693 outstanding shares of common stock.  The Company distributed all of its 2012 and 2011 taxable income to its stockholders.  Accordingly, no significant provisions for income taxes were necessary.  The following table summarizes the federal income tax treatment for all distributions by the Company for the years 2012 and 2011.

Federal Income Tax Treatment of Share Distributions
 
Years Ended December 31,
2012
 
2011
Common Share Distributions:
 
 
 
Ordinary income
$
1.64506

 
1.68516

Return of capital
0.29240

 
0.39484

Unrecaptured Section 1250 capital gain
0.14942

 

Other capital gain
0.01312

 

Total Common Distributions
$
2.10000

 
2.08000

 
Securities Authorized For Issuance Under Equity Compensation Plans
See Item 12 of this Annual Report on Form 10-K, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for certain information regarding the Company’s equity compensation plans.

10




Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Period
 
Total Number
of Shares
Purchased (1)
 
Average Price
Paid Per
Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (2)
10/01/12 thru 10/31/12
 

 
$

 

 

11/01/12 thru 11/30/12
 

 

 

 

12/01/12 thru 12/31/12
 
18,268

 
53.24

 

 

Total
 
18,268

 
$
53.24

 

 
 


(1)
As permitted under the Company's equity compensation plans, these shares were withheld by the Company to satisfy the tax withholding obligations for those employees who elected this option in connection with the vesting of shares of restricted stock. Shares withheld for tax withholding obligations do not affect the total number of remaining shares available for repurchase under the Company's common stock repurchase plan.

(2)
During the first quarter of 2012, EastGroup's Board of Directors terminated its previous plan which authorized the repurchase of up to 1,500,000 shares of its outstanding common stock.  Under the common stock repurchase plan, the Company purchased a total of 827,700 shares for $14,170,000 (an average of $17.12 per share).  The Company has not repurchased any shares under this plan since 2000.

11




Performance Graph
The following graph compares, over the five years ended December 31, 2012, the cumulative total shareholder return on EastGroup’s common stock with the cumulative total return of the Standard & Poor’s 500 Total Return Index (S&P 500 Total Return) and the FTSE Equity REIT index prepared by the National Association of Real Estate Investment Trusts (FTSE NAREIT Equity REITs).

The performance graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent that the Company specifically incorporates it by reference into such filing.

 
Fiscal years ended December 31,
2007
 
2008
 
2009
 
2010
 
2011
 
2012
EastGroup
$
100.00

 
89.22

 
101.20

 
118.11

 
127.50

 
164.18

FTSE NAREIT Equity REITs
100.00

 
62.27

 
79.70

 
101.98

 
110.43

 
130.37

S&P 500 Total Return
100.00

 
63.00

 
79.67

 
91.67

 
93.60

 
108.58


The information above assumes that the value of the investment in shares of EastGroup’s common stock and each index was $100 on December 31, 2007, and that all dividends were reinvested.





12



ITEM 6.   SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the Company derived from the audited consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.
 
Years Ended December 31,
2012
 
2011
 
2010
 
2009
 
2008
OPERATING DATA
(In thousands, except per share data)
REVENUES
 
 
 
 
 
 
 
 
 
Income from real estate operations                                                                                       
$
186,117

 
173,021

 
171,887

 
170,956

 
166,652

Other income                                                                                       
61

 
142

 
82

 
81

 
248

 
186,178

 
173,163

 
171,969

 
171,037

 
166,900

Expenses
 

 
 

 
 

 
 

 
 

Expenses from real estate operations
52,993

 
48,913

 
50,679

 
49,762

 
46,773

Depreciation and amortization
61,696

 
56,757

 
57,806

 
53,392

 
50,594

General and administrative
10,488

 
10,691

 
10,260

 
8,894

 
8,547

Acquisition costs
188

 
252

 
72

 
177

 

 
125,365

 
116,613

 
118,817

 
112,225

 
105,914

Operating income
60,813

 
56,550

 
53,152

 
58,812

 
60,986

Other income (expense)
 

 
 

 
 

 
 

 
 

Interest expense
(35,371
)
 
(34,709
)
 
(35,171
)
 
(32,520
)
 
(30,192
)
Other
456

 
717

 
624

 
653

 
1,365

Income from continuing operations
25,898

 
22,558

 
18,605

 
26,945

 
32,159

Discontinued operations
 

 
 

 
 

 
 

 
 

Income from real estate operations
479

 
276

 
150

 
120

 
577

Gain on sales of nondepreciable real estate investments, net of tax
167

 

 

 

 

Gain on sales of real estate investments
6,343

 

 

 
29

 
2,032

Income from discontinued operations
6,989

 
276

 
150

 
149

 
2,609

Net income
32,887

 
22,834

 
18,755

 
27,094

 
34,768

  Net income attributable to noncontrolling interest in joint ventures
(503
)
 
(475
)
 
(430
)
 
(435
)
 
(626
)
Net income attributable to EastGroup Properties, Inc.
32,384

 
22,359

 
18,325

 
26,659

 
34,142

Dividends on Series D preferred shares

 

 

 

 
1,326

Costs on redemption of Series D preferred shares

 

 

 

 
682

Net income attributable to EastGroup Properties, Inc.
common stockholders
32,384

 
22,359

 
18,325

 
26,659

 
32,134

Other comprehensive income (loss) - Cash flow hedges
(392
)
 

 
318

 
204

 
(466
)
TOTAL COMPREHENSIVE INCOME
$
31,992

 
22,359

 
18,643

 
26,863

 
31,668

BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
0.89

 
0.82

 
0.67

 
1.03

 
1.20

Income from discontinued operations
0.24

 
0.01

 
0.01

 
0.01

 
0.11

Net income attributable to common stockholders
$
1.13

 
0.83

 
0.68

 
1.04

 
1.31

Weighted average shares outstanding
28,577

 
26,897

 
26,752

 
25,590

 
24,503

DILUTED PER COMMON SHARE DATA FOR NET INCOMEATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
0.89

 
0.82

 
0.67

 
1.03

 
1.20

Income from discontinued operations
0.24

 
0.01

 
0.01

 
0.01

 
0.10

Net income attributable to common stockholders
$
1.13

 
0.83

 
0.68

 
1.04

 
1.30

Weighted average shares outstanding
28,677

 
26,971

 
26,824

 
25,690

 
24,653

AMOUNTS ATTRIBUTABLE TO EASTGROUP
PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
25,395

 
22,083

 
18,175

 
26,510

 
29,525

Income from discontinued operations
6,989

 
276

 
150

 
149

 
2,609

Net income attributable to common stockholders
$
32,384

 
22,359

 
18,325

 
26,659

 
32,134

OTHER PER SHARE DATA
 

 
 

 
 

 
 

 
 

Book value, at end of year
$
16.25

 
14.56

 
15.16

 
16.57

 
16.39

Common distributions declared
2.10

 
2.08

 
2.08

 
2.08

 
2.08

Common distributions paid
2.10

 
2.08

 
2.08

 
2.08

 
2.08

BALANCE SHEET DATA (AT END OF YEAR)
 

 
 

 
 

 
 

 
 

 Real estate investments, at cost (1)
$
1,780,098

 
1,669,460

 
1,528,048

 
1,475,062

 
1,409,476

 Real estate investments, net of accumulated depreciation (1)
1,283,851

 
1,217,655

 
1,124,861

 
1,120,317

 
1,099,125

Total assets
1,354,102

 
1,286,516

 
1,183,276

 
1,178,518

 
1,156,205

Mortgage, term and bank loans payable
813,926

 
832,686

 
735,718

 
692,105

 
695,692

Total liabilities
862,926

 
880,907

 
771,770

 
731,422

 
742,829

Noncontrolling interest in joint ventures
4,864

 
2,780

 
2,650

 
2,577

 
2,536

Total stockholders’ equity
486,312

 
402,829

 
408,856

 
444,519

 
410,840

(1)
Includes mortgage loans receivable and unconsolidated investment. See Notes 4 and 5 in the Notes to Consolidated Financial Statements. 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW
EastGroup’s goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality business distribution space for location sensitive tenants primarily in the 5,000 to 50,000 square foot range.  The Company acquires, develops and operates distribution facilities, the majority of which are clustered around major transportation features in supply constrained submarkets in major Sunbelt regions.  The Company’s core markets are in the states of Florida, Texas, Arizona, California and North Carolina.

The operations of the Company improved during 2012 compared to 2011.  The Company believes its current operating cash flow and lines of credit provide the capacity to fund the operations of the Company for 2013.  The Company also believes it can issue common and/or preferred equity and obtain mortgage and term loan financing from insurance companies and financial institutions as evidenced by the closing of a $54 million, non-recourse first mortgage loan in January 2012, the closing of an $80 million unsecured term loan in August 2012, and the continuous common equity offering programs, which provided net proceeds to the Company of $109.6 million during 2012, as described in Liquidity and Capital Resources. In addition, the Company's $225 million lines of credit were repaid and replaced in January 2013 with new credit facilities totaling $250 million, also as described in Liquidity and Capital Resources.

The Company’s primary revenue is rental income; as such, EastGroup’s greatest challenge is leasing space.  During 2012, leases expired on 5,451,000 square feet (17.8%) of EastGroup’s total square footage of 30,651,000, and the Company was successful in renewing or re-leasing 81% of the expiring square feet.  In addition, EastGroup leased 2,048,000 square feet of other vacant space during the year.  During 2012, average rental rates on new and renewal leases increased by 0.7%.  Property net operating income (PNOI) from same properties, defined as operating properties owned during the entire current period and prior year reporting period, increased 0.8% for 2012 compared to 2011.

EastGroup’s total leased percentage was 95.1% at December 31, 2012 compared to 94.7% at December 31, 2011.  Leases scheduled to expire in 2013 were 17.1% of the portfolio on a square foot basis at December 31, 2012.  As of February 15, 2013, leases scheduled to expire during the remainder of 2013 were 13.7% of the portfolio on a square foot basis.

The Company generates new sources of leasing revenue through its acquisition and development programs.  During 2012, EastGroup purchased three warehouse distribution complexes (878,000 square feet) and 109.8 acres of development land for a total of $64.7 million.  The operating properties are located in Dallas (722,000 square feet), Hayward, California (84,000 square feet), and Tampa (72,000 square feet).  The development land is located in Houston (71.4 acres), Tampa (18.0 acres), Chandler (Phoenix) (10.5 acres), Denver (5.8 acres) and Dallas (4.1 acres).

EastGroup continues to see targeted development as a contributor to the Company’s long-term growth.  The Company mitigates risks associated with development through a Board-approved maximum level of land held for development and by adjusting development start dates according to leasing activity.  During 2012, the Company began construction of nine development projects containing 757,000 square feet in Houston and Orlando.  Also in 2012, EastGroup transferred four properties (273,000 square feet) in Houston from its development program to real estate properties with costs of $18.0 million at the date of transfer.  As of December 31, 2012, EastGroup’s development program consisted of 14 buildings (1,055,000 square feet) located in Houston, San Antonio and Orlando.  The projected total cost for the development projects, which were collectively 61% leased as of February 15, 2013, is $80.4 million, of which $29.0 million remained to be invested as of December 31, 2012.

Typically, the Company initially funds its acquisition and development programs through its $250 million lines of credit (as discussed in Liquidity and Capital Resources).  As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt to replace short-term bank borrowings. In prior years, EastGroup primarily obtained secured debt. In January 2013, Fitch affirmed the Company's credit rating of BBB, and Moody's assigned the Company a credit rating of Baa2. The Company intends to obtain primarily unsecured fixed rate debt in the future. The Company may also access the public debt market in the future as a means to raise capital.

EastGroup has one reportable segment – industrial properties.  These properties are primarily located in major Sunbelt regions of the United States, have similar economic characteristics and also meet the other criteria permitting 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:  (1) property net operating income (PNOI), defined as income from real estate operations less property operating expenses (excluding interest expense, depreciation expense on buildings and improvements, and amortization expense on capitalized leasing costs and in-place lease intangibles), and (2) funds from operations attributable to common stockholders (FFO), defined as net income (loss) attributable to common stockholders computed in accordance with U.S. generally accepted accounting principles

13



(GAAP), excluding gains or losses from sales of depreciable real estate property and impairment losses, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  The Company calculates FFO based on the National Association of Real Estate Investment Trusts’ (NAREIT) definition.

PNOI is a supplemental industry reporting measurement used to evaluate the performance of the Company’s real estate investments. The Company believes 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 real estate investment trusts (REITs).  The major factors influencing 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 space and to recover from tenants the operating costs associated with those leases.

PNOI is comprised of Income from real estate operations, less Expenses from real estate operations.  PNOI was calculated as follows for the three fiscal years ended December 31, 2012, 2011 and 2010.
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands)
Income from real estate operations                                                                                     
$
186,117

 
173,021

 
171,887

Expenses from real estate operations                                                                                     
52,993

 
48,913

 
50,679

PROPERTY NET OPERATING INCOME                                                                                     
$
133,124

 
124,108

 
121,208


Income from real estate operations is comprised of rental income, expense reimbursement pass-through income and other real estate income including lease termination fees.  Expenses from real estate operations is comprised of property taxes, insurance, utilities, repair and maintenance expenses, management fees, other operating costs and bad debt expense.  Generally, the Company’s most significant operating expenses are property taxes and insurance.  Tenant leases may be net leases in which the total operating expenses are recoverable, modified gross leases in which some of the operating expenses are recoverable, or gross leases in which no expenses are recoverable (gross leases represent only a small portion of the Company’s total leases).  Increases in property operating expenses are fully recoverable under net leases and recoverable to a high degree under modified gross leases.  Modified gross leases often include base year amounts and expense increases over these amounts are recoverable.  The Company’s exposure to property operating expenses is primarily due to vacancies and leases for occupied space that limit the amount of expenses that can be recovered. The following table presents reconciliations of Net Income to PNOI for the three fiscal years ended December 31, 2012, 2011 and 2010.
 
Years Ended December 31,
2012
 
2011
 
2010
 
 
(In thousands)
 
 
NET INCOME                                                                                     
$
32,887

 
22,834

 
18,755

Equity in earnings of unconsolidated investment                                                                                     
(356
)
 
(347
)
 
(335
)
Interest income                                                                                     
(369
)
 
(334
)
 
(336
)
Other income                                                                                     
(61
)
 
(142
)
 
(82
)
Gain on sales of land                                                                                     

 
(36
)
 
(37
)
Income from discontinued operations                                                                                     
(6,989
)
 
(276
)
 
(150
)
Depreciation and amortization from continuing operations
61,696

 
56,757

 
57,806

Interest expense                                                                                     
35,371

 
34,709

 
35,171

General and administrative expense                                                                                     
10,488

 
10,691

 
10,260

Interest rate swap ineffectiveness
269

 

 

Acquisition costs                                                                                     
188

 
252

 
72

Other expense

 

 
84

PROPERTY NET OPERATING INCOME                                                                                     
$
133,124

 
124,108

 
121,208

 
The Company believes FFO is a meaningful supplemental measure of operating performance for equity REITs.  The Company believes excluding depreciation and amortization in the calculation of FFO is appropriate since real estate values have historically increased or decreased based on market conditions.  FFO is not considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company’s financial performance, nor is it a measure of the Company’s liquidity or indicative

14



of funds available to provide for the Company’s cash needs, including its ability to make distributions.  In addition, FFO, as reported by the Company, may not be comparable to FFO by other REITs that do not define the term in accordance with the current NAREIT definition.  The Company’s key drivers affecting FFO are changes in PNOI (as discussed above), interest rates, the amount of leverage the Company employs and general and administrative expense.  The following table presents reconciliations of Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to FFO Attributable to Common Stockholders for the three fiscal years ended December 31, 2012, 2011 and 2010.
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands, except per share data)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS                                                                                     
$
32,384

 
22,359

 
18,325

Depreciation and amortization from continuing operations
61,696

 
56,757

 
57,806

Depreciation and amortization from discontinued operations
578

 
694

 
544

Depreciation from unconsolidated investment                                                                                     
133

 
133

 
132

Depreciation and amortization from noncontrolling interest                                                                                     
(256
)
 
(219
)
 
(210
)
Gain on sales of real estate investments                                                                                     
(6,343
)
 

 

FUNDS FROM OPERATIONS (FFO) ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                                                     
$
88,192

 
79,724

 
76,597

Net income attributable to common stockholders per diluted share
$
1.13

 
0.83

 
0.68

Funds from operations attributable to common stockholders per diluted share
3.08

 
2.96

 
2.86

Diluted shares for earnings per share and funds from operations
28,677

 
26,971

 
26,824


The Company analyzes the following performance trends in evaluating the progress of the Company:
 
The FFO change per share represents the increase or decrease in FFO per share from the current year compared to the prior year.  For the year 2012, FFO was $3.08 per share compared with $2.96 per share for 2011, an increase of 4.1% per share.

For the year ended December 31, 2012, PNOI increased by $9,016,000, or 7.3%, compared to 2011. PNOI increased $6,206,000 from 2011 and 2012 acquisitions, $1,833,000 from newly developed properties, and $1,017,000 from same property operations.

The same property net operating income change represents the PNOI increase or decrease for the same operating properties owned during the entire current period and prior year reporting period.  PNOI from same properties increased 0.8% for the year ended December 31, 2012, compared to 2011.

Same property average occupancy represents the average month-end percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage for the same operating properties owned during the entire current period and prior year reporting period. Same property average occupancy for the year ended December 31, 2012, was 93.6% compared to 91.7% for 2011.

The same property average rental rate represents the average annual rental rates of leases in place for the same operating properties owned during the entire current period and prior year reporting period. The same property average rental rate was $5.26 per square foot for the year ended December 31, 2012, compared to $5.35 per square foot for 2011.

Occupancy is the percentage of leased square footage for which the lease term has commenced compared to the total leasable square footage as of the close of the reporting period.  Occupancy at December 31, 2012 was 94.6%.  Quarter-end occupancy ranged from 93.1% to 94.6% over the period from December 31, 2011 to December 31, 2012.

Rental rate change represents the rental rate increase or decrease on new and renewal leases compared to the prior leases on the same space.  For the year 2012, rental rate increases on new and renewal leases (21.1% of total square footage) averaged 0.7%.

For the year 2012, termination fee income was $389,000 compared to $565,000 for 2011.  Bad debt expense was $640,000 for 2012 compared to $550,000 for 2011.

15




CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s management considers the following accounting policies and estimates to be critical to the reported operations of the Company.

Real Estate Properties
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on their respective fair values.  Goodwill is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired.  Factors considered by management in allocating the cost of the properties acquired include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.  The allocation to tangible assets (land, building and improvements) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models.  The purchase price is also allocated among the following categories of intangible assets:  the above or below market component of in-place leases, the value of in-place leases, and the value of customer relationships.  The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.  The amounts allocated to above and below market leases are included in Other Assets and Other Liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the respective leases.  The total amount of intangible assets is further allocated to in-place lease values and customer relationship values based upon management’s assessment of their respective values.  These intangible assets are included in Other Assets on the Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.

During the period in which a property is under development, costs associated with development (i.e., land, construction costs, interest expense, property taxes, and other direct and indirect costs associated with development) are aggregated into the total capitalized costs of the property.  Included in these costs are management’s estimates for the portions of internal costs (primarily personnel costs) that are deemed directly or indirectly related to such development activities. The internal costs are allocated to specific development properties based on construction activity.

The Company reviews its real estate investments 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 knows of no impairment issues nor has it experienced any impairment issues in recent years.  EastGroup currently has the intent and ability to hold its real estate investments and to hold its land inventory for future development.  In the event of impairment, the property’s basis would be reduced, and the impairment would be recognized as a current period charge on the Consolidated Statements of Income and Comprehensive Income.

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 reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired.  On a quarterly basis, the Company evaluates outstanding receivables and estimates the allowance for doubtful accounts.  Management specifically analyzes aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.  The Company believes its allowance for doubtful accounts is adequate for its outstanding receivables for the periods presented.  In the event the allowance for doubtful accounts is insufficient for an account that is subsequently written off, additional bad debt expense would be recognized as a current period charge on the Consolidated Statements of Income and Comprehensive Income.

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 at least 90% of its ordinary taxable income to its stockholders.  If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company.  The Company distributed all of its 2012, 2011 and 2010 taxable income to its stockholders.  Accordingly, no significant provisions for income taxes were necessary.

16



FINANCIAL CONDITION

EastGroup’s assets were $1,354,102,000 at December 31, 2012, an increase of $67,586,000 from December 31, 2011.  Liabilities decreased $17,981,000 to $862,926,000, and equity increased $85,567,000 to $491,176,000 during the same period.  The following paragraphs explain these changes in detail.

Assets
Real Estate Properties
Real Estate Properties increased $69,333,000 during the year ended December 31, 2012, primarily due to the purchase of the operating properties detailed below, capital improvements at the Company's properties and the transfer of four properties from Development, as detailed under Development below. These increases were offset by the sale of four properties during the year. Two properties in Tampa, which were held in the Company's taxable REIT subsidiary, sold for $578,000; the Company recognized an after-tax gain of $167,000 in connection with the sale. The Company also sold a property in Phoenix for $7,019,000 and recognized a gain of $1,869,000. In addition, the Company sold a property in Tulsa for $10,300,000 and recognized a gain of $4,474,000.
 
REAL ESTATE PROPERTIES ACQUIRED IN 2012
 
Location
 
Size
 
Date
Acquired
 
Cost (1)
 
 
 
 
(Square feet)
 
 
 
(In thousands)
Madison Distribution Center
 
Tampa, FL
 
72,000

 
01/31/2012
 
$
3,273

Wiegman Distribution Center II
 
Hayward, CA
 
84,000

 
08/20/2012
 
6,894

Valwood Distribution Center
 
Dallas, TX
 
722,000

 
12/21/2012
 
38,767

Total Acquisitions
 
 
 
878,000

 
 
 
$
48,934


(1)
Total cost of the properties acquired was $51,750,000, of which $48,934,000 was allocated to Real Estate Properties as indicated above.  Intangibles associated with the purchases of real estate were allocated as follows:  $3,305,000 to in-place lease intangibles, $244,000 to above market leases (both included in Other Assets on the Consolidated Balance Sheets) and $733,000 to below market leases (included in Other Liabilities on the Consolidated Balance Sheets).  All of these costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.  

The Company made capital improvements of $18,164,000 on existing and acquired properties (included in the Capital Expenditures table under Results of Operations).  Also, the Company incurred costs of $1,338,000 on development properties subsequent to transfer to Real Estate Properties; the Company records these expenditures as development costs on the Consolidated Statements of Cash Flows.
 
Development
EastGroup’s investment in development at December 31, 2012 consisted of properties in lease-up and under construction of $51,422,000 and prospective development (primarily land) of $96,833,000.  The Company’s total investment in development at December 31, 2012 was $148,255,000 compared to $112,149,000 at December 31, 2011.  Total capital invested for development during 2012 was $55,404,000, which consisted of costs of $52,499,000 and $1,567,000 as detailed in the development activity table below and costs of $1,338,000 on development properties subsequent to transfer to Real Estate Properties. The capitalized costs incurred on development properties subsequent to transfer to Real Estate Properties include capital improvements at the properties and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel costs).

EastGroup capitalized internal development costs of $2,810,000 during the year ended December 31, 2012, compared to $1,334,000 during 2011. The increase in capitalized internal development costs in 2012 as compared to 2011 resulted from increased activity in the Company's development program in 2012.

During 2012, EastGroup purchased 109.8 acres of development land in Dallas, Houston, Tampa, Denver and Chandler (Phoenix) for $12,998,000.  Costs associated with these acquisitions are included in the development activity table.  The Company transferred four development properties to Real Estate Properties during 2012 with a total investment of $17,960,000 as of the date of transfer.

