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Filed Pursuant to Rule 424(b)(5)
File No. 333-09711
EASTGROUP
PROPERTIES LOGO
PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS DATED DECEMBER 16, 1996)
EASTGROUP PROPERTIES
1,250,000 SHARES
All of the shares of beneficial interest, $1.00 par value per share (the
"Shares"), of EastGroup Properties ("EastGroup"), offered hereby (the
"Offering") are being sold by EastGroup. PaineWebber Incorporated, acting as
underwriter ("PaineWebber"), has agreed to purchase from EastGroup the Shares
offered hereby at a purchase price of approximately $26.34 per Share or an
aggregate price of $32,921,875. The net proceeds to EastGroup will be
$32,771,875, net of expenses payable by EastGroup of approximately $150,000.
EastGroup has granted PaineWebber an option, exercisable during the 30-day
period after the date of this Prospectus Supplement, under which PaineWebber may
purchase from EastGroup up to 150,000 additional Shares for an aggregate
purchase price of $3,950,625, assuming full exercise of the option, solely to
cover over-allotments. The Shares offered hereby may be offered by PaineWebber
from time to time in one or more transactions on the New York Stock Exchange,
Inc. ("NYSE"), or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. See
"Underwriting."
The Shares are listed on the NYSE under the symbol "EGP." On February 3,
1997, the last reported sale price of the Shares on the NYSE was $27.75 per
Share.
SEE "RISK FACTORS" COMMENCING ON PAGE 1 OF THE ACCOMPANYING PROSPECTUS, AS
UPDATED AND SUPPLEMENTED BY THE DISCUSSION UNDER THE CAPTION "RISK FACTORS"
COMMENCING ON PAGE S-5 OF THIS PROSPECTUS SUPPLEMENT, FOR CERTAIN FACTORS AND
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Shares offered hereby are offered by PaineWebber, subject to prior
sale, when, as and if delivered to and accepted by PaineWebber, and subject to
its right to reject orders in whole or in part. It is expected that delivery of
the Shares offered hereby will be made on or about February 7, 1997.
------------------------
PAINEWEBBER INCORPORATED
------------------------
The date of this Prospectus Supplement is February 4, 1997.
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CERTAIN MATTERS DISCUSSED UNDER THE CAPTIONS "PROSPECTUS SUPPLEMENT
SUMMARY," "RISK FACTORS," "THE COMPANY," "TAXATION" AND "FEDERAL INCOME TAX
CONSIDERATIONS," AND ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, AND THE INFORMATION INCORPORATED BY REFERENCE HEREIN
AND THEREIN, INCLUDING, WITHOUT LIMITATION, DEMOGRAPHIC PROJECTIONS, STRATEGIC
INITIATIVES AND TAX CONSIDERATIONS, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS
FOR PURPOSES OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF EASTGROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF EASTGROUP TO DIFFER MATERIALLY FROM EASTGROUP'S EXPECTATIONS
ARE DISCLOSED IN THIS PROSPECTUS SUPPLEMENT ("CAUTIONARY STATEMENTS"),
INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS"
AND OTHERWISE HEREIN, AND ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO
EASTGROUP ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
IN CONNECTION WITH THIS OFFERING, PAINEWEBBER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement and the
accompanying Prospectus and in documents incorporated herein or therein by
reference. Unless the context otherwise requires, all references in this
Prospectus Supplement to "EastGroup" shall mean EastGroup Properties and its
subsidiaries on a consolidated basis and, as the context may require, their
predecessors. Information in this Prospectus Supplement assumes that
PaineWebber's over-allotment option is not exercised. See "Underwriting."
THE COMPANY
EastGroup is a self-administered real estate investment trust ("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. EastGroup's portfolio
currently includes 27 industrial properties comprising over 4.9 million square
feet of leasable space, as well as four office buildings containing
approximately 569,000 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 2.0 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 2.2 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 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
approximately 618,000 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 sale price of approximately $24.5 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
remaining five apartment complexes, as well as two shopping center properties
which were acquired in the LNH Acquisition, as market conditions permit.
Upon completion of the Offering and the application of the net proceeds
therefrom, EastGroup's ratio of debt to total market capitalization (defined as
the market value of all outstanding Shares plus the principal amount of
outstanding debt) will be approximately 30% (based on the February 3, 1997
closing Share price of $27.75 per Share) and EastGroup will have approximately
$35 million of borrowing capacity under its revolving credit facilities.
EastGroup was organized in 1969 and current management assumed control in
1983. EastGroup has paid 68 consecutive quarterly dividends to its shareholders
and has increased the quarterly dividend five times in the last four years. The
current quarterly dividend of $0.49 ($1.96 on an annualized basis) represents an
annual dividend yield of 7.1% (based on the February 3, 1997 closing Share
price). EastGroup's executive
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offices are located at 300 One Jackson Place, 188 East Capitol Street, Jackson,
Mississippi 39201-2195. Its telephone number is (601) 354-3555.
RISK FACTORS
An investment in the Shares involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
commencing on page 1 of the accompanying Prospectus, as updated and supplemented
by the discussion under the caption "Risk Factors" commencing on page S-5 of
this Prospectus Supplement, prior to any investment in EastGroup.
THE OFFERING
Shares Offered by EastGroup...... 1,250,000 Shares
Shares Outstanding after the
Offering......................... 8,290,243 Shares(1)
Use of Proceeds.................. The net proceeds to EastGroup of
approximately $32.8 million from the
Offering will be used as follows: (i)
approximately $30.0 million to reduce
outstanding indebtedness; and (ii) the
remainder to fund working capital
requirements, including the acquisition of
industrial properties.
NYSE Symbol...................... "EGP"
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(1) Based on the number of Shares outstanding on February 3, 1997. Does not
include 321,300 Shares reserved for issuance upon the exercise of
outstanding options granted pursuant to EastGroup's option plans. The number
of Shares which are reserved for issuance upon the exercise of outstanding
options under (i) EastGroup's 1994 Management Incentive Plan is 281,800 and
(ii) EastGroup's 1991 Trustees Stock Option Plan is 39,500.
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RISK FACTORS
An investment in the Shares involves various risks. Prospective investors
should carefully consider the discussion in the accompanying Prospectus under
the caption "Risk Factors" as well as the updated and supplemental information
set forth below in conjunction with the other information contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus before making a decision to purchase Shares.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, an
owner or operator 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 or
operator 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 Cowesett Corners
Shopping Center ("Cowesett"), portions of which are used for purposes of
operating a drycleaning business, these environmental audit reports have not
revealed any potential significant environmental liability, nor is management of
EastGroup aware of any environmental liability with respect to the properties
(including Cowesett) that management believes would have a material adverse
effect on EastGroup's business, assets or results of operations. 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.
Preliminary environmental studies performed at the Cowesett property
indicated that certain hazardous materials have been released at Cowesett in
connection with the drycleaning operations and paint store operations conducted
on part of the property by parties unrelated to EastGroup. Such preliminary
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. Based on current information,
it is not possible for management of EastGroup to predict the cost of
remediation at Cowesett but management does not believe that such remediation
costs will have a material adverse effect on EastGroup's business, assets or
results of operations. 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.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT AND OWNERSHIP LIMITS
EastGroup believes that it has operated in a manner so as to qualify as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"), for each
of its taxable years since its formation in 1969. Qualification as a REIT
depends on EastGroup's meeting the various highly technical and complex Code
provisions and REIT qualification rules, which include: (i) maintaining
ownership of specified minimum levels of real estate related assets; (ii)
generating specified minimum levels of real estate related income; (iii)
maintaining certain diversity of ownership of the Shares; and (iv) distributing
at least 95% of all real estate investment trust taxable income on an annual
basis. Although management of EastGroup believes that it has operated and will
continue to operate in a manner so as to qualify as a REIT, no assurance can be
given that EastGroup has so qualified or will be able to continue to operate in
a manner so as to remain so qualified.
One of the requirements for EastGroup to maintain its qualification as a
REIT is that not more than 50% in value of the outstanding Shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code).
To minimize the possibility that EastGroup will fail to qualify as a REIT under
this test, EastGroup's Restated Declaration of Trust, as amended (the
"Charter"), authorizes the trustees to take such action as may be required to
preserve its qualification as a REIT and allows the trustees to redeem Shares if
they believe that ownership has or may become concentrated to an extent which is
contrary to the REIT requirements of the Code. These restrictions, however, do
not ensure that EastGroup will be able to satisfy the
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"five or fewer requirements" primarily as a result of the fact that such
provisions do not operate automatically to void any attempted transfer,
acquisition or ownership of Shares that would result in the disqualification of
EastGroup as a REIT, but instead require EastGroup's trustees to take action to
prohibit or deem to be null and void any such attempted transfer, acquisition or
ownership of Shares or to purchase or redeem any such Shares. Since the Shares
are publicly traded, the trustees may not become aware of attempted transfers,
acquisitions or ownership of Shares that would cause EastGroup to fail to
qualify as a REIT until well after such transfers, acquisitions or ownership
have occurred, if at all.
If EastGroup were to fail to qualify as a REIT, EastGroup would not be
allowed a deduction in computing taxable income for amounts distributed to its
shareholders and would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at corporate rates. In
addition, unless entitled to relief under certain statutory provisions,
EastGroup would be ineligible for qualification as a REIT for the four taxable
years following the year during which qualification is lost. This treatment
would reduce the net earnings of EastGroup available for investment or
distribution to shareholders because of the additional tax liability to
EastGroup for the year or years involved. In addition, distributions to
shareholders would no longer be required to be made. To the extent that
distributions to shareholders had been made in anticipation of EastGroup's
continuing qualification as a REIT, EastGroup might be required to borrow funds
or liquidate certain of its investments to pay the applicable tax. See "Federal
Income Tax Considerations -- Taxation of the Company" and "Federal Income Tax
Considerations -- Taxation of Shareholders" in the accompanying Prospectus and
"Taxation" below.
RISKS ASSOCIATED WITH RAPID GROWTH
EastGroup is currently experiencing a period of rapid growth. As a result
of the Copley Acquisition and the acquisition of additional industrial
properties and subsequent property acquisitions, EastGroup's industrial and
office property portfolio has increased from 18 properties at March 31, 1996,
consisting of approximately 2.9 million square feet of leasable space, to 31
properties at February 3, 1997, consisting of approximately 5.5 million square
feet of leasable space. EastGroup's ability to manage its growth effectively
will require it to integrate successfully the new properties. The inability of
EastGroup to integrate the properties in a timely and efficient manner could
have an adverse effect on EastGroup's business.
REAL ESTATE FINANCING RISKS
Substantial Debt Obligations. As of February 3, 1997, EastGroup has
approximately $99 million of fixed rate mortgage indebtedness. In addition,
EastGroup has a $15 million secured revolving credit facility (the "Acquisition
Facility") and a $20 million secured revolving credit facility (the "Working
Capital Facility"), both of which bear interest at variable rates equal to LIBOR
plus 1.85% (7.35% as of February 3, 1997). As of February 3, 1997, approximately
$11.6 million was outstanding under the Acquisition Facility and approximately
$18.4 million was outstanding under the Working Capital Facility. EastGroup's
ratio of debt to total market capitalization was approximately 40% as of
December 31, 1996, and will be approximately 30% upon completion of this
Offering and the application of the proceeds therefrom, based on the February 3,
1997 closing Share price of $27.75 per Share.
Existing Debt Maturities and Refinancing Risks. EastGroup is subject to
the risks normally associated with debt financing, including the risk that
EastGroup's cash flow will be insufficient to meet required payments of
principal and interest. Failure to pay debt obligations when due could result in
EastGroup losing its interest in the properties collateralizing such
obligations. Certain of EastGroup's credit agreements provide that a default
with respect to any other indebtedness shall cause an event of default under the
credit agreement and accelerate EastGroup's obligations thereunder. EastGroup
will repay the outstanding balance on the Acquisition Facility and the Working
Capital Facility with proceeds of this Offering. EastGroup intends to repay any
amounts drawn on such credit facilities in the future with cash flow from
operations, funds obtained from the sale of securities, fixed rate financings
secured by buildings purchased with the Acquisition Facility or the proceeds
from the sale of assets. The Working Capital Facility matures on April 30, 1997
and the Acquisition Facility matures on April 30, 1999. There can be no
assurance that market conditions will permit
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the sale of securities, that fixed rate financing will be available or available
on acceptable terms, or that assets will be sold to purchase real estate
properties or repay debt, and in the event variable rate debt remains
outstanding, any increase in interest rates could have a material adverse impact
on EastGroup's financial results. Accordingly, there is a risk that existing
indebtedness will not be able to be refinanced or that the terms of such
refinancing will not be as favorable as the terms of the existing indebtedness.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Shares could be substantially affected by general
market conditions, including changes in interest rates, government regulatory
action and changes in tax laws. An increase in market interest rates may lead
purchasers of the Shares to demand a higher annual dividend yield on the Shares,
which could adversely affect the market price of the Shares. Moreover, numerous
other factors, such as government regulatory action and changes in tax laws,
could have a significant impact on the future market price of the Shares or
other securities.
