EASTGROUP PROPERTIES INC - Annual Report: 2019 (Form 10-K)

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•	international, national, regional and local economic conditions;

•	the general level of interest rates and ability to raise equity capital on attractive terms;

•	financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;

•	the competitive environment in which the Company operates;

•	fluctuations of occupancy or rental rates;

•	potential defaults (including bankruptcies or insolvency) on or non-renewal of leases by tenants;

•	potential changes in the law or governmental regulations and interpretations of those laws and regulations, including changes in real estate laws or real estate investment trust (“REIT”) or corporate income tax laws, and potential increases in real property tax rates;

•	our ability to maintain our qualification as a REIT;

•	acquisition and development risks, including failure of such acquisitions and development projects to perform in accordance with projections;

•	natural disasters such as fires, floods, tornadoes, hurricanes and earthquakes;

•	the terms of governmental regulations that affect us and interpretations of those regulations, including the costs of compliance with those regulations, changes in real estate and zoning laws and increases in real property tax rates;

•	credit risk in the event of non-performance by the counterparties to the interest rate swaps;

•	lack of or insufficient amounts of insurance;

•	litigation, including costs associated with prosecuting or defending claims and any adverse outcomes;

•	our ability to retain key personnel;

•	the consequences of future terrorist attacks or civil unrest; and

•	environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.

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•	population and demographic trends;

•	employment and personal income trends;

•	income and other tax laws;

•	changes in interest rates and availability and costs of financing;

•	increased operating costs, including insurance premiums, utilities and real estate taxes, due to inflation and other factors which may not necessarily be offset by increased rents;

•	changes in the price of oil; and

•	construction costs.

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•	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.

•	when we are able to locate a desired property, competition from other real estate investors may significantly increase the purchase price;

•	acquired properties may fail to perform as we project;

•	the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;

•	acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures;

•	we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result, our results of operations and financial condition could be adversely affected; and

•	we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, to the transferor with respect to unknown liabilities. As a result, if a claim were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.

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•	the REIT ownership limit described above;

•	special meetings of our stockholders may be called only by the chairman of the board, the chief executive officer, the president, a majority of the board or by stockholders possessing a majority of all the votes entitled to be cast at the meeting;

•	our Board of Directors may authorize and issue securities without stockholder approval; and

•	advance-notice requirements for proposals to be presented at stockholder meetings.

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(1)	Represents the monthly cash rental rates, excluding tenant expense reimbursements, as of December 31, 2019, multiplied by 12 months.

(2)	Includes month-to-month leases.

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(1)	Includes mortgage loans receivable and unconsolidated investment. See Notes 3 and 4 in the Notes to Consolidated Financial Statements.

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(1)

The Company initially reported FFO of $4.67 per share and $4.26 per share during the years ended December 31, 2018 and 2017, respectively. In connection with the Company's adoption of the Nareit Funds from Operations White Paper - 2018 Restatement, the Company now excludes from FFO the gains and losses on sales of non-operating real estate and assets incidental to the Company’s business and therefore adjusted the prior year results, including the Company’s FFO for 2018 and 2017, to conform to the updated definition of FFO.

•	The change in FFO per share represents the increase or decrease in FFO per share from the current year compared to the prior year.  For 2019, FFO was $4.98 per share compared with $4.66 per share for 2018, an increase of 6.9%.

•	For the year ended December 31, 2019, PNOI increased by $25,137,000, or 11.8%, compared to 2018. PNOI increased $12,550,000 from newly developed and value-add properties, $8,357,000 from same property operations and $5,076,000 from 2018 and 2019 acquisitions; PNOI decreased $971,000 from operating properties sold in 2018 and 2019.

•	The change in Same PNOI represents the PNOI increase or decrease for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2018 through December 31, 2019).  Same PNOI, excluding income from lease terminations, increased 3.7% for the year ended December 31, 2019, compared to 2018.

