<PAGE> 1
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-7094
EASTGROUP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-2711135
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (601) 354-3555
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES (x) NO ( )
The number of shares of common stock, $.0001 par value, outstanding as
of November 6, 1998 was 16,296,935.
<PAGE> 2
EASTGROUP PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PAGES
PART I. FINANCIAL INFORMATION
Item 1. Consolidated financial statements
Consolidated balance sheets, September 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated statements of income for the three and nine
months ended September 30, 1998 and 1997 (unaudited) 4
Consolidated statements of cash flow for the nine months
ended September 30, 1998 and 1997 (unaudited) 5
Consolidated statement of changes in stockholders' equity
for the nine months ended September 30, 1998 (unaudited) 6
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of financial
condition and results of operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES
Authorized signatures 23
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate properties:
Industrial $ 502,248 316,808
Industrial development 24,517 13,831
Office buildings 28,230 39,753
Apartments 8,834 15,380
--------- ---------
563,829 385,772
Less accumulated depreciation (38,337) (29,095)
--------- ---------
525,492 356,677
--------- ---------
Real estate held for sale:
Land 576 585
Operating properties 25,039 22,648
less accumulated depreciation (1,405) (3,217)
--------- ---------
24,210 20,016
--------- ---------
Mortgage loans 8,723 10,852
Investment in real estate investment trusts 5,706 16,518
Cash 1,806 1,298
Other assets 11,059 7,766
--------- ---------
TOTAL ASSETS $ 576,996 413,127
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 132,263 105,380
Notes payable to banks 126,148 41,770
Accounts payable & accrued expenses 8,594 3,979
Other liabilities 2,681 2,247
--------- ---------
269,686 153,376
--------- ---------
Minority interest in joint ventures 2,067 2,436
Minority interest in operating partnership 650 --
--------- ---------
2,717 2,436
--------- ---------
STOCKHOLDERS' EQUITY
Series A 9.00% Cumulative Redeemable Preferred 41,357 --
Shares; $.0001 par value; 1,725,000 shares
authorized and issued at September 30, 1998
and none at December 31, 1997; stated liquidation
preference of $43,125 at September 30, 1998
Series B 8.75% Cumulative Convertible Preferred -- --
Shares; $.0001 par value; 2,800,000 shares
authorized; no shares issued; stated liquidation
preference of $25 per share
Common shares; $.0001 par value; 65,475,000 2 2
shares authorized; 16,306,535 shares issued at
September 30, 1998 and 16,204,523 at
December 31, 1997
Excess shares; $.0001 par value; 30,000,000 shares -- --
authorized; no shares issued
Additional paid-in capital 246,343 244,215
Undistributed earnings 16,284 13,633
Accumulated other comprehensive income 607 (535)
--------- ---------
304,593 257,315
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 576,996 413,127
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Income from real estate operations $20,191 12,431 53,606 35,416
Interest:
Mortgage loans 427 530 1,293 1,534
Other interest 28 53 139 239
Other 107 532 437 1,011
------- ------- ------- -------
20,753 13,546 55,475 38,200
------- ------- ------- -------
EXPENSES
Operating expenses from real
estate operations 5,158 3,770 13,881 10,763
Interest 4,874 2,623 12,162 7,334
Depreciation and amortization 4,582 2,620 11,806 7,342
General and administrative 883 813 2,659 2,214
------- ------- ------- -------
15,497 9,826 40,508 27,653
------- ------- ------- -------
INCOME BEFORE MINORITY INTEREST
AND GAIN ON INVESTMENTS 5,256 3,720 14,967 10,547
Minority interest in joint ventures 98 115 353 414
------- ------- ------- -------
INCOME BEFORE GAIN ON INVESTMENTS 5,158 3,605 14,614 10,133
Gain on real estate investments 4,996 6,300 6,086 6,407
------- ------- ------- -------
NET INCOME 10,154 9,905 20,700 16,540
Preferred dividends-Series A 970 -- 1,099 --
------- ------- ------- -------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 9,184 9,905 19,601 16,540
======= ======= ======= =======
BASIC PER SHARE DATA (A)
Net income available to
common shareholders $ 0.56 0.78 1.20 1.34
======= ======= ======= =======
Weighted average shares outstanding 16,308 12,685 16,277 12,364
======= ======= ======= =======
DILUTED PER SHARE DATA (A)
Net income available to
common shareholders $ 0.56 0.77 1.19 1.32
======= ======= ======= =======
Weighted average shares outstanding 16,423 12,865 16,423 12,520
======= ======= ======= =======
</TABLE>
(A) Assumes exchange of 32,409 units of Operating Partnership (as hereinafter
referred) for shares of common stock.