17



DEVELOPMENT
 
 
 
Costs Incurred
 
 
 
 
 
 
 
Costs
Transferred
 in 2012 (1)
 
For the
Year Ended
12/31/12
 
Cumulative
as of
12/31/12
 
Estimated
Total Costs (2)
 
Building Completion Date
 
 
 
 
(In thousands)
 
 
LEASE-UP
 
Building Size (Square feet)
 
 
 
 
 
 
 
 
 
 
Southridge IX, Orlando, FL
 
76,000

 
$

 
938

 
6,300

 
7,100

 
03/12
World Houston 31B, Houston, TX
 
35,000

 

 
1,591

 
2,951

 
3,900

 
04/12
Thousand Oaks 1, San Antonio, TX
 
36,000

 

 
1,130

 
3,539

 
4,700

 
05/12
Thousand Oaks 2, San Antonio, TX
 
73,000

 

 
1,645

 
4,809

 
5,600

 
05/12
Beltway Crossing X, Houston, TX
 
78,000

 

 
1,810

 
3,816

 
4,300

 
06/12
Southridge XI, Orlando, FL
 
88,000

 
2,298

 
3,167

 
5,465

 
6,200

 
09/12
Total Lease-Up
 
386,000

 
2,298

 
10,281

 
26,880

 
31,800

 
 
UNDER CONSTRUCTION
 
 
 
 
 
 
 
 
 
 
 
Anticipated Building Completion Date
Beltway Crossing XI, Houston, TX
 
87,000

 
1,184

 
2,416

 
3,600

 
4,900

 
02/13
World Houston 33, Houston, TX
 
160,000

 
1,338

 
7,746

 
9,084

 
10,900

 
02/13
World Houston 34, Houston, TX
 
57,000

 
1,039

 
1,636

 
2,675

 
3,600

 
03/13
World Houston 35, Houston, TX
 
45,000

 
806

 
1,307

 
2,113

 
2,800

 
03/13
Ten West Crossing 1, Houston, TX
 
30,000

 
423

 
1,319

 
1,742

 
3,800

 
05/13
World Houston 36, Houston, TX
 
60,000

 
986

 
451

 
1,437

 
6,100

 
08/13
World Houston 37, Houston, TX
 
101,000

 
1,233

 
441

 
1,674

 
7,100

 
08/13
World Houston 38, Houston, TX
 
129,000

 
1,523

 
694

 
2,217

 
9,400

 
09/13
Total Under Construction
 
669,000

 
8,532

 
16,010

 
24,542

 
48,600

 
 
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)
 
Estimated Building Size (Square feet)
 
 
 
 
 
 
 
 
 
 
Phoenix, AZ
 
528,000

 

 
2,236

 
5,697

 
40,100

 
 
Tucson, AZ
 
70,000

 

 

 
417

 
4,900

 
 
Denver, CO
 
84,000

 

 
711

 
711

 
7,700

 
 
Fort Myers, FL
 
663,000

 

 
443

 
17,646

 
48,100

 
 
Orlando, FL
 
1,426,000

 
(2,298
)
 
4,301

 
26,600

 
93,100

 
 
Tampa, FL
 
519,000

 

 
1,659

 
6,145

 
30,800

 
 
Jackson, MS
 
28,000

 

 

 
706

 
2,000

 
 
Charlotte, NC
 
95,000

 

 
89

 
1,335

 
6,800

 
 
Dallas, TX
 
120,000

 

 
471

 
1,235

 
7,800

 
 
El Paso, TX
 
251,000

 

 

 
2,444

 
11,300

 
 
Houston, TX
 
2,341,000

 
(8,532
)
 
15,850

 
28,433

 
157,400

 
 
San Antonio, TX
 
478,000

 

 
448

 
5,464

 
31,800

 
 
Total Prospective Development
 
6,603,000

 
(10,830
)
 
26,208

 
96,833

 
441,800

 
 
 
 
7,658,000

 
$

 
52,499

 
148,255

 
522,200

 
 
DEVELOPMENTS COMPLETED AND TRANSFERRED TO REAL ESTATE PROPERTIES DURING 2012
 
Building Size (Square feet)
 
 
 
 
 
 
 
 
 
Building Completion Date
Beltway Crossing VIII, Houston, TX
 
88,000

 
$

 
43

 
5,242

 
 
 
09/11
World Houston 32, Houston, TX
 
96,000

 

 
66

 
6,276

 
 
 
01/12
World Houston 31A, Houston, TX
 
44,000

 

 
243

 
4,086

 
 
 
06/11
Beltway Crossing IX, Houston, TX
 
45,000

 

 
1,215

 
2,356

 
 
 
06/12
Total Transferred to Real Estate Properties
 
273,000

 
$

 
1,567

 
17,960

 
(3) 
 
 

(1)
Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period.
(2)
Included in these costs are development obligations of $20.4 million and tenant improvement obligations of $6.1 million on properties under development.
(3)
Represents cumulative costs at the date of transfer.

Accumulated Depreciation
Accumulated depreciation on real estate and development properties increased $44,442,000 during 2012 due to depreciation expense, offset by accumulated depreciation on the properties sold during the year.

18



Other Assets
Other Assets increased $5,519,000 during 2012.  A summary of Other Assets follows:
 
December 31, 2012
 
December 31, 2011
 
(In thousands)
Leasing costs (principally commissions)
$
41,290

 
39,297

Accumulated amortization of leasing costs
(17,543
)
 
(16,603
)
Leasing costs (principally commissions), net of accumulated amortization
23,747

 
22,694

 
 
 
 
Straight-line rents receivable
22,153

 
20,959

Allowance for doubtful accounts on straight-line rents receivable
(409
)
 
(351
)
Straight-line rents receivable, net of allowance for doubtful accounts
21,744

 
20,608

 
 
 
 
Accounts receivable
3,477

 
3,949

Allowance for doubtful accounts on accounts receivable
(373
)
 
(522
)
Accounts receivable, net of allowance for doubtful accounts
3,104

 
3,427

 
 
 
 
Acquired in-place lease intangibles
11,848

 
12,157

Accumulated amortization of acquired in-place lease intangibles
(4,516
)
 
(4,478
)
Acquired in-place lease intangibles, net of accumulated amortization
7,332

 
7,679

 
 
 
 
Acquired above market lease intangibles
2,443

 
2,904

Accumulated amortization of acquired above market lease intangibles
(976
)
 
(929
)
Acquired above market lease intangibles, net of accumulated amortization
1,467

 
1,975

 
 
 
 
Mortgage loans receivable
9,357

 
4,154

Discount on mortgage loans receivable
(34
)
 
(44
)
Mortgage loans receivable, net of discount
9,323

 
4,110

 
 
 
 
Loan costs
8,476

 
7,662

Accumulated amortization of loan costs
(4,960
)
 
(4,433
)
Loan costs, net of accumulated amortization
3,516

 
3,229

 
 
 
 
Goodwill
990

 
990

Prepaid expenses and other assets
7,093

 
8,085

 Total Other Assets
$
78,316

 
72,797



Liabilities

Mortgage Notes Payable decreased $20,404,000 during the year ended December 31, 2012.  The decrease resulted from the repayment of five mortgages totaling $49,900,000, regularly scheduled principal payments of $24,408,000 and mortgage loan premium amortization of $96,000, offset by a $54,000,000 mortgage loan executed by the Company in January 2012.

Unsecured Term Loans Payable increased $80,000,000 during 2012 as a result of the closing of a term loan in August 2012.
 
Notes Payable to Banks decreased $78,356,000 during 2012 as a result of repayments of $363,233,000 exceeding advances of $284,877,000. The Company’s credit facilities are described in greater detail under Liquidity and Capital Resources.
 

19



Accounts Payable and Accrued Expenses decreased $2,291,000 during 2012.  A summary of the Company’s Accounts Payable and Accrued Expenses follows:
 
 
December 31,
2012
 
2011
(In thousands)
Property taxes payable                                                            
$
12,107

 
9,840

Development costs payable                                                            
7,170

 
5,928

Interest payable                                                            
2,615

 
2,736

Dividends payable on unvested restricted stock
1,191

 
1,415

Other payables and accrued expenses                                                            
5,831

 
11,286

 Total Accounts Payable and Accrued Expenses
$
28,914

 
31,205


Other Liabilities increased $3,070,000 during 2012.  A summary of the Company’s Other Liabilities follows:
 
December 31,
2012
 
2011
(In thousands)
Security deposits                                                            
$
9,668

 
9,184

Prepaid rent and other deferred income
7,930

 
6,373

 
 
 
 
Acquired below market lease intangibles
1,541

 
1,684

Accumulated amortization of acquired below market lease intangibles
(391
)
 
(924
)
Acquired below market lease intangibles, net of accumulated amortization
1,150

 
760

 
 
 
 
Interest rate swap liability
645

 

Other liabilities                                                            
693

 
699

 Total Other Liabilities
$
20,086

 
17,016


Equity

Additional Paid-In Capital increased $112,564,000 during 2012.  The increase primarily resulted from the issuance of 2,179,153 shares of common stock under the Company's continuous common equity program with net proceeds to the Company of $109,588,000.  See Note 11 in the Notes to Consolidated Financial Statements for information related to the changes in Additional Paid-In Capital on common shares resulting from stock-based compensation.

During 2012, Distributions in Excess of Earnings increased $28,689,000 as a result of dividends on common stock of $61,073,000 exceeding Net Income Attributable to EastGroup Properties, Inc. Common Stockholders of $32,384,000.

Accumulated Other Comprehensive Loss increased $392,000 during 2012. The increase resulted from the change in fair value of the Company's interest rate swap which is further discussed in Notes 12 and 13 in the Notes to Consolidated Financial Statements.


RESULTS OF OPERATIONS

2012 Compared to 2011

Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for 2012 was $32,384,000 ($1.13 per basic and diluted share) compared to $22,359,000 ($0.83 per basic and diluted share) for 2011.  EastGroup recognized gains on sales of real estate investments of $6,510,000 during 2012. The Company did not recognize any gains on sales during 2011.

PNOI increased by $9,016,000, or 7.3%, for 2012 compared to 2011. PNOI increased $6,206,000 from 2011 and 2012 acquisitions, $1,833,000 from newly developed properties, and $1,017,000 from same property operations. Bad debt expense exceeded

20



termination fee income by $251,000 during 2012. In 2011, termination fee income exceeded bad debt expense by $15,000. Straight-lining of rent increased income by $1,592,000 and $1,899,000 in 2012 and 2011, respectively.

The Company signed 147 leases with certain free rent concessions on 2,449,000 square feet during 2012 with total free rent concessions of $2,845,000, compared to 130 leases with free rent concessions on 3,321,000 square feet with total free rent concessions of $4,471,000 in 2011.

Property expense to revenue ratios, defined as Expenses from Real Estate Operations as a percentage of Income from Real Estate Operations, were 28.5% in 2012 compared to 28.3% in 2011.  The Company’s percentage of leased square footage was 95.1% at December 31, 2012, compared to 94.7% at December 31, 2011.  Occupancy at the end of 2012 was 94.6% compared to 93.9% at the end of 2011.

Interest Expense increased $662,000 for 2012 compared to 2011.  The following table presents the components of Interest Expense for 2012 and 2011:
 
Years Ended December 31,
2012
 
2011
 
Increase (Decrease)
(In thousands, except rates of interest)
Average bank borrowings                                                                                 
$
85,113

 
124,697

 
(39,584
)
Weighted average variable interest rates (excluding loan cost amortization)
1.61
%
 
1.41
%
 
 

VARIABLE RATE INTEREST EXPENSE
 

 
 

 
 

Bank loan interest (excluding loan cost amortization)
1,371

 
1,762

 
(391
)
Amortization of bank loan costs                                                                                 
342

 
300

 
42

Total variable rate interest expense                                                                                 
1,713

 
2,062

 
(349
)
FIXED RATE INTEREST EXPENSE
 

 
 

 
 

Mortgage loan interest (excluding loan cost amortization)
34,733

 
35,606

 
(873
)
Unsecured term loan interest (excluding loan cost amortization)
2,724

 
59

 
2,665

Amortization of mortgage loan costs                                                                                 
780

 
752

 
28

Amortization of unsecured term loan costs                                                                                 
81

 
1

 
80

Total fixed rate interest expense                                                                                 
38,318

 
36,418

 
1,900

Total interest                                                                                 
40,031

 
38,480

 
1,551

Less capitalized interest                                                                                 
(4,660
)
 
(3,771
)
 
(889
)
TOTAL INTEREST EXPENSE 
$
35,371

 
34,709

 
662


EastGroup's variable rate interest expense decreased by $349,000 for 2012 as compared to 2011 due to a decrease in the Company's average bank borrowings, partially offset by an increase in the Company's weighted average variable interest rate.

The Company's fixed rate interest expense increased by $1,900,000 for 2012 as compared to 2011. The increase in fixed rate interest expense was primarily due to two unsecured term loans obtained by the Company: one in December 2011 for $50,000,000 with a fixed interest rate of 3.91% and a seven-year term, and the other in August 2012 for $80,000,000 with an effective interest rate of 2.92% (rate may vary based on EastGroup's leverage or credit ratings) and a six-year term. The Company expensed $2,724,000 for unsecured term loan expense during 2012 compared to $59,000 for 2011.

The increase in term loan interest expense was partially offset by a decrease in mortgage loan interest expense. The Company recognized mortgage loan interest expense of $34,733,000 in 2012 compared to $35,606,000 in 2011.









21



The decrease in fixed rate mortgage loan interest expense was primarily the result of lower weighted average interest rates, mortgage note repayments and regularly scheduled principal amortization. A summary of the Company’s weighted average interest rates on mortgage debt at year-end for the past several years is presented below:
 
MORTGAGE DEBT AS OF:
 
Weighted Average
Interest Rate
December 31, 2008 
 
5.96%
December 31, 2009 
 
6.09%
December 31, 2010 
 
5.90%
December 31, 2011 
 
5.63%
December 31, 2012
 
5.40%

Mortgage principal payments made in the amortization period were $24,408,000 in 2012 and $22,231,000 in 2011. The details of the mortgage loans repaid in 2011 and 2012 are shown in the following table:
MORTGAGE LOANS REPAID IN 2011 AND 2012
 
Interest Rate
 
Date Repaid
 
Payoff Amount
Butterfield Trail, Glenmont I & II, Interstate I, II & III,
   Rojas, Stemmons Circle, Venture and West Loop I & II
 
7.25%
 
01/31/11
 
$
36,065,000

America Plaza, Central Green and World Houston 3-9
 
7.92%
 
05/10/11
 
22,832,000

Weighted Average/Total Amount for 2011                                                               
 
7.51%
 
 
 
58,897,000

Oak Creek Distribution Center IV
 
5.68%
 
03/01/12
 
3,463,000

University Business Center (125 & 175 Cremona)
 
7.98%
 
04/02/12
 
8,679,000

University Business Center (120 & 130 Cremona)
 
6.43%
 
05/01/12
 
1,910,000

51st Avenue, Airport Distribution, Broadway I, III & IV, Chestnut,
Interchange Business Park, Main Street, North Stemmons I land, Southpark, Southpointe and World Houston 12 & 13
 
6.86%
 
06/04/12
 
31,724,000

Interstate Distribution Center - Jacksonville
 
5.64%
 
09/04/12
 
4,123,000

Weighted Average/Total Amount for 2012                                                               
 
6.86%
 
 
 
49,899,000

Weighted Average/Total Amount for 2011 and 2012                                                         
 
7.21%
 
 
 
$
108,796,000


During 2011 and 2012, EastGroup closed the new mortgages detailed in the following table:
NEW MORTGAGES IN 2011 AND 2012
 
Interest Rate
 
Date
 
Maturity Date
 
Amount
America Plaza, Central Green, Glenmont I & II,
   Interstate I, II & III, Rojas, Stemmons Circle, Venture,
   West Loop I & II and World Houston 3-9
 
4.75%
 
05/31/11
 
06/05/21
 
$
65,000,000

Arion 18, Beltway VI & VII, Commerce Park II & III,
Concord, Interstate V, VI & VII, Lakeview, Ridge Creek II, Southridge IV & V and World Houston 32
 
4.09%
 
01/04/12
 
01/05/22
 
54,000,000

Weighted Average/Total Amount for 2011 and 2012                                           
 
4.45%
 
 
 
 
 
$
119,000,000


Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest increased $889,000 for 2012 as compared to 2011 due to increased activity in the Company's development program in 2012.

Depreciation and Amortization expense from continuing operations increased $4,939,000 for 2012 compared to 2011 primarily due to the operating properties acquired by the Company in December 2011 and during the year 2012.  









22



Capital Expenditures
Capital expenditures for EastGroup’s operating properties for the years ended December 31, 2012 and 2011 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2012
 
2011
 
 
(In thousands)
Upgrade on Acquisitions                                               
40 yrs
 
$
1,208

 
315

Tenant Improvements:
 
 
 

 


New Tenants                                               
Lease Life
 
7,631

 
7,755

   New Tenants (first generation) (1)
Lease Life
 
362

 
1,028

Renewal Tenants                                               
Lease Life
 
2,592

 
2,588

Other:
 
 
 

 
 

Building Improvements                                               
5-40 yrs
 
3,480

 
3,676

Roofs                                               
5-15 yrs
 
1,819

 
2,089

Parking Lots                                               
3-5 yrs
 
790

 
823

Other                                               
5 yrs
 
282

 
412

Total Capital Expenditures
 
 
$
18,164

 
18,686


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.

Capitalized Leasing Costs
The Company’s leasing costs (principally commissions) are capitalized and included in Other Assets. The costs are amortized over the terms of the associated leases and are included in Depreciation and Amortization expense.  Capitalized leasing costs for the years ended December 31, 2012 and 2011 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2012
 
2011
 
 
(In thousands)
Development                                               
Lease Life
 
$
2,185

 
1,087

New Tenants                                               
Lease Life
 
2,941

 
3,140

New Tenants (first generation) (1)
Lease Life
 
195

 
187

Renewal Tenants                                               
Lease Life
 
3,108

 
2,494

Total Capitalized Leasing Costs
 
 
$
8,429

 
6,908

Amortization of Leasing Costs (2)
 
 
$
7,082

 
6,487


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.
(2)
Includes discontinued operations.

















23



Discontinued Operations
The results of operations for the properties sold or held for sale during the periods reported are shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  During 2012, the Company sold four properties: Tampa East Distribution Center III and Tampa West Distribution Center VIII in Tampa, Estrella Distribution Center in Phoenix, and Braniff Distribution Center in Tulsa. During 2011, the Company did not sell any properties. 

See Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and gain on sales of real estate investments.  The following table presents the components of revenue and expense for the properties sold or held for sale during 2012 and 2011.  
DISCONTINUED OPERATIONS
 
Years Ended December 31,
2012
 
2011
 
 
(In thousands)
Income from real estate operations                                                                            
 
$
1,403

 
1,463

Expenses from real estate operations                                                                            
 
(346
)
 
(498
)
Property net operating income from discontinued operations
 
1,057

 
965

Other income
 

 
5

Depreciation and amortization                                                                            
 
(578
)
 
(694
)
Income from real estate operations                                                                            
 
479

 
276

Gain on sales of nondepreciable real estate investments, net of tax (1)                                                                       
 
167

 

Gain on sales of real estate investments                                                                            
 
6,343

 

Income from discontinued operations                                                                            
 
$
6,989

 
276


(1)
Gains on sales of nondepreciable real estate investments are subject to federal and state taxes. The Company recognized taxes of $6,000 on the gains related to the sales of Tampa East Distribution Center III and Tampa West Distribution Center VIII during 2012.



2011 Compared to 2010
Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for 2011 was $22,359,000 ($0.83 per basic and diluted share) compared to $18,325,000 ($0.68 per basic and diluted share) for 2010.  PNOI increased by $2,900,000, or 2.4%, for 2011 compared to 2010. PNOI increased $1,138,000 from same property operations, $969,000 from newly developed properties, and $795,000 from 2010 and 2011 acquisitions. Termination fee income exceeded bad debt expense by $15,000 in 2011 and $1,818,000 in 2010. Straight-lining of rent increased income by $1,899,000 and $2,457,000 in 2011 and 2010, respectively.

The Company signed 130 leases with certain free rent concessions on 3,321,000 square feet during 2011 with total free rent concessions of $4,471,000, compared to 183 leases with free rent concessions on 3,360,000 square feet of $3,771,000 in 2010.

Property expense to revenue ratios, defined as Expenses from Real Estate Operations as a percentage of Income from Real Estate Operations, were 28.3% in 2011 compared to 29.5% in 2010.  The Company’s percentage of leased square footage was 94.7% at December 31, 2011, compared to 90.8% at December 31, 2010.  Occupancy at the end of 2011 was 93.9% compared to 89.8% at the end of 2010.

Interest Expense decreased $462,000 in 2011 compared to 2010.  The following table presents the components of interest expense for 2011 and 2010:

24



 
Years Ended December 31,
2011
 
2010
 
Increase (Decrease)
(In thousands, except rates of interest)
Average bank borrowings                                                                                 
$
124,697

 
122,942

 
1,755

Weighted average variable interest rates (excluding loan cost amortization)
1.41
%
 
1.42
%
 
 

VARIABLE RATE INTEREST EXPENSE
 

 
 

 
 

Bank loan interest (excluding loan cost amortization)
1,762

 
1,750

 
12

Amortization of bank loan costs                                                                                 
300

 
314

 
(14
)
Total variable rate interest expense                                                                                 
2,062

 
2,064

 
(2
)
FIXED RATE INTEREST EXPENSE
 

 
 

 
 

Mortgage loan interest (excluding loan cost amortization)
35,606

 
35,978

 
(372
)
Unsecured term loan interest (excluding loan cost amortization)
59

 

 
59

Amortization of mortgage loan costs                                                                                 
752

 
742

 
10

Amortization of unsecured term loan costs
1

 

 
1

Total fixed rate interest expense                                                                                 
36,418

 
36,720

 
(302
)
Total interest                                                                                 
38,480

 
38,784

 
(304
)
Less capitalized interest                                                                                 
(3,771
)
 
(3,613
)
 
(158
)
TOTAL INTEREST EXPENSE 
$
34,709

 
35,171

 
(462
)
 
The Company’s weighted average variable interest rates in 2011 were slightly lower than in 2010.  The slight decrease in interest rates was offset by higher average bank borrowings in 2011 compared to 2010.  The net effect resulted in a decrease in variable rate interest expense of $2,000 in 2011 compared to 2010.

EastGroup’s fixed rate interest expense decreased by $302,000 in 2011 compared to 2010.  The decrease in fixed rate interest expense primarily resulted from lower interest rates on the refinancing of two mortgage loans in 2011, partially offset by higher average mortgage loan balances in 2011 compared to 2010. A summary of the Company’s weighted average interest rates on mortgage debt at year-end for the past several years is presented below:
 
MORTGAGE DEBT AS OF:
 
Weighted Average
Interest Rate
December 31, 2007 
 
6.06%
December 31, 2008 
 
5.96%
December 31, 2009 
 
6.09%
December 31, 2010 
 
5.90%
December 31, 2011 
 
5.63%

During 2010 and 2011, EastGroup closed the new mortgages detailed in the table below:
NEW MORTGAGES IN 2010 AND 2011
 
Interest Rate
 
Date
 
Maturity Date
 
Amount
40th Avenue, Centennial Park, Executive Airport,
   Beltway V, Techway Southwest IV, Wetmore V-VIII,
   Ocean View and World Houston 26, 28, 29 & 30
 
4.39%
 
12/28/10
 
01/05/21
 
$
74,000,000

America Plaza, Central Green, Glenmont I & II, Interstate I,
II & III, Rojas, Stemmons Circle, Venture, West Loop I & II and World Houston 3-9
 
4.75%
 
05/31/11
 
06/05/21
 
65,000,000

Weighted Average/Total Amount for 2010 and 2011                                                          
 
4.56%
 
 
 
 
 
$
139,000,000






25



Mortgage principal payments due in the amortization period were $22,231,000 in 2011 and $19,631,000 in 2010. In 2011, the Company repaid two mortgage loans with balloon payments totaling $58,897,000. In 2010, the Company repaid one mortgage loan with a balance of $8,770,000 and made principal paydowns on two mortgage loans totaling $4,000,000. The details of the mortgages repaid in 2010 and 2011 are shown in the following table: 
MORTGAGE LOANS REPAID IN 2010 AND 2011
 
Interest Rate
 
Date Repaid
 
Payoff Amount
Tower Automotive Center                                                          
 
6.03%
 
10/01/10
 
$
8,770,000

Weighted Average/Total Amount for 2010                                          
 
6.03%
 
 
 
8,770,000

Butterfield Trail, Glenmont I & II, Interstate I, II & III, Rojas, Stemmons
   Circle, Venture and West Loop I & II                                                         
 
7.25%
 
01/31/11
 
36,065,000

America Plaza, Central Green and World Houston 3-9
 
7.92%
 
05/10/11
 
22,832,000

Weighted Average/Total Amount for 2011                                          
 
7.51%
 
 
 
58,897,000

Weighted Average/Total Amount for 2010 and 2011                                          
 
7.32%
 
 
 
$
67,667,000


Interest costs incurred during the period of construction of real estate properties are capitalized and offset against interest expense.  Capitalized interest increased $158,000 in 2011 compared to 2010 due to increased activity in the Company’s development program in 2011.

Depreciation and Amortization expense from continuing operations decreased $1,049,000 for 2011 compared to 2010.  In 2010, there was a rise in early vacates, resulting in the write-off of specific assets and therefore increased Depreciation and Amortization expense for 2010. In 2011, early vacates decreased significantly. Excluding the change resulting from early vacates, Depreciation and Amortization expense did not change significantly from 2010 to 2011.

Capital Expenditures
Capital expenditures for EastGroup’s operating properties for the years ended December 31, 2011 and 2010 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2011
 
2010
 
 
(In thousands)
Upgrade on Acquisitions                                               
40 yrs
 
$
315

 
40

Tenant Improvements:
 
 


 
 

New Tenants                                               
Lease Life
 
7,755

 
12,166

   New Tenants (first generation) (1)
Lease Life
 
1,028

 
1,022

Renewal Tenants                                               
Lease Life
 
2,588

 
2,023

Other:
 
 
 

 
 

Building Improvements                                               
5-40 yrs
 
3,676

 
4,351

Roofs                                               
5-15 yrs
 
2,089

 
2,725

Parking Lots                                               
3-5 yrs
 
823

 
1,045

Other                                               
5 yrs
 
412

 
581

Total Capital Expenditures
 
 
$
18,686

 
23,953


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.