•

Same property average occupancy represents the average month-end percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2018 through December 31, 2019). Same property average occupancy for the year ended December 31, 2019, was 96.9% compared to 96.3% for 2018.

•	Occupancy is the percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage as of the close of the reporting period.  Occupancy at December 31, 2019 was 97.1%.  Quarter-end occupancy ranged from 96.5% to 97.4% over the previous four quarters ended December 31, 2018 to September 30, 2019.

•	Rental rate change represents the rental rate increase or decrease on new and renewal leases compared to the prior leases on the same space.  For the year 2019, rental rate increases on new and renewal leases (16.8% of total square footage) averaged 17.3%.

•	Lease termination fee income is included in Income from real estate operations. For the year 2019, lease termination fee income was $1,336,000 compared to $294,000 for 2018.

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•	In 2018 and prior years, the Company’s bad debt expense was included in Expenses from real estate operations. In 2019, the Company began recording reserves for uncollectible rent as reductions to Income from real estate operations. The Company recorded reserves for uncollectible rent of $448,000 in 2019 compared to $784,000 in 2018.

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(1)

Total cost of the operating properties acquired was $113,218,000, of which $105,301,000 was allocated to Real estate properties as indicated above. The Company allocated $22,750,000 of the total purchase price to land using third party land valuations for the Denver, Greenville, Tampa and San Diego markets. The market values are considered to be Level 3 inputs as defined by FASB Accounting Standards Codification ("ASC") 820, Fair Value Measurement (see Note 18 in the Notes to Consolidated Financial Statements for additional information on ASC 820). Intangibles associated with the purchases of real estate were allocated as follows: $9,597,000 to in-place lease intangibles and $344,000 to above market leases (both included in Other assets on the Consolidated Balance Sheets), and $2,024,000 to below market leases (included in Other liabilities on the Consolidated Balance Sheets).

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(1)

Total cost of the value-add properties acquired was $92,623,000, of which $92,268,000 was allocated to Development and value-add properties as indicated above.  The Company allocated $24,028,000 of the total purchase price to land using third party land valuations for the Dallas, Tampa, Phoenix, Las Vegas and San Diego markets. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurement (see Note 18 in the Notes to Consolidated Financial Statements for additional information on ASC 820). The Logistics Center acquisition is under a ground lease; therefore, no value was allocated to land for this transaction. Intangibles associated with the purchases were allocated as follows:  $423,000 to in-place lease intangibles (included in Other assets on the Consolidated Balance Sheets) and $68,000 to below market leases (included in Other liabilities on the Consolidated Balance Sheets). These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition. Costs associated with the value-add property acquisitions, except for the amounts allocated to the acquired lease intangibles, are included in the Development and Value-Add Properties Activity table below.

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(1)	Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period. Negative amounts represent land inventory costs transferred to Under Construction.

(2)	Included in these costs are development obligations of $59.3 million and tenant improvement obligations of $7.5 million on properties under development.

(3)	Represents value-add projects acquired by EastGroup.

(4)	Represents cumulative costs at the date of transfer.

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(1)	See Note 1(o) in the Notes to Consolidated Financial Statements for information regarding the Company’s January 1, 2019, implementation of FASB ASC 842, Leases, and the Company’s right of use assets for office leases.

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(1)	Represents checks written before the end of the period which have not cleared the bank; therefore, the bank has not yet advanced cash to the Company. When the checks clear the bank, they will be funded through the Company's working cash line of credit. See Note 1(p) in the Notes to Consolidated Financial Statements.

(1)	See Note 1(o) in the Notes to Consolidated Financial Statements for information regarding the Company’s January 1, 2019, implementation of FASB ASC 842, Leases, and the Company’s right of use assets and related liabilities for ground leases and office leases.