See accompanying notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 20,700 16,540
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of deferred
leasing costs 11,806 7,342
Gains on investments, net (6,086) (6,407)
Other (253) (210)
Changes in operating assets and liabilities:
Accrued income and other assets (2,248) (2,547)
Accounts payable, accrued expenses and prepaid rent 3,418 2,985
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,337 17,703
--------- ---------
INVESTING ACTIVITIES:
Payments on mortgage loans receivable, net of
amortization of loan discounts 2,512 1,853
Advances on mortgage loans receivable -- (1,575)
Sale of real estate investments 16,608 24,138
Real estate improvements (5,398) (3,194)
Real estate development (21,439) (7,706)
Purchases of real estate (73,948) (45,827)
Acquisition of Meridian (52,760) --
Purchases of real estate investment trusts shares (1,801) (16,119)
Merger expenses (1,609) --
Changes in other assets and other liabilities 26 1,213
Cash balances of acquired company 6,046 --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (131,763) (47,217)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 178,822 79,017
Proceeds from mortgage notes payable -- 9,250
Principal payments on bank borrowings (94,444) (57,935)
Principal payments on mortgage notes payable (3,851) (25,042)
Distributions paid to shareholders (17,230) (12,637)
Purchases of shares of beneficial interest and common stock (194) (393)
Proceeds from exercise of stock options 254 553
Net proceeds from issuance of shares of
beneficial interest -- 36,654
Net proceeds from issuance of shares of preferred stock 41,357 --
Proceeds from dividend reinvestment plan 220 213
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 104,934 29,680
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 508 166
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,298 438
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,806 604
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized 10,954 6,695
Debt assumed by the Company in purchase of real estate 7,167 47,519
Operating partnership units issued in purchase of real estate 650 --
Debt assumed by the Company in the Meridian acquisition 33,422 --
Debt assumed by buyer of real estate 9,855 --
Issuance of common stock to acquire Ensign 1,746 --
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 6
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Shares Shares Accumulated
of of Additional Other
Common Preferred Paid-In Undistributed Comprehensive
Stock Stock Capital Earnings Income Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 2 -- 244,215 13,633 (535) 257,315
Net income -- -- -- 20,700 -- 20,700
Cash dividends declared-common, $1.04 per share -- -- -- (16,950) -- (16,950)
Preferred stock dividends declared -- -- -- (1,099) -- (1,099)
Change in unrealized gain (loss) on
securities -- -- -- -- 1,142 1,142
Purchase and retirement of 11,400 common shares -- -- (194) -- -- (194)
Issuance of 5,007 shares of common stock,
incentive compensation -- -- 102 -- -- 102
Issuance of 17,910 shares of common
stock, exercise options -- -- 254 -- -- 254
Issuance of 79,353 shares of common
stock, Ensign merger -- -- 1,746 -- -- 1,746
Issuance of 1,725,000 shares of preferred stock -- 41,357 -- -- -- 41,357
Issuance of 11,142 shares of common stock,
dividend reinvestment plan -- -- 220 -- -- 220
-------- -------- -------- -------- -------- --------
BALANCE, SEPTEMBER 30, 1998 $ 2 41,357 246,343 16,284 607 304,593
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In management's opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements should be read in conjunction with the 1997
annual report and the notes thereto.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 financial
statements to conform to the 1998 classifications.
(3) SUBSEQUENT EVENTS
As of November 12, 1998, the Company had entered into a contract to
purchase an 84,000 square foot industrial property located in Houston for an
approximate purchase price of $4,320,000.
Also, as of November 12, 1998, the Company had entered into a contract
to sell the 46,000 square foot Park Ridge Distribution Center located in
Boynton Beach, Florida for a sales price of $3,190,000.
(4) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting comprehensive
income. SFAS No. 130 defines comprehensive income as the changes in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in a new financial statement
that is displayed with equal prominence as existing financial statements. The
Company adopted this standard as of January 1, 1998. Following is a comparison
of comprehensive income for the nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------- -------
(In thousands)
------------------
<S> <C> <C>
Net income $20,700 16,540
Other comprehensive income:
Unrealized holding gains (losses) arising during period 1,142 (441)
------- -------
Comprehensive income $21,842 16,099
======= =======
</TABLE>
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information about
operating standards for annual financial statements and requires that those
<PAGE> 8
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for fiscal years beginning after December
15, 1997. The adoption of this statement on January 1, 1998 did not have a
material impact on the Company's consolidated financial statements, but could
require expanded disclosures in subsequent periods.
In April 1998, Statement of Position (SOP) No. 98-5, "Reporting on the
Costs of Start-Up Activities," was issued. This SOP provides guidance on the
financial reporting of start-up costs and organization costs, and requires that
these costs be expensed as incurred effective for fiscal years beginning after
December 15, 1998. At September 30, 1998, the Company had approximately $300,000
in unamortized organization costs that will be written off in first quarter 1999
and accounted for as a cumulative effect of a change in accounting principle.
(5) MERIDIAN POINT REALTY TRUST VIII
During second quarter 1998, the Company completed the acquisition of
Meridian Point Realty Trust VIII ("Meridian VIII") described below, accounting
for the acquisition by using the purchase method of accounting. For financial
reporting purposes, the acquired assets of Meridian VIII were assigned new cost
basis amounts based on the allocation of the purchase price of the assets to the
Company. In general, the purchase price to the Company consisted of the cash
paid for the Meridian VIII and the previous investment the Company had in
Meridian VIII. The shares of Meridian VIII owned by the Company were retired at
the merger date. The operating results of Meridian VIII have been included in
the consolidated statement of income subsequent to the date of acquisition.
On June 1, 1998, the merger of Meridian VIII into a wholly-owned
subsidiary of EastGroup was completed. Pursuant to the terms of its merger
agreement with Meridian VIII, EastGroup's wholly-owned subsidiary exercised
options to acquire a sufficient number of common and preferred shares of
Meridian VIII such that it owned 90% of all outstanding common and preferred
shares. Prior to the exercise of the options, EastGroup's subsidiary
beneficially owned approximately 83.2% of the outstanding voting securities of
Meridian VIII. Following the exercise of the options, Meridian VIII was merged
into EastGroup's wholly-owned subsidiary, with all outstanding common shares of
Meridian VIII not held by EastGroup receiving, as a result of the merger, $8.50
per share in cash and all preferred shares of Meridian VIII not held by
EastGroup receiving $10.00 per share in cash. The consideration paid to the
remaining common and preferred shareholders of Meridian VIII was equivalent to
that paid by EastGroup in its tender offer for Meridian VIII's common and
preferred shares which was completed in April 1998. The total purchase price to
EastGroup was approximately $102,000,000 which included the assumption of
Meridian VIII's outstanding indebtedness. As a result of the merger, Meridian
VIII's common and preferred shares have been removed from registration under the
Securities Exchange Act of 1934 and ceased to be listed on the American Stock
Exchange effective as of June 1, 1998.
