<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-29193
PROSPECTUS SUPPLEMENT [LOGO OF EASTGROUP PROPERTIES INC.
(TO PROSPECTUS DATED JUNE 23, 1997) APPEARS HERE]
1,500,000 SHARES
EASTGROUP PROPERTIES, INC.
9.00% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
----------------
Dividends on the 9.00% Series A Cumulative Redeemable Preferred Stock,
$0.0001 par value per share (the "Series A Preferred Stock"), of EastGroup
Properties, Inc. ("EastGroup" or the "Company") are cumulative from the date
of original issue and are payable quarterly in arrears on the fifteenth day
(or next succeeding business day) of January, April, July and October of each
year, commencing on July 15, 1998, at the rate of 9.00% per annum of the
$25.00 liquidation preference (the "Liquidation Preference") per share
(equivalent to a fixed annual amount of $2.25 per share). See "Description of
Series A Preferred Stock--Dividends."
The Series A Preferred Stock is not redeemable prior to June 19, 2003,
except as provided in the Company's articles of incorporation (the "Charter").
On and after such date and up to the redemption date, the Series A Preferred
Stock may be redeemed, in whole or in part, for cash at the option of the
Company, upon not less than 30 nor more than 60 days' written notice, at a
redemption price of $25.00 per share, plus any accrued and unpaid dividends
thereon, without interest. The redemption price (other than the portion
thereof consisting of accrued and unpaid dividends) shall be payable solely
out of the sale proceeds of other capital stock of the Company, which may
include other series of preferred stock, and from no other source. The Series
A Preferred Stock has no stated maturity, will not be subject to any sinking
fund or mandatory redemption and will not be convertible into any other
securities of the Company. See "Description of Series A Preferred Stock--
Maturity" and "--Redemption." In order to ensure that the Company continues to
meet the requirements for qualification as a real estate investment trust (a
"REIT") for federal income tax purposes, a holder of shares of Series A
Preferred Stock shall be deemed to violate the ownership limit in the
Company's Charter if such holder owns 9.8% or more (in value or in number,
whichever is more restrictive) of the Company's outstanding common stock,
$0.0001 par value per share (the "Common Stock") or Series A Preferred Stock.
Shares held in violation of the ownership limit will be converted into Excess
Stock (as defined herein). See "Description of Series A Preferred Stock--
Restrictions on Ownership and Transfer."
The Company has applied to list the Series A Preferred Stock on the New York
Stock Exchange, Inc. (the "NYSE") under the symbol "EGP PrA." If approved,
trading of the Series A Preferred Stock on the NYSE is expected to commence
within a 30-day period after the initial delivery of the Series A Preferred
Stock. The Underwriters may advise the Company that each intends to make a
market in the Series A Preferred Stock prior to the commencement of trading on
the NYSE, but is not obligated to do so and may discontinue market making at
any time without notice. See "Underwriting."
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT FOR A
DISCUSSION OF CERTAIN RISK FACTORS RELEVANT TO AN INVESTMENT IN THE SERIES A
PREFERRED STOCK.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions (2) Company (3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $25.00 $0.875 $24.125
- ------------------------------------------------------------------------------
Total................................ $37,500,000 $1,312,500 $36,187,500
- ------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option (4)................ $43,125,000 $1,509,375 $41,615,625
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company 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."
(3) Before deducting expenses estimated at $300,000, which are payable by the
Company.
(4) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 225,000 additional shares of Series A
Preferred Stock, on the same terms, solely to cover over-allotments. See
"Underwriting."
----------------
The shares of Series A Preferred 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 Series A Preferred Stock will be made in
New York City on or about June 19, 1998.
----------------
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
J.C. BRADFORD & CO.
RAYMOND JAMES & ASSOCIATES, INC.
----------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 12, 1998.
<PAGE>
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., a Maryland corporation, and its subsidiaries on a
consolidated basis and, as the context may require, its predecessors. 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 primarily on the ownership,
acquisition and selective development of industrial properties located in major
Sunbelt markets throughout the United States. As of June 12, 1998, EastGroup's
portfolio included 72 industrial properties in ten states containing
approximately 12.9 million square feet of leasable space, six industrial
properties under development or in initial lease-up containing approximately
468,000 square feet of leasable space, and three office buildings containing
approximately 390,000 square feet of leasable space. As of May 31, 1998, the
industrial portfolio (excluding the six properties currently under development
or in initial lease-up) was 97% leased.
Since January 1, 1998, EastGroup has acquired 23 industrial properties (the
"Recent Acquisitions"), aggregating approximately 3.7 million square feet of
leasable space, for a total purchase price (including closing costs) of
approximately $131.7 million. The Recent Acquisitions include the 18 industrial
properties acquired in the Meridian VIII Acquisition (as defined herein).
Additionally, the Company has entered into contracts to purchase five
industrial properties (the "Proposed Acquisitions"), aggregating approximately
924,000 square feet of leasable space, for a total purchase price (including
anticipated closing costs) of approximately $35.0 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 56% on a cost basis and 54% on a square
footage basis in this calendar year. In 1998, the Company has also continued to
proceed with the disposition of non-core assets. Since January 1, 1998,
EastGroup has entered into an agreement to sell one apartment complex for an
aggregate sale price of approximately $6.7 million. The completion of this
transaction is subject to the purchaser's due diligence review and customary
closing conditions, and therefore no assurance can be given that such sale will
be completed. EastGroup plans to dispose of the remaining three office
buildings and four apartment complexes in its portfolio over time.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A
PREFERRED STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE SERIES A
PREFERRED STOCK TO STABILIZE ITS MARKET PRICE, THE PURCHASE OF THE SERIES A
PREFERRED STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
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. On June 1, 1998, EastGroup completed the acquisition (the
"Meridian VIII Acquisition") of Meridian Point Realty Trust VIII Co., an equity
REIT ("Meridian VIII"), which significantly expanded EastGroup's industrial
portfolio. The Meridian VIII Acquisition added 18 industrial properties
totaling over 2.6 million square feet of leasable space in major Sunbelt
markets. The Meridian VIII Acquisition was completed for an aggregate
consideration of approximately $103.6 million, which included the Company's
investment in Meridian VIII, estimated costs of the merger and the assumption
of approximately $33.5 million of Meridian VIII's debt. On June 19, 1996,
EastGroup completed the acquisition (the "Copley Acquisition") of Copley
Properties, Inc. ("Copley"). 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 aggregate consideration of approximately
$116.0 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 $18.0 million. Prior to their
acquisition by EastGroup, Meridian VIII, Copley and LNH were publicly traded
REITs.
Upon completion of this offering of Series A Preferred Stock (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 41.4% and
EastGroup will have approximately $58.7 million of borrowing capacity under its
revolving credit facilities.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
Since January 1, 1998, EastGroup has completed the acquisition of 23
industrial properties (including the industrial properties acquired in the
Meridian VIII Acquisition), aggregating approximately 3.7 million square feet
of leasable space, for a total purchase price of approximately $131.7 million.
The following table provides an overview of the Recent Acquisitions as of June
12, 1998 and the states and cities in which they are located. For information
concerning the properties owned by the Company, see "Properties."
<TABLE>
<CAPTION>
TOTAL SQUARE
FEET OF
PURCHASE LEASABLE
PROPERTY LOCATION AND NAME PRICE (1) SPACE
- -------------------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ARIZONA
Phoenix
East Maricopa Distribution Center................. $ 853 (2) 14,000
East University I and II.......................... 5,674 (2) 145,000
Estrella Distribution Center...................... 5,318 174,000
7th Street Distribution Center.................... 1,887 (2) 39,000
51st Avenue Distribution Center................... 2,329 79,000
55th Street Distribution Center................... 4,707 (2) 131,000
CALIFORNIA
Fresno
Industry Distribution Center...................... 22,567 572,000
Los Angeles Metro Area
Ethan Allen Distribution Center................... 12,525 (2) 300,000
FLORIDA
Fort Lauderdale/Pompano
Park Ridge Distribution Center.................... 3,044 (2) 46,000
West Palm I and II................................ 3,218 (2) 26,000
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
TOTAL SQUARE
FEET OF
PURCHASE LEASABLE
PROPERTY LOCATION AND NAME PRICE (1) SPACE
- -------------------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
MICHIGAN
Auburn Hills
Auburn Facility................................... $ 16,360 (2) 114,000
TENNESSEE
Memphis
Air Park Distribution Center I.................... 2,161 92,000
Air Park Distribution Center II................... 333 (2) 17,000
Delp Distribution Center I, II and III............ 5,314 (2) 274,000
Getwell Distribution Center....................... 764 (2) 26,000
Lamar Distribution Center I and II................ 6,744 (2) 276,000
Penney Distribution Center........................ 2,463 (2) 106,000
Senator Street Distribution Center II............. 2,205 (2) 105,000
Nashville
Waldenbooks Distribution Center................... 21,580 (2) 564,000
TEXAS
Dallas
Ambassador Row Warehouses......................... 6,123 (2) 317,000
Carpenter Duplex.................................. 1,080 (2) 47,000
Stemmons Circle Distribution Center............... 2,379 99,000
Viscount Row Distribution Center.................. 2,047 (2) 104,000
-------- ---------
Total........................................... $131,675 3,667,000
======== =========
</TABLE>
- --------
(1) Purchase Price includes estimated closing costs.
(2) This property was acquired in the Meridian VIII Acquisition. The total
purchase price allocated to the properties acquired from Meridian VIII was
approximately $96.9 million. The Purchase Price allocation for each of the
Meridian VIII properties is based on a preliminary review of the respective
fair values of such properties. Final allocations will be made based upon
the final review of the properties. Any differences in the preliminary
amounts and the final allocations are not expected to be material.
S-4
<PAGE>
PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase five industrial
properties, aggregating approximately 924,000 square feet of leasable space,
for a total purchase price of approximately $35.0 million. EastGroup intends to
fund the purchase of the Proposed Acquisitions principally with borrowings on
the Company's revolving credit facilities. The Proposed Acquisitions, which are
expected to close in June 1998, 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 SQUARE
ANTICIPATED FEET OF
PURCHASE LEASABLE
PROPERTY LOCATION AND NAME PRICE (1) SPACE
- -------------------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ARIZONA
Tucson
Wal-Mart Distribution Center....................... $ 5,754 162,000
CALIFORNIA
Fresno
Shaw Commerce Center (2)........................... 14,080 398,000
FLORIDA
Fort Lauderdale/Pompano
Interstate Commerce Distribution Center............ 3,281 85,000
TEXAS
Houston
America Plaza...................................... 5,315 121,000
World Houston 1 and 2 (3).......................... 6,555 158,000
------- -------
Total............................................ $34,985 924,000
======= =======
</TABLE>
- --------
(1) Anticipated Purchase Price is defined as contract price plus estimated
closing costs.