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•

PNOI increased by $25,137,000 ($0.67 per diluted share) for 2019 as compared to 2018.  PNOI increased $12,550,000 from newly developed and value-add properties, $8,357,000 from same property operations and $5,076,000 from 2018 and 2019 acquisitions; PNOI decreased $971,000 from operating properties sold in 2018 and 2019. For the year 2019, lease termination fee income was $1,336,000 compared to $294,000 for 2018.  The Company recorded reserves for uncollectible rent of $448,000 in 2019 and $784,000 in 2018. Straight-lining of rent increased Income from real estate operations by $4,985,000 and $5,116,000 in 2019 and 2018, respectively.

•	EastGroup recognized gains on sales of real estate investments of $41,068,000 ($1.09 per diluted share) compared to $14,273,000 ($0.40 per diluted share) during 2018.

•	Depreciation and amortization expense increased by $13,020,000 ($0.35 per diluted share) during 2019 compared to 2018.

•	During 2019, EastGroup recognized gain on casualties and involuntary conversion of $428,000 ($0.01 per diluted share), compared to $1,245,000 ($0.04 per diluted share) during 2018.

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(1)	Includes interest on the Company's unsecured bank credit facilities and unsecured debt with fixed interest rates per the debt agreements or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements.

(2)	The Company had designated an interest rate swap to an $80 million unsecured bank credit facility draw that effectively fixed the interest rate on the $80 million draw to 2.020% through the interest rate swap's maturity date. This swap matured on August 15, 2018, and the $80 million draw has reverted to the variable interest rate associated with the Company's unsecured bank credit facilities.

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(1)	The interest rate on this unsecured term loan is comprised of LIBOR plus 150 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate,

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(1)	Reconciliation of Total Real Estate Improvements to Real Estate Improvements on the Consolidated Statements of Cash Flows:

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•

PNOI increased by $18,992,000 ($0.53 per diluted share) for 2018 as compared to 2017. PNOI increased $11,900,000 from newly developed and value-add properties, $6,712,000 from same property operations and $2,134,000 from 2017 and 2018 acquisitions; PNOI decreased $1,831,000 from operating properties sold in 2017 and 2018. For the year 2018, lease termination fee income was $294,000 compared to $468,000 for 2017.  The Company recorded net bad debt expense of $784,000 in 2018 and $499,000 in 2017. Straight-lining of rent increased Income from real estate operations by $5,116,000 and $3,723,000 in 2018 and 2017, respectively.

•	EastGroup recognized gains on sales of real estate investments of $14,273,000 ($0.40 per diluted share) compared to $21,855,000 ($0.64 per diluted share) during 2017.

•	Depreciation and amortization expense increased by $7,830,000 ($0.22 per diluted share).

•	During 2018, EastGroup recognized gain on casualties and involuntary conversion of $1,245,000 ($0.04 per diluted share), compared to zero during 2017.

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(1)	Includes interest on the Company's unsecured bank credit facilities and unsecured debt with fixed interest rates per the debt agreements or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements.

(2)	The Company had designated an interest rate swap to an $80 million unsecured bank credit facility draw that effectively fixed the interest rate on the $80 million draw to 2.020% through the interest rate swap's maturity date. This swap matured on August 15, 2018, and the $80 million draw has reverted to the variable interest rate associated with the Company's unsecured bank credit facilities.

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(1)	Reconciliation of Total Real Estate Improvements to Real Estate Improvements on the Consolidated Statements of Cash Flows:

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Lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company is a lessee on a limited number of leases, including office and ground leases. As of January 1, 2019, the Company recorded its right of use asset and lease liability values for its operating leases as follows: office leases of $2,376,000 and ground leases of $10,226,000. The combined values of the Company's right of use assets and lease liabilities for its ground leases and office leases are less than 1% of the Company’s Total assets as of December 31, 2019.

•	Lessor accounting is largely unchanged under ASU 2016-02. The Company’s primary revenue is rental income; as such, the Company is a lessor on a significant number of leases. The Company is continuing to account for its leases in substantially the same manner. The most significant changes for the Company related to lessor accounting include:

◦

The new standard’s narrow definition of initial direct costs for leases — The new definition of initial direct costs results in certain costs (primarily legal costs related to lease negotiations) being expensed rather than capitalized upon adoption of the new standard. EastGroup recorded Indirect leasing costs of $411,000 on the Consolidated Statements of Income and Comprehensive Income during 2019.