26



Capitalized Leasing Costs
The Company’s leasing costs (principally commissions) are capitalized and included in Other Assets.  The costs are amortized over the terms of the associated leases and are included in Depreciation and Amortization expense.  Capitalized leasing costs for the years ended December 31, 2011 and 2010 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2011
 
2010
 
 
(In thousands)
Development                                               
Lease Life
 
$
1,087

 
350

New Tenants                                               
Lease Life
 
3,140

 
3,701

New Tenants (first generation) (1)
Lease Life
 
187

 
174

Renewal Tenants                                               
Lease Life
 
2,494

 
3,268

Total Capitalized Leasing Costs
 
 
$
6,908

 
7,493

Amortization of Leasing Costs (2)
 
 
$
6,487

 
6,703


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.
(2)
Includes discontinued operations.

Discontinued Operations
The results of operations for the operating properties sold or held for sale during the periods reported are shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  During 2012, the Company sold four properties: Tampa East Distribution Center III and Tampa West Distribution Center VIII in Tampa, Estrella Distribution Center in Phoenix, and Braniff Distribution Center in Tulsa. During 2010 and 2011, the Company did not sell any properties.  

See Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and gain on sales of real estate investments.  The following table presents the components of revenue and expense for the operating properties sold or held for sale during 2012, 2011 and 2010.
DISCONTINUED OPERATIONS
 
Years Ended December 31,
2011
 
2010
 
 
(In thousands)
Income from real estate operations                                                                            
 
$
1,463

 
1,115

Expenses from real estate operations                                                                            
 
(498
)
 
(463
)
Property net operating income from discontinued operations
 
965

 
652

Other income
 
5

 
42

Depreciation and amortization                                                                            
 
(694
)
 
(544
)
Income from real estate operations                                                                            
 
276

 
150

Gain on sales of real estate investments                                                                            
 

 

Income from discontinued operations                                                                            
 
$
276

 
150



NEW ACCOUNTING PRONOUNCEMENTS

EastGroup has evaluated all Accounting Standards Updates (ASUs) released by the Financial Accounting Standards Board (FASB) through the date the financial statements were issued and determined that the following ASUs apply to the Company.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which provides guidance about how fair value should be applied where it is already required or permitted under U.S. GAAP. The ASU does not extend the use of fair value or require additional fair value measurements, but rather provides explanations about how to measure fair value. ASU 2011-04 requires prospective application and was effective for interim and annual reporting periods beginning after December 15, 2011. The Company has adopted the provisions and provided the necessary disclosures beginning with the interim period ended March 31, 2012.
 

27



In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which eliminates the option to present components of other comprehensive income as part of the statement of changes in equity and requires that all nonowner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 requires retrospective application and was effective for interim and annual reporting periods beginning after December 15, 2011.  The Company has adopted the provisions of ASU 2011-05 and provided the necessary disclosures beginning with the interim period ended March 31, 2012.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU defers the effective date of the requirement in ASU 2011-05 to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income for all periods presented. A final ASU on presentation and disclosure of reclassification adjustments is expected in early 2013.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test.  Under this ASU, an entity is not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  ASU 2011-08 was effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company has adopted the provisions and provided the necessary disclosures beginning with the interim period ended March 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $91,808,000 for the year ended December 31, 2012.  The primary other sources of cash were from bank borrowings, proceeds from common stock offerings, proceeds from the unsecured term loan payable executed in August 2012, proceeds from the mortgage note payable executed in January 2012 and proceeds from sales of real estate investments.  The Company distributed $61,297,000 in common stock dividends during 2012.  Other primary uses of cash were for bank debt repayments, mortgage note repayments, the construction and development of properties, purchases of real estate and capital improvements at various properties.

Total debt at December 31, 2012 and 2011 is detailed below.  The Company’s bank credit facilities and unsecured term loans have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2012 and 2011.
 
December 31,
2012
 
2011
(In thousands)
Mortgage notes payable – fixed rate
$
607,766

 
628,170

Unsecured term loans payable – fixed rate
130,000

 
50,000

Notes payable to banks – variable rate
76,160

 
154,516

Total debt                                                      
$
813,926

 
832,686


The Company had a $200 million unsecured revolving credit facility with a group of seven banks that matured in January 2013.  The interest rate on the facility was based on the LIBOR index and varied according to total liability to total asset value ratios (as defined in the credit agreement), with an annual facility fee of 15 to 20 basis points.  The interest rate on each tranche was usually reset on a monthly basis and as of December 31, 2012, was LIBOR plus 0.85% with an annual facility fee of 0.20%.  At December 31, 2012, the weighted average interest rate was 1.065% on a balance of $71,000,000.  The Company had an additional $129,000,000 remaining on the line of credit at that date.

The aforementioned credit facility was repaid and replaced in January 2013 with a new four-year, $225 million unsecured credit facility with a group of nine banks with options for a one-year extension and a $100 million expansion. As of February 15, 2013, the interest rate was LIBOR plus 1.175% (1.385%) with an annual facility fee of 0.225%. The margin and facility fee are subject to changes in the Company's credit ratings.

The Company also had a $25 million unsecured revolving credit facility with PNC Bank, N.A. that matured in January 2013.  This credit facility was customarily used for working capital needs.  The interest rate on this working capital line was based on the

28



LIBOR index and varied according to total liability to total asset value ratios (as defined in the credit agreement), with no annual facility fee.  The interest rate was reset on a daily basis and as of December 31, 2012, was LIBOR plus 1.65%.  At December 31, 2012, the interest rate was 1.859% on a balance of $5,160,000.  The Company had an additional $19,840,000 remaining on the line of credit at that date.  

The $25 million credit facility was repaid and replaced in January 2013 with a new four-year, $25 million unsecured credit facility that automatically extends for one year if the extension option in the new $225 million revolving facility is exercised. As of February 15, 2013, the interest rate, which resets on a daily basis, was LIBOR plus 1.175% (1.377%) with an annual facility fee of 0.225%. The margin and facility fee are subject to changes in the Company's credit ratings.

As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt to replace the short-term bank borrowings.  The Company believes its current operating cash flow and lines of credit provide the capacity to fund the operations of the Company for 2013.  The Company also believes it can obtain mortgage financing from insurance companies, unsecured debt from financial institutions, and issue common and/or preferred equity. In prior years, EastGroup primarily obtained secured debt. In January 2013, Fitch affirmed the Company's credit rating of BBB, and Moody's assigned the Company a credit rating of Baa2. The Company intends to obtain primarily unsecured fixed rate debt in the future. The Company may also access the public debt market in the future as a means to raise capital.

On January 4, 2012, EastGroup closed a $54 million, non-recourse first mortgage loan with a fixed interest rate of 4.09%, a 10-year term and a 20-year amortization schedule.  The loan is secured by properties containing 1.4 million square feet.  The Company used the proceeds of this mortgage loan to reduce variable rate bank borrowings.

On March 1, 2012, the Company repaid a mortgage loan with a balance of $3.5 million, an interest rate of 5.68%, and a maturity date of June 1, 2012.  On April 2, 2012, EastGroup repaid a mortgage loan with a balance of $8.7 million, an interest rate of 7.98%, and a maturity date of June 1, 2012. On May 1, 2012, the Company repaid a mortgage loan with a balance of $1.9 million, an interest rate of 6.43%, and a maturity date of May 15, 2012. On June 4, 2012, the Company repaid a mortgage loan with a balance of $31.7 million, an interest rate of 6.86%, and a maturity date of September 1, 2012. On September 4, 2012, the Company repaid a mortgage loan with a balance of $4.1 million, an interest rate of 5.64%, and a maturity date of January 1, 2013.

On August 31, 2012, EastGroup closed an $80 million unsecured term loan with a six-year term and interest-only payments. It bears interest at the annual rate of LIBOR plus 190 basis points subject to a pricing grid for changes in the Company’s leverage or credit ratings. The Company also entered into an interest rate swap to convert the loan’s LIBOR rate to a fixed interest rate, providing the Company an effective fixed rate on the term loan of 2.92% per annum as of December 31, 2012. The Company used the proceeds of this loan to reduce variable rate bank borrowings. See Notes 12 and 13 in the Notes to Consolidated Financial Statements for more information related to the Company's interest rate swap.

In March 2011, the Company entered into Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC and Raymond James & Associates, Inc. pursuant to which the Company could issue and sell up to two million shares of its common stock from time to time. The Company completed this continuous equity program during the second quarter of 2012.  During the duration of the program from July 2011 through June 2012, the Company sold a total of 2,000,000 shares at an average price of $48.18 per share with net proceeds to the Company of $95 million. 

In September 2012, EastGroup entered into Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC and Raymond James & Associates, Inc. pursuant to which the Company could issue and sell up to two million shares of its common stock from time to time.

During 2012, the Company issued and sold 2,179,153 shares of common stock under its continuous equity programs at an average price of $50.94 per share with gross proceeds to the Company of $110,999,000. The Company incurred offering-related costs of $1,411,000 during the year, resulting in net proceeds to the Company of $109,588,000. As of February 19, 2013, the Company has 1,233,870 shares of common stock remaining to sell under the program.  
     







                                                          

29



Contractual Obligations
EastGroup’s fixed, non-cancelable obligations as of December 31, 2012 were as follows:
 
Payments Due by Period
Total
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
More Than
5 Years
(In thousands)
Fixed Rate Mortgage Debt Obligations (1) 
$
607,766

 
57,915

 
201,207

 
150,861

 
197,783

Interest on Fixed Rate Mortgage Debt
136,061

 
31,837

 
48,183

 
30,301

 
25,740

Fixed Rate Unsecured Term Loan Debt (1)
130,000

 

 

 

 
130,000

Interest on Fixed Rate Unsecured Term Loan Debt
24,959

 
4,452

 
8,582

 
8,582

 
3,343

Variable Rate Debt Obligations (1) (2)
76,160

 
76,160

 

 

 

Interest on Variable Rate Debt (3)
4,362

 
1,185

 
2,108

 
1,069

 

Operating Lease Obligations:


 
 

 
 

 
 

 
 

Office Leases
544

 
371

 
126

 
47

 

Ground Leases
16,664

 
731

 
1,462

 
1,462

 
13,009

Real Estate Property Obligations (4)
1,234

 
1,234

 

 

 

Development Obligations (5)
20,439

 
20,439

 

 

 

Tenant Improvements (6)
9,904

 
9,904

 

 

 

Purchase Obligations
23

 
23

 

 

 

Total
$
1,028,116

 
204,251

 
261,668

 
192,322

 
369,875


(1)
These amounts are included on the Consolidated Balance Sheets.
(2)
The Company’s variable rate debt changes depending on the Company’s cash needs and, as such, both the principal amounts and the interest rates are subject to variability.  At December 31, 2012, the weighted average interest rate was 1.12% on the variable rate debt that matured in January 2013. The debt was replaced with a new four-year, $225 million unsecured credit facility with options for a one-year extension and a $100 million expansion and a new four-year, $25 million unsecured credit facility that automatically extends for one year if the extension option in the new $225 million revolving facility is exercised. As of February 15, 2013, the interest rate on the $225 million facility was LIBOR plus 1.175% (1.385%) with an annual facility fee of 0.225%, and the interest rate on the $25 million facility, which resets on a daily basis, was LIBOR plus 1.175% (1.377%) with an annual facility fee of 0.225%. The margin and facility fee are subject to changes in the Company's credit ratings.
(3)
Represents an estimate of interest due on variable rate debt based on the outstanding variable rate debt as of December 31, 2012 and interest rates and maturity dates on the new facilities as of February 15, 2013 as discussed in note 2 above.
(4)
Represents commitments on real estate properties, except for tenant improvement obligations.
(5)
Represents commitments on properties under development, except for tenant improvement obligations.
(6)
Represents tenant improvement allowance obligations.

The Company anticipates that its current cash balance, operating cash flows, borrowings under its lines of credit, proceeds from new mortgage debt and unsecured term loans and/or proceeds from the issuance of equity instruments will be adequate for (i) operating and administrative expenses, (ii) normal repair and maintenance expenses at its properties, (iii) debt service obligations, (iv) maintaining compliance with its debt covenants, (v) distributions to stockholders, (vi) capital improvements, (vii) purchases of properties, (viii) development, and (ix) any other normal business activities of the Company, both in the short-term and long-term.











30




INFLATION AND OTHER ECONOMIC CONSIDERATIONS

Most of the Company's leases include scheduled rent increases.  Additionally, most of the Company's leases require the tenants to pay their pro rata share of operating expenses, including real estate taxes, insurance and common area maintenance, thereby reducing the Company's exposure to increases in operating expenses resulting from inflation.  In the event inflation causes increases in the Company’s general and administrative expenses or the level of interest rates, such increased costs would not be passed through to tenants and could adversely affect the Company’s results of operations.

EastGroup's financial results are affected by general economic conditions in the markets in which the Company's properties are located.  The current state of the economy, or other adverse changes in general or local economic conditions, could result in the inability of some of the Company's existing tenants to make lease payments and may therefore increase bad debt expense.  It may also impact the Company’s ability to (i) renew leases or re-lease space as leases expire, or (ii) lease development space.  In addition, an economic downturn or recession could also lead to an increase in overall vacancy rates or decline in rents the Company can charge to re-lease properties upon expiration of current leases.  In all of these cases, EastGroup’s cash flows would be adversely affected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to interest rate changes primarily as a result of its 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 objective for interest rate risk management is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs.  To achieve its objectives, the Company borrows at fixed rates but also has two variable rate bank lines as discussed under Liquidity and Capital Resources. In addition, the Company uses interest rate swaps (also discussed under Liquidity and Capital Resources) as part of its interest rate risk management strategy.  The table below presents the principal payments due and weighted average interest rates for both the fixed rate and variable rate debt as of December 31, 2012.
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
Total
 
Fair Value
Fixed rate mortgage debt
   (in thousands) 
$
57,915

 
98,920

 
102,287

 
92,716

 
58,145

 
197,783

 
607,766

 
661,408 (1)
Weighted average
interest rate
5.03
%
 
5.66
%
 
5.36
%
 
5.79
%
 
5.50
%
 
5.20
%
 
5.40
%
 
 
Fixed rate unsecured
term loans
(in thousands) 
$

 

 

 

 

 
130,000

 
130,000

 
130,776 (1)
Weighted average
interest rate

 

 

 

 

 
3.30
%
 
3.30
%
 
 
Variable rate debt
(in thousands)
$
76,160

(2) 

 

 

 

 

 
76,160

 
76,160 (3)
Weighted average
interest rate
1.12
%
(4) 

 

 

 

 

 
1.12
%
 
 

(1)
The fair value of the Company’s fixed rate debt is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers.
(2)
The variable rate debt matured in January 2013 and was replaced with a new four-year, $225 million unsecured credit facility with options for a one-year extension and a $100 million expansion and a new four-year, $25 million unsecured credit facility that automatically extends for one year if the extension option in the new $225 million revolving facility is exercised. As of February 15, 2013, the interest rate on the $225 million facility was LIBOR plus 1.175% (1.385%) with an annual facility fee of 0.225%, and the interest rate on the $25 million facility, which resets on a daily basis, was LIBOR plus 1.175% (1.377%) with an annual facility fee of 0.225%. The margin and facility fee are subject to changes in the Company's credit ratings.
(3)
The fair value of the Company’s variable rate debt is estimated by discounting expected cash flows at current market rates. The fair value at December 31, 2012 approximated the book value since the debt matured in early January 2013.
(4)
Represents the weighted average interest rate as of December 31, 2012.



31




As the table above incorporates only those exposures that existed as of December 31, 2012, it does not consider those exposures or positions that could arise after that date.  If the weighted average interest rate on the variable rate bank debt as shown above changes by 10% or approximately 11 basis points, interest expense and cash flows would increase or decrease by approximately $85,000 annually.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as “will,” “anticipates,” “expects,” “believes,” “intends,” “plans,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature.  All statements that address operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to rent and occupancy growth, development activity, the acquisition or sale of properties, general conditions in the geographic areas where the Company operates and the availability of capital, are forward-looking statements.  Forward-looking statements are inherently subject to known and unknown risks and uncertainties, many of which the Company cannot predict, including, without limitation: changes in general economic conditions; the extent of tenant defaults or of any early lease terminations; the Company's ability to lease or re-lease space at current or anticipated rents; the availability of financing; changes in the supply of and demand for industrial/warehouse properties; increases in interest rate levels; increases in operating costs; natural disasters, terrorism, riots and acts of war, and the Company's ability to obtain adequate insurance; changes in governmental regulation, tax rates and similar matters; and other risks associated with the development and acquisition of properties, including risks that development projects may not be completed on schedule, development or operating costs may be greater than anticipated or acquisitions may not close as scheduled, and those additional factors discussed under “Item 1A. Risk Factors” in Part I of this report.  Although the Company believes the expectations reflected in the forward-looking statements are based upon reasonable assumptions at the time made, the Company can give no assurance that such expectations will be achieved.  The Company assumes no obligation whatsoever to publicly update or revise any forward-looking statements.  See also the information contained in the Company’s reports filed or to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Registrant's Consolidated Balance Sheets as of December 31, 2012 and 2011, and its Consolidated Statements of Income and Comprehensive Income, Changes in Equity and Cash Flows and Notes to Consolidated Financial Statements for the years ended December 31, 2012, 2011 and 2010 and the Report of Independent Registered Public Accounting Firm 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 Consolidated Financial Statements are also incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.




















32




ITEM 9A.  CONTROLS AND PROCEDURES.

(i)
Disclosure Controls and Procedures.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012, the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

(ii)
Internal Control Over Financial Reporting.
 
(a)
Management's annual report on internal control over financial reporting.
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  EastGroup’s Management Report on Internal Control Over Financial Reporting is set forth in Part IV, Item 15 of this Form 10-K on page 41 and is incorporated herein by reference.

(b)
Report of the independent registered public accounting firm.

The report of KPMG LLP, the Company's independent registered public accounting firm, on the Company's internal control over financial reporting is set forth in Part IV, Item 15 of this Form 10-K on page 41 and is incorporated herein by reference.

(c)
Changes in internal control over financial reporting.

There was no change in the Company's internal control over financial reporting during the Company's fourth fiscal quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION.

Not applicable.


























33




PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table sets forth information regarding the Company’s executive officers and directors as of December 31, 2012.
Name
Position
D. Pike Aloian
Director since 1999; Partner in Almanac Realty Investors, LLC (real estate advisory and investment management services)
H.C. Bailey, Jr.
Director since 1980; Chairman and President of H.C. Bailey Company (real estate development and investment)
Hayden C. Eaves III
Director since 2002; President of Hayden Holdings, Inc. (real estate investment)
Fredric H. Gould
Director since 1998; Chairman of the General Partner of Gould Investors L.P., Chairman of BRT Realty Trust and Chairman of One Liberty Properties, Inc.
Mary E. McCormick
Director since 2005; Senior Advisor with Almanac Realty Investors, LLC (real estate advisory and investment management services)
David M. Osnos
Director since 1993; Of Counsel to the law firm of Arent Fox LLP
Leland R. Speed
Director since 1978; Chairman of the Board of the Company
David H. Hoster II
Director since 1993; President and Chief Executive Officer of the Company
N. Keith McKey
Executive Vice President, Chief Financial Officer, Secretary and Treasurer of the Company
John F. Coleman
Senior Vice President of the Company
Bruce Corkern
Senior Vice President, Chief Accounting Officer, Controller and Assistant Secretary of the Company
William D. Petsas
Senior Vice President of the Company
Brent W. Wood
Senior Vice President of the Company

All other information required by Item 10 of Part III regarding the Company’s executive officers and directors is incorporated herein by reference from the sections entitled "Corporate Governance and Board Matters" and “Executive Officers” in the Company's definitive Proxy Statement ("2013 Proxy Statement") to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for EastGroup's Annual Meeting of Stockholders to be held on May 29, 2013.  The 2013 Proxy Statement will be filed within 120 days after the end of the Company's fiscal year ended December 31, 2012.

The information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the subsection entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 2013 Proxy Statement.

Information regarding EastGroup's code of business conduct and ethics found in the subsection captioned "Available Information" in Item 1 of Part I hereof is also incorporated herein by reference into this Item 10.

The information regarding the Company's audit committee, its members and the audit committee financial experts is incorporated herein by reference from the subsection entitled "Committees and Meeting Data” in the Company's 2013 Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION.

The information included under the following captions in the Company's 2013 Proxy Statement is incorporated herein by reference: "Compensation Discussion and Analysis," "Summary Compensation Table," "Grants of Plan-Based Awards in 2012," "Outstanding Equity Awards at 2012 Fiscal Year-End," "Option Exercises and Stock Vested in 2012," "Potential Payments upon Termination or Change in Control," "Compensation of Directors" and "Compensation Committee Interlocks."  The information included under the heading "Report of the Compensation Committee" in the Company's 2013 Proxy Statement is incorporated herein by reference; however, this information shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.







34




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the subsections entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management and Directors” in the Company’s 2013 Proxy Statement.

The following table summarizes the Company’s equity compensation plan information as of December 31, 2012.
Equity Compensation Plan Information
Plan category
 
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
(b)
Weighted-average exercise price of outstanding options,
warrants and rights
 
(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
 
4,500

 
$
26.60

 
1,339,746

Equity compensation plans not approved by security holders
 
   –

 
   –

 
   –

Total
 
4,500

 
$
26.60

 
1,339,746


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information regarding transactions with related parties and director independence is incorporated herein by reference from the subsection entitled "Independent Directors" and the section entitled “Certain Transactions and Relationships” in the Company's 2013 Proxy Statement.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information regarding principal auditor fees and services is incorporated herein by reference from the section entitled "Auditor Fees and Services" in the Company's 2013 Proxy Statement.

35



PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
 
 
Page
(1)
Consolidated Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Consolidated Financial Statement Schedules:
 
 
 
 
 
 
 
 
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 Consolidated Financial Statements.
 
 
 
(3)
Exhibits:
 
 
The following exhibits are filed with this Form 10-K or incorporated by reference to the listed document previously filed with the SEC:
 
              
Number
Description
(3)
Articles of Incorporation and Bylaws
(a)
Articles of Incorporation (incorporated by reference to Appendix B to the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 5, 1997).
(b)
Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed December 10, 2008).
 
 
(10)
Material Contracts (*Indicates management or compensatory agreement):
(a)
EastGroup Properties, Inc. 2000 Directors Stock Option Plan (incorporated by reference to Appendix A to the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 1, 2000).*
(b)
EastGroup Properties, Inc. 2004 Equity Incentive Plan (incorporated by reference to Appendix D to the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 27, 2004).*
(c)
Amendment No. 1 to the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10(f) to the Company’s Form 10-K for the year ended December 31, 2006). *
(d)
Amendment No. 2 to the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10(d) to the Company’s Form 8-K filed January 8, 2007).*
(e)
EastGroup Properties, Inc. 2005 Directors Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Proxy Statement for its Annual Meeting of Stockholders held on June 2, 2005).*
(f)
Amendment No. 1 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 6, 2006).*

36



(g)
Amendment No. 2 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 3, 2008).*
(h)
Amendment No. 3 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 1, 2011).*
(i)
Amendment No. 4 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 1, 2012).*

(j)
Form of Severance and Change in Control Agreement that the Company has entered into with Leland R. Speed, David H. Hoster II and N. Keith McKey (incorporated by reference to Exhibit 10(a) to the Company's Form 8-K filed January 7, 2009).*
(k)
Form of Severance and Change in Control Agreement that the Company has entered into with John F. Coleman, William D. Petsas, Brent W. Wood and C. Bruce Corkern (incorporated by reference to Exhibit 10(b) to the Company's Form 8-K filed January 7, 2009).*
(l)
Compensation Program for Non-Employee Directors (a written description thereof is set forth in Item 5.02 of the Company’s Form 8-K filed June 1, 2012).*
(m)
Third Amended and Restated Credit Agreement Dated January 2, 2013 among EastGroup Properties, L.P.; EastGroup Properties, Inc.; PNC Bank, National Association, as Administrative Agent; Regions Bank and SunTrust Bank as Co-Syndication Agents; U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Documentation Agents; PNC Capital Markets LLC, as Sole Lead Arranger and Sole Bookrunner; and the Lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed January 8, 2013).
(n)
2012 Term Loan Agreement dated as of August 31, 2012 by and among EastGroup Properties, Inc., EastGroup Properties, L.P., each of the financial institutions party thereto as lenders, PNC Bank, National Association, as administrative agent, U.S. Bank National Association, as syndication agent, and PNC Capital Markets LLC, as lead arranger and book runner (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed September 7, 2012).
(o)
First Amendment to 2012 Term Loan Agreement dated as of January 31, 2013 by and among EastGroup Properties, Inc., EastGroup Properties, L.P., PNC Bank, National Association, as administrative agent, and each of the financial institutions party thereto as lenders (filed herewith).
(p)
Sales Agency Financing Agreement dated as of September 20, 2012 between EastGroup Properties, Inc. and BNY Mellon Capital Markets, LLC (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed September 24, 2012).
(q)
Sales Agency Financing Agreement dated as of September 20, 2012 between EastGroup Properties, Inc. and Raymond James & Associates, Inc. (incorporated by reference to Exhibit 1.2 to the Company’s Form 8-K filed September 24, 2012).
 
 
(21)
Subsidiaries of EastGroup Properties, Inc. (filed herewith).
 
 
(23)
Consent of KPMG LLP (filed herewith).
 
 
(24)
Powers of attorney (filed herewith).
 
