<PAGE> 1
Filed Pursuant to Rule 424(B)(5)
Registration No. 333-29193
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 23, 1997)
EASTGROUP PROPERTIES
[LOGO]
3,500,000 SHARES
EASTGROUP PROPERTIES, INC.
COMMON STOCK
------------------------
EastGroup Properties, Inc. ("EastGroup" or the "Company") is a
self-administered real estate investment trust ("REIT") focused principally on
the ownership, acquisition and selective development of industrial properties in
major Sunbelt markets throughout the United States. As of October 9, 1997,
EastGroup's portfolio included 42 industrial properties in nine states,
comprising approximately 8.0 million square feet of leasable space, six
industrial properties under development or in initial lease-up comprising
approximately 465,000 square feet of leasable space, and three office buildings
containing approximately 390,000 square feet of leasable space. As of August 31,
1997, the industrial portfolio (excluding the six properties currently under
development or in initial lease-up) was 97% leased and the office portfolio was
94% leased.
All of the shares of common stock, $0.0001 par value per share (the "Common
Stock"), of EastGroup offered hereby (the "Offering") are being sold by
EastGroup. The Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "EGP." On October 9, 1997, the closing sales price of
the Common Stock was $22.50 per share.
SEE "RISK FACTORS" COMMENCING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT
FOR CERTAIN FACTORS AND CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON
STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) EastGroup(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $22.00 $1.15 $20.85
- ------------------------------------------------------------------------------------------------------
Total................................... $77,000,000 $4,025,000 $72,975,000
- ------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3)................... $88,550,000 $4,628,750 $83,921,250
======================================================================================================
</TABLE>
(1) EastGroup has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), in connection with the Offering. See
"Underwriting."
(2) Before deducting expenses estimated at $500,000, which are payable by
EastGroup.
(3) Assuming exercise in full of the 30-day option granted by EastGroup to the
Underwriters to purchase up to 525,000 additional shares of Common Stock, on
the same terms, solely to cover over-allotments. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about October
16, 1997.
------------------------
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
A.G. EDWARDS & SONS, INC.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER 9, 1997.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS
MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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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" or the "Company" shall mean EastGroup
Properties, Inc. and its subsidiaries on a consolidated basis and, as the
context may require, their predecessors. The per share information set forth
herein gives retroactive effect to a three-for-two stock split effected by the
Company on April 7, 1997. Unless otherwise indicated, all information presented
in this Prospectus Supplement assumes no exercise of the Underwriters'
over-allotment option.
This Prospectus Supplement contains, and the accompanying Prospectus
contains or incorporates by reference, forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company's actual
results could differ materially from those set forth in the forward-looking
statements. See "Risk Factors" for a discussion of certain factors that might
cause such a difference.
THE COMPANY
EastGroup is a self-administered REIT focused principally on the ownership,
acquisition and selective development of industrial properties in major Sunbelt
markets throughout the United States. As of October 9, 1997, EastGroup's
portfolio included 42 industrial properties in nine states, comprising
approximately 8.0 million square feet of leasable space, six industrial
properties under development or in initial lease-up comprising approximately
465,000 square feet of leasable space, and three office buildings containing
approximately 390,000 square feet of leasable space. As of August 31, 1997, the
industrial portfolio (excluding the six properties currently under development
or in initial lease-up) was 97% leased and the office portfolio was 94% leased.
Management of EastGroup is currently completing the repositioning of
EastGroup's portfolio to focus on industrial properties and the Company is
pursuing an aggressive industrial property acquisition program. Since January 1,
1997, EastGroup has acquired 16 industrial properties (the "Recent
Acquisitions"), aggregating approximately 3.1 million square feet of leasable
space, for a total purchase price (including closing costs) of approximately
$92.1 million. Additionally, the Company has entered into contracts to purchase
five industrial properties (the "Proposed Acquisitions"), aggregating
approximately 1.0 million square feet of leasable space, for a total purchase
price (including anticipated closing costs) of approximately $34.5 million. See
"Properties." Assuming completion of the Proposed Acquisitions, EastGroup will
have expanded its industrial portfolio (excluding the six properties currently
under development or in initial lease-up) by 68% on a cost basis and 84% on a
square footage basis in this calendar year. In 1997, the Company has also
continued with the disposition of non-core assets. Since January 1, 1997,
EastGroup has sold one office building and two shopping center interests for an
aggregate sale price of approximately $24.8 million, resulting in a net gain,
for financial reporting purposes, of approximately $6.7 million. EastGroup plans
to dispose of the remaining five apartment complexes in its portfolio over time.
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. In August 1997, EastGroup purchased 1,449,956 shares of
voting preferred stock in Meridian Point Realty Trust VIII Co. ("Meridian
VIII"), for an average purchase price of approximately $9.47 per share. The
preferred stock purchased by EastGroup represents approximately 27.5% of all
outstanding preferred stock of Meridian VIII and approximately 21.1% of all
voting securities of Meridian VIII taken as a whole. Meridian VIII is an equity
REIT whose assets consist principally of industrial properties. Meridian VIII's
property portfolio contains approximately 2.6 million square feet of leasable
space, primarily in the states of Tennessee, California, Arizona and Texas.
EastGroup is currently evaluating Meridian VIII and the Company's investment and
anticipates proposing a strategic business combination with Meridian VIII in
which EastGroup would be the surviving entity. EastGroup may also pursue a
tender offer or similar transaction involving Meridian VIII. However,
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EastGroup has not yet formulated a definitive proposal regarding Meridian VIII
and there can be no assurance that a business combination, tender offer or
similar transaction will be consummated.
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. Also, in May 1996, EastGroup completed the
acquisition (the "LNH Acquisition") of LNH REIT, Inc. ("LNH"), a former
EastGroup affiliate, for an aggregate consideration of approximately $18
million. Prior to their acquisition by EastGroup, both Copley and LNH were
publicly traded REITs.
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 principal amount of outstanding debt divided by the market value of all
outstanding shares of Common Stock plus the principal amount of outstanding
debt) will be approximately 29% and EastGroup will have approximately $100
million of borrowing capacity under its revolving credit facilities.
EastGroup was organized in 1969 and current management assumed control in
1983. EastGroup has paid 71 consecutive quarterly dividends to its stockholders
and has increased the quarterly dividend seven times in the last four years. The
current quarterly dividend of $0.34 ($1.36 on an annualized basis) represents an
annual dividend yield of 6.0% (based on the October 9, 1997 closing sales price
of the Common Stock).
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
Since January 1, 1997, EastGroup has completed the acquisition of 16
industrial properties, aggregating approximately 3.1 million square feet of
leasable space, for a total purchase price of approximately $92.1 million. The
following table provides certain information with respect to the Recent
Acquisitions. For additional information concerning the Recent Acquisitions and
other properties owned by the Company, see "Properties."
<TABLE>
<CAPTION>
TOTAL
SQUARE FEET
PURCHASE OF LEASABLE
PROPERTY LOCATION AND NAME PRICE(1) SPACE
----------------------------------------------------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C>
ARIZONA
Phoenix
35th Avenue Distribution Center....................... $ 2,800 124,000
Tucson
Chamberlain Distribution Center....................... 4,077 120,000
CALIFORNIA
Los Angeles Metro Area
Washington Distribution Center........................ 6,608 141,000
San Francisco Bay Area
San Clemente Distribution Center...................... 2,891 81,000
</TABLE>
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<TABLE>
<CAPTION>
TOTAL
SQUARE FEET
PURCHASE OF LEASABLE
PROPERTY LOCATION AND NAME PRICE(1) SPACE
----------------------------------------------------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
FLORIDA
Fort Lauderdale
Cypress Creek Business Park........................... 2,450 56,000
Yankee Boulevard Industrial Park...................... 3,481 118,000
Jacksonville
Ellis Distribution Center............................. 8,014 (2) 337,000
Westside Distribution Center.......................... 12,840 (2) 502,000
Tampa
Palm River Distribution Center I...................... 2,671 72,000
56th Street Commerce Park(3).......................... 889 25,000
LOUISIANA
New Orleans
Elmwood Business Park................................. 9,170 (2) 262,000
Riverbend Business Park............................... 20,213 (2) 591,000
MISSISSIPPI
Jackson
Interchange A and D................................... 4,143 100,000
TENNESSEE
Memphis
Senator Street Distribution Center.................... 2,715 80,000
TEXAS
Houston
Lockwood Distribution Center.......................... 6,183 392,000
West Loop Business Park II............................ 2,942 77,000
------- ---------
Total............................................ $92,087 3,078,000
======= =========
</TABLE>
- ---------------
(1) Purchase price includes closing costs.
(2) A portion of the purchase price for the Recent Acquisitions in Jacksonville,
Florida and New Orleans, Louisiana was paid in the form of two promissory
notes (the "Jacksonville Note" and the "New Orleans Note," respectively)
issued by EastGroup, which have an aggregate principal balance of $45.0
million, bear interest at 9.25% and mature on December 31, 1997. EastGroup
may use a portion of the proceeds of this Offering to repay a portion of the
Jacksonville Note and the New Orleans Note. Alternatively, EastGroup intends
to refinance the Jacksonville Note and the New Orleans Note upon maturity
with borrowings on the Company's revolving credit facilities.
(3) The Company purchased a 100% ownership interest in a building located at
56th Street Commerce Park. The Company also owns a 75% tenancy-in-common
interest in six other buildings located at 56th Street Commerce Park.
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PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase five industrial
properties, aggregating approximately 1.0 million square feet of leasable space,
for a total purchase price of approximately $34.5 million. EastGroup intends to
fund the purchase of the Proposed Acquisitions principally with proceeds of the
Offering and borrowings on the Company's revolving credit facilities. The
Proposed Acquisitions, which are expected to close in the fourth quarter of
1997, are subject to the completion of EastGroup's due diligence review and
customary closing conditions. Accordingly, there can be no assurance that the
Company will acquire any or all of these properties. The following table
summarizes the Proposed Acquisitions. For additional information concerning the
Proposed Acquisitions, see "Properties -- Proposed Acquisitions."
<TABLE>
<CAPTION>
TOTAL
ANTICIPATED SQUARE FEET
PURCHASE OF LEASABLE
PROPERTY LOCATION AND NAME PRICE(1) SPACE
----------------------------------------------------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C>
CALIFORNIA
San Diego
Southbay Industrial Center(2)......................... $ 10,009 191,000
MISSISSIPPI
Jackson
Interchange B......................................... 1,210 27,000
TEXAS
Dallas
109th Street Distribution Center...................... 1,020 54,000
Dolton Distribution Center............................ 2,395 99,000
El Paso
Butterfield Trail Industrial Park..................... 19,840 671,000
------- ---------
Total............................................ $34,474 1,042,000
======= =========
</TABLE>
- ---------------
(1) Anticipated purchase price is defined as contract price plus anticipated
closing costs.
(2) In connection with the purchase of this property, the Company will assume
recourse mortgage indebtedness with a principal balance of approximately
$5.1 million which bears interest at 8.5% and matures on July 1, 2004.
INCREASED REVOLVING CREDIT FACILITIES
EastGroup has recently negotiated an increase in the total borrowing
capacity and a reduction in the interest rates under its revolving credit
facilities. Currently, the Company's $20.0 million acquisition facility (the
"Acquisition Facility") bears interest at a variable rate equal to LIBOR plus
1.75% and the Company's $20.0 million working capital facility (the "Working
Capital Facility") bears interest at a variable rate equal to LIBOR plus 1.75%.
Effective October 1, 1997, the maximum principal amount of the Acquisition
Facility will increase to $65.0 million through February 28, 1998 and then will
be $50.0 million from March 1, 1998 through September 30, 2000. Through February
28, 1998, the first $48.75 million advanced under the Acquisition Facility will
bear interest at LIBOR plus 1.50% and any advances in excess of $48.75 million
will bear interest at LIBOR plus 1.75%. Effective March 1, 1998, all advances
under the Acquisition Facility will bear interest at LIBOR plus 1.50%. Effective
October 1, 1997, the maximum principal amount of the Working Capital Facility
will be increased to $35.0 million through February 28, 1998 and then will be
$25.0 million from March 1, 1998 through September 30, 1998. Through February
28, 1998, the first $26.25 million advanced under the Working Capital Facility
will bear interest at LIBOR plus 1.50% and any advances in excess of $26.25
million will bear interest at LIBOR plus 1.75%. Effective March 1, 1998, all
advances under the Working Capital Facility will bear interest at LIBOR plus
1.50%. The Working Capital Facility may be utilized by the Company for general
working capital purposes, including the acquisition of additional properties.