(2) The purchase of this property is contingent on the Company's review of the
results of a Phase II environmental site assessment ordered on the
recommendation of the environmental consultant which performed the Phase I
environmental site assessment at the property.
(3) In connection with the purchase of this property, the Company will assume
mortgage indebtedness with a principal balance of approximately $4.6
million which bears interest at 7.77% and matures on April 15, 2007.
INCREASED REVOLVING CREDIT FACILITIES
EastGroup has recently negotiated an increase in the total borrowing capacity
available under its revolving credit facilities from $100 million to $150
million. On April 1, 1998, the maximum principal amount of the Company's
acquisition facility (the "Acquisition Facility"), which currently bears
interest at LIBOR plus 1.40% and matures on September 30, 2000, was increased
from $65 million to $100 million. The Acquisition Facility may be utilized by
the Company to acquire additional properties. On April 1, 1998, the maximum
principal amount of the Company's working capital facility (the "Working
Capital Facility"), which currently bears interest at LIBOR plus 1.40% and
matures on September 30, 1998, was increased from $35 million to $50 million.
The Working Capital Facility may be utilized by the Company for general working
capital purposes, including the acquisition of additional properties.
MERIDIAN VIII ACQUISITION
On June 1, 1998, EastGroup completed the Meridian VIII Acquisition. The total
cost of the Meridian VIII Acquisition was approximately $103.6 million, which
included the Company's investment in Meridian VIII,
S-5
<PAGE>
estimated costs of the merger and the assumption of approximately $33.5 million
of Meridian VIII's debt. As a result of the Meridian VIII Acquisition,
EastGroup acquired 18 industrial properties totaling over 2.6 million square
feet of leasable space. The Meridian VIII Acquisition significantly expanded
EastGroup's presence in the Phoenix, Dallas and Memphis markets. In addition it
added individual net leased assets in Los Angeles, Nashville and Detroit to
EastGroup's portfolio.
SELF-MANAGEMENT
In March 1998, EastGroup, through the merger of its wholly-owned subsidiary
with Ensign Properties, Inc., a Florida corporation ("Ensign"), commenced the
self-management of properties it owns or may acquire in Orlando and Tampa,
Florida. Currently, EastGroup Property Services, Inc. (formerly Ensign) manages
and leases approximately 1.1 million square feet of leasable space in the
Orlando and Tampa markets. EastGroup Property Services, Inc. also is
EastGroup's development agent on an additional approximately 360,000 square
feet of leasable space in these markets. During 1998, EastGroup intends to
expand its self-management for properties it owns or may acquire in Fort
Lauderdale/Pompano and Jacksonville, Florida which currently contain
approximately 1.9 million square feet. EastGroup also self-manages its
industrial properties in Jackson, Mississippi containing approximately 127,000
square feet and intends to implement the self-management of six industrial
properties acquired in the Meridian VIII Acquisition which contain
approximately 1.1 million square feet and are located in Fort
Lauderdale/Pompano, Florida, Nashville, Tennessee, Chino, California, and
Auburn Hills, Michigan. The Company is in the process of expanding its
management efforts through plans to expand the self-management of its
industrial properties to all markets as its presence in those markets reaches
the minimum square footage in those markets necessary to make it cost efficient
to self-manage.
STRATEGIC ALLIANCES
Effective May 1, 1998, EastGroup entered into strategic alliances for
development, management and leasing services in the Houston, Phoenix and Los
Angeles markets for all of EastGroup's industrial and office real estate
properties presently owned or acquired or developed in the future by EastGroup
in these respective markets. EastGroup believes these alliances will provide
EastGroup with local market knowledge and a full range of industrial real
estate services in such markets. EastGroup intends to extend this strategic
alliance program to other markets where EastGroup does not self-manage its
properties.
UPREIT STRUCTURE
EastGroup is currently in the process of reorganizing its operations into an
umbrella partnership REIT ("UPREIT") structure pursuant to which all of
EastGroup's real estate assets will be owned by EastGroup Properties, L.P., a
Delaware limited partnership the sole partners of which are wholly-owned
subsidiaries of the Company (the "Operating Partnership"). The Company
anticipates that the UPREIT structure will enable it to pursue new investment
opportunities by giving EastGroup the ability to offer units in the Operating
Partnership to property owners in exchange for properties in transactions
intended to achieve certain tax advantages. The Company anticipates completing
the reorganization of its operations into an UPREIT structure in July 1998.
MANAGEMENT
EastGroup's management team has extensive experience in real estate
operations, acquisitions, development and financings. 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 18 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.
S-6
<PAGE>
THE OFFERING
Securities Offered........ 1,500,000 shares of 9.00% Series A Cumulative
Redeemable Preferred Stock.
Ranking................... With respect to the payment of dividends and
amounts upon liquidation, the Series A Preferred
Stock will rank senior to the Common Stock which is
the only capital stock of the Company currently
outstanding. See "Description of Series A Preferred
Stock--Rank," "--Dividends" and "--Liquidation
Preference."
Use of Proceeds........... The net proceeds from the sale of the Series A
Preferred Stock will be used to reduce borrowings
under the Working Capital Facility. See "Use of
Proceeds."
Dividends................. Dividends on the Series A Preferred Stock are
cumulative from the date of original issue and are
payable quarterly in arrears on or about the
fifteenth day of each January, April, July and
October or, if not a business day, the next
succeeding business day, to stockholders of record
at the close of business on the last business day
of March, June, September and December,
respectively, or on such date designated by the
Board of Directors for payment of distributions
that is not more than 30 nor less than ten days
prior to the Dividend Payment Date (as defined
herein), commencing on July 15, 1998, at the fixed
rate of 9.00% per annum of the Liquidation
Preference (equivalent to a fixed annual rate of
$2.25 per share). The first dividend will be for
less than a full quarter. Dividends on the Series A
Preferred Stock will accrue whether or not the
Company's credit facilities at any time prohibit
the current payment of dividends, whether or not
the Company has earnings, whether or not there are
funds legally available for the payment of such
dividends and whether or not such dividends are
declared. See "Description of Series A Preferred
Stock--Dividends."
Liquidation Preference.... The liquidation preference for each share of Series
A Preferred Stock is $25.00, plus an amount equal
to all accrued and unpaid dividends (whether or not
declared). See "Description of Series A Preferred
Stock--Liquidation Preference."
Redemption................ The Series A Preferred Stock is not redeemable
prior to June 19, 2003 except as provided for in
the Company's Charter. On and after such date, the
Series A Preferred Stock may be redeemed for cash
at the option of the Company, upon not less than 30
nor more than 60 days' written notice, in whole or
in part, at a redemption price of $25.00 per share,
plus all accrued and unpaid dividends thereon, if
any, to the date fixed for redemption, without
interest. The redemption price (other than the
portion thereof consisting of accrued and unpaid
dividends) shall be payable solely out of the sale
proceeds of other capital stock of the Company,
which may include other series of preferred stock,
and from no other source. In order to ensure that
the Company continues to meet the requirements for
qualification as a REIT for federal income tax
purposes, a holder of shares of Series A Preferred
Stock shall be
S-7
<PAGE>
deemed to violate the ownership limit in the
Company's Charter, if such holder owns 9.8% or more
(in value or in number, whichever is more
restrictive) of the Company's outstanding Common
Stock or Series A Preferred Stock. Shares held in
violation of the ownership limit will be converted
into Excess Stock. See "Description of Series A
Preferred Stock--Redemption" and "--Restrictions on
Ownership and Transfer."
Voting Rights............. Holders of Series A Preferred Stock generally will
have no voting rights except as required by law.
However, whenever dividends on any shares of Series
A Preferred Stock or any Parity Stock (as defined
herein) shall be in arrears for six or more
quarterly periods (whether consecutive or not),
whether or not earned or declared, the holders of
such shares (voting separately as a class with all
other series of preferred stock upon which like
voting rights have been conferred and are
exercisable) will be entitled to vote for the
election of a total of two directors of the Company
until all dividends accumulated on such shares of
Series A Preferred Stock have been fully paid or
declared and a sum sufficient for the payment
thereof set aside for payment. In addition, certain
changes to the terms of the Series A Preferred
Stock that would be materially adverse to the
rights of holders of the Series A Preferred Stock
cannot be made without the affirmative vote of the
holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock. Holders of
Series A Preferred Stock will have certain other
voting rights under Maryland law. See "Description
of Series A Preferred Stock--Voting Rights."
Conversion................ The Series A Preferred Stock is not convertible
into or exchangeable for any other property or
securities of the Company, except that the shares
of Series A Preferred Stock may be exchanged by the
Company for shares of Excess Stock in order to
ensure that the Company remains a qualified REIT
for federal income tax purposes. See "Description
of Series A Preferred Stock--Restrictions on
Ownership and Transfer."
Restrictions on
Ownership................ Ownership by a single holder of more than 9.8% of
any class or series of the capital stock of the
Company, including the Series A Preferred Stock, is
restricted in order to ensure that the Company
remains a qualified REIT for federal income tax
purposes. See "Description of Series A Preferred
Stock--Restrictions on Ownership and Transfer."
Maturity.................. The Series A Preferred Stock has no stated maturity
and will not be subject to any sinking fund or
mandatory redemption. See "Description of Series A
Preferred Stock--Maturity."
Trading................... Application has been made to list the Series A
Preferred Stock on the NYSE under the symbol "EGP
PrA." If approved, trading of the Series A
Preferred Stock on the NYSE is expected to commence
within a 30-day period after the initial delivery
of the shares of Series A Preferred Stock.
S-8
<PAGE>
RISK FACTORS
An investment in the Series A Preferred 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 the Series A Preferred Stock.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS
EastGroup is currently experiencing a period of rapid growth. Since January
1, 1998, EastGroup has acquired 23 industrial properties aggregating
approximately 3.7 million square feet of leasable space, for a total purchase
price of approximately $131.7 million. Additionally, EastGroup has contracted
to purchase five industrial properties aggregating approximately 924,000
square feet of leasable space, for a total purchase price of approximately
$35.0 million. See "Prospectus Supplement Summary--Recent Developments." 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. In addition, in connection with
EastGroup's acquisition of Ensign in March 1998, EastGroup commenced its self-
management for properties it owns or may acquire in Orlando and Tampa,
Florida. There can be no assurance that the cost benefits anticipated in
connection with such self-management will be achieved or that EastGroup will
successfully integrate the operational structure necessary for the self-
management of such properties.
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 Mortgage Debt. As of March 31, 1998,
on a pro forma basis, EastGroup had approximately $137.9 million of non-
recourse mortgage indebtedness secured by 29 of its properties, approximately
$7.6 million of recourse mortgage indebtedness secured by two of its
properties and ten of the properties secured the Acquisition Facility. 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 Acquisition Facility and the
Working Capital Facility bear interest at variable rates. In addition,
EastGroup may incur indebtedness in the future that also bears interest
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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 June 11, 1998, EastGroup's ratio of debt to
total market capitalization was approximately 44.9%. Upon completion of the
Offering and application of the net proceeds therefrom, EastGroup's debt to
total market capitalization will be approximately 41.4% (based on the June 11,
1998 closing sales price of the Common Stock on the NYSE of $20.00 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
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 an 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.
