<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
SHARES OF COMMON STOCK, $.0001 PAR VALUE,
SHARES OF SERIES A 9.00% CUMULATIVE REDEEMABLE PREFERRED, $.0001 PAR VALUE
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES (x) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (x)
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 10, 1999 was
$275,867,516.
The number of shares of common stock, $.0001 par value,
outstanding as of March 10, 1999 was 16,287,381.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS ARE
INCORPORATED BY REFERENCE INTO PART III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
ORGANIZATION
EastGroup Properties, Inc. (the "Company" or "EastGroup") is an equity
real estate investment trust ("REIT") organized in 1969. The Company has elected
to be taxed as a real estate investment trust under Sections 856-860 of the
Internal Revenue Code, as amended, and intends to continue to qualify to be so
taxed.
On March 20, 1997, the Company announced that its Board of Directors
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend was distributed on
April 7, 1997 to shareholders of record as of March 31, 1997. All share and per
share amounts in the Company's financial statements have been retroactively
restated for the share split.
ADMINISTRATION
The Company is self-administered and maintains its principal executive
offices in Jackson, Mississippi. As of March 10, 1999, EastGroup had 45
full-time and three part-time employees.
CURRENT OPERATIONS
EastGroup is a self-administered REIT focused on the ownership,
acquisition and selective development of industrial properties in major Sunbelt
markets throughout the United States. As of December 31, 1998, EastGroup's
portfolio included industrial properties comprising over 14 million square feet
of leasable space. As of December 31, 1998, the industrial portfolio was 98%
leased.
During 1998, EastGroup significantly expanded its industrial properties
portfolio through 30 acquisitions in seven states, aggregating 4,954,000 square
feet of leasable space for a total cost of approximately $178,163,000.
Additionally, capital improvements amounting to $7,543,000 were made on existing
properties, and $25,511,000 was invested in industrial development projects. 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. EastGroup invested $1,832,000 in stock of other REITs
during the year. The Company sold three industrial properties, four apartment
complexes, one office building and one small parcel of land for net proceeds of
$50,620,000 and gains of approximately $9,257,000. Deferred gains of $456,000
were also recognized on two other properties for total gains of $9,713,000.
The Company intends to continue to qualify as a REIT under the Code.
Ordinary taxable income will continue to be paid to the stockholders. The
Company has the option of (i) paying out capital gains to the stockholders with
no tax to the Company, (ii) paying a capital gains tax and retaining the gains
on sales, or (iii) treating the capital gains as having been distributed to the
stockholders, paying the tax on the gain deemed distributed and allocating the
tax paid as a credit to the stockholders. The book value of the property sold
and the retained portion of capital gains, if any, are generally reinvested by
the Company, which considers many factors in making these investments, such as
type of property, location, current yield, potential for appreciation and
others.
EastGroup incurs short-term floating rate debt in connection with the
acquisition of real estate and payment of costs of development projects, and
attempts to replace floating rate debt with fixed-rate term loans secured
by real property or to repay the debt with the proceeds of sales of equity
securities as market conditions permit. EastGroup also may, in appropriate
circumstances, acquire one or more properties in exchange for EastGroup's
equity securities.
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<PAGE> 3
EastGroup holds its properties as long-term investments, but may
determine to sell certain properties that no longer meet its investment
criteria. The Company may provide financing in connection with such sales of
property if market conditions so require, but it does not presently intend to
make loans other than in connection with such transactions.
EastGroup has no present intentions of underwriting securities of other
issuers. The strategies and policies set forth above were determined, and are
subject to review by, EastGroup's Board of Directors which may change such
strategies or policies based upon its evaluation of the state of the real estate
market, the performance of EastGroup's assets, capital and credit market
conditions, and other relevant factors. EastGroup provides annual reports to its
stockholders, which contain financial statements audited by the Company's
independent public accountants.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and
regulations, an owner of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner knows
of, or was responsible for, the presence of such hazardous or toxic substances.
The presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of
EastGroup's properties have been subjected to environmental audits by
independent environmental consultants, which reports have not revealed any
potential significant environmental liability. Management of EastGroup is not
aware of any environmental liability that would have a material adverse effect
on EastGroup's business, assets, financial position or results of operations.
ITEM 2. PROPERTIES.
The Company conducts its primary operations from approximately 11,000
square feet of rented office space located at 300 One Jackson Place, 188 East
Capitol Street, Jackson, Mississippi. In March 1998, EastGroup acquired Ensign
Properties, Inc., an independent industrial developer in Orlando. This
acquisition allowed EastGroup to become self-managed in Orlando and Tampa with
plans to expand self-management to its other Florida markets. It also
significantly increases the Company's development capability in Florida. In
September 1998, EastGroup opened a western regional office based in Phoenix,
Arizona. This office manages the Company's operations in Arizona and California
that total over 4.6 million square feet of industrial space.
At December 31, 1998, the Company did not own any single property
that is 10% or more of total book value or 10% or more of total gross revenues
and thus is not subject to the requirements of Items 14 and 15 of Form S-11.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material litigation nor,
to its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Company's liability
insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
SHARES OF COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's shares of Common Stock are presently listed for trading
on the New York Stock Exchange under the symbol "EGP." The following table shows
the high and low share prices for each quarter (first quarter of 1997 restated
to give effect to the 3 for 2 share split in April 1997) reported by the
3
<PAGE> 4
New York Stock Exchange during the past two years and per share distributions
paid (restated to give effect to the share split) for each quarter.
<TABLE>
<CAPTION>
CALENDAR 1998 CALENDAR 1997
------------- -------------
QUARTER HIGH LOW DISTRIBUTIONS HIGH LOW DISTRIBUTIONS
- ------- ---- --- ------------- ---- --- -------------
<S> <C> <C> <C> <C> <C> <C>
First $22.13 19.44 $ .34 $19.92 17.75 $ .33
Second 20.88 18.88 .34 20.25 17.38 .33
Third 21.88 16.31 .36 22.94 19.25 .34
Fourth 19.75 16.75 .36 22.88 18.75 .34
------ ------
$ 1.40 $ 1.34
====== ======
</TABLE>
SHARES OF SERIES A PREFERRED STOCK MARKET PRICES AND DIVIDENDS
The Company's shares of Series A 9.00% Cumulative Redeemable Preferred
Stock are also listed for trading on the New York Stock Exchange and trade under
the symbol "EGP PrA." The following table shows the high and low preferred
share prices and per share distributions paid for each quarter of 1998 (no
Preferred Shares were issued in 1997 or in the first quarter 1998) reported by
the New York Stock Exchange.
<TABLE>
<CAPTION>
CALENDAR 1998 CALENDAR 1997
------------- -------------
QUARTER HIGH LOW DISTRIBUTIONS HIGH LOW DISTRIBUTIONS
- ------- ---- --- ------------- ---- --- -------------
<S> <C> <C> <C> <C> <C> <C>
First N/A N/A N/A N/A N/A N/A
Second 25.50 25.38 N/A N/A N/A N/A
Third 25.50 23.50 $.1625 N/A N/A N/A
Fourth 25.25 23.50 .5625 N/A N/A N/A
------
$.7250
======
</TABLE>
As of March 10, 1999, there were 1,291 holders of record of the
Company's 16,287,381 outstanding shares of common stock. Approximately 91% of
the Company's outstanding common shares are held by CEDE & Co., which is
accounted for as a single shareholder of record for multiple common stock
owners. In 1998, of the $1.40 per common share total distributions paid, $1.36
per share was taxable as ordinary income for federal income tax purposes and
$.04 per share represented a 20% long-term capital gain. In 1997, of the
$1.34 per common share total distributions paid, $1.14 per share was taxable as
ordinary income for federal income tax purposes and $.20 per share represented a
return of capital.
As of March 10, 1999, there were 47 holders of record of the Company's
1,725,000 outstanding shares of Series A preferred stock. Approximately 98% of
the Company's outstanding Series A preferred shares are held by CEDE & Co.,
which is accounted for as a single shareholder of record for multiple preferred
stock owners. All of the $.725 per share Series A preferred stock
distributions paid in 1998 was taxable as ordinary income for federal income tax
purposes.
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. 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. In December 1998, the Company sold
$10 million of the Series B Preferred Stock to Five Arrows and plans to sell the
remaining $60 million by September 25, 1999. No dividends were paid on the
Series B preferred stock during 1998.
4
<PAGE> 5
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data
for the Company and should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Income from real estate operations $74,312 49,791 37,143 28,386 23,194
Interest 1,868 2,571 1,718 1,036 1,054
Other 548 1,260 904 842 647
------- ------- ------- ------- -------
76,728 53,622 39,765 30,264 24,895
------- ------- ------- ------- -------
Expenses
Operating expenses of
real estate operations 19,328 14,825 13,262 11,575 9,741
Interest expense 16,948 10,551 8,930 6,287 3,905
Depreciation and
amortization 16,574 10,409 7,759 5,613 4,323
General and administrative
expenses 3,822 2,923 2,356 2,180 2,046
Stock appreciation rights and
incentive compensation recovery - - - - (129)
------- ------- ------- ------- -------
56,672 38,708 32,307 25,655 19,886
------- ------- ------- ------- -------
Income before minority interest
and gain on investments 20,056 14,914 7,458 4,609 5,009
Minority interests in
joint ventures 433 512 289 220 163
------- ------- ------- ------- -------
Income before gains
on investments 19,623 14,402 7,169 4,389 4,846
Gains on investments
Real estate 9,713 6,377 5,334 3,322 2,322
Real estate investment
trust securities - - 6 - -
------- ------- ------- ------- -------
Net income 29,336 20,779 12,509 7,711 7,168
Preferred dividends 2,070 - - - -
------- ------- ------- ------- -------
Net income available to
common shareholders $27,266 20,779 12,509 7,711 7,168
======= ======= ======= ======= =======
BASIC PER SHARE DATA:
Net income available
to common shareholders $ 1.67 1.58 1.44 1.22 1.16
Weighted average number of
shares outstanding 16,283 13,176 8,677 6,338 6,170
DILUTED PER SHARE DATA:
Net income available
to common shareholders $ 1.66 1.56 1.43 1.21 1.15
Weighted average number of
shares outstanding 16,432 13,338 8,749 6,362 6,220
OTHER PER SHARE DATA:
Book value (at end of
year) $ 16.12 15.88 13.78 13.06 12.98
Common distributions declared 1.40 1.34 1.28 1.23 0.87
Common distributions paid 1.40 1.34 1.28 1.23 1.16
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from operations:
Net income $ 29,336 20,779 12,509 7,711 7,168
Preferred dividends (2,070) - - - -
--------- --------- --------- --------- ---------
Net income available to
common shareholders 27,266 20,779 12,509 7,711 7,168
Add:
Depreciation and amortization 16,574 10,409 7,759 5,613 4,323
Real estate investment
trust dividends received - - 77 182 60
Deduct:
Gains on investments, net (9,713) (6,377) (5,340) (3,322) (2,322)
Equity in earnings of real
estate investment trust - - (43) (203) (123)
Stock appreciation rights and
incentive compensation recovery - - - - (129)
Other (324) (284) (142) (134) (64)
--------- --------- --------- --------- ---------
Funds from operations (1) $ 33,803 24,527 14,820 9,847 8,913
========= ========= ========= ========= =========
Cash flows provided by (used in):
Operating activities $ 29,393 23,685 13,996 9,746 8,448
Investing activities (123,592) (79,959) (577) (5,721) (46,831)
Financing activities 95,685 57,134 (13,007) (4,300) 35,994
BALANCE SHEET DATA (AT END
OF YEAR):
Real estate investments, at cost (2) $ 582,565 419,857 292,620 162,400 165,395
Real estate investments, net of
accumulated depreciation and
allowance for losses (2) 539,729 387,545 269,058 143,194 149,507
Total assets 567,548 413,127 281,455 157,955 154,860
Mortgage, bond and bank
loans payable 236,816 147,150 129,078 71,562 68,229
Total liabilities 251,524 155,812 136,129 75,055 72,684
Total shareholders' equity 316,024 257,315 145,326 82,900 82,176
</TABLE>
6
<PAGE> 7
(1) EastGroup defines funds from operations ("FFO"), consistent with the
National Association of Real Estate Investment Trusts ("NAREIT") 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 to
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.
(2) Does not include a 50% controlled joint venture investment of $4,367,000 at
December 31, 1996 that was sold in 1997, or the $500,000 land purchase-leaseback
held for sale at December 31, 1998.
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION:
Assets of EastGroup were $567,548,000 at December 31, 1998, an increase
of $154,421,000 from December 31, 1997. Liabilities (excluding minority
interests) increased $95,445,000 to $248,821,000; minority interests increased
$267,000 to $2,703,000; and stockholders' equity increased $58,709,000 to
$316,024,000 during the same period. Book value per common share increased from
$15.88 at December 31, 1997 to $16.12 at December 31, 1998.
Industrial properties increased $190,379,000 during the year ended
December 31, 1998 as compared to 1997. This increase was primarily due to the
acquisition of 12 industrial properties for $81,004,000 and the purchase of the
remaining 25% interest in WestPort Commerce for $793,000 for a total of
$81,797,000 (as detailed below) and the acquisition of 18 properties in the
Meridian merger with an allocated purchase price of $96,366,000 (as detailed
below). Capital improvements of $6,777,000 were made on existing and acquired
properties. Adding to these increases were the reclassifications of five
industrial properties from industrial development with total costs of
$13,618,000. Offsetting these increases were the sales of three industrial
properties with total costs of $4,547,000 and the reclassification of one
industrial property with total costs of $3,179,000 to real estate held for
sale.
<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
Airpark Distribution 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 5,775
Interstate Commerce Fort Lauderdale, Florida 85,000 06-24-98 3,137
American Plaza Houston, Texas 121,000 06-25-98 5,322
Shaw Commerce Fresno, California 398,000 06-25-98 14,092
Northpointe Commerce Oklahoma City, Oklahoma 58,000 09-01-98 3,890
World Houston 3, 4 & 5 Houston, Texas 166,000 09-25-98 7,438
-------
TOTAL INDUSTRIAL ACQUISITIONS $81,797
=======
</TABLE>
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<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 $435
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 4,629
Ethan Allen Distribution Los Angeles, California 300,000 06-01-98 12,719
Park Ridge Distribution Boynton Beach, Florida 45,000 06-01-98 3,181
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 6,730
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 $96,366
=======
</TABLE>
Industrial development increased $11,851,000 during the year ended
December 31, 1998. This increase resulted primarily from development costs of
$25,511,000 on existing and completed development properties, offset by costs of
$13,618,000 on completed development properties reclassified to industrial
properties, as detailed below (approximately $251,000 of costs were incurred on
such properties subsequent to reclassification to industrial properties).
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<PAGE> 10
<TABLE>
<CAPTION>
COSTS INCURRED
SIZE AT -----------------------------------
COMPLETION FOR THE 12 MONTHS CUMULATIVE AS ESTIMATED
(SQUARE FEET) ENDED 12-31-98 OF 12-31-98 TOTAL COSTS (1)
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
LEASE-UP:
- ---------
Walden Distribution Center II
Tampa, Florida 122,000 $ 1,774 4,191 4,300
Sunbelt Distribution Center II
Orlando, Florida 61,000 1,030 2,212 2,300
John Young
Orlando, Florida 51,000 2,357 2,915 2,915
World Houston 7 & 8
Houston, Texas 166,000 4,687 4,687 7,600
------------------------------------------------------------------
TOTAL LEASE-UP 400,000 9,848 14,005 17,115
------------------------------------------------------------------
UNDER CONSTRUCTION:
- -------------------
Rampart Distribution Center III
Denver, Colorado 92,000 1,134 2,172 5,553
Sample 95 II
Pompano, Florida 70,000 1,012 1,012 3,587
World Houston 9
Houston, Texas 160,000 1,016 1,016 7,289
Airport Commerce Center
Tampa, Florida 108,000 1,385 1,385 5,962
John Young II
Orlando, Florida 46,000 665 665 3,164
Premier Beverage
Tampa, Florida 222,000 408 408 7,775
Chestnut
City of Industry, California 75,000 1,674 1,674 5,207
------------------------------------------------------------------
TOTAL UNDER CONSTRUCTION 773,000 7,294 8,332 38,537
------------------------------------------------------------------
APPROVED BY BOARD:
- ------------------
Westlake I
Tampa, Florida 70,000 1,611 1,611 3,922
Glenmont I
Houston, Texas 110,000 937 937 3,551
Main Street
Carson , California 106,000 -- -- 5,548
------------------------------------------------------------------
TOTAL APPROVED BY BOARD 286,000 2,548 2,548 13,021
------------------------------------------------------------------
PROSPECTIVE DEVELOPMENT:
- ------------------------
Houston, Texas 110,000 -- -- 3,900
Tampa, Florida 459,000 460 797 21,600
------------------------------------------------------------------
TOTAL PROSPECTIVE DEVELOPMENT 569,000 460 797 25,500
------------------------------------------------------------------
2,028,000 $ 20,150 25,682 94,173
==================================================================
COMPLETED DEVELOPMENT AND
TRANSFERRED TO INDUSTRIAL
PROPERTIES DURING 1998:
- -----------------------
Benjamin Distribution Center II
Tampa, Florida 47,000 $ 815 2,437 2,437
Palm River II
Tampa, Florida 72,000 1,236 3,307 3,307
Rampart Distribution Center II
Denver, Colorado 66,000 294 3,266 3,266
Chancellor Center
Orlando, Florida 51,000 168 2,011 2,011
World Houston 6
Houston, Texas 68,000 2,848 2,848 2,848
------------------------------------------------------------------
TOTAL TRANSFERRED TO INDUSTRIAL 304,000 $ 5,361 13,869 13,869
==================================================================
</TABLE>
(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. Among the factors
that could affect the accuracy of the forward-looking statements are weather,
default or other failure of performance by contractors, increases in the price
of construction materials or the unavailability of such materials, failure to
obtain necessary permits or approvals from governmental entities, changes in
local and/or national economic conditions, increased competition for tenants or
other occurrences that could depress rental rates, and other factors not within
the control of the Company.
Office buildings decreased $32,857,000 during the year ended December
31, 1998, as a result of capital improvements of $500,000, the sale of the
Columbia Place Office Building with a cost of $12,012,000, and the
reclassification of the 8150 Leesburg Pike Office Building with a cost of
$21,345,000 to real estate held for sale.
Apartments decreased $6,514,000 as a result of capital improvements of
$206,000 and the sale of Grande Pointe Apartments with a cost of $6,720,000.
Real estate held for sale increased $2,387,000 primarily as a result of
capital improvements of $60,000 and the reclassifications of three properties to
real estate held for sale with a total cost of $25,023,000. These increases were
primarily offset by the sales of three apartment complexes with total costs of
$22,687,000 and one small parcel of land with a cost of $9,000.
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<PAGE> 11
Accumulated depreciation on real estate properties and real estate held
for sale increased $10,524,000 due to depreciation expense of
$15,239,000, offset by the sale of eight properties with total accumulated
depreciation of $4,715,000.
Mortgage loans receivable decreased $2,038,000 during 1998. Decreases
resulted from regularly scheduled principal payments of $1,467,000 and the
payoff of the Palm River Center mortgage of $1,575,000. Increases resulted from
the amortization of loan discounts of $621,000 and deferred gains (recognized on
the installment method) of $383,000.
Investments in real estate investment trusts decreased from $16,518,000
at December 31, 1997 to $5,737,000 at December 31, 1998. The following table
provides an analysis of the changes that occurred in these investments and
accounts for the decrease.
<TABLE>
<CAPTION>
(In thousands)
-----------------
<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 1,832
Recognized unrealized loss on other real estate investment trusts (108)
-----------------
Balance at December 31, 1998, consisting of Franklin Select Realty Trust shares $5,737
=================
</TABLE>
Other assets increased $11,032,00 during 1998 primarily as a result of
$4,324,000 received from the sale of Columbia Place Office Building and placed
in escrow to be used in facilitating tax deferred exchanges, unamortized
goodwill of $1,174,000 relating to the Ensign acquisition, prepaid costs of
$947,000 relating to the Series B Preferred Stock offering which will be netted
against future funding proceeds, good faith deposit of $940,000 relating to the
$47,000,000 Metropolitan Life mortgage loan and other costs such as leasing
commissions and unamortized organization costs.
Mortgage notes payable increased $17,114,000 during 1998, as a result
of regularly scheduled principal payments of $2,978,000, the repayments of
$1,668,000 on the Metro mortgage and $1,620,000 on the Lamar mortgage, and the
assumptions by the buyer of the following mortgages: $4,173,000 on the Doral
Club Apartments mortgage, $5,682,000 on the Sutton House Apartments mortgage and
$9,550,000 on the Columbia Place mortgage. These decreases were offset by the
placement of a $2,200,000 mortgage on the Lamar Distribution Center with monthly
principal and interest of $16,925, rate of 6.9% and maturity date of December 1,
2008. In addition, the Company assumed debt on the following properties:
$2,610,000 on the acquisition of Estrella, $4,553,000 on the acquisition of
World Houston 1 & 2, and $33,422,000 on the Meridian VIII acquisition. Terms of
these mortgage notes payable are detailed in the following tables.
MORTGAGES ASSUMED IN PROPERTY ACQUISITIONS
------------------------------------------
<TABLE>
<CAPTION>
DATE OF AMOUNT OF
ASSUMPTION INTEREST MATURITY MORTGAGE
OF LOAN PROPERTY RATE DATE (IN THOUSANDS)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02-18-98 Estrella 9.250% 01-02-03 $2,610
06-18-98 World Houston 1 & 2 7.770% 04-15-07 4,553
------
$7,163
======
</TABLE>
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% 09-01-09 $ 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>
11
<PAGE> 12
Notes payable to banks increased from $41,770,000 at December 31, 1997
to $114,322,000 at December 31, 1998. As of December 31, 1998, the acquisition
line had a balance of $96,930,000 and the working capital line had a balance of
$17,392,000. These lines of credit are described in detail under Liquidity and
Capital Resources.
Unrealized gain on securities increased $1,142,000 as a result of an
increase in the market value of the Company's investments recorded in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
Undistributed earnings increased from $13,633,000 at December 31, 1997
to $18,076,000 at December 31, 1998, as a result of net income available to
common shareholders for financial reporting purposes of $27,266,000 exceeding
dividends on common stock of $22,823,000.
In June 1998, the Company sold 1,725,000 shares of Series A 9.00%
Cumulative Redeemable Preferred Stock at $25 per share in a public offering. In
December 1998, the Company sold $10,000,000 of Series B 8.75% Cumulative
Convertible Preferred Stock to Five Arrows Realty Securities II, L.L.C. for
$24.50 per share, net of a 2% discount per share. For a more detailed discussion
of these issues, see Note 8 in the Notes to the Consolidated Financial
Statements.
12
<PAGE> 13
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Net income available to common shareholders for 1998 was $27,266,000
($1.67 per basic share and $1.66 per diluted share) compared to net income in
1997 of $20,779,000 ($1.58 per basic share and $1.56 per diluted share). Income
before gains on investments was $19,623,000 in 1998 compared to $14,402,000 in
1997. Gains on investments were $9,713,000 in 1998 compared to $6,377,000 in
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 $20,018,000 or 57.25%
for 1998, compared to 1997. PNOI and percentage leased by property type were as
follows:
<TABLE>
<CAPTION>
PNOI
YEARS ENDED PERCENT
DECEMBER 31, LEASED
------------ -------
1998 1997 12-31-98 12-31-97
---- ---- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Industrial $47,003 25,080 98% 97%
Office Buildings 4,856 5,735 100% 100%
Other 3,125 4,151 99% 94%
------- ------
Total PNOI $54,984 34,966
======= ======
</TABLE>
PNOI from industrial properties increased $21,923,000 for 1998 compared
to 1997. Industrial properties held throughout the year showed an increase in
PNOI of 4.8% for 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. Of the increase in PNOI relating to acquisitions, $6,121,00
was attributable to the Meridian acquisitions in 1998, $4,081,000 was
attributable to other acquisitions in 1998, and $9,416,000 was attributable to
1997 acquisitions.
PNOI from the Company's office buildings decreased $879,000 for 1998
compared to 1997. This decrease was primarily the result of the sale of the
Santa Fe Office Building in July 1997 and the Columbia Place Office Building in
December 1998. Office properties held throughout the year showed an increase in
PNOI of 9.6% compared to 1997.
PNOI from the Company's other properties decreased $1,026,000 for 1998
compared to 1997. This decrease is primarily attributable to the sale of the
Sutton House and Doral Club Apartments in September 1998, the Hampton House
Apartments in June 1998 and the Grande Pointe Apartments in December 1998. Other
properties held throughout the year showed an increase in PNOI of 19.6%.
Interest income on mortgage loans decreased $309,000 for 1998 compared
to 1997. The following is a breakdown of interest income for the year ended
December 31, 1998 compared to 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
Interest income from: (In thousands)
-----------------------
<S> <C> <C>
Land mortgage loans $886 915
Apartment mortgage loans 556 533
Motel mortgage loans 174 364
Other mortgage loans 88 201
----------------------
$1,704 2,013
======================
</TABLE>
13
<PAGE> 14
Interest income from motel mortgage loans decreased as a result of the
repayment of the Jacksonville mortgage loan. 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 estimated net realizable value. Interest
income on other mortgage loans decreased primarily as a result of the repayment
of three mortgage loans.
Interest expense increased $6,397,000 from 1997 to 1998. Average bank
borrowings were $94,488,000 in 1998 compared to $11,155,000 in 1997 with average
interest rates of 7.06% in 1998 compared to 7.55% in 1997. Average bank
borrowings increased primarily as a result of the Meridian acquisition and the
acquisition of other industrial properties. Bank interest rates at December 31,
1998 and 1997 were 6.96% (LIBOR plus 1.40%) and 7.49% (LIBOR plus 1.50%),
respectively. Interest cost incurred during the period of construction of real
estate properties is capitalized. The interest cost capitalized on real estate
properties for 1998 was $822,000 compared to $401,000 for 1997. Interest expense
on real estate properties increased primarily as a result of mortgages assumed
in 1997 on Southbay and on mortgages assumed in 1998 on Estrella, World Houston
1 & 2 and Meridian VIII merger discussed previously.
Depreciation and amortization increased $6,165,000 in 1998 compared to
1997. This increase was primarily due to the industrial properties acquired in
both 1997 and 1998, partially offset by sale of the real estate properties
discussed below.
The increase in general and administrative expenses of $899,000 for the
year ended December 31, 1998 is primarily due to an increase in general and
administrative costs due to growth of the Company.
In 1998, the Company recognized gains of $9,713,000 consisting
primarily of the sale of eight properties and the recognition of other deferred
gains. In 1997, the Company recognized gains of $6,377,000 consisting of the
sale of three properties, a write-down on a mortgage note receivable and the
recognition of other deferred gains. See Note 2 of the Consolidated Financial
Statements for details of these sales.
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 years ended December 31, 1998 and 1997 by category are as follows:
<TABLE>
<CAPTION>
1998 CAPITAL IMPROVEMENTS 1998
------------------------- Industrial 1997
Industrial Other Total Development Total
------------- ------------- -------------- ----------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Upgrade on Acquisitions $ 2,555 - 2,555 - 742
Major Renovation 793 - 793 - 105
New Development 165 - 165 23,907 14,053
Tenant improvements:
New Tenants 1,701 399 2,100 - 2,187
New Tenants (first generation) 53 - 53 1,604 883
Renewal Tenants 1,200 107 1,307 - 383
Other 315 255 570 - 988
-------------------------------------------------------- -------
$ 6,782 761 7,543 25,511 19,341
======================================================== =======
</TABLE>
14
<PAGE> 15
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 years
ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 CAPITALIZED LEASING COSTS
------------------------------
Industrial 1997
Industrial Other Total Development Total
------------------------------------------------------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Capitalized leasing costs:
New Tenants $ 1,348 117 1,465 - 1,247
New Tenants (first generation) 53 - 53 193 324
Renewal Tenants 1,130 - 1,130 - 514
------------------------------------------------------ ---------
$ 2,531 117 2,648 193 2,085
====================================================== =========
Amortization of leasing costs 1,072 718
===== ===
</TABLE>
Rental income from real estate operations is principally recognized
based on the terms of the operating leases, which does not differ materially
from recognizing rental income on a straight-line basis.
15
<PAGE> 16
1997 COMPARED TO 1996
Net income for 1997 was $20,779,000 ($1.58 per basic share and $1.56
per diluted share) compared to net income in 1996 of $12,509,000 ($1.44 per
basic share and $1.43 per diluted share). Income before gains on investments was
$14,402,000 in 1997 compared to $7,169,000 in 1996. Gains on investments were
$6,377,000 in 1997 compared to $5,340,000 in 1996.
For 1996, the results of operations include the results of operations
for LNH from May 14, 1996 through December 31, 1996 and the results of
operations for Copley from June 19, 1996 through December 31, 1996 (dates of
acquisition through year-end).
PNOI from real estate properties, defined as income from real estate
operations less property operating expenses (before interest expense and
depreciation), increased by $11,085,000 or 46.4% for 1997, compared to 1996.
PNOI and percentage leased by property type were as follows:
<TABLE>
<CAPTION>
PNOI
YEARS ENDED PERCENT
DECEMBER 31, LEASED
------------ ------
1997 1996 12-31-97 12-31-96
---- ---- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Industrial $25,080 14,327 97% 97%
Office Buildings 5,735 4,454 100% 97%
Apartments 3,694 4,824 94% 97%
Other 457 276 - -
------- ------
Total PNOI $34,966 23,881
======= ======
</TABLE>
PNOI from industrial properties increased $10,753,000 for 1997 compared
to 1996. Industrial properties held throughout the year showed an increase in
PNOI of 4.9% for 1997. Of the increase in PNOI from industrial properties,
$5,501,000 resulted from the industrial properties acquired in the mergers with
LNH and Copley. Also contributing to this increase in PNOI from industrial
properties were the 1997 acquisitions discussed previously and the acquisitions
of Walnut Business Center, a 234,070 square foot industrial complex in
Fullerton, California in August 1996 and Braniff Park West, a 259,352 square
foot industrial complex in Tulsa, Oklahoma in September 1996. These acquisitions
contributed $4,696,000 to the increase in PNOI from industrial properties for
1997 compared to 1996.
PNOI from the Company's office buildings increased $1,281,000 for 1997
compared to 1996. Office properties held throughout the year showed an increase
in PNOI of 21.8% compared to 1996. Of the increase in PNOI from office
buildings, $1,384,000 resulted from the office buildings acquired in the mergers
with LNH and Copley. Other increases were attributable to improvement in
operations from office properties held throughout 1997 compared to 1996. These
increases were partially offset by the sale of the Santa Fe Office Building in
July 1997.
PNOI from the Company's apartment properties decreased $1,130,000 for
1997 compared to 1996. This decrease is primarily attributable to the sale of
the Garden Villa Apartments in January 1996, the Pin Oaks and EastGate
Apartments in November 1996 and the Plantations Apartments in December 1996.
Apartment properties held throughout the year showed a decrease in PNOI of 2.0%
compared to 1996.
Interest income on mortgage loans increased $369,000 for 1997 compared
to 1996. The following is a breakdown of interest income for the year ended
December 31, 1997 compared to 1996:
16
<PAGE> 17
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
Interest income from: (In thousands)
--------------------------
<S> <C> <C>
Land mortgage loans $915 566
Apartment mortgage loans 533 514
Motel mortgage loans 364 403
Other mortgage loans 201 161
-----------------------
$2,013 1,644
=======================
</TABLE>
Interest income from land mortgage loans increased as a result of
interest income on loans received in the merger with LNH. The LNH loans were
discounted to estimated fair value at the merger date. This discount is being
amortized over the life of the loans and is included in interest income. The
amounts amortized for 1997 and 1996 were $465,000 and $287,000, respectively.
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 estimated
net realizable value. Interest income on other mortgage loans increased
primarily as a result of interest income on loans received in the mergers with
LNH and Copley.
Interest expense increased $1,621,000 from 1996 to 1997. Average bank
borrowings were $11,155,000 in 1997 compared to $11,572,000 in 1996 with average
interest rates of 7.55% in 1997 compared to 7.3% in 1996. Bank interest rates at
December 31, 1997 and 1996 were 7.49% (LIBOR plus 1.50%) and 7.48% (LIBOR plus
1.85%), respectively. Interest cost incurred during the period of construction
of real estate properties is capitalized. The interest cost capitalized on real
estate properties for 1997 was $401,000, compared to $19,000 for 1996. Interest
expense on real estate properties increased primarily as a result of the
University Business Center mortgage, the mortgages assumed in the Copley merger,
the mortgage assumed on the acquisition of Chamberlain and the mortgage on the
purchase of the four industrial properties in Jacksonville and New Orleans. This
increase in interest expense was offset by the payoff of the Nobel Center
mortgage and the sale of the Garden Villa Apartments and the Plantations
Apartments in 1996.