POSSIBLE CONFLICTS OF INTEREST
Leland R. Speed, EastGroup's Chairman and Chief Executive Officer, also
serves as Chairman and Chief Executive Officer of Parkway Properties, Inc., a
REIT with a focus on office properties in the Southeastern region of the United
States and Texas. As both companies carry out their strategic plans, management
of each company has stated its intention not to sell, transfer or acquire
properties between the two entities, and each company intends to pursue its
distinct corporate plan. There can be no assurance that conflicts of interest
will not arise between the two companies in the future.
LIMITS ON CHANGES IN CONTROL
Certain provisions in EastGroup's Charter and certain provisions of
Maryland law may have the effect of discouraging a third party from making an
acquisition proposal for EastGroup and may thereby inhibit a change in control
of EastGroup. These include provisions of Maryland law relating to certain
"business combinations" and "control share" acquisitions involving Maryland
REITs and certain provisions of the Charter intended to protect EastGroup's
status as a REIT described above under "-- Adverse Consequences of Failure to
Qualify as a REIT and Ownership Limits." Such provisions may (i) deter tender
offers for Shares, which offers may be attractive to the shareholders; or (ii)
deter purchases of large blocks of Shares, thereby limiting the opportunity for
shareholders to receive a premium for their Shares over then-prevailing market
prices.
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THE COMPANY
GENERAL
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. EastGroup's portfolio currently includes 27 industrial
properties comprising over 4.9 million square feet of leasable space, as well as
four office buildings containing approximately 569,000 square feet of leasable
space. As of December 31, 1996, the industrial portfolio and the office
portfolio were each 97% leased.
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 sale price of approximately $24.5 million, resulting in a net gain,
for financial reporting purposes, of approximately $5.6 million. The sales
proceeds have been applied principally to reduce indebtedness and acquire
industrial properties. EastGroup plans to dispose of its remaining five
apartment complexes, as well as two shopping center properties which were
acquired in the LNH Acquisition, as market conditions permit.
Upon completion of the Offering and the application of the net proceeds
therefrom, EastGroup's ratio of debt to total market capitalization (defined as
the market value of all outstanding Shares plus the principal amount of
outstanding debt) will be approximately 30% (based on the February 3, 1997
closing Share price of $27.75 per Share) and EastGroup will have approximately
$35 million of borrowing capacity under its revolving credit facilities.
EastGroup was organized in 1969 and current management assumed control in
1983. EastGroup has paid 68 consecutive quarterly dividends to its shareholders
and has increased the quarterly dividend five times in the last four years. The
current quarterly dividend of $0.49 ($1.96 on an annualized basis) represents an
annual dividend yield of 7.1% (based on the February 3, 1997 closing Share
price). EastGroup's executive offices are located at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi 39201-2195. Its telephone number is
(601) 354-3555.
INVESTMENT STRATEGY
EastGroup pursues a unique three-pronged investment strategy which
includes: (i) the acquisition of industrial properties at favorable initial
yields, with opportunities to improve cash flow performance through active and
efficient management; (ii) the selective development of industrial properties in
markets where EastGroup already has a presence and where market conditions
justify such investments; and (iii) the acquisition of existing public and
private real estate companies or REITs which EastGroup believes are undervalued.
Although EastGroup intends to focus its future acquisitions on industrial
properties, EastGroup may acquire property portfolios or companies which include
both industrial properties and other asset types. Recent examples of EastGroup's
investment strategy include the following:
(i) Property Acquisitions. In August 1996, EastGroup acquired Walnut
Business Center, a 234,000 square foot industrial complex in Fullerton,
California, for approximately $8.2 million. This acquisition complements
EastGroup's existing Southern California portfolio and increases EastGroup's
industrial assets in California to over 1.6 million square feet. In September
1996, EastGroup acquired Braniff Park West, a 259,000 square foot industrial
complex in Tulsa, Oklahoma, for approximately $5.7 million. This acquisition
increases EastGroup's industrial property portfolio in the Texas/Oklahoma area
to over 1.0 million square feet.
(ii) Selective Development. EastGroup has two development projects
currently underway. In Denver, Colorado, EastGroup is developing Rampart
Distribution Center II ("Rampart II"), a $3.2 million, 66,000 square foot
industrial facility which will be located adjacent to EastGroup's existing 100%
occupied Rampart Distribution Center. In Orlando, Florida, EastGroup is
constructing Chancellor Distribution Center ("Chancellor"), a $1.8 million,
51,100 square foot industrial property near the Orlando International Airport,
an area
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where EastGroup already owns three fully-occupied industrial properties.
EastGroup expects to complete both projects in April 1997. In addition to
Rampart II and Chancellor, EastGroup has two additional industrial property
development projects in the planning stages, representing an aggregate potential
additional investment of approximately $9.0 million.
(iii) Acquisition of public and private real estate companies and
REITs. In June 1996, EastGroup completed the successful acquisition of Copley,
a diversified REIT specializing in industrial properties. EastGroup identified
Copley as a potential acquisition candidate in early 1995, and subsequently
acquired approximately 5% of Copley's outstanding common stock. In September
1995, Copley's management determined to sell Copley and EastGroup increased its
stake to 15%. EastGroup later submitted the winning proposal for the acquisition
of Copley and completed the Copley Acquisition in June 1996. The Copley
Acquisition significantly increased the size of EastGroup's property portfolio,
adding 11 properties (nine industrial properties and two office buildings),
totalling over 2.0 million square feet of leasable space, principally in Arizona
and California. The Copley Acquisition was completed for aggregate consideration
of approximately $116 million, consisting of the issuance of approximately 2.2
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 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 LNH Acquisition, a former EastGroup affiliate, for aggregate consideration
of approximately $18 million, consisting of the issuance of approximately
618,000 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. EastGroup's management has extensive experience in the acquisition
of real estate companies and REITs, and management believes that through such
acquisitions EastGroup can significantly expand its portfolio while providing
value both to EastGroup's shareholders and to the shareholders of acquired
companies.
PROPERTIES
Existing Properties. The following table contains certain information with
respect to EastGroup's existing real estate properties:
<TABLE>
<CAPTION>
YEAR(S)
PROPERTY TYPE, TOTAL PERCENT LEASED AT ACQUIRED OR
NAME AND LOCATION SQUARE FEET DECEMBER 31, 1996 CONSTRUCTED
--------------------- ----------- ----------------- -----------
<S> <C> <C> <C>
INDUSTRIAL
Arizona
Broadway Industrial Center.................. 121,000 100% 1996
Tempe, Arizona
Metro Business Park......................... 189,000 85% 1996
Phoenix, Arizona
California
Wiegman Associates.......................... 262,000 100% 1996
Hayward, California
Huntwood Associates......................... 514,000 100% 1996
Hayward, California
Nobel Center................................ 54,000 99% 1987
Hercules, California
Kingsview Industrial Center................. 83,000 100% 1987
Carson, California
Dominguez Distribution Center............... 262,000 100% 1996
Carson, California
Walnut Business Center...................... 234,000 100% 1996
Fullerton, California
</TABLE>
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<TABLE>
<CAPTION>
YEAR(S)
PROPERTY TYPE, TOTAL PERCENT LEASED AT ACQUIRED OR
NAME AND LOCATION SQUARE FEET DECEMBER 31, 1996 CONSTRUCTED
--------------------- ----------- ----------------- -----------
<S> <C> <C> <C>
University Business Center(1)............... 230,000 100% 1996
Santa Barbara, California
Colorado
Rampart Distribution Center................. 116,000 100% 1988
Denver, Colorado
Florida
Deerwood Distribution Center................ 98,000 100% 1989
Jacksonville, Florida
Phillips Distribution Center................ 161,000 100% 1994/95
Jacksonville, Florida
Lake Pointe Business Park................... 376,000 97% 1993
Jacksonville, Florida
LaQuinta Distribution Center................ 33,000 100% 1989
Orlando, Florida
Exchange Distribution Center................ 139,000 100% 1994
Orlando, Florida
Sunbelt Distribution Center................. 208,000 100% 1989
Orlando, Florida
56th Street Commerce Park(2)................ 156,000 92% 1993
Tampa, Florida
JetPort Commerce Park(2).................... 220,000 97% 1993/94/95
Tampa, Florida
Westport Commerce Center(2)................. 140,000 77% 1994
Tampa, Florida
Linpro Commerce Center...................... 99,000 100% 1996
Fort Lauderdale, Florida
Sample/I-95 Business Park................... 157,000 95% 1996
Pompano Beach, Florida
Oklahoma
Lakeside Distribution Center................ 60,000 100% 1994
Oklahoma City, Oklahoma
Braniff Park West........................... 259,000 100% 1996
Tulsa, Oklahoma
Texas
Exchange Warehouses......................... 58,000 100% 1988
Arlington, Texas
Interstate Warehouses....................... 247,000 88% 1988
Dallas, Texas
Venture Warehouses.......................... 209,000 100% 1988
Dallas, Texas
Northwest Point Business Park............... 232,000 93% 1994
Houston, Texas
-----------
Total/Average.......................... 4,917,000 97%
=========
OFFICE BUILDINGS
California
Los Angeles Corporate Center................ 77,000 100% 1996
Monterey Park, California
</TABLE>
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<TABLE>
<CAPTION>
YEAR(S)
PROPERTY TYPE, TOTAL PERCENT LEASED AT ACQUIRED OR
NAME AND LOCATION SQUARE FEET DECEMBER 31, 1996 CONSTRUCTED
--------------------- ----------- ----------------- -----------
<S> <C> <C> <C>
Maryland
Columbia Place.............................. 115,000 100% 1996
Columbia, Maryland
Texas
Santa Fe Energy Building.................... 176,000 96% 1994
Houston, Texas
Virginia
8150 Leesburg Pike.......................... 201,000 94% 1975/89
Tysons Corner, Virginia
--------
Total/Average.......................... 569,000 97%
========
SHOPPING CENTERS
Missouri
Liberty Corners(3).......................... 121,432 95% 1994
Liberty (Kansas City), Missouri
Rhode Island
Cowesett Corners(4)......................... 135,713 99% 1995
Warwick, Rhode Island
--------
Total/Average.......................... 257,145 97%
========
</TABLE>
<TABLE>
<CAPTION>
TOTAL NUMBER PERCENT LEASED AT YEAR
PROPERTY NAME AND LOCATION OF UNITS DECEMBER 31, 1996 ACQUIRED
-------------------------------------------- ------------- ----------------- --------
<S> <C> <C> <C>
APARTMENTS
Alabama
Grande Pointe Apartments.................... 180 95% 1992
Daphne (Mobile), Alabama
Georgia
LaVista Apartments.......................... 240 79% 1991
Atlanta, Georgia
Mississippi
Hampton House Apartments.................... 164 98% 1994
Jackson, Mississippi
Texas
Doral Club Apartments....................... 296 97% 1992
San Antonio, Texas
Sutton House Apartments..................... 265 93% 1993
San Antonio, Texas
-----
Total/Average.......................... 1,145 92%
======
<FN>
- ---------------
(1) Represents 100% of the property -- EastGroup owns an 80% tenancy-in-common
interest in these assets.
(2) Represents 100% of the property -- EastGroup owns a 75% tenancy-in-common
interest in these assets.
(3) Represents 100% of the property -- EastGroup has a 77.78% interest in the
joint venture which owns Liberty Corners Shopping Center.
(4) Represents 100% of the property -- EastGroup has a 50% interest in the joint
venture which owns the Cowesett Corners Shopping Center.
</TABLE>
S-11
<PAGE> 12
PROPOSED ACQUISITION
EastGroup has executed a purchase contract to acquire the Lockwood
Distribution Center, a three building warehouse complex located in Houston,
Texas. The Lockwood Distribution Center contains approximately 392,000 square
feet and was 100% leased at December 31, 1996. The purchase price for this
property is $5,987,500, plus approximately $370,000 in related acquisition
costs. This acquisition is still subject to EastGroup's due diligence review.
Therefore, there can be no assurance that the purchase of this property will be
completed. EastGroup intends to fund the purchase of this property with a part
of the proceeds from this Offering and through reborrowings under the
Acquisition Facility.