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 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.
Acquisition and Development Risks. EastGroup intends to pursue acquisitions
of 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.
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
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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 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. EastGroup is not aware of any material ACM issues at its
properties. However, there can be no assurance that ACMs do not exist at
properties owned by EastGroup. If there are ACMs at the properties that
require removal or other remediation, the cost thereof could be substantial
and could have an adverse effect on the value of the such property.
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 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. ESAs have not revealed any
material environmental liability or compliance concerns, nor is EastGroup
aware of any such liability 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.
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
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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 industrial
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. ("Parkway"), a REIT with a focus on office properties principally in the
Southeastern United States and Texas. EastGroup and Parkway are 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 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
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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 Shares." Such provisions may (i) deter
tender offers for the capital stock of the Company, which may be attractive to
the stockholders; or (ii) deter purchases of large blocks of capital stock of
the Company, thereby limiting the opportunity for stockholders to receive a
premium for their shares over then-prevailing market prices.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
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; (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 shares over then-prevailing market prices.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Series A Preferred 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 Series A Preferred Stock to demand a
higher annual dividend yield on the Series A Preferred Stock, which could
adversely affect the market price of the Series A Preferred 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
Series A Preferred Stock or other securities.
REIT TAX RISKS
EastGroup believes that it has operated in a manner so as to qualify as a
REIT under the Code for each of its taxable years since its formation in 1969.
Although the Company believes that EastGroup has been organized and operated,
and will continue to operate in such a manner, no assurance can be given that
EastGroup has operated or will be able to continue to operate in a manner so
as to qualify or remain so qualified. 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 diversity of ownership requirements with
respect to 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.
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If EastGroup fails to qualify as a REIT for any taxable year, 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
qualification 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 Prospectus attached
hereto.
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 (the "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,
possible environmental liabilities, risks relating to leverage, debt service
and obligations with respect to the payment of dividends (including
availability of financing 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
primary 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>
THE COMPANY
GENERAL
EastGroup is a self-administered REIT focused primarily on the ownership,
acquisition and selective development of industrial properties located in
major Sunbelt markets throughout the United States. As of June 12, 1998,
EastGroup's portfolio included 72 industrial properties in ten states
containing approximately 12.9 million square feet of leasable space, six
industrial properties under development or in initial lease-up containing
approximately 468,000 square feet, as well as three office buildings
containing approximately 390,000 square feet of leasable space. As of May 31,
1998, the industrial portfolio (excluding the six properties currently under
development or in initial lease-up) was 97% leased.
Since January 1, 1998, EastGroup has acquired 23 industrial properties,
aggregating approximately 3.7 million square feet of leasable space, for a
total purchase price (including closing costs) of approximately $131.7
million, and has entered into contracts to purchase five additional industrial
properties aggregating approximately 924,000 square feet of leasable space for
a total purchase price (including anticipated closing costs) of approximately
$35.0 million. See "Properties." Since January 1, 1998, EastGroup has entered
into an agreement to sell one apartment complex for an aggregate sale price of
approximately $6.7 million. EastGroup anticipates that the sale proceeds will
be applied principally to reduce indebtedness and acquire industrial
properties. This transaction is subject to the purchaser's due diligence
review and customary closing conditions, and therefore no assurance can be
given that such sale will be completed. EastGroup plans to dispose of the
remaining three office buildings and four apartment complexes in its portfolio
over time.
EastGroup is in the process of reorganizing its operations into an UPREIT
structure under which all of EastGroup's real estate assets will be owned by
the Operating Partnership. The Company anticipates that the UPREIT structure
will enable it to pursue new investment opportunities by giving EastGroup the
ability to offer units in the Operating Partnership to property owners in
exchange for properties in transactions intended to achieve certain tax
advantages.
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 41.4% (based on the June 11, 1998 closing sales
price of the Common Stock on the NYSE of $20.00 per share) and EastGroup will
have approximately $58.7 million of borrowing capacity under its revolving
credit facilities.
EastGroup was organized in 1969 and current management assumed control in
1983. 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 or 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, 1998, the Company
has completed the acquisition of 23 industrial properties aggregating
approximately 3.7 million square feet of leasable space for an aggregate
purchase price of approximately $131.7 million. These acquisitions
complement EastGroup's existing portfolio in major Sunbelt markets. In
addition, the Company has entered into
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contracts to purchase the Proposed Acquisitions aggregating 924,000 square
feet of leasable space for an aggregate purchase price of approximately
$35.0 million.
(ii) Selective Development. EastGroup has six industrial property
development projects currently underway or in initial lease-up. In Orlando,
Florida, EastGroup is developing the John Young Distribution Center, a $2.9
million industrial property with approximately 51,000 square feet. This
property is located in Orlando Central Park on the south side of the city
in an area where EastGroup already owns two fully occupied industrial
properties, Exchange Distribution Center (containing approximately 139,000
square feet of leasable space) and Chancellor Distribution Center
(containing approximately 51,000 square feet of leasable space).
Construction is tentatively scheduled for completion in July 1998. In
February 1998, EastGroup purchased two parcels of land totaling 15.1 acres
in Houston, Texas and commenced development of approximately 233,700 square
feet of warehouse distribution space in three buildings, World Houston 6, 7
and 8, on such parcels. The expected cost of World Houston 6, 7 and 8 is
approximately $10.6 million and EastGroup expects to complete these
projects in September and October 1998. World Houston 6 is 100% pre-leased.
In Orlando, Florida, EastGroup currently has in the lease-up stage, the
Sunbelt Distribution Center II ("Sunbelt II"). This is a $2.3 million
industrial facility located adjacent to the existing properties of Sunbelt
Distribution Center and Laquinta Distribution Center. Sunbelt II contains
approximately 61,000 square feet and construction was completed in March
1998. In Tampa, Florida, EastGroup currently has in the lease-up stage the
Walden Distribution Center ("Walden"). This is a $4.0 million industrial
facility located east of Tampa. Walden contains approximately 122,000
square feet and construction was completed in March 1998. In addition to
these six projects, EastGroup has ten additional industrial property
development projects in the planning stages, representing an aggregate
potential additional investment of approximately $47.8 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. On June 1, 1998, EastGroup completed the
Meridian VIII Acquisition, which significantly expanded EastGroup's
industrial portfolio. The Meridian VIII Acquisition added 18 industrial
properties totaling over 2.6 million square feet of leasable space in major
Sunbelt markets. The Meridian VIII Acquisition was completed for an
aggregate consideration of approximately $103.6 million, which included the
Company's investment in Meridian VIII, estimated costs of the merger and
the assumption of approximately $33.5 million of Meridian VIII's debt. On
June 19, 1996, EastGroup completed the Copley Acquisition. 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 aggregate consideration of approximately $116.0 million. Also in May
1996, EastGroup completed the LNH Acquisition for an aggregate
consideration of approximately $18.0 million. Prior to their acquisition by
EastGroup, Meridian VIII, Copley and LNH were publicly traded REITs.
EastGroup's management has extensive experience in the acquisition of real
estate companies and REITs, and management believes that through such
acquisitions EastGroup can significantly expand its portfolio while
providing value both to EastGroup's stockholders and to the stockholders of
acquired companies.
FINANCING STRATEGY
EastGroup intends to maintain a conservative capital structure with a total
debt to total market capitalization ratio ranging between 30% and 45%. As of
June 11, 1998, the Company's ratio of debt to total market capitalization was
44.9%. Upon completion of the Offering and application of the net proceeds
therefrom, EastGroup's total debt to total market capitalization will be
approximately 41.4% (based on the June 11, 1998 closing sales price of the
Common Stock on the NYSE of $20.00 per share). The Company intends to optimize
its financial flexibility through the utilization of both secured and
unsecured debt, as well as through a variety of equity and equity-linked
financial instruments, including preferred stock, in order to finance its
investment and operational strategies to maximize stockholder returns.
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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 25 properties which
are currently self-managed or will be self-managed by July 1, 1998, 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.