 
(31)
Rule 13a-14(a)/15d-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
(a)
David H. Hoster II, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(32)
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
(a)
David H. Hoster II, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(101)
The following materials from EastGroup Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income and comprehensive income, (iii) consolidated statements of changes in equity, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.**


37



**  Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(b)
Exhibits

The exhibits required to be filed with this Report pursuant to Item 601 of Regulation S-K are listed under “Exhibits” in Part IV, Item 15(a)(3) of this Report and are incorporated herein by reference.

(c)
Financial Statement Schedules

The Financial Statement Schedules required to be filed with this Report are listed under “Consolidated Financial Statement Schedules” in Part IV, Item 15(a)(2) of this Report, and are incorporated herein by reference.


38



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES INC.:

We have audited the accompanying consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2012. 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 the standards of the Public Company Accounting Oversight Board (United States).  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, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 19, 2013,  expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 
(Signed) KPMG LLP
Jackson, Mississippi
 
February 19, 2013
 


39



MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

EastGroup’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, EastGroup conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The design of any system of internal control over financial reporting is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Based on EastGroup’s evaluation under the framework in Internal Control – Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2012.
 
/s/ EASTGROUP PROPERTIES, INC.
Jackson, Mississippi
 
February 19, 2013
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES INC.:

We have audited EastGroup Properties, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, EastGroup Properties, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 19, 2013, expressed an unqualified opinion on those consolidated financial statements.
 
(Signed) KPMG LLP
Jackson, Mississippi
 
February 19, 2013
 

40


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
December 31,
2012
 
2011
(In thousands, except for share and per share data)
ASSETS
 
 
 
  Real estate properties 
$
1,619,777

 
1,550,444

  Development 
148,255

 
112,149

 
1,768,032

 
1,662,593

      Less accumulated depreciation 
(496,247
)
 
(451,805
)
 
1,271,785

 
1,210,788

  Unconsolidated investment 
2,743

 
2,757

  Cash 
1,258

 
174

  Other assets 
78,316

 
72,797

      TOTAL ASSETS 
$
1,354,102

 
1,286,516

LIABILITIES AND EQUITY
 

 
 

LIABILITIES
 

 
 

  Mortgage notes payable 
$
607,766

 
628,170

  Unsecured term loans payable 
130,000

 
50,000

  Notes payable to banks 
76,160

 
154,516

  Accounts payable and accrued expenses 
28,914

 
31,205

  Other liabilities 
20,086

 
17,016

Total Liabilities
862,926

 
880,907

EQUITY
 

 
 

Stockholders’ Equity:
 

 
 

  Common shares; $.0001 par value; 70,000,000 shares authorized;
    29,928,490 shares issued and outstanding at December 31, 2012 and
    27,658,059 at December 31, 2011 
3

 
3

  Excess shares; $.0001 par value; 30,000,000 shares authorized;
    no shares issued

 

  Additional paid-in capital on common shares 
731,950

 
619,386

  Distributions in excess of earnings 
(245,249
)
 
(216,560
)
  Accumulated other comprehensive loss
(392
)
 

Total Stockholders’ Equity
486,312

 
402,829

Noncontrolling interest in joint ventures
4,864

 
2,780

Total Equity
491,176

 
405,609

      TOTAL LIABILITIES AND EQUITY 
$
1,354,102

 
1,286,516

See accompanying Notes to Consolidated Financial Statements.


41


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands, except per share data)
REVENUES
 
 
 
 
 
  Income from real estate operations                                                                                       
$
186,117

 
173,021

 
171,887

  Other income                                                                                       
61

 
142

 
82

 
186,178

 
173,163

 
171,969

EXPENSES
 

 
 

 
 
  Expenses from real estate operations                                                                                       
52,993

 
48,913

 
50,679

  Depreciation and amortization                                                                                       
61,696

 
56,757

 
57,806

  General and administrative                                                                                       
10,488

 
10,691

 
10,260

  Acquisition costs                                                                                       
188

 
252

 
72

 
125,365

 
116,613

 
118,817

OPERATING INCOME                                                                                       
60,813

 
56,550

 
53,152

OTHER INCOME (EXPENSE)
 

 
 

 
 

  Interest expense                                                                                       
(35,371
)
 
(34,709
)
 
(35,171
)
  Other                                                                                   
456

 
717

 
624

INCOME FROM CONTINUING OPERATIONS                                                                                       
25,898

 
22,558

 
18,605

DISCONTINUED OPERATIONS
 

 
 

 
 

Income from real estate operations                                                                                       
479

 
276

 
150

Gain on sales of nondepreciable real estate investments, net of tax                                                                                       
167

 

 

Gain on sales of real estate investments                                                                                       
6,343

 

 

INCOME FROM DISCONTINUED OPERATIONS                                                                                       
6,989

 
276

 
150

NET INCOME                                                                                       
32,887

 
22,834

 
18,755

Net income attributable to noncontrolling interest in joint ventures
(503
)
 
(475
)
 
(430
)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS                                                                                       
32,384

 
22,359

 
18,325

Other comprehensive income (loss) - Cash flow hedges
(392
)
 

 
318

TOTAL COMPREHENSIVE INCOME
$
31,992

 
22,359

 
18,643

BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

  Income from continuing operations                                                                                       
$
0.89

 
0.82

 
0.67

  Income from discontinued operations
0.24

 
0.01

 
0.01

  Net income attributable to common stockholders                                                                                       
$
1.13

 
0.83

 
0.68

  Weighted average shares outstanding                                                                                       
28,577

 
26,897

 
26,752

DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

  Income from continuing operations
$
0.89

 
0.82

 
0.67

  Income from discontinued operations
0.24

 
0.01

 
0.01

  Net income attributable to common stockholders                                                                                       
$
1.13

 
0.83

 
0.68

  Weighted average shares outstanding                                                                                       
28,677

 
26,971

 
26,824

AMOUNTS ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

  Income from continuing operations                                                                                       
$
25,395

 
22,083

 
18,175

  Loss from discontinued operations                                                                                       
6,989

 
276

 
150

  Net income attributable to common stockholders                                                                                       
$
32,384

 
22,359

 
18,325

See accompanying Notes to Consolidated Financial Statements.

42


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
Common
Stock
 
Additional
Paid-In
Capital
 
Distributions
In Excess
Of Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest in
Joint Ventures
 
Total
(In thousands, except for share and per share data)
Balance, December 31, 2009
$
3

 
589,197

 
(144,363
)
 
(318
)
 
2,577

 
447,096

Comprehensive income
 

 
 

 
 

 
 

 
 

 
 

Net income                                                           

 

 
18,325

 

 
430

 
18,755

Net unrealized change in fair value of interest rate swap

 

 

 
318

 

 
318

Common dividends declared – $2.08 per share

 

 
(56,215
)
 

 

 
(56,215
)
Stock-based compensation, net of forfeitures

 
2,042

 

 

 

 
2,042

Issuance of 18,000 shares of common stock,
    options exercised

 
404

 

 

 

 
404

Issuance of 6,705 shares of common stock,
    dividend reinvestment plan

 
257

 

 

 

 
257

Withheld 19,668 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock

 
(794
)
 

 

 

 
(794
)
Distributions to noncontrolling interest

 

 

 

 
(357
)
 
(357
)
Balance, December 31, 2010
3

 
591,106

 
(182,253
)
 

 
2,650

 
411,506

Net income

 

 
22,359

 

 
475

 
22,834

Common dividends declared – $2.08 per share

 

 
(56,666
)
 

 

 
(56,666
)
Stock-based compensation, net of forfeitures

 
2,787

 

 

 

 
2,787

Issuance of 586,977 shares of common stock,
 common stock offering, net of expenses

 
25,181

 

 

 

 
25,181

Issuance of 9,250 shares of common stock,
    options exercised

 
217

 

 

 

 
217

Issuance of 5,989 shares of common stock,
    dividend reinvestment plan

 
252

 

 

 

 
252

Withheld 3,564 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock

 
(157
)
 

 

 

 
(157
)
Distributions to noncontrolling interest

 

 

 

 
(345
)
 
(345
)
Balance, December 31, 2011
3

 
619,386

 
(216,560
)
 

 
2,780

 
405,609

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
32,384

 

 
503

 
32,887

Net unrealized change in fair value of interest
rate swap

 

 

 
(392
)
 

 
(392
)
Common dividends declared – $2.10 per share

 

 
(61,073
)
 

 

 
(61,073
)
Stock-based compensation, net of forfeitures

 
4,447

 

 

 

 
4,447

Issuance of 2,179,153 shares of common stock, common stock offering, net of expenses

 
109,588

 

 

 

 
109,588

Issuance of 4,500 shares of common stock,
    options exercised

 
108

 

 

 

 
108

Issuance of 3,915 shares of common stock,
    dividend reinvestment plan

 
205

 

 

 

 
205

Withheld 36,195 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock

 
(1,784
)
 

 

 

 
(1,784
)
Distributions to noncontrolling interest

 

 

 

 
(537
)
 
(537
)
Contributions from noncontrolling interest

 

 

 

 
2,118

 
2,118

Balance, December 31, 2012
$
3

 
731,950

 
(245,249
)
 
(392
)
 
4,864

 
491,176

See accompanying Notes to Consolidated Financial Statements.

43


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands)
OPERATING ACTIVITIES
 
 
 
 
 
Net income                                                                                                    
$
32,887

 
22,834

 
18,755

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization from continuing operations                                                                                                    
61,696

 
56,757

 
57,806

Depreciation and amortization from discontinued operations
578

 
694

 
544

Stock-based compensation expense                                                                                                    
3,497

 
2,452

 
1,998

Gain on sales of land and real estate investments
(6,510
)
 
(36
)
 

Changes in operating assets and liabilities:
 

 
 

 
 

Accrued income and other assets                                                                                                    
601

 
(1,425
)
 
212

Accounts payable, accrued expenses and prepaid rent                                                                                                    
(1,118
)
 
5,466

 
(2,268
)
Other                                                                                                    
177

 
(195
)
 
(189
)
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                                                    
91,808

 
86,547

 
76,858

INVESTING ACTIVITIES
 

 
 

 
 

Real estate development                                                                                                    
(55,404
)
 
(42,148
)
 
(9,145
)
Purchases of real estate                                                                                                    
(51,750
)
 
(88,592
)
 
(23,906
)
Real estate improvements                                                                                                    
(18,135
)
 
(19,048
)
 
(23,720
)
Proceeds from sales of real estate investments                                                                                                    
17,087

 

 

Advances on mortgage loans receivable                                                                                                    
(5,223
)
 

 

Repayments on mortgage loans receivable                                                                                                    
20

 
33

 
37

Changes in accrued development costs                                                                                                    
1,242

 
5,255

 
8

Changes in other assets and other liabilities                                                                                                    
(7,745
)
 
(6,333
)
 
(6,775
)
NET CASH USED IN INVESTING ACTIVITIES                                                                                                    
(119,908
)
 
(150,833
)
 
(63,501
)
FINANCING ACTIVITIES
 

 
 

 
 

Proceeds from bank borrowings                                                                                                    
284,877

 
336,575

 
211,041

Repayments on bank borrowings                                                                                                    
(363,233
)
 
(273,353
)
 
(208,903
)
Proceeds from mortgage notes payable                                                                                                    
54,000

 
65,000

 
74,000

Principal payments on mortgage notes payable                                                                                                    
(74,308
)
 
(81,128
)
 
(32,401
)
Proceeds from unsecured term loans payable                                                                                                    
80,000

 
50,000

 

Debt issuance costs                                                                                                    
(1,490
)
 
(925
)
 
(709
)
Distributions paid to stockholders                                                                                                    
(61,297
)
 
(56,042
)
 
(56,294
)
Proceeds from common stock offerings                                                                                                    
109,588

 
25,181

 
303

Proceeds from exercise of stock options                                                                                                    
108

 
217

 
404

Proceeds from dividend reinvestment plan                                                                                                    
219

 
249

 
262

Other                                                                                                    
720

 
(1,451
)
 
(1,985
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
29,184

 
64,323

 
(14,282
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,084

 
37

 
(925
)
    CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
174

 
137

 
1,062

    CASH AND CASH EQUIVALENTS AT END OF YEAR
$
1,258

 
174

 
137

SUPPLEMENTAL CASH FLOW INFORMATION
 

 
 

 
 

Cash paid for interest, net of amount capitalized of $4,660, $3,771 and $3,613 for 2012, 2011 and 2010, respectively                                                                                                    
$
34,385

 
33,671

 
34,380

See accompanying Notes to Consolidated Financial Statements.

44

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2012, 2011 and 2010

(1)
SIGNIFICANT ACCOUNTING POLICIES

(a)
Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup Properties, Inc., its wholly owned subsidiaries and its investment in any joint ventures in which the Company has a controlling interest.  At December 31, 2012, 2011 and 2010, the Company had a controlling interest in two joint ventures: the 80% owned University Business Center and the 80% owned Castilian Research Center.  The Company records 100% of the joint ventures’ assets, liabilities, revenues and expenses with noncontrolling interests provided for in accordance with the joint venture agreements.  The equity method of accounting is used for the Company’s 50% undivided tenant-in-common interest in Industry Distribution Center II.  All significant intercompany transactions and accounts have been eliminated in consolidation.

(b)
Income Taxes
EastGroup, a Maryland corporation, has qualified as a real estate investment trust (REIT) under Sections 856-860 of the Internal Revenue Code and intends to continue to qualify as such.  To maintain its status as a REIT, the Company is required to distribute at least 90% of its ordinary taxable income to its stockholders.  If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with the shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company.  The Company distributed all of its 2012, 2011 and 2010 taxable income to its stockholders.  Accordingly, no significant provisions for income taxes were necessary.  The following table summarizes the federal income tax treatment for all distributions by the Company for the years ended 2012, 2011 and 2010.

Federal Income Tax Treatment of Share Distributions
 
Years Ended December 31,
 
2012
 
2011
 
2010
Common Share Distributions:
 
 
 
 
 
Ordinary income                             
$
1.64506

 
1.68516

 
1.47748

Return of capital                                                        
0.29240

 
0.39484

 
0.60252

Unrecaptured Section 1250 capital gain                                                       
0.14942

 

 

Other capital gain                                             
0.01312

 

 

Total Common Distributions                                      
$
2.10000

 
2.08000

 
2.08000


EastGroup applies the principles of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes, when evaluating and accounting for uncertainty in income taxes.  With few exceptions, the Company’s 2008 and earlier tax years are closed for examination by U.S. federal, state and local tax authorities.  In accordance with the provisions of ASC 740, the Company had no significant uncertain tax positions as of December 31, 2012 and 2011.

The Company’s income may differ 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, (4) real estate properties having a different basis for tax and financial reporting purposes, (5) mortgage loans having a different basis for tax and financial reporting purposes, thereby producing different gains upon collection of these loans, and (6) differences in book and tax allowances and timing for stock-based compensation expense.

(c)
Income Recognition
Minimum rental income from real estate operations is recognized on a straight-line basis.  The straight-line rent calculation on leases includes the effects of rent concessions and scheduled rent increases, and the calculated straight-line rent income is recognized over the lives of the individual leases.  The Company maintains allowances for doubtful accounts receivable, including straight-line rents receivable, based upon estimates determined by management.  Management specifically analyzes aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

Revenue is recognized on payments received from tenants for early terminations after all criteria have been met in accordance with ASC 840, Leases.

45

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company recognizes gains on sales of real estate in accordance with the principles set forth in ASC 360, Property, Plant and Equipment.  Upon closing of real estate transactions, the provisions of ASC 360 require consideration for the transfer of rights of ownership to the purchaser, receipt of an adequate cash down payment from the purchaser, adequate continuing investment by the purchaser and no substantial continuing involvement by the Company.  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 a method other than the full accrual method.

The Company recognizes interest income on mortgage loans on the accrual method unless a significant uncertainty of collection exists.  If a significant uncertainty exists, interest income is recognized as collected.  Discounts on mortgage loans receivable are amortized over the lives of the loans using a method that does not differ materially from the interest method.  The Company evaluates the collectibility of both interest and principal on each of its loans to determine whether the loans are impaired.  A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms.  When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the underlying collateral (if the loan is collateralized) less costs to sell.  As of December 31, 2012 and 2011, there was no significant uncertainty of collection; therefore, interest income was recognized, and the discount on mortgage loans receivable was amortized.  As of December 31, 2012 and 2011, the Company determined that no allowance for collectibility of the mortgage loans receivable was necessary.
 
(d)
Real Estate Properties
EastGroup has one reportable segment–industrial properties.  These properties are concentrated in major Sunbelt markets of the United States, primarily in the states of Florida, Texas, Arizona, California and North Carolina, have similar economic characteristics and also meet the other criteria that permit the properties to be aggregated into one reportable segment.

The Company reviews long-lived assets 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 (including estimated future expenditures necessary to substantially complete the asset) expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.  As of December 31, 2012 and 2011, the Company determined that no impairment charges on the Company’s real estate properties were necessary.

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 3 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 improve or extend the useful life of the assets are capitalized.  Depreciation expense for continuing and discontinued operations was $51,564,000, $48,648,000 and $48,442,000 for 2012, 2011 and 2010, respectively.

(e)
Development
During the period in which a property is under development, costs associated with development (i.e., land, construction costs, interest expense, property taxes and other direct and indirect costs associated with development) are aggregated into the total capitalized costs of the property. Included in these costs are management’s estimates for the portions of internal costs (primarily personnel costs) that are deemed directly or indirectly related to such development activities. The internal costs are allocated to specific development properties based on construction activity.  As the property becomes occupied, depreciation commences on the occupied portion of the building, and costs are capitalized only for the portion of the building that remains vacant.  When the property becomes 80% occupied or one year after completion of the shell construction (whichever comes first), capitalization of development costs ceases.  The properties are then transferred to real estate properties, and depreciation commences on the entire property (excluding the land).

(f)
Real Estate Held for Sale
The Company considers a real estate property to be held for sale when it meets the criteria established under ASC 360, Property, Plant and Equipment, including when it is probable that the property will be sold within a year.  A key indicator of probability of sale is whether the buyer has a significant amount of earnest money at risk.  Real estate properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.  In accordance with the guidelines established under the Codification, the results of operations for the operating properties sold or held for sale during the reported periods are shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  Interest expense is not generally allocated to the properties held for sale or whose operations are included under Discontinued Operations unless the mortgage is required to be paid in full upon the sale of the property.


46

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(g)
Derivative Instruments and Hedging Activities
EastGroup applies ASC 815, Derivatives and Hedging, which requires all entities with derivative instruments to disclose information regarding how and why the entity uses derivative instruments and how derivative instruments and related hedged items affect the entity’s financial position, financial performance and cash flows. See Note 13 for a discussion of the Company's derivative instruments and hedging activities.

(h)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
 
(i)
Amortization
Debt origination costs are deferred and amortized over the term of each loan using the effective interest method. Amortization of loan costs for continuing operations was $1,203,000, $1,053,000 and $1,056,000 for 2012, 2011 and 2010, respectively.
 
Leasing costs are deferred and amortized using the straight-line method over the term of the lease.  Leasing costs paid during the period are included in Changes in other assets and other liabilities in the Investing Activities section on the Consolidated Statements of Cash Flows.  Leasing costs amortization expense for continuing and discontinued operations was $7,082,000, $6,487,000 and $6,703,000 for 2012, 2011 and 2010, respectively.  Amortization expense for in-place lease intangibles is disclosed below in Business Combinations and Acquired Intangibles.

(j)
Business Combinations and Acquired Intangibles
Upon acquisition of real estate properties, the Company applies the principles of ASC 805, Business Combinations, which requires that acquisition-related costs be recognized as expenses in the periods in which the costs are incurred and the services are received.  The Codification also provides guidance on how to properly determine the allocation of the purchase price among the individual components of both the tangible and intangible assets based on their respective fair values.  Goodwill is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired.  The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar properties.  The cost of the properties acquired may be adjusted based on indebtedness assumed from the seller that is determined to be above or below market rates.  Factors considered by management in allocating the cost of the properties acquired include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.  The allocation to tangible assets (land, building and improvements) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models.

The purchase price is also allocated among the following categories of intangible assets:  the above or below market component of in-place leases, the value of in-place leases, and the value of customer relationships.  The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.  The amounts allocated to above and below market leases are included in Other Assets and Other Liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the respective leases. The total amount of intangible assets is further allocated to in-place lease values and customer relationship values based upon management’s assessment of their respective values.  These intangible assets are included in Other Assets on the Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.

Amortization of above and below market leases decreased rental income by $404,000 in 2012, $341,000 in 2011 and $478,000 in 2010.  Amortization expense for in-place lease intangibles was $3,628,000, $2,316,000 and $3,205,000 for 2012, 2011 and 2010, respectively.  Projected amortization of in-place lease intangibles for the next five years as of December 31, 2012 is as follows:
Years Ending December 31,
 
(In thousands)
2013
 
$
2,479

2014
 
1,594

2015
 
1,284

2016
 
732

2017
 
393




47

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


During 2012, EastGroup acquired the following operating properties: Madison Distribution Center in Tampa, Florida; Wiegman Distribution Center II in Hayward, California; and Valwood Distribution Center in Dallas, Texas. The Company purchased these properties for a total cost of $51,750,000, of which $48,934,000 was allocated to real estate properties.  The Company allocated $7,435,000 of the total purchase price to land using third party land valuations for the Tampa, Hayward and Dallas markets.  The market values used are considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurements and Disclosures (see Note 18 for additional information on ASC 820).  Intangibles associated with the purchase of real estate were allocated as follows:  $3,305,000 to in-place lease intangibles, $244,000 to above market leases (both included in Other Assets on the Consolidated Balance Sheets) and $733,000 to below market leases (included in Other Liabilities on the Consolidated Balance Sheets).  These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.  During 2012, EastGroup expensed acquisition-related costs of $188,000 in connection with these acquisitions.
  
During 2011, the Company acquired the following operating properties:  Lakeview Business Center and Ridge Creek Distribution Center II in Charlotte, North Carolina; Broadway Industrial Park, Building VII in Tempe, Arizona; the Tampa Industrial Portfolio in Tampa, Florida; and Rittiman Distribution Center in San Antonio, Texas.  The Company purchased these properties for a total cost of $88,592,000, of which $80,624,000 was allocated to real estate properties.  The Company allocated $13,872,000 of the total purchase price to land using third party land valuations for the Charlotte, Tempe, Tampa and San Antonio markets.  The market values used are considered to be Level 3 inputs as defined by ASC 820.  Intangibles associated with the purchase of real estate were allocated as follows:  $6,949,000 to in-place lease intangibles, $1,693,000 to above market leases and $674,000 to below market leases.  During 2011, EastGroup expensed acquisition-related costs of $252,000 in connection with these acquisitions.

During 2010, EastGroup acquired the following operating properties:  Commerce Park 2 & 3 in Charlotte, North Carolina; Ocean View Corporate Center in San Diego, California; and East University Distribution Center III in Phoenix, Arizona.  EastGroup purchased these operating properties for a total cost of $23,555,000, of which $19,545,000 was allocated to real estate properties.  The Company allocated $7,914,000 of the total purchase price to land using third party land valuations for the Charlotte, San Diego and Phoenix markets.  The market values are considered to be Level 3 inputs as defined by ASC 820.  Intangibles associated with the purchase of real estate were allocated as follows:  $3,118,000 to in-place lease intangibles, $923,000 to above market leases and $31,000 to below market leases.  During 2010, the Company expensed acquisition-related costs of $72,000 in connection with these acquisitions.
 
The Company periodically reviews the recoverability of goodwill (at least annually) and the recoverability of other intangibles (on a quarterly basis) for possible impairment.  In management’s opinion, no impairment of goodwill and other intangibles existed at December 31, 2012 and 2011.

(k)
Stock-Based Compensation
The Company has a management incentive plan which was approved by the stockholders and adopted in 2004.  The Plan was further amended by the Board of Directors in September 2005 and December 2006.  This plan authorizes the issuance of common stock to employees in the form of options, stock appreciation rights, restricted stock, deferred stock units, performance shares, bonus stock or stock in lieu of cash compensation.  Typically, the Company issues new shares to fulfill stock grants or upon the exercise of stock options.

EastGroup applies the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation plans.  Under the modified prospective application method, the Company continues to recognize compensation cost on a straight-line basis over the service period for awards that precede January 1, 2006, when guidance was updated so that performance-based awards are determined using the graded vesting attribution method.  The cost for performance-based awards after January 1, 2006, is determined using the graded vesting attribution method which recognizes each separate vesting portion of the award as a separate award on a straight-line basis over the requisite service period.  This method accelerates the expensing of the award compared to the straight-line method.  The cost for market-based awards after January 1, 2006, and awards that only require service are expensed on a straight-line basis over the requisite service periods.

The total compensation cost for service and performance based awards is based upon the fair market value of the shares on the grant date, adjusted for estimated forfeitures.  The grant date fair value for awards that are subject to a market condition are determined using a simulation pricing model developed to specifically accommodate the unique features of the awards.

During the restricted period for awards not subject to contingencies, the Company accrues dividends and holds the certificates for the shares; however, the employee can vote the shares.  For shares subject to contingencies, dividends are accrued based upon the number of shares expected to vest.  Share certificates and dividends are delivered to the employee as they vest.