MANAGEMENT
EastGroup's management team has extensive experience in real estate
operations, acquisitions and development. Members of senior management have
worked together since 1983. Leland R. Speed, EastGroup's Chairman and Chief
Executive Officer, and David H. Hoster II, EastGroup's President, have 42 years
and 24 years of experience, respectively, in the real estate industry.
PROPERTY MANAGEMENT
EastGroup has implemented an aggressive property management and leasing
strategy conducted by professionals with extensive experience and knowledge of
local markets and property types. With the exception of three properties which
are self-managed, all of EastGroup's properties are managed by professional
property management firms which report directly to EastGroup's management. The
activities of the property managers are overseen by four asset management
professionals at EastGroup's headquarters in Jackson, Mississippi. These
individuals make regular visits to all of EastGroup's properties, establish
operating standards and budgets, supervise repair and maintenance activities and
assist in lease negotiations, particularly with larger tenants. EastGroup's
asset managers also regularly evaluate the performance of the individual
property managers. Operating statements for the properties prepared by the
property managers are reviewed by four certified public accountants at
EastGroup's headquarters. As EastGroup continues to expand its portfolio,
management intends to review arrangements with its independent property managers
on a continuous basis, with the goal of internalizing property management
functions over time.
DISTRIBUTIONS
EastGroup has paid 68 consecutive quarterly cash distributions to its
shareholders. In September 1996, EastGroup's Board of Trustees increased the
quarterly distribution to $0.49 per Share ($1.96 on an annualized basis). The
current annualized dividend represents a dividend yield of 7.1% (based on the
February 3, 1997 closing Share price of $27.75 per Share). EastGroup's goal is
to increase its dividend level at a rate that outpaces inflation but is lower
than EastGroup's rate of growth in funds from operations.
USE OF PROCEEDS
The net proceeds to EastGroup from the Offering are estimated to be
approximately $32.8 million, net of Offering expenses payable by EastGroup of
approximately $150,000. EastGroup intends to use the net proceeds from the
Offering as follows: (i) approximately $18.4 million to repay outstanding
indebtedness under its Working Capital Facility; (ii) approximately $11.6
million to repay outstanding indebtedness under its Acquisition Facility; and
(iii) the remainder to fund working capital requirements, including the
acquisition of industrial properties. The indebtedness under the Working Capital
Facility and the Acquisition Facility being repaid with the proceeds of the
Offering each have an interest rate of LIBOR plus 1.85% (which was 7.35% as of
February 3, 1997). The Working Capital Facility matures on April 30, 1997 and
the Acquisition Facility matures on April 30, 1999. Pending application of the
net proceeds, EastGroup will invest such proceeds in interest-bearing accounts
and short-term, interest-bearing securities, which are consistent with
EastGroup's status as a REIT. Such investments may include, for example,
certificates of deposit, interest-bearing bank deposits and money market
investments.
S-12
<PAGE> 13
TAXATION
EastGroup believes that it is organized and has operated in such a manner
so as to qualify for taxation as a REIT under the Code for each of its taxable
years since its formation in 1969 and it intends to continue to operate in such
a manner. No assurance, however, can be given that EastGroup has at all times so
qualified or will continue to operate in a manner to remain so qualified.
Jaeckle Fleischmann & Mugel, LLP has acted as counsel to EastGroup in
connection with the Offering. It is the opinion of Jaeckle Fleischmann & Mugel,
LLP, based upon current law, including relevant statutes, regulations, judicial
and administrative precedent (which law is subject to change on a retroactive
basis) that EastGroup's organization and method of operation met the
requirements for qualification and taxation as a REIT for the taxable years 1988
through 1996 and that its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT in
the future. Investors should be aware, however, that opinions of counsel are not
binding upon the Internal Revenue Service or any court. It must be emphasized
that the opinion is based on various assumptions and is conditioned upon certain
representations made by EastGroup as to factual matters, including
representations regarding the nature of EastGroup's properties and the future
conduct of its business. Moreover, such qualification and taxation as a REIT
depend upon EastGroup's ability to meet on a continuing basis the various
qualification tests imposed under the Code, through EastGroup's actual annual
operating results, distribution levels and share ownership levels. Jaeckle
Fleischmann & Mugel, LLP will not review EastGroup's compliance with those tests
on a continuing basis. Accordingly, no assurance can be given that the actual
results of EastGroup's operations for any particular taxable year will satisfy
such requirements. For a discussion of the tax consequences of the failure of
EastGroup to qualify as a REIT, see "Federal Income Tax
Considerations -- Taxation of the Company -- Failure to Qualify" in the
accompanying Prospectus.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") between EastGroup and PaineWebber, PaineWebber has
agreed to purchase from EastGroup, and EastGroup has agreed to sell to
PaineWebber, 1,250,000 Shares for an aggregate purchase price specified on the
cover page of this Prospectus Supplement. The Underwriting Agreement provides
that PaineWebber's obligation to purchase such Shares is subject to the
satisfaction of certain conditions, including the receipt of certain legal
opinions. PaineWebber has advised EastGroup that it proposes to offer the Shares
from time to time in one or more transactions on the NYSE, or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices, provided that any offering
price set on any calendar day will not be increased more than once during such
day.
EastGroup has granted PaineWebber an option, exercisable during the 30-day
period after the date of this Prospectus Supplement, under which PaineWebber may
purchase from EastGroup up to 150,000 additional Shares for an aggregate
purchase price (assuming full exercise of the option) as specified on the cover
page of this Prospectus Supplement. PaineWebber may exercise the option to cover
over-allotments, if any, made in connection with the offering of the Shares
offered hereby.
EastGroup and EastGroup's executive officers and trustees have agreed, with
limited exceptions, including the issuance of Shares pursuant to EastGroup's
stock option plans and distribution reinvestment plan, not to directly or
indirectly, offer, sell, contract to sell, grant any option to sell, or
otherwise dispose of any Shares, or securities exercisable or exchangeable for
Shares or rights to purchase or acquire Shares, for a period of 90 days after
the date of this Prospectus Supplement without the prior written consent of
PaineWebber.
EastGroup has agreed to indemnify PaineWebber against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
PaineWebber may be required to make in respect thereof.
In the ordinary course of its business, PaineWebber and its affiliates have
engaged and may in the future engage in investment banking, financial advisory
and other transactions with EastGroup for which customary compensation has been,
and will be, received.
S-13
<PAGE> 14
LEGAL MATTERS
Certain legal matters, including the legality of the Shares, will be passed
upon for EastGroup by Jaeckle Fleischmann & Mugel, LLP, Buffalo, New York and
for PaineWebber by Rogers & Wells, New York, New York. As to matters of Maryland
law contained in their opinions, Jaeckle Fleischmann & Mugel, LLP and Rogers &
Wells will rely upon the opinion of Piper & Marbury L.L.P., Baltimore, Maryland.
S-14
<PAGE> 15
PROSPECTUS
$100,000,000
EASTGROUP PROPERTIES
SHARES
PREFERRED SHARES
DEPOSITARY SHARES
DEBT SECURITIES
---------------------------
EastGroup Properties ("EastGroup") may from time to time offer in one or
more series or classes (i) units of its beneficial interest, par value $1.00 per
share (the "Shares"); (ii) its preferred shares (the "Preferred Shares"); (iii)
Preferred Shares represented by Depositary Shares (the "Depositary Shares"); and
(iv) unsecured convertible debt securities ("Debt Securities"), with an
aggregate public offering price of up to $100,000,000 in amounts, at prices and
on terms to be determined at the time of offering. The Shares, Preferred Shares,
Depositary Shares and Debt Securities (collectively, the "Securities") may be
offered, separately or together, in one or more supplements to this Prospectus
(each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable (i) in the case of Shares, any public offering
price; (ii) in the case of Preferred Shares, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any public offering price; (iii) in the case of Depositary Shares,
the fractional share of Preferred Shares represented by each such Depository
Share; and (iv) in the case of Debt Securities, the specific title, aggregate
principal amount, currency, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
the option of EastGroup or repayment at the option of the holder, terms for
sinking fund payments, covenants and any initial public offering price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
appropriate to preserve the status of EastGroup as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Statement.
SEE "RISK FACTORS" ON PAGE 1 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING WHETHER TO MAKE AN INVESTMENT IN THE
SECURITIES DESCRIBED HEREIN.
The Securities may be offered directly, through agents designated from time
to time by EastGroup, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------------
The date of this Prospectus is December 16, 1996.
<PAGE> 16
AVAILABLE INFORMATION
EastGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other information filed by EastGroup may be inspected at, and, upon payment
of the SEC's customary charges, copies obtained from, the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, DC 20549. Such reports,
proxy statements and other information are also available for inspection and
copying at prescribed rates at the SEC's regional offices in New York, New York
(Seven World Trade Center, 13th Floor, New York, New York 10048) and in Chicago,
Illinois (Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661-2511). The SEC maintains a Web site (http://www.sec.gov) that
also contains reports, proxy statements and other information concerning
EastGroup. In addition, the Shares are traded on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "EGP" and can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
EastGroup has filed with the SEC a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, with
respect to the Securities. This Prospectus constitutes the Prospectus of
EastGroup, filed as part of the Registration Statement. As permitted by the
rules and regulations of the SEC, this Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits listed therein, which can be inspected
at the public reference facilities of the SEC noted above, and copies of which
can be obtained from the SEC at prescribed rates as indicated above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EASTGROUP. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS PROSPECTUS IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
ii
<PAGE> 17
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Prospectus by reference are the documents listed
below filed by EastGroup under the Exchange Act. Copies of any such documents,
other than exhibits to such documents, are available without charge to each
person to whom a copy of this Prospectus has been delivered upon written or oral
request of such person from EastGroup, 300 One Jackson Place, 188 East Capitol
Street, Jackson, Mississippi 39201-2195, Attention: Chief Financial Officer,
telephone number (601) 354-3555.
The following documents or portions thereof are hereby incorporated into
this Prospectus by reference:
1. EastGroup's Annual Report on Form 10-K for the year ended December 31,
1995 (Commission file No. 1-7094).
2. Amendment No. 1 to EastGroup's Form 10-K for the year ended December 31,
1995 (Commission file No. 1-7094).
3. EastGroup's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996 (Commission file No. 1-7094).
4. EastGroup's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 (Commission file No. 1-7094).
5. Amendment No. 1 to EastGroup's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 (Commission file No. 1-7094).
6. EastGroup's Current Report on Form 8-K dated May 14, 1996 (Commission
file No. 1-7094).
7. EastGroup's Current Report on Form 8-K dated June 19, 1996 (Commission
file No. 1-7094).
8. EastGroup's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (Commission file No. 1-7094).
All documents filed by EastGroup pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the respective dates of the filing thereof.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
iii
<PAGE> 18
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY............................................................................ 1
RISK FACTORS........................................................................... 1
Risks of Real Estate Ownership.................................................. 1
Tenant Defaults................................................................. 2
Americans with Disabilities Act................................................. 2
Risk of Catastrophic Loss....................................................... 2
Possible Environmental Liabilities.............................................. 2
Continuation of REIT Status..................................................... 3
Competition..................................................................... 4
Risks Associated with Rapid Growth.............................................. 4
Substantial Debt Obligations.................................................... 4
RATIO OF EARNINGS TO FIXED CHARGES..................................................... 4
USE OF PROCEEDS........................................................................ 5
DESCRIPTION OF DEBT SECURITIES......................................................... 5
General......................................................................... 5
Denominations, Interest, Registration and Transfer.............................. 7
Merger, Consolidation or Sale................................................... 8
Certain Covenants............................................................... 9
Events of Default, Notice and Waiver............................................ 9
Modification of the Indenture................................................... 11
Discharge, Defeasance and Covenant Defeasance................................... 13
Conversion Rights............................................................... 14
Global Securities............................................................... 14
DESCRIPTION OF PREFERRED SHARES........................................................ 15
General......................................................................... 15
Terms........................................................................... 15
Rank............................................................................ 16
Dividends....................................................................... 16
Redemption...................................................................... 17
Liquidation Preference.......................................................... 18
Voting Rights................................................................... 18
Conversion Rights............................................................... 19
Shareholder Liability........................................................... 20
Restrictions on Ownership....................................................... 20
Registrar and Transfer Agent.................................................... 20
DESCRIPTION OF DEPOSITARY SHARES....................................................... 20
General......................................................................... 20
Dividends and Other Distributions............................................... 20
Withdrawal of Preferred Shares.................................................. 21
Redemption of Depositary Shares................................................. 21
Voting of the Preferred Shares.................................................. 21
Liquidation Preference.......................................................... 22
Conversion of Preferred Shares.................................................. 22
Amendment and Termination of a Deposit Agreement................................ 22
Charges of a Preferred Shares Depositary........................................ 23
Resignation and Removal of Depositary........................................... 23
Miscellaneous................................................................... 23
</TABLE>
iv
<PAGE> 19
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF SHARES.................................................................. 24
General......................................................................... 24
Provisions of EastGroup's Restated Declaration of Trust, as Amended, and
Trustees Regulations........................................................... 24
Other Matters................................................................... 24
FEDERAL INCOME TAX CONSIDERATIONS...................................................... 26
Introductory Notes.............................................................. 26
Taxation of the Company......................................................... 26
Taxation of Shareholders........................................................ 29
PLAN OF DISTRIBUTION................................................................... 32
EXPERTS................................................................................ 32
LEGAL MATTERS.......................................................................... 33
</TABLE>
v
<PAGE> 20
THE COMPANY
EastGroup is a real estate investment trust ("REIT") which is qualified
under the Internal Revenue Code of 1986, as amended (the "Code"), and formed
under a Restated Declaration of Trust, as amended (the "Declaration of Trust")
pursuant to the laws of the State of Maryland. EastGroup owns a portfolio of
income producing real estate properties, with a primary emphasis in industrial
properties. Geographically, EastGroup is concentrated in major Sunbelt markets
of the United States with an emphasis on the states of California, Florida,
Texas and Arizona. At September 30, 1996, EastGroup owned or had an interest in
twenty-eight industrial facilities, four office buildings and eight apartment
complexes.