PROPERTIES
The following table contains certain information with respect to EastGroup's
properties, including the Recent Acquisitions:
<TABLE>
<CAPTION>
TOTAL TOTAL SQUARE
INVESTMENT FEET OF PERCENT YEAR(S)
PROPERTY TYPE, AS OF LEASABLE LEASED AT ACQUIRED OR
LOCATION AND NAME MARCH 31, 1998 (1) SPACE MAY 31, 1998 CONSTRUCTED
----------------- ------------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
ARIZONA
Phoenix
Broadway Industrial
Center............... $ 4,204 121,000 100% 1996
East Maricopa Distri-
bution Center........ 853 (2) 14,000 0 (3) 1998
East University I and
II................... 5,674 (2) 145,000 100 1998
Estrella Distribution
Center............... 5,321 174,000 100 1998
Metro Business Park... 10,070 189,000 100 1996
7th Street Distribu-
tion Center.......... 1,887 (2) 39,000 96 1998
35th Avenue Distribu-
tion Center.......... 2,806 124,000 100 1997
51st Avenue Distribu-
tion Center.......... 2,324 79,000 57 (4) 1998
55th Street Distribu-
tion Center.......... 4,707 (2) 131,000 100 1998
Tucson
Chamberlain Distribu-
tion Center.......... 4,074 120,000 100 1997
------- --------- ---
Total Arizona....... $41,920 1,136,000 96%
------- --------- ---
CALIFORNIA
Fresno
Industry Distribution
Center............... $22,567 572,000 98% 1998
Los Angeles Metro Area
Dominguez Distribution
Center............... 10,031 262,000 100 1996
Ethan Allen Distribu-
tion Center.......... 12,525 (2) 300,000 100 1998
Kingsview Industrial
Center............... 3,217 83,000 100 1987
Walnut Business Cen-
ter.................. 8,201 234,000 100 1996
Washington Distribu-
tion Center.......... 6,661 141,000 100 1997
San Diego
Eastlake Distribution
Center............... 9,949 191,000 100 1997
</TABLE>
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<TABLE>
<CAPTION>
TOTAL TOTAL SQUARE
INVESTMENT FEET OF PERCENT YEAR(S)
PROPERTY TYPE, AS OF LEASABLE LEASED AT ACQUIRED OR
LOCATION AND NAME MARCH 31, 1998 (1) SPACE MAY 31, 1998 CONSTRUCTED
----------------- ------------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CALIFORNIA (Continued)
San Francisco Bay Area
Huntwood Associates... $ 19,210 514,000 100% 1996
Nobel Center.......... 4,237 54,000 98 1987
San Clemente Distribu-
tion Center.......... 2,897 81,000 100 1997
Wiegman Associates.... 10,985 262,000 100 1996
Santa Barbara
University Business
Center (5)........... 27,795 230,000 100 1996
-------- --------- ---
Total California.... $138,275 2,924,000 100%
-------- --------- ---
COLORADO
Denver
Rampart Distribution
Center............... $ 5,172 116,000 92% 1988
Rampart Distribution
Center II............ 3,207 66,000 100 1997
-------- --------- ---
Total Colorado...... $ 8,379 182,000 95%
-------- --------- ---
FLORIDA
Fort Lauderdale/Pompano
LinPro Commerce Cen-
ter.................. $ 2,905 99,000 87% 1996
Park Ridge Distribu-
tion Center.......... 3,044 (2) 46,000 100 1998
Sample/I-95 Business
Park................. 7,960 157,000 100 1996
Cypress Creek Business
Park................. 2,733 56,000 100 1997
Lockhart Business
Park................. 3,685 118,000 100 1997
West Palm I and II.... 3,218 (2) 26,000 100 1998
Jacksonville
Ellis Distribution
Center............... 8,104 337,000 100 1997
Deerwood Distribution
Center............... 4,097 126,000 100 1989/97
Lake Pointe Business
Park................. 11,127 376,000 100 1993
Phillips Distribution
Center............... 6,017 161,000 86 1994/95
Westside Distribution
Center............... 13,145 502,000 87 1997
Orlando
Chancellor Distribu-
tion Center.......... 2,002 51,000 100 1997
Exchange Distribution
Center............... 3,433 139,000 100 1994/97
LaQuinta Distribution
Center............... 826 33,000 100 1989
Sunbelt Distribution
Center............... 6,747 208,000 98 1989
Tampa
Benjamin Distribution
Center............... 4,632 93,000 100 1997
56th Street Commerce
Park (6)............. 4,114 181,000 94 1993
JetPort Commerce Park
(7).................. 5,410 220,000 95 1993/94/95
Palm River Distribu-
tion Center I........ 2,719 72,000 100 1997
Palm River Distribu-
tion Center II....... 2,858 72,000 83 1997
Westport Commerce Cen-
ter (7).............. 5,240 140,000 94 1994
-------- --------- ---
Total Florida....... $104,016 3,213,000 95%
-------- --------- ---
LOUISIANA
New Orleans
Elmwood Business
Park................. $ 9,244 262,000 96% 1997
Riverbend Business
Park................. 20,235 591,000 96 1997
-------- --------- ---
Total Louisiana..... $ 29,479 853,000 96%
-------- --------- ---
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
TOTAL TOTAL SQUARE
INVESTMENT FEET OF PERCENT YEAR(S)
PROPERTY TYPE, AS OF LEASABLE LEASED AT ACQUIRED OR
LOCATION AND NAME MARCH 31, 1998 (1) SPACE MAY 31, 1998 CONSTRUCTED
----------------- ------------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MICHIGAN
Auburn Hills
Auburn Facility....... $ 16,360 (2) 114,000 100% 1998
-------- ---------- ---
Total Michigan...... $ 16,360 114,000 100%
-------- ---------- ---
MISSISSIPPI
Jackson
Interchange A, B and
D.................... $ 5,398 127,000 98% 1997
-------- ---------- ---
Total Mississippi... $ 5,398 127,000 98%
-------- ---------- ---
OKLAHOMA
Oklahoma City
Lakeside Distribution
Center............... $ 1,383 60,000 100% 1994
Tulsa
Braniff Park West..... 6,089 259,000 100 1996
-------- ---------- ---
Total Oklahoma...... $ 7,472 319,000 100%
-------- ---------- ---
TENNESSEE
Memphis
Air Park Distribution
Center I............. $ 2,161 92,000 100% 1998
Air Park Distribution
Center II............ 333 (2) 17,000 100 1998
Delp Distribution Cen-
ter I, II and III.... 5,314 (2) 274,000 100 1998
Getwell Distribution
Center............... 764 (2) 26,000 100 1998
Lamar Distribution
Center I and II...... 6,744 (2) 276,000 100 1998
Penney Distribution
Center............... 2,463 (2) 106,000 100 1998
Senator Street Distri-
bution Center I...... 2,745 80,000 95 1997
Senator Street Distri-
bution Center II..... 2,205 (2) 105,000 100 1998
Nashville
Waldenbooks Distribu-
tion Center.......... 21,580 (2) 564,000 100 1998
-------- ---------- ---
Total Tennessee..... $ 44,309 1,540,000 100%
-------- ---------- ---
TEXAS
Dallas
Ambassador Row Ware-
houses............... $ 6,123 (2) 317,000 73% 1998
Carpenter Duplex...... 1,080 (2) 47,000 100 1998
Exchange Warehouses... 1,946 58,000 100 1988
Interstate Ware-
houses............... 7,372 247,000 93 1988
Stemmons Circle Dis-
tribution Center..... 2,375 99,000 100 1998
Venture Warehouses.... 5,932 209,000 100 1988
Viscount Row Distribu-
tion Center.......... 2,047 (2) 104,000 100 1998
109th Street Distribu-
tion Center.......... 980 54,000 100 1997
El Paso
Butterfield Trail Dis-
tribution Center..... 19,848 675,000 96 1997
Houston
Lockwood Distribution
Center............... 6,245 392,000 100 1997
Northwest Point Busi-
ness Park............ 7,193 232,000 100 1994
West Loop II Business
Park................. 3,004 77,000 81 1997
-------- ---------- ---
Total Texas......... $ 64,145 2,511,000 94%
-------- ---------- ---
TOTAL INDUSTRIAL PROPER-
TIES................... $459,753 12,919,000 97%
======== ========== ===
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
TOTAL SQUARE
TOTAL FEET OF PERCENT YEAR(S)
PROPERTY TYPE, INVESTMENT AS LEASABLE LEASED AT ACQUIRED OR
LOCATION AND NAME OF MARCH 31, 1998 (1) SPACE MAY 31, 1998 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.... 21,038 198,000 100 1975/89
------- ------- ---
TOTAL OFFICE BUILDINGS.. $39,943 390,000 100%
======= ======= ===
</TABLE>
<TABLE>
<CAPTION>
TOTAL SQUARE
FEET OF
ESTIMATED LEASABLE
TOTAL SPACE UPON SCHEDULED
PROPERTY TYPE, INVESTMENT AS COMPLETION OF COMPLETION OF
LOCATION AND NAME OF JUNE 4, 1998 (8) DEVELOPMENT CONSTRUCTION
----------------- ------------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
INDUSTRIAL DEVELOPMENT PROPER-
TIES
FLORIDA
Orlando
John Young Distribution Cen-
ter........................ $ 2,888 51,000 7/1998
Sunbelt Distribution Center
II......................... 2,298 61,000 3/1998
Tampa
Walden Distribution Center.. 4,008 122,000 3/1998
TEXAS
Houston
World Houston 6, 7 and 8.... 10,600 234,000 9/1998 and
10/1998
------- -------
TOTAL INDUSTRIAL DEVELOPMENT
PROPERTIES................... $19,794 468,000
======= =======
</TABLE>
<TABLE>
<CAPTION>
TOTAL TOTAL PERCENT
PROPERTY TYPE, INVESTMENT AS NUMBER LEASED AT YEAR
LOCATION AND NAME OF MARCH 31, 1998 (1) OF UNITS MAY 31, 1998 ACQUIRED
----------------- --------------------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
APARTMENTS
ALABAMA
Daphne (Mobile)
Grande Pointe Apart-
ments.................. $ 6,669 180 98% 1994
GEORGIA
Atlanta
LaVista Apartments...... 8,741 240 93 1991
MISSISSIPPI
Jackson
Hampton House Apart-
ments.................. 6,651 164 95 1994
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
TOTAL TOTAL PERCENT
PROPERTY TYPE, INVESTMENT AS NUMBER LEASED AT YEAR
LOCATION AND NAME OF MARCH 31, 1998 (1) OF UNITS MAY 31, 1998 ACQUIRED
----------------- --------------------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
TEXAS
San Antonio
Doral Club Apartments... $ 7,259 296 95% 1992
Sutton House Apart-
ments.................. 8,755 265 95 1993
------- ----- ---
TOTAL APARTMENTS.......... $38,075 1,145 95%
======= ===== ===
</TABLE>
- --------
(1) Total Investment for properties acquired prior to March 31, 1998,
represents the Company's total investment (on a gross basis) as of March
31, 1998 and for properties acquired subsequent to March 31, 1998,
represents the Company's purchase price (including estimated closing
costs).
(2) This property was acquired in the Meridian VIII Acquisition. The total
purchase price allocated to the properties acquired from Meridian VIII was
approximately $96.9 million. The Total Investment for each of the Meridian
VIII properties is based on a preliminary review of the respective fair
values of such properties. Final allocations will be made based upon the
final review of the properties. Any differences in the preliminary amounts
and the final allocations are not expected to be material.
(3) This property was acquired in the Meridian VIII Acquisition. Meridian VIII
has previously determined the existence of a soil settlement problem at
East Maricopa Distribution Center. In that regard, in 1996, Meridian VIII
instituted and settled a lawsuit against the entity from which Meridian
VIII purchased the property and a related party. Meridian VIII commenced a
construction project to rehabilitate the property and EastGroup
anticipates completion in the summer of 1998. The amount of the lawsuit
settlement is expected to offset, to a material extent, the costs of
rehabilitation and reconstruction.
(4) As of June 1, 1998, 51st Avenue Distribution Center is 100% leased.
(5) Represents 100% of the property. EastGroup owns an 80% tenancy-in-common
interest in this property.
(6) Represents 100% of the property. EastGroup owns a 75% tenancy-in-common
interest in six buildings located at 56th Street Commerce Park and a 100%
ownership interest in an additional building located at 56th Street
Commerce Park.
(7) Represents 100% of the property. EastGroup owns a 75% tenancy-in-common
interest in these assets.
(8) Estimated Total Investment is defined as the Company's anticipated total
development costs as of June 4, 1998, including the cost of the land,
tenant improvements, capitalized interest and leasing commissions.
S-21
<PAGE>
PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase the Proposed Acquisitions
aggregating approximately 924,000 square feet of leasable space for an
aggregate purchase price of approximately $35.0 million. EastGroup intends to
fund the purchase of the Proposed Acquisitions principally with borrowings on
the Company's revolving credit facilities. The Proposed Acquisitions, which
are expected to close in June 1998, 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 of
these properties. The following table summarizes the Proposed Acquisitions.