The increase in net assets at the acquisition date, based on relative
fair values, resulting from the acquisition was as follows (in thousands):
<TABLE>
<S> <C>
Real estate properties $ 96,343
Cash 6,046
Accrued interest and other receivables 119
Other assets 124
Mortgage notes/interest payables (33,422)
Accounts payable and other liabilities (776)
--------
TOTAL $ 68,434
========
</TABLE>
The purchase price of the net assets acquired consisted of the
following (in thousands):
<TABLE>
<S> <C>
Acquisition of Meridian $ 52,760
Merger expenses 1,569
Prior investment in Meridian 14,105
--------
TOTAL $ 68,434
========
</TABLE>
<PAGE> 9
The following unaudited pro forma combined results of operations give
effect to the Meridian VIII merger as if it had occurred at the beginning of
each of the nine month periods presented:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $58,769 46,121
======= =======
Net income $17,657 15,116
======= =======
Net income per basic share $ 1.08 1.22
======= =======
Shares used in computation 16,308 12,364
======= =======
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the transaction been consummated at the beginning of 1998 and the
beginning of 1997 or of future operations of the combined companies under the
ownership and management of the Company.
(6) PREFERRED STOCK OFFERINGS
In June 1998, EastGroup sold 1,725,000 shares of Series A 9.00%
Cumulative Redeemable Preferred Stock at $25 per share in a public offering. Net
proceeds of approximately $41,357,000 were used to repay advances outstanding on
the Company's line of credit. The preferred stock, which may be redeemed by the
Company at $25.00 per share, plus accrued and unpaid dividends, on or after June
19, 2003, has no stated maturity, sinking fund or mandatory redemption and is
not convertible into any other securities of the Company.
In September 1998, EastGroup entered into an agreement with Five Arrows
Realty Securities II, L.L.C., an investment fund managed by Rothschild Realty,
Inc., a member of the Rothschild Group, providing for the sale of up to
2,800,000 shares of Series B 8.75% Cumulative Convertible Preferred Stock at a
net price of $24.50 per share. Under the terms of this agreement, EastGroup
Properties may sell 2,800,000 shares of Series B Preferred Stock to Five Arrows
at up to five closings, at EastGroup's option, during the next twelve months.
Under the terms of the agreement, EastGroup is required to sell at least
1,600,000 shares of Series B Preferred Stock over the next twelve months, but
may at its sole discretion increase the number of shares sold to up to 2,800,000
under identical terms. In connection with this offering, EastGroup has entered
into certain related agreements with Five Arrows, providing, among other things,
for certain registration rights with respect to the Series B Preferred Stock and
the right to designate a member of the Board of Directors under certain
circumstances.
The Series B Preferred Stock, which is convertible into common stock at
a conversion price of $22.00 per share, is entitled to quarterly dividends in
arrears equal to the greater of $0.547 per share or the dividend on the number
of shares of common stock into which a share of Series B Preferred Stock is
convertible.
(7) COMMON STOCK REPURCHASE PROGRAM
During the third quarter 1998, EastGroup's Board of Directors
authorized the repurchase of up to 500,000 shares of its outstanding common
stock. The shares may be purchased from time to time in the open market or in
privately negotiated transactions. As of September 30, 1998, the Company had
repurchased 11,400 shares for $194,000. Under Maryland law, these shares
became authorized but unissued shares of common stock when repurchased.
<PAGE> 10
(8) UPREIT STRUCTURE
EastGroup is currently in the process of reorganizing its operations
into an umbrella partnership REIT ("UPREIT") structure. Under this structure,
all of EastGroup's real estate assets will be owned by EastGroup Properties,
L.P., a Delaware limited partnership (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 the UPREIT structure in the fourth
quarter of 1998. As of September 30, 1998, the Company had issued 32,409
Operating Partnership units (less than one percent) to unrelated parties.
(9) FORWARD LOOKING STATEMENTS
In addition to historical information, certain sections of this
Quarterly Report on Form 10-Q contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, such as those pertaining to the Company's
capital resources, profitability, portfolio performance and analysis of the
costs related to and the Company's preparedness with respect to computer system
issues relating to the Year 2000. Forward-looking statements involve numerous
risks and uncertainties. The following factors, among others discussed herein,
could cause actual results and future events to differ materially from those set
forth or contemplated in the forward-looking statements: defaults or non-renewal
of leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, environmental
uncertainties, risks related to natural disasters, financial market
fluctuations, changes in real estate and zoning laws and increases in real
property tax rates. The success of the Company also depends upon the trends of
the economy, including interest rates, income tax laws, governmental regulation,
legislation, population changes and those risk factors discussed elsewhere in
this Quarterly Report. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only as the date
hereof. The Company assumes no obligation to update forward-looking statements.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Comments are for the balance sheet dated September 30, 1998 compared to
December 31, 1997.)
Assets of EastGroup were $576,996,000 at September 30, 1998, an
increase of $163,869,000 from December 31, 1997. Liabilities increased
$116,310,000 to $269,686,000; minority interests increased $281,000 to
$2,717,000 and stockholders' equity increased $47,278,000 to $304,593,000 during
the same period. The paragraphs that follow explain these changes in greater
detail.