◦	The guidance applicable to recording uncollectible rents — Upon adoption of the lease accounting guidance, reserves for uncollectible accounts are recorded as a reduction to revenue. Prior to adoption, reserves for uncollectible accounts were recorded as bad debt expenses. The standard also provides guidance related to calculating the reserves; however, those changes did not impact the Company.

•	EastGroup has elected the practical expedient permitting lessors and lessees to make an accounting policy election by class of underlying asset to not separate non-lease components (such as common area maintenance) of a contract from the lease component to which they relate when specific criteria are met. The Company believes its leases meet the criteria.

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(1)	These loans have a fixed interest rate or an effectively fixed interest rate due to interest rate swaps.

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(1)	These amounts are included on the Consolidated Balance Sheets net of unamortized debt issuance costs.

(2)

The Company’s balances under its unsecured bank credit facilities change depending on the Company’s cash needs and, as such, both the principal amounts and the interest rates are subject to variability.  At December 31, 2019, the weighted average interest rate was 2.775% on the $112,710,000 of variable rate debt that matures in July 2022. The $350 million unsecured credit facility has options for two six-month extensions (at the Company's election) and a $150 million accordion (with agreement by all parties). The $45 million unsecured credit facility automatically extends for two six-month terms if the extension options in the $350 million revolving facility are exercised. As of December 31, 2019, the interest rate on the $350 million facility was LIBOR plus 100 basis points (weighted average interest rate of 2.776%) with an annual facility fee of 20 basis points, and the interest rate on the $45 million facility, which resets on a daily basis, was LIBOR plus 100 basis points (2.763%) with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings.

(3)	Represents an estimate of interest due on the Company's unsecured bank credit facilities based on the outstanding unsecured credit facilities as of December 31, 2019 and interest rates and maturity dates on the facilities as of December 31, 2019 as discussed in note 2 above.

(4)	Represents dividends declared during December 2019, which were paid in January 2020. Dividends Payable excludes dividends payable on unvested restricted stock of $1,618,000, which are subject to continued service and will be paid upon vesting in future periods.

(5)	Represents commitments on real estate properties, except for tenant improvement obligations.

(6)	Represents commitments on properties in the Company's development and value-add program, except for tenant improvement obligations.

(7)	Represents tenant improvement allowance obligations.

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(1)	The variable rate unsecured bank credit facilities mature in July 2022 and as of December 31, 2019, have balances of $105,000,000 on the $350 million unsecured bank credit facility and $7,710,000 on the $45 million unsecured bank credit facility.

(2)	The fair value of the Company’s variable rate debt is estimated by discounting expected cash flows at current market rates, excluding the effects of debt issuance costs.

(3)	Represents the weighted average interest rate for the Company's variable rate unsecured bank credit facilities as of December 31, 2019.

(4)	The fair value of the Company’s fixed rate debt, including variable rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers, excluding the effects of debt issuance costs.

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(i)	Disclosure Controls and Procedures.

(ii)	Internal Control Over Financial Reporting.

(a)	Management's annual report on internal control over financial reporting.

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

(c)	Changes in internal control over financial reporting.

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*	Indicates a management contract or any compensatory plan, contract or arrangement.

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(1)	SIGNIFICANT ACCOUNTING POLICIES

(a)	Principles of Consolidation

(b)	Income Taxes

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(c)	Income Recognition

(1)	Primarily includes tenant reimbursements for real estate taxes, insurance and common area maintenance.

