UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2008 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.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (601) 354-3555
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES (x) NO ( )
Indicate by check mark whether the Registrant is 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)
The number of shares of common stock, $.0001 par value, outstanding as of May 6,
2008 was 24,889,840.
1
EASTGROUP PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2008
Pages
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets, March 31, 2008 (unaudited) and December
31, 2007 3
Consolidated statements of income for the three months ended March 31,
2008 and 2007 (unaudited) 4
Consolidated statement of changes in stockholders' equity for the
three months ended March 31, 2008 (unaudited) 5
Consolidated statements of cash flows for the three months ended March
31, 2008 and 2007 (unaudited) 6
Notes to consolidated financial statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 6. Exhibits 23
SIGNATURES
Authorized signatures 24
2
EASTGROUP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
March 31, 2008 December 31, 2007
----------------------------------------
(Unaudited)
ASSETS
Real estate properties.................................................... $ 1,186,416 1,114,966
Development............................................................... 150,952 152,963
----------------------------------------
1,337,368 1,267,929
Less accumulated depreciation........................................... (279,354) (269,132)
----------------------------------------
1,058,014 998,797
Unconsolidated investment................................................. 2,649 2,630
Cash...................................................................... 187 724
Other assets.............................................................. 54,937 53,682
----------------------------------------
TOTAL ASSETS............................................................ $ 1,115,787 1,055,833
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable.................................................... $ 539,585 465,360
Notes payable to banks.................................................... 132,707 135,444
Accounts payable & accrued expenses....................................... 29,078 34,179
Other liabilities......................................................... 14,412 16,153
----------------------------------------
715,782 651,136
----------------------------------------
Minority interest in joint ventures......................................... 2,392 2,312
----------------------------------------
STOCKHOLDERS' EQUITY
Series C Preferred Shares; $.0001 par value; 600,000 shares authorized;
no shares issued........................................................ - -
Series D 7.95% Cumulative Redeemable Preferred Shares and additional
paid-in capital; $.0001 par value; 1,320,000 shares authorized and
issued; stated liquidation preference of $33,000........................ 32,326 32,326
Common shares; $.0001 par value; 68,080,000 shares authorized;
23,839,840 shares issued and outstanding at March 31, 2008 and
23,808,768 at December 31, 2007......................................... 2 2
Excess shares; $.0001 par value; 30,000,000 shares authorized;
no shares issued........................................................ - -
Additional paid-in capital on common shares............................... 468,086 467,573
Distributions in excess of earnings....................................... (102,450) (97,460)
Accumulated other comprehensive loss...................................... (351) (56)
----------------------------------------
397,613 402,385
----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $ 1,115,787 1,055,833
========================================
See accompanying notes to consolidated financial statements.
3
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------
2008 2007
-------------------------------
REVENUES
Income from real estate operations....................................... $ 40,245 35,970
Other income............................................................. 195 25
-------------------------------
40,440 35,995
-------------------------------
EXPENSES
Expenses from real estate operations..................................... 10,880 10,055
Depreciation and amortization............................................ 12,418 11,149
General and administrative............................................... 2,081 2,029
-------------------------------
25,379 23,233
-------------------------------
OPERATING INCOME........................................................... 15,061 12,762
OTHER INCOME (EXPENSE)
Equity in earnings of unconsolidated investment.......................... 80 76
Gain on sale of land..................................................... 7 7
Gain on sales of securities.............................................. 435 -
Interest income.......................................................... 37 22
Interest expense......................................................... (7,373) (6,171)
Minority interest in joint ventures...................................... (156) (150)
-------------------------------
INCOME FROM CONTINUING OPERATIONS.......................................... 8,091 6,546
-------------------------------
DISCONTINUED OPERATIONS
Income from real estate operations....................................... - 41
-------------------------------
INCOME FROM DISCONTINUED OPERATIONS........................................ - 41
-------------------------------
NET INCOME................................................................. 8,091 6,587
Preferred dividends-Series D............................................. 656 656
-------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS................................ $ 7,435 5,931
===============================
BASIC PER COMMON SHARE DATA
Income from continuing operations........................................ $ .31 .25
Income from discontinued operations...................................... .00 .00
-------------------------------
Net income available to common stockholders.............................. $ .31 .25
===============================
Weighted average shares outstanding...................................... 23,684 23,531
===============================
DILUTED PER COMMON SHARE DATA
Income from continuing operations........................................ $ .31 .25
Income from discontinued operations...................................... .00 .00
-------------------------------
Net income available to common stockholders.............................. $ .31 .25
===============================
Weighted average shares outstanding...................................... 23,829 23,769
===============================
Dividends declared per common share........................................ $ .52 .50
See accompanying notes to consolidated financial statements.
4
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
Accumulated
Additional Distributions Other
Preferred Common Paid-In In Excess Comprehensive
Stock Stock Capital Of Earnings Loss Total
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2007.......................... $ 32,326 2 467,573 (97,460) (56) 402,385
Comprehensive income
Net income....................................... - - - 8,091 - 8,091
Net unrealized change in fair value of
interest rate swap.............................. - - - - (295) (295)
---------
Total comprehensive income..................... 7,796
---------
Common dividends declared - $.52 per share........ - - - (12,425) - (12,425)
Preferred dividends declared - $.4969 per share... - - - (656) - (656)
Stock-based compensation, net of forfeitures...... - - 605 - - 605
Issuance of 1,220 shares of common stock,
options exercised............................... - - 26 - - 26
Issuance of 1,523 shares of common stock,
dividend reinvestment plan...................... - - 71 - - 71
4,519 shares withheld to satisfy tax withholding
obligations in connection with the vesting of
restricted stock................................ - - (189) - - (189)
-------------------------------------------------------------------------------
BALANCE, MARCH 31, 2008............................. $ 32,326 2 468,086 (102,450) (351) 397,613
===============================================================================
See accompanying notes to consolidated financial statements.