Depreciation and amortization increased $2,650,000 in 1997 compared to
1996. This increase was primarily due to the properties acquired in the Copley
and LNH mergers and the industrial properties acquired in 1997, partially offset
by sale of the real estate properties presented below.
The increase in general and administrative expenses of $567,000 for the
year ended December 31, 1997 is primarily due to an increase in costs as a
result of the Copley and LNH mergers and the 1997 property acquisitions.
In 1997, the Company recognized gains of $6,377,000 consisting of the
sale of three properties, a write-down on a mortgage note receivable and the
recognition of other deferred gains. In 1996, the Company recognized gains of
$5,340,000 consisting of the sale of five properties, two land
purchase-leasebacks, three parcels of land, a write-down on a mortgage note
receivable and the sale of REIT securities. See Note 2 of the Consolidated
Financial Statements for details of these sales.
NAREIT has recommended supplemental disclosures concerning capital
expenditures and leasing costs. The Company expenses apartment unit turnover
costs such as carpet, painting and small
17
<PAGE> 18
appliances. Capital expenditures for the years ended December 31, 1997 and 1996
by category are as follows:
<TABLE>
<CAPTION>
1997 CAPITAL IMPROVEMENTS
------------------------- 1997 1996
Industrial
Industrial Other Total Development Total
------------------------------------------ ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Upgrade on Acquisitions $ 742 - 742 - 90
Major Renovation - 105 105 - 2,867
New Development - - - 14,053 1,695
Tenant improvements:
New Tenants 1,282 905 2,187 - 959
New Tenants (first generation) - - - 883 -
Renewal Tenants 214 169 383 - 852
Other 483 505 988 - 1,006
------------------------------------- ------------- ---------
$ 2,721 1,684 4,405 14,936 7,469
===================================== ============= =========
</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 years
ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 CAPITALIZED LEASING COSTS
------------------------------
Industrial 1996
Industrial Other Total Development Total
---------------------------------------------------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Capitalized leasing costs:
New Tenants $ 786 399 1,185 62 528
New Tenants (first generation) - - - 324 -
Renewal Tenants 441 15 456 58 290
---------------------------------------------------- ------
$ 1,227 414 1,641 444 818
==================================================== ======
Amortization of leasing costs $718 493
==== ===
</TABLE>
Rental income from real estate operations is principally recognized
based on the terms of the operating leases, which does not differ materially
from recognizing rental income on a straight-line basis.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
and is effective for fiscal years beginning after December 15, 1997. The
adoption of this statement in 1998 did not have a material impact on the
Company's consolidated financial statements.
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
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 in 1998 had an immaterial impact on the
Company's consolidated financial
18
<PAGE> 19
statements and required expanded disclosures as discussed in Note 12 of the
Notes to the Consolidated Financial Statements.
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. Unamortized organization costs will be written off in first
quarter 1999 and accounted for as a cumulative effect of a change in accounting
principle.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $29,393,000 for the
year ended December 31, 1998. Other sources of cash were collections on mortgage
loan receivables, sales of real estate investments, mortgage borrowings, bank
borrowings and proceeds from the stock offerings. The Company distributed
$24,073,000 in common and preferred share dividends. Other 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 and purchases of real estate investment trust shares. Total debt
at December 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable - fixed rate $122,494 105,380
Bank notes payable - floating rate 114,322 41,770
-------- -------
Total debt $236,816 147,150
======== =======
</TABLE>
At December 31, 1998, the Company had a line of credit from a
commercial bank in the amount of $50,000,000 that was secured by the outstanding
stock of two of the Company's wholly-owned subsidiaries and by the Company's
ownership interests in two partnerships. Borrowings under the credit line at
December 31, 1998 were $17,392,000 and the interest rate was LIBOR plus 1.40%
(6.96% at December 31, 1998). Total loan commitment fees of $74,000, $75,000 and
$50,000 were paid in 1998, 1997 and 1996 for this line of credit. This line of
credit expired January 31, 1999.
At December 31, 1998, the Company had $96,930,000 outstanding under a
$100,000,000 acquisition line of credit from a commercial bank. The acquisition
line had an interest rate of LIBOR plus 1.40% at December 31, 1998. The line was
secured by 11 properties of the Company with an aggregate carrying amount of
$129,754,000 at December 31, 1998 and was due to expire September 30, 2000.
Total loan commitment fees of $62,500, $143,750 and $37,500 were paid in 1998,
1997 and 1996 for this line of credit.
On January 13, 1999, the Company replaced the $50,000,000 and
$100,000,000 bank lines with a new three-year $150 million unsecured revolving
credit facility with a group of ten banks which was arranged by Chase
Securities, Inc. The interest rate is based on the Eurodollar rate plus 1.25%
and was 6.19% at March 10, 1999. The book manager and administrative agent for
the credit facility is Chase Bank of Texas, which led a syndicate of banks
including First Union National Bank, syndication agent; PNC Bank, documentation
agent; First American National Bank operating as Deposit Guaranty National Bank,
co-agent; SouthTrust Bank; AmSouth Bank; Bank One Louisiana; Hibernia National
Bank; First Tennessee Bank and Trustmark National Bank.
On March 1, 1999, the Company closed a $47 million, nonrecourse first
mortgage loan with Metropolitan Life. The note has an interest rate of 6.8%,
20-year amortization and a 10-year maturity. It is secured by six industrial
properties in California: Industry Distribution Center, Shaw Commerce Center,
Kingsview Industrial Center, Dominguez Distribution Center, Walnut Business
Center and Washington Distribution Center. The proceeds were used to reduce
bank borrowings. This new loan reduced the Company's weighted average
interest rate on mortgage debt from 8.2% to 7.8%.
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 December 31, 1998, the Company had
repurchased 21,100 shares for $359,000.
20
<PAGE> 21
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. In December 1998, the Company sold $10 million of
the Series B Preferred Stock to Five Arrows and plans to sell the remaining $60
million by September 25, 1999.
Budgeted capital expenditures and development for the year ending
December 31, 1999 follow:
<TABLE>
<CAPTION>
INDUSTRIAL
CAPITAL IMPROVEMENTS DEVELOPMENT
-------------------- -----------
Industrial Office Total Total
------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Upgrades on Acquisitions $ 651 - 651 -
Major Renovation 776 29 805 -
New Development 1,200 - 1,200 40,739
Tenant Improvements:
New Tenants 2,242 216 2,458 -
New Tenants-First
Generation 278 - 278 4,759
Renewal Tenants 1,526 27 1,553 -
Other 1,238 39 1,277 -
------------------------------------------- -------------------
$7,911 311 8,222 45,498
------------------------------------------- -------------------
</TABLE>
The Company anticipates that its current cash balance, operating cash
flows borrowings under the working capital line of credit and the Series B
preferred stock offering will be adequate for the Company's (i) operating and
administrative expenses, (ii) normal repair and maintenance expenses at its
properties, (iii) debt service obligations, (iv) distributions to stockholders,
(v) capital improvements, (vi) purchases of properties, (vii) development, and
(viii) common share repurchases.
Purchases of industrial properties subsequent to December 31, 1998
include the following:
<TABLE>
<CAPTION>
CLOSING
PROPERTY LOCATION DATE SIZE PURCHASE PRICE
- -----------------------------------------------------------------------------------------------------------------
(Square feet) (In thousands)
<S> <C> <C> <C> <C>
Central Green Houston, Texas 01-07-99 83,575 $ 4,570
Blue Heron
Distribution Center West Palm Beach, Florida 01-15-99 110,000 4,535
-------
$ 9,105
=======
</TABLE>
In addition, subsequent to December 31, 1998, the Company purchased a
4.73 acre parcel of land for development in Carson, California for $1,600,000.
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
21
<PAGE> 22
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). The
Company has established a Y2K compliance review process to assess the impact on
its 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, plans
are to replace during the first quarter of 1999 the financial information and
reporting system (which the vendor has represented to the Company is Y2K
compliant) with a new, more efficient, information and reporting system designed
to be Y2K compliant and which 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 systems that may
not be compliant early on 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 extend into 1999
depending upon the timeliness of activities of independent third parties.
The Company anticipates that total costs relating to Y2K compliance
will have an immaterial impact on the Company's overall financial statements.
22
<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result
of its line of credit and long-term debt used to maintain liquidity and fund
capital expenditures and expansion of the Company's real estate investment
portfolio and operations. The Company's interest rate risk management objective
is to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve its objectives, the Company
borrows at fixed rates but also has a three-year $150 million unsecured
revolving credit facility with a group of ten banks which was arranged by Chase
Securities, Inc. The interest rate is based on the Eurodollar rate plus 1.25%.
The table below presents the principal payments due and weighted average
interest rates for both the fixed rate and variable rate debt.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt (in thousands) 3,131 12,621 7,228 11,636 7,387 80,491 122,494 130,066
Average interest rate 8.34% 8.80% 8.01% 7.74% 8.66% 8.19% 8.29%
Variable rate
LIBOR debt (in thousands) 17,392 96,930 - - - - 114,322 114,322
Average interest rate 6.96% 7.66% - - - - 7.55%
</TABLE>
On January 13, 1999, the Company replaced the $50,000,000 and
$100,000,000 bank lines with a new three-year $150 million unsecured revolving
credit facility with a group of ten banks which was arranged by Chase
Securities, Inc. The interest rate is based on the Eurodollar rate plus 1.25%
and was 6.19% at March 10, 1999. The book manager and administrative agent for
the credit facility is Chase Bank of Texas, which led a syndicate of banks
including First Union National Bank, syndication agent; PNC Bank, documentation
agent; First American National Bank operating as Deposit Guaranty National Bank,
co-agent; SouthTrust Bank; AmSouth Bank; Bank One Louisiana; Hibernia National
Bank; First Tennessee Bank and Trustmark National Bank.
On March 1, 1999, the Company closed a $47 million, nonrecourse first
mortgage loan with Metropolitan Life. The note has an interest rate of 6.8%,
20-year amortization and a 10-year maturity. It is secured by six industrial
properties in California: Industry Distribution Center, Shaw Commerce Center,
Kingsview Industrial Center, Dominguez Distribution Center, Walnut Business
Center and Washington Distribution Center. The proceeds were used to reduce
bank borrowings. This new loan reduced the Company's weighted average
interest rate on mortgage debt from 8.2% to 7.8%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Consolidated Balance Sheets as of December 31, 1998
and 1997, and its Consolidated Statements of Income, Changes in Stockholders'
Equity and Cash Flows and Notes to Consolidated Financial Statements for the
years ended December 31, 1998, 1997 and 1996 and the independent auditors'
report thereon are included under Item 14 of this report and are incorporated
herein by reference. Unaudited quarterly results of operations included in the
notes to the consolidated financial statements are also incorporated herein by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's definitive proxy statement which will be filed with
the Securities and Exchange Commission (the "Commission") pursuant to Regulation
14A within 120 days of the end of Registrant's calendar year is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's definitive proxy statement which will be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN COMMON STOCK OWNERS AND MANAGEMENT.
The Registrant's definitive proxy statement which will be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's definitive proxy statement which will be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain sections of this Annual
Report contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, such as those pertaining to the Company's capital resources, profitability
and portfolio performance. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others discussed herein, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, 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 Annual Report. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only as the date
hereof. The Company assumes no obligation to update forward-looking statements.
See also the Company's reports to be filed from time to time with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
----
Index to Financial Statements:
<S> <C>
(a) (1) Consolidated Financial Statements:
Independent Auditors' Report 27
Consolidated Balance Sheets - December 31, 1998 and 1997 28
Consolidated Statements of Income - Years ended December
31, 1998, 1997 and 1996 29
Consolidated Statements of Changes in Stockholders' Equity-
Years ended December 31, 1998, 1997 and 1996 30
Consolidated Statements of Cash Flows - Years ended December
31, 1998, 1997 and 1996 31
Notes to Consolidated Financial Statements 32
(2) Consolidated Financial Statement Schedules:
Schedule III - Real Estate Properties and Accumulated Depreciation 52
Schedule IV - Mortgage Loans on Real Estate 57
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted, or the required information is included in the notes to the
consolidated financial statements.
(3) Form 10-K Exhibits:
(a) Articles of Incorporation (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated April
24, 1997).
(b) Bylaws of the Registrant (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated April
24, 1997).
(c) Articles Supplementary of the Company relating to the 9.00%
Series A Cumulative Redeemable Preferred Stock of the
Company (incorporated by reference to the Company's Form
8-A filed June 15, 1998).
(d) Articles Supplementary of the Company relating to the
Series B Cumulative Convertible Preferred Stock
(incorporated by reference to the Company's Form 8-K filed
on October 1, 1998).
(e) Articles Supplementary of the Company relating to the
Series C Preferred Stock (incorporated by reference to the
Company's Form 8-A filed December 9, 1998).
(f) Certificate of Correction to Articles Supplementary with
respect to Series B Cumulative Convertible Preferred
Stock (filed herewith).
(10) Material Contracts:
(a) EastGroup Properties 1994 Management Incentive Plan, As
Amended (incorporated by reference to Appendix D of the
Registrant's Registration Statement on Form S-4 (No.
333-01815).*
(b) EastGroup Properties 1991 Directors Stock Option Plan, As
Amended (incorporated by reference to Exhibit B of the
Registrant's proxy statement dated April 26, 1994).*
(c) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Leland R.
Speed, David H. Hoster II and N. Keith McKey)(incorporated
by reference to Exhibit 10(e) to the Registrant's 1996
Annual Report on Form 10-K).
(d) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Diane W.
Hayman, Marshall A. Loeb, Jann W. Puckett and Stewart R.
Speed) (incorporated by reference to Exhibit 10(e) to the
Registrant's 1996 Annual Report on Form 10-K).
25
<PAGE> 26
(e) Agreement and Plan of Merger dated February 18, 1998 among
the Registrant, EastGroup-Meridian, Inc. and Meridian
Point Realty Trust VIII Co.(incorporated by reference to
Exhibit 10 (a) to the Registrant's Current Report on Form
8-K dated March 13, 1998).
(f) Purchase Agreement for Jacksonville and New Orleans
Properties (incorporated by reference to Exhibit 10(a) to
the Registrant's Current Report on Form 8-K dated
September 24, 1997).
(g) Investment Agreement dated as of September 25, 1998
between the Company and Five Arrows Realty Securities II,
L.L.C. (incorporated by reference to the Company's Form
8-K filed October 1, 1998).
(h) Operating Agreement dated September 25, 1998 between the
Company and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to the Company's Form 8-K filed
October 1, 1998).
(i) Agreement and Waiver between the Company and Five Arrows
Realty Securities II, L.L.C. (incorporated by reference to
the Company's Form 8-K filed October 1, 1998).
(j) Credit Agreement dated January 13, 1999 among EastGroup
Properties, L.P.; EastGroup Properties, Inc.; Chase Bank
of Texas, National Association, as Arranger, Book Manager
and Administrative Agent; First Union National Bank, as
Syndication Agent; PNC Bank, National Association, as
Documentation Agent; First American National Bank,
operating as Deposit Guaranty National Bank, as Co-Agent;
and the Lenders (filed herewith).
(21) Subsidiaries of Registrant (filed herewith).
(23) Consent of KPMG Peat Marwick LLP (filed herewith).
(24) Powers of attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
(28) Agreement of Registrant to furnish the Commission with copies
of instruments defining the rights of holders of long-term
debt (incorporated by reference to Exhibit 28(e) of the
Registrant's 1986 Annual Report on Form 10-K).
(99) Rights Agreement dated as of December 3, 1998 between the
Company and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to the Company's Form 8-A filed
December 9, 1998).
(b) (1) 8K - Filed October 16, 1997 - Reporting the completion of an
offering of 3,500,000 shares of
common stock for net proceeds of $72,555,000.
(2) 8K - Filed December 4, 1998 - Reporting Adoption of Rights
Agreement.
*Indicates management or compensatory agreement.
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
THE DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:
We have audited the consolidated financial statements of EastGroup Properties,
Inc. and subsidiaries, as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EastGroup
Properties, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
March 5, 1999
27
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Real estate properties:
Industrial $ 507,187 316,808
Industrial development 25,682 13,831
Other 15,762 55,133
--------- -------
548,631 385,772
Less accumulated depreciation (34,042) (29,095)
--------- -------
514,589 356,677
--------- -------
Real estate held for sale 25,620 23,233
Less accumulated depreciation (8,794) (3,217)
--------- -------
16,826 20,016
--------- -------
Mortgage loans 8,814 10,852
Investment in real estate investment trusts 5,737 16,518
Cash 2,784 1,298
Other assets 18,798 7,766
--------- -------
TOTAL ASSETS $ 567,548 413,127
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 122,494 105,380
Notes payable to banks 114,322 41,770
Accounts payable & accrued expenses 9,138 3,979
Other liabilities 2,867 2,247
--------- -------
248,821 153,376
--------- -------
Minority interest in joint ventures 2,053 2,436
Minority interest in operating partnership 650 -
--------- -------
2,703 2,436
--------- -------
STOCKHOLDERS' EQUITY
Series A 9.00% Cumulative Redeemable Preferred
Shares and additional paid-in capital; $.0001 par value;
1,725,000 shares authorized and issued at December 31, 1998
and none at December 31, 1997; stated liquidation
preference of $43,125 at December 31, 1998 41,357 -
Series B 8.75% Cumulative Convertible Preferred
Shares and additional paid-in capital; $.0001 par value;
2,800,000 shares authorized; 400,000 shares issued at
December 31, 1998; stated liquidation preference
of $10,000 at December 31, 1998 9,642 -
Series C Preferred Shares; $.0001 par value - -
Common shares; $.0001 par value; 65,475,000
shares authorized; 16,307,681 shares issued
at December 31, 1998 and 16,204,523 at
December 31, 1997 2 2
Excess shares; $.0001 par value; 30,000,000 shares
authorized; no shares issued - -
Additional paid-in capital on common shares 246,340 244,215
Undistributed earnings 18,076 13,633
Accumulated other comprehensive income 607 (535)
--------- -------
316,024 257,315
--------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 567,548 413,127
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Income from real estate operations $74,312 49,791 37,143
Interest:
Mortgage loans 1,704 2,013 1,644
Other interest 164 558 74
Other 548 1,260 904
------- ------- -------
76,728 53,622 39,765
------- ------- -------
EXPENSES
Operating expenses of
real estate operations 19,328 14,825 13,262
Interest 16,948 10,551 8,930
Depreciation and
amortization 16,574 10,409 7,759
General and administrative
3,822 2,923 2,356
------- ------- -------
56,672 38,708 32,307
------- ------- -------
INCOME BEFORE MINORITY INTEREST
AND GAIN ON INVESTMENTS 20,056 14,914 7,458
Minority interest in joint ventures
and operating partnership 433 512 289
------- ------- -------
INCOME BEFORE GAINS ON INVESTMENTS 19,623 14,402 7,169
Gains on real estate investments 9,713 6,377 5,340
------- ------- -------
NET INCOME 29,336 20,779 12,509
Preferred dividends 2,070 - -
------- ------- -------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $27,266 20,779 12,509
======= ======= =======
BASIC PER SHARE DATA:
Net income available to
common shareholders $ 1.67 1.58 1.44
======= ======= =======
Weighted average number of
shares outstanding 16,283 13,176 8,677
======= ======= =======
DILUTED PER SHARE DATA
Net income available to
common shareholders $ 1.66 1.56 1.43
======= ======= =======
Weighted average shares outstanding 16,432 13,338 8,749
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Shares Shares Shares
of of of Additional
Preferred Common Beneficial Paid-In
Stock Stock Interest Capital
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ - - 6,348 66,228
Comprehensive income
Net income - - - -
Net unrealized change in investment securities - - - -
Total comprehensive income
Cash dividends declared, $1.28 per share - - - -
Repurchase of 12,750 shares, options exercised - - (13) (137)
Issuance of 9,640 shares, incentive compensation - - 10 118
Issuance of 31,500 shares, exercise options - - 32 321
Issuance of 927,366 shares in LNH merger - - 927 12,713
Issuance of 3,238,343 shares in Copley merger - - 3,238 44,420
Issuance of 7,382 shares in dividend
reinvestment plan - - 7 117
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 - - 10,549 123,780
Comprehensive income
Net income - - - -
Net unrealized change in investment securities - - - -
Total comprehensive income
Cash dividends declared, $1.34 per share - - - -
Issuance of 2,100,000 shares of beneficial interest - - 2,100 34,554
Issuance of 23,800 shares of beneficial interest and
31,142 shares of common stock, options exercised - - 23 654
Repurchase of 8,268 shares of beneficial
interest and 11,725 shares of common stock,
options exercised - - (8) (380)
Issuance of 6,490 shares of beneficial interest,
incentive compensation - - 7 97
Issuance of 3,441 shares of beneficial interest, and
10,872 shares of common stock, dividend
reinvestment plan - - 3 288
Purchase of 194 fractional shares of beneficial interest - - - (5)
Reduction of par value associated with reorganization - 1 (12,674) 12,673
Issuance of 3,500,000 shares of common stock - 1 - 72,554
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 - 2 - 244,215
Comprehensive income
Net income - - - -
Net unrealized change in investment securities - - - -
Total comprehensive income
Cash dividends declared-common, $1.40 per share - - - -
Preferred stock dividends declared - - - -
Repurchase of 5,025 common shares, options exercised - - - (75)
Repurchase of 21,100 common shares, stock repurchase plan - - - (359)
Issuance of 5,007 shares of common stock,
incentive compensation - - - 102
Issuance of 29,685 shares of common
stock, exercise options - - - 415
Issuance of 79,353 shares of common
stock, Ensign merger - - - 1,746
Issuance of 1,725,000 shares of Series A preferred 41,357 - - -
Issuance of 400,000 shares of Series B preferred 9,642 - - -
Issuance of 15,238 shares of common stock,
dividend reinvestment plan - - - 296
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $ 50,999 2 - 246,340
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Undistributed Comprehensive
Earnings Income Total
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 9,657 667 82,900
Comprehensive income
Net income 12,509 - 12,509
Net unrealized change in investment securities - (667) (667)
------------
Total comprehensive income 11,842
------------
Cash dividends declared, $1.28 per share (11,169) - (11,169)
Repurchase of 12,750 shares, options exercised - - (150)
Issuance of 9,640 shares, incentive compensation - - 128
Issuance of 31,500 shares, exercise options - - 353
Issuance of 927,366 shares in LNH merger - - 13,640
Issuance of 3,238,343 shares in Copley merger - - 47,658
Issuance of 7,382 shares in dividend
reinvestment plan - - 124
------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 10,997 - 145,326
Comprehensive income
Net income 20,779 - 20,779
Net unrealized change in investment securities - (535) (535)
------------
Total comprehensive income 20,244
------------
Cash dividends declared, $1.34 per share (18,143) - (18,143)
Issuance of 2,100,000 shares of beneficial interest - - 36,654
Issuance of 23,800 shares of beneficial interest and
31,142 shares of common stock, options exercised - - 677
Repurchase of 8,268 shares of beneficial
interest and 11,725 shares of common stock,
options exercised - - (388)
Issuance of 6,490 shares of beneficial interest,
incentive compensation - - 104
Issuance of 3,441 shares of beneficial interest, and
10,872 shares of common stock, dividend
reinvestment plan - - 291
Purchase of 194 fractional shares of beneficial interest - - (5)
Reduction of par value associated with reorganization - - -
Issuance of 3,500,000 shares of common stock - - 72,555
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 13,633 (535) 257,315
Comprehensive income
Net income 29,336 - 29,336
Net unrealized change in investment securities - 1,142 1,142
------------
Total comprehensive income 30,478
------------
Cash dividends declared-common, $1.40 per share (22,823) - (22,823)
Preferred stock dividends declared (2,070) - (2,070)
Repurchase of 5,025 common shares, options exercised - - (75)
Repurchase of 21,100 common shares, stock repurchase plan - - (359)
Issuance of 5,007 shares of common stock,
incentive compensation - - 102
Issuance of 29,685 shares of common
stock, exercise options - - 415
Issuance of 79,353 shares of common
stock, Ensign merger - - 1,746
Issuance of 1,725,000 shares of Series A preferred - - 41,357
Issuance of 400,000 shares of Series B preferred - - 9,642
Issuance of 15,238 shares of common stock,
dividend reinvestment plan - - 296
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 18,076 607 316,024
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 29,336 20,779 12,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of deferred leasing costs 16,574 10,409 7,759
Gains on investments, net (9,713) (6,377) (5,340)
Real estate investment trust:
Equity in earnings - - (43)
Dividends received - - 77
Other (324) (284) (142)
Changes in operating assets and liabilities:
Accrued income and other assets (13,403) (3,709) (122)
Accounts payable, accrued expenses and prepaid rent 6,923 2,867 (702)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,393 23,685 13,996
---------- ---------- ----------
INVESTING ACTIVITIES:
Collections of mortgage loans receivable, net of
amortization of loan discounts 2,421 2,910 (80)
Advances on mortgage loans receivable - (1,575) (121)
Sales of real estate investments 31,215 23,838 23,480
Sales of real estate investment trust securities - - 1,056
Real estate improvements (7,543) (4,405) (5,774)
Real estate development (25,511) (14,936) (1,695)
Purchases of real estate (73,980) (71,569) (13,865)
Acquisition of Meridian (52,760) - -
Purchases of real estate investment trusts shares (1,832) (16,119) (934)
Merger costs (1,614) - (3,169)
Changes in other assets and other liabilities (106) 1,897 (2,225)
Cash balances of acquired companies 6,118 - 2,750
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (123,592) (79,959) (577)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 202,560 122,962 60,374
Proceeds from mortgage notes payable 2,200 9,250 19,000
Principal payments on bank borrowings (130,008) (95,154) (50,771)
Principal payments on mortgage notes payable (6,270) (71,565) (30,768)
Distributions paid to shareholders (24,073) (18,143) (11,169)
Purchases of shares of beneficial interest and common stock (434) (393) (150)
Proceeds from exercise of stock options 415 677 353
Net proceeds from issuance of shares of beneficial
interest and common stock - 109,209 -
Net proceeds from issuance of shares of preferred stock 50,999 - -
Proceeds from dividend reinvestment plan 296 291 124
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 95,685 57,134 (13,007)
---------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,486 860 412
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,298 438 26
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,784 1,298 438
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 15,505 10,474 8,444
Debt assumed by the Company in purchase of real estate 7,167 52,579 -
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 19,405 - 8,359
Fair value of shares issued in Copley merger - - 47,658
Fair value of shares issued in LNH merger - - 13,640
Issuance of common stock to acquire Ensign 1,746 - -
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup
Properties, Inc. (the Company), its wholly-owned subsidiaries and its investment
in three joint ventures. At December 31, 1998, the three properties in the joint
ventures included the 75% owned 56th Street Commerce Park and JetPort Commerce
Park, and the 80% owned University Business Center. At December 31, 1997, the
four properties in the joint ventures included the 75% owned 56th Street
Commerce Park, JetPort Commerce Park, and WestPort Commerce Center, and the 80%
owned University Business Center. Also included in 1996 was a joint venture in
which the Company owned 77.78% of Liberty Corners Shopping Center that was sold
in 1997. The Company records 100% of the joint ventures' assets, liabilities,
revenues and expenses with minority interests provided for the percentage not
owned. All significant intercompany transactions and accounts have been
eliminated in consolidation. Prior to its sale in 1997, the Company's
investment in Cowesett Corners Shopping Center (a 50% owned joint venture) was
not consolidated but accounted for using the equity method of accounting.
(b) Federal Income Taxes
EastGroup Properties, a Maryland corporation, has qualified as a real
estate investment trust under Sections 856-860 of the Internal Revenue Code and
intends to continue to qualify as such. The Company distributed all of its 1998,
1997 and 1996 taxable income to its stockholders. Accordingly, no provision for
federal income taxes was necessary. Distributions paid per common share for
federal income tax purposes were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Ordinary Income $ 1.36 1.14 1.28
Long-Term 20% Capital Gain .04 - -
Return of Capital - .20 -
-------- -------- --------
$ 1.40 1.34 1.28
======== ======== ========
</TABLE>
Distributions paid per share of Series A Convertible Preferred for
federal income tax purposes for the year ended December 31, 1998 were $.725,
paid as ordinary income with no return of capital.
The Company's income differs for tax and financial reporting purposes
principally because of (1) the timing of the deduction for the provision for
possible losses and losses on investments, (2) the timing of the recognition of
gains or losses from the sale of investments, (3) different depreciation methods
and lives, and (4) mortgage loans having a different basis for tax and financial
reporting purposes, thereby producing different gains upon collection of these
loans.
(c) Income Recognition
Rental income from real estate operations is principally recognized
based on the terms of the operating leases, which does not differ materially
from recognizing rental income on a straight-line basis.
Interest income on mortgage loans is recognized based on the accrual
method unless a significant uncertainty of collection exists. If a significant
uncertainty exists, interest income is recognized as collected. Certain mortgage
loan discounts are amortized over the lives of the loans using a method that
does not differ materially from the interest method.
32
<PAGE> 33
The Company recognizes gains on sales of real estate in accordance with
the principles set forth in Statement of Financial Accounting Standards No. 66
(SFAS 66), "Accounting for Sales of Real Estate." Upon closing of real estate
transactions, the provisions of SFAS 66 require consideration for the transfer
of rights of ownership to the purchaser, receipt of an adequate cash down
payment from the purchaser and adequate continuing investment by the purchaser.
If the requirements for recognizing gains have not been met, the sale and
related costs are recorded, but the gain is deferred and recognized by the
installment method as collections are received.
(d) Real Estate Properties
Real estate properties are carried at cost less accumulated
depreciation. Cost includes the carrying amount of the Company's investment plus
any additional consideration paid, liabilities assumed, costs of securing title
(not to exceed fair market value in the aggregate) and improvements made
subsequent to acquisition. Depreciation of buildings and other improvements,
including personal property, is computed using the straight-line method over
estimated useful lives of 25 to 40 years for buildings and 3 to 10 years for
other improvements and personal property. Building improvements are capitalized,
while maintenance and repair expenses are charged to expense as incurred.
Apartment turnover costs such as carpet, painting and small appliances are also
expensed as incurred. Geographically, the Company's investments are concentrated
in the major sunbelt market areas of the southeastern and southwestern United
States, primarily in the states of California, Florida, Texas and Arizona.
(e) Real Estate Held for Sale
Real estate properties that are currently offered for sale or are under
contract to sell have been shown separately on the consolidated balance sheets
as "real estate held for sale." Such assets are carried at the lower of current
carrying amount or fair market value less estimated selling costs and are not
depreciated while they are held for sale.
(f) Marketable Equity Securities
The Company's marketable equity securities owned by the Company are
categorized as available-for-sale securities, as defined by SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Unrealized
holding gains and losses are reflected as a net amount in a separate component
of stockholders' equity until realized.
(g) Investments in Real Estate Investment Trusts
At December 31, 1998, EastGroup's only investment in real estate
investment trusts was in Franklin Select Realty Trust (Franklin). Since the
Company did not exercise significant influence over Franklin, this investment
was accounted for under the cost method. The cost of this investment is
adjusted to fair market value with an equity adjustment to account for
unrealized gains/losses as indicated in Note 1 (f) above. Although the Company
owned 21% of Meridian VIII at December 31, 1997, it did not exercise
significant influence over the investee and the investment was accounted for
under the cost method (the difference between applying the cost and equity
method would not be material to the 1997 consolidated financial statements).
Meridian VIII was acquired during 1998.
33
<PAGE> 34
(h) Allowance for Possible Losses and Impairment Losses
The Company measures impaired and restructured loans at the present
value of expected future cash flows, discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's market price or the fair value
of collateral if the loan is collateral dependent.
The Company applies SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by the Company be reviewed for impairment of value whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This statement requires that the majority of long-lived assets
and certain identifiable intangibles to be disposed of be reported at the lower
of carrying amount or fair value less selling costs.
(i) Amortization
Debt origination costs are deferred and amortized using the
straight-line method over the term of the loan. Leasing commissions are deferred
and amortized using the straight-line method over the term of the lease.
(j) Goodwill
In March 1998, EastGroup acquired Ensign Properties, Inc., the largest
independent industrial developer in Orlando. A portion of the total acquisition
price for Ensign included goodwill, which represents the excess of the purchase
price and related costs over the fair value assigned to the net tangible assets.
