U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended: September 30, 1996
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Commission File Number: 1 - 7094
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EASTGROUP PROPERTIES
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(Exact name of Registrant specified in its charter)
Maryland 13-2711135
- ------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
300 One Jackson Place
188 East Capitol Street
P.O. Box 22728
Jackson, Mississippi 39201-2195
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(Address of principal executive offices) Zip Code
Issuer's telephone number, including area code (601) 354-3555
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Former name, former address and former fiscal year,
if changed since last report
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
--------- ----------
7,026,864 shares of beneficial interest ($1.00 par value) were
outstanding at November 12, 1996.
EASTGROUP PROPERTIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
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Pages
Part I. Financial Information
Item 1. Consolidated financial statements
Consolidated balance sheets, September 30,
1996 and December 31, 1995 3
Consolidated statements of income for the
three months and nine months ended
September 30, 1996 and 1995 4
Consolidated statements of cash flow for the
nine months ended September 30, 1996 and 1995 5
Consolidated statements of changes in
shareholders' equity for the nine months
ended September 30, 1996 and 1995 7
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of
financial condition and results of operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
Signatures
Authorized signatures
CONSOLIDATED BALANCE SHEETS
(In thousands, except per
share data)
September 30, December 31,
1996 1995
-------------- ------------
(Unaudited)
Assets
Real estate properties
Industrial $ 187,289 76,099
Office Buildings 49,511 29,847
Apartments 48,727 49,658
Other 3,407 -
------------ ------------
288,934 155,604
Less accumulated depreciation (22,861) (19,206)
------------ ------------
266,073 136,398
Investment in joint venture 4,258 -
Mortgage loans 12,624 6,008
Land and land purchase-leasebacks 1,342 1,327
Investment in real estate
investment trusts - 10,787
Cash and cash equivalents 612 26
Other assets 4,310 3,409
------------ ------------
$ 289,219 157,955
============ ============
Liabilities and Shareholders' Equity
Liabilities
Mortgage notes payable $ 120,885 67,203
Notes payable to banks 17,780 4,359
Accounts payable and accrued expenses 3,054 2,096
Minority interests in joint ventures 3,059 909
Other liabilities 1,054 488
------------ ------------
145,832 75,055
------------ ------------
Shareholders' Equity
Shares of beneficial interest, par
value $1.00 per share; authorized
20,000,000 shares; issued 7,026,864
shares in 1996 and 4,231,656 in 1995 7,027 4,232
Additional paid-in-capital 127,178 68,344
Undistributed earnings 9,182 9,657
Unrealized gain on securities - 667
------------ ------------
143,387 82,900
------------ ------------
$ 289,219 157,955
============ ============
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
1996 1995 1996 1995
------- ------- ------- ------
Revenues
Income from real estate
operations $ 11,356 7,299 25,723 21,427
Land rents 27 40 111 177
Equity in earnings of real
estate investment trust - 14 43 167
Interest:
Mortgage loans 556 255 1,114 800
Other interest 30 - 42 -
Other 135 124 594 224
------- ------- ------- ------
12,104 7,732 27,627 22,795
------- ------- ------- ------
Expenses
Operating expenses from
real estate operations 3,788 3,069 9,454 8,762
Interest expense 2,862 1,590 6,047 4,709
Depreciation and
amortization 2,164 1,451 5,166 4,170
Minority interests
in joint ventures 105 40 187 185
General and
administrative expense 650 518 1,684 1,604
------- ------- ------- ------
9,569 6,668 22,538 19,430
------- ------- ------- ------
Income before gain
on investments 2,535 1,064 5,089 3,365
------- ------- ------- ------
Gain on investments
Real estate 159 - 2,155 1,451
Real estate investment
trust securities (7) - 6 -
------- ------- ------- ------
152 - 2,161 1,451
------- ------- ------- ------
Net Income $ 2,687 1,064 7,250 4,816
======= ======= ======= ======
Net Income per share of
beneficial interest $ .38 .25 1.35 1.14
======= ======= ======= ======