Industrial properties increased $185,440,000 during the nine months
ended September 30, 1998. This increase was primarily due to the acquisition of
12 industrial properties for $80,972,000 and the purchase of the 25% interest in
WestPort Commerce for $793,000 for a total of $81,765,000 (as detailed below)
and the acquisition of 18 properties in the Meridian merger with an allocated
purchase price of $96,343,000 (as detailed below). Capital improvements of
$4,716,000 were made on existing and acquired properties. Adding to these
increases were the reclassifications of four industrial properties from
industrial development with total costs of $10,769,000. Offsetting these
increases were reclassifications of four industrial properties to real estate
held for sale with total costs of $7,699,000.
<TABLE>
<CAPTION>
INDUSTRIAL PROPERTIES SIZE DATE COST
ACQUIRED IN 1998 LOCATION (SQUARE FEET) ACQUIRED (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Estrella East Phoenix, Arizona 174,000 02-18-98 $ 5,322
Stemmons Circle Dallas, Texas 99,000 03-06-98 2,377
51st Avenue Phoenix, Arizona 79,000 03-09-98 2,329
3906 Airpark Drive Memphis, Tennessee 92,000 04-01-98 2,166
WestPort Commerce (25% interest) Tampa, Florida 140,000 06-05-98 793
Industry Distribution Los Angeles, California 572,000 06-11-98 22,603
World Houston 1 & 2 Houston, Texas 158,000 06-18-98 6,553
Airport Distribution Tucson, Arizona 162,000 06-23-98 5,766
Interstate Commerce Fort Lauderdale, Florida 85,000 06-24-98 3,137
American Plaza Houston, Texas 121,000 06-25-98 5,318
Shaw Commerce Fresno, California 398,000 06-25-98 14,092
Northpointe Commerce Oklahoma City, Oklahoma 58,000 09-01-98 3,883
World Houston 3, 4 & 5 Houston, Texas 166,000 09-25-98 7,426
----------
TOTAL INDUSTRIAL ACQUISITIONS $81,765
==========
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
INDUSTRIAL PROPERTIES
ACQUIRED IN SIZE MERGER COST
MERIDIAN MERGER LOCATION (SQUARE FEET) DATE (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
East Maricopa Distribution Phoenix, Arizona 14,000 06-01-98 $ 640
East University I & II Phoenix, Arizona 145,000 06-01-98 5,602
7th Street Distribution Phoenix, Arizona 39,000 06-01-98 1,863
55th Street Distribution Phoenix, Arizona 131,000 06-01-98 4,647
Ethan Allen Distribution Los Angeles, California 300,000 06-01-98 12,719
Park Ridge Distribution Boynton Beach, Florida 45,000 06-01-98 3,006
West Palm I & II West Palm Beach, Florida 26,000 06-01-98 3,177
Auburn Facility Auburn Hills, Michigan 114,000 06-01-98 16,152
Air Park Distribution II Memphis, Tennessee 17,000 06-01-98 329
Delp Distribution I, II and III Memphis, Tennessee 274,000 06-01-98 5,246
Getwell Distribution Memphis, Tennessee 26,000 06-01-98 754
Lamar Distribution Memphis, Tennessee 276,000 06-01-98 6,659
Penney Distribution Memphis, Tennessee 106,000 06-01-98 2,432
Senator Street Distribution II Memphis, Tennessee 105,000 06-01-98 2,177
Waldenbooks Distribution Nashville, Tennessee 564,000 06-01-98 22,145
Ambassador Row Dallas, Texas 317,000 06-01-98 5,781
Carpenter Duplex Dallas, Texas 47,000 06-01-98 1,041
Viscount Row Dallas, Texas 104,000 06-01-98 1,973
----------
TOTAL MERIDIAN INDUSTRIAL $96,343
==========
</TABLE>
Industrial development increased $10,686,000 during the nine months
ended September 30, 1998. This increase resulted primarily from year-to-date
development costs of $21,439,000 on existing and completed development
properties, offset by costs of $10,769,000 on completed development properties
reclassified to industrial properties, as detailed below.
<TABLE>
<CAPTION>
COSTS INCURRED
--------------------------
SIZE AT FOR THE NINE
COMPLETION MONTHS CUMULATIVE AS ESTIMATED
(SQUARE FEET) ENDED 9/30/98 OF 9/30/98 TOTAL COSTS(1)
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
LEASE-UP:
Walden Distribution Center II
Tampa, Florida 122,000 $ 987 $ 3,799 $ 3,948
Sunbelt Distribution Center II
Orlando, Florida 61,000 875 2,057 2,232
John Young
Orlando, Florida 51,000 1,839 2,397 2,899
--------- --------- --------- ---------
TOTAL LEASE-UP 234,000 3,701 8,253 9,079
--------- --------- --------- ---------
UNDER CONSTRUCTION:
World Houston 6
Houston, Texas 68,000 2,177 2,177 3,000
World Houston 7 & 8
Houston, Texas 166,000 4,507 4,507 7,600
Rampart Distribution Center III
Denver, Colorado 92,000 165 1,204 4,750
--------- --------- --------- ---------
TOTAL UNDER CONSTRUCTION 326,000 6,849 7,888 15,350
--------- --------- --------- ---------
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
APPROVED BY BOARD FOR CONSTRUCTION:
World Houston 9
Houston, Texas 160,000 890 890 7,200
Airport Commerce Center
Tampa, Florida 108,000 1,327 1,327 5,427
Westlake I
Tampa, Florida 70,000 1,540 1,540 4,072
Sample 95 II
Pompano, Florida 70,000 918 918 3,438
John Young II
Orlando, Florida 46,000 572 572 2,828
Premier Beverage
Tampa, Florida 222,000 0 0 7,777
Chestnut
City of Industry, California 76,000 1,689 1,689 5,207
Glenmont I
Houston, Texas 110,000 937 937 3,862
--------- --------- --------- ---------
TOTAL APPROVED BY BOARD 862,000 7,873 7,873 39,811
--------- --------- --------- ---------
PROSPECTIVE DEVELOPMENT:
Houston, Texas 110,000 0 0 3,900
Tampa, Florida 459,000 503 503 21,600
--------- --------- --------- ---------
TOTAL PROSPECTIVE DEVELOPMENT 569,000 503 503 25,500
--------- --------- --------- ---------
1,991,000 18,926 24,517 89,740
========= ========= ========= =========
COMPLETED DEVELOPMENT AND
TRANSFERRED TO INDUSTRIAL
PROPERTIES DURING 1998:
Benjamin Distribution Center II
Tampa, Florida 47,000 815 2,417 2,546
Palm River II
Tampa, Florida 72,000 1,236 3,143 3,290
Rampart Distribution Center II
Denver, Colorado 66,000 294 3,207 3,207
Chancellor Center
Orlando, Florida 51,000 168 2,002 2,011
--------- --------- --------- ---------
TOTAL TRANSFERRED TO INDUSTRIAL 236,000 $ 2,513 $ 10,769 $ 11,054
========= ========= ========= =========
<FN>
(1) The information provided above includes forward-looking data based on
current construction schedules, the status of lease negotiations with potential
tenants and other relevant factors currently available to the Company. There can
be no assurance that any of these factors will not change or that any change
will not affect the accuracy of such forward-looking data.