48

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(l)
Earnings Per Share
The Company applies ASC 260, 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 attributable to each share of common stock outstanding during the reporting period.  The Company’s basic EPS is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding.

Diluted EPS represents the amount of earnings for the period attributable to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.  The Company calculates diluted EPS by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding plus the dilutive effect of unvested restricted stock and stock options had the options been exercised.  The dilutive effect of stock options and their equivalents (such as unvested 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.

(m)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets 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.

(n)
Risks and Uncertainties
The state of the overall economy can significantly impact the Company’s operational performance and thus impact its financial position.  Should EastGroup experience a significant decline in operational performance, it may affect the Company’s ability to make distributions to its shareholders, service debt, or meet other financial obligations.

(o)
New Accounting Pronouncements
EastGroup has evaluated all Accounting Standards Updates (ASUs) released by the FASB through the date the financial statements were issued and determined that the following ASUs apply to the Company.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which provides guidance about how fair value should be applied where it is already required or permitted under U.S. GAAP. The ASU does not extend the use of fair value or require additional fair value measurements, but rather provides explanations about how to measure fair value. ASU 2011-04 requires prospective application and was effective for interim and annual reporting periods beginning after December 15, 2011. The Company has adopted the provisions and provided the necessary disclosures beginning with the interim period ended March 31, 2012.
 
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which eliminates the option to present components of other comprehensive income as part of the statement of changes in equity and requires that all nonowner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 requires retrospective application and was effective for interim and annual reporting periods beginning after December 15, 2011.  The Company has adopted the provisions of ASU 2011-05 and provided the necessary disclosures beginning with the interim period ended March 31, 2012.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU defers the effective date of the requirement in ASU 2011-05 to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income for all periods presented. A final ASU on presentation and disclosure of reclassification adjustments is expected in early 2013.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test.  Under this ASU, an entity is not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  ASU 2011-08 was effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company has adopted the provisions and provided the necessary disclosures beginning with the interim period ended March 31, 2012.


49

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(p)
Classification of Book Overdraft on Consolidated Statements of Cash Flows
The Company classifies changes in book overdraft in which the bank has not advanced cash to the Company to cover outstanding checks as an operating activity. Such amounts are included in Accounts payable, accrued expenses and prepaid rent in the Operating Activities section on the Consolidated Statements of Cash Flows.

(q)
Reclassifications
Certain reclassifications have been made in the 2011 and 2010 consolidated financial statements to conform to the 2012 presentation.

(2)
REAL ESTATE PROPERTIES

The Company’s real estate properties and development at December 31, 2012 and 2011 were as follows:
 
December 31,
2012
 
2011
(In thousands)
Real estate properties:
 
 
 
   Land                                                                  
$
244,199

 
235,394

   Buildings and building improvements                                                                  
1,102,597

 
1,056,783

   Tenant and other improvements                                                                  
272,981

 
258,267

Development                                                                  
148,255

 
112,149

 
1,768,032

 
1,662,593

   Less accumulated depreciation                                                                  
(496,247
)
 
(451,805
)
 
$
1,271,785

 
1,210,788


EastGroup acquired operating properties during 2012, 2011 and 2010 as discussed in Note 1(j). In 2012, the Company sold the following operating properties: Tampa East Distribution Center III, Tampa West Distribution Center VIII, Estrella Distribution Center and Braniff Distribution Center.  The Company did not sell any properties in 2011 or 2010.  

Real estate properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.  In accordance with the guidelines established under ASC 360, the results of operations for the properties sold or held for sale during the reported periods are shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  No interest expense was allocated to the properties held for sale or whose operations are included under Discontinued Operations. A summary of gain on sales of real estate for the years ended December 31, 2012, 2011 and 2010 follows:

Gain on Sales of Real Estate
Real Estate Properties
Location
 
Size
(in Square Feet)
 
Date Sold
 
Net Sales Price
 
Basis
 
Recognized Gain
 
 
 
 
 
 
 
(In thousands)
2012
 
 
 
 
 
 
 
 
 
 
 
Tampa East Distribution Center III
and Tampa West Distribution
Center VIII
Tampa, FL
 
10,500
 
02/15/2012
 
$
538

 
371

 
167

Estrella Distribution Center
Phoenix, AZ
 
174,000
 
06/13/2012
 
6,861

 
4,992

 
1,869

Braniff Distribution Center
Tulsa, OK
 
259,000
 
12/27/2012
 
9,688

 
5,214

 
4,474

Total for 2012
 
 
 
 
 
 
$
17,087

 
10,577

 
6,510

2011
 
 
 
 
 
 
 

 
 

 
 

Deferred gain recognized from
    previous sales                                       
 
 
 
 
 
 
$

 

 
36

2010
 
 
 
 
 
 
 

 
 

 
 

Deferred gain recognized from
    previous sales                                       
 
 
 
 
 
 
$

 

 
37




50

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table presents the components of revenues and expenses for the properties sold or held for sale during 2012, 2011 and 2010.
DISCONTINUED OPERATIONS
 
Years Ended December 31,
2012
 
2011
 
2010
 
 
(In thousands)
Income from real estate operations
 
$
1,403

 
1,463

 
1,115

Expenses from real estate operations
 
(346
)
 
(498
)
 
(463
)
Property net operating income from discontinued operations
 
1,057

 
965

 
652

Other income
 

 
5

 
42

Depreciation and amortization                                                                            
 
(578
)
 
(694
)
 
(544
)
Income from real estate operations
 
479

 
276

 
150

Gain on sales of nondepreciable real estate investments, net of tax (1)
 
167

 

 

Gain on sales of real estate investments
 
6,343

 

 

Income from discontinued operations
 
$
6,989

 
276

 
150


(1)
Gains on sales of nondepreciable real estate investments are subject to federal and state taxes. The Company recognized taxes of $6,000 on the gains related to the sales of Tampa East Distribution Center III and Tampa West Distribution Center VIII during 2012.

The Company’s development program as of December 31, 2012, was comprised of the properties detailed in the table below.  Costs incurred include capitalization of interest costs during the period of construction.  The interest costs capitalized on development properties for 2012 were $4,660,000 compared to $3,771,000 for 2011 and $3,613,000 for 2010. In addition, EastGroup capitalized internal development costs of $2,810,000 during the year ended December 31, 2012, compared to $1,334,000 during 2011 and $302,000 in 2010.

Total capital invested for development during 2012 was $55,404,000, which consisted of costs of $52,499,000 and $1,567,000 as detailed in the development activity table below and costs of $1,338,000 on development properties subsequent to transfer to Real Estate Properties. The capitalized costs incurred on development properties subsequent to transfer to Real Estate Properties include capital improvements at the properties and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel costs).






51

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DEVELOPMENT
 
 
 
Costs Incurred
 
 
 
 
 
 
 
Costs
Transferred
 in 2012 (1)
 
For the
Year Ended
12/31/12
 
Cumulative
as of
12/31/12
 
Estimated
Total Costs (2)
 
Building Completion Date
 
 
 
 
(In thousands)
 
 
 
 
(Unaudited)
 
 
 
 
 
 
 
(Unaudited)
 
(Unaudited)
LEASE-UP
 
Building Size (Square feet)
 
 
 
 
 
 
 
 
 
 
Southridge IX, Orlando, FL
 
76,000

 
$

 
938

 
6,300

 
7,100

 
03/12
World Houston 31B, Houston, TX
 
35,000

 

 
1,591

 
2,951

 
3,900

 
04/12
Thousand Oaks 1, San Antonio, TX
 
36,000

 

 
1,130

 
3,539

 
4,700

 
05/12
Thousand Oaks 2, San Antonio, TX
 
73,000

 

 
1,645

 
4,809

 
5,600

 
05/12
Beltway Crossing X, Houston, TX
 
78,000

 

 
1,810

 
3,816

 
4,300

 
06/12
Southridge XI, Orlando, FL
 
88,000

 
2,298

 
3,167

 
5,465

 
6,200

 
09/12
Total Lease-Up
 
386,000

 
2,298

 
10,281

 
26,880

 
31,800

 
 
UNDER CONSTRUCTION
 
 

 
 

 
 

 
 

 
 

 
Anticipated Building Completion Date
Beltway Crossing XI, Houston, TX
 
87,000

 
1,184

 
2,416

 
3,600

 
4,900

 
02/13
World Houston 33, Houston, TX
 
160,000

 
1,338

 
7,746

 
9,084

 
10,900

 
02/13
World Houston 34, Houston, TX
 
57,000

 
1,039

 
1,636

 
2,675

 
3,600

 
03/13
World Houston 35, Houston, TX
 
45,000

 
806

 
1,307

 
2,113

 
2,800

 
03/13
Ten West Crossing 1, Houston, TX
 
30,000

 
423

 
1,319

 
1,742

 
3,800

 
05/13
World Houston 36, Houston, TX
 
60,000

 
986

 
451

 
1,437

 
6,100

 
08/13
World Houston 37, Houston, TX
 
101,000

 
1,233

 
441

 
1,674

 
7,100

 
08/13
World Houston 38, Houston, TX
 
129,000

 
1,523

 
694

 
2,217

 
9,400

 
09/13
Total Under Construction
 
669,000

 
8,532

 
16,010

 
24,542

 
48,600

 
 
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)
 
Estimated Building Size (Square feet)
 
 

 
 

 
 

 
 

 
 
Phoenix, AZ
 
528,000

 

 
2,236

 
5,697

 
40,100

 
 
Tucson, AZ
 
70,000

 

 

 
417

 
4,900

 
 
Denver, CO
 
84,000

 

 
711

 
711

 
7,700

 
 
Fort Myers, FL
 
663,000

 

 
443

 
17,646

 
48,100

 
 
Orlando, FL
 
1,426,000

 
(2,298
)
 
4,301

 
26,600

 
93,100

 
 
Tampa, FL
 
519,000

 

 
1,659

 
6,145

 
30,800

 
 
Jackson, MS
 
28,000

 

 

 
706

 
2,000

 
 
Charlotte, NC
 
95,000

 

 
89

 
1,335

 
6,800

 
 
Dallas, TX
 
120,000

 

 
471

 
1,235

 
7,800

 
 
El Paso, TX
 
251,000

 

 

 
2,444

 
11,300

 
 
Houston, TX
 
2,341,000

 
(8,532
)
 
15,850

 
28,433

 
157,400

 
 
San Antonio, TX
 
478,000

 

 
448

 
5,464

 
31,800

 
 
Total Prospective Development
 
6,603,000

 
(10,830
)
 
26,208

 
96,833

 
441,800

 
 
 
 
7,658,000

 
$

 
52,499

 
148,255

 
522,200

 
 
DEVELOPMENTS COMPLETED AND TRANSFERRED TO REAL ESTATE PROPERTIES DURING 2012
 
Building Size (Square feet)
 
 

 
 

 
 

 
 

 
Building Completion Date
Beltway Crossing VIII, Houston, TX
 
88,000

 
$

 
43

 
5,242

 
 
 
09/11
World Houston 32, Houston, TX
 
96,000

 

 
66

 
6,276

 
 
 
01/12
World Houston 31A, Houston, TX
 
44,000

 

 
243

 
4,086

 
 
 
06/11
Beltway Crossing IX, Houston, TX
 
45,000

 

 
1,215

 
2,356

 
 

 
06/12
Total Transferred to Real Estate Properties
 
273,000

 
$

 
1,567

 
17,960

 
(3) 
 
 

(1)
Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period.
(2)
Included in these costs are development obligations of $20.4 million and tenant improvement obligations of $6.1 million on properties under development.
(3)
Represents cumulative costs at the date of transfer.

52

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following schedule indicates approximate future minimum rental receipts under non-cancelable leases for real estate properties by year as of December 31, 2012:

Future Minimum Rental Receipts Under Non-Cancelable Leases
Years Ending December 31,
 
(In thousands)
2013
 
$
137,081

2014
 
110,073

2015
 
81,752

2016
 
55,304

2017
 
36,811

Thereafter                                                  
 
55,985

   Total minimum receipts                                                  
 
$
477,006

 
Ground Leases
As of December 31, 2012, the Company owned two properties in Florida, two properties in Texas and one property in Arizona that are subject to ground leases.  These leases have terms of 40 to 50 years, expiration dates of August 2031 to November 2037, and renewal options of 15 to 35 years, except for the one lease in Arizona which is automatically and perpetually renewed annually.  Total ground lease expenditures for continuing and discontinued operations for the years ended December 31, 2012, 2011 and 2010 were $733,000, $705,000 and $700,000, respectively.  Payments are subject to increases at 3 to 10 year intervals based upon the agreed or appraised fair market value of the leased premises on the adjustment date or the Consumer Price Index percentage increase since the base rent date.  The following schedule indicates approximate future minimum ground lease payments for these properties by year as of December 31, 2012:

Future Minimum Ground Lease Payments
Years Ending December 31,
 
(In thousands)
2013
 
$
731

2014
 
731

2015
 
731

2016
 
731

2017
 
731

Thereafter                                                  
 
13,009

   Total minimum payments                                                  
 
$
16,664


(3)
UNCONSOLIDATED INVESTMENT

In November 2004, the Company acquired a 50% undivided tenant-in-common interest in Industry Distribution Center II, a 309,000 square foot warehouse distribution building in the City of Industry (Los Angeles), California.  The building was constructed in 1998 and is 100% leased through December 2014 to a single tenant who owns the other 50% interest in the property.  This investment is accounted for under the equity method of accounting and had a carrying value of $2,743,000 at December 31, 2012, and $2,757,000 at December 31, 2011.  At the end of May 2005, EastGroup and the property co-owner closed a non-recourse first mortgage loan secured by Industry Distribution Center II.  The $13.3 million loan has a 25-year term and an interest rate of 5.31% through June 30, 2015, when the rate will adjust on an annual basis according to the “A” Moody’s Daily Long-Term Corporate Bond Yield Average.  The lender has the option to call the note on June 30, 2015.  EastGroup’s share of this mortgage was $5,475,000 at December 31, 2012, and $5,660,000 at December 31, 2011.

(4)
MORTGAGE LOANS RECEIVABLE

During 2012, EastGroup advanced $5,223,000 in two mortgage loans. As of December 31, 2012, the Company had three mortgage loans receivable, all of which are classified as first mortgage loans. The mortgage loans have effective interest rates ranging from 5.25% to 6.4% and maturity dates ranging from August 2016 to October 2017. Mortgage loans receivable, net of discount, are included in Other Assets on the Consolidated Balance Sheets. See Note 5 for a summary of Other Assets.   



53

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(5)
OTHER ASSETS

A summary of the Company’s Other Assets follows:
 
December 31, 2012
 
December 31, 2011
 
(In thousands)
Leasing costs (principally commissions)                                                 
$
41,290

 
39,297

Accumulated amortization of leasing costs                                            
(17,543
)
 
(16,603
)
Leasing costs (principally commissions), net of accumulated amortization
23,747

 
22,694

 
 
 
 
Straight-line rents receivable                                                                          
22,153

 
20,959

Allowance for doubtful accounts on straight-line rents receivable
(409
)
 
(351
)
Straight-line rents receivable, net of allowance for doubtful accounts
21,744

 
20,608

 
 
 
 
Accounts receivable                                                                  
3,477

 
3,949

Allowance for doubtful accounts on accounts receivable
(373
)
 
(522
)
Accounts receivable, net of allowance for doubtful accounts
3,104

 
3,427

 
 
 
 
Acquired in-place lease intangibles                                                                      
11,848

 
12,157

Accumulated amortization of acquired in-place lease intangibles
(4,516
)
 
(4,478
)
Acquired in-place lease intangibles, net of accumulated amortization
7,332

 
7,679

 
 
 
 
Acquired above market lease intangibles                                                      
2,443

 
2,904

Accumulated amortization of acquired above market lease intangibles
(976
)
 
(929
)
Acquired above market lease intangibles, net of accumulated amortization
1,467

 
1,975

 
 
 
 
Mortgage loans receivable                                                                   
9,357

 
4,154

Discount on mortgage loans receivable                                      
(34
)
 
(44
)
Mortgage loans receivable, net of discount                                            
9,323

 
4,110

 
 
 
 
Loan costs                                                                                  
8,476

 
7,662

Accumulated amortization of loan costs                                            
(4,960
)
 
(4,433
)
Loan costs, net of accumulated amortization                                                         
3,516

 
3,229

 
 
 
 
Goodwill                                                                                  
990

 
990

Prepaid expenses and other assets                                                     
7,093

 
8,085

 Total Other Assets
$
78,316

 
72,797

 
















54

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(6)
MORTGAGE NOTES PAYABLE AND UNSECURED TERM LOANS PAYABLE

A summary of Mortgage Notes Payable follows: 
 
 
Interest Rate
 
Monthly
P&I
Payment
 
Maturity
Date
 
Carrying Amount
of Securing
Real Estate at
December 31, 2012
 
Balance at December 31,
Property
 
 
 
 
 
2012
 
2011
 
 
 
 
 
 
 
 
(In thousands)
University Business Center (120 & 130 Cremona)
 
6.43%
 
$
81,856

 
Repaid
 
$

 

 
2,193

University Business Center (125 & 175 Cremona)
 
7.98%
 
88,607

 
Repaid
 

 

 
8,771

Oak Creek Distribution Center IV
 
5.68%
 
31,253

 
Repaid
 

 

 
3,506

51st Avenue, Airport Distribution,
Broadway I, III & IV, Chestnut, Interchange Business Park, Main Street, North Stemmons I land, Southpark, Southpointe and World Houston 12 & 13
 
6.86%
 
279,149

 
Repaid
 

 

 
32,204

Interstate Distribution Center - Jacksonville
 
5.64%
 
31,645

 
Repaid
 

 

 
4,234

35th Avenue, Beltway I, Broadway V,
Lockwood, Northwest Point, Sunbelt, Techway Southwest I and World Houston 10, 11 & 14
 
4.75%
 
259,403

 
09/05/2013
 
37,775

 
34,474

 
35,912

Airport Commerce Center I & II, Interchange
Park, Ridge Creek Distribution Center I, Southridge XII, Waterford Distribution Center and World Houston 24, 25 & 27
 
5.75%
 
414,229

 
01/05/2014
 
64,794

 
52,086

 
54,001

Kyrene Distribution Center I 
 
9.00%
 
11,246

 
07/01/2014
 
2,095

 
198

 
310

Americas Ten I, Kirby, Palm River North I, II
& III, Shady Trail, Westlake I & II and World Houston 17
 
5.68%
 
175,479

 
10/10/2014
 
24,553

 
27,467

 
27,996

Beltway II, III & IV, Commerce Park 1,
Eastlake, Fairgrounds I-IV, Nations Ford I-IV, Techway Southwest III, Wetmore I-IV and World Houston 15 & 22
 
5.50%
 
536,552

 
04/05/2015
 
66,416

 
64,374

 
67,188

Country Club I, Lake Pointe, Techway
Southwest II and World Houston 19 & 20
 
4.98%
 
256,952

 
12/05/2015
 
20,777

 
29,465

 
31,039

Huntwood and Wiegman Distribution Centers
 
5.68%
 
265,275

 
09/05/2016
 
21,343

 
30,332

 
31,748

Alamo Downs, Arion 1-15 & 17, Rampart I, II
& III, Santan 10 and World Houston 16
 
5.97%
 
557,467

 
11/05/2016
 
54,614

 
63,132

 
65,961

Arion 16, Broadway VI, Chino, East
University I & II, Northpark I-IV, Santan 10 II, 55th Avenue and World Houston 1 & 2, 21 & 23
 
5.57%
 
518,885

 
09/05/2017
 
54,998

 
60,310

 
63,093

Dominguez, Industry I & III, Kingsview, Shaw,
Walnut and Washington (1) 
 
7.50%
 
539,747

 
05/05/2019
 
48,301

 
61,052

 
62,875

Blue Heron Distribution Center II 
 
5.39%
 
16,176

 
02/29/2020
 
4,566

 
1,161

 
1,288

40th Avenue, Beltway V, Centennial Park,
Executive Airport, Ocean View, Techway Southwest IV, Wetmore V-VIII and World Houston 26, 28, 29 & 30
 
4.39%
 
463,778

 
01/05/2021
 
74,918

 
69,376

 
71,837

America Plaza, Central Green, Glenmont
I & II, Interstate I, II & III, Rojas, Stemmons Circle, Venture, West Loop I & II and World Houston 3-9
 
4.75%
 
420,045

 
06/05/2021
 
46,047

 
61,970

 
64,014

Arion 18, Beltway VI & VII, Commerce Park
II & III, Concord Distribution Center, Interstate Distribution Center V, VI & VII, Lakeview Business Center, Ridge Creek Distribution Center II, Southridge IV & V and World Houston 32
 
4.09%
 
329,796

 
01/05/2022
 
61,701

 
52,369

 

 
 
 
 
 

 
 
 
$
582,898

 
607,766

 
628,170


(1)
This mortgage loan has a recourse liability of $5 million which will be released based on the secured properties generating certain base rent amounts.





55

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A summary of Unsecured Term Loans Payable follows:
 
 
 
 
 
Balance at December 31,
 
Interest Rate
 
Maturity Date
 
2012
 
2011
 
 
 
 
 
(In thousands)
$80 Million Unsecured Term Loan (1)
2.92%
 
08/15/2018
 
$
80,000

 

$50 Million Unsecured Term Loan
3.91%
 
12/21/2018
 
50,000

 
50,000

 
 
 
 
 
$
130,000

 
50,000


(1)
The interest rate on this unsecured term loan is comprised of LIBOR plus 190 basis points subject to a pricing grid for changes in the Company's leverage or coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company an effective interest rate on the term loan of 2.92% as of December 31, 2012. See Note 13 for additional information on the interest rate swap.

The Company’s unsecured term loans have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2012. 
 
The Company currently intends to repay its debt obligations, both in the short-term and long-term, through its operating cash flows, borrowings under its lines of credit, proceeds from new mortgage debt and term debt, and/or proceeds from the issuance of equity instruments.
 
Principal payments on long-term debt, including mortgage notes payable and unsecured term loans payable, due during the next five years as of December 31, 2012 are as follows: 
Years Ending December 31,
 
(In thousands)
 
 
 
2013
 
$
57,915

2014
 
98,920

2015
 
102,287

2016
 
92,716

2017
 
58,145

 
(7)
NOTES PAYABLE TO BANKS

The Company had a $200 million unsecured revolving credit facility with a group of seven banks that matured in January 2013.  The interest rate on the facility was based on the LIBOR index and varied according to total liability to total asset value ratios (as defined in the credit agreement), with an annual facility fee of 15 to 20 basis points.  The interest rate on each tranche was usually reset on a monthly basis and as of December 31, 2012, was LIBOR plus 0.85% with an annual facility fee of 0.20%.  At December 31, 2012, the weighted average interest rate was 1.065% on a balance of $71,000,000.  The Company had an additional $129,000,000 remaining on the line of credit at that date.

The aforementioned credit facility was repaid and replaced in January 2013 with a new four-year, $225 million unsecured credit facility with a group of nine banks with options for a one-year extension and a $100 million expansion. As of February 15, 2013, the interest rate was LIBOR plus 1.175% (1.385%) with an annual facility fee of 0.225%. The margin and facility fee are subject to changes in the Company's credit ratings.

The Company also had a $25 million unsecured revolving credit facility with PNC Bank, N.A. that matured in January 2013.  This credit facility was customarily used for working capital needs.  The interest rate on this working capital line was based on the LIBOR index and varied according to total liability to total asset value ratios (as defined in the credit agreement), with no annual facility fee.  The interest rate was reset on a daily basis and as of December 31, 2012, was LIBOR plus 1.65%.  At December 31, 2012, the interest rate was 1.859% on a balance of $5,160,000.  The Company had an additional $19,840,000 remaining on the line of credit at that date.  

The $25 million credit facility was repaid and replaced in January 2013 with a new four-year, $25 million unsecured credit facility that automatically extends for one year if the extension option in the new $225 million revolving facility is exercised. As of

56

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


February 15, 2013, the interest rate, which resets on a daily basis, was LIBOR plus 1.175% (1.377%) with an annual facility fee of 0.225%. The margin and facility fee are subject to changes in the Company's credit ratings.

Average bank borrowings were $85,113,000 in 2012 compared to $124,697,000 in 2011 with weighted average interest rates of 1.61% in 2012 compared to 1.41% in 2011.  Weighted average interest rates (including amortization of loan costs) were 2.01% for 2012 and 1.65% for 2011.  Amortization of bank loan costs was $342,000, $300,000 and $314,000 for 2012, 2011 and 2010, respectively.

The Company’s bank credit facilities have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2012.