Through EastGroup's participation in recent business combinations (i.e. LNH
REIT, Inc. ("LNH") merged with and into a wholly-owned subsidiary of EastGroup
on May 14, 1996 and Copley Properties, Inc. ("Copley") merged with and into
EastGroup on June 19, 1996), EastGroup has expanded its portfolio of industrial
and office properties and enhanced its presence in the Sunbelt region of the
southern United States (primarily in the states of California, Florida, Texas
and Arizona). Pursuant to these business combinations, EastGroup acquired twelve
industrial and office properties encompassing 2,150,000 square feet of leasable
space and which were, at September 30, 1996, 98% leased. As a result of these
mergers and subsequent property acquisitions, EastGroup's portfolio of
industrial and office properties has expanded to 5,502,000 square feet of
leasable space which, at September 30, 1996, was 97% leased. As a result of
EastGroup's business combinations with Copley and LNH, EastGroup believes that
it is one of the larger publicly held owners and operators of industrial and
office properties in the Sunbelt region of the United States.
The mergers have also had the effect of increasing EastGroup's number of
Shares outstanding from 4,245,000 to 7,027,000 as of November 5, 1996. Assuming
a stock price of $27.125, the closing price on December 3, 1996, the value of
EastGroup's outstanding Shares has increased 110% from $90,737,000 prior to the
mergers to $190,607,000 following the mergers.
EastGroup's executive offices are located at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi 39201-2195. Its telephone number if
(601) 354-3555.
RISK FACTORS
RISKS OF REAL ESTATE OWNERSHIP
EastGroup's assets primarily consist of equity investments in various types
of real property. Shareholders of EastGroup are subject to the risks inherent in
the ownership and management of real property owned by EastGroup. These risks
include, among others: adverse changes in general or local economic conditions;
adverse changes in interest rates and in the availability of permanent mortgage
funds which may render the acquisition, sale or refinancing of properties
difficult or unattractive; existing law, rules and regulations and judicial
decisions regarding liability for a variety of potential problems related to
real estate generally; adverse changes in real estate, zoning, environmental or
land-use laws; increases in real property taxes and federal or local economic or
rent controls; other governmental rules; increases in operating costs and the
need for additional capital and tenant improvements; the supply of and demand
for properties; possible insolvencies and other material defaults by tenants;
overbuilding in certain markets; ability to obtain or maintain full occupancy of
properties or to provide for adequate maintenance or insurance; the presence of
hazardous waste materials; mechanics liens resulting from construction; property
related claims and litigation; fiscal policies; and acts of God. The illiquidity
of real estate investments generally impairs the ability of real estate owners
to respond quickly to changed circumstances.
Additionally, a substantial percentage of EastGroup's properties are
located in the Sunbelt region of the United States (particularly the states of
California, Florida, Texas and Arizona) and such properties consist
predominantly of industrial and office properties. EastGroup's performance
therefore will be linked to economic conditions in the Sunbelt and to the market
for industrial and office space generally. To the extent that these conditions
impact the market rents for industrial and office space, they could result in a
reduction of net income, funds from operations ("FFO"), and cash available for
distribution and thus affect the amount of distributions EastGroup can make to
its shareholders.
1
<PAGE> 21
Certain significant expenditures associated with investments in real estate
(such as mortgage payments, real estate taxes, insurance and maintenance costs)
are generally not reduced when circumstances cause a reduction in rental
revenues from the property. In addition, real estate values and yields from
investments in properties may also be affected by such factors as conditions in
financial markets, environmental conditions and compliance with laws.
TENANT DEFAULTS
A substantial part of EastGroup's income is expected to be derived from
rental income from real property. Consequently, EastGroup's ability to make
expected distributions to shareholders would be adversely affected if a
significant number of tenants failed to meet their lease obligations. In the
event of a default by a lessee, EastGroup may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its investment.
At any time, a tenant may also seek protection under the bankruptcy laws, which
could result in rejection and termination of such tenant's lease and thereby
cause a reduction in the cash available for distribution by EastGroup. If a
tenant rejects its lease, EastGroup's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
The amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of one
year's lease payment or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments).
AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990, as amended (the "ADA"),
all public accommodations are required to meet certain federal requirements
related to access and use by disabled persons. Existing industrial properties
generally are not deemed to be public accommodations and, hence, are exempt from
many of the provisions of the ADA. Compliance with the public accommodations
provisions of the ADA could require the removal of access barriers, and
noncompliance could result in the imposition of fines or awards of damages.
Additional legislation may impose further burdens or restrictions on owners with
respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not expected to have a material effect on EastGroup, such
costs could be substantial.
RISK OF CATASTROPHIC LOSS
EastGroup has obtained, or has caused tenants to obtain, comprehensive
liability, fire and extended coverage insurance with respect to its properties,
of the types and in the amounts customarily obtained for similar properties.
There are, however, certain types of losses (generally of a catastrophic nature,
such as earthquakes, floods and wars) that may be either uninsurable or not
economically insurable. Should such an uninsured loss occur, EastGroup could
lose both its invested capital and anticipated profits relating to such
property.
POSSIBLE ENVIRONMENTAL LIABILITIES
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 two properties, one
commonly known and numbered as the Kingsview Industrial Center, 17120 South
Kingsview Avenue, Carson, California ("Kingsview"), a portion of which is used
for purposes of operating an oil and gas well and pipeline, and the other,
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 drycleaning business and paint store, these environmental audit
reports have not revealed any potential significant environmental liability, nor
2
<PAGE> 22
is 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 Kingsview property
indicated that oil and certain hazardous materials have been released at
Kingsview in connection with the oil and gas operations formerly conducted at
Kingsview by a party unrelated to EastGroup who had an oil and gas lease with
respect to the Kingsview property and adjacent parcels. Such preliminary
environmental studies consisted of a preliminary site assessment and a
subsurface investigation undertaken by Applied GeoSciences, Inc. ("AGI"), an
environmental consultant with offices in Tustin, California. Pursuant to the oil
and gas lease, the operator agreed to indemnify and hold EastGroup, as successor
to the lessor, harmless from any claims or demands for injury to persons or
property resulting from or in any way connected with its operations under such
oil and gas lease. The operator engaged its own environmental consultant, the
Reynolds Group of Tustin, California, to undertake an additional site assessment
and subsurface investigation of the property. The operator has verbally
represented to EastGroup that the Reynolds Group concurs with AGI's assessment
that such contamination has affected only surface soil. Based upon advice from
AGI, management of EastGroup believes that the cost of remediation is between
$25,000 and $50,000.
Preliminary environmental studies performed at the Cowesett property
indicated that certain hazardous materials have been released at Cowesett in
connection with the drycleaning operations and paint store operations conducted
on part of the property by parties unrelated to EastGroup. Such preliminary
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 between $200,000 and $300,000. 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. 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.
CONTINUATION OF REIT STATUS
EastGroup is a REIT. Shareholders of EastGroup will experience the tax
benefits available to REITs. Continuation of these tax benefits will depend on
EastGroup continuing to meet the various REIT qualification rules, which
include: (i) maintaining ownership of specified minimum levels of real estate
related assets; (ii) generating specified minimum levels of real estate related
income; (iii) maintaining certain ownership restrictions on the Shares; and (iv)
distributing substantially all real estate investment taxable income on an
annual basis. Although management of EastGroup believes that the consummation of
the Offering should not affect EastGroup's continuing ability to qualify as a
REIT, no assurance can be given that EastGroup will be able to continue to
operate in a manner so as to qualify or remain so qualified.
If EastGroup fails to qualify as a REIT, EastGroup will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions, EastGroup will be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification is
lost. This treatment would reduce the net earnings of EastGroup available for
investment or distribution to shareholders because of the additional tax
liability to EastGroup for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to shareholders had been made in anticipation of EastGroup's
qualifying as a REIT, EastGroup might be required to borrow funds or to
liquidate certain of its investments to pay the applicable tax.
The failure to qualify as a REIT would have a material adverse effect on an
investment in EastGroup as the taxable income of EastGroup would be subject to
federal income taxation at corporate rates, and,
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therefore, the amount of cash available for distribution to its shareholders
would be reduced or eliminated. See "Federal Income Tax
Considerations -- Taxation of the Company" and "Federal Income Tax
Considerations -- Taxation of Shareholders."
COMPETITION
Substantially all of the properties owned by EastGroup are located in
developed areas. There are numerous other industrial and office properties and
real estate companies within the market area of each such property which compete
with EastGroup for tenants and development and acquisition opportunities. The
number of competitive industrial and office properties and real estate companies
in such areas could have a material effect on (i) EastGroup's ability to rent
space at the properties and the amount of rents currently charged and (ii)
development and acquisition opportunities. EastGroup will compete for tenants
and acquisitions with others who have greater resources than EastGroup.
RISKS ASSOCIATED WITH RAPID GROWTH
EastGroup is currently experiencing a period of rapid growth. As a result
of the mergers with LNH and Copley and subsequent property acquisitions,
EastGroup's industrial and office property portfolio has increased from 18
properties at March 31, 1996, consisting of approximately 2,884,000 square feet
of leasable space, to 32 properties at September 30, 1996, consisting of
approximately 5,502,000 square feet of leasable space. EastGroup's ability to
manage its growth effectively will require it to integrate successfully the new
properties. The inability of EastGroup to integrate the properties in a timely
and efficient manner could have an adverse effect on EastGroup's business.
SUBSTANTIAL DEBT OBLIGATIONS
EastGroup's debt obligations as a result of the mergers with LNH and Copley
increased from $69,787,000 as of March 31, 1996 to approximately $138,665,000 as
of September 30, 1996. The ratio of debt to total market capitalization of
EastGroup was 44% as of September 30, 1996, as compared to 43% for EastGroup as
of March 31, 1996. This increase in EastGroup's leverage and its ratio of debt
to total market capitalization may increase the risk of default under its
indebtedness. Failure to pay debt obligations when due could result in EastGroup
losing its interest in the properties collateralizing such obligations. Certain
of EastGroup's credit agreements provide that a default with respect to any
other indebtedness of the respective company shall cause an event of default
under the credit agreement and accelerate EastGroup's obligations thereunder.
EastGroup believes that the ratio of debt to total market capitalization is
an important factor to consider in evaluating a REIT's debt level because this
ratio is one indicator of a company's ability to borrow funds. EastGroup
believes that using the ratio of debt to book value of assets is not as reliable
an indicator of a REIT's debt level because the book value of a REIT's assets
indicate only the depreciated value of the REIT's property without consideration
of the market value of such assets at a particular point in time. The use of the
ratio of debt to total market capitalization does have certain risks because the
total market capitalization of a company is more variable than book value
because it is dependent upon the current stock trading price of a company. For
example, a decrease in the value of a company's stock, for whatever reason, will
cause a corresponding increase in the ratio of debt to total market
capitalization. Accordingly, there can be no assurance that the use of the ratio
debt to total market capitalization in evaluating EastGroup's debt level will
adequately protect it from being highly leveraged. The risks associated with the
debt obligations of EastGroup may adversely affect the market price of Shares.