</TABLE>
Office buildings decreased $11,523,000 during the nine months ended
September 30, 1998 as a result of capital improvements of $489,000 to existing
buildings and the reclassification of Columbia Place with a cost of $12,012,000
to real estate held for sale. Additionally, apartments decreased $6,546,000 as a
result of capital improvements of $146,000 and the reclassification of Grande
Pointe Apartments with a cost of $6,692,000 to real estate held for sale.
Real estate held for sale increased $2,382,000 primarily as a result of
capital improvements of $47,000 and the reclassifications of six properties to
real estate held for sale with a total cost of $26,403,000. These increases were
offset by the sale of three apartment complexes with a total cost of
$22,687,000, two industrial properties with a total cost of $1,372,000 and one
small parcel of land with a cost of $9,000.
<PAGE> 14
Accumulated depreciation on real estate properties and real estate held
for sale increased $7,430,000 primarily due to depreciation expense recognized
for the nine months ended September 30, 1998. This increase was offset by the
sales of the Hampton House Apartments with accumulated depreciation of $690,000,
the Doral Club Apartments with $1,397,000, the Sutton House Apartments with
$1,130,000, and 401 Exchange with $121,000.
Mortgage loans receivable decreased $2,129,000 during the first nine
months of 1998 as a result of amortization of loan discounts of $439,000 and the
recognition of deferred gains of $383,000 on the payoff of the Jacksonville
mortgage note receivable. These increases were offset by regularly scheduled
principal payments of $602,000 and the repayment of $2,349,000 on two mortgage
loans receivable.
Investments in real estate investment trusts decreased from $16,518,000
at December 31, 1997 to $5,706,000 at September 30, 1998. The following table
provides an analysis of the changes that occurred in these investments and
accounts for the decrease.
<TABLE>
<S> <C>
Balance at December 31, 1997 $ 16,518
Purchase of additional Meridian shares 52,760
Recognized unrealized gains prior to Meridian merger 2,100
Investment of Meridian allocated to purchase price at merger date (66,515)
Balance of Meridian unrealized gains written off at merger date (850)
Investment in other real estate investment trusts 1,801
Recognized unrealized loss on other real estate investment trusts (108)
--------
Balance at September 30, 1998 $ 5,706
========
</TABLE>
Mortgage notes payable increased $26,883,000 during the nine months
ended September 30, 1998, as a result of regularly scheduled principal payments
of $2,183,000; assumption of debt of $5,682,000 and $4,173,000 by the buyers of
Sutton House and Doral Club Apartments, respectively; the repayment of
$1,668,000 on the Metro mortgage note payable; and the debt assumptions by the
Company of $2,614,000 on the acquisition of Estrella, $4,553,000 on the
acquisition of World Houston 1 & 2 and $33,422,000 on the Meridian VIII
acquisitions. Terms of these mortgage notes payable are detailed in the
following tables.
MORTGAGES ASSUMED IN ACQUISITIONS
<TABLE>
<CAPTION>
DATE OF AMOUNT OF
ASSUMPTION INTEREST MATURITY MORTGAGE
OF LOAN PROPERTY RATE DATE (IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
02-18-98 Estrella 9.250% 01-02-03 $ 2,614
06-18-98 World Houston 1 & 2 7.770% 04-15-07 4,553
-------
$ 7,167
=======
</TABLE>
<PAGE> 15
MORTGAGES ASSUMED IN MERIDIAN MERGER
<TABLE>
<CAPTION>
DATE OF AMOUNT OF
ASSUMPTION INTEREST MATURITY MORTGAGE
OF LOAN PROPERTY RATE DATE (IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
06-01-98 Auburn 8.875% 08-01-09 $ 5,529
06-01-98 West Palm 8.250% 09-01-00 986
06-01-98 Ethan Allen 8.060% 06-26-07 6,438
06-01-98 55th St., 7th St. & E. Univ. 8.060% 06-26-07 5,942
06-01-98 Lamar 8.000% 11-01-98 1,642
06-01-98 Waldenbooks 7.830% 09-15-07 12,885
-------
$33,422
=======
</TABLE>
Notes payable to banks increased from $41,770,000 at December 31, 1997
to $126,148,000 at September 30, 1998, as a result of borrowings of $178,822,000
and payments of $94,444,000. As of September 30, 1998, the acquisition line had
a balance of $100,000,000 and the working capital line had a balance of
$26,148,000. These lines of credit are described in detail under Liquidity and
Capital Resources.