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(d)	Real Estate Properties

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(e)	Development and Value-Add Properties

(f)	Real Estate Held for Sale

(g)	Derivative Instruments and Hedging Activities

(h)	Cash Equivalents

(i)	Amortization

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(j)	Real Estate Property Acquisitions and Acquired Intangibles

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(k)	Stock-Based Compensation

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(l)	Earnings Per Share

(m)	Use of Estimates

(n)	Risks and Uncertainties

(o)	Recent Accounting Pronouncements

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Lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company is a lessee on a limited number of leases, including office and ground leases. As of January 1, 2019, the Company recorded its right of use asset and lease liability values for its operating leases as follows: office leases of $2,376,000 and ground leases of $10,226,000. The combined values of the Company's right of use assets and lease liabilities for its ground leases and office leases are less than 1% of the Company’s Total assets as of December 31, 2019.

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•	Lessor accounting is largely unchanged under ASU 2016-02. The Company’s primary revenue is rental income; as such, the Company is a lessor on a significant number of leases. The Company is continuing to account for its leases in substantially the same manner. The most significant changes for the Company related to lessor accounting include:

◦

The new standard’s narrow definition of initial direct costs for leases — The new definition of initial direct costs results in certain costs (primarily legal costs related to lease negotiations) being expensed rather than capitalized upon adoption of the new standard. EastGroup recorded Indirect leasing costs of $411,000 on the Consolidated Statements of Income and Comprehensive Income during 2019.

◦	The guidance applicable to recording uncollectible rents — Upon adoption of the lease accounting guidance, reserves for uncollectible accounts are recorded as a reduction to revenue. Prior to adoption, reserves for uncollectible accounts were recorded as bad debt expenses. The standard also provides guidance related to calculating the reserves; however, those changes did not impact the Company.

•	EastGroup has elected the practical expedient permitting lessors and lessees to make an accounting policy election by class of underlying asset to not separate non-lease components (such as common area maintenance) of a contract from the lease component to which they relate when specific criteria are met. The Company believes its leases meet the criteria.

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(p)	Classification of Book Overdraft on Consolidated Statements of Cash Flows

(q)	Reclassifications

(2)	REAL ESTATE PROPERTIES

(1)	See Ground Leases discussion below and in Note 1(o) for information regarding the Company's right of use assets for ground leases.

(2)

Value-add properties are defined as properties that are either acquired but not stabilized or can be converted to a higher and better use.  Acquired properties meeting either of the following two conditions are considered value-add properties:  (1) Less than 75% occupied as of the acquisition date (or will be less than 75% occupied within one year of acquisition date based on near term lease roll), or (2) 20% or greater of the acquisition cost will be spent to redevelop the property.

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(1)	EastGroup owned 80% of University Business Center 130 through a joint venture. The information shown for this transaction also includes the 20% attributable to the Company's noncontrolling interest partner.

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(1)	Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period. Negative amounts represent land inventory costs transferred to Under Construction.

(2)	Included in these costs are development obligations of $59.3 million and tenant improvement obligations of $7.5 million on properties under development.

(3)	Represents value-add projects acquired by EastGroup.

(4)	Represents cumulative costs at the date of transfer.

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(1)

As the Company’s leases do not provide an implicit rate, in order to calculate the present value of the remaining ground lease payments, the Company used its incremental borrowing rate, adjusted for a number of factors, including the long-term nature of the ground leases, the Company’s estimated borrowing costs, and the estimated fair value of the underlying land, to determine the imputed interest for its ground leases. The Company elected to use the portfolio approach as all of its ground leases in place as of January 1, 2019, have similar characteristics and determined 7.3% as the appropriate rate as of January 1, 2019, for all leases in place at that time. For the ground lease obtained during April 2019, the Company used its incremental borrowing rate, adjusted for the factors discussed above, which was determined to be 8.0%.

(3)	UNCONSOLIDATED INVESTMENT

(4)	MORTGAGE LOANS RECEIVABLE

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(5)	OTHER ASSETS

(1)	See Note 1(o) for information regarding the Company’s January 1, 2019, implementation of FASB ASC 842, Leases, and the Company’s right of use assets for office leases.

(6)	UNSECURED BANK CREDIT FACILITIES

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(7)	UNSECURED AND SECURED DEBT

(1)	These loans have a fixed interest rate or an effectively fixed interest rate due to interest rate swaps.