5
EASTGROUP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
--------------------------------
2008 2007
--------------------------------
OPERATING ACTIVITIES
Net income................................................................................. $ 8,091 6,587
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization from continuing operations................................. 12,418 11,149
Depreciation and amortization from discontinued operations............................... - 46
Minority interest depreciation and amortization.......................................... (49) (38)
Amortization of mortgage loan premiums................................................... (30) (29)
Gain on sale of land..................................................................... (7) (7)
Gain on sales of securities.............................................................. (435) -
Stock-based compensation expense......................................................... 458 366
Equity in earnings of unconsolidated investment, net of distributions.................... (20) 24
Changes in operating assets and liabilities:
Accrued income and other assets........................................................ 289 1,935
Accounts payable, accrued expenses and prepaid rent.................................... (7,088) (5,489)
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................... 13,627 14,544
--------------------------------
INVESTING ACTIVITIES
Real estate development.................................................................... (26,874) (23,794)
Purchases of real estate................................................................... (41,058) (43,980)
Real estate improvements................................................................... (3,533) (2,751)
Proceeds from sale of land................................................................. 7 7
Purchases of securities.................................................................... (7,534) -
Proceeds from sales of securities.......................................................... 7,969 -
Changes in other assets and other liabilities.............................................. (1,232) 131
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES........................................................ (72,255) (70,387)
--------------------------------
FINANCING ACTIVITIES
Proceeds from bank borrowings.............................................................. 126,084 129,447
Repayments on bank borrowings.............................................................. (128,821) (54,251)
Proceeds from mortgage notes payable....................................................... 78,000 -
Principal payments on mortgage notes payable............................................... (3,745) (3,136)
Debt issuance costs........................................................................ (1,595) (46)
Distributions paid to stockholders......................................................... (13,086) (12,568)
Proceeds from exercise of stock options.................................................... 26 218
Proceeds from dividend reinvestment plan................................................... 71 71
Other...................................................................................... 1,157 (3,891)
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................................... 58,091 55,844
--------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................................. (537) 1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................................... 724 940
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................. $ 187 941
================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amount capitalized of $1,705 and $1,440
for 2008 and 2007, respectively.......................................................... $ 7,749 5,968
Fair value of common stock awards issued to employees and directors, net of forfeitures.... 1,018 930
See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements of EastGroup Properties,
Inc. ("EastGroup" or "the Company") have been prepared in accordance with U.S.
generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In management's opinion, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The financial statements should be read in
conjunction with the financial statements contained in the 2007 annual report on
Form 10-K and the notes thereto.
(2) 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, 2007
and March 31, 2008, 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 minority 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.
(3) USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
(4) 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 and California, 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 expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Real estate
properties held for investment are reported at the lower of the carrying amount
or fair value. 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 extend the useful life of or improve the
assets are capitalized. Depreciation expense for continuing and discontinued
operations was $10,222,000 and $9,311,000 for the three months ended March 31,
2008 and 2007, respectively. The Company's real estate properties at March 31,
2008 and December 31, 2007 were as follows:
March 31, 2008 December 31, 2007
--------------------------------------
(In thousands)
Real estate properties:
Land................................................ $ 184,494 175,496
Buildings and building improvements................. 819,142 763,980
Tenant and other improvements....................... 182,780 175,490
Development............................................ 150,952 152,963
--------------------------------------
1,337,368 1,267,929
Less accumulated depreciation....................... (279,354) (269,132)
--------------------------------------
$ 1,058,014 998,797
======================================
(5) DEVELOPMENT
During the period when a property is under development, costs associated
with development (i.e., land, construction costs, interest expense during
construction and lease-up, 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. As the property becomes
occupied, interest, depreciation, property taxes and other costs for the
percentage occupied only are expensed as incurred. When the property becomes 80%
7
occupied or one year after completion of the shell construction, whichever comes
first, the property is no longer considered a development property and becomes
an industrial property. Once the property becomes classified as an industrial
property, all interest and property taxes are expensed and depreciation
commences on the entire property (excluding the land).
(6) BUSINESS COMBINATIONS AND ACQUIRED INTANGIBLES
Upon acquisition of real estate properties, the Company applies the
principles of Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, to determine the allocation of the purchase price among
the individual components of both the tangible and intangible assets based on
their respective fair values. 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 remaining purchase price is allocated among three categories of
intangible assets consisting of 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
which reflects 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 to 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 expense for in-place lease intangibles was $742,000 and
$704,000 for the three months ended March 31, 2008 and 2007, respectively.
Amortization of above and below market leases was immaterial for all periods
presented.
The Company acquired five operating properties and 9.9 acres of developable
land in a single transaction during the three months ended March 31, 2008, for a
total cost of $41,913,000, of which $39,018,000 was allocated to real estate
properties and $855,000 to development. In accordance with SFAS No. 141,
intangibles associated with the purchase of real estate were allocated as
follows: $2,143,000 to in-place lease intangibles and $252,000 to above market
leases (both included in Other Assets on the consolidated balance sheet) and
$355,000 to below market leases (included in Other Liabilities on the
consolidated balance sheet). These costs are amortized over the remaining lives
of the associated leases in place at the time of acquisition.
The Company periodically reviews (at least annually) the recoverability of
goodwill and (on a quarterly basis) the recoverability of other intangibles for
possible impairment. In management's opinion, no material impairment of goodwill
and other intangibles existed at March 31, 2008, and December 31, 2007.
(7) REAL ESTATE HELD FOR SALE/DISCONTINUED OPERATIONS
The Company considers a real estate property to be held for sale 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 that are 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 SFAS No. 144, the results of operations for the properties
sold or held for sale during the reported periods are shown under Discontinued
Operations on the consolidated income statements. Interest expense is not
generally allocated to the properties that are 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.
8
(8) OTHER ASSETS
A summary of the Company's Other Assets follows:
March 31, 2008 December 31, 2007
--------------------------------------
(In thousands)
Leasing costs (principally commissions), net of accumulated amortization...... $ 18,788 18,693
Straight-line rent receivable, net of allowance for doubtful accounts......... 14,294 14,016
Accounts receivable, net of allowance for doubtful accounts................... 3,508 3,587
Acquired in-place lease intangibles, net of accumulated amortization
of $5,126 and $5,308 for 2008 and 2007, respectively ....................... 6,689 5,303
Goodwill...................................................................... 990 990
Prepaid expenses and other assets............................................. 10,668 11,093
--------------------------------------
$ 54,937 53,682
======================================
(9) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of the Company's Accounts Payable and Accrued Expenses follows:
March 31, 2008 December 31, 2007
--------------------------------------
(In thousands)
Property taxes payable........................................................ $ 6,512 9,744
Development costs payable..................................................... 12,967 13,022
Dividends payable............................................................. 2,332 2,337
Other payables and accrued expenses........................................... 7,267 9,076
--------------------------------------
$ 29,078 34,179
======================================
(10) OTHER LIABILITIES
A summary of the Company's Other Liabilities follows:
March 31, 2008 December 31, 2007
--------------------------------------
(In thousands)
Security deposits............................................................. $ 7,456 7,529
Prepaid rent and other deferred income........................................ 5,563 6,911
Other liabilities............................................................. 1,393 1,713
--------------------------------------
$ 14,412 16,153
======================================
(11) COMPREHENSIVE INCOME
Comprehensive income is comprised of net income plus all other changes in
equity from nonowner sources. The components of accumulated other comprehensive
income (loss) for the three months ended March 31, 2008 are presented in the
Company's consolidated statement of changes in stockholders' equity and for the
three months ended March 30, 2008 and 2007 are summarized below.