<TABLE>
<CAPTION>
TOTAL PERCENT
ANTICIPATED SQUARE FEET LEASED AT
PURCHASE OF LEASABLE MAY 31, YEAR
PROPERTY LOCATION AND NAME PRICE (1) SPACE 1998 CONSTRUCTED
- -------------------------- -------------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ARIZONA
Tucson
Wal-Mart Distribution Cen-
ter........................ $ 5,754 162,000 100% (2) 1995
CALIFORNIA
Fresno
Shaw Commerce Center (3).... 14,080 398,000 91 1987
FLORIDA
Fort Lauderdale/Pompano
Interstate Commerce Distri-
bution Center.............. 3,281 85,000 100 1988
TEXAS
Houston
America Plaza............... 5,315 121,000 100 1996
World Houston 1 and 2....... 6,555 158,000 100 1996
------- ------- ---
Total..................... $34,985 924,000 96%
======= ======= ===
</TABLE>
- --------
(1) Anticipated Purchase Price is defined as contract price plus estimated
closing costs.
(2) Wal-Mart Distribution Center is presently vacant but 100% leased subject
to a lease which expires in March 2005. The lease contains a one-time
cancellation clause effective March 2000 pursuant to which the tenant
could cancel the lease upon 12 months written notice and payment of
$812,000.
(3) The purchase of this property is contingent on the Company's review of the
results of a Phase II environmental site assessment ordered on the
recommendation of the environmental consultant which performed the Phase I
environmental site assessment at the property.
S-22
<PAGE>
SIGNIFICANT TENANTS
As of June 12, 1998, EastGroup's properties were leased to approximately 595
tenants and no tenant accounted for more than approximately 3.0% of the 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 June 12, 1998. The table does not include information with respect
to properties acquired subsequent to June 12, 1998.
<TABLE>
<CAPTION>
TENANT'S PERCENT
OF TOTAL ANNUALIZED PERCENT OF TOTAL LEASE
SQUARE FEET OF SQUARE FEET OF RENTAL ANNUALIZED EXPIRATION
TENANT LEASABLE SPACE LEASABLE SPACE REVENUE (1) RENTAL REVENUE DATE
------ --------------- ----------------- ----------- ----------------- -----------
<C> <S> <C> <C> <C> <C> <C>
1. Walden Book Company,
Inc.................... 564,300 4.24% $1,867,322 2.99% 05/2012
2. Palmer Distribution
Services, Inc.......... 392,291 2.95 1,106,261 1.77 12/2002
3. Office Depot, Inc. (2).. 328,650 2.47 1,201,581 1.92 09/2005
07/1998 (3)
and
11/1998 (4)
4. Ethan Allen Inc......... 300,300 2.26 1,132,755 1.81 01/2010
5. Price Transfer, Inc..... 261,500 1.96 1,066,920 1.71 01/2003
6. Thomson Consumer........ 260,498 1.96 1,015,942 1.63 05/2001
7. Excel Logistics, Inc.... 158,708 1.19 460,253 0.74 03/2001
8. Beatrice/Hunt-Wesson
Corporation............ 151,984 1.14 323,736 0.52 07/1999
9. Quick Response
Distribution........... 140,683 1.06 568,935 0.91 03/2003
10. Kirk Paper Corporation
....................... 139,400 1.05 587,734 0.94 06/2003
--------- ----- ---------- -----
Total................... 2,698,314 20.28% $9,331,439 14.94%
========= ===== ========== =====
</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 March 31, 1998.
(2) This tenant leases 125,700 square feet of leasable space at Wiegman
Associates, 159,750 square feet of leasable space at Riverbend Business
Park and 43,200 square feet of leasable space at Estrella Distribution
Center.
(3) The Company is currently marketing the space subject to this lease.
(4) The Company is currently in negotiations with respect to renewal of this
lease.
S-23
<PAGE>
LEASE EXPIRATIONS
The following table sets forth a schedule of lease expirations for leases in
place as of June 12, 1998 through the year 2002, 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 June
12, 1998.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
PERCENT OF EXPIRING BASE
SQUARE PERCENT OF ANNUAL ANNUAL BASE RENTAL RATE/
FEET OF TOTAL BASE RENT RENT NET SQUARE
LEASABLE SQUARE FEET UNDER REPRESENTED NUMBER FEET OF
SPACE OF LEASABLE EXPIRING BY EXPIRING OF LEASABLE
EXPIRING SPACE LEASES (1) LEASES LEASES SPACE
--------- ------------ ---------- ------------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
1998 (2)................ 1,661,127 12.48% $6,873,861 11.02% 123 $4.14
1999.................. . 2,267,722 17.04 9,819,266 15.74 142 4.33
2000.................... 1,599,414 12.02 7,527,609 12.06 95 4.71
2001.................... 2,047,954 15.39 9,348,904 14.98 86 4.56
2002.................... 1,778,207 13.36 8,629,413 13.83 69 4.85
</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 April 1, 1998 to December 31, 1998.
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
$35.9 million (approximately $41.3 million if the Underwriters' over-allotment
is exercised in full). EastGroup intends to use all of the net proceeds from
the Offering to repay outstanding indebtedness under the Working Capital
Facility. The Working Capital Facility bears interest at LIBOR plus 1.40%
which translated into a 7.056% interest rate as of May 31, 1998. The Working
Capital Facility matures on September 30, 1998. After the application of the
net proceeds from the Offering, the outstanding balance on the Working Capital
Facility will be approximately $3.5 million.
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 deposits, interest-bearing bank deposits and money
market investments.
S-24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of EastGroup as of March
31, 1998 on (i) a historical basis; (ii) a pro forma basis giving effect to
the material acquisitions completed in 1997, the material Recent Acquisitions,
the purchase of the material Proposed Acquisitions and the Meridian VIII
Acquisition; and (iii) a pro forma as adjusted basis after giving effect to
the material acquisitions completed in 1997, the material Recent Acquisitions,
the purchase of the material Proposed Acquisitions, the Meridian VIII
Acquisition and the consummation of the Offering and the application of the
net proceeds therefrom. The pro forma financial statements include allocations
of the purchase price of the Meridian VIII assets and liabilities based on a
preliminary review of the respective fair values. Final allocations will be
made based upon the final review of the assets and liabilities. Any
differences in the preliminary amounts and the final allocations are not
expected to be material.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness
Notes payable to banks..................... $ 54,042 $136,896 $101,008
Mortgage notes payable..................... 107,355 145,492 145,492
Stockholders' equity
Series A Preferred Stock, $0.0001 par
value, 1,725,000 shares authorized, no
shares issued and outstanding on a
historical and a pro forma basis and
1,500,000 shares outstanding on a
pro forma as adjusted basis (1)........... 0 0 0
Common Stock, $0.0001 par value, 68,275,000
shares authorized, 16,277,068 issued and
outstanding on a historical basis, a pro
forma basis and on a pro forma as adjusted
basis (2)................................. 2 2 2
Excess Stock, $0.0001 par value,
30,000,000, shares authorized,
no shares issued.......................... 0 0 0
Additional paid-in capital................. 245,720 245,720 281,608
Retained earnings.......................... 13,098 13,098 13,098
Accumulated other comprehensive income..... 1,452 602 602
-------- -------- --------
Total Capitalization..................... $421,669 $541,810 $541,810
======== ======== ========
</TABLE>
- --------
(1) Assumes the Underwriters' over-allotment option to purchase up to 225,000
shares of Series A Preferred Stock is not exercised. See "Underwriting."
(2) Based on the number of shares outstanding on March 31, 1998. Does not
include (i) 653,108 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to EastGroup's stock
option plans; and (ii) 27,108 shares of Common Stock issued since March
31, 1998.
S-25
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the Company
on a 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, 1997 and 1996, and for the years ended December 31,
1997 and 1996, 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 three months ended March 31, 1998
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 March 31, 1998 gives effect to the
material acquisitions completed in 1997, the material Recent Acquisitions, the
purchase of the material Proposed Acquisitions and the Meridian VIII
Acquisition, as if they had occurred at March 31, 1998 for the pro forma
balance sheet. The pro forma consolidated statements of income for the three
months ended March 31, 1998 give effect to the material Recent Acquisitions,
the purchase of the material Proposed Acquisitions, the Meridian VIII
Acquisition and additional borrowings, as if all the transactions had occurred
on January 1, 1997. The pro forma consolidated statements of income for the
year ended December 31, 1997 give effect to the material acquisitions
completed in 1997, the material Recent Acquisitions, the purchase of the
material Proposed Acquisitions, the Meridian VIII Acquisition, all equity
offerings completed during 1997 and additional borrowings, as if all the
transactions had occurred on January 1, 1997. The pro forma financial
statements include allocations of the purchase price of the Meridian VIII
assets and liabilities based on a preliminary review of the respective fair
values. Final allocations will be made based upon the final review of the
assets and liabilities. Any differences in the preliminary amounts and the
final allocations are not expected to be material.
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-26
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, TWELVE MONTHS ENDED DECEMBER 31,
------------------------ -------------------------------------
1998 1998 1997 1997 1996
(PRO FORMA) (HISTORICAL) (PRO FORMA) (HISTORICAL) (HISTORICAL)
----------- ------------ ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Income from real estate
operations............ $ 18,619 $ 15,335 $69,439 $ 49,791 $ 37,143
Interest income........ 482 482 2,785 2,571 1,718
Other income........... 193 224 499 1,260 904
Expenses:
Operating expenses from
real estate opera-
tions. ............... 4,781 3,996 19,581 14,825 13,262
Interest expense....... 5,255 2,939 21,310 10,551 8,930
Depreciation and amor-
tization.............. 4,094 3,206 15,775 10,409 7,759
Minority interest in
joint ventures........ 106 106 512 512 289
General and administra-
tive expenses......... 1,211 869 3,877 2,923 2,356
-------- -------- ------- -------- --------
Income before gains on
investments. .......... 3,847 4,925 11,668 14,402 7,169
Gain on real estate..... 73 73 (219) 6,377 5,334
Gain on securities...... -- -- -- -- 6
-------- -------- ------- -------- --------
Net income.............. $ 3,920 $ 4,998 $11,449 $ 20,779 $ 12,509
======== ======== ======= ======== ========
PER BASIC SHARE DATA
(1):
Net income.............. $ 0.24 $ 0.31 $ 0.71 $ 1.58 $ 1.44
Book value (at end of
period)................ 15.94 15.99 -- 15.88 13.78
Cash distributions de-
clared................. -- 0.34 -- 1.34 1.28
Cash distributions
paid................... -- 0.34 -- 1.34 1.28
Weighted average shares
outstanding............ 16,223 16,223 16,178 13,176 8,677
OTHER DATA:
Funds from operations
(2).................... -- $ 8,056 -- $ 24,527 $ 14,820
Cash flow provided by
(used in):
Operating activities... -- 7,202 -- 23,685 13,996
Investing activities... -- (13,841) -- (79,959) (577)
Financing activities... -- 6,306 -- 57,134 (13,007)
BALANCE SHEET DATA (AT
END OF PERIOD):
Real estate investments,
net of depreciation.... $532,453 $400,656 -- $387,545 $269,058
Total assets............ 556,556 430,194 -- 413,127 281,455
Mortgage notes pay-
able................... 145,492 107,355 -- 105,380 115,116
Notes payable to
banks.................. 136,896 54,042 -- 41,770 13,962
Total liabilities....... 297,134 169,922 -- 155,812 136,129
Stockholders' equity.... 259,422 260,272 -- 257,315 145,326
</TABLE>
- --------
(1) All amounts reflect the three-for-two stock split effected by the Company
on April 7, 1997.