Weighted average shares
outstanding 7,023 4,227 5,367 4,224
======= ======= ======= ======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(In thousands)
Nine Months Ended
September 30,
-----------------
1996 1995
------- -------
Operating Activities
Net Income $ 7,250 4,816
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,166 4,170
Gain on investments, net (2,161) (1,451)
Real estate investments trust:
Equity in earnings (43) (167)
Dividends received from operations 77 105
Other (96) (95)
Changes in operating assets
and liabilities:
Accrued income and other assets (31) 588
Accrued payable, accrued expenses
and prepaid rent (534) (1,276)
------- -------
Net cash provided by operating
activities 9,628 6,690
------- -------
Investing Activities
Payments on mortgage loans receivable 155 1,914
Amortization of loan valuations (277) (89)
Sale of real estate investments 9,780 3,843
Sale of real estate investment
trust securities 1,056 -
Purchase of real estate investment
trusts shares - (9,263)
Real estate improvements (5,106) (2,869)
Purchase of real estate (13,850) (806)
Return of capital dividends - 87
Change in other assets and
other liabilities (211) (1,733)
------- -------
Net cash used in investing activities (8,453) (8,916)
------- -------
Financing Activities
Proceeds from mortgage notes payables 19,000 26,800
Proceeds from bank borrowings 54,726 25,295
Principal payments on bank borrowings (41,305) (40,131)
Principal payments on mortgage notes
payable (24,999) (4,156)
Distributions paid to shareholders (7,725) (5,788)
Proceeds on exercise of stock options 140 160
Proceeds on dividend reinvestment plan 63 -
Purchases of shares of beneficial
interest - (96)
Proceeds from merger of LNH, net 903 -
Proceeds from merger of Copley, net (1,392) -
------- -------
Net cash used in financing activities (589) 2,084
------- -------
Increase (decrease) in cash
and cash equivalents 586 (142)
Cash and cash equivalents at
beginning of period 26 301
------- -------
Cash and cash equivalent
at end of period $ 612 159
======= =======
Supplemental Cash Flow Information:
Cash paid for interest $ 5,511 4,476
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except for per share data)
Nine Months Ended
September 30,
------------------
1996 1995
-------- -------
Shares of beneficial interest,
$1.00 par value
Balance at beginning $ 4,232 4,222
Exercise of stock options 9 5
Issuance of shares in payment
of incentive compensation 6 -
Issuance of shares in LNH merger 618 -
Issuance of shares in Copley merger 2,159 -
Issuance of shares in dividend
reinvestment plan 3 -
--------- -------
Balance at end of period $ 7,027 4,227
--------- -------
Additional paid-in-capital
Balance at beginning $ 68,344 68,210
Exercise of stock options 131 59
Issuance of shares in payment
of incentive compensation 122 -
Issuance of shares in LNH merger 13,022 -
Issuance of shares in Copley merger 45,499 -
Issuance of shares in dividend
reinvestment plan 60 -
--------- -------
Balance at end of period $ 127,178 68,269
--------- -------
Undistributed earnings
Balance at beginning of period 9,657 9,723
Net income 7,250 4,816
Cash dividends declared:
$1.43 per share in 1996, and
$1.37 per share in 1995 (7,725) (5,788)
--------- -------
Balance at end of period $ 9,182 8,751
--------- -------
Unrealized gain on securities
Balance at beginning of period $ 667 21
Change in unrealized gain (667) (23)
--------- -------
Balance at end of period - (2)
--------- -------
Total shareholders' equity $ 143,387 81,245
========= =======
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
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
annual report and the notes thereto.
(2) Reclassifications
Certain reclassifications have been made in the fiscal 1995
financial statements to conform to the fiscal 1996
classifications.
(3) Subsequent Events
On October 15, 1996, the Trust sold the remaining building
at Baygreen Industrial Park in Hayward, California for an all
cash price of $720,000.
The Trust currently has two apartment complexes under
contract for sale with the buyer's money at risk, scheduled to
close in November 1996 for an all cash price of $6,163,000.
(4) Marketable Equity Securities
On January 1, 1995, the Trust adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" and classified its investment in
cost securities as securities available-for-sale.