The Company and its lenders are currently preparing final documentation with
respect to the
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changes in the Company's credit facilities, which the Company anticipates will
be completed in the near future and will implement the changes retroactively to
October 1, 1997.
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, David H.
Hoster II, EastGroup's Chief Executive Officer and President, and N. Keith
McKey, EastGroup's Executive Vice President and Chief Financial Officer, have 39
years, 25 years and 17 years of experience, respectively, in the real estate
industry. In addition to experience in acquisitions and development of
industrial properties, EastGroup's management also has significant experience in
the acquisition of other real estate companies and REITs.
THE OFFERING
Common Stock Offered by
EastGroup........................ 3,500,000 shares
Common Stock Outstanding after
the Offering..................... 16,190,984 shares (1)(2)
Use of Proceeds.................. Approximately $36.0 million to repay all
outstanding indebtedness under the
Company's revolving credit facilities, and
the remainder to fund all or a portion of
the purchase price of the Proposed
Acquisitions and/or to repay a portion of
the Jacksonville Note and the New Orleans
Note.
NYSE Symbol...................... "EGP"
- ---------------
(1) Assumes the Underwriters' over-allotment option to purchase up to 525,000
shares of Common Stock is not exercised. See "Underwriting."
(2) Based on the number of shares outstanding on October 9, 1997. Does not
include 587,825 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to EastGroup's stock option
plans.
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RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information 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 Common Stock.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS
EastGroup is currently experiencing a period of rapid growth. Since January
1, 1997, EastGroup has acquired the Recent Acquisitions, aggregating
approximately 3.1 million square feet of leasable space, for a total purchase
price of approximately $92.1 million. Additionally, EastGroup has contracted to
purchase the Proposed Acquisitions, aggregating approximately 1.0 million square
feet of leasable space, for a total purchase price of approximately $34.5
million. The integration of the Recent Acquisitions and the Proposed
Acquisitions (if consummated) into existing management and operating structures
presents a significant management challenge. Although EastGroup believes that it
has sufficient management depth to lead EastGroup through this period of rapid
growth, there can be no assurance that it will be able to assimilate the Recent
Acquisitions or any future acquisitions into its portfolio without certain
operating disruptions or unanticipated costs. The failure to successfully
integrate the Recent Acquisitions or any future acquisitions could have a
material adverse effect on the results of operations and financial condition of
EastGroup and its ability to pay expected distributions to stockholders.
Further, there can be no assurance that properties which are acquired will
perform in accordance with expectations or that cost estimates for improvements
to, or further development of, acquired properties (including improvements which
may be necessary to bring acquired properties up to the Company's standards)
will be accurate.
REAL ESTATE FINANCING RISKS
Existing Debt 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, the risk of violating loan covenants, the risk of rising interest
rates on EastGroup's variable rate debt and the risk that EastGroup will not be
able to repay or refinance existing indebtedness on its properties (which
generally will not have been fully amortized at maturity) or that the terms of
such refinancing will not be as favorable as the terms of existing indebtedness.
There can be no assurance that EastGroup will be able to refinance any
indebtedness it may incur or otherwise obtain funds by selling assets or raising
equity to make required payments on indebtedness.
Substantial Debt Obligations; Secured Debt. As of October 9, 1997,
EastGroup had $145.9 million of mortgage indebtedness secured by 23 of its
properties. Additionally, four properties and the stock of two of EastGroup's
wholly-owned subsidiaries secure the Company's revolving credit facilities. In
addition, properties which EastGroup may acquire in the future could be
mortgaged to secure payment of indebtedness. If EastGroup is unable to generate
funds to cover required payments of principal and interest on borrowings secured
by any of these properties, the mortgage securing such properties could be
foreclosed upon by, or such properties could otherwise be transferred to, the
mortgagee with a consequent loss of income and asset value to EastGroup.
Variable Rate Indebtedness. Advances under the Company's revolving credit
facilities bear interest at variable rates. In addition, EastGroup may incur
indebtedness in the future that also bears interest at a variable rate or may be
required to refinance its debt at higher rates. Accordingly, increases in
interest rates could increase EastGroup's interest expense, which could
adversely affect EastGroup's financial condition and ability to pay expected
distributions to stockholders.
No Limitation on Debt. As of October 9, 1997, EastGroup's ratio of debt to
total market capitalization was approximately 39%. Upon completion of the
Offering and application of the net proceeds therefrom, EastGroup's debt to
total market capitalization will be approximately 29% (based on the October 9,
1997 closing sales price of the Common Stock of $22.50 per share). EastGroup's
organizational documents do not contain any limitation on the amount of
indebtedness it may incur. Accordingly, the Board of Directors could
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alter EastGroup's current debt structure and would do so, for example, if it
were necessary in order for EastGroup to continue to qualify as a REIT. As a
result, EastGroup could become more highly leveraged, resulting in a increase in
debt service that could adversely affect EastGroup's financial condition and
cash available for distribution to stockholders and could increase the risk of
default on EastGroup's indebtedness.
ACQUISITION AND DEVELOPMENT RISKS
EastGroup intends to pursue acquisitions of the Proposed Acquisitions as
well as additional properties and selected development opportunities.
Acquisitions and the development of new properties entail various risks,
including that such properties will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to market,
acquire, develop and operate such properties will prove inaccurate. The fact
that EastGroup generally must distribute 95% of its ordinary taxable income in
order to maintain its qualification as a REIT may limit EastGroup's ability to
rely upon lease income from its properties or subsequently acquired properties
to finance acquisitions or new developments. As a result, if debt or equity
financing were not available on acceptable terms, further acquisitions or
development activities might be curtailed or EastGroup's financial condition and
cash available for distributions to stockholders might be adversely affected.
REAL ESTATE INVESTMENT RISKS
General Risks. EastGroup's investments generally consist of investments in
industrial properties and as such will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
EastGroup's real estate investments and EastGroup's financial condition and
ability to make expected distributions to its stockholders will be dependent
upon its ability to operate its properties in a manner sufficient to maintain or
increase revenues and to generate sufficient income in excess of operating
expenses. Income from EastGroup's properties may be adversely affected by
changes in national economic conditions, changes in local market conditions due
to changes in general or local economic conditions and neighborhood
characteristics, changes in interest rates and in the availability, cost and
terms of mortgage financings, the impact of present or future environmental
legislation and compliance with environmental laws, the ongoing need for capital
improvements, particularly in older structures, changes in real estate tax rates
and other operating expenses, adverse changes in governmental rules and fiscal
policies, adverse changes in zoning laws, civil unrest, acts of God, including
earthquakes and other natural disasters (which may result in uninsured losses),
acts of war and other factors which are beyond the control of EastGroup.
Dependence on Primary Markets. Substantially all of the Company's
properties are located in the Sunbelt region of the United States and,
therefore, EastGroup's financial condition and its ability to make expected
distributions to stockholders will be linked to economic conditions in these
markets as well as the market for industrial space generally. To the extent that
these conditions impact the market rents for industrial space, they could have
an adverse effect on EastGroup's financial condition and ability to make
expected distributions to stockholders.
Tenant Defaults. A substantial part of EastGroup's revenues and income is
derived from rental income from real property. Consequently, EastGroup's
financial condition and ability to make expected distributions to stockholders
and to use its properties as collateral for its borrowings would be adversely
affected if a significant number of tenants failed to meet their lease
obligations. In the event of a default by a tenant, 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 the rejection and termination of such
tenant's lease and thereby adversely affect EastGroup's financial condition and
ability to make expected distributions to stockholders. If a tenant rejects its
lease pursuant to applicable bankruptcy laws, EastGroup's claim for breach of
the lease in excess of any applicable security deposit 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
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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
year's lease payments).
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. EastGroup's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If EastGroup
must sell an investment, there can be no assurance that it will be able to
dispose of the investment in the time period it desires or that the sales price
of the investment will recoup or exceed the amount of EastGroup's cost for the
investment.
Environmental Matters. EastGroup's operating costs may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow by using such real
property as collateral. Persons who arrange for the transportation, disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated, by such person.
Certain environmental laws and common law principles could be used to impose
liability for releases of hazardous materials, including asbestos-containing
materials ("ACMs"), into the environment, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials.
Environmental laws may also impose restrictions on the manner in which a
property may be used or transferred or in which businesses may be operated, and
these restrictions may require expenditures. In connection with the ownership
and operation of its properties, EastGroup may be potentially liable for any
such costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect EastGroup's results of operations and financial
condition and ability to make expected distributions to stockholders. Phase I
environmental site assessments ("ESAs") have been conducted at all of the
Company's properties by qualified independent environmental engineers. The
purpose of Phase I ESAs is to identify potential sources of contamination for
which any of the properties may be responsible and to assess the status of
environmental regulatory compliance. With the exception of Cowesett Corners
Shopping Center ("Cowesett"), portions of which are used for purposes of
operating a dry cleaning business and paint store, ESAs have not revealed any
material environmental liabilities or compliance concerns, nor is EastGroup
aware of any such liabilities or concerns. It is possible, however, that these
ESAs did not reveal all environmental liabilities or compliance concerns or that
material environmental liabilities or compliance concerns exist of which
EastGroup is currently unaware. EastGroup has not been notified by any
governmental authority, and has no other knowledge of, any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in connection with any of its properties.
EastGroup intends to perform additional Phase I ESAs with respect to all
properties acquired in the future.
Preliminary environmental studies performed at the Cowesett property
indicated that certain hazardous materials have been released at Cowesett in
connection with the dry cleaning operations 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. On September 16, 1997, the Company sold
its 50% joint venture interest in Cowesett. Prior to this sale, in August 1997,
the Company, its joint venturer, the purchaser of the Cowesett property and the
State of Rhode Island entered into a Settlement Agreement and Covenant Not to
Sue (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the
State of Rhode Island agreed not to sue or take any other civil or
administrative action against the parties in connection with the existing
environmental condition at the Cowesett property,
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provided the purchaser satisfies certain conditions and obligations.
Additionally, in connection with the Settlement Agreement and the sale of the
property, the purchaser released EastGroup from all liability in connection with
the existing environmental condition and agreed to indemnify EastGroup against
any and all claims and liabilities incurred by, or asserted against, EastGroup
as a result of the existing environmental condition and the failure of the
purchaser to comply with the remediation plan provided for in the Settlement
Agreement. As a prior owner of the property, however, the Company may be liable
for any additional costs incurred as a result of the removal or remediation of
hazardous or toxic substances on, under or in such property.
Competition. All of the properties owned by EastGroup are located in
developed areas. There are numerous other industrial properties and real estate
companies within the market area of each such property which will compete with
EastGroup for tenants and acquisition and development opportunities. The number
of competitive industrial properties and real estate companies in such areas
could have a material effect on (i) EastGroup's ability to rent space at its
properties; (ii) the amount of rents currently charged and to be charged upon
expiration of leases; (iii) the amount of tenant improvements and other tenant
concessions required to lease the properties; and (iv) acquisition and
development opportunities. EastGroup will compete for tenants and acquisitions
with other competitors who have greater financial resources than EastGroup.
Uninsured and Underinsured Losses. EastGroup has obtained or has caused
its tenants to obtain commercial general liability, fire and extended coverage
insurance with respect to its properties of the types and in the amounts which
EastGroup believes are customarily obtained for or by an owner of such
properties. EastGroup plans to obtain similar coverage for properties acquired
in the future. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes and floods, that may be uninsurable or
not economically insurable. The Board of Directors and management of EastGroup
will use their discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the investments of EastGroup, as the case may be, at a
reasonable cost and on suitable terms. This may result in insurance coverage
that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of the lost investment of
EastGroup. Inflation, changes in building codes and ordinances, environmental
considerations, and other factors also might make it infeasible to use insurance
proceeds to replace the property after such property has been damaged or
destroyed. Under such circumstances, the insurance proceeds received by
EastGroup might not be adequate to restore its economic position with respect to
such property.
Property Taxes. EastGroup's properties are subject to real property taxes.
The real property taxes on the properties may increase or decrease as property
tax rates change and as the value of the properties are assessed or reassessed
by taxing authorities. If property taxes increase, EastGroup's ability to make
distributions to its stockholders could be adversely affected.
Cost of Compliance with 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. Compliance with the public accommodations
provision 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. In many instances, the applicability and
requirements of the ADA are not clear. Accordingly, 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 adverse effect on EastGroup's
financial condition, such costs could be substantial. EastGroup has not
undertaken ADA studies of all of its properties and, as to those properties with
respect to which EastGroup has not undertaken ADA studies, possible costs of
compliance could arise.