Three Months Ended
March 31,
--------------------------------------
2008 2007
--------------------------------------
(In thousands)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period................................................ $ (56) 314
Change in fair value of interest rate swap.................................. (295) (63)
--------------------------------------
Balance at end of period...................................................... $ (351) 251
======================================
(12) EARNINGS PER SHARE
Basic earnings per share (EPS) represents the amount of earnings for the
period available to each share of common stock outstanding during the reporting
period. The Company's basic EPS is calculated by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding.
9
Diluted EPS represents the amount of earnings for the period available to
each share of common stock outstanding during the reporting period and to each
share that would have been outstanding assuming the issuance of common shares
for all dilutive potential common shares outstanding during the reporting
period. The Company calculates diluted EPS by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
plus the dilutive effect of nonvested restricted stock and stock options had the
options been exercised. The dilutive effect of stock options and their
equivalents (such as nonvested restricted stock) was determined using the
treasury stock method which assumes exercise of the options as of the beginning
of the period or when issued, if later, and assumes proceeds from the exercise
of options are used to purchase common stock at the average market price during
the period.
Reconciliation of the numerators and denominators in the basic and diluted
EPS computations is as follows:
Three Months Ended
March 31,
--------------------------------------
2008 2007
--------------------------------------
(In thousands)
BASIC EPS COMPUTATION
Numerator-net income available to common stockholders..................... $ 7,435 5,931
Denominator-weighted average shares outstanding........................... 23,684 23,531
DILUTED EPS COMPUTATION
Numerator-net income available to common stockholders..................... $ 7,435 5,931
Denominator:
Weighted average shares outstanding..................................... 23,684 23,531
Common stock options.................................................... 60 109
Nonvested restricted stock.............................................. 85 129
--------------------------------------
Total Shares.......................................................... 23,829 23,769
======================================
(13) STOCK-BASED COMPENSATION
Management Incentive Plan
The Company has a management incentive plan which was approved by the
shareholders and adopted in 2004. 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 (limited to 570,000 shares), deferred
stock units, performance shares, stock bonuses, and stock. Total shares
available for grant were 1,685,794 at March 31, 2008. Typically, the Company
issues new shares to fulfill stock grants or upon the exercise of stock options.
Stock-based compensation was $603,000 and $545,000 for the three months
ended March 31, 2008 and 2007, respectively, of which $184,000 and $217,000 were
capitalized as part of the Company's development costs.
Restricted Stock
In the second quarter of 2007, the Company granted shares to executive
officers contingent upon the attainment of 2007 annual performance goals. In
March 2008, 34,668 shares were awarded at a grant date fair value of $49.14 per
share. These shares vested 20% on March 6, 2008, and will vest 20% per year on
each January 1 for the subsequent four 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. The table does not include the shares granted in 2006
that are contingent on market conditions. Of the shares that vested in the first
quarter of 2008, 4,519 shares 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 of the vesting date, the fair value of shares that
vested during the first quarter of 2008 was $1,161,000.
Restricted Stock Activity: Three Months Ended
March 31, 2008
---------------------------
Weighted
Average
Shares Grant Date
Fair Value
---------------------------
Nonvested at beginning of period.... 144,089 $ 31.65
Granted (1)......................... 34,668 49.14
Forfeited........................... (1,820) 25.99
Vested.............................. (27,770) 44.33
------------
Nonvested at end of period.......... 149,167 33.42
============
(1) Represents shares issued in March 2008 that were granted in 2007 subject to
the satisfaction of annual performance goals.
10
Directors Equity Plan
The Company has a directors equity plan that was approved by shareholders
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. Stock-based compensation
expense for directors was $39,000 and $38,000 for the three months ended March
31, 2008 and 2007, respectively.
(14) RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which provides guidance for using fair value to measure assets and liabilities.
SFAS No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the use of fair
value in any new circumstances. The Statement 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 provisions of Statement 157,
with the exception of nonfinancial assets and liabilities, were effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The FASB deferred for one year
the Statement's fair value measurement requirements for nonfinancial assets and
liabilities that are not required or permitted to be measured at fair value on a
recurring basis. These provisions will be effective for fiscal years beginning
after November 15, 2008, and the Company is in the process of evaluating the
impact that the adoption of these provisions will have on the Company's overall
financial position and results of operations. As required under SFAS No. 133,
the Company accounts for its interest rate swap cash flow hedge on the Tower
Automotive mortgage at fair value. At the end of each quarter, the fair value of
the swap is determined by estimating the expected cash flows over the life of
the swap using the mid-market rate and price environment as of the last trading
day of the quarter. This market information is considered a Level 2 input as
defined by SFAS 157. The application of Statement 157 to the Company in 2008 had
an immaterial impact on the Company's overall financial position and results of
operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, which retains the fundamental requirements in SFAS No. 141 and
requires the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree be measured at fair value as of the
acquisition date. In addition, Statement 141(R) requires that any goodwill
acquired in the business combination be measured as a residual, and it provides
guidance in determining what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The Statement also requires that acquisition-related costs
be recognized as expenses in the periods in which the costs are incurred and the
services are received. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, and may
not be applied before that date.
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, which is an amendment of
Accounting Research Bulletin (ARB) No. 51. Statement 160 provides guidance for
entities that prepare consolidated financial statements that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008, and may not
be applied before that date. The Company anticipates that the adoption of
Statement 160 on January 1, 2009, will have an immaterial impact on the
Company's consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which is an amendment of FASB Statement No.
133. SFAS No. 161 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. The Statement is effective
prospectively for periods beginning on or after November 15, 2008.
(15) SUBSEQUENT EVENT
On April 29, 2008, EastGroup sold 1,050,000 shares of its common stock to
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The net proceeds from the
offering of the shares were approximately $50.1 million after deducting the
underwriting discount and other offering expenses. The Company has also granted
the underwriter a 30-day option to purchase up to an additional 157,500 shares
of common stock.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
EastGroup's goal is to maximize shareholder value by being the 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 develops, acquires 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
and California.
The Company's primary revenue is rental income; as such, EastGroup's
greatest challenge is leasing space. During the three months ended March 31,
2008, leases on 1,087,000 square feet (4.4%) of EastGroup's total square footage
of 24,897,000 expired, and the Company was successful in renewing or re-leasing
851,000 square feet, representing 78% of that total. In addition, EastGroup
leased 235,000 square feet of other vacant space during this period. During the
three months ended March 31, 2008, average rental rates on new and renewal
leases increased by 13.3%.
EastGroup's total leased percentage was 94.9% at March 31, 2008, compared
to 96.7% at March 31, 2007. Leases scheduled to expire for the remainder of 2008
were 10.6% of the portfolio on a square foot basis at March 31, 2008, and this
figure was reduced to 8.4% as of May 6, 2008. Property net operating income from
same properties increased 2.6% for the quarter ended March 31, 2008, as compared
to the same period in 2007.