EASTGROUP PROPERTIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
(Comments are for the balance sheet dated September 30, 1996,
compared to December 31, 1995.)
Assets of EastGroup Properties ("EastGroup" or the "Trust")
were $289,219,000 at September 30, 1996, an increase of
$131,264,000 from December 31, 1995. Liabilities increased
$70,777,000 to $145,832,000 during the same period. Book value
per share increased from $19.59 at December 31, 1995 to $20.41 at
September 30, 1996.
On May 14, 1996, the merger of LNH REIT, Inc. ("LNH") with
EGP-LNH Corporation, a wholly-owned subsidiary of the Trust, was
completed. Under the terms of the merger, each LNH share was
converted into the right to receive 0.3671 EastGroup shares. The
Trust issued approximately 618,244 shares as a result of the
merger. The increase in net assets resulting from the merger was
as follows (in thousands):
Real estate properties $ 6,243
Investment in joint venture 4,298
Mortgage loans 5,614
Land 521
Investment in real estate
investment trust 1,050
Cash 1,200
Accounts receivable and other assets 425
Minority interest payable (783)
Accounts payable and other liabilities (713)
--------
$ 17,855
========
The Trust's purchase price of the net assets acquired consisted
of the following (in thousands):
Shares of beneficial
interest (618,244 shares) $ 13,640
Cash in lieu of fractional
shares (246 shares) 5
Merger expenses 292
Investment in LNH 3,918
--------
$ 17,855
========
The Trust accounted for the acquisition using the purchase method
of accounting. For financial reporting purposes, the assets of
the company acquired are assigned new costs basis amounts based
on the allocation of the purchase price of the assets to the
Trust. In general, the purchase price to the Trust consists of
the new shares issued at the market price of the Trust's shares
on the date of the merger and the previous investment the Trust
has in LNH. The shares of LNH owned by the Trust are retired at
the merger date.
On June 19, 1996, Copley was merged into the Trust.
Under the terms of the merger, each Copley share was converted
into the right to receive .70668 EastGroup shares. EastGroup
issued approximately 2,159,000 of its shares as a result of the
merger. The increase in net assets resulting from the merger was
as follows (in thousands):
Real estate properties $ 116,292
Mortgage loans 880
Cash 1,480
Accounts receivable and other assets 470
Mortgage notes payable (59,681)
Minority interest payable (1,746)
Accounts payable and other liabilities (972)
---------
$ 56,723
=========
The Trust's purchase price of the net assets acquired consisted
of (in thousands):
Shares of beneficial
interest (2,158,895 shares) $ 47,658
Cash in lieu of fractional
shares (260 shares) 6
Merger expenses 2,866
Investment in Copley 6,193
--------
$ 56,723
========
The Trust accounted for the acquisition using the purchase method
of accounting. For financial reporting purposes, the assets of
the company acquired are assigned new costs basis amounts based
on the allocation of the purchase price of the assets to the
Trust. In general, the purchase price to the Trust consists of
the new shares issued at the market price of the Trust's shares
on the date of the merger and the previous investment the Trust
has in Copley. The shares of Copley owned by the Trust are
retired at the merger date.
Real estate properties increased $133,330,000 during the
nine months of 1996 as a result of the following (in thousands):
Real estate acquired:
Copley merger $ 116,292
LNH merger 6,243
Walnut Business Center 8,152
Braniff Park West 5,698
Capital improvements on existing
Trust properties 4,745
Development costs:
Rampart Distribution II 36
Chancellor 326
Real estate sold:
Garden Villa - January 1996 (3,830)
Sample I-95 land - July 1996 (3,275)
BayGreen - September 1996 (1,057)
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$ 133,330
==========
The Trust acquired Walnut Business Center, a 234,070 square foot
industrial complex in Fullerton, California in August 1996 and
Braniff Park West, a 259,352 square foot industrial complex in
Tulsa Oklahoma in September 1996. In addition, the Trust is
developing the Rampart Distribution Center II, a 66,000 square
foot industrial building on land adjacent to Rampart Distribution
Center I in Denver, Colorado with an estimated cost of
$3,230,000, and the Chancellor Distribution Center, a 51,100
square foot industrial building on land adjacent to the rear of
Exchange Distribution Center in Orlando, Florida with an
estimated cost of $1,900,000.