CONFLICTS OF INTEREST
Leland R. Speed serves as Chairman of both EastGroup and Parkway
Properties, Inc., a REIT focused on office properties principally in the
Southeastern United States and Texas. EastGroup and Parkway are
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<PAGE> 12
housed in separate offices and have no other common directors or officers. As
both companies carry out their strategic plans, management of each company has
stated its intention not to transfer 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 contained in EastGroup's Articles of Incorporation, as
amended (the "Charter"), Bylaws, certain of EastGroup's agreements, 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 the Maryland General
Corporation Law relating to certain "business combinations" and "control share"
acquisitions involving Maryland corporations, EastGroup's Change in Control
Agreements with certain executive officers, and certain provisions of the
Charter intended to protect EastGroup's status as a REIT described below under
"-- Possible Adverse Consequences of Limits on Ownership of Common Stock." Such
provisions may (i) deter tender offers for Common Stock, which may be attractive
to the stockholders; or (ii) deter purchases of large blocks of Common Stock,
thereby limiting the opportunity for stockholders to receive a premium for their
Common Stock over then-prevailing market prices.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF COMMON STOCK
The provisions of the Charter provide that if a transfer of stock of
EastGroup or a change in the capital structure of EastGroup would result in (i)
any person (as defined in the Charter) directly or indirectly acquiring
beneficial ownership of more than 9.8% (in value or in number, whichever is more
restrictive) of the outstanding capital stock of EastGroup excluding Excess
Stock (as defined below); (ii) the outstanding shares of EastGroup being
constructively or beneficially owned by fewer than 100 persons; or (iii)
EastGroup being "closely held" within the meaning of Section 856 of the Internal
Revenue Code of 1986, as amended (the "Code"), then: (a) any proposed transfer
will be void ab initio and will not be recognized by EastGroup; (b) EastGroup
will have the right to redeem the shares proposed to be transferred; and (c) the
shares proposed to be transferred will be automatically converted into and
exchanged for shares of a separate class of stock, the excess stock, par value
$0.0001 per share, of EastGroup ("Excess Stock"), having no dividend or voting
rights. Holders of Excess Stock do have certain rights in the event of any
liquidation, dissolution or winding up of the Company. The Charter further
provides that the Excess Stock will be held by EastGroup as trustee for the
person or persons to whom the shares are ultimately transferred, until such time
as the shares are retransferred to a person or persons in whose hands the shares
would not be Excess Stock and certain price-related restrictions are satisfied.
These provisions are designed to enable EastGroup to meet the share ownership
requirements applicable to REITs under the Code, but may also have an
anti-takeover effect of discouraging tender offers or purchases of large blocks
of stock, thereby limiting the opportunity for stockholders to receive a premium
for their Common Stock over then-prevailing market prices.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Common Stock 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 Common Stock to demand a higher annual dividend yield
on the Common Stock, which could adversely affect the market price of the Common
Stock. 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 Common Stock or other securities.
REIT TAX RISKS
EastGroup believes that it was organized and has operated in 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. Although the Company believes that it has been
organized and operated and will continue to operate in a manner so as to qualify
for taxation as a REIT, no assurance can be given that it has qualified or will
be able to continue to operate in a manner so as
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<PAGE> 13
to qualify as a REIT. Qualification as a REIT depends upon EastGroup meeting and
continuing to meet 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 ownership
restrictions on EastGroup shares; and (iv) distributing at least 95% of all real
estate investment taxable income on an annual basis. There are only limited
judicial and administrative interpretations of such rules. Furthermore, the
determination of various factual matters and circumstances not entirely within
EastGroup's control may affect EastGroup's ability to qualify as a REIT.
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 stockholders 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 stockholders had been made based on 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. See "Federal Income Tax
Considerations -- Taxation of the Company" in the accompanying Prospectus.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement, the
accompanying Prospectus and other materials filed or to be filed by the Company
with the Securities and Exchange Commission under the Exchange Act and
incorporated by reference in the accompanying Prospectus contain or will contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements include information
relating to acquisitions and other business development activities, future
capital expenditures, financing sources and availability and the effects of
regulations (including environmental regulation) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
contained in this Prospectus Supplement or the accompanying Prospectus or
incorporated by reference in such Prospectus. These risks and uncertainties
include, but are not limited to, uncertainties affecting real estate businesses
generally (such as entry into new leases, renewals of leases and dependence on
tenants' business operations), risks relating to acquisition and development
activities, mergers and acquisitions, possible environmental liabilities, risks
relating to leverage, debt service and obligations with respect to the payment
of dividends (including the availability of financing on terms acceptable to the
Company and sensitivity of the Company's operations to fluctuations in interest
rates), the potential for the need to use borrowings to make distributions
necessary for the Company to qualify as a REIT or to fund the payment of
dividends, dependence on the markets in which the Company's properties are
located, the existence of complex regulations relating to the Company's status
as a REIT and the adverse consequences of the failure of the Company to qualify
as a REIT and the potential adverse impact of market interest rates on the
market price for the Company's securities.
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<PAGE> 14
THE COMPANY
GENERAL
EastGroup is a self-administered REIT focused principally on the ownership,
acquisition and selective development of industrial properties in major Sunbelt
markets throughout the United States. As of October 9, 1997, EastGroup's
portfolio included 42 industrial properties in nine states, comprising
approximately 8.0 million square feet of leasable space, six industrial
properties under development or in initial lease-up comprising approximately
465,000 square feet of leasable space, and three office buildings containing
approximately 390,000 square feet of leasable space. As of August 31, 1997, the
industrial portfolio (excluding the six properties currently under development
or in initial lease-up) was 97% leased and the office portfolio was 94% leased.
Management of EastGroup is currently completing the repositioning of
EastGroup's portfolio to focus on industrial properties and the Company is
pursuing an aggressive industrial property acquisition program. Since January 1,
1997, EastGroup has acquired 16 industrial properties, aggregating approximately
3.1 million square feet of leasable space, for a total purchase price (including
closing costs) of approximately $92.1 million. Additionally, the Company has
entered into contracts to purchase five industrial properties, aggregating
approximately 1.0 million square feet of leasable space, for a total purchase
price (including anticipated closing costs) of approximately $34.5 million. See
"Properties." Assuming completion of the Proposed Acquisitions, EastGroup will
have expanded its industrial portfolio (excluding the six properties currently
under development or in initial lease-up) by 68% on a cost basis and 84% on a
square footage basis in this calendar year. In 1997, the Company has also
continued with the disposition of non-core assets. Since January 1, 1997,
EastGroup has sold one office building and two shopping center interests for an
aggregate sale price of approximately $24.8 million, resulting in a net gain,
for financial reporting purposes, of approximately $6.7 million. EastGroup plans
to dispose of the remaining five apartment complexes in its portfolio over time.
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 principal amount of outstanding debt divided by the market value of all
outstanding shares of Common Stock plus the principal amount of outstanding
debt) will be approximately 29% and EastGroup will have approximately $100
million of borrowing capacity under its revolving credit facilities.
EastGroup was organized in 1969 and current management assumed control in
1983. EastGroup has paid 71 consecutive quarterly dividends to its stockholders
and has increased the quarterly dividend seven times in the last four years. The
current quarterly dividend of $0.34 ($1.36 on an annualized basis) represents an
annual dividend yield of 6.0% (based on the October 9, 1997 closing sales price
of the Common Stock). EastGroup's principal 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 and REITs. 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) Recent and Proposed Acquisitions. Since January 1, 1997, the
Company has completed the acquisition of 16 industrial properties,
aggregating approximately 3.1 million square feet of leasable space, for a
total purchase price of approximately $92.1 million. These acquisitions
complement EastGroup's existing portfolio in major Sunbelt markets. In
addition, the Company has entered into contracts to
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<PAGE> 15
purchase five industrial properties, aggregating 1.0 million square feet of
leasable space, for a total purchase price of approximately $34.5 million.
See "Properties."
(ii) Selective Development. EastGroup has six industrial property
development projects currently under construction or in initial lease-up.
In Denver, Colorado, EastGroup has constructed and is currently in the
initial lease-up of Rampart Distribution Center II, a $3.2 million,
approximately 66,000 square foot industrial facility located adjacent to
EastGroup's existing 100% occupied Rampart Distribution Center. In Orlando,
Florida, EastGroup has constructed and is currently in the initial lease-up
of Chancellor Distribution Center, a $1.9 million, approximately 51,000
square foot industrial property near the Orlando International Airport, an
area where EastGroup already owns three fully-occupied industrial
properties. In Orlando, EastGroup is also developing Sunbelt Distribution
Center II, a $2.2 million, approximately 61,000 square foot industrial
facility adjacent to La Quinta Distribution Center. In Tampa, Florida,
EastGroup is developing three properties: Walden Distribution Center, a
$4.0 million, approximately 122,000 square foot industrial facility;
Benjamin Distribution Centers I and II, a complex of two industrial
buildings aggregating approximately 93,000 square feet at an expected cost
of approximately $5.0 million; and Palm River Distribution Center II, a
$3.2 million, approximately 72,000 square foot industrial facility. In
addition to these six projects, EastGroup has three industrial property
development projects currently under review, representing an aggregate
potential additional investment of approximately $10.4 million.
(iii) Acquisition of public and private real estate companies and
REITs. 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. In August 1997, EastGroup purchased
1,449,956 shares of voting preferred stock in Meridian VIII for an average
purchase price of approximately $9.47 per share. The preferred stock
purchased by EastGroup represents approximately 27.5% of all outstanding
preferred stock of Meridian VIII and approximately 21.1% of all voting
securities of Meridian VIII taken as a whole. Meridian VIII is an equity
REIT whose assets consist principally of industrial properties. Meridian
VIII's property portfolio contains approximately 2.6 million square feet of
leasable space, primarily in the states of Tennessee, California, Arizona
and Texas. EastGroup is currently evaluating Meridian VIII and the
Company's investment and anticipates proposing a strategic business
combination with Meridian VIII in which EastGroup would be the surviving
entity. EastGroup may also pursue a tender offer or similar transaction
involving Meridian VIII. However, EastGroup has not yet formulated a
definitive proposal regarding Meridian VIII and there can be no assurance
that a business combination, tender offer or similar transaction will be
consummated.
On June 19, 1996, EastGroup completed the Copley Acquisition 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 3.2 million shares of Common Stock (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 for aggregate consideration of approximately
$18 million, consisting of the issuance of approximately 927,000 shares of
Common Stock (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. Prior to their acquisition by
EastGroup, both Copley and LNH were publicly traded REITs.
REVOLVING CREDIT FACILITIES
EastGroup has recently negotiated an increase in the total borrowing
capacity and a reduction in the interest rates under its revolving credit
facilities. Currently, the Acquisition Facility and the Working Capital Facility
bear interest at a variable rate equal to LIBOR plus 1.75%. Effective October 1,
1997, the maximum
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<PAGE> 16
principal amount of the Acquisition Facility will increase to $65.0 million
through February 28, 1998 and then will be $50.0 million from March 1, 1998
through September 30, 2000. Through February 28, 1998, the first $48.75 million
advanced under the Acquisition Facility will bear interest at LIBOR plus 1.50%
and any advances in excess of $48.75 million will bear interest at LIBOR plus
1.75%. Effective March 1, 1998, all advances under the Acquisition Facility will
bear interest at LIBOR plus 1.50%. Effective October 1, 1997, the maximum
principal amount of the Working Capital Facility will be increased to $35.0
million through February 28, 1998 and then will be $25.0 million from March 1,
1998 through September 30, 1998. Through February 28, 1998, the first $26.25
million advanced under the Working Capital Facility will bear interest at LIBOR
plus 1.50% and any advances in excess of $26.25 million will bear interest at
LIBOR plus 1.75%. Effective March 1, 1998, all advances under the Working
Capital Facility will bear interest at LIBOR plus 1.50%. The Working Capital
Facility may be utilized by the Company for general working capital purposes,
including the acquisition of additional properties. The Company and its lenders
are currently preparing final documentation with respect to the changes in the
Company's credit facilities, which the Company anticipates will be completed in
the near future and will implement the changes retroactively to October 1, 1997.