(8)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

A summary of the Company’s Accounts Payable and Accrued Expenses follows:
 
December 31,
2012
 
2011
(In thousands)
Property taxes payable                                                    
$
12,107

 
9,840

Development costs payable 
7,170

 
5,928

Interest payable                              
2,615

 
2,736

Dividends payable on unvested restricted stock
1,191

 
1,415

Other payables and accrued expenses                   
5,831

 
11,286

 Total Accounts Payable and Accrued Expenses
$
28,914

 
31,205

 
(9)
OTHER LIABILITIES

A summary of the Company’s Other Liabilities follows:
 
December 31,
2012
 
2011
(In thousands)
Security deposits                                                 
$
9,668

 
9,184

Prepaid rent and other deferred income
7,930

 
6,373

 
 
 
 
Acquired below market lease intangibles
1,541

 
1,684

Accumulated amortization of acquired below market lease intangibles
(391
)
 
(924
)
Acquired below market lease intangibles, net of accumulated amortization
1,150

 
760

 
 
 
 
Interest rate swap liability
645

 

Other liabilities                                  
693

 
699

 Total Other Liabilities
$
20,086

 
17,016













57

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(10)
COMMON STOCK ACTIVITY

The following table presents the common stock activity for the three years ended December 31, 2012:
 
Years Ended December 31,
2012
 
2011
 
2010
Common Shares
Shares outstanding at beginning of year
27,658,059

 
26,973,531

 
26,826,100

Common stock offerings                                                            
2,179,153

 
586,977

 

Stock options exercised                                                            
4,500

 
9,250

 
18,000

Dividend reinvestment plan                                                            
3,915

 
5,989

 
6,705

Incentive restricted stock granted                                                            
111,732

 
79,491

 
135,704

Incentive restricted stock forfeited                                                            

 
(233
)
 

Director common stock awarded                                                            
7,326

 
6,618

 
6,690

Restricted stock withheld for tax obligations
(36,195
)
 
(3,564
)
 
(19,668
)
Shares outstanding at end of year                                                            
29,928,490

 
27,658,059

 
26,973,531


Common Stock Issuances
During 2012, EastGroup issued 2,179,153 shares of its common stock through its continuous common equity program with net proceeds to the company of $109.6 million.

During 2011, EastGroup issued 586,977 shares of its common stock through its continuous common equity program with net proceeds to the Company of $25.2 million.

Dividend Reinvestment Plan
The Company has a dividend reinvestment plan that allows stockholders to reinvest cash distributions in new shares of the Company.

Common Stock Repurchase Plan
During 2012, EastGroup's Board of Directors terminated its previous plan which authorized the repurchase of up to 1,500,000 shares of its outstanding common stock.  The shares were able to be purchased from time to time in the open market or in privately negotiated transactions.  Under the common stock repurchase plan, the Company purchased a total of 827,700 shares for $14,170,000 (an average of $17.12 per share).  The Company has not repurchased any shares under this plan since 2000.

(11)
STOCK-BASED COMPENSATION

The Company follows the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation plans.  ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements and that the cost be measured on the fair value of the equity or liability instruments issued.

Equity Incentive Plan
The Company has a management incentive plan which was approved by the stockholders and adopted in 2004.  The Plan was further amended by the Board of Directors in September 2005 and December 2006.  This plan authorizes the issuance of up to 1,900,000 shares of common stock to employees in the form of options, stock appreciation rights, restricted stock, deferred stock units, performance shares, bonus stock or stock in lieu of cash compensation.  Total shares available for grant were 1,330,619 shares,  1,406,156 shares and 1,481,850 shares at December 31, 2012, 2011, and 2010, respectively.  Typically, the Company issues new shares to fulfill stock grants or upon the exercise of stock options.

Stock-based compensation cost was $4,087,000, $2,486,000 and $1,801,000 for 2012, 2011 and 2010, respectively, of which $920,000, $304,000 and $43,000 were capitalized as part of the Company’s development costs for the respective years.

Equity Awards
The purpose of the restricted stock plan is to act as a retention device since it allows participants to benefit from dividends on shares as well as potential stock appreciation.  The vesting periods of the Company’s restricted stock plans vary; the vesting period begins on the date of grant and generally ranges from 2.5 years to 9 years from the date of grant.  Restricted stock is granted to executive officers subject to both continued service and the satisfaction of certain annual performance goals and multi-year market conditions as determined by the Compensation Committee.  Restricted stock is granted to non-executive officers subject only to

58

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


continued service.  Under the modified prospective application method, the Company continues to recognize compensation cost on a straight-line basis over the service period for awards that precede January 1, 2006.  The cost for performance-based awards after January 1, 2006 is amortized using the graded vesting attribution method which recognizes each separate vesting portion of the award as a separate award on a straight-line basis over the requisite service period.  This method accelerates the expensing of the award compared to the straight-line method.  The cost for market-based awards after January 1, 2006 and awards that only require service is amortized on a straight-line basis over the requisite service periods.

The total compensation expense for service and performance based awards is based upon the fair market value of the shares on the grant date, adjusted for estimated forfeitures.  The grant date fair value for awards that have been granted and are subject to a future market condition (total shareholder return) is determined using a simulation pricing model developed to specifically accommodate the unique features of the awards.

In March 2012, the Compensation Committee evaluated the Company's performance compared to a variety of goals for the year ended December 31, 2011.  Based on the evaluation, 44,789 shares were awarded to the Company’s executive officers at a weighted average grant date fair value of $48.75 per share.  These shares vested 20% on the dates shares were determined and awarded, 20% on December 19, 2012, and will vest 20% per year on January 1 in years 2014, 2015 and 2016.  The shares will be expensed on a straight-line basis over the remaining service period.

Also in March 2012, the Committee evaluated the Company’s absolute and relative total stockholder return for the five-year period ended December 31, 2011.  Based on the evaluation, 47,418 shares were awarded to the Company’s executive officers at a weighted average grant date fair value of $48.75 per share.  These shares vested 25% on the dates shares were awarded, 25% on December 19, 2012, and will vest 25% per year on January 1 in years 2014 and 2015.  The shares will be expensed on a straight-line basis over the remaining service period.

In the second quarter of 2012, the Company’s Board of Directors approved an equity compensation plan for its executive officers based upon the attainment of certain annual performance goals.  These goals are for the year ended December 31, 2012, so any shares issued upon attainment of these goals will be determined by the Compensation Committee in the first quarter of 2013.  The number of shares to be issued on the grant date could range from zero to 51,369.  These shares will vest 20% on the date shares are determined and awarded and generally will vest 20% per year on each January 1 for the subsequent four years.

Also in the second quarter of 2012, EastGroup’s Board of Directors approved an equity compensation plan for the Company’s executive officers based on EastGroup’s absolute and relative total stockholder return compared to the NAREIT Equity Index, NAREIT Industrial Index and Russell 2000 Index for the five-year period ended December 31, 2012, so any shares issued pursuant to this equity compensation plan will be determined by the Compensation Committee in the first quarter of 2013.  The number of shares to be issued on the grant date could range from zero to 54,335.  These shares will vest 25% on the date shares are determined and awarded and generally will vest 25% per year on each January 1 in years 2014, 2015 and 2016.
 
Notwithstanding the foregoing, shares issued to the Company’s Chief Executive Officer, David H. Hoster II, and Chief Financial Officer, N. Keith McKey, will become fully vested no later than January 1, 2015 and April 6, 2016, respectively.

In the second quarter of 2012, 19,525 shares were granted to certain non-executive officers subject only to continued service as of the vesting date. These shares, which have a grant date fair value of $48.96 per share, will vest 20% per year on January 1 in years 2013, 2014, 2015, 2016 and 2017.

During the restricted period for awards no longer subject to contingencies, the Company accrues dividends and holds the certificates for the shares; however, the employee can vote the shares.  For shares subject to contingencies, dividends are accrued based upon the number of shares expected to be awarded.  Share certificates and dividends are delivered to the employee as they vest.  As of December 31, 2012, there was $7,293,000 of unrecognized compensation cost related to unvested restricted stock compensation that is expected to be recognized over a weighted average period of 3.58 years.
 
Following is a summary of the total restricted shares granted, forfeited and delivered (vested) to employees with the related weighted average grant date fair value share prices for 2012, 2011 and 2010. Of the shares that vested in 2012, 2011 and 2010, 36,195 shares, 3,564 shares and 19,668 shares, respectively, were withheld by the Company to satisfy the tax obligations for those employees who elected this option as permitted under the applicable equity plan. As shown in the table below, the fair value of shares that were granted during 2012, 2011 and 2010 was $5,451,000, $3,576,000 and $5,002,000, respectively. As of the vesting date, the fair value of shares that vested during 2012, 2011 and 2010 was $6,630,000, $613,000 and $3,591,000, respectively.
 

59

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Restricted Stock Activity:
Years Ended December 31,
2012
 
2011
 
2010
 
Shares
 
Weighted Average
Grant Date
Fair Value
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
Unvested at beginning of year
235,929

 
$
38.90

 
170,575

 
$
36.29

 
124,080

 
$
36.93

Granted (1) 
111,732

 
48.79

 
79,491

 
44.99

 
135,704

 
36.86

Forfeited 

 

 
(233
)
 
35.85

 

 

Vested 
(135,455
)
 
40.88

 
(13,904
)
 
41.77

 
(89,209
)
 
38.05

Unvested at end of year 
212,206

 
42.84

 
235,929

 
38.90

 
170,575

 
36.29


(1)
Includes shares granted in prior years for which performance conditions have been satisfied and the number of shares have been determined.

Following is a vesting schedule of the total unvested shares as of December 31, 2012:
Unvested Shares Vesting Schedule
 
Number of Shares
2013
 
9,366

2014
 
55,440

2015
 
59,111

2016
 
24,587

2017
 
15,702

2018
 
12,000

2019
 
16,200

2020
 
19,800

Total Unvested Shares                                                  
 
212,206


Employee Stock Options
The Company has not granted stock options to employees since 2002.  Outstanding employee stock options vested equally over a two-year period; accordingly, all options are now vested.  There were no employee stock option exercises during 2012. The intrinsic value realized by employees from the exercise of options during 2011 and 2010 was $5,000 and $74,000, respectively.  There were no employee stock options granted, forfeited, or expired during the years presented.  Following is a summary of the total employee stock options exercised with related weighted average exercise share prices for 2012, 2011 and 2010.
Stock Option Activity:
Years Ended December 31,
2012
 
2011
 
2010
 
Shares
 
Weighted Average Exercise Price
 
 
Shares
 
Weighted Average Exercise Price
 
 
Shares
 
Weighted Average Exercise Price
Outstanding at beginning of year

 
$

 
250

 
$
25.30

 
4,750

 
$
21.80

Exercised 

 

 
(250
)
 
25.30

 
(4,500
)
 
21.61

Outstanding at end of year

 

 

 

 
250

 
25.30

Exercisable at end of year 

 
$

 

 
$

 
250

 
$
25.30

 
Directors Equity Plan
The Company has a directors equity plan that was approved by stockholders and adopted in 2005 (the 2005 Plan), which authorizes the issuance of up to 50,000 shares of common stock through awards of shares and restricted shares granted to non-employee directors of the Company.  The 2005 Plan replaced prior plans under which directors were granted stock option awards.  Outstanding grants under prior plans will be fulfilled under those plans.


60

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Directors were issued 7,326 shares, 6,618 shares and 6,690 shares of common stock for 2012, 2011 and 2010, respectively.  There were 9,127 shares available for grant under the 2005 Plan at December 31, 2012.

Stock-based compensation expense for directors was $330,000, $270,000 and $240,000 for 2012, 2011 and 2010, respectively.  The intrinsic value realized by directors from the exercise of options was $116,000, $183,000 and $208,000 for 2012, 2011 and 2010, respectively.

There were no director stock options granted or expired during the years presented below.  Following is a summary of the total director stock options exercised with related weighted average exercise share prices for 2012, 2011 and 2010
Stock Option Activity:
Years Ended December 31,
2012
 
2011
 
2010
 
Shares
 
Weighted Average Exercise Price
 
 
Shares
 
Weighted Average Exercise Price
 
 
Shares
 
Weighted Average Exercise Price
Outstanding at beginning of year
9,000

 
$
25.31

 
18,000

 
$
24.33

 
31,500

 
$
23.65

Exercised 
(4,500
)
 
24.02

 
(9,000
)
 
23.36

 
(13,500
)
 
22.74

Outstanding at end of year
4,500

 
26.60

 
9,000

 
25.31

 
18,000

 
24.33

Exercisable at end of year 
4,500

 
$
26.60

 
9,000

 
$
25.31

 
18,000

 
$
24.33


Director outstanding stock options at December 31, 2012, all exercisable:
Exercise Price Range
 
Number
 
Weighted Average Remaining Contractual Life
 
Weighted Average
Exercise Price
 
Intrinsic
Value
$26.60
 
4,500

 
0.4 years
 
$
26.60

 
$
122,000


(12)
COMPREHENSIVE INCOME

Total Comprehensive Income is comprised of net income plus all other changes in equity from non-owner sources and is presented on the Consolidated Statements of Income and Comprehensive Income.  The components of Accumulated Other Comprehensive Loss for 2012, 2011 and 2010 are presented in the Company’s Consolidated Statements of Changes in Equity and are summarized below.  See Note 13 for additional information on the Company’s interest rate swaps.
 
2012
 
2011
 
2010
ACCUMULATED OTHER COMPREHENSIVE LOSS:
(In thousands)
Balance at beginning of year 
$

 

 
(318
)
    Change in fair value of interest rate swap 
(392
)
 

 
318

Balance at end of year 
$
(392
)
 

 


(13)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources, and duration of its debt funding and, to a limited extent, the use of derivative instruments.

Specifically, the Company has entered into derivative instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative instruments, described below, are used to manage differences in the amount, timing, and duration of the Company's known or expected cash payments principally related to certain of the Company's borrowings.

The Company's objective in using interest rate derivatives is to manage exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 

61

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company currently has one interest rate swap outstanding that is used to hedge the variable cash flows associated with its variable-rate debt. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings (included in Other on the Consolidated Statements of Income and Comprehensive Income).

During 2010, EastGroup settled an interest rate swap with the repayment of its $8,770,000 mortgage loan on the Tower Automotive Center. The Company recognized income (included in Other Comprehensive Income(Loss)) related to the derivative of $318,000 during 2010.

The Company entered into one $80,000,000 interest rate swap on July 20, 2012 but did not designate the swap for hedge accounting purposes until August 27, 2012. All of the changes in fair value of the swap from July 20, 2012 leading up to the designation date were marked to market through current earnings. On August 27, 2012, the Company designated the swap for hedge accounting in an off-market hedging relationship and has concluded that the hedging relationship will be highly effective by performing a regression assessment at inception. Ineffectiveness related to the off-market hedging relationship will be recorded directly into earnings as described above. During 2012, the Company recognized total expenses resulting from the interest rate swap mark to market designation and interest rate swap ineffectiveness of $269,000.

Amounts reported in Other Comprehensive Income (Loss) related to derivatives will be reclassified to Interest Expense as interest payments are made on the Company's variable-rate debt. The Company estimates that an additional $592,000 will be reclassified from Other Comprehensive Income (Loss) as an increase to Interest Expense over the next twelve months.

As of December 31, 2012, the Company had the following outstanding interest rate derivative that is designated as a cash flow hedge of interest rate risk:
Interest Rate Derivative
 
Notional Amount
Interest Rate Swap
 
$80,000,000

The Company had no derivatives outstanding as of December 31, 2011.

The table below presents the fair value of the Company's derivative financial instrument as well as its classification on the Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011. See Note 18 for additional information on the fair value of the Company's interest rate swap.
 
 
Liability Derivatives
As of December 31, 2012
 
Liability Derivatives
As of December 31, 2011
 
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Interest rate swaps
 
Other Liabilities
 
$
645,000

 
Other Liabilities
 
$


The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2012, 2011 and 2010:
 
2012
 
2011
 
2010
 
(In thousands)
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
 
 
 
 
 
Interest Rate Swaps:
 
 
 
 
 
Amount of income (loss) recognized in Other Comprehensive Income on derivative                                                                                                     
$
(593
)
 

 
318

Amount of loss reclassified from Accumulated Other Comprehensive Loss into Interest Expense                                                                                               
(201
)
 

 

MARK TO MARKET DERIVATIVES
 
 
 
 
 
Interest Rate Swaps:
 
 
 
 
 
    Amount of loss recognized in earnings upon swap designation                                                                                                    
$
(242
)
 

 



62

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


See Note 12 for additional information on the Company's Accumulated Other Comprehensive Loss resulting from its interest rate swap.

Derivative financial agreements expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with major credit-worthy financial institutions.

The Company has an agreement with its derivative counterparty containing a provision stating that the Company could be declared in default on its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender.

As of December 31, 2012, the fair value of derivatives in a liability position related to these agreements was $645,000. If the Company breached any of the contractual provisions of the derivative contract, it would be required to settle its obligation under the agreement at the swap termination value. As of December 31, 2012, the swap termination value was a liability in the amount of $610,000.


(14)
EARNINGS PER SHARE

The Company applies ASC 260, 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:
 
2012
 
2011
 
2010
(In thousands)
BASIC EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 
 
 
 
 
  Numerator – net income attributable to common stockholders
$
32,384

 
22,359

 
18,325

  Denominator – weighted average shares outstanding
28,577

 
26,897

 
26,752

DILUTED EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE
TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 
 
 
 
 
  Numerator – net income attributable to common stockholders
$
32,384

 
22,359

 
18,325

Denominator:
 
 
 
 
 
    Weighted average shares outstanding 
28,577

 
26,897

 
26,752

    Common stock options 
3

 
6

 
11

    Unvested restricted stock 
97

 
68

 
61

       Total Shares 
28,677

 
26,971

 
26,824

 
 




















63

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(15)
QUARTERLY RESULTS OF OPERATIONS – UNAUDITED

 
2012 Quarter Ended
 
2011 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
$
46,568

 
46,369

 
46,701

 
47,094

 
43,124

 
43,099

 
43,780

 
43,877

Expenses
(41,307
)
 
(40,289
)
 
(39,937
)
 
(39,301
)
 
(38,260
)
 
(37,556
)
 
(38,069
)
 
(37,437
)
Income from continuing operations
5,261

 
6,080

 
6,764

 
7,793

 
4,864

 
5,543

 
5,711

 
6,440

Income from discontinued operations
261

 
2,004

 
133

 
4,592

 
38

 
72

 
80

 
86

Net income
5,522

 
8,084

 
6,897

 
12,385

 
4,902

 
5,615

 
5,791

 
6,526

Net income attributable to
noncontrolling interest in joint ventures
(119
)
 
(111
)
 
(126
)
 
(147
)
 
(110
)
 
(123
)
 
(121
)
 
(121
)
Net income attributable to EastGroup
Properties, Inc. common stockholders
$
5,403

 
7,973

 
6,771

 
12,238

 
4,792

 
5,492

 
5,670

 
6,405

BASIC PER SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income attributable to common
stockholders
$
0.20

 
0.28

 
0.23

 
0.41

 
0.18

 
0.20

 
0.21

 
0.24

Weighted average shares outstanding
27,647

 
28,246

 
28,912

 
29,491

 
26,809

 
26,820

 
26,839

 
27,116

DILUTED PER SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income attributable to common
stockholders
$
0.19

 
0.28

 
0.23

 
0.41

 
0.18

 
0.20

 
0.21

 
0.24

Weighted average shares outstanding
27,718

 
28,341

 
29,030

 
29,614

 
26,873

 
26,897

 
26,914

 
27,206


(1)
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 and Comprehensive 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 sum of quarterly financial data may vary from the annual data due to rounding.

(16)
DEFINED CONTRIBUTION PLAN

EastGroup maintains a 401(k) plan for its employees.  The Company makes matching contributions of 50% of the employee’s contribution (limited to 10% of compensation as defined by the plan) and may also make annual discretionary contributions.  The Company’s total expense for this plan was $425,000, $382,000 and $381,000 for 2012, 2011 and 2010, respectively.

(17)
LEGAL MATTERS

The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the Company or its properties, other than routine litigation arising in the ordinary course of business.








64

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(18)
FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC 820 also provides guidance for using fair value to measure financial assets and liabilities.  The Codification requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments in accordance with ASC 820 at December 31, 2012 and 2011.
 
December 31,
2012
 
2011
Carrying
Amount (1)
 
Fair
Value
 
Carrying
Amount (1)
 
Fair
Value
(In thousands)
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,258

 
1,258

 
174

 
174

   Mortgage loans receivable, net of discount                                         
9,323

 
9,748

 
4,110

 
4,317

Financial Liabilities:
 

 
 

 
 

 
 

Mortgage notes payable
607,766

 
661,408

 
628,170

 
674,462

Unsecured term loans payable
130,000

 
130,776

 
50,000

 
50,000

   Notes payable to banks                                         
76,160

 
76,160

 
154,516

 
153,521

   Interest rate swap liability
645

 
645

 

 


(1)
Carrying amounts shown in the table are included in the Consolidated Balance Sheets under the indicated captions, except as indicated in the notes below.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents:  The carrying amounts approximate fair value due to the short maturity of those instruments.
Mortgage loans receivable, net of discount (included in Other Assets on the Consolidated Balance Sheets):  The fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (Level 2 input).
Mortgage notes payable: The fair value of the Company’s mortgage notes payable is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input).
Unsecured term loans payable: The fair value of the Company’s unsecured term loans payable is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input).
Notes payable to banks: The fair value of the Company’s notes payable to banks is estimated by discounting expected cash flows at current market rates (Level 2 input).
Interest rate swap liability (included in Other Liabilities on the Consolidated Balance Sheets): The instrument is recorded at fair value based on models using inputs, such as interest rate yield curves, observable for substantially the full term of the contract (Level 2 input). See Note 13 for additional information on the Company's interest rate swap.


(19)
SUBSEQUENT EVENTS

EastGroup noted no significant subsequent events through February 19, 2013, except for the Company's new credit facilities discussed in Note 7.

65



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:

Under date of February 19, 2013, we reported on the consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2012, which are included in the 2012 Annual Report on Form 10-K.  In connection with our audits of the aforementioned consolidated financial statements, we also 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.