The Company generates new sources of leasing revenue through its
acquisition and development programs. During the first quarter of 2008,
EastGroup purchased five operating properties (669,000 square feet) and 9.9
acres of developable land in a single transaction for a total cost of $41.9
million. These properties are located in metropolitan Charlotte, North Carolina,
where the Company now owns over 1.6 million square feet.
EastGroup continues to see targeted development as a major contributor to
the Company's 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 the
three months ended March 31, 2008, the Company transferred four properties
(534,000 square feet) with aggregate costs of $27.3 million at the date of
transfer from development to real estate properties. These properties, which are
collectively 98% leased, are located in Houston and San Antonio, Texas, and
Orlando, Florida.
The Company primarily funds its acquisition and development programs
through a four-year, $200 million line of credit (as discussed in Liquidity and
Capital Resources). This line of credit was obtained on January 4, 2008, and
replaced an expiring $175 million line. As market conditions permit, EastGroup
issues equity, including preferred equity, and/or employs fixed-rate,
non-recourse first mortgage debt to replace the short-term bank borrowings.
On March 19, 2008, the Company closed on a $78 million, non-recourse first
mortgage loan secured by properties containing 1,571,000 square feet. The loan
has a fixed interest rate of 5.50%, a seven-year term and an amortization
schedule of 20 years. The proceeds of this note were used to reduce variable
rate bank borrowings.
During the first three months of 2008, EastGroup purchased REIT securities
at a cost of $7,534,000. The Company subsequently sold the securities for
$7,969,000, recognizing a gain on sales of securities of $435,000 for the
quarter. As of March 31, 2008, the Company owned no REIT securities.
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 that
permit the properties to be aggregated into one reportable segment. The
Company's chief decision makers use two primary measures of operating results in
making decisions: property net operating income (PNOI), defined as income from
real estate operations less property operating expenses (before interest expense
and depreciation and amortization), and funds from operations available to
common stockholders (FFO), defined as net income (loss) computed in accordance
with U.S. generally accepted accounting principles (GAAP), excluding gains or
losses from sales of depreciable real estate property, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. 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 that
the exclusion of depreciation and amortization in the industry's calculation of
PNOI provides a supplemental indicator of the property's performance since real
estate values have historically risen or fallen with market conditions. PNOI as
calculated by the Company may not be comparable to similarly titled but
differently calculated measures for other REITs. The major factors that
influence PNOI are occupancy levels, acquisitions and sales, development
properties that achieve stabilized operations, rental rate increases or
decreases, and the recoverability of operating expenses. The Company's success
depends largely upon its ability to lease space and to recover from tenants the
operating costs associated with those leases.
Real estate income is comprised of rental income, pass-through income and
other real estate income including lease termination fees. Property operating
expenses are 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.
12
The Company believes FFO is a meaningful supplemental measure of operating
performance for equity real estate investment trusts. The Company believes that
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 of
funds available to provide for the Company's cash needs, including its ability
to make distributions. 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 on
a comparative basis for the three months ended March 31, 2008 and 2007
reconciliations of PNOI and FFO Available to Common Stockholders to Net Income.
Three Months Ended
March 31,
--------------------------------------
2008 2007
--------------------------------------
(In thousands)
Income from real estate operations................................................. $ 40,245 35,970
Expenses from real estate operations............................................... (10,880) (10,055)
--------------------------------------
PROPERTY NET OPERATING INCOME...................................................... 29,365 25,915
Equity in earnings of unconsolidated investment (before depreciation).............. 113 109
Income from discontinued operations (before depreciation and amortization)......... - 87
Interest income.................................................................... 37 22
Gain on sales of securities........................................................ 435 -
Other income....................................................................... 195 25
Interest expense................................................................... (7,373) (6,171)
General and administrative expense................................................. (2,081) (2,029)
Minority interest in earnings (before depreciation and amortization)............... (205) (188)
Gain on sale of land............................................................... 7 7
Dividends on Series D preferred shares............................................. (656) (656)
--------------------------------------
FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS............................. 19,837 17,121
Depreciation and amortization from continuing operations........................... (12,418) (11,149)
Depreciation and amortization from discontinued operations......................... - (46)
Depreciation from unconsolidated investment........................................ (33) (33)
Minority interest depreciation and amortization.................................... 49 38
--------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS........................................ 7,435 5,931
Dividends on preferred shares...................................................... 656 656
--------------------------------------
NET INCOME......................................................................... $ 8,091 6,587
======================================
Net income available to common stockholders per diluted share...................... $ .31 .25
Funds from operations available to common stockholders per diluted share........... .83 .72
Diluted shares for earnings per share and funds from operations.................... 23,829 23,769
13
The Company analyzes the following performance trends in evaluating the progress
of the Company:
o The FFO change per share represents the increase or decrease in FFO per
share from the same quarter in the current year compared to the prior year.
FFO per share for the first quarter of 2008 was $.83 per share compared
with $.72 per share for the same period of 2007, an increase of 15.3% per
share. PNOI increased 13.3% primarily due to additional PNOI of $1,676,000
from newly developed properties, $1,098,000 from 2007 and 2008 acquisitions
and $668,000 from same property growth. The first quarter of 2008 was the
fifteenth consecutive quarter of increased FFO as compared to the previous
year's quarter. The Company recorded gains on sales of securities of
$435,000 during the first quarter of 2008. Lease termination fees, net of
bad debt, increased PNOI and FFO by $421,000 in the first quarter of 2008
compared to the same period of 2007. In the first three months of 2008, the
Company also recorded a gain on involuntary conversion of $175,000 due to
insurance proceeds that exceeded the basis of the asset. These transactions
increased FFO in the first quarter of 2008 by $.04 per share compared to
the same period of 2007.
o Same property net operating income change represents the PNOI increase or
decrease for operating properties owned during the entire current period
and prior year reporting period. PNOI from same properties increased 2.6%
for the first quarter. The first quarter of 2008 was the nineteenth
consecutive quarter of improved same property operations.
o Occupancy is the percentage of total leasable square footage for which the
lease term has commenced as of the close of the reporting period. Occupancy
at March 31, 2008, was 94.4%. Occupancy has ranged from 91.2% to 96.1% for
17 consecutive quarters.
o Rental rate change represents the rental rate increase or decrease on new
and renewal leases compared to the prior leases on the same space. Rental
rate increases on new and renewal leases (4.4% of total square footage)
averaged 13.3% for the first quarter of 2008.
14
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.
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, buildings 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 remaining purchase price is
allocated among three categories of intangible assets consisting of 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 which reflects 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 to 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 industrial development stage, costs associated with development
(i.e., land, construction costs, interest expense during construction and
lease-up, property taxes and other direct and indirect costs associated with
development) are aggregated into the total capitalization of the property.
Included in these costs are management's estimates for the portions of internal
costs (primarily personnel costs) that are deemed directly or indirectly related
to such development activities.