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<PAGE> 17
PROPERTIES
The following table contains certain information with respect to
EastGroup's properties, including the Recent Acquisitions:
<TABLE>
<CAPTION>
TOTAL TOTAL PERCENT
INVESTMENT SQUARE FEET LEASED AT YEAR(S)
AS OF JUNE 30, OF LEASABLE AUGUST 31, ACQUIRED OR
PROPERTY TYPE, LOCATION AND NAME 1997(1) SPACE 1997 CONSTRUCTED
- --------------------------------------------- -------------- ----------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
ARIZONA
Phoenix
Metro Business Park..................... $ 9,817 189,000 93% 1996
35th Avenue Distribution Center......... 2,800 124,000 100 1997
Broadway Industrial Center.............. 4,204 121,000 100 1996
Tucson
Chamberlain Distribution Center......... 4,077 120,000 100 1997
-------- ---------- ---
TOTAL/AVERAGE ARIZONA.............. $ 20,898 554,000 98%
-------- ---------- ---
CALIFORNIA
Los Angeles Metro Area
Dominguez Distribution Center........... $ 10,031 262,000 100% 1996
Kingsview Industrial Center............. 3,217 83,000 100 1987
Walnut Business Center.................. 8,191 234,000 100 1996
Washington Distribution Center.......... 6,608 141,000 62 1997
San Francisco Bay Area
Huntwood Associates..................... 19,210 514,000 100 1996
Nobel Center............................ 4,238 54,000 99 1987
San Clemente Distribution Center........ 2,891 81,000 100 1997
Wiegman Associates...................... 10,985 262,000 100 1996
Santa Barbara
University Business Center(2)........... 27,738 230,000 100 1996
-------- ---------- ---
TOTAL/AVERAGE CALIFORNIA........... $ 93,109 1,861,000 97%
-------- ---------- ---
COLORADO
Denver
Rampart Distribution Center............. $ 5,165 116,000 100% 1988
-------- ---------- ---
TOTAL/AVERAGE COLORADO............. $ 5,165 116,000 100%
-------- ---------- ---
FLORIDA
Fort Lauderdale/Pompano
LinPro Commerce Center.................. $ 2,884 99,000 87% 1996
Sample/I-95 Business Park............... 7,933 157,000 100 1996
Cypress Creek Business Park............. 2,450 56,000 100 1997
Yankee Boulevard Industrial Park........ 3,481 118,000 92 1997
Jacksonville
Ellis Distribution Center............... 8,014 337,000 100 1997
Deerwood Distribution Center............ 3,206 121,000 100 1989/97
Lake Pointe Business Park............... 11,023 376,000 100 1993
Phillips Distribution Center............ 5,893 161,000 98 1994/95
Westside Distribution Center(3)......... 12,840 502,000 95 1997
Orlando
Exchange Distribution Center............ 3,429 139,000 100 1994
LaQuinta Distribution Center............ 826 33,000 100 1989
Sunbelt Distribution Center............. 6,708 208,000 100 1989
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
TOTAL TOTAL PERCENT
INVESTMENT SQUARE FEET LEASED AT YEAR(S)
AS OF JUNE 30, OF LEASABLE AUGUST 31, ACQUIRED OR
PROPERTY TYPE, LOCATION AND NAME 1997(1) SPACE 1997 CONSTRUCTED
- --------------------------------------------- -------- ---------- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tampa
56th Street Commerce Park(4)............ 3,987 181,000 92 1993/97
JetPort Commerce Park(5)................ 5,364 220,000 99 1993/94/95
Palm River Distribution Center I........ 2,671 72,000 78 1997
Westport Commerce Center(5)............. 4,916 140,000 97 1994
-------- ---------- ---
TOTAL/AVERAGE FLORIDA.............. $ 85,625 2,920,000 97 %
-------- ---------- ---
LOUISIANA
New Orleans
Elmwood Business Park................... $ 9,170 262,000 92 % 1997
Riverbend Business Park................. 20,213 591,000 97 1997
-------- ---------- ---
TOTAL/AVERAGE LOUISIANA............ $ 29,383 853,000 95 %
-------- ---------- ---
MISSISSIPPI
Jackson
Interchange A and D..................... $ 4,143 100,000 97 % 1997
-------- ---------- ---
TOTAL/AVERAGE MISSISSIPPI.......... $ 4,143 100,000 97 %
-------- ---------- ---
OKLAHOMA
Oklahoma City
Lakeside Distribution Center............ $ 1,382 60,000 100 % 1994
Tulsa
Braniff Park West....................... 6,041 259,000 100 1996
-------- ---------- ---
TOTAL/AVERAGE OKLAHOMA............. $ 7,423 319,000 100 %
-------- ---------- ---
TENNESSEE
Memphis
Senator Street Distribution Center...... $ 2,715 80,000 100 % 1997
-------- ---------- ---
TOTAL/AVERAGE TENNESSEE............ $ 2,715 80,000 100 %
-------- ---------- ---
TEXAS
Dallas
Exchange Warehouses..................... $ 1,946 58,000 100 % 1988
Interstate Warehouses................... 7,313 247,000 93 1988
Venture Warehouses...................... 5,932 209,000 100 1988
Houston
Lockwood Distribution Center............ 6,183 392,000 100 1997
Northwest Point Business Park........... 7,159 232,000 100 1994
West Loop Business Park II.............. 2,942 77,000 93 1997
-------- ---------- ---
TOTAL/AVERAGE TEXAS................ $ 31,475 1,215,000 98 %
-------- ---------- ---
TOTAL/AVERAGE INDUSTRIAL PROPERTIES.......... $ 279,936 8,018,000 97 %
======== ========== ===
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
TOTAL TOTAL PERCENT
INVESTMENT SQUARE FEET LEASED AT YEAR(S)
AS OF JUNE 30, OF LEASABLE AUGUST 31, ACQUIRED OR
PROPERTY TYPE, LOCATION AND NAME 1997(1) SPACE 1997 CONSTRUCTED
- --------------------------------------------- -------- ---------- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OFFICE BUILDINGS
----------------
CALIFORNIA
Los Angeles Metro Area
Los Angeles Corporate Center............ $ 6,893 77,000 100% 1996
MARYLAND
Columbia
Columbia Place.......................... 12,012 115,000 100% 1996
VIRGINIA
Tysons Corner
8150 Leesburg Pike...................... 20,289 198,000 87% 1975/89
-------- ---------- ---
TOTAL/AVERAGE OFFICE BUILDINGS............... $ 39,194 390,000 94%
======== ========== ===
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
TOTAL TOTAL SQUARE FEET
INVESTMENT OF LEASABLE SPACE SCHEDULED
AS OF OCTOBER 9, UPON COMPLETION COMPLETION
PROPERTY TYPE, LOCATION AND NAME 1997(6) OF DEVELOPMENT OF CONSTRUCTION
- ------------------------------------------------- ---------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
INDUSTRIAL DEVELOPMENT PROPERTIES
---------------------------------
COLORADO
Denver
Rampart Distribution Center II.............. $ 3,226 66,000 Completed(7)
FLORIDA
Orlando
Chancellor Distribution Center.............. 1,901 51,000 Completed(7)
Sunbelt Distribution Center II.............. 2,204 61,000 1/1998
Tampa
Benjamin Distribution Centers I and II...... 4,973 93,000 10/1997 &
11/1997
Palm River Distribution Center II........... 3,173 72,000 1/1998
Walden Distribution Center.................. 4,008 122,000 1/1998
-------- -------
TOTAL INDUSTRIAL DEVELOPMENT PROPERTIES.......... $ 19,485 465,000
======== =======
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
TOTAL PERCENT
INVESTMENT LEASED AT
AS OF JUNE 30, TOTAL NUMBER AUGUST 31, YEAR
PROPERTY TYPE, LOCATION AND NAME 1997(1) OF UNITS 1997 ACQUIRED
- ----------------------------------------- ---------------- ------------ ----------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
APARTMENTS
----------
ALABAMA
Daphne (Mobile)
Grande Pointe Apartments............ $ 6,641 180 100% 1994
GEORGIA
Atlanta
LaVista Apartments.................. 8,639 240 94 1991
MISSISSIPPI
Jackson
Hampton House Apartments............ 6,617 164 100 1994
TEXAS
San Antonio
Doral Club Apartments............... 7,125 296 96 1992
Sutton House Apartments............. 8,741 265 97 1993
-------- ----- ---
TOTAL/AVERAGE APARTMENTS................. $ 37,763 1,145 97%
======== ===== ===
</TABLE>
- ---------------
(1) For properties acquired prior to June 30, 1997, represents the Company's
total investment (on a gross basis) as of June 30, 1997 and for properties
acquired subsequent to June 30, 1997, represents the Company's purchase
price (including closing costs).
(2) Represents 100% of the property. EastGroup owns an 80% tenancy-in-common
interest in this property.
(3) In agreeing upon the purchase price for this property, the Company
considered the current and pending vacancy of an aggregate of 331,000 square
feet of leasable space.
(4) Represents 100% of the property. EastGroup owns a 75% tenancy-in-common
interest in six buildings located at 56th Street Commerce Park and recently
purchased a 100% ownership interest in an additional building located at
56th Street Commerce Park.
(5) Represents 100% of the property. EastGroup owns a 75% tenancy-in-common
interest in these assets.
(6) Estimated total investment is defined as the Company's anticipated total
development costs as of October 9, 1997, including the cost of the land,
tenant improvements, capitalized interest and leasing commissions.
(7) Rampart Distribution Center II and Chancellor Distribution Center were both
completed in April 1997 and are currently in initial lease-up.
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<PAGE> 21
PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase the Proposed
Acquisitions, aggregating approximately 1.0 million square feet of leasable
space, for a total purchase price of approximately $34.5 million. EastGroup
intends to fund the purchase of the Proposed Acquisitions principally with
proceeds of the Offering and borrowings on the Company's revolving credit
facilities. The Proposed Acquisitions, which are expected to close in the fourth
quarter of 1997, are subject to the completion of EastGroup's due diligence
review and customary closing conditions. Accordingly, there can be no assurance
that the Company will acquire any or all of these properties. The following
table summarizes the Proposed Acquisitions:
<TABLE>
<CAPTION>
TOTAL PERCENT
SQUARE FEET LEASED AT
ANTICIPATED OF LEASABLE AUGUST 31, YEAR
PROPERTY LOCATION AND NAME PURCHASE PRICE(1) SPACE 1997 CONSTRUCTED
- ------------------------------------ ----------------- ----------------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CALIFORNIA
San Diego
Southbay Industrial
Center(2).................... $10,009 191,000 100% 1991
MISSISSIPPI
Jackson
Interchange B.................. 1,210 27,000 100 1987
TEXAS
Dallas
109th Street Distribution
Center....................... 1,020 54,000 100 1970
Dolton Distribution Center..... 2,395 99,000 100 1977
El Paso
Butterfield Trail Industrial
Park......................... 19,840 671,000 100 1981/96
------- --------- ---
TOTAL/WEIGHTED AVERAGE.... $34,474 1,042,000 100%
======= ========= ===
</TABLE>
- ---------------
(1) Anticipated purchase price is defined as contract price plus anticipated
closing costs.
(2) In connection with the purchase of this property, the Company will assume
recourse mortgage indebtedness with a principal balance of approximately
$5.1 million which bears interest at 8.5% and matures on July 1, 2004.
S-21
<PAGE> 22
SIGNIFICANT TENANTS
As of August 31, 1997, EastGroup's properties were leased to approximately
436 tenants and no tenant accounted for more than approximately 3.8% of the
Company's total annualized rental revenue. The Company seeks high-quality
tenants with a national, regional and local mix, high credit quality and
diversified cash flows. The following table sets forth certain information
regarding the ten largest tenants of EastGroup's properties based upon square
feet of leasable space as of August 31, 1997. The table does not include
information with respect to properties acquired subsequent to August 31, 1997.
<TABLE>
<CAPTION>
TENANT'S
PERCENT
OF TOTAL
SQUARE FEET
OF ANNUALIZED PERCENT OF TOTAL LEASE
SQUARE FEET OF LEASABLE RENTAL ANNUALIZED EXPIRATION
TENANT LEASABLE SPACE SPACE REVENUE(1) RENTAL REVENUE DATE
- ------------------------------ -------------- ------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
1. Palmer Distribution
Services, Inc............. 392,291 5.86% $ 932,064 2.48% 12/02
2. Price Transfer, Inc....... 261,500 3.91 1,035,540 2.75 12/97(2)
3. Exel Logistics, Inc....... 158,708 2.37 436,447 1.16 3/98
4. Kirk Paper Corporation.... 139,400 2.08 493,608 1.31 6/03
5. Sunclipse, Inc.(3)........ 137,482 2.05 477,032 1.27 1/01 &
5/02
6. Designer Accents, Inc..... 133,979 2.00 455,528 1.21 4/99
7. Office Depot, Inc......... 125,700 1.88 497,772 1.32 7/98
8. The Chamberlain Group,
Inc....................... 120,000 1.79 399,600 1.06 8/01
9. Ceridian Corporation(4)... 115,273 1.72 1,444,370 3.84 12/09
10. Central Garden and Pet
Company................... 104,392 1.56 297,517 0.79 8/01
--------- ----- --------- ---------
Total.................... 1,688,725 25.23% $6,469,478 17.20%
========= ===== ========= =========
</TABLE>
- ------------------
(1) Annualized rental revenue is defined as total square feet of leasable space
multiplied by the effective gross rental rate per square foot of leasable
space as of August 31, 1997.
