<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-7094
EASTGROUP PROPERTIES
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
SHARES OF BENEFICIAL INTEREST, $1.00 PAR VALUE,
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED UNDER TO SECTION 12(g) OF THE ACT:
NONE
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this form 10-K or any amendment to this Form 10-K (x)
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 10, 1997 was $244,685,000.
The number of shares of beneficial interest, $1.00 par value,
outstanding as of March 10, 1997 was 8,442,243.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS ARE
INCORPORATED BY REFERENCE INTO PART III.
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PART I
ITEM 1. BUSINESS.
ORIGINAL ORGANIZATION
On March 20, 1997, the Trust announced that its Board of Trustees
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend will be distributed
on April 7, 1997 to shareholders of record as of March 31, 1997. All share and
per share amounts in these financial statements have been retroactively restated
for the share split.
EastGroup Properties (the "Trust", the "Registrant" or "EastGroup") is
an equity oriented real estate investment trust ("REIT") established under the
laws of the State of Maryland on July 16, 1969. The Registrant commenced its
operations in December 1969 under the name Third ICM Realty. In 1971, the
Registrant had its initial public offering, and the name of the Trust was
changed in 1971 to ICM Realty. At the Annual Meeting held in 1983, the
shareholders approved the change of name to EastGroup Properties.
In January 1994, the Trust completed the public offering of 2,625,000
shares of beneficial interest at $13.33 per share and received net proceeds of
$32,164,000. On May 14, 1996, LNH was merged with and into the Trust. EastGroup
issued 927,366 of its shares as a result of the merger. On June 19, 1996, Copley
Properties, Inc. was merged into the Trust. EastGroup issued 3,238,343 of its
shares as a result of the merger. In February 1997, the Trust completed the
public offering of 2,100,000 shares of beneficial interest at $17.917 and
received net proceeds of approximately $36,725,000.
The Registrant has elected to be taxed as a real estate investment
trust under Sections 856-860 of the Internal Revenue Code, as amended, and
intends to continue to qualify to be so taxed. If in any taxable year the
Registrant should not qualify as a real estate investment trust, the Registrant
would be taxed as a corporation and distributions to its shareholders would not
be deductible by the Trust in computing its federal taxable income.
ADMINISTRATION
The Trust is self administered and maintains its principal executive
offices in Jackson, Mississippi. As of March 10, 1997, EastGroup had 26 full
time and 2 part-time employees.
Current Operations
EastGroup is a self-administered REIT which focuses on the ownership,
acquisition and selective development of industrial properties primarily in
major Sunbelt markets, with an emphasis on the states of Florida, Texas, Arizona
and California. As of December 31, 1996, EastGroup's portfolio includes 27
industrial properties comprising over 4.9 million square feet of leasable space.
As of December 31, 1996, the industrial portfolio and the office portfolio were
each 97% leased.
In addition to direct property acquisitions, EastGroup also seeks to
grow its portfolio through the acquisition of other public and private real
estate companies and REITs which EastGroup believes are undervalued. On June 19,
1996, EastGroup completed the acquisition (the "Copley Acquisition") of Copley
Properties, Inc. ("Copley"), which significantly expanded EastGroup's industrial
portfolio. The Copley Acquisition added 11 properties (nine industrial
properties and two office buildings), totaling over 2 million square feet of
leasable space, principally in Arizona and California. The Copley Acquisition
was completed for an aggregate consideration of approximately $116 million,
consisting of the issuance of approximately 3.2 million shares (in exchange for
the 85% of Copley's outstanding shares not already owned by EastGroup), the
assumption of approximately $60 million in Copley's existing indebtedness, the
cost of the 15% interest
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in Copley held by EastGroup prior to the Copley Acquisition and the expenses
incurred in connection with the Copley Acquisition. Also, in May 1996, EastGroup
completed the acquisition of LNH REIT, Inc. ("LNH"), a former EastGroup
affiliate (the "LNH Acquisition"), for aggregate consideration of approximately
$18 million, consisting of the issuance of 927,366 shares (in exchange for the
77% of LNH's outstanding shares not already owned by EastGroup), the cost of the
23% interest in LNH held by EastGroup prior to the LNH Acquisition and the
expenses incurred in connection with the LNH Acquisition.
Management of EastGroup is currently completing the repositioning of
EastGroup's portfolio to focus on industrial properties, primarily in the
Sunbelt region of the United States. Accordingly, since January 1, 1996,
EastGroup has sold four apartment communities and other non-core assets for an
aggregate sales price of approximately $25.6 million. The sales proceeds have
been applied principally to reduce indebtedness and acquire industrial
properties. Additionally, in August and September 1996, respectively, EastGroup
acquired Walnut Business Center, an industrial complex in Fullerton, California,
and Braniff Park West, an industrial complex in Tulsa, Oklahoma, for total
consideration of approximately $13.9 million. EastGroup plans to dispose of its
two shopping center properties which were acquired in the LNH Acquisition, as
market conditions permit.
The Registrant intends to continue to qualify as a real estate
investment trust under the Internal Revenue Code, as amended. Ordinary taxable
income will continue to be paid to the shareholders. The Registrant has the
option of paying out capital gains to the shareholders with no tax to the
Registrant or paying a capital gains tax and retaining the gains on sales. The
book value of the property sold and the retained portion of capital gains, if
any, are generally reinvested by the Registrant, which considers many factors in
making these investments, such as type of property, location, current yield,
potential for appreciation and others.
EastGroup incurs short-term floating rate debt in connection with the
acquisition of real estate, and attempts to replace floating rate debt with
fixed rate term loans secured by real property as market conditions permit.
EastGroup also may, in appropriate circumstances, acquire one or more properties
in exchange for EastGroup's equity securities. EastGroup holds its properties as
long term investments but may determine to sell certain properties that no
longer meet its investment criteria; EastGroup may provide financing in
connection with such sales of property if market conditions so require, but it
does not presently intend to make other loans.
EastGroup has no present intentions of underwriting securities of other
issuers or repurchasing or reacquiring its shares. The strategies and policies
set forth above were determined, and are subject to review by, EastGroup's Board
of Trustees which may change such strategies or policies based upon their
evaluation of the state of the real estate market, the performance of
EastGroup's assets, capital and credit market conditions, and other relevant
factors. EastGroup provides annual reports to its shareholders which contain
financial statements audited by EastGroup's independent public accountants.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and
regulations, an owner of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner knew
of, or was responsible for, the presence of such hazardous or toxic substances.
The presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of
EastGroup's properties have been subjected to environmental audits by
independent environmental consultants. With the exception of one property
commonly known as Cowesett Corners Shopping Center, 300 Cowesett Road at Route
2, Warwick, Rhode Island ("Cowesett"), portions of which are used for purposes
of operating a dry-cleaning business and paint store, these environmental audit
reports have not revealed any potential significant environmental liability, nor
is
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management of EastGroup aware of any environmental liability with respect to the
properties that such management believes would have a material adverse effect on
EastGroup's business, assets or results of operations.
Preliminary environmental studies performed at the Cowesett property
indicated that certain hazardous materials have been released at Cowesett in
connection with the dry-cleaning operations conducted on part of the property by
parties unrelated to EastGroup. Environmental studies included a Phase II
investigation of the Cowesett property. Based upon these studies, management of
EastGroup believes that the hazardous materials have been contained. EastGroup
is continuing to investigate the need for remediation at the Cowesett property
and based on current information, management of EastGroup believes that the cost
of such remediation is approximately $630,000. EastGroup owns a 50% joint
venture interest in Cowesett, and any costs with respect to environmental
conditions at Cowesett will be shared equally with its joint venture partner. At
December 31, 1996, the Trust accrued $315,000 related to this environmental
liability. No assurance can be given that existing environmental studies with
respect to any of the properties reveal all environmental liabilities or that
any prior owner of any such property did not create any material environmental
condition not known to EastGroup.
ITEM 2. PROPERTIES.
The operations of the Registrant are conducted from approximately
12,000 square feet of rented office space located at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi. The Trust shares this office space
with another company. The Registrant does not own or lease properties other than
those carried as part of its real estate investment portfolio shown on Financial
Statement Schedule III. At December 31, 1996, the Trust does not have any single
property that is 10% or more of total book value or 10% or more of total gross
revenues and thus is not subject to the requirements of item 14 and 15 of Form
S-11.
ITEM 3. LEGAL PROCEEDINGS.
The Trust is not presently involved in any material litigation nor, to
its knowledge, is any material litigation threatened against the Trust or its
properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Trust's liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
SHARES OF BENEFICIAL INTEREST MARKET PRICES AND DIVIDENDS
The Trust's shares of beneficial interest are presently listed for
trading on the New York Stock Exchange under the symbol "EGP". The following
table shows the high and low share prices for each quarter (restated to give
effect to the share split) reported by the New York Stock Exchange during the
past two years and per share distributions paid (restated to give effect to the
share split) for each quarter.
<TABLE>
<CAPTION>
Calendar 1996 Calendar 1995
------------- -------------
Distri- Distri-
Quarter High Low butions High Low butions
- ------- ---- --- ------- ---- --- -------
<S> <C> <C> <C> <C> <C> <C>
First $15.50 13.83 $ .31 $13.08 11.50 $ .30
Second 14.92 14.33 .31 13.33 12.25 .30
Third 16.50 13.83 .33 13.83 12.67 .31
Fourth 18.33 16.08 .33 14.92 13.50 .32
------ ------
$ 1.28 $ 1.23
====== ======
</TABLE>
As of March 10, 1997, there were 1,412 holders of record of the Trust's
shares of beneficial interest. Approximately 87% of the Trust's outstanding
shares are held by CEDE & Co., which is accounted for as a single shareholder of
record for multiple beneficial owners. In 1996 and 1995, the distributions paid
per share of $1.28 and $1.23 were all taxable as ordinary income for federal
income tax purposes, and none of such distributions represented a return of
capital.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for
the Trust and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Income from real estate
operations $37,143 28,386 23,194 13,771 11,079
Land rents 158 217 398 856 979
Interest 1,718 1,036 1,054 1,174 1,305
Other 746 625 249 287 332
------- ------- ------- ------- -------
39,765 30,264 24,895 16,088 13,695
------- ------- ------- ------- -------
Expenses
Operating expenses from
real estate operations 13,262 11,575 9,741 6,159 5,271
Interest expense 8,930 6,287 3,905 3,415 2,832
Depreciation and
amortization 7,759 5,613 4,323 2,874 2,338
Minority interests in
joint ventures 289 220 163 78 -
General and administrative
expenses 2,356 2,180 2,046 1,531 1,297
Stock appreciation rights
and incentive
compensation expense (recovery) - - (129) 320 357
Provision for (recovery
of) possible losses - - - (144) 1,675
------- ------- ------- ------- -------
32,596 25,875 20,049 14,233 13,770
------- ------- ------- ------- -------
Income (loss) before gains
(losses) on investments 7,169 4,389 4,846 1,855 (75)
------- ------- ------- ------- -------
Gains (losses) on investments
Real estate 5,334 3,322 2,322 3,408 (3,598)
Real estate investment
trust securities 6 - - 1,152 -
------- ------- ------- ------- -------
Net income (loss) $12,509 7,711 7,168 6,415 (3,673)
======= ======= ======= ======= =======
PER SHARE DATA:
Net income (loss) $1.44 1.22 1.16 1.74 (1.00)
Book value (at end of
period) 13.78 13.06 12.98 13.22 12.76
Cash distributions declared 1.28 1.23 .87 1.07 1.01
Cash distributions paid 1.28 1.23 1.16 1.03 1.01
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,677 6,338 6,170 3,690 3,688
</TABLE>
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<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from operations reconcilement:
Net income (loss) $ 12,509 7,711 7,168 6,415 (3,673)
Add:
Depreciation and amortization 7,759 5,613 4,323 2,874 2,338
Stock appreciation rights and
incentive compensation
expense (recovery) - - (129) 320 357
Real estate investment
trust dividends received 77 182 60 75 72
Provision for (recovery of)
possible losses - - - (144) 1,675
Less:
Gains on investments, net (5,340) (3,322) (2,322) (4,560) 3,598
Equity in earnings of real
estate investment trust (43) (203) (123) (67) (153)
Other (142) (134) (64) (18) -
-------- ----- ----- ----- -----
Funds from operations (1) $ 14,820 9,847 8,913 4,895 4,214
======== ===== ===== ===== =====
Cash flows provided by (used in):
Operating activities $ 13,996 9,746 8,448 5,276 4,381
Investing activities (577) (5,721) (46,831) (19,073) (9,226)
Financing activities (13,007) (4,300) 35,994 16,324 1,887
BALANCE SHEET DATA (AT END
OF PERIOD):
Real estate investments,
at cost (2) $293,147 162,939 166,927 116,102 94,713
Real estate investments,
net of accumulated
depreciation and allowance
for losses(2) 269,585 143,733 151,039 101,621 81,908
Total assets 281,455 157,955 154,860 107,508 85,529
Mortgage, bond and bank
loans payable 129,078 71,562 68,229 53,203 35,643
Total liabilities 136,129 75,055 72,684 58,707 38,496
Total shareholders' equity 145,326 82,900 82,176 48,801 47,033
<FN>
(1) The Trust generally considers funds from operations (FFO) to be an
appropriate supplemental measure of the performance of an equity REIT
because it is predicated on a cash flow analysis, as opposed to a
measure predicated on generally accepted accounting principles, which
gives effect to non-cash items such as depreciation. FFO, as defined by
the National Association of Real Estate Investment Trusts and as
followed by the Trust, represents net income (computed in accordance
with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect FFO on
the same basis. Since the definition of FFO is a guideline, computation
of FFO may vary from one REIT to another. FFO does not represent cash
generated from operating activities in accordance with generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Trust's operating
performance or as an alternative to cash flow as a measure of
liquidity. In addition, FFO is not necessarily indicative of cash
available to fund cash needs. The National Association of Real Estate
Investment Trusts ('NAREIT") recommended changes in the
</TABLE>
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computation of funds from operations for fiscal periods beginning in
1996 ("new definition"). The only adjustment to EastGroup's computation
for prior years was for amortization of deferred financing costs which
include mortgage broker fees, legal fees, title insurance, engineering
and environmental reports and other costs. There were no costs involved
in reducing interest rates. The effect on prior years of EastGroup
adopting the new definitions follows:
<TABLE>
<CAPTION>
Funds From Operations
---------------------
(In thousands)
Year Ended Financing Cost New
December 31, As Reported Adjustment Definition
------------ ----------- ---------- ----------
<S> <C> <C> <C>
1995 $ 10,159 312 9,847
1994 9,071 158 8,913
1993 5,131 236 4,895
1992 4,241 27 4,214
(2) Does not include a 50% controlled joint venture investment of
$4,367,000 at December 31, 1996.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
(Comments are for the balance sheet dated December 31, 1996, compared to
December 31, 1995.)
Assets of EastGroup Properties ("EastGroup" or the "Trust") were
$281,455,000 at December 31, 1996, an increase of $123,500,000 from December 31,
1995. Liabilities increased $61,074,000 to $136,129,000 during the same period.
Book value per share increased from $13.06 at December 31, 1995 to $13.78 at
December 31, 1996.
During 1996, the Trust acquired the entities described below, which
were accounted for by the purchase method of accounting. For financial reporting
purposes, the assets of the company acquired are assigned new cost 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 had in LNH and Copley. The shares of LNH and
Copley owned by the Trust were retired at the merger date. The operating results
of LNH and Copley have been included in the consolidated statements of
operations subsequent to the dates of acquisition.
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
.55065 EastGroup shares (.3671 pre-split). The Trust issued 927,366 shares as a
result of the merger.
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 1.06002
EastGroup shares (.70668 pre-split). EastGroup issued 3,238,343 of its shares as
a result of the merger.
The increase in net assets at the acquisition dates, based on relative
fair values, resulting from the mergers was as follows (in thousands):
<TABLE>
<CAPTION>
LNH Copley
-------- --------
<S> <C> <C>
Real estate properties $ 6,243 113,192
Investment in joint venture 4,298 --
Mortgage loans 5,614 880
Land 521 3,280
Investment in real estate
investment trust 1,050 --
Cash 1,200 1,550
Accounts receivable and other assets 425 305
Mortgage notes payable -- (59,681)
Minority interest (783) (1,740)
Accounts payable and other liabilities (713) (1,063)
-------- --------
$ 17,855 56,723
======== ========
</TABLE>
The Trust's purchase price of the net assets acquired consisted of the following
(in thousands):
<TABLE>
<CAPTION>
LNH Copley
------- -------
<S> <C> <C>
Shares of beneficial
interest (927,366 and 3,238,343 shares) $13,640 47,658
Cash in lieu of fractional
shares (369 and 390 shares) 5 6
Merger expenses 292 2,866
Prior investment in LNH and Copley 3,918 6,193
------- -------
$17,855 56,723
======= =======
</TABLE>
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Real estate properties and real estate held for sale (excluding the
investment in a 50% controlled joint venture) increased $123,955,000 during the
year ended December 31, 1996 as a result of the following (in thousands):
<TABLE>
<S> <C>
Real estate acquired:
Copley merger $ 113,192
LNH merger 6,243
Walnut Business Center 8,159
Braniff Park West 5,706
Capital improvements on Trust
properties 5,774
Development costs:
Rampart Distribution II 673
Chancellor 1,022
Reclass from land and LPLB
Rampart land 229
LNH land 27
Real estate sold:
Garden Villa - January 1996 (3,830)
BayGreen - September and October 1996 (1,689)
Pin Oaks - November 1996 (2,704)
EastGate - November 1996 (1,432)
Plantations - December 1996 (7,415)
---------
$ 123,955
=========
</TABLE>
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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, at an estimated cost of approximately $3,250,000,
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, at an estimated cost of approximately $1,900,000.