The Company amortizes goodwill on a straight-line basis over 20 years. The
Company will periodically review the recoverability of goodwill. The measurement
of possible impairment is based primarily on the ability to recover the balance
of the unamortized basis. In management's opinion, no material impairment exists
at December 31, 1998. Amortization expense for goodwill was $51,000 in 1998.
(k) Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(l) Reclassifications
Certain reclassifications have been made in the 1997 and 1996 financial
statements to conform to the 1998 presentation.
(m) Share Split
On March 20, 1997, the Company announced that its Board of Directors
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend was distributed on
April 7, 1997, to shareholders of record as of March 31, 1997. All share and per
share amounts in these financial statements have been retroactively restated to
account for the share split.
(n) Earnings Per Share
In December 1997, the Company adopted SFAS No. 128 "Earnings Per
Share," which requires companies to present basic earnings per share (EPS) and
diluted EPS. Prior to the effective date of SFAS No. 128, EPS was reported under
Accounting Principles Board Opinion No. 15, which required presentation of
primary and fully diluted EPS. The new standard, which went into effect December
15, 1997, requires
34
<PAGE> 35
additional informational disclosures contained herein and on the face of the
statement of income, makes certain modifications to APB Opinion No. 15, and
requires restatement of EPS for all prior periods reported. Accordingly, EPS
figures for 1996 have been restated.
Basic EPS represents the amount of earnings for the year available to
each share of common stock outstanding during the reporting period. The
Company's basic EPS is calculated by dividing net income available to common
shareholders by the weighted average number of common shares outstanding.
Diluted EPS represents the amount of earnings for the year available to
each share of common stock outstanding during the period and to each share that
would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the reporting period. The
Company's diluted EPS is calculated by totaling net income available to common
shareholders plus preferred dividends and limited partnership (LP) dividends and
dividing it by the weighted average number of common shares outstanding plus the
dilutive effect of stock options related to outstanding employee stock options,
LP units and convertible preferred stock, had the options or conversions been
exercised. The dilutive effect of stock options was determined using the
treasury stock method which assumes exercise of the options as of the beginning
of the period or when issued, if later, and assuming proceeds from the exercise
of options are used to purchase common stock at the average market price during
the period. The treasury stock method was also used assuming conversion of the
convertible preferred stock.
(o) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses during the reporting period, and to disclose material
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
(p) Stock Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted by
the Company effective January 1, 1996. This standard defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
Companies are given the choice of either recognizing related compensation cost
by adopting the new fair value method, or to continue to use the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees," while supplementally disclosing the
proforma effect on net income and net income per share using the new measurement
criteria. The Company elected to continue to follow the requirements of APB No.
25, and accordingly, there was no effect on the results of operations.
(q) Capitalized Development Costs
During the industrial development stage, costs associated with
development (i.e., land, buildings scheduled for renovation, construction costs,
interest expense during construction, property taxes, etc.) are aggregated into
the total capitalization of the property. As the properties become occupied,
interest, depreciation and property taxes for the percentage occupied only is
expensed as incurred. When the property becomes 80% occupied or one year after
completion of the construction, whichever comes first, the property is no longer
considered a development property and becomes an industrial property. When the
property becomes classified as an industrial property, the entire property is
depreciated accordingly, and interest and property taxes are expensed.
(2) REAL ESTATE OWNED
At December 31, 1998, the Company, as part of its focus on industrial
properties, is offering for sale the 8150 Leesburg Pike Office Building in
Tyson's Corner, Virginia with a carrying amount of $12,616,000 and West Palm I
and II in West Palm Beach, Florida with a carrying amount of $3,133,000. No loss
is anticipated on the sale of these properties. The results of operations for
real estate held for sale at December 31, 1998, amounted to $1,338,000, $687,000
and $375,000, respectively, for the years ended December 31, 1998, 1997 and
1996. The results of operations for real estate held for sale at December 31,
1997 amounted to $658,000 and $684,000 for the years ended December 31, 1997 and
1996, respectively.
35
<PAGE> 36
Costs incurred include capitalization of interest costs during the
period of construction. The interest costs capitalized on real estate properties
for 1998 was $822,000, compared to $401,000 for 1997, and $19,000 for 1996.
36
<PAGE> 37
The Company is currently developing the following properties as detailed below:
<TABLE>
<CAPTION>
COSTS INCURRED
SIZE AT ---------------------------------------
COMPLETION FOR THE 12 MONTHS CUMULATIVE AS ESTIMATED
(SQUARE FEET) ENDED 12-31-98 OF 12-31-98 TOTAL COSTS (1)
---------------------------------------------------------------------------
(Unaudited) (IN THOUSANDS) (Unaudited)
<S> <C> <C> <C> <C>
LEASE-UP:
- ---------
Walden Distribution Center II
Tampa, Florida 122,000 $ 1,774 4,191 4,300
Sunbelt Distribution Center II
Orlando, Florida 61,000 1,030 2,212 2,300
John Young
Orlando, Florida 51,000 2,357 2,915 2,915
World Houston 7 & 8
Houston, Texas 166,000 4,687 4,687 7,600
---------------------------------------------------------------------------
TOTAL LEASE-UP 400,000 9,848 14,005 17,115
---------------------------------------------------------------------------
UNDER CONSTRUCTION:
- -------------------
Rampart Distribution Center III
Denver, Colorado 92,000 1,134 2,172 5,553
Sample 95 II
Pompano, Florida 70,000 1,012 1,012 3,587
World Houston 9
Houston, Texas 160,000 1,016 1,016 7,289
Airport Commerce Center
Tampa, Florida 108,000 1,385 1,385 5,962
John Young II
Orlando, Florida 46,000 665 665 3,164
Premier Beverage
Tampa, Florida 222,000 408 408 7,775
Chestnut
City of Industry, California 75,000 1,674 1,674 5,207
---------------------------------------------------------------------------
TOTAL UNDER CONSTRUCTION 773,000 7,294 8,332 38,537
---------------------------------------------------------------------------
APPROVED BY BOARD:
- ------------------
Westlake I
Tampa, Florida 70,000 1,611 1,611 3,922
Glenmont I
Houston, Texas 110,000 937 937 3,551
Main Street
Carson , California 106,000 - - 5,548
---------------------------------------------------------------------------
TOTAL APPROVED BY BOARD 286,000 2,548 2,548 13,021
---------------------------------------------------------------------------
PROSPECTIVE DEVELOPMENT:
- ------------------------
Houston, Texas 110,000 - - 3,900
Tampa, Florida 459,000 460 797 21,600
---------------------------------------------------------------------------
TOTAL PROSPECTIVE DEVELOPMENT 569,000 460 797 25,500
---------------------------------------------------------------------------
2,028,000 $ 20,150 25,682 94,173
===========================================================================
COMPLETED DEVELOPMENT AND
TRANSFERRED TO INDUSTRIAL
PROPERTIES DURING 1998:
- -----------------------
Benjamin Distribution Center II
Tampa, Florida 47,000 $ 815 2,437 2,437
Palm River II
Tampa, Florida 72,000 1,236 3,307 3,307
Rampart Distribution Center II
Denver, Colorado 66,000 294 3,266 3,266
Chancellor Center
Orlando, Florida 51,000 168 2,011 2,011
World Houston 6
Houston, Texas 68,000 2,848 2,848 2,848
---------------------------------------------------------------------------
TOTAL TRANSFERRED TO INDUSTRIAL 304,000 $ 5,361 13,869 13,869
===========================================================================
</TABLE>
(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. Among the factors
that could affect the accuracy of the forward-looking statements are weather,
default or other failure of performance by contractors, increases in the price
of construction materials or the unavailability of such materials, failure to
obtain necessary permits or approval from governmental entities, changes in
local and/or national economic conditions, increased competition for tenants or
other occurrences that could depress rental rates, and other factors not within
the control of the Company.
37
<PAGE> 38
A summary of gains (losses) on real estate investments for the years ended
December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
NET RECOGNIZED
BASIS 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 9,448 1,752
Doral Club Apartments 5,900 9,046 3,146
Grande Pointe Apartments 5,857 7,104 1,247
401 Exchange Distribution Center 621 666 45
East Maricopa Distribution Center 625 625 -
Columbia Place Office Building 11,524 13,913 2,389
Park Ridge Distribution Center 3,154 3,154 -
LNH Land 9 53 44
Jacksonville - deferred gain (383) - 383
Other (73) - 73
---------------- ---------------- ----------------
$ 40,907 50,620 9,713
================ ================ ================
1997
Real estate properties:
Santa Fe Energy Building $ 10,354 12,660 2,306
Liberty Corners Shopping Center 2,649 5,263 2,614
Cowesett Corners Shopping Center 4,253 5,929 1,676
Houston Land (98) - 98
Wellington Land (14) (14) -
Plus Park - deferred gain (62) - 62
Bell Road - deferred gain (96) - 96
Mortgage loan writedown 475 - (475)
---------------- ---------------- ----------------
$ 17,461 23,838 6,377
================ ================ ================
1996
Real estate properties:
Garden Villa Apartments $ 2,715 4,068 1,353
Southwyck Land 97 149 52
Pompano Beach Land 3,280 3,267 (13)
Baygreen Industrial Center 1,679 1,677 (2)
Wellington Land 397 601 204
Pin Oaks Apartments 1,675 4,235 2,560
Eastgate Apartments 1,326 1,753 427
Plantations Apartments 6,765 7,116 351
Land purchase leasebacks:
Bellevue - 472 472
Taco Bell 12 142 130
Mortgage loan writedown 200 - (200)
---------------- ---------------- ----------------
$ 18,146 23,480 5,334
================ ================ ================
</TABLE>
The following schedule indicates approximate future minimum rental receipts
under noncancelable leases for the real estate properties by year as of December
31, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
- -----------------
<S> <C>
1999 $ 61,030
2000 52,272
2001 44,574
2002 34,818
2003 24,073
Later Years 49,988
----------------
Total Minimum Receipts $266,755
----------------
</TABLE>
38
<PAGE> 39
(3) MORTGAGE LOANS RECEIVABLE
A summary of mortgage loans follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans:
Industrial (2 loans in 1997) $ - 1,686
Apartment (1 loan) 3,010 2,836
Motels (2 loans in 1998; 3 loans in 1997) 1,250 1,714
Undeveloped Land (2 loans) 4,405 4,382
Other (3 loans in 1998; 4 loans in 1997) 149 234
-------- --------
$ 8,814 10,852
======== ========
</TABLE>
At December 31, 1997, the carrying value of two impaired motel mortgage
loans was $1,318,000. At December 31, 1998, the carrying value of these two
motel mortgage loans was reduced to $1,250,000. Interest income recorded on the
motel mortgages was $174,000 for 1998, $364,000 for 1997, and $403,000 for 1996.
These loans were paid off in February 1999.
(4) INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS
The investment in real estate investment trusts ("REIT") consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ----------- -------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Meridian Point Realty Trust VIII * $ - - 13,756 12,506
Franklin Select Realty Trust 5,130 5,737 3,297 4,012
-------------------------------------------------
$ 5,130 5,737 17,053 16,518
=================================================
</TABLE>
* See Note 9 for a full discussion on the Meridian VIII acquisition.
(5) NOTES PAYABLE TO BANKS
At December 31, 1998, the Company had a line of credit from a
commercial bank in the amount of $50,000,000 that was secured by the outstanding
stock of two of the Company's wholly-owned subsidiaries and by the Company's
ownership interests in two partnerships. Borrowings under the credit line at
December 31, 1998 were $17,392,000 and the interest rate was LIBOR plus 1.40%
(6.96% at December 31, 1998). Total loan commitment fees of $74,000, $75,000 and
$50,000 were paid in 1998, 1997 and 1996 for this line of credit. This line of
credit expired January 31, 1999.
At December 31, 1998, the Company had $96,930,000 outstanding
under a $100,000,000 acquisition line of credit from a commercial bank. The
acquisition line had an interest rate of LIBOR plus 1.40% at December 31,
1998. The line was secured by 11 properties of the Company with an
aggregate carrying amount of $129,754,000 at December 31, 1998 and was due
to expire September 30, 2000. Total loan commitment fees of $62,500,
$143,750 and $37,500 were paid in 1998, 1997 and 1996 for this line of
credit.
On January 13, 1999, the Company replaced the $50,000,000 and
$100,000,000 bank lines with a new three-year $150 million unsecured revolving
credit facility with a group of ten banks which was arranged by Chase
Securities, Inc. The interest rate is based on the Eurodollar rate plus 1.25%
and was 6.19% at March 10, 1999. The book manager and administrative agent for
the credit facility is Chase Bank of Texas, which led a syndicate of banks
including First Union National Bank, syndication agent; PNC Bank, documentation
agent; First American National Bank operating as Deposit Guaranty National
39
<PAGE> 40
Bank, co-agent; SouthTrust Bank; AmSouth Bank; Bank One Louisiana; Hibernia
National Bank; First Tennessee Bank and Trustmark National Bank.
On March 1, 1999, the Company closed a $47 million, nonrecourse first
mortgage loan with Metropolitan Life. The note has an interest rate of 6.8%,
20-year amortization and a 10-year maturity. It is secured by six industrial
properties in California: Industry Distribution Center, Shaw Commerce Center,
Kingsview Industrial Center, Dominguez Distribution Center, Walnut Business
Center and Washington Distribution Center. The proceeds were used to reduce
bank borrowings. This new loan reduced the Company's weighted average interest
rate on mortgage debt from 8.2% to 7.8%.
Average bank borrowings were $94,488,000 in 1998 compared to
$11,155,000 in 1997, with average interest rates of 7.06% in 1998 compared to
7.55% in 1997.
(6) MORTGAGE NOTES PAYABLE
A summary of mortgage notes payable follows:
<TABLE>
<CAPTION>
- ---------------------------------- ----------- ------------- ----------- ------------- -----------------------------
CARRYING
AMOUNT BALANCE AT DECEMBER 31,
P&I MATURITY OF SECURING -----------------------
PROPERTY RATE PAYMENT DATE REAL ESTATE 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interstate Distribution Center #1 9.25% $10,827 06/01/09 2,672 758 814
Interstate Distribution Center #2 9.25% 12,844 06/01/09 2,971 971 1,032
8150 Leesburg Pike Office Building 8.50% 52,304 06/15/05 12,617 3,109 3,456
Deerwood Distribution Center 8.375% 16,339 07/01/03 2,639 1,648 1,699
North Shore Improvement Bonds 6.3-7.5% Semiannual 09/02/16 2,539 410 421
Northwest Point Business Park 7.75% 32,857 03/01/01 6,428 4,016 4,096
56th Street Commerce Park 8.875% 21,816 08/01/04 2,885 2,143 2,212
Exchange Distribution Center 8.375% 21,498 08/01/05 3,239 2,314 2,375
LaVista Apartments 8.688% 48,667 09/01/05 6,614 5,699 5,784
Westport Commerce Center 8.00% 28,021 08/01/05 5,119 3,090 3,176
LakePointe Business Park 8.125% 81,675 10/01/05 9,418 10,680 10,788
JetPort, Jetport 515, Jetport 516 8.125% 33,769 10/01/05 4,588 3,711 3,811
University Business Center 9.06% 85,841 04/01/00 15,258 8,727 9,095
University Business Center 7.45% 74,235 02/28/02 11,117 8,874 8,955
Huntwood Associates 7.99% 100,250 08/22/06 17,680 12,597 12,785
Wiegman Associates 7.99% 46,269 08/22/06 8,768 5,814 5,900
Chamberlain Distribution Center 8.75% 21,376 01/01/05 3,926 2,462 2,501
Eastlake Distribution Center 8.50% 57,115 07/05/04 9,698 4,771 5,039
Estrella Distribution Center 9.25% 23,979 01/02/03 5,213 2,571 -
E.Univ, 7th St, 55th St, Ethan Allen 8.06% 96,974 06/26/07 24,541 12,281 -
Waldenbooks Distribution Center 7.83% 98,877 09/15/07 21,801 12,779 -
West Palm Distribution Center 8.25% 7,700 09/01/00 3,133 981 -
Lamar II Distribution Center 6.90% 16,925 12/01/08 6,645 2,200 -
Auburn I Distribution Center 8.875% 64,885 09/01/09 15,905 5,357 -
World Houston 1 and 2 7.77% 33,019 04/15/07 6,386 4,531 -
Doral Club Apartments 8.625% 36,494 10/31/03 - Repaid 09/98 4,230
Sutton House Apartments 8.00% 45,257 10/31/03 - Repaid 09/98 5,746
Columbia Place Office Building 8.875% 93,292 12/31/09 - Repaid 12/98 9,788
Metro Business Park 8.00% 15,892 04/01/98 - Repaid 04/98 1,677
-------------------------------------------
$211,800 $122,494 105,380
-------------------------------------------
</TABLE>
40
<PAGE> 41
Approximate principal payments due during the next five years as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $3,131,000
2000 12,621,000
2001 7,228,000
2002 11,636,000
2003 7,387,000
</TABLE>
As discussed in Note 5 above, the Company closed a $47 million,
nonrecourse first mortgage loan with Metropolitan Life on March 1, 1999.
Considering the effect of this new loan, approximate principal payments due
during the next five years are as follows:
<TABLE>
<S> <C>
1999 $ 3,982,000
2000 13,825,000
2001 8,516,000
2002 13,015,000
2003 8,863,000
</TABLE>
(7) REVERSE REPURCHASE AGREEMENTS
The Company does not in the ordinary course of business take possession
of the securities, which collateralize its reverse repurchase agreements (assets
purchased under agreements to resell). However, the Company has the right to
demand additional collateral or to request return of the invested funds at any
time the collateral value is less than the invested funds plus any accrued
earnings thereon. These transactions are conducted on a short-term basis with
financial institutions with which the Company has normal business relationships.
At December 31, 1998 and 1997, the Company did not hold reverse repurchase
agreements with any individual counterparty or group of counterparties in excess
of 10% of stockholders' equity.
(8) STOCKHOLDERS' EQUITY
MANAGEMENT INCENTIVE PLAN-STOCK OPTIONS/INCENTIVE AWARD
In 1994, the Company adopted the 1994 Management Incentive Plan. The
Plan includes stock options (50% vested after one year and the other 50% after
two years) and an annual incentive award.
Stock option activity for the 1994 plan is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
----------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------------- ----------- ------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 668,758 $16.49 422,250 $13.42 261,375 $12.12
Granted 7,000 $20.67 287,425 $20.39 202,125 $14.61
Exercised (22,935) $14.17 (37,692) $13.05 (31,500) $12.29
Expired (7,190) $18.01 (3,225) $14.97 (9,750) $13.09
------------- ------------ ----------
Outstanding at end of year 645,633 $16.60 668,758 $16.49 422,250 $13.42
============= ============ ==========
Exercisable at end of year 497,391 $15.45 282,633 $13.18 220,125 $12.51
Available for grant at end of year 29,388 - 34,205 - 44,896 -
Price range of options:
Outstanding $12.00-$22.375 $12.00-$22.375 $12.00-$17.92
Exercised $12.67-$17.92 $12.00-$14.92 $12.00-$12.67
Exercisable $12.00-$22.375 $12.00-$14.83 $12.00-$12.67
</TABLE>
The weighted average contractual life of the options outstanding as of
December 31, 1998 was 7.44 years.
The annual incentive award program began in 1995 and the Compensation
Committee determines awards based on actual funds from operations per share
("FFO") compared to goals set for the year. The 1998, 1997 and 1996 awards
approximated $469,000, $307,000 and $311,000, respectively, and were payable
two-thirds in cash and one-third in stock of the Company.
DIRECTORS STOCK OPTION PLAN
The Company has a Directors Stock Option Plan, as amended in 1994,
under which an aggregate of 150,000 shares of common stock were reserved for
issuance upon exercise of any options granted. Under
41
<PAGE> 42
the Directors plan, each Non-Employee Director is granted an initial 7,500
options and 2,250 additional options on the date of any Annual Meeting at which
the Director is reelected to the Board.
Stock option activity for the Director plan is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
------------------------- ------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------- -------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 70,500 $13.300 76,500 $11.830 65,250 $11.350
Granted 16,500 $20.625 11,250 $19.375 11,250 $14.580
Exercised (6,750) $12.830 (17,250) $10.750 - -
Expired (2,250) $19.375 - - - -
------- ------- ------
Outstanding at end of year 78,000 $14.710 70,500 $13.300 76,500 $11.830
======= ======= ======
Exercisable at end of year 78,000 $14.710 70,500 $13.300 76,500 $11.830
Available for grant at end of year 25,500 - 39,750 - 51,000 -
Price range of options:
Outstanding $10.67-$20.625 $10.67-$19.375 $10.67-$14.58
Exercised $11.25-$14.58 $10.67-11.25 -
Exercisable $10.67-$20.625 $10.67-$19.375 $10.67-$14.58
</TABLE>
The weighted average contractual life of the options outstanding as of
December 31, 1998 was 6.67 years.
SERIES A 9.00% CUMULATIVE REDEEMABLE PREFERRED STOCK
In June 1998, EastGroup sold 1,725,000 shares of Series A 9.00%
Cumulative Redeemable Preferred Stock at $25.00 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.
SERIES B 8.75% CUMULATIVE CONVERTIBLE PREFERRED STOCK
In September 1998, EastGroup entered into an agreement with Five Arrows
Realty Securities II, L.L.C. (Five Arrows), an investment fund managed by
Rothschild Realty, Inc., a member of the Rothschild Group, providing for the
sale of 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 could sell 2,800,000 shares of Series B Preferred Stock to
Five Arrows at up to five closings, at EastGroup's option, through September 25,
1999. 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.
In December 1998, the Company sold $10,000,000 of the Series B
Preferred Stock to Five Arrows and plans to sell the remaining $60,000,000 by
September 25, 1999.
COMMON STOCK ISSUANCES
In February 1997, the Company issued a total of 2,100,000 shares under
an existing shelf registration statement for net proceeds of $36,654,000.
On June 5, 1997, the Company's stockholders approved and the Company
subsequently completed the reorganization of the Trust into a Maryland
corporation. The purpose of the reorganization was to modernize EastGroup's
governance procedures and to provide EastGroup with a greater degree of
42
<PAGE> 43
certainty and flexibility in planning and implementing corporate action by
adopting a form of organization used by many real estate investment trusts.
EastGroup will continue to qualify as a real estate investment trust for tax
purposes. Effective with the reorganization, the Company has the authority to
issue 100,000,000 shares consisting of 70,000,000 shares of common stock, $.0001
par value per share, and 30,000,000 shares of excess stock, $.0001 par value per
share. Effective June 5, 1997, all stock transactions reflect the new par value.
Stock transactions prior to the reorganization have not been restated to reflect
the new par value.
In October 1997, the Company completed an offering of 3,500,000 shares
of its common stock for net proceeds of approximately $72,555,000.
COMMON STOCK REPURCHASE PLAN
During 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 December 31, 1998, the Company had repurchased
21,100 shares for $359,000. Under Maryland law, these shares became authorized
but unissued shares of common stock when repurchased.
SHAREHOLDER RIGHTS PLAN
In December 1998, EastGroup adopted a Shareholder Rights Plan designed
to enhance the ability of all of the Company's stockholders to realize the
long-term value of their investment. Under the Plan, Rights were distributed as
a dividend on each share of Common Stock (one Right for each share of Common
Stock) held as of the close of business on December 28, 1998. A Right will also
be delivered with all shares of Common Stock issued after December 28, 1998 and
1.1364 Rights will be delivered with all shares of EastGroup's Series B
Cumulative Convertible Preferred Stock issued after December 28, 1998. The
Rights will expire at the close of business on December 3, 2008.
Each whole Right will entitle the holder to buy one one-thousandth
(1/1000) of a newly issued share of EastGroup's Series C Preferred Stock at an
exercise price of $70.00. The Rights attach to and trade with the shares of the
Company's Common Stock and Series B Preferred Stock. No separate Rights
Certificates will be issued unless an event triggering the Rights occurs. The
Rights will detach from the Common Stock and Series B Preferred Stock and will
initially become exercisable for shares of Series C Preferred Stock if a person
or group acquires beneficial ownership of, or commences a tender or exchange
offer which would result in such person or group beneficially owning 15% or more
of EastGroup's Common Stock, except through a tender or exchange offer for all
shares which the Board determines to be fair and otherwise in the best interest
of EastGroup and its shareholders. The Rights will also detach from the Common
Stock and Series B Preferred Stock if the Board determines that a person holding
at least 9.8% of EastGroup's Common Stock intends to cause EastGroup to take
certain actions adverse to it and its shareholders or that such holder's
ownership would have a material adverse effect on EastGroup.
If any person becomes the beneficial owner of 15% or more of
EastGroup's Common Stock and the Board of Directors does not within 10 days
thereafter redeem the Rights, or a 9.8% holder is determined by the Board to be
an adverse person, each Right not owned by such person or related parties will
then enable its holder to purchase, at the Right's then-current exercise price,
EastGroup Common Stock (or, in certain circumstances as determined by the Board,
a combination of cash, property, common stock or other securities) having a
value of twice the Right's exercise price.
Under certain circumstances, if EastGroup is acquired in a merger or
similar transaction with another person, or sells more than 50 percent of its
assets, earning power or cash flow to another entity, each Right that has not
previously been exercised will entitle its holder to purchase, at the Right's
then-current exercise price, common stock of such other entity having a value of
twice the Right's exercise price.
43
<PAGE> 44
EastGroup will generally be entitled to redeem the Rights at $0.0001
per Right at any time until the 10th day following public announcement that a
15% position has been acquired, or until the Board has determined a 9.8% holder
to be an adverse person. Prior to such time, the Board of Directors may extend
the redemption period.
DIVIDEND REINVESTMENT PLAN
During 1995, the Company adopted a dividend reinvestment plan, which
allows stockholders to reinvest cash distributions in new shares of the Company.
FAIR VALUE OF STOCK OPTIONS
In accordance with SFAS No. 123, the following additional disclosures
are required related to options granted after January 1, 1995. The fair value of
each option grant is estimated on the grant date using the Black-Scholes option
pricing model with the following weighted-average assumptions used for 1998,
1997 and 1996, respectively: risk-free interest rates of 5.54%, 6.09%, and
6.66%; dividend yields of 7.64%, 7.49%, and 8.60%; volatility factors of 15.5%,
13%, and 12.4%, and expected option lives of 5 years for all years presented.
The Company applies APB No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost been determined based on fair
value at the grant dates for awards under the plan consistent with the method
prescribed by SFAS No. 123, the Company's net income and net income per basic
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- --------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net income available to common shareholders - as reported $27,266 20,779 12,509
Net income available to common shareholders - pro forma 27,033 20,642 12,472
Net income per basic share - as reported 1.67 1.58 1.44
Net income per basic share - pro forma 1.66 1.57 1.44
Weighted average fair value of options 3.48 1.10 .86
granted during year
</TABLE>
EARNINGS PER SHARE
In December 1997, the Company adopted SFAS No. 128, "Earnings Per
Share," which requires companies to present basic EPS and diluted EPS, instead
of the formerly required primary and fully diluted EPS. Reconciliation of the
numerators and denominators in the basic and diluted EPS computations are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- --------------
BASIC EPS COMPUTATION (In thousands)
<S> <C> <C> <C>
Numerator-net income available to common shareholders $27,266 20,779 12,509
Denominator-weighted average shares outstanding 16,283 13,176 8,677
DILUTED EPS COMPUTATION
Numerator-net income available to common shareholders $27,266 20,779 12,509
Denominator-weighted average shares outstanding 16,283 13,176 8,677
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
Common stock options 140 162 72
Limited partnership units 9 - -
-------------- --------------- --------------
Total Shares 16,432 13,338 8,749
============== =============== ==============
</TABLE>
(9) ACQUISITIONS
ENSIGN PROPERTIES, INC. ACQUISITION
In March 1998, EastGroup acquired Ensign Properties, Inc., an
independent industrial developer in Orlando. This acquisition, which was
accounted for under the purchase method of accounting, allowed EastGroup to
become self-managed in Orlando and Tampa with plans to expand self-management to
its other Florida markets. The purchase price of the acquisition amounting to
approximately $1,800,000 was allocated primarily to goodwill, development costs,
leasing commissions and other prepaid costs. The operating results
of Ensign Properties, Inc. have been included in the consolidated statement of
income subsequent to the date of acquisition. The pro forma impact related to
the acquisition would be immaterial to the consolidated financial statements.
MERIDIAN VIII ACQUISITION
On June 1, 1998, the merger of Meridian VIII into a wholly-owned
subsidiary of EastGroup was completed, 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. In general, the purchase
price to the Company consisted of the cash paid for the Meridian VIII and the
Company's previous investment 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.
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.
45
<PAGE> 46
The increase in net assets at the acquisition date, based on
estimated relative fair values, resulting from the acquisition was as follows
(in thousands):
<TABLE>
<S> <C>
Real estate properties $96,366
Cash 6,118
Accrued interest and other receivables 119
Other assets 124
Mortgage notes and interest payable (33,422)
Accounts payable and other liabilities (871)
-----------
TOTAL $68,434
===========
</TABLE>
The purchase price of the net assets acquired consisted of the
following (in thousands):
<TABLE>
<S> <C>
Acquisition of Meridian Shares $52,760
Merger costs 1,569
Prior investment in Meridian 14,105
-----------
TOTAL $68,434
===========
</TABLE>
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 the
fiscal year for each of the years presented:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C>
Revenues $80,022 63,978
---------------------------
Net income available to common shareholders $25,566 19,316
---------------------------
Net income per basic share $ 1.57 1.47
---------------------------
Shares used in computation 16,283 13,176
---------------------------
Net income per basic share $ 1.56 1.45
---------------------------
Shares used in computation 16,432 13,338
---------------------------
</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.
COPLEY AND LNH ACQUISITIONS
During 1996, the Company acquired the entities described below
accounting for the acquisitions by using the purchase method of accounting. For
financial reporting purposes, the assets of the company acquired 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 new shares issued at the market price of the Company's shares and the
previous investment the Company had in LNH and Copley. The shares of LNH and
Copley owned by the Company were retired at the merger date. The operating
results of LNH and Copley have been included in the consolidated statements of
income subsequent to the dates of acquisition.
On May 14, 1996, the merger of LNH with EGP-LNH Corporation, a
wholly-owned subsidiary of the Company, was completed. Under the terms of the
merger, each LNH share was converted into the right to receive .55065 EastGroup
shares (.3671 pre-split). The Company issued 927,366 shares as a result of this
merger.
On June 19, 1996, Copley was merged into the Company. Under the terms
of the merger, each Copley share was converted into the right to receive 1.06002
EastGroup shares (.70668 pre-split). EastGroup issued 3,238,343 of its shares
as a result of this merger.
The following unaudited pro forma combined results of operations give
effect to the LNH and Copley mergers as if they had occurred at the beginning
of the fiscal year for the year presented:
(In thousands, except per share amounts) 1996
----
Revenues $47,191
=======
Net income 12,796
=======
Net income per basic share 1.21
=======
Shares used in computation 10,532
=======
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 1996 or of future
operations of the combined companies under the ownership and management of the
Company.
46
<PAGE> 47
(10) QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
1998 1997
Quarter Ended Quarter Ended
--------------------------------------------------- ------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 16,041 18,681 20,753 21,253 11,989 12,665 13,546 15,422
Expenses (11,116) (14,150) (15,595) (16,244) (9,014) (9,112) (9,941) (11,153)
------------ ------------ ------------ ------------ ------------ ---------- ------------ -----------
Income before gain (loss)
on investments 4,925 4,531 5,158 5,009 2,975 3,553 3,605 4,269
Gain (loss) on investments 73 1,017 4,996 3,627 112 (5) 6,300 (30)
------------ ------------ ------------ ------------ ------------ ---------- ------------ -----------
Net income $ 4,998 5,548 10,154 8,636 3,087 3,548 9,905 4,239
Preferred dividends - (129) (970) (971) - - - -
------------ ------------ ------------ ------------ ------------ ---------- ------------ -----------
Net income available to
common shareholders $ 4,998 5,419 9,184 7,665 3,087 3,548 9,905 4,239
============ ============ ============ ============ ============ ========== ============ ===========
BASIC PER SHARE DATA
Net income 0.31 0.33 0.56 0.47 0.26 0.28 0.78 0.27
============ ============ ============ ============ ============ ========== ============ ===========
Weighted average shares
oustanding 16,223 16,299 16,308 16,300 11,722 12,675 12,685 15,583
============ ============ ============ ============ ============ ========== ============ ===========
DILUTED PER SHARE DATA
Net income 0.30 0.33 0.56 0.47 0.26 0.28 0.77 0.27
============ ============ ============ ============ ============ ========== ============ ===========
Weighted average shares
outstanding 16,391 16,452 16,423 16,456 11,861 12,822 12,865 15,765
============ ============ ============ ============ ============ ========== ============ ===========
</TABLE>
The above quarterly earnings per share calculations are based on the weighted
average number of common shares outstanding during each quarter for earnings per
common share and the weighted average number of outstanding common shares and
common share equivalents during each quarter for the earnings per common share,
assuming dilution. The annual earnings per share calculations are based on the
weighted average number of common shares outstanding during each year for
earnings per common share and the weighted average number of outstanding common
shares and common share equivalents during each year for earnings per common
share, assuming dilution.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1998 and 1997.