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 is not aware of any impairment
issues nor has it experienced any significant impairment issues in recent years.
In the event of impairment, the property's basis would be reduced and the
impairment would be recognized as a current period charge in the income
statement.
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. 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 that its allowance for doubtful accounts is adequate for its
outstanding receivables for the periods presented. In the event that 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 in the income statement.
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. The Company has the option of (i) reinvesting the sales price of
properties sold through tax-deferred exchanges, allowing for a deferral of
capital gains on the sale, (ii) paying out capital gains to the stockholders
with no tax to the Company, or (iii) treating the capital gains as having been
distributed to the stockholders, paying the tax on the gain deemed distributed
and allocating the tax paid as a credit to the stockholders. The Company
distributed all of its 2007 taxable income to its stockholders and expects to
distribute all of its taxable income in 2008. Accordingly, no provision for
income taxes was necessary in 2007, nor is it expected to be necessary for 2008.
15
FINANCIAL CONDITION
EastGroup's assets were $1,115,787,000 at March 31, 2008, an increase of
$59,954,000 from December 31, 2007. Liabilities increased $64,646,000 to
$715,782,000 and stockholders' equity decreased $4,772,000 to $397,613,000
during the same period. The paragraphs that follow explain these changes in
detail.
ASSETS
Real Estate Properties
Real estate properties increased $71,450,000 during the three months ended
March 31, 2008, primarily due to the purchase of five operating properties and
the transfer of four properties from development, as detailed below.
Date
Real Estate Properties Acquired in 2008 Location Size Acquired Cost (1)
----------------------------------------------------------------------------------------------------------------------
(Square feet) (In thousands)
Airport Commerce Center I & II,
Interchange Park, Ridge Creek
Distribution Center and Waterford
Distribution Center................... Charlotte, NC 669,000 02/29/08 $ 39,018
(1) Total cost of the properties acquired was $41,913,000, of which $39,018,000
was allocated to real estate properties as indicated above and $855,000 was
allocated to development. Intangibles associated with the purchases of real
estate were allocated as follows: $2,143,000 to in-place lease intangibles,
$252,000 to above market leases (both included in Other Assets on the
consolidated balance sheet) and $355,000 to below market leases (included
in Other Liabilities on the consolidated balance sheet). All of these costs
are amortized over the remaining lives of the associated leases in place at
the time of acquisition.
Real Estate Properties Transferred from Date
Development in 2008 Location Size Transferred Cost at Transfer
-----------------------------------------------------------------------------------------------------------------------
(Square feet) (In thousands)
Beltway Crossing IV..................... Houston, TX 55,000 01/21/08 $ 3,365
Beltway Crossing III.................... Houston, TX 55,000 02/01/08 2,866
Southridge XII.......................... Orlando, FL 404,000 03/20/08 18,521
Arion 18................................ San Antonio, TX 20,000 03/31/08 2,593
----------- ------------------
Total Developments Transferred.... 534,000 $ 27,345
=========== ==================
The Company made capital improvements of $3,533,000 on existing and
acquired properties (included in the Capital Expenditures table under Results of
Operations). Also, the Company incurred costs of $1,540,000 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 during the 12-month period following transfer.
Development
The investment in development at March 31, 2008, was $150,952,000 compared
to $152,963,000 at December 31, 2007. Total capital invested for development
during the first three months of 2008 was $26,874,000. In addition to the costs
of $25,334,000 incurred for the three months ended March 31, 2008, as detailed
in the development activity table, the Company incurred costs of $1,540,000 for
the first quarter of 2008 on developments transferred to real estate properties
during the 12-month period ending March 31, 2008.
During 2007, the Company executed a ten-year lease for a 404,000 square
foot build-to-suit development in its Southridge Commerce Park in Orlando. In
March 2008, development construction on this $20 million project was completed,
and the tenant occupied the space. As part of this transaction, EastGroup
entered into contracts with the tenant to purchase two of its existing
properties (278,000 square feet) in Jacksonville and Tampa, Florida, for
approximately $9 million. These acquisitions are expected to close in mid-2008.
During the three months ended March 31, 2008, EastGroup purchased 9.9 acres
of developable land for $855,000. Costs associated with this acquisition are
included in the development activity table. The Company transferred four
developments to real estate properties during the first quarter of 2008 with a
total investment of $27,345,000 as of the date of transfer.
16
Costs Incurred
----------------------------------------------
Costs For the Cumulative Estimated
Transferred Three Months as of Total
DEVELOPMENT Size in 2008(1) Ended 3/31/08 3/31/08 Costs
------------------------------------------------------------------------------------------------------------------------------------
(Square feet) (In thousands)
LEASE-UP
Interstate Commons III, Phoenix, AZ............. 38,000 $ - 21 3,069 3,200
Oak Creek A & B, Tampa, FL(2)................... 35,000 - 58 2,999 3,300
Southridge VII, Orlando, FL..................... 92,000 - 414 6,500 6,700
SunCoast I, Fort Myers, FL...................... 63,000 - 50 5,126 5,500
World Houston 24, Houston, TX................... 93,000 - 229 5,394 5,600
World Houston 25, Houston, TX................... 66,000 - 419 3,613 3,900
Centennial Park, Denver, CO..................... 68,000 - 205 4,952 5,000
Beltway Crossing V, Houston, TX................. 83,000 - 73 3,819 5,000
Wetmore II, Building A, San Antonio, TX......... 34,000 - 274 3,075 3,200
40th Avenue Distribution Center, Phoenix, AZ.... 89,000 - 160 5,307 6,100
Wetmore II, Buildings B & C, San Antonio, TX.... 124,000 - 392 6,772 7,600
------------------------------------------------------------------------------
Total Lease-up.................................... 785,000 - 2,295 50,626 55,100
------------------------------------------------------------------------------
UNDER CONSTRUCTION
Beltway Crossing VI, Houston, TX................ 127,000 - 1,451 4,974 6,400
Oak Creek VI, Tampa, FL........................ 89,000 - 1,023 4,928 5,800
Southridge VIII, Orlando, FL.................... 91,000 - 1,168 5,208 6,700
Wetmore II, Building D, San Antonio, TX......... 124,000 - 2,802 5,787 8,500
Sky Harbor, Phoenix, AZ......................... 261,000 - 4,459 18,467 22,800
SunCoast III, Fort Myers, FL.................... 93,000 - 1,299 5,474 8,400
Techway SW IV, Houston, TX...................... 94,000 - 1,897 3,865 5,800
World Houston 27, Houston, TX................... 92,000 - 1,385 3,868 5,500
World Houston 26, Houston, TX................... 59,000 1,110 - 1,110 3,300
------------------------------------------------------------------------------
Total Under Construction.......................... 1,030,000 1,110 15,484 53,681 73,200
------------------------------------------------------------------------------
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)
Tucson, AZ...................................... 205,000 - 144 2,189 14,300
Tampa, FL....................................... 335,000 - 326 4,903 20,100
Orlando, FL..................................... 229,000 - 736 4,498 13,700
West Palm Beach, FL............................. 20,000 - 14 825 2,300
Fort Myers, FL.................................. 659,000 - 493 13,312 48,100
El Paso, TX..................................... 251,000 - - 2,444 9,600
Houston, TX..................................... 1,247,000 (1,110) 749 14,188 73,700
San Antonio, TX................................. 410,000 - 134 2,700 24,300
Charlotte, NC................................... 95,000 - 881 881 7,100
Jackson, MS..................................... 28,000 - - 705 2,000
------------------------------------------------------------------------------
Total Prospective Development..................... 3,479,000 (1,110) 3,477 46,645 215,200
------------------------------------------------------------------------------
5,294,000 $ - 21,256 150,952 343,500
==============================================================================
DEVELOPMENTS COMPLETED AND TRANSFERRED
TO REAL ESTATE PROPERTIES DURING 2008
Beltway Crossing IV, Houston, TX................ 55,000 $ - 5 3,365
Beltway Crossing III, Houston, TX............... 55,000 - 14 2,866
Southridge XII, Orlando, FL..................... 404,000 - 3,421 18,521
Arion 18, San Antonio, TX....................... 20,000 - 638 2,593
-------------------------------------------------------------
Total Transferred to Real Estate Properties....... 534,000 $ - 4,078 27,345 (3)
=============================================================
(1) Represents costs transferred from Prospective Development (primarily land)
to Under Construction during the period.