RATIO OF EARNINGS TO FIXED CHARGES
EastGroup's ratio of earnings to fixed charges for the nine months ended
September 30, 1996 was 2.2, for the six months ended June 30, 1996 was 2.4, for
the three months ended March 31, 1996 was 2.7, for the year ended December 31,
1995 was 2.2, for the year ended December 31, 1994 was 2.8, for the year ended
December 31, 1993 was 2.9, for the year ended December 31, 1992 was (0.3) and
for the year ended
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December 31, 1991 was 2.9. There was no preferred stock outstanding for any of
the periods shown above. Accordingly, the ratio of earnings to combined fixed
charges and preferred stock dividends is identical to the ratio of earnings to
fixed charges.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations (net income or loss). Fixed charges consist of interest
costs, whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
USE OF PROCEEDS
EastGroup intends to use the net proceeds from the Offering for working
capital purposes including, without limitation, the acquisition and development
of real estate properties, whether by acquisition of properties directly or
through potential business combination transactions, and the repayment of debt.
Pending application of the net proceeds, EastGroup will invest such proceeds in
interest-bearing accounts and short-term, interest-bearing securities, which are
consistent with EastGroup's intention to continue to qualify for taxation as a
REIT. Such investments may include, for example, certificates of deposit,
interest-bearing bank deposits and mortgage loan participations.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
between EastGroup and a trustee (the "Trustee") chosen by EastGroup and
qualified to act as Trustee under the Trust Indenture Act of 1939, as amended
(the "TIA"). The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and will be available for
inspection at the corporate trust office of the Trustee or as described above
under "Available Information." The Indenture is subject to, and governed by, the
TIA. The statements made hereunder relating to the Indenture and the Debt
Securities to be issued thereunder are summaries of certain provisions thereof
and do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of EastGroup and
will rank equally with all other unsecured and unsubordinated indebtedness of
EastGroup. At September 30, 1996, the total outstanding debt of EastGroup was
approximately $139 million, all of which was unsubordinated indebtedness and
secured debt. The Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Trustees of EastGroup or as established in one or more indentures supplemental
to the Indenture. All Debt Securities of one series need not be issued at the
same time and, unless otherwise provided, a series may be reopened, without the
consent of the holders of the Debt Securities of such series, for issuance of
additional Debt Securities of such series (Section 3.1).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 6.8). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Section 6.9), and, except as otherwise
indicated herein, any action described herein to be taken by a Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities offered thereby for the specific terms thereof, including:
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(i) the title of such Debt Securities;
(ii) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(iii) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(iv) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(v) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(vi) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment dates,
or the method by which any such date shall be determined, the person to
whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(vii) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange and
notices or demands to or upon EastGroup in respect of such Debt Securities
and the Indenture may be served;
(viii) the period or periods within which, the price or prices at
which and the terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of EastGroup, if EastGroup is
to have such an option;
(ix) the obligation, if any, of EastGroup to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a holder thereof, and the period or periods within which,
the price or prices at which and the terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation;
(x) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(xi) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units of composite currency or currencies) and the manner in which such
amounts shall be determined;
(xii) the events of default or covenants of such Debt Securities, to
the extent different from or in addition to those described herein;
(xiii) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(xiv) whether such Debt Securities will be in registered or bearer
form and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(xv) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein, or any modification thereof;
(xvi) whether and under what circumstances EastGroup will pay
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether EastGroup will have
the option to redeem such Debt Securities in lieu of making such payment;
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(xvii) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such as a
change of control of EastGroup), (a) the possible effects of such
provisions on the market price of EastGroup's securities or in deterring
certain mergers, tender offers or other takeover attempts, and the
intention of EastGroup to comply with the requirements of Rule 14e-1 under
the Exchange Act and any other applicable securities laws in connection
with such provisions; (b) whether the occurrence of the specified events
may give rise to cross-defaults on other indebtedness such that payment on
such Debt Securities may be effectively subordinated; and (c) the existence
of any limitations on EastGroup's financial or legal ability to repurchase
such Debt Securities upon the occurrence of such an event (including, if
true, the lack of assurance that such a repurchase can be effected) and the
impact, if any, under the Indenture of such a failure, including whether
and under what circumstances such a failure may constitute an Event of
Default; and
(xviii) any other terms of such Debt Securities not inconsistent with
the terms of the Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under " -- Merger, Consolidation or Sale" below or as
may be set forth in any Prospectus Supplement, the Indenture does not contain
any other provisions that would limit the ability of EastGroup to incur
indebtedness or that would afford holders of the Debt Securities protection in
the event of (i) a highly leveraged or similar transaction involving EastGroup
or any affiliate of EastGroup; (ii) a change of control; or (iii) a
reorganization, restructuring, merger or similar transaction involving EastGroup
that may adversely affect the holders of the Debt Securities. In addition,
subject to the limitations set forth under " -- Merger, Consolidation or Sale"
below, EastGroup may, in the future, enter into certain transactions, such as
the sale of all or substantially all of its assets or the merger or
consolidation of EastGroup, that would increase the amount of EastGroup's
indebtedness or substantially reduce or eliminate EastGroup's assets, which may
have an adverse effect on EastGroup's ability to service its indebtedness,
including the Debt Securities. In addition, restrictions on ownership and
transfers of Shares and Preferred Shares are designed to preserve its status as
a REIT and, therefore, may act to prevent or hinder a change of control. See
"Description of Shares -- Restrictions on Transfer" and "Description of
Preferred Shares-Restrictions on Ownership." Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the events of default or covenants that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
Reference is made to " -- Certain Covenants" below and to the description
of any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the Board of
Trustees of EastGroup or by the Trustee unless the Holders of at least a
majority in principal amount of all outstanding Debt Securities of such series
consent to such waiver, except to the extent that the defeasance and covenant
defeasance provisions of the Indenture described under " -- Discharge,
Defeasance and Covenant Defeasance" below apply to such series of Debt
Securities. See " -- Modification of the Indenture."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 (Section 3.2).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee,
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provided that, at the option of EastGroup, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 3.1, 3.7 and 10.2).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in book
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book entry form, the
Debt Securities of any series may be surrendered for registration of transfer
thereof at the corporate trust office of the Trustee. Every Debt Security
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer. No service charge will be made
for any registration of transfer or exchange of any Debt Securities, but the
Trustee or EastGroup may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith (Section 3.5). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the Trustee) initially designated by EastGroup with respect to any series of
Debt Securities, EastGroup may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that EastGroup will be required to maintain a
transfer agent in each place of payment for such series. EastGroup may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 10.2).
Neither EastGroup nor the Trustee shall be required (i) to issue, register
the transfer of or exchange any Debt Security if such Debt Security may be among
those selected for redemption during a period beginning at the opening of
business 15 days before selection of the Debt Securities to be redeemed and
ending at the close of business on (a) if such Debt Securities are issuable only
as Registered Securities, the day of the mailing of the relevant notice of
redemption and (b) if such Debt Securities are issuable as Bearer Securities,
the day of the first publication of the relevant notice of redemption or, if
such Debt Securities are also issuable as Registered Securities and there is no
publication, the mailing of the relevant notice of redemption; or (ii) to
register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except, in the case of any Registered Security
to be redeemed in part, the portion thereof not to be redeemed; or (iii) to
exchange any Bearer Security so selected for redemption except that such a
Bearer Security may be exchanged for a Registered Security of that series and
like tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption; or (iv) to issue, register the transfer of or
exchange any Debt Security which has been surrendered for repayment at the
option of the Holder, except the portion, if any, of such Debt Security not to
be so repaid (Section 3.5).
MERGER, CONSOLIDATION OR SALE
EastGroup may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that (i) EastGroup shall be the continuing entity, or the successor
entity (if other than EastGroup) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
shall expressly assume payment of the principal of (and premium, if any) and
interest on all the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(ii) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of EastGroup or any Subsidiary as a
result thereof as having been incurred by EastGroup or such Subsidiary at the
time of such transaction, no Event of Default under the Indenture, and no event
which, after notice of the lapse of time, or both, would become such an
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Event of Default, shall have occurred and be continuing; and (iii) an officer's
certificate and legal opinion covering such conditions shall be delivered to the
Trustee (Sections 8.1, 8.2 and 8.3).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale"
above, EastGroup is required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights and franchises;
provided, however, that EastGroup shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities (Section 10.6).
Maintenance of Properties. EastGroup is required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and to cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of EastGroup may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that EastGroup and its Subsidiaries
shall not be prevented from selling or otherwise disposing for value their
respective properties in the ordinary course of business (Section 10.7).
Payment of Taxes and Other Claims. EastGroup is required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary; and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of
EastGroup or any Subsidiary; provided, however, that EastGroup shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 10.8).
Provision of Financial Information. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of EastGroup.
Whether or not EastGroup is subject to Sections 13 or 15(d) of the Exchange Act
and for so long as any Debt Securities are outstanding, EastGroup will, to the
extent permitted under the Exchange Act, be required to file with the SEC the
annual reports, quarterly reports and other documents which EastGroup would have
been required to file with the SEC pursuant to such Sections 13 or 15(d) (the
"Financial Statements") if EastGroup were so subject, such documents to be filed
with the SEC on or prior to the respective dates (the "Required Filing Dates")
by which EastGroup would have been required so to file such documents if
EastGroup were so subject. EastGroup will also in any event (i) within 15 days
of each Required Filing Date (a) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly reports
which EastGroup would have been required to file with the SEC pursuant to
Sections 13 or 15(d) of the Exchange Act if EastGroup were subject to such
Sections and (b) file with the Trustee copies of the annual reports, quarterly
reports and other documents which EastGroup would have been required to file
with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act if EastGroup
were subject to such sections and (ii) if filing such documents by EastGroup
with the SEC is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 10.9).
Additional Covenants. Any additional or different covenants of EastGroup
with respect to any series of Debt Securities will be set forth in the
Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (i) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of the principal of (or premium, if
any, on) any Debt Security of such series at its maturity; (iii) default in
making any sinking fund payment as required for any
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<PAGE> 29
Debt Security of such series; (iv) default in the performance of any other
covenant of EastGroup contained in the Indenture (other than a covenant added to
the Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), such default having continued for 60 days
after written notice as provided in the Indenture; (v) default in the payment of
an aggregate principal amount exceeding $5,000,000 of any evidence of recourse
indebtedness of EastGroup or any mortgage, indenture or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of
EastGroup or any Significant Subsidiary, as defined below, or any of their
respective property; and (vii) any other Event of Default provided with respect
to a particular series of Debt Securities. The term "Significant Subsidiary"
means each significant subsidiary (as defined in Regulation S-X promulgated
under the Securities Act) of EastGroup.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to EastGroup (and to
the Trustee if given by the Holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the Indenture, as the case may be)
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of such series (or of all Debt
Securities then outstanding under the Indenture, as the case may be) may rescind
and annul such declaration and its consequences if (i) EastGroup shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium, if any) and interest on the Debt Securities of such series (or of
all Debt Securities then outstanding under the Indenture, as the case may be),
plus certain fees, expenses, disbursements and advances of the Trustee and (ii)
all Events of Default, other than the nonpayment of accelerated principal of (or
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all Debt Securities then outstanding under the
Indenture, as the case may be) have been cured or waived as provided in the
Indenture (Section 5.2). The Indenture also provides that the Holders of not
less than a majority in principal amount of the Outstanding Debt Securities of
any series (or of all Debt Securities then outstanding under the Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (a) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (b) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 5.8).
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; provided, however, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 6.1).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 5.7). This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of
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payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (Section 5.8).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 6.2). The Holders of not less than a majority in principal
amount of the Outstanding Debt securities of any series (or of all Debt
Securities then outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
the Trustee in personal liability or which may be unduly prejudicial to the
holders of Debt Securities of such series not joining therein (Section 5.12).
Within 120 days after the close of each fiscal year, EastGroup must deliver
to the Trustee a certificate, signed by one of several specified officers of
EastGroup, stating whether or not such officer has knowledge of any default
under the Indenture and, if so, specifying each such default and the nature and
status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities which are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holders of each such Debt Security affected thereby, (i) change the Stated
Maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security; (ii) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any such Debt Security; (iii) change the
place of payment, or the coin or currency, for payment of principal of, premium,
if any, or interest on any such Debt Security; (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to any such
Debt Security; (v) reduce the above stated percentage of outstanding Debt
Securities of any series necessary to modify or amend the Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture; or (vi) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holders of such Debt Security (Section 9.2).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by EastGroup with certain covenants relating to such series of
Debt Securities in the Indenture (Section 10.12).