Accumulated depreciation increased $3,655,000 during the
nine months of 1996 due to depreciation expense of $4,775,000,
partially offset by the sale of the Garden Villa Apartments with
accumulated depreciation of $1,114,000 and BayGreen Industrial
Park with accumulated depreciation of $6,000.
The increase in investment in joint venture is due to the
joint venture acquired in the LNH merger of $4,298,000. The
Trust accounts for its 50% investment in the joint venture using
the equity method and the cost of the investment is adjusted by
the Trust's share of the joint venture's results of operations.
Mortgage loans receivable increased $6,616,000 during the
nine months of 1996. The Trust acquired four loans in the LNH
merger which were recorded at $5,614,000, and two loans in the
Copley merger which were recorded at $880,000. At the date of
the mergers, the loans had a principal balance of $7,983,000. The
notes were discounted and the difference between the present value
of the loans and the face amount will be amortized over the life
of the loans based on principal payments received. Mortgage loans
decreased $234,000 due to principal payments received and
increased $277,000 due to the amortization of loan discounts and
$79,000 due to the advance on mortgage loans.
Investments in real estate investment trusts decreased from
$10,787,000 at December 31, 1995 to $0 at September 30, 1996.
This decrease was primarily due to the elimination of the
investment in LNH of $3,918,000, and the elimination of the
investment in Copley of $6,193,000, as a result of the mergers
discussed previously. The Trust incurred $292,000 in merger
costs for LNH and $2,744,000 in merger costs for Copley which
were also eliminated as a result of the mergers. Also, the
Trust's investment in real estate investment trusts increased
$1,050,000 as a result of the 300,000 shares of Liberte' stock
received in the LNH merger. The Trust sold all of this stock for
$1,056,000 and recognized a gain of $6,000 for financial
reporting purposes. Prior to the May 14, 1996 merger of LNH, the
Trust recognized $69,000 of equity in earnings of LNH and $88,000
of unrealized gains, offset by $77,000 of LNH dividends received.
Prior to the June 19, 1996 merger of Copley, the Trust
recognized unrealized gains of $1,322,000 recorded on the Trust's
available-for-sale securities (Copley) in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The
balance of unrealized gains on Copley of $1,940,000 and $138,000
of unrealized gains on LNH was offset against unrealized gains in
shareholders' equity.
Land and land purchase-leaseback investments increased
$15,000 during the nine months ended September 30, 1996. This
increase is due to land acquired in the LNH merger of $521,000
and land acquired in the Copley merger of $3,275,000. This
increase was offset by the sale of the Bellevue land purchase-
leaseback investment ("Bellevue"), the sale of the Taco Bell land
purchase-leaseback investment ("Taco Bell"), the sale of the
Southwyck and Wellington parcels of land acquired in the LNH
merger and the Sample I-95 land acquired in the Copley merger. In
April 1996, the Trust sold Bellevue in Bellevue, Nebraska for
$472,000 and recognized a gain of $472,000. The Trust wrote off
this investment in 1994, as a result of the loss of the
property's largest tenant. In May 1996, the Trust sold Taco Bell
in Madisonville, Kentucky for $143,000 and recognized a gain of
$131,000. Also, the Trust sold the Southwyck parcel of land in
Houston, Texas for $149,000 and recognized a gain of $38,000. In
July 1996, the Trust sold the Sample I-95 land in Pompano Beach,
Florida for $3,267,000 and recognized a loss of $8,000. In
September 1996, the Trust sold the Wellington parcel of land in
Houston, Texas for $603,000 and recognized a gain of $220,000.
Mortgage notes payable increased $53,682,000 during the nine
months of 1996, including increases of $59,681,000 due to the
merger with Copley and the $19,000,000 mortgage notes payable
placed on Huntwood and Wiegman in August 1996. These increases
were offset by regularly scheduled principal repayments of
$1,153,000, the repayment of the $3,132,000 first mortgage on
the Garden Villa Apartments sold January 31, 1996 and the
repayment of $20,714,000 of Copley mortgages.