(2) These buildings were developed for sale.
(3) Represents cumulative costs at the date of transfer.
Accumulated depreciation on real estate properties increased $10,222,000
due to depreciation expense on real estate properties. A summary of Other Assets
is presented in Note 8 in the Notes to the Consolidated Financial Statements.
17
LIABILITIES
Mortgage notes payable increased $74,225,000 during the three months ended
March 31, 2008, as a result of a $78,000,000 mortgage loan signed by the Company
during the first quarter, which was offset by regularly scheduled principal
payments of $3,745,000 and mortgage loan premium amortization of $30,000.
Notes payable to banks decreased $2,737,000 during the three months ended
March 31, 2008, as a result of repayments of $128,821,000 exceeding advances of
$126,084,000. The Company's credit facilities are described in greater detail
under Liquidity and Capital Resources.
See Note 9 in the Notes to the Consolidated Financial Statements for a
summary of Accounts Payable and Accrued Expenses. See Note 10 in the Notes to
the Consolidated Financial Statements for a summary of Other Liabilities.
STOCKHOLDERS' EQUITY
Distributions in excess of earnings increased $4,990,000 as a result of
dividends on common and preferred stock of $13,081,000 exceeding net income for
financial reporting purposes of $8,091,000. See Note 13 in the Notes to the
Consolidated Financial Statements for information related to the changes in
additional paid-in capital resulting from stock-based compensation.
RESULTS OF OPERATIONS
(Comments are for the three months ended March 31, 2008, compared to the three
months ended March 31, 2007.)
Net income available to common stockholders for the three months ended
March 31, 2008, was $7,435,000 ($.31 per basic and diluted share) compared to
$5,931,000 ($.25 per basic and diluted share) for the same period in 2007.
PNOI increased by $3,450,000, or 13.3%, for the first quarter of 2008 as
compared to the same period in 2007. The increase was primarily attributable to
$1,676,000 from newly developed properties, $1,098,000 from 2007 and 2008
acquisitions and $668,000 from same property growth. The Company recorded gain
on sales of securities of $435,000 during the first quarter of 2008. Lease
termination fees, net of bad debt, increased PNOI by $421,000 in the first
quarter of 2008 compared to the same quarter in 2007. Also in the first quarter
of 2008, the Company recorded a gain on involuntary conversion of $175,000 due
to insurance proceeds that exceeded the basis of the asset. The above
transactions increased earnings per share in the first quarter of 2008 by $.04
per share compared to the same quarter of 2007.
Expense to revenue ratios were 27.0% for the three months ended March 31,
2008, compared to 28.0% for the same period in 2007. The Company's percentages
leased and occupied were 94.9% and 94.4%, respectively, at March 31, 2008,
compared to 96.7% and 96.1%, respectively, at March 31, 2007. The increases in
PNOI were offset by increased depreciation and amortization expense and other
costs as discussed below.
The following table presents the components of interest expense for the
three months ended March 31, 2008 and 2007:
Three Months Ended
March 31,
---------------------------- Increase/
2008 2007 Decrease
------------------------------------------
(In thousands, except rates of interest)
Average bank borrowings.......................................................... $ 151,906 59,224 92,682
Weighted average variable interest rates (excluding loan cost amortization)...... 4.54% 6.63%
VARIABLE RATE INTEREST EXPENSE
Variable rate interest (excluding loan cost amortization)........................ $ 1,716 968 748
Amortization of bank loan costs.................................................. 74 89 (15)
------------------------------------------
Total variable rate interest expense............................................. 1,790 1,057 733
------------------------------------------
FIXED RATE INTEREST EXPENSE
Fixed rate interest (excluding loan cost amortization)........................... 7,135 6,422 713
Amortization of mortgage loan costs.............................................. 153 132 21
------------------------------------------
Total fixed rate interest expense................................................ 7,288 6,554 734
------------------------------------------
Total interest................................................................... 9,078 7,611 1,467
Less capitalized interest........................................................ (1,705) (1,440) (265)
------------------------------------------
TOTAL INTEREST EXPENSE........................................................... $ 7,373 6,171 1,202
==========================================
Interest costs incurred during the period of construction of real estate
properties are capitalized and offset against interest expense. The Company's
weighted average variable interest rates in the first three months of 2008 were
lower than in 2007; however, average bank borrowings were significantly higher,
thereby increasing variable rate interest expense.
18
The increase in mortgage interest expense in 2008 was primarily due to the
new mortgages detailed in the table below.
NEW MORTGAGES IN 2007 AND 2008 INTEREST RATE DATE AMOUNT
---------------------------------------------------------------------------------------------------------------------
Broadway VI, World Houston 1 & 2, 21 & 23, Arion 16,
Ethan Allen, Northpark I-IV, South 55th Avenue, East
University I & II and Santan 10 II.......................... 5.570% 08/08/07 $ 75,000,000
Beltway II, III & IV, Eastlake, Fairgrounds I-IV, Nations
Ford I-IV, Techway Southwest III, Westinghouse,
Wetmore I-IV and World Houston 15 & 22...................... 5.500% 03/19/08 78,000,000
------------- ---------------
Weighted Average/Total Amount............................... 5.534% $ 153,000,000
============= ===============
These increases were offset by regularly scheduled principal payments and
the repayments of two mortgages in 2007 as shown in the following table:
INTEREST DATE PAYOFF
MORTGAGE LOANS REPAID IN 2007 RATE REPAID AMOUNT
---------------------------------------------------------------------------------------------------------------
World Houston 1 & 2........................................... 7.770% 04/12/07 $ 4,023,000
E. University I & II, Broadway VI, 55th Avenue
and Ethan Allen............................................. 8.060% 05/25/07 10,197,000
-------- --------------
Weighted Average/Total Amount............................... 7.978% $ 14,220,000
======== ==============
Depreciation and amortization for continuing operations increased
$1,269,000 for the three months ended March 31, 2008, as compared to the same
period in 2007. This increase was primarily due to properties acquired and
transferred from development during 2007 and 2008.