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 2,784 2,784 1,298 1,298
Investments in real estate
Investment trusts 5,737 5,737 16,518 16,518
Mortgage loans receivable 8,814 8,946 10,852 11,937
Financial Liabilities
Mortgage notes payable 122,494 130,066 105,380 110,181
Notes payable to banks 114,322 114,322 41,770 41,770
</TABLE>
Carrying amounts shown in the table are included in the balance sheet under the
indicated captions.
The following methods and assumptions were used to estimate fair value of each
class of financial instruments:
Cash and Cash Equivalents: The carrying amounts approximate fair value
because of the short maturity of those instruments.
Mortgage Loans: The fair value of performing mortgage loans is either
estimated using discounted cash flows at current interest rates for loans with
similar terms and maturities or based on the estimated value of the underlying
collateral adjusted for the borrower's payment history and financial strength.
The fair value for nonperforming loans is based on underlying collateral value.
Investment in Real Estate Investment Trusts: The fair value of this
equity investment is based on quoted market prices.
47
<PAGE> 48
Mortgage Notes Payable: The fair value of the Company's mortgage notes
payable is estimated based on the quoted market prices for similar issues or by
discounting expected cash flows at the rates currently offered to the Company
for debt of the same remaining maturities, as advised by the Company's bankers.
Notes Payable to Banks: The carrying amounts approximate fair value
because of the variable rates of interest on the debt.
(12) NEW ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued 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
financial statement. The Company adopted this standard as of January 1, 1998.
BUSINESS SEGMENTS
Also in June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued effective for fiscal years
ending after December 15, 1998. The Company's reportable segments consist of
industrial properties, office buildings, and an other category that includes
apartments and other real estate. The Company's chief decision makers use two
primary measures of operating results in making decisions, such as allocating
resources: property net operating income (PNOI), defined as real estate
operating revenues less real estate operating expenses (before interest expense
and depreciation), and funds from operations (FFO), defined 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 uses FFO as a
measure of the performance of our industry as an equity real estate investment
trust because, along with cash flows from operating activities, financing and
investing activities, it provides a measure of our ability to incur and service
debt and to make capital expenditures. FFO is not 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 our ability to make distributions. The table below presents on a
comparative basis for the three fiscal years reported PNOI by operating segment,
followed by reconciliations of PNOI to FFO and FFO to net income available for
common shareholders:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
-----------------------------------------------
<S> <C> <C> <C>
PROPERTY REVENUES:
Industrial $61,417 33,338 19,314
Office 6,783 8,353 7,383
Other 6,112 8,100 10,446
------------- ----------- --------------
74,312 49,791 37,143
------------- ----------- --------------
PROPERTY EXPENSES:
Industrial (14,414) (8,258) (4,987)
Office (1,927) (2,618) (2,929)
Other (2,987) (3,949) (5,346)
------------- ----------- -------------
(19,328) (14,825) (13,262)
------------- ----------- -------------
PROPERTY NET OPERATING INCOME:
Industrial 47,003 25,080 14,327
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C> <C> <C>
Office 4,856 5,735 4,454
Other 3,125 4,151 5,100
-------------- ----------- --------------
TOTAL PROPERTY NET OPERATING INCOME 54,984 34,966 23,881
-------------- ----------- --------------
Other income 2,442 3,831 2,656
Interest expense (16,948) (10,551) (8,930)
General and administrative (3,822) (2,923) (2,356)
Minority interest in earnings (783) (796) (431)
Dividends on preferred shares (2,070) - -
-------------- ----------- --------------
FUNDS FROM OPERATIONS 33,803 24,527 14,820
Depreciation and amortization (16,574) (10,409) (7,759)
Share of joint venture depreciation and amortization 324 284 142
Gains from property sales/investment in REITs 9,713 6,377 5,340
Other - - (34)
-------------- ----------- --------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 27,266 20,779 12,509
Dividends on preferred shares 2,070 - -
-------------- ----------- --------------
NET INCOME $29,336 20,779 12,509
============== =========== ==============
ASSETS:
Industrial $532,869 330,639 188,833
Office 6,896 39,753 38,912
Other 8,866 15,380 37,494
-------------- ----------- --------------
548,631 385,772 265,239
Less accumulated depreciation (34,042) (29,095) (22,703)
-------------- ----------- --------------
514,589 356,677 242,536
-------------- ----------- --------------
Real estate held for sale 25,620 23,233 14,878
Less accumulated depreciation (8,794) (3,217) (859)
-------------- ----------- --------------
16,826 20,016 14,019
Investment in joint venture - - 4,367
Mortgage loans 8,814 10,852 12,503
Investment in real estate investment trusts 5,737 16,518 934
Cash 2,784 1,298 438
Other assets 18,798 7,766 6,658
-------------- ----------- --------------
TOTAL ASSETS $567,548 413,127 281,455
============== =========== ==============
REAL ESTATE INVESTMENT CAPITAL EXPENDITURES
ACQUISITIONS
Industrial $178,163 124,149 111,085
Office -- -- 18,829
Other -- -- 7,336
DEVELOPMENTS
Industrial 25,511 14,936 1,695
Office -- -- --
Other -- -- --
</TABLE>
ORGANIZATION COSTS
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. Unamortized organization costs will be written off in
first quarter 1999 and accounted for as a cumulative effect of a change in
accounting principle.
(13) SUBSEQUENT EVENTS
Purchases of industrial properties subsequent to December 31, 1998
include the following:
49
<PAGE> 50
<TABLE>
<CAPTION>
CLOSING
PROPERTY LOCATION DATE SIZE PURCHASE PRICE
- -------- -------- ---- ---- --------------
(Square feet) (In thousands)
<S> <C> <C> <C> <C>
Central Green Houston, Texas 01-07-99 83,575 $ 4,570
Blue Heron
Distribution Center West Palm Beach, Florida 01-15-99 110,000 4,535
--------
$ 9,105
=======
</TABLE>
In addition, subsequent to December 31, 1998, the Company purchased a
4.73 acre parcel of land for development in Carson, California for $1,600,000.
On January 13, 1999, the Company replaced the $50,000,000 and
$100,000,000 bank lines held with Deposit Guaranty National Bank with a new
three-year $150 million unsecured revolving credit facility with a group of ten
banks which was arranged by Chase Securities, Inc. The interest rate is based on
the Eurodollar rate plus 1.25% and was 6.19% at March 10, 1999. The book manager
and administrative agent for the credit facility is Chase Bank of Texas, which
led a syndicate of banks including First Union National Bank, syndication agent;
PNC Bank, documentation agent; First American National Bank operating as Deposit
Guaranty National Bank, co-agent; SouthTrust Bank; AmSouth Bank; Bank One
Louisiana; Hibernia National Bank; First Tennessee Bank and Trustmark National
Bank. The amounts outstanding under the bank lines with Deposit Guaranty were
repaid in January 1999.
On March 1, 1999, the Company closed a $47 million, nonrecourse first
mortgage loan with Metropolitan Life. The note has an interest rate of 6.8%,
20-year amortization and a 10-year maturity. It is secured by six industrial
properties in California: Industry Distribution Center, Shaw Commerce Center,
Kingsview Industrial Center, Dominguez Distribution Center, Walnut Business
Center and Washington Distribution Center. The proceeds were used to reduce bank
borrowings. This new loan reduced the Company's weighted average interest rate
on mortgage debt from 8.2% to 7.8%.
(14) RELATED PARTY TRANSACTIONS
EastGroup and Parkway Properties, Inc. ("Parkway") shared the same
office space at One Jackson Place in Jackson, Mississippi, until April 1997 when
Parkway moved to its own space. EastGroup and Parkway shared the rent with
respect to such space based upon the relative number of employees of each using
the space. EastGroup and Parkway currently share the services and expenses of
the Company's Chairman of the Board and his administrative assistant.
50
<PAGE> 51
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
THE DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:
Under date of March 5, 1999, we reported on the consolidated balance sheets of
EastGroup Properties, Inc., and subsidiaries, as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998, which are included in the 1998 Annual Report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedules as listed in Item 14 (a)(2) of Form 10-K. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
Jackson, Mississippi KPMG Peat Marwick LLP
March 5, 1999
51
<PAGE> 52
<TABLE>
<CAPTION>
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 (IN THOUSANDS)
INITIAL COST
TO THE COMPANY
------------------------------------
BUILDINGS
DESCRIPTION ENCUMBRANCES LAND AND IMPROVEMENTS
- ----------- ------------ ---- ----------------
Real estate properties (c) and (d):
Industrial:
<S> <C> <C>
Nobel Center - California 410 542 -
Exchange Warehouses -Texas - 250 750
Interstate Warehouses -Texas 1,729 1,757 4,941
Venture Warehouses -Texas - 1,452 3,762
Rampart-Colorado - 1,023 3,861
Sunbelt-Florida - 1,034 5,056
La Quinta-Florida - 191 575
Deerwood-Florida 1,648 1,147 1,799
56th Street - Florida 2,143 683 2,880
JetPort Commerce Park - Florida 3,711 857 3,635
Lake Pointe - Florida 10,680 3,442 6,450
Exchange Distribution - Florida 2,314 603 2,414
Phillips - Florida - 1,375 2,961
Northwest Point - Texas (h) 5,415 1,243 5,640
Westport - Florida 3,090 980 3,800
Lakeside Distribution - Oklahoma - 120 1,154
Linpro Distribution - Florida - 613 2,243
Broadway Industrial Center - Arizona - 837 3,349
Dominguez Distribution - California - 2,006 8,025
Huntwood Associates - California 12,597 3,842 15,368
Kingsview Industrial - California - 643 2,573
Metro Business Park - Arizona - 1,927 7,708
Sample I-95 - Florida - 1,565 6,262
University Business Center - California 17,601 5,517 22,067
Wiegman Associates - California 5,814 2,197 8,788
Braniff Park West - Oklahoma (g) 4,203 1,066 4,641
Walnut Business Park - California (g) 5,791 2,885 5,274
Interchange Business Park - Mississippi (h) 891 343 5,007
Palm River I - Florida - 540 2,131
West Loop II - Texas (h) 636 440 2,511
Lockwood Distribution Center - Texas (h) 1,316 749 5,444
Lockhart Distribution Center - Texas (h) 840 - 3,489
Cypress Creek - Florida (h) 584 - 2,465
Senator Street - Tennessee (h) 585 540 2,187
Chamberlain - Arizona (h) 3,316 506 3,564
35th Avenue - Arizona (h) 594 418 2,381
Washington - California (h) 1,409 1,636 4,900
San Clemente - California (h) 616 893 2,004
Ellis Dist. Center - Florida (g) 5,979 540 7,513
Westside Dist. Center - Florida (g) 9,926 1,170 11,726
Elmwood Business Park - Louisiana (g) 6,733 2,861 6,337
Riverbend Business Park - Louisiana (g) 14,511 2,592 17,623
Butterfield Trail Industrial - Texas (g) 14,321 - 19,842
Eastlake Distribution Center - California (h) 6,882 3,046 6,888
109th Street - Texas (h) 218 110 867
Benjamin I - Florida - 424 1,966
Chancellor Distribution - Florida - 291 1,711
Rampart II - Colorado - 230 2,977
Benjamin II - Florida - 419 1,997
Palm River II - Florida - 650 2,494
Estrella East - Arizona (h) 3,705 628 4,694
51st Avenue - Arizona (h) 493 300 2,029
Stemmons Circle - Texas (h) 504 363 2,014
East University I and II - Arizona 2,772 1,120 4,482
7th Street Dist. Center - Arizona 925 373 1,490
55th Street Dist. Center - Arizona 2,318 912 3,717
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
SCHEDULE III
(CONTINUED)
COSTS CAPITALIZED GROSS AMOUNT AT WHICH
SUBSEQUENT TO ACQUISITION CARRIED AT CLOSE OF PERIOD
- -------------------------- ------------------------------
BUILDINGS ACCUMULATED
CAPITALIZED AND DEPRECIATION YEAR YEAR
COSTS OTHER LAND IMPROVEMENTS TOTAL DEC. 31, 1998 ACQUIRED CONSTRUCTED
----- ----- ---- ------------ ----- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
3,710 -- 542 3,710 4,252 1,713 1988 1979
218 -- 250 968 1,218 336 1988 1978
786 -- 1,757 5,727 7,484 1,841 1988 1979
718 -- 1,452 4,480 5,932 1,423 1988 1987
295 -- 1,023 4,156 5,179 1,189 1989 1987
661 -- 1,034 5,717 6,751 1,493 1989 1974
67 -- 191 642 833 206 1989 1978
1,154 -- 1,147 2,953 4,100 569 1993 1981/86/97
827 -- 683 3,707 4,390 656 1993/94/95 1974/79/85
1,114 -- 857 4,749 5,606 1,017 1993 1986/87
1,375 -- 3,442 7,825 11,267 1,849 1994 1975
740 -- 603 3,154 3,757 518 1994 1984/95
1,863 -- 1,375 4,824 6,199 738 1994 1984/85
292 -- 1,243 5,932 7,175 747 1994 1983/87
880 -- 980 4,680 5,660 541 1994 1986
109 -- 120 1,263 1,383 144 1996 1986
96 2 615 2,339 2,954 214 1996 1971
18 -- 837 3,367 4,204 392 1996 1977
478 -- 2,006 8,503 10,509 579 1996 1988
126 -- 3,842 15,494 19,336 1,656 1996 1980
1 -- 643 2,574 3,217 219 1996 1977/79
455 -- 1,927 8,163 10,090 718 1996 1990
152 -- 1,565 6,414 7,979 820 1996 1987/88
472 3 5,520 22,539 28,059 1,684 1996 1986/87
21 -- 2,197 8,809 11,006 657 1996 1974
382 -- 1,066 5,023 6,089 463 1996 1966/90
42 -- 2,885 5,316 8,201 448 1997 1981
104 -- 343 5,111 5,454 280 1997 1990
107 -- 540 2,238 2,778 106 1997 1980
94 -- 440 2,605 3,045 123 1997 1968/69=
88 -- 749 5,532 6,281 233 1997 1986
539 -- -- 4,028 4,028 166 1997 1986
359 -- -- 2,824 2,824 139 1997 1982
42 -- 540 2,229 2,769 82 1997 1994
8 -- 506 3,572 4,078 152 1997 1967
14 -- 418 2,395 2,813 86 1997 1996/97
164 -- 1,636 5,064 6,700 224 1997 1978
-- -- 893 2,004 2,897 68 1997 1977
228 -- 540 7,741 8,281 277 1997 1984
871 -- 1,170 12,597 13,767 481 1997 1979
287 -- 2,861 6,624 9,485 472 1997 1984
244 -- 2,592 17,867 20,459 1,033 1997 1995
145 -- -- 19,987 19,987 816 1997 1989
24 -- 3,046 6,912 9,958 260 1997 1970
55 -- 110 922 1,032 30 1997 1996
(18) -- 424 1,948 2,372 99 1996/97 1996/97
9 -- 291 1,720 2,011 108 1996/97 1996/97
59 -- 230 3,036 3,266 205 1997/98 1997/98
22 -- 419 2,019 2,438 66 1997/98 1997/98
164 -- 650 2,658 3,308 119 1998 1988
20 -- 628 4,714 5,342 129 1998 1987
5 -- 300 2,034 2,334 70 1998 1977
40 363 2,054 2,417 104 1998 1989/87
36 -- 1,120 4,518 5,638 100 1998 1987
15 -- 373 1,505 1,878 30 1998 1987
77 -- 912 3,794 4,706 73 1998 1987
</TABLE>
53
<PAGE> 54
SCHEDULE III
(CONTINUED)
<TABLE>
<CAPTION>
INITIAL COST
TO THE COMPANY
------------------------------------
BUILDINGS
DESCRIPTION ENCUMBRANCES LAND AND IMPROVEMENTS
- ----------- ------------ ---- ----------------
<S> <C> <C> <C>
Ethan Allen - California 6,266 2,544 10,175
Waldenbooks Dist. Center - Tennessee 12,779 4,429 17,716
Lamar - Tennessee 2,200 1,332 5,398
Auburn Facility - Michigan 5,357 3,230 12,922
World Houston 1 and 2 - Houston 4,531 660 5,893
Senator Street II - Tennessee - 435 1,742
Airpark Distribution - Tennessee (h) 462 250 1,916
Airport Distribution - Arizona (g) 4,251 1,103 4,672
World Houston 3,4,5 - Texas - 1,025 6,413
World Houston 6 - Texas - 425 2,423
America Plaza - Texas (g) 3,895 662 4,660
Shaw Commerce - California (g) 10,524 2,465 11,627
Industry Distribution - California (g) 16,796 10,230 12,373
Interstate Commerce - Florida - 485 2,652
Northpointe Commerce - Oklahoma - 777 3,113
Delp - Tennessee - 1,049 4,197
Airpark - Tennessee - 66 262
Getwell - Tennessee - 151 603
JC Penney - Tennessee - 486 1,946
Ambassador Row - Texas - 1,156 4,625
Carpenter - Texas - 208 833
Viscount - Texas - 395 1,578
-------------- --------------- -----------------
224,281 95,454 390,165
-------------- --------------- -----------------
Industrial Development:
Rampart III - Colorado - 1,038 -
John Young Parkway - Florida - 470 -
Walden - Florida - 337 -
Walden II - Florida - 465 -
Sunbelt II - Florida - 249 -
World Houston 7 & 8 - Texas - 680 -
Sample I-95 II - Florida - 785 -
Westlake - Florida - 700 -
Airport Commerce - Florida - 1,108 -
World Houston 9 - Texas - 889 -
Sabal Sites - Florida - 351 -
Stone - Florida - - -
Chestnut St. - California - 1,570 -
John Young Parkway II - Florida - 527 -
Glenmont - Texas - 937 -
Premier Beverage - Florida - - -
-------------------------------------------------------------------------
- 10,106 -
-------------------------------------------------------------------------
Office Buildings:
Los Angeles Corporate Center - California - 1,363 5,453
-------------------------------------------------------------------------
- 1,363 5,453
-------------------------------------------------------------------------
Apartments:
LaVista-Georgia 5,699 1,526 2,886
-------------------------------------------------------------------------
5,699 1,526 2,886
-------------------------------------------------------------------------
Operating Properties Held For Sale:
8150 Leesburg Pike - Virginia (h) 5,855 2,208 14,068
West Palm I and II - Florida 981 635 2,542
------------------------------------------------------------------------
6,836 2,843 16,610
------------------------------------------------------------------------
Land Held for Sale (e):
Jefferson Parish-Louisiana - 3,050 -
Silvermill - Texas - 27 -
------------------------------------------------------------------------
- 3,077 0
------------------------------------------------------------------------
Total real estate owned 236,816 114,369 415,114
========================================================================
</TABLE>
54
<PAGE> 55
SCHEDULE III
(CONTINUED)
<TABLE>
<CAPTION>
COSTS CAPITALIZED GROSS AMOUNT AT WHICH
SUBSEQUENT TO ACQUISITION CARRIED AT CLOSE OF PERIOD
- -------------------------- ------------------------------
BUILDINGS ACCUMULATED
CAPITALIZED AND DEPRECIATION YEAR YEAR
COSTS OTHER LAND IMPROVEMENTS TOTAL DEC. 31, 1998 ACQUIRED CONSTRUCTED
----- ----- ---- ------------ ----- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
- - 2,544 10,175 12,719 198 1998 1989
1 - 4,429 17,717 22,146 345 1998 1978/80
25 - 1,332 5,423 6,755 104 1998 1986
4 - 3,230 12,926 16,156 251 1998 1996
- - 660 5,893 6,553 167 1998 1968
17 - 435 1,759 2,194 39 1998 1975
2 - 250 1,918 2,168 46 1998 1995
- - 1,103 4,672 5,775 85 1998 1998
- - 1,025 6,413 7,438 96 1998 1998
- - 425 2,423 2,848 - 1998 1996
- - 662 4,660 5,322 109 1998 1978/81/87
215 - 2,465 11,842 14,307 219 1998 1959
127 - 10,230 12,500 22,730 246 1998 1988
246 - 485 2,898 3,383 83 1998 1996/1997
- - 777 3,113 3,890 28 1998 1977
45 - 1,049 4,242 5,291 94 1998 1975
10 - 66 272 338 5 1998 1972
6 - 151 609 760 11 1998 1972
1 - 486 1,947 2,433 38 1998 1958/1965
10 - 1,156 4,635 5,791 90 1998 1958
- - 208 833 1,041 16 1998 1965
- - 395 1,578 1,973 31 1998 1965
- -----------------------------------------------------------------------
21,563 5 95,459 411,728 507,187 31,262
- -----------------------------------------------------------------------
1,131 3 1,038 1,134 2,172 - 1997/98 1997/98
2,445 - 470 2,445 2,915 3 1997/98 1997/98
- - 337 - 337 6 1998 1998
3,726 - 465 3,726 4,191 - 1997/98 1997/98
1,963 - 249 1,963 2,212 - 1998 1998
4,008 - 680 4,008 4,688 115 1998 1998
226 - 785 226 1,011 - 1998 1998
911 - 700 911 1,611 - 1998 1998
277 - 1,108 277 1,385 - 1998 1998
127 - 889 127 1,016 - 1998 1998
- - 351 - 351 - 1998 1998
109 - - 109 109 - 1998 1998
104 - 1,570 104 1,674 - 1998 1998
138 - 527 138 665 - 1998 1998
- - 937 - 937 - 1998 1998
408 - - 408 408 - 1998 1998
- -----------------------------------------------------------------------
15,573 3 - 10,106 15,576 25,682 124
- -----------------------------------------------------------------------
-
80 - 1,363 5,533 6,896 404 1996 1986
- -----------------------------------------------------------------------
80 - 1,363 5,533 6,896 404
- -----------------------------------------------------------------------
-
4,454 - 1,526 7,340 8,866 2,252 1991 1968/96
- -----------------------------------------------------------------------
4,454 - 1,526 7,340 8,866 2,252
- -----------------------------------------------------------------------
5,086 - 2,208 19,154 21,362 8,745 1975/89 1974/94
5 - 635 2,547 3,182 49 1998 1993
- -----------------------------------------------------------------------
5,091 - 2,843 21,701 24,544 8,794
- -----------------------------------------------------------------------
-
49 (2,541)(f) 558 - 558 - 1976 n/a
- (9) 18 - 18 - 1996 n/a
- -----------------------------------------------------------------------
49 (2,550) 576 - 576 -
- -----------------------------------------------------------------------
-
46,810 (2,542) 111,873 461,878 573,751 42,836
=======================================================================
</TABLE>
55
<PAGE> 56
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED)
Notes:
(a) Changes in Real Estate Properties follow:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 409,005 280,117 156,392
Real estate properties acquired - LNH merger -- -- 6,243
Land acquired in LNH merger -- -- 521
Real estate properties acquired - Copley merger -- -- 113,192
Land acquired in Copley merger -- -- 3,280
Real estate properties acquired - Meridian merger 96,366 -- --
Improvements 32,559 19,341 7,469
Purchase of real estate properties 81,797 124,149 13,865
Carrying amount of investments sold (45,976) (14,351) (20,845)
Write-off of depreciated assets -- (251) --
--------- --------- ---------
Balance at end of year (1)(2) $ 573,751 409,005 280,117
========= ========= =========
</TABLE>
(1) Includes 25% minority interest in JetPort Commerce Park and 56th Street
Commerce Park and 20% minority interest in University Business Center totaling
$7,888,000 at December 31, 1998. Includes 25% minority interest in JetPort
Commerce Park, 56th Street Commerce Park, and Westport Commerce Center and 20%
minority interest in University Business Center totaling $8,947,000 at December
31, 1997. Includes 25% minority interest in JetPort Commerce Park, 56th Street
Commerce Park and Westport Commerce Center, 20% minority interest in University
Business Center and 22.22% minority interest in Liberty Corner shopping Center,
totaling $9,576,000 at December 31, 1996.
(2) Does not include the $500,000 land purchase-leaseback held for sale at
December 31, 1998.
Changes in the accumulated depreciation on real estate properties follow:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 32,312 23,562 19,206
Depreciation expense 15,239 9,691 7,266
Accumulated depreciation on assets sold (4,715) (859) (2,910)
Write-off of fully depreciated assets - (82) -
-------- ------ ------
Balance at end of year $ 42,836 32,312 23,562
======== ====== ======
</TABLE>
(b) The aggregate cost for federal income tax purposes is approximately
$394,827,000. The federal income tax return for the year ended December 31,
1998 has not been filed and, accordingly, the income tax basis of real estate
properties as of December 31, 1998 is based on preliminary data.
(c) Reference is made to impairment losses on real estate investments in the
notes to consolidated financial statements.
(d) The Company computes depreciation using the straight-line method over the
estimated useful lives of the buildings (25 to 40 years) and other improvements
(3 to 10 years).
(e) The investment is not producing income to the Company as of December 31,
1998.
(f) Represents a write-down of $2,496,000 and income received but deferred of
$45,000.
(g) The acquisition line of credit is secured by Walnut Business Park, Braniff
Park West, Butterfield Trail Industrial, Elmwood and Riverbend Business Parks,
Ellis Distribution Center, Westside Distribution Center, Airport Distribution
Center, Industry Distribution Center, America Plaza and Shaw Commerce Center.
The outstanding acquisition line of $96,930,000 at December 31, 1998 was
allocated to encumbrances for these respective properties based on carrying
value at December 31, 1998.
(h) The line of credit is secured by the outstanding stock of the Company's
wholly-owned subsidiary, EastGroup Virginia, Inc., which owns 8150 Leesburg Pike
Office Building; partnership interests in EastGroup Houston Partners, Ltd. which
owns the Lockwood Distribution Center and Northwest Point Distribution Center;
EastGroup Properties, LP which owns West Loop II Distribution, Interchange D,
Lockhart Distribution Center, Cypress Creek Business Park, Senator Street
Distribution Center, Chamberlain Distribution Center, 35th Avenue, Washington
Distribution Center, San Clemente Distribution Center, Interchange B, Eastlake
Distribution Industrial Center, 109th Street, Estrella Distribution Center,
Stemmons Distribution Center, 51st Avenue Distribution Center and Airpark
Distribution Center I. The outstanding line of credit of $17,392,000 at December
31, 1998 was allocated to encumbrances for these respective properties based on
carrying value at December 31, 1998.
56
<PAGE> 57
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER INTEREST FINAL PERIODIC
OF LOANS RATE MATURITY DATE PAYMENT TERMS
-------- ---- ------------- -------------
<S> <C> <C> <C> <C>
First mortgage loans (c):
MOTELS:
Nashville, Tennessee 1 10% 7/98 Interest monthly
Gainesville, Florida 1 10% 1/02 P&I monthly
APARTMENTS:
Country Club - Alabama 1 8.5%-9%(d) 12/99 (d)
OFFICE BUILDINGS:
Columbia, Maryland 1 9.56% 2/00 P&I annually
UNDEVELOPED LAND:
Hickory Creek, Houston, Texas 1 Prime 9/99 (f)
Baypointe, Houston, Texas 1 9.5% 4/99 P&I semi-annually
OTHER LOANS 2 8.5% 3/07-1/08 P&I monthly
-----
Total first mortgage loans 8
=====
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF LOANS
SUBJECT TO
FACE AMOUNT CARRYING TO DELINQUENT
OF MORTGAGES AMOUNT OF PRINCIPAL
DEC. 31, 1998 MORTGAGES OR INTEREST(E)
------------- --------- --------------
<S> <C> <C> <C>
First mortgage loans (c):
MOTELS:
Nashville, Tennessee 67 67 67
Gainesville, Florida 1,571 1,183 -
APARTMENTS:
Country Club - Alabama 4,245 3,010(d) -
OFFICE BUILDINGS:
Columbia, Maryland 98 98 -
UNDEVELOPED LAND:
Hickory Creek, Houston, Texas 2,711 2,550 -
Baypointe, Houston, Texas 1,916 1,855 -
OTHER LOANS 51 51 -
------- ------ -----
Total first mortgage loans $10,659 8,814(a)(b) 67
======= ====== =====
</TABLE>
57
<PAGE> 58
MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
Notes:
(a) Changes in mortgage loans follow:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
--------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $10,852 12,503 6,008
Advances on mortgage notes receivable - 1,575 121
Payments on mortgage notes receivable (3,042) (3,528) (338)
Amortization of discount on loans, net 621 618 418
Deferred gains 383 159 -
Write-down of mortgage notes receivable - (475) (200)
Mortgage notes receivable from LNH merger - - 5,614
Mortgage notes receivable from Copley merger - - 880
--------------------------------------------------------
Balance at end of year $8,814 10,852 12,503
========================================================
</TABLE>
(b) The aggregate cost for federal income tax purposes is approximately
$9,233,000. The federal income tax return for the year ended December 31,
1998 has not been filed and, accordingly, the income tax basis of mortgage
loans as of December 31, 1998 is based on preliminary data.
(c) Reference is made to allowance for possible losses on real estate
investments in the notes to consolidated financial statements.
(d) (Effective January 1, 1994, this note was modified. The interest rate
decreased from 9% to 8.50% beginning January 1, 1994, increased to 8.75% as
of January 1, 1995 and increased to 9% as of January 1, 1996. The past due
interest and land rent of $70,000 was added to the outstanding face value
of the mortgage balance, increasing it to $4,245,000. The maturity of the
loan was extended from August 28, 1996 to December 31, 1999. Prior to this
modification, the stated rate on the note was 9%. The carrying amount of
this note is net of the deferred gain of $1,127,000 and interest valuation
of $108,000. The deferred gain is recognized by the installment method.
This note was repaid in February 1999.
(e) Interest or principal in arrears for three months or less is disregarded in
computing principal amount of loans subject to delinquent principal or
interest.
(f) Payments on this note are received quarterly. They include a fixed
principal amount as scheduled in the note document and interest that has
accrued since the last payment.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EASTGROUP PROPERTIES, INC.
By: /s/ David H. Hoster II
--------------------------------
David H. Hoster II, Chief Executive
Officer, President & Director
March 19, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
* *
- --------------------------------------- --------------------------------------------
H. C. Bailey, Jr., Director Leland R. Speed, Chairman of the Board
March 11, 1999 (Principal Executive Officer)
March 11, 1999
* *
- --------------------------------------- --------------------------------------------
David M. Osnos, Director Alexander G. Anagnos, Director
March 11, 1999 March 11, 1999
* /s/ Diane W. Hayman
- --------------------------------------- --------------------------------------------
John N. Palmer, Director Diane W. Hayman, Vice President &
March 11, 1999 Controller
(Principal Accounting Officer)
March 19, 1999
* /s/ N. Keith McKey
- --------------------------------------- --------------------------------------------
Fredric H. Gould, Director N. Keith McKey, Executive Vice-President,
March 11, 1999 Chief Financial Officer and Secretary
(Principal Financial Officer)
March 19, 1999
/s/ N. Keith McKey
- ---------------------------------------------------
* By N. Keith McKey, Attorney in fact
</TABLE>
59
<PAGE> 60
EXHIBIT INDEX
-------------
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
(3) Form 10-K Exhibits:
(a) Articles of Incorporation (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated April
24, 1997).
(b) Bylaws of the Registrant (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated April
24, 1997).
(c) Articles Supplementary of the Company relating to the 9.00%
Series A Cumulative Redeemable Preferred Stock of the
Company (incorporated by reference to the Company's Form
8-A filed June 15, 1998).
(d) Articles Supplementary of the Company relating to the
Series B Cumulative Convertible Preferred Stock
(incorporated by reference to the Company's Form 8-K filed
on October 1, 1998).
(e) Articles Supplementary of the Company relating to the
Series C Preferred Stock (incorporated by reference to the
Company's Form 8-A filed December 9, 1998).
(f) Certificate of Correction to Articles Supplementary with
respect to Series B Cumulative Convertible Preferred
Stock (filed herewith).