Modifications and amendments of the Indenture will be permitted to be made
by EastGroup and the Trustee without the consent of any Holder of Debt
Securities for any of the following purposes: (i) to evidence the succession of
another Person to EastGroup as obligor under the Indenture; (ii) to add to the
covenants of EastGroup for the benefit of the Holders of all or any series of
Debt Securities or to surrender any right or power conferred upon EastGroup in
the Indenture; (iii) to add Events of Default for the benefit of the Holders of
all or any series of Debt Securities; (iv) to add or change any provisions of
the Indenture to facilitate the issuance of, or to liberalize certain terms of,
Debt Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided, that such action shall not
adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect; (v) to change or eliminate any provisions of the
Indenture, provided that any such change or elimination shall become effective
only when there are no Debt Securities Outstanding of any series created prior
thereto which are entitled to the benefit of such provision; (vi) to secure the
Debt Securities; (vii) to establish the form or terms of Debt
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Securities of any series; (viii) to provide for the acceptance of appointment by
a successor Trustee or facilitate the administration of the trusts under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; or (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 9.1).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above); (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture; and (iv) Debt Securities owned by EastGroup or any other obligor upon
the Debt Securities or any affiliate to EastGroup or of such other obligor shall
be disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 15.1). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by EastGroup or the
holders of at least 25% in principal amount of the Outstanding Debt Securities
of such series, in any such case upon notice given as provided in the Indenture
(Section 15.2). Except for any consent that must be given by the Holder of each
Debt Security affected by certain modifications and amendments of the Indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present will be permitted to be adopted by the affirmative
vote of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or wavier which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 15.4).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
15.4).
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
EastGroup may discharge certain obligations to Holders of any series of
Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium, if
any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be (Sections 14.1 and 14.4).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
3.1 of the Indenture, EastGroup may elect either (i) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 14.2) or (ii) to be released from its obligations with
respect to such Debt Securities under Sections 10.4 to 10.9, inclusive, of the
Indenture (including the restrictions described under "Certain Covenants" above)
and its obligations with respect to any other covenant, and any omission to
comply with such obligations shall not constitute a default or an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
14.3), in either case upon the irrevocable deposit by EastGroup with the
Trustee, in trust, of an amount, in such currency or currencies, currency unit
or units or composite currency or currencies in which such Debt Securities are
payable at Stated Maturity, or Government Obligations (as defined below), or
both, applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, EastGroup has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States Federal income tax law occurring
after the date of the Indenture (Section 14.4).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligations held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
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Unless otherwise provided in the applicable Prospectus Supplement, if after
EastGroup has deposited funds and/or Government Obligations to effect defeasance
or covenant defeasance with respect to Debt Securities of any series: (i) the
Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the Indenture or the terms of such Debt Security to receive payment
in a currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such Debt Security; or (ii) a Conversion
Event (as defined below) occurs in respect of the currency, currency unit or
composite currency in which such deposit has been made, the indebtedness
represented by such Debt Security shall be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest on such Debt Security as they become due out of
the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community; (ii) the European
Currency Unit as defined and revised from time to time by the Council of the
European Community ("ECU"), both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Community; or (iii) any currency unit or composite currency other than the ECU
for the purposes for which it was established.
Unless otherwise provided in the applicable Prospectus Supplement, all
payments of principal of (and premium, if any) and interest on any Debt Security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event EastGroup effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than the Event of Default described in
clause (iv) under "Events of Default, Notice and Waiver" with respect to
Sections 10.4 to 10.9, inclusive, of the Indenture (which sections would no
longer be applicable to such Debt Securities) or described in clause (vii) under
"Events of Default, Notice and Waiver" with respect to any other covenant as to
which there has been covenant defeasance, the amount in such currency, currency
unit or composite currency in which such Debt securities are payable, and
Government Obligations on deposit with the Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their Stated Maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such event of Default. However, EastGroup would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modification to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any of the Debt Securities are
convertible into Shares or other equity securities of EastGroup will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include the amount of Shares or other equity securities of EastGroup into which
the Debt Securities are convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversions will be at the option of the holders of the Debt Securities or
EastGroup, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific
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terms of the depositary arrangement with respect to a series of Debt Securities
will be described in the applicable Prospectus Supplement relating to such
series.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The Board of Trustees of EastGroup may classify or reclassify any unissued
units of beneficial interest from time to time by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications, or terms or
conditions of redemption of such shares. There were no Preferred Shares
outstanding at December 1, 1996.
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Declaration of Trust and Trustees Regulations and
any applicable articles supplementing the Declaration of Trust designating terms
of a series of Preferred Shares ("Articles Supplementary").
TERMS
Subject to the limitations prescribed by the Declaration of Trust, the
Board of Trustees is authorized to fix the number of shares constituting each
series of Preferred Shares and the preference, conversion or other rights,
voting powers, restrictions, limitation as to dividends, qualifications, or
terms or conditions of redemption of the Preferred Shares. The Preferred Shares
will, when issued, be fully paid and nonassessable by EastGroup (except as
described under " -- Shareholder Liability" below) and will have no preemptive
rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms thereof, including:
(i) The title and stated value of such Preferred Shares;
(ii) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(iii) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Shares;
(iv) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(v) The procedures for any auction or remarketing, if any, for such
Preferred Shares;
(vi) The provision for a sinking fund, if any, for such Preferred
Shares;
(vii) The provision for redemption, if applicable, of such Preferred
Shares;
(viii) Any listing of such Preferred Shares on any securities
exchange;
(ix) The terms and conditions, if applicable, upon which such
Preferred Shares will be convertible into Shares, including the conversion
price (or manner of calculation thereof);
(x) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(xi) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(xii) A discussion of U.S. federal income tax considerations
applicable to such Preferred Shares;
(xiii) The relative ranking of preferences of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of EastGroup;
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(xiv) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of EastGroup; and
(xv) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of EastGroup as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of EastGroup, rank (i) senior to all classes or series
of Shares of EastGroup, and to all equity securities ranking junior to such
Preferred Shares; (ii) on a parity with all equity securities issued by
EastGroup the terms of which specifically provide that such equity securities
rank on a parity with the Preferred Shares; and (iii) junior to all equity
securities issued by EastGroup the terms of which specifically provide that such
equity securities rank senior to the Preferred Shares.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of EastGroup, out of assets of
EastGroup legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of EastGroup on such record dates as shall be fixed by the Board
of Trustees of EastGroup.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of EastGroup fails to
declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and
EastGroup will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of EastGroup of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Shares of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Shares of any series and the shares
of any other series of Preferred Shares ranking on a parity as to dividends with
the Preferred Shares of such series, all dividends declared upon Preferred
Shares of such series and any other series of Preferred Shares ranking on a
parity as to dividends with such Preferred Shares shall be declared pro rata so
that the amount of dividends declared per share of Preferred Shares of such
series and such other series of Preferred Shares shall in all cases bear to each
other the same ratio that accrued dividends per share on the Preferred Shares of
such series (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares does not have a
cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
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<PAGE> 36
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period; and (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends on the Preferred Shares of such
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for the then
current dividend period, no dividends (other than in Shares or other capital
shares ranking junior to the Preferred Shares of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Shares, or any other capital
shares of EastGroup ranking junior to or on a parity with the Preferred Shares
of such series as to dividends or upon liquidation, nor shall any Shares, or any
other capital shares of EastGroup ranking junior to or on a parity with the
Preferred Shares of such series as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any such shares) by
EastGroup (except by conversion into or exchange for other capital shares of
EastGroup ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
EastGroup, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by EastGroup in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of capital shares of EastGroup, the terms of such
Preferred Shares may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Shares shall
automatically and mandatorily be converted into the applicable equity securities
of EastGroup pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Shares shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period; and
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends of the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of any series of Preferred Shares shall be redeemed unless all
outstanding Preferred Shares of such series is simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
EastGroup or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Preferred Shares of such series. In addition, unless
(i) if such series of Preferred Shares has a cumulative dividend, full
cumulative dividends on all outstanding shares of any series of Preferred Shares
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period; and (ii) if such series of
Preferred Shares does not have a cumulative dividend, full dividends on the
Preferred Shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, EastGroup shall not purchase or
otherwise acquire directly or indirectly any Preferred Shares of such series
(except by conversion into or exchange for equity securities of EastGroup
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of
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Preferred Shares of such series to preserve the REIT status of EastGroup or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by EastGroup and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by EastGroup.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
EastGroup. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Shares of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Shares to be redeemed from each such holder.
If notice of redemption of any Preferred Shares has been given and if the funds
necessary for such redemption have been set aside by EastGroup in trust for the
benefit of the holders of any Preferred Shares so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Shares, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of EastGroup, then, before any distribution or payment shall be made
to the holders of any Shares or any other class or series of equity securities
of EastGroup ranking junior to the Preferred Shares in the distribution of
assets upon any liquidation, dissolution or winding up of EastGroup, the holders
of each series of Preferred Shares shall be entitled to receive out of assets of
EastGroup legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Shares does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Shares will
have no right or claim to any of the remaining assets of EastGroup. In the event
that, upon any such voluntary or involuntary liquidation, dissolution or winding
up, the available assets of EastGroup are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of equity
securities of EastGroup ranking on a parity with the Preferred Shares in the
distribution of assets, then the holders of the Preferred Shares and all other
such classes or series of equity securities shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of EastGroup shall be distributed among
the holders of any other classes or series of equity securities ranking junior
to the Preferred Shares upon liquidation, dissolution or winding up, according
to their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
EastGroup with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
EastGroup, shall not be deemed to constitute a liquidation, dissolution or
winding up of EastGroup.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
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Whenever dividends on any shares of Preferred Shares shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Shares (voting separately as a class with all other series of
Preferred Shares upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
trustees of EastGroup at a special meeting called by the holders of record of at
least ten percent (10%) of any series of Preferred Shares so in arrears (unless
such request is received less than 90 days before the date fixed for the next
annual or special meeting of the shareholders) or at the next annual meeting of
shareholders, and at each subsequent annual meeting until (i) if such series of
Preferred Shares has a cumulative dividend, all dividends accumulated on such
shares of Preferred Shares for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Shares does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board of Trustees of
EastGroup will be increased by two directors.
Unless provided otherwise for any series of Preferred Shares, so long as
any shares of Preferred Shares remain outstanding, EastGroup will not, without
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of equity securities ranking prior to such
series of Preferred Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized equity securities of EastGroup into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Declaration of Trust or the Articles Supplementary for such series of
Preferred Shares, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Shares or the holder thereof; provided,
however, to the occurrence of any of the Events set forth in (ii) above, so long
as the Preferred Shares remains outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, EastGroup
may not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Shares and provided further that (a) any
increase in the amount of the authorized Preferred Shares or the creation or
issuance of any other series of Preferred Shares, or (b) any increase in the
amount of authorized shares of such series or any other series of Preferred
Shares, in each case ranking on a parity with or junior to the Preferred Shares
of such series with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected all outstanding shares of such series of Preferred Shares shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Maryland law holders of each series of Preferred Shares will be
entitled to notice of any vote upon any proposed amendment to the Declaration of
Trust if the amendment would change the contract rights of such shares as
expressly set forth in the Declaration of Trust.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Shares into
which the Preferred Shares are convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversions will be at the option of the holders of the Preferred Shares or
EastGroup, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Shares.
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SHAREHOLDER LIABILITY
As discussed below under "Description of Shares -- General," applicable
Maryland law provides that no shareholder, including holders of Preferred
Shares, will be personally liable for the acts and obligations of EastGroup and
that the funds and property of EastGroup will be the only recourse for such acts
or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Shares -- Restrictions on
Transfer," for EastGroup to qualify as a REIT under the Code, not more than 50%
in value of its outstanding equity securities may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist EastGroup in
meeting this requirement, EastGroup may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of EastGroup's
outstanding equity securities, including any Preferred Shares of EastGroup.
Therefore, the Articles Supplementary for each series of Preferred Shares may
contain provisions restricting the ownership and transfer of the Preferred
Shares. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Shares.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Statement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
EastGroup may issue receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fractional interest of a share of a particular
series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares of each series represented by Depositary Shares
will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among EastGroup, the depositary named therein (a "Preferred Shares
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Shares represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Shares represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by EastGroup to a Preferred Shares
Depositary, EastGroup will cause such Preferred Shares Depositary to issue, on
behalf of EastGroup, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from EastGroup upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Shares Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Shares to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Shares Depositary.
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In the event of a distribution other than in cash, a Preferred Shares
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Shares Depositary, unless such Preferred
Shares Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Shares Depositary may, with the approval of
EastGroup, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Shares which have been converted or
exchanged.