Undistributed earnings increased from $13,633,000 at December 31, 1997
to $16,284,000 at September 30, 1998, as a result of $20,700,000 net income less
dividends on preferred stock of $1,099,000 and dividends on common stock of
$16,950,000.
RESULTS OF OPERATIONS
(Comments are for the three months and nine months ended September 30, 1998,
compared to the three months and nine months ended September 30, 1997.)
Net income available to common stockholders for the three months and
nine months ended September 30, 1998 was $9,184,000 ($.56 per basic and diluted
share) and $19,601,000 ($1.20 per basic share and $1.19 per diluted share),
compared to net income for the three months and nine months ended September 30,
1997 of $9,905,000 ($.78 per basic share and $.77 per diluted share) and
$16,540,000 ($1.34 per basic share and $1.32 per diluted share). Income before
gain on investments was $5,158,000 and $14,614,000 for the three months and nine
months ended September 30, 1998, compared to $3,605,000 and $10,133,000 for the
three months and nine months ended September 30, 1997. Gains on investments were
$4,996,000 and $6,086,000 for the three months and nine months ended September
30, 1998, compared to $6,300,000 and $6,407,000 for the three months and nine
months ended September 30, 1997. The paragraphs that follow describe the results
of operations in greater detail.
Property net operating income (PNOI) from real estate properties,
defined as income from real estate operations less property operating expenses
(before interest expense and depreciation) increased by $6,372,000 or 74% for
the three months ended September 30, 1998, compared to the three months ended
September 30, 1997. For the nine months ended September 30, 1998, PNOI increased
by $15,072,000 or 61% compared to the nine months ended September 30, 1997.
<PAGE> 16
Property net operating income (loss) and percentage leased by property
type were as follows:
<TABLE>
<CAPTION>
PROPERTY NET OPERATING INCOME (PNOI)
------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, SEPTEMBER 30, LEASED
1998 1997 1998 1997 9-30-98
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Industrial $13,197 6,315 33,428 17,131 97%
Office Buildings 1,231 1,378 3,622 4,382 100%
Apartments 613 884 2,690 2,680 95%
Other (8) 84 (15) 460
------- ------- ------- -------
TOTAL PNOI $15,033 8,661 39,725 24,653
======= ======= ======= =======
</TABLE>
PNOI from industrial properties increased $6,882,000 and $16,297,000
for the three months and nine months ended September 30, 1998, compared to
September 30, 1997. Industrial properties held throughout the three months and
nine months ended September 30, 1998 and 1997, showed an increase in PNOI of
8.3% for the three months ended September 30, 1998 and 6.9% for the nine months
ended September 30, 1998. The increase in PNOI from industrial properties
resulted primarily from the 1997 and 1998 acquisitions and from an increase in
same store property operations.
PNOI from the Company's office buildings decreased $147,000 and
$760,000 for the three months and nine months ended September 30, 1998, compared
to September 30, 1997. These decreases were primarily the result of the sale of
the Santa Fe Office Building in July 1997. Office buildings held throughout the
three months and nine months ended September 30, 1998 showed an increase of 1.3%
and 4.9%, respectively.
PNOI from the Company's apartment properties decreased $271,000 and
increased $10,000, respectively, for the three months and nine months ended
September 30, 1998, compared to September 30, 1997. The decrease in the three
months ended September 30, 1998 is attributable to the sale of the Sutton House
and Doral Club Apartments in September 1998 and the Hampton House Apartments in
June 1998. The nine months ended September 30, 1998 would also have shown a
decrease except for the improved operating efficiencies and near capacity
occupancy levels at the remaining apartment complexes.
Interest income on mortgage loans decreased $103,000 and $241,000 for
the three months and nine months ended September 30, 1998 compared to 1997. The
following is a breakdown of interest income for the three months and nine months
ended September 30, 1998 compared to 1997:
<TABLE>
<CAPTION>
INTEREST INCOME FROM MORTGAGE LOANS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C>
Land $ 217 223 661 676
Apartments 140 134 415 398
Motels 42 130 133 301
Other 28 43 84 159
----- ----- ----- -----
TOTAL INTEREST INCOME $ 427 530 1,293 1,534
===== ===== ===== =====
</TABLE>
Interest income from motel mortgage loans decreased as a result of the
repayment of the Plus Park, Bell Road and Jacksonville mortgage loans. Due to
uncertainty of collection, interest income from the motel mortgage loans is
recorded as received, and the notes have been written down to their net
<PAGE> 17
realizable value. Interest income on other mortgage loans decreased primarily as
a result of the repayment of three mortgage loans.
Total interest expense increased $2,251,000 and $4,828,000 for the
three months and nine months ended September 30, 1998 compared to 1997. Average
bank borrowings were $115,806,000 and $84,063,000 for the three months and nine
months ended September 30, 1998, compared to $24,526,000 and $12,586,000 for the
same period of 1997. Average bank borrowings increased primarily as a result of
the Meridian acquisition and the acquisition of other industrial properties.
Bank interest rates at September 30, 1998 and 1997 were 7.045% (LIBOR plus
1.40%) and 7.4375% (LIBOR plus 1.75%), respectively. Interest costs incurred
during the period of construction of real estate properties are capitalized. The
interest costs capitalized on real estate properties for the three months and
nine months ended September 30, 1998 were $272,000 and $560,000 compared to
$144,000 and $246,000 for the three months and nine months ended September 30,
1997. Interest expense on real estate properties increased primarily as a result
of mortgages assumed on Southbay, Estrella, World Houston 1 & 2 and mortgages
assumed in the Meridian VIII merger discussed previously.