NAREIT has recommended supplemental disclosures concerning straight-line
rent, capital expenditures and leasing costs. Straight-lining of rent for
continuing operations increased income by $278,000 in the first quarter of 2008
compared to $145,000 in the same period of 2007.
Capital Expenditures
Capital expenditures for the three months ended March 31, 2008 and 2007
were as follows:
Three Months Ended March
Estimated ----------------------------
Useful Life 2008 2007
-------------------------------------------
(In thousands)
Upgrade on Acquisitions........................ 40 yrs $ 31 39
Tenant Improvements:
New Tenants.................................. Lease Life 2,088 1,438
New Tenants (first generation) (1)........... Lease Life 3 338
Renewal Tenants.............................. Lease Life 512 404
Other:
Building Improvements........................ 5-40 yrs 182 225
Roofs........................................ 5-15 yrs 108 165
Parking Lots................................. 3-5 yrs 538 107
Other........................................ 5 yrs 71 35
----------------------------
Total capital expenditures................. $ 3,533 2,751
============================
(1) First generation refers 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 three months ended March 31, 2008 and 2007
were as follows:
19
Three Months Ended March 31,
Estimated ----------------------------
Useful Life 2008 2007
-------------------------------------------
(In thousands)
Development.................................... Lease Life $ 833 905
New Tenants.................................... Lease Life 471 686
New Tenants (first generation) (1)............. Lease Life 7 115
Renewal Tenants................................ Lease Life 239 375
----------------------------
Total capitalized leasing costs.............. $ 1,550 2,081
============================
Amortization of leasing costs (2).............. $ 1,454 1,180
============================
(1) First generation refers to space that has never been occupied under
EastGroup's ownership.
(2) Includes discontinued operations.
Discontinued Operations
The results of operations, including interest expense (if applicable), for
the properties sold or held for sale during the periods reported are shown under
Discontinued Operations on the consolidated income statements. The following
table presents the components of revenue and expense for the properties sold or
held for sale during the three months ended March 31, 2008 and 2007. There were
no sales of properties during the first three months of 2007 or 2008; however,
the Company has reclassified the operations of Delp 1, which was sold during the
fourth quarter of 2007, to Discontinued Operations as shown in the following
table.
Three Months Ended March 31,
------------------------------
Discontinued Operations 2008 2007
------------------------------------------------------------------------------------------------
(In thousands)
Income from real estate operations.............................. $ - 116
Expenses from real estate operations............................ - (29)
------------------------------
Property net operating income from discontinued operations.... - 87
Depreciation and amortization................................... - (46)
------------------------------
Income from real estate operations.............................. $ - 41
==============================
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements, which provides guidance for
using fair value to measure assets and liabilities. SFAS No. 157 applies
whenever other standards require (or permit) assets or liabilities to be
measured at fair value but does not expand the use of fair value in any new
circumstances. The provisions of Statement 157, with the exception of
nonfinancial assets and liabilities, were effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The FASB deferred for one year the Statement's fair
value measurement requirements for nonfinancial assets and liabilities that are
not required or permitted to be measured at fair value on a recurring basis.
These provisions will be effective for fiscal years beginning after November 15,
2008, and the Company is in the process of evaluating the impact that the
adoption of these provisions will have on the Company's overall financial
position and results of operations. As required under SFAS No. 133, the Company
accounts for its interest rate swap cash flow hedge on the Tower Automotive
mortgage at fair value. The application of Statement 157 to the Company in 2008
had an immaterial impact on the Company's overall financial position and results
of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, which retains the fundamental requirements in SFAS No. 141 and
requires the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree be measured at fair value as of the
acquisition date. In addition, Statement 141(R) requires that any goodwill
acquired in the business combination be measured as a residual, and it provides
guidance in determining what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The Statement also requires that acquisition-related costs
be recognized as expenses in the periods in which the costs are incurred and the
services are received. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, and may
not be applied before that date.
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, which is an amendment of
Accounting Research Bulletin (ARB) No. 51. Statement 160 provides guidance for
entities that prepare consolidated financial statements that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008, and may not
be applied before
20
that date. The Company anticipates that the adoption of Statement 160 on January
1, 2009, will have an immaterial impact on the Company's consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which is an amendment of FASB Statement No.
133. SFAS No. 161 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. The Statement is effective
prospectively for periods beginning on or after November 15, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $13,627,000 for the three
months ended March 31, 2008. The primary other sources of cash were from bank
borrowings, mortgage note proceeds and proceeds from sales of securities. The
Company distributed $12,430,000 in common and $656,000 in preferred stock
dividends during the three months ended March 31, 2008. Other primary uses of
cash were for bank debt repayments, purchases of real estate, construction and
development of properties, purchases of securities, mortgage note repayments and
capital improvements at various properties.
Total debt at March 31, 2008 and December 31, 2007 is detailed below. The
Company's bank credit facilities have certain restrictive covenants, and the
Company was in compliance with all of its debt covenants at March 31, 2008 and
December 31, 2007.
March 31, 2008 December 31, 2007
-------------------------------------
(In thousands)
Mortgage notes payable - fixed rate......... $ 539,585 465,360
Bank notes payable - floating rate.......... 132,707 135,444
-------------------------------------
Total debt............................... $ 672,292 600,804
=====================================
The Company has a four-year, $200 million unsecured revolving credit
facility with a group of seven banks that matures in January 2012. The Company
customarily uses this line of credit for acquisitions and developments. The
interest rate on the facility is based on the LIBOR index and varies according
to total liability to total asset value ratios (as defined in the credit
agreement), with an annual facility fee of 15-20 basis points. The interest rate
on each tranche is usually reset on a monthly basis and is currently LIBOR plus
70 basis points with an annual facility fee of 20 basis points. The line of
credit can be expanded by $100 million and has an option for a one-year
extension. At March 31, 2008, the weighted average interest rate was 3.396% on a
balance of $128,000,000. At May 6, 2008, the weighted average interest rate was
3.553% on a balance of $73,000,000.