(2) The Company is currently in negotiations with respect to renewal of this
lease.
(3) This tenant leases 56,982 square feet of leasable space at Walnut Business
Center and 80,500 square feet of leasable space at San Clemente Distribution
Center.
(4) This tenant leases space at Columbia Place.
LEASE EXPIRATIONS
The following table sets forth a schedule of lease expirations for leases
in place as of August 31, 1997, through the year 2001, for EastGroup's
properties, assuming that none of the tenants exercises renewal options. The
table does not include information with respect to properties acquired
subsequent to August 31, 1997.
<TABLE>
<CAPTION>
PERCENT OF ANNUAL WEIGHTED AVERAGE
TOTAL BASE RENT PERCENT OF EXPIRING BASE
NET SQUARE FEET SQUARE FEET UNDER ANNUAL BASE RENT NUMBER RENTAL RATE/
OF LEASABLE OF LEASABLE EXPIRING REPRESENTED BY OF SQUARE FEET
SPACE EXPIRING SPACE LEASES(1) EXPIRING LEASES LEASES OF LEASABLE SPACE
--------------- ----------- ------------- ---------------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
1997(2)............ 625,190 9.34% $ 2,840,352 7.55% 50 $4.54
1998............... 1,206,700 18.03% $ 6,032,865 16.46% 117 $5.00
1999............... 1,082,517 16.18% $ 6,037,317 16.05% 92 $5.58
2000............... 713,905 10.67% $ 4,146,768 11.03% 60 $5.81
2001............... 984,466 14.71% $ 4,873,968 14.02% 51 $4.95
</TABLE>
- ------------------
(1) Annual base rent is the sum of amounts contractually due on an annual basis,
which may include taxes, insurance and common area maintenance.
(2) Represents lease expiration data from September 1, 1997 to December 31,
1997.
S-22
<PAGE> 23
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 five 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 the 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.
S-23
<PAGE> 24
USE OF PROCEEDS
The net proceeds to EastGroup from the Offering, after payment of expenses
incurred in connection with the Offering, are estimated to be approximately
$72.5 million (approximately $83.4 million if the Underwriters' over-allotment
is exercised in full). EastGroup intends to use the net proceeds from the
Offering as follows: (i) approximately $36.0 million to repay all outstanding
indebtedness under the Company's revolving credit facilities and (ii) the
remainder to fund all or a portion of the purchase price of the Proposed
Acquisitions and/or to repay a portion of the Jacksonville Note and the New
Orleans Note.
The Company's existing Acquisition Facility matures on April 30, 1998 and
its existing Working Capital Facility was scheduled to mature on September 30,
1997. Both the Acquisition Facility and the Working Capital Facility bear
interest at LIBOR plus 1.75%. The Company has negotiated an increase in the
borrowing capacity and a decrease in the interest rates and has extended the
maturity of the Acquisition Facility through September 30, 2000 and the Working
Capital Facility through September 30, 1998. See "The Company -- Revolving
Credit Facilities."
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 certificates of deposit, interest-bearing bank deposits
and money market investments.
CAPITALIZATION
The following table sets forth the capitalization of EastGroup as of June
30, 1997 on (i) a historical basis; (ii) a pro forma basis giving effect to the
Recent Acquisitions, the dispositions of non-core assets completed after June
30, 1997 and the purchase of the Proposed Acquisitions; and (iii) a pro forma as
adjusted basis after giving effect to the Recent Acquisitions, the dispositions
of non-core assets completed after June 30, 1997, the purchase of the Proposed
Acquisitions and the consummation of the Offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------------------
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness
Notes payable to banks............................... $ 18,449 $ 42,494 $ 0
Mortgage notes payable............................... 103,992 156,633 156,633
Stockholders' equity
Common stock, $0.0001 par value, 70,000,000 shares
authorized, 12,684,228 issued and outstanding on a
historical basis and 16,190,984 shares issued and
outstanding on a pro forma as adjusted basis
(1)(2)............................................. 1 1 2
Excess stock, $0.0001 par value, 30,000,000 shares
authorized, no shares issued....................... 0 0 0
Additional paid-in capital........................... 171,400 171,400 243,874
Retained earnings.................................... 9,309 16,014 16,014
Unrealized gain on securities........................ 226 226 226
-------- -------- --------
Total Capitalization............................ $ 303,377 $ 386,768 $ 416,749
======== ======== ========
</TABLE>
- ---------------
(1) Based on the number of shares outstanding on October 9, 1997. Does not
include 587,825 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to EastGroup's stock option
plans.
(2) Assumes the Underwriters' over-allotment option to purchase up to 525,000
shares of Common Stock is not exercised. See "Underwriting."
S-24
<PAGE> 25
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company on an historical and consolidated pro forma basis. Such information
should be read in conjunction with, and is qualified in its entirety by, the
financial consolidated statements and notes thereto incorporated by reference
into the accompanying Prospectus. The selected historical financial information
of the Company as of December 31, 1996 and 1995, and for the years ended
December 31, 1996 and 1995, has been derived from the historical consolidated
financial statements of the Company audited by KPMG Peat Marwick LLP,
independent certified public accountants, whose report with respect thereto is
incorporated by reference in the accompanying Prospectus. The selected financial
and operating information for the six months ended June 30, 1997 has been
derived from the unaudited financial statements of the Company incorporated by
reference in the accompanying Prospectus.
The unaudited pro forma information as of June 30, 1997 gives effect to the
Recent Acquisitions, the dispositions of non-core assets completed after June
30, 1997 and the purchase of the Proposed Acquisitions, as if they had occurred
at June 30, 1997 for the pro forma balance sheet. The pro forma consolidated
statements of income for the year ended December 31, 1996 gives effect to the
Copley Acquisition and the LNH Acquisition and, for both the year ended December
31, 1996 and the six months ended June 30, 1997, gives effect to the Recent
Acquisitions, the dispositions of non-core assets, the purchase of the Proposed
Acquisitions and the sale of 2,100,000 shares of Common Stock in February 1997,
as if all the transactions had occurred on January 1, 1996.
The pro forma information is not necessarily indicative of what the actual
financial position or results of operations of the Company that actually would
have occurred if the purchases, sales and/or financings had been in effect on
the dates indicated, nor does it purport to represent the Company's future
financial position or results of operations.
S-25
<PAGE> 26
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, TWELVE MONTHS ENDED DECEMBER 31,
---------------------------- ---------------------------------------------
1997 1997 1996 1996 1995
(PRO FORMA) (HISTORICAL) (PRO FORMA) (HISTORICAL) (HISTORICAL)
----------- ------------ ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Income from real estate operations.......... $ 27,213 $ 22,985 $ 51,825 $ 37,143 $ 28,386
Interest income............................. 1,159 1,190 2,391 1,718 1,036
Other income................................ 341 479 209 904 842
Expenses:
Operating expenses from real estate
operations................................ 7,480 6,993 15,034 13,262 11,575
Interest expense............................ 8,173 4,711 15,935 8,930 6,287
Depreciation and amortization............... 5,734 4,722 10,923 7,759 5,613
Minority interest in joint ventures......... 299 299 330 289 220
General and administrative expenses......... 1,401 1,401 3,481 2,356 2,180
-------- ------- ------ ------- -------
Income before gains on investments.............. 5,626 6,528 8,722 7,169 4,389
Gain on real estate............................. 107 107 0 5,334 3,322
Gain on securities.............................. 0 0 0 6 0
-------- ------- ------ ------- -------
Net income...................................... $ 5,733 $ 6,635 $ 8,722 $ 12,509 $ 7,711
======== ======= ====== ======= =======
PER SHARE DATA (1):
Net income.................................. $ .45 $ .54 $ .69 $ 1.44 $ 1.22
Book value (at end of period)............... 14.79 14.26 14.92 13.78 13.06
Cash distributions declared................. .66 .66 1.28 1.28 1.23
Cash distributions paid..................... .66 .66 1.28 1.28 1.23
Weighted average shares outstanding......... 12,668 12,201 12,632 8,677 6,338
OTHER DATA:
Funds from operations (2)................... -- $ 11,113 -- $ 14,820 $ 9,847
Cash flow provided by (used in):
Operating activities.................... -- 9,548 -- 13,996 9,746
Investing activities.................... -- (31,207) -- (577) (5,721)
Financing activities.................... -- 22,008 -- (13,007) (4,300)
BALANCE SHEET DATA (at end of period):
Real estate investments, net of
depreciation.............................. $ 368,670 $295,284 -- $269,585 $143,733
Total assets................................ 392,916 310,327 -- 281,455 157,955
Mortgage notes payable...................... 156,633 103,992 -- 115,116 67,203
Notes payable to banks...................... 42,494 18,449 -- 13,962 4,359
Total liabilities........................... 205,275 129,391 -- 136,129 75,055
Stockholders' equity........................ 187,641 180,936 -- 145,326 82,900
</TABLE>
- ---------------
(1) All amounts reflect the April 1997 stock split.
(2) EastGroup defines FFO, consistent with NAREIT's definition, as net income
(loss) (computed in accordance with generally accepted accounting principles
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes FFO is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. The Company computes FFO in accordance with
standards established by EastGroup, which may differ from the methodology
for calculating FFO utilized by other equity REITs, and, accordingly, may
not be comparable to such other REITs. Further, FFO does not represent
amounts available for management's discretionary use because of needed
capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions.
S-26
<PAGE> 27
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The following table sets forth the high and low sales prices per share of
Common Stock and the cash distributions paid by EastGroup for the calendar
quarters specified. All Common Stock amounts and per share of Common Stock data
set forth herein have been adjusted for EastGroup's three-for-two stock split
effected as a dividend of one share for every two shares outstanding, which
dividend was payable on April 7, 1997 to stockholders of record on March 31,
1997.
<TABLE>
<CAPTION>
PRICE
-----------------
HIGH LOW DISTRIBUTIONS
------ ------ -------------
<S> <C> <C> <C>
1995
First Quarter................................ $13.08 $11.50 $0.3000
Second Quarter............................... 13.33 12.25 0.3000
Third Quarter................................ 13.83 12.67 0.3133
Fourth Quarter............................... 14.92 13.50 0.3133
1996
First Quarter................................ 15.50 13.83 0.3133
Second Quarter............................... 14.92 14.33 0.3133
Third Quarter................................ 16.50 13.83 0.3267
Fourth Quarter............................... 18.33 16.08 0.3267
1997
First Quarter................................ 19.92 17.75 0.3267
Second Quarter............................... 20.25 17.38 0.3300
Third Quarter................................ 22.94 19.25 0.3400
Fourth Quarter through October 9, 1997....... 22.88 21.44 --
</TABLE>
The Company has paid 71 consecutive quarterly dividends to its stockholders
and has increased the quarterly dividend seven times in the last four years. The
current annualized dividend represents a dividend yield of 6.0% (based on the
October 9, 1997 closing sales price of the Common Stock of $22.50 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.
S-27
<PAGE> 28
MANAGEMENT
Set forth below is information with respect to the members of the Board of
Directors and the executive officers of the Company. Directors are elected
annually by the stockholders for a one year term. Five of the Company's seven
directors are independent of the Company's management.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ------------------------------------
<S> <C> <C>
Leland R. Speed..................... 65 Chairman of the Board
David H. Hoster II.................. 52 Chief Executive Officer, President
and Director
N. Keith McKey...................... 46 Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
Diane W. Hayman..................... 36 Controller
Marshall A. Loeb.................... 35 Vice President
Jann W. Puckett..................... 49 Vice President
Stewart R. Speed.................... 33 Vice President
Alexander G. Anagnos................ 70 Director
H. C. Bailey, Jr.................... 57 Director
Harold B. Judell.................... 82 Director
David M. Osnos...................... 65 Director
John N. Palmer...................... 62 Director
</TABLE>
LELAND R. SPEED has been the Managing Trustee or Chairman of EastGroup
since 1983 and served as Chief Executive Officer through September 1997. Mr.