Depreciation and amortization increased $1,962,000 and $4,464,000 for
the three months and nine months ended September 30, 1998 compared to 1997. This
increase was primarily due to the industrial properties acquired in both 1997
and 1998, offset by the sale of the Hampton House Apartments in June 1998, and
the sales of the Doral Club Apartments, the Sutton House Apartments, East
Maricopa and 401 Exchange during third quarter 1998.
The increase in general and administrative expenses of $70,000 and
$445,000 for the three months and nine months ended September 30, 1998 is
primarily due to an increase in general and administrative costs due to growth
of the Company.
A summary of gains (losses) on real estate investments for the nine
months ended September 30, 1998 and 1997 is detailed below.
<TABLE>
<CAPTION>
RECOGNIZED
BASIS NET SALES PRICE GAIN (LOSS)
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1998
Real estate properties:
Hampton House Apartments $ 5,977 6,611 634
Sutton House Apartments 7,696 9,453 1,757
Doral Club Apartments 5,900 9,051 3,151
401 Exchange 621 666 45
East Maricopa 630 630 --
LNH Land 9 52 43
Jacksonville--deferred gain (383) -- 383
Other (73) -- 73
-------- -------- --------
$ 20,377 26,463 6,086
======== ======== ========
1997
Real estate properties:
Santa Fe Entergy Building $ 10,354 12,660 2,306
Liberty Corners Shopping Center 2,650 5,275 2,625
Cowesett Corners Shopping Center 4,237 5,946 1,709
Mortgage loan write-down 490 -- (490)
Other -- 257 257
-------- -------- --------
$ 17,731 24,138 6,407
======== ======== ========
</TABLE>
<PAGE> 18
NAREIT has recommended supplemental disclosures concerning capital
expenditures and leasing costs. The Company expenses apartment unit turnover
costs such as carpet, painting and small appliances.
Capital expenditures for the nine months ended September 30, 1998 by category
and for 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
Industrial
Industrial Other Total Development Total
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Upgrade on Acquisitions $ 1,785 -- 1,785 -- 465
Major Renovation 318 -- 318 -- 80
New Development 162 -- 162 20,827 7,706
Tenant Improvements:
New Tenants 1,468 377 1,845 -- 1,209
New Tenants (first generation) 73 -- 73 612 307
Renewal Tenants 640 108 748 -- 288
Other 271 196 467 -- 845
------- ------- ------- ------- -------
TOTAL CAPITAL EXPENDITURES $ 4,717 681 5,398 21,439 10,900
======= ======= ======= ======= =======
</TABLE>
The Company's leasing costs are capitalized and included in other
assets. The costs are amortized over the lives of the leases and are included in
depreciation and amortization expense. A summary of these costs for the nine
months ended September 30, 1998 by category and for 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------
Industrial
Industrial Other Total Development Total
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Capitalized Leasing Costs:
New Tenants $ 740 112 852 -- 948
New Tenants (first generation) 311 -- 311 63 82
Renewal Tenants 907 -- 907 -- 444
------ ------ ------ ------ ------
TOTAL CAPITALIZED LEASING COSTS $1,958 112 2,070 63 1,474
====== ====== ====== ====== ======
AMORTIZATION OF LEASING COSTS: $ 778 503
====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $27,337,000 for the nine
months ended September 30, 1998. The Company distributed $16,950,000 in common
stock dividends and $280,000) in preferred stock dividends. Other sources of
cash were collections on mortgage loan receivables, mortgage borrowings, bank
borrowings and proceeds from the preferred stock offering. Primary uses of cash
were for capital improvements at the various properties, construction and
development of properties, purchases of real estate investments, bank debt
payments, mortgage note payments, purchases of real estate investment
<PAGE> 19
trust shares and repurchase of common shares. Total debt at September 30, 1998
and 1997 was as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Mortgage Notes Payable -- Fixed Rate $132,263 146,842
Bank Notes Payable -- Floating Rate 126,148 35,044
-------- --------
TOTAL DEBT $258,411 181,886
======== ========
</TABLE>
The Company currently has an acquisition credit line of $100,000,000
available for the acquisition of properties and a $50,000,000 working capital
line. The facilities bear interest at LIBOR plus 1.40%. As of September 30,
1998, the acquisition line had a balance of $100,000,000 and the working capital
line had a balance of $26,148,000.
Budgeted capital expenditures for the year ending December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
INDUSTRIAL
CAPITAL IMPROVEMENTS DEVELOPMENT
--------------------------------------------
INDUSTRIAL OFFICE TOTAL TOTAL
---------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Upgrades on Acquisitions $2,175 -- 2,175 --
Major Renovation 439 -- 439 --
New Development -- -- -- 27,022
Tenant Improvements:
New Tenants 2,262 447 2,709 --
New Tenants (first generation) 1,689 -- 1,689 363
Renewal Tenants 1,094 114 1,208 --
Other 1,077 30 1,107 --
------ ---- ----- ------
TOTAL BUDGETED $8,736 591 9,327 27,385
====== ==== ===== ======
</TABLE>
The Company anticipates that its current cash balance, operating cash
flows and borrowings (including borrowings under the working capital line of
credit) will be adequate for the Company's (i) operating and administrative
expenses, (ii) debt service obligations, (iii) distributions to stockholders,
(iv) capital improvements, and (v) normal repair and maintenance expenses at its
properties. EastGroup has and will continue to explore various financing
alternatives to fund the acquisitions. These include additional bank debt, fixed
rate mortgage financing and the sale of additional equity securities, including
the sale of the Series B Preferred Stock discussed in Note 6.