(2) EastGroup defines funds from operations ("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-27
<PAGE>
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.............. 47 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Anthony J. Bruno............ 56 Senior Vice President
Diane W. Hayman............. 37 Vice President and Controller
Marshall A. Loeb............ 35 Vice President
Jann W. Puckett............. 50 Vice President
Stewart R. Speed............ 34 Vice President
Alexander G. Anagnos........ 71 Director
H.C. Bailey, Jr............. 58 Director
Fredric H. Gould............ 62 Director
David M. Osnos.............. 66 Director
John N. Palmer.............. 63 Director
</TABLE>
LELAND R. SPEED has been the Managing Trustee or Chairman of the Board of
Directors 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, Inc.,
Farm Fish, Inc. 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 B.A. in
History from Princeton University and his M.B.A. from Stanford 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.
ANTHONY J. BRUNO has served as Senior Vice President of EastGroup since
1998. He also serves as President of EastGroup Property Services, Inc.,
formerly Ensign. Ensign was central Florida's largest independent industrial
management and development organization founded by Mr. Bruno in 1980. Mr.
Bruno received his B.A. in Economics and Philosophy from Georgetown
University.
DIANE W. HAYMAN has served as Vice President of EastGroup since 1997 and as
Controller of EastGroup since 1992. She previously 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.
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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.T.A. and B.S. in Accounting from the University of Alabama and his M.B.A.
from Harvard Business School.
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.
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 B.A. from
Washington and Lee University and his M.B.A. from Vanderbilt University.
Leland R. Speed, Chairman of the Board of Directors, 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.
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DESCRIPTION OF SERIES A PREFERRED STOCK
The description of the particular terms of the Series A Preferred Stock
supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Series A Preferred
Stock set forth in the accompanying Prospectus, to which description reference
is hereby made.
GENERAL
The Company presently is authorized to issue up to 68,275,000 shares of
Common Stock, 1,725,000 shares of Series A Preferred Stock and 30,000,000
shares of Excess Stock. Under Maryland law and the Charter, the Board of
Directors has the power to classify or reclassify any unissued shares by
setting any features of such stock without the vote of the Company's
stockholders. In accordance with such power, the Board has used its power to
create 1,725,000 shares of Series A Preferred Stock. As of the date of this
Prospectus Supplement, no shares of Series A Preferred Stock are outstanding.
The Company, upon completion of its reorganization as an UPREIT, intends to
receive from the Operating Partnership 9.00% Series A Preferred Units in the
Operating Partnership, the economic terms of which will be substantially
identical to the Series A Preferred Stock. The Operating Partnership will be
required to make all required distributions on the Series A Preferred Units
(which will mirror the payments of distributions, including accrued and unpaid
distributions upon redemption, and of the liquidation preference amount of,
the Series A Preferred Stock) prior to any distribution of cash or assets to
the holders of the Common Units or to the holders of any other interests in
the Partnership, except for any other series of preference units ranking on a
parity with the Series A Preferred Units as to distributions and/or
liquidation rights and except for distributions required to enable the Company
to maintain its qualification as a REIT.
None of the terms of the Series A Preferred Stock, the Partnership Agreement
of the Operating Partnership or, subject to limited exceptions, any of the
debt agreements of the Company contain any provisions affording holders of the
Series A Preferred Stock protection in the event of a highly leveraged or
other transaction that might adversely affect holders of the Series A
Preferred Stock.
The following summary of the terms and provisions of the Series A Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Charter and Articles Supplementary
to the Charter creating the Series A Preferred Stock (the "Designating
Amendment"), each of which is available from the Company.
MATURITY
The Series A Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption except as provided in the
Company's Charter.
RANK
The Series A Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company, rank (i)
senior to all classes or series of Common Stock of the Company, and to all
equity securities ranking junior to the Series A Preferred Stock with respect
to dividend rights or rights upon liquidation, dissolution or winding up of
the Company; (ii) on a parity with all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank on a
parity with the Series A Preferred Stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company; and (iii)
junior to all existing and future indebtedness of the Company.
DIVIDENDS
Subject to the rights of series of preferred stock which may from time to
time come into existence, holders of shares of the Series A Preferred Stock
are entitled to receive, when and as declared by the Board of Directors,
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out of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the rate of 9.00% per annum of the Liquidation
Preference per share (equivalent to a fixed annual amount of $2.25 per share).
Dividends on the Series A Preferred Stock shall be cumulative from the date
of original issue and shall be payable quarterly in arrears on or about the
fifteenth day of January, April, July and October of each year, or, if not a
business day, the next succeeding business day (each, a "Dividend Payment
Date"). The first dividend will be paid on or before July 15, 1998 and will be
for less than a full quarter. Dividends payable on the Series A Preferred
Stock for any partial dividend period will be computed on the basis of a 360-
day year consisting of twelve 30-day months. Dividends will be payable to
holders of record as they appear in the stock records of the Company at the
close of business on the applicable record date, which shall be the last
business day of March, June, September and December, respectively, or on such
other date designated by the Board of Directors of the Company for the payment
of dividends that is not more than 30 nor less than ten days prior to the
applicable Dividend Payment Date (each, a "Dividend Record Date"). The first
Dividend Record Date for determination of stockholders entitled to receive
dividends on the Series A Preferred Stock is expected to be June 30, 1998.
No dividends on shares of Series A Preferred Stock shall be declared by the
Board of Directors or paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including
any agreement relating to its indebtedness, prohibits such declaration,
payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are declared. Accrued but unpaid dividends on the Series A
Preferred Stock will accumulate as of the Dividend Payment Date on which they
became payable.
If for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (as determined for federal income tax
purposes) paid or made available for the year to holders of all classes of
capital stock (the "Total Dividends"), then the portion of the Capital Gains
Amount that shall be allocable to the holders of Series A Preferred Stock
shall be the amount that the Total Dividends (as determined for federal income
tax purposes) paid or made available to the holders of the Series A Preferred
Stock for the year bears to the Total Dividends. The Company may elect to
retain and pay income tax on its net long-term capital gains. In such a case,
the holders of Series A Preferred Stock would include in income their
proportionate share of the Company's undistributed long-term capital gains, as
designated by the Company.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of the Company or any other
series of Preferred Stock ranking, as to dividends, on a parity with or junior
to the Series A Preferred Stock (other than a dividend in shares of the
Company's Common Stock or in shares of any other class of stock ranking junior
to the Series A Preferred Stock as to dividends and upon liquidation) for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for such payment on the Series A Preferred Stock for all past
dividend periods and the then current dividend period. When dividends are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the Series A Preferred Stock and the shares of any other series of
preferred stock ranking on a parity as to dividends with the Series A
Preferred Stock, all dividends declared upon the Series A Preferred Stock and
any other series of Preferred Stock ranking on a parity as to dividends with
the Series A Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share of Series A Preferred Stock 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 Series A Preferred Stock and such other
series of preferred stock (which shall not include any accrual in respect of
unpaid dividends for prior dividend periods if such preferred stock does not
have a cumulative dividend) 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 the Series A Preferred Stock which may be in arrears.
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Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period, no dividends (other than in shares of Common
Stock or other shares of capital stock ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation) shall be declared or
paid or set aside for payment nor shall any other distribution be declared or
made upon the Common Stock or any other capital stock of the Company ranking
junior to or on a parity with the Series A Preferred Stock as to dividends or
upon liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the Series
A Preferred Stock 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 the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Series A Preferred Stock as to dividends and
amounts upon liquidation or redemptions for the purpose of preserving the
Company's qualification as a REIT). Holders of shares of the Series A
Preferred Stock shall not be entitled to any dividend, whether payable in
cash, property or stock, in excess of full cumulative dividends on the Series
A Preferred Stock as provided above. Any dividend payment made on shares of
the Series A Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to such shares which remains
payable.
LIQUIDATION PREFERENCE
Subject to the rights of series of preferred stock which may from time to
time come into existence, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of shares
of Series A Preferred Stock are entitled to be paid out of the assets of the
Company legally available for distribution to its stockholders the Liquidation
Preference of $25.00 per share, plus an amount equal to any accrued and unpaid
dividends to the date of payment, before any distribution of assets is made to
holders of Common Stock or any other class or series of capital stock of the
Company that ranks junior to the Series A Preferred Stock as to liquidation
rights. Holders of Series A Preferred Stock will be entitled to written notice
of any event triggering the right to receive such Liquidation Preference.
After payment of the full amount of the Liquidation Preference, plus any
accrued and unpaid dividends to which they are entitled, the holders of Series
A Preferred Stock will have no right or claim to any of the remaining assets
of the Company. The consolidation or merger of the Company with or into any
other trust or entity or of any other corporation with or into the Company, or
the sale, lease or consolidation, conveyance or disposition of all or
substantially all of the property or business of the Company, or the
effectuation of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
In the event that, upon any such voluntary or involuntary liquidation or
winding up of the affairs of the Company, the available assets of the Company
are insufficient to pay the amount of the liquidation distributions on all
outstanding shares of Series A Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with Series A Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the affairs of
the Company ("Parity Stock"), then the holders of shares of Series A Preferred
Stock and Parity Stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
REDEMPTION
The Series A Preferred Stock is not redeemable prior to June 19, 2003,
except as provided for in the Company's Charter. However, in order to ensure
that the Company will remain qualified as a REIT for federal tax purposes, the
Series A Preferred Stock owned by a stockholder in excess of the Ownership
Limit, as defined herein, may automatically be exchanged for shares of Excess
Stock and the Company will have the right to purchase Excess Stock from the
holder. See "--Restrictions on Ownership and Transfer." On and after June 19,
2003, the Company, at its option upon not less than 30 nor more than 60 days'
written notice, may redeem shares,
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in whole or in part, at any time or from time to time, for cash at a
redemption price of $25.00 per share, plus all accrued and unpaid dividends
thereon, if any, to the date fixed for redemption (except as provided below),
without interest. The redemption price of the Series A Preferred Stock (other
than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital stock of the Company,
which may include other series of preferred stock, and from no other source.
For purposes of the preceding sentence, "capital stock" means any equity
securities (including Common Stock and preferred stock), shares, interests,
participation or other ownership interests (however designated) and any rights
(other than debt securities convertible into or exchangeable for equity
securities) or options, rights or warrants to purchase any of the foregoing.