The Company also has a four-year, $25 million unsecured revolving credit
facility with PNC Bank, N.A. that matures in January 2012. This credit facility
is customarily used for working capital needs. The interest rate on this working
cash line is based on the LIBOR index and varies according to total liability to
total asset value ratios (as defined in the credit agreement). Under this
facility, the Company's current interest rate is LIBOR plus 75 basis points with
no annual facility fee. At March 31, 2008, the interest rate was 3.453% on a
balance of $4,707,000. At May 6, 2008, the interest rate was 3.447% on a balance
of $11,884,000.
As market conditions permit, EastGroup issues equity, including preferred
equity, and/or employs fixed-rate, non-recourse first mortgage debt to replace
the short-term bank borrowings.
On March 19, 2008, the Company closed on a $78 million, non-recourse first
mortgage loan secured by properties containing 1,571,000 square feet. The loan
has a fixed interest rate of 5.50%, a seven-year term and an amortization
schedule of 20 years. The proceeds of this note were used to reduce variable
rate bank borrowings.
On April 29, 2008, EastGroup sold 1,050,000 shares of its common stock to
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The net proceeds from the
offering of the shares were approximately $50.1 million after deducting the
underwriting discount and other offering expenses. The Company has also granted
the underwriter a 30-day option to purchase up to an additional 157,500 shares
of common stock.
Contractual Obligations
EastGroup's fixed, noncancelable obligations as of December 31, 2007, did
not materially change during the three months ended March 31, 2008, except for
the decrease in bank borrowings and the increase in mortgage notes payable
discussed above and the purchase of the properties in Charlotte.
The Company anticipates that its current cash balance, operating cash
flows, borrowings under its lines of credit, proceeds from new mortgage debt
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) distributions
to stockholders, (v) capital improvements, (vi) purchases of properties, (vii)
development, and (viii) any other normal business activities of the Company,
both in the short- and long-term.
21
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.
EastGroup's financial results are affected by general economic conditions
in the markets in which the Company's properties are located. An economic
recession, 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 impact our ability to renew leases or re-let space as
leases expire. In addition, an economic downturn or recession could also lead to
an increase in overall vacancy rates or decline in rents we can charge to
re-lease properties upon expiration of current leases. In all of these cases,
our cash flow would be adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate changes primarily as a result of
its lines of credit and long-term debt maturities. This debt is used to maintain
liquidity and fund capital expenditures and expansion of the Company's real
estate investment portfolio and operations. The Company's 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 several variable
rate bank lines as discussed under Liquidity and Capital Resources. The table
below presents the principal payments due and weighted average interest rates
for both the fixed rate and variable rate debt.
Apr-Dec
2008 2009 2010 2011 2012 Thereafter Total Fair Value
--------------------------------------------------------------------------------------------
Fixed rate debt (1) (in thousands)... $12,770 47,696 16,477 82,977 60,201 319,464 539,585 551,823(2)
Weighted average interest rate....... 6.10% 6.52% 5.89% 6.95% 6.64% 5.51% 5.98%
Variable rate debt (in thousands).... $ - - - - 132,707 - 132,707 132,707
Weighted average interest rate....... - - - - 3.40% - 3.40%
(1) The fixed rate debt shown above includes the Tower Automotive mortgage,
which has a variable interest rate based on the one-month LIBOR. EastGroup has
an interest rate swap agreement that fixes the rate at 4.03% for the 8-year
term. Interest and related fees result in an annual effective interest rate of
5.30%.
(2) The fair value of the Company's fixed rate debt is estimated based on the
quoted market prices for similar issues or by discounting expected cash flows at
the rates currently offered to the Company for debt of the same remaining
maturities, as advised by the Company's bankers.
As the table above incorporates only those exposures that existed as of
March 31, 2008, it does not consider those exposures or positions that could
arise after that date. The ultimate impact of interest rate fluctuations on the
Company will depend on the exposures that arise during subsequent periods. If
the weighted average interest rate on the variable rate bank debt as shown above
changes by 10% or approximately 34 basis points, interest expense and cash flows
would increase or decrease by approximately $451,000 annually.
The Company has an interest rate swap agreement to hedge its exposure to
the variable interest rate on the Company's $9,540,000 Tower Automotive Center
recourse mortgage, which is summarized in the table below. Under the swap
agreement, the Company effectively pays a fixed rate of interest over the term
of the agreement without the exchange of the underlying notional amount. This
swap is designated as a cash flow hedge and is considered to be fully effective
in hedging the variable rate risk associated with the Tower mortgage loan.
Changes in the fair value of the swap are recognized in accumulated other
comprehensive loss. The Company does not hold or issue this type of derivative
contract for trading or speculative purposes.
Current Maturity Fair Value Fair Value
Type of Hedge Notional Amount Date Reference Rate Fixed Rate At 3/31/08 at 12/31/07
------------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
Swap $9,540 12/31/10 1 month LIBOR 4.03% ($351) ($56)
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 "expects," "anticipates," "intends," "plans," "believes,"
"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; changes in
the supply of and demand for industrial/warehouse properties; increases in
interest rate levels; increases in operating costs; the availability of
financing; natural disasters 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
22
anticipated, or that acquisitions may not close as scheduled. Although the
Company believes that 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 Company's reports to be filed from time
to time with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
23
ITEM 4. 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 March 31,
2008, 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) Changes in Internal Control Over Financial Reporting.
There was no change in the Company's internal control over financial
reporting during the Company's first fiscal quarter ended March 31, 2008, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. OTHER INFORMATION.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors disclosed in EastGroup's
Form 10-K for the year ended December 31, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total Number Average Price Total Number of Shares Maximum Number of Shares
of Shares Paid Per Purchased as Part of Publicly That May Yet Be Purchased
Period Purchased Share Announced Plans or Programs Under the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
01/01/08 thru 01/31/08 2,742 (1) $ 41.85 - 672,300
02/01/08 thru 02/29/08 - - - 672,300
03/01/08 thru 03/31/08 1,777 (1) 49.14 - 672,300 (2)
-------------------------------------------------------------------
Total 4,519 $ 44.72 -
===================================================================
(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) EastGroup's Board of Directors has authorized the repurchase of up to
1,500,000 shares of its outstanding common stock. The shares may be purchased
from time to time in the open market or in privately negotiated transactions.
Under the common stock repurchase plan, the Company has purchased a total of
827,700 shares for $14,170,000 (an average of $17.12 per share) with 672,300
shares still authorized for repurchase. The Company has not repurchased any
shares under this plan since 2000.
ITEM 6. EXHIBITS.
(a) Form 10-Q Exhibits:
(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
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.
Date: May 7, 2008
EASTGROUP PROPERTIES, INC.
By: /s/ BRUCE CORKERN
-----------------------------
Bruce Corkern, CPA
Senior Vice President, Controller and
Chief Accounting Officer
By: /s/ N. KEITH MCKEY
-----------------------------
N. Keith McKey, CPA
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
24