As of November 12, 1998, the Company had entered into a contract to
purchase an 84,000 square foot industrial property located in Houston for an
approximate purchase price of $4,320,000.
Also, as of November 12, 1998, the Company had entered into a contract
to sell the 46,000 square foot Park Ridge Distribution Center located in
Boynton Beach, Florida for a sales price of $3,190,000.
<PAGE> 20
In the last five years, inflation has not had a significant impact on
the Company because of the relatively low inflation rate in the Company's
geographic areas of operation. Most of the leases require the tenants to pay
their pro rata share of operating expenses, including common area maintenance,
real estate taxes and insurance, thereby reducing the Company's exposure to
increases in operating expenses resulting from inflation. In addition, the
Company's leases typically have three to five year terms, which may enable the
Company to replace existing leases with new leases at a higher base if rents on
the existing leases are below the then-existing market rate.
YEAR 2000 ISSUE
The Company has been addressing the potential computer program and
other related problems resulting from the arrival of Year 2000 (Y2K). We have
established a Y2K compliance review process to assess the impact on our internal
financial and management information systems and property mechanical operations
systems, as well as the potential impact on the Company from Y2K problems of
significant tenants, vendors and suppliers of financial and other services
(collectively "independent third parties").
Regarding the Company's internal financial and management information
systems, as part of the Company's ongoing capital improvements process, we plan
to replace during the first quarter of 1999 our financial information and
reporting system (which the vendor has represented to us is Y2K compliant) with
a new, more efficient, information and reporting system which is designed to be
Y2K compliant that will also be used by our major external property managers.
The Company is assessing Y2K compliance of its individual property
engineering and mechanical systems through inquiry via questionnaire of its
respective property managers. This is designed to identify any unexpected
systems that may not be compliant early on so as to avert any major interruption
in the provision of services to our tenants. In addition, during fourth quarter
1998, the Company sent correspondence to all tenants to determine how the Y2K
issue is being addressed at the tenant level in an attempt to determine the
impact on revenue, if any.
Additionally, the Company's compliance plan is to continue the process
of conducting inquiries of independent third party vendors and suppliers in
order to determine if these third parties have Y2K problems and what contingency
plans they have developed to deal with identified exposure. Based on the results
of these inquiries and those of our property managers and tenants, we will
formulate appropriate contingency plans to take necessary and feasible
precautions against problems not within our control. The Company is also
continuing the process of reviewing its own internal systems to ensure that they
are Y2K compliant and to make necessary and timely corrections of identified Y2K
problems under its direct control. This overall process will be ongoing for the
remainder of 1998 and will likely extend into 1999 depending upon the timeliness
of activities of independent third parties.
<PAGE> 21
EASTGROUP PROPERTIES, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2 - Investment Agreement dated as of September 25, 1998
between EastGroup Properties, Inc. and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to Registrant's Form 8-K filed September 25, 1998).
(b) Exhibit 4(a) - Articles Supplementary of EastGroup Properties, Inc.
dated September 25, 1998 creating the Registrant's Series B Cumulative
Convertible Preferred Stock (incorporated by reference to Registrant's Form 8-K
filed September 25, 1998).
Exhibit 4(b) - Operating Agreement dated as of September 25, 1998
between EastGroup Properties, Inc. and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to Registrant's Form 8-K filed September 25, 1998).
Exhibit 4(c) - Agreement and Waiver between EastGroup Properties,
Inc. and Five Arrows Realty Securities II, L.L.C. (incorporated by reference to
Registrant's Form 8-K filed September 25, 1998).
(c) Exhibit 27 - 1998 Financial Data Schedule attached hereto.
(d) Exhibit 27 - Restated 1997 Financial Data Schedule attached hereto.
(e) Report on Form 8-K - Filed September 25, 1998, reporting EastGroup
Properties, Inc.'s agreement with Five Arrows Realty Securities II, L.L.C., an
investment fund managed by Rothschild Realty, Inc., a member of the Rothschild
Group, providing for the sale of up to 2,800,000 shares of 8.75% Series B
Cumulative Convertible Preferred Stock at a net price of $24.50 per share.
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 13, 1998
EASTGROUP PROPERTIES, INC.
/s/ DIANE W. HAYMAN
Diane W. Hayman, CPA
Vice President and Controller
/s/ N. KEITH MCKEY
N. Keith McKey, CPA
Executive Vice President, Chief
Financial Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000049600
<NAME> EASTGROUP PROPERTIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,806
<SECURITIES> 5,706
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 589,444
<DEPRECIATION> (39,742)
<TOTAL-ASSETS> 576,996
<CURRENT-LIABILITIES> 0
<BONDS> 258,411
0
41,357
<COMMON> 2
<OTHER-SE> 263,234
<TOTAL-LIABILITY-AND-EQUITY> 576,996
<SALES> 0
<TOTAL-REVENUES> 55,475
<CGS> 0
<TOTAL-COSTS> 13,881
<OTHER-EXPENSES> 26,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,162
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,601
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000049600
<NAME> EASTGROUP PROPERTIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 604
<SECURITIES> 16,612
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 369,931
<DEPRECIATION> (29,459)
<TOTAL-ASSETS> 376,786
<CURRENT-LIABILITIES> 0
<BONDS> 181,886
0
0
<COMMON> 1
<OTHER-SE> 185,918
<TOTAL-LIABILITY-AND-EQUITY> 376,786
<SALES> 0
<TOTAL-REVENUES> 38,200
<CGS> 0
<TOTAL-COSTS> 10,763
<OTHER-EXPENSES> 17,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,334
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,540
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.32
</TABLE>