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(1)

The interest rates on these unsecured term loans are comprised of LIBOR plus a margin which is subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into interest rate swap agreements (further described in Note 13) to convert the loans' LIBOR rates to effectively fixed interest rates. The interest rates in the table above are the effectively fixed interest rates for the loans, including the effects of the interest rate swaps, as of December 31, 2019.

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(1)	During 2019, the Company executed a collateral release for World Houston 5; this property was sold during 2019 and is no longer considered to be collateral securing this loan.

(8)	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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(9)	OTHER LIABILITIES

(1)	See Note 1(o) for information regarding the Company’s January 1, 2019, implementation of FASB ASC 842, Leases, and the Company’s right of use assets and related liabilities for office leases.

(10)	COMMON STOCK ACTIVITY

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(11)	STOCK-BASED COMPENSATION

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(12)	COMPREHENSIVE INCOME

(13)	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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(14)	EARNINGS PER SHARE

(15)	QUARTERLY RESULTS OF OPERATIONS – UNAUDITED

(1)

The above quarterly earnings per share calculations are based on the weighted average number of shares of common stock outstanding during each quarter for basic earnings per share and the weighted average number of outstanding shares of common stock and common stock share equivalents during each quarter for diluted earnings per share.  The annual earnings per share calculations in the Consolidated Statements of Income and Comprehensive Income are based on the weighted average number of shares of common stock outstanding during each year for basic earnings per share and the weighted average number of outstanding shares of common stock and common stock share equivalents during each year for diluted earnings per share.  The sum of quarterly financial data may vary from the annual data due to rounding.

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(16)	DEFINED CONTRIBUTION PLAN

(17)	LEGAL MATTERS

(18)	FAIR VALUE OF FINANCIAL INSTRUMENTS

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

(2)	Carrying amounts and fair values shown in the table exclude debt issuance costs (see Notes 6 and 7 for additional information).

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(19)	SUBSEQUENT EVENTS

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(1)	Includes noncontrolling interest in joint ventures of $3,148,000 and $3,296,000 at December 31, 2019 and 2018, respectively.

(b)	The estimated aggregate cost of real estate properties at December 31, 2019 for federal income tax purposes was approximately $3,179,014,000 before estimated accumulated tax depreciation of $619,405,000.  The federal income tax return for the year ended December 31, 2019, has not been filed and accordingly, this estimate is based on preliminary data.

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

(d)

The Company transfers properties from the development and value-add program to Real estate properties as follows: (i) for development properties, at the earlier of 90% occupancy or one year after completion of the shell construction, and (ii) for value-add properties, at the earlier of 90% occupancy or one year after acquisition. Upon the earlier of 90% occupancy or one year after completion of the shell construction, capitalization of development costs, including interest expense, property taxes and internal personnel costs, ceases and depreciation commences on the entire property (excluding the land).

(e)	EastGroup has a $48,772,000 non-recourse first mortgage loan with an insurance company secured by 40th Avenue, Beltway Crossing V, Centennial Park, Executive Airport, Interchange Park I, Ocean View, Wetmore 5-8 and World Houston 26, 28, 29 & 30.

(f)	EastGroup has a $44,596,000 non-recourse first mortgage loan with an insurance company secured by Colorado Crossing, Interstate I-III, Rojas, Steele Creek 1 & 2, Venture and World Houston 3-4 and 6-9.

(g)	EastGroup has a $37,682,000 non-recourse first mortgage loan with an insurance company secured by Arion 18, Beltway Crossing VI & VII, Commerce Park II & III, Concord, Interstate V-VII, Lakeview, Ridge Creek II, Southridge IV & V and World Houston 32.

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(a)	Reference is made to allowance for possible losses on mortgage loans receivable in the Notes to Consolidated Financial Statements.

(b)	Interest in arrears for three months or less is disregarded in computing principal amount of loans subject to delinquent interest.

(c)	Changes in mortgage loans follow:

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