Notes payable to banks increased from $4,359,000 at December
31, 1995 to $17,780,000 at September 30, 1996. The increase was
due primarily to borrowings of $20,750,000 to pay off $16,700,000
of Copley debt with interest rates of 9.875% and $2,300,000 with
an interest rate of LIBOR plus 3.25%, and repay $1,750,000 with
an interest rate of 9.37%. As of September 30, 1996, the
acquisition line had a balance of $10,924,000 and the working
capital line had a balance of $6,856,000. The bank has increased
the working capital line to $20,000,000 and changed the interest
rates on both the working capital line and the acquisition line
to LIBOR plus 1.85%. Also, the working capital line and the
acquisition line mature April 30, 1997 and April 30, 1999,
respectively.
Accounts payable and accrued expenses increased $958,000
during the nine months ended September 30, 1996, compared to
December 31, 1995. Of this amount, $713,000 was recorded in the
LNH merger and $972,000 was recorded in the Copley merger. Also,
accounts payable and other liabilities decreased $727,000
as a result of normal business operations.
Minority interests in joint ventures increased $2,150,000
during the nine months ended September 30, 1996 compared to
December 31, 1995. Of this amount, $783,000 was recorded in the
LNH merger and $1,746,000 was recorded in the Copley merger.
Shares of beneficial interest increased as a result of
618,244 shares issued in the LNH merger, 2,158,895 shares issued
in the Copley merger, 9,000 stock options exercised, 6,427 shares
issued in payment of incentive compensation and 2,642 shares
issued in the Trust's new dividend reinvestment plan.
Unrealized gain (loss) on securities decreased $667,000 as a
result of the LNH and Copley mergers.
Undistributed earnings decreased from $9,657,000 at December
31, 1995 to $9,182,000 at September 30, 1996, as a result of
dividends of $7,725,000 exceeding net income for financial reporting
purposes of $7,250,000.
RESULTS OF OPERATIONS
(Comments are for the three months and nine months ended
September 30, 1996, compared to the three months and nine months
ended September 30, 1995.)
Net income for the three months and nine months ended
September 30, 1996 was $2,687,000 ($.38 per share) and $7,250,000
($1.35 per share), compared to net income for the three months
and nine months ended September 30, 1995 of $1,064,000 ($.25 per
share) and $4,816,000 ($1.14 per share). Income before gain on
investments was $2,535,000 and $5,089,000 for the three months
and nine months ended September 30, 1996, compared to $1,064,000
and $3,365,000 for the three months and nine months ended
September 30, 1995. Gain on investments was $152,000 and
$2,161,000 for the three months and nine months ended September
30, 1996, compared to $0 and $1,451,000 for the three months and
nine months ended September 30, 1995.
The results of operations include the results of operations
for LNH from May 14, 1996 through September 30, 1996, and the
results of operations for Copley from June 19, 1996 through
September 30, 1996.
Property net operating income (PNOI) from real estate
properties, defined as income from real estate operations less
property operating expenses (before interest expense and
depreciation) increased by $3,338,000 or 79% for the three months
ended September 30, 1996 compared to the three months ended
September 30, 1995. For the nine months ended September 30,
1996, PNOI increased by $3,604,000 or 28% for the nine months
ended September 30, 1996 compared to the nine months ended
September 30, 1995.