(10) Material Contracts:
(a) EastGroup Properties 1994 Management Incentive Plan, As
Amended (incorporated by reference to Appendix D of the
Registrant's Registration Statement on Form S-4 (No.
333-01815).*
(b) EastGroup Properties 1991 Directors Stock Option Plan, As
Amended (incorporated by reference to Exhibit B of the
Registrant's proxy statement dated April 26, 1994).*
(c) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Leland R.
Speed, David H. Hoster II and N. Keith McKey)(incorporated
by reference to Exhibit 10(e) to the Registrant's 1996
Annual Report on Form 10-K).
(d) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Diane W.
Hayman, Marshall A. Loeb, Jann W. Puckett and Stewart R.
Speed) (incorporated by reference to Exhibit 10(e) to the
Registrant's 1996 Annual Report on Form 10-K).
(e) Agreement and Plan of Merger dated February 18, 1998 among
the Registrant, EastGroup-Meridian, Inc. and Meridian
Point Realty Trust VIII Co.(incorporated by reference to
Exhibit 10 (a) to the Registrant's Current Report on Form
8-K dated March 13, 1998).
(f) Purchase Agreement for Jacksonville and New Orleans
Properties (incorporated by reference to Exhibit 10(a) to
the Registrant's Current Report on Form 8-K dated
September 24, 1997).
(g) Investment Agreement dated as of September 25, 1998
between the Company and Five Arrows Realty Securities II,
L.L.C. (incorporated by reference to the Company's Form
8-K filed October 1, 1998).
(h) Operating Agreement dated September 25, 1998 between the
Company and Five Arrows Realty Securities II, L.L.C.
(incorporated by reference to the Company's Form 8-K filed
October 1, 1998).
(i) Agreement and Waiver between the Company and Five Arrows
Realty Securities II, L.L.C. (incorporated by reference to
the Company's Form 8-K filed October 1, 1998).
(j) Credit Agreement dated January 13, 1999 among EastGroup
Properties, L.P.; EastGroup Properties, Inc.; Chase Bank
of Texas, National Association, as Arranger, Book Manager
and Administrative Agent; First Union National Bank, as
Syndication Agent; PNC Bank, National Association, as
Documentation Agent; First American National Bank,
operating as Deposit Guaranty National Bank, as Co-Agent;
and the Lenders (filed herewith).
(21) Subsidiaries of Registrant (filed herewith).
(23) Consent of KPMG Peat Marwick LLP (filed herewith).
60
<PAGE> 61
(24) Powers of attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
(28) Agreement of Registrant to furnish the Commission with copies
of instruments defining the rights of holders of long-term
debt (incorporated by reference to Exhibit 28(e) of the
Registrant's 1986 Annual Report on Form 10-K).
(99) Rights Agreement dated as of December 3, 1998 between the
Company and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to the Company's Form 8-A filed
December 9, 1998).
(b) (1) 8K - Filed October 1, 1998 - Reporting Agreements with Five
Arrows Realty Securities II, L.L.C.
(2) 8K - Filed December 4, 1998 - Reporting Adoption of Rights
Agreement.
*Indicates management or compensatory agreement.
61
<PAGE> 1
EASTGROUP PROPERTIES, INC.
CERTIFICATE OF CORRECTION
-------------------------
THIS CERTIFICATE OF CORRECTION, filed February 1, 1999 with respect to
Articles Supplementary of EastGroup Properties, Inc., which were filed September
28, 1998.
WHEREAS, Articles Supplementary of EastGroup Properties, Inc. were
filed on September 28, 1998; and
WHEREAS, a Certificate of Correction was filed with respect to the
Articles Supplementary on December 28, 1998; and
WHEREAS, the Articles Supplementary and Certificate of Correction
described above contained errors; and
WHEREAS, the party who executed the Articles Supplementary desires to
correct the error contained in the Articles Supplementary by filing this
CERTIFICATE OF CORRECTION, effective upon filing.
NOW, THEREFORE, the party who executed the Articles Supplementary does
hereby execute this CERTIFICATE OF CORRECTION which shall correct the Articles
Supplementary as follows:
FIRST: Section 8(a) as contained in the Articles Supplementary filed on
September 28, 1998 read as follows:
(a) Subject to the last sentence of this Section 8(a), if a
Change of Control or Put Event occurs, in either case as a result of
the voluntary (and not legally compelled) act, omission or
participation of the Corporation, which act, omission or participation
the Corporation had the discretion under existing laws and regulations
to refrain from, then each holder of Preferred Shares will have the
right to require that the Corporation, to the extent it shall have
Legally Available Funds therefor, to redeem such holder's Preferred
Shares at a redemption price payable in cash in an amount equal to 102%
of the Liquidation Value thereof, plus accrued and unpaid dividends
whether or not declared, if any (the "Put Payment"), to the date of
purchase or the date payment is made available (the "Put Date")
pursuant to the offer described in subsection (b) below (the "Put
Offer"). Notwithstanding the foregoing, if the Securities and Exchange
Commission or its staff (collectively, the "SEC"), by written
communication to the Corporation, indicates that the provisions of the
first sentence of this Section 8(a) would preclude the Corporation from
treating the Preferred Shares as equity on its financial statements,
then those events constituting either a Change of Control Event or Put
Event for which the SEC objects to the holder of Preferred Shares
having a cash redemption right shall, instead, be covered
-1-
<PAGE> 2
by the Conversion Ratio revision alternative set forth in the second
sentence of this Section 8(a).
SECOND: Section 8(a) as corrected should read as follows:
(a) Subject to the last sentence of this Section 8(a), if a
Change of Control or Put Event occurs, in either case as a result of
the voluntary (and not legally compelled) act, omission or
participation of the Corporation, which act, omission or participation
the Corporation had the discretion under existing laws and regulations
to refrain from, then each holder of Preferred Shares will have the
right to require that the Corporation, to the extent it shall have
Legally Available Funds therefor, to redeem such holder's Preferred
Shares at a redemption price payable in cash in an amount equal to 102%
of the Liquidation Value thereof, plus accrued and unpaid dividends
whether or not declared, if any (the "Put Payment"), to the date of
purchase or the date payment is made available (the "Put Date")
pursuant to the offer described in subsection (b) below (the "Put
Offer"). If a Change of Control or Put Event occurs that is not the
result of such voluntary act, omission or participation of the
Corporation, the Corporation may elect not to make the foregoing Put
Payment by not commencing the Put Offer on the Put Date, in which case
the Conversion Ratio shall be revised to the greater of (i) 133% of the
then current Conversion Ratio so that each Preferred Share will be
convertible into 133% of the number of shares of Common Stock into
which it would otherwise have been convertible and (ii) a fraction the
denominator of which is 75% of the Current Market Price (as defined in
Section 7 hereof) and the numerator of which is $25.00. Notwithstanding
the foregoing, if the Securities and Exchange Commission or its staff
(collectively, the "SEC"), by written communication to the Corporation,
indicates that the provisions of the first sentence of this Section
8(a) would preclude the Corporation from treating the Preferred Shares
as equity on its financial statements, then those events constituting
either a Change of Control Event or Put Event for which the SEC objects
to the holder of Preferred Shares having a cash redemption right shall,
instead, be covered by the Conversion Ratio revision alternative set
forth in the second sentence of this Section 8(a).
-2-
<PAGE> 3
IN WITNESS WHEREOF, the Vice President of EastGroup Properties, Inc.
who signed the Articles Supplementary in which the error appeared has signed
this CERTIFICATE OF CORRECTION on January 29, 1999.
WITNESS: EASTGROUP PROPERTIES, INC.
/s/ N. Keith McKey /s/ Stewart R. Speed
- ------------------------------ ---------------------------------------------
N. Keith McKey, Secretary By: Stewart R. Speed, Vice President
THE UNDERSIGNED, Vice President of EastGroup Properties, Inc., who
executed on behalf of the Corporation the foregoing Certificate of Correction of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Certificate of Correction to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Stewart R. Speed
--------------------------
Stewart R. Speed, Vice President
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<PAGE> 1
CREDIT AGREEMENT
Dated
___________, 1999
among
EASTGROUP PROPERTIES, L.P.
EASTGROUP PROPERTIES, INC.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Arranger, Book Manager and Administrative Agent
FIRST UNION NATIONAL BANK,
as Syndication Agent
PNC BANK, NATIONAL ASSOCIATION
as Documentation Agent
FIRST AMERICAN NATIONAL BANK,
operating as
DEPOSIT GUARANTY NATIONAL BANK
as Co-Agent
and
the Lenders
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Definitions..............................................................................................1
2. The Loans...............................................................................................15
2.1 Advances.......................................................................................15
2.2 Payments.......................................................................................16
2.3 Pro Rata Treatment.............................................................................17
2.4 Non-Receipt of Funds by the Agent..............................................................17
2.5 Sharing of Payments, Etc.......................................................................18
2.6 Fees...........................................................................................18
3. Conditions..............................................................................................19
3.1 All Loans......................................................................................19
3.2 First Loan.....................................................................................19
3.3 Options Available..............................................................................19
3.4 Designation and Conversion.....................................................................20
3.5 Special Provisions Applicable to Eurodollar Rate Borrowings....................................20
3.6 Funding Offices; Adjustments Automatic.........................................................23
3.7 Funding Sources, Payment Obligations...........................................................23
3.8 Mitigation, Non-Discrimination.................................................................23
4. Representations and Warranties..........................................................................24
4.1. Organization...................................................................................24
4.2 Financial Statements...........................................................................24
4.3 Enforceable Obligations; Authorization.........................................................25
4.4 Other Debt.....................................................................................25
4.5 Litigation.....................................................................................25
4.6 Taxes..........................................................................................25
4.7 Regulation U...................................................................................25
4.8 Subsidiaries...................................................................................25
4.9 Securities Act of 1933.........................................................................26
4.10 No Contractual or Corporate Restrictions.......................................................26
4.11 Investment Company Act Not Applicable..........................................................26
4.12 Public Utility Holding Company Act Not Applicable..............................................26
4.13 ERISA Not Applicable...........................................................................26
4.14 Year 2000......................................................................................26
5. Affirmative Covenants...................................................................................27
5.1 Taxes, Existence, Regulations, Property, etc...................................................27
5.2 Financial Statements and Information...........................................................27
(i)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
5.3 Financial Tests................................................................................28
5.4 Inspection.....................................................................................28
5.5 Further Assurances.............................................................................28
5.6 Books and Records..............................................................................28
5.7 Insurance......................................................................................28
5.8 Notice of Certain Matters......................................................................29
5.9 Use of Proceeds................................................................................29
5.10 Expenses of and Claims Against the Agent and the Lenders.......................................29
5.11 Legal Compliance; Indemnification..............................................................29
5.12 Obligors' Performance..........................................................................30
5.13 Professional Services..........................................................................30
5.14 Capital Adequacy...............................................................................30
5.15 Property Pool..................................................................................31
5.16 Co-Borrowers...................................................................................32
6. Negative Covenants......................................................................................33
6.1 Indebtedness...................................................................................33
6.2 Mergers, Consolidations and Acquisitions of Assets.............................................33
6.3 Redemption.....................................................................................33
6.4 Nature of Business; Management.................................................................33
6.5 Transactions with Related Parties..............................................................34
6.6 Loans and Investments..........................................................................34
6.7 Limiting Agreements............................................................................35
6.8 Restricted Payments............................................................................35
7. Events of Default and Remedies..........................................................................36
7.1. Events of Default..............................................................................36
7.2 Remedies Cumulative............................................................................37
8. The Agent...............................................................................................37
8.1 Appointment, Powers and Immunities.............................................................37
8.2 Reliance.......................................................................................39
8.3 Defaults.......................................................................................39
8.4 Rights as a Lender.............................................................................40
8.5 Indemnification................................................................................40
8.6 Non-Reliance on Agent and Other Lenders........................................................41
8.7 Failure to Act.................................................................................41
8.8 Resignation of Agent...........................................................................41
8.9 No Partnership.................................................................................42
9. Miscellaneous...........................................................................................42
9.1 No Waiver, Amendments..........................................................................42
9.2 Notices........................................................................................42
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
9.3 Venue..........................................................................................42
9.4 Choice of Law..................................................................................43
9.5 Survival; Parties Bound; Successors and Assigns................................................43
9.6 Counterparts...................................................................................45
9.7 Usury Not Intended; Refund of Any Excess Payments..............................................45
9.8 Captions.......................................................................................45
9.9 Severability...................................................................................45
9.10 Disclosures....................................................................................45
9.11 Entire Agreement...............................................................................45
</TABLE>
EXHIBITS
- --------
Schedule I - Rating Tables
Schedule II - Approved Markets
A - Officer's Certificate
B - Request for Loan
C - Note
D - Legal Opinion
(iii)
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "AGREEMENT") is made and entered into as of
__________, 1999, by and among EASTGROUP PROPERTIES, L.P., a Delaware limited
partnership and EASTGROUP PROPERTIES, INC., a Maryland corporation, jointly and
severally (collectively, the "BORROWER"), the financial institutions (including
Chase, the "LENDERS") which are now or may hereafter become signatories hereto,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association
("CHASE"), as Arranger, Book Manager, and Administrative Agent for Lenders (in
such capacity, "AGENT"), FIRST UNION NATIONAL BANK, a national banking
association, as Syndication Agent, PNC BANK, NATIONAL ASSOCIATION, a national
banking association, as Documentation Agent, and FIRST AMERICAN NATIONAL BANK,
operating as DEPOSIT GUARANTY NATIONAL BANK, a national banking association, as
Co-Agent.
1. DEFINITIONS.
Unless a particular word or phrase is otherwise defined or the context
otherwise requires, capitalized words and phrases used in Credit Documents have
the meanings provided below.
ADJUSTED EURODOLLAR INTERBANK RATE shall mean, with respect to each
Interest Period applicable to a Eurodollar Rate Borrowing, a rate per annum
equal to the quotient, expressed as a percentage, of (a) the Eurodollar
Interbank Rate with respect to such Interest Period divided by (b) 1.0000 minus
the Eurodollar Reserve Requirement in effect on each day during such Interest
Period.
AFFILIATE shall mean any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
ANNUAL AUDITED FINANCIAL STATEMENTS shall mean the annual financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of such fiscal year and an income
statement and a statement of cash flows, all setting forth in comparative form
the corresponding figures from the previous fiscal year, all prepared in
conformity with Generally Accepted Accounting Principles and accompanied by a
report and opinion of independent certified public accountants satisfactory to
the Agent, which shall state that such financial statements, in the opinion of
such accountants, present fairly the financial position of such Person as of the
date thereof and the results of its operations for the period covered thereby in
conformity with Generally Accepted Accounting Principles. Such statements shall
be accompanied by a certificate of such accountants that in making the
appropriate audit and/or investigation in connection with such report and
opinion, such accountants did not become aware of any Default or, if in the
opinion of such accountant any such Default exists, a description of the nature
and status thereof. The Annual Audited Financial
<PAGE> 6
Statements shall be prepared on a consolidated basis in accordance with
Generally Accepted Accounting Principles.
APPLICABLE MARGIN shall mean (a) whenever and for so long as the
Operating Partnership has not received an S&P Rating and a Moody's Rating, the
percentage which will be in effect whenever and for so long as the corresponding
Total Liabilities to Total Asset Value Ratio reflected in Table 1 on SCHEDULE I
attached hereto and hereby made a part hereof, is in effect; and (b) whenever
and for so long as the Operating Partnership has received an S&P Rating and a
Moody's Rating, the percentage which will be in effect whenever and for so long
as the Operating Partnership has received the corresponding S&P Rating or
Moody's Rating, whichever is lower, reflected in Table 2 on SCHEDULE I attached
hereto.
APPROVED MARKET shall mean each of the cities described on SCHEDULE II
attached hereto and hereby made a part hereof.
BASE RATE shall mean for any day a rate per annum equal to the
Applicable Margin on that day plus the greater on a daily basis of (a) the Prime
Rate for that day, or (b) the Federal Funds Effective Rate for that day plus
one-half of one percent (1/2%).
BASE RATE BORROWING shall mean that portion of the principal balance of
the Loans at any time bearing interest at the Base Rate.
BUSINESS DAY shall mean a day other than (a) a day when the main office
of the Agent is not open for business, or (b) a day that is a federal banking
holiday in the United States of America.
CAPITAL EXPENDITURES shall mean, as to any Person, for any period, the
aggregate of all expenditures (whether payable in cash or other Property or
accrued as a liability (but without duplication)) during such period that, in
conformity with Generally Accepted Accounting Principles, are required to be
included in or reflected by the Borrower's or any of its Subsidiaries' fixed
asset accounts as reflected in any of their respective balance sheets; PROVIDED,
HOWEVER, Capital Expenditures shall include the sum of all expenditures by the
Borrower for tenant improvements, leasing commissions, property level capital
expenditures (e.g., roof replacement, parking lot repairs, etc., but not capital
expenditures in connection with expansions) but shall exclude upgrade capital
expenditures budgeted at the time of, and made within the first twelve (12)
months after, the acquisition of a Property. Capital Expenditures shall be
calculated on a consolidated basis in accordance with Generally Accepted
Accounting Principles and shall include (without duplication) the Equity
Percentage of Capital Expenditures for the Borrower's Unconsolidated Affiliates.
CEILING RATE shall mean, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas laws
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that Texas law establishes the Ceiling Rate, the Ceiling Rate
-2-
<PAGE> 7
shall be the "weekly ceiling" (as defined in Chapter 303 of the Texas Finance
Code (the "Texas Finance Code") and Chapter 1D of Title 79, Tex.Rev.Civ. Stats.
1925 ("Chapter 1D"), as amended, respectively) for that day. The Agent may from
time to time, as to current and future balances, implement any other ceiling
under the Texas Finance Code or Chapter 1D by notice to the Borrower, if and to
the extent permitted by the Texas Finance Code or Chapter 1D. Without notice to
the Borrower or any other person or entity, the Ceiling Rate shall automatically
fluctuate upward and downward as and in the amount by which such maximum
nonusurious rate of interest permitted by applicable law fluctuates.
CHANGE OF CONTROL means a change resulting when (a) any Person or
Persons acting together which would constitute a Group together with any
Affiliates thereof shall at any time either (i) Beneficially Own more than 50%
of the aggregate voting power of all classes of Voting Stock of EastGroup
Properties, Inc. or (ii) succeed in having sufficient of its or their nominees
elected to the Board of Directors of EastGroup Properties, Inc. such that such
nominees, when added to any existing directors remaining on the Board of
Directors of EastGroup Properties, Inc. after such election who is an Affiliate
of such Person or Group, shall constitute a majority of the Board of Directors
of EastGroup Properties, Inc. or (b) EastGroup Properties, Inc. ceases to own,
directly or indirectly, at least fifty-one percent (51%) of the evidence of
ownership of the Operating Partnership. As used herein (1) "BENEFICIALLY OWN"
means "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act
of 1934, as amended, or any successor provision thereto; PROVIDED, HOWEVER,
that, for purposes of this definition, a Person shall not be deemed to
Beneficially Own securities tendered pursuant to a tender or exchange offer made
by or on behalf of such Person or any of such Person's Affiliates until such
tendered securities are accepted for purchase or exchange; (2) "GROUP" means a
"group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended; and (3)"VOTING STOCK" of any Person shall mean capital stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
CODE shall mean the Internal Revenue Code of 1986, as amended, as now
or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
COMMITMENT shall mean the commitment of the Lenders to lend funds under
SECTION 2.1 of this Agreement.
CREDIT DOCUMENTS shall mean this Agreement, the Notes, the Guaranties,
all instruments, certificates and agreements now or hereafter executed or
delivered to the Agent or the Lenders pursuant to any of the foregoing, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
-3-
<PAGE> 8
EBITDA shall mean an amount derived from (a) net earnings, plus (b)
depreciation, amortization, interest expense and income taxes, plus or minus (c)
any losses or gains resulting from sales, write-downs, write-ups, write-offs or
other valuation adjustments of assets or liabilities, in each case, as
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles, and including (without duplication) the Equity Percentage
of EBITDA for the Borrower's Unconsolidated Affiliates.
ELIGIBLE GROUND LEASE shall mean a lease either expressly approved by
Agent in writing or a lease meeting at least the following requirements: (a) a
remaining term (including renewal options exercisable at lessee's sole option)
of at least thirty (30) years, (b) the leasehold interest is transferable and
assignable without the landlord's prior consent, (c) the ground lease is
financeable in that, among other things, it provides or allows for, without
further consent from the landlord, (i) notice and right to cure to lessee's
lender, (ii) a pledge and mortgage of the leasehold interest, (iii) recognition
of a foreclosure of the leasehold interest including entering into a new lease
with the lender, and (iv) no right of landlord to terminate without consent of
lessee's lender.
ELIGIBLE INSTITUTION shall mean a commercial bank or a finance company,
insurance company or other financial institution which is regularly engaged in
making, purchasing or investing in loans and which has base capital of at least
$500,000,000.00, but shall not include any Person which is an Affiliate of any
Obligor.
EQUITY PERCENTAGE shall mean the aggregate ownership percentage of
Borrower in each Unconsolidated Affiliate.
EURODOLLAR BUSINESS DAY shall mean a Business Day on which transactions
in United States dollar deposits between banks may be carried on in the London
interbank dollar market.
EURODOLLAR INTERBANK RATE shall mean, for each Interest Period, the
rate of interest per annum, rounded, if necessary, to the next highest whole
multiple of one-sixteenth percent (1/16%), quoted by Agent at or before 11:00
a.m., London time (or as soon thereafter as practicable), on the date two (2)
Eurodollar Business Days before the first day of such Interest Period, to be the
arithmetic average of the prevailing rates per annum at the time of
determination and in accordance with the then existing practice in the London
interbank dollar market, for the offering to Agent by one or more prime banks
selected by Agent in its sole discretion, in the London interbank dollar market,
of deposits in United States dollars for delivery on the first day of such
Interest Period and having a maturity equal to the length of such Interest
Period and in an amount equal (or as nearly equal as may be) to the Eurodollar
Rate Borrowing to which such Interest Period relates. Each determination by
Agent of the Eurodollar Interbank Rate shall be prima facie evidence thereof.
EURODOLLAR RATE shall mean for any day a rate per annum equal to the
sum of the Applicable Margin for that day plus the Adjusted Eurodollar Interbank
Rate in effect on the first day of the
-4-
<PAGE> 9
Interest Period for the applicable Eurodollar Rate Borrowing. Each Eurodollar
Rate is subject to adjustments for reserves, insurance assessments and other
matters as provided for in SECTION 3.5 hereof.
EURODOLLAR RATE BORROWING shall mean that portion of the principal
balance of the Loans at any time bearing interest at a Eurodollar Rate.
EURODOLLAR RESERVE REQUIREMENT shall mean, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next highest
one ten thousandth) which is in effect on such day for determining all reserve
requirements (including, without limitation, basic, supplemental, marginal and
emergency reserves) applicable to "Eurocurrency liabilities," as currently
defined in Regulation D, all as specified by any Governmental Authority,
including but not limited to those imposed under Regulation D. Each
determination of the Eurodollar Reserve Requirement by Agent shall be prima
facie evidence thereof.
EVENT OF DEFAULT shall mean any of the events specified as an event of
default in SECTION 7 of this Agreement, and DEFAULT shall mean any of such
events, whether or not any requirement for notice, grace or cure has been
satisfied.
FEDERAL FUNDS EFFECTIVE RATE shall to the extent necessary be
determined by the Agent separately for each day and shall for each such day be a
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for each such day (or if any such day is not
a Business Day, for the next immediately preceding Business Day) by the Federal
Reserve Bank of New York, or if the weighted average of such rates is not so
published for any such day which is a Business Day, the average of the
quotations for any such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by the Agent.
FIXED CHARGE COVERAGE RATIO shall mean the ratio of (a) the Borrower's
EBITDA for the immediately preceding four (4) calendar quarters less the Unit
Capital Expenditures for such period, to (b) all amounts payable and paid on the
Borrower's Indebtedness (not including irregular final "balloon" payments of
principal due at the stated maturity) plus all of the Borrower's Interest
Expense plus all amounts payable and paid on Borrower's preferred stock, in each
case for the period used to calculate EBITDA.
FUNDING LOSS shall mean, with respect to (a) Borrower's payment or
prepayment of principal of a Eurodollar Rate Borrowing on a day other than the
last day of the applicable Interest Period; (b) Borrower's failure to borrow a
Eurodollar Rate Borrowing on the date specified by Borrower; (c) Borrower's
failure to make any prepayment of the Loans (other than Base Rate Borrowings) on
the date specified by Borrower, or (d) any cessation of a Eurodollar Rate to
apply to the Loans or any part thereof pursuant to SECTION 3.5, in each case
whether voluntary or involuntary, any direct
-5-
<PAGE> 10
loss, expense, penalty, premium or liability incurred by any Lender (including
but not limited to any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by a Lender to fund or maintain
a Loan).
FUNDS AVAILABLE FOR DISTRIBUTION shall mean Funds From Operations, less
adjustments for straight line rents and Capital Expenditures.
FUNDS FROM OPERATIONS shall mean net income of the Borrower determined
in accordance with Generally Accepted Accounting Principles, plus depreciation
and amortization; PROVIDED, that there shall not be included in such calculation
any gain or loss from debt restructuring and sales of Property. Funds From
Operations will be calculated, on an annualized basis, on the four (4) calendar
quarters immediately preceding the date of the calculation. Funds From
Operations shall be calculated on a consolidated basis in accordance with
Generally Accepted Accounting Principles, and including (without duplication)
the Equity Percentage of Funds From Operations for the Borrower's Unconsolidated
Affiliates.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES shall mean, as to a particular
Person, such accounting practice as, in the opinion of the independent
accountants of recognized national standing regularly retained by such Person
and acceptable to the Agent, conforms at the time to generally accepted
accounting principles, consistently applied. Generally Accepted Accounting
Principles means those principles and practices (a) which are recognized as such
by the Financial Accounting Standards Board, (b) which are applied for all
periods after the date hereof in a manner consistent with the manner in which
such principles and practices were applied to the most recent audited financial
statements of the relevant Person furnished to the Lenders or where a change
therein has been concurred in by such Person's independent auditors, and (c)
which are consistently applied for all periods after the date hereof so as to
reflect properly the financial condition, and results of operations and changes
in financial position, of such Person.
GOVERNMENTAL AUTHORITY shall mean any foreign governmental authority,
the United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any agency, department, commission,
board, bureau, court or other tribunal having jurisdiction over the Agent, any
Lender or any Obligor or their respective Property.
GUARANTORS (whether one or more) shall mean EastGroup Properties
Holdings, Inc., EastGroup Properties General Partners, Inc., EastGroup Sunbelt,
Inc., EastGroup Tampa, Inc., EastGroup Jacksonville, Inc., LNH Florida, Inc.,
Nash IND Corporation, CPI Holdings, Sample I-95 Associates, Interchange
Distribution Partnership, EGP San Antonio Partners Ltd. and EastGroup San
Antonio, Inc.
GUARANTIES (whether one or more) shall mean the Guaranties executed by
the Guarantors and delivered to the Agent in accordance with this Agreement.
-6-
<PAGE> 11
HISTORICAL VALUE shall mean the purchase price of Property (including
improvements) and ordinary related purchase transaction costs, plus the cost of
subsequent capital improvements made by the Borrower, less any provision for
losses, all determined in accordance with Generally Accepted Accounting
Principles. If the Property is purchased as a part of a group of properties, the
Historical Value shall be calculated based upon a reasonable allocation of the
aggregate purchase price by the Borrower for all purposes, and consistent with
Generally Accepted Accounting Principles.
INDEBTEDNESS shall mean and include, without duplication (1) all
obligations for borrowed money, letter of credit reimbursement obligations,
preferred stock redeemable at the option of the stockholder, (2) all obligations
evidenced by bonds, debentures, notes or other similar agreements, (3) all
obligations to pay the deferred purchase price of Property or services, except
trade accounts payable arising in the ordinary course of business (unless
included in (6) below), (4) all guaranties, endorsements, and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
Total Liabilities of others (but not including contracts to purchase real
property and assume related liabilities which are not yet consummated if the
buyer has the ability to terminate the contract at its option), (5) all Total
Liabilities secured by any Lien existing on any interest of the Person with
respect to which Indebtedness is being determined in Property owned subject to
such Lien whether or not the Total Liabilities secured thereby shall have been
assumed, (6) accounts payable, dividends of any kind or character or other
proceeds payable with respect to any stock and accrued expenses, (7) payments
received in consideration for sale of ownership interests in a Person when the
amount of ownership interest so sold is determined, and the date of delivery is,
more than one (1) month after receipt of such payment, and (8) all obligations
at any time incurred or arising pursuant to any interest rate cap, swap, or
floor agreements, exchange transaction, forward rate agreement, or other
exchange, rate protection or hedging agreements or arrangements (calculated on a
basis satisfactory to the Agent and in accordance with accepted practices.
Indebtedness shall be calculated on a consolidated basis in accordance with
Generally Accepted Accounting Principles, and including (without duplication)
the Equity Percentage of Indebtedness for the Borrower's Unconsolidated
Affiliates.
INDUSTRIAL BUILDINGS shall mean the Property used as industrial,
service center and/or warehouse purposes of no more than one story, with no more
than fifteen percent (15%) of the net rentable area used for mezzanine office
space.
INTEREST COVERAGE RATIO shall mean the ratio of (a) the Borrower's
EBITDA for the immediately preceding four (4) calendar quarters, to (b) all of
the Borrower's Interest Expense for the period used to calculate EBITDA.
INTEREST EXPENSE shall mean all of a Person's paid, accrued or
capitalized interest expense on such Person's Indebtedness (whether direct,
indirect or contingent, and including, without limitation, interest on all
convertible debt), and including (without duplication) the Equity Percentage of
Interest Expense for the Borrower's Unconsolidated Affiliates.
-7-
<PAGE> 12
INTEREST OPTIONS shall mean the Base Rate and the Eurodollar Rate, and
"INTEREST OPTION" means either of them.
INTEREST PAYMENT DATES shall mean (a) the first (1st) day of each
calendar month and the Maturity Date, for Base Rate Borrowings and (b) the last
day of each Interest Period and, if the Interest Period is longer than three (3)
months, at the end of each three (3) months, and the Maturity Date, for
Eurodollar Rate Borrowings.
INTEREST PERIOD shall mean, for each Eurodollar Rate Borrowing, a
period commencing on the date such Eurodollar Rate Borrowing was made and ending
on the numerically corresponding day which is, subject to availability, one (1),
two (2), three (3) or six (6) months thereafter; PROVIDED, (v) any Interest
Period which would otherwise end on a day which is not a Eurodollar Business Day
shall be extended to the next succeeding Eurodollar Business Day, unless such
Eurodollar Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar Business Day; (w) any
Interest Period which begins on the last Eurodollar Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Eurodollar Business Day of the appropriate calendar month; (x) no Interest
Period shall ever extend beyond the Maturity Date; and (y) Interest Periods
shall be selected by Borrower in such a manner that the Interest Period with
respect to any portion of the Loans which shall become due shall not extend
beyond such due date.
LEGAL REQUIREMENT shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
LENDER COMMITMENT means, for any Lender, the amount set forth opposite
such Lender's name on its signature page of this Agreement, or as may hereafter
become a signatory hereto.
LIEN shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute or contract, and
shall include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions.
LIMITING AGREEMENTS shall mean (a) any agreement, instrument or
transaction, including, without limitation, an Obligor's Organizational
Documents, which has or may have the effect of prohibiting or limiting any
Obligor's ability to pledge assets in the Pool to Agent as security for the
Loans, or (b) any provision of an Obligor's Organizational Documents which have
or may have the effect of prohibiting or limiting any Obligor's ability to sell,
transfer or convey the assets in the Pool.
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LOANS shall mean the Loans described in SECTIONS 2.1 and 2.2 hereof.
LOAN shall mean any such Loan.
MAJORITY LENDERS shall mean the Lenders with an aggregate amount of at
least sixty-six and 67/100 percent (66.67%) of the amount of the Commitment then
outstanding.
MATERIAL ADVERSE CHANGE shall mean a change which could reasonably be
expected to have a Material Adverse Effect.
MATERIAL ADVERSE EFFECT means a material adverse effect on (a) the
financial condition, or results of operations of Borrower and its Subsidiaries
taken as a whole, (b) the ability of an Obligor to perform its material
obligations under the Credit Documents to which it is a party taken as a whole,
(c) the validity or enforceability of such Credit Documents taken as a whole, or
(d) the material rights and remedies of Lenders and Agent under the Credit
Documents taken as a whole.