WITHDRAWAL OF PREFERRED SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Shares Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Shares and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Shares
on the basis of the proportion of Preferred Shares represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such Preferred Shares will not thereafter be entitled to receive
Depositary Shares therefor. If the Depositary Receipts delivered by the holder
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of Preferred Shares to be withdrawn, the
applicable Preferred Shares Depositary will be required to deliver to such
holder at the same time a new Depositary Receipt evidencing such excess number
of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever EastGroup redeems Preferred Shares held by a Preferred Shares
Depositary, such Preferred Shares Depositary will be required to redeem as of
the same redemption date the number of Depositary Shares representing the
Preferred Shares so redeemed, provided EastGroup shall have paid in full to such
Preferred Shares Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Shares. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by EastGroup that preserves the REIT
status of EastGroup.
From and after the date fixed for redemption, all dividends in respect of
the Preferred Shares so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Shares Depositary.
VOTING OF THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Shares are entitled to vote, a Preferred Shares Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Shares. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Shares) will be entitled to instruct such
Preferred Shares Depositary as to the exercise of the voting rights pertaining
to the amount of Preferred Shares represented by such holder's Depositary
Shares. Such Preferred Shares Depositary will be required to vote the amount of
Preferred Shares represented by such Depositary Shares in accordance with such
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instructions, and EastGroup will agree to take all reasonable action which may
be deemed necessary by such Preferred Shares Depositary in order to enable such
Preferred Shares Depositary to do so. Such Preferred Shares Depositary will be
required to abstain from voting the amount of Preferred Shares represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Shares Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Shares Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of EastGroup,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Shares represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, will not be convertible into Shares or any
other securities or property of EastGroup. Nevertheless, if so specified in the
applicable Prospectus Supplement relating to an offering of Depositary Shares,
the Depositary Receipts may be surrendered by holders thereof to the applicable
Preferred Shares Depositary with written instructions to such Preferred Shares
Depositary to instruct EastGroup to cause conversion of the Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipts into
whole Shares, other Preferred Shares or other shares of stock, and EastGroup
will agree that upon receipt of such instructions and any amounts payable in
respect thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of Preferred Shares to effect such
conversion. If the Depositary Shares evidenced by a Depositary Receipt are to be
converted in part only, a new Depositary Receipt or Receipts will be issued for
any Depositary Shares not to be converted. No fractional Shares or Preferred
Shares will be issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be paid in cash by EastGroup equal
to the value of the fractional interest based upon the closing price of the
Shares or Preferred Shares, respectively, on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Shares and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between EastGroup and the
applicable Preferred Shares Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Shares will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Shares and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by EastGroup upon
not less than 30 days' prior written notice to the applicable Preferred Shares
Depositary if (i) such termination is necessary to preserve EastGroup's status
as a REIT or (ii) a majority of each series of Preferred Shares affected by such
termination consents to such termination, whereupon such Preferred Shares
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Shares as are
represented by the
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Depositary Shares evidenced by such Depositary Receipts together with any other
property held by such Preferred Shares Depositary with respect to such
Depositary Receipts. EastGroup will agree that if a Deposit Agreement is
terminated to preserve EastGroup's status as a REIT, then EastGroup will use its
best efforts to list the Preferred Shares issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, a Deposit
Agreement will automatically terminate if (i) all outstanding Depositary Shares
thereunder shall have been redeemed; (ii) there shall have been a final
distribution in respect of the related Preferred Shares in connection with any
liquidation, dissolution or winding up of EastGroup and such distribution shall
have been distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Shares; or (iii) each share of the
related Preferred Shares shall have been converted into stock of EastGroup not
so represented by Depositary Shares.
CHARGES OF A PREFERRED SHARES DEPOSITARY
EastGroup will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, EastGroup
will pay the fees and expenses of a Preferred Shares Depositary in connection
with the performance of its duties under a Deposit Agreement. However, holders
of Depositary Receipts will pay the fees and expenses of a Preferred Shares
Depositary for any duties requested by such holders to be performed which are
outside of those expressly provided for in the applicable Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Shares Depositary will be permitted to resign at any time by
delivering to EastGroup notice of its election to do so, and EastGroup will be
permitted at any time to remove a Preferred Shares Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Shares Depositary. A successor Preferred Shares Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Shares Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from EastGroup which are
received by such Preferred Shares Depositary with respect to the related
Preferred Shares.
Neither a Preferred Shares Depositary nor EastGroup will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of
EastGroup and a Preferred Shares Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Shares represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither EastGroup nor any applicable Preferred Shares
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Shares represented thereby unless satisfactory indemnity is furnished. EastGroup
and any Preferred Shares Depositary will be permitted to rely on written advice
of counsel or accountants, or information provided by persons presenting shares
of Preferred Shares represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Shares Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and EastGroup on the other hand, such Preferred Shares Depositary
shall be entitled to act on such claims, requests or instructions received from
EastGroup.
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DESCRIPTION OF SHARES
GENERAL
EastGroup is authorized to issue up to 20,000,000 Shares. As of December 1,
1996, EastGroup had issued or reserved for issuance 7,431,721 Shares. Holders of
Shares are entitled to receive such dividends as may be declared from time to
time by the trustees out of funds legally available therefor. All of the issued
and outstanding Shares are fully paid and non-assessable and have equal voting,
distribution and liquidation rights. Shares are not subject to call or
redemption; provided, however, if the EastGroup Board of Trustees determines
that the direct or indirect ownership of Shares has or may become concentrated
to an extent which would cause EastGroup to become "closely held" under the Code
and thereby threaten its REIT status, the Board of Trustees may call for the
redemption of a number of Shares.
Each Share is entitled to one vote on matters put to a vote of the
shareholders, except that in the election of trustees, shareholders have
cumulative voting rights. This means an EastGroup shareholder is entitled to as
many votes as equal the number of Shares owned by him or her multiplied by the
number of trustees to be elected. Shareholders may cast all their votes for one
trustee candidate or distribute the votes as they so determine.
Shares currently outstanding are listed for trading on the New York Stock
Exchange, Inc. (the "NYSE") under the symbol "EGP." EastGroup will apply to the
NYSE to list the additional Shares to be sold pursuant to any Prospectus
Supplement, and EastGroup anticipates that such Shares will be so listed.
Under Maryland law, shareholders are generally not liable for EastGroup's
debts or obligations. If EastGroup is liquidated, subject to the right of any
holders of Preferred Shares, if any, to receive preferential distributions, each
outstanding Share will be entitled to participate pro rata in the assets
remaining after payment of, or adequate provision for, all known debts and
liabilities of EastGroup.
PROVISIONS OF EASTGROUP'S RESTATED DECLARATION OF TRUST, AS AMENDED, AND
TRUSTEES REGULATIONS
EastGroup's Declaration of Trust provides that the number of Trustees will
not be less than three nor more than twelve, and that the manner of change of
the number of trustees will be set forth in EastGroup's Trustees Regulations.
The Trustees Regulations presently provide that EastGroup will have seven
trustees. All seven positions on the Board of Trustees are filled by the vote of
the shareholders at the annual meeting.
OTHER MATTERS
Transfer Agent. The transfer agent and registrar for the Shares is KeyCorp
Shareholder Services, Inc., Cleveland, Ohio.
Redemption Rights. For EastGroup to qualify as a REIT under the Code, no
more than 50% in value of its outstanding Shares may be owned, actually and
constructively under the applicable attribution provisions of the Code, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. Because EastGroup has elected to
be treated as a REIT, the Declaration of Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
The Declaration of Trust provides that if the Board of Trustees shall, at
any time and in good faith, be of the opinion that the direct and indirect
ownership of Shares has or may become concentrated to an extent which would
cause EastGroup to be "closely held" under the Code and thereby threaten its
REIT status, then the Board of Trustees may call for the redemption of such
Shares or any number of Shares. The redemption price shall be determined in good
faith by the Board of Trustees. Any Shares subject to redemption shall not be
entitled to dividends, voting rights and other benefits excepting the right to
the payment of the redemption price. Redeemed Shares shall be cancelled.
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Each shareholder shall, upon request by the Board of Trustees, furnish such
information including, without limitation, information as to the actual
ownership of the Shares by such shareholder, as the trustees may require in
order to determine EastGroup's status as a REIT.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of EastGroup.
Special Voting Requirements for Certain Business Combinations. Pursuant to
Maryland law, EastGroup is governed by special procedures that apply to certain
business combinations involving a real estate investment trust and interested
shareholders.
Maryland law provides that a Maryland real estate investment trust may not
engage in any "business combination" (including certain mergers, consolidations,
share exchanges, asset transfers, sales or leases, issuance or reclassification
of equity securities and other benefits) with any "interested shareholder" or
its affiliates. An "interested shareholder" is defined, in essence, as any
person owning beneficially, directly or indirectly, ten percent or more of the
outstanding voting shares of a Maryland real estate investment trust. Unless an
exemption applies, EastGroup may not engage in any business combination with an
interested shareholder or its affiliates for a period of five years after the
interested shareholder became an interested shareholder, and thereafter may not
engage in a business combination unless it is recommended by the board of
trustees and approved by the affirmative vote of at least (i) eighty percent of
the votes entitled to be cast by the holders of all outstanding voting stock of
EastGroup, voting together as a single voting group and (ii) two-thirds of the
votes entitled to be cast by all holders of outstanding shares of voting stock
other than voting stock held by the interested shareholder or an affiliate or an
associate, or unless the real estate investment trust's shareholders receive a
minimum price for their shares (as defined in the statute) and the consideration
received is cash or in the same form as paid by the interested shareholder for
its shares. The voting requirements do not apply at any time to business
combinations with an interested shareholder or its affiliates if approved by the
board of trustees of the corporation prior to the time the interested
shareholder first became an interested shareholder.
Control Share Acquisitions. Maryland law provides for the elimination of
the voting rights of shares held by any person who makes a "control share
acquisition" except to the extent that such acquisition is exempt or is approved
by at least two-thirds of all votes entitled to be cast on the matter, excluding
shares owned by the acquirer or by officers or trustees who are employees of the
real estate investment trust whose shares were acquired. A "control share
acquisition" is the direct or indirect acquisition by any person of ownership
of, or the power to direct the exercise of voting power with respect to, voting
shares ("control shares") that would, if aggregated with all other voting shares
owned by such person, entitle such person to exercise voting power in electing
trustees within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third; (ii) one-third or more but less than a majority;
or (iii) a majority or more of voting power.
A person who has made or proposes to make a control share acquisition, upon
the satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the real estate investment
trust may itself present the question at any shareholders meeting. If voting
rights are not approved at the meeting or if the acquiring person does not
deliver an acquiring person statement as permitted by the statute, then, subject
to certain conditions and limitations, the real estate investment trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
voting rights, as of the date of the last control share acquisition or as of the
date of any meeting of shareholders at which the voting rights of such shares
are considered and not approved.
If voting rights for control shares are approved at a shareholders meeting
and the acquirer becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders may exercise appraisal rights. The fair value of
the stock as determined for purposes of such appraisal rights may not be less
than the highest price per share paid in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The
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control share acquisition statute does not apply to stock acquired in a merger,
consolidation or stock exchange if the corporation is a party to the
transaction.
Amendment of Declaration of Trust. The Declaration of Trust provides that
it may not be amended except upon the affirmative vote of the holders of not
less than two-thirds of the Shares then outstanding, except that the board of
trustees may amend or alter provisions of the Declaration of Trust by two-thirds
vote of the trustees without the consent of the shareholders to the extent such
amendment is deemed by the trustees in good faith to be necessary to meet the
requirements for a REIT under the Code.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a prospective holder of securities of
EastGroup. This discussion is based on current law. The discussion is not
exhaustive of all possible tax considerations and does not give a detailed
discussion of any state, local, or foreign tax considerations. It also does not
discuss all of the aspects of Federal income taxation that may be relevant to a
prospective shareholder in light of his particular circumstances or to certain
types of shareholders (including insurance companies, tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) who are subject to special
treatment under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. EastGroup has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective since its inception. EastGroup's qualification
and taxation as a REIT depends upon its ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests and organizational requirements
imposed under the Code, as discussed below. EastGroup believes that it is
organized and has operated in such a manner as to qualify under the Code for
taxation as a REIT commencing since its inception, and it intends to continue to
operate in such a manner. No assurances, however, can be given that EastGroup
will operate in a manner so as to qualify or remain qualified as a REIT. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, the regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
If EastGroup qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. Notwithstanding its REIT election, however,
EastGroup will be subject to Federal income tax in the following circumstances.