Speed also serves as Chairman of the Board of Directors of Parkway Properties,
Inc., and as a Director of ChemFirst and KLLM Transport Services, Inc. Prior to
assuming these duties, Mr. Speed was in the general securities and real estate
development business. He received his B.S. in Industrial Management from Georgia
Institute of Technology and his M.B.A. from Harvard Business School.
DAVID H. HOSTER II has been an officer of EastGroup since 1983, President
and Director since 1993 and was appointed Chief Executive Officer in September
1997. Prior to joining EastGroup, Mr. Hoster was President and Executive
Secretary of Riviere Realty Trust from 1975 to 1983 and Project Manager with K.
S. Sweet Associates from 1972 to 1975. Mr. Hoster received his M.B.A. from
Stanford University and his B.A. in History from Princeton University.
N. KEITH MCKEY has been an officer of EastGroup since 1983, Chief Financial
Officer and Secretary since 1992, Executive Vice President since 1993 and
Treasurer since 1997. Prior to joining EastGroup, Mr. McKey was with the
Eastover Group of Companies and in public accounting with Ernst & Young LLP and
KPMG Peat Marwick LLP. He is a Certified Public Accountant and received his
B.B.A. with a major in Accounting from the University of Mississippi.
DIANE W. HAYMAN has served as Controller of EastGroup since 1992. She
previously served as an accountant for the Company since 1986. Prior to joining
the Company, Ms. Hayman served in both the audit and tax departments of Butchart
& Associates, a local public accounting firm in Jackson, Mississippi. Ms. Hayman
received her B.S. in Business Administration with an emphasis in accounting from
Mississippi College and is a Certified Public Accountant.
MARSHALL A. LOEB has been a Vice President of EastGroup since 1995 and an
Asset Manager since 1991. Prior to joining EastGroup, Mr. Loeb was a Senior Tax
Consultant with Ernst & Young LLP in Birmingham, Alabama where he earned his
C.P.A. He presently holds a sales broker's license. Mr. Loeb received his M.B.A.
from Harvard Business School and his M.T.A. and B.S. in Accounting from the
University of Alabama.
JANN W. PUCKETT has been a Vice President of EastGroup since 1994 and an
Asset Manager since 1983. Prior to joining EastGroup, she worked with the
Jackson Chamber of Commerce. Ms. Puckett has a real estate salesperson's
license, and received her M.B.A. and B.S. from Mississippi College.
S-28
<PAGE> 29
STEWART R. SPEED has been a Vice President of EastGroup since 1997. He
previously was a Vice President-Property Management with Merry Land & Investment
Co., Inc. (an apartment REIT) from 1993 to 1997. Mr. Speed was also an Asset
Manager of GE Capital (real estate finance) and a Commercial Real Estate Broker
with Cushman & Wakefield, Inc. Mr. Speed received his M.B.A. from Vanderbilt
University and his B.A. from Washington and Lee University.
Leland R. Speed, Chairman, is the father of Stewart R. Speed, Vice
President. There are no other family relationships between any of the directors
or executive officers of the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
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 has met the requirements for qualification and taxation as a REIT
for its 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.
For a further discussion of certain material federal income tax
consequences of the current taxation of EastGroup, the current impact on
EastGroup of its election to be treated as a REIT, and the current taxation of
prospective stockholders of EastGroup, see "Federal Income Tax Considerations"
in the accompanying Prospectus.
Prospective purchasers should be aware that on August 5, 1997, President
Clinton signed into law the Taxpayer Relief Act of 1997 (the "Taxpayer Relief
Act"). The Taxpayer Relief Act makes certain changes to the Code, including
changes with respect to the treatment of REITs and stockholders of REITs. These
changes are generally effective with respect to EastGroup and stockholders of
EastGroup beginning January 1, 1998. In addition, the Taxpayer Relief Act
reduces the maximum tax on net capital gains from the sale of assets held for
more than 18 months by individuals, trusts and estates.
The Taxpayer Relief Act changes certain requirements for a corporation
electing to be taxed as a REIT and the taxation of REIT stockholders which are
intended to simplify the taxation of REITs. First, EastGroup is required to
maintain certain records and request on an annual basis certain information from
its stockholders concerning the ownership of its outstanding shares in
accordance with applicable Treasury Regulations. Under current law, this
requirement is a condition to being taxed as a REIT. For taxable years beginning
after December 31, 1997, the Taxpayer Relief Act provides that the record
maintenance and ownership information request requirements are no longer
conditions to taxation as a REIT. Instead, a monetary penalty will be imposed
for failure to comply with such requirements. Second, the Taxpayer Relief Act
repeals the 30% gross income test for taxable years beginning after December 31,
1997. Third, the Taxpayer Relief Act changes the definition of "rents from real
property." Currently, rents received with respect to a property generally do not
qualify as "rents from real property" if EastGroup directly provides services to
tenants other than those that
S-29
<PAGE> 30
are "usually or customarily rendered" in connection with the rental of space for
occupancy only and which are not otherwise considered "rendered to the
occupant." For taxable years beginning after December 31, 1997, rental income
received by EastGroup will not cease to qualify as "rents from real property"
merely because EastGroup performs non-customary services for a tenant if the
amount that EastGroup receives as a result of performing such services does not
exceed one percent of all amounts received directly or indirectly by EastGroup
with respect to such property. In applying this limitation, the amount that
EastGroup is treated as having received for performing such services will not be
less than 150% of the direct cost to EastGroup of providing those services.
Fourth, for taxable years beginning after December 31, 1997, the Taxpayer
Relief Act allows EastGroup to elect to retain and pay tax on long-term capital
gains and require its stockholders to include their proportionate share of such
undistributed net capital gains in their income. If EastGroup makes such
election, stockholders would receive a tax credit attributable to their share of
the capital gains tax paid by EastGroup, and would receive an increase in the
basis of their shares in EastGroup in an amount equal to the stockholder's share
of the undistributed long-term capital gain reduced by the amount of the credit.
Further, any undistributed long-term capital gains that are included in the
income of EastGroup stockholders pursuant to this rule, will be treated as
distributed for purposes of the 4% excise tax which EastGroup must pay should
EastGroup fail to distribute at least 95% of EastGroup's capital gain for such
taxable year.
The Taxpayer Relief Act reduces the top tax rate for individuals, estates
and trusts on certain long-term capital gains. Generally, long-term capital
gains on property held for more than 18 months will not be taxed at a rate
greater than 20% and the maximum rate is reduced to 18% for assets acquired
after December 31, 2000 and held for more than five years. For taxpayers subject
to the 15% regular tax bracket, long-term capital gains on property held for
more than 18 months will not be taxed at a rate greater than 10%, and, for
assets acquired after December 31, 2000, the rate is reduced to 8% for assets
held more than five years. Long-term capital gain from the sale or exchange of
certain depreciable real property held for more than 18 months which would be
treated as ordinary income if the real property was depreciable personal
property is subject to a maximum tax rate of 25% rather than 20%. Long-term
capital gain allocated to a stockholder by EastGroup will be subject to the 25%
rate to the extent that the gain does not exceed depreciation on real property
sold by the Company. The maximum rate of capital gains tax for capital assets
held for more than one year but less than 18 months remains at 28%. The taxation
of capital gains by corporations was not changed by the Taxpayer Relief Act.
S-30
<PAGE> 31
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), EastGroup has agreed to sell to each of the
Underwriters named below, for whom PaineWebber Incorporated, J.C. Bradford & Co.
and A.G. Edwards & Sons, Inc. are acting as representatives, and each of such
Underwriters has severally agreed to purchase from EastGroup the respective
number of shares of Common Stock set forth opposite their names. Pursuant to the
terms of the Underwriting Agreement, the Underwriters are obligated to purchase
all such shares of Common Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
-------------------------------------------------------------------- ------------
<S> <C>
PaineWebber Incorporated............................................ 1,100,000
J.C. Bradford & Co.................................................. 825,000
A.G. Edwards & Sons, Inc............................................ 825,000
Prudential Securities Incorporated.................................. 150,000
Harris Webb & Garrison, Inc......................................... 100,000
Morgan Keegan & Company, Inc........................................ 100,000
Raymond James & Associates, Inc..................................... 100,000
Sterne, Agee & Leach, Inc........................................... 100,000
Unterberg Harris.................................................... 100,000
Wheat, First Securities, Inc........................................ 100,000
---------
Total.......................................................... 3,500,000
=========
</TABLE>
The Underwriters have advised EastGroup that the Underwriters propose to
offer the Common Stock to the public at the Offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of $0.68 per share of Common Stock. The
Underwriters may allow, and such dealers may re-allow, a discount not in excess
of $0.10 per share of Common Stock on sales to certain other brokers and
dealers. After the Offering, the Offering price, concession and discount may be
changed.
EastGroup has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus Supplement, to purchase up to 525,000
additional shares of Common Stock to cover over-allotments, if any, at the
Offering price, less the underwriting discounts and commissions set forth on the
cover page of this Prospectus Supplement. If the Underwriters exercise this
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to the Common Stock initially offered hereby.
In the Underwriting Agreement, EastGroup has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
federal securities laws, or to contribute to payments that the Underwriters may
be required to make in respect thereof.
EastGroup has agreed not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any shares of Common Stock, or any
securities convertible into, or exercisable, exchangeable or redeemable for,
shares of Common Stock for a period of 90 days from the date hereof, without the
prior consent of PaineWebber Incorporated.
The Underwriters do not intend to exercise discretion in confirming sales
to any account over which they otherwise have discretionary authority.
The Common Stock is traded on the NYSE under the symbol "EGP."
In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Underwriters to engage in certain transactions that
stabilize the price of the Common Stock. Such
S-31
<PAGE> 32
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement), the
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
PaineWebber Incorporated, on behalf of the Underwriters, may also impose a
penalty bid on certain of the Underwriters. This means that if PaineWebber
Incorporated, on behalf of the Underwriters, purchases shares of Common Stock in
the open market to reduce the Underwriters' short position or to stabilize the
price of the Common Stock, it may reclaim the amount of the selling concession
from the Underwriters who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither EastGroup nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Common Stock. In addition,
neither EastGroup nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
In the ordinary course of their business, certain of the Underwriters
and/or their affiliates have engaged and may in the future engage in financial
advisory, investment banking and other transactions with EastGroup for which
customary compensation has been, and will be, received.
LEGAL MATTERS
Certain legal matters, including the legality of the Common Stock, will be
passed upon for EastGroup by Jaeckle Fleischmann & Mugel, LLP, Buffalo, New
York, and for the Underwriters by Rogers & Wells, New York, New York. As to
matters of Maryland law contained in these opinions, Jaeckle Fleischmann &
Mugel, LLP and Rogers & Wells will rely upon the opinion of Piper & Marbury
L.L.P., Baltimore, Maryland.
S-32
<PAGE> 33
PROSPECTUS
EASTGROUP PROPERTIES, INC.
$150,000,000
SHARES OF COMMON STOCK,
PREFERRED STOCK,
DEPOSITARY SHARES AND
DEBT SECURITIES
------------------------
EastGroup Properties, Inc. ("EastGroup"), may from time to time offer in
one or more series or classes (i) shares of its common stock, par value $0.0001
per share (the "Common Stock"); (ii) its preferred stock (the "Preferred
Stock"); (iii) Preferred Stock represented by Depositary Shares (the "Depositary
Shares"); and (iv) unsecured debt securities ("Debt Securities"), with an
aggregate public offering price of up to $150,000,000 in amounts, at prices and
on terms to be determined at the time of offering. The Common Stock, Preferred
Stock, 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 Common Stock, any public
offering price; (ii) in the case of Preferred Stock, 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 Stock represented by each such
Depositary 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.
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is June 23, 1997.
<PAGE> 34
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 "Commission"). Such reports, proxy
statements and other information filed by EastGroup may be inspected at, and,
upon payment of the Commission's customary charges, copies obtained from, the
Public Reference Section of the Commission, 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 Commission'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 Commission maintains
a Web site (http://www.sec.gov) that also contains reports, proxy statements and
other information concerning EastGroup and EastGroup Properties. In addition,
the Common Stock is 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 Commission 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 Commission, 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 Commission noted above, and
copies of which can be obtained from the Commission at prescribed rates as
indicated above. Statements contained in this Prospectus as to the contents of
any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
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<PAGE> 35
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Prospectus by reference are the documents listed
below filed by EastGroup or its predecessor, EastGroup Properties, 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 Properties' Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission file No. 1-7094).