MATURITY DATE shall mean three (3) years after the date of this
Agreement, as the same may hereafter be accelerated pursuant to the provisions
of any of the Credit Documents.
MOODY'S RATING shall mean the senior unsecured debt rating from time to
time received by the Operating Partnership from Moody's Investors Service, Inc.
NET OPERATING INCOME shall mean, for any income producing operating
Property, the difference between (a) any cash rentals, proceeds and other income
received from such Property (but excluding security or other deposits, late
fees, early lease termination or other penalties, or other income of a
non-recurring nature) during the determination period, LESS (b) an amount equal
to all costs and expenses (excluding interest expense and any expenditures that
are capitalized in accordance with Generally Accepted Accounting Principles)
incurred as a result of, or in connection with, or properly allocated to, the
operation or leasing of such Property during the determination period; provided,
however, that the amount for the expenses for the management of a Property
included in CLAUSE (b) above shall be the greater of the general and
administrative expenses that would be covered by a management fee, or three
percent (3%) of the amount provided in CLAUSE (a) above. Net Operating Income
shall be calculated on a consolidated basis in accordance with Generally
Accepted Accounting Principles, and including (without duplication) the Equity
Percentage of Net Operating Income for the Borrower's Unconsolidated Affiliates.
NET WORTH shall mean Tangible Net Worth, plus intangibles deducted in
determining Tangible Net Worth. Net Worth shall be calculated on a consolidated
basis in accordance with Generally Accepted Accounting Principles.
NON-RECOURSE DEBT shall mean any Indebtedness the payment of which the
Borrower or any of its Subsidiaries is not obligated to make other than to the
extent of any security therefor.
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NOTES shall mean the promissory notes of the Borrower described in
SECTION 2.1 hereof, any and all renewals, extensions, modifications,
rearrangements and replacements thereof and any and all substitutions therefor,
and NOTE shall mean any one of them.
OBLIGATIONS shall mean, as at any date of determination thereof, the
sum of (a) the aggregate amount of Loans outstanding hereunder plus (b) all
other liabilities, obligations and Indebtedness of any Parties under any Credit
Document.
OBLIGORS shall mean any Person now or hereafter primarily or
secondarily obligated to pay all or any part of the Obligations, including
Borrower and Guarantors.
OCCUPANCY LEVEL shall mean the occupancy level of a Property that is
leased to bona fide tenants not Affiliates of any Obligor or the subject
property manager (or any of their respective Affiliates) paying the stated rent
under written leases, based on the occupancy level at the time of determination.
OFFICER'S CERTIFICATE shall mean a certificate in the form attached
hereto as EXHIBIT A.
OPERATING PARTNERSHIP shall mean EastGroup Properties, L.P., a Delaware
limited partnership.
OPINION LETTERS shall mean the opinion letters of independent counsel
for the Obligors, each in Proper Form.
ORGANIZATIONAL DOCUMENTS shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof as of the date of the Credit Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by the Lenders.
PARTIES shall mean all Persons other than the Agent, or any Lender
executing any Credit Document.
PAST DUE RATE shall mean, on any day, a rate per annum equal to the
Ceiling Rate for that day, or only if applicable law imposes no maximum
nonusurious rate of interest for that day, then the Past Due Rate for that day
shall be a rate per annum equal to the Base Rate plus an additional five percent
(5%) per annum, but in any event not to exceed the Ceiling Rate.
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PERCENTAGE shall mean the amount, expressed as a percentage, of each
Lender Commitment as compared to the Commitment, set forth opposite the Lender's
name on its signature page of this Agreement, or as may hereafter become
signatory hereto.
PERMITTED ENCUMBRANCES shall mean (a) encumbrances consisting of zoning
restrictions, easements, or other restrictions on the use of real property,
provided that such items do not materially impair the use of such property for
the purposes intended and none of which is violated in any material respect by
existing or proposed structures or land use; (b) the following: (i) Liens for
taxes not yet due and payable, or being diligently contested in good faith; or
(ii) materialmen's, mechanic's, warehousemen's and other like Liens arising in
the ordinary course of business, securing payment of Total Liabilities whose
payment is not yet due, or that are being contested in good faith by appropriate
proceedings diligently conducted, and for or against which the Property owner
has established adequate reserves in accordance with Generally Accepted
Accounting Principles; (c) Liens for taxes, assessments and governmental charges
or assessments that are being contested in good faith by appropriate proceedings
diligently conducted, and for or against which the Property owner has
established adequate reserves in accordance with Generally Accepted Accounting
Principles; (d) Liens on real property which are insured around or against by
title insurance; (e) Liens securing assessments or charges payable to a property
owner association or similar entity which assessments are not yet due and
payable or are being diligently contested in good faith; and (f) Liens securing
this Agreement and Indebtedness hereunder, if any.
PERSON shall mean any individual, corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
PRIME RATE shall mean, as of a particular date, the prime rate of
interest per annum most recently determined by the Agent, automatically
fluctuating upward or downward with and at the time specified in each such
determination without notice to Borrower or any other Person; each change in the
Prime Rate shall be effective on the date such change is determined; which Prime
Rate may not necessarily represent the Agent's lowest or best rate actually
charged to a customer.
PROPER FORM shall mean in form and substance reasonably satisfactory to
the Agent and the Majority Lenders.
PROPERTY shall mean any interest in any kind of property or asset,
whether real, leasehold, personal or mixed, tangible or intangible.
QUARTERLY UNAUDITED FINANCIAL STATEMENTS shall mean the quarterly
financial statements of a Person, including all notes thereto, which statements
shall include a balance sheet as of the end of such quarter and an income
statement for such fiscal quarter, and for the fiscal year to date, a statement
of cash flows for such quarter and for the fiscal year to date, subject to
normal year-end adjustments, all setting forth in comparative form the
corresponding figures for the corresponding
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fiscal period of the preceding year (or, in the case of the balance sheet, the
end of the preceding fiscal year), prepared in accordance with Generally
Accepted Accounting Principles except that the Quarterly Unaudited Financial
Statements may contain condensed footnotes as permitted by regulations of the
United States Securities and Exchange Commission, and containing a detailed
listing of the Borrower's Property and the Historical Value thereof, and
certified as true and correct by a managing director, senior vice president, or
vice president of Borrower. The Quarterly Unaudited Financial Statements shall
be prepared on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
RATE DESIGNATION DATE shall mean 12:00 noon, Houston, Texas time, on
the date three (3) Eurodollar Business Days preceding the first day of any
proposed Interest Period.
REGULATION D shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member lenders of the Federal Reserve System.
REQUEST FOR LOAN shall mean a written request substantially in the form
of EXHIBIT B.
S&P RATING shall mean the senior unsecured debt rating from time to
time received by the Operating Partnership from Standard & Poor's Rating
Services.
SECURED DEBT shall mean the Indebtedness of the Borrower secured by a
Lien, and any Indebtedness of any of the Borrower's Subsidiaries owed to a
Person not an Affiliate of the Borrower or such Subsidiary.
SECURED DEBT TO TOTAL ASSET VALUE RATIO shall mean the ratio (expressed
as a percentage) of Secured Debt to Total Asset Value.
STABILIZATION DATE shall mean the earlier to occur of (a) the date the
Occupancy Level reaches eighty (80%) for the first time, or (b) one (1) year
after the construction of the building improvements, other than tenant
improvements, are substantially complete.
STATED RATE shall, on any day, mean whichever of the Base Rate or the
Eurodollar Rate has been designated and provided pursuant to this Agreement;
PROVIDED that, if on any day such rate shall exceed the Ceiling Rate for that
day, the Stated Rate shall be fixed at the Ceiling Rate on that day and on each
day thereafter until the total amount of interest accrued at the Stated Rate on
the unpaid principal balance of the Notes equals the total amount of interest
which would have accrued if there had been no Ceiling Rate. If the Notes mature
(or are prepaid) before such equality is achieved, then, in addition to the
unpaid principal and accrued interest then owing pursuant to the other
provisions of the Credit Documents, Borrower promises to pay on demand to the
order of the holders of the Notes interest in an amount equal to the excess (if
any) of (a) the lesser of (i) the total interest which
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would have accrued on the Notes if the Stated Rate had been defined as equal to
the Ceiling Rate from time to time in effect and (ii) the total interest which
would have accrued on the Notes if the Stated Rate were not so prohibited from
exceeding the Ceiling Rate, over (b) the total interest actually accrued on the
Notes to such maturity (or prepayment) date.
SUBSIDIARY shall mean, as to a particular parent entity, any entity of
which more than fifty percent (50%) of the indicia of voting equity or ownership
rights (whether outstanding capital stock or otherwise) is at the time directly
or indirectly owned by, such parent entity, or by one or more of its other
Subsidiaries.
TANGIBLE NET WORTH shall mean total assets based on book value, and
including the book value of equity investments in each Unconsolidated Affiliate
multiplied by the Equity Percentage for that Unconsolidated Affiliate), less (1)
all intangibles and (2) all liabilities (including contingent and indirect
liabilities), all determined in accordance with Generally Accepted Accounting
Principles. The term "intangibles" shall include, without limitation, (i)
deferred charges, (ii) the amount of any write-up in the book value of any
assets contained in any balance sheet resulting from revaluation thereof or any
write-up in excess of the cost of such assets acquired, and (iii) the aggregate
of all amounts appearing on the assets side of any such balance sheet for
franchises, licenses, permits, patents, patent applications, copyrights,
trademarks, trade names, goodwill, treasury stock, experimental or
organizational expenses and other like intangibles. The term "liabilities" shall
include, without limitation, (i) Total Liabilities secured by Liens on Property
of the Person with respect to which Tangible Net Worth is being computed whether
or not such Person is liable for the payment thereof, (ii) deferred liabilities,
and (iii) obligations under leases which have been capitalized. Tangible Net
Worth shall be calculated on a consolidated basis in accordance with Generally
Accepted Accounting Principles.
TAXES shall mean any tax, levy, impost, duty, charge or fee.
TOTAL ASSET VALUE shall mean the sum of (without duplication) (a) the
aggregate Value of all of Borrower's operating real estate assets, plus (b) the
amount of any cash and cash equivalents, excluding tenant security and other
restricted deposits of the Borrower, plus (c) investments in Unconsolidated
Affiliates that are engaged primarily in the business of investment in and
operation of Industrial Buildings, valued at an amount equal to the Value of
each Unconsolidated Affiliate's operating real estate assets multiplied by the
Equity Percentage for that Unconsolidated Affiliate (subject to the maximum
investment limitation contained in SECTION 6.6(f)), plus (d) investments in
readily marketable securities of another Person, not an Affiliate of any
Obligor, traded on a national trading exchange, that is a real estate investment
trust under Section 856(c)(1) of the Code, or that is a real estate operating
company (subject to the maximum investment limitation contained in SECTION
6.6(i)), plus (e) investments in real estate assets that are being constructed
or developed to be Industrial Buildings, but are not yet in operation (so long
as the total actual and budgeted cost of construction or development in the
aggregate, used in this Value calculation does not exceed ten
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<PAGE> 18
percent (10%) of the Total Asset Value after giving effect to such investments),
plus (f) investments in loans, advances, and extensions of credit to Persons
(who are not Affiliates of any Obligor) secured by valid and enforceable first
priority liens on real estate (subject to the maximum investment limitations
continued in SECTION 6.6(g)) that are paid current and under which no default
has occurred. Total Asset Value shall be calculated on a consolidated basis in
accordance with Generally Accepted Accounting Principles.
TOTAL LIABILITIES shall mean and include, without duplication, the sum
of (a) Indebtedness and (b) all other items which in accordance with Generally
Accepted Accounting Principles would be included on the liability side of a
balance sheet on the date as of which Total Liabilities is to be determined
(excluding capital stock, surplus, surplus reserves and deferred credits), and
including (without duplication) the Equity Percentage of Total Liabilities of
the Borrower's Unconsolidated Affiliates.
TOTAL LIABILITIES TO TOTAL ASSET VALUE RATIO shall mean the ratio
(expressed as a percentage) of Total Liabilities to Total Asset Value, with
Total Asset Value based on the immediately preceding calendar quarter.
UNCONSOLIDATED AFFILIATE shall mean, in respect of any Person, any
other Person (other than a Person whose stock is traded on a national trading
exchange) in whom such Person holds a voting equity or ownership interest and
whose financial results would not be consolidated under Generally Accepted
Accounting Principles with the financial results of such Person on the
consolidated financial statements of such Person.
UNENCUMBERED INTEREST COVERAGE RATIO shall mean the ratio of (a) the
Net Operating Income for Property that is not subject to any Lien for the
immediately preceding four (4) calendar quarters, to (b) the Borrower's Interest
Expense on all of the Borrower's Indebtedness other than Secured Debt for the
period used to calculate Net Operating Income.
UNHEDGED VARIABLE RATE DEBT TO TOTAL ASSET VALUE RATIO shall mean the
ratio (expressed as a percentage) of (a) Indebtedness of the Borrower with the
non-default interest rate at other than a fixed rate of interest for the term of
the Indebtedness, that is not subject to an interest rate protection agreement
in form and substance satisfactory to the Agent, to (b) Total Asset Value.
UNIT CAPITAL EXPENDITURE shall mean, on an annual basis, an amount
equal to (a) for use in the Fixed Charged Coverage Ratio, the sum of (i) the
daily average aggregate number of gross square feet contained in each completed,
operating office building owned by Borrower or its Subsidiary during the
immediately preceding four (4) calendar quarters, multiplied by $1.00, plus (ii)
the daily average aggregate number of gross square feet contained in each
completed, operating Industrial Building owned by Borrower or its Subsidiary
during the immediately preceding four (4) calendar quarters, multiplied by
$0.25, plus (iii) the daily average aggregate number of apartment units
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contained in each completed, operating apartment building owned by Borrower or
its Subsidiary during the immediately preceding four (4) calendar quarters,
multiplied by $300.00; and (b) for use in defining Value, the sum of (i) the
aggregate number of gross square feet contained in each completed, operating
office building owned by Borrower or its Subsidiary as of the last day of the
immediately preceding calendar quarter, multiplied by $1.00, plus (ii) the
aggregate number of gross square feet contained in each completed, operating
Industrial Building owned by Borrower or its Subsidiary as the last day of the
immediately preceding calendar quarter, multiplied $0.25, plus (iii) the
aggregate number of apartment units contained in each completed, operating
apartment building owned by Borrower or its Subsidiary as the last day of the
immediately preceding calendar quarter, multiplied by $300.00.
VALUE shall mean the sum of (a) for Property that has reached the
Stabilization Date and that Borrower or its Subsidiary has owned for the full
preceding six (6) calendar months, the result of dividing (i) the aggregate Net
Operating Income of the subject Property based on the immediately preceding six
(6) calendar months and multiplied by two (2), less the aggregate Unit Capital
Expenditure for such Property, by (ii) nine and one-fourth percent (9.25%); plus
(b) for Property has been constructed but that has not reached the Stabilization
Date or that has not been owned by Borrower or its Subsidiary for the full
preceding six (6) calendar months, the aggregate Historical Value of the subject
Property.
The following terms shall have the respective meanings ascribed to them
in the Uniform Commercial Code as enacted and in force in the State of Texas on
the date hereof:
accessions, continuation statement, fixtures, general intangibles,
proceeds, security interest and security agreement.
2. THE LOANS.
2.1 ADVANCES. (a) Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Loans prior to the Maturity Date
to the Borrower not to exceed an amount (in the aggregate, the "COMMITMENT") at
any one time outstanding equal to the Lender's Lender Commitment. Each such
request for a Loan by Borrower shall be deemed a request for a Loan from each
Lender equal to such Lender's Percentage of the aggregate amount so requested,
and such aggregate amount shall be in an amount at least equal to $1,000,000.00
and equal to a multiple of $250,000.00, or the difference between the Commitment
and the aggregate principal balance of the Notes, whichever is less. Each
repayment of the Loans shall be deemed a repayment of each Lender's Loan equal
to such Lender's Percentage of the amount so repaid. The obligations of the
Lenders hereunder are several and not joint, and the preceding two sentences
will give rise to certain inappropriate results if special provisions are not
made to accommodate the failure of a Lender to fund a Loan as and when required
by this Agreement; therefore, notwithstanding anything herein to the contrary,
(A) no Lender shall be required to make Loans at any one time outstanding in
excess
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of such Lender's Percentage of the Commitment and (B) if a Lender fails to make
a Loan as and when required hereunder and Borrower subsequently makes a
repayment on the Loans, such repayment shall be divided among the non-defaulting
Lenders ratably in accordance with their respective Percentages until each
Lender has its Percentage of all of the outstanding Loans, and the balance of
such repayment shall be divided among all of the Lenders in accordance with
their respective Percentages. The Loans shall be evidenced by the Notes
substantially in the form of EXHIBIT C attached hereto. The Borrower, the Agent
and the Lenders agree that Chapter 346 of the Texas Finance Code shall not apply
to this Agreement, the Notes or any Loan.
(b) The Borrower shall give the Agent notice of each borrowing to be
made hereunder as provided in SECTION 3.1 hereof, and the Agent shall deliver
same to each Lender promptly thereafter. Not later than 11:00 a.m., Houston,
Texas time, on the date specified for each such borrowing hereunder, each Lender
shall make available the amount of the Loan, if any, to be made by it on such
date to the Agent at the Agent's principal office in Houston, Texas, in
immediately available funds, for the account of the Borrower. Such amounts
received by the Agent will be held in Agent's general ledger account. The
amounts so received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to the Borrower by wiring or otherwise
transferring, in immediately available funds not later than 12:00 noon, Houston,
Texas time, such amount to an account designated by the Borrower and maintained
with Chase in Houston, Texas or any other account or accounts which the Borrower
may from time to time designate to the Agent by a written notice as the account
or accounts to which borrowings hereunder are to be wired or otherwise
transferred.
2.2 PAYMENTS. (a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrower
hereunder, under the Notes and under the other Credit Documents shall be made in
immediately available funds to the Agent, for the account of the Lenders, at its
principal office in Houston, Texas (or in the case of a successor Agent, at the
principal office of such successor Agent in the United States), not later than
12:00 noon Houston, Texas time on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day).
(b) The Borrower may, at the time of making each payment hereunder,
under any Note or under any other Credit Document, specify to the Agent the
Loans or other amounts payable by the Borrower hereunder or thereunder to which
such payment is to be applied, which must be pro rata on the basis of each
Lender's Percentage (and in the event that it fails so to specify, such payment
shall be applied to the Loans or, if no Loans are outstanding, to other amounts
then due and payable, PROVIDED that if no Loans or other amounts are then due
and payable or an Event of Default has occurred and is continuing, the Agent may
apply such payment to the Obligations in such order as it may elect in its sole
discretion, but subject to the other terms and conditions of this Agreement,
including without limitation SECTION 2.3 hereof). Each payment received by the
Agent hereunder,
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under any Note or under any other Credit Document for the account of a Lender
shall be paid promptly to such Lender, in immediately available funds. If the
Agent receives a payment for the account of a Lender prior to 12:00 noon
Houston, Texas time, such payment must be delivered to the Lender on that same
day and if it is not so delivered due to the fault of the Agent, the Agent shall
pay to the Lender entitled to the payment the interest accrued on the amount of
the payment pursuant to said Lender's Note and this Agreement from the date the
Agent receives the payment to the date the Lender received the payment.
(c) If the due date of any payment hereunder or under any Note falls on
a day which is not a Business Day or a Eurodollar Business Day, as the case may
be, the due date for such payments shall be extended to the next succeeding
Business Day or Eurodollar Business Day, respectively, and interest shall be
payable for any principal so extended for the period of such extension;
provided, however, that with respect to Eurodollar Rate Borrowings if such
extension would cause the Eurodollar Business Day of payment to fall in another
calendar month, the payment shall be due on the Eurodollar Business Day next
preceding the due date of the payment.
(d) The Borrower shall give the Agent at least one (1) Business Day's
prior written notice of the Borrower's intent to make any payment of principal
or interest under the Credit Documents not scheduled to be paid under the Credit
Documents. Any such notification of payment shall be irrevocable after it is
made by the Borrower. Upon receipt by the Agent of such notification of payment,
it shall deliver same to the other Lenders.
2.3 PRO RATA TREATMENT. Except to the extent otherwise provided herein:
(a) each borrowing from the Lenders under SECTION 2.1(a) hereof shall be made
ratably from the Lenders on the basis of their respective Percentages, each
payment of the Fee (hereinafter defined) shall be made for the account of the
Lenders, and shall be applied, PRO RATA, according to the Lenders' respective
Lender Commitment; and (b) each payment by the Borrower of principal or interest
on the Loans or any other sums advanced by the Lenders pursuant to the Credit
Documents, and of any other amount owed to the Lenders other than the Fee, or
any other sums designated by this Agreement as being owed to a particular
Lender, shall be made to the Agent for the account of the Lenders pro rata in
accordance with the respective unpaid principal amounts of the Loans held by the
Lenders.
2.4 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been
notified by a Lender or the Borrower (the "Payor") prior to the date on which
such Lender is to make payment to the Agent of the proceeds of a Loan to be made
by it hereunder or the Borrower is to make a payment to the Agent for the
account of one or more of the Lenders, as the case may be (such payment being
herein called the "Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall,
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on demand, pay to the Agent the amount made available by the Agent together with
interest thereon in respect of the period commencing on the date such amount was
so made available by the Agent until the date the Agent recovers such amount at
a rate per annum equal to (a) the Past Due Rate for such period if the recipient
returning a Required Payment is the Borrower, or (b) the Federal Funds Effective
Rate for such period if the recipient returning a Required Payment is the Agent
or a Lender.
2.5 SHARING OF PAYMENTS, ETC. The Borrower agrees that, in addition to
(and without limitation of) any right of set-off, bankers' lien or counterclaim
a Lender may otherwise have, each Lender shall be entitled, at its option, to
offset balances held by it for the account of the Borrower at any of its
offices, against any principal of or interest on any of such Lender's Loans to
the Borrower hereunder, or other Obligations of the Borrower hereunder, which is
not paid (regardless of whether such balances are then due to the Borrower), in
which case it shall promptly notify the Borrower and the Agent thereof, PROVIDED
that such Lender's failure to give such notice shall not affect the validity
thereof. If a Lender shall obtain payment of any principal of or interest on any
Loan made by it under this Agreement or other Obligation then due to such Lender
hereunder, through the exercise of any right of set-off, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Lenders portions of the Loans made or other Obligations held by the other
Lenders in such amounts, and make such other adjustments from time to time as
shall be equitable to the end that all the Lenders shall share the benefit of
such payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Obligations then due to each of them. To such end
all the Lenders shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower.
2.6 FEES. The Borrower shall pay to the Agent for the account of each
Lender fees (collectively, the "FEE") equal to an amount payable as a commitment
fee by the Borrower to the Agent for the account of each Lender equal to the
portion of the daily unused amount of the Commitment multiplied by the rate per
annum corresponding to (a) the Total Liabilities to Total Asset Value Ratio
reflected in Table 1 on SCHEDULE I attached hereto (as determined as of the last
day of each of the Borrower's fiscal quarters) whenever and for so long as the
Operating Partnership has not received an S&P Rating and a Moody's Rating; and
(b) the S&P Rating or Moody's Rating, whichever is lower, reflected in Table 2
on SCHEDULE I attached hereto, as same is in effect from time to time, whenever
and for so long as the Operating Partnership has received an S&P Rating and a
Moody's Rating; such commitment fee to be payable in arrears on or before the
tenth (10th) day of each April, July, October and January. The Fee shall not be
refundable. Any portion of the Fee which is not paid by the Borrower when due
shall bear interest at the Past Due Rate from the date due until the date paid
by the Borrower. The Fee shall be calculated on the actual number of days
elapsed in a year deemed to consist of 360 days.
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3. CONDITIONS.
3.1 ALL LOANS. The obligation of any Lender to make any Loan is subject
to the accuracy of all representations and warranties of the Borrower on the
date of such Loan, to the performance by the Borrower of its obligations under
the Credit Documents and to the satisfaction of the following further
conditions: (a) the Agent shall have received the following, all of which shall
be duly executed and in Proper Form: (1) a Request for Loan (i) by 11:00 a.m.,
Houston, Texas time, one (1) Business Day before the date (which shall also be a
Business Day) of the proposed Loan which is to be a Base Rate Borrowing, or (ii)
by the Rate Designation Date of the proposed Loan which is to be a Eurodollar
Rate Borrowing; and (2) such other documents as the Agent may reasonably require
to satisfy itself or the request of any Lender; (b) no Default or Event of
Default shall have occurred and be continuing; (c) the making of the Loan shall
not be prohibited by any Legal Requirement; and (d) the Borrower shall have paid
all legal fees and expenses of the type described in SECTION 5.10 hereof through
the date of such Loan.
3.2 FIRST LOAN. In addition to the matters described in SECTION 3.1
hereof, the obligation of the Lenders to make the first Loan under this
Agreement is subject to the receipt by the Lenders of each of the following, in
Proper Form: (a) the Notes, executed by the Borrower; (b) a certificate executed
by the Secretary or Assistant Secretary of each Obligor dated as of the date
hereof as to the resolutions of such Person authorizing the execution of the
Credit Documents and as to the incumbency of the officers of such Person; (c) a
certificate from the Secretary of State or other appropriate public official of
the state of organization of each Obligor as to the continued existence and good
standing of such Obligor; (d) a certificate from the appropriate public official
of every state where the location of the Obligor's Property requires it to be
qualified to do business as to the due qualification and good standing of such
Obligor; (e) a legal opinion from independent counsel for the Obligors as to the
matters set forth on EXHIBIT D acceptable to the Lenders; and (f) an Officer's
Certificate in the form of EXHIBIT A; and to the further condition that, at the
time of the initial Loan, all legal matters incident to the transactions herein
contemplated shall be satisfactory to Locke Liddell & Sapp LLP, counsel for the
Agent.
3.3 OPTIONS AVAILABLE. The outstanding principal balance of the Notes
shall bear interest at the Base Rate; PROVIDED, that (1) all past due amounts,
both principal and accrued interest, shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balance of the Notes from time to
time outstanding bear interest at a Eurodollar Rate. The records of the Lenders
with respect to Interest Options, Interest Periods and the amounts of Loans to
which they are applicable shall be prima facie evidence thereof. Interest on the
Loans shall be calculated at the Base Rate except where it is expressly provided
pursuant to this Agreement that a Eurodollar Rate is to apply.
3.4 DESIGNATION AND CONVERSION. Borrower shall have the right to
designate or convert its Interest Options in accordance with the provisions
hereof. PROVIDED no Event of Default has
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occurred and is continuing and subject to the provisions of SECTION 3.5,
Borrower may elect to have a Eurodollar Rate apply or continue to apply to all
or any portion of the principal balance of the Notes. Each change in Interest
Options shall be a conversion of the rate of interest applicable to the
specified portion of the Loans, but such conversion shall not change the
respective outstanding principal balance of the Notes. The Interest Options
shall be designated or converted in the manner provided below:
(a) Borrower shall give Agent a Request for Loan. Each such written
notice shall specify the amount of Loan which is the subject of the designation,
if any; the amount of borrowings into which such borrowings are to be converted
or for which an Interest Option is designated; the proposed date for the
designation or conversion and the Interest Period, if any, selected by Borrower.
The Request for Loan shall be irrevocable and shall be given to Agent no later
than the applicable Rate Designation Date. The Agent shall promptly deliver the
Request for Loan to the Lenders.
(b) No more than five (5) Eurodollar Rate Borrowings with five (5)
Interest Periods shall be in effect at any time.
(c) Each designation or conversion of a Eurodollar Rate Borrowing shall
occur on a Eurodollar Business Day.
(d) Except as provided in SECTION 3.5 hereof, no Eurodollar Rate
Borrowing shall be converted on any day other than the last day of the
applicable Interest Period.
(e) Unless a Request for Loan to the contrary is received as provided
in this Agreement, each Eurodollar Rate Borrowing will convert to a Base Rate
Borrowing after the expiration of the Interest Period.
3.5 SPECIAL PROVISIONS APPLICABLE TO EURODOLLAR RATE BORROWINGS.
(a) OPTIONS UNLAWFUL. If the adoption of any applicable Legal
Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by the Lenders with any request or directive (whether or not having
the force of law) of any central bank or other Governmental Authority shall at
any time make it unlawful or impossible for any Lender to permit the
establishment of or to maintain any Eurodollar Rate Borrowing, the commitment of
the Lenders to establish or maintain such Eurodollar Rate Borrowing shall
forthwith be suspended until such condition shall cease to exist and Borrower
shall forthwith, upon demand by Agent to Borrower, (1) convert the Eurodollar
Rate Borrowing with respect to which such demand was made to a Base Rate
Borrowing; (2) pay all accrued and unpaid interest to date on the amount so
converted; and (3) pay any amounts required to compensate the Lenders for any
additional cost or expense which the Lenders may incur as a result of such
adoption of or change in such Legal Requirement or in the interpretation or
administration thereof and any
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Funding Loss which the Lenders may incur as a result of such conversion. If,
when Agent so notifies Borrower, Borrower has given a Request for Loan
specifying a Eurodollar Rate Borrowing but the selected Interest Period has not
yet begun, such Request for Loan shall be deemed to be of no force and effect,
as if never made, and the balance of the Loans specified in such Request for
Loan shall bear interest at the Base Rate until a different available Interest
Option shall be designated in accordance herewith.
(b) INCREASED COST OF BORROWINGS. If the adoption of any applicable
Legal Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by any Lender with any request or directive of general applicability
(whether or not having the force of law) of any central bank or Governmental
Authority shall at any time as a result of any portion of the principal balance
of the Notes being maintained on the basis of a Eurodollar Rate:
(1) subject any Lender (or make it apparent that any Lender is
subject) to any Taxes, or any deduction or withholding for any
Taxes, on or from any payment due under any Eurodollar Rate
Borrowing or other amount due hereunder, other than income and
franchise taxes of the United States and its political
subdivisions; or
(2) change the basis of taxation of payments due from Borrower to
any Lender under any Eurodollar Rate Borrowing (otherwise than
by a change in the rate of taxation of the overall net income
of a Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve requirement
included in the calculation of the applicable Eurodollar
Rate), special deposit requirement or similar requirement
(including, but not limited to, state law requirements and
Regulation D) imposed, modified, increased or deemed
applicable by any Governmental Authority against assets held
by any Lender, or against deposits or accounts in or for the
account of any Lender, or against loans made by any Lender, or
against any other funds, obligations or other property owned
or held by any Lender; or
(4) impose on any Lender any other condition regarding any
Eurodollar Rate Borrowing;
and the result of any of the foregoing is to increase the cost to any
Lender of agreeing to make or of making, renewing or maintaining such
Eurodollar Rate Borrowing, or reduce the amount of principal or
interest received by any Lender, then, upon demand by Agent, Borrower
shall pay to such Lender, from time to time as specified by such
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Lender, additional amounts which shall compensate such Lender for such
increased cost or reduced amount. Agent will promptly notify Borrower
in writing of any event which will entitle any Lender to additional
amounts pursuant to this paragraph. A Lender's determination of the
amount of any such increased cost, increased reserve requirement or
reduced amount shall be prima facie evidence thereof. Borrower shall
have the right, if it receives from Agent any notice referred to in
this paragraph, upon three Business Days' notice to Agent, either (i)
to repay in full (but not in part) any borrowing with respect to which
such notice was given, together with any accrued interest thereon, or
(ii) to convert the Eurodollar Rate Borrowing which is the subject of
the notice to a Base Rate Borrowing; PROVIDED, that any such repayment
or conversion shall be accompanied by payment of (x) the amount
required to compensate a Lender for the increased cost or reduced
amount referred to in the preceding paragraph; (y) all accrued and
unpaid interest to date on the amount so repaid or converted, and (z)
any Funding Loss which any Lender may incur as a result of such
repayment or conversion.
(c) INADEQUACY OF PRICING AND RATE DETERMINATION. If for any reason
with respect to any Interest Period Agent shall have determined (which
determination shall be prima facie evidence thereof) that:
(1) Agent is unable through its customary general practices to
determine any applicable Eurodollar Rate, or
(2) by reason of circumstances affecting the applicable market
generally, Agent is not being offered deposits in United
States dollars in such market, for the applicable Interest
Period and in an amount equal to the amount of any applicable
Eurodollar Rate Borrowing requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately and fairly
reflect the cost to the Lenders of making and maintaining such
Eurodollar Rate Borrowing hereunder for any proposed Interest
Period,
then Agent shall give Borrower notice thereof and thereupon, (A) any
Request for Loan previously given by Borrower designating the
applicable Eurodollar Rate Borrowing which has not commenced as of the
date of such notice from Agent shall be deemed for all purposes hereof
to be of no force and effect, as if never given, and (B) until Agent
shall notify Borrower that the circumstances giving rise to such notice
from Agent no longer exist, each Request for Loan requesting the
applicable Eurodollar Rate shall be deemed a request for a Base Rate
Borrowing, and any applicable Eurodollar Rate Borrowing then
outstanding shall be converted, without
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any notice to or from Borrower, upon the termination of the Interest
Period then in effect with respect to it, to a Base Rate Borrowing.
(d) FUNDING LOSSES. Borrower shall indemnify the Agent and each Lender
against and hold the Agent and each Lender harmless from any Funding Loss. This
agreement shall survive the payment of the Notes. A certificate as to any
additional amounts payable pursuant to this subsection and setting forth the
reasons for the Funding Loss submitted by Agent to Borrower shall be prima facie
evidence thereof.
3.6 FUNDING OFFICES; ADJUSTMENTS AUTOMATIC. Any Lender may, if it so
elects, fulfill its obligation as to any Eurodollar Rate Borrowing by causing a
branch or affiliate of such Lender to make such Loan and may transfer and carry
such Loan at, to, or for the account of, any branch office or affiliate of such
Lender; PROVIDED, that in such event for the purposes of this Agreement such
Loan shall be deemed to have been made by such Lender and the obligation of
Borrower to repay such Loan shall nevertheless be to such Lender and shall be
deemed held by it for the account of such branch or affiliate. Without notice to
Borrower or any other person or entity, each rate required to be calculated or
determined under this Agreement shall automatically fluctuate upward and
downward in accordance with the provisions of this Agreement.
3.7 FUNDING SOURCES, PAYMENT OBLIGATIONS. Notwithstanding any provision
of this Agreement to the contrary, each Lender shall be entitled to fund and
maintain its funding of all or any part of the Loans in any manner it sees fit,
it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if each Lender had actually funded and
maintained each Eurodollar Rate Borrowing during each Interest Period through
the purchase of deposits having a maturity corresponding to such Interest Period
and bearing an interest rate equal to the Eurodollar Rate for such Interest
Period. Notwithstanding the foregoing, Funding Losses, increased costs and other
obligations relating to Eurodollar Rate Borrowings described in SECTION 3.5 of
this Agreement will only be paid by the Borrower as and when actually incurred
by the Lenders.
3.8 MITIGATION, NON-DISCRIMINATION. (a) Each Lender will notify the
Borrower through the Agent of any event occurring after the date of this
Agreement which will require or enable such Lender to take the actions described
in SECTIONS 3.5(a) or (b) of this Agreement as promptly as practicable after it
obtains knowledge thereof and determines to request such action, and (if so
requested by the Borrower through the Agent) will designate a different lending
office of such Lender for the applicable Eurodollar Rate Borrowing or will take
such other action as the Borrower reasonably requests if such designation or
action is consistent with the internal policy of such Lender and legal and
regulatory restrictions, can be undertaken at no additional cost, will avoid the
need for, or reduce the amount of, such action and will not, in the sole opinion
of such Lender, be disadvantageous to such Lender (PROVIDED that such Lender
will have no obligation to designate a different lending office which is located
in the United States of America).
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(b) None of the Lenders shall be able to pass through to the
Borrower charges and costs under SECTIONS 3.5 or 5.14 of this Agreement on a
discriminating basis, such that such charges and costs are not also passed
through by each Lender to other customers of such Lender similarly situated
where such customer is subject to documents providing for such pass through.
(c) If any Lender elects under SECTION 3.5 of this Agreement
to suspend or terminate the availability of Eurodollar Rate Borrowings for any
material period of time, and the event giving rise to such election is not
generally applicable to all of the Lenders, the Borrower may within sixty (60)
days after notification of such Lender's election, and so long as no Event of
Default is then in existence, either (i) demand that such Lender, and upon such
demand, such Lender shall promptly, assign its Lender Commitment to another
financial institution subject to and in accordance with the provisions of
SECTION 9.5 of this Agreement for a purchase price equal to the unpaid balance
of principal, accrued interest, the unpaid balance of the Fee and expenses owing
to such Lender pursuant to this Agreement, or (ii) pay such Lender the unpaid
balance of principal, accrued interest, the unpaid balance of the Fee and
expenses owing to such Lender pursuant to this Agreement, whereupon, such Lender
shall no longer be a party to this Agreement or have any rights or obligations
hereunder or under any other Credit Documents, and the Commitment shall
immediately and permanently be reduced by an amount equal to the Lender
Commitment of such Lender.
4. REPRESENTATIONS AND WARRANTIES.
To induce the Lenders to enter into this Agreement and to make the
Loans, the Borrower jointly and severally represents and warrants to the Agent
and the Lenders as follows:
4.1. ORGANIZATION. Each Obligor is duly organized, validly existing and
in good standing under the laws of the state of its organization; has all power
and authority to conduct its business as presently conducted; and is duly
qualified to do business and in good standing in every state where the location
of its Property requires it to be qualified to do business, unless the failure
to be so qualified would not reasonably be expected to have a Material Adverse
Effect.
4.2 FINANCIAL STATEMENTS. The financial statements delivered to the
Agent fairly present, in accordance with Generally Accepted Accounting
Principles (provided, however, that the Quarterly Unaudited Financial Statements
are subject to normal year-end adjustments and may contain condensed footnotes
as permitted by regulations of the United States Securities and Exchange
Commission), the financial condition and the results of operations of the
Borrower as at the dates and for the periods indicated. No Material Adverse
Change has occurred since the dates of such financial statements. No Obligor is
subject to any instrument or agreement which would materially prevent it from
conducting its business as it is now conducted or as it is contemplated to be
conducted.
4.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION. The Credit Documents are
legal, valid and binding obligations of the Parties, enforceable in accordance
with their respective terms, except as
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may be limited by bankruptcy, insolvency and other laws affecting creditors'
rights generally and by general equitable principles. The execution, delivery
and performance of the Credit Documents have all been duly authorized by all
necessary action; are within the power and authority of the Parties; do not and
will not contravene or violate any Legal Requirement or the Organizational
Documents of the Parties; do not and will not result in the breach of, or
constitute a default under, any agreement or instrument by which the Parties or
any of their respective Property may be bound or affected; and do not and will
not result in the creation of any Lien upon any Property of any of the Parties
except as expressly contemplated therein. All necessary permits, registrations
and consents for such making and performance have been obtained.
4.4 OTHER DEBT. No Obligor is in default in the payment of any other
Total Liabilities or under any agreement, mortgage, deed of trust, security
agreement or lease to which it is a party.
4.5 LITIGATION. There is no litigation or administrative proceeding
pending or, to the knowledge of the Borrower, threatened against, or any
outstanding judgment, order or decree affecting, the Obligors before or by any
Governmental Authority which is not adequately covered by insurance. No Obligor
is in default with respect to any judgment, order or decree of any Governmental
Authority.
4.6 TAXES. Each Obligor has filed all tax returns required to have been
filed and paid all taxes shown thereon to be due, except those for which
extensions have been obtained, those which are being contested in good faith.
4.7 REGULATION U. None of the proceeds of any Loan will be used for the
purpose of purchasing or carrying directly or indirectly any margin stock or for
any other purpose that would constitute this transaction a "purpose credit"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System.
4.8 SUBSIDIARIES. The Borrower has no Subsidiaries (excluding
wholly-owned Subsidiaries which have executed a Guaranty) which individually or
in the aggregate own more than ten percent (10%) in value of the Borrower's and
the Subsidiaries' consolidated assets determined in accordance with Generally
Accepted Accounting Principles. Each of the Borrower's Subsidiaries is a
"qualified REIT subsidiary" under Section 856 of the Code.
4.9 SECURITIES ACT OF 1933. Other than the Agent's efforts in
syndicating the Loans (for which the Agent is responsible) neither the Borrower
nor any agent acting for it has offered the Notes or any similar obligation of
the Borrower for sale to or solicited any offers to buy the Notes or any similar
obligation of the Borrower from any Person other than the Agent or any Lender,
and neither the Borrower nor any agent acting for it will take any action which
would subject the sale of the Note to the provisions of Section 5 of the
Securities Act of 1933, as amended.
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4.10 NO CONTRACTUAL OR CORPORATE RESTRICTIONS. No Obligor is a party
to, or bound by, any contract, agreement or charter or other corporate
restriction materially and adversely affecting its business, Property, assets,
operations or condition, financial or otherwise.
4.11 INVESTMENT COMPANY ACT NOT APPLICABLE. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
4.12 PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. The Borrower is
not a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", or an affiliate of a "subsidiary company" of
a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
4.13 ERISA NOT APPLICABLE. No Obligor is subject to any requirements of
the Employee Retirement Income Security Act of 1974 as amended from time to
time, or any rules, regulations, rulings or interpretations adopted by the
Internal Revenue Service or the Department of Labor thereunder.
4.14 YEAR 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000 as it relates to the two digit
issues associated therewith, of (a) the Borrower's computer systems and (b)
equipment containing embedded microchips (including systems and equipment
supplied by others or with which Borrower's systems interface) and the testing
of all such systems and equipment, as so reprogrammed, will be completed by
January 1, 1999. The cost to the Borrower of such reprogramming and testing and
of the reasonably foreseeable consequences of year 2000 to the Borrower
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Default or a Material Adverse Effect.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower and its Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit the Borrower to conduct its business without Material Adverse Effect.
5. AFFIRMATIVE COVENANTS.
The Borrower jointly and severally covenants and agrees with the Agent
and the Lenders that prior to the termination of this Agreement it and each of
the other Obligors will do, and if necessary cause to be done, each and all of
the following:
5.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC. At all times (a) pay
when due all taxes and governmental charges of every kind upon it or against its
income, profits or Property, unless and only to the extent that the same shall
be contested in good faith and reserves which are adequate under Generally
Accepted Accounting Principles have been established therefor; (b) do all things
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necessary to preserve its existence, qualifications, rights and franchises in
all States where such qualification is necessary or desirable, except where
failure to obtain the same could not reasonably be expected to have a Material
Adverse Effect; (c) comply with all applicable Legal Requirements in respect of
the conduct of its business and the ownership of its Property; and (d) cause its
Property to be protected, maintained and kept in good repair (reasonable wear
and tear excepted) and make all replacements and additions to its Property as
may be reasonably necessary to conduct its business.
5.2 FINANCIAL STATEMENTS AND INFORMATION. Furnish to the Agent and the
Lenders each of the following: (a) as soon as available and in any event within
100 days after the end of each respective fiscal year of the Borrower Annual
Audited Financial Statements of EastGroup Properties, Inc. and annual unaudited
financial statements of the Operating Partnership (which shall include an
unaudited statement of Funds From Operations); (b) as soon as available and in
any event within 50 days after the end of each quarter (except the last quarter)
of each respective fiscal year of the Borrower, Quarterly Unaudited Financial
Statements of the Borrower (which shall include a statement of Funds From
Operations); (c) within fifty (50) days after the end of the calendar quarter
and concurrently with the financial statements provided for in SUBSECTIONS
5.2(a) and (b) hereof, (i) an Officer's Certificate, together with such
schedules, computations and other information (including, without limitation,
information as to Unconsolidated Affiliates of the Borrower), in reasonable
detail, as may be required by the Agent to demonstrate compliance with the
covenants set forth herein or reflecting any non-compliance therewith as of the
applicable date, all certified as true, correct and complete by a managing
director, vice president or senior vice president, of Borrower, and (ii) a
current capital plan for the next four (4) calendar quarters including projected
sources and uses of funds (including dividend and debt payments); (d) promptly
after the filing thereof, all reports to or filings made by the Borrower or any
of their respective Subsidiaries with the Securities and Exchange Commission,
including, without limitation, registration statements and reports on Forms
10-K, 10-Q and 8-K (or their equivalents); (e) within two (2) Business Days
after the receipt thereof, a copy of the notification to the Operating
Partnership of the Borrower's S&P Rating or Moody's Rating, or change therein,
and (f) such other information relating to the financial condition and affairs
of the Borrower as from time to time may be reasonably requested by any Lender.
The Agent will send to each Lender the information received by the Agent
pursuant to this SECTION 5.2 promptly after the receipt thereof by Agent.
5.3 FINANCIAL TESTS. The Borrower shall have and maintain, on a
consolidated basis in accordance with Generally Accepted Accounting Principles:
(a) a Secured Debt to Total Asset Value Ratio no greater than
thirty-five percent (35%) at all times;
(b) an Interest Coverage Ratio of not less than 2.25:1.0 at all times;
(c) a Fixed Charge Coverage Ratio of not less than 1.50:1.00 at all
times;
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(d) a Tangible Net Worth of at least Two Hundred Seventy Million
Dollars ($270,000,000.00), plus eight-five percent (85%) of the net proceeds
(gross proceeds less reasonable and customary costs of sale and issuance paid to
Persons not Affiliates of any Obligor) received by the Borrower at any time from
the issuance of an ownership interest in the Borrower, at all times;
(e) an Unencumbered Interest Coverage Ratio of not less than 2.00:1.00
at all times;
(f) a Total Liabilities to Total Asset Value Ratio no greater than
fifty-five percent (55%) at all times; and
(g) an Unhedged Variable Rate Debt to Total Asset Value Ratio no
greater than thirty percent (30%) at all times.
5.4 INSPECTION. In order to permit the Agent to ascertain compliance
with the Credit Documents, during normal business hours permit the Agent to
inspect its Property, to examine its files, books and records and make and take
away copies thereof, and to discuss its affairs with its officers and
accountants, all at such times and intervals and to such extent as a Lender may
reasonably desire.
5.5 FURTHER ASSURANCES. Promptly execute and deliver any and all other
and further instruments which may be reasonably requested by the Agent to cure
any defect in the execution and delivery of any Credit Document or more fully to
describe particular aspects of the Borrower's agreements set forth in the Credit
Documents or so intended to be.
5.6 BOOKS AND RECORDS. Maintain books of record and account in
accordance with Generally Accepted Accounting Principles.
5.7 INSURANCE. Maintain insurance with such insurers, on such of its
properties, in such amounts and against such risks as is consistent with
insurance maintained by businesses of comparable type and size in the industry,
and furnish the Agent satisfactory evidence thereof promptly upon request.
5.8 NOTICE OF CERTAIN MATTERS. Notify the Agent promptly upon acquiring
knowledge of the occurrence of any of the following: the institution or
threatened institution of any lawsuit or administrative proceeding affecting any
Obligor in which the claim exceeds $1,000,000.00; when the Borrower believes
that there has been a Material Adverse Change; or the occurrence of any Event of
Default or any Default. The Borrower will notify the Agent in writing at least
thirty (30) Business Days prior to the date that any Obligor changes its name or
the location of its chief executive office or principal place of business or the
place where it keeps its books and records.
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5.9 USE OF PROCEEDS. The proceeds of the Loans will be used for general
business purposes. Notwithstanding the foregoing, none of the proceeds of the
Loans will be used to finance, fund or complete any hostile acquisition of any
Person.
5.10 EXPENSES OF AND CLAIMS AGAINST THE AGENT AND THE LENDERS. To the
extent not prohibited by applicable law, the Borrower will pay all reasonable
costs and expenses incurred to third parties and reimburse the Agent and each
Lender, as the case may be, for any and all reasonable expenditures of every
character incurred or expended from time to time, in connection with (a)
regardless of whether a Default or Event of Default shall have occurred, the
Agent's preparation, negotiation and completion of the Credit Documents, and (b)
during the continuance of an Event of Default, all costs and expenses relating
to the Agent's and such Lender's exercising any of its rights and remedies under
this or any other Credit Document, including, without limitation, attorneys'
fees, legal expenses, and court costs; PROVIDED, that no rights or option
granted by the Borrower to the Agent or any Lender or otherwise arising pursuant
to any provision of this or any other instrument shall be deemed to impose or
admit a duty on the Agent or any Lender to supervise, monitor or control any
aspect of the character or condition of any property or any operations conducted
in connection with it for the benefit of the Borrower or any other person or
entity other than the Agent or such Lender.
5.11 LEGAL COMPLIANCE; INDEMNIFICATION. (a) The Obligors shall operate
their respective Property and businesses in full compliance with all Legal
Requirements. EastGroup Properties, Inc. will comply with all Legal Requirements
to maintain, and will at all times qualify as and maintain, its status as a real
estate investment trust under Section 856(c)(1) of the Code.
(b) The Borrower shall indemnify the Agent and each Lender,
their directors, officers, employees and shareholders (the "INDEMNIFIED
PARTIES") for and defend and hold the Indemnified Parties harmless against any
and all claims, demands, liabilities, causes of action, penalties, obligations,
damages, judgments, deficiencies, losses, costs or expenses (including, without
limitation, interest, penalties, attorneys' fees, and amounts paid in
settlement) threatened or incurred by reason of, arising out of or in any way
related to any failure of any Obligor to so comply with the provisions of any
Legal Requirement, this Agreement or the other Credit Documents, and any and all
matters arising out of any act, omission, event or circumstance, regardless of
whether the act, omission, event or circumstance constituted a violation of any
such Legal Requirement, this Agreement or the other Credit Documents at the time
of its existence or occurrence. THE BORROWER SHALL INDEMNIFY THE AGENT AND EACH
LENDER PURSUANT TO THIS SECTION REGARDLESS OF WHETHER THE ACT, OMISSION, FACTS,
CIRCUMSTANCES OR CONDITIONS GIVING RISE TO SUCH INDEMNIFICATION WERE CAUSED IN
WHOLE OR IN PART BY THE AGENT'S OR SUCH LENDER'S NEGLIGENCE (SIMPLE, BUT NOT
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT).
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5.12 OBLIGORS' PERFORMANCE. If any Obligor should fail to comply with
any of the agreements, covenants or obligations required of it under this
Agreement or any other Credit Document, then the Agent (in the Obligor's name or
in Agent's name) may perform them or cause them to be performed for the account
of the said Obligor and at the sole expense, but shall not be obligated to do
so. Any and all expenses thus incurred or paid by the Agent and by any Lender
shall be the Borrower's demand obligations to the Agent or such Lender and shall
bear interest from the date of demand therefor until the date that the Obligor
repays it to the Agent or the applicable Lender at the Past Due Rate. Upon
making any such payment or incurring any such expense, the Agent or the
applicable Lender shall be fully subrogated to all of the rights of the Person
receiving such payment. Any amounts owing by any Obligor to the Agent or any
Lender pursuant to this provision or any other provision of this Agreement shall
automatically and without notice be secured by any collateral provided by the
Credit Documents. The amount and nature of any such expense and the time when
paid shall, absent manifest error, be fully established by the affidavit of the
Agent or the applicable Lender or any of the Agent's or the applicable Lender's
officers or agents.
5.13 PROFESSIONAL SERVICES. Promptly upon the Agent's request to
satisfy itself or the request of any Lender, the Borrower, at the Borrower's
sole cost and expense, shall: (a) allow an inspection and/or appraisal of the
Obligors' Property to be made by a Person approved by the Agent in its sole
discretion; and (b) whenever the Agent or such other Lender has reasonable cause
to believe that a potential Default may exist, cause to be conducted or prepared
any other written report, summary, opinion, inspection, review, survey, audit or
other professional service relating to the Obligors' Property or any operations
in connection with it (all as designated in the Agent's request), including,
without limitation, any accounting, architectural, consulting, engineering,
design, legal, management, pest control, surveying, title abstracting or other
technical, managerial or professional service relating to such property or its
operations.
5.14 CAPITAL ADEQUACY. (a) If after the date of this Agreement, the
Agent or any Lender shall have determined that the adoption or effectiveness of
any applicable law, rule or regulation regarding capital adequacy of general
applicability, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Agent or any Lender with any request or directive regarding capital
adequacy of general applicability (whether or not having the force of law) of
any such Governmental Authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Agent's or any Lender's
capital as a consequence of its obligations hereunder to a level below that
which the Agent or such Lender could have achieved but for such adoption, change
or compliance (taking into consideration the Agent's or such Lender's policies
with respect to capital adequacy) by an amount deemed by the Agent or such
Lender to be material, then from time to time, the Borrower shall pay to the
Agent or such Lender such additional amount or amounts as will compensate the
Agent or such Lender for such reduction.
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(b) A certificate of the Agent or such Lender setting forth
such amount or amounts as shall be necessary to compensate the Agent or such
Lender as specified in SECTION 5.14(a) hereof and making reference to the
applicable law, rule or regulation shall be delivered as soon as practicable to
the Borrower and shall be prima facie evidence thereof. The Borrower shall pay
the Agent or such Lender the amount shown as due on any such certificate within
fourteen (14) Business Days after the Agent or such Lender delivers such
certificate. In preparing such certificate, the Agent or such Lender may employ
such assumptions and allocations of costs and expenses as it shall in good faith
deem reasonable and may use any reasonable averaging and attribution method.
SECTION 3.8(b) hereof shall apply to the costs assessed under this Section.
5.15 PROPERTY POOL. A. The Borrower will and, subject to SECTION
5.15.C., the Borrower's Subsidiaries will, at all times own (in fee simple title
or through an Eligible Ground Lease) a pool (the "POOL") of assets that are not
mortgaged, pledged, hypothecated, or encumbered in any manner, other than
Permitted Encumbrances, with an aggregate Value (calculated based on the
immediately preceding six (6) calendar months and annualized) equal to at least
two hundred percent (200%) of the Borrower's Indebtedness other than Secured
Debt outstanding from time to time, with the following characteristics: (a)
assets in the Pool shall be completed income producing Industrial Buildings with
net rentable area of not less than 30,000 square feet (based on the number of
square feet of the Industrial Buildings owned by the Borrower or its Subsidiary
within one (1) mile of each other and treated as one property by such Person),
with parking sufficient to meet all Legal Requirements and consistent with
market conditions that will accommodate full occupancy of the building,
PROVIDED, HOWEVER, that 8150 Leesbury Pike in Tysons Corner, Virginia, Los
Angeles Corporate Center Office Building in Los Angeles, California, Columbia
Place in Columbia, Maryland, LaVista Crossing Apartments in Atlanta, Georgia and
Grand Pointe Apartments in Mobile, Alabama will not be excluded from the Pool
because they are not Industrial Buildings; (b) each individual Property must
have an Occupancy Level of more than seventy percent (70%) at all times, except
for a ninety (90) day period beginning on the date the Occupancy Level is
seventy percent (70%) or less not more than once every twelve (12) months; (c)
assets in the Pool (other than the assets listed in the proviso of CLAUSE (a)
above) must be located in Approved Markets, except that no more than twenty
percent (20%) of the Value of the Pool can be located in any one Approved Market
other than Los Angeles, California, where no more than twenty-five percent (25%)
of the Value of the Pool (not including the Value of the Los Angeles Corporate
Center Office Building) can be located, (d) the Borrower must have received from
third party independent consultants, written assessments (including, without
limitation, Phase I environmental reports) for each Property in, or to be added
to, the Pool that do not disclose any material environmental conditions,
structural defects or title defects, or other material risks related to such
Property, (e) the Property is not subject to or affected by any Limiting
Agreement, and (f) the Occupancy Level of the Pool in the aggregate must be at
least eighty percent (80%). If requested by the Agent, the Borrower will provide
to the Agent written assessments from third party independent environmental
consultants for all Pool properties acquired after the date of this Agreement.
If the Agent determines that there are material environmental conditions
existing on or risks to such properties, the properties will be excluded from
the Pool.
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B. NOTWITHSTANDING THE FOREGOING, (a) the maximum value of the Pool
that consists of Eligible Ground Leases is fifteen percent (15%) of the value of
the Pool, before adding the effect of said Property; and (b) the maximum value
of the Pool attributable to a single Property is fifteen percent (15%) of the
value of the Pool before adding the effect of said Property.
C. If any Property to be included in the Pool is owned by a Subsidiary
of Borrower, it may be included in the Pool only if:
(a) the owner of the Property is either (i) a wholly owned
Subsidiary of the Borrower or (ii) if not a wholly owned Subsidiary,
then (x) the value of the Property owned by such Subsidiary ("PARTIAL
SUBSIDIARY REAL ESTATE") to be used in the calculation in CLAUSE (A)
above shall be as provided in CLAUSE (A) multiplied by the cumulative
percentage interest of the Subsidiary owned by the Borrower, (y) the
maximum value of the Pool that can be attributable to Partial
Subsidiary Real Estate is ten percent (10%) of the value of the Pool
before adding the effect of the Partial Subsidiary Real Estate, and (z)
the Borrower owns at least seventy-five percent (75%) of the indicia of
ownership of the Subsidiary, and controls all major decisions regarding
the Partial Subsidiary Real Estate, including the right to sell or
refinance the Partial Subsidiary Real Estate; and
(b) the owner of the Property (i) executes a Guaranty in
Proper Form and delivers it to the Agent, together with such
Subsidiary's Organizational Documents and current certificates of
existence and good standing for the state in which it is organized, and
such Guaranty must remain in full force and effect, and (ii) would not
at any time be in default of SECTIONS 7.1 (f), (g), (h), (i), or (j) if
said subsections were applicable to said owner.
D. If the Borrower requests inclusion of assets in the Pool that do not
meet the requirements of this SECTION 5.15, then such assets may only be
included in the Pool upon the prior written approval of the Majority Lenders.
5.16 CO-BORROWERS. (a) Each Borrower shall be bound jointly and
severally with one another to keep, observe and perform the covenants,
agreements, obligations and liabilities imposed by this Agreement upon the
"Borrower", (b) a release of one or more Persons comprising "Borrower" shall not
in any way be deemed a release of any other Person comprising "Borrower", and
(c) a separate action hereunder may be brought and prosecuted against one or
more of the Persons comprising "Borrower" without limiting any liability or
impairing the Agent's or any Lender's right to proceed against any other Person
comprising "Borrower".
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6. NEGATIVE COVENANTS.
The Borrower jointly and severally covenants and agrees with the Agent
and the Lenders that prior to the termination of this Agreement it will not
(without consent given in accordance with SECTION 9.1) do any of the following:
6.1 INDEBTEDNESS. Create, incur, suffer or permit to exist, or assume
or guarantee, directly or indirectly, contingently or otherwise, or become or
remain liable with respect to any Secured Debt, other than (a) Secured Debt of
no more than $20,000,000.00 in the aggregate assumed by the Borrower in
connection with the acquisition of Industrial Buildings, and (b) Non-recourse
Debt and liabilities customarily excepted from nonrecourse mortgage financing,
such as fraud, criminal activity and misapplication of funds.
6.2 MERGERS, CONSOLIDATIONS AND ACQUISITIONS OF ASSETS. In any single
transaction or series of related transactions, directly or indirectly: (a)
liquidate or dissolve; (b) other than a merger or consolidation in which the
Borrower is the surviving entity and the value of the assets of the other party
to such merger or consolidation is less than fifteen percent (15%) of the value
of the assets of the Borrower on a consolidated basis (in accordance with
Generally Accepted Accounting Principles) after such merger or consolidation, be
a party to any merger or consolidation; (c) other than an acquisition in which
the Borrower acquires all or substantially all of the assets of another Person
and the value of the assets acquired is less than fifteen percent (15%) of the
value of the assets of the Borrower on a consolidated basis (in accordance with
Generally Accepted Accounting Principles) after such acquisition, acquire all or
substantially all of the assets of any Person; or (d) except for sales or leases
executed in the ordinary course of business, sell, convey or lease all or any
substantial part of its assets.
6.3 REDEMPTION. Neither Borrower shall at any time buy back, redeem,
retire or otherwise acquire, directly or indirectly, any shares of its capital
stock if such action would cause the Borrower to not be in compliance with this
Agreement, and so long as the aggregate market value of such stock when acquired
shall not exceed, during any calendar year, fifteen percent (15%) of Borrower's
Net Worth.
6.4 NATURE OF BUSINESS; MANAGEMENT. Change the nature of its business
or enter into any business which is substantially different from the business in
which it is presently engaged.
6.5 TRANSACTIONS WITH RELATED PARTIES. Enter into any transaction or
agreement with any officer, director, or holder of more than five percent (5%)
(based on voting rights) of the issued and outstanding capital stock of the
Borrower (or any Affiliate of the Borrower), unless the same is upon terms
substantially similar to those obtainable from qualified wholly unrelated
sources.
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6.6 LOANS AND INVESTMENTS. Make any loan, advance, extension of credit
or capital contribution to, or make or have any investment in, any Person, or
make any commitment to make any such extension of credit or investment, except:
(a) travel advances in the ordinary course of business to officers,
employees and agents;
(b) readily marketable securities issued or fully guaranteed by the
United States of America (or investments or money market accounts consisting of
the same);
(c) commercial paper rated "Prime 1" by Moody's Investors Service, Inc.
or A-1 by Standard and Poor's Corporation (or investments or money market
accounts consisting of the same);
(d) certificates of deposit or repurchase certificates issued by
financial institutions acceptable to the Agent (or investments or money market
accounts consisting of the same), all of the foregoing b, c and d not having a
maturity of more than one (1) year from the date of issuance thereof;
(e) investments in Subsidiaries through which the Borrower invests in
real estate assets permitted by this Agreement;
(f) investments in Unconsolidated Affiliates that are engaged primarily
in the business of investment in and operation of Industrial Buildings (valued
at an amount equal to the Value of each Unconsolidated Affiliate's operating
real estate assets multiplied by the Equity Percentage for that Unconsolidated
Affiliate), so long as the aggregate amount of such investments described in
this CLAUSE (F) does not exceed five percent (5%) of the Total Asset Value after
giving effect to such investments;
(g) loans, advances, and extensions of credit to Persons (who are not
Affiliates of any Obligor) secured by valid and enforceable first priority liens
on real estate so long as the aggregate amount does not exceed ten percent (10%)
of Total Asset Value, after giving effect to such investments;
(h) undeveloped land, so long as the aggregate Historical Value of such
land does not exceed five percent (5%) of Total Asset Value, after giving effect
to such investments;
(i) investments in readily marketable securities (valued at the lower
of cost or then market price) of another Person, not an Affiliate of any
Obligor, traded on a national trading exchange, that is a real estate investment
trust under Section 856(c)(1) of the Code, or that is a real estate operating
company, so long as the aggregate amount of such investments does not exceed ten
percent (10%) of Total Asset Value, after giving effect to such investments;
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(j) investments in Industrial Buildings;
(k) investments in real estate assets that are being constructed or
developed (including such assets that the Person has contracted to purchase and
has no option to terminate without penalty) to be Industrial Buildings, but are
not yet in operation, so long as the total actual and budgeted cost of
construction or development, in the aggregate, at that time does not exceed
fifteen percent (15%) of the Total Asset Value after giving effect to such
investments; and
(l) investments in income producing operating Property other than
Industrial Buildings, so long as the aggregate Value of such investments does
not exceed fifteen percent (15%) of the Total Asset Value after giving effect to
such investments.
The Borrower will not mortgage, pledge, hypothecate or encumber in any manner
the loans, advances or extensions of credit made pursuant to SECTION 6.6(g) or
the securities held pursuant to SECTION 6.6(i). The calculations in this Section
will be made without duplication if a loan or investment is within more than one
category described in this Section.
6.7 LIMITING AGREEMENTS. Neither Borrower nor any of its Subsidiaries
has entered into, and after the date hereof, neither Borrower nor any of its
Subsidiaries shall enter into, any Limiting Agreements for assets in the Pool.
6.8 RESTRICTED PAYMENTS. EastGroup Properties, Inc. will not make any
Restricted Payment during any calendar quarter which, when added to all
Restricted Payments made during the three (3) immediately preceding calendar
quarters, (a) exceeds ninety percent (90%) of the Funds From Operations during
the immediately preceding four (4) calendar quarters, or (b) exceeds one hundred
percent (100%) of the Funds Available for Distribution during the immediately
preceding four (4) calendar quarters; PROVIDED that the foregoing shall not
prohibit EastGroup Properties, Inc. from (x) making the minimum amount of
Restricted Payments required to be made in order for EastGroup Properties, Inc.
to comply with the provisions of SECTION 5.11, or (y) issuing stock in EastGroup
Properties, Inc. to a transferor (not an Affiliate of any Obligor) of Property
to the Borrower as a result of said transferor's election to convert partnership
interests in EastGroup Properties, L.P. to stock in EastGroup Properties, Inc.
pursuant to agreements with said transferor allowing said conversion as a
portion of the consideration for the transfer. Notwithstanding the foregoing,
after the occurrence of an Event of Default, EastGroup Properties, Inc. will not
make any Restricted Payment except as required by CLAUSE (x) above. For purposes
of this provision "RESTRICTED PAYMENT" means (i) any dividend or other
distribution on any shares of a Person's capital stock (except dividends payable
solely in shares of its capital stock or in rights to subscribe for or purchase
shares of its capital stock) or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (x) any shares of a Person's capital
stock or (y) any option, warrant or other right to acquire shares of a Person's
capital stock.
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7. EVENTS OF DEFAULT AND REMEDIES.
7.1. EVENTS OF DEFAULT. If any of the following events shall occur,
then, as to the events described in SECTIONS 7.1(b), (c), and (d), if the event
has not been waived, cured or remedied within twenty (20) days after the Agent
gives the Borrower written notice of such event, at any time thereafter, and as
to all of the other events described herein, at any time, the Agent may do any
or all of the following: (1) without notice to the Borrower, declare the Notes
to be, and thereupon the Notes shall forthwith become, immediately due and
payable, together with all accrued interest thereon, without notice of any kind,
notice of acceleration or of intention to accelerate, presentment and demand or
protest, all of which are hereby expressly waived; (2) without notice to the
Borrower, terminate the Commitment; (3) exercise, as may any other Lender, its
rights of offset against each account and all other Property of the Borrower in
the possession of the Agent or any such Lender, which right is hereby granted by
the Borrower to the Agent and each Lender; and (4) exercise any and all other
rights pursuant to the Credit Documents:
(a) The Borrower shall fail to pay or prepay any principal of
or interest on the Notes or any fee or any other obligation hereunder
when due; or
(b) Any Obligor shall fail to pay when due, or within any
applicable period of grace, any principal of or interest on any other
Indebtedness in excess of $5,000,000.00, or
(c) Any written representation or warranty made in any Credit
Document by or on behalf of any Obligor, when taken as a whole shall
prove to have been incorrect, false or misleading in any material
respect; or
(d) Default shall occur in the punctual and complete
performance of any covenant of the Borrower or any other Person other
than the Agent or the Lenders contained in any Credit Document not
specifically set forth in this Section; or
(e) A final judgment or judgments in the aggregate for the
payment of money in excess of $5,000,000.00 shall be rendered against
any Obligor and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively
stayed; or
(f) Any order shall be entered in any proceeding against any
Obligor decreeing the dissolution, liquidation or split-up thereof, and
such order shall remain in effect for more than thirty (30) days; or
(g) Any Obligor shall make a general assignment for the
benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or
any substantial part of its business, estate or assets or shall
commence any
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proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect; or
(h) Any such petition or application shall be filed or any
such proceeding shall be commenced against any Obligor and such Person
by any act or omission shall indicate approval thereof, consent thereto
or acquiescence therein, or an order shall be entered appointing a
trustee, custodian, receiver or liquidator of all or any substantial
part of the assets of any Obligor or granting relief to any Obligor or
approving the petition in any such proceeding, and such order shall
remain in effect for more than ninety (90) days; or
(i) Any Obligor shall fail generally to pay its debts as they
become due or suffer any writ of attachment or execution or any similar
process to be issued or levied against it or any substantial part of
its Property which is not released, stayed, bonded or vacated within
thirty (30) days after its issue or levy; or
(j) Any Obligor shall have concealed, removed, or permitted to
be concealed or removed, any part of its Property, with intent to
hinder, delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its Property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or shall
have made any transfer of its Property to or for the benefit of a
creditor at a time when other creditors similarly situated have not
been paid; or
(k) Any Change of Control shall occur.
7.2 REMEDIES CUMULATIVE. No remedy, right or power conferred upon the
Agent or the Lenders is intended to be exclusive of any other remedy, right or
power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
8. THE AGENT.
8.1 APPOINTMENT, POWERS AND IMMUNITIES. (a) Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Credit Documents with such powers as are specifically delegated
to the Agent by the terms hereof and thereof, together with such other powers as
are reasonably incidental thereto. The Agent (i) shall not have any duties or
responsibilities except those expressly set forth in this Agreement and the
other Credit Documents, and shall not by reason of this Agreement or any other
Credit Document be a trustee for any Lender; (ii) shall not be responsible to
any Lender for any recitals, statements, representations or warranties contained
in this Agreement or any other Credit Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other Credit Document, or for the value, validity,
effectiveness, genuineness, enforceability, execution, filing,
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registration, collectibility, recording, perfection, existence or sufficiency of
this Agreement or any other Credit Document or any other document referred to or
provided for herein or therein or any property covered thereby or for any
failure by any Party or any other Person to perform any of its obligations
hereunder or thereunder, and shall not have any duty to inquire into or pass
upon any of the foregoing matters; (iii) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or any other Credit
Document except to the extent requested by the Majority Lenders; (iv) SHALL NOT
BE RESPONSIBLE FOR ANY MISTAKE OF LAW OR FACT OR ANY ACTION TAKEN OR OMITTED TO
BE TAKEN BY IT HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT OR ANY OTHER
DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN OR THEREIN OR IN
CONNECTION HEREWITH OR THEREWITH, INCLUDING, WITHOUT LIMITATION, PURSUANT TO ITS
OWN NEGLIGENCE, BUT NOT INCLUDING AND EXCEPT FOR THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE AGENT; (v) shall not be bound by or obliged to recognize any
agreement among or between the Borrower, the Agent, and any Lender other than
this Agreement and the other Credit Documents, regardless of whether the Agent
has knowledge of the existence of any such agreement or the terms and provisions
thereof; (vi) shall not be charged with notice or knowledge of any fact or
information not herein set out or provided to the Agent in accordance with the
terms of this Agreement or any other Credit Document; (vii) shall not be
responsible for any delay, error, omission or default of any mail, telegraph,
cable or wireless agency or operator, and (viii) shall not be responsible for
the acts or edicts of any Governmental Authority. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.
(b) Without the prior written consent of Agent and all of the Lenders,
Agent shall not (i) modify or amend in any respect whatsoever the interest rate
provisions of the Credit Documents, (ii) increase the Commitment above
$150,000,000.00, (iii) extend the Maturity Date other than in accordance with
the express provisions of the Credit Documents, (iv) extend or reduce the due
date for or the amount of the scheduled payments of principal or interest on the
Loans or the Fee, (v) amend the definition of Majority Lenders or any
requirement that certain actions be taken only with the consent of a certain
number of the Lenders, (vi) release any Guarantor or any collateral for the
Loans, (vii) modify or amend any provision of any Credit Document which by its
terms requires the consent of all of the Lenders for amendment, (viii) subject
to SECTION 5.15.D, amend the terms of SECTION 5.15, or (ix) amend the definition
of Value. From time to time upon Agent's request, each Lender shall execute and
deliver such documents and instruments as may be reasonably necessary to enable
Agent to effectively administer and service the Loan in its capacity as Agent
and in the manner contemplated by the provisions of this Agreement. No amendment
or agreement shall increase the Lender Commitment of any Lender without the
written consent of such Lender.
(c) All information provided to the Agent under or pursuant to the
Credit Documents, and all rights of the Agent to receive or request information,
or to inspect information or Property, shall
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be by the Agent on behalf of the Lenders. If any Lender requests that it be able
to receive or request such information, or make such inspections, in its own
right rather than through the Agent, the Borrower will cooperate with the Agent
and such Lender in order to obtain such information or make such inspection as
such Lender may reasonably require.
(d) The Borrower shall be entitled to rely upon a written notice or a
written response from the Agent as being pursuant to concurrence or consent of
the Majority Lenders unless otherwise expressly stated in the Agent's notice or
response.
8.2 RELIANCE. The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telex, telecopy, telegram or cable) reasonably believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel (which
may be counsel for the Borrower), independent accountants and other experts
selected by the Agent. The Agent shall not be required in any way to determine
the identity or authority of any Person delivering or executing the same. As to
any matters not expressly provided for by this Agreement or any other Credit
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder and thereunder in accordance with instructions
of the Majority Lenders, and any action taken or failure to act pursuant thereto
shall be binding on all of the Lenders. If any order, writ, judgment or decree
shall be made or entered by any court affecting the rights, duties and
obligations of the Agent under this Agreement or any other Credit Document, then
and in any of such events the Agent is authorized, in its sole discretion, to
rely upon and comply with such order, writ, judgment or decree which it is
advised by legal counsel of its own choosing is binding upon it under the terms
of this Agreement, the relevant Credit Document or otherwise; and if the Agent
complies with any such order, writ, judgment or decree, then it shall not be
liable to any Lender or to any other Person by reason of such compliance even
though such order, writ, judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.
8.3 DEFAULTS. The Agent shall not be deemed to have constructive
knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans) unless it has received notice from a Lender
or the Borrower specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, or whenever the Agent has actual knowledge of the
occurrence of a Default, the Agent shall give prompt written notice thereof to
the Lenders (and shall give each Lender prompt notice of each such non-payment).
The Agent shall (subject to SECTION 8.7 hereof) take such action with respect to
such Default as shall be directed by the Majority Lenders and within its rights
under the Credit Documents and at law or in equity, PROVIDED that, unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action,
permitted hereby with respect to such Default as it shall deem advisable in the
best interests of the Lenders and within its rights under the Credit Documents
in order to preserve, protect or enhance the collectibility of the Loans, at law
or in equity. PROVIDED, however,
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<PAGE> 44
that if there is an occurrence of an Event of Default, then in no event or under
any circumstances shall any of the actions described in SECTIONS 8.1(b)(i)
through (ix) of this Agreement be taken, without in each instance the written
consent of Agent and all of the Lenders.
8.4 RIGHTS AS A LENDER. With respect to the Commitment and the Loans
made, Agent, in its capacity as a Lender hereunder shall have the same rights
and powers hereunder as any other Lender and may exercise the same as though it
were not acting in its agency capacity, and the term "Lender" or "Lenders"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may (without having to account therefor to any
other Lender) as a Lender, and to the same extent as any other Lender, accept
deposits from, lend money to and generally engage in any kind of banking, trust,
letter of credit, agency or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Agent but solely as a Lender. The
Agent may accept fees and other consideration from the Borrower (in addition to
the fees heretofore agreed to between the Borrower and the Agent) for services
in connection with this Agreement or otherwise without having to account for the
same to the Lenders.
8.5 INDEMNIFICATION. The Lenders agree to indemnify the Agent, its
officers, directors, agents and Affiliates, ratably in accordance with each
Lender's respective Percentage, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever (INCLUDING BUT NOT LIMITED TO,
THE CONSEQUENCES OF THE NEGLIGENCE OF THE AGENT) which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or any other Credit Document or any other documents
contemplated by or referred to herein or therein, or the transactions
contemplated hereby or thereby (including, without limitation, interest,
penalties, reasonable attorneys' fees and amounts paid in settlement in
accordance with the terms of this SECTION 8, but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, INCLUDING BUT NOT
LIMITED TO THE NEGLIGENCE OF THE AGENT, PROVIDED that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified, or from the Agent's default
in the express obligations of the Agent to the Lenders provided for in this
Agreement. The obligations of the Lenders under this SECTION 8.5 shall survive
the termination of this Agreement and the repayment of the Obligations.
8.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it
has received current financial information with respect to the Obligors and that
it has, independently and without reliance on the Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Obligors and decision to enter into this Agreement
and that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement or any of the
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<PAGE> 45
other Credit Documents. The Agent shall not be required to keep itself informed
as to the performance or observance by any Party of this Agreement or any of the
other Credit Documents or any other document referred to or provided for herein
or therein or to inspect the properties or books of the Borrower or any Party
except as specifically required by the Credit Documents. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Agent hereunder or the other Credit Documents, the Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the affairs, financial condition or business of
the Borrower or any other Party (or any of their affiliates) which may come into
the possession of the Agent. Each Lender assumes all risk of loss in connection
with its Percentage in the Loans to the full extent of its Percentage therein.
The Agent assumes all risk of loss in connection with its Percentage in the
Loans to the full extent of its Percentage therein.
8.7 FAILURE TO ACT. Except for action expressly required of the Agent,
as the case may be, hereunder, or under the other Credit Documents, the Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction by
the Lenders of their indemnification obligations under SECTION 8.5 hereof
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
8.8 RESIGNATION OF AGENT. Subject to the appointment and acceptance of
a successor Agent as provided below, the Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, (i)
the Majority Lenders without the consent of the Borrower shall have the right to
appoint a successor Agent so long as such successor Agent is also a Lender at
the time of such appointment and (ii) the Majority Lenders shall have the right
to appoint a successor Agent that is not a Lender at the time of such
appointment so long as the Borrower (if no Event of Default is then in
existence) consents to such appointment (which consent shall not be unreasonably
withheld). If no successor Agent shall have been so appointed by the Majority
Lenders and accepted such appointment within 30 days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of the
Lenders, and with the consent of the Borrower which shall not be unreasonably
withheld, appoint a successor Agent. Any successor Agent shall be an Eligible
Institution. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations as
Agent thereafter arising hereunder and under any other Credit Documents, but
shall not be discharged from any liabilities for its actions as Agent prior to
the date of discharge. Such successor Agent shall promptly specify by notice to
the Borrower its principal office referred to in SECTION 2.1 and SECTION 2.2
hereof. After any retiring Agent's resignation hereunder as Agent, the
provisions of this SECTION 8 shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as the
Agent.
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<PAGE> 46
8.9 NO PARTNERSHIP. Neither the execution and delivery of this
Agreement nor any of the other Credit Documents nor any interest the Lenders,
the Agent or any of them may now or hereafter have in all or any part of the
Obligations shall create or be construed as creating a partnership, joint
venture or other joint enterprise between the Lenders or among the Lenders and
the Agent. The relationship between the Lenders, on the one hand, and the Agent,
on the other, is and shall be that of principals and agent only, and nothing in
this Agreement or any of the other Credit Documents shall be construed to
constitute the Agent as trustee or other fiduciary for any Lender or to impose
on the Agent any duty, responsibility or obligation other than those expressly
provided for herein and therein.
9. MISCELLANEOUS.
9.1 NO WAIVER, AMENDMENTS. No waiver of any Default shall be deemed to
be a waiver of any other Default. No failure to exercise or delay in exercising
any right or power under any Credit Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
further or other exercise thereof or the exercise of any other right or power.
Except as may be prohibited by SECTION 8.1 hereof, no amendment, modification or
waiver of any provision of any Credit Document shall be effective unless the
same is in writing and signed by the Borrower and the Majority Lenders. No
notice to or demand on the Borrower or any other Person shall entitle the
Borrower or any other Person to any other or further notice or demand in similar
or other circumstances.
9.2 NOTICES. All notices under the Credit Documents shall be in writing
and either (i) delivered against receipt therefor, or (ii) mailed by registered
or certified mail, return receipt requested, in each case addressed as set forth
herein, or to such other address as a party may designate. Notices shall be
deemed to have been given (whether actually received or not) when delivered (or,
if mailed, on the next Business Day). PROVIDED, HOWEVER, that as between the
Agent and the Lenders and among the Lenders, notice may be given by telecopy or
facsimile effective upon the earlier of actual receipt or confirmation of
receipt by telephone.
9.3 VENUE. HARRIS COUNTY, TEXAS SHALL BE A PROPER PLACE OF VENUE TO
ENFORCE PAYMENT OR PERFORMANCE OF THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS,
UNLESS THE AGENT SHALL GIVE ITS PRIOR WRITTEN CONSENT TO A DIFFERENT VENUE. THE
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY PROCEEDING ARISING OUT OF ANY OF
THE CREDIT DOCUMENTS BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW. THE
BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR
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<PAGE> 47
PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE CREDIT DOCUMENTS IN THE
DISTRICT COURTS OF HARRIS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND HEREBY FURTHER
IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER (A)
AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE STATE OF
TEXAS IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING AND TO DELIVER TO
THE AGENT EVIDENCE THEREOF AND (B) IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY NOTICE GIVEN AS PROVIDED FOR IN THIS AGREEMENT. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE
PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER HEREBY
IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THE AGENT OR ANY
LENDER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER CREDIT
DOCUMENTS SHALL BE BROUGHT AND MAINTAINED IN THE DISTRICT COURTS OF HARRIS
COUNTY, TEXAS, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
TEXAS, HOUSTON DIVISION.
9.4 CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND THE OTHER CREDIT
DOCUMENTS HAVE BEEN NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL APPLICABLE FEDERAL LAW, FROM TIME TO TIME
IN FORCE IN THE STATE OF TEXAS.
9.5 SURVIVAL; PARTIES BOUND; SUCCESSORS AND ASSIGNS. (a) All
representations, warranties, covenants and agreements made by or on behalf of
the Borrower in connection herewith shall survive the execution and delivery of
the Credit Documents, shall not be affected by any investigation made by any
Person, and shall bind the Borrower and its successors, trustees, receivers and
assigns and inure to the benefit of the successors and assigns of the Agent and
the Lenders; provided, however, that the Borrower may not assign or transfer any
of its rights or obligations hereunder without the prior written consent of the
Agent and all of the Lenders, and any such assignment or transfer without such
consent shall be null and void.
(b) Subject to SECTIONS 9.5(d) and (e) of this Agreement, a
Lender may assign part of its Lender Commitment to an Eligible Institution so
long as such assignment shall (1) include the voting rights and all other rights
and obligations attributable thereto, and include a written assumption by the
assignee of the assigning Lender's obligations under the Credit Documents, (2)
require the
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<PAGE> 48
written consent of the Borrower (so long as no Event of Default is then in
existence) and the Agent, such consent not to be unreasonably withheld, (3) be
in a minimum amount of $5,000,000.00 if assigned to a Person not already a
Lender, (4) not reduce the Lender's Lender Commitment to an amount less than
$5,000,000.00, and (5) include payment to the Agent by the Lender of a service
fee for each assignment equal to $3,000.00.
(c) Subject to SECTION 9.5(d) and (e) of this Agreement, a
Lender may sell participating interests in any of its Loans to (A) an Eligible
Institution so long as such participation shall (1) limit the voting rights of
the participant, if any, to the ability to vote for changes in the amount of the
Commitment, the interest rate on the Loans, the amount of the Fee, the
requirements for Guaranties and for collateral, and the Maturity Date, and (2)
require written notice to the Agent and the Borrower but not any consent of the
Agent, the Borrower or any other Lender; and (B) any Person formed to hold
Eurodollar Rate Borrowings for specific Interest Periods, with liquidity and
credit support provided by the participating Lender, so long as such
participation shall convey no voting rights to the participant. In connection
with any sale of a participating interest made in compliance with this
Agreement, (i) the participating Lender shall continue to be liable for its
Lender Commitment and its other obligations under the Credit Documents, (ii) the
Agent, the Borrower and the other Lenders shall continue to deal solely and
directly with the participating Lender in connection with such Lender's rights
and obligations under the Credit Documents, and (iii) the participant may not
require the participating Lender to take or refrain from taking any action under
the Credit Documents that is in conflict with the terms and provisions of the
Credit Documents.
(d) A Lender may assign all or any part of its Loans or its
Lender Commitment to an Affiliate of the Lender without written consent of the
Agent and the Borrower.
(e) Notwithstanding any provision hereof to the contrary, any
Lender may assign and pledge all or any portion of its Lender Commitment and
Loans to a Federal Reserve Bank; provided, however, that any such assignment or
pledge shall not relieve such Lender from its obligations under the Credit
Documents.
(f) The term of this Agreement shall be until the final
maturity of the Notes and the payment of all amounts due under the Credit
Documents.
9.6 COUNTERPARTS. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
9.7 USURY NOT INTENDED; REFUND OF ANY EXCESS PAYMENTS. It is the intent
of the parties in the execution and performance of this Agreement to contract in
strict compliance with the usury laws of the State of Texas and the United
States of America from time to time in effect. In
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<PAGE> 49
furtherance thereof, the Agent, the Lenders and the Borrower stipulate and agree
that none of the terms and provisions contained in this Agreement or the other
Credit Documents shall ever be construed to create a contract to pay for the
use, forbearance or detention of money with interest at a rate in excess of the
Ceiling Rate and that for purposes hereof "interest" shall include the aggregate
of all charges which constitute interest under such laws that are contracted
for, reserved, taken, charged or received under this Agreement. In determining
whether or not the interest paid or payable, under any specific contingency,
exceeds the Ceiling Rate, the Borrower, the Agent and the Lenders shall, to the
maximum extent permitted under applicable law, (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) "spread" the total amount
of interest throughout the entire contemplated term of the Loans. The provisions
of this paragraph shall control over all other provisions of the Credit
Documents which may be in apparent conflict herewith.
9.8 CAPTIONS. The headings and captions appearing in the Credit
Documents have been included solely for convenience and shall not be considered
in construing the Credit Documents.
9.9 SEVERABILITY. If any provision of any Credit Documents shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby.
9.10 DISCLOSURES. Every reference in the Credit Documents to
disclosures of the Borrower to the Agent and the Lenders in writing, to the
extent that such references refer to disclosures at or prior to the execution of
this Agreement, shall be deemed strictly to refer only to written disclosures
delivered to the Agent and the Lenders in an orderly manner concurrently with
the execution hereof.
9.11 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS
TOGETHER CONSTITUTE A WRITTEN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
EASTGROUP PROPERTIES, L.P.,
a Delaware limited partnership
By: EastGroup Properties General
Partners, Inc., General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EASTGROUP PROPERTIES, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Address:
188 East Capitol Street, Suite 300
Jackson, Mississippi 39201
Attention: Chief Financial Officer
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<PAGE> 51
Lender Commitment: $17,500,000.00 CHASE BANK OF TEXAS, NATIONAL
Percentage: 11.666666667% ASSOCIATION ,
as Agent and as a Lender
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
712 Main Street
Houston, Texas 77002
Attention: Manager, Real Estate Group
Telephone No.: Susan Tate
713-216-1511
Telecopy No.: 713-216-7713
With a copy to:
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Agency Services
Muniram Appanna
Telephone No.: 212-552-7943
Telecopy No.: 212-552-5777
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<PAGE> 52
Lender Commitment: $17,500,000.00 PNC BANK NATIONAL ASSOCIATION
Percentage: 11.666666667%
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
249 Fifth Avenue
MS: P1-POPP-19-2
Pittsburgh, Pennsylvania 15222
Attention: Robert L. Chiles
Telephone No.: Robert L. Chiles
412-762-8468
Telecopy No: 412-762-6500
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<PAGE> 53
Lender Commitment: $17,500,000.00 AMSOUTH BANK
Percentage: 11.666666667%
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
1900 Fifth Avenue North
Commercial Real Estate, AST9
Birmingham, Alabama 35201
Attention: Terry Howard
Telephone No.: Terry Howard
205-326-5651
Telecopy No: 205-326-4075
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<PAGE> 54
Lender Commitment: $17,500,000.00 BANK ONE LOUISIANA, N.A.
Percentage: 11.666666667%
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
201 Saint Charles Avenue, 28th Floor
New Orleans, Louisiana 70170
Attention: Susan Bell
Telephone No.: Susan Bell
504-623-1652
Telecopy No.: 504-623-3616
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<PAGE> 55
Lender Commitment: $17,500,000.00 FIRST UNION NATIONAL BANK
Percentage: 11.666666667%
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
One First Union Center, TW6
Charlotte, North Carolina 28288
Attention: Rex Rudy
Telephone No.: Rex Rudy
704-383-6506
Telecopy No.: 704-383-6205
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<PAGE> 56
Lender Commitment: $17,500,000.00 SOUTHTRUST BANK, NATIONAL
Percentage: 11.666666667% ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
420 N. 20th Street
Corporate Banking, 11th Floor
Birmingham, Alabama 35203
Attention: Sam Boroughs
Telephone No.: Sam Boroughs
205-254-5039
Telecopy No.: 205-254-5022
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<PAGE> 57
Lender Commitment: $7,500,000.00 FIRST TENNESSEE BANK NATIONAL
Percentage: 5.000000000% ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
Commercial Real Estate
165 Madison Avenue, 1st Floor
Memphis, Tennessee 38103
Attention: Dan Neuschaefer
Telephone No.: Dan Neuschaefer
901-523-4049
Telecopy No: 901-523-4032
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<PAGE> 58
Lender Commitment: $12,500,000.00 HIBERNIA NATIONAL BANK
Percentage: 8.333333333%
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
313 Carondelet
New Orleans, Louisiana 70130
Attention: Yancey Jones
Telephone No.: Yancey Jones
504-533-5087
Telecopy No: 504-533-2042
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<PAGE> 59
Lender Commitment: $17,500,000.00 FIRST AMERICAN NATIONAL BANK,
Percentage: 11.666666667% operating as DEPOSIT GUARANTY
NATIONAL BANK, as Co-Agent and
As a Lender
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
1 Jackson Place, Suite 250
188 E. Capital Street
Jackson, Mississippi 39201
Attention: Mark McDowell
Telephone No.: Mark McDowell
/Fountain Barksdale
601-968-4945/8222
Telecopy No: 601-354-8035
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<PAGE> 60
Lender Commitment: $7,500,000.00 TRUSTMARK NATIONAL BANK
Percentage: 5.000000000%
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
248 East Capitol, Suite 814
Jackson, Mississippi 39205
Attention: Monica Day
Telephone No.: Monica Day
601-949-6735
Telecopy No: 601-949-6823
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<PAGE> 61
SCHEDULE I
TABLE 1
<TABLE>
<CAPTION>
TOTAL LIABILITIES TO APPLICABLE MARGIN FEE RATE
TOTAL ASSET VALUE
RATIO
EURODOLLAR RATE BASE RATE
BORROWING BORROWING
<S> <C> <C> <C>
Less than 35% 1.125% 0 .20%
Greater than or equal to
35% but less than 45% 1.250% 0 .25%
Greater than or equal to
45% 1.375% 0 .25%
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
S&P RATING/ APPLICABLE MARGIN FEE RATE
MOODY'S RATING
EURODOLLAR RATE BASE RATE
BORROWING BORROWING
<S> <C> <C> <C>
BBB+/Baal 0.875% 0 .15%
BBB/Baa2 1.000% 0 .15%
BBB-/Baa3 1.125% 0 .20%
Worse than BBB-/Baa3 1.375% 0 .25%
</TABLE>
57
<PAGE> 62
SCHEDULE II
APPROVED MARKETS
1. Florida: Jacksonville, Tampa, Orlando, South Florida (Ft. Lauderdale,
Pompano Beach, Palm Beach, Miami)
2. Texas: Dallas, Houston, El Paso, Austin
3. California: Los Angeles, San Diego, Sacramento, San Francisco Bay Area,
Fresno
4. Oklahoma: Oklahoma City, Tulsa
5. Tennessee: Memphis, Nashville
6. Arizona: Phoenix, Tucson
7. Colorado: Denver
8. Louisiana: New Orleans
9. Mississippi: Jackson
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<PAGE> 1
PART IV (Exhibit 21)
ITEM. 25 LIST OF SUBSIDIARIES
100% Owned Subsidiaries
EastGroup Florida Holdings, Inc.
LNH RI, Inc.
EGP Orlando, Inc.
EastGroup Jacksonville, Inc.
EastGroup Properties General Partners, Inc.
EastGroup Properties Holdings, Inc.
EastGroup San Antonio, Inc.
EastGroup Sunbelt, Inc.
EastGroup Tampa, Inc.
LNH Florida, Inc.
EastGroup Acquisition Corp. II
Nash IND Corporation
Partnerships and LLC's with Partner and Members Indented
EastGroup Properties, L.P.
98+% EastGroup Properties Holdings, Inc.
1% EastGroup Properties General Partners, Inc.
Less than 1% UPREIT unitholder
EGP San Antonio Partners, Ltd.
99% EastGroup Properties, Inc.
1% EastGroup San Antonio, Inc.
M.O.R. XXXVI Associates Limited
50% EastGroup Properties, Inc.
50% EastGroup Florida Holdings, Inc.
IBG Wiegman Road Associates
80% Profit interest EastGroup Properties, L.P.
49% Capital interest EastGroup Properties, L.P.
31% Capital interest EastGroup Properties, Inc.
20% Investment Building Group
Sample I-95 Associates
99% EastGroup Properties, Inc.
1% EastGroup Florida Holdings, Inc.
Interchange Distribution Partnership
95% EastGroup Properties, L.P.
5% Nash IND Corporation
EastGroup Florida Properties, L.P.
99% EastGroup Properties, Inc.
1% EastGroup Properties General Partners, Inc.
University Business Center Associates
80% Profit interest EastGroup Properties, L.P.
49% Capital interest EastGroup Properties, L.P.
31% Capital interest EastGroup Properties, Inc.
20% JCB Limited
EastGroup Southbay, LLC
100% EastGroup Properties, L.P.
EastGroup Realty Services, LLC
100% EastGroup Properties, L.P.
EastGroup Realty Services of Florida, LLC
100% EastGroup Realty Services, LLC
<PAGE> 1
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
EastGroup Properties, Inc.
We consent to incorporation by reference in the registration statement (No.
333-29193) on Form S-3 and the registration statement (No. 33-60909) on Form S-8
of EastGroup Properties, Inc. of our reports dated March 5, 1999, relating to
the consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries
as of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1998, and all related schedules, which
reports appear in the December 31, 1998 Annual Report on Form 10-K of EastGroup
Properties, Inc.
Jackson, Mississippi KPMG Peat Marwick LLP
March 15, 1999
<PAGE> 1
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland real estate investment trust, hereby constitutes and appoints N. Keith
McKey as the true and lawful Attorney-in-fact and Agent of the undersigned to
sign on behalf of the undersigned: (a) the Annual Report of the Company on Form
10-K (or such other form as may be required) for the year ended December 31,
1998 to be filed with the Securities and Exchange Commission ("SEC"); and (b)
any and all amendments to such Report as may be required to be filed with the
SEC.
/s/ Alexander G. Anagnos
Alexander G. Anagnos
Director
March 11, 1999
<PAGE> 2
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland real estate investment trust, hereby constitutes and appoints N. Keith
McKey as the true and lawful Attorney-in-fact and Agent of the undersigned to
sign on behalf of the undersigned: (a) the Annual Report of the Company on Form
10-K (or such other form as may be required) for the year ended December 31,
1998 to be filed with the Securities and Exchange Commission ("SEC"); and (b)
any and all amendments to such Report as may be required to be filed with the
SEC.
/s/ H. C. Bailey, Jr.
H.C. Bailey, Jr.
Director
March 11, 1999
<PAGE> 3
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland real estate investment trust, hereby constitutes and appoints N. Keith
McKey as the true and lawful Attorney-in-fact and Agent of the undersigned to
sign on behalf of the undersigned: (a) the Annual Report of the Company on Form
10-K (or such other form as may be required) for the year ended December 31,
1998 to be filed with the Securities and Exchange Commission ("SEC"); and (b)
any and all amendments to such Report as may be required to be filed with the
SEC.
/s/ Fredric H. Gould
Fredric H. Gould
Director
March 11, 1999
<PAGE> 4
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland real estate investment trust, hereby constitutes and appoints N. Keith
McKey as the true and lawful Attorney-in-fact and Agent of the undersigned to
sign on behalf of the undersigned: (a) the Annual Report of the Company on Form
10-K (or such other form as may be required) for the year ended December 31,
1998 to be filed with the Securities and Exchange Commission ("SEC"); and (b)
any and all amendments to such Report as may be required to be filed with the
SEC.
/s/ David M. Osnos
David M. Osnos
Director
March 11, 1999
<PAGE> 5
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland real estate investment trust, hereby constitutes and appoints N. Keith
McKey as the true and lawful Attorney-in-fact and Agent of the undersigned to
sign on behalf of the undersigned: (a) the Annual Report of the Company on Form
10-K (or such other form as may be required) for the year ended December 31,
1998 to be filed with the Securities and Exchange Commission ("SEC"); and (b)
any and all amendments to such Report as may be required to be filed with the
SEC.
/s/ John N. Palmer
John N. Palmer
Director
March 11, 1999
<PAGE> 6
Exhibit (24)
EASTGROUP PROPERTIES, INC.
POWER OF ATTORNEY
The undersigned Director of EastGroup Properties, Inc., a State of
Maryland real estate investment trust, hereby constitutes and appoints N. Keith
McKey as the true and lawful Attorney-in-fact and Agent of the undersigned to
sign on behalf of the undersigned: (a) the Annual Report of the Company on Form
10-K (or such other form as may be required) for the year ended December 31,
1998 to be filed with the Securities and Exchange Commission ("SEC"); and (b)
any and all amendments to such Report as may be required to be filed with the
SEC.
/s/ Leland R. Speed
Leland R. Speed
Chairman of the Board
March 11, 1999
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