PROCEDURES FOR REDEMPTION
Holders of Series A Preferred Stock to be redeemed shall surrender such
Series A Preferred Stock at the place designated in such notice and shall be
entitled to the redemption price and any accrued and unpaid dividends payable
upon such redemption following such surrender. If notice of redemption of any
shares of Series A Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Company in trust for the
benefit of the holders of any shares of Series A Preferred Stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such shares of Series A Preferred Stock, such shares of Series A
Preferred Stock shall no longer be deemed outstanding and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price. If less than all of the outstanding Series A Preferred Stock
is to be redeemed, the Series A Preferred Stock to be redeemed shall be
selected pro rata (as nearly as may be practicable without creating fractional
shares) or by any other equitable method determined by the Company. The
Company's ability to redeem Series A Preferred Stock is subject to the
limitations on distributions in the Maryland General Corporation Law.
Unless full cumulative dividends on all shares of Series A Preferred Stock
shall have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no shares of Series A
Preferred Stock or Parity Stock shall be redeemed unless all outstanding
shares of Series A Preferred Stock or Parity Stock are simultaneously redeemed
and the Company shall not purchase or otherwise acquire directly or indirectly
any shares of Series A Preferred Stock (except by exchange for capital stock
of the Company ranking junior to the Series A Preferred Stock as to dividends
and upon liquidation); provided, however, that the foregoing shall not prevent
the purchase by the Company of shares of Excess Stock in order to ensure that
the Company continues to meet the requirements for qualification as a REIT for
federal income tax purposes, or the purchase or acquisition of shares of
Series A Preferred Stock pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Series A Preferred Stock.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week
for two successive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice will be mailed by the Company,
postage prepaid, not less than 30 nor more than 60 days prior to the
redemption date, addressed to the respective holders of record of the Series A
Preferred Stock to be redeemed at their respective addresses as they appear on
the stock transfer records of the Company. No failure to give such notice or
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any shares of Series A Preferred Stock
except as to the holder to whom notice was defective or not given. Each notice
shall state: (i) the redemption date; (ii) the redemption price; (iii) the
number of shares of Series A Preferred Stock to be redeemed; (iv) the place or
places where certificates for shares of the Series A Preferred Stock are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date. If less
than all of the Series A Preferred Stock held by any holder is to be redeemed,
the notice mailed to such holder shall also specify the number of shares of
Series A Preferred Stock held by such holder to be redeemed.
Immediately prior to any redemption of Series A Preferred Stock, the Company
shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Dividend Record Date
and prior to the corresponding Dividend Payment Date, in which case each
holder of Series A
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Preferred Stock at the close of business on such Dividend Record Date shall be
entitled to the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares between such
Dividend Record Date and the corresponding Dividend Payment Date or the
Company's default in the payment of the dividend due. Except as provided
above, the Company will make no payment or allowance for unpaid dividends,
whether or not in arrears, on called Series A Preferred Stock.
The Series A Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption. However, in order to ensure that
the Company continues to meet the requirements for qualification as a REIT for
federal income tax purposes, Series A Preferred Stock acquired by a
stockholder in excess of the ownership limitation will automatically be
exchanged for shares of Excess Stock and the Company will have the right to
purchase Excess Stock from the holder.
VOTING RIGHTS
Holders of the Series A Preferred Stock will not have any voting rights,
except as set forth below or as otherwise from time to time required by law.
Whenever dividends on any shares of Series A Preferred Stock or any Parity
Stock shall be in arrears for six or more quarters (whether consecutive or
not) (a "Preferred Dividend Default"), whether or not earned or declared, the
holders of such shares of Series A Preferred Stock (voting separately as a
voting group with all other series of Preferred Stock ranking on a parity with
the Series A Preferred Stock as to dividends or upon liquidation ("Parity
Preferred") upon which like voting rights have been conferred and are
exercisable) will be entitled to vote separately as a voting group for the
election of a total of two additional directors to serve on the Board of
Directors of the Company (the "Preferred Stock Directors") at a special
meeting called by the holders of record of at least 20% of the Series A
Preferred Stock and the holders of record of at least 20% of any series of
Parity Preferred so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until all dividends accumulated on such shares of
Series A Preferred Stock for the past dividend periods and the dividend for
the then current dividend period shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment. A quorum for any
such meeting shall exist if at least a majority of the outstanding shares of
Series A Preferred Stock and shares of Parity Preferred upon which like voting
rights have been conferred and are exercisable are represented in person or by
proxy at such meeting. Such Preferred Stock Directors shall be elected upon
the affirmative vote of a plurality of the shares of Series A Preferred Stock
and such Parity Preferred present and voting in person or by proxy at a duly
called and held meeting at which a quorum is present. If and when all
accumulated dividends and the dividend for the then current dividend period on
the Series A Preferred Stock shall have been paid in full or set aside for
payment in full, the holders thereof shall be divested of the foregoing voting
rights (subject to revesting in the event of each and every Preferred Dividend
Default) and, if all accumulated dividends and the dividend for the then
current dividend period have been paid in full or declared and set aside for
payment in full on all series of Parity Preferred upon which like voting
rights have been conferred and are exercisable, the term of office of each
Preferred Stock Director so elected shall terminate. The Preferred Stock
Directors shall each be entitled to one vote per director on any matter.
So long as any shares of Series A Preferred Stock remain outstanding, the
Company will not without the affirmative vote or consent of the holders of at
least two-thirds of the shares of the Series A Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting
(voting separately as a class), (a) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
senior to the Series A 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 the Company into such shares, or
create, authorize, or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (b) amend, alter or
repeal the provisions of the Company's Charter and Articles Supplementary,
whether by merger, consolidation or otherwise (an "Event"), so as to
materially and adversely affect any right, preference, privilege or voting
power of the Series A Preferred Stock or the holders thereof
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provided, however, with respect to the occurrence of any Event set forth in
(b) above, so long as the Series A Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event the Company 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 the
Series A Preferred Stock and provided further that (i) any increase in the
amount of the authorized preferred stock or the creation or issuance of any
other series of preferred stock; or (ii) any increase in the amount of
authorized shares of such series, in each case ranking on a parity with or
junior to the Series A Preferred Stock 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.
In addition to the above, under Maryland law, the Series A Preferred Stock
will be entitled to vote as a separate voting group to approve a dividend
payable in shares of Series A Preferred Stock to the holders of another class
of the Company's stock or to approve a dividend payable in shares of the
Company's stock other than Series A Preferred Stock to the holders of Series A
Preferred Stock.
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 Series A Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been deposited in trust to effect such redemption.
CONVERSION
The Series A Preferred Stock is not convertible into or exchangeable for any
other property or securities of the Company, except that the shares of Series
A Preferred Stock may be exchanged for shares of Excess Stock in order to
ensure that the Company remains qualified as a REIT for federal income tax
purposes.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, certain restrictions
apply to the ownership of shares of capital stock. See the accompanying
Prospectus under "Federal Income Tax Considerations--Requirements for
Qualification." Because the Board of Directors believes it is essential for
the Company to continue to qualify as a REIT, the Charter restricts the
ownership, acquisition and transfer of the Company's capital stock, including
shares of Series A Preferred Stock.
EastGroup's Charter provides that if, at any time when EastGroup is
qualified as a REIT, a transfer of any capital stock of EastGroup (either
Common Stock or Series A Preferred Stock), would result in (i) any person
acquiring directly or indirectly beneficial ownership of more than 9.8% of the
total number of outstanding shares of EastGroup's capitalized stock (by value
or by number, whichever is more restrictive) (the "Ownership Limit"); (ii) the
outstanding capital stock 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 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, 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 EastGroup. 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 re-transferred to a person or
persons in whose hands the shares would not be Excess Stock and certain price-
related restrictions are satisfied.
TRANSFER AND DIVIDEND PAYING AGENT
Harris Trust and Savings Bank will act as the transfer and dividend payment
agent in respect of the Series A Preferred Stock.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Company believes that it was organized and has operated in a manner so
as to qualify under the Code for taxation as a REIT commencing with its
inception, and it intends to continue to operate in such a manner. No
assurances, however, can be given that the Company has operated in a manner so
as to qualify or will operate in a manner so as to remain qualified as a REIT.
Jaeckle Fleischmann & Mugel, LLP has acted as counsel to the Company in
connection with the Offering. In the opinion of Jaeckle Fleischmann & Mugel,
LLP, the Company was organized and has operated in conformity with the
requirements for qualification and taxation as a REIT under the Code for its
taxable years 1988 through 1997 and its proposed method of operation will
enable it to continue to so qualify. Investors should be aware, however, that
an opinion of counsel is 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 the Company as to
factual matters, including representations regarding the nature of the
Company's properties and the future conduct of its business. Such factual
assumptions and representations are described in the discussion of "Federal
Income Tax Considerations" in the accompanying Prospectus and are set out in
the federal income tax opinion that will be delivered by Jaeckle Fleischmann &
Mugel, LLP at the closing of the Offering. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis, through actual annual operating results, distribution levels and
diversity of share ownership, the various qualification tests imposed under
the Code discussed below and in the accompanying Prospectus. Jaeckle
Fleischmann & Mugel, LLP will not review the Company's compliance with those
tests on a continuing basis. Accordingly, no assurance can be given that the
actual results of the Company's operations for any particular taxable year
will satisfy such requirements. See "Federal Income Tax Considerations--
Taxation of the Company--Failure to Qualify" in the accompanying Prospectus.
For a 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.
RECENT LEGISLATION
Taxpayer Relief Act of 1997. 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 made certain changes
to the Code, including changes with respect to the treatment of REITs and
stockholders of REITs. These changes generally became effective with respect
to EastGroup and stockholders of EastGroup on January 1, 1998. In addition,
the Taxpayer Relief Act reduced the maximum tax on net capital gains from the
sale of assets held for more than 18 months by individuals, trusts and
estates.
In an effort to simplify the taxation of REITs, the Taxpayer Relief Act
changed certain requirements for a corporation electing to be taxed as a REIT
and the taxation of REIT stockholders. 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 prior law, this
requirement was 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 qualification as a REIT. Instead, a monetary penalty will
be imposed for failure to comply with such requirements. Second, the Taxpayer
Relief Act repealed the 30% gross income test for taxable years beginning
after December 31, 1997. Third, the Taxpayer Relief Act changed the definition
of "rents from real property." Under prior law, rents received with respect to
a property generally did not qualify as "rents from real property" if
EastGroup directly provided services to tenants other than those that were
"usually or customarily rendered" in connection with the rental of space for
occupancy only and which were 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.
S-36
<PAGE>
Fourth, the Taxpayer Relief Act simplified the requirements for qualification
of a corporation as a "qualified REIT subsidiary." Fifth, for taxable years
beginning after December 31, 1997, the Taxpayer Relief Act allows EastGroup to
elect to retain and pay tax on net 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 net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net 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 also reduced 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, effective for taxable years beginning after December 31, 2000, the
rate is reduced to 8% for assets held more than five years. The maximum rate
for net capital gains attributable to the sale of depreciable real property
held for more than 18 months is 25% to the extent of the deductions for
depreciation (other than certain depreciation recapture taxable as ordinary
income) with respect to such property. The maximum rate of capital gains tax
for capital assets held for more than one year but not more than 18 months
remains at 28%. The taxation of capital gains by corporations was not changed
by the Taxpayer Relief Act.