2. EastGroup Properties' Proxy Material for its Annual Meeting of
Stockholders held on June 5, 1997 (Commission File No. 1-7094).
3. EastGroup Properties' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (Commission File No. 1-7094).
Each document filed by EastGroup subsequent to the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
the termination of the offering of all Securities to which this Prospectus
relates shall be deemed to be incorporated by reference in this Prospectus and
shall be part hereof from the date of filing of such document. Any statement
contained herein or 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 in this Prospectus (in
the case of a previously filed document incorporated or deemed to be
incorporated by reference herein) in any accompanying Prospectus Supplement
relating to a specific offering of Securities or in any other subsequently filed
document that is also incorporated or 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 or any accompanying Prospectus Supplement.
Subject to the foregoing, all information appearing in this Prospectus and each
accompanying Prospectus Supplement is qualified in its entirety by the
information appearing in the documents incorporated by reference.
Unless the context otherwise requires, all references in this Prospectus to
"EastGroup" shall mean EastGroup Properties, Inc. and its subsidiaries on a
consolidated basis or, where the context so requires, EastGroup Properties, Inc.
only, and, as the context may require, their predecessors.
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<PAGE> 36
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. At March 31, 1997
EastGroup's portfolio included 28 industrial properties comprising over
4,950,000 square feet of leasable space, as well as four office buildings
containing approximately 569,000 square feet of leasable space. As of March 31,
1997, the industrial portfolio was 97% leased and the office portfolio was 90%
leased.
EastGroup is the successor to EastGroup Properties, a Maryland real estate
investment trust ("Parent"). EastGroup was incorporated under the laws of the
State of Maryland on April 4, 1997. Formed as a wholly-owned subsidiary of
Parent, EastGroup merged with Parent on June 5, 1997 (the "Merger"), pursuant to
the Agreement and Plan of Merger dated April 23, 1997 by and between EastGroup
and Parent. As a result of the Merger, EastGroup succeeded to the business and
operations of Parent.
EastGroup's principal executive offices are located at 300 One Jackson
Place, 188 East Capitol Street, Jackson, Mississippi 39201-2195. Its telephone
number is (601) 354-3555.
RATIO OF EARNINGS TO FIXED CHARGES
EastGroup's ratio of earnings to fixed charges for the three months ended
March 31, 1997 was 2.3, for the year ended December 31, 1996 was 2.4, 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). 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
Unless otherwise described in the applicable Prospectus Supplement,
EastGroup intends to use the net proceeds from the offering for general
corporate purposes including, without limitation, the acquisition and
development of real estate properties, whether by acquisition of properties
directly or through potential business combination transactions, the repayment
of debt and to fund working capital requirements.
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<PAGE> 37
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued in one or more series under an Indenture
(the "Indenture"), which may be supplemented by supplemental indentures (each,
an "Indenture Supplement"), between EastGroup and a trustee (the "Trustee") to
be chosen by EastGroup and qualified to act as Trustee under the Trust Indenture
Act of 1939, as amended (the "TIA"). A copy of the form of the Indenture will be
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 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 March 31, 1997 the total outstanding debt of EastGroup was
approximately $105,423,000, all of which was secured debt. Except as may be set
forth in an applicable Prospectus Supplement, 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 Directors of EastGroup or as established in one or
more Indenture Supplements. 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.
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. 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, 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:
(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;
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<PAGE> 38
(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) if such Debt Securities are to be issued upon the exercise of
debt warrants, the time, manner and place of such Debt Securities to be
authenticated and delivered;
(xvii) 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;
(xviii) 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
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<PAGE> 39
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
(xix) 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 Common Stock and Preferred Stock are designed to preserve its
status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Description of Common Stock -- Restrictions on Transfer" and
"Description of Preferred Stock -- 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
Directors 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."
Debt Securities may be denominated and payable in a foreign currency or
units of two or more foreign currencies or a composite currency or currencies.
As more fully described in the applicable Prospectus Supplement, awards or
judgments by a court in the United States in connection with a claim with
respect to any Debt Securities denominated other than in United States dollars
(or a judgment denominated other than in United States dollars in respect of
such claims) may be converted into United States dollars at a rate of exchange
prevailing on a date determined pursuant to applicable law.
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.
Unless otherwise described 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, provided that, at
the option of EastGroup, payment of interest may be made by check mailed to the
address of
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<PAGE> 40
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.
Unless otherwise described in the applicable Prospectus Supplement, 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. 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.
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.
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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<PAGE> 41
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.
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.
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.
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.
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 Commission
the annual reports, quarterly reports and other documents which EastGroup would
have been required to file with the Commission pursuant to such Sections 13 or
15(d) (the "Financial Statements") if EastGroup were so subject, such documents
to be filed with the Commission 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
Commission 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 Commission 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 Commission 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.
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 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
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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. 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.
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.
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. This provision will not
prevent, however, any holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
such Debt Securities at the respective due dates thereof.
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
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to the Trustee thereunder reasonable security or indemnity. 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.
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.
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.
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 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
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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.
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. 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. 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.
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.
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
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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.
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to 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") or (ii) to be
released from its obligations with respect to such Debt Securities under 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"), 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 (the "Service"), or a change in applicable United States Federal income
tax law occurring after the date of the Indenture.
"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.
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
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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" 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 capital stock of or equity interest in EastGroup will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include the amount of capital stock of or equity interest in 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 and any restrictions on conversion, including restrictions directed
at maintaining EastGroup's REIT status.
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 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.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
The Board of Directors of EastGroup may classify or reclassify any unissued
shares of its capital stock 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 was no Preferred Stock
outstanding at March 31, 1997.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Articles of Incorporation, as amended ("Articles of
Incorporation"), and Bylaws and any applicable articles supplementing the
Articles of Incorporation designating terms of a series of Preferred Stock (a
"Designating Amendment").
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the preference, conversion or other rights, voting
powers, restrictions, limitation as to dividends, qualifications, or terms or
conditions of redemption of the Preferred Stock. The Preferred Stock will, when
issued, be fully paid and nonassessable by EastGroup (except as described under
"-- Stockholder Liability" below) and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms thereof, including:
(i) The title and stated value of such Preferred Stock;
(ii) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(iii) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(iv) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(v) The procedures for any auction or remarketing, if any, for such
Preferred Stock;
(vi) The provision for a sinking fund, if any, for such Preferred
Stock;
(vii) The provision for redemption, if applicable, of such Preferred
Stock;
(viii) Any listing of such Preferred Stock on any securities exchange;
(ix) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into shares of Common Stock, including
the conversion price (or manner of calculation thereof);
(x) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(xi) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(xii) A discussion of U.S. federal income tax considerations
applicable to such Preferred Stock;
(xiii) The relative ranking of preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of EastGroup;
(xiv) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of EastGroup; and
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(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
Stock, 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 Common Stock of EastGroup, and to all equity securities ranking
junior to such Preferred Stock; (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 Stock; 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 Stock.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors 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 Directors of EastGroup.
Dividends on any series of the Preferred Stock 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 Directors of EastGroup fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock 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 Stock 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 Stock of such series for any period unless (i) if such series of
Preferred Stock 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 Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock 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 Stock 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 Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock 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 Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock 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 all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
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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 Common Stock or other capital shares ranking
junior to the Preferred Stock 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 Common Stock, or any other
capital shares of EastGroup ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation, nor shall any Common
Stock, or any other capital shares of EastGroup ranking junior to or on a parity
with the Preferred Stock 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 Stock of such series as to
dividends and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
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 Stock that is
subject to mandatory redemption will specify the number of such shares of
Preferred Stock 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 shares of Preferred Stock 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 Stock of any series is payable only from the net
proceeds of the issuance of capital shares of EastGroup, the terms of such
shares of Preferred Stock 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 Stock
shall automatically and mandatorily be converted into the applicable capital
shares of EastGroup pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock 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 Stock does not have a cumulative dividend, full dividends of
the Preferred Stock 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 Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock 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 Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock 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 Stock does not have a cumulative dividend, full
dividends on the Preferred Stock 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 shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of EastGroup ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock 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 Stock of
such series.
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If fewer than all of the outstanding shares of Preferred Stock 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 Stock 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 Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such shares of Preferred
Stock 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 Stock of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of shares of Preferred Stock to be redeemed from
each such holder. If notice of redemption of any Preferred Stock 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 Stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Stock, 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 of Common Stock or any other class or series of
capital shares of EastGroup ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of
EastGroup, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of EastGroup legally available for distribution to
stockholders 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 Stock 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 Stock 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 Stock and the corresponding amounts payable on all
shares of other classes or series of capital shares of EastGroup ranking on a
parity with the Preferred Stock in the distribution of assets, then the holders
of the Preferred Stock and all other such classes or series of capital shares
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 Stock, the remaining assets of EastGroup shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock 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 Preferred Stock 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.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other
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<PAGE> 51
series of Preferred Stock upon which like voting rights have been conferred and
are exercisable) will be entitled to vote for the election of two additional
directors of EastGroup at a special meeting called by the holders of record of
at least ten percent (10%) of any series of Preferred Stock 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 stockholders) or at the next annual
meeting of stockholders, and at each subsequent annual meeting until (i) if such
series of Preferred Stock has a cumulative dividend, all dividends accumulated
on such shares of Preferred Stock 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 Stock 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
Directors of EastGroup will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock 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 Stock 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 capital stock ranking prior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock 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 Articles of
Incorporation or the Designating Amendment for such series of Preferred Stock,
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 Stock or the holder thereof; provided, however, to the
occurrence of any of the Events set forth in (ii) above, so long as the
Preferred Stock 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 Stock and provided further that (a) any increase
in the amount of the authorized Preferred Stock or the creation or issuance of
any other series of Preferred Stock, or (b) any increase in the amount of
authorized shares of such series or any other series of Preferred Stock, in each
case ranking on a parity with or junior to the Preferred Stock 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 Stock have been
redeemed or called for redemption and sufficient funds have been deposited in
trust to effect such redemption.
Under Maryland law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote upon
any proposed amendment to the Articles of Incorporation if the amendment would
change the contract rights of such shares as expressly set forth in the Articles
of Incorporation.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock 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
Stock 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 Stock.
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STOCKHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no stockholder, including holders of
Preferred Stock, 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 Common Stock -- Restrictions on
Transfer," for EastGroup to qualify as a REIT under the Code, not more than 50%
in value of its outstanding capital shares 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 Stock of EastGroup. Therefore, the
Designating Amendment for each series of Preferred Stock may contain provisions
restricting the ownership and transfer of the Preferred Stock. The applicable
Prospectus Supplement will specify any additional ownership limitation relating
to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock 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 Stock, as specified in the applicable Prospectus Supplement.
Preferred Stock 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 Stock 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 Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the Preferred Stock
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 Stock by EastGroup to a Preferred Stock
Depositary, EastGroup will cause such Preferred Stock 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 Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock 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 Stock Depositary.
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In the event of a distribution other than in cash, a Preferred Stock
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 Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock 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 Stock which has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock 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
Stock 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 Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
Preferred Stock 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 Stock to be withdrawn, the applicable Preferred Stock
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 Stock held by a Preferred Stock
Depositary, such Preferred Stock Depositary will be required to redeem as of the
same redemption date the number of Depositary Shares representing the Preferred
Stock so redeemed, provided EastGroup has paid in full to such Preferred Stock
Depositary the redemption price of the Preferred Stock 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 Stock. 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 Stock 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 Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock 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 Stock. 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 Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and EastGroup will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock
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Depositary in order to enable such Preferred Stock Depositary to do so. Such
Preferred Stock Depositary will be required to abstain from voting the amount of
Preferred Stock 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 Stock 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
Stock 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 Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into shares of
Common Stock 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 Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct EastGroup to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other Preferred Stock 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 Stock 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 of Common Stock or Preferred Stock 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 of Common
Stock or Preferred Stock, 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 Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between EastGroup and the
applicable Preferred Stock 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 Stock 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 Stock 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 Stock
Depositary if (i) such termination is necessary to preserve EastGroup's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
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 Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. EastGroup will agree that if a Deposit
Agreement is
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terminated to preserve EastGroup's status as a REIT, then EastGroup will use its
best efforts to list the Preferred Stock 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 Stock 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 Stock; or (iii) each share of the
related Preferred Stock shall have been converted into stock of EastGroup not so
represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK 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 Stock 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 Stock
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 Stock 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 Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock 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 Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from EastGroup which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock 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 Stock 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
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither EastGroup nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. EastGroup
and any Preferred Stock Depositary will be permitted to rely on written advice
of counsel or accountants, or information provided by persons presenting shares
of Preferred Stock 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 Stock Depositary receives conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and EastGroup on the other hand, such Preferred Stock Depositary shall be
entitled to act on such claims, requests or instructions received from
EastGroup.