 
(Signed) KPMG LLP
Jackson, Mississippi
 
February 19, 2013
 


66




SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Real Estate Properties (c):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FLORIDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tampa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     56th Street Commerce Park
 
$

 
843

 
3,567

 
3,780

 
843

 
7,347

 
8,190

 
4,669

 
1993
 
1981/86/97
Jetport Commerce Park
 

 
1,575

 
6,591

 
3,856

 
1,575

 
10,447

 
12,022

 
6,410

 
1993-99
 
1974-85
Westport Commerce Center
 

 
980

 
3,800

 
2,413

 
980

 
6,213

 
7,193

 
3,736

 
1994
 
1983/87
Benjamin Distribution Center I & II
 

 
843

 
3,963

 
1,158

 
883

 
5,081

 
5,964

 
2,912

 
1997
 
1996
Benjamin Distribution Center III
 

 
407

 
1,503

 
454

 
407

 
1,957

 
2,364

 
1,368

 
1999
 
1988
Palm River Center
 

 
1,190

 
4,625

 
1,658

 
1,190

 
6,283

 
7,473

 
3,602

 
1997/98
 
1990/97/98
Palm River North I & III (j)
 
5,123

 
1,005

 
4,688

 
2,195

 
1,005

 
6,883

 
7,888

 
3,274

 
1998
 
2000
Palm River North II (j)
 
4,701

 
634

 
4,418

 
381

 
634

 
4,799

 
5,433

 
2,669

 
1997/98
 
1999
Palm River South I
 

 
655

 
3,187

 
555

 
655

 
3,742

 
4,397

 
1,311

 
2000
 
2005
Palm River South II
 

 
655

 

 
4,294

 
655

 
4,294

 
4,949

 
1,638

 
2000
 
2006
Walden Distribution Center I
 

 
337

 
3,318

 
446

 
337

 
3,764

 
4,101

 
1,616

 
1997/98
 
2001
Walden Distribution Center II
 

 
465

 
3,738

 
932

 
465

 
4,670

 
5,135

 
2,120

 
1998
 
1998
Oak Creek Distribution Center I
 

 
1,109

 
6,126

 
1,028

 
1,109

 
7,154

 
8,263

 
2,686

 
1998
 
1998
Oak Creek Distribution Center II
 

 
647

 
3,603

 
991

 
647

 
4,594

 
5,241

 
1,603

 
2003
 
2001
Oak Creek Distribution Center III
 

 
439

 

 
3,167

 
556

 
3,050

 
3,606

 
783

 
2005
 
2007
Oak Creek Distribution Center IV
 

 
805

 
6,472

 
235

 
805

 
6,707

 
7,512

 
1,671

 
2005
 
2001
Oak Creek Distribution Center V
 

 
724

 

 
5,683

 
916

 
5,491

 
6,407

 
1,420

 
2005
 
2007
Oak Creek Distribution Center VI
 

 
642

 

 
5,032

 
812

 
4,862

 
5,674

 
845

 
2005
 
2008
Oak Creek Distribution Center IX
 

 
618

 

 
4,916

 
781

 
4,753

 
5,534

 
506

 
2005
 
2009
Oak Creek Distribution Center A
 

 
185

 

 
1,428

 
185

 
1,428

 
1,613

 
214

 
2005
 
2008
Oak Creek Distribution Center B
 

 
227

 

 
1,485

 
227

 
1,485

 
1,712

 
220

 
2005
 
2008
Airport Commerce Center
 

 
1,257

 
4,012

 
824

 
1,257

 
4,836

 
6,093

 
2,082

 
1998
 
1998
Westlake Distribution Center (j)
 
6,527

 
1,333

 
6,998

 
1,561

 
1,333

 
8,559

 
9,892

 
4,059

 
1998
 
1998/99
Expressway Commerce Center I
 

 
915

 
5,346

 
1,020

 
915

 
6,366

 
7,281

 
2,278

 
2002
 
2004
Expressway Commerce Center II
 

 
1,013

 
3,247

 
341

 
1,013

 
3,588

 
4,601

 
1,425

 
2003
 
2001
Silo Bend Distribution Center
 

 
4,131

 
27,497

 
117

 
4,131

 
27,614

 
31,745

 
1,227

 
2011
 
1987/90
Tampa East Distribution Center
 

 
1,097

 
5,750

 
15

 
1,097

 
5,765

 
6,862

 
403

 
2011
 
1984/90
Tampa West Distribution Center
 

 
2,499

 
9,472

 
831

 
2,499

 
10,303

 
12,802

 
492

 
2011
 
1975/85/90/93/94

67



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Madison Distribution Center
 

 
495

 
2,779

 
254

 
495

 
3,033

 
3,528

 
129

 
2012
 
2007
Orlando
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Chancellor Center
 

 
291

 
1,711

 
174

 
291

 
1,885

 
2,176

 
958

 
1996/97
 
1996/97
Exchange Distribution Center I
 

 
603

 
2,414

 
2,016

 
603

 
4,430

 
5,033

 
2,712

 
1994
 
1975
Exchange Distribution Center II
 

 
300

 
945

 
227

 
300

 
1,172

 
1,472

 
499

 
2002
 
1976
Exchange Distribution Center III
 

 
320

 
997

 
370

 
320

 
1,367

 
1,687

 
594

 
2002
 
1980
Sunbelt Distribution Center (i)
 
6,461

 
1,474

 
5,745

 
5,156

 
1,474

 
10,901

 
12,375

 
6,566

 
1989/97/98
 
1974/87/97/98
John Young Commerce Center I
 

 
497

 
2,444

 
727

 
497

 
3,171

 
3,668

 
1,478

 
1997/98
 
1997/98
John Young Commerce Center II
 

 
512

 
3,613

 
191

 
512

 
3,804

 
4,316

 
2,080

 
1998
 
1999
Altamonte Commerce Center I
 

 
1,518

 
2,661

 
2,004

 
1,518

 
4,665

 
6,183

 
2,883

 
1999
 
1980/82
Altamonte Commerce Center II
 

 
745

 
2,618

 
1,079

 
745

 
3,697

 
4,442

 
1,462

 
2003
 
1975
Sunport Center I
 

 
555

 
1,977

 
642

 
555

 
2,619

 
3,174

 
1,171

 
1999
 
1999
Sunport Center II
 

 
597

 
3,271

 
1,354

 
597

 
4,625

 
5,222

 
2,839

 
1999
 
2001
Sunport Center III
 

 
642

 
3,121

 
495

 
642

 
3,616

 
4,258

 
1,609

 
1999
 
2002
Sunport Center IV
 

 
642

 
2,917

 
956

 
642

 
3,873

 
4,515

 
1,405

 
1999
 
2004
Sunport Center V
 

 
750

 
2,509

 
1,900

 
750

 
4,409

 
5,159

 
2,203

 
1999
 
2005
Sunport Center VI
 

 
672

 

 
3,353

 
672

 
3,353

 
4,025

 
911

 
1999
 
2006
Southridge Commerce Park I
 

 
373

 

 
4,470

 
373

 
4,470

 
4,843

 
2,163

 
2003
 
2006
Southridge Commerce Park II
 

 
342

 

 
4,297

 
342

 
4,297

 
4,639

 
1,611

 
2003
 
2007
Southridge Commerce Park III
 

 
547

 

 
5,297

 
547

 
5,297

 
5,844

 
1,185

 
2003
 
2007
Southridge Commerce Park IV (h)
 
3,684

 
506

 

 
4,505

 
506

 
4,505

 
5,011

 
1,166

 
2003
 
2006
Southridge Commerce Park V (h)
 
3,425

 
382

 

 
4,277

 
382

 
4,277

 
4,659

 
1,458

 
2003
 
2006
Southridge Commerce Park VI
 

 
571

 

 
4,937

 
571

 
4,937

 
5,508

 
1,004

 
2003
 
2007
Southridge Commerce Park VII
 

 
520

 

 
6,165

 
520

 
6,165

 
6,685

 
1,343

 
2003
 
2008
Southridge Commerce Park VIII
 

 
531

 

 
6,253

 
531

 
6,253

 
6,784

 
919

 
2003
 
2008
Southridge Commerce Park XII (o)
 
12,899

 
2,025

 

 
16,838

 
2,025

 
16,838

 
18,863

 
2,274

 
2005
 
2008
Jacksonville
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Deerwood Distribution Center
 

 
1,147

 
1,799

 
1,625

 
1,147

 
3,424

 
4,571

 
1,922

 
1989
 
1978
Phillips Distribution Center
 

 
1,375

 
2,961

 
3,926

 
1,375

 
6,887

 
8,262

 
4,115

 
1994
 
1984/95
Lake Pointe Business Park (k)
 
13,689

 
3,442

 
6,450

 
6,530

 
3,442

 
12,980

 
16,422

 
8,147

 
1993
 
1986/87
Ellis Distribution Center
 

 
540

 
7,513

 
965

 
540

 
8,478

 
9,018

 
3,543

 
1997
 
1977
Westside Distribution Center
 

 
1,170

 
12,400

 
4,370

 
1,170

 
16,770

 
17,940

 
8,098

 
1997
 
1984
12th Street Distribution Center
 

 
841

 
2,974

 
1,375

 
841

 
4,349

 
5,190

 
696

 
2008
 
1985

68



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Beach Commerce Center
 

 
476

 
1,899

 
613

 
476

 
2,512

 
2,988

 
1,057

 
2000
 
2000
Interstate Distribution Center
 

 
1,879

 
5,700

 
1,242

 
1,879

 
6,942

 
8,821

 
2,606

 
2005
 
1990
Fort Lauderdale/Palm Beach area
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Linpro Commerce Center
 

 
613

 
2,243

 
1,551

 
616

 
3,791

 
4,407

 
2,566

 
1996
 
1986
Cypress Creek Business Park
 

 

 
2,465

 
1,579

 

 
4,044

 
4,044

 
2,278

 
1997
 
1986
Lockhart Distribution Center
 

 

 
3,489

 
2,280

 

 
5,769

 
5,769

 
3,166

 
1997
 
1986
Interstate Commerce Center
 

 
485

 
2,652

 
683

 
485

 
3,335

 
3,820

 
1,814

 
1998
 
1988
Executive Airport Commerce Ctr (p)
 
9,237

 
1,991

 
4,857

 
5,087

 
1,991

 
9,944

 
11,935

 
3,347

 
2001
 
2004/06
Sample 95 Business Park
 

 
2,202

 
8,785

 
2,654

 
2,202

 
11,439

 
13,641

 
5,968

 
1996/98
 
1990/99
Blue Heron Distribution Center
 

 
975

 
3,626

 
1,658

 
975

 
5,284

 
6,259

 
2,760

 
1999
 
1986
Blue Heron Distribution Center II
 
1,161

 
1,385

 
4,222

 
809

 
1,385

 
5,031

 
6,416

 
1,850

 
2004
 
1988
Blue Heron Distribution Center III
 

 
450

 

 
2,663

 
450

 
2,663

 
3,113

 
335

 
2004
 
2009
Fort Myers
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     SunCoast Commerce Center I
 

 
911

 

 
4,751

 
928

 
4,734

 
5,662

 
1,049

 
2005
 
2008
SunCoast Commerce Center II
 

 
911

 

 
4,737

 
928

 
4,720

 
5,648

 
1,238

 
2005
 
2007
SunCoast Commerce Center III
 

 
1,720

 

 
6,371

 
1,763

 
6,328

 
8,091

 
827

 
2006
 
2008
CALIFORNIA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
San Francisco area
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Wiegman Distribution Center (l)
 
11,405

 
2,197

 
8,788

 
1,772

 
2,308

 
10,449

 
12,757

 
4,582

 
1996
 
1986/87
     Wiegman Distribution Center II
 

 
2,579

 
4,316

 
2

 
2,579

 
4,318

 
6,897

 
48

 
2012
 
1998
Huntwood Distribution Center (l)
 
18,927

 
3,842

 
15,368

 
1,918

 
3,842

 
17,286

 
21,128

 
7,960

 
1996
 
1988
San Clemente Distribution Center
 

 
893

 
2,004

 
845

 
893

 
2,849

 
3,742

 
1,195

 
1997
 
1978
Yosemite Distribution Center
 

 
259

 
7,058

 
1,006

 
259

 
8,064

 
8,323

 
3,599

 
1999
 
1974/87
Los Angeles area
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Kingsview Industrial Center (e)
 
2,912

 
643

 
2,573

 
431

 
643

 
3,004

 
3,647

 
1,468

 
1996
 
1980
Dominguez Distribution Center (e)
 
8,946

 
2,006

 
8,025

 
1,170

 
2,006

 
9,195

 
11,201

 
4,520

 
1996
 
1977
Main Street Distribution Center
 

 
1,606

 
4,103

 
766

 
1,606

 
4,869

 
6,475

 
2,157

 
1999
 
1999
Walnut Business Center (e)
 
7,410

 
2,885

 
5,274

 
1,120

 
2,885

 
6,394

 
9,279

 
2,834

 
1996
 
1966/90
Washington Distribution Center (e)
 
5,676

 
1,636

 
4,900

 
572

 
1,636

 
5,472

 
7,108

 
2,396

 
1997
 
1996/97
Chino Distribution Center (f)
 
10,690

 
2,544

 
10,175

 
1,518

 
2,544

 
11,693

 
14,237

 
5,459

 
1998
 
1980
Industry Distribution Center I (e)
 
19,340

 
10,230

 
12,373

 
1,616

 
10,230

 
13,989

 
24,219

 
6,200

 
1998
 
1959
Industry Distribution Center III (e)
 
2,280

 

 
3,012

 
(157
)
 

 
2,855

 
2,855

 
2,835

 
2007
 
1992
Chestnut Business Center
 

 
1,674

 
3,465

 
165

 
1,674

 
3,630

 
5,304

 
1,447

 
1998
 
1999

69



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Los Angeles Corporate Center
 

 
1,363

 
5,453

 
2,719

 
1,363

 
8,172

 
9,535

 
4,176

 
1996
 
1986
Santa Barbara
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     University Business Center
 

 
5,517

 
22,067

 
4,507

 
5,520

 
26,571

 
32,091

 
12,689

 
1996
 
1987/88
Castilian Research Center
 

 
2,719

 
1,410

 
4,840

 
2,719

 
6,250

 
8,969

 
959

 
2005
 
2007
Fresno
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Shaw Commerce Center (e)
 
14,488

 
2,465

 
11,627

 
4,051

 
2,465

 
15,678

 
18,143

 
7,898

 
1998
 
1978/81/87
San Diego
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Eastlake Distribution Center (n)
 
7,909

 
3,046

 
6,888

 
1,502

 
3,046

 
8,390

 
11,436

 
4,011

 
1997
 
1989
Ocean View Corporate Center (p)
 
10,812

 
6,577

 
7,105

 
290

 
6,577

 
7,395

 
13,972

 
1,224

 
2010
 
2005
TEXAS
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Dallas
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Interstate Distribution Center  I & II (g)
 
6,496

 
1,746

 
4,941

 
2,210

 
1,746

 
7,151

 
8,897

 
4,916

 
1988
 
1978
Interstate Distribution Center III (g)
 
2,343

 
519

 
2,008

 
682

 
519

 
2,690

 
3,209

 
1,400

 
2000
 
1979
Interstate Distribution Center IV
 

 
416

 
2,481

 
532

 
416

 
3,013

 
3,429

 
1,007

 
2004
 
2002
Interstate Distribution Center V, VI &
VII (h)
 
4,904

 
1,824

 
4,106

 
740

 
1,824

 
4,846

 
6,670

 
1,430

 
2009
 
1979/80/81
Venture Warehouses (g)
 
5,233

 
1,452

 
3,762

 
1,954

 
1,452

 
5,716

 
7,168

 
3,896

 
1988
 
1979
Stemmons Circle (g)
 
2,134

 
363

 
2,014

 
546

 
363

 
2,560

 
2,923

 
1,434

 
1998
 
1977
Ambassador Row Warehouses
 

 
1,156

 
4,625

 
2,442

 
1,156

 
7,067

 
8,223

 
3,992

 
1998
 
1958/65
North Stemmons II
 

 
150

 
583

 
393

 
150

 
976

 
1,126

 
338

 
2002
 
1971
North Stemmons III
 

 
380

 
2,066

 
5

 
380

 
2,071

 
2,451

 
383

 
2007
 
1974
Shady Trail Distribution Center (j)
 
2,910

 
635

 
3,621

 
713

 
635

 
4,334

 
4,969

 
1,455

 
2003
 
1998
Valwood Distribution Center
 

 
4,361

 
34,405

 

 
4,361

 
34,405

 
38,766

 
74

 
2012
 
1986/87/97/98
Houston
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Northwest Point Business Park (i)
 
5,777

 
1,243

 
5,640

 
4,183

 
1,243

 
9,823

 
11,066

 
5,701

 
1994
 
1984/85
Lockwood Distribution Center (i)
 
4,268

 
749

 
5,444

 
1,983

 
749

 
7,427

 
8,176

 
3,546

 
1997
 
1968/69
West Loop Distribution Center (g)
 
5,458

 
905

 
4,383

 
2,188

 
905

 
6,571

 
7,476

 
3,465

 
1997/2000
 
1980
World Houston Int'l Business Ctr 1 & 2 (f)
 
5,764

 
660

 
5,893

 
1,123

 
660

 
7,016

 
7,676

 
3,689

 
1998
 
1996
World Houston Int'l Business Ctr 3, 4 &
5 (g)
 
6,029

 
1,025

 
6,413

 
820

 
1,025

 
7,233

 
8,258

 
3,423

 
1998
 
1998
World Houston Int'l Business Ctr 6 (g)
 
2,432

 
425

 
2,423

 
483

 
425

 
2,906

 
3,331

 
1,551

 
1998
 
1998
World Houston Int'l Business Ctr 7 & 8 (g)
 
6,847

 
680

 
4,584

 
4,115

 
680

 
8,699

 
9,379

 
4,006

 
1998
 
1998
World Houston Int'l Business Ctr 9 (g)
 
4,830

 
800

 
4,355

 
1,460

 
800

 
5,815

 
6,615

 
2,074

 
1998
 
1998
World Houston Int'l Business Ctr 10 (i)
 
3,133

 
933

 
4,779

 
289

 
933

 
5,068

 
6,001

 
1,806

 
2001
 
1999

70



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
World Houston Int'l Business Ctr 11 (i)
 
2,892

 
638

 
3,764

 
1,137

 
638

 
4,901

 
5,539

 
2,017

 
1999
 
1999
World Houston Int'l Business Ctr 12
 

 
340

 
2,419

 
199

 
340

 
2,618

 
2,958

 
1,307

 
2000
 
2002
World Houston Int'l Business Ctr 13
 

 
282

 
2,569

 
284

 
282

 
2,853

 
3,135

 
1,616

 
2000
 
2002
World Houston Int'l Business Ctr 14 (i)
 
2,028

 
722

 
2,629

 
534

 
722

 
3,163

 
3,885

 
1,384

 
2000
 
2003
World Houston Int'l Business Ctr 15 (n)
 
4,493

 
731

 

 
5,765

 
731

 
5,765

 
6,496

 
2,305

 
2000
 
2007
World Houston Int'l Business Ctr 16 (m)
 
4,424

 
519

 
4,248

 
1,112

 
519

 
5,360

 
5,879

 
2,002

 
2000
 
2005
World Houston Int'l Business Ctr 17 (j)
 
2,543

 
373

 
1,945

 
785

 
373

 
2,730

 
3,103

 
864

 
2000
 
2004
World Houston Int'l Business Ctr 18
 

 
323

 
1,512

 
250

 
323

 
1,762

 
2,085

 
540

 
2005
 
1995
World Houston Int'l Business Ctr 19 (k)
 
2,917

 
373

 
2,256

 
871

 
373

 
3,127

 
3,500

 
1,554

 
2000
 
2004
World Houston Int'l Business Ctr 20 (k)
 
3,530

 
1,008

 
1,948

 
1,277

 
1,008

 
3,225

 
4,233

 
1,439

 
2000
 
2004
World Houston Int'l Business Ctr 21 (f)
 
2,936

 
436

 

 
3,474

 
436

 
3,474

 
3,910

 
821

 
2000/03
 
2006
World Houston Int'l Business Ctr 22 (n)
 
3,213

 
436

 

 
4,210

 
436

 
4,210

 
4,646

 
1,136

 
2000
 
2007
World Houston Int'l Business Ctr 23 (f)
 
5,958

 
910

 

 
7,026

 
910

 
7,026

 
7,936

 
1,617

 
2000
 
2007
World Houston Int'l Business Ctr 24 (o)
 
4,275

 
837

 

 
5,415

 
837

 
5,415

 
6,252

 
1,441

 
2005
 
2008
World Houston Int'l Business Ctr 25 (o)
 
2,825

 
508

 

 
3,623

 
508

 
3,623

 
4,131

 
711

 
2005
 
2008
World Houston Int'l Business Ctr 26 (p)
 
2,798

 
445

 

 
3,170

 
445

 
3,170

 
3,615

 
593

 
2005
 
2008
World Houston Int'l Business Ctr 27 (o)
 
3,967

 
837

 

 
4,964

 
837

 
4,964

 
5,801

 
793

 
2005
 
2008
World Houston Int'l Business Ctr 28 (p)
 
3,559

 
550

 

 
4,049

 
550

 
4,049

 
4,599

 
620

 
2005
 
2009
World Houston Int'l Business Ctr 29 (p)
 
3,806

 
782

 

 
4,136

 
974

 
3,944

 
4,918

 
588

 
2007
 
2009
World Houston Int'l Business Ctr 30 (p)
 
5,145

 
981

 

 
5,667

 
1,222

 
5,426

 
6,648

 
897

 
2007
 
2009
World Houston Int'l Business Ctr 31A
 

 
684

 

 
3,627

 
684

 
3,627

 
4,311

 
263

 
2008
 
2011
World Houston Int'l Business Ctr 32 (h)
 
4,797

 
1,146

 

 
5,378

 
1,427

 
5,097

 
6,524

 
200

 
2007
 
2012
America Plaza (g)
 
4,523

 
662

 
4,660

 
872

 
662

 
5,532

 
6,194

 
2,661

 
1998
 
1996
Central Green Distribution Center (g)
 
3,451

 
566

 
4,031

 
130

 
566

 
4,161

 
4,727

 
1,895

 
1999
 
1998
Glenmont Business Park (g)
 
7,010

 
936

 
6,161

 
2,504

 
936

 
8,665

 
9,601

 
3,928

 
1998
 
1999/2000
Techway Southwest I (i)
 
3,459

 
729

 
3,765

 
2,133

 
729

 
5,898

 
6,627

 
2,570

 
2000
 
2001
Techway Southwest II (k)
 
4,208

 
550

 
3,689

 
809

 
550

 
4,498

 
5,048

 
1,571

 
2000
 
2004
Techway Southwest III (n)
 
4,235

 
597

 

 
5,527

 
751

 
5,373

 
6,124

 
1,813

 
1999
 
2006
Techway Southwest IV (p)
 
4,778

 
535

 

 
5,639

 
674

 
5,500

 
6,174

 
982

 
1999
 
2008
Beltway Crossing I (i)
 
3,970

 
458

 
5,712

 
1,435

 
458

 
7,147

 
7,605

 
2,949

 
2002
 
2001
Beltway Crossing II (n)
 
2,190

 
415

 

 
2,751

 
415

 
2,751

 
3,166

 
805

 
2005
 
2007
Beltway Crossing III (n)
 
2,441

 
460

 

 
3,069

 
460

 
3,069

 
3,529

 
945

 
2005
 
2008
Beltway Crossing IV (n)
 
2,400

 
460

 

 
3,010

 
460

 
3,010

 
3,470

 
983

 
2005
 
2008

71



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Beltway Crossing V (p)
 
4,185

 
701

 

 
4,706

 
701

 
4,706

 
5,407

 
1,158

 
2005
 
2008
Beltway Crossing VI (h)
 
4,869

 
618

 

 
6,004

 
618

 
6,004

 
6,622

 
859

 
2005
 
2008
Beltway Crossing VII (h)
 
4,758

 
765

 

 
5,706

 
765

 
5,706

 
6,471

 
960

 
2005
 
2009
Beltway Crossing VIII
 

 
721

 

 
4,573

 
721

 
4,573

 
5,294

 
231

 
2005
 
2011
Beltway Crossing IX
 

 
418

 

 
2,104

 
418

 
2,104

 
2,522

 
15

 
2007
 
2012
Kirby Business Center (j)
 
2,855

 
530

 
3,153

 
332

 
530

 
3,485

 
4,015

 
1,078

 
2004
 
1980
Clay Campbell Distribution Center
 

 
742

 
2,998

 
379

 
742

 
3,377

 
4,119

 
1,256

 
2005
 
1982
El Paso
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Butterfield Trail
 

 

 
20,725

 
6,627

 

 
27,352

 
27,352

 
14,280

 
1997/2000
 
1987/95
Rojas Commerce Park (g)
 
5,184

 
900

 
3,659

 
2,541

 
900

 
6,200

 
7,100

 
4,182

 
1999
 
1986
Americas Ten Business Center I (j)
 
2,808

 
526

 
2,778

 
1,157

 
526

 
3,935

 
4,461

 
1,809

 
2001
 
2003
San Antonio
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Alamo Downs Distribution Center (m)
 
6,602

 
1,342

 
6,338

 
1,094

 
1,342

 
7,432

 
8,774

 
3,279

 
2004
 
1986/2002
Arion Business Park (m)
 
29,364

 
4,143

 
31,432

 
3,447

 
4,143

 
34,879

 
39,022

 
12,508

 
2005
 
1988-2000/06
Arion 14 (m)
 
2,787

 
423

 

 
3,280

 
423

 
3,280

 
3,703

 
918

 
2005
 
2006
Arion 16 (f)
 
2,938

 
427

 

 
3,485

 
427

 
3,485

 
3,912

 
698

 
2005
 
2007
Arion 17 (m)
 
3,307

 
616

 

 
3,779

 
616

 
3,779

 
4,395

 
1,351

 
2005
 
2007
Arion 18 (h)
 
2,010

 
418

 

 
2,316

 
418

 
2,316

 
2,734

 
675

 
2005
 
2008
Arion 8 expansion (m)
 
1,162

 

 

 
1,545

 

 
1,545

 
1,545

 
72

 
2005
 
2011
Wetmore Business Center (n)
 
10,285

 
1,494

 
10,804

 
2,573

 
1,494

 
13,377

 
14,871

 
4,886

 
2005
 
1998/99
Wetmore Phase II, Building A (p)
 
2,891

 
412

 

 
3,323

 
412

 
3,323

 
3,735

 
961

 
2006
 
2008
Wetmore Phase II, Building B (p)
 
3,145

 
505

 

 
3,559

 
505

 
3,559

 
4,064

 
777

 
2006
 
2008
Wetmore Phase II, Building C (p)
 
2,884

 
546

 

 
3,180

 
546

 
3,180

 
3,726

 
367

 
2006
 
2008
Wetmore Phase II, Building D (p)
 
6,465

 
1,056

 

 
7,297

 
1,056

 
7,297

 
8,353

 
1,220

 
2006
 
2008
Fairgrounds Business Park (n)
 
7,883

 
1,644

 
8,209

 
1,545

 
1,644

 
9,754

 
11,398

 
2,985

 
2007
 
1985/86
Rittiman Distribution Center
 

 
1,083

 
6,649

 
205

 
1,083

 
6,854

 
7,937

 
244

 
2011
 
2000
ARIZONA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Phoenix area
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Broadway Industrial Park I
 

 
837

 
3,349

 
755

 
837

 
4,104

 
4,941

 
2,152

 
1996
 
1971
Broadway Industrial Park II
 

 
455

 
482

 
161

 
455

 
643

 
1,098

 
366

 
1999
 
1971
Broadway Industrial Park III
 

 
775

 
1,742

 
525

 
775

 
2,267

 
3,042

 
1,031

 
2000
 
1983
Broadway Industrial Park IV
 

 
380

 
1,652

 
778

 
380

 
2,430

 
2,810

 
1,102

 
2000
 
1986
Broadway Industrial Park V (i)
 
810

 
353

 
1,090

 
108

 
353

 
1,198

 
1,551

 
545

 
2002
 
1980

72



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Broadway Industrial Park VI (f)
 
2,230

 
599

 
1,855

 
515

 
599

 
2,370

 
2,969

 
1,107

 
2002
 
1979
Broadway Industrial Park VII
 

 
450

 
650

 
72

 
450

 
722

 
1,172

 
22

 
2011
 
1999
Kyrene Distribution Center
 
198

 
850

 
2,044

 
548

 
850

 
2,592

 
3,442

 
1,347

 
1999
 
1981
Kyrene Distribution Center II
 

 
640

 
2,409

 
722

 
640

 
3,131

 
3,771

 
1,586

 
1999
 
2001
Southpark Distribution Center
 

 
918

 
2,738

 
609

 
918

 
3,347

 
4,265

 
1,235

 
2001
 
2000
Santan 10 Distribution Center I (m)
 
2,831

 
846

 
2,647

 
269

 
846

 
2,916

 
3,762

 
1,109

 
2001
 
2005
Santan 10 Distribution Center II (f)
 
4,638

 
1,088

 