Property net operating income (loss) and percentage leased
by property type were as follows:
PNOI PNOI Percent
Three Months Ended Nine Months Ended Leased
------------------ ----------------- -------
1996 1995 1996 1995 1996
------ ------ ----- ----- -------
(In thousands)
Industrial $ 4,786 1,984 9,425 5,856 97%
Office Buildings 1,477 850 3,065 2,493 97%
Apartments 1,194 1,404 3,632 4,340 97%
Other 111 (8) 147 (24)
------- ----- ------ ------
Total PNOI $ 7,568 4,230 16,269 12,665
======= ===== ====== ======
PNOI from industrial properties increased $2,802,000 and
$3,569,000 for the three months and nine months ended September
30, 1996, compared to September 30, 1995. Industrial properties
held throughout the three months and nine months ended September
30, 1996 and 1995, showed an increase in PNOI of 4.5% for the
three months ended September 30, 1996 and 5.7% for the nine
months ended September 30, 1996. PNOI from industrial properties
increased $2,546,000 and $2,921,000 for the three months and nine
months ended September 30, 1996, as a result of the industrial
properties received in the mergers with LNH and Copley discussed
previously. Also contributing to this increase in PNOI from
industrial properties was the acquisition of Jetport 515 Commerce
Park in September 1995, Walnut Business Center in August 1996,
Braniff Park West in September 1996, and the development of a
36,400 square foot distribution building at the Phillips
Distribution Center completed in August 1995. In addition, the
increase in PNOI from industrial properties was due to improved
operations at Rampart Distribution Center, Venture Distribution
Center, Lake Pointe Business Park, Deerwood Distribution Center,
JetPort Commerce Park and Northwest Distribution Center.
PNOI from the Trust's office buildings increased $627,000
and $572,000 for the three months and nine months ended September
30, 1996 compared to the same period in 1995. The increase for
the three months ended September 30, 1996 is due primarily to the
PNOI from the office buildings received in the merger with Copley
discussed previously, and a slight improvement in operations from
office properties held throughout the three months ended
September 30, 1996 compared to September 30, 1995. These
increases were offset by the sale of the Cascade VII office
building in September 1995. The increase in PNOI from office
buildings for the nine months ended September 30, 1996, compared
to September 30, 1995 is due primarily to the PNOI from the
office buildings received in the merger with Copley discussed
previously offset by the sale of the Cascade VII office building
in September 1995 and lower operating income from the office
building portfolio. Office properties held throughout the three
months and nine months ended September 30, 1996 and 1995, showed
an increase in PNOI of .7% for the three months ended September
30, 1996 and a 1.6% decrease in PNOI for the nine months ended
September 30, 1996.
PNOI from the Trust's apartment properties decreased
$210,000 and $708,000 for the three months and nine months ended
September 30, 1996 compared to the same period in 1995. This
decrease is primarily attributable to the sale of the SunChase
Apartments in October 1995 and the Garden Villa Apartments in
January 1996, offset by the acceptance of a deed in lieu of
foreclosure on the EastGate Apartments in April 1995. Apartment
properties held throughout the three months and nine months ended
September 30, 1996 and 1995, showed an increase in PNOI of 1.3%
and a decrease of .5% respectively.
Interest income on mortgage loans increased $301,000 and
$314,000 for the three months and nine months ended September 30,
1996 compared to 1995. The following is a breakdown of interest
income for the three months and nine months ended September 30,
1996 compared to 1995:
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Interest income from:
Land mortgage loans $ 280 - 337 -
Apartment mortgage loans 132 123 392 367
Motel mortgage loans 82 106 285 255
Wrap mortgage loan - - - 27
Other mortgage loans 58 3 89 5
25% joint venture
mortgage loans 4 23 11 146
----- ------ ----- -----
$ 556 255 1,114 800
===== ====== ===== =====
Interest income from land mortgage loans increased as a result of
interest income on loans received in the mergers with LNH and
Copley discussed previously. Interest income from the motel
mortgage loans is recorded as received, and the notes have been
written down to their net realizable value. Interest income from
the wrap mortgage loans decreased as a result of the foreclosure
in April 1995 of the EastGate mortgage. Interest income from the
25% joint venture mortgage loans decreased as a result of
repayments of these notes. The LNH loans were discounted to
present value. This discount is amortized over the life of the
loans and amounted to $152,000 for the three months and nine months
ended September 30, 1996.
Interest expense increased $1,272,000 and $1,338,000 for the
three months and nine months ended September 30, 1996 compared to
September 30, 1995. Average bank borrowings were $21,377,000 and
$10,726,000 for the three months and nine months ended September
30, 1996, compared to $24,304,000 and $27,705,000 for the same
periods in 1995. Bank interest rates at September 30, 1996 and
September 30, 1995 were 7.35% (LIBOR plus 1.85%) and 7.875%
(LIBOR plus 2%). Interest expense on real estate properties
increased as a result of the following new mortgages and
mortgages assumed in the Copley merger:
New Mortgages
Date of Interest Maturity Amount of
Loan Property Rate Date Mortgage
- -------- ---------------------------- ------ ------ -----------
(In
thousands)
6-27-95 Exchange Distribution Center 8.375% 8-1-05 $ 2,500
7-27-95 WestPort Commerce Center 8.000% 8-1-05 3,350
8-01-95 LaVista Crossing Apartments 8.688% 9-1-05 5,950
9-12-95 JetPort Commerce Park 8.125% 10-1-05 4,000
9-29-95 LakePointe Business Park 8.125% 10-1-05 11,000
12-15-95 Plantations Apartments 7.625% 12-1-05 5,300
8-22-96 Huntwood Associates 7.990% 8-22-06 13,000
8-22-96 Wiegman Associates 7.990% 8-22-06 6,000
--------
$51,100
========
Mortgages Assumed in Copley merger:
Date of
Assumption Interest Maturity Amount of
of Loan Property Rate Date Mortgage
- -------- ---------------------------- ------ ------ -----------
(In
thousands)
6-19-96 University Business Center 9.060% 4-01-00 $ 9,261
6-19-96 University Business Center 9.370% 1-01-97 8,250
6-19-96 Wiegman Associates 8.750% 10-01-97 973
6-19-96 Columbia Place 8.875% 12-31-09 10,139
6-19-96 Dominguez Properties 9.000% 1-01-97 5,175
6-19-96 Metro Business Park 9.250% 3-01-97 3,411
6-19-96 Metro Business Park 8.000% 4-01-98 1,757
--------
$38,966
========
These increases were offset by the repayment of the Exchange
Drive Warehouse mortgage payable of $565,000 and the JetPort
mortgage payable of $636,000 in September 1995, and the
repayment of the underlying first mortgage on the Country Club
wrap mortgage note of $2,267,000 on August 3, 1995. The mortgages
assumed in the Copley merger are net of principal repayments of
$20,714,000.
Gains on investments resulted from the following sales:
September 30, 1996
- ------------------
Discounted
Date Net Sales Recognized
Sold Basis Price Gain (Loss)
- ----- ----- ----------- -----------
(In thousands)
Real Estate properties:
1-96 Garden Villa
Apartments $ 2,715 4,068 1,353
9-96 BayGreen Industrial
Park 1,051 1,000 (51)
Land Purchase-leasebacks:
4-96 Bellevue - 472 472
5-96 Taco Bell 12 143 131
Land:
6-96 Southwyck parcel 111 149 38
7-96 Sample I-95 land 3,275 3,267 (8)
9-96 Wellington parcel 383 603 220
Securities:
Various Liberte' stock 1,050 1,056 6
------- ------ -----
$ 8,597 10,758 2,161
======= ====== =====
September 30, 1995
- ------------------
Discounted
Date Net Sales Recognized
Sold Basis Price Gain (Loss)
- ----- ----- ----------- -----------
(In thousands)
Land Purchase-leasebacks:
2-95 Winchester Ranch $ 450 862 412
6-95 Iroquois 320 1,495 1,175
Real Estate properties:
6-95 Cascade Office
Building - writedown 136 - (136)
9-95 Cascade Office Building 1,486 1,486 -
------- ----- -----
$ 2,392 3,843 1,451
======= ===== =====
The gain on the sale of the Liberte' stock and the Southwyck
parcel are gains on investments received in the LNH merger on May
14, 1996.
The real estate investment trust industry has recommended
supplemental disclosures concerning capital expenditures, leasing
costs, and straight-line rents. The Trust expenses apartment
unit turnover cost such as carpet, painting and small appliances.
Capital expenditures for the nine months ended September 30, 1996
and 1995 by category are as follows:
September 30
-------------------
1996 1995
-------- --------
( In thousands)
Upgrades on acquisitions $ 90 713
Major Renovation/New Development 3,037 1,021
Tenant improvements:
New tenants 976 768
Renewal tenants 391 119
Non-recurring 382 -
Other 230 248
------- -------
$ 5,106 2,869
======= =======
The Trust's capitalized leasing costs and included these amounts
in other assets. The Trust amortized these costs over the life of
the lease and included these costs in depreciation and
amortization expense. A summary of these costs is as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Capitalized
leasing costs:
New Tenants $ 211 117 431 399
Renewal Tenants 79 92 226 213
----- ------ ----- -----
$ 290 209 657 612
===== ====== ===== =====
Amortization of
leasing costs $ 154 117 389 266
===== ====== ===== =====
Rental income included straight-line rent of ($21,000) and
$1,000 for the three months ended September 30, 1996 and 1995,
and ($21,000) and $44,000 for the nine months ended September 30,
1996 and 1995. This resulted from income recorded on the
straight line method as compared to when cash was actually
received.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $9,628,000
for the nine months ended September 30,1996. The Trust
distributed $7,725,000 in dividends. Other sources of cash were
collections on mortgage loan receivables, sale of real estate
investments and bank borrowings. Primary uses of cash were for
capital improvements at the various properties, purchases of real
estate investments, bank debt payments and mortgage note
payments. Total debt at September 30, 1996 is as follows:
September 30,
--------------------
1996 1995
--------- --------
Mortgage notes payable - fixed rate $ 120,885 62,202
Bank notes payable - floating rate 17,780 13,835
--------- --------
Total debt $ 138,665 76,037
========= ========
At September 30, 1996, the LIBOR rate plus 1.85% was 7.35%.
There is also a .25% fee on the unused amount of the $20 million
credit line and the $15 million acquisition credit line. As of
September 30, 1996, the acquisition line had a balance of
$10,924,000 and the working capital line had a balance of
$6,856,000. The bank has increased the working capital line to
$20,000,000 and changed the interest rates on both the working
capital line and the acquisition line to LIBOR plus 1.85%. Also,
the working capital line and the acquisition line mature April
30, 1997 and April 30, 1999, respectively.
Budgeted capital expenditures for the year ending December
31, 1996 are as follows:
(In thousands)
-------------
Upgrades on acquisitions $ 126
Major renovations/New development 6,137
Tenant Improvements:
New Tenants 1,291
Renewal Tenants 630
Non-recurring 596
Other 292
-------------
$ 9,072
=============
The Trust anticipates that its current cash balance,
operating cash flow and borrowings (including borrowings under
the revolving line of credit) will be adequate to pay the Trust's
(i) operating and administrative expenses, (ii) debt service
obligations, (iii) distributions to shareholders, (iv) capital
improvements, and (v) normal repair and maintenance expenses at
its properties both in the short and long term.
On May 14, 1996, LNH was merged with and into EastGroup-LNH
Corporation, a wholly-owned subsidiary of EastGroup. Under the
terms of the merger, each LNH share was converted into the right
to receive 0.3671 EastGroup shares. EastGroup issued
approximately 618,000 of its shares as a result of the merger.
On June 19, 1996, Copley Properties, Inc. was merged
into the Trust. Under the terms of the merger, each Copley share
was converted into the right to receive .70668 EastGroup shares.
EastGroup issued approximately 2,159,000 of its shares as a
result of the merger.
EASTGROUP PROPERTIES
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule attached
hereto.
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DATED: November 14, 1996
EASTGROUP PROPERTIES
BY: /s/ Diane W. Hayman
- ------------------------
Diane W. Hayman, CPA
Controller
/s/ N. Keith McKey
- ----------------------
N. Keith McKey, CPA
Executive Vice President,
Chief Financial Officer
and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 288,934
<DEPRECIATION> (22,861)
<TOTAL-ASSETS> 289,219
<CURRENT-LIABILITIES> 0
<BONDS> 138,665
0
0
<COMMON> 7,027
<OTHER-SE> 136,360
<TOTAL-LIABILITY-AND-EQUITY> 289,219
<SALES> 0
<TOTAL-REVENUES> 27,627
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,047
<INCOME-PRETAX> 7,250
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,250
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