First, EastGroup will be taxed at regular corporate rates on any undistributed
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if EastGroup has (i) net income from the
sale or other disposition of "foreclosure property" (which is, in general,
property acquired by foreclosure or otherwise on default of a loan secured by
the property) which is held primarily for sale to customers in the ordinary
course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if EastGroup has net
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income from prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property) held primarily
for sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if EastGroup should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which it fails the 75% or 95% test,
multiplied by a fraction intended to reflect its profitability. Sixth, if
EastGroup should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year; (ii) 95% of its REIT
capital gain net income for such year; and (iii) any undistributed taxable
income from prior years, EastGroup would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if EastGroup acquires any asset from a C corporation (i.e., a
corporation generally subject to full corporate level tax) in a transaction in
which the basis of the asset in EastGroup's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C
corporation, and EastGroup recognizes gain on the disposition of such asset
during the 10-year period beginning on the date on which such asset was acquired
by it, then, to the extent of such property's built-in gain (the excess of the
fair market value of such property at the time of acquisition by EastGroup over
the adjusted basis of such property at such time), such gain will be subject to
tax at the highest regular corporate rate applicable (as provided in IRS
regulations that have not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) which would be taxable
as a domestic corporation but for Sections 856 through 860 of the Code; (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT. EastGroup has issued sufficient
Shares with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, EastGroup's Declaration of Trust
contains restrictions regarding the transfer of its shares that are intended to
assist it in continuing to satisfy the share ownership requirements described in
(v) and (vi) above. See "Capital Stock of EastGroup -- Restrictions on
Transfer."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. EastGroup's taxable year is the calendar
year.
Income Tests. In order to maintain qualification as a REIT, three gross
income requirements must be satisfied annually. First, at least 75% of the
REIT's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments described above, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by EastGroup will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part
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on the income or profits of any person. However, amounts received or accrued
generally will not be excluded from "rents from real property" solely by reason
of being based on a fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if EastGroup, or an owner of 10% or more of EastGroup, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property that is leased in connection
with a lease of real property is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for rents received to
qualify as "rents from real property," EastGroup generally must not operate or
manage the property or furnish or render services to tenants, other than through
an "independent contractor" from whom EastGroup derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by EastGroup are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant." EastGroup believes that all services that
are provided to its tenants will be considered "usually or customarily" rendered
in connection with the rental of comparable properties. Further, any
noncustomary services will be provided only through qualifying independent
contractors.
If EastGroup fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if its failure to meet such tests was due
to reasonable cause and not due to willful neglect, EastGroup attaches a
schedule of the sources of its income to its return, and any income information
on the schedules was not due to fraud with intent to evade tax. It is not
possible, however, to state whether in all circumstances EastGroup would be
entitled to the benefit of these relief provisions. As discussed above in
"General," even if these relief provisions were to apply, a tax would be imposed
with respect to the excess net income.
Asset Tests. At the close of each quarter of its taxable year, EastGroup
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of EastGroup's total assets must be represented by real
estate assets (including stock or debt instruments held for not more than one
year purchased with the proceeds of a stock or debt offering of the company),
cash, cash items and government securities. Second, not more than 25% of
EastGroup's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by EastGroup may not exceed 5% of
the value of EastGroup's total assets, and EastGroup may not own more than 10%
of any one issuer's outstanding voting securities. The 5% test must generally be
met for any quarter in which a REIT acquires securities of an issuer.
Annual Distribution Requirements. EastGroup, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (i) the sum of (a) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before EastGroup timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that EastGroup does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
nondistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if EastGroup should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year; (ii) 95% of
its REIT capital gain income for such year; and (iii) any undistributed taxable
income from prior periods, it will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
EastGroup has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. It is possible,
however, that the company, from time to time, may not have sufficient cash or
liquid assets to meet the distribution requirements due to timing differences
between the actual receipt of income and actual payment of deductible expenses
and the inclusion of such income and deduction of such expenses in arriving at
EastGroup's taxable income, or if the amount of nondeductible
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expenses such as principal amortization or capital expenditures exceed the
amount of noncash deductions. In the event that such timing differences occur,
in order to meet the distribution requirements, EastGroup may arrange for
short-term, or possible long-term, borrowing to permit the payment of required
dividends. If the amount of nondeductible expenses exceeds noncash deductions,
EastGroup may refinance its indebtedness to reduce principal payments and borrow
funds for capital expenditures.
Under certain circumstances, EastGroup may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year that may be included in EastGroup's deduction for
dividends paid for the earlier year. Thus, EastGroup may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the company will
be required to pay interest to the IRS based upon the amount of any deduction
taken for deficiency dividends.
Failure to Qualify. If EastGroup fails to qualify for taxation as a REIT in
any taxable year and no relief provisions apply, EastGroup will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which
EastGroup fails to qualify will not be deductible by it, nor will such
distributions be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, EastGroup also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances EastGroup would be entitled to such statutory
relief.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as EastGroup qualifies
as a REIT, distributions made to its taxable domestic shareholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income, and corporate
shareholders will not be eligible for the dividends received deduction as to
such amounts. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed
EastGroup's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held his shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Shares, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a shareholder's Shares, they will be
included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less), assuming the shares are a capital
asset in the hands of the shareholders. In addition, any dividend declared by
the company in October, November or December of any year payable to a
shareholder of record on a specific date in any such month shall be treated as
both paid by EastGroup and received by the shareholder on December 31 of such
year, provided that the dividend is actually paid by the company during January
of the following calendar year. Shareholders may not include in their individual
income tax returns any net operating losses or capital losses of EastGroup.
In general, any loss upon a sale or exchange of Shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as long-term capital loss to the extent of
distributions from EastGroup required to be treated by such shareholder as
long-term capital gain.
Backup Withholding. EastGroup will report to its domestic shareholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (ii) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder who does not provide
EastGroup with its correct
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taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, EastGroup may be required to
withhold a portion of capital gain distributions made to any shareholders who
fail to certify their non-foreign status to the company. See "Taxation of
Foreign Shareholders" below.
Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
"unrelated business taxable income" ("UBTI"). Based upon this ruling and subject
to the discussion below regarding qualified pension trust investors,
distributions by EastGroup to a shareholder that is a tax-exempt entity should
not constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its shares with "acquisition indebtedness" within the meaning of
the Code and the Shares are not otherwise used in an unrelated trade or business
of the tax-exempt entity. Revenue rulings, however, are interpretative in nature
and subject to revocation or modification by the IRS.
A "qualified trust" (defined to be any trust described in section 401(a) of
the Code and exempt from tax under section 501(a) of the Code) that holds more
than 10% of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") by relying on a special
"look-through" rule under which shares held by qualified trust shareholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" if either (i) a single
qualified trust holds more than 25% of the value of the REIT shares or (ii) one
or more qualified trusts, each owning more than 10% of the value of the REIT
shares, hold in the aggregate more than 50% of the value of the REIT shares. If
the foregoing requirements are met, the percentage of any REIT dividend treated
as UBTI to a qualified trust that owns more than 10% of the value of the REIT
shares is equal to the ratio of (i) the UBTI earned by the REIT (treating the
REIT as if it were a qualified trust and therefore subject to tax on its UBTI)
to (ii) the total gross income (less certain associated expenses) of the REIT. A
de minimis exception applies where the ratio set forth in the preceding sentence
is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of Shares in EastGroup's Declaration of Trust should prevent
application of the foregoing provisions to qualified trusts purchasing shares
pursuant to the Offering, absent a waiver of the restrictions by the Board of
Trustees.
Taxation of Foreign Shareholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in Shares,
including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
EastGroup of U.S. real property interests and not designated by EastGroup as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
EastGroup. Such distributions, ordinarily, will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces that tax. However, if income from the investment in Shares is
treated as effectively connected with the Non-U.S. Shareholder's conduct of a
U.S. trade or business, the Non-U.S. Shareholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. shareholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits tax
if the shareholder is a foreign corporation). EastGroup expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any dividends paid to a
Non-U.S. Shareholder that are not designated as capital gain dividends unless
(i) a lower treaty rate applies and the required form evidencing eligibility for
that reduced
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rate is filed with EastGroup or (ii) the Non-U.S. Shareholder files an IRS Form
4224 with EastGroup claiming that the distribution is income treated as
effectively connected to a U.S. trade or business.
Distributions in excess of current and accumulated earnings and profits of
EastGroup will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's Shares, but rather will reduce
the adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they will give rise to
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of his Shares as described below.
EastGroup expects to withhold U.S. income tax at the rate of 10% on the amount
realized by Non-U.S. Shareholders on distributions that are not paid out of
current or accumulated earnings and profits unless the Non-U.S. Shareholders
provide EastGroup with IRS withholding certificates evidencing their exemption
from withholding tax. If it cannot be determined at the time a distribution is
made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S.
Shareholder may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of EastGroup.
For any year in which EastGroup qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by EastGroup of U.S. real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Shareholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Shareholder not entitled to treaty relief or
exemption. EastGroup is required by applicable Treasury Regulations to withhold
35% of any distribution that could be designated by the company as a capital
gain dividend. This amount is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares generally
will not be taxed under FIRPTA if EastGroup is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of its shares was held directly or indirectly by
foreign persons. EastGroup believes that it currently qualifies as a
"domestically controlled REIT," and that the sale of Shares will not therefore
be subject to tax under FIRPTA. Because EastGroup is publicly traded, however,
no assurance can be given that the company will continue to be a domestically
controlled REIT. If EastGroup were not a domestically controlled REIT, whether a
Non-U.S. Shareholder's gain would be taxed under FIRPTA would depend on whether
the Shares were regularly traded on an established securities market and on the
size of the selling shareholder's interest in EastGroup. In addition, gain not
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) the
investment in Shares is treated as effectively connected with the Non-U.S.
Shareholder's trade or business, in which case the Non-U.S. Shareholder will be
subject to the same treatment as the U.S. shareholders with respect to such
gain; or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. If
the gain on the sale of Shares were to be subject to tax under FIRPTA, the
Non-U.S. Shareholder would be subject to the same treatment as U.S. shareholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
State and Local Taxes. EastGroup and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside (although shareholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to EastGroup's operations and
distributions). The state and local tax treatment of EastGroup and its
shareholders may not conform to the Federal income tax consequences
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discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Securities.
PLAN OF DISTRIBUTION
EastGroup may sell Securities to or through underwriters, and also may sell
Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from EastGroup or for purchasers of Securities, for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from EastGroup and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from EastGroup will be described, in the Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Shares which are listed on the NYSE. Any Shares sold pursuant to
a Prospectus Supplement will be listed on such exchange, subject to official
notice of issuance. EastGroup may elect to list any series of Debt Securities,
Preferred Shares or Depositary Shares on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of the trading market for the Securities.
Under agreements EastGroup may enter into, underwriters, dealers and agents
who participate in the distribution of Securities may be entitled to
indemnification by EastGroup against certain liabilities, including liabilities
under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, EastGroup in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, EastGroup will
authorize underwriters or other persons acting as EastGroup's agents to solicit
offers by certain institutions to purchase Securities from EastGroup pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
EastGroup. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
EXPERTS
The consolidated financial statements of EastGroup as of December 31, 1995
and 1994, and for each of the years in the three year period ended December 31,
1995, have been incorporated by reference in the Prospectus and Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein in, and upon the
authority of said firm as experts in accounting and auditing.
32
<PAGE> 52
The consolidated financial statements of Copley as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995
incorporated by reference in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of LNH appearing in LNH's Annual
Report (Form 10-KSB) for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The legality of the Securities will be passed upon for EastGroup by
Jaeckle, Fleischmann & Mugel, Buffalo, New York.
33
<PAGE> 53
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY EASTGROUP OR PAINEWEBBER. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF EASTGROUP SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-3
Risk Factors.......................... S-5
The Company........................... S-8
Distributions......................... S-12
Use of Proceeds....................... S-12
Taxation.............................. S-13
Underwriting.......................... S-13
Legal Matters......................... S-14
PROSPECTUS
The Company........................... 1
Risk Factors.......................... 1
Ratio of Earnings to Fixed Charges.... 4
Use of Proceeds....................... 5
Description of Debt Securities........ 5
Description of Preferred Shares....... 15
Description of Depositary Shares...... 20
Description of Shares................. 24
Federal Income Tax Considerations..... 26
Plan of Distribution.................. 32
Experts............................... 32
Legal Matters......................... 33
</TABLE>
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1,250,000 SHARES
EASTGROUP PROPERTIES
LOGO
SHARES OF BENEFICIAL INTEREST
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PROSPECTUS SUPPLEMENT
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PAINEWEBBER INCORPORATED
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FEBRUARY 4, 1997
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