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DESCRIPTION OF COMMON STOCK
GENERAL
EastGroup is authorized to issue up to 70,000,000 shares of Common Stock.
As of June 9, 1997, EastGroup had 12,674,234 shares of Common Stock outstanding
and 669,355 shares of Common Stock reserved for issuance upon the exercise of
options granted under EastGroup's stock option plans. All of the issued and
outstanding shares of Common Stock are fully paid and non-assessable and have
equal voting, distribution and liquidation rights. Shares of Common Stock are
not subject to call or redemption; provided, however, if the EastGroup Board of
Directors determines that the direct or indirect ownership of shares of Common
Stock has or may become concentrated to an extent which threatens EastGroup's
status as a REIT, the Board of Directors may call for the redemption of a number
of shares of Common Stock.
The holders of shares of Common Stock are entitled to one vote on matters
put to a vote of the stockholders. The holders of Common Stock have no
cumulative voting rights. Additionally, subject to the rights of holders of
Preferred Stock, holders of Common Stock are entitled to receive such dividends
as may be declared from time to time by the directors out of funds legally
available therefor.
Shares of Common Stock 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 of Common Stock to be sold
pursuant to any Prospectus Supplement, and EastGroup anticipates that such
shares will be so listed.
Under Maryland law, stockholders are generally not liable for EastGroup's
debts or obligations. If EastGroup is liquidated, subject to the right of any
holders of Preferred Stock, if any, to receive preferential distributions, each
outstanding share of Common Stock 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 ARTICLES OF INCORPORATION AND BYLAWS
EastGroup's Articles of Incorporation provide that the number of directors
will be ten, which number may be increased or decreased pursuant to EastGroup's
Bylaws. Currently, the number of directors is seven. All seven positions on the
Board of Directors are filled by the vote of the stockholders at the annual
meeting. Stockholders do not have cumulative voting rights in the election of
directors. Stockholders are entitled to one vote for each share of Common Stock
held by them.
OTHER MATTERS
The transfer agent and registrar for the shares of Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
RESTRICTIONS ON TRANSFER
Ownership Limits. For EastGroup to qualify as a REIT under the Code, no
more than 50% in value of its outstanding shares of Common Stock 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. The shares of Common
Stock must also be beneficially owned by 100 or more persons during at least 335
days 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 Articles of Incorporation contain restrictions on the acquisition of
shares of Common Stock intended to ensure compliance with these requirements.
Pursuant to the provisions of the Articles of Incorporation, if a transfer
of stock occurs whereby any person would own, beneficially or constructively, in
excess of 9.8 percent (in value or in number, whichever is more restrictive) of
the outstanding capital stock of EastGroup (excluding Excess Stock, as defined
below), then such amount in excess of the 9.8 percent limit shall automatically
be converted into shares of a separate
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class of stock, the excess stock, par value $0.0001 per share, of EastGroup (the
"Excess Stock"), and any such transfer will be void ab initio. However, such
restrictions will not preclude the settlement of a transaction entered into
through the facilities of any interdealer quotation system or national
securities exchange upon which shares of capital stock of EastGroup are traded.
Notwithstanding the previous sentence, certain transactions may be settled by
providing Excess Stock. Although holders of Excess Stock have no dividend or
voting rights, such holders do have certain rights in the event of any
liquidation, dissolution or winding up of the corporation. The Articles of
Incorporation further provide that the Excess Stock will be held by EastGroup as
trustee for the person or persons in whose hands the shares would not be Excess
Stock and certain price-related restrictions are satisfied. These provisions are
designed to enable EastGroup to meet the share ownership requirements applicable
to REITs under the Code, but may also have an anti-takeover effect. EastGroup
currently has 30,000,000 shares of Excess Stock authorized pursuant to the
Articles of Incorporation.
Each stockholder shall, upon request by the EastGroup, furnish such
information that EastGroup may reasonably request in order to determine
EastGroup's status as a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of EastGroup without the consent of the Board of
Directors.
Special Voting Requirements for Certain Business Combinations. Pursuant to
Maryland law, EastGroup is governed by special procedures that apply to certain
business combinations between a corporation and interested stockholders. The
purpose of such provisions is to protect the corporation and its stockholders
against hostile takeovers by requiring that certain criteria are satisfied.
These criteria include prior approval by the board of directors, prior approval
by a majority or supermajority vote of disinterested stockholders and
requirements that a "fair price" be paid to the disinterested stockholders.
Maryland law provides that a Maryland corporation may not engage in any
"business combination" with any "interested stockholder." An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, ten percent or more of the outstanding voting stock of a Maryland
corporation. Unless an exemption applies, EastGroup may not engage in any
business combination with an interested stockholder for a period of five years
after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination unless it is recommended by
the board of directors 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 stockholder. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by the board of directors of the corporation prior to the time the
interested stockholder first became an interested stockholder. Additionally, if
the business combination involves the receipt of consideration by the
stockholders in exchange for the corporation's stock, the voting requirements do
not apply if certain "fair price" conditions are met.
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 of capital stock owned by the acquirer or by officers or directors who
are employees of the corporation 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, shares
of voting stock ("control shares") that would, if aggregated with all other
voting stock owned by such person, entitle such person to exercise voting power
in electing directors 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 directors to call a special meeting of
stockholders 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 corporation may itself
present the question at any stockholders meeting. If
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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 corporation 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 stockholders at which the voting rights of such shares are considered and not
approved.
If voting rights for control shares are approved at a stockholders meeting
and the acquirer becomes entitled to vote a majority of the shares entitled to
vote, all other stockholders 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 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.
Supermajority Votes. The Articles of Incorporation provide that (i) no term
or provision of the Articles of Incorporation may be added, amended or repealed
in any respect which, in the determination of the Board of Directors, cause
EastGroup not to qualify as a REIT under the Code; (ii) the sections of the
Articles of Incorporation concerning the removal of directors, amendment of the
Bylaws, the indemnification of agents and limitation of liability of directors
and officers and the section concerning special stockholder vote requirements
shall not be amended or repealed; and (iii) no provision imposing cumulative
voting in the election of directors may be added to the Articles of
Incorporation, except, in addition to any vote required by the terms of then
outstanding Preferred Stock, upon the affirmative vote of the holders of not
less than eighty percent of all votes entitled to be cast on the matter.
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 stockholder in light of his particular circumstances or to certain
types of stockholders (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.
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The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its stockholders. 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 and distributes to its
stockholders at least 95% of its REIT taxable income, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder 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) that 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 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 Service 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
Common Stock with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, EastGroup's Articles of Incorporation
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."
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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 for EastGroup 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 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 (excluding securities of a
qualified REIT subsidiary or another REIT). The 5% test must generally be met
for any quarter in which a REIT acquires securities of an issuer.
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If EastGroup should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter,
and (ii) the discrepancy between the value of EastGroup's assets and the asset
tests either did not exist immediately after the acquisition of any particular
asset or was not wholly or partly caused by such an acquisition (e.g., the
discrepancy arose from changes in the market values of its assets). If the
conditions described in clause (ii) of the preceding sentence were not
satisfied, EastGroup still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Annual Distribution Requirements. EastGroup, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
stockholders 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 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
stockholders 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 Service 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 stockholders 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 stockholders 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 STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as EastGroup qualifies
as a REIT, distributions made to its taxable domestic stockholders 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
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stockholders 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 stockholder has held his shares. However, corporate
stockholders 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 stockholder to the extent that
they do not exceed the adjusted basis of such stockholder's Common Stock, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's Common Stock, 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 stockholder. In addition, any dividend
declared by the company in October, November or December of any year payable to
a stockholder of record on a specific date in any such month shall be treated as
both paid by EastGroup and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the company during January
of the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of EastGroup.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a long
term capital gain or loss if the shares have been held for more than one year
and otherwise a short term capital gain or loss. However, any gain or loss
realized upon a taxable disposition of shares by a stockholder who is not a
dealer in securities will be treated as a long term capital gain or loss if the
shares have been held for more than one year and otherwise a short term capital
gain or loss. However, any loss upon a sale or exchange of Common Stock by a
stockholder 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
stockholder as long-term capital gain.
Backup Withholding. EastGroup will report to its domestic stockholders and
the Service 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 stockholder 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
stockholder who does not provide EastGroup with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, EastGroup may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the company. See "Taxation of
Non-U.S. Stockholders" below.
Taxation of Tax-Exempt Stockholders. Most tax-exempt entities, including
employees' pension trusts, are not subject to Federal income tax except to the
extent of UBIT. The Service 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 the analysis therein, and
subject to the discussion below regarding qualified pension trust investors,
distributions by EastGroup to a stockholder that is a tax-exempt entity
generally 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 Common Stock 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
Service.
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") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders 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" by qualified trusts if either
(i) a
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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 (computed as if the REIT 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 for the year in which the dividends are paid. 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 Common Stock in EastGroup's Articles of Incorporation should
prevent application of the foregoing provisions to qualified trusts purchasing
Common Stock of EastGroup pursuant to the Offering, absent a waiver of the
restrictions by the Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders 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 Common Stock, 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 such rate. However, if income from the investment in Common Stock
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business, the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to a branch profits tax of up
to 30% if the stockholder 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. Stockholder that are not designated as capital gain
dividends, unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with EastGroup or (ii) the
Non-U.S. Stockholder files 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 stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's Common Stock, 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. Stockholder's shares, they will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his or her Common Stock as
described below. If at any time EastGroup is not a "domestically controlled
REIT," as defined below, EastGroup must withhold U.S. income tax at the rate of
10% on distributions to Non-U.S. Stockholders that are not paid out of current
or accumulated earnings and profits unless the Non-U.S. Stockholders provide
EastGroup with withholding certificates evidencing their exemption from
withholding tax. If it cannot be determined at the time that such 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.
Stockholder may seek a refund of such amounts from the Service 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. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these
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distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
stockholders (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. Stockholder 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 EastGroup as a capital gain
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
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 Non-U.S. Stockholders. EastGroup believes that it currently
qualifies as a "domestically controlled REIT," and that the sale of Common Stock
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. Even if EastGroup is not a "domestically
controlled REIT," a Non-U.S. Stockholder's sale of Common Stock generally will
not be subject to tax under FIRPTA as a sale of U.S. real property interests,
provided that (i) EastGroup's Common Stock is "regularly traded" on an
established securities market, and (ii) the selling Non-U.S. Stockholder held 5%
or less of EastGroup's Common Stock at all times during the specified testing
period. In addition, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) the investment in Common Stocks is treated as effectively
connected with the Non-U.S. Stockholder's trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as the U.S.
stockholders with respect to such gain; or (ii) the Non-U.S. Stockholder 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% withholding
tax on the individual's capital gains. If the gain on the sale of Common Stock
were to be subject to tax under FIRPTA, the Non-U.S. Stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax and a special alterative minimum
tax in the case of nonresident alien individuals).
State and Local Taxes. EastGroup and its stockholders 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 stockholders 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
stockholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders 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
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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 Common Stock which are listed on the NYSE. Any Common Stock 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 Stock 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, 1996
and 1995, and for each of the years in the three year period ended December 31,
1996, 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.
LEGAL MATTERS
The legality of the Securities will be passed upon for EastGroup by Jaeckle
Fleischmann & Mugel, LLP, Buffalo, New York.
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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 THE UNDERWRITERS.
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
-----
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Supplement Summary........ S-3
Risk Factors......................... S-8
The Company.......................... S-14
Properties........................... S-17
Use of Proceeds...................... S-24
Capitalization....................... S-24
Selected Financial Data.............. S-25
Price Range of Common Stock and
Distribution History............... S-27
Management........................... S-28
Certain Federal Income Tax
Considerations..................... S-29
Underwriting......................... S-31
Legal Matters........................ S-32
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 4
Ratio of Earnings to Fixed Charges... 4
Use of Proceeds...................... 4
Description of Debt Securities....... 5
Description of Preferred Stock....... 15
Description of Depositary Shares..... 20
Description of Common Stock.......... 24
Federal Income Tax Considerations.... 26
Plan of Distribution................. 32
Experts.............................. 33
Legal Matters........................ 33
</TABLE>
======================================================
======================================================
3,500,000 SHARES
EASTGROUP PROPERTIES, INC.
LOGO
COMMON STOCK
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
A.G. EDWARDS & SONS, INC.
------------------------
October 9, 1997
======================================================