At December 31, 1996, the Trust is continuing to reposition its
portfolio to focus on industrial properties. As a result of this repositioning,
the Trust is offering for sale the two shopping center interests and the land
acquired in the LNH merger and reclassified these assets to held for sale. Also,
the Trust currently has a contract to sell the Santa Fe Energy Office Building
in Houston, Texas, for approximately $13,000,000 and a purchase option agreement
with money at risk on the Estelle tract of land in New Orleans, Louisiana for
approximately $1,693,000. These properties were classified as held for sale
effective December 31, 1996.
Accumulated depreciation on real estate properties and real estate held
for sale increased $4,356,000 due to depreciation expense of $7,266,000, offset
by the sale of properties with accumulated depreciation of $2,910,000 consisting
of the Garden Villa Apartments with $1,115,000, BayGreen Industrial Park with
$10,000, Pin Oaks Apartments with $1,029,000, EastGate Apartments with $106,000,
and Plantations Apartments with $650,000.
The increase in investment in joint venture is due to the joint venture
acquired in the LNH merger of $4,298,000. This joint venture investment consists
solely of a 144,264 square foot shopping center in Warwick, Rhode Island which
is currently being offered for sale. 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 less
any distributions.
Mortgage loans receivable increased $6,495,000 during 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 is being amortized over the life of the loans. Mortgage loans
decreased $338,000 due to principal payments received and $200,000 due to the
writedown of the Plus Park mortgage note receivable to the fair value of the
collateral. Also, mortgage loans increased $418,000 due to the amortization of
loan discounts and $121,000 due to advances on mortgage loans.
Investments in real estate investment trusts decreased from $10,787,000
at December 31, 1995 to $934,000 at December 31, 1996. This decrease was
primarily due to the investment in LNH of $3,918,000, and the investment in
Copley of $6,193,000, which were allocated to the purchase price of the assets
as a result of the mergers discussed previously. The Trust incurred $292,000 in
merger costs for LNH and $2,866,000 in merger costs for Copley which were
allocated to the purchase price of the assets as a result of the mergers. Also,
the Trust acquired 300,000 shares of Liberte' stock received in the LNH merger,
and sold all of this stock for $1,056,000. The Trust recognized a gain of $6,000
for financial reporting purposes on this sale. Prior to the May 14, 1996 merger
of
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LNH, the Trust recognized $43,000 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." At the merger dates, 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. The
investment in real estate investment trusts of $934,000 at December 31, 1996
represents purchases of stock in another real estate investment trust.
Total land and land purchase-leaseback investments decreased $242,000
during 1996. Increases were due to land acquired in the LNH merger of $521,000
and land acquired in the Copley merger of $3,280,000. These increases were more
than 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 for financial reporting purposes. The Trust had
written 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 $142,000 and recognized a gain of $130,000. In June 1996, the Trust sold the
Southwyck parcel of land in Houston, Texas for $149,000 and recognized a gain of
$52,000. In July 1996, the Trust sold the Sample I-95 land in Pompano Beach,
Florida for $3,267,000 and recognized a loss of $13,000. In September 1996, the
Trust sold the Wellington parcel of land in Houston, Texas for $601,000 and
recognized a gain of $204,000. Also the Trust reclassified the Rampart land in
Denver, Colorado of $229,000 to industrial development, and the Silvermill
parcel of land in Houston, Texas of $27,000 to land held for sale.
Other assets increased $2,722,000 primarily as a result of $1,910,000
placed in escrow from the Plantation Apartments sale. The Trust plans to replace
the property in a tax deferred exchange. The remaining increase of $812,000 is
a result of normal business operations.
Mortgage notes payable increased $47,913,000 during 1996, including
increases of $59,681,000 due to the merger with Copley and the $19,000,000
mortgage notes payable placed on the Huntwood and Wiegman properties in August
1996. These increases were offset by regularly scheduled principal payments of
$1,695,000, the repayment of the $3,132,000 first mortgage on the Garden Villa
Apartments sold January 31, 1996, the repayment of $20,715,000 of Copley
mortgages and the repayment of the $5,226,000 first mortgage on the Plantations
Apartments sold December 19, 1996.
Notes payable to banks increased from $4,359,000 at December 31, 1995
to $13,962,000 at December 31, 1996, as a result of borrowings of $60,374,000
and payments of $50,771,000. As of December 31, 1996, the acquisition line had a
balance of $9,028,000 and the working capital line had a balance of $4,934,000.
Accounts payable and accrued expenses increased $797,000 during the
year ended December 31, 1996, compared to December 31, 1995. Of this amount,
$713,000 was recorded in the LNH merger and $1,063,000 was recorded in the
Copley merger. Also, accounts payable and other liabilities decreased $979,000
as a result of normal business operations.
12
<PAGE> 13
Minority interests increased $2,232,000 during the year ended
December 31, 1996 compared to December 31, 1995. Of this amount, $783,000 was
recorded in the LNH merger and $1,740,000 was recorded in the Copley merger.
Also, minority interests in joint ventures decreased $291,000 as a result of
normal business operations.
Shares of beneficial interest increased 4,201,481 shares as a result of
927,366 shares issued in the LNH merger, 3,238,343 shares issued in the Copley
merger, 31,500 stock options exercised, 12,750 shares retired, 9,640 shares
issued in payment of incentive compensation and 7,382 shares issued in the
Trust's new dividend reinvestment plan.
Unrealized gain on securities decreased $667,000 as a result of the LNH
and Copley mergers.
Undistributed earnings increased from $9,657,000 at December 31, 1995
to $10,997,000 at December 31, 1996, as a result of net income for financial
reporting purposes of $12,509,000 exceeding dividends of $11,169,000.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Net income for 1996 was $12,509,000 ($1.44 per share) compared to net
income in 1995 of $7,711,000 ($1.22 per share). Income before gain on
investments was $7,169,000 in 1996 compared to $4,389,000 in 1995. Gain on
investments was $5,340,000 in 1996 compared to $3,322,000 in 1995.
The results of operations include the results of operations for LNH
from May 14, 1996 through December 31, 1996, and the results of operations for
Copley from June 19, 1996 through December 31, 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 $7,070,000 or 42% for
1996, compared to 1995.
Property net operating income (loss) and percentage leased by property type
were as follows:
<TABLE>
<CAPTION>
PNOI
Year Ended Percent
December 31, Leased
------------ ------
1996 1995 12-31-96
---- ---- --------
(In thousands)
<S> <C> <C> <C>
Industrial $14,327 7,968 97%
Office Buildings 4,454 3,200 97%
Apartments 4,824 5,657 97%
Other 276 (14) -
------- ------
Total PNOI $23,881 16,811
======= ======
</TABLE>
PNOI from industrial properties increased $6,359,000 for 1996 compared
to 1995. Industrial properties held throughout the year, showed an increase in
PNOI of 3.6% for the year ended December 31, 1996. PNOI from industrial
properties increased $5,432,000 for
13
<PAGE> 14
the year, 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 primarily due to
improved operations at Rampart Distribution Center, Lake Pointe Business Park,
Deerwood Distribution Center, JetPort Commerce Park and Northwest Distribution
Center.
PNOI from the Trust's office buildings increased $1,254,000 for 1996
compared to 1995. The increase for the year ended December 31, 1996 is due
primarily to the PNOI of $1,218,000 from the office buildings received in the
merger with Copley discussed previously, and a slight improvement in operations
from office properties held throughout 1996 compared to 1995. These increases
were offset by the sale of the Cascade VII office building in September 1995.
Office properties held throughout the year ending December 31, 1996 and 1995
showed an increase in PNOI of 3.9% for 1996 compared to 1995.
PNOI from the Trust's apartment properties decreased $833,000 for 1996
compared to 1995. This decrease is primarily attributable to the sale of the
SunChase Apartments in October 1995, the Garden Villa Apartments in January
1996, the Pin Oaks and EastGate Apartments in November 1996 and the Plantations
Apartments in December 1996, offset by the acceptance of a deed in lieu of
foreclosure on the EastGate Apartments in April 1995. Apartment properties held
throughout the years ended December 31, 1996 and 1995 showed an increase in PNOI
of 1.2%.
Interest income on mortgage loans increased $608,000 for 1996 compared
to 1995. The following is a breakdown of interest income for the year ended
December 31, 1996 compared to 1995:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1996 1995
--------- --------
(In thousands)
<S> <C> <C>
Interest income from:
Land mortgage loans $ 566 -
Apartment mortgage loans 514 537
Motel mortgage loans 403 340
Other mortgage loans 147 10
25% joint venture
mortgage loans 14 149
------- -------
$ 1,644 1,036
======= =======
</TABLE>
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. Due to uncertainty of collection, interest income from the motel
mortgage loans is recorded as received, and the
14
<PAGE> 15
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 allocated fair value at the merger date. This discount is being
amortized over the life of the loans and amounted to $287,000 for the year ended
December 31, 1996.
Interest expense increased $2,643,000 from 1995 to 1996. Average bank
borrowings were $11,572,000 in 1996 compared to $22,874,000 in 1995 with average
interest rates of 7.3% in 1996 compared to 8.8% in 1995. Bank interest rates at
December 31, 1996 and 1995 were 7.48% (LIBOR plus 1.85%) and 7.94%,
respectively. Interest expense on real estate properties increased as a result
of the following new mortgages and mortgages assumed in the Copley merger:
<TABLE>
<CAPTION>
NEW MORTGAGES
DATE OF INTEREST MATURITY AMOUNT OF
LOAN PROPERTY RATE DATE MORTGAGE
- -------- ---------------------------- ------ ------ -----------
(In
thousands)
<S> <C> <C> <C> <C>
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
========
</TABLE>
<TABLE>
<CAPTION>
MORTGAGES ASSUMED IN COPLEY MERGER:
DATE OF
ASSUMPTION INTEREST MATURITY AMOUNT OF
OF LOAN PROPERTY RATE DATE MORTGAGE
- -------- ---------------------------- ------ --------- ----------
(In
thousands)
<S> <C> <C> <C> <C>
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
========
</TABLE>
15
<PAGE> 16
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 $20,715,000,
repaid shortly after the merger date.
Gains on investments resulted from the following sales in 1996 and
1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- ------------------
DISCOUNTED
NET SALES RECOGNIZED
DATE SOLD BASIS PRICE GAIN (LOSS)
- --------- ----- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
REAL ESTATE PROPERTIES:
1-96 Garden Villa
Apartments $ 2,715 4,068 1,353
9-96 BayGreen Industrial Park 1,679 1,677 (2)
11-96 Pin Oaks Apartments 1,675 4,235 2,560
11-96 EastGate Apartments 1,326 1,753 427
12-96 Plantations Apartments 6,765 7,116 351
LAND PURCHASE-LEASEBACKS:
4-96 Bellevue -- 472 472
5-96 Taco Bell 12 142 130
LAND:
6-96 Southwyck parcel 97 149 52
7-96 Sample I-95 land 3,280 3,267 (13)
9-96 Wellington parcel 397 601 204
SECURITIES:
Various Liberte' stock 1,050 1,056 6
MORTGAGE LOANS:
12-96 Writedown of Plus Park 200 -- (200)
------- ------- -------
$19,196 24,536 5,340
======= ======= =======
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- ------------------
DISCOUNTED
NET SALES RECOGNIZED
DATE SOLD BASIS PRICE GAIN (LOSS)
- --------- ----- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
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 --
10-95 Sunchase Apartments 2,515 4,396 1,881
12-95 2100 Exchange 549 539 (10)
------ ------ ------
$5,456 8,778 3,322
====== ====== ======
</TABLE>
The Liberte' stock and the Southwyck parcel were investments received in the LNH
merger on May 14, 1996. The gain on sale of the BayGreen Industrial Park and the
Sample I-95 land are gains on investments received in the Copley merger on June
19, 1996.
NAREIT 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 years ended December 31, 1996 and 1995 by category
are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1996 1995
------- --------
( In thousands)
<S> <C> <C>
Upgrades on acquisitions $ 90 981
Major Renovation/New Development 4,562 1,499
Tenant improvements:
New tenants 959 1,367
Renewal tenants 852 221
Other 1,006 318
------- -------
$ 7,469 4,386
======= =======
</TABLE>
17
<PAGE> 18
Leasing costs are capitalized and included in other assets. The costs
are amortized over the life of the leases using the straight-line method and are
included in depreciation and amortization expense. A summary of these costs is
as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1996 1995
-------- -------
(In thousands)
<S> <C> <C>
Capitalized
leasing costs:
New Tenants $ 528 493
Renewal Tenants 290 269
----- ------
$ 818 762
===== ======
Amortization of
leasing costs $ 493 378
===== ======
</TABLE>
Straight-line rent (decreased) increased rental income by ($51,000) and
$17,000 for the years ended December 31, 1996 and 1995. This resulted from
income recorded on the straight line method as compared to when cash was
actually received. Rental income from real estate operations is principally
recognized based on the terms of the operating leases, which does not differ
materially from recognizing rental income on a straight-line basis.
1995 Compared to 1994
Net income for 1995 was $7,711,000 ($1.22 per share) compared to net
income in 1994 of $7,168,000 ($1.16 per share). Income before gains on
investments was $4,389,000 in 1995 compared to $4,846,000 in 1994. Gains on
investments were $3,322,000 in 1995 compared to $2,322,000 in 1994.
PNOI increased by $3,358,000 or 25% for 1995 compared to 1994. PNOI
(loss) and percentage leased by property type were as follows:
<TABLE>
<CAPTION>
PNOI
Year Ended Percent
December 31, Leased
------------ ------
1995 1994 12-31-95
---- ---- --------
(In thousands)
<S> <C> <C> <C>
Industrial $ 7,968 5,441 98%
Office Buildings 3,200 3,373 96%
Apartments 5,657 4,663 95%
Other (14) (24) -
------- ------
Total PNOI $16,811 13,453
======= ======
</TABLE>
PNOI from industrial properties increased $2,527,000 for 1995 compared to 1994.
This increase is primarily the result of the acquisition of Exchange
Distribution Center
18
<PAGE> 19
("Exchange") in May 1994, Jetport 516 Commerce Park ("JetPort 516") in May 1994,
Phillips in July 1994, Northwest Point Business Park ("Northwest") in September
1994, Westport in October 1994 and Baxter Warehouse ("Baxter") in December 1994.
Industrial properties held throughout the year ended December 31, 1995 and 1994
showed an increase in PNOI of 15.8% for 1995 compared to 1994. Contributing to
this increase in PNOI from industrial properties were improved operations at
Rampart Distribution Center ("Rampart"), Sunbelt Distribution Center ("Sunbelt")
and Lake Pointe Business Park ("Lake Pointe"). PNOI for the Trust's apartment
properties increased $994,000 for 1995 compared to 1994. This increase is
primarily attributable to the acquisition of Plantations at Killearn
("Plantations") in April 1994, Hampton House Apartments ("Hampton") in August
1994, Grande Pointe Apartments ("Grande Pointe") in September 1994 and the deed
in lieu of foreclosure on the EastGate Apartments in April 1995. PNOI from the
Trust's office buildings decreased $173,000 for 1995 compared to 1994. This
decrease is primarily the result of reduced occupancy at 8150 Leesburg Pike
("Leesburg Pike"), offset by the acquisition of the Santa Fe Energy Building
("Santa Fe") in February 1994.
Land rents decreased $181,000 for 1995 compared to 1994, primarily as a
result of the sales of the Parklane on Peachtree, Iroquois, and Winchester Ranch
land purchase-leaseback investments and the deed in lieu of foreclosure on the
EastGate Apartments land purchase-leaseback investment. These decreases were
offset by the acquisition in 1994 of two small commercial parcels at a
foreclosure sale. The Trust held mortgages on two commercial parcels which were
additional collateral for the Madison Square land purchase-leaseback investment
written off in 1992.
Equity in earnings from LNH of $203,000 was recorded during 1995,
compared to $123,000 for 1994.