 
5,089

 
1,088

 
5,089

 
6,177

 
1,455

 
2004
 
2007
Metro Business Park
 

 
1,927

 
7,708

 
5,488

 
1,927

 
13,196

 
15,123

 
7,593

 
1996
 
1977/79
35th Avenue Distribution Center (i)
 
1,676

 
418

 
2,381

 
412

 
418

 
2,793

 
3,211

 
1,177

 
1997
 
1967
51st Avenue Distribution Center
 

 
300

 
2,029

 
785

 
300

 
2,814

 
3,114

 
1,442

 
1998
 
1987
East University Distribution Center I & II (f)
 
5,059

 
1,120

 
4,482

 
1,135

 
1,120

 
5,617

 
6,737

 
2,736

 
1998
 
1987/89
East University Distribution Center III
 

 
444

 
698

 
99

 
444

 
797

 
1,241

 
96

 
2010
 
1981
55th Avenue Distribution Center (f)
 
4,032

 
912

 
3,717

 
740

 
917

 
4,452

 
5,369

 
2,304

 
1998
 
1987
Interstate Commons Dist Ctr I
 

 
798

 
3,632

 
1,248

 
798

 
4,880

 
5,678

 
2,079

 
1999
 
1988
Interstate Commons Dist Ctr II
 

 
320

 
2,448

 
365

 
320

 
2,813

 
3,133

 
1,144

 
1999
 
2000
Interstate Commons Dist Ctr III
 

 
242

 

 
2,954

 
242

 
2,954

 
3,196

 
590

 
2000
 
2008
Airport Commons
 

 
1,000

 
1,510

 
818

 
1,000

 
2,328

 
3,328

 
982

 
2003
 
1971
40th Avenue Distribution Center (p)
 
5,209

 
703

 

 
6,028

 
703

 
6,028

 
6,731

 
1,033

 
2004
 
2008
Sky Harbor Business Park
 

 
5,839

 

 
21,226

 
5,839

 
21,226

 
27,065

 
2,875

 
2006
 
2008
Tucson
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Country Club I (k)
 
5,121

 
506

 
3,564

 
2,073

 
693

 
5,450

 
6,143

 
1,858

 
1997/2003
 
1994/2003
Country Club II
 

 
442

 
3,381

 
37

 
442

 
3,418

 
3,860

 
726

 
2007
 
2000
Country Club III & IV
 

 
1,407

 

 
11,090

 
1,575

 
10,922

 
12,497

 
1,509

 
2007
 
2009
Airport Distribution Center
 

 
1,103

 
4,672

 
1,533

 
1,103

 
6,205

 
7,308

 
3,028

 
1998
 
1995
Southpointe Distribution Center
 

 

 
3,982

 
2,950

 

 
6,932

 
6,932

 
3,246

 
1999
 
1989
Benan Distribution Center
 

 
707

 
1,842

 
603

 
707

 
2,445

 
3,152

 
1,064

 
2005
 
2001
NORTH CAROLINA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Charlotte
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     NorthPark Business Park (f)
 
16,065

 
2,758

 
15,932

 
2,706

 
2,758

 
18,638

 
21,396

 
5,435

 
2006
 
1987-89
Lindbergh Business Park 
 

 
470

 
3,401

 
297

 
470

 
3,698

 
4,168

 
1,042

 
2007
 
2001/03
Commerce Park I (n)
 
3,969

 
765

 
4,303

 
671

 
765

 
4,974

 
5,739

 
1,254

 
2007
 
1983
Commerce Park II (h)
 
1,530

 
335

 
1,603

 
143

 
335

 
1,746

 
2,081

 
263

 
2010
 
1987
Commerce Park III (h)
 
2,207

 
558

 
2,225

 
219

 
558

 
2,444

 
3,002

 
364

 
2010
 
1981

73



SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Nations Ford Business Park (n)
 
15,356

 
3,924

 
16,171

 
2,110

 
3,924

 
18,281

 
22,205

 
5,541

 
2007
 
1989/94
Airport Commerce Center (o)
 
8,541

 
1,454

 
10,136

 
901

 
1,454

 
11,037

 
12,491

 
2,113

 
2008
 
2001/02
Interchange Park (o)
 
6,345

 
986

 
7,949

 
344

 
986

 
8,293

 
9,279

 
1,463

 
2008
 
1989
Ridge Creek Distribution Center I (o)
 
10,357

 
1,284

 
13,163

 
700

 
1,284

 
13,863

 
15,147

 
2,117

 
2008
 
2006
Ridge Creek Distribution Center II (h)
 
10,759

 
3,033

 
11,497

 
105

 
3,033

 
11,602

 
14,635

 
517

 
2011
 
2003
Waterford Distribution Center (o)
 
2,877

 
654

 
3,392

 
162

 
654

 
3,554

 
4,208

 
466

 
2008
 
2000
Lakeview Business Center (h)
 
4,841

 
1,392

 
5,068

 
124

 
1,392

 
5,192

 
6,584

 
315

 
2011
 
1996
LOUISIANA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
New Orleans
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Elmwood Business Park
 

 
2,861

 
6,337

 
3,458

 
2,861

 
9,795

 
12,656

 
6,187

 
1997
 
1979
Riverbend Business Park
 

 
2,592

 
17,623

 
3,711

 
2,592

 
21,334

 
23,926

 
10,317

 
1997
 
1984
COLORADO
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Denver
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Rampart Distribution Center I (m)
 
4,753

 
1,023

 
3,861

 
1,433

 
1,023

 
5,294

 
6,317

 
3,342

 
1988
 
1987
Rampart Distribution Center II (m)
 
3,134

 
230

 
2,977

 
958

 
230

 
3,935

 
4,165

 
2,358

 
1996/97
 
1996/97
Rampart Distribution Center III (m)
 
4,768

 
1,098

 
3,884

 
1,355

 
1,098

 
5,239

 
6,337

 
2,346

 
1997/98
 
1999
Concord Distribution Center (h)
 
4,585

 
1,051

 
4,773

 
413

 
1,051

 
5,186

 
6,237

 
1,322

 
2007
 
2000
Centennial Park (p)
 
4,462

 
750

 
3,319

 
1,697

 
750

 
5,016

 
5,766

 
958

 
2007
 
1990
NEVADA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Las Vegas
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Arville Distribution Center
 

 
4,933

 
5,094

 
232

 
4,933

 
5,326

 
10,259

 
1,016

 
2009
 
1997
MISSISSIPPI
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Jackson area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Interchange Business Park
 

 
343

 
5,007

 
2,311

 
343

 
7,318

 
7,661

 
3,948

 
1997
 
1981
Tower Automotive
 

 

 
9,958

 
1,199

 
17

 
11,140

 
11,157

 
3,447

 
2001
 
2002
Metro Airport Commerce Center I
 

 
303

 
1,479

 
968

 
303

 
2,447

 
2,750

 
1,243

 
2001
 
2003
TENNESSEE
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Memphis
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Air Park Distribution Center I
 

 
250

 
1,916

 
851

 
250

 
2,767

 
3,017

 
1,444

 
1998
 
1975
OKLAHOMA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Oklahoma City
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Northpointe Commerce Center
 

 
777

 
3,113

 
825

 
998

 
3,717

 
4,715

 
1,632

 
1998
 
1996/97
 
 
607,766

 
241,718

 
869,126

 
508,933

 
244,199

 
1,375,578

 
1,619,777

 
496,054

 
 
 
 

74



REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial Development (d):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
FLORIDA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Oak Creek land
 

 
1,946

 

 
2,852

 
2,374

 
2,424

 
4,798

 

 
2005
 
n/a
Madison land
 

 
1,189

 

 
158

 
1,189

 
158

 
1,347

 

 
2012
 
n/a
Southridge IX
 

 
468

 

 
5,832

 
468

 
5,832

 
6,300

 
149

 
2003
 
n/a
Southridge XI
 

 
513

 

 
4,952

 
513

 
4,952

 
5,465

 

 
2003
 
n/a
Southridge X
 

 
414

 

 
1,565

 
414

 
1,565

 
1,979

 

 
2003
 
n/a
Horizon land
 

 
14,072

 

 
10,549

 
14,157

 
10,464

 
24,621

 

 
2008/09
 
n/a
SunCoast land
 

 
10,926

 

 
6,720

 
11,105

 
6,541

 
17,646

 

 
2006
 
n/a
TEXAS
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
North Stemmons land
 

 
537

 

 
276

 
537

 
276

 
813

 

 
2001
 
n/a
Valwood land
 

 
404

 

 
17

 
404

 
17

 
421

 

 
2012
 
n/a
World Houston Int'l Business Ctr 31B
 

 
546

 

 
2,405

 
546

 
2,405

 
2,951

 
6

 
2008
 
n/a
World Houston Int'l Business Ctr 33
 

 
1,166

 

 
7,918

 
1,166

 
7,918

 
9,084

 

 
2011
 
n/a
World Houston Int'l Business Ctr 34
 

 
439

 

 
2,236

 
439

 
2,236

 
2,675

 

 
2005
 
n/a
World Houston Int'l Business Ctr 35
 

 
340

 

 
1,773

 
340

 
1,773

 
2,113

 

 
2005
 
n/a
World Houston Int'l Business Ctr 36
 

 
685

 

 
753

 
685

 
753

 
1,438

 

 
2011
 
n/a
World Houston Int'l Business Ctr 37
 

 
759

 

 
915

 
759

 
915

 
1,674

 

 
2011
 
n/a
World Houston Int'l Business Ctr 38
 

 
1,053

 

 
1,164

 
1,053

 
1,164

 
2,217

 

 
2011
 
n/a
World Houston Int'l Business Ctr land
 

 
1,628

 

 
1,042

 
1,628

 
1,042

 
2,670

 

 
2000/06
 
n/a
World Houston Int'l Business Ctr land - expansion
 

 
6,410

 

 
4,404

 
6,410

 
4,404

 
10,814

 

 
2011
 
n/a
Beltway Crossing X
 

 
733

 

 
3,083

 
733

 
3,083

 
3,816

 
28

 
2007
 
n/a
Beltway Crossing XI
 

 
690

 

 
2,910

 
690

 
2,910

 
3,600

 

 
2007
 
n/a
Ten West Crossing 1
 

 
401

 

 
1,341

 
401

 
1,341

 
1,742

 

 
2012
 
n/a
Ten West Crossing land
 

 
5,586

 

 
818

 
5,586

 
818

 
6,404

 

 
2012
 
n/a
Lee Road land
 

 
3,068

 

 
2,142

 
3,822

 
1,388

 
5,210

 

 
2007
 
n/a
West Road land
 

 
3,303

 

 
32

 
3,303

 
32

 
3,335

 

 
2012
 
n/a
Americas Ten Business Center II & III land
 

 
1,365

 

 
1,079

 
1,365

 
1,079

 
2,444

 

 
2001
 
n/a
Thousand Oaks I
 

 
607

 

 
2,932

 
607

 
2,932

 
3,539

 

 
2008
 
n/a
Thousand Oaks II
 

 
794

 

 
4,015

 
794

 
4,015

 
4,809

 
10

 
2008
 
n/a
Alamo Ridge land
 

 
2,288

 

 
1,944

 
2,288

 
1,944

 
4,232

 

 
2007
 
n/a
Thousand Oaks land
 

 
772

 

 
460

 
772

 
460

 
1,232

 

 
2008
 
n/a

75



REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2012 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount at which Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
ARIZONA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Airport Distribution Center II land
 

 
300

 

 
117

 
300

 
117

 
417

 

 
2000
 
n/a
Kyrene land
 

 
3,220

 

 
666

 
3,220

 
666

 
3,886

 

 
2011
 
n/a
Chandler Freeways land
 

 
1,525

 

 
286

 
1,525

 
286

 
1,811

 

 
2012
 
n/a
NORTH CAROLINA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Airport Commerce Center III land
 

 
855

 

 
480

 
855

 
480

 
1,335

 

 
2008
 
n/a
COLORADO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Rampart IV land
 

 
590

 

 
121

 
590

 
121

 
711

 

 
2012
 
n/a
MISSISSIPPI
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Metro Airport Commerce Center II land
 

 
307

 

 
399

 
307

 
399

 
706

 

 
2001
 
n/a
 
 

 
69,899

 

 
78,356

 
71,345

 
76,910

 
148,255

 
193

 
 
 
 
Total real estate owned (a)(b)
 
$
607,766

 
311,617

 
869,126

 
587,289

 
315,544

 
1,452,488

 
1,768,032

 
496,247

 
 
 
 
See accompanying Report of Independent Registered Public Accounting Firm on Financial Statement Schedules.
 
 

 
 
 
 



76



(a)  Changes in Real Estate Properties follow:                                                                                                                                                                                                                                                                                                                                                                                            
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands)
Balance at beginning of year 
$
1,662,593

 
1,521,177

 
1,468,182

Purchases of real estate properties 
48,934

 
80,624

 
19,897

Development of real estate properties
55,404

 
42,148

 
9,145

Improvements to real estate properties
18,164

 
18,686

 
23,953

Carrying amount of investments sold 
(16,756
)
 

 

Write-off of improvements 
(307
)
 
(42
)
 

Balance at end of year (1) 
$
1,768,032

 
1,662,593

 
1,521,177


(1)
Includes 20% noncontrolling interests in Castilian Research Center of $1,794,000 at December 31, 2012 and $1,794,000 at December 31, 2011 and in University Business Center of $6,418,000 and $6,369,000, respectively.

Changes in the accumulated depreciation on real estate properties follow:                                                                                                                                                                                                                                                                                                                                                                                  
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands)
Balance at beginning of year 
$
451,805

 
403,187

 
354,745

Depreciation expense 
51,564

 
48,648

 
48,442

Accumulated depreciation on assets sold 
(6,819
)
 

 

Other 
(303
)
 
(30
)
 

Balance at end of year 
$
496,247

 
451,805

 
403,187

 
 
(b)
The estimated aggregate cost of real estate properties at December 31, 2012 for federal income tax purposes was approximately $1,727,509,000 before estimated accumulated tax depreciation of $314,360,000.  The federal income tax return for the year ended December 31, 2012, has not been filed and accordingly, this estimate is based on preliminary data.

(c)
The Company computes depreciation using the straight-line method over the estimated useful lives of the buildings (generally 40 years) and improvements (generally 3 to 15 years).   

(d)
The Company transfers development properties to real estate properties the earlier of 80% occupancy or one year after completion of the shell construction.

(e)
EastGroup has a $61,052,000 limited recourse first mortgage loan with an insurance company secured by Dominguez, Industry Distribution Center I & III, Kingsview, Shaw, Walnut, and Washington.  The loan has a recourse liability of $5 million which will be released based on the secured properties generating certain base rent amounts.

(f)
EastGroup has a $60,310,000 non-recourse first mortgage loan with an insurance company secured by Arion 16, Broadway VI, Chino, East University I & II, Northpark I-IV, Santan 10 II, 55th Avenue, and World Houston 1 & 2 and 21 & 23.

(g)
EastGroup has a $61,970,000 non-recourse first mortgage loan with an insurance company secured by America Plaza, Central Green, Glenmont I & II, Interstate I, II & III, Rojas, Stemmons Circle, Venture, West Loop I & II, and World Houston 3-9.

(h)
EastGroup has a $52,369,000 non-recourse first mortgage loan with an insurance company secured by Arion 18, Beltway VI & VII, Commerce Park II & III, Concord Distribution Center, Interstate Distribution Center V, VI & VII, Lakeview Business Center, Ridge Creek Distribution Center II, Southridge IV & V and World Houston 32.

(i)
EastGroup has a $34,474,000 non-recourse first mortgage loan with an insurance company secured by 35th Avenue, Beltway Crossing I, Broadway V, Lockwood, Northwest Point, Sunbelt, Techway Southwest I, and World Houston 10, 11 & 14.

77



(j)
EastGroup has a $27,467,000 non-recourse first mortgage loan with an insurance company secured by Americas Ten I, Kirby, Palm River North I, II & III, Shady Trail, Westlake I & II, and World Houston 17.

(k)
EastGroup has a $29,465,000 non-recourse first mortgage loan with an insurance company secured by Country Club I, Lake Pointe, Techway Southwest II, and World Houston 19 & 20.

(l)
EastGroup has a $30,332,000 non-recourse first mortgage loan with an insurance company secured by Huntwood and Wiegman.

(m)
EastGroup has a $63,132,000 non-recourse first mortgage loan with an insurance company secured by Alamo Downs, Arion 1-15 & 17, Rampart I, II & III, Santan 10, and World Houston 16.

(n)
EastGroup has a $64,374,000 non-recourse first mortgage loan with an insurance company secured by Beltway II, III & IV, Commerce Park 1, Eastlake, Fairgrounds I-IV, Nations Ford I-IV, Techway Southwest III, Wetmore I-IV, and World Houston 15 & 22.

(o)
EastGroup has a $52,086,000 non-recourse first mortgage loan with an insurance company secured by Airport Commerce Center I & II, Interchange Park, Ridge Creek Distribution Center I, Southridge XII, Waterford Distribution Center, and World Houston 24, 25 & 27.

(p)
EastGroup has a $69,376,000 non-recourse first mortgage loan with an insurance company secured by 40th Avenue, Beltway V, Centennial Park, Executive Airport, Ocean View, Techway Southwest IV, Wetmore V-VIII, and World Houston 26, 28, 29 & 30.


78




SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2012

 
Number of Loans
 
Interest
Rate
 
 
Maturity Date
 
Periodic
Payment Terms
First mortgage loans:
 
 
 
 
 
 
 
 
Sabal Park Building - Tampa, Florida
1

 
6.00
%
(a)
 
08/2016
 
Interest accrued and due monthly (01/01/09 through 07/31/13); principal paydown of $550,000 due on 08/01/13; principal and interest due monthly (beginning 08/01/13); balloon payment of $3,460,000 due at maturity (08/08/16)
JCB Limited - California
1

 
5.25
%
 
 
10/2017
 
Principal and interest due monthly
JCB Limited - California
1

 
5.25
%
 
 
10/2017
 
Principal and interest due monthly
Total mortgage loans (b)
3

 
 

 
 
 
 
 

 
Face Amount
of Mortgages
Dec. 31, 2012
 
Carrying
Amount of
Mortgages
 
Principal
Amount of Loans
Subject to Delinquent
Principal or Interest (c)
(In thousands)
First mortgage loans:
 
 
 
 
 
Sabal Park Building – Tampa, Florida
$
4,150

 
4,116

 

JCB Limited - California
2,112

 
2,112

 

JCB Limited - California
3,095

 
3,095

 

Total mortgage loans
$
9,357

 
9,323
 (d)(e)
 

 
See accompanying Report of Independent Registered Public Accounting Firm on Financial Statement Schedules.
 
(a)
This mortgage loan has a stated interest rate of 6.0% and an effective interest rate of 6.4%.  A discount on mortgage loan receivable of $198,000 was recognized at the inception of the loan and is shown in the table in footnote (d) below.
(b)
Reference is made to allowance for possible losses on mortgage loans receivable in the Notes to Consolidated Financial Statements.
(c)
Interest in arrears for three months or less is disregarded in computing principal amount of loans subject to delinquent interest.
(d)
Changes in mortgage loans follow:
 
Years Ended December 31,
2012
 
2011
 
2010
(In thousands)
Balance at beginning of year
$
4,110

 
4,131

 
4,155

Advances on mortgage loans receivable
5,223

 

 

Payments on mortgage loans receivable
(20
)
 
(33
)
 
(37
)
Amortization of discount on mortgage loan receivable
10

 
12

 
13

Balance at end of year
$
9,323

 
4,110

 
4,131

 
(e)      The aggregate cost for federal income tax purposes is approximately $9.36 million.  The federal income tax return for the year ended December 31, 2012, has not been filed and, accordingly, the income tax basis of mortgage loans as of December 31, 2012, is based on preliminary data.

79




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
 
 
February 19, 2013
 


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
 
H. C. Bailey, Jr., Director
February 19, 2013
 
February 19, 2013
 
 
 
 
Hayden C. Eaves III, Director
 
Fredric H. Gould, Director
February 19, 2013
 
February 19, 2013
 
 
 
 
Mary Elizabeth McCormick, Director
 
David M. Osnos, Director
February 19, 2013
 
February 19, 2013
 
 
 
 
/s/ N. KEITH MCKEY 
Leland R. Speed, Chairman of the Board
 
* By N. Keith McKey, Attorney-in-fact
February 19, 2013
 
February 19, 2013
 


/s/ DAVID H. HOSTER II 
 
David H. Hoster II, Chief Executive Officer,
 
President & Director
 
(Principal Executive Officer)
 
February 19, 2013
 
 
 
/s/ BRUCE CORKERN 
 
Bruce Corkern, Sr. Vice-President, Controller and
 
Chief Accounting Officer
 
(Principal Accounting Officer)
 
February 19, 2013
 
 
 
/s/ N. KEITH MCKEY 
 
N. Keith McKey, Executive Vice-President,
 
Chief Financial Officer, Treasurer and Secretary
 
(Principal Financial Officer)
 
February 19, 2013
 

80




EXHIBIT INDEX
 
(3)
Exhibits:

The following exhibits are filed with this Form 10-K or incorporated by reference to the listed document previously filed with the SEC:

Number
Description
(3)
Articles of Incorporation and Bylaws
(a)
Articles of Incorporation (incorporated by reference to Appendix B to the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 5, 1997).
(b)
Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed December 10, 2008).
 
 
(10)
Material Contracts (*Indicates management or compensatory agreement):
(a)
EastGroup Properties, Inc. 2000 Directors Stock Option Plan (incorporated by reference to Appendix A to the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 1, 2000).*
(b)
EastGroup Properties, Inc. 2004 Equity Incentive Plan (incorporated by reference to Appendix D to the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 27, 2004).*
(c)
Amendment No. 1 to the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10(f) to the Company’s Form 10-K for the year ended December 31, 2006). *
(d)
Amendment No. 2 to the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10(d) to the Company’s Form 8-K filed January 8, 2007).*
(e)
EastGroup Properties, Inc. 2005 Directors Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Proxy Statement for its Annual Meeting of Stockholders held on June 2, 2005).*
(f)
Amendment No. 1 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 6, 2006).*
(g)
Amendment No. 2 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 3, 2008).*
(h)
Amendment No. 3 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 1, 2011).*
(i)
Amendment No. 4 to the 2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 1, 2012).*

(j)
Form of Severance and Change in Control Agreement that the Company has entered into with Leland R. Speed, David H. Hoster II and N. Keith McKey (incorporated by reference to Exhibit 10(a) to the Company's Form 8-K filed January 7, 2009).*
(k)
Form of Severance and Change in Control Agreement that the Company has entered into with John F. Coleman, William D. Petsas, Brent W. Wood and C. Bruce Corkern (incorporated by reference to Exhibit 10(b) to the Company's Form 8-K filed January 7, 2009).*
(l)
Compensation Program for Non-Employee Directors (a written description thereof is set forth in Item 5.02 of the Company’s Form 8-K filed June 1, 2012).*
(m)
Third Amended and Restated Credit Agreement Dated January 2, 2013 among EastGroup Properties, L.P.; EastGroup Properties, Inc.; PNC Bank, National Association, as Administrative Agent; Regions Bank and SunTrust Bank as Co-Syndication Agents; U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Documentation Agents; PNC Capital Markets LLC, as Sole Lead Arranger and Sole Bookrunner; and the Lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed January 8, 2013).
(n)
2012 Term Loan Agreement dated as of August 31, 2012 by and among EastGroup Properties, Inc., EastGroup Properties, L.P., each of the financial institutions party thereto as lenders, PNC Bank, National Association, as administrative agent, U.S. Bank National Association, as syndication agent, and PNC Capital Markets LLC, as lead arranger and book runner (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed September 7, 2012).
(o)
First Amendment to 2012 Term Loan Agreement dated as of January 31, 2013 by and among EastGroup Properties, Inc., EastGroup Properties, L.P., PNC Bank, National Association, as administrative agent, and each of the financial institutions party thereto as lenders (filed herewith).


81



(p)
Sales Agency Financing Agreement dated as of September 20, 2012 between EastGroup Properties, Inc. and BNY Mellon Capital Markets, LLC (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed September 24, 2012).
(q)
Sales Agency Financing Agreement dated as of September 20, 2012 between EastGroup Properties, Inc. and Raymond James & Associates, Inc. (incorporated by reference to Exhibit 1.2 to the Company’s Form 8-K filed September 24, 2012).
 
 
(21)
Subsidiaries of EastGroup Properties, Inc. (filed herewith).
 
 
(23)
Consent of KPMG LLP (filed herewith).
 
 
(24)
Powers of attorney (filed herewith).
 
 
(31)
Rule 13a-14(a)/15d-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
(a)
David H. Hoster II, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(32)
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
(a)
David H. Hoster II, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(101)
The following materials from EastGroup Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income and comprehensive income, (iii) consolidated statements of changes in equity, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.**

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.























82