In addition, Internal Revenue Notice 97-64 provides temporary guidance with
respect to the taxation of distributions by EastGroup designated as capital
gain dividends. Pursuant to Internal Revenue Notice 97-64, forthcoming
Temporary Regulations will provide that capital gains allocated to a
stockholder by a REIT may be designated as a 20% rate gain distribution, an
unrecaptured Section 1250 gain distribution (subject to the 25% rate), or a
28% rate gain distribution. In determining the amounts which may be designated
as each class of capital gains dividends, a REIT must calculate its net
capital gains as if it were an individual subject to a marginal tax rate of
28%. Unless specifically designated otherwise by EastGroup, a distribution
designated as a capital gain distribution is presumed to be a 28% rate gain
distribution. If EastGroup elects to retain any net long-term capital gain, as
discussed above, the undistributed long-term capital gains are considered to
be designated as capital gain dividends for purposes of Internal Revenue
Notice 97-64.
Potential Legislative Action Regarding REITs. On February 2, 1998, the
Clinton Administration released a summary of its proposed budget plan which
contained several proposals affecting REITs. One such proposal, if enacted in
its present form, would prohibit a REIT from holding securities representing
more than 10% of the value of all classes of stock of a corporation, other
than a qualified REIT subsidiary or another REIT. If enacted in its present
form, the proposal may limit EastGroup's ability to perform certain third
party management or other non-real estate related activities in the future. No
prediction can be made as to whether such proposal or any other proposal
affecting REITs will be enacted into legislation and the impact of any such
legislation on EastGroup.
SERIES A PREFERRED STOCK
Dividends and Other Distributions. As long as the Company qualifies as a
REIT, distributions made to holders of Series A Preferred Stock 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 will not
be eligible for the dividends received deduction for corporations. For
purposes of determining whether distributions on the Series A Preferred Stock
are out of current or accumulated earnings and profits, the earnings and
profits of the Company will be allocated first to the Company's outstanding
Series A Preferred Stock and then allocated to the Company's Common Stock.
S-37
<PAGE>
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (as determined for federal income tax
purposes) paid or made available for the year to holders of all classes of
stock (the "Total Dividends"), then the portion of the Capital Gains Amount
that shall be allocable to the holders of Series A Preferred Stock shall be
the amount that the total dividends (as determined for federal income tax
purposes) paid or made available to the holders of the Series A Preferred
Stock for the year bears to the Total Dividends. The Company may elect to
retain and pay income tax on its net long-term capital gains. In such a case,
the holders of Series A Preferred Stock would include in income their
proportionate share of the Company's undistributed long-term capital gains, as
designated by the Company.
Sale or Redemption of the Series A Preferred Stock. On the sale of shares of
the Series A Preferred Stock, gain or loss will be recognized by the holder in
an amount equal to the difference between (i) the amount of cash and fair
market value of any property received on such sale, and (ii) the holder's
adjusted basis in the Series A Preferred Stock. See "Federal Income Tax
Considerations--Taxation of Stockholders" in the accompanying Prospectus.
A redemption of the Series A Preferred Stock will be treated under Section
302 of the Code as a dividend taxable at ordinary income tax rates (to the
extent of the Company's current or accumulated earnings and profits), unless
the redemption satisfies certain tests set forth in Section 302(b) of the Code
enabling the redemption to be treated as a sale of the Series A Preferred
Stock. The redemption will satisfy such tests if it (i) is "substantially
disproportionate" with respect to the holder (which will not be the case if
only the Series A Preferred Stock is redeemed, since it generally does not
have voting rights), (ii) results in a "complete termination" of the holder's
stock interest in the Company, or (iii) is "not essentially equivalent to a
dividend" with respect to the holder, all within the meaning of Section 302(b)
of the Code. In determining whether any of these tests have been met, shares
considered to be owned by the holder by reason of certain constructive
ownership rules set forth in the Code, as well as shares actually owned, must
generally be taken into account. Because the determination as to whether any
of the alternative tests of Section 302(b) of the Code will be satisfied with
respect to any particular holder of the Series A Preferred Stock depends upon
the facts and circumstances at the time the determination must be made,
prospective investors are advised to consult their own tax advisors to
determine such tax treatment.
Redemption Premium. Section 305(c) of the Code and the regulations
thereunder provide in certain cases for the accrual of a redemption premium on
preferred stock on a constant yield-to-maturity basis and for the treatment of
such accrual as a distribution with respect to such preferred stock. For such
accrual to apply to the redemption premium on the Series A Preferred Stock, a
determination, as of the issue date, would be required that it is more likely
than not that the Company would exercise its redemption option with respect to
the Series A Preferred Stock. However, the regulations provide a safe harbor
that is generally applicable to most public offerings of preferred stock
callable by the issuer, under which an issuer will not be considered to be
more likely of the Series A Preferred Stock, in whole than not to exercise its
redemption option. Accordingly, the redemption premium on the Series A
Preferred Stock should not be subject to accrual under Section 305(c).
If a redemption of the Series A Preferred Stock is treated as a distribution
that is taxable as a dividend, the amount of the distribution will be measured
by the amount of cash and the fair market value of any property received by
the stockholders. The stockholder's adjusted tax basis in such redeemed Series
A Preferred Stock will be transferred to the holder's remaining stockholdings
in the Company. If, however, the stockholder has no remaining stockholdings in
the Company, such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.
S-38
<PAGE>
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 (the "Underwriters"), and each of the Underwriters
has severally agreed to purchase from EastGroup, the number of shares of
Series A Preferred Stock set forth opposite their respective names. Pursuant
to the terms of the Underwriting Agreement, the Underwriters are obligated to
purchase all such shares of Series A Preferred Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
PaineWebber Incorporated .......................................... 375,000
A.G. Edwards & Sons, Inc. ........................................ 375,000
J.C. Bradford & Co. ............................................... 375,000
Raymond James & Associates, Inc.................................... 375,000
---------
Total............................................................ 1,500,000
=========
</TABLE>
The Underwriters have advised EastGroup that they propose to offer the
Series A Preferred 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 $0.55 per share of Series A Preferred
Stock. The Underwriters may allow, and such dealers may re-allow, a discount
not in excess of $0.40 per share of Series A Preferred Stock on sales to
certain other brokers and dealers. The public offering price, concession and
discount may be changed by the Underwriters after the Series A Preferred Stock
is released for sale to the public.
EastGroup has granted to the Underwriters an option, exercisable for 30 days
after the date of this Prospectus Supplement, to purchase up to 225,000
additional shares of Series A Preferred Stock to cover over-allotments, if
any, at the public 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 Series A Preferred Stock to be
purchased by it shown in the foregoing table bears to the Series A Preferred
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.
The Underwriters do not intend to exercise discretion in confirming sales to
any account over which they otherwise have discretionary authority.
Application has been made to list the Series A Preferred Stock on the NYSE
under the symbol "EGP PrA." If approved, trading of the Series A Preferred
Stock on the NYSE is expected to commence within a 30-day period after the
initial delivery of the Series A Preferred Stock. The Underwriters may advise
the Company that each intends to make a market in the Series A Preferred Stock
prior to the commencement of trading on the NYSE, but is not obligated to do
so and may discontinue market making at any time without notice.
In connection with the Offering, the rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Series A Preferred Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Series A
Preferred Stock.
If the Underwriters create a short position in the Series A Preferred Stock
in connection with the Offering (i.e., if they sell more shares of Series A
Preferred Stock than are set forth on the cover page of this Prospectus
S-39
<PAGE>
Supplement), the Underwriters may reduce that short position by purchasing
Series A Preferred 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 Series A
Preferred Stock in the open market to reduce the Underwriters' short position
or to stabilize the price of the Series A Preferred 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 Series A Preferred
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 in the past 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 Series A Preferred
Stock, will be passed upon for EastGroup by Jaeckle Fleischmann & Mugel, LLP,
Buffalo, New York, and for the Underwriters by Rogers & Wells LLP, New York,
New York. As to matters of Maryland law contained in these opinions, Jaeckle
Fleischmann & Mugel, LLP and Rogers & Wells LLP will rely upon the opinion of
Piper & Marbury L.L.P., Baltimore, Maryland.
S-40
<PAGE>
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>
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.
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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;
(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;
5
<PAGE>
(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 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.
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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 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
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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 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
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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 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
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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 SX
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 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
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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 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.
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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 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
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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 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
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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
(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.
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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
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
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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.
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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 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.
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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.
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
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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
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
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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 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.
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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
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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 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.
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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 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.
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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, taxexempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are
subject to special treatment under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. EastGroup has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective since its inception. EastGroup's
qualification and taxation as a REIT depends upon its ability to meet on a
continuing basis, through actual annual operating results, distribution levels
and diversity of stock ownership, the various qualification tests and
organizational requirements imposed under the Code, as discussed below.
EastGroup believes that it is organized and has operated in such a manner as
to qualify under the Code for taxation as a REIT commencing since its
inception, and it intends to continue to operate in such a manner. No
assurances, however, can be given that EastGroup will operate in a manner so
as to qualify or remain qualified as a REIT. See "Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its 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
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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."
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
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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.
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
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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 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.
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<PAGE>
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 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.
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<PAGE>
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 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
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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 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
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<PAGE>
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 REPRE-
SENTATIONS 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 HEREUN-
DER 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 INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OF-
FER 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 SO-
LICITATION IS UNLAWFUL.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.............................................. S-2
Risk Factors............................................................... S-9
The Company................................................................ S-15
Properties................................................................. S-17
Use of Proceeds............................................................ S-24
Capitalization............................................................. S-25
Selected Financial Data.................................................... S-26
Management................................................................. S-28
Description of Series A Preferred Stock.................................... S-30
Certain Federal Income Tax Considerations.................................. S-36
Underwriting............................................................... S-39
Legal Matters.............................................................. S-40
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........................................... 21
Description of Common Stock................................................ 25
Federal Income Tax Considerations.......................................... 28
Plan of Distribution....................................................... 34
Experts.................................................................... 35
Legal Matters.............................................................. 35
</TABLE>
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1,500,000 SHARES
[LOGO OF EASTGROUP PROPERTIES INC. APPEARS HERE]
EASTGROUP PROPERTIES, INC.
9.00% SERIES A CUMULATIVE
REDEEMABLE PREFERRED STOCK
--------------------------
PROSPECTUS SUPPLEMENT
--------------------------
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
J.C. BRADFORD & CO.
RAYMOND JAMES & ASSOCIATES, INC.
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JUNE 12, 1998
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