Interest income on mortgage loans decreased $5,000 for 1995 compared to
1994. The following is a breakdown of interest income for 1995 compared to 1994.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Interest income from:
25% joint venture mortgage loans $ 149 117
Motel mortgage loans 340 211
Wrap mortgage loans 537 709
Other mortgage loans 10 4
------ -----
$1,036 1,041
====== =====
</TABLE>
Interest income from the 25% joint venture mortgage loans increased for the year
ended December 31, 1995 as a result of income from additional mortgage loans
made by the Trust to the co-owner of WestPort and Exchange in October 1994 and
May 1994. On July 28, 1995, the Trust received a payment of $813,000 on the
WestPort mortgage loan, on September 14, 1995 the Trust received a payment of
$360,000 on the JetPort mortgage loan and on September 30, 1995, the Trust
received a payment of $591,000 on the Exchange mortgage loans. 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 expense increased $2,382,000 from 1994 to 1995. Average bank
borrowings were $22,874,000 in 1995 compared to $11,086,000 in 1994 with average
interest rates of 8.8% in 1995 compared to 7.9% in 1994. Bank interest rates at
year end were 7.94% for 1995 and 8.5% for 1994. Interest expense on real estate
properties increased as a result of the acquisition of Northwest in September
1994 with a mortgage of $4,321,000 which was assumed, and the acquisition of
JetPort 516 in May 1994 with a mortgage of $657,000 which was assumed. Also
contributing to this increase were the new mortgages of $6,000,000 on Sutton
House Apartments ("Sutton House") on May 25, 1994, $2,400,000 on 56th Street on
July 21,
19
<PAGE> 20
1994, and new mortgages of $32,100,000 in 1995. 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. The Trust repaid the underlying
first mortgage on the Country Club wrap mortgage note of $2,267,000 on August
3, 1995. The Trust used the proceeds from the new LaVista mortgage plus
borrowings on the bank line for this repayment.
Depreciation and amortization increased $1,290,000 for 1995 compared to
1994, primarily as a result of the property acquisitions in 1994.
At the Trust's annual meeting on December 16, 1994, the shareholders
approved the implementation of a new incentive compensation plan which
eliminated stock appreciation rights and incentive compensation units. Stock
appreciation rights expense (recovery), which was adjusted quarterly based on
fluctuations in the Trust's quoted share price, was $0 for 1995 and ($129,000)
for 1994.
As discussed above, the Trust sold its Winchester Ranch land
purchase-leaseback investment in February 1995 and its Iroquois land
purchase-leaseback investment in June 1995 and recognized gains of $1,587,000.
Also, the Trust wrote down its investment in the Cascade VII office building in
Columbus, Ohio by $136,000 to its estimated net realizable value and sold this
investment in September 1995 for cash of $1,450,000 and a mortgage note
receivable of $150,000. No additional gain or loss was recognized on this
transaction. In October 1995, the Trust sold the Sunchase Apartments in Corpus
Christi, Texas for $4,580,000 and recognized a gain of $1,881,000 on the sale.
Also, the Trust sold one of the Exchange Drive Warehouses in Dallas, Texas for
$570,000 and recognized a loss of $10,000 on the sale. In April 1994, the Trust
sold its Parklane on Peachtree land purchase-leaseback investment for $3,500,000
and used the proceeds to acquire the Plantations at Killearn Apartments through
a tax deferred exchange. The Trust recognized a gain of $2,494,000 on the sale.
The real estate investment trust industry has recommended supplemental
disclosures concerning capital expenditures, leasing costs, financing costs and
straight-line rents.
The Trust expenses apartment unit turnover cost such as carpet,
painting and small appliances. Capital expenditures for the years ended December
31, 1995 and 1994 by category are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Upgrades on acquisitions $ 981 965
New development costs 1,071 -
Major renovation 428 1,420
Tenant improvements:
New tenants 1,367 540
Renewal tenants 221 588
Other 318 889
------ -----
$4,386 4,402
====== =====
</TABLE>
For the years ended December 31, 1995 and 1994, the Trust capitalized
$762,000 and $787,000 of leasing costs, which included $ 493,000 and $ 338,000
related to new tenants and $269,000 and $ 449,000 related to renewal tenants,
and $777,000 of financing costs and included these amounts in other assets. For
the year ended December 31, 1995, the Trust amortized $378,000 related to
capitalized leasing costs and included these amounts in depreciation and
amortization expense and capitalized $311,000 related to financing costs and
included these amounts in interest expense. Leasing costs are amortized over the
life of the lease and financing costs are amortized over the life of the loan.
20
<PAGE> 21
Rental income included straight-line rent of $17,000 and $138,000 for
the years ended December 31, 1995 and 1994. 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 $13,996,000 for the year
ended December 31, 1996. The Trust distributed $11,169,000 in dividends. Other
sources of cash were collections on mortgage loan receivables, sales of real
estate investments, mortgage borrowings and bank borrowings. Primary uses of
cash were for capital improvements at the various properties, purchases of real
estate investments, bank debt payments, mortgage note payments and purchases of
real estate investment trust shares.
Total debt at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---------- --------
(In thousands)
<S> <C> <C>
Mortgage notes payable - fixed rate $115,116 67,203
Bank notes payable - floating rate 13,962 4,359
-------- --------
Total debt $129,078 71,562
======== ========
</TABLE>
The Trust currently has a working capital line of credit of $20,000,000
and an acquisition line of credit of $15,000,000 available for the acquisition
of properties and other working capital requirements. The interest rate on both
the working capital line and the acquisition line at December 31, 1996 was LIBOR
plus 1.85% (or 7.48%). There is also a .125% fee on the unused amount of the $20
million credit line and the $15 million acquisition credit line. As of December
31, 1996, the acquisition line had a balance of $9,028,000 and the working
capital line had a balance of $4,934,000. Also, the working capital line and the
acquisition line mature April 30, 1997 and April 30, 1999, respectively. On
March 27, 1997, the interest rate on both the working capital line and the
acquisition line was reduced to LIBOR plus 1.75%.
Budgeted capital expenditures for the year ending December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
(In thousands)
-------------
<S> <C>
Upgrades on acquisitions $ 330
Major renovations/New development 3,512
Tenant Improvements:
New Tenants 1,009
Renewal Tenants 169
Other 918
-------------
$ 5,938
=============
</TABLE>
21
<PAGE> 22
The Trust anticipates that its current cash balance, operating cash
flows and borrowings (including borrowings under the working capital 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 February 4, 1997, the Trust announced the offering of 1,875,000
shares of Beneficial Interest under its existing shelf registration statement.
The shares were sold to institutional investors. The net proceeds of the
offering (approximately $32,775,000, net of underwriting commissions and
expenses) were used for the repayment of approximately $30,000,000 of
outstanding indebtedness and to fund working capital requirements, including the
acquisition of industrial properties. On February 28, 1997, the underwriter
notified the Trust of its intention to exercise its over-allotment option to
purchase an additional 225,000 shares. This transaction closed on February 28,
1997 and the Trust used the net proceeds of $3,950,000 for working capital
requirements.
The Trust has entered into contracts to purchase two industrial
properties in Houston, Texas. The total investment in these properties is
estimated to be $9,200,000 and are scheduled to close in the second quarter of
1997. On March 20, 1997, the Trust purchased Interchange A in Jackson,
Mississippi for a total investment of approximately $1,090,000.
On March 20, 1997, the Trust announced that its Board of Trustees
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend will be distributed
on April 7, 1997 to shareholders of record as of March 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Consolidated Balance Sheets as of December 31, 1996
and 1995, and its Consolidated Statements of Operations, Changes in
Shareholders' Equity and Cash Flows and Notes to Consolidated Financial
Statements for the years ended December 31, 1996, 1995 and 1994 and the
independent auditors' report thereon are included under Item 14 of this report
and are incorporated herein by reference. Unaudited quarterly results of
operations included in the notes to the consolidated financial statements are
also incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
22
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's definitive proxy statement which will be filed with the
Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A
within 120 days of the end of Registrant's calendar year is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's definitive proxy statement which will be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant's definitive proxy statement which will be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's definitive proxy statement which will be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain sections of this Annual
Report contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, such as those pertaining to the Trust's capital resources, profitability
and portfolio performance. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others discussed herein, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code"),
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. The success of the Trust also depends upon the trends
of the economy, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed
elsewhere in this Annual Report. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect management's analysis only
as the date hereof. The Trust assumes no obligation to update forward-looking
statements. See also the Trust's reports to be filed from time to time with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a)(1) Consolidated financial statements
Independent Auditors' Report 27
Consolidated Balance Sheets - December 31, 1996 and 1995 28
Consolidated Statements of Operations - Years ended December
31, 1996, 1995 and 1994 29
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994 30
Consolidated Statements of Cash Flows - Years ended December
31, 1996, 1995 and 1994 31
Notes to Consolidated Financial Statements 32
(2)(a) Consolidated financial statement schedules
Schedule III - Real estate properties and accumulated depreciation 48
Schedule IV - Mortgage loans on real estate 53
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted, or the required information is included in the notes to the
financial statements.
EXHIBIT INDEX
-------------
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
<TABLE>
<CAPTION>
(3) Form 10-K exhibits:
<S> <C>
(3) (a) Restated Declaration of Trust (incorporated by reference to Exhibit 1 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 (No. 33-65337) filed February 27, 1996)
(b) Amendment to Restated Declaration of Trust (incorporated by reference to Appendix E of the Registration Statement
on Form S-4 (No. 333-01815).
(c) Trustees Regulations of the Registrant (incorporated by reference to Exhibit 3 of the Registrant's 1980 Annual
Report on Form 10-K).
(d) Amendment to the Registrant's Trustees Regulations (incorporated by reference to Exhibit 3 of the Registrant's
1980 Annual Report on Form 10-K)
(e) Amendment to Registrant's Trustees Regulations (incorporated by reference to Exhibit 3(d) of the Registrant's 1983
Annual Report on Form 10-K).
(10) (a) EastGroup Properties 1994 Management Incentive Plan (incorporated by reference to Appendix D of the Registrant's
Registration Statement on Form S-4 (No. 333-01815).*
(b) EastGroup Properties 1991 Trustees Stock Option Plan, As Amended (incorporated by reference to Exhibit B of the
Registrant's proxy statement dated April 26, 1994).*
(c) Agreement and Plan of Merger among EastGroup Properties, EastGroup-LNH Corporation and LNH REIT, Inc.
(incorporated by reference to Appendix A of the Registrant's Registration Statement on Form S-4 (No. 33-65337) filed
December 22, 1995).
(d) Agreement and Plan of Merger between Copley Properties, Inc. and EastGroup Properties (incorporated by reference
to Exhibit IX to Amendment No. 9 to the Registrant's Statement on Schedule 13D dated February 12, 1996).
(e) Form of Change in Control Agreement that Registrant has entered into with each executive officer (filed herewith)*
(11) Statement re: Computation of per share earnings (filed herewith)
(21) Subsidiaries of Registrant (filed herewith)
(23) Consent of KPMG Peat Marwick LLP (filed herewith)
(24) Powers of attorney (filed herein)
(27) Financial Data Schedule (filed herewith)
</TABLE>
24
<PAGE> 25
(28) Agreement of Registrant to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of the Registrant's 1986
Annual Report on Form 10-K)
*Indicates management or compensatory agreement.
(b) No reports on Form 8-K have been filed during the quarter ended
December 31, 1996
25
<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 27
Consolidated Balance Sheets as of December 31, 1996 and 1995 28
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994 29
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 30
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 31
Notes to Consolidated Financial Statements 32
</TABLE>
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
EASTGROUP PROPERTIES:
We have audited the consolidated financial statements of EastGroup Properties
and subsidiaries, a Maryland real estate investment trust, as listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EastGroup Properties
and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Jackson, Mississippi KPMG Peat Marwick LLP
March 21, 1997
27
<PAGE> 28
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
------------
1996 1995
---- ----
(In thousands,
except share data)
ASSETS
<S> <C> <C>
Real estate properties:
Industrial $ 186,908 76,099
Industrial development 1,925 --
Office buildings 38,912 29,847
Apartments 37,494 45,831
--------- ---------
265,239 151,777
Less accumulated depreciation (22,703) (18,105)
--------- ---------
242,536 133,672
Real estate held for sale:
Land 585 558
Operating properties 14,293 3,827
Less accumulated depreciation (859) (1,101)
Investment in joint venture 4,367 --
--------- ---------
18,386 3,284
Mortgage loans 12,503 6,008
Land and land purchase-leasebacks 527 769
Investment in real estate investment trusts 934 10,787
Cash and cash equivalents 438 26
Other assets 6,131 3,409
--------- ---------
$ 281,455 157,955
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 115,116 67,203
Notes payable to banks 13,962 4,359
Accounts payable and accrued expenses 2,893 2,096
Minority interests 3,141 909
Other liabilities 1,017 488
--------- ---------
136,129 75,055
--------- ---------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, par value $1.00 per share;
authorized 20,000,000 shares; issued 10,548,965 shares
in 1996 and 6,347,484 shares in 1995 10,549 6,348
Additional paid-in capital 123,780 66,228
Undistributed earnings 10,997 9,657
Unrealized gain on securities -- 667
--------- ---------
145,326 82,900
--------- ---------
$ 281,455 157,955
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
28
<PAGE> 29
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands, except
per share data)
<S> <C> <C> <C>
REVENUES
Income from real estate operations $37,143 28,386 23,194
Land rents 158 217 398
Equity in earnings of real estate investment trust 43 203 123
Interest:
Mortgage loans 1,644 1,036 1,041
Other 74 - 13
Other 703 422 126
------- ------- -------
39,765 30,264 24,895
------- ------- -------
EXPENSES
Operating expenses from real estate operations 13,262 11,575 9,741
Interest expense 8,930 6,287 3,905
Depreciation and amortization 7,759 5,613 4,323
Minority interests in joint ventures 289 220 163
General and administrative expenses 2,356 2,180 2,046
Stock appreciation rights recovery - - (129)
------- ------ -------
32,596 25,875 20,049
------- ------- -------
Income before gains on investments 7,169 4,389 4,846
------- ------- -------
GAINS ON INVESTMENTS
Real estate 5,334 3,322 2,322
Real estate investment trust securities 6 - -
------- ------- -------
5,340 3,322 2,322
------- ------- -------
NET INCOME $12,509 7,711 7,168
======= ======= =======
NET INCOME PER SHARE OF BENEFICIAL INTEREST $ 1.44 1.22 1.16
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 8,677 6,338 6,170
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE> 30
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
Shares of Additional Unrealized
Beneficial Paid-In Undistributed Gain on
Interest Capital Earnings Securities Total
-------- ------- -------- ---------- -----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 3,692 37,026 8,083 - 48,801
Net income - - 7,168 - 7,168
Cash dividends declared, $.87 per share - - (5,528) - (5,528)
Exercise of 117,000 options 117 848 - - 965
Purchase and retirement of 69,999 shares (70) (754) - - (824)
Issuance of 17,096 shares, incentive
compensation 17 175 - - 192
Issuance of 2,625,000 shares in public
offering 2,625 29,539 - - 32,164
Issuance of 1,044,132 shares in Eastover
Corporation merger 1,044 10,645 - - 11,689
Retire 1,092,267 shares in Eastover
Corporation merger (1,092) (11,380) - - (12,472)
Change in unrealized gain on securities - - - 21 21
------- ------- ------ ------ -------
BALANCE, DECEMBER 31, 1994 6,333 66,099 9,723 21 82,176
Net income - - 7,711 - 7,711
Cash dividends declared, $1.23 per share - - (7,777) - (7,777)
Exercise of 22,500 options 23 217 - - 240
Purchase and retirement of 7,500 shares (8) (88) - - (96)
Change in unrealized gain on securities - - - 646 646
------- ------- ------ ------ -------
BALANCE, DECEMBER 31, 1995 6,348 66,228 9,657 667 82,900
Net income - - 12,509 - 12,509
Cash dividends declared, $1.28 per share - - (11,169) - (11,169)
Exercise of 31,500 options 32 321 - - 353
Purchase and retirement of 12,750 shares (13) (137) - - (150)
Issuance of 9,640 shares, incentive compensation 10 118 - - 128
Issuance of 927,366 shares in LNH merger 927 12,713 - - 13,640
Issuance of 3,238,343 shares in
Copley merger 3,238 44,420 - - 47,658
Issuance of 7,382 shares in
dividend reinvestment plan 7 117 - - 124
Change in unrealized gain on securities - - - (667) (667)
-------- ------- ------ ------- --------
BALANCE, DECEMBER 31, 1996 $ 10,549 123,780 10,997 - 145,326
======== ======= ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 12,509 7,711 7,168
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of deferred
leasing costs 7,759 5,613 4,323
Stock appreciation rights recovery - - (129)
Gains on investments, net (5,340) (3,322) (2,322)
Real estate investment trust:
Equity in earnings (43) (203) (123)
Dividends received 77 182 60
Other (142) (134) (64)
Changes in operating assets and liabilities:
Accrued income and other assets (122) 834 251
Accounts payable, accrued expenses and prepaid
rent (702) (935) (716)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,996 9,746 8,448
------- ------- -------
INVESTING ACTIVITIES:
Advances on mortgage loans receivable (121) (150) (1,862)
Payments on mortgage loans receivable, net of
amortization of loan discounts (80) 1,950 581
Sales of real estate investments 23,480 8,778 3,491
Sales of real estate investment trust securities 1,056 - -
Real estate improvements (7,469) (4,386) (4,241)
Purchases of real estate (13,865) (806) (44,584)
Purchases of real estate investment trusts shares (934) (9,263) -
Return of capital dividends - 87 197
Cash balances of acquired companies 2,750 - 28
Merger expenses (3,169) - (144)
Change in other assets and other liabilities (2,225) (1,931) (297)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (577) (5,721) (46,831)
-------- ------- -------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 60,374 30,272 44,620
Proceeds from mortgage notes payable 19,000 32,100 7,800
Principal payments on bank borrowings (50,771) (54,584) (35,152)
Principal payments on mortgage notes payable (30,768) (4,455) (6,240)
Distributions paid to shareholders (11,169) (7,777) (7,339)
Purchases of shares of beneficial interest (150) (96) (824)
Proceeds on exercise of stock options 353 240 965
Net proceeds from issuance of shares of
beneficial interest - - 32,164
Proceeds from dividend reinvestment plan 124 - -
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,007) (4,300) 35,994
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 412 (275) (2,389)
Cash and cash equivalents at beginning of year 26 301 2,690
------- ------- -------
Cash and cash equivalents at end of year $ 438 26 301
======= ======= =======
Supplemental Cash Flow Information:
Debt assumed by buyer of real estate $ 8,359 - 2,211
Cash paid for interest 8,444 5,926 3,958
Debt assumed by the Trust in purchase of real
estate - - 4,813
Net liabilities assumed in Eastover merger - - 638
Fair value of shares issued in Copley merger 47,658 - -
Fair value of shares issued in LNH merger 13,640 - -
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup
Properties ("the Trust"), its wholly-owned subsidiaries and its investment in
five joint ventures. At December 31, 1996, the five properties in the joint
ventures included the 75% owned 56th Street Commerce Park, JetPort Commerce
Park, and WestPort Commerce Center, the 80% owned University Business Center and
the 77.78% owned Liberty Corners Shopping Center. Each joint venture's assets,
liabilities, revenues and expenses are recorded by the Trust with minority
interests provided for the percentage not owned. All significant intercompany
transactions and accounts have been eliminated in consolidation. The Trust's
investment in Cowesett Corners Shopping Center (a 50% owned joint venture) is
not consolidated, but accounted for using the equity method of accounting.
(b) Federal Income Taxes
EastGroup Properties, a Maryland real estate investment trust, has
qualified as a real estate investment trust under Sections 856-860 of the
Internal Revenue Code, and it intends to continue to qualify as such. The Trust
distributed to its shareholders all of its 1996, 1995 and 1994 taxable income.
Accordingly, no provision for federal income taxes was necessary.
Distributions paid per share for federal income tax purposes follow:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ordinary income $1.28 1.23 1.16
</TABLE>
The Trust's income differs for tax and financial reporting purposes
principally because of (1) the timing of the deduction for the provision for
possible losses and losses on investments, (2) the timing of the recognition of
gains or losses from the sale of investments, (3) different depreciation methods
and lives, and (4) mortgage loans having a different basis for tax and financial
reporting purposes, producing different gains upon collection of these
receivables.
(c) Income Recognition
Rental income from real estate operations is principally recognized
based on the terms of the operating leases, which does not differ materially
from recognizing rental income on a straight line basis.
Interest income on mortgage loans is recognized on the accrual method,
unless there is a significant uncertainty of collection. If a significant
uncertainty exists, interest income is recognized as collected. Certain mortgage
loan discounts are being amortized over the life of the loans using a method
that does not differ materially from the interest method.
Income from land purchase-leaseback investments, including fixed and
percentage rents, is recorded under the operating method, as earned.
The Trust recognizes gains on sales of real estate in accordance with
the principles set forth in Statement of Financial Accounting Standards No. 66
("SFAS 66"), "Accounting for Sales of Real Estate". The provisions of SFAS 66,
require upon closing, consideration of the transfer of rights of ownership to
the purchaser, receipt from the purchaser of an adequate cash down payment and
adequate continuing investment by the purchaser. If the requirements for
recognizing gains have not been met, the sale and related costs are recorded,
but the gain is deferred and recognized on the installment method as collections
are received.
32
<PAGE> 33
(d) Land Purchase-Leasebacks
Land purchase-leasebacks are investments in which the Trust owns the
land underlying income producing buildings and other improvements and leases it
to the owner of the improvements. Generally, the terms of a land lease provide
for a fixed minimum rental and an additional contingent rental equal to a
percentage of the gross income of the property in excess of a base amount. In
addition, the Trust generally shares in the net proceeds of any refinancing of
mortgage indebtedness on the property, except to the extent that the proceeds
are reinvested in the property. Upon the termination of a land lease, the
improvements become the property of the Trust.
(e) Real Estate Properties
Real estate properties are carried at cost less accumulated
depreciation. Cost includes the carrying amount of the Trust's investment plus
any additional consideration paid, liabilities assumed, costs of securing title
(not to exceed fair market value in the aggregate) and improvements made
subsequent to acquisition. Depreciation of buildings and other improvements,
including personal property, is computed using the straight-line method over
estimated useful lives of 25 to 40 years for buildings and 3 to 10 years for
other improvements and personal property. Maintenance and repair expenses are
charged to expense as incurred, while building improvements are capitalized.
Apartment turnover costs such as carpet, painting and small appliances are
expensed. Geographically, the Trust's investments are concentrated in the major
sunbelt market areas of the southeastern and southwestern United States, with a
special emphasis in the states of California, Florida, Texas and Arizona.
(f) Real Estate Held for Sale
Real estate properties that are currently being offered for sale or
under contract to sell have been shown separately on the financial statements as
Real Estate Held for Sale. Such assets are carried at the lower of current
carrying amount or fair value, less estimated selling costs.
(g) Marketable Equity Securities
On January 1, 1994, the Trust adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115)." Accordingly, as of December 31, 1995, certain marketable
securities, including those held by equity method investees, are carried at fair
value with the unrealized gains of $667,000, presented as a separate component
of shareholders' equity. At December 31, 1996, the amount of unrealized gains
was not material to the financial statements.
(h) Investments in Real Estate Investment Trusts
At December 31, 1995 and 1994, the equity method of accounting was used
to account for the investment in LNH REIT, Inc. ("LNH"). As of those dates, the
Trust did not have voting control over this company, but did have the ability to
exercise significant influence on operating and financial policies. Under the
equity method, the Trust has accrued its share of LNH's unrealized security
gains in accordance with SFAS 115. On May 14, 1996, LNH was merged with
EastGroup-LNH Corporation, a wholly-owned subsidiary of the Trust.
(i) Allowance for Possible losses
The Trust provides an allowance for possible losses on real estate and
mortgage loan investments for financial reporting purposes which, in the opinion
of the Trustees, is adequate to absorb possible losses determined in accordance
with generally accepted accounting principles. The adequacy of the allowance or
the need for an allowance is evaluated quarterly based on a review of
investments and properties on an individual basis.
33
<PAGE> 34
If the estimated net realizable value of an underlying property or
mortgage loan is less than the carrying amount of the Trust's investments, the
difference is included in the allowance. Although the assumptions and
projections upon which estimates of net realizable value or fair market value
are based reflect the Trustees' best judgment, there can be no assurance that
the projected events will actually occur. Therefore, adjustments to the
allowance for possible losses may be required in subsequent periods.
(j) Amortization
Debt origination costs are deferred and amortized using the
straight-line method over the term of the loan. Leasing commissions are deferred
and amortized using the straight-line method over the term of the lease.
(k) Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(l) Reclassifications
Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform to the 1996 presentation.
(m) Share Split
On March 20, 1997, the Trust announced that its Board of Trustees
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend will be distributed
on April 7, 1997 to shareholders of record as of March 31, 1997. All share and
per share amounts in these financial statements have been retroactively restated
for the share split.
(n) Accounting Change
Effective January 1, 1996, the Trust adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by the Trust be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement requires that the majority of long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. Implementation of this
statement did not have a material impact on the Trust's financial statements.
(o) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
34
<PAGE> 35
(2) Real Estate Owned
A summary of gains (losses) on real estate investments for the years
ended December 31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
Discounted Recognized
Net Gain
Basis Sales Price (Loss)
----- ----------- ------
(In thousands)
<S> <C> <C> <C>
1996
Real estate properties:
Garden Villa Apartments $2,715 4,068 1,353
Southwyck Land 97 149 52
Pompano Beach Land 3,280 3,267 (13)
Baygreen Industrial Center 1,679 1,677 (2)
Wellington Land 397 601 204
Pin Oaks Apartments 1,675 4,235 2,560
Eastgate Apartments 1,326 1,753 427
Plantations Apartments 6,765 7,116 351
Land purchase leasebacks:
Bellevue - 472 472
Taco Bell 12 142 130
Mortgage loan writedown 200 - (200)
------- ------ ------
$18,146 23,480 5,334
======= ====== ======
1995
Real estate properties:
Cascade Office Building $ 1,486 1,486 -
Sunchase Apartments 2,515 4,396 1,881
2100 Exchange Warehouse 549 539 (10)
Cascade Office Building - writedown 136 - (136)
Land purchase leasebacks:
Winchester 450 862 412
Iroquois 320 1,495 1,175
------- ------- -------
$ 5,456 8,778 3,322
======= ======= =======
1994
Real estate properties:
North Shore - 5 lots $ 2,053 2,310 257
Land purchase - leasebacks:
Parklane on Peachtree Apartments 997 3,491 2,494
Bellevue Plaza writedown 429 - (429)
------- ------- -------
$ 3,479 5,801 2,322
======= ======= =======
</TABLE>
The following is a schedule by year of approximate future minimum
rental receipts under noncancelable leases for the real estate properties as of
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 32,101
1998 26,884
1999 19,919
2000 15,090
2001 11,834
Later Years 36,992
--------
TOTAL MINIMUM RECEIPTS $ 142,820
=========
</TABLE>
35
<PAGE> 36
At December 31, 1996, the Trust is continuing to reposition its
portfolio to focus on industrial properties. The Trust has a purchase option
agreement with money at risk on the Estelle tract of land in New Orleans,
Louisiana with a carrying amount of $558,000. If the purchase option is
exercised, the sale is expected to close in August 1997. The Trust has a
contract to sell the Santa Fe Energy Office Building in Houston, Texas with a
carrying amount of $10,083,000, scheduled for closing in June 1997. The Trust is
offering for sale the Silvermill undeveloped land in Houston, Texas with a
carrying amount of $27,000, the Liberty Corners Shopping Center in Liberty,
Missouri with a carrying amount of $3,351,000, and the Cowesett Corners Shopping
Center (a 50% controlled joint venture investment) in Warwick, Rhode Island with
a carrying amount of $4,367,000. The Trust anticipates selling these two
shopping centers and the undeveloped land in 1997. The Trust anticipates selling
each property for a gain. The results of operations for the five properties
amounted to $1,604,000 for the year ended December 31, 1996.
The Trust is currently developing the Rampart Distribution Center II in
Denver, Colorado, for $3,250,000, and the Chancellor Distribution Center in
Orlando, Florida for $1,900,000. Interest cost incurred during the period of
construction of real estate properties is capitalized. The interest cost
capitalized on real estate properties for the years ended December 31, 1996 and
1995 was $19,000 and $10,000, respectively.
Preliminary environmental studies performed at the Cowesett property
indicated that certain hazardous materials have been released at Cowesett in
connection with the dry-cleaning operations conducted on part of the property by
parties unrelated to EastGroup. Such environmental studies included a Phase II
investigation of the Cowesett property. Based upon these studies, management of
EastGroup believes that the hazardous materials have been contained. EastGroup
is continuing to investigate the need for remediation at the Cowesett property
and based on current information, management of EastGroup believes that the cost
of such remediation is approximately $630,000. EastGroup owns a 50% joint
venture interest in Cowesett, and any costs with respect to environmental
conditions at Cowesett will be shared equally with its joint venture partner. At
December 31, 1996, the Trust accrued $315,000 related to this environmental
liability. No assurance can be given that existing environmental studies with
respect to any of the properties reveal all environmental liabilities or that
any prior owner of any such property did not create any material environmental
condition not known to EastGroup.
(3) Land and Land Purchase-leasebacks
Fixed land rentals required to be paid to the Trust in each of the next
five years and in the aggregate thereafter in connection with the Trust's land
purchase-leaseback investments held as of December 31, 1996 are $86,000 in 1997,
$88,000 in 1998, $91,000 in 1999, $62,000 in 2000, $59,000 in 2001 and
$4,870,000 in the aggregate thereafter.
In the case of one land purchase-leaseback investment carried at an
aggregate amount of $500,000 as of December 31, 1996, the land tenant has an
option to purchase the land on a formula basis set forth in the lease, but in no
event would the purchase price be less than the cost of the land to the Trust.
The Trust held a first mortgage loan of $2,685,000 as of December 31,
1996 on a property in which the Trust had a land purchase-leaseback investment.
The Trust's land purchase-leaseback investments are subordinate to senior
mortgage loans encumbering the properties.
36
<PAGE> 37
(4) Mortgage Loans and Allowance for Possible Losses
A summary of mortgage loans follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
First mortgage loans:
Industrial (2 loans) $ 841 181
Apartment (1 loan) 2,685 2,553
Motels (4 loans) 2,957 3,073
Shopping Center (1 loan) 1,636 -
Undeveloped Land (3 loans) 4,053 -
Other (4 loans) 331 201
-------- -------
$ 12,503 6,008
======== =======
</TABLE>
In 1994, the Trust charged off $500,000 of the motel loans against the
allowance for possible losses. The net carrying value of the motel loans was
further decreased by an additional $422,000 during 1994. This decrease
represented a bankruptcy settlement accrued in 1994 and was related to the
property collateralizing the motel loans. That property was owned by the Trust
and the bankruptcy settlement was recorded as deferred income because of the
collection difficulties with the motel loans and because all gains on the sale
of the properties collateralizing the motel loans were deferred when the loans
were made because the gain recognition criteria of SFAS 66 were not met when the
properties were sold and have not been met since. In 1995, two of the motel
mortgages were restructured and no loss was recorded. At December 31, 1996, the
carrying value of two impaired motel mortgage loans was $1,700,000. The borrower
on one motel mortgage loan is currently in bankruptcy, however, interest
payments are current and the Trust feels that the underlying collateral is
sufficient to cover the loan's value if necessary. Interest income recorded on
the motel mortgages was $403,000 for 1996, $340,000 for 1995, and $211,000 for
1994.
In April 1995, the land tenant on the EastGate Apartment land
purchase-leaseback investment gave the Trust a deed in lieu of foreclosure
because of its inability to meet all of the obligations of the property. The
land purchase-leaseback had a carrying value of $225,000 and the mortgage loan
had a carrying value of $1,009,000. On November 27, 1996, the Trust sold
Eastgate for $1,753,000 and recognized a gain of $427,000.
During 1996, the Trust wrote down the Plus Park motel mortgage note
receivable $200,000 to reflect the value of the underlying collateral. This
amount is recognized as a loss on real estate investments.
A summary of activity in the allowance for possible losses follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ - - 500
Amounts charged-off - - (500)
------- ----- -----
Balance at end of period $ - - -
======= ===== =====
</TABLE>
37
<PAGE> 38
(5) Investment in Real Estate Investment Trusts
The investment in real estate investment trusts ("REIT") consists of
the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Equity method investee:
LNH REIT, Inc. $ - - 3,976 3,928
--- ----- ------- -------
Non-equity method investee:
Copley Properties, Inc. - - 6,811 6,811
Other 934 1,001 - -
---- ----- ------- --------
$934 1,001 10,787 10,739
==== ===== ======== ========
</TABLE>
The investment in LNH was purchased at amounts less than the Trust's
pro rata share of the LNH's book value. This difference of $1,515,000 was
assigned to LNH's principal assets and was recognized in operations as those
underlying assets were sold.
On May 14, 1996, the Trust and LNH jointly announced that LNH's
shareholders approved the merger of LNH with and into EastGroup-LNH Corporation,
a wholly-owned subsidiary of the Trust, and that the merger was consummated
immediately after the LNH shareholder meeting. Under the terms of the merger,
each LNH share was converted into the right to receive .55065 EastGroup shares
(.3671 pre-split). The Trust issued 927,366 of its shares as a result of the
merger.
On June 19, 1996, the Trust and Copley Properties, Inc. (Copley)
jointly announced that their respective shareholders approved an Agreement and
Plan of Merger under which Copley was merged with the Trust. The merger became
effective immediately after the shareholder meetings on that date. Under the
terms of the merger, each Copley share was converted into the right to receive
1.06002 EastGroup shares (.70668 pre-split). The Trust issued 3,238,343 of its
shares as a result of the merger.
(6) Notes Payable to Banks
The Trust has a line of credit from a commercial bank in the amount of
$20,000,000 which is secured by the outstanding stock of two of the Trust's
wholly-owned subsidiaries. Borrowings under the credit line at December 31, 1996
were $4,934,000 and the interest rate was LIBOR plus 1.85% (7.475% at December
31, 1996). The line of credit expires April 30, 1997. Total loan commitment fees
of $50,000, $35,000 and $25,000 were paid in 1996, 1995 and 1994 for this line
of credit.
At December 31, 1996, the Trust had $9,028,000 outstanding under a
$15,000,000 acquisition line of credit from a commercial bank. The acquisition
line had an interest rate of LIBOR plus 1.85% at December 31, 1996 and matures
on April 30, 1999. The line is collateralized by four properties of the Trust
with an aggregate carrying value of $25,901,000 at December 31, 1996. Total loan
commitment fees of $37,500, $66,000 and $169,000 were paid in 1996, 1995 and
1994 for this line of credit. On March 27, 1997, the interest rate on both the
working capital line and the acquisition line was reduced to LIBOR plus 1.75%.
Average bank borrowings were $11,572,000 in 1996 compared to
$22,874,000 in 1995, with average interest rates of 7.3% in 1996 compared to
8.8% in 1995.
38
<PAGE> 39
<TABLE>
<CAPTION>
(7) Mortgage Notes Payable
A summary of mortgage notes payable follows:
December 31,
------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Garden Villa Apartments mortgage, interest at 8.25%, principal and interest due
$24,041 monthly, repaid January 1996 $ - 3,135
Interstate Distribution Center #1 Warehouse mortgage, interest at 9.25%,
principal and interest due $10,827 monthly, maturing June 1, 2009, secured by
real estate with a carrying amount of $2,714,000 at December 31, 1996 866 914
Interstate Distribution Center #2 Warehouse mortgage, interest at 9.25%,
principal and interest due $12,844 monthly, maturing June 1, 2009, secured by
real estate with a carrying amount of $3,147,000 at December 31, 1996 1,088 1,139
8150 Leesburg Pike Office Building mortgage, interest at 8.5%, principal and
interest due $52,304 monthly, maturing June 15, 2005, secured by real estate
with a carrying amount of $13,138,000 at December 31, 1996 3,775 4,068
Sunbelt Center Warehouse mortgage, interest at 10%, principal and interest due
$39,958 monthly, maturing September 1, 1997, secured by real estate with a
carrying amount of $5,580,000 at December 31, 1996 4,148 4,204
Deerwood Warehouse mortgage, interest at 8.375%, principal and interest due
$16,339 monthly, maturing July 1, 2003, secured by real estate with a carrying
amount of $2,808,000 at December 31, 1996 1,754 1,798
Doral Club Apartments mortgage, interest at 8.625%, principal and interest due
$36,494 monthly, maturing October 31, 2003, secured by real estate with a
carrying amount of $5,953,000 at December 31, 1996 4,300 4,359
Nobel Center mortgage, interest at 7.5%, principal and interest due $27,915
monthly, maturing on January 15, 1997, secured by real estate with a
carrying amount of $2,895,000 at December 31, 1996 2,536 2,667
North Shore Improvement Bonds, interest rates range from 6.3% to 7.75% and
mature serially in various amounts through September 2, 2016, secured by land
underlying Nobel Center with a carrying amount of $2,895,000 at December 31, 1996 432 441
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Sutton House Apartments mortgage, interest at 8%, principal and interest due
$45,257 monthly, maturing October 31, 2003, secured by real estate with a
carrying amount of $7,829,000 at December 31, 1996 5,826 5,894
Northwest Point Warehouse mortgage, interest at 7.75%, principal and interest
due $32,857 monthly, maturing March 1, 2001, secured by real estate with a
carrying amount of $6,691,000 at December 31, 1996 4,170 4,238
56th Street Warehouse mortgage, interest at 8.875%, principal and interest due
$21,816 monthly, maturing August 1, 2004, secured by real estate with a
carrying amount of $2,643,000 at December 31, 1996 2,274 2,331
Exchange Distribution Warehouse mortgage, interest at 8.375%, principal and
interest due $21,498 monthly, maturing August 1, 2005, secured by real estate
with a carrying amount of $3,173,000 at December 31, 1996 2,432 2,484
LaVista Apartments mortgage, interest at 8.688%, principal and interest due
$48,667 monthly, maturing September 1, 2005, secured by real estate with a
carrying amount of $7,181,000 at December 31, 1996 5,862 5,933
Westport Commerce Center mortgage, interest at 8%, principal and interest due
$28,021 monthly, maturing August 1, 2005, secured by real estate with a
carrying amount of $4,652,000 at December 31, 1996 3,254 3,327
LakePointe Business Park mortgage, interest at 8.125%, principal and interest
due $81,675 monthly, maturing October 1, 2005, secured by real estate with a
carrying amount of $10,019,000 at December 31, 1996 10,887 10,985
JetPort, JetPort 515 & 516 mortgage, interest at 8.125%, principal and interest
due $33,769 monthly, maturing October 1, 2005, secured by real estate with a
carrying amount of $4,792,000 at December 31, 1996 3,902 3,986
Plantation Apartments mortgage, interest at 7.625%, principal
and interest due $39,599 monthly, repaid December 1996 - 5,300
Columbia Place mortgage, interest at 8.875%, principal and interest due $93,292
monthly, maturing December 31, 2009, secured by real estate with a carrying
amount of $11,884,000 at December 31, 1996 10,046 -
Dominguez Distribution Center mortgage, interest at 9%, principal and interest
due $46,156 monthly, maturing January 1, 1997, secured by real estate with a
carrying amount of $9,911,000 at December 31, 1996 5,138 -
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Metro Business Park mortgage, interest at 9.25%, principal and interest due
$30,850 monthly, maturing March 1, 1997, secured by real estate with a
carrying amount of $4,462,000 at December 31, 1996 3,383 -
Metro Business Park mortgage, interest at 8%, principal and interest due $15,892
monthly, maturing April 1, 1998, secured by real estate with a carrying amount
of $5,067,000 at December 31, 1996 1,731 -
University Business Center mortgage, interest at 9.06%, principal and interest
due $85,841 monthly, maturing April 1, 2000, secured by real estate with a
carrying amount of $15,805,000 at December 31, 1996 9,163 -
University Business Center mortgage, interest at 9.37%, interest only, maturing
January 1, 1997, secured by real estate with a carrying amount of $11,583,000
at December 31, 1996 8,250 -
Wiegman mortgage, interest at 8.75%, principal and interest due $9,367 monthly,
maturing October 1, 1997, secured by real estate with a carrying amount of
$1,656,000 at December 31, 1996 959 -
Huntwood mortgage, interest at 7.99%, principal and interest due $100,250
monthly, maturing August 22, 2006, secured by real estate with a carrying
amount of $18,868,000 at December 31, 1996 12,959 -
Wiegman mortgage, interest at 7.99%, principal and interest due $46,269 monthly,
maturing August 22, 2006, secured by real estate with a carrying amount of
$9,191,000 at December 31, 1996 5,981 -
-------- ------
$115,116 67,203
======== ======
</TABLE>
Approximate principal payments due during the next five years are as
follows: 1997, $26,337,000; 1998, $3,719,000; 1999, $2,223,000; 2000,
$10,624,000; and 2001, $6,071,000.
(8) Trust Administration
On March 1, 1983, the Trust approved an agreement, which was amended on
March 1, 1984, and again on September 1, 1990, whereby the day-to-day management
was transferred from its former adviser to officers of the Trust, who were also
officers of Eastover Corporation and certain other affiliates. Certain
administrative expenses were allocated monthly among Eastover Corporation,
Congress Street Properties, Inc., The Parkway Company and the Trust based on the
shared expense agreement. Effective December 31, 1994, the Trust terminated the
expense sharing agreement and now maintains its own officers and employees.
(9) Reverse Repurchase Agreements
The Trust does not in the ordinary course of business take possession
of the securities which collateralize its reverse repurchase agreements (assets
purchased under agreements to resell). The Trust has the right to demand
additional collateral or return of the invested funds at any time the collateral
value is less than the invested funds plus any accrued earnings thereon. The
Trust does, however, conduct these transactions on a short term basis with
financial institutions with which it has normal business relationships. At
December 31, 1996 and 1995, the Trust did not hold reverse repurchase
41
<PAGE> 42
agreements with any individual counterparty or group of counterparties in excess
of 10% of shareholders' equity.
(10) Shareholders' Equity
In 1994, the Trust adopted the 1994 Management Incentive Plan. The
previous plan included stock options, stock appreciation rights, incentive
compensation units and a bonus plan. The 1994 Management Incentive Plan includes
stock options (50% vested after one year and the other 50% after two years) and
an annual incentive award.
Stock option activity for the 1994 plan is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
(Number of shares) 1996 1995 1994
- ------------------ ------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year 261,375 262,875 -
Granted 202,125 15,000 262,875
Exercised (31,500) - -
Expired (9,750) (16,500) -
------- ------- -------
Outstanding at end of year 422,250 261,375 262,875
======= ======= =======
Exercisable at end of year 220,125 126,938 -
Available for grant at end of year 44,828 38,625 37,125
Price range of options:
Outstanding $12.00 - $17.92 $12.00 - $13.42 $12.00 - $12.67
Exercised $12.00 - $12.67 - -
</TABLE>
The annual incentive award program began in 1995 and the Compensation
Committee determined awards based on actual funds from operations per share
("FFO") compared to goals set for the year. The 1996 and 1995 awards
approximated $311,000 and $382,000, respectively, and were payable two-thirds in
cash and one-third in Shares of the Trust.
The Trust has a Trustees Stock Option Plan, as amended in 1994, under
which an aggregate of 150,000 shares of beneficial interest are reserved for
issuance upon exercise of any options granted. Under the Trustees plan, each
Non-Employee Trustee is granted an initial 7,500 options and 2,250 additional
options on the date of any Annual Meeting at which the Trustee is reelected to
the Board.
Stock option activity for the Trustee plan is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
Number of shares) 1996 1995 1994
- ------------------ ------- ----- ------
<S> <C> <C> <C>
Outstanding at beginning of year 65,250 76,500 52,500
Granted 11,250 11,250 24,000
Exercised - (22,500) -
------ ------- ------
76,500 65,250 76,500
====== ======= ======
Exercisable at end of year 76,500 65,250 76,500
Available for grant at end of year 51,000 62,250 73,500
Price range of options:
Outstanding $10.67 - $14.58 $10.67 - $12.67 $10.67 - $11.33
Exercised - $10.67 -
</TABLE>
In calculating net income per share of beneficial interest, the
dilutive effect of the various benefit plans, if any, was not significant.
In January 1994, the Trust completed the public offering of 2,625,000
shares of beneficial interest at $13.33 per share and received net proceeds of
$32,164,000.
42
<PAGE> 43
Under the plan existing prior to the 1994 Management Incentive Plan,
officers exercised 117,000 stock options and stock appreciation rights ("SARs").
The stock option exercise price was $8.25 per share for a total option price of
$965,250. Compensation was accrued by the Trust for SARs expense based on the
excess of the market price over the exercise price, $8.25 per share, of the
SARs. Compensation recovery for the SARs was $251,000 in 1994. Compensation
expense for the incentive compensation units was accrued by the Trust based on
the dividends paid by the Trust and in accordance with a vesting schedule.
Compensation expense for the units was $89,000 in 1994. Amounts due in 1995 and
1996 were estimated and paid in Trust shares in 1994. The Trust issued 17,096
shares and recorded an expense of $122,000 which is included with stock
appreciation rights and incentive compensation expense on the 1994 statement of
operations. Compensation for the bonus plan amounted to $122,000 in 1994.
During 1995, the Trust adopted a dividend reinvestment plan, which
allows shareholders to reinvest cash distributions in new shares of the Trust.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 provides accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 defines a
fair value based method of accounting for an employee stock option or similar
equity instrument. The Trust elected to remain with the accounting treatment
outlined in APB Opinion No. 25, "Accounting for Stock Issued to Employees". The
Trust accounts for its stock based compensation plans under APB Opinion No. 25,
under which no compensation cost has been recognized. The pro forma effect of
SFAS No. 123 did not have a material impact on net income or net income per
share for 1996 and 1995.
(11) Future Accounting Changes
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings per Share". SFAS No. 128 establishes standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. This statement replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share. It also requires dual presentation of basic and diluted
earnings per share on the face of the statement of operations for all entities
with complex capital structures and requires a reconciliation between basic and
diluted earnings per share. SFAS No. 128 is effective for fiscal years ending
after December 15, 1997, the adoption of this statement is not expected to have
a material impact on the 1997 consolidated financial statements.
Also in February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure". This statement establishes standards for
disclosing information about an entity's capital structure. This statement is
effective for fiscal years ending after December 15, 1997. The adoption of this
statement is not expected to have a material impact on the 1997 consolidated
financial statements.
(12) Mergers
During 1996, the Trust acquired the entities described below, which
were accounted for by the purchase method of accounting. For financial reporting
purposes, the assets of the company acquired are assigned new cost 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 had in LNH and Copley. The shares of LNH and
Copley owned by the Trust were retired at the merger date. The operating results
of LNH and Copley have been included in the consolidated statements of
operations subsequent to the dates of acquisition.
On May 14, 1996, the merger of LNH with EGP-LNH Corporation, a
wholly-owned subsidiary of the Trust, was completed. Under the terms of the
merger, each
43
<PAGE> 44
LNH share was converted into the right to receive .55065 EastGroup
shares (.3671 pre-split). The Trust issued 927,366 shares as a result of the
merger.
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 1.06002
EastGroup shares (.70668 pre-split). EastGroup issued 3,238,343 of its shares as
a result of the merger.
The increase in net assets at the acquisition dates, based on relative
fair values, resulting from the mergers was as follows (in thousands):
<TABLE>
<CAPTION>
LNH Copley
-------- --------
<S> <C> <C>
Real estate properties $ 6,243 113,192
Investment in joint venture 4,298 --
Mortgage loans 5,614 880
Land 521 3,280
Investment in real estate
investment trust 1,050 --
Cash 1,200 1,550
Accounts receivable and other assets 425 305
Mortgage notes payable -- (59,681)
Minority interests (783) (1,740)
Accounts payable and other liabilities (713) (1,063)
-------- --------
$ 17,855 56,723
======== ========
</TABLE>
The Trust's purchase price of the net assets acquired consisted of the following
(in thousands):
<TABLE>
<CAPTION>
LNH Copley
-------- ------
<S> <C> <C>
Shares of beneficial
interest (927,366 and 3,238,343 shares) $ 13,640 47,658
Cash in lieu of fractional
shares (369 and 390 shares) 5 6
Merger expenses 292 2,866
Prior investment in LNH and Copley 3,918 6,193
-------- ------
$ 17,855 56,723
======== ======
</TABLE>
The following unaudited pro forma combined results of operations gives effect to
the LNH and Copley mergers as if they had occurred at the beginning of the
fiscal year for each of the periods presented:
(Dollars in thousands, except per
share amounts)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Revenues $ 47,191 45,606
Net income 12,796 10,363
Net income per share 1.21 .99
=========== =========
Shares used in computation 10,532 10,504
=========== =========
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the transaction been consummated at the beginning of 1996 and the beginning of
1995 or of future operations of the combined companies under the ownership and
management of the Trust.
Effective December 22, 1994, the merger of Eastover Corporation
("Eastover") with Eastover Acquisition Corporation ("EAC"), a wholly-owned
subsidiary of the Trust, was completed. EAC was immediately liquidated and
distributed its assets and liabilities to EastGroup. The shareholders of
Eastover received nine-tenths of one (.9) share (.6 pre-split) of beneficial
interest of EastGroup for each share of beneficial interest of Eastover held by
them. The merger was accounted for using the purchase method of accounting. The
operations of Eastover subsequent to December 22, 1994, have been included
44
<PAGE> 45
in the accompanying consolidated statements of operations. The unaudited
pro-forma effects of the Trust's acquisition of Eastover as if it had occurred
on January 1, 1994, would be to increase revenues by approximately $18,000 in
1994, decrease net income by $412,000 in 1994 and net income per share by $.06
in 1994.
(13) QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
CALENDAR 1996 CALENDAR 1995
QUARTER ENDED QUARTER ENDED
------------- -------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 7,412 8,111 12,104 12,138 $ 7,283 7,780 7,732 7,469
Expenses (6,236) (6,733) (9,569) (10,058) (6,193) (6,569) (6,668) (6,445)
------ ------ ------ ------- ------- ------- ------- -------
Income before gains on investments 1,176 1,378 2,535 2,080 1,090 1,211 1,064 1,024
Gains on investments 1,353 656 152 3,179 412 1,039 - 1,871
------- ------ ------ ------ ------- ------- ------- -------
Net income $ 2,529 2,034 2,687 5,259 $ 1,502 2,250 1,064 2,895
======= ====== ====== ====== ======= ======= ======= =======
Net income per share of
beneficial interest $ .40 .28 .26 .50 $ .24 .36 .17 .46
======= ====== ======= ======= ======= ======= ======= =======
Weighted average shares outstanding 6,353 7,238 10,535 10,542 6,332 6,337 6,340 6,344
======= ====== ======= ======= ======= ======= ======= =======
</TABLE>
(14) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair
values of the Trust's financial instruments at December 31, 1996 and 1995. FASB
Statement No. 107, "Disclosures About Fair Value of Financial Instruments",
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 438 438 26 26
Investment in real estate investment
trusts 934 1,001 10,787 10,739
Mortgage loans 12,503 13,824 6,008 7,623
Financial Liabilities
Mortgage notes payable 115,116 118,440 67,203 67,109
Notes payable to banks 13,962 13,962 4,359 4,359
</TABLE>
The carrying amounts shown in the table are included in the balance sheet under
the indicated captions.
The following methods and assumptions were used to estimate fair value of each
class of financial instruments.
Cash and Cash Equivalents: The carrying amounts approximate fair value because
of the short maturity of those instruments.
Mortgage Loans: The fair value of performing mortgage loans is estimated using
discounted cash flows at current interest rates for loans with similar terms and
maturities or based on the estimated value of the underlying collateral adjusted
for the borrower's payment history and financial wherewithal. The fair value for
nonperforming loans is based on the underlying collateral value.
Investment in Real Estate Investment Trusts: The fair value of the equity
investment is based on quoted market prices at the reporting date for the
investment.
45
<PAGE> 46
Mortgage Notes Payable: The fair value of the Trust's mortgage notes payable is
estimated based on the quoted market prices for similar issues or by discounting
expected cash flows at the rates currently offered to the Trust for debt of the
same remaining maturities, as advised by the Trust's bankers.
Notes Payable to Banks: The carrying amounts approximate fair value because of
the variable rate of interest on the debt.
(15) Subsequent Events
The Trust has entered into contracts to purchase two industrial
properties in Houston, Texas. The total investment in these properties is
estimated to be $9,200,000 and are scheduled to close in the second quarter of
1997. On March 20, 1997, the Trust purchased Interchange A (33,000 square feet)
in Jackson, Mississippi for a total investment of approximately $1,090,000.
On February 4, 1997, the Trust announced the offering of 1,875,000
shares of beneficial interest under its existing shelf registration statement.
The shares were sold to institutional investors. The net proceeds of the
offering (approximately $32,775,000, net of underwriting commissions and
expenses) were used for the repayment of approximately $30,000,000 of
outstanding indebtedness and to fund working capital requirements, including the
acquisition of industrial properties. On February 28, 1997, in connection with
this public offering, the underwriter exercised in full its over-allotment
option for an additional 225,000 shares. The net proceeds to the Trust from the
exercise of the over-allotment option were approximately $3,950,000. This amount
will also fund working capital requirements.
The Trust entered into a sales contract to sell the Santa Fe Energy
Building in Houston, Texas at a price of $13,000,000. The buyer has placed
$100,000 at risk with closing scheduled for June 3, 1997. The buyer has agreed
to cooperate in a tax-deferred exchange transaction if requested by the Trust.
The sale, if consummated, will result in a gain of approximately $2,527,000.
(16) Related Party Transactions
EastGroup and Parkway Properties, Inc. continue to share the same
office space at One Jackson Place in Jackson, Mississippi, but Parkway is
scheduled to move to its own space in April 1997. EastGroup and Parkway share
the rent with respect to such space based upon the number of employees each has
in the space divided by the total number of employees of both companies using
the space. In addition, EastGroup and Parkway share the services of the Trust's
Chief Executive Officer and a limited number of clerical and support staff
employees and expenses related thereto are shared equally between EastGroup and
Parkway. Parkway and EastGroup also share the expenses of certain office
supplies and equipment, and EastGroup reimburses Parkway for the services of
certain employees of Parkway who perform services for EastGroup on an as
requested basis.
46
<PAGE> 47
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
THE TRUSTEES AND SHAREHOLDERS
EASTGROUP PROPERTIES:
Under date of March 21, 1997, we reported on the consolidated balance sheets of
EastGroup Properties and subsidiaries, a Maryland real estate investment trust,
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1996, which are included in the 1996
Annual Report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related consolidated
financial statement schedules as listed in Item 14 (a)(2) of Form 10-K. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
Jackson, Mississippi
March 21, 1997 KPMG Peat Marwick LLP
47
<PAGE> 48
SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost to the Trust Subsequent to Acquisition
------------------------- -------------------------
Buildings
and Advances Capitalized
Description Encumbrances Land Improvements Other Under Lease Costs Other
----------- ------------ ---- ------------ ----- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Acquired
Land subject to long-term net leases:
Apartments:
Country Club - Alabama (c)(h) 4,245 500 - - - - -
Shopping Centers:
Ponderosa - Kentucky - 27 - - - - -
-------- -------- -------- ------- -------- ------- --------
Total land subject to
long-term leases 4,245 527 - - - - -
------- -------- -------- ------- -------- ------- --------
<CAPTION>
Gross
Amount at
Which Carried
at Close
of Period
-------------------------------------
Buildings Accumulated
and Depreciation
Land Improvements Other Total 12/31/96 Acquired
---- ------------ ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Acquired
Land subject to
long-term net leases:
Apartments:
Country Club -
Alabama (c)(h) 500 - - 500 - 1973
Shopping Centers:
Ponderosa - Kentucky 27 - - 27 - 1994
---- ------ ------ ---- -----
Total land subject
to long-term
leases 527 - - 527 -
---- ------ ------ ---- -----
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 (IN THOUSANDS)
Initial Cost
to the Trust
--------------------------------
Buildings
Description Encumbrances Land and Improvements
- ----------- ------------ ---- ----------------
<S> <C> <C> <C>
Real estate properties (d) and (e):
Industrial:
Nobel Center - California 2,968 542 -
Exchange Warehouses (2)-Texas - 536 1,178
Interstate Warehouses (2)-Texas 1,954 1,757 4,941
Venture Warehouses (2)-Texas - 1,452 3,762
Rampart-Colorado - 1,023 3,861
Sunbelt-Florida 4,148 1,034 5,056
La Quinta-Florida - 421 575
Deerwood-Florida 1,754 1,147 1,799
56th Street - Florida 2,274 551 2,126
JetPort Commerce Park (3) - Florida 3,902 857 3,635
Lake Pointe - Florida 10,887 3,442 6,450
Exchange Dist. - Florida 2,432 603 2,414
Phillips - Florida - 1,375 2,961
Northwest Point - Texas (j) 5,275 1,243 5,640
Westport - Florida 3,254 980 3,800
Lakeside Distribution - Oklahoma - 120 1,154
Linpro Distribution - Florida - 613 2,243
Broadway Industrial Center - Arizona - 837 3,349
Dominguez Distribution - California 5,138 2,006 8,025
Huntwood Associates - California 12,959 3,842 15,368
Kingsview Industrial - California - 643 2,573
Metro Business Park - Arizona 5,114 1,927 7,708
Sample I-95 - Florida - 1,565 6,262
University Business Center - California 17,413 5,517 22,067
Wiegman Associates - California 6,940 2,197 8,788
Braniff Park West - Oklahoma (i) 1,977 1,066 4,641
Walnut Business Park - California (i) 2,817 2,885 5,274
------------------------------------------------
91,206 40,181 135,650
------------------------------------------------
Industrial Development:
Chancellor Distribution - Florida - 291 730
Rampart II - Colorado - 196 674
------------------------------------------------
- 487 1,404
------------------------------------------------
Office Buildings:
8150 Leesburg Pike - Virginia (j) 5,941 2,208 14,068
Columbia Place - Maryland 10,046 2,402 9,610
Los Angeles Corporate Center - California - 1,363 5,453
------------------------------------------------
15,987 5,973 29,131
------------------------------------------------
Apartments:
LaVista-Georgia 5,862 1,526 2,886
Doral Club-Texas 4,300 670 5,976
Sutton House - Texas 5,826 471 8,098
Hampton House - Mississippi (i) 2,121 575 5,706
Grande Pointe - Alabama (i) 2,113 615 5,499
------------------------------------------------
20,222 3,857 28,165
------------------------------------------------
Operating Properties Held For Sale:
Santa Fe Energy - Texas (j) 1,663 623 9,793
Liberty Corners - Missouri - 804 2,583
------------------------------------------------
1,663 1,427 12,376
------------------------------------------------
Land Held for Sale (f):
Jefferson Parish-Louisiana - 3,050 -
Silvermill - Texas - 27 -
------------------------------------------------
- 3,077 -
------------------------------------------------
Total real estate owned 129,078 55,002 206,726
---------------------------------------------------
Total $ 133,323 55,529 206,726
====================================================
</TABLE>
Notes:
49
<PAGE> 50
<TABLE>
<CAPTION>
SCHEDULE III
(CONTINUED)
Gross
Amount at
Which Carried
at Close
Costs Capitalized of Period
Subsequent to Acquisition -------------------------------------- Accumulated
- ------------------------- Buildings Depreciation
Capitalized and Dec. 31, Year Year
Costs Other Land Improvements Total 1996 Acquired Constructed
----- ----- ---- ------------ ----- ---- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
3,696 - 542 3,696 4,238 1,343 1987 1986
232 - 536 1,410 1,946 341 1988 1979
604 - 1,757 5,545 7,302 1,441 1988 1978
718 - 1,452 4,480 5,932 1,089 1988 1979
282 - 1,023 4,143 5,166 925 1988 1987
598 - 1,034 5,654 6,688 1,108 1989 1987
79 - 440 635 1,075 150 1989 1974
260 - 1,147 2,059 3,206 398 1989 1978
266 - 551 2,392 2,943 300 1993 1981/86
780 - 857 4,415 5,272 480 1993/94/95 1974/79/85
1,090 - 3,442 7,540 10,982 963 1993 1986/87
412 - 603 2,826 3,429 256 1994 1975
1,540 - 1,375 4,501 5,876 303 1994 1984/95
160 - 1,243 5,800 7,043 352 1994 1984/85
104 - 980 3,904 4,884 232 1994 1983/87
108 - 120 1,262 1,382 64 1994 1986
- - 613 2,243 2,856 47 1996 1986
- - 837 3,349 4,186 82 1996 1971
- - 2,006 8,025 10,031 120 1996 1977
- - 3,842 15,368 19,210 342 1996 1988
- - 643 2,573 3,216 46 1996 1980
11 - 1,927 7,719 9,646 117 1996 1977/79
- - 1,565 6,262 7,827 159 1996 1990
137 - 5,517 22,204 27,721 333 1996 1987/88
- - 2,197 8,788 10,985 138 1996 1986/87
- - 1,066 4,641 5,707 44 1996 1974
- - 2,885 5,274 8,159 69 1996 1966/90
- ---------------------------------------------------------------------------------------------
11,077 - 40,200 146,708 186,908 11,242
- ---------------------------------------------------------------------------------------------
- - 291 730 1,021 - 1996/97 1996/97
34 - 230 674 904 - 1996/97 1996/97
- ---------------------------------------------------------------------------------------------
34 - 521 1,404 1,925 -
- ---------------------------------------------------------------------------------------------
3,731 - 2,208 17,799 20,007 6,869 1975/89 1974/94
- - 2,402 9,610 12,012 128 1996 1988
77 - 1,363 5,530 6,893 81 1996 1986
- ---------------------------------------------------------------------------------------------
3,808 - 5,973 32,939 38,912 7,078
- ---------------------------------------------------------------------------------------------
4,053 - 1,526 6,939 8,465 1,284 1991 1968/96
475 - 670 6,451 7,121 1,168 1992 1985
172 - 471 8,270 8,741 912 1993 1985
311 - 575 6,017 6,592 503 1994 1990
461 - 764 5,811 6,575 516 1994 1983
- ---------------------------------------------------------------------------------------------
5,472 - 4,006 33,488 37,494 4,383
- ---------------------------------------------------------------------------------------------
470 - 623 10,263 10,886 803 1994 1981
20 - 804 2,603 3,407 56 1996 1987/88
- ---------------------------------------------------------------------------------------------
490 - 1,427 12,866 14,293 859
- ---------------------------------------------------------------------------------------------
49 (2,541)(g) 558 - 558 - 1978 n/a
- - 27 - 27 - 1996 n/a
- ---------------------------------------------------------------------------------------------
49 (2,541) 585 - 585 -
- ---------------------------------------------------------------------------------------------
20,930 (2,541) 52,712 227,405 280,117 23,562
------------------------------------------------------------------------------------
20,930 (2,541) 53,239 227,405 280,644 23,562
====================================================================================
(a)(b) (a) (continued)
</TABLE>
50
<PAGE> 51
(a) Changes in Real Estate Properties Follow:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 156,931 158,110 107,719
Real estate properties acquired - LNH merger 6,243 - -
Land acquired in LNH merger 521 - -
Real estate properties acquired - Copley merger 113,192 - -
Land acquired in Copley merger 3,280 - -
Improvements 7,469 4,386 4,402
Deed in lieu of foreclosure - 1,002 -
Purchase of real estate properties 13,865 806 51,680
Writedown of real estate properties - (136) (429)
Carrying amount of investments sold (20,857) (7,237) (3,050)
Write-off of fully depreciated assets - - (2,212)
--------- ------- -------
Balance at end of year (1) $ 280,644 156,931 158,110
========= ======= =======
<FN>
(1) Includes 25% minority interest in JetPort Commerce Park, 56th Street
Commerce Park, and Westport Commerce Center and 20% minority interest
in University Business Center and 22.22% minority interest in Liberty
Corners Shopping Center totaling $11,469,000 at December 31, 1996.
Includes minority interest in JetPort Commerce Park, 56th Street
Commerce Park, Exchange Distribution Center, JetPort 516 Commerce Park,
JetPort 515 Commerce Park and Westport Commerce Center of $4,054,000
in 1995 and $3,701,000 in 1994.
</TABLE>
Changes in the accumulated depreciation on real estate properties follow:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 19,206 15,888 13,981
Depreciation expense 7,266 5,235 4,119
Accumulated depreciation on assets sold (2,910) (1,917) -
Write-off of fully depreciated assets - - (2,212)
-------- ------ -------
Balance at end of year $ 23,562 19,206 15,888
======== ====== =======
<FN>
(b) The aggregate cost for federal income tax purposes is approximately
$246,548,000. The federal income tax return for the year ended December
31, 1996 has not been filed and, accordingly, the income tax basis of
real estate properties as of December 31, 1996 is based on preliminary
data.
(c) The land tenant has the option, subject to certain conditions, to
repurchase the land at a price which would not be less than the cost of
the land interest to the Trust.
(d) Reference is made to allowance for possible losses on real estate
investments in the notes to consolidated financial statements.
(e) The Trust computes depreciation using the straight-line method over the
estimated useful lives of the buildings (25 to 40 years) and other
improvements (3 to 10 years).
(f) The investment is not producing income to the Trust as of December 31,
1996.
(g) Represents a writedown of $2,496,000 and income received but deferred
of $45,000.
(h) Real estate land converted to land purchase-leasebacks.
</TABLE>
51
<PAGE> 52
(i) The acquisition line of credit is secured by Hampton House Apartments,
Grande Pointe Apartments, Walnut Business Park and Braniff Park West.
The outstanding acquisition line of credit of $9,028,000 at December
31, 1996 was allocated to encumbrances for these respective properties
based on carrying value at December 31, 1996.
(j) The line of credit is secured by the outstanding stock of the Trust's
wholly-owned subsidiary EastGroup Virginia, Inc. which owns 8150
Leesburg Pike Office Building and 99% owned partnership EastGroup
Houston Partners, Ltd. which owns the Santa Fe Energy Office Building
and Northwest Point Distribution Center. The outstanding line of credit
of $4,934,000 at December 31, 1996 was allocated to encumbrances for
these respective properties based on carrying value at December 31,
1996.
52
<PAGE> 53
<TABLE>
<CAPTION>
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(IN THOUSANDS)
Interest Final Periodic
Number of Loans Rate Maturity Date Payment Terms Prior Liens
--------------- ---- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
First mortgage loans (c):
MOTELS:
Jacksonville, Florida 1 8.5% 4/00 P&I monthly -
Nashville, Tennessee 1 9% 5/98 P&I monthly -
Nashville, Tennessee 1 10% 7/97 P&I monthly -
Gainesville, Florida 1 10% 1/02 P&I monthly -
(effective 2-27-97)
INDUSTRIAL:
Tampa, Florida 1 prime + .125% 10/01 Interest monthly -
Hayward, California 1 9% 1/97 Interest monthly -
APARTMENTS:
Country Club - Alabama 1 8.5%-9%(d) 12/99 (d) -
SHOPPING CENTERS:
Inverness, Florida 1 8.0% 11/98 Interest monthly -
OFFICE BUILDINGS:
Dublin, Ohio 1 10.0% 9/99 P&I monthly -
Columbia, Maryland 1 9.56% 2/00 P&I annually -
UNDEVELOPED LAND:
Hickory Creek, Houston, Texas 1 Prime 9/99 (f) -
Meadowbend, Houston, Texas 1 8% 4/99 P&I monthly -
Baypointe, Houston, Texas 1 9.5% 4/99 P&I semi-annually -
OTHER LOANS 2 8.5% 3/07-1/08 P&I monthly -
------ ------
Total first mortgage loans 15 -
====== ======
<CAPTION>
Principal
Amount of Loans
Subject to
Face Amount Carrying to Delinquent
of Mortgages Amount of Principal
Dec. 31, 1996 Mortgages or Interest(e)
------------- --------- --------------
<S> <C> <C> <C>
First mortgage loans (c):
MOTELS:
Jacksonville, Florida $ 795 412 -
Nashville, Tennessee 942 845 -
Nashville, Tennessee 917 517 917
Gainesville, Florida 1,571 1,183 1,571
INDUSTRIAL:
Tampa, Florida 141 141 -
Hayward, California 700 700 -
APARTMENTS:
Country Club - Alabama 4,245 2,685(d) -
SHOPPING CENTERS:
Inverness, Florida 1,873 1,636 -
OFFICE BUILDINGS:
Dublin, Ohio 92 92 -
Columbia, Maryland 180 180 -
UNDEVELOPED LAND:
Hickory Creek, Houston, Texas 3,165 2,529 -
Meadowbend, Houston, Texas 17 1 -
Baypointe, Houston, Texas 2,005 1,523 -
OTHER LOANS 59 59 -
------- ------- -------
Total first mortgage loans $16,702 12,503(a)(b) 2,488
======= ======= =======
</TABLE>
53
<PAGE> 54
MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
Notes:
(a) Changes in mortgage loans were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 6,008 8,817 8,383
Loans to facilitate the sale of property, net
of deferred gains - 150 -
Loan to facilitate the purchase of property - - 1,862
Advances on mortgage notes receivable 121 - -
Deed in lieu of foreclosure - (1,009) -
Payments (338) (2,088) (734)
Amortization of discount on loans, net 418 138 154
Allocation of allowance - - (500)
Writedown of mortgage notes receivable (200) - (457)
Mortgage note receivable from Eastover merger - - 39
Mortgage notes receivable from LNH merger 5,614 - -
Mortgage notes receivable from Copley merger 880 - -
Restructure of mortgage note receivable - - 70
-------- ------ ------
Balance at end of year $ 12,503 6,008 8,817
======== ====== ======
<FN>
(b) The aggregate cost for federal income tax purposes is approximately
$15,274,000. The federal income tax return for the year ended December
31, 1996 has not been filed and, accordingly, the income tax basis of
mortgage loans as of December 31, 1996 is based on preliminary data.
(c) Reference is made to allowance for possible losses on real estate
investments in the notes to consolidated financial statements.
(d) Effective January 1, 1994, this note was modified. The interest rate
decreased from 9% to 8.50% beginning January 1, 1994, increased to
8.75% as of January 1, 1995 and increased to 9% as of January 1, 1996.
The past due interest and land rent of $70,000 was added to the
outstanding face value of the mortgage balance increasing it to
$4,245,000. The maturity of the loan was extended from August 28, 1996
to December 31, 1999. Prior to this modification, the stated rate on
the note was 9%. The carrying amount of this note is net of the
deferred gain of $1,127,000 and interest valuation of $433,000. The
deferred gain is recognized on the installment method.
(e) Interest or principal in arrears for three months or less is
disregarded in computing principal amount of loans subject to
delinquent principal or interest.
(f) Payments on this note are received quarterly. They include a fixed
principal amount as scheduled in the note document and interest that
has accrued since the last payment.
</TABLE>
54
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EASTGROUP PROPERTIES
By: /s/ David H. Hoster
David H. Hoster II, President & Trustee
March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
* /s/ H. C. Bailey /s/ Leland R. Speed
H. C. Bailey, Jr., Trustee Leland R. Speed, Chairman of the Board
March 19, 1997 (Principal Executive Officer)
March 31, 1997
* /s/ David Osnos * /s/ Alexander G. Anagnos
David Osnos, Trustee Alexander G. Anagnos, Trustee
March 19, 1997 March 19, 1997
* /s/ John Palmer /s/ Diane W. Hayman
John N. Palmer, Trustee Diane W. Hayman, Controller
March 19, 1997 (Principal Accounting Officer)
March 31, 1997
* /s/ Harold B. Judell /s/ N. Keith McKey
Harold B. Judell, Trustee N. Keith McKey, Executive Vice-President,
March 19, 1997 Chief Financial Officer and Secretary
(Principal Financial Officer)
March 31, 1997
/s/ N. Keith McKey
* By N. Keith McKey, Attorney in fact
55
<PAGE> 56
EXHIBIT INDEX
-------------
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
(3) Form 10-K exhibits:
(3) (a) Restated Declaration of Trust (incorporated by reference to Exhibit 1 to
Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (No. 33-65337)
filed February 27, 1996)
(b) Amendment to Restated Declaration of Trust (incorporated by reference to Appendix E
of the Registration Statement on Form S-4 (No. 333-01815).
(c) Trustees Regulations of the Registrant (incorporated by reference to Exhibit 3 of
the Registrant's 1980 Annual Report on Form 10-K).
(d) Amendment to the Registrant's Trustees Regulations (incorporated by reference to
Exhibit 3 of the Registrant's 1980 Annual Report on Form 10-K)
(e) Amendment to Registrant's Trustees Regulations (incorporated by reference to
Exhibit 3(d) of the Registrant's 1983 Annual Report on Form 10-K).
(10) (a) EastGroup Properties 1994 Management Incentive Plan (incorporated by reference to
Appendix D of the Registrant's Registration Statement on Form S-4 (No. 333-01815).*
(b) EastGroup Properties 1991 Trustees Stock Option Plan, As Amended (incorporated by
reference to Exhibit B of the Registrant's proxy statement dated April 26, 1994).*
(c) Agreement and Plan of Merger among EastGroup Properties, EastGroup-LNH Corporation and
LNH REIT, Inc. (incorporated by reference to Appendix A of the Registrant's Registration
Statement on Form S-4 (No. 33-65337) filed December 22, 1995).
(d) Agreement and Plan of Merger between Copley Properties, Inc. and EastGroup Properties
(incorporated by reference to Exhibit IX to Amendment No. 9 to the Registrant's Statement on
Schedule 13D dated February 12, 1996).
(e) Form of Change in Control Agreement that Registrant has entered into with each executive
officer (filed herewith)*
(11) Statement re: Computation of per share earnings (filed herewith)
(21) Subsidiaries of Registrant (filed herewith)
(23) Consent of KPMG Peat Marwick LLP (filed herewith)
(24) Powers of attorney (filed herein)
(27) Financial Data Schedule (filed herewith)
(28) Agreement of Registrant to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of the Registrant's 1986
Annual Report on Form 10-K)
* Indicates management or compensatory agreement.
</TABLE>
<PAGE> 1
Exhibit 10(e)
CHANGE IN CONTROL AGREEMENT
---------------------------
AGREEMENT by and between EastGroup Properties, a Maryland real
estate investment trust (the "Company"), with offices at 300 One Jackson Place,
188 East Capitol Street, Jackson, Mississippi 39201-2195, and ________________
(the "Executive"), an individual residing at
__________________________________________, dated as of the ____ day of
____________ 1997.
WHEREAS, the Company recognizes that the current business
environment makes it difficult to attract and retain highly qualified executives
unless a certain degree of security can be offered to such individuals against
organizational and personnel changes that frequently follow changes in control
of an organization; and
WHEREAS, even rumors of acquisitions or mergers may cause
executives to consider major career changes in an effort to assure financial
security for themselves and their families; and
WHEREAS, the Company desires to assure fair treatment of its
executives in the event of a Change in Control (as defined below) and to allow
them to make critical career decisions without undue time pressure and financial
uncertainty, thereby increasing their willingness to remain with the Company
notwithstanding the outcome of a possible Change in Control transaction; and
WHEREAS, the Company recognizes that its executives will be
involved in evaluating or negotiating any offers, proposals, or other
transactions that could result in Changes in Control of the Company and believes
that it is in the best interest of the Company and its stockholders for such
executives to be in a position, free from personal financial and employment
considerations, to be able to assess objectively and pursue aggressively the
interests of the Company's security holders in making these evaluations and
carrying on such negotiations; and
WHEREAS, the Board of Trustees (the "Board") of the Company
believes it is essential to provide the Executive with compensation arrangements
upon a Change in Control that provide the Executive with individual financial
security and that are competitive with those of other corporations, and, in
order to accomplish these objectives, the Board has caused the Company to enter
into this Agreement.
NOW THEREFORE, the parties, for good and valuable
consideration and intending to be legally bound, agree as follows:
1. OPERATION AND TERM OF AGREEMENT. This Agreement
shall be effective immediately upon its execution. This Agreement may be
terminated by the Company upon 24 months' advance written notice to the
Executive; PROVIDED, HOWEVER, that after a Change in Control of the Company
during the term of this Agreement, this Agreement shall remain
<PAGE> 2
in effect until all of the obligations of the parties under the Agreement are
satisfied and the Protection Period (as defined below) has expired. Prior to a
Change in Control this Agreement shall immediately terminate upon termination of
the Executive's employment or upon the Executive's ceasing to be an elected
officer of the Company, except in the case of such termination under
circumstances set forth in Section 2(e) below.
2. CERTAIN DEFINITIONS. The following words and phrases
shall have the meanings given for the purposes of this Agreement:
(a) "Cause" shall mean (i) the continued failure
by the Executive to perform his material responsibilities and duties toward the
Company (other than any such failure resulting from the Executive's incapacity
due to physical or mental illness); (ii) the engaging by the Executive in
willful or reckless conduct that is demonstrably injurious to the Company
monetarily or otherwise; (iii) the conviction of the Executive of a felony; or
(iv) the commission or omission of any act by the Executive that is materially
inimical to the best interests of the Company and that constitutes on the part
of the Executive common law fraud or malfeasance, misfeasance, or nonfeasance of
duty; provided, however, that "cause" shall not include the Executive's lack of
professional qualifications. For purposes of this Agreement, an act, or failure
to act, on the Executive's part shall be considered "willful" or "reckless" only
if done, or omitted, by him not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company. The Executive's
employment shall not be deemed to have been terminated for "cause" unless the
Company shall have given or delivered to the Executive (A) reasonable notice
setting forth the reasons for the Company's intention to terminate the
Executive's employment for "cause"; (B) a reasonable opportunity, at any time
during the 30-day period after the Executive's receipt of such notice, for the
Executive, together with his counsel, to be heard before the Board; and (C) a
Notice of Termination (as defined in Section 10 below) stating that, in the good
faith opinion of not less than a majority of the entire membership of the Board,
the Executive was guilty of the conduct set forth in clauses (i), (ii), (iii),
or (iv) of the first sentence of this Section 2(a).
(b) "Change in Control" shall mean a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirements; provided that, without
limitation, a Change in Control shall be deemed to have occurred if (i) any
person (as such term is used in section 13(d) and 14(d) of the Exchange Act) is
or becomes beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30 percent or
more of the combined voting power of the Company's then outstanding securities;
or (ii) during any period of two consecutive years, the following persons (the
"Continuing Trustees") cease for any reason to constitute a majority of the
Board: individuals who at the beginning of such
- 2 -
<PAGE> 3
period constitute the Board and new trustees each of whose election to the Board
or nomination for election to the Board by the Company's security holders was
approved by a vote of at least two-thirds of the trustees then still in office
who either were trustees at the beginning of the period or whose election or
nomination for election was previously so approved; or (iii) the security
holders of the Company approve a merger or consolidation of the Company with any
other corporation, other than (A) a merger or consolidation that would result in
the voting securities of the Company outstanding immediately before the merger
or consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of such surviving entity) a majority of
the voting securities of the Company or of such surviving entity outstanding
immediately after such merger or consolidation or (B) a merger of consolidation
that is approved by a Board having a majority of its members persons who are
Continuing Trustees, of which Continuing Trustees not less than two-thirds have
approved the merger or consolidation; or (iv) the security holders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets.
(c) "Code" shall mean the Internal Revenue Code
of 1986, as amended.
(d) "Disability," for purposes of this
Agreement, shall mean total disability as defined in any long-term disability
plan sponsored by the Company in which the Executive participates, or, if there
is no such plan or it does not define such term, then Disability shall mean the
physical or mental incapacity of the Executive that prevents the Executive from
substantially performing the duties of the office or position to which the
Executive was elected or appointed by the Board for a period of at least 180
days, which incapacity is expected to be permanent and continuous through the
Executive's 65th birthday.
(e) The "Change in Control Date" shall be any
date during the term of this Agreement on which a Change in Control occurs.
Notwithstanding any contrary provision in this Agreement, if the Executive's
employment or status as an elected officer with the Company is terminated by the
Company within six months before the date on which a Change in Control occurs,
and it is reasonably demonstrated that such termination (i) was at the request
of a third party who has taken steps reasonably calculated or intended to effect
a Change in Control or (ii) otherwise arose in connection with or anticipation
of a Change in Control, then for the purposes of this Agreement the "Change in
Control Date" shall mean the date immediately before the date of such
termination.
(f) "Good Reason" means:
(i) the assignment to the Executive
within the Protection Period of any duties inconsistent in any respect with the
Executive's position (including status, offices, titles and reporting
requirements, authority, duties, or responsibilities) or any
- 3 -
<PAGE> 4
other action that results in a diminution in such position, authority, duties,
or responsibilities excluding for this purpose an isolated, insubstantial, and
inadvertent action that is not taken in bad faith and is remedied by the Company
promptly after receipt of notice given by the Executive;
(ii) a reduction by the Company in the
Executive's base salary in effect immediately before the beginning of the
Protection Period or as increased from time to time after the beginning of the
Protection Period;
(iii) a failure by the Company to maintain
plans providing benefits at least as beneficial as those provided by any benefit
or compensation plan (including, without limitation, any incentive compensation
plan, bonus plan, or program, retirement, pension or savings plan, life
insurance plan, health and dental plan, or disability plan) in which the
Executive is participating immediately before the beginning of the Protection
Period or any action taken by the Company that would adversely affect the
Executive's participation in, or reduce the Executive's opportunity to benefit
under, any of such plans or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the Protection Period;
provided, however, that a reduction in benefits under the Company's
tax-qualified retirement, pension, or savings plans or its life insurance plan,
health and dental plan, disability plans, or other insurance plans, which
reduction applies generally to participants in the plans and has a de minimis
effect on the Executive shall not constitute "Good Reason" for termination by
the Executive;
(iv) the Company's requiring the
Executive, without the Executive's written consent, to be based at any office or
location in excess of 50 miles from his office location immediately before the
beginning of the Protection Period, except for travel reasonably required in the
performance of the Executive's responsibilities;
(v) any purported termination by the
Company of the Executive's employment for Cause otherwise than as referred to in
Section 10 of this Agreement; or
(vi) any failure by the Company to obtain
the assumption of the obligations contained in this Agreement by any successor
as contemplated in Section 9(c) of this Agreement.
(g) "Parent" means any entity that directly or
indirectly through one or more other entities owns or controls more than 50
percent of the voting securities or shares of beneficial interest of the
Company.
- 4 -
<PAGE> 5
(h) "Protection Period" means the period
beginning on the Change in Control Date and ending on the last day of the 36th
calendar month following the Change in Control Date.
(i) "Subsidiary" means a company 50 percent or
more of the voting securities of which are owned, directly or indirectly, by the
Company.
3. BENEFITS UPON TERMINATION UNDER CERTAIN CIRCUMSTANCES
WITHIN THE PROTECTION PERIOD. If the Executive's employment is terminated by the
Company during the Protection Period other than for Cause or Disability and
other than as a result of the Executive's death, or if the Executive terminates
his employment during the Protection Period for Good Reason, the Company shall,
subject to Section 7, pay to the Executive in a lump sum in cash within ten days
after the date of termination the aggregate of the following amounts and shall
provide the following benefits:
(a) The Executive's base salary and vacation pay
(for vacation not taken) accrued but unpaid through the date of termination of
employment; and
(b) A lump sum severance payment in an amount
equal to the product of 2.99 times the Executive's "Average Annual
Compensation." For the purposes of this Agreement, "Average Annual Compensation"
shall be an amount equal to the annual average of the sums of (i) the
Executive's annual base salary from the Company plus (ii) the amount of bonus
accrued by the Company for the Executive, in each case for the three calendar
years that ended immediately before (or, if applicable, coincident with) the
Change in Control Date; and
(c) Within 30 days of the date of termination of
employment, upon surrender by the Executive of the outstanding options to
purchase shares of beneficial interest of the Company ("Shares of Beneficial
Interest") granted to the Executive by the Company (the "Outstanding Options")
and any stock appreciation rights granted to the Executive by the Company
("SARs"), an amount with respect to each Outstanding Option and SAR (whether
vested or not) equal to the difference between the exercise price of such
Outstanding Options and SARs and the higher of (x) the fair market value of the
Shares of Beneficial Interest on the date of such termination (but not less than
the closing price for the Shares of Beneficial Interest on the New York Stock
Exchange, or such other national stock exchange on which such shares may be
listed, on the last trading day such shares traded prior to the date of
termination); and (y) the highest price paid for Shares of Beneficial Interest
or, in the cases of securities convertible into Shares of Beneficial Interest or
carrying a right to acquire Shares of Beneficial Interest, the highest effective
price (based on the prices paid for such securities) at which such securities
are convertible into Shares of Beneficial Interest or at which Shares of
Beneficial Interest may be acquired, by any person or group whose acquisition of
voting securities has resulted in a Change in Control of the Company;
- 5 -
<PAGE> 6
PROVIDED, HOWEVER, that this Section 3(c) shall not apply to the surrender of
any Outstanding Option that is an incentive stock option (within the meaning of
section 422 of the Code); and
(d) The Company shall provide the Executive with
life insurance coverage and health plan coverage substantially comparable to the
coverage the Executive was receiving from the Company immediately before
termination of employment; the provision of such coverage will continue until
the expiration of the 36-calendar month period following the date of the
termination of the Executive's employment, or, if earlier, until the date on
which the Executive becomes eligible for comparable coverage in connection with
subsequent employment, provided, however, that if such coverage is not available
under the plans covering the Company's employees, the Company may, at its
option, substitute for the provision of such coverage monthly payments to the
Executive for the same period in an amount equal to the reasonable monthly cost
of securing comparable coverage for an individual of the Executive's age on a
standard risk basis; and
(e) All of the Executive's benefits accrued
under any supplemental retirement plans, excess retirement plans, and deferred
compensation plans maintained by the Company or any of its Subsidiaries shall
become immediately vested in full; and
(f) All of the Executive's Outstanding Options
shall become immediately vested and exercisable in full.
4. BENEFITS ON VOLUNTARY TERMINATION WITHIN SIX MONTHS.
(a) If, during the period beginning on the
Change in Control Date and ending on the last day of the sixth calendar month
following the Change in Control Date, the Executive voluntarily terminates his
employment with the Company without Good Reason and other than for Disability,
as a result of his death, or in anticipation of a termination for Cause, then
the Company shall, subject to Section 7, make severance payments to the
Executive for a period of 36 months beginning with the calendar month following
the date of termination, with each monthly payment equal to one-twelfth of the
Executive's Average Annual Compensation, subject to paragraph (b).
(b) If the Executive receives any remuneration
in the form of wages, salary, or consulting fees from another employer or income
from self employment (excluding investment income) for employment, services, or
self-employment during the 36-month severance pay period, the Company's
obligation under paragraph (a) above shall be reduced by one-half the amount of
such remuneration. For the purpose of this reduction, the Company's 36-month
severance pay obligation shall be considered as an aggregate amount. The
Executive shall report to the Company by the 15th day of each month after the
termination of his employment the amount of such remuneration the Executive
received during the preceding month, and the Executive shall deliver to the
Company a copy of his
- 6 -
<PAGE> 7
federal income tax return for each of the calendar years containing a portion of
the severance pay period.
(c) The Company shall, within 30 days of the
termination of the Executive's employment under circumstances described in
paragraph (a), enter into an agreement with a trustee and establish a trust for
the purpose of assisting the Company meet its obligation to the Executive under
paragraph (a) and deposit with the trustee an amount equal to the present value
of the Company's obligation to the Executive under paragraph (a) (disregarding
paragraph (b) solely for the purpose of the present value calculation) on that
date. The trust shall be a grantor trust, within the meaning of subchapter J,
chapter 1, subtitle A of the Code, of which the Company is grantor, and the
assets of the trust shall be subject to the claims of the Company's creditors in
the event of insolvency.
The Company shall remain liable to satisfy
its obligations under paragraph (a), which may be satisfied with the assets of
the trust. The trust agreement shall provide that all amounts remaining in the
trust fund upon the satisfaction of the Company's obligation to the Executive
under paragraph (a) shall be returned to the Company.
To the extent the Executive acquires a right
to receive payments from the Company under paragraph (a), the right shall be no
greater than the right of any unsecured creditor of the Company. The Company and
Executive acknowledge it is their intent and they agree that for purposes of
Title I of the Employee Retirement Income Security Act of 1974, as amended, and
for purposes of the Code and for all other purposes, this Agreement and any
trust the Company may establish pursuant to this paragraph (c) constitute an
unfunded arrangement maintained for the purpose of providing compensation for an
individual who is a member of a select group of management or highly compensated
employees.
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive, or other plans, practices, policies, or programs
provided by the Company or any of its Subsidiaries and for which the Executive
may qualify, nor shall anything in this Agreement limit or otherwise affect such
rights as the Executive may have under any stock option or other agreements with
the Company or any of its Subsidiaries. Any amount of vested benefit or any
amount to which the Executive is otherwise entitled under any plan, practice,
policy, or program of the Company or any of its Subsidiaries shall be payable in
accordance with the plan, practice, policy, or program; PROVIDED, HOWEVER, that
if the Executive is entitled to benefits under Section 3 or 4, the Executive
shall not be entitled to severance pay, or benefits similar to severance pay,
under any plan, practice, policy, or program generally applicable to employees
of the Company or any of its Subsidiaries. The provision of severance pay or
other benefits pursuant to Section 3 or 4 shall not be deemed to be a
continuance of the Executive's employment for any purposes.
- 7 -
<PAGE> 8
6. FULL SETTLEMENT; NO OBLIGATION TO SEEK OTHER EMPLOYMENT;
LEGAL EXPENSES. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations under this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense, or
other claim, right, or action the Company may have against the Executive or
others. The Executive shall not be obligated to seek other employment or take
any action other than as provided in Section 4(b) by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, upon written demand by the Executive, all legal fees
and expenses the Executive may reasonably incur as a result of any dispute or
contest (regardless of outcome) by or with the Company or others regarding the
validity or enforceability of, or liability under, any provision of this
Agreement. In any such action brought by the Executive for damages or to enforce
any provisions of this Agreement, the Executive shall be entitled to seek both
legal and equitable relief and remedies, including, without limitation, specific
performance of the Company's obligations under this Agreement, in the
Executive's sole discretion.
7. CUT BACK IN BENEFITS. Notwithstanding any other provision
of this Agreement, the cash lump sum payment and other benefits or severance pay
otherwise to be provided pursuant to Section 3 or 4 of this Agreement, as
applicable, (the "Severance Benefit") shall be reduced as described below if the
Company would, by reason of section 280G of the Code, not be entitled to deduct
for federal income tax purposes any part of the Severance Benefit or any part of
any other payment or benefit to which Executive is entitled under any plan,
practice, policy, or program. For the purposes of this Agreement, the Company's
independent auditors shall determine the value of any deferred payments or
benefits in accordance with the principles of section 280G of the Code, and tax
counsel selected by the Company's independent auditors and acceptable to the
Company shall determine the deductibility of payments and benefits to which the
Executive is entitled. The Severance Benefit shall be reduced only to the extent
required, in the opinion of such tax counsel, to prevent such nondeductibility
of any part of the remaining Severance Benefit and other payments and benefits
to which the Executive is entitled. The Company shall determine which elements
of the Severance Benefit shall be reduced to conform to the provisions of this
Section 7. Any determination made by the Company's independent auditors or by
tax counsel pursuant to this Section 7 shall be conclusive and binding on the
Executive.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge, or data relating to the Company or any of its
Subsidiaries, and their respective businesses, obtained by the Executive during
the Executive's employment by the Company or any of its Subsidiaries and that
has not become public knowledge (other than by acts of the Executive or his
representatives in violation of this Agreement). After the date of termination
of the Executive's employment with the Company, the Executive shall not, without
the prior written
- 8 -
<PAGE> 9
consent of the Company, communicate or divulge any such information, knowledge,
or data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
9. SUCCESSORS.
(a) This Agreement is personal to the Executive
and shall not be assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives or successors in interest.
The Executive may designate a successor or successors in interest to receive any
and all amounts due the Executive under this Agreement after the Executive's
death. A designation of a successor in interest shall be made in writing, signed
by the Executive, and delivered to the Company pursuant to Section 13(b). This
Section 9(a) shall not supersede any designation of beneficiary or successor in
interest made by the Executive or provided for under any other plan, practice,
policy, or program of the Company.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
(c) The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business or assets of the Company and any
Parent of the Company or any successor and without regard to the form of
transaction utilized to acquire the business or assets of the Company, to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession or
parentage had taken place. As used in this Agreement, "Company" shall mean the
Company as defined above and any successor to its business or assets as
aforesaid (and any Parent of the Company or any successor) that is required by
this clause to assume and agree to perform this Agreement or that otherwise
assumes and agrees to perform this Agreement.
10. NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party given in accordance
with Section 13(b) of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice that (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) if the date of termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive to
set forth in the Notice of Termination
- 9 -
<PAGE> 10
any fact or circumstance that contributes to a showing of Good Reason shall not
waive any right of the Executive under this Agreement or preclude the Executive
from asserting such fact or circumstance in enforcing his rights.
11. REQUIREMENTS AND BENEFITS IF EXECUTIVE IS EMPLOYEE OF
SUBSIDIARY OF COMPANY. If the Executive is an employee of any Subsidiary of the
Company, he shall be entitled to all of the rights and benefits of this
Agreement as though he were an employee of the Company and the term "Company"
shall be construed to include the Subsidiary by which the Executive is employed.
The Company guarantees the performance of its Subsidiary under this Agreement.
12. DISPUTE RESOLUTION. The Company and the Executive shall
attempt to resolve between them any dispute that arises under this Agreement. If
they cannot agree within ten days after either party submits a demand for
arbitration to the other party, then the issue shall be submitted to arbitration
with each party having the right to appoint one arbitrator and those two
arbitrators mutually selecting a third arbitrator. The rules of the American
Arbitration Association for the arbitration of commercial disputes shall apply
and the decision of two of the three arbitrators shall be final. The arbitrators
must reach a decision within 60 days after the selection of the third
arbitrator. The arbitration shall take place in Jackson, Mississippi. The
arbitrators shall apply Mississippi law.
13. MISCELLANEOUS.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Mississippi, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the Agreement and shall have no force or effect. This Agreement may
be amended or modified only by a written agreement executed by the parties or
their respective successors and legal representatives.
(b) All notices and other communications under
this Agreement shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, to the addresses for each party as first written above or to
such other address as either party shall have furnished to the other in writing
in accordance with this Section 13. Notices and communications to the Company
shall be addressed to the attention of the Company's Corporate Secretary. Notice
and communications shall be effective when actually received by the addressee.
(c) Whenever reference is made in this Agreement
to any specific plan or program of the Company, to the extent that the Executive
is not a participant in the plan or program or has no benefit accrued under it,
whether vested or contingent, as of the Change in Control Date, then such
reference shall be null and void and the Executive shall acquire no additional
benefit as a result of such reference.
- 10 -
<PAGE> 11
(d) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(e) The Company may withhold from any amounts
payable under this Agreement such federal, state, or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(f) The Company's or the Executive's failure to
insist upon strict compliance with any provision of this Agreement shall not be
construed to be a waiver of such provision or any other provision.
(g) Except in the case of termination of
employment or elected officer status under the circumstances set forth in
Section 2(e) above, upon a termination of the Executive's employment or upon the
Executive's ceasing to be an elected officer of the Company, in each case, prior
to the Change in Control Date, there shall be no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has set his hand to this
Agreement and, pursuant to the authorization from the Board, the Company has
caused this Agreement to be executed as of the day and year first above written.
EASTGROUP PROPERTIES
By____________________________________
EXECUTIVE
--------------------------------------
- 11 -
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT (11) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands)
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 8,677 6,338 6,170
Net effect of dilutive stock options - Based on
the treasury stock method using average
market price 69 21 41
------- ------ ------
TOTAL 8,746 6,359 6,211
======= ====== ======
Net income $12,509 7,711 7,168
======= ====== ======
Per share amount $ 1.43 1.21 1.15
======= ====== ======
<FN>
Note: The above dilution is less than 3% or anti-dilutive; thus earnings per share are based on the average shares outstanding.
</TABLE>
<PAGE> 1
Exhibit (21)
PART IV
ITEM. 25 LIST OF SUBSIDIARIES
100% Owned Subsidiaries
EastGroup California, Inc.
EastGroup Florida, Inc.
EastGroup Houston, Inc.
EastGroup Jackson, Inc.
EastGroup Jacksonville, Inc.
EastGroup San Antonio, Inc.
EastGroup Sunbelt, Inc.
EastGroup Tallahassee, Inc.
EastGroup Tampa, Inc.
EastGroup Texas, Inc.
EastGroup Virginia, Inc.
EGP Managers, Inc.
EastGroup Alabama, Inc.
CPI Holdings, Inc.
EastGroup-LNH Corp.
-LNH Florida, Inc.
-LNH KC, Inc.
-LNH RI, Inc.
-LNH REIT Managers
Partnerships, with Partners indented
EGP Houston Partners Ltd.
99% EastGroup Properties
1% EastGroup Houston, Inc.
EGP San Antonio Partners, Ltd.
99% EastGroup Properties
1% EastGroup San Antonio, Inc.
EGP Texas Partners Ltd.
99% EastGroup Properties
1% EastGroup Texas
GV Partners
78% EastGroup Properties
22% EastGroup California, Inc.
M.O.R. XXXVI Associates Limited
50% EastGroup Properties
50% CPI Holdings, Inc.
IBG Huntwood Wiegman Road Associates
80% EastGroup Properties
20% JCB Limited
Sample I-95 Associates
99% EastGroup Properties
1% CPI Holdings, Inc.
IBG Huntwood Associates
99% EastGroup Properties
1% CPI Holdings, Inc.
<PAGE> 1
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Trustees and Shareholders
EastGroup Properties:
We consent to incorporation by reference in the registration statement
(No. 333-09711) on Form S-3 and the registration statement (No. 33-60909) on
Form S-8 of EastGroup Properties of our reports dated March 21, 1997, relating
to the consolidated balance sheets of EastGroup Properties and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, and all related
schedules, which reports appear in the December 31, 1996, Annual Report on Form
10-K of EastGroup Properties.
KPMG Peat Marwick LLP
Jackson, Mississippi
March 31, 1997
<PAGE> 1
Exhibit (24)
EASTGROUP PROPERTIES
POWER OF ATTORNEY
The undersigned Trustee of EastGroup Properties, a State of Maryland
real estate investment trust, hereby constitutes and appoints N. Keith McKey as
the true and lawful Attorney-in-fact and Agent of the undersigned to sign on
behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or
such other form as may be required) for the year ended December 31, 1996 to be
filed with the Securities and Exchange Commission ("SEC"); and (b) any and all
amendments to such Report as may be required to be filed with the SEC.
/s/ Alexander G. Anagnos
Alexander G. Anagnos
Trustee
Date: 3/19/97
<PAGE> 2
(Exhibit 24)
EASTGROUP PROPERTIES
POWER OF ATTORNEY
The undersigned Trustee of EastGroup Properties, a State of Maryland
real estate investment trust, hereby constitutes and appoints N. Keith McKey as
the true and lawful Attorney-in-fact and Agent of the undersigned to sign on
behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or
such other form as may be required) for the year ended December 31, 1996 to be
filed with the Securities and Exchange Commission ("SEC"); and (b) any and all
amendments to such Report as may be required to be filed with the SEC.
/s/ H.C. Bailey, Jr.
H.C. Bailey, Jr.
Trustee
Date: 3/19/97
<PAGE> 3
(Exhibit 24)
EASTGROUP PROPERTIES
POWER OF ATTORNEY
The undersigned Trustee of EastGroup Properties, a State of Maryland
real estate investment trust, hereby constitutes and appoints N. Keith McKey as
the true and lawful Attorney-in-fact and Agent of the undersigned to sign on
behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or
such other form as may be required) for the year ended December 31, 1996 to be
filed with the Securities and Exchange Commission ("SEC"); and (b) any and all
amendments to such Report as may be required to be filed with the SEC.
/s/ Harold B. Judell
Harold B. Judell
Trustee
Date: 3/19/97
<PAGE> 4
(Exhibit 24)
EASTGROUP PROPERTIES
POWER OF ATTORNEY
The undersigned Trustee of EastGroup Properties, a State of Maryland
real estate investment trust, hereby constitutes and appoints N. Keith McKey as
the true and lawful Attorney-in-fact and Agent of the undersigned to sign on
behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or
such other form as may be required) for the year ended December 31, 1996 to be
filed with the Securities and Exchange Commission ("SEC"); and (b) any and all
amendments to such Report as may be required to be filed with the SEC.
/s/ David M. Osnos
David M. Osnos
Trustee
Date: 3/19/97
<PAGE> 5
(Exhibit 24)
EASTGROUP PROPERTIES
POWER OF ATTORNEY
The undersigned Trustee of EastGroup Properties, a State of Maryland
real estate investment trust, hereby constitutes and appoints N. Keith McKey as
the true and lawful Attorney-in-fact and Agent of the undersigned to sign on
behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or
such other form as may be required) for the year ended December 31, 1996 to be
filed with the Securities and Exchange Commission ("SEC"); and (b) any and all
amendments to such Report as may be required to be filed with the SEC.
/s/ John N. Palmer
John N. Palmer
Trustee
Date: 3/19/97
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 438
<SECURITIES> 934
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 280,117
<DEPRECIATION> (23,562)
<TOTAL-ASSETS> 281,455
<CURRENT-LIABILITIES> 0
<BONDS> 129,078
<COMMON> 10,549
0
0
<OTHER-SE> 134,777
<TOTAL-LIABILITY-AND-EQUITY> 281,455
<SALES> 0
<TOTAL-REVENUES> 39,765
<CGS> 0
<TOTAL-COSTS> 13,262
<OTHER-EXPENSES> 19,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,930
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,509
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
</